Exhibit 4.2
EXECUTION COPY
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QUICKSILVER RESOURCES INC.
$70,000,000
Senior Subordinated Second Lien Mortgage Notes due
December 31, 2006
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NOTE PURCHASE AGREEMENT
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Dated June 27, 2003
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TABLE OF CONTENTS
PAGE
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ARTICLE I.
AUTHORIZATION OF NOTES; CALCULATIONS
Section 1.1. Authorization of Notes................................................. 1
Section 1.2. Calculations and Determinations........................................ 1
ARTICLE II.
SALE AND PURCHASE OF NOTES
Section 2.1. Sale and Purchase of Notes............................................. 1
ARTICLE III.
CLOSING
Section 3.1. Closing................................................................ 2
ARTICLE IV.
CONDITIONS TO CLOSING
Section 4.1. Documents to be Delivered.............................................. 2
Section 4.2. General Conditions Precedent........................................... 4
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1. Company's Representations and Warranties............................... 6
ARTICLE VI.
REPRESENTATIONS OF THE PURCHASERS
Section 6.1. Purchase for Investment................................................ 17
Section 6.2. Source of Funds........................................................ 17
ARTICLE VII.
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; OFFERS TO PURCHASE
Section 7.1. Interest............................................................... 18
Section 7.2. Regular Interest Payments.............................................. 19
Section 7.3. No Make-Whole Amount for Floating Rate Notes........................... 19
Section 7.4. Principal Repayment at Maturity........................................ 19
Section 7.5. Optional Prepayments................................................... 19
Section 7.6. Allocation of Partial Prepayments...................................... 20
Section 7.7. Maturity; Surrender, Etc............................................... 20
Section 7.8. Purchase of Notes...................................................... 20
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Section 7.9. Make-Whole Amount...................................................... 20
Section 7.10. Offer to Prepay Notes in the Event of a Change of Control.............. 22
Section 7.11. Payments............................................................... 23
Section 7.12. Increased Costs........................................................ 23
Section 7.13. Break Funding Payments................................................. 23
Section 7.14. Illegality............................................................. 24
ARTICLE VIII.
AFFIRMATIVE COVENANTS
Section 8.1. Affirmative Covenants.................................................. 24
Section 8.2. Collateral Security; Credit Support.................................... 34
Section 8.3. Title Information...................................................... 36
Section 8.4. Further Assurances..................................................... 37
Section 8.5. Production Proceeds.................................................... 37
ARTICLE IX.
NEGATIVE COVENANTS
Section 9.1. Negative Covenants..................................................... 38
Section 9.2. Termination of Section 29 Documents.................................... 46
ARTICLE X.
EVENTS OF DEFAULT
Section 10.1. Events of Default...................................................... 46
Section 10.2. Acceleration........................................................... 48
Section 10.3. Remedies............................................................... 49
Section 10.4. Rescission............................................................. 49
ARTICLE XI.
REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES;
RESTRICTIONS ON TRANSFER OF NOTES
Section 11.1. Registration of Notes.................................................. 50
Section 11.2. Transfer and Exchange of Notes......................................... 50
Section 11.3. Replacement of Notes................................................... 50
ARTICLE XII.
COLLATERAL AGENT
Section 12.1. Appointment and Authority.............................................. 51
Section 12.2. Exculpation, Collateral Agent's Reliance, Etc.......................... 51
Section 12.3. Credit Decisions....................................................... 52
Section 12.4. Rights as Purchaser.................................................... 52
Section 12.5. Sharing of Set-Offs, Collections, and Payments......................... 53
Section 12.6. Investments............................................................ 54
Section 12.7. Benefit of Article XII................................................. 54
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Section 12.8. Resignation............................................................ 54
ARTICLE XIII.
PAYMENTS ON NOTES
Section 13.1. Place of Payment....................................................... 55
Section 13.2. Home Office Payment.................................................... 55
ARTICLE XIV.
EXPENSES, INDEMNITY, ETC.
Section 14.1. Transaction Expenses................................................... 55
Section 14.2. INDEMNITY.............................................................. 56
Section 14.3. Payment of Expenses and Indemnity...................................... 58
ARTICLE XV.
AMENDMENT AND WAIVER
Section 15.1. Amendment and Waiver................................................... 58
Section 15.2. Binding Effect; Etc.................................................... 59
Section 15.3. Solicitation of Holders of Notes....................................... 59
Section 15.4. Notes Held by Company.................................................. 60
ARTICLE XVI.
SUBORDINATION OF THE NOTES
Section 16.1. Subordination of Obligations........................................... 60
Section 16.2. Payment Default or Acceleration........................................ 60
Section 16.3. Non-Payment Default.................................................... 60
Section 16.4. Standstill............................................................. 61
Section 16.5. Insolvency; Bankruptcy; Etc............................................ 61
Section 16.6. No Impairment.......................................................... 62
Section 16.7. Rights of Creditors; Subrogation....................................... 62
Section 16.8. Payments on Senior Indebtedness........................................ 63
Section 16.9. Notice of Acceleration, Enforcement Action............................. 63
Section 16.10. Reinstatement.......................................................... 64
Section 16.11. Rights of Holders of Senior Indebtedness............................... 64
Section 16.12. Amendments............................................................. 64
Section 16.13. Identity of Noteholders for Notice Purposes............................ 65
Section 16.14. Liens.................................................................. 65
Section 16.15. Legend................................................................. 65
Section 16.16. Successors and Assigns................................................. 66
ARTICLE XVII.
MISCELLANEOUS
Section 17.1. Notices................................................................ 66
Section 17.2. Acknowledgments and Admissions......................................... 67
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Section 17.3. Survival............................................................... 67
Section 17.4. Revival; Reinstatement................................................. 68
Section 17.5. Entire Agreement....................................................... 68
Section 17.6. Parties in Interest.................................................... 68
Section 17.7. Governing Law; Jurisdiction; Consent to Service of Process............. 68
Section 17.8. Limitation on Interest................................................. 70
Section 17.9. Termination............................................................ 70
Section 17.10. Reproduction of Documents.............................................. 70
Section 17.11. Confidentiality........................................................ 71
Section 17.12. Rules of Construction; Etc............................................. 72
Section 17.13. Severability........................................................... 72
Section 17.14. Counterparts........................................................... 73
SCHEDULES
Schedule A Information Relating to Purchasers
Schedule B Defined Terms
Schedule C Disclosure Schedule
Schedule D Security Schedule
Schedule E Insurance Schedule
EXHIBITS
Exhibit 1 Form of Fixed Rate Note
Exhibit 2 Form of Floating Rate Note
Exhibit 3 Form of Opinion of Counsel for the Collateral Agent and the Purchasers
Exhibit 4 Form of Funds Delivery Instruction Letter
Exhibit 5 Form of Compliance Certificate
Exhibit 6 Form of Guaranty Agreement
Exhibit 7 Form of Pledge Agreement
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NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement") is made as of June 27,
2003, by Quicksilver Resources Inc., a Delaware corporation (the "Company"), BNP
Paribas, as the Collateral Agent for the Purchasers, and each other party hereto
that is listed as a Purchaser on Schedule A hereto, all of whom hereby agree as
follows:
ARTICLE I.
AUTHORIZATION OF NOTES; CALCULATIONS
Section 1.1. Authorization of Notes. The Company has authorized the
issuance and sale of $70,000,000 aggregate principal amount of its Senior
Subordinated Second Lien Mortgage Notes due December 31, 2006, which shall be
comprised of (a) the Company's Fixed Rate Senior Subordinated Second Lien
Mortgage Notes that shall bear interest at a rate per annum equal to 7.50% (the
"Fixed Rate Notes") and (b) the Company's Floating Rate Senior Subordinated
Second Lien Mortgage Notes that shall bear interest at a rate per annum equal to
the Adjusted LIBO Rate plus the Applicable Margin (the "Floating Rate Notes")
(each of the Fixed Rate Notes and the Floating Rate Notes being a "Note", and
collectively, the "Notes", such term to include any such notes issued in
substitution therefor pursuant to this Agreement). The Fixed Rate Notes shall be
substantially in the form set out in Exhibit 1 hereto, and the Floating Rate
Notes shall be substantially in the form set out in Exhibit 2 hereto, in each
case, with such changes therefrom, if any, as may be approved by all of the
Purchasers and the Company. Certain capitalized terms and other references used
in this Agreement are defined in Schedule B hereto.
Section 1.2. Calculations and Determinations. All calculations under the
Transaction Documents of interest shall be made on the basis of a 360-day year
of twelve 30-day months. Each determination by any Purchaser of amounts to be
paid hereunder or any other matters which are to be determined hereunder by such
Purchaser shall, in the absence of manifest error, be conclusive and binding.
Unless otherwise 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 Collateral Agent or the
Purchasers hereunder shall be prepared, in accordance with GAAP, applied on a
basis consistent with the Initial Financial Statements except for changes in
which Company's independent certified public accountants concur and which are
disclosed to the Collateral Agent and the Purchasers on the next date on which
financial statements are required to be delivered to the Purchasers pursuant to
Section 8.1(b); provided that, unless the Company and the Majority Purchasers
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.
ARTICLE II.
SALE AND PURCHASE OF NOTES
Section 2.1. Sale and Purchase of Notes. Subject to the terms and
conditions of this Agreement, the Company will issue and sell to each Purchaser
and each Purchaser will purchase
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from the Company, at the Closing provided for in Section 3.1, Fixed Rate Notes
or Floating Rate Notes or both, as specified opposite such Purchaser's name in
Schedule A, in the principal amount specified opposite such Purchaser's name in
Schedule A at a purchase price of 100% of the principal amount thereof. Any
Purchaser shall have the right to substitute any one of such Purchaser's
Affiliates as the purchaser of the Notes that such Purchaser has agreed to
purchase hereunder, by written notice to the Company, which notice shall be
signed by both such Purchaser and such Affiliate, shall contain such Affiliate's
agreement to be bound by this Agreement and shall contain a confirmation by such
Affiliate of the accuracy with respect to it of the representations set forth in
Section 6.1 and Section 6.2. In the event of any such substitution, such
Affiliate shall be deemed to be a "Purchaser" hereunder.
ARTICLE III.
CLOSING
Section 3.1. Closing. The sale and purchase of the Notes shall occur at the
offices of Vinson & Elkins L.L.P., 1001 Fannin Street, Suite 3300, Houston,
Texas 77002, at 10:00 a.m., central standard time, at a closing (the "Closing")
on June 27, 2003 or at such other time and place on or prior to June 27, 2003 as
may be agreed upon by the Company and the Purchasers. At the Closing the Company
will deliver to each Purchaser the Notes to be purchased by such Purchaser dated
the date of the Closing and registered in such Purchaser's name (or in the name
of such Purchaser's nominee), against delivery by the Purchasers to the Company
or its order of immediately available funds in the aggregate amount of the
purchase prices therefor by wire transfer of immediately available funds for the
account of the Company in accordance with the written instructions of the
Company in substantially the form of Exhibit 4. If at the Closing the Company
shall fail to tender such Notes to the Purchasers as provided above in this
Section 3.1, or if any of the conditions specified in ARTICLE IV shall not have
been fulfilled to the Purchasers' satisfaction, the Purchasers shall, at the
election of each, be relieved of all further obligations under this Agreement,
without thereby waiving any rights the Purchasers may have by reason of such
failure or such nonfulfillment.
ARTICLE IV.
CONDITIONS TO CLOSING
Section 4.1. Documents to be Delivered. No Purchaser shall have any
obligation to purchase the Notes unless the Purchasers shall have received all
of the following, at the Closing or at such other place as may be designated by
the Purchasers, duly executed and delivered and in form, substance and date
satisfactory to the Purchasers:
(a) Duly executed Notes payable to the order of each Purchaser in a
principal amount equal to the principal amount specified opposite such
Purchaser's name in Schedule A, dated the date of the Closing.
(b) Duly executed counterparts (in such number as may be requested by
the Collateral Agent) of this Agreement signed on behalf of each party hereto.
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(c) Duly executed counterparts (in such number as may be requested by
the Collateral Agent) of the Mortgages and each other Security Document listed
in the Security Schedule.
(d) An "Omnibus Certificate" of the Secretary and of a Responsible
Officer of the Company and each Guarantor, which shall contain the names and
signatures of the officers of the Company or such Guarantor authorized to
execute the Transaction Documents to which it is a party and which shall certify
to the truth, correctness and completeness of the following exhibits attached
thereto: (i) a copy of resolutions duly adopted by the board of directors of the
Company or such Guarantor and in full force and effect at the time this
Agreement is entered into, authorizing the execution and delivery of each
Transaction Document to which it is a party and the consummation of the
transactions contemplated thereby, (ii) a copy of the articles of incorporation
of the Company or such Guarantor and all amendments thereto, certified by the
appropriate official of the Company's or such Guarantor's state of organization,
and (iii) a copy of the bylaws of the Company or such Guarantor.
(e) A certificate (or certificates) of the due formation, valid
existence and good standing of the Company and each Guarantor in its state of
organization, issued by the appropriate authorities of such jurisdiction.
(f) Certificates of the Company's and each Guarantor's good standing
and due qualification to do business, issued by appropriate officials in any
states in which the Company or such Guarantor owns Property subject to the
Security Documents.
(g) A compliance certificate which shall be substantially in the form
of Exhibit 5, duly and properly executed by a Responsible Officer and dated the
date of Closing.
(h) A favorable opinion of Cantey & Hanger, L.L.P., counsel for the
Company, dated as of the date of the Closing, in form and substance reasonably
satisfactory to the Collateral Agent and the Purchasers.
(i) An opinion of Loomis, Ewert, Parsley, Davis & Gotting P.C.,
special Michigan counsel for the Company, dated as of the date of the Closing,
favorably opining as to the enforceability of the Mortgages in Michigan and
otherwise in form and substance reasonably satisfactory to the Collateral Agent
and the Purchasers.
(j) An opinion of Holland & Hart LLP, special Wyoming counsel for the
Company, dated as of the date of the Closing, favorably opining as to the
enforceability of the Mortgages in Wyoming and otherwise in form and substance
reasonably satisfactory to the Collateral Agent and the Purchasers.
(k) An opinion of Crowley, Haughey, Hanson, Toole & Dietrich P.L.L.P.,
special Montana counsel for the Company, dated as of the date of the Closing,
favorably opining as to the enforceability of the Mortgages in Montana and
otherwise in form and substance reasonably satisfactory to the Collateral Agent
and the Purchasers.
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(l) An opinion of McCarthy Tetrault, special Canadian counsel for the
Company, dated as of the date of the Closing, in form and substance reasonably
satisfactory to the Collateral Agent and the Purchasers.
(m) An opinion of Vinson & Elkins L.L.P., special counsel for the
Collateral Agent and the Purchasers, substantially in the form of Exhibit 3.
(n) Certificates from the Company's insurance broker setting forth the
insurance maintained by the Company and each Guarantor, stating that such
insurance is in full force and effect, and that all premiums due have been paid.
(o) UCC or Canadian equivalent search certificates reflecting no prior
Liens (other than those being assigned or released on or prior to the date of
the Closing or Permitted Liens) encumbering the Properties of the Company and
its Wholly-Owned Subsidiaries for each jurisdiction requested by the Collateral
Agent and the Purchasers.
(p) True and complete copies of the Bank Documents and any amendments
to any such documents and any other documents related to the repurchase or
repayment of the Senior Mortgage Notes as may be required by the Collateral
Agent or the Purchasers as a condition precedent to the effectiveness of this
Agreement, in effect at the date of the Closing.
(q) The Initial Engineering Reports.
(r) A certificate of a Responsible Officer of the Company dated the
date of the Closing certifying that: (i) the Company has irrevocably called the
Senior Mortgage Notes for Redemption on the date of the Closing in accordance
with the terms and conditions of the Senior Mortgage Note Purchase Agreement and
attached thereto are true and complete copies of such call notices and (ii) the
Company has made arrangements to irrevocably pay to the holders of the Senior
Mortgage Notes on the date of Closing, a sum of cash sufficient to Redeem in
full the Senior Mortgage Notes.
(s) Evidence satisfactory to the Collateral Agent that all Liens
associated with the Senior Mortgage Notes have been or are being released or
terminated contemporaneously with the Redemption of the Senior Mortgage Notes;
and releases of Liens associated with the Senior Mortgage Notes.
(t) Written instructions from the Company in the form of Exhibit 4.
(u) A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Notes.
(v) Such other documents as the Collateral Agent, any Purchaser or
special counsel to the Collateral Agent may reasonably request.
Section 4.2. General Conditions Precedent. No Purchaser shall have any
obligation to purchase the Notes unless the following conditions precedent are
satisfied at the time of the Closing:
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(a) All representations and warranties made by the Company or any
Subsidiary of the Company in any Transaction Document shall be true and correct
when made and at the time of Closing.
(b) The Company and its Subsidiaries shall have performed and complied
with all agreements and conditions required in the Transaction Documents to be
performed or complied with by it prior to or at the Closing, and after giving
effect to the issue and sale of the Notes (and the application of the proceeds
thereof as contemplated by Section 5.1(u)), no Default shall have occurred and
be continuing. Neither the Company nor any Subsidiary shall have entered into
any transaction since December 31, 2002 that would have been prohibited
hereunder.
(c) After giving effect to the issue and sale of the Notes (and the
application of the proceeds thereof as contemplated by Section 5.1(u)), no
default (howsoever described and whether or not waived by any Person) shall have
occurred and be continuing, under the Bank Credit Agreement or any other Bank
Document.
(d) Since the date of the Initial Financial Statements (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 Company
and its Subsidiaries has been conducted only in the ordinary course consistent
with past business practices.
(e) The Collateral Agent shall be satisfied that the Security
Documents create second-priority, perfected Liens (i) (subject only to Permitted
Liens identified in clauses (a) to (d) and (g) of the definition thereof, but
subject to the provisos at the end of such definition) on all Oil and Gas
Properties of the Company and its Subsidiaries then securing the Bank Credit
Agreement, but in no event on less than 80% of the total value of the Proved
Reserves of the Oil and Gas Properties evaluated in the Initial Engineering
Reports and (ii) (subject to Permitted Liens) on all other Property of the
Company and its Subsidiaries then securing the Bank Credit Agreement.
(f) The Collateral Agent and the Purchasers shall be satisfied that
the Company has irrevocably called the Senior Mortgage Notes for Redemption on
the date of the Closing in accordance with the terms and conditions of the
Senior Mortgage Note Purchase Agreement and the Company has made arrangements to
irrevocably pay to the holders of the Senior Mortgage Notes on the date of
Closing, a sum of cash, which shall include a portion of the proceeds of the
Notes, sufficient to Redeem in full the Senior Mortgage Notes.
(g) The Collateral Agent shall be satisfied that arrangements
satisfactory to the Collateral Agent have been made for the recording and filing
of releases of Liens associated with the Senior Mortgage Notes.
(h) The Collateral Agent and the Purchasers shall have received all
documents and instruments which the Collateral Agent or any Purchaser has then
requested (including opinions of legal counsel for the Company and its
Subsidiaries and the Purchasers; corporate documents and records; documents
evidencing governmental authorizations, consents, approvals, licenses and
exemptions; and certificates of public officials and of officers and
representatives of
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the Company and its Subsidiaries) as to the accuracy and validity of or
compliance with all representations, warranties and covenants made by the
Company or its Subsidiaries in this Agreement and the other Transaction
Documents, the satisfaction of all conditions contained herein or therein, and
all other matters pertaining hereto and thereto. All such additional documents
and instruments shall be satisfactory to the Collateral Agent and any requesting
Purchaser in form, substance and date.
(i) On the date of Closing (i) each Purchaser's purchase of Notes
shall (A) be permitted by the laws and regulations of each jurisdiction to which
such Purchaser is subject, without recourse to provisions such as Section
1405(a)(8) of the New York Insurance Law permitting limited investments by
insurance companies without restriction as to the character of the particular
investment, (B) not violate any applicable law or regulation (including, without
limitation, Regulation U, T or X of the Board of Governors of the Federal
Reserve System) and (C) not subject such Purchaser to any tax, penalty or
liability under or pursuant to any applicable law or regulation, which law or
regulation was not in effect on the date hereof; and (ii) 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 Note, or
the consummation of the transactions contemplated by this Agreement or any other
Transaction Document. If requested by a Purchaser, such Purchaser shall have
received a certificate of the chief financial officer of the Company certifying
as to such matters of fact as such Purchaser may reasonably specify to enable
such Purchaser to determine whether such purchase is so permitted or whether any
litigation is pending or threatened.
(j) The Company shall have paid on or before the time of Closing, in
immediately available funds, all fees and other amounts due and payable to the
Collateral Agent on or prior to the date of Closing.
(k) Without limiting the provisions of Section 14.1, the Company shall
have paid on or before the time of Closing, the reasonable fees, charges and
disbursements of Vinson & Elkins L.L.P. for which invoices have been presented.
(l) The Bank Credit Agreement and each other Bank Document, and any
amendments to any of the foregoing as may be required by the Collateral Agent or
the Purchasers as a condition precedent to the effectiveness of this Agreement,
shall be in form, substance and date satisfactory to the Collateral Agent and
the Purchasers.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1. Company's Representations and Warranties. To confirm the
Purchasers' understanding concerning the Company, its Subsidiaries, and their
respective business, Properties and obligations and to induce each Purchaser to
enter into this Agreement and purchase its Notes, the Company represents and
warrants to each Purchaser and to the Collateral Agent that:
(a) Compliance with Laws and Agreements; No Default.
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(i) Neither the Company nor any Subsidiary of the Company is in
default in the performance of any of its covenants and agreements contained
herein or in any other Transaction Document or in any of the Bank Documents. All
representations and warranties made by the Company in any other Transaction
Document or in any Bank Document are true and correct as of the date hereof.
(ii) Each of the Company and each Subsidiary is in compliance
with all Governmental Requirements 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.
(iii) Neither the Company nor any Subsidiary 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 Company or a Subsidiary 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 Company or any
Subsidiary or any of their Properties is bound.
(iv) No Default has occurred and is continuing.
(b) Organization; Powers; Good Standing. The Company and each of its
Subsidiaries (i) is duly organized, validly existing and in good standing (if
applicable) under the laws of its state of organization and (ii) has the power
and authority to (A) own or hold under lease the Properties it purports to own
or hold under lease, (B) transact the business it transacts and proposes to
transact and (C) execute and deliver this Agreement, the Notes and each other
Transaction Document to which it is a party and to perform the provisions hereof
and thereof. The Company and each of its Subsidiaries is duly qualified, in good
standing, and authorized to do business in all other jurisdictions within the
United States and Canada wherein Collateral is located except where the failure
to have such qualification could not reasonably be expected to have a Material
Adverse Effect.
(c) Authorization; Enforceability. The Company and each of its
Subsidiaries has duly taken all action necessary to authorize the execution and
delivery by it of the Transaction Documents to which it is a party and to
authorize the consummation of the transactions contemplated thereby and the
performance of its obligations thereunder. The Company is duly authorized to
issue and sell the Notes. This Agreement is, and the other Transaction Documents
when duly executed and delivered will be, legal, valid and binding obligations
of the Company and each of its Subsidiaries to the extent a party thereto,
enforceable in accordance with their terms except as such enforcement may be
limited by bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights.
(d) Compliance with Laws; Other Agreements; Etc. The execution and
delivery by the Company and each of its Subsidiaries of the Transaction
Documents to which each is a party, the performance by each of its obligations
under such Transaction Documents, the consummation of the transactions
contemplated by the Transaction Documents, the
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borrowing of Notes, the use of the proceeds thereof, and the guarantees and the
provision of Collateral, do not and will not (i) contravene, result in any
breach of, or constitute a default under, or give rise to a right thereunder to
require any payment to be made by the Company or any Subsidiary, or result in
the creation of any Lien not permitted hereunder in respect of any Property of
the Company or any Subsidiary under any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, lease, corporate charter or by-laws, or any
other agreement or instrument to which the Company or any Subsidiary is bound or
by which the Company or any Subsidiary or any of their respective Properties may
be bound or affected, (ii) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to the Company or any
Subsidiary, or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Subsidiary.
(e) Governmental Authorizations. No consent or approval of,
registration or notice to or filing or declaration 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 Company or
any other Person), is required in connection with the execution, delivery or
performance by the Company or any Subsidiary of any Transaction Document to
which it is a party, nor is any such consent, approval, registration, filing,
declaration or other action necessary for the validity or enforceability of any
Transaction Document or the consummation of the transactions contemplated
thereby, except such as have been obtained or made and are in full force and
effect other than (A) the recording and filing of the Security Documents as
required by this Agreement and (B) those third party approvals or consents
which, if not made or obtained, would not cause a Default hereunder or could not
reasonably be expected to have a Material Adverse Effect.
(f) Litigation: Observance of Statutes and Orders: Insurance.
(i) Except as disclosed in the Disclosure Schedule, there are no
actions, suits, investigations or proceedings pending or, to the knowledge of
the Company, threatened against or affecting the Company or any Subsidiary of
the Company or any Property of the Company or any such Subsidiary in any court
or before any arbitrator of any kind or before or by any Governmental Authority
that (A) if adversely determined, could reasonably be expected, individually or
in the aggregate, to result in a Material Adverse Effect or (B) involve any
Transaction Document, any Bank Document or the transactions contemplated
thereby.
(ii) Neither the Company nor any Subsidiary of the Company is in
default under any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(iii) The Company and its Subsidiaries presently maintain all
insurance policies described in the Insurance Schedule.
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(iv) Since the date of this Agreement, there has been no change
in the status of the matters disclosed in this Section 5.1(f) that, individually
or in the aggregate, has resulted in, or materially increased the likelihood of,
a Material Adverse Effect.
(g) Initial Financial Statements. The Initial Financial Statements
fairly present the Company's Consolidated financial position at the date thereof
and the results of the Company's Consolidated operations and the Company's
Consolidated cash flows for the period thereof in accordance with GAAP. Since
the date of the Initial Financial Statements, (i) there has been no event,
development or circumstance that has had or could reasonably be expected to have
a Material Adverse Effect, except as reflected in the Disclosure Schedule and
(ii) the business of the Company and its Subsidiaries has been conducted only in
the ordinary course consistent with past business practices. All Initial
Financial Statements were prepared in accordance with GAAP.
(h) Other Debt, Obligations and Restrictions. The Company and its
Subsidiaries do not have any outstanding Debt (including Disqualified Capital
Stock) or other material Liabilities of any kind (including obligations under
farm-in agreements, other obligations to make capital expenditures, contingent
obligations or liabilities, off-balance sheet liabilities or partnerships, tax
assessments or liabilities, and unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments) which are, in
the aggregate, material to the Company and not disclosed in the Disclosure
Schedule, in the Initial Financial Statements, or in the information hereafter
from time to time delivered to the Purchasers or the Collateral Agent pursuant
to this Agreement. Except as disclosed in the Disclosure Schedule, the Company
and its Subsidiaries are not subject to or restricted by any franchise,
contract, deed, charter restriction, or other instrument or restriction which
could reasonably be expected to have a Material Adverse Effect.
(i) Restriction on Liens and Dividends; Future Liens. Neither the
Company nor any of the Subsidiaries is a party to any contract, agreement or
understanding (other than this Agreement, the Security Documents or Capital
Leases otherwise permitted hereunder), or subject to any order, judgment, writ
or decree, 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
Collateral Agent and the Purchasers or restricts any Subsidiary from paying
dividends or making distributions to the Company or any Guarantor, or which
requires the consent of or notice to other Persons in connection therewith.
Neither the Company nor any Subsidiary has agreed or consented to cause or
permit in the future (upon the happening of a contingency or otherwise) any of
its Property, whether now owned or hereafter acquired, to be subject to a Lien
other than Permitted Liens.
(j) Full Disclosure. The Company has disclosed to the Collateral Agent
and the Purchasers all agreements, instruments and corporate or other
restrictions to which it or any of its Subsidiaries is subject, and all other
matters known to it, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. The Company has delivered, or
caused the delivery of, to the Purchasers a copy of its annual report on form
10-K for the fiscal year 2002 (the "Company's 10-K"). Except as disclosed in the
Disclosure Schedule, this Agreement, or the Company's 10-K, neither the
Company's 10-K, nor the Disclosure Schedule, nor any Transaction Document,
certificate, written statement or other
9
information delivered herewith or heretofore by the Company or any of its
Subsidiaries to any Purchaser or to the Collateral Agent in connection with the
negotiation of this Agreement or in connection with any transaction contemplated
hereby contains any untrue statement of a material fact or omits to state any
material fact (other than industry-wide risks normally associated with the types
of businesses conducted by the Company and its Subsidiaries) necessary to make
the statements contained herein or therein (taken as a whole) not misleading as
of the date made or deemed made. There is no fact (other than industry-wide
risks normally associated with the types of businesses conducted by the Company
and its Subsidiaries) that has not been disclosed to each Purchaser in writing
which could reasonably be expected to have a Material Adverse Effect. There are
no statements or conclusions in any Engineering Report which are based upon or
include misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions, estimates
and projections and that the Company does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate. The
Company has heretofore delivered to the Purchasers true, correct and complete
copies of the Initial Financial Statements and the Initial Engineering Report.
(k) Environmental Laws. The Company and its Subsidiaries have no
Liability under any Environmental Laws, or in connection with the release into
the environment, or the storage or disposal, of any Hazardous Materials, which
has resulted in, or which could reasonably by expected to have, a Material
Adverse Effect. Except for exceptions to the following which could not
reasonably be expected to have a Material Adverse Effect: (i) the Company and
its Subsidiaries are conducting their businesses in material compliance with all
applicable federal, state or local laws, including Environmental Laws, (ii) each
has substantially complied and is in substantial compliance with all licenses
and permits required under Environmental Laws, (iii) all notices, permits,
licenses, exemptions, approvals or similar authorizations, if any, required to
be obtained or filed in connection with the operation or use of any and all
Property of the Company and each Subsidiary, including, without limitation, past
or present treatment, storage, disposal or release of a hazardous substance, oil
and gas waste or solid waste into the environment, have been duly obtained or
filed, and the Company and each Subsidiary are in compliance in all material
respects with the terms and conditions of all such notices, permits, licenses
and similar authorizations; (iv) none of the operations or Properties of the
Company or any of its Subsidiaries is the subject of any federal, state or local
investigation evaluating whether any material remedial action is needed to
respond to a release of any Hazardous Materials into the environment or to the
improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (v) the Company has taken all steps
reasonably necessary to determine and has determined that no oil, hazardous
substances, solid waste or oil and gas waste, have been disposed of or otherwise
released and there has been no threatened release of any oil, hazardous
substances, solid waste or oil and gas waste on or to any Property of the
Company or any Subsidiary except in compliance with Environmental Laws and so as
not to pose an imminent and substantial endangerment to public health or welfare
or the environment; (vi) all hazardous substances, solid waste and oil and gas
waste, if any, generated at any and all Property of the Company or any
Subsidiary have in the past been transported, treated and disposed of in
accordance with Environmental Laws and so as not to
10
pose an imminent and substantial endangerment to public health or welfare or the
environment, and, to the knowledge of the Company, all such transport carriers
and treatment and disposal facilities have been and are operating in compliance
with Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and are not the
subject of any existing, pending or threatened action, investigation or inquiry
by any Governmental Authority in connection with any Environmental Laws; (vii)
neither the Company nor any of its Subsidiaries has filed any notice under any
federal, state or local law indicating that any of them is responsible for the
improper release into the environment, or the improper storage or disposal, of
any material amount of any Hazardous Materials or that any material amount of
Hazardous Materials have been improperly released, or are improperly stored or
disposed of, upon any Property of the Company or any of its Subsidiaries; (viii)
to the extent applicable, all Property of the Company and each Subsidiary
currently satisfies all design, operation, and equipment requirements imposed by
the OPA, and the Company does not have any reason to believe that such Property,
to the extent subject to the OPA, will not be able to maintain compliance with
the OPA requirements during the term of this Agreement; and (ix) neither the
Company nor any of its Subsidiaries (to the best of the Company's knowledge
after reasonable investigation) has transported or arranged for the
transportation of any Hazardous Material to any location which is (1) listed on
the National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, listed for possible
inclusion on such National Priorities List by the Environmental Protection
Agency in its Comprehensive Environmental Response, Compensation and Liability
Information System List, or listed on any similar state list or (2) the subject
of federal, state or local enforcement actions or other investigations which may
lead to claims against the Company or any of its Subsidiaries for clean-up
costs, remedial work, damages to natural resources or for personal injury claims
(whether under Environmental Laws or otherwise).
(l) Organization and Ownership of Shares of Subsidiaries; Jurisdiction
of Organization.
(i) The Disclosure Schedule contains a complete and correct list
of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its organization, and the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary of the Company. Unless otherwise
indicated, each such Subsidiary on such schedule is a Wholly-Owned Subsidiary.
The Company has no other Subsidiaries. The Company has no Foreign Subsidiaries
other than Permitted Foreign Subsidiaries.
(ii) All of the outstanding Equity Interests of each Subsidiary
shown in the Disclosure Schedule as being owned by the Company and its
Subsidiaries have been validly issued, are fully paid and nonassessable and are
owned by the Company or another Subsidiary of the Company free and clear of any
Lien, other than Liens described in subsection (c) of the definition of
Permitted Liens.
(iii) The Company's jurisdiction of organization is Delaware; the
name of the Company as listed in the public records of Delaware is Quicksilver
Resources Inc.; and the organizational identification number of the Company in
its jurisdiction of organization is 2825962 (or, in each case, as set forth in a
notice hereafter from time to time delivered to the Collateral Agent and the
Purchasers pursuant to this Agreement). 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
11
principal place of business and chief executive office is stated in the
Disclosure Schedule (or as set forth in a notice hereafter from time to time
delivered to the Collateral Agent and the Purchasers pursuant to this
Agreement). Neither the Company nor any of its Subsidiaries (nor any of their
predecessor companies) has, during the preceding five years, been known by, or
used any other corporate, trade, or fictitious name except as listed on the
Disclosure Schedule. Except as otherwise disclosed in the Disclosure Schedule or
in the information hereafter from time to time delivered to the Collateral Agent
and the Purchasers pursuant to this Agreement: (A) the chief executive office
and principal place of business of the Company and each of its Subsidiaries are
and heretofore have always been located in Texas or Michigan or the Province of
Alberta, Canada, and (B) neither the Company nor any of its Subsidiaries has any
other office or place of business.
(m) Taxes. Each of the Company and its Subsidiaries has timely filed
or caused to be timely filed all tax returns and reports that are required to
have been filed in any jurisdiction, and has paid all taxes shown to be due and
payable on such returns and all other taxes and assessments payable by them, to
the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments, the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or such
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP. The charges, accruals and reserves on the books of the Company and
its Subsidiaries in respect of taxes and other governmental charges are, in the
reasonable opinion of the Company, adequate. No tax Lien has been filed and, to
the knowledge of the Company, no claim is being asserted with respect to any
such tax or other such governmental charge.
(n) Properties; Titles; Etc.
(i) Each of the Company and the Subsidiaries has good and
defensible title to the Oil and Gas Properties evaluated in the most recently
delivered Engineering Report and good title to all its personal Properties, in
each case, free and clear of all Liens except Permitted Liens. After giving full
effect to the Permitted Liens, the Company 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 Engineering Report, and
the ownership of such Properties shall not in any material respect obligate the
Company 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 Engineering Report that is not offset by a corresponding proportionate
increase in the Company's or such Subsidiary's net revenue interest in such
Property.
(ii) All material leases and agreements necessary for the conduct
of the business of the Company 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, which could reasonably be expected
to have a Material Adverse Effect.
(iii) The rights and Properties presently owned, leased or
licensed by the Company and the Subsidiaries including, without limitation, all
easements and rights of way,
12
include all rights and Properties necessary to permit the Company 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.
(iv) All of the Properties of the Company 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.
(v) The Company and each Subsidiary owns, or is licensed to use,
all trademarks, tradenames, copyrights, patents and other intellectual Property
material to its business, and the use thereof by the Company 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 Company and its
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, with
such exceptions as could not reasonably be expected to have a Material Adverse
Effect.
(o) Maintenance of Properties. Except for such acts or failures to act
as could not be reasonably expected to have a Material Adverse Effect, the Oil
and Gas Properties (and Properties unitized therewith) have been maintained,
operated and developed in a good and workmanlike manner and in conformity with
all Government Requirements 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.
Specifically in connection with the foregoing, except for those as could not be
reasonably expected to have a Material Adverse Effect, (i) no Oil and Gas
Property 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) is deviated from the vertical more than the maximum
permitted by Government Requirements, 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). All pipelines, wells, gas processing
plants, platforms and other material improvements, fixtures and equipment owned
in whole or in part by the Company 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 Company or any of its Subsidiaries, in a manner consistent with the
Company's or its Subsidiaries' past practices (other than those the failure of
which to maintain in accordance with this Section 5.1(o) could not reasonably be
expect to have a Material Adverse Effect).
(p) Gas Imbalances; Prepayments. On a net basis there are no gas
imbalances, take or pay or other prepayments which would require the Company or
any of its Subsidiaries to deliver Hydrocarbons produced from the Oil and Gas
Properties at some future time without then
13
or thereafter receiving full payment therefor exceeding one-half bcf of gas (on
an mcf equivalent basis) in the aggregate.
(q) Marketing of Production. The Company's principal long-term
production sales agreements are described on the Disclosure Schedule. Except for
contracts listed and in effect on the date hereof on the Disclosure Schedule,
and thereafter either disclosed in writing to the Collateral Agent and the
Purchasers or included in the most recently delivered Engineering Report (with
respect to all of which contracts the Company represents that it or its
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 material agreements exist which are not cancelable on 60
days notice or less without penalty or detriment for the sale of production from
the Company's or its Subsidiaries' Hydrocarbons (including, without limitation,
calls on or other rights to purchase, production, whether or not the same are
currently being exercised) that (i) pertain to the sale of production at a fixed
price and (ii) have a maturity or expiry date of longer than six (6) months from
the date hereof.
(r) Insurance. The Company has, and has caused all its Subsidiaries to
have, (i) all insurance policies sufficient for the compliance by each of them
with all material Governmental Requirements and all material agreements and (ii)
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 Company and its Subsidiaries.
(s) Compliance with ERISA.
(i) Neither the Company nor any of its Subsidiaries presently
maintain any Plan, or is liable with respect to any Plan, other than (1) the
Quicksilver Resources Inc. 401(k) Plan, (2) the Quicksilver Resources Inc.
Fortis Benefits Life Insurance Plan, (3) the Quicksilver Resources Inc. Fortis
Benefits Health Insurance Plan, (4) the Quicksilver Resources Inc. Blue Cross
Blue Shield of Michigan Health Insurance Plan, and (5) the Quicksilver Resources
Inc. American Medical Security Dental Plan.
(ii) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that would reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, Properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate material.
14
(iii) The Company and its ERISA Affiliates do not maintain (and
in the past five (5) years have not maintained) any Plan subject to Title IV of
ERISA or Section 412 of the Code. The Company and its ERISA Affiliates have made
all contributions to, and paid all benefits with respect to, all Plans, to the
extent they are or were required to do so. To the extent that the Company and
its Subsidiaries have any accrued liabilities with respect to any Plans, such
liabilities are properly reported on the Company's Consolidated balance sheet.
(iv) The Company and its ERISA Affiliates do not maintain and
have never participated in or been required to make contributions to any
Multiemployer Plan, and the Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are material.
(v) The expected postretirement benefit obligation (determined as
of the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code and based on reasonable assumptions in light of actual circumstances)
of the Company and its Subsidiaries is not material.
(vi) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any transaction that
is subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(l)(A)-(D) of the Code.
The representation by the Company in the first sentence of this Section
5.1(s)(vi) is made in reliance upon and subject to the accuracy of each
Purchaser's representation in Section 6.2 as to the sources of the funds to be
used to pay the purchase price of the Notes to be purchased by such Purchaser.
(t) Private Offering by the Company. Neither the Company nor anyone
acting on its behalf has offered the Notes or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any Person other than the Purchasers and
not more than 65 other Institutional Investors, each of which has been offered
the Notes at a private sale for investment. Neither the Company nor anyone
acting on its behalf has taken, or will take, any action that would subject the
issuance or sale of the Notes to the registration requirements of Section 5 of
the Securities Act.
(u) Use of Proceeds; Margin Regulations. The proceeds of the Notes
shall be used, in part, to repay the Senior Mortgage Notes. The Company and its
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
the Notes will be used for any purpose which violates the provisions of
Regulations T, U or X of the Board. In no event shall the proceeds of the sale
of the Notes be used directly or indirectly by any of the Company or its
Subsidiaries for personal, family, household or agricultural purposes or for the
purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or
carrying any "margin stock" (as such term is defined respectively in Regulation
U promulgated by the Board of Governors of the Federal Reserve System) or to
extend credit to others directly or indirectly for the purpose of purchasing or
carrying any such margin stock, or for the purpose
15
of buying or carrying or trading in any securities under such circumstances as
to involve the Company or any of its Subsidiaries in a violation of Regulation X
of said Board or to involve any broker or dealer in a violation of Regulation T
of said Board. Margin stock does not constitute more than 25% of the value of
the consolidated assets of the Company and its Subsidiaries and the Company does
not have any present intention that margin stock will constitute more than 25%
of the value of such assets.
(v) Foreign Assets Control Regulations, etc. Neither the sale of the
Notes by the Company hereunder nor its use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto.
(w) Status under Certain Statutes.
(i) Neither the Company nor any Subsidiary 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.
(ii) Neither the Company nor any Subsidiary is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," or a
"public utility" within the meaning of, or subject to regulation under, the
Public Utility Holding Company Act of 1935, as amended.
(iii) Neither the Company nor any Subsidiary of the Company is
subject to regulation under the Interstate Commerce Act, as amended, or the
Federal Power Act, as amended.
(x) Hedging Contracts. The Disclosure Schedule, as of the date hereof,
and after the date hereof, each report required to be delivered by the Company
pursuant to Section 8.1(b)(vi), sets forth, a true and complete list of all
Hedging Contracts of the Company and each Subsidiary as of the most recently
ended Fiscal Quarter, 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.
(y) Solvency. After giving effect to the transactions contemplated
hereby, (i) 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 Company and the Guarantors, taken as a
whole, will exceed the aggregate Debt of the Company and the Guarantors on a
consolidated basis, as the Debt becomes absolute and matures, (ii) each of the
Company and the Guarantors will not have incurred or intended to incur, and will
not believe that it will incur, Debt beyond its ability to pay such Debt (after
taking into account the timing and amounts of cash to be received by each of the
Company 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 Debt
becomes absolute and matures and (iii) each of the Company and the Guarantors
will not have
16
(and will have no reason to believe that it will have thereafter) unreasonably
small capital for the conduct of its business.
(z) Rule 144A. The Notes are not of the same class as securities of
the Company listed on a national securities exchange, registered under Section 6
of the Securities Exchange Act of 1934, as amended, or quoted in a U.S.
automated inter-dealer quotation system.
(aa) Delivery of Bank Credit Agreement. The Company has delivered to
each Purchaser and the Collateral Agent a true, correct and complete copy of the
Bank Credit Agreement, including all amendments and waivers of any provision
thereof.
Each delivery of the financial statements required to be delivered by the
Company pursuant to Section 8.1(b)(i) and Section 8.1(b)(ii) shall be deemed to
constitute a representation and warranty by the Company on such date of delivery
that the representations and warranties of the Company and the Guarantors set
forth in this Agreement and in the other Transaction Documents are true and
correct on and as of such date of delivery, except to the extent any such
representations and warranties are expressly limited to an earlier date, in
which case, on and as of such date of delivery, such representations and
warranties shall continue to be true and correct as of such specified earlier
date.
ARTICLE VI.
REPRESENTATIONS OF THE PURCHASERS
Section 6.1. Purchase for Investment. Each Purchaser represents that such
Purchaser is purchasing the Notes for such Purchaser's own account or for one or
more separate accounts maintained by such Purchaser or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of such Purchaser's or their Property shall at all
times be within such Purchaser's or their control. Each Purchaser understands
(a) that the Notes have not been registered under the Securities Act, (b) that
the Notes may be resold only if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law and (c) that the Company is not required to register the Notes. Each
Purchaser represents that it is an "accredited investor" under Rule 501(a) of
the Securities Act.
Section 6.2. Source of Funds. Each Purchaser represents that it is a
commercial bank or that at least one of the following statements is an accurate
representation as to each source of funds (a "Source") to be used by such
Purchaser to pay the purchase price of the Notes to be purchased by such
Purchaser hereunder:
(a) if the Purchaser is an insurance company, the Source does not
include assets allocated to any separate account maintained by the Purchaser in
which any employee benefit plan (or its related trust) has any interest, other
than a separate account that is maintained solely in connection with the
Purchaser's fixed contractual obligations under which the amounts payable, or
credited, to such plan and to any participant or beneficiary of such plan
(including any annuitant) are not affected in any manner by the investment
performance of the separate account; or
17
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Exemption ("PTE") 90-1
(issued January 29, 1990), or (ii) a bank collective investment fund, within the
meaning of the PTE 91-38 (issued July 12, 1991) and, except as the Purchaser has
disclosed to the Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or employee
organization beneficially owns more than 10% of all assets allocated to such
pooled separate account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified professional
asset manager or `QPAM" (within the meaning of Part V of the QPAM Exemption), no
employee benefit plans assets that are included in such investment fund, when
combined with the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client assets
managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption
are satisfied, and neither the QPAM nor a person controlling or controlled by
the QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company; or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each of
which has been identified to the Company in writing pursuant to this paragraph
(e); or
(f) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA; or
(g) the Source is an "insurance company general account" as such term
is defined in PTE 95-60 (issued July 12, 1995), and there is no plan with
respect to which the aggregate amount of such general account's reserves and
liabilities for the contracts held by or on behalf of such plan and all other
plans maintained by the same employer (and affiliates thereof as defined in
section V(a)(l) of PTE 95-60) or by the same employee organization (in each case
determined in accordance with PTE 95-60) exceeds or will exceed 10% of the total
of all reserves and liabilities of such general account (determined in
accordance with PTE 95-60, exclusive of separate account liabilities, plus any
applicable surplus),
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
ARTICLE VII.
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; OFFERS TO PURCHASE
Section 7.1. Interest.
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(a) Fixed Rate Notes. Each Fixed Rate Note shall bear interest at a
rate per annum equal to 7.50%.
(b) Floating Rate Notes. Each Floating Rate Note shall bear interest
at the Adjusted LIBO Rate plus the Applicable Margin. Notwithstanding the
foregoing, if prior to the commencement of any Interest Period for a Floating
Rate Note:
(i) the Collateral Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest
Period; or
(ii) the Collateral Agent is advised by a majority of the Holders
of the Floating Rate Notes that the Adjusted LIBO Rate or LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect the
cost to such Holders of maintaining their investment in such Notes for such
Interest Period;
then the Collateral Agent shall give notice thereof to the Company and the
Holders of the Floating Rate Notes by telephone or telecopy as promptly as
practicable thereafter and, until the Collateral Agent notifies the Company and
the Holders of the Floating Rate Notes that the circumstances giving rise to
such notice no longer exist, the Floating Rate Notes shall bear interest at the
Alternate Base Rate plus the Applicable Margin.
(c) Post-Default Rate. Notwithstanding anything to the contrary
contained herein, during the continuation of an Event of Default, interest shall
accrue at the Default Rate.
Section 7.2. Regular Interest Payments. On each Quarterly Payment Date
commencing with September 30, 2003, the Company shall pay to each Holder in
immediately available funds all unpaid interest which has accrued on such
Holder's Note to but not including such Quarterly Payment Date.
Section 7.3. No Make-Whole Amount for Floating Rate Notes. Notwithstanding
anything to the contrary contained herein, in no event shall any Holder of a
Floating Rate Note be entitled to receive in respect of its Floating Rate Note
any Make-Whole Amount under any circumstances in which the payment of a
Make-Whole Amount is required by the Company hereunder.
Section 7.4. Principal Repayment at Maturity. The entire principal amount
of each Note remaining outstanding on the Maturity Date, together with accrued
and unpaid interest thereon, will be due and payable on such date.
Section 7.5. Optional Prepayments. The Company may, at its option, upon
notice as provided below, prepay at any time all, or from time to time any part
of, the Notes, in an amount not less than $5,000,000 and in integral multiples
of $1,000,000 in the case of a partial prepayment, at 100% of the principal
amount so prepaid, plus interest thereon to the prepayment date, plus, in the
case of Fixed Rate Notes, the Make-Whole Amount determined for the prepayment
date with respect to such principal amount. The Company will give each Holder
written notice of each optional prepayment under this Section 7.5 not less than
30 days and not more than 60 days prior to the date fixed for such prepayment.
Each such notice shall specify
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such date, the aggregate principal amount of the Notes to be prepaid on such
date, the principal amount of each Note held by such Holder to be prepaid
(determined in accordance with Section 7.6), and the interest to be paid on the
prepayment date with respect to such principal amount being prepaid, and, in the
case of Fixed Rate Notes, shall be accompanied by a certificate of the chief
financial officer of the Company as to the estimated Make-Whole Amount due in
connection with such prepayment (calculated as if the date of such notice were
the date of the prepayment), setting forth the details of such computation. Two
Business Days prior to such prepayment, the Company shall deliver to each Holder
of Fixed Rate Notes a certificate of the chief financial officer of the Company
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
Section 7.6. Allocation of Partial Prepayments. In the case of each partial
prepayment of the Notes, the principal amount of the Notes to be prepaid shall
be allocated among all of the Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
Section 7.7. Maturity; Surrender, Etc. In the case of each prepayment of
Notes pursuant to Section 7.5 and Section 7.10, the principal amount of each
Note to be prepaid shall mature and become due and payable on the date fixed for
such prepayment, together with interest on such principal amount accrued to such
date and, in the case of Fixed Rate Notes, the applicable Make-Whole Amount.
From and after such date, unless the Company shall fail to pay such principal
amount when so due and payable, together with the interest and, in the case of
Fixed Rate Notes, Make-Whole Amount, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and cancelled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.
Section 7.8. Purchase of Notes. The Company will not and will not permit
any Affiliate to purchase, Redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except upon the payment or prepayment
of the Notes in accordance with the terms of this Agreement and the Notes. The
Company will promptly cancel all Notes acquired by it or any Affiliate pursuant
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
Section 7.9. Make-Whole Amount. The term "Make-Whole Amount" means, with
respect to any Fixed Rate Note, an amount equal to the greater of (a) the
excess, if any, of the Discounted Value of the Remaining Scheduled Payments with
respect to the Called Principal of such Fixed Rate Note over the amount of such
Called Principal and (b) 2% of the Called Principal of such Fixed Rate Note. For
the purposes of determining the Make-Whole Amount, the following terms have the
following meanings:
"Called Principal" means, with respect to any Fixed Rate Note, the
principal of such Fixed Rate Note that is to be prepaid pursuant to Section
7.5 or Section 7.10 or has become or is declared to be immediately due and
payable pursuant to Section 10.3, as the context requires.
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"Discounted Value" means, with respect to the Called Principal of any
Fixed Rate Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a discount
factor (applied on the same periodic basis as that on which interest on the
Fixed Rate Notes is payable) equal to the Reinvestment Yield with respect
to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
any Fixed Rate Note, 1.0% over the yield to maturity implied by (a) the
yields reported, as of 10:00 A.M. (New York City time) on the Business Day
next preceding the Settlement Date with respect to such Called Principal
for actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date
on the Treasury Yield Monitor page of Standard & Poor's MMS - Treasury
Market Insight (or, if Standard & Poor's shall cease to report such yields
in MMS - Treasury Market Insight or shall cease to be the Majority
Purchasers' customary source of information for calculating
yield-maintenance amounts on privately placed notes, then such source as is
then the Majority Purchasers' customary source of such information), or (b)
if such yields are not reported as of such time or the yields reported as
of such time are not ascertainable, the Treasury Constant Maturity Series
Yields reported, for the latest day for which such yields have been so
reported as of the Business Day next preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release
H.15 (519) (or any comparable successor publication) for actively traded
U.S. Treasury securities having a constant maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date. Such
implied yield will be determined, if necessary, by (i) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with
accepted financial practice and (ii) interpolating linearly between yields
reported for various maturities. The Reinvestment Yield shall be rounded to
that number of decimal places as appears in the coupon of the applicable
Fixed Rate Note.
"Remaining Average Life" means, with respect to any Called Principal,
the number of years obtained by dividing (a) such Called Principal into (b)
the sum of the products obtained by multiplying (i) the principal component
of each Remaining Scheduled Payment with respect to such Called Principal
by (ii) the number of years that will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Fixed Rate Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with respect
to such Called Principal if no payment of such Called Principal were made
prior to its scheduled due date, provided that if such Settlement Date is
not a date on which interest payments are due to be made under the terms of
the Fixed Rate Notes, then the amount of the next succeeding scheduled
interest payment will be reduced by the amount of interest accrued to such
Settlement Date and required to be paid on such Settlement Date pursuant to
Section 7.5, Section 7.10 or Section 10.3.
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"Settlement Date" means, with respect to the Called Principal of any
Fixed Rate Note, the date on which such Called Principal is to be prepaid
pursuant to Section 7.5 or Section 7.10 or has become or is declared to be
immediately due and payable pursuant to Section 10.3, as the context
requires.
Section 7.10. Offer to Prepay Notes in the Event of a Change of Control.
(a) Notice of Impending Change of Control. The Company will not
consummate a Change of Control unless at least 30 days prior to such action it
shall have given to the Collateral Agent and each Holder written notice of such
impending Change of Control.
(b) Notice of Occurrence of Change of Control. The Company will,
within five Business Days after any Responsible Officer has knowledge of the
occurrence of any Change of Control, give written notice of such Change of
Control to the Collateral Agent and each Holder. If a Change of Control has
occurred, such notice shall contain an offer to prepay the Notes as described in
Section 7.10(c) and shall be accompanied by the certificate described in Section
7.10(f).
(c) Offer to Prepay Notes. The offer to prepay Notes contemplated by
Section 7.10(b) shall be an offer to prepay, in accordance with and subject to
this Section 7.10, all, but not less than all, the Notes held by each Holder (in
this case only, "Holder" in respect of any Note registered in the name of a
nominee for a disclosed beneficial owner shall mean such beneficial owner) on a
date specified in such offer (the "Proposed Prepayment Date"). Such Proposed
Prepayment Date shall be not less than 30 days and not more than 60 days after
the date of such offer (if the Proposed Prepayment Date shall not be specified
in such offer, the Proposed Prepayment Date shall be the 30th day after the date
of such offer).
(d) Rejection; Acceptance. A Holder shall accept or reject the offer
to prepay made pursuant to this Section 7.10 by causing a notice of such
acceptance or rejection to be delivered to the Company at least five days prior
to the Proposed Prepayment Date. A failure by a Holder to respond to an offer to
prepay made pursuant to this Section 7.10 shall be deemed to constitute an
acceptance of such offer by such Holder.
(e) Prepayment. Prepayment of the Notes to be prepaid pursuant to this
Section 7.10 shall be at 100% of the principal amount of such Notes, together
with interest on such Notes accrued to the date of prepayment and, in the case
of Fixed Rate Notes, the Make-Whole Amount with respect to each Fixed Rate Note.
The prepayment shall be made on the Proposed Prepayment Date.
(f) Officer's Certificate. Each offer to prepay the Notes pursuant to
this Section 7.10 shall be accompanied by a certificate, executed by a
Responsible Officer of the Company and dated the date of such offer, specifying:
(i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to this
Section 7.10; (iii) the principal amount of each Note offered to be prepaid;
(iv) the interest that would be due on each Note offered to be prepaid, accrued
to the Proposed Prepayment Date; (v) that the conditions of this Section 7.10
have been fulfilled; and (vi) in reasonable detail, the nature and date of the
Change of Control.
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Section 7.11. Payments. The Company will make each payment which it owes
under the Transaction Documents to the Person to whom such payment is owed, in
lawful money of the United States of America, without set-off, deduction or
counterclaim, and in immediately available funds. Each such payment must be
received by such Person not later than 12:00 noon, Houston, Texas time, on the
date such payment becomes due and payable in accordance with the instructions
contained on Schedule A hereto. Any payment received by such Person after such
time will be deemed to have been made on the next following Business Day.
Anything in this Agreement or the Notes to the contrary notwithstanding, any
payment of principal, Make-Whole Amount or interest on any Note that is due on a
date other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day.
Section 7.12. Increased Costs.
(a) Eurodollar Changes in Law. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Holder of a Floating Rate Note (except
any such reserve requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Holder of a Floating Rate Note or the London
interbank market any other condition affecting this Agreement or Floating Rate
Notes held by such Holder;
and the result of any of the foregoing shall be to increase the cost to such
Holder of making or maintaining any Floating Rate Note or to reduce the amount
of any sum received or receivable by such Holder (whether of principal, interest
or otherwise), then the Company will pay to such Holder such additional amount
or amounts as will compensate such Holder for such additional costs incurred or
reduction suffered.
(b) Certificates. A certificate of a Holder setting forth the amount
or amounts necessary to compensate such Holder as specified in Section 7.12(a)
shall be delivered to the Company and shall be conclusive absent manifest error.
The Company shall pay such Holder 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 Holder to demand compensation pursuant to this Section
7.12 shall not constitute a waiver of such Holder's right to demand such
compensation.
Section 7.13. Break Funding Payments. In the event of (a) the payment of
any principal of any Floating Rate Note other than on the last day of an
Interest Period applicable thereto (including as a result of a Change of Control
or an Event of Default), (b) the substitution of the Alternate Base Rate for the
Adjusted LIBO Rate pursuant to Section 7.1(b) other than on the last day of the
Interest Period applicable thereto, or (c) the failure to prepay any Floating
Rate Note on the date specified in any notice delivered pursuant hereto, then,
in any such event, the Company shall compensate each Holder of a Floating Rate
Note for the loss, cost and expense attributable to such event. In the case of a
Floating Rate Note, such loss, cost or expense to any
23
Holder of a Floating Rate Note shall be deemed to include an amount determined
by such Holder to be the excess, if any, of (i) the amount of interest which
would have accrued on the principal amount of such Floating Rate Note had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Floating Rate Note, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Floating Rate Note), over (ii) the amount of interest which
would accrue on such principal amount for such period at the interest rate which
such Holder would bid were it to bid, at the commencement of such period, for
dollar deposits of a comparable amount and period from other banks in the
eurodollar market.
A certificate of any Holder of a Floating Rate Note setting forth any amount or
amounts that such Holder is entitled to receive pursuant to this Section 7.13
shall be delivered to the Company and shall be conclusive absent manifest error.
The Company shall pay such Holder the amount shown as due on any such
certificate within 10 days after receipt thereof.
Section 7.14. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Holder of a Floating
Rate Note or its applicable lending office to honor its obligation to make or
maintain Floating Rate Notes either generally or having a particular Interest
Period hereunder, then such Holder shall promptly notify the Company and the
Collateral Agent thereof and interest on such Floating Rate Notes shall accrue
at the Alternate Base Rate plus the Applicable Margin until such time as such
Holder may again make or maintain such Floating Rate Notes.
ARTICLE VIII.
AFFIRMATIVE COVENANTS
Section 8.1. Affirmative Covenants. To confirm the Purchasers'
understanding concerning the Company, its Subsidiaries, and their respective
business, Properties and obligations and to induce each Purchaser to enter into
this Agreement and purchase its Notes, the Company covenants and agrees with
each Purchaser and with the Collateral Agent that:
(a) Payment and Performance. The Company and each of its Subsidiaries
will pay all amounts due under the Transaction Documents in accordance with the
terms thereof and will observe, perform and comply with every covenant, term and
condition expressed or implied in the Transaction Documents.
(b) Delivery of Financial Statements; Reports; Certificates and
Notices. The Company and its Subsidiaries will at all times maintain full and
accurate books of account and records and a standard system of accounting and
will furnish the following statements, reports, certificates, notices and other
information to the Collateral Agent and each Purchaser on the dates specified at
the Company's expense:
(i) Audited Financials. As soon as available, but in any event in
accordance with then applicable law and not later than 90 days after the end of
each Fiscal Year, the Company's audited Consolidated and consolidating balance
sheet and related statements of operations, stockholders' equity and cash flows
as of the end of and for such year, setting forth in
24
each case in comparative form the figures for the previous Fiscal Year, all
reported on by Deloitte & Touche LLP, or other independent public accountants of
recognized national standing acceptable to the Majority Purchasers (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 Company and its Consolidated
Subsidiaries on a Consolidated basis in accordance with GAAP consistently
applied.
(ii) Quarterly Financials. As soon as available, but in any event
in accordance with then applicable law and not later than 45 days after the end
of each of the first three Fiscal Quarters, the Company's Consolidated and
consolidating balance sheet and related statements of operations, stockholders'
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, plus a detailed
accounts payable aging report (prepared as of the end of such Fiscal Quarter in
form reasonably satisfactory to the Majority Purchasers), all certified by one
of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Company and its
Consolidated Subsidiaries on a Consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes.
(iii) Other Accounting Reports. Promptly upon receipt thereof, a
copy of each other report or letter submitted to the Company or any of its
Subsidiaries by independent accountants in connection with any annual, interim
or special audit made by them of the books of the Company or any such
Subsidiary, and a copy of any response by the Company or any such Subsidiary, or
the Board of Directors of the Company or any such Subsidiary, to such letter or
report.
(iv) Certificate of Financial Officer -- Compliance. Concurrently
with any delivery of financial statements under Section 8.1(b)(i) or Section
8.1(b)(ii), a certificate of the chief financial officer of the Company in
substantially the form of Exhibit 5 hereto (A) stating that such financial
statements are accurate and complete, (B) certifying that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under his
or her supervision, a review of the transactions and conditions of the Company
and its Subsidiaries from the beginning of the quarterly or annual period
covered by the statements then being furnished to the date of the certificate
and that such review shall not have disclosed the existence during such period
of any condition or event that constitutes a Default or, if any such condition
or event existed or exists, specifying the nature and period of existence
thereof and what action the Company shall have taken or proposes to take with
respect thereto, (C) setting forth the information, including reasonably
detailed calculations, required in order to establish whether the Company was or
is in compliance with Section 9.1(h), Section 9.1(q), Section 9.1(r) and Section
9.1(s), during or at the end of, as applicable, the quarterly or annual period
covered by the statements then being furnished and (D) stating whether any
change in GAAP or in the application thereof has occurred since the date of the
Initial Financial Statements and, if any such change has occurred, specifying
the effect of such change on the financial statements accompanying such
certificate.
25
(v) Certificate of Accounting Firm - Defaults. Concurrently with
any delivery of financial statements under Section 8.1(b)(i), a certificate of
the accounting firm that reported on such financial statements stating that they
have reviewed this Agreement and stating further whether, in making their audit,
they have become aware of any condition or event that then constitutes a
Default, and, if they are aware that any such condition or event then exists,
specifying the nature and period of the existence thereof (it being understood
and agreed that such accountants shall not be liable, directly or indirectly,
for any failure to obtain knowledge of any Default unless such accountants
should have obtained knowledge thereof in making an audit in accordance with
generally accepted auditing standards or did not make such an audit).
(vi) Certificate of Financial Officer - Hedging Contracts.
Concurrently with the delivery of each Engineering Report hereunder, a
certificate of the chief financial officer of the Company, in form and substance
reasonably satisfactory to the Collateral Agent and the Purchasers, setting
forth as of the last day of the most recently ended Fiscal Quarter, a true and
complete list of all Hedging Contracts of the Company 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 the Disclosure
Schedule, any margin required or supplied under any credit support document, and
the counterparty to each such agreement.
(vii) Certificate of Insurer -- Insurance Coverage. At Closing
and at each subsequent annual policy renewal date, a certificate of insurance
coverage from each insurer with respect to the insurance required by Section
8.1(j), in form and substance reasonably satisfactory to the Collateral Agent,
and, if requested by the Collateral Agent or any Purchaser, all copies of the
applicable policies. The Company shall promptly notify the Collateral Agent and
the Purchasers upon any change in any insurer providing coverage to the Company
or any of its Subsidiaries or any change to any insurance policy of the Company
or any of its Subsidiaries.
(viii) Shareholder and Lender Reports; Etc. Promptly upon their
becoming available, copies of all financial statements, reports, notices and
proxy statements sent by the Company to its members, partners or stockholders or
to the Lenders or Agent Bank under the Bank Credit Agreement, or to any Person
pursuant to the terms of any preferred stock designation, indenture, loan or
credit or other similar agreement, other than this Agreement, and all
registration statements, periodic reports and other statements and schedules
filed by the Company with any securities exchange, the Securities and Exchange
Commission or any similar Governmental Authority.
(ix) Lists of Purchasers. Concurrently with the delivery of any
Engineering Report to the Collateral Agent pursuant to Section 8.1(c)(i) or
Section 8.1(c)(ii), a list of Persons purchasing Hydrocarbons from the Company
and each Subsidiary constituting at least 80% of the total amount of all sales
from the marketing of production of Hydrocarbons, and during the continuance of
a Default promptly upon the request therefor by the Collateral Agent or any
Purchaser, a list of all Persons purchasing Hydrocarbons from the Company and
each Subsidiary.
26
(x) Notice of Sales of Oil and Gas Properties. In the event the
Company 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 9.1(h) having a fair market value, individually or in
the aggregate, in excess of $1,000,000, prior written notice of such
disposition, the price thereof and the anticipated date of closing.
(xi) Notice of Casualty Events. Prompt written notice, and in any
event within ten Business Days, of the occurrence of any Casualty Event or the
commencement of any action or proceeding that could reasonably be expected to
result in a Casualty Event.
(xii) Information Regarding Newly Created or Acquired
Subsidiaries. Prompt written notice, but in any event within 15 days of the
creation, acquisition or coming into existence of any Subsidiary after the date
hereof, of such Subsidiary's jurisdiction of organization, name as listed in the
public records of its jurisdiction of organization, any other corporate, trade,
or fictitious name that such Subsidiary has, during the preceding five years,
been known by, or used, such Subsidiary's organizational identification number
in its jurisdiction of organization, federal taxpayer identification number and
the location of its principal place of business and chief executive office.
(xiii) Information Regarding Company and Guarantors. Prompt
written notice (and in any event within thirty (30) days prior thereto) of any
change (A) in the Company 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, (B) in the location of the Company or any Guarantor's chief
executive office or principal place of business, (C) in the Company or any
Guarantor's identity or corporate structure or in the jurisdiction in which such
Person is incorporated or formed, (D) in the Company or any Guarantor's
jurisdiction of organization or such Person's organizational identification
number in such jurisdiction of organization or (E) in the Company or any
Guarantor's federal taxpayer identification number. The Company will also
furnish with such notice any necessary financing statement amendments or shall
request the Purchasers and their counsel to prepare the same at the Company's
expense.
(xiv) Rule 144A Informational Requirements. Upon the request of
any Holder, provide such Holder, and any qualified institutional buyer
designated by such Holder, such financial and other information as such Holder
may reasonably determine to be necessary in order to permit compliance with the
information requirements of Rule 144A under the Securities Act in connection
with the resale of Notes, except at such times as the Company is subject to and
in compliance with the reporting requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Section
8.1(b)(xiv), the term "qualified institutional buyer" shall have the meaning
specified under Rule 144A under the Securities Act.
(c) Engineering Reports.
(i) Mandatory Semi-Annual Engineering Reports. On or before March
31st and September 30th of each year, commencing September 30, 2003, the Company
shall furnish to the Collateral Agent and the Purchasers an Engineering Report
prepared as of the immediately preceding December 31 and June 30, respectively.
The Engineering Report as of December 31 of each year shall be prepared by one
or more Approved Petroleum Engineers, and
27
the June 30 Engineering Report of each year shall be prepared by or under the
supervision of the chief engineer of the Company who shall certify such
Engineering Report to be true and accurate and to have been prepared in
accordance with the procedures used in the immediately preceding December 31
Engineering Report.
(ii) Optional Engineering Reports. Promptly upon request therefor
by the Majority Purchasers (provided that only one such request may be made in
any calendar year), or upon the Company's election (provided that the Company
may make only one such election in any calendar year), or from time to time as
the Company and the Majority Purchasers may agree, the Company shall furnish to
the Collateral Agent and the Purchasers an additional Engineering Report
prepared (as of the first day of the month in which such Engineering Report is
delivered) by or under the supervision of the chief engineer of the Company who
shall certify such Engineering Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately preceding
December 31 Engineering Report.
(iii) Certificate delivered with Engineering Report. With the
delivery of each Engineering Report, the Company shall furnish to the Collateral
Agent and the Purchasers a certificate from a Responsible Officer certifying
that in all material respects: (A) the information contained in the Engineering
Report and any other information delivered in connection therewith is true and
correct, (B) the Company or its Subsidiaries owns good and defensible title to
the Oil and Gas Properties evaluated in such Engineering Report and such
Properties are free of all Liens except for Permitted Liens, (C) 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 5.1(p) with respect to its Oil and Gas Properties evaluated in such
Engineering Report which would require the Company 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, (D)
none of their Oil and Gas Properties have been sold since the date of the most
recently delivered Engineering 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 Collateral Agent, (E) attached
to the certificate is a list of all marketing agreements entered into subsequent
to the later of the date hereof or the most recently delivered Engineering
Report which the Company could reasonably be expected to have been obligated to
list on the Disclosure Schedule had such agreement been in effect on the date
hereof and (F) attached thereto is a schedule of the Oil and Gas Properties
evaluated by such Engineering Report that are Mortgaged Properties and
demonstrating the percentage of the total value that such Mortgaged Properties
represent.
(d) Books and Records; Other Information and Inspections. The Company
will, and will cause each Subsidiary to, (i) keep proper books of record and
account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities, (ii) furnish to each
Purchaser any information which such Purchaser may from time to time request
concerning any covenant, provision or condition of the Transaction Documents or
any matter in connection with the Company's or its Subsidiaries' businesses and
operations and (iii) permit any representatives appointed by any Purchaser or
the Collateral Agent (including independent accountants, engineers, agents,
attorneys, appraisers and any other Persons), (A) if no Default then exists, at
the expense of such Purchaser or the Collateral Agent, as the case may be, and
upon reasonable prior notice to the Company, to visit, inspect or examine
28
any of the Company's or its Subsidiaries' Property, including its books of
account, other books and records, and any facilities or other business assets,
and to make extracts or extra copies therefrom and photocopies and photographs
thereof, and to write down and record any information such representatives
obtain, and shall further permit any Purchaser or the Collateral Agent or their
representatives to investigate and verify the accuracy of the information
furnished in connection with the Transaction Documents and to discuss all such
matters and its affairs, finances and condition with its officers, employees,
representatives, independent accountants and independent reserve engineers, all
at such reasonable times and as often as may be reasonably requested in writing
or (B) if a Default then exists, at the expense of the Company, to visit,
inspect or examine any of the Company's or its Subsidiaries' Property, including
its books of account, other books and records, and any facilities or other
business assets, and to make extracts or extra copies therefrom and photocopies
and photographs thereof, and to write down and record any information such
representatives obtain, and shall further permit any Purchaser or the Collateral
Agent or their representatives to investigate and verify the accuracy of the
information furnished in connection with the Transaction Documents and to
discuss all such matters and its affairs, finances and condition with its
officers, employees, representatives, independent accountants and independent
reserve engineers, all at such times and as often as may be requested.
(e) Notice of Material Events. The Company will promptly notify the
Collateral Agent and the Purchasers of:
(i) the occurrence of any event, development, circumstance or the
existence of any state of affairs, which has or could reasonably be expected to
have a Material Adverse Effect;
(ii) the occurrence of any Default;
(iii) the acceleration of the maturity of any Debt owed by the
Company or any of its Subsidiaries, of any "Default" or other breach by the
Company or any of its Subsidiaries under any of the Bank Documents, or of any
material default by the Company or any of its Subsidiaries under any other
indenture, mortgage, agreement, contract or other instrument relating to Debt to
which the Company or any of its Subsidiaries is a party or by which any of them
or any of their Properties is bound;
(iv) the occurrence of any Termination Event;
(v) any claim of $250,000 or more under any Environmental Laws;
or
(vi) 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 Company or any
Affiliate thereof not previously disclosed in writing to the Purchasers or any
material adverse development in any action, suit, proceeding, investigation or
arbitration previously disclosed to the Purchasers that, if adversely
determined, could reasonably be expected to result in liability in excess of
$1,000,000.
Upon the occurrence of any of the foregoing the Company will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Effect, Default, acceleration,
29
"Default," breach or Termination Event, to protect against any such adverse
claim, to defend any such suit or proceeding, and to resolve all controversies
on account of any of the foregoing.
(f) Maintenance of Existence and Qualifications. The Company 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.
(g) Operation and Maintenance of Properties. The Company, at its own
expense, will, and will cause each Subsidiary at its own expense to:
(i) 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 Governmental Requirements, including, without
limitation, applicable pro ration requirements and Environmental Laws, and all
applicable 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, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect.
(ii) 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.
(iii) 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.
(iv) 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.
(v) operate its Oil and Gas Properties and other material
Properties or cause or make reasonable and customary efforts to cause such Oil
and Gas Properties and other material Properties to be operated in accordance
with the practices of the industry and in material compliance with all
applicable contracts and agreements and in compliance in all material respects
with all Governmental Requirements.
30
(vi) to the extent the Company is not the operator of any
Property, the Company shall use reasonable efforts to cause the operator to
comply with this Section 8.1(g).
(h) Payment of Obligations. The Company will, and will cause each of
its Subsidiaries to (i) timely file all tax returns required to be filed in any
jurisdiction; (ii) pay and discharge all Liabilities now or hereafter owed by it
(other than obligations described in clause (iii) below), including tax
liabilities, assessments, and other governmental charges or levies imposed upon
the Company or any of its Subsidiaries or upon its income, profits or Property,
before the same shall become delinquent or in default; (iii) within 90 days
after the same becomes due (or, if earlier, after the applicable invoice date)
pay all Liabilities owed by it on ordinary trade terms to vendors, suppliers and
other Persons providing goods and services used by it in the ordinary course of
its business; and (iv) maintain appropriate accruals and reserves for all of the
foregoing taxes or other Liabilities in accordance with GAAP; provided that the
Company or its Subsidiaries may delay paying or discharging any such obligations
or Liabilities if (A) the validity or amount thereof is being contested in good
faith by appropriate proceedings, (B) the Company 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 expected to result in a Material Adverse Effect or result in the
seizure or levy of any Property of the Company or any Subsidiary.
(i) Performance of Obligations under Transaction Documents. The
Company will pay the Notes according to the reading, tenor and effect thereof,
and the Company 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 Transaction Documents, including, without limitation, this Agreement,
at the time or times and in the manner specified.
(j) Bonding and Insurance. On or prior to August 1, 2003, the
Collateral Agent and the Purchasers will be named as additional insureds in
respect of all liability insurance policies (as described in Section 5.1(r)) and
the Collateral Agent will be named as loss payee with respect to all Property
loss insurance policies (second to the Senior Indebtedness Representative). Each
of the Company and its Subsidiaries will maintain all bonds and letters of
credit in lieu of bonds which are required (by law, lease terms, or consistent
with prudent industry practices) in order to carry out development and
production operations on the Properties. Each of the Company and its
Subsidiaries will keep or cause to be kept adequately insured by financially
sound and reputable insurers, its Property in accordance with the Insurance
Schedule, but in any event against such casualties and contingencies, of such
types, on such terms and in such amounts (including deductibles, co-insurance
and self insurance, if adequate reserves are maintained with respect thereto) as
is customary in the case of entities of established reputations engaged in the
same or similar business and similarly situated. Any insurance policies covering
Collateral shall be endorsed (i) to provide for payment of losses to the
Collateral Agent (for the benefit of the Purchasers) as its interests may
appear, pursuant to a mortgagee clause (without contribution) of standard form
made part of the applicable policy with respect to all Property loss insurance
policies (second to the Senior Indebtedness Representative), (ii) to provide
that the Collateral Agent and the Purchasers are named as additional insureds in
respect of all liability insurance policies, (iii) to provide that such policies
may not be canceled, reduced or adversely affected in any manner by the insurer
for any reason without thirty days prior notice to the Collateral Agent, (iv) to
provide for any other matters
31
specified in any applicable Security Document or which the Majority Purchasers
may reasonably require; and (v) to provide for insurance against fire, casualty
and any other hazards normally insured against, in the amount of the full value
(less a reasonable deductible not to exceed amounts customary in the industry
for similarly situated businesses and Properties) of the Property insured. (To
the extent that any Mortgage contains other additional requirements for such
endorsement, the mortgagor thereunder shall also comply with such additional
requirements.) The Company shall at all times maintain adequate insurance
against its and its Subsidiaries' liability for injury to persons or Property,
which insurance shall be by financially sound and reputable insurers and shall
without limitation provide the following coverages: comprehensive general
liability (including coverage for damage to underground resources and equipment,
damage caused by blowouts or cratering, damage caused by explosion, damage to
underground minerals or resources caused by saline substances, broad form
Property damage coverage, broad form coverage for contractually assumed
liabilities and broad form coverage for acts of independent contractors),
worker's compensation and automobile liability. The Company and its Subsidiaries
shall at all times maintain cost of control of well insurance with respect to
all wells being drilled or deepened, which shall insure against the following
costs: cost of control of well; fires, blowouts, etc.; redrilling expense; and
seepage and pollution expense.
(k) Performance on the Company's Behalf. If the Company or any of its
Subsidiaries fails to pay any taxes, insurance premiums, delay rentals, lease
maintenance costs, attorneys' fees, or other expenses or amounts it is required
to pay under any Transaction Document, the Collateral Agent or any Purchaser
may, but shall not be obligated to, pay the same. The Company shall immediately
reimburse the Collateral Agent or such Purchaser for any such payments and each
amount paid by the Collateral Agent or such Purchaser shall constitute an
obligation owed under this Agreement which is due and payable on the date such
amount is paid by the Collateral Agent or such Purchaser.
(l) Compliance with Agreements and Laws. The Company will, and will
cause each of its Subsidiaries to, (i) perform all material obligations it is
required to perform under the terms of the Bank Documents, and each other
indenture, mortgage, deed of trust, security agreement, lease, franchise,
agreement, contract or other instrument or obligation to which it is a party or
by which it or any of its Properties is bound, and (ii) conduct its business and
affairs in compliance in all material respects with all laws, regulations, and
orders of any Governmental Authority applicable to it or its Property,
including, without limitation, Environmental Laws.
(m) Environmental Matters.
(i) The Company and each Subsidiary shall at its sole expense:
(A) 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; (B) 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 Company's or its Subsidiaries' Properties or any other Property to the
extent caused by the Company'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
32
Material Adverse Effect; (C) 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 Company's or its Subsidiaries' Properties, which failure
to obtain or file could reasonably be expected to have a Material Adverse
Effect; (D) 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 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 Company's or its Subsidiaries' Properties,
which failure to commence and diligently prosecute to completion could
reasonably be expected to have a Material Adverse Effect; and (E) establish and
implement, and shall cause each Subsidiary to establish and implement, such
procedures as may be necessary to continuously determine and assure that the
Company's and its Subsidiaries' obligations under this Section 8.1(m)(i) are
timely and fully satisfied, which failure to establish and implement could
reasonably be expected to have a Material Adverse Effect.
(ii) The Company will promptly, but in no event later than ten
days of the occurrence thereof, notify the Collateral Agent and the Purchasers
in writing of its receipt of any written notice threatening an action,
investigation or inquiry by any Governmental Authority or making a demand or
threatening a lawsuit by any landowner or other third party against the Company
or its Subsidiaries or their Properties of which the Company has knowledge in
connection with any Environmental Laws (excluding routine testing and corrective
action) if the Company reasonably anticipates that such action will result in
liability (whether individually or in the aggregate) in excess of $500,000, not
fully covered by insurance, subject to normal deductibles.
(iii) The Company will, and will cause each Subsidiary to,
provide environmental audits and tests in accordance with American Society of
Testing Materials standards (or any successor standards) upon request by the
Collateral Agent or the Majority Purchasers and no more than once per year in
the absence of any Event of Default (or as otherwise required to be obtained by
the Collateral Agent or the Purchasers by any Governmental Authority), in
connection with any future acquisitions of Oil and Gas Properties or other
Properties.
(n) ERISA Compliance. The Company will promptly furnish and will cause
the Subsidiaries and any ERISA Affiliate to promptly furnish to the Collateral
Agent and the Purchasers (i) promptly after the filing thereof with the United
States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of
each annual and other report with respect to each Plan or any trust created
thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA
Event or 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 Company, the Subsidiary or the ERISA
Affiliate is taking or proposes to take with respect
33
thereto, and, when known, any action taken or proposed by the Internal Revenue
Service, the Department of Labor or the PBGC with respect thereto, and (iii)
immediately upon receipt thereof, copies of any notice of the PBGC's intention
to terminate or to have a trustee appointed to administer any Plan. With respect
to each Plan (other than a Multiemployer Plan), the Company will, and will cause
each Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely
manner, without incurring any late payment or underpayment charge or penalty and
without giving rise to any lien, all of the contribution and funding
requirements of section 412 of the Code (determined without regard to
subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.
(o) Evidence of Compliance. The Company will furnish to each Purchaser
at the Company's expense all evidence which any Purchaser from time to time may
reasonably request as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by the Company or its
Subsidiaries in the Transaction Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.
Section 8.2. Collateral Security; Credit Support.
(a) Liens on Oil and Gas Properties. Upon the receipt of each
Engineering Report furnished pursuant to Section 8.1(c), the Company shall
review such Engineering Report and the list of current Mortgaged Properties (as
described in Section 8.1(c)(iii)) to ascertain whether the Mortgaged Properties
represent Liens on all Oil and Gas Properties of the Company and its
Subsidiaries then securing the Bank Credit Agreement, but in no event on less
than 80% of the total value of the Proved Reserves of the Oil and Gas Properties
evaluated in the most recently completed Engineering Report after giving effect
to exploration and production activities, acquisitions, dispositions and
production. In the event that the Mortgaged Properties do not represent Liens on
all Oil and Gas Properties of the Company and its Subsidiaries then securing the
Bank Credit Agreement, but in no event on less than 80% of the total value of
the Proved Reserves of the Oil and Gas Properties evaluated in the most recently
completed Engineering Report, then the Company shall, and shall cause its
Subsidiaries to, grant to the Collateral Agent as security for the Obligations a
second-priority Lien interest (subject only to Permitted Liens of the type
described in clauses (a) to (e) and (g) of the definition thereof, 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 Liens on
all Oil and Gas Properties of the Company and its Subsidiaries then securing the
Bank Credit Agreement, but in no event on less than 80% of the total value of
the Proved Reserves of the Oil and Gas Properties evaluated in the most recently
completed Engineering Report. 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 Collateral Agent and in sufficient executed (and
acknowledged where necessary or appropriate) counterparts for recording
purposes.
34
(b) Guarantees. The Company shall cause each Domestic Subsidiary that
is a Wholly-Owned Subsidiary existing on the date hereof to absolutely and
unconditionally guaranty, on a joint and several basis with each other
Guarantor, the due and punctual payment and performance of the Obligations, by
causing such Domestic Subsidiary to execute and deliver to the Collateral Agent
a Guaranty Agreement prior to the sale and purchase of the Notes hereunder. The
Company shall cause each Domestic Subsidiary that is a Wholly-Owned Subsidiary
created, acquired or coming into existence after the date hereof, to promptly,
but in any event within fifteen (15) days thereafter, absolutely and
unconditionally guaranty, on a joint and several basis with each other
Guarantor, the due and punctual payment and performance of the Obligations, by
causing such Domestic Subsidiary to execute and deliver to the Collateral Agent
a Guaranty Agreement. In addition to the foregoing, the Company will, and will
cause such Domestic Subsidiary to, deliver to the Collateral Agent and the
Purchasers, simultaneously with the delivery of a Guaranty Agreement, such other
additional closing documents, resolutions, certificates and legal opinions as
shall be requested by the Collateral Agent or any Purchaser.
(c) Pledge of Equity Interests. The Company shall, and shall cause
each Subsidiary of the Company to, pledge all of the Equity Interests of each
Domestic Subsidiary that is a Wholly-Owned Subsidiary existing on the date
hereof (including, without limitation, delivery of original stock certificates
evidencing the Equity Interests of such Domestic Subsidiary to the Agent Bank to
be held on behalf of the Collateral Agent, together with an appropriate undated
stock powers for each certificate duly executed in blank by the registered owner
thereof) by executing and delivering to the Collateral Agent a Pledge Agreement
prior to the sale and purchase of the Notes hereunder. The Company shall, and
shall cause each Subsidiary of the Company to, pledge all of the Equity
Interests of each Domestic Subsidiary that is a Wholly-Owned Subsidiary created,
acquired or coming into existence after the date hereof, promptly, but in any
event within fifteen (15) days thereafter, (including, without limitation,
delivery of original stock certificates evidencing the Equity Interests of such
Domestic Subsidiary to the Agent Bank to be held on behalf of the Collateral
Agent, together with an appropriate undated stock powers for each certificate
duly executed in blank by the registered owner thereof) by executing and
delivering to the Collateral Agent a Pledge Agreement. In addition to the
foregoing, the Company will, and will cause such Subsidiary to, deliver to the
Collateral Agent and the Purchasers, simultaneously with the delivery of a
Pledge Agreement, such other additional closing documents, resolutions,
certificates and legal opinions as shall be requested by the Collateral Agent or
any Purchaser.
(d) Foreign Subsidiaries. The Company shall, and shall cause each
Domestic Subsidiary of the Company to, pledge 65% of all of the Equity Interests
of each Foreign Subsidiary that is a Wholly-Owned Subsidiary existing on the
date hereof (including, without limitation, delivery of original stock
certificates evidencing such Equity Interests of such Foreign Subsidiary to the
Agent Bank to be held on behalf of the Collateral Agent, together with
appropriate stock powers for each certificate duly executed in blank by the
registered owner thereof) by executing and delivering to the Collateral Agent
such agreements, documents and instruments as may be requested by the Collateral
Agent or any Purchaser in connection with such pledge. The Company shall, and
shall cause each Domestic Subsidiary of the Company to, pledge 65% of all of the
Equity Interests of each Foreign Subsidiary that is a Wholly-Owned Subsidiary
created, acquired or coming into existence after the date hereof, promptly, but
in any event within fifteen (15) days thereafter, (including, without
limitation, delivery of original stock
35
certificates evidencing the Equity Interests of such Foreign Subsidiary to the
Agent Bank to be held on behalf of the Collateral Agent, together with an
appropriate undated stock powers for each certificate duly executed in blank by
the registered owner thereof) by executing and delivering to the Collateral
Agent such agreements, documents and instruments as may be requested by the
Collateral Agent or any Purchaser in connection with such pledge. In addition to
the foregoing, the Company will, and will cause such Domestic Subsidiary and
Foreign Subsidiary to, deliver to the Collateral Agent and the Purchasers,
simultaneously with the delivery of any agreements, documents and instruments
requested by the Collateral Agent or any Purchaser in connection with such
pledge, such other additional closing documents, resolutions, certificates and
legal opinions as shall be requested by the Collateral Agent or any Purchaser.
(e) The Company will at all times cause all personal Property of the
Company and each Subsidiary at any time securing the Senior Indebtedness to be
subject to a Lien of the Security Documents.
Section 8.3. Title Information.
(a) On or before the delivery to the Collateral Agent and the
Purchasers of each Engineering Report required by Section 8.1(c), the Company
will deliver title information in form and substance acceptable to the
Collateral Agent covering enough of the Oil and Gas Properties evaluated by such
Engineering Report that were not included in the immediately preceding
Engineering Report, so that the Collateral Agent shall have received together
with title information previously delivered to the Collateral Agent,
satisfactory title information on at least 80% of the total value of the Proved
Reserves of the Oil and Gas Properties evaluated by such Engineering Report.
(b) If the Company has provided title information for additional Oil
and Gas Properties under Section 8.3(a), the Company shall, within 60 days of
notice from the Collateral Agent that title defects or exceptions exist with
respect to such additional Oil and Gas Properties, either (i) cure any such
title defects or exceptions (including defects or exceptions as to priority)
which are not Permitted Liens raised by such information, (ii) substitute
acceptable Mortgaged Properties with no title defects or exceptions except for
Permitted Liens (other than Permitted Liens described in clauses (f) of such
definition) having an equivalent value or (iii) deliver title information in
form and substance acceptable to the Collateral Agent so that the Collateral
Agent shall have received, together with title information previously delivered
to the Collateral Agent, satisfactory title information on at least 80% of the
value of the Proved Reserves of the Oil and Gas Properties evaluated by such
Engineering Report.
(c) If the Company is unable to cure any title defect requested by the
Collateral Agent or the Purchasers to be cured within the 60-day period or the
Company does not comply with the requirements to provide acceptable title
information covering 80% of the value of the Proved Reserves of the Oil and Gas
Properties evaluated in the most recent Engineering Report, then the Collateral
Agent and/or the Majority Purchasers shall have the right to exercise the
following remedy in their sole discretion from time to time, and any failure to
so exercise this remedy at any time shall not be a waiver as to future exercise
of the remedy by the Collateral Agent or the Purchasers. To the extent that the
Collateral Agent or the Majority Purchasers are not satisfied with title to any
Mortgaged Property after the 60-day period has elapsed, such
36
unacceptable Mortgaged Property shall not count towards the 80% requirement, and
the Collateral Agent may send a notice to the Company and the Purchasers that
the then outstanding Adjusted Total NPV shall be reduced by an amount as
determined by the Majority Purchasers. This new Adjusted Total NPV shall become
effective immediately after receipt of such notice.
Section 8.4. Further Assurances.
(a) The Company at its expense will, and will cause each Subsidiary
to, promptly execute and deliver (and acknowledged if necessary or advisable) to
the Collateral Agent all such other documents, agreements and instruments,
including, without limitation, deeds of trust, mortgages, chattel mortgages,
security agreements, financing statements and other Security Documents,
requested by the Collateral Agent or any Purchaser, in its sole and absolute
discretion, in form and substance satisfactory to the Collateral Agent or such
requesting Purchaser, to comply with, cure any defects or accomplish the
conditions precedent, covenants and agreements of the Company or any Subsidiary,
as the case may be, in the Transaction 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, confirm or preserve any Liens created pursuant to this
Agreement or any of the Security Documents, or the priority thereof, or the
rights, powers or privileges of the Collateral Agent or any Purchaser, 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 Collateral
Agent or such requesting Purchaser, in connection therewith. The Company also
agrees to deliver, whenever requested by the Collateral Agent or any Purchaser
in its sole and absolute discretion, favorable title opinions from legal counsel
acceptable to the Collateral Agent and such Purchaser with respect to Properties
designated by the Collateral Agent or such Purchaser, based upon abstract or
record examinations to dates acceptable to the Collateral Agent and such
Purchaser, which opinions shall (i) state that the Company or its Subsidiaries,
as applicable, has good and defensible title thereto, subject only to Permitted
Liens of the types described in clauses (a) to (e) and (g) of the definition
thereof, (ii) confirm that such Properties and interests are subject to Security
Documents securing the Notes that constitute and create legal, valid and duly
perfected deed of trust or mortgage Liens in such Properties and interests and
assignments of and security interests in the oil and gas attributable thereto
and in the proceeds thereof, subject, in each case, to no prior Liens other than
Permitted Liens of the types described in clauses (a) to (e) and (g) of the
definition thereof, and (iii) cover such other matters as the Collateral Agent
or such Purchaser may request.
(b) The Company hereby authorizes the Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Company's or any Subsidiary's Property without the
signature of the Company, such Subsidiary or any other Person. 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 8.5. Production Proceeds. Notwithstanding that, by the terms of the
Mortgages, the Company and its Subsidiaries are or will be assigning to the
Collateral Agent all of the as-extracted collateral and other proceeds of
production (as more particularly described
37
therein, the "Production Proceeds") accruing to the Property covered thereby, so
long as no Default has occurred each such assignor may continue to receive from
the purchasers of production all such Production Proceeds, subject, however, to
the Liens created under the Security Documents, which Liens are hereby affirmed
and ratified. Upon the occurrence of a Default, the Collateral Agent may
(subject to ARTICLE XVI) exercise all rights and remedies granted under the
Security Documents, including the right to obtain possession of all Production
Proceeds then held by the Company or any of its Subsidiaries and to receive
directly from the purchasers of production all other Production Proceeds. In no
case shall any failure, whether purposed or inadvertent, by the Collateral Agent
to collect directly any such Production Proceeds constitute in any way a waiver,
remission or release of any of its rights under the Security Documents, nor
shall any release of any Production Proceeds by the Collateral Agent to the
Company or any of its Subsidiaries constitute a waiver, remission, or release of
any other Production Proceeds or of any rights of the Collateral Agent to
collect other Production Proceeds thereafter.
ARTICLE IX.
NEGATIVE COVENANTS
Section 9.1. Negative Covenants. To confirm the Purchasers' understanding
concerning the Company, its Subsidiaries, and their respective business,
Properties and obligations and to induce each Purchaser to enter into this
Agreement and purchase its Notes, the Company covenants and agrees with each
Purchaser and with the Collateral Agent that:
(a) Debt. The Company will not, and will not permit any Subsidiary to,
incur, create, assume or suffer to exist any Debt, except:
(i) Debt evidenced by the Notes or other Obligations arising
under the Transaction Documents or any guaranty of or suretyship arrangement for
the Notes or other Obligations arising under the Transaction Documents;
(ii) Debt of the Company and its Subsidiaries existing on the
date hereof that is reflected in the Initial Financial Statements.
(iii) Debt now or hereafter outstanding under the Bank Credit
Agreement (the "Bank Debt"), provided that (A) the aggregate principal amount of
the Bank Debt shall not exceed $300,000,000, (B) no part of the Debt for
principal owing under the Bank Credit Agreement is subordinated in right or
payment to any other Debt for principal owing under the Bank Credit Agreement,
and (C) at the time each such item of Debt is incurred (1) the aggregate amount
thereof does not exceed the "Borrowing Base" then in effect under the Bank
Credit Agreement (or, if such "Borrowing Base" ever ceases to exist or diverges
materially from a conventional commercial bank borrowing base, does not exceed a
conventional commercial bank borrowing base), and (2) after giving effect to the
incurrence of such Debt, no Default then exists under Section 9.1(q);
(iv) endorsements of negotiable instruments for collection in the
ordinary course of business;
38
(v) Guarantees of a percentage of any Contractual Obligation of
any Subsidiary of the Company, so long as the percentage referred to in any such
Guarantee does not exceed the percentage of the common equity owned directly or
indirectly by the Company in such Subsidiary at the time such Guarantee is
executed; and
(vi) miscellaneous items of Debt (other than for borrowed money)
not described in the foregoing subsections (i) through (iv) which do not in the
aggregate (taking into account all such Debt of the Company and its
Subsidiaries) exceed $5,000,000 at any one time outstanding.
Notwithstanding the foregoing, the Company will not, and will not permit
any Subsidiary to, incur, create, assume or suffer to exist any Debt (other than
the Obligations and Mercury Subordinated Debt) if such Debt is subordinate or
junior in ranking in right of payment to any Senior Indebtedness, unless such
Debt is expressly subordinated in right of payment to the Obligations.
Notwithstanding anything to the contrary contained herein, from the period
commencing on the date hereof through and including October 31, 2003, the
Company will not permit the aggregate Debt of the Company and its Consolidated
Subsidiaries to exceed $325,000,000.
(b) Limitation on Liens. Except for Permitted Liens, the Company will
not, and will not permit any Subsidiary to, create, incur, assume or permit to
exist any Lien on any of its Properties (now owned or hereafter acquired).
(c) Investments. The Company will not, and will not permit any
Subsidiary to, make or permit to remain outstanding any Investments in or to any
Person, except Permitted Investments.
(d) Limits on Hedging Contracts. The Company will not, and will not
permit any Subsidiary to, be a party to or in any manner be liable on any
Hedging Contract other than: (i) interest rate Hedging Contracts with investment
grade counterparties; (ii) Hedging Contracts with investment grade
counterparties entered into for the purpose of protecting the Company against
decreases in the prices obtainable for its actual and reasonably anticipated
production of oil, gas and natural gas liquids, the notional volumes for which
do not exceed, as of the date such Hedging Contract is executed, seventy-five
percent (75%) of the aggregate of (A) the Company's and its Subsidiaries
reasonably anticipated production from Proved Developed Producing Reserves plus
(B) associated royalty owners' gas produced from the same wells, and which gas
the Company has the authority to market and sell, for each month during the
period during which such Hedging Contract is in effect for each of crude oil and
natural gas, calculated separately; and (iii) Hedging Contracts entered into
with non-investment grade counterparties before the date hereof described in the
Disclosure Schedule.
(e) Limits on Amendments. The Company will not amend, waive or release
any contract or lease if the effect thereof is to release, qualify, limit, make
contingent or otherwise detrimentally affect the rights and benefits of the
Collateral Agent or the Purchasers under or acquired pursuant to any Security
Documents. The Company will not amend, waive, unwind, reverse, or release any
long-term production sales agreements or derivative contracts
39
described on the Disclosure Schedule if the effect thereof is to materially
decrease the sales revenues or other payments receivable thereunder.
(f) Limits on Mergers and Subsidiary Equity Issuances. The Company
will not, and will not permit any Subsidiary to, merge or consolidate with or
into any other Person except that any Subsidiary of the Company may be merged
into or consolidated with (i) another Subsidiary of the Company, so long as a
Guarantor is the surviving entity, or (ii) the Company, so long as the Company
is the surviving entity, and, in either case, provided that the Company has
given the Collateral Agent and the Purchasers at least thirty (30) days prior
written notice of such merger or consolidation, and such surviving entity
executes and delivers to the Collateral Agent all documents and instruments as
may be requested by the Collateral Agent or any Purchaser to protect the
Purchasers' and the Collateral Agent's rights under the Transaction Documents.
Notwithstanding the foregoing sentence, the Company may merge or consolidate
with or into another Person so long as:
(A) such merger or consolidation does not result in a Change
of Control;
(B) the successor formed by such consolidation or the
survivor of such merger shall be a solvent corporation organized and existing
under the laws of the United States or any State thereof (including the District
of Columbia), and, if the Company is not such corporation, (A) such corporation
shall have executed and delivered to each Holder its assumption of the due and
punctual performance and observance of each covenant and condition of this
Agreement, the Notes and the Transaction Documents and such other documents and
instruments as may be requested by the Majority Purchasers to protect the
Purchasers' and the Collateral Agent's rights under the Transaction Documents,
and (B) such corporation shall have caused to be delivered to each Holder an
opinion of independent counsel (with both the form of such opinion and such
counsel being satisfactory to the Majority Purchasers) to the effect that the
Transaction Documents are the binding instruments and agreements of such
corporation, enforceable in accordance with their terms and without conflict
with any law, agreement or other legal obligation of such corporation and that
all agreements or instruments effecting such assumption are enforceable in
accordance with their terms and comply with the terms hereof; and
(C) immediately after giving effect to such consolidation or
merger, no Default shall have occurred and be continuing and no "Borrowing Base"
deficiency shall exist under the Bank Credit Agreement.
No Subsidiary of the Company will issue any additional Equity Interests
except to the Company and only to the extent not otherwise forbidden under the
terms hereof. No Subsidiary of the Company which is a partnership will allow any
diminution of the Company's interest (direct or indirect) therein.
(g) Limitation on Distributions and Redemptions. Neither the Company
nor any Subsidiary of the Company will declare or make any dividend or other
distribution in respect of any Equity Interest in such Person or return any
capital to its Equity Interest holders or make any distribution of its Property
to its Equity Interest holders, nor will the Company nor any Subsidiary of the
Company directly or indirectly make any payment (whether in cash, securities
40
or other Property), including any sinking fund or similar deposit, on account of
the purchase, redemption, acquisition, cancellation, termination or retirement
of any Equity Interest in it or any option, warrant or other right to acquire
any such Equity Interests in the Company (whether such interests are now or
hereafter issued, outstanding or credited) or cause or permit any reduction or
retirement of such Equity Interests; provided, however, that (i) Subsidiaries of
the Company may declare and pay dividends ratably with respect to their Equity
Interests to their Equity Interest holders; (ii) the Company may declare and pay
dividends with respect to its Equity Interests payable solely in additional
shares of its Equity Interests (other than Disqualified Capital Stock); (iii)
the Company may purchase or otherwise acquire Equity Interests in any Subsidiary
using additional shares of its Equity Interests (other than Disqualified Capital
Stock); and (iv) the Company may purchase, repurchase or otherwise acquire with
cash outstanding exchangeable shares of MGV Energy Inc. upon exercise by any
holder thereof of their exchange put rights, provided the aggregate amount of
shares so purchased under this clause (iv) shall not exceed $10,000,000.
(h) Sales of Properties. The Company will not, and will not permit any
Subsidiary to, sell, assign, farm-out, convey or otherwise transfer or dispose
of any Property except for (i) the sale of Hydrocarbons in the ordinary course
of business; (ii) farmouts of undeveloped acreage and assignments in connection
with such farmouts or the abandonment, farm-out, exchange, lease or sublease of
Oil and Gas Properties not containing Proved Reserves capable of being produced
in economic quantities and which are not included in the most recently delivered
Engineering Report in the ordinary course of business; (iii) the sale or
transfer of equipment that is no longer necessary for the business of the
Company or such Subsidiary or is replaced by equipment of at least comparable
value and use; or the sale, lease or other disposition (including Casualty
Events) of any Oil and Gas Property or any interest therein or any Subsidiary
owning Oil and Gas Properties; provided that (A) the consideration received in
respect of such sale, lease or other disposition shall be equal to or greater
than the fair market value of the Oil and Gas Property, interest therein or
Subsidiary subject of such sale, lease or other disposition (as reasonably
determined by the board of directors of the Company and, if requested by the
Collateral Agent or any Purchaser, the Company shall deliver a certificate of a
Responsible Officer of the Company certifying to that effect; provided that if a
"Borrowing Base" deficiency under the Bank Credit Agreement shall exist, then
either (1) the Majority Note Purchasers must have consented, such consent not to
be unreasonably withheld or delayed, to such sale, lease or other disposition,
(2) the sale, lease or other disposition must occur pursuant to an auction held
in accordance with procedures that are ordinary and customary in the oil and gas
industry or (3) the sale, lease or other disposition must occur pursuant to a
non-binding bid process conducted by the Company or a regionally or nationally
recognized oil and gas asset disposition advisory company in accordance with
procedures that are customary in the oil and gas industry), (B) at such time and
after giving effect to such sale, lease or other disposition, no Default shall
have occurred and be continuing and no Borrowing Base deficiency under the Bank
Credit Agreement shall exist, provided, that the condition that no Borrowing
Base deficiency under the Bank Credit Agreement shall exist at the time of any
such sale, lease or other disposition shall not apply if the Company notifies
the Collateral Agent that proceeds of such sale, lease or other disposition
shall be used to remedy a Borrowing Base deficiency and the Company in fact uses
such proceeds to remedy such Borrowing Base deficiency, to the extent thereof,
with any surplus proceeds being used for one or more of the purposes permitted
by clause (D) of this Section 9.1(h), (C) if such sale or other disposition of
Oil and Gas Property or
41
Subsidiary owning Oil and Gas Properties included in the most recently delivered
Engineering Report during any period between two successive Scheduled
Redetermination Dates has a fair market value in excess of $10,000,000 (as
determined by the Majority Purchasers), individually or in the aggregate, then
the Adjusted Total NPV shall be reduced, effective immediately upon such sale or
disposition, by an amount equal to the value, if any, assigned such Property in
the most recently delivered Engineering Report and (D) an amount equal to 100%
of the net proceeds received from such sale, lease or other disposition shall be
used within 90 days of such disposition: (1) to acquire Property, plant and
equipment or any business entity used or useful in carrying on the business of
the Company and its Subsidiaries and having a fair market value at least equal
to the fair market value of the Properties sold, leased or otherwise disposed of
or to improve or replace any existing Property of the Company and its
Subsidiaries used or useful in carrying on the business of the Company and its
Subsidiaries, (2) to repay or retire Bank Debt or (3) to Redeem the Notes. The
Collateral Agent shall promptly execute and deliver, at the Company's expense,
such lien releases and other documents and instruments as may be necessary or
appropriate to consummate any transaction permitted by this Section 9.1(h). In
no event, however, shall the Company or any of its Subsidiaries (i) sell any
Hydrocarbons under Advance Payment Contracts (as defined below), (ii) except for
receivables obtained by the Company 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, discount or sell (with or without
recourse) any of its notes receivable or accounts receivable, (iii) sell any
production payment or other term royalty or (iv) sell assets and then lease them
back (or commit to lease them back) within 180 days after such sale. As used
herein, "Advance Payment Contracts" means any contract whereby any of the
Company or any of its Subsidiaries either (A) receives or becomes entitled to
receive (either directly or indirectly) any payment (an "Advance Payment") to be
applied toward payment of the purchase price of Hydrocarbons produced or to be
produced from Hydrocarbon Interests owned by any such Person and which Advance
Payment is, or is to be, paid in advance of actual delivery of such production
to or for the account of the purchaser regardless of such production, or (B)
grants an option or right of refusal to the purchaser to take delivery of such
production in lieu of payment, and, in either of the foregoing instances, the
Advance Payment is, or is to be, applied as payment in full for such production
when sold and delivered or is, or is to be, applied as payment for a portion
only of the purchase price thereof or of a percentage or share of such
production; provided that inclusion of the standard "take or pay" provision in
any gas sales or purchase contract or any other similar contract shall not, in
and of itself, constitute such contract as an Advance Payment Contract for the
purposes hereof.
(i) Limitation on Nature of Businesses. The Company will not, and will
not permit any Subsidiary to, (i) make any expenditure or commitment or incur
any obligation or enter into or engage in any transaction except in the ordinary
course of the businesses of acquiring and developing Oil and Gas Properties,
exploring for and producing oil and gas, and gathering, processing, transporting
and selling crude oil, condensate and natural gas, (ii) purchase any material
capital assets other than Oil and Gas Properties and equipment associated
therewith or (iii) 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 or Canada.
42
(j) Transactions with Affiliates. The Company 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 Guarantors and Wholly-Owned
Subsidiaries of the Company) unless such transactions 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.
(k) Subsidiaries. The Company will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiary unless the Company
gives written notice to the Collateral Agent and the Purchasers of such creation
or acquisition and complies with Section 8.2(b), Section 8.2(c) and Section
8.2(d). The Company 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 9.1(h). Neither the Company nor any Subsidiary shall
have any Foreign Subsidiaries other than Permitted Foreign Subsidiaries.
(l) Negative Pledge Agreements; Dividend Restrictions; Etc. The
Company will not, and will not permit any Subsidiary to, create, incur, assume
or suffer to exist any contract, agreement or understanding (other than this
Agreement, the Security Documents, the Bank Documents or Capital Leases
otherwise permitted hereunder) which in any way (i) prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of its Property
in favor of the Collateral Agent and the Purchasers, (ii) restricts any
Subsidiary from paying dividends or making distributions to the Company or any
Guarantor, or which requires the consent of or notice to other Persons in
connection therewith, (iii) restricts any Subsidiary from Redeeming Equity
Interests held by the Company or a Guarantor or (iv) restricts the transfer of
any Subsidiary's Properties to the Company or a Guarantor.
(m) Gas Imbalances, Take-or-Pay or Other Prepayments. The Company 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 Company or
any Subsidiary that would require the Company or such Subsidiary to deliver
Hydrocarbons at some future time without then or thereafter receiving full
payment therefor to exceed one half bcf of gas (on an mcf equivalent basis) in
the aggregate.
(n) ERISA Plans. The Company will not, and will not permit any
Subsidiary to, incur any obligation to contribute to any "multiemployer plan" as
defined in Section 4001 of ERISA.
(o) Environmental Matters. The Company 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 result in liability for the
payment of money in an aggregate amount in excess of $2,000,000 (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 subject to an insolvency proceeding).
43
(p) No Public Announcements. The Company will not, and will not permit
any Subsidiary to, make any public announcement or disclosure of the
transactions contemplated by this Agreement or any other Transaction Document,
except as required by law or approved by the Collateral Agent and the Purchasers
prior to the making of any such public announcement or disclosure.
(q) Adjusted Total NPV to Total Debt Ratio.
(i) The Company will not at any time on or after October 31, 2003
permit its ratio of Adjusted Total NPV to Total Debt to be less than 1.8 to 1.0.
(ii) Upon (A) any change to Adjusted Total NPV pursuant to a
Scheduled Redetermination or an Interim Redetermination or pursuant to Section
8.3(c) or Section 9.1(h)(iv) or (B) the incurrence of any Debt by the Company or
any of its Consolidated Subsidiaries, the Company will promptly, but in any
event within fifteen (15) days after any such event, deliver a certificate of
the chief financial officer of the Company setting forth the Total Debt of the
Company and the Adjusted Total NPV, both prior to and after giving effect to
such event, and demonstrating compliance with Section 9.1(q)(i).
(iii) Without limitation of any other provision of this Section
9.1(q), the Adjusted Total NPV shall be redetermined semi-annually in accordance
with this Section 9.1(q) on April 30th and October 31st of each year, commencing
October 31, 2003 (a "Scheduled Redetermination"). In addition, the Company may,
by notifying the Collateral Agent thereof, and the Collateral Agent may, at the
direction of the Majority Purchasers, by notifying the Company thereof, one time
during any 12-month period, each elect to cause the Adjusted Total NPV to be
redetermined between Scheduled Redeterminations (an "Interim Redetermination")
in accordance with this Section 9.1(q). Each Scheduled Redetermination and each
Interim Redetermination shall be effectuated as follows: Upon receipt by the
Collateral Agent of (A) the Engineering Report and the certificate required to
be delivered by the Company to the Collateral Agent and the Purchasers, in the
case of a Scheduled Redetermination, pursuant to Section 8.1(c)(i), and, in the
case of an Interim Redetermination, pursuant to Section 8.1(c)(ii), and (B) such
other reports, data and supplemental information, including, without limitation,
the information provided pursuant to Section 8.1(c)(iii), as may, from time to
time, be requested by the Collateral Agent (the Engineering Report, such
certificate and such other reports, data and supplemental information being the
"Reports"), the Collateral Agent shall evaluate the information contained in the
Reports and shall, in good faith, calculate a proposed Adjusted Total NPV (the
"Proposed Adjusted Total NPV") based upon the Total NPV and such other
information (including, without limitation, the status of title information with
respect to the Oil and Gas Properties as described in the Reports) as the
Collateral Agent deems appropriate and consistent with its normal oil and gas
lending criteria as it exists at the particular time.
(iv) The Collateral Agent shall notify the Company and the
Purchasers of the Proposed Adjusted Total NPV (the "Proposed Adjusted Total NPV
Notice"):
(A) in the case of a Scheduled Redetermination (1) if the
Collateral Agent shall have received the Reports required to be delivered by the
Collateral Agent pursuant to Section 8.1(c)(i) in a timely and complete manner,
then on or before the April 15th
44
and October 15th of such year following the date of delivery or (2) if the
Collateral Agent shall not have received the Reports required to be delivered by
the Company pursuant to Section 8.1(c)(i) in a timely and complete manner, then
promptly after the Collateral Agent has received complete Reports from the
Company and has had a reasonable opportunity to determine the Proposed Adjusted
Total NPV in accordance with Section 9.1(q)(iii); and
(B) in the case of an Interim Redetermination, promptly, and
in any event, within fifteen (15) days after the Collateral Agent has received
the required Reports.
(v) Any Proposed Adjusted Total NPV that would increase the
Adjusted Total NPV then in effect must be approved or deemed to have been
approved by all of the Purchasers as provided in this Section 9.1(q)(v); and any
Proposed Adjusted Total NPV that would decrease or maintain the Adjusted Total
NPV then in effect must be approved or be deemed to have been approved by the
Super-majority Purchasers as provided in this Section 9.1(q)(v). Upon receipt of
the Proposed Adjusted Total NPV Notice, each Purchaser shall have fifteen (15)
days to agree with the Proposed Adjusted Total NPV or disagree with the Proposed
Adjusted Total NPV by proposing an alternate Adjusted Total NPV. If at the end
of such fifteen (15) days, any Purchaser has not communicated its approval or
disapproval in writing to the Collateral Agent, such silence shall be deemed to
be an approval of the Proposed Adjusted Total NPV. If, at the end of such 15-day
period, all of the Purchasers, in the case of a Proposed Adjusted Total NPV that
would increase the Adjusted Total NPV then in effect, or the Super-majority
Purchasers, in the case of a Proposed Adjusted Total NPV that would decrease or
maintain the Adjusted Total NPV then in effect, have approved or deemed to have
approved, as aforesaid, then the Proposed Adjusted Total NPV shall become the
new Adjusted Total NPV, effective on the date specified in Section 9.1(q)(vi).
If, however, at the end of such 15-day period, all of the Purchasers or the
Super-majority Purchasers, as applicable, have not approved or deemed to have
approved, as aforesaid, then the Collateral Agent shall poll the Purchasers to
ascertain the highest Adjusted Total NPV then acceptable to a number of
Purchasers sufficient to constitute the Super-majority Purchasers, for purposes
of this Section 9.1(q)(v) and, so long as such amount does not increase the
Adjusted Total NPV then in effect, such amount shall become the new Adjusted
Total NPV, effective on the date specified in Section 9.1(q)(vi).
(vi) After a redetermined Adjusted Total NPV is approved or is
deemed to have been approved by all of the Purchasers or the Super-majority
Purchasers, as applicable, pursuant to Section 9.1(q)(v), the Collateral Agent
shall notify the Company and the Purchasers of the amount of the redetermined
Adjusted Total NPV (the "New Adjusted Total NPV Notice"), and such amount shall
become the new Adjusted Total NPV, effective and applicable to the Company, the
Collateral Agent and the Purchasers:
(A) in the case of a Scheduled Redetermination, (1) if the
Collateral Agent shall have received the Reports required to be delivered by the
Company pursuant to Section 8.1(c)(i) in a timely and complete manner, then on
the April 30th or October 31st, as applicable, following such notice, or (2) if
the Collateral Agent shall not have received the Reports required to be
delivered by the Company pursuant to Section 8.1(c)(ii) in a timely and complete
manner, then on the Business Day next succeeding delivery of such notice; and
45
(B) in the case of an Interim Redetermination, on the
Business Day next succeeding delivery of such notice.
Such Adjusted Total NPV shall then become the Adjusted Total NPV until the
next Scheduled Redetermination Date, the next Interim Redetermination Date or
the next adjustment to the Adjusted Total NPV under Section 8.3(c) or Section
9.1(h)(iv), whichever occurs first.
(r) EBITDAX to Fixed Charges Ratio. The Company will not, as of the
last day of any Fiscal Quarter, permit its ratio of EBITDAX for the four Fiscal
Quarter period ending on such day to the Company's Consolidated Fixed Charges
for the same four Fiscal Quarter period, to be less than 1.25 to 1.0. If the
Company or any of its Subsidiaries has merged with or acquired any Person during
such four Fiscal Quarter Period, the Company's EBITDAX and Consolidated Fixed
Charges for such period shall be calculated after giving pro forma effect to
such merger or acquisition, as if such merger or acquisition had occurred on the
first day of the Fiscal Quarter in which it actually occurred.
(s) Current Ratio. The Company will not permit, as of the last day of
any Fiscal Quarter, its ratio of (i) Consolidated current assets (including the
unused amount of the total commitments under the Bank Credit Agreement, but
excluding (A) non-cash assets under FAS 133 and (B) accounts receivable or other
rights to payment arising from: (x) the sale of gas production, unless the same
are due and payable (and reasonably expected by the Company to be paid) within
sixty (60) days after the month in which gas is produced; (y) the sale of oil
production, unless the same are due and payable (and reasonably expected by the
Company to be paid) within thirty (30) days after the month in which such oil is
produced; and (z) Excluded Accounts) to (ii) Consolidated current liabilities
(excluding non-cash obligations under FAS 133 and FAS 143) to be less than 1.0
to 1.0.
Section 9.2. Termination of Section 29 Documents. The Company agrees to
terminate the Section 29 Documents and obtain and/or provide releases of all
Liens created by any of the Section 29 Documents (but not including Liens in
favor of the Banks) by August 15, 2003.
ARTICLE X.
EVENTS OF DEFAULT
Section 10.1. Events of Default. An "Event of Default" shall exist if any
of the following conditions or events shall occur and be continuing:
(a) the Company defaults in the payment or prepayment of any principal
or Make-Whole Amount on any Note when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any Note,
or any other amounts due and payable under the Transaction Documents to any
Purchaser or to the Collateral Agent, for more than three days after the same
becomes due and payable; or
(c) any "default" or "event of default" occurs under any Transaction
Document which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided therein; or
46
(d) the Company or any of its Subsidiaries fails to duly observe,
perform or comply with any covenant, agreement or provision of Section 8.1(e) or
Section 9.1; or
(e) the Company or any of its Subsidiaries defaults in the performance
of or compliance with any term contained herein or in the other Transaction
Documents (other than those referred to in paragraphs (a), (b), (c) and (d) of
this Section 10.1) and such default is not remedied within 30 days after the
earlier of (i) written notice of such default from the Collateral Agent or any
Purchaser to the Company (any such written notice to be identified as a "notice
of default" and to refer specifically to this paragraph (e) of Section 10.1) and
(ii) any Responsible Officer becoming aware of the same; or
(f) any representation or warranty previously, presently or hereafter
made or deemed made in writing by or on behalf of the Company or any of its
Subsidiaries in connection with any Transaction Document shall prove to have
been false or incorrect in on any date on or as of which made or deemed made, or
any Transaction Document at any time ceases to be valid, binding and enforceable
as warranted herein for any reason other than its release or subordination by
the Collateral Agent with the consent of the Majority Purchasers; or
(g) the Company or any of its Subsidiaries shall fail to make any
payment (whether of principal, interest, fees or otherwise and regardless of
amount) in respect of any Debt under the Bank Credit Agreement or any other
Material Indebtedness, when and as the same shall become due and payable; or
(h) any event or condition occurs that results in any Debt under the
Bank Credit Agreement or any other 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 Senior
Indebtedness or any other Material Indebtedness or any trustee or agent on its
or their behalf to cause any Senior Indebtedness or any other 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 Company or any of its Subsidiaries to make an offer in respect thereof; or
(i) if any Plan shall fail to satisfy the minimum funding standards of
ERISA or the Code for any plan year or part thereof or a waiver of such
standards or extension of any amortization period is sought or granted under
section 412 of the Code, (ii) a notice of intent to terminate any Plan shall
have been or is reasonably expected to be filed with the PBGC or the PBGC shall
have instituted proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any Plan or the PBGC shall have notified the Company or
any ERISA Affiliate that a Plan may become a subject of any such proceedings,
(iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning
of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with
Title IV of ERISA, shall exceed $250,000, (iv) the Company or any ERISA
Affiliate shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of
the Code relating to employee benefit plans, (v) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or the Company or any
Subsidiary establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the liability
of the Company or any Subsidiary thereunder; and any such event or events
47
described in clauses (i) through (vi) above, either individually or together
with any other such event or events, could reasonably be expected to have a
Material Adverse Effect (as used in this subsection (i), the terms "employee
benefit plan" and "employee welfare benefit plan" shall have the respective
meanings assigned to such terms in Section 3 of ERISA); or
(j) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other relief
in respect of the Company or any of its Subsidiaries or its debts, or of a
substantial part of its assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any of its Subsidiaries or for a substantial
part of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or ordering any
of the foregoing shall be entered; or
(k) the Company or any of its Subsidiaries shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation, reorganization
or other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar 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 10.1(j), (iii) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the Company or any of its Subsidiaries 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
(l) the Company or any of its Subsidiaries shall become unable, admit
in writing its inability or fail generally to pay its debts as they become due;
or
(m) one or more judgments for the payment of money in an aggregate
amount in excess of $2,000,000 shall be rendered against the Company, 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 Company or any Subsidiary to enforce any such
judgment.
Section 10.2. Acceleration.
(a) If an Event of Default with respect to the Company or any of its
Subsidiaries described in Section 10.1(j) or Section 10.1(k) has occurred, all
the Notes then outstanding shall automatically become immediately due and
payable.
(b) If any other Event of Default (including, without limitation, any
Event of Default described in Section 10.1(a) or Section 10.1(b)) has occurred
and is continuing, any Holder or Holders of more than 50% in principal amount of
the Notes at the time outstanding may at any time at its or their option, by
written notice or notices to the Company, declare all the Notes then outstanding
to be immediately due and payable.
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(c) If any Event of Default described in Section 10.1(a) or Section
10.1(b) has occurred and is continuing, any Holder affected by such Event of
Default may at any time, at its option, by written notice to the Company,
declare all the Notes held by it to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 10.2, whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus (i) all accrued and unpaid interest
thereon, (ii) in the case of Fixed Rate Notes, the Make-Whole Amount determined
in respect of such principal amount (to the full extent permitted by applicable
law), provided that if such Fixed Rate Notes become due and payable pursuant to
Section 10.2(c), then no Make-Whole Amount shall be due with respect to such
Fixed Rate Notes and (iii) all fees and the other obligations of the Company and
the Guarantors accrued hereunder and under the Notes and the other Transaction
Documents, shall all be immediately due and payable, in each and every case
without demand, presentment, notice of demand or of dishonor and nonpayment,
protest, notice of protest, notice of intention to accelerate, declaration or
notice of acceleration, or any other notice or declaration of any kind, all of
which are hereby expressly waived by the Company. The Company acknowledges, and
the parties hereto agree, that each Holder of Fixed Rate Notes has the right to
maintain its investment in the Notes free from repayment by the Company (except
as herein specifically provided for) and that the provision for payment of a
Make-Whole Amount by the Company in the event that the Fixed Rate Notes are
prepaid or are accelerated as a result of an Event of Default, is intended to
provide compensation for the deprivation of such right under such circumstances.
Section 10.3. Remedies. If any Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 10.2, any Holder may proceed to protect and
enforce the rights of such Holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in any of the Notes, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise. All rights, remedies
and powers conferred upon the Purchasers and the Collateral Agent under the
Transaction Documents shall be deemed cumulative and not exclusive of any other
rights, remedies or powers available under the Transaction Documents or at law
or in equity, and the Collateral Agent and the Purchaser will have all other
rights and remedies available at law and equity.
Section 10.4. Rescission. At any time after any of the Notes have been
declared due and payable pursuant to Section 10.2(b) or Section 10.2(c), the
Holders of not less than 50% in principal amount of the Notes then outstanding,
may, by written notice to the Company, rescind and annul any such declaration
and its consequences if (a) the Company has paid all overdue interest on the
Notes, all principal of and Make-Whole Amount on any Notes that are due and
payable and are unpaid other than by reason of such declaration, and all
interest on such overdue principal and Make-Whole Amount and (to the extent
permitted by applicable law) any overdue interest in respect of the Notes, at
the Default Rate, (b) all Defaults, other than non-payment of amounts that have
become due solely by reason of such declaration, have been cured or have been
waived pursuant to Section 15.1(a), and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under
49
this Section 10.4 will extend to or affect any subsequent Default or impair any
right consequent thereon.
ARTICLE XI.
REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES;
RESTRICTIONS ON TRANSFER OF NOTES
Section 11.1. Registration of Notes. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each Holder, each transfer thereof
and the name and address of each transferee of one or more Notes shall be
registered in such register. Prior to due presentment for registration of
transfer, the Person in whose name any Notes shall be registered shall be deemed
and treated as the owner and Holder thereof for all purposes hereof, and the
Company shall not be affected by any notice or knowledge to the contrary. The
Company shall give to any Holder that is an Institutional Investor promptly upon
request therefor, a complete and correct copy of the names and addresses of all
registered Holders of Notes.
Section 11.2. Transfer and Exchange of Notes. Upon surrender of any Notes
at the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered Holder of such Notes or its attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Notes or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the Holder
thereof) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Notes. Each such new Note shall be
payable to such Person as such Holder may request and shall be substantially in
the form of Exhibit 1 or Exhibit 2, as applicable. Each such new Note shall be
dated and bear interest from the date to which interest shall have been paid on
the surrendered Notes or dated the date of the surrendered Notes if no interest
shall have been paid thereon. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in respect of
any such transfer of Notes. Notes shall not be transferred in amounts of less
than $100,000, provided that if necessary to enable the registration of transfer
by a Holder of its entire holding of Notes, one Note may be in a denomination of
less than $100,000. Any transferee, by its acceptance of a Note registered in
its name (or the name of its nominee), shall be deemed to have made the
representations set forth in ARTICLE VI.
Section 11.3. Replacement of Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any of the Notes (which evidence shall be, in the
case of an Institutional Investor, notice from such Institutional Investor of
such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the Holder of such Notes is, or is a
nominee for, an original Purchaser or another Holder with a minimum net worth of
at least $25,000,000, such Person's own unsecured agreement of indemnity shall
be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
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the Company at its own expense shall execute and deliver, in lieu thereof, one
or more new Notes, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Notes or dated
the date of such lost, stolen, destroyed or mutilated Notes if no interest shall
have been paid thereon.
ARTICLE XII.
COLLATERAL AGENT
Section 12.1. Appointment and Authority. Each Purchaser hereby appoints BNP
Paribas as collateral agent (in such capacity, together with its successors and
assigns in such capacity, the "Collateral Agent") under the Transaction
Documents, to exercise such powers under the Transaction Documents as are
delegated to the Collateral Agent by the terms thereof, together with all such
powers as are reasonably incidental thereto, including taking, holding and
disposing of the Collateral. BNP Paribas hereby accepts such appointment. The
Collateral Agent shall act for and on behalf of the Purchasers in connection
with all Collateral and all Security Documents, including serving as mortgagee
under each Mortgage and exercising rights and remedies provided thereunder. The
Collateral Agent is hereby authorized to release Collateral to consummate any
transaction permitted by Section 9.1(h) or if the Collateral Agent has otherwise
received the prior consent of all of the Purchasers, it being understood that no
Purchaser itself need be a party to any such release. In its administration of
this Agreement and the other Transaction Documents, the Collateral Agent will
exercise the same care that a commercial bank would exercise in the
administration or handling of transactions for its own account. The relationship
of the Collateral Agent to the Purchasers is only that of one investor acting to
hold collateral on behalf of itself and others as a convenience to all, and
nothing in the Transaction Documents shall be construed to constitute the
Collateral Agent a trustee or other fiduciary for any Holder or of any
participation therein nor to impose on the Collateral Agent any duties and
obligations other than those expressly provided for in the Transaction
Documents. With respect to any matters not expressly provided for in the
Transaction Documents and any matters which the Transaction Documents place
within the discretion of the Collateral Agent, the Collateral Agent shall not be
required to exercise any discretion or take any action, and it may request
instructions from the Purchasers with respect to any such matter, in which case
it shall be required to act or to refrain from acting (and shall be fully
protected and free from liability to all Purchasers in so acting or refraining
from acting) upon the instructions of the Majority Purchasers, provided,
however, that the Collateral Agent shall not be required to take any action
which exposes it to a risk of personal liability that it considers unreasonable
or which is contrary to the Transaction Documents or to applicable law and
provided further, and notwithstanding anything to the contrary in this Agreement
or in any other Transaction Document, the Collateral Agent shall be under no
obligation to exercise any of the rights or powers vested in it by this
Agreement or any other Transaction Document at the request or direction of any
Purchaser unless the Purchasers shall have furnished to the Collateral Agent
security or indemnity to the satisfaction of the Collateral Agent against the
costs, expenses and liabilities that might be incurred by it in compliance with
such request or direction.
Section 12.2. Exculpation, Collateral Agent's Reliance, Etc. Neither the
Collateral Agent nor any Related Party shall be liable for any action taken or
omitted to be taken by any of them under or in connection with the Transaction
Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that each shall be
liable for its own gross negligence or
51
willful misconduct. Without limiting the generality of the foregoing, the
Collateral Agent (a) may treat the registered Holder of any Note as the Holder
thereof until the Collateral Agent receives written notice of the assignment or
transfer thereof in accordance with this Agreement; (b) may consult with legal
counsel (including counsel for the Company), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
Purchaser and shall not be responsible to any Purchaser for any statements,
warranties or representations made in or in connection with the Transaction
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of the
Transaction Documents on the part of the Company or any Subsidiary of the
Company or to inspect the Property (including the books and records) of the
Company or any Subsidiary of the Company or to forward notices to the Purchasers
on behalf of the Company or any of its Subsidiaries; (e) shall not be
responsible to any Purchaser for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Transaction Document or
any instrument or document furnished in connection therewith; (f) may rely upon
the representations and warranties of each of the Company and each Subsidiary of
the Company and the Purchasers in exercising its powers hereunder; and (g) shall
incur no liability under or in respect of the Transaction Documents by acting
upon any notice, consent, certificate or other instrument or writing (including
any telecopy, telegram, cable or telex) believed by it to be genuine and signed
or sent by the proper Person or Persons.
Section 12.3. Credit Decisions. Each Purchaser acknowledges that it has,
independently and without reliance upon any other Purchaser or the Collateral
Agent, made its own analysis of the Company and the transactions contemplated
hereby and its own independent decision to enter into this Agreement and the
other Transaction Documents, Each Purchaser also acknowledges that it will,
independently and without reliance upon any other Purchaser or the Collateral
Agent and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Transaction Documents. Each Purchaser acknowledges that Vinson
& Elkins L.L.P. is acting in this transaction as special counsel to the
Collateral Agent and the Purchasers. Notwithstanding the foregoing, and that
from time to time the interests of the Collateral Agent and the Purchasers may
be aligned, the Collateral Agent and the Purchasers understand, acknowledge and
agree that their interests may from time to time conflict, and to the extent of
any conflict, Vinson & Elkins L.L.P. shall be acting solely and exclusively as
counsel for the Collateral Agent under such circumstances. The Purchasers and
the Collateral Agent hereby waive any conflict created by the foregoing
arrangement in connection with the Transaction Documents and the transactions
contemplated thereby to the fullest extent permitted by applicable law.
Section 12.4. Rights as Purchaser. In its capacity as a Purchaser, the
Collateral Agent and each Affiliate of the Collateral Agent shall have the same
rights and obligations as any Purchaser and may exercise such rights as though
it were not the Collateral Agent or an Affiliate of the Collateral Agent. The
Collateral Agent and its Affiliates may generally engage in any kind of business
with the Company or any Subsidiary or Affiliate of the Company, all as if it
were not the Collateral Agent hereunder and without any duty to account therefor
to any Purchaser.
52
Section 12.5. Sharing of Set-Offs, Collections, and Payments.
(a) Each Purchaser agrees that if it shall, whether through the
exercise of rights under Security Documents or rights of banker's lien, set off,
or counterclaim against the Company or otherwise, obtain payment of a portion of
the aggregate Obligations owed to it which, taking into account all
distributions made by the Collateral Agent under this Agreement, causes such
Purchaser to have received more than it would have received had such payment
been made pro rata to each Purchaser in accordance with Section 12.5(b), then
(i) it shall be deemed to have simultaneously purchased and shall be obligated
to purchase interests in the Obligations as necessary to cause all Purchasers to
share all payments as if such payments had been made pro rata to each Purchaser
in accordance with Section 12.5(b), and (ii) such other adjustments shall be
made from time to time as shall be equitable to ensure that the Collateral Agent
and all Purchasers share all payments of Obligations as if such payments had
been made pro rata to each Purchaser in accordance with Section 12.5(b);
provided, however, that nothing herein contained shall in any way affect the
right of any Purchaser to obtain payment (whether by exercise of rights of
banker's lien, set-off or counterclaim or otherwise) of Liabilities other than
the Obligations, including, without limitation, any payment in respect of Debt
under the Bank Credit Agreement, any other Bank Document or any Hedging
Contract, and no obligation shall exist on the part of any Purchaser to share
any payments received in respect thereof. The Company expressly consents to the
foregoing arrangements and agrees that any holder of any such interest or other
participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by law exercise any
and all rights of banker's lien, set-off, or counterclaim as fully as if such
holder were a holder of the Obligations in the amount of such interest or other
participation. If all or any part of any funds transferred pursuant to this
Section 12.5(a) is thereafter recovered from the seller under this Section
12.5(a) which received the same, the purchase provided for in this Section
12.5(a) shall be deemed to have been rescinded to the extent of such recovery,
together with interest, if any, if interest is required pursuant to an order of
a Governmental Authority to be paid on account of the possession of such funds
prior to such recovery.
(b) 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 as follows:
(i) first, to reimbursement of expenses and indemnities owing by
the Company, any Guarantor or any Subsidiary provided for in this Agreement and
the other Transaction Documents to the Collateral Agent;
(ii) second, pro rata to reimbursement of expenses and
indemnities owing by the Company, any Guarantor or any Subsidiary provided for
in this Agreement and the other Transaction Documents to the Purchasers;
(iii) third, pro rata to Make-Whole Amounts on the Fixed Rate
Notes;
(iv) fourth, pro rata to accrued interest on the Notes;
(v) fifth, pro rata to fees;
53
(vi) sixth, pro rata to principal outstanding on the Notes;
(vii) seventh, pro rata to any other Obligations; and
(viii) eighth, to the Company or as otherwise required by any
Governmental Requirement.
Section 12.6. Investments. Whenever the Collateral Agent in good faith
determines that it is uncertain about how to distribute to Purchasers any funds
which it has received, or whenever the Collateral Agent in good faith determines
that there is any dispute among Purchasers about how such funds should be
distributed, the Collateral Agent may choose to defer distribution of the funds
which are the subject of such uncertainty or dispute. If the Collateral Agent in
good faith believes that the uncertainty or dispute will not be promptly
resolved, or if the Collateral Agent is otherwise required to invest funds
pending distribution to Purchasers, the Collateral Agent shall invest such funds
pending distribution in one or more separate accounts not commingled with other
assets of the Collateral Agent; all interest on any such investment shall be
distributed upon the distribution of such investment and in the same proportion
and to the same Persons as such investment. All moneys received by the
Collateral Agent for distribution to Purchasers (other than to a Person who is
the Collateral Agent in its separate capacity as a Purchaser) shall be held by
the Collateral Agent pending such distribution solely as the Collateral Agent
for such Purchasers, and the Collateral Agent shall have no equitable title to
any portion thereof.
Section 12.7. Benefit of Article XII. The provisions of this Article are
intended solely for the benefit of Purchasers and the Collateral Agent, and
neither the Company nor any Subsidiary of the Company shall be entitled to rely
on any such provision or assert any such provision in a claim or defense against
any Purchaser or the Collateral Agent. Purchasers and the Collateral Agent may
waive or amend such provisions as they desire without any notice to or consent
of the Company or any Subsidiary of the Company.
Section 12.8. Resignation. The Collateral Agent may resign at any time by
giving written notice thereof to the Purchasers and the Company. Each such
notice shall set forth the date of such resignation. Upon any such resignation
the Majority Purchasers shall designate a successor Collateral Agent. A
successor must be appointed for any retiring Collateral Agent, and such
Collateral Agent's resignation shall become effective when such successor
accepts such appointment. If, within thirty days after the date of the retiring
Collateral Agent's resignation, no successor Collateral Agent has been appointed
and has accepted such appointment, then the retiring Collateral Agent may
appoint a successor Collateral Agent. Upon the acceptance of any appointment as
the Collateral Agent hereunder by a successor Collateral Agent, the retiring
Collateral Agent shall be discharged from its duties and obligations under this
Agreement and the other Transaction Documents. After any retiring Collateral
Agent's resignation hereunder the provisions of this ARTICLE XII and ARTICLE XIV
shall continue to inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Collateral Agent under the Transaction Documents.
The Company hereby agrees to pay all fees, if any, as may be charged by any
successor Collateral Agent that is a national or state bank or trust company
which such Person may reasonably charge for its services as the Collateral
Agent, and to enter into or
54
consent to such documents and instruments as such successor Collateral Agent may
request in connection with its service and appointment as Collateral Agent.
ARTICLE XIII.
PAYMENTS ON NOTES
Section 13.1. Place of Payment. Subject to Section 13.2, payments of
principal, Make-Whole Amount and interest becoming due and payable on the Notes
shall be made in New York, New York at the principal office of BNP Paribas, in
New York (presently 787 7th Avenue, Suite 3000, New York, New York 10019) or
such other place in New York as BNP Paribas shall designate to the Company in
writing. Subject to Section 13.2, each Holder may change the place of payment of
the Notes by giving written notice to BNP Paribas and the Company long as such
place of payment shall be in New York.
Section 13.2. Home Office Payment. So long as any Purchaser originally
party hereto, or any nominee of such Purchaser, shall be the Holder of any Note,
and notwithstanding anything contained in Section 13.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount and interest by the method and at the address specified for
such purpose below such Purchaser's name in Schedule A, or by such other method
or at such other address as such Purchaser shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, such Purchaser shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 13.1. Prior
to any sale or other disposition of any Note held by such Purchaser or such
Purchaser's nominee, such Purchaser will, at such Purchaser's election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company in exchange
for a new Note or Notes pursuant to Section 11.2. The Company will afford the
benefits of this Section to any Institutional Investor that is the direct or
indirect transferee of any Note purchased by such Purchaser under this Agreement
and that has made the same agreement relating to such Note as such Purchaser has
made in this Section.
ARTICLE XIV.
EXPENSES, INDEMNITY, ETC.
Section 14.1. Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Company shall promptly pay (i) all
placement agent and similar fees, all transfer, stamp, mortgage, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the other Transaction
Documents or any other document referred to herein or therein, (ii) all
reasonable costs and expenses incurred by the Collateral Agent, its Affiliates,
the Purchasers and the Holders in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement and any other Transaction Document (whether or not such amendment,
waiver or consent becomes effective), including, without limitation: (A)
reasonable travel, photocopy, mailing, courier, telephone and other similar
expenses, the costs of
55
obtaining a private placement number for the Notes, and the cost of
environmental audits and surveys and appraisals, incurred in connection with the
preparation, negotiation, execution, delivery and administration (including in
connection with monitoring or confirming (or preparation or negotiation of any
document related to) the Company's and it Subsidiaries' compliance with any
covenants or conditions contained in this Agreement or in any other Transaction
Document) (both before and after the execution hereof and including advice of
counsel as to the rights and duties of the Collateral Agent, the Purchasers and
the Holders with respect thereto) of this Agreement and the other Transaction
Documents and any amendments, modifications or waivers of or consents related to
the provisions hereof or thereof, (B) all costs, expenses, taxes, assessments
and other charges incurred by the Collateral Agent or any Purchaser in
connection with any filing, registration, recording or perfection of any
security interest contemplated by this Agreement or any other Transaction
Document or any other document referred to therein, and (C) the reasonable costs
and expenses incurred in enforcing, protecting or defending (or determining
whether or how to enforce, protect or defend) any rights under this Agreement or
any other Transaction Document or in responding to any subpoena or other legal
process or informal investigative demand by any Governmental Authority issued in
connection with this Agreement or any other Transaction Document, or by reason
of being, or performing the duties of, the Collateral Agent or a Purchaser, and
(iii) the reasonable costs and expenses, including financial advisors' fees,
incurred by the Collateral Agent, its Affiliates and the Purchasers, in
connection with the insolvency or bankruptcy of the Company or any Subsidiary or
in connection with any work-out or restructuring of the transactions
contemplated hereby and the Notes.
Section 14.2. INDEMNITY.
(a) THE COMPANY SHALL INDEMNIFY THE COLLATERAL AGENT AND EACH
PURCHASER, 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 TRANSACTION DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR
THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER
TRANSACTION DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR
THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER
TRANSACTION DOCUMENT, (ii) THE FAILURE OF THE COMPANY OR ANY SUBSIDIARY TO
COMPLY WITH THE TERMS OF ANY TRANSACTION DOCUMENT, INCLUDING THIS AGREEMENT, OR
WITH ANY GOVERNMENTAL REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR
ANY BREACH OF ANY WARRANTY OR COVENANT OF THE COMPANY OR ANY SUBSIDIARY SET
FORTH IN ANY OF THE TRANSACTION DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR
CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY NOTE OR THE USE OF
THE PROCEEDS THEREFROM, (v) ANY OTHER ASPECT OF THE TRANSACTION
56
DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF THE COMPANY AND ITS
SUBSIDIARIES BY THE COMPANY AND ITS SUBSIDIARIES, (vii) ANY ASSERTION THAT THE
COLLATERAL AGENT OR THE PURCHASERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE SECURITY DOCUMENTS, (viii) ANY ENVIRONMENTAL LAW
APPLICABLE TO THE COMPANY 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, (ix) THE BREACH OR NON-COMPLIANCE BY THE COMPANY OR ANY
SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY
SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE COMPANY OR ANY SUBSIDIARY 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,
(xi) 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 THE COMPANY OR ANY SUBSIDIARY OR
ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES, (xii) ANY
ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE TRANSACTION DOCUMENTS, OR (xiv) 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, 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
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNITEE.
(b) To the extent permitted by applicable law, the Company shall not
assert, and hereby waives, 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 Transaction Document or any
57
agreement or instrument contemplated hereby or thereby, the transactions
contemplated thereby, the Notes or the use of the proceeds thereof.
Section 14.3. Payment of Expenses and Indemnity. All amounts due under this
ARTICLE XIV shall be payable promptly after written demand therefor.
ARTICLE XV.
AMENDMENT AND WAIVER
Section 15.1. Amendment and Waiver.
(a) Neither this Agreement nor any provision hereof nor any other
Transaction Document nor any provision thereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Company and the Majority Purchasers or by the Company and the Collateral
Agent with the consent of the Majority Purchasers; provided that no such
agreement shall (i) reduce the principal amount of, or the Make-Whole Amount on,
any Note or reduce the rate of, or change the method of computation of, interest
or the Make-Whole Amount thereon, or reduce any fees payable hereunder, or
reduce any other Obligations hereunder or under any other Transaction Document,
without the written consent of each Purchaser affected thereby, (ii) subject to
the provisions of ARTICLE X relating to acceleration or rescission, postpone the
scheduled date or time of any payment or prepayment of the principal amount of,
or the Make-Whole Amount on, any Note, or any interest thereon, or any fees
payable hereunder, or any other Obligations hereunder or under any other
Transaction Document, or reduce the amount of, waive or excuse any such payment
or prepayment, or postpone or extend the maturity date without the written
consent of each Purchaser affected thereby, (iii) waive or amend Section 1.1,
ARTICLE II, ARTICLE IV, ARTICLE VI, ARTICLE VII or Section 12.1 (or any defined
term as it is used therein), without the written consent of each Purchaser, (iv)
change Section 12.5 in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Purchaser, (v)
waive or amend Section 8.2 or Section 8.3 or change the definition of the terms
"Domestic Subsidiary", "Foreign Subsidiary" or "Subsidiary", without the written
consent of each Purchaser, (vi) release any Guarantor (except as set forth in
this Agreement or in a Guaranty Agreement), release any of the Collateral (other
than as provided in Section 12.1), or reduce the percentage set forth in Section
8.2(a) to less than 80%, without the written consent of each Purchaser, (vii)
waive or amend ARTICLE XVI, or the definitions used in ARTICLE XVI, which would
have the effect of accelerating the date for, or increasing the amount of, any
scheduled prepayment of principal of the Notes, or which would have the effect
of modifying ARTICLE XVI, or the definitions used in ARTICLE XVI, without the
written consent of each Purchaser and the Senior Indebtedness Representative or
(viii) change any of the provisions of this Section 15.1(a) or the definitions
of "Purchaser", "Majority Purchasers" or "Super-majority Purchasers" or any
other provision hereof specifying the number or percentage of Purchasers
required to waive, amend or modify any rights hereunder or under any other
Transaction Documents or make any determination or grant any consent hereunder
or any other Transaction Documents, without the written consent of each
Purchaser; provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Collateral Agent hereunder or under
any other Transaction Document without the prior written consent of the
Collateral Agent. Notwithstanding the foregoing, any supplement to the
Disclosure Schedule related to Section 5.1(l) shall be effective simply by
delivering to the
58
Collateral Agent a supplemental schedule clearly marked as such and, upon
receipt, the Collateral will promptly deliver a copy thereof to the Purchasers.
(b) No failure on the part of the Collateral Agent or any Purchaser 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 Transaction Documents
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under any of the Transaction Documents preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies of the Collateral Agent and the Purchasers
hereunder and under the other Transaction 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 Transaction Document or consent to
any departure by the Company therefrom shall in any event be effective unless
the same shall be permitted by Section 15.1(a), 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 purchase of a Note
shall not be construed as a waiver of any Default, regardless of whether the
Collateral Agent or any Purchaser may have had notice or knowledge of such
Default at the time.
Section 15.2. Binding Effect; Etc. Any amendment or waiver consented to as
provided in Section 15.1(a) applies equally to all Holders and is binding upon
them and upon each future Holder and upon the Company without regard to whether
such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default not expressly amended or waived or impair any right
consequent thereon. No course of dealing between the Company and any Holder nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver of any rights of any Holder of such Note.
Section 15.3. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each Purchaser
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such Purchaser to make an informed and considered decision with respect
to any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Transaction Documents. The Company will deliver executed or
true and correct copies of each amendment, waiver or consent effected pursuant
to the provisions of Section 15.1(a) to each Purchaser promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite Purchasers.
(b) Payment. The Company will not directly or indirectly pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, guaranty or other form of
credit support or credit enhancement, to any Purchaser as consideration for or
as an inducement to the entering into by any Purchaser of any waiver or
amendment of any of the terms and provisions hereof unless such remuneration is
concurrently paid, or security, guaranty or other form of credit support or
credit enhancement is concurrently granted, on the same terms, ratably to or for
the benefit of each Purchaser then outstanding even if such Purchaser did not
consent to such waiver or amendment.
59
Section 15.4. Notes Held by Company. Solely for the purpose of determining
whether the Holders of the requisite percentage of the aggregate principal
amount of Notes then outstanding approved or consented to any amendment, waiver
or consent to be given under this Agreement or the Notes, or have directed the
taking of any action provided herein or in the Notes to be taken upon the
direction of the Holders of a specified percentage of the aggregate principal
amount of Notes then outstanding, Notes directly or indirectly owned by the
Company or any of its Affiliates shall be deemed not to be outstanding.
ARTICLE XVI.
SUBORDINATION OF THE NOTES
Section 16.1. Subordination of Obligations. The Company and each Subsidiary
of the Company covenant and agree, and each Holder by its acceptance of a Note
covenants and agrees, that the payment of the Subordinated Obligations shall, to
the extent set forth in this ARTICLE XVI, be subordinate and junior and subject
in right of payment to the prior payment in full in cash of all Senior
Indebtedness, whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed.
Section 16.2. Payment Default or Acceleration. Except under circumstances
when the terms of Section 16.5 are applicable, if (a) a Payment Default or
Senior Indebtedness Acceleration shall have occurred and be continuing and (b)
the Holders or their collateral agent or other representative shall have
received a Payment Default Notice, then the Company and any Subsidiary of the
Company may not make, and no Holder shall accept, receive or collect, any direct
or indirect payment or distribution of any kind or character (in cash,
securities, other Property, by setoff, or otherwise other than Reorganization
Securities) of any properties or assets of the Company or any Subsidiary of the
Company on account of the Subordinated Obligations during the Payment Blockage
Period; provided, however, that in the case of any payment on or in respect of
any Subordinated Obligation that would (in the absence of any such Payment
Default Notice) have been due and payable on any date (a "Scheduled Payment
Date") during such Payment Blockage Period pursuant to the terms of the Notes as
in effect on the date hereof or as amended consistent with the provisions of
Section 16.12, the provisions of this Section 16.2 shall not prevent the making
and acceptance of such payment (a "Scheduled Payment"), together with any
additional default interest as is due on the Notes, on or after the date
immediately following the termination of such Payment Blockage Period. In the
event that, notwithstanding the foregoing, the Company or any Subsidiary of the
Company shall make any payment or distribution to any Holder prohibited by the
foregoing provisions of this Section 16.2, then and in such event such payment
or distribution shall be held in trust for the benefit of and immediately shall
be paid over to the holders of the Senior Indebtedness or the Senior
Indebtedness Representative for application against the Senior Indebtedness
remaining unpaid until such Senior Indebtedness are paid in full in cash. Any
Payment Default Notice shall be deemed received by the Holders upon the date of
actual receipt by the Holders or their collateral agent or other representative
of such Payment Default Notice in writing.
Section 16.3. Non-Payment Default. Except under circumstances when the
terms of Section 16.2 or Section 16.5 are applicable, if (a) a Non-Payment
Default shall have occurred and be continuing, (b) the Holders or their
collateral agent or other representative shall have received a Non-Payment
Default Notice, and (c) no Non-Payment Default Notice shall have been
60
given within the 360 day period immediately preceding the giving of such
Non-Payment Default Notice, then the Company and any Subsidiary of the Company
may not make, and no Holder shall accept, receive or collect, any direct or
indirect payment or distribution of any kind or character (in cash, securities,
other Property, by setoff, or otherwise other than Reorganization Securities) of
any properties or assets of the Company or any Subsidiary of the Company on
account of the Subordinated Obligations during the Non-Payment Blockage Period;
provided, however, that in the case of any Scheduled Payment on or in respect of
any Subordinated Obligation that would (in the absence of any such Non-Payment
Default Notice) have been due and payable on any Scheduled Payment Date during
such Non-Payment Blockage Period pursuant to the terms of the Notes as in effect
on the date hereof or as amended consistent with the requirements of Section
16.12, the provisions of this Section 16.3 shall not prevent the making and
acceptance of such Scheduled Payment, together with any additional default
interest as is due on the Notes, on or after the date immediately following the
termination of such Non-Payment Blockage Period. In the event that,
notwithstanding the foregoing, the Company or any Subsidiary of the Company
shall make any payment or distribution to any Holder prohibited by the foregoing
provisions of this Section 16.3, then and in such event such payment or
distribution shall be held in trust for the benefit of and immediately shall be
paid over to the holders of the Senior Indebtedness or the Senior Indebtedness
Representative for application against the Senior Indebtedness remaining unpaid
until such Senior Indebtedness are paid in full in cash. Any Non-Payment Default
Notice shall be deemed received by the Holders upon the date of actual receipt
by the Holders or their collateral agent or other representative of such
Non-Payment Default Notice in writing.
Section 16.4. Standstill. At any time that the Holders are not permitted to
receive payments on the Subordinated Obligations pursuant to either Section 16.2
or Section 16.3, the Holders and any collateral agent or other representative of
the Holders will not commence any Enforcement Action relative to the Company or
any Subsidiary of the Company during the Standstill Period. Upon the termination
of the Standstill Period, the Holders may exercise all rights or remedies they
may have in law or equity; provided, however, that if a Standstill Period
terminates pursuant to clause (e) thereof, no Holder and no agent or
representative thereof shall exercise any remedies against, or attempt to
foreclose upon, garnish, sequester or execute upon, any Property known to it as
constituting collateral for the Senior Indebtedness (other than to file or
record any judgment liens it may have obtained against such collateral) during
the period that such Standstill Period would have been in effect but for
termination pursuant to clause (e) of the definition of "Standstill Period;"
provided further, that the Payment Blockage Period or the Non-Payment Blockage
Period, as the case may be, if not also terminated, shall continue for its full
period notwithstanding the termination of the Standstill Period. Notwithstanding
the foregoing, no Standstill Period may be commenced while any other Standstill
Period exists or within 180 days following the termination of any prior
Standstill Period (provided that this sentence shall not relieve any Holder of
its obligation to provide notice under Section 16.9).
Section 16.5. Insolvency; Bankruptcy; Etc.. In the event of the institution
of any Insolvency Proceeding relative to the Company or any Subsidiary of the
Company, then:
(a) The holders of the Senior Indebtedness shall be entitled to
receive payment in full in cash of the Senior Indebtedness before the Holders
are entitled to receive any
61
direct or indirect payment or distribution of any kind or character, whether in
cash, Property or securities (other than Reorganization Securities) on account
of the Subordinated Obligations.
(b) Any direct or indirect payment or distribution of any kind or
character, whether in cash, Property or securities, by setoff or otherwise,
which may be payable or deliverable in such proceedings in respect of the
Subordinated Obligations but for the provisions of this ARTICLE XVI shall be
paid or delivered by the Person making such payment or distribution, whether the
Company, a Subsidiary of the Company, a trustee in bankruptcy, a receiver, a
liquidating trustee, or otherwise, directly to the holders of the Senior
Indebtedness or the Senior Indebtedness Representative, to the extent necessary
to make payment in full in cash of all Senior Indebtedness remaining unpaid;
provided, however, that no such delivery of any Reorganization Securities shall
be made to holders of the Senior Indebtedness. In the event that,
notwithstanding the foregoing provisions of this Section 16.5, the Holders shall
have received any such payment or distribution of any kind or character, whether
in cash, Property or securities, by setoff or otherwise, before all Senior
Indebtedness are paid in full in cash, which is to be paid to the holders of the
Senior Indebtedness under the foregoing provisions of this Section 16.5, then
and in such event such payment or distribution shall be held in trust for the
benefit of and immediately shall be paid over to the holders of the Senior
Indebtedness or the Senior Indebtedness Representative for application to the
payment of all Senior Indebtedness remaining unpaid until all such Senior
Indebtedness shall have been paid in full in cash.
(c) If no proof of claim is filed in any Insolvency Proceeding with
respect to any Subordinated Obligations by the tenth day prior to the bar date
for any such proof of claim, the Senior Indebtedness Representative may, after
notice to the Holders or their collateral agent or other representative, file
such a proof of claim on behalf of the Holders, and each Holder hereby
irrevocably appoints the Senior Indebtedness Representative as its agent and
attorney-in-fact for such limited purpose; provided, that the foregoing shall
not confer to the holder of any Senior Indebtedness the right to vote on behalf
of the Holders in any Insolvency Proceedings.
Section 16.6. No Impairment. No right of any present or future holder of
Senior Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or any Subsidiary of the Company or by any non-compliance by
the Company or any Subsidiary of the Company with the terms, provisions, and
covenants of this ARTICLE XVI or the Notes, regardless of any knowledge thereof
any such holder may have or be otherwise charged with. The provisions of this
ARTICLE XVI shall be enforceable directly by any present or future holder of
Senior Indebtedness and/or the Senior Indebtedness Representative.
Section 16.7. Rights of Creditors; Subrogation. The provisions of this
ARTICLE XVI are for the purpose of defining the relative rights of the holders
of Senior Indebtedness on the one hand, and the Holders on the other hand, and
nothing herein shall impair, as between the Company and the Holders, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holders the principal thereof and Make-Whole Amount (in the case of Fixed Rate
Notes), if any, and interest thereon in accordance with their terms and the
provisions hereof, nor shall anything herein, except as otherwise provided in
Section 16.4, prevent the Holders from exercising all remedies otherwise
permitted by applicable law or hereunder upon default hereunder or under the
Notes (including the right to demand payment and sue for performance
62
hereof and of the Notes and to accelerate the maturity thereof as provided by
the terms of the Notes), subject to the rights of holders of Senior Indebtedness
under this ARTICLE XVI. Upon payment in full of the Senior Indebtedness in cash
and termination of the commitments of any holder of Senior Indebtedness to make
loans or extensions of credit, and expiration or termination of all letters of
credit issued by any holder of Senior Indebtedness, the Holders shall, to the
extent of any payments or distributions paid or delivered to the holders of the
Senior Indebtedness or otherwise applied to the Senior Indebtedness pursuant to
the provisions of this ARTICLE XVI, be subrogated to the rights of the holders
of the Senior Indebtedness to receive payments or distributions of assets of the
Company made on Senior Indebtedness (and any security therefor) until the
Subordinated Obligations shall be paid in full (and, for this purpose, no such
payments or distributions paid or delivered to the holders of the Senior
Indebtedness or otherwise applied to the Senior Indebtedness shall be deemed to
have discharged the Subordinated Obligations), and, for the purposes of such
subrogation, no payments to the holders of Senior Indebtedness of any cash,
assets, stock, or obligations to which the Holders would be entitled except for
the provisions of this ARTICLE XVI shall, as between the Company, its creditors
(other than the holders of the Senior Indebtedness), and the Holders, be deemed
to be a payment by the Company to or on account of Senior Indebtedness. The fact
that failure to make any payment on account of the Subordinated Obligations is
caused by reason of the operation of any provision of this ARTICLE XVI shall not
be construed as preventing the occurrence of an Event of Default.
Section 16.8. Payments on Senior Indebtedness. In the event that any Holder
determines in good faith that evidence is required with respect to the right of
any holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this ARTICLE XVI or the amount of such participation, such Holder
may request such Person to furnish evidence to the reasonable satisfaction of
such Holder as to the amount of Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this ARTICLE XVI, and if such evidence is not furnished, such Holder may defer
any payment to such Person pending judicial determination as to the right of
such Person to receive such payment; provided that, upon the written request of
such Person to such Holder, such payment shall be made to the court having
jurisdiction over such judicial determination or to another Person mutually
satisfactory to such Person and such Holder, as escrowee, to be held and
invested pending such judicial determination in accordance with such
instructions as shall be mutually satisfactory to such Person and such Holder
and upon such judicial determination becoming final and nonappealable to be
distributed in accordance therewith to the Person entitled thereto.
Section 16.9. Notice of Acceleration, Enforcement Action.
(a) Each Holder agrees that in the event any Event of Default shall
occur, and as a result thereof, any Holder or any collateral agent or other
representative of such Holder accelerates maturity of the Notes, then such
Holder or collateral agent or other representative shall give prompt (and in any
event within 3 Business Days) notice thereof in writing to the holders of the
Senior Indebtedness or the Senior Indebtedness Representative. The Company and
any Subsidiary of the Company may not pay the Notes until ten Business Days
after the Senior Indebtedness Representative receives the notice described above
and, after that ten
63
Business Day period, may pay the Notes, and the Holders may receive or collect
such payment, only if the provisions of this ARTICLE XVI do not prohibit such
payment at that time.
(b) Each Holder agrees that in the event any Event of Default shall
occur, and as a result thereof, any Holder or any collateral agent or other
representative of such Holder intends to commence any Enforcement Action, then
such Holder or collateral agent or other representative shall first deliver
notice thereof in writing to the Senior Indebtedness Representative both (i) not
less than 10 days prior to taking any such Enforcement Action, and (ii) one
Business Day after such Enforcement Action is taken.
Section 16.10. Reinstatement. The provisions of this ARTICLE XVI shall
remain in force and effect until the indefeasible payment in full of all Senior
Indebtedness and the termination of all commitments of any holder of Senior
Indebtedness to make loans or extensions of credit, and expiration or
termination of all letters of credit issued by any holder of Senior
Indebtedness. To the extent any payment of or distribution in respect of the
Senior Indebtedness (whether by or on behalf of the Company, as proceeds of
security or enforcement of any right of set off or otherwise) is declared to be
fraudulent or preferential, set aside or required to be paid to the Company or
any Subsidiary of the Company or any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar person under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then if such
payment or distribution is recovered by, or paid over to, the Company or any
Subsidiary of the Company or such receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar person, the Senior Indebtedness or part thereof
originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment has not occurred and the provisions of this
ARTICLE XVI shall continue to be applicable in respect of said reinstated Senior
Indebtedness.
Section 16.11. Rights of Holders of Senior Indebtedness. The holders of
Senior Indebtedness may, at any time and from time to time subject to the terms
of the Senior Indebtedness, without the consent of or notice to the Holders or
any collateral agent or other representative of the Holders, without incurring
responsibility to the Holders and without impairing or releasing the
subordination or other benefits provided in this ARTICLE XVI or the obligations
hereunder of the Holders to the holders of Senior Indebtedness, do any one or
more of the following: (a) change the manner, place or terms of payment or
extend the time of payment of, or renew, increase (but not in excess of the cap
provided for in the definition of "Senior Indebtedness"), alter or amend, Senior
Indebtedness or any instrument evidencing the same or any covenant or agreement
under which Senior Indebtedness is outstanding or secured or any liability of
any obligor thereon; (b) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Indebtedness; (c)
settle or compromise any Senior Indebtedness or any liability of any obligor
thereon or release any Person liable in any manner for the payment of Senior
Indebtedness; and (d) waive any default under Senior Indebtedness and exercise
or refrain from exercising any rights against the Company, any Subsidiary of the
Company or any other Person. The foregoing provisions are not intended to permit
a change to the definition of "Senior Indebtedness".
Section 16.12. Amendments. No amendment of this ARTICLE XVI, or the
definitions used in this ARTICLE XVI, or which would have the effect of
modifying this ARTICLE XVI, or the definitions used in this ARTICLE XVI, shall
be effective unless it is in writing and made
64
with the prior written consent of the Required Banks or by the Senior
Indebtedness Representative on their behalf.
Section 16.13. Identity of Noteholders for Notice Purposes. For purposes of
any notice required or permitted to be given hereunder by the holders of the
Senior Indebtedness or the Senior Indebtedness Representative to the Holders, or
any of them, the holders of the Senior Indebtedness and the Senior Indebtedness
Representative shall be entitled to rely, conclusively, on the identity and
address of each Holder as set forth in this Agreement or as otherwise set forth
in the most recent notice received by the Senior Indebtedness Representative
from a Holder referring to this ARTICLE XVI for purposes of providing the
identity and address of each Holder. The Holders agree that any notices required
to be given to the Holders shall be effective if such notice is given to the
collateral agent or other representative of the Holders. For so long as the
Subordinated Obligations are outstanding, the Holders agree to designate and
maintain a collateral agent or other representative for such purposes.
Section 16.14. Liens.
(a) All Liens granted by the Company, or, if applicable, any
Subsidiary of the Company, which at any time secure any Note are hereby made,
and will at all times prior to the full payment or discharge of the Senior
Indebtedness be, subject and subordinate to all Liens granted by the Company or
any Subsidiary of the Company which at any time secure the Senior Indebtedness,
which subordination shall be effective whether or not all such Liens securing
Senior Indebtedness have been properly recorded, filed and otherwise perfected
prior to all such Liens securing any Note and regardless of the relative
priority of such Liens as determined without regard to this ARTICLE XVI. The
mortgages included in the Bank Documents do (and other mortgages, security
agreements and similar Bank Documents may) describe the indebtedness secured
thereby in a manner which might include indebtedness other than the Senior
Indebtedness. For so long as any Note is outstanding, as between the Holders and
the holders of the Senior Indebtedness, only the Senior Indebtedness shall be
deemed to be secured by any Liens granted under the Bank Documents.
(b) Each Holder agrees that it will not initiate, join in or prosecute
any claim, action or other proceeding challenging the validity or enforceability
of the Senior Indebtedness or the Liens securing the Senior Indebtedness.
Section 16.15. Legend.
(a) Each Note shall be conspicuously inscribed with a legend
substantially in the form and substance as follows:
PAYMENT OF THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN ARTICLE XVI OF
THE NOTE PURCHASE AGREEMENT DATED JUNE 27, 2003 BY AND AMONG QUICKSILVER
RESOURCES, INC., BNP PARIBAS, AS COLLATERAL AGENT AND THE PURCHASERS
PARTIES THERETO, BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO THE PRIOR
PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS, THE PROVISIONS OF WHICH ARTICLE
XVI OF SUCH NOTE PURCHASE AGREEMENT BEING
65
INCORPORATED HEREIN AND BY THIS REFERENCE BEING MADE A PART HEREOF.
(b) The Company and each Holder or the collateral agent or other
representative of the Holders shall cause each mortgage, security agreement and
other instrument securing all or any part of the Subordinated Obligations to be
conspicuously inscribed with a legend substantially in the form and substance as
follows:
ALL LIENS GRANTED BY THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN
ARTICLE XVI OF THE NOTE PURCHASE AGREEMENT DATED JUNE 27, 2003 BY AND AMONG
QUICKSILVER RESOURCES, INC., BNP PARIBAS, AS COLLATERAL AGENT AND
PURCHASERS PARTIES THERETO, BE SUBORDINATE AND JUNIOR TO ALL LIENS GRANTED
BY GRANTOR TO SECURE THE SENIOR INDEBTEDNESS REGARDLESS OF THE RELATIVE
PRIORITY OF SUCH LIENS AS DETERMINED WITHOUT REGARD TO SUCH ARTICLE XVI OF
SUCH NOTE PURCHASE AGREEMENT, THE PROVISIONS OF WHICH ARTICLE XVI OF SUCH
NOTE PURCHASE AGREEMENT BEING INCORPORATED HEREIN AND BY THIS REFERENCE
BEING MADE A PART HEREOF.
Section 16.16. Successors and Assigns. Each Holder acknowledges and agrees
that the provisions of this ARTICLE XVI are, and are intended to be, an
inducement and a consideration to each holder of Senior Indebtedness, whether
such Senior Indebtedness was made or incurred before or after the issuance of
the Notes, to permit the Company to incur the Subordinated Obligations and to
make, extend, continue and/or acquire the Senior Indebtedness and each holder of
the Senior Indebtedness shall be deemed conclusively to have relied upon the
provisions of this ARTICLE XVI in permitting the Company to incur the
Subordinated Obligations and in making, extending, continuing and/or acquiring
such Senior Indebtedness. This ARTICLE XVI shall pass to and be fully binding
upon the successors and assigns of each Holder and shall inure to the benefit of
the present and future holders of the Senior Indebtedness and the Senior
Indebtedness Representative and their respective successors and assigns
(including without limitation any Person refinancing any Senior Indebtedness).
ARTICLE XVII.
MISCELLANEOUS
Section 17.1. Notices. All notices and communications provided for
hereunder shall be in writing and sent (a) by telecopy if the sender on the same
day sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid), or (b) by registered or certified mail with return
receipt requested (postage prepaid), or (c) by a recognized overnight delivery
service (with charges prepaid). Any such notice must be sent:
(i) if to the Collateral Agent, to it at 1200 Smith Street, Suite
3100, Houston, Texas 77002, Attention of Brian Malone (Telecopy No. (713)
659-6915), with a copy to the Collateral Agent, at 1200 Smith Street, Suite
3100, Houston, Texas 77002, Attention of Gabe Ellisor (Telecopy No. (713)
659-6915), Houston, Texas 77002;
66
(ii) if to a Purchaser or its nominee, to the Purchaser or its
nominee at the address specified for such communications in Schedule A, or at
such other address as such Purchaser or its nominee shall have specified to the
Company in writing;
(iii) if to the Company, to the Company at 777 West Rosedale
Street, Fort Worth, Texas 76104, Attention of Glenn M. Darden, President and
Chief Executive Officer (Telecopy No. (817) 665-5005, or at such other address
as the Company shall have specified to the Holder of each Note in writing.
Notices under this Section 17.1 will be deemed given only when actually
received.
Section 17.2. Acknowledgments and Admissions. The Company represents,
warrants, acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Transaction Documents to which it is
a party, (ii) it has made an independent decision to enter into this Agreement
and the other Transaction Documents to which it is a party, without reliance on
any representation, warranty, covenant or undertaking by Purchasers or the
Collateral Agent whether written, oral or implicit, other than as expressly set
out in this Agreement or in another Transaction Document delivered on or after
the date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by Purchasers or the Collateral Agent as to the
Transaction Documents except as expressly set out in this Agreement or in
another Transaction Document delivered on or after the date hereof, (iv) neither
Purchasers nor the Collateral Agent owes any fiduciary duty to the Company or
any Subsidiary with respect to any Transaction Document or the transactions
contemplated thereby, (v) the relationship pursuant to the Transaction Documents
between the Company, on one hand, and Purchasers and the Collateral Agent, on
the other hand, is and shall be solely that of debtor and creditor,
respectively, (vi) no partnership or joint venture exists with respect to the
Transaction Documents between the Company and any of the Purchasers or the
Collateral Agent, (vii) should a Default occur or exist each Purchaser and the
Collateral Agent will determine in its sole and absolute discretion and for its
own reasons what remedies and actions it will or will not exercise or take at
that time, (viii) without limiting any of the foregoing, the Company is not
relying upon any representation or covenant by any Purchaser or the Collateral
Agent, or any representative thereof, and no such representation or covenant has
been made, that Purchasers or the Collateral Agent at the time of a Default, or
at any other time, waive, negotiate, discuss, or take or refrain from taking any
action permitted under the Transaction Documents with respect to any such
Default or any other provision of the Transaction Documents, and (ix) each
Purchaser has relied upon the truthfulness of the acknowledgments in this
Section 17.2 in deciding to execute and deliver this Agreement and to purchase
the Notes.
Section 17.3. Survival. All covenants, agreements, representations and
warranties made by the Company or any Subsidiary herein or in any other
Transaction Document and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Transaction Document
shall be considered to have been relied upon by the other parties hereto and any
subsequent Holder, and shall survive the execution and delivery of this
Agreement and the other Transaction Documents, the performance hereof and
thereof, the sale, purchase, transfer (or any portion of or interest in), and
payment of, the Notes, regardless of any investigation made by any such Person
or on its behalf and notwithstanding that the Collateral Agent, any Purchaser or
any other Person may have had notice or knowledge of any Default or
67
incorrect representation or warranty at any time, and shall continue in full
force and effect as long as the principal of or any accrued interest on any
Note, any Make-Whole Amount or any fee or any other amount payable under this
Agreement or any other Transaction Document is outstanding and unpaid. The
provisions of ARTICLE XII and ARTICLE XIV shall survive and remain in full force
and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Notes, or the termination of this Agreement, any
other Transaction Document or any provision hereof or thereof.
Section 17.4. Revival; Reinstatement. 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 bankruptcy
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 Collateral Agent's and the Purchasers' Liens, security
interests, rights, powers and remedies under this Agreement and each other
Transaction Document shall continue in full force and effect. In such event,
each Transaction Document shall be automatically reinstated and the Company
shall take such action as may be requested by the Collateral Agent or any
Purchaser to effect such reinstatement.
SECTION 17.5. ENTIRE AGREEMENT. ALL STATEMENTS AND AGREEMENTS CONTAINED IN
ANY CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY THE COMPANY TO THE PURCHASERS
OR THE COLLATERAL AGENT UNDER ANY TRANSACTION DOCUMENT SHALL BE DEEMED
REPRESENTATIONS AND WARRANTIES BY THE COMPANY OR AGREEMENTS AND COVENANTS OF THE
COMPANY UNDER THIS AGREEMENT. SUBJECT TO THE PRECEDING SENTENCE, THIS AGREEMENT,
THE OTHER TRANSACTION DOCUMENTS AND ANY SEPARATE LETTER AGREEMENTS WITH RESPECT
TO FEES PAYABLE TO THE COLLATERAL AGENT OR THE PURCHASERS 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
TRANSACTION 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.
Section 17.6. Parties in Interest. All grants, covenants and agreements
contained in the Transaction Documents shall bind and inure to the benefit of
the parties thereto and their respective successors and assigns; provided,
however, that the Company may not assign or transfer any of its rights or
delegate any of its duties or obligations under any Transaction Document without
the prior consent of Purchasers as required under Section 15.1(a).
Section 17.7. Governing Law; Jurisdiction; Consent to Service of Process.
68
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE TRANSACTION
DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, 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 HEREIN OR SUCH OTHER ADDRESS AS IS SPECIFIED FROM TIME TO TIME
PURSUANT TO THE PROVISIONS HEREIN, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30)
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY
HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER 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 TRANSACTION 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 OF 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
TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
Section 17.7.
69
Section 17.8. Limitation on Interest. The Purchasers, the Collateral Agent,
the Company and any other parties to the Transaction Documents intend to
contract in strict compliance with applicable usury law from time to time in
effect. In furtherance thereof such Persons stipulate and agree that none of the
terms and provisions contained in the Transaction Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. Neither the Company nor
any present or future guarantors, endorsers, or other Persons hereafter becoming
liable for payment of any Obligation shall ever be liable for unearned interest
thereon or shall ever be required to pay interest thereon in excess of the
maximum amount that may be lawfully charged under applicable law from time to
time in effect, and the provisions of this Section shall control over all other
provisions of the Transaction Documents which may be in conflict or apparent
conflict herewith. Purchasers and the Collateral Agent expressly disavow any
intention to charge or collect excessive unearned interest or finance charges in
the event the maturity of any Obligation is accelerated. If (a) the maturity of
any Obligation is accelerated for any reason, (b) any Obligation is prepaid and
as a result any amounts held to constitute interest are determined to be in
excess of the legal maximum, or (c) any Purchaser or any other holder of any or
all of the Obligations shall otherwise collect moneys which are determined to
constitute interest which would otherwise increase the interest on any or all of
the Obligations to an amount in excess of that permitted to be charged by
applicable law then in effect, then all such sums determined to constitute
interest in excess of such legal limit shall, without penalty, be promptly
applied to reduce the then outstanding principal of the related Obligations or,
at such Purchaser's or such holder's option, promptly returned to the Company or
the other payor thereof upon such determination. In determining whether or not
the interest paid or payable, under any specific circumstance, exceeds the
maximum amount permitted under applicable law, Purchasers, the Collateral Agent
and the Company (and any other payors or payees thereof) shall to the greatest
extent permitted under applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Notes in accordance with the
amounts outstanding from time to time thereunder and the maximum legal rate of
interest from time to time in effect under applicable law in order to lawfully
charge the maximum amount of interest permitted under applicable law.
Section 17.9. Termination. In its sole and absolute discretion the Company
may at any time after all Obligations have been indefeasibly paid in full in
cash elect in a notice delivered to all Purchasers to terminate this Agreement
and the other Transaction Documents. Upon receipt by Purchasers of such a
notice, if no Obligations are then owing then this Agreement and all other
Transaction Documents shall thereupon be terminated, the Liens thereunder
released, and the parties thereto released from all prospective obligations
thereunder. At the request and expense of the Company, Purchasers and the
Collateral Agent shall prepare and execute all necessary instruments to reflect
and effect such termination of the Transaction Documents.
Section 17.10. Reproduction of Documents. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications that may hereafter be executed, (b) documents received by the
Collateral Agent or any Purchaser at the Closing (except the Notes themselves),
and (c) financial statements, certificates and other information
70
previously or hereafter furnished to the Collateral Agent or such Purchaser, may
be reproduced by the Collateral Agent or such Purchaser by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and the Collateral Agent or such Purchaser may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by the Collateral Agent or such Purchaser in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section shall
not prohibit the Company or the Collateral Agent or any Purchaser from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the in accuracy of any
such reproduction.
Section 17.11. Confidentiality. For the purposes of this Section,
"Confidential Information" means information delivered to any Purchaser by or on
behalf of the Company or any Subsidiary of the Company in connection with the
transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by such Purchaser as being confidential
information of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to such
Purchaser prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by such Purchaser or any Person acting
on such Purchaser's behalf, (c) otherwise becomes known to such Purchaser other
than through disclosure by the Company or any Subsidiary or (d) constitutes
financial statements delivered to such Purchaser hereunder that are otherwise
publicly available. Such Purchaser will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by such Purchaser
in good faith to protect confidential information of third parties delivered to
such Purchaser, provided that such Purchaser may deliver or disclose
Confidential Information to (i) such Purchaser's directors, officers, employees,
agents, attorneys, investors, and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by such
Purchaser's Notes), (ii) such Purchaser's Affiliates, auditors, attorneys, and
other professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section, (iii)
any other Purchaser, (iv) any Institutional Investor to which such Purchaser may
sell or offer to sell such Note or any part thereof or any participation therein
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section), (v) any Person from
which such Purchaser may offer to purchase any security of the Company (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section), (vi) any federal or
state regulatory authority having jurisdiction over such Purchaser, (vii) the
National Association of Insurance Commissioners or any similar organization, or
any nationally recognized rating agency that requires access to information
about such Purchaser's investment portfolio or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (1) to effect
compliance with any law, rule, regulation or order applicable to such Purchaser,
(2) in response to any subpoena or other legal process, (3) in connection with
any litigation to which such Purchaser is a party or (4) if an Event of Default
has occurred and is continuing, to the extent such Purchaser may reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under such
Purchaser's Notes and this Agreement.
71
Each Holder, by its acceptance of such Note, will be deemed to have agreed to be
bound by and to be entitled to the benefits of this Section as though it were a
party to this Agreement. On reasonable request by the Company in connection with
the delivery to any Purchaser of information required to be delivered to such
Purchaser under this Agreement or requested by such Purchaser (other than a
Purchaser that is a party to this Agreement or its nominee), such Purchaser will
enter into an agreement with the Company embodying the provisions of this
Section. (References to "Purchaser" in this Section 17.11 also refer to the
Collateral Agent.) Notwithstanding anything herein to the contrary, except as
reasonably necessary to comply with the securities laws, any Holder (and each
employee, representative or other agent of the investors) may disclose to any
and all persons, without limitation of any kind, the U.S. federal income tax
treatment and tax structure of the offering and all materials of any kind
(including opinions and other tax analyses) that are provided to such Holder
relating to such tax treatment and tax structure. For this purpose, "tax
structure" is limited to facts relevant to the U.S. federal income tax treatment
of the offering and does not include information relating to the identity of the
issuer, its Affiliates, agents or advisors.
Section 17.12. Rules of Construction; Etc. 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 herein),
(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 herein), (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, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, Exhibits and Schedules to, this Agreement. No provision of this
Agreement or any other Transaction Document shall be interpreted or construed
against any Person solely because such Person or its legal representative
drafted such provision. Each covenant contained herein shall be construed
(absent express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant shall not
(absent such an express contrary provision) be deemed to excuse compliance with
any other covenant. Where any provision herein refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
Section 17.13. Severability. Any provision of this Agreement or any other
Transaction Document that is prohibited, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, illegality or
72
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
Section 17.14. Counterparts. This Agreement may be separately executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement,
73
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
COMPANY: QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
-------------------------------------
Glenn Darden
President and Chief Executive Officer
Address:
777 West Rosedale St.
Fort Worth, Texas 76104
Attention: Glenn M. Darden
Telephone: (817) 665-5000
Telecopy: (817) 665-5005
Signature Page
Page 1
COLLATERAL AGENT: BNP PARIBAS, as Collateral Agent
By: /s/ Brian M. Malone
-------------------------------------
Name: Brian M. Malone
Title: Managing Director
By: /s/ Gabe Ellisor
-------------------------------------
Name: Gabe Ellisor
Title: Vice President
Signature Page
Page 2
PURCHASER: THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/ Ric E. Able
-------------------------------------
Name: Ric E.Able
Title: Vice President
Signature Page
Page 3
PURCHASER: BNP PARIBAS
By: /s/ Brian M. Malone
-------------------------------------
Name: Brian M. Malone
Title: Managing Director
By: /s/ Gabe Ellisor
-------------------------------------
Name: Gabe Ellisor
Title: Vice President
Signature Page
Page 4
PURCHASER: FORTIS CAPITAL CORP.
By: /s/ Christopher S. Parada
-------------------------------------
Name: Christopher S. Parada
Title: Vice President
By: /s/ Darrell W. Holley
-------------------------------------
Name: Darrell W. Holley
Title: Managing Director
Signature Page
Page 5
PURCHASER: THE ROYAL BANK OF SCOTLAND plc
By: /s/ Adam Pettifer
-------------------------------------
Name: Adam Pettifer
Title: Senior Vice President
Signature Page
Page 6
Schedule A
INFORMATION RELATING TO PURCHASERS
Aggregate
Principal
Amount of Notes Note
to be Purchased Denomination(s)
--------------- ---------------
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA $30,000,000.00 $30,000,000.00
(1) Type of Notes to be Purchased: Fixed Rate Notes
(2) All payments on account of Notes held by such purchaser shall be made by
wire transfer of immediately available funds for credit to:
Account No.: 890-0304-391
The Bank of New York
New York, NY
(ABA No.: 021-000-018)
Each such wire transfer shall set forth the name of the Company, a
reference to "Senior Subordinated Second Lien Mortgage Notes due
December 31, 2006, Security No. !INV 8700!, PPN 74837R A@ 3", and the
due date and application (as among principal, interest and Make-Whole
Amount) of the payment being made.
(3) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Investment Operations Group
Gateway Center Two, 10th Floor
100 Mulberry Street
Newark, NJ 07102-4077
Attention: Manager, Billings and Collections
(4) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, TX 75201
Attention: Managing Director
(5) Recipient of telephonic prepayment notices:
Manager, Trade Management Group
Telephone: (973) 367-3141
Facsimile: (800) 224-2278
Schedule A
Page 1
(6) Tax Identification No.: 22-1211670
Schedule A
Page 2
Aggregate
Principal
Amount of Notes Note
to be Purchased Denomination(s)
--------------- ---------------
BNP PARIBAS
$10,000,000.00 $10,000,000.00
(1) Type of Notes to be Purchased: Fixed Rate Notes
(2) All payments on account of Notes held by such purchaser shall be made by
wire transfer of immediately available funds for credit to:
Account No.: 521-315-43461 (further credit to BNPP Houston Loan
Servicing)
BNP Paribas
New York, New York
(ABA No.: 026-007-689)
Each such wire transfer shall set forth the name of the Company, a
reference to Quicksilver Resources "Senior Subordinated Second Lien
Mortgage Notes due December 31, 2006", and the due date and application
(as among principal, interest and Make-Whole Amount) of the payment
being made.
(3) Address for all notices relating to payments:
BNP Paribas
919 Third Avenue
New York, New York 10022
Attention: Peter Medina/Pedro Rivera
(4) Address for all other communications and notices:
BNP Paribas
1200 Smith Street
Houston, Texas 77002
Attention: Brian Malone/Gabe Ellisor
Telephone: (713) 982-1153/(713) 982-1168
Facsimile: (713) 659-6915
(5) Recipient of telephonic prepayment notices:
Peter Medina/Pedro Rivera
Telephone: (212) 471-6457
Facsimile: (212) 841-2683
(6) Tax Identification No.: 94-1677-765
Schedule A
Page 3
Aggregate
Principal
Amount of Notes Note
to be Purchased Denomination(s)
--------------- ---------------
FORTIS CAPITAL CORP.
$10,000,000.00 $10,000,000.00
(1) Type of Notes to be Purchased: Floating Rate Notes
(2) All payments on account of Notes held by such purchaser shall be made by
wire transfer of immediately available funds for credit to:
Account No.: 001-1-624418
The Chase Manhattan Bank
(ABA No.: 021000021
Account Name: Fortis Capital Corp
Each such wire transfer shall set forth the name of the Company, a
reference to "Senior Subordinated Second Lien Mortgage Notes due
December 31, 2006", and the due date and application (as among principal
and interest) of the payment being made.
(3) Address for all notices relating to payments:
Fortis Capital Corp
301 Tresser Blvd.
Stamford, CT 06901
Attention: Marlene Purrier-Ellis
(203) 705-5753
(4) Address for all other communications and notices:
Fortis Capital Corp
301 Tresser Blvd.
Stamford, CT 06901
Attention: Marlene Purrier-Ellis
(203) 705-5753
(5) Recipient of telephonic prepayment notices:
Marlene Purrier-Ellis
Peter Testa
Telephone: (203) 705-5753
Facsimile: (203) 705-5888
(6) Tax Identification No.: 06-1580656
Schedule A
Page 4
Aggregate
Principal
Amount of Notes Note
to be Purchased Denomination(s)
--------------- ---------------
THE ROYAL BANK OF SCOTLAND plc
$20,000,000.00 $20,000,000.00
(1) Type of Notes to be Purchased: Floating Rate Notes
(2) All payments on account of Notes held by such purchaser shall be made by
wire transfer of immediately available funds for credit to:
Account No.: 400931052
The Chase Manhattan Bank
New York, New York
ABA No.: 021000021
Each such wire transfer shall set forth the name of the Company, a
reference to "Senior Subordinated Second Lien Mortgage Notes due
December 31, 2006", and the due date and application (as among principal
and interest) of the payment being made.
(3) Address for all notices relating to payments:
The Royal Bank of Scotland plc
New York Branch
101 Park Avenue
New York, New York 10178
Attention: Sheila Shaw
(4) Address for all other communications and notices:
The Royal Bank of Scotland plc
600 Travis Street, Suite 6070
Houston, Texas 77002
Attention: Bobby Poirrier
(5) Recipient of telephonic prepayment notices:
Sheila Shaw
Telephone: (212) 401-1406
Facsimile: (212) 401-1494
(6) Tax Identification No.: 131898944
Schedule A
Page 5
SCHEDULE B
DEFINED TERMS
As used in this Schedule and in the Agreement to which this Schedule is
attached (the "Agreement"), each of the following terms has the meaning set
forth below or set forth in the section of the Agreement referred to in the
following definition of such term:
"Adjusted LIBO Rate" means, with respect to any Floating Rate Note for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
"Adjusted Total NPV" means at any time an amount determined in accordance
with Section 9.1(q)(iii), as the same may be adjusted from time to time pursuant
to Section 8.3(c) or Section 9.1(h)(iv). No category of reserves other than
Proved Reserves shall be taken into account in determining Adjusted Total NPV
and at least 70% of Adjusted Total NPV must be comprised of PDP NPV.
"Advance Payment" has the meaning assigned such term in Section 9.1(h).
"Advance Payment Contract" has the meaning assigned such term in Section
9.1(h).
"Affiliate" means, at any time, and with respect to any Person, any other
Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person. Unless the context otherwise clearly requires, any reference
to an "Affiliate" is a reference to an Affiliate of the Company.
"Agent Bank" means Bank of America, N.A., as Administrative Agent for the
Banks under and as defined in the Bank Credit Agreement, and its successors and
assigns in such capacity.
"Agreement" means this Note Purchase Agreement, as the same may from time
to time be amended, modified, supplemented or restated.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
"Applicable Margin" means, for any day, with respect to any Floating Rate
Note while the Adjusted LIBO Rate is in effect, a rate per annum equal to 5.48%
and while the Alternate Base Rate is in effect, a rate per annum equal to 2.52%.
"Approved Petroleum Engineers" means (a) Schlumberger Holditch - Reservoir
Technologies Consulting Services, (b) Netherland, Sewell & Associates, Inc. or
(c) any other reputable firm of independent petroleum engineers acceptable to
the Majority Purchasers.
Schedule B
Page 1
"Bank Credit Agreement" means, collectively, that certain Fourth Amended
and Restated Credit Agreement dated as of May 13, 2002 among the Company, Bank
of America, N.A., as Administrative Agent and a Bank, and the financial
institutions listed therein from time to time as Banks, as from time to time
renewed, extended, amended, supplemented, or restated, and any agreements
representing the refinancing, replacement, or substitution in whole or in part
of the revolving credit loans and letter of credit liabilities made or incurred
under such Fourth Amended and Restated Credit Agreement.
"Bank Debt" has the meaning given such term in Section 9.1(a)(iii).
"Bank Documents" means, collectively, (a) the Bank Credit Agreement and the
Eligible Hedging Contracts, (b) any note, bond or other instrument evidencing
Senior Indebtedness, (c) all mortgages, security agreements, pledge agreements
or financing statements evidencing, creating or perfecting any Lien to secure
the Senior Indebtedness in any way, (d) all guarantees of the Senior
Indebtedness, (d) all other documents, instruments or agreements relating to the
Senior Indebtedness now or hereafter executed or delivered by and among the
Company, any Subsidiary of the Company, the Senior Indebtedness Representative
or any Bank, including without limitation each of the other the "Loan Papers" as
such term is defined in the Bank Credit Agreement, and (e) all renewals,
extensions, amendments, modifications or restatements of the foregoing.
"Banks" means Bank of America, N.A., in its capacity as Administrative
Agent under the Bank Credit Agreement, together with its successors in such
capacity, all Persons which now or hereafter constitute "Bank" under the Bank
Credit Agreement and their respective successors and assigns, and all Person
refinancing any Senior Indebtedness and their respective successors and assigns.
"Blockage Period" means a Non-Payment Blockage Period or a Payment Blockage
Period.
"Board" means the Board of Governors of the Federal Reserve System of the
United States of America or any successor Governmental Authority.
"Business Day" means any day, other than Saturday or Sunday, on which
commercial banks are open for business in New York, New York.
"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.
"Casualty Event" means any loss, casualty or other insured damage to, or
any nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Company or any of its Subsidiaries
having a fair market value in excess of $100,000.
"Change of Control" means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the SEC
thereunder as in effect on the date hereof) other than the
Schedule B
Page 2
Darden Group, of Equity Interests representing more than 35% of the aggregate
ordinary voting power represented by the issued and outstanding Equity Interests
of the Company or (b) occupation of a majority of the seats (other than vacant
seats) on the board of directors of the Company by Persons who were neither (i)
nominated by the board of directors of the Company nor (ii) appointed by
directors a majority of whom was so nominated.
"Change in Law" means (a) the adoption of any law, rule or regulation after
the date of this Agreement, (b) any change in any law, 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 Holder of any Governmental
Authority made or issued after the date of this Agreement.
"Closing" has the meaning assigned such term in Section 3.1.
"CMS" means CMS Oil and Gas Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Collateral" means all Property of any kind which is subject to a Lien in
favor of the Purchasers or the Collateral Agent or which, under the terms of any
Security Document, is purported to be subject to such a Lien.
"Collateral Agent" is defined in Section 12.1.
"Company" means Quicksilver Resources Inc., a Delaware corporation.
"Company's 10-K" has the meaning assigned such term in Section 5.1(j).
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References to the
Company's Consolidated Subsidiaries refer to each Subsidiary of the Company
(whether now existing or hereafter created or acquired) the financial statements
of which shall be (or should have been) consolidated with the financial
statements of the Company in accordance with GAAP. References to a Person's
Consolidated financial statements, financial position, financial condition,
liabilities, etc. refer to the consolidated financial statements, financial
position, financial condition, liabilities, etc. of such Person and its properly
consolidated subsidiaries.
"Consolidated Fixed Charges" means, for any period, the sum of (a) all
interest paid or accrued during such period on Debt (including amortization of
original issue discount and the interest component of any deferred payment
obligations and capital lease obligations) which was deducted in determining the
Company's Consolidated Net Income during such period plus (b) all current
maturities of the Company's Consolidated Debt for the next succeeding
four-quarter fiscal period plus (c) all dividends declared or paid on any
preferred stock of the Company during such period. As used herein, "current
maturities of the Company's Consolidated Debt" shall include all payments of
principal on Debt that the Company or any of its Subsidiaries is obligated to
pay.
Schedule B
Page 3
"Consolidated Net Income" means, for any period, the net income (or loss)
of the Company and its Subsidiaries for such period determined in accordance
with GAAP, but excluding: (a) the income of any other Person (other than the
Company's Subsidiaries) in which the Company or any of its Subsidiaries has an
ownership interest, unless received by the Company or its Subsidiaries in a cash
distribution; (b) the net income (but not loss) during such period of any
Consolidated Subsidiary to the extent that the declaration or payment of
dividends or similar distributions or transfers or loans by that Consolidated
Subsidiary is not at the time permitted by operation of the terms of its charter
or any agreement, instrument or Governmental Requirement applicable to such
Consolidated Subsidiary or is otherwise restricted or prohibited, in each case
determined in accordance with GAAP; (c) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to the date
of such transaction; (d) any gains or losses attributable to asset dispositions;
and (e) to the extent not included in clauses (a) and (d) above, any after-tax
(i) extraordinary gains (net of extraordinary losses) or (ii) non-cash gains or
losses.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, contract, instrument or
other undertaking to which such Person is a party or 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.
"Darden Group" means, collectively, Mercury Exploration Company, a Texas
corporation; Quicksilver Energy, L.C., a Michigan limited liability company; the
estate of Frank Darden; Lucy Darden; Anne Darden Self; Glenn Darden; and Thomas
Darden and their respective designees, heirs, and estates.
"Debt" 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 in an
aggregate amount in excess of $4,000,000; (c) all accounts payable and all
accrued expenses, liabilities or other obligations of such Person (other than
expenses and liabilities under FAS 143) to pay the deferred purchase price of
Property or services other than accounts payable, accrued expenses, liabilities
or other obligations incurred in the ordinary course of business and in
accordance with customary trade terms and which have not been outstanding for
more than ninety (90) days past the invoice date or date of creation; (d) all
obligations under Capital Leases; (e) all obligations under Synthetic Leases;
(f) all Debt (as defined in the other clauses of this definition) of others
secured by a Lien on any Property of such Person, whether or not such Debt is
assumed by such Person; (g) all Debt (as defined in the other clauses of this
definition) of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the Debt (howsoever such assurance
shall be made) to
Schedule B
Page 4
the extent of the lesser of the amount of such Debt and the maximum stated
amount of such guarantee or assurance against loss; (h) all obligations or
undertakings of such Person to maintain or cause to be maintained the financial
position or covenants of others or to purchase the Debt or Property of others;
(i) obligations for future delivery of 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; (j) obligations to pay for goods or services whether or not such
goods or services are actually received or utilized by such Person under
"take-or-pay" or other similar contracts; (k) any Debt 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; (l)
Disqualified Capital Stock; and (m) the undischarged balance of any production
payment created by such Person or for the creation of which such Person directly
or indirectly received payment. The Debt 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.
"Default" means an Event of Default or an event or condition the occurrence
or existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
"Default Rate" means (i) with respect to any Fixed Rate Note, a rate of
interest equal to 9.50% per annum and (ii) with respect to any Floating Rate
Note, a rate of interest equal to the then applicable Adjusted LIBO Rate plus
the Applicable Margin plus 2%.
"Disclosure Schedule" means Schedule C hereto.
"Disqualified Capital 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 Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital 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 Maturity
Date.
"Domestic Subsidiary" means any Subsidiary that is organized under the laws
of the United States of America or any state thereof or the District of
Columbia.
"EBITDAX" means, for any period, Consolidated Net Income for such period,
plus each of the following determined for the Company and its Subsidiaries for
such period: (a) any provision for (or less any benefit from) income or
franchise taxes included in determining Consolidated Net Income; (b) interest
expense or charges deducted in determining Consolidated Net Income; (c)
depreciation, depletion, accretion and amortization expense deducted in
determining Consolidated Net Income; (d) other noncash charges deducted in
determining Consolidated Net Income to the extent not already included in
clauses (b) and (c) of this definition; and (e) costs and expenses for seismic,
geological, and geophysical services
Schedule B
Page 5
performed in the course of oil and gas exploration, to the extent deducted in
determining Consolidated Net Income; minus all noncash income added to
Consolidated Net Income.
"Eligible Hedging Contract" means any present or future Hedging Contract
between the Company or any Subsidiary of the Company and any Bank or any
Affiliate (as defined in the Bank Credit Agreement) of any Bank. For the
avoidance of doubt, a Hedging Contract ceases to be an Eligible Hedging Contract
if the Person that is the counterparty to the Company under a Hedging Contract
ceases to be a Bank under the Bank Credit Agreement (or, in the case of an
affiliate of a Bank, the Person affiliated therewith ceases to be a Bank under
the Bank Credit Agreement.
"Eligible Mortgaged Properties" means, collectively, those Properties (a)
which are owned by the Company or a Subsidiary of the Company and mortgaged to
the Collateral Agent under a Mortgage, and (b) for which the Collateral Agent
has received title opinions and other title information concerning such
Properties in form, substance and authorship satisfactory to the Collateral
Agent.
"Enforcement Action" means, with respect to any Subordinated Obligations:
any enforcement or foreclosure of Liens granted by the Company or any Subsidiary
of the Company to secure any or all of such Subordinated Obligations, any
enforcement or foreclosure of Liens on any capital stock or other equity
interests in the Company or any Subsidiary of the Company which may be granted
by the Company or its Subsidiaries or any holder of equity in the Company to
secure any or all of such Subordinated Obligations, or any other efforts to
collect proceeds from the Company's or any of its Subsidiary's assets or
properties (including proceeds of production) to satisfy the Subordinated
Obligations, including, without limitation, the commencement, or the joining
with any other creditor of the Company or any Subsidiary of the Company in the
commencement of any Insolvency Proceeding against the Company or any Subsidiary
of the Company; provided, that none of the following shall constitute an
Enforcement Action: (a) acceleration of any of the Subordinated Obligations
following acceleration of any of the Senior Indebtedness (provided that such
acceleration of Senior Indebtedness has not previously been rescinded), (b)
acceleration of any of the Senior Indebtedness following acceleration of any of
the Subordinated Obligations (provided that such acceleration of the
Subordinated Obligations has not previously been rescinded), (c) actions by any
Holder to obtain possession of or receive Reorganization Securities, or (d)
taking any action described above during the existence of any Insolvency
Proceeding subject to the jurisdiction of a court of competent authority.
"Engineering Reports" means the Initial Engineering Reports and each
engineering report hereafter delivered by the Company pursuant to Section
8.1(c)(i) or Section 8.1(c)(ii), provided that each such report hereafter
delivered must (a) separately report on Proved Developed Producing Reserves,
Proved Developed Nonproducing Reserves and Proved Undeveloped Reserves and
separately calculate the NPV of each such category of Proved Reserves for the
Company's interest, (b) use a 9% discount rate and a price deck for each
calendar year evaluated equal to (i) for natural gas, the quotation for
deliveries of natural gas for each such year from the New York Mercantile
Exchange for Henry Hub, provided that (A) if such quotation is greater than
$3.50 per mcf, the price shall be capped at $3.50 per mcf and (B) with respect
to quotations for calendar years after the fifth calendar year, the quotation
for the fifth calendar year shall be
Schedule B
Page 6
applied and (ii) for crude oil, the quotation for deliveries of crude oil for
each such calendar year from the New York Mercantile Exchange for Cushing,
Oklahoma, provided that (A) if such quotation is greater than $21 per barrel,
the price shall be capped at $21 per barrel and (B) with respect to quotations
for calendar years after the fifth calendar year, the quotation for the fifth
calendar year shall be applied, (c) further adjust the cash-flows derived from
the pricing assumptions set forth in clause (b) above to account for the
historical basis differentials for each month during the preceding 12-month
period calculated by comparing realized crude oil and natural gas prices to
Cushing, Oklahoma and Henry Hub NYMEX prices for each month during such period,
(d) take into account the Company's actual experiences with leasehold operating
expenses and other costs in determining projected leasehold operating expenses
and other costs, (e) identify and take into account any "over-produced" or
"under-produced" status under gas balancing arrangements, (f) contain
information and analysis comparable in scope to that contained in the Initial
Engineering Report, and (g) otherwise be in form and substance reasonably
satisfactory to the Super-majority Purchasers.
"Environmental Laws" means any and all federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"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 from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
"ERISA Event" has the meaning assigned such term in Section 8.1(o).
"Event of Default" is defined in Section 10.1.
"Excluded Accounts" means, collectively, all accounts receivable or other
Liabilities which are owed to the Company by any Related Party other than those
which arise in the ordinary course of business as a result of sales of goods to,
or rendering of services to, any such Related Party who has the ability to pay,
and is expected to pay, the same.
"Existing Section 29 Documents" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(a) Assignment, dated as of December 1, 1997, by and between Mercury,
as assignor, and MA Gas LLC ("MAG"), as assignee, and recorded in the
county records of
Schedule B
Page 7
(i) Antrim County, Michigan, December 23, 1997, under Liber 477, Page 1232,
(ii) Crawford County, Michigan, December 23, 1997, under Liber 444, Page
01, (iii) Montmorency County, Michigan, December 22, 1997, under Liber 405,
Page 01, and (iv) Otsego County, Michigan, December 22, 1997, under Liber
662, Page 579;
(b) Assignment by and between Mercury, as assignor, and the Company,
as assignee, and recorded in the county records of (i) Antrim County,
Michigan, April 15, 1998, under Liber 485, Page 1046, and Liber 485, Page
1087, (ii) Crawford County, Michigan, April 15, 1998, under Liber 451, Page
251, (iii) Montmorency County, Michigan, April 15, 1998, under Liber 408,
Page 0008, and (iv) Otsego County, Michigan, April 15, 1998, under Liber
675, Page 217;
(c) Partial Assignment of Reversionary Interest, dated effective as of
December 1, 1997, by and between the Company, as assignor, and MAG, as
assignee, and recorded in the county records of Antrim, Crawford,
Montmorency and Otsego Counties, Michigan;
(d) Conveyance of Production Payment, dated as of December 1, 1997, by
and between MAO, as assignor, and Mercury, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 477, Page 1273, (ii) Crawford County, Michigan, December 23, 1997,
under Liber 444, Page 42, (iii) Montmorency County, Michigan, December 22,
1997, under Liber 405, Page 42, and (iv) Otsego County, Michigan, December
22, 1997, under Liber 662, Page 620;
(e) Amendment to Conveyance of Production Payment, dated effective as
of December 1, 1997, by and between MAO, as assignor, and the Company, as
assignee, and recorded in the county records of Antrim, Crawford,
Montmorency and Otsego Counties, Michigan;
(f) Second Amendment to Conveyance of Production Payment, dated
effective as of March 1, 1997, by and between MAO and the Company, and
recorded in the county records of Antrim, Crawford, Montmorency and Otsego
Counties, Michigan;
(g) Mortgage, dated as of December 1, 1997, by and between MAG, as
mortgagor, and Mercury, as mortgagee, and recorded In the county records of
(i) Antrim County, Michigan, December 23, 1997, under Liber 477, Page 1413,
(ii) Crawford County, Michigan, December 23, 1997, under Liber 444, Page
182, (iii) Montmorency County, Michigan, December 22, 1997, under Liber
134, Page 528, and (iv) Otsego County, Michigan, December 22, 1997, under
Liber 662, Page 760;
(h) Assignment, dated as of December 1, 1997 by and between MOP, as
assignor, and MGP Gas L.L.C. ("MGPG"), as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 478, Page 1, and (ii) Otsego County, Michigan, December 22, 1997,
under Liber 662, Page 802;
(i) Partial Assignment of Reversionary Interest, dated effective as of
December 1, 1997, by and between the Company, as assignor, and MGPG, as
assignee, and recorded in the county records of Antrim and Otsego Counties,
Michigan;
Schedule B
Page 8
(j) Conveyance of Production Payment, dated as of December 1, 1997, by
and between MGPG, as assignor, and MOP, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 478, Page 9, and (ii) Otsego County, Michigan, December 22, 1997,
under Liber 662, Page 810;
(k) Amendment to Conveyance of Production Payment, dated effective as
of December 1, 1997, by and between MGPG, as assignor, and the Company, as
assignee, and recorded in the county records of Antrim and Otsego Counties,
Michigan;
(l) Mortgage, dated as of December 1, 1997, by and between MGPG, as
mortgagor, and MGP, as mortgagee, and recorded in the county records of (i)
Antrim County, Michigan, December 23, 1997, under Liber 478, Page 37, and
(ii) Otsego County, Michigan, December 22, 1997, under Liber 662, Page 838;
(m) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between Mercury, as Seller, and MAG, as buyer;
(n) Amendment of Purchase and Sale Agreement, dated effective as of
December 1, 1997, by and among Mercury, the Company and MAO;
(o) Second Amendment to Purchase Agreement, dated as of March 31,
2000, by and between the Company and MAO;
(p) Credit Payment Note, dated December 1, 1997, executed by MAO, as
maker, payable to the order of Mercury, as payee;
(q) Amended and Restated Credit Payment Note, dated as of December 1,
1997, executed by MAO, as maker, payable to the order of the Company, as
payee;
(r) Fixed Payment Note, dated December 1, 1997, executed by MAO, as
maker, payable to the order of Mercury, as payee, in the original principal
amount of $5,092,721;
(s) Amended and Restated Fixed Payment Note, dated as of December 1,
1997, executed by MAO, as maker, payable to the order of the Company, as
payee;
(t) Assignment of Enforcement Rights, dated effective December 1,
1997, by and between MAO and Mercury, and acknowledged and consented to by
State Street and Antrim Corporation;
(u) Management Agreement, dated as of December 1, 1997, by and between
MAO and Mercury, as manager;
(v) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between MGP, as seller, and MOPO, as buyer;
(w) Credit Payment Note, dated December 1, 1997, executed by MGPG, as
maker, payable to the order of MOP, as payee;
Schedule B
Page 9
(x) Fixed Payment Note, dated December 1, 1997, executed by MGPO, as
maker, payable to the order of MOP, as payee, in the original principal
amount of $2,017,373;
(y) Assignment of Enforcement Rights, dated effective December 1,
1997, by and between MGPG and MOP, and acknowledged and consented to by
State Street and Antrim Corporation; and
(z) Management Agreement, dated as of December 1, 1997, by and between
MOPO and MOP, as manager.
"Federal Funds Effective Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rate on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Collateral Agent from three Federal funds brokers
of recognized standing selected by it.
"Financial Officer" means, for any Person, 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 Company.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30, or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"Fixed Rate Notes" is defined in Section 1.1.
"Floating Rate Notes" is defined in Section 1.1.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
Subsidiary.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"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 Company, any Subsidiary, any of their Properties, the
Collateral Agent or any Purchaser.
"Governmental Requirement" means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement,
whether now or hereafter in effect,
Schedule B
Page 10
including, without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls, of any Governmental
Authority.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions, by "comfort letter"
or other similar undertaking of support or otherwise) or (b) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business.
"Guarantor" means each Wholly-Owned Subsidiary of the Company (whether now
in existence or hereafter arising) or any Person who has guaranteed some or all
of the Company's obligations to repay the Notes and who has been accepted by the
Collateral Agent as a Guarantor.
"Guaranty Agreement" means an agreement executed by each Guarantor in
substantially the form of Exhibit 6 unconditionally guarantying on a joint and
several basis with each other Guarantor, payment of the Obligations, as the same
may be amended, modified or supplemented from time to time.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any agreement, instrument, arrangement or
schedule or supplement thereto with respect to any commodity, interest rate,
currency or other swap, cap, collar, forward, future or derivative transaction
or option or similar agreement, whether exchange traded, "over-the-counter" or
otherwise, pursuant to which a Person hedges risks related to commodity prices,
interest rates, currency exchange rates, securities prices or similar market
conditions, or involving, or settled by reference to, one or more 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,
(b) any other derivative agreement or similar agreement or arrangement, and (c)
any sales contract, purchase contract, exchange contract, or other contract or
arrangement which obligates the Company or a Subsidiary to pay or suffer
penalties or damages for failure to purchase, sell or deliver specified
quantities of Hydrocarbons (excluding only normal imbalance penalties imposed by
pipelines for failure to meet monthly nominations made in the ordinary course of
business).
"Holder" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
11.1.
Schedule B
Page 11
"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 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.
"Initial Engineering Reports" means (a) the engineering report concerning
Oil and Gas Properties of the Company as of January 1, 2003, and (b) the reserve
engineering report concerning Oil and Gas Properties of Terra as of January 1,
2003, each of which was prepared by either Schlumberger Holditch - Reservoir
Technologies Consulting Services or Netherland, Sewell & Associates, Inc.
"Initial Financial Statements" means the audited annual Consolidated
financial statements of the Company dated as of December 31, 2002.
"Insolvency Proceeding" shall mean (a) any voluntary or involuntary case,
action, or proceeding before any court or other governmental authority having
jurisdiction over the applicable Person or its assets relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up,
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors, or other similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors; in each case whether undertaken under U.S. Federal (including the
Bankruptcy Code), State, or foreign law.
"Institutional Investor" means (a) any original Purchaser of a Note, (b)
any Holder holding more than 5% of the aggregate principal amount of the Notes
then outstanding, and (c) any bank, trust company, savings and loan association
or other financial institution, any pension plan, any investment company, any
insurance company, any broker or dealer, or any other similar financial
institution or entity, regardless of legal form.
"Insurance Schedule" means Schedule E hereto.
"Interest Period" means with respect to any Floating Rate Note, the period
commencing, initially, on the date of issuance of such Note, and thereafter on
the last day of each Interest Period, and ending, initially on September 30,
2003, and thereafter on December 31, March 31, June 30 and September 30 of each
year; provided, that (a) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (b) any Interest Period pertaining to a Floating Rate
Note that commences on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the last calendar month
of such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period.
"Interim Redetermination" is defined in Section 9.1(q)(iii).
Schedule B
Page 12
"Interim Redetermination Date" means the date on which the Adjusted Total
NPV that has been redetermined pursuant to an Interim Redetermination becomes
effective as provided in Section 9.1(q)(vi).
"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) or any
capital contribution to any other Person; (b) the making of any deposit with, or
advance, loan 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 or
supplies sold by such Person in the ordinary course of business) or (c) the
entering into of any guarantee of, or other contingent obligation (including the
deposit of any Equity Interests to be sold) with respect to, Debt or other
liability of any other Person and (without duplication) any amount committed to
be advanced, lent or extended to such Person.
"Lender" means a "Lender" under the Bank Credit Agreement.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"LIBO Rate" means, with respect to any Floating Rate Note for any Interest
Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the Collateral
Agent from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period, as the rate for dollar deposits with a maturity comparable to
such Interest Period. In the event that such rate is not available at such time
for any reason, then the "LIBO Rate" with respect to such Floating Rate Note for
such Interest Period shall be the rate at which dollar deposits of $5,000,000
and for a maturity comparable to such Interest Period are offered by the
principal London office of the Collateral Agent in immediately available funds
in the London interbank market at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period.
"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For the purposes of this Agreement, the Company and its Subsidiaries
shall be deemed to own subject to a Lien any Property which is acquired or held
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
Property.
Schedule B
Page 13
"Majority Purchasers" means Purchasers whose aggregate Percentage Shares
equal or exceed sixty-six and two thirds percent (66 2/3%).
"Make-Whole Amount" is defined in Section 7.9.
"Mariner" means Mariner Gas LLC, a Massachusetts limited liability company.
"Mariner Section 29 Documents" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(a) Assignment, dated effective as of April 1, 2000, by and between
the Company, as assignor, and Mariner, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, (ii) Crawford County,
Michigan, (iii) Montmorency County, Michigan, and (iv) Otsego County,
Michigan;
(b) Conveyance of Production Payment, dated as of March 31, 2000, by
and between Mariner, as assignor, and the Company, as assignee, and
recorded in the county records of (i) Antrim County, (ii) Crawford County,
Michigan, (iii) Montmorency County, Michigan, and (iv) Otsego County,
Michigan;
(c) Mortgage, dated as of March 31, 2000, by and between Mariner, as
mortgagor, and the Company, as mortgagee, and recorded in the county
records of (i) Antrim County, Michigan, (ii) Crawford County, Michigan,
(iii) Montmorency County, Michigan, and (iv) Otsego County, Michigan;
(d) Purchase and Sale Agreement, dated as of March 31, 2000, by and
between the Company, as Seller, and Mariner, as buyer;
(e) Fixed Payment Note, dated April 1, 2000, executed by Mariner, as
maker, payable to the order of the Company, as payee, in the original
principal amount of $22,803,169;
(f) Assignment of Enforcement Rights, dated effective March 31, 2000,
by and between Mariner and the Company, and acknowledged and consented to
by State Street;
(g) Management Agreement, dated as of March 31, 2000, by and between
Mariner and the Company, as manager; and
(h) Intercreditor Agreement, dated as of March 31, 2000, by and among
Agent Bank, the Collateral Agent and Mariner.
"Mariner Section 29 Sale" means the purchase by Mariner of 99.5% of (i) the
interests to be acquired by the Company from CMS pursuant to the Purchase and
Sale Agreement, and (ii) the interests owned by Terra, in each case in Devonian
shale gas production from certain gas wells located in Michigan and described in
the Mariner Section 29 Documents, together with certain other rights and
interests described in, and all pursuant to the terms and conditions
Schedule B
Page 14
contained in, the Mariner Section 29 Documents, which sale shall be on terms and
conditions acceptable to Purchasers.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, prospects or Properties of
the Company and its Subsidiaries taken as a whole, (b) the ability of the
Company or any Subsidiary to timely perform its obligations under this Agreement
or any other Transaction Document, (c) the validity or enforceability of this
Agreement or any other Transaction Document, (d) the rights and remedies of or
benefits available to the Collateral Agent or any Purchaser under any
Transaction Document or (e) the value of the Collateral, as a whole. To say that
a situation or event "could reasonably be expected to have a Material Adverse
Effect" means that such situation or event has more than a remote probability of
having or causing a Material Adverse Effect.
"Material Indebtedness" means Debt (other than the Notes), or obligations
in respect of one or more Hedging Contracts, of any one or more of the Company
and its Subsidiaries in an aggregate principal amount exceeding $250,000. For
purposes of determining Material Indebtedness, the "principal amount" of the
obligations of the Company or any Subsidiary in respect of any Hedging Contract
at any time shall be the maximum aggregate amount (giving effect to any netting
agreements) that the Company or such Subsidiary would be required to pay if such
Hedging Contract were terminated at such time.
"Maturity Date" means December 31, 2006.
"Mercury" means Mercury Exploration Company, a Texas corporation.
"Mercury Subordinated Debt" means all Debt of the Company evidenced by the
Mercury Subordinated Note.
"Mercury Subordinated Note" means that certain promissory note dated as of
January 5, 2001, in the original principal amount of $3,200,000 with an
outstanding amount of $1,760,000 as of the Closing, executed by the Company in
favor of Mercury.
"MGP" means Michigan Gas Partners, Limited Partnership, formerly a Texas
limited partnership prior to its merger with and into the Company.
"Moody's" means Moody's Investors Service, Inc. and any successor thereto
that is a nationally recognized rating agency.
"Mortgage" means each deed of trust or mortgage now or hereafter given by
the Company or any of its Subsidiaries to the Collateral Agent (or any trustee
acting on behalf of the Purchasers or the Collateral Agent) to secure the Notes.
"Mortgaged Property" means any Property owned by the Company or any
Guarantor which is subject to the Liens existing and to exist under the terms of
the Security Documents.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 400l(a)(3) of ERISA).
Schedule B
Page 15
"New Adjusted Total NPV Notice" is defined in Section 9.1(q)(vi).
"Non-Payment Blockage Period" means, with respect to any Non-Payment
Default, the period from and including the date of receipt by the Holders or
their collateral agent or other representative of a Non-Payment Default Notice
relating thereto until the first to occur of (a) the date upon which the Senior
Indebtedness have been paid in full in cash, all commitments of any holder of
Senior Indebtedness to make loans or extensions of credit have terminated, and
all letters of credit issued by any holder of Senior Indebtedness have expired,
terminated or fully collateralized in cash, (b) the 179th day after receipt of
such Non-Payment Default Notice, (c) the date on which the Non-Payment Default
which is the subject of such Non-Payment Default Notice has been waived in
writing by the applicable holder or holders of the Senior Indebtedness or an
agent or representative on their behalf, cured, or ceased to exist, or (d) the
date upon which the Person(s) giving such Non-Payment Default Notice notify the
Holders or their collateral agent or other representative in writing of the
termination of such Non-Payment Blockage Period.
"Non-Payment Default" means the occurrence of any event under any agreement
evidencing Senior Indebtedness, not constituting a Payment Default, which gives
the holder(s) of such Senior Indebtedness, or an agent or representative acting
on behalf of such holder(s), the right to cause the maturity of such Senior
Indebtedness to be accelerated immediately without any further notice (except
such notice as may be required to effect such acceleration) or the expiration of
any applicable grace period.
"Non-Payment Default Notice" means a written notice from or on behalf of
the Senior Indebtedness Representative that a Non-Payment Default has occurred
and is continuing which identifies such Non-Payment Default and specifically
designates such notice as a "Non-Payment Default Notice".
"Notes" is defined in Section 1.1.
"NPV" means, with respect to any Proved Reserves expected to be produced
from any Oil and Gas Properties, the net present value, discounted at 9% per
annum, of the future net revenues expected to accrue to the Company's and its
Subsidiaries' collective interests in such reserves during the remaining
expected economic lives of such reserves. NPV means, with respect to the
Company's and its Subsidiaries' separate interests in such Proved Reserves, the
net present value, discounted at 9% per annum, of the future net revenues
expected to accrue to such separate interests in such reserves during the
remaining expected economic lives of such reserves. Each calculation of such
expected future net revenues shall be made in accordance with the then existing
standards of the Society of Petroleum Engineers, provided that in any event (a)
appropriate deductions shall be made for severance and ad valorem taxes, and for
operating, gathering, transportation and marketing costs required for the
production and sale of such reserves, (b) appropriate adjustments shall be made
for hedging operations, provided that Hedging Contracts with non-investment
grade counterparties shall not be taken into account to the extent that such
Hedging Contracts improve the position of or otherwise benefit the Company or
any of its Subsidiaries, (c) the pricing assumptions used in determining NPV for
any particular reserves shall be based upon the following price decks: (i) for
natural gas, the quotation for deliveries of natural gas for each such year from
the New York Mercantile Exchange for Henry
Schedule B
Page 16
Hub, provided that (A) if such quotation is greater than $3.50 per mcf, the
price shall be capped at $3.50 per mcf and (B) with respect to quotations for
calendar years after the fifth calendar year, the quotation for the fifth
calendar year shall be applied and (ii) for crude oil, the quotation for
deliveries of crude oil for each such calendar year from the New York Mercantile
Exchange for Cushing, Oklahoma, provided that (A) if such quotation is greater
than $21 per barrel, the price shall be capped at $21 per barrel and (B) with
respect to quotations for calendar years after the fifth calendar year, the
quotation for the fifth calendar year shall be applied and (d) the cash-flows
derived from the pricing assumptions set forth in clause (b) above shall be
further adjusted to account for the historical basis differentials for each
month during the preceding 12-month period calculated by comparing realized
crude oil and natural gas prices to Cushing, Oklahoma and Henry Hub NYMEX prices
for each month during such period.
"Obligations" means (a) all Liabilities from time to time owing by the
Company or any Subsidiary of the Company to any Purchaser or to the Collateral
Agent under or pursuant to any of the Transaction Documents and (b) all
renewals, extensions and/or rearrangements of any of the above. "Obligation"
means any part of the Obligations.
"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
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 hereafter 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, buildings, 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.
"OPA" means the Oil Pollution Act of 1990, as amended.
"Payment Blockage Period" means, with respect to any Payment Default or
Senior Indebtedness Acceleration, the period from and including the date of
receipt by the Holders or
Schedule B
Page 17
their collateral agent or other representative of a Payment Default Notice
relating thereto until the first to occur of (a) the date upon which the Senior
Indebtedness have been paid in full in cash, all commitments of any holder of
Senior Indebtedness to make loans or extensions of credit have terminated, and
all letters of credit issued by any holder of Senior Indebtedness have expired,
terminated or fully collateralized in cash, (b) if such Payment Default Notice
relates to a Payment Default, the date on which the Payment Default which is the
subject of such Payment Default Notice has been waived in writing by the
applicable holder or holders of the Senior Indebtedness or an agent or
representative on their behalf, cured or ceased to exist, or if such Payment
Default Notice relates to a Senior Indebtedness Acceleration, the date on which
such acceleration is rescinded, annulled or ceased to exist, or (c) the day upon
which the Person(s) giving such Payment Default Notice notify the Holders or
their collateral agent or other representative in writing of the termination of
such Payment Blockage Period.
"Payment Default" means a default by the Company in the payment of any
amount owing with respect to the Senior Indebtedness, whether with respect to
principal, interest, premium, letter of credit reimbursement obligations,
commitment fees or letter of credit fees or otherwise when the same becomes due
and payable, whether at maturity or at a date fixed for payment of an
installment or prepayment or by declaration or acceleration or otherwise.
"Payment Default Notice" means a written notice from or on behalf of the
Senior Indebtedness Representative that either (i) a Payment Default with
respect to such Senior Indebtedness has occurred and is continuing, or (ii) a
Senior Indebtedness Acceleration with respect to such Senior Indebtedness has
occurred and is continuing.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PDNP NPV" means the NPV of the Proved Developed Nonproducing Reserves of
the Company and its Subsidiaries as described in the most recently delivered
Engineering Report.
"PDP NPV" means the NPV of Proved Developed Producing Reserves of the
Company and its Subsidiaries as described in the most recently delivered
Engineering Report.
"Percentage Share" means with respect to any Purchaser (other than the
Company or any Affiliate of the Company that may at any time be the Holder of a
Note) the percentage obtained by dividing (a) the sum of the unpaid principal
balance of such Purchaser's Notes at the time in question by (b) the sum of the
aggregate unpaid principal balance of all Notes at such time (other than Notes
directly or indirectly owned by the Company or any of its Affiliates).
"Permitted Foreign Subsidiaries" means MGV Energy Inc., an Alberta
corporation, and any other Foreign Subsidiary consented to in writing as such by
the Majority Purchasers from time to time.
"Permitted Investments" means:
(a) Investments reflected in the Initial Financial Statements or which
are disclosed to the Purchasers in the Disclosure Schedule.
Schedule B
Page 18
(b) accounts receivable arising in the ordinary course of business.
(c) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each
case maturing within one year from the date of creation thereof.
(d) commercial paper maturing within one year from the date of
creation thereof rated in the highest grade by S&P or Moody's.
(e) deposits maturing within one year from the date of creation
thereof with, including certificates of deposit issued by, any Purchaser or
any office located in the United States of any other bank or trust company
which is organized under the laws of the United States or any state
thereof, has capital, surplus and undivided profits aggregating at least
$100,000,000 (as of the date of such bank or trust company's most recent
financial reports) and has a short term deposit rating of no lower than A2
or P2, as such rating is set forth from time to time, by S&P or Moody's,
respectively.
(f) deposits in money market funds investing exclusively in
Investments described in clauses (c), (d) and (e) of this definition.
(g) Investments (i) in or to the Company or any Guarantor, and (ii) in
or to other Persons in an aggregate amount at any one time outstanding not
to exceed $10,000,000.
(h) Investments in direct ownership interests in additional Oil and
Gas Properties and gas gathering systems related thereto or related to
farm-out, farm-in, 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 or Canada.
(i) Investments in stock, obligations or securities received in
settlement of debts arising from Investments permitted under this
definition of "Permitted Investments" owing to the Company or any
Subsidiary as a result of a bankruptcy or other insolvency proceeding of
the obligor in respect of such debts or upon the enforcement of any Lien in
favor of the Company or any of its Subsidiaries; provided that the Company
shall give the Collateral Agent prompt written notice in the event that the
aggregate amount of all investments held at any one time under this clause
(i) exceeds $500,000.
"Permitted Liens" means:
(a) statutory Liens for taxes, assessments or other governmental
charges or levies which are not yet delinquent or which are being contested
in good faith by appropriate action and for which adequate reserves have
been maintained in accordance with GAAP;
(b) landlords', operators', carriers', warehousemen's, repairmen's,
mechanics' and materialmen's Liens which do not secure Debt, in each case
only to the extent arising
Schedule B
Page 19
in the ordinary course of business and only to the extent securing
obligations which are not delinquent or which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
maintained in accordance with GAAP;
(c) Liens under the Security Documents or under the Bank Documents;
(d) with respect only to Property subject to any particular Security
Document, Liens burdening such Property which are expressly allowed by such
Security Document;
(e) minor defects and irregularities in title to any Property, so long
as such defects and irregularities neither secure Debt nor materially
impair the value of such Property or the use of such Property for the
purposes for which such Property is held;
(f) deposits of cash or securities to secure the performance of bids,
trade contracts, leases, statutory obligations and other obligations of a
like nature (excluding appeal bonds and Debt) incurred in the ordinary
course of business;
(g) easements, zoning restrictions, or other charges or restrictions
on the use of real Property which do not materially impair the use of the
Property by the Company or its Subsidiaries in the conduct of its
operations or business; and
(h) Liens under the Section 29 Documents.
provided that Liens described in clauses (a) and (b) shall remain
"Permitted Liens" only for so long as no action to enforce such Lien has been
commenced and no intention to subordinate the second-priority Lien granted in
favor of the Collateral Agent and the Purchasers is to be hereby implied or
expressed by the permitted existence of such Permitted Liens.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Pledge Agreement" means an agreement executed by the Company or a
Subsidiary in substantially the form of Exhibit 7 pursuant to which the Company
or such Subsidiary pledges Equity Interests as required by Section 8.2(c), as
the same may be amended, modified or supplemented from time to time.
"Prime Rate" means the rate of interest per annum publicly announced from
time to time by JPMorgan Chase Bank as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be effective from
and including the date such change is publicly announced as being effective.
Schedule B
Page 20
"Production Proceeds" has the meaning assigned such term in Section 8.5.
"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.
"Proposed Adjusted Total NPV" is defined in Section 9.1(q)(iii).
"Proposed Adjusted Total NPV Notice" is defined in Section 9.1(q)(iv).
"Proposed Prepayment Date" is defined in Section 7.10(c).
"Proved Reserves" means "Proved Reserves" as defined in the Definitions for
Oil and Gas Reserves (in this paragraph, the "Definitions") promulgated by the
Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question. "Proved Developed Producing Reserves" means
Proved Reserves which are categorized as both "Developed" and "Producing" in the
Definitions, "Proved Developed Nonproducing Reserves" means Proved Reserves
which are categorized as both "Developed" and "Nonproducing" in the Definitions,
and "Proved Undeveloped Reserves" means Proved Reserves which are categorized as
"Undeveloped" in the Definitions.
"PUD NPV" means the NPV of any Proved Undeveloped Reserves of the Company
and its Subsidiaries as described in the most recently delivered Engineering
Report.
"Purchaser" means each Person that originally purchases a Note hereunder
and each of its successors and assigns (other than the Company or any Affiliate
of the Company) as Holder of a Note.
"QPAM" has the meaning assigned such term in Section 6.4.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued
by the United States Department of Labor.
"Quarterly Payment Date" means the next to last Business Day in each Fiscal
Quarter.
"Redemption" means with respect to any Debt, the repurchase, redemption,
prepayment, repayment or defeasance (or the segregation of funds with respect to
any of the foregoing) of such Debt. "Redeem" has the correlative meaning
thereto.
"Regulation D" means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
"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.
"Remedial Work" is defined in Section 8.1(m).
Schedule B
Page 21
"Reorganization Securities" means (a) debt securities that are issued
pursuant to an Insolvency Proceeding the payment of which is subordinate and
junior at least to the extent provided in this Article XVI to the payment of the
Senior Indebtedness outstanding at the time of the issuance thereof (including
any refinancing of Senior Indebtedness pursuant to an Insolvency Proceeding) and
to the payment of all debt securities issued in exchange for such Senior
Indebtedness in such Insolvency Proceeding (whether such subordination is
effected by the terms of such securities, an order or decree issued in such
Insolvency Proceeding, by agreement of the Holders or otherwise), or (b) equity
securities that are issued pursuant to an Insolvency Proceeding; provided, in
either case, that such securities are authorized by an order or decree made by a
court of competent jurisdiction in such Insolvency Proceeding.
"Reports" is defined in Section 9.1(q)(iii).
"Required Banks" means Banks holding at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding Senior Indebtedness, or if no principal
amount of Loans or Letter of Credit Exposure (as such terms are defined in the
Bank Credit Agreement) is then outstanding, Banks holding at least sixty-six and
two-thirds percent (66 2/3%) of the Total Commitment (as such term is defined in
the Bank Credit Agreement).
"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 Company.
"Scheduled Payment" is defined in Section 16.2.
"Scheduled Payment Date" is defined in Section 16.2.
"Scheduled Redetermination" is defined in Section 9.1(q)(iii).
"Scheduled Redetermination Date" means the date on which the Adjusted Total
NPV that has been redetermined pursuant to a Scheduled Redetermination becomes
effective as provided in Section 9.1(q)(vi).
"Section 29 Documents" means, collectively, the Existing Section 29
Documents and the Mariner Section 29 Documents.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Security Documents" means the instruments listed in the Security Schedule,
including, without limitation, each Guaranty Agreement, each Pledge Agreement
and all other Mortgages, security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements, instruments or certificates now,
heretofore, or hereafter delivered by any Person to or for the benefit of the
Collateral Agent or all of the Purchasers in connection with, or as security for
or to guarantee the payment or performance of, the Obligations, the Notes, this
Agreement or any other Transaction Document or the transactions contemplated
thereby, as such instruments, agreements, certificates and documents may be
amended, modified, supplemented or restated from time to time.
Schedule B
Page 22
"Security Schedule" means Schedule D hereto.
"Senior Guarantor" means any Person that guarantees the Senior
Indebtedness.
"Senior Indebtedness" means and includes (a) all principal indebtedness for
loans now outstanding or hereafter incurred, and all letter of credit
reimbursement obligations now existing or hereafter arising, under the Bank
Credit Agreement, provided that the aggregate outstanding principal amount of
Senior Indebtedness under this clause (a) shall not exceed $300,000,000 at any
time, and provided further, that if the aggregate principal amount of Senior
Indebtedness (constituting principal and Letter of Credit reimbursement
obligations) shall exceed $300,000,000, then the subordination of the Notes as
contemplated by ARTICLE XVI to the Senior Indebtedness of $300,000,000 or less
shall not be impaired, (b) all amounts now or hereafter owing to any of the
Banks or any of their Affiliates under any Eligible Hedging Contract, (c) all
interest accruing on the Senior Indebtedness described in the preceding clauses
(a) and (b), and (d) all other monetary obligations (whether now outstanding or
hereafter incurred) for which the Company or any Senior Guarantor is responsible
or liable as obligor, guarantor or otherwise under or pursuant to any of the
Bank Documents including, without limitation, all fees, premiums, penalties,
yield protections, breakage costs, damages, indemnification obligations,
reimbursement obligations, and expenses (including, without limitation, fees and
expenses of counsel to the Senior Indebtedness Representative and the Banks)
together with interest on the foregoing to the extent provided for in the Bank
Documents. The interest described in the preceding clause (c) and the premiums
and penalties described in the preceding clause (d) include, without limitation,
all interest accruing after the commencement of any Insolvency Proceeding under
the terms of the Bank Documents whether or not such interest constitutes an
allowed claim in any such Insolvency Proceeding.
"Senior Indebtedness Acceleration" means with respect to the Senior
Indebtedness that the holder or holders of such Senior Indebtedness, or an agent
or representative on behalf of such holder or holders, have caused the maturity
of such Senior Indebtedness to be accelerated.
"Senior Indebtedness Default" means a Payment Default or a Non-Payment
Default.
"Senior Indebtedness Representative" means (a) initially, Bank of America,
N.A. or (b) such other Person selected by the holders of a majority of the
Senior Indebtedness to replace the then Senior Indebtedness Representative.
"Senior Mortgage Note Purchase Agreement" means the Note Purchase Agreement
for the Second Mortgage Notes dated as of March 31, 2000 among the Company, TCW
Asset Management Company, as Collateral Agent, and the purchasers party thereto.
"Senior Mortgage Notes" means the Company's Second Mortgage Notes due March
30, 2009.
"Source" has the meaning set forth in Section 6.2.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.
Schedule B
Page 23
"Standstill Period" means the period beginning with the commencement of a
Blockage Period and ending on the earliest of (a) the date when the Senior
Indebtedness Default giving rise to such Blockage Period has been cured or
waived in writing, (b) the date of the repayment in full in cash of the Senior
Indebtedness, (c) the date that is 90 days after the commencement of a Blockage
Period, (d) the end of the Non-Payment Blockage Period applicable to such Senior
Indebtedness Default, (e) the date on which the Senior Indebtedness shall have
been declared due and payable prior to its stated maturity or any holder of
Senior Indebtedness commences proceedings to collect any Senior Indebtedness or
realize upon any material part of the collateral for any Senior Indebtedness and
(f) the date upon which any Insolvency Proceeding is commenced.
"State Street" means State Street Bank and Trust Company, a Massachusetts
trust company.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Collateral Agent is subject with respect
to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D. Floating
Rate Notes shall be deemed to constitute eurocurrency funding and to be subject
to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Holder
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"Subordinated Obligations" means any and all indebtedness (whether for
principal, interest, fees, Make-Whole Amount, indemnifications or otherwise, but
not expenses) now or hereafter owing by the Company or any Subsidiary of the
Company under or in connection with the Agreement, the Notes, any mortgage,
guaranty or other security instrument given in connection therewith, and any
letter agreement or other agreement providing for payment of fees in connection
therewith.
"Subsidiary" means 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 Company or one or more of its Subsidiaries
or by the Company and one or more of its Subsidiaries. Unless otherwise
indicated herein, each reference to the term "Subsidiary" shall mean a
Subsidiary of the Company.
"Super-majority Purchasers" means Purchasers whose aggregate Percentage
Shares equal or exceed seventy five percent (75%).
Schedule B
Page 24
"Synthetic Leases" means, in respect of any Person, all leases which shall
have been, or should have been, in accordance with GAAP, treated as operating
leases on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.
"Termination Event" means (a) the occurrence with respect to any Plan of
(i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA or (ii)
any other reportable event described in Section 4043(b) of ERISA other than a
reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such corporation under
Section 4043(a) of ERISA, or (b) the withdrawal of the Company or any Affiliate
of the Company from an Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001 (a)(2) of ERISA, or (c) the filing of a
notice of intent to terminate any Plan or the treatment of any Plan amendment as
a termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any Plan by the Pension Benefit Guaranty Corporation under Section
4042 of ERISA, or (e) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.
"Terra" means Terra Energy Ltd., a Michigan corporation.
"Total Debt" means all Debt of the Company and its Consolidated
Subsidiaries.
"Total NPV" means, as of the date of any determination, the sum of PDP NPV,
PDNP NPV, and PUD NPV as each has been most recently determined. No category of
reserves other than Proved Reserves shall be taken into account in determining
Total NPV and at least 70% of Total NPV must be comprised of PDP NPV.
"Transaction Documents" means this Agreement, the Notes, the Security
Documents, and all other agreements, certificates, documents, instruments and
writings at any time delivered in connection herewith or therewith (exclusive of
term sheets and commitment letters).
"Wholly-Owned Subsidiary" means any Person of which all of the outstanding
Equity Interests (other than any directors' qualifying shares mandated by
applicable law), on a fully-diluted basis, are owned by the Company or one or
more of the Wholly-Owned Subsidiaries or by the Company and one or more of the
Wholly-Owned Subsidiaries.
Schedule B
Page 25
SCHEDULE C
DISCLOSURE SCHEDULE
Section references below correspond to the section designations in the
Agreement.
1. Section 5.1(f)(i) (Litigation; Etc.):
2. Section 5.1(g) (Initial Financial Statements):
3. Section 5.1(h) (Other Debt, Obligations and Restrictions):
4. Section 5.1(j) (Full Disclosure):
5. Section 5.1(l) (Organization and Ownership of Shares of Subsidiaries;
Jurisdiction of Organization):
6. Section 5.1(q) (Marketing of Production):
7. Section 5.1(x) (Hedging Contracts):
8. Definition of "Permitted Investments":
Schedule C
Page 1
SCHEDULE D
SECURITY SCHEDULE
1. Mortgage, Assignment, Security Agreement, Fixture Filing, and Financing
Statement dated of even date herewith by the Company in favor of the Collateral
Agent.
2. UCC-1 Financing Statements naming the Company, as debtor, relating to item 1.
3. Mortgage and Security Agreement dated of even date herewith by Terra in favor
of the Collateral Agent.
4. UCC- 1 Financing Statements naming Terra, as debtor, relating to item 3.
5. Pledge Agreement dated of even date herewith between the Company and the
Collateral Agent (pledging interests in Terra Energy Ltd., a Michigan
corporation, Mercury Michigan, Inc., a Michigan corporation, GTG Pipeline
Corporation, a Virginia corporation, MGV Energy, Inc. an Alberta corporation,
Beaver Creek Pipeline, L.L.C., a Michigan limited liability company, and
Cinnabar Energy Services & Trading, LLC, a Michigan limited liability company).
6. UCC-1 Financing Statements naming the Company, as debtor, relating to item 5.
7. Pledge Agreement dated of even date herewith between Terra Energy Ltd. and
the Collateral Agent (pledging interests in Energy Acquisition Operating
Corporation, a Michigan corporation, Kristen Corporation, a Michigan corporation
and Terra Pipeline Company, a Michigan corporation).
8. UCC-1 Financing Statements naming Terra Energy Ltd., as debtor, relating to
item 7.
9. Pledge Agreement dated of even date herewith between Mercury Michigan, Inc.
and the Collateral Agent (pledging interests in Beaver Creek Pipeline, L.L.C., a
Michigan limited liability company, and Cinnabar Energy Services & Trading, LLC,
a Michigan limited liability company).
10. UCC-1 Financing Statements naming Mercury Michigan, Inc., as debtor,
relating to item 9.
11. Guaranty dated of even date herewith by each of the following in favor of
the Collateral Agent and the Purchasers:
Terra Energy Ltd., a Michigan corporation
Energy Acquisition Operating Corporation, a Michigan corporation
Kristen Corporation, a Michigan corporation
Terra Pipeline Company, a Michigan corporation
Mercury Michigan, Inc., a Michigan corporation
GTG Pipeline Corporation, a Virginia corporation
MGV Energy, Inc. an Alberta corporation
Schedule D
Page 1
Beaver Creek Pipeline, L.L.C., a Michigan limited liability company
Cinnabar Energy Services & Trading, LLC, a Michigan limited liability
company
Schedule D
Page 2
SCHEDULE E
INSURANCE SCHEDULE
Insurance Carrier Coverage Policy Number
- ----------------- -------- -------------
Liberty Mutual Insurance Worker's Compensation and WC1-641-005100-13
Employers Liability
Liberty Mutual Insurance General Liability TB1-641-005100-033
Liberty Mutual Insurance Automobile Liability AS1-641-005100-033
AEGIS Umbrella X0702A1A03
Lexington Insurance Co. Control of Well 8751362
Kemper Insurance Co. Property 3AT591464-00
Kemper Insurance Co. Boiler & Machinery 3AT691465-00
AEGIS Directors & Officers Liability DO702A1A2
Schedule E
Page 1
EXHIBIT 1
PAYMENT OF THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN ARTICLE XVI OF THE
NOTE PURCHASE AGREEMENT DATED JUNE 27, 2003 BY AND AMONG QUICKSILVER RESOURCES,
INC., BNP PARIBAS, AS COLLATERAL AGENT AND THE PURCHASERS PARTIES THERETO, BE
SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL
SENIOR INDEBTEDNESS, THE PROVISIONS OF WHICH ARTICLE XVI OF SUCH NOTE PURCHASE
AGREEMENT BEING INCORPORATED HEREIN AND BY THIS REFERENCE BEING MADE A PART
HEREOF.
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER EITHER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE
SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF
COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE A VIOLATION OF THE 1933 ACT AND THE STATE
ACTS.
FIXED RATE SENIOR SUBORDINATED SECOND LIEN
MORTGAGE NOTE DUE 2006
New York, New York
No. [___] [Date]
$[______] PPN [______________]
FOR VALUE RECEIVED, the undersigned, Quicksilver Resources Inc. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to [____________], or registered
assigns, the principal sum of [_____________________] DOLLARS on December 31,
2006, with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 7.50% per annum from
the date hereof, payable quarterly, on the next to last Business Day in the
fiscal quarters ending on March 31, June 30, September 30 and December 31 in
each year, commencing with the next to last Business Day in the fiscal quarter
ending on September 30, 2003, until the principal hereof shall have become due
and payable, and (b) to the extent permitted by law, if an Event of Default has
occurred and is continuing, on the unpaid balance thereof and on any overdue
payment of (including any overdue prepayment) principal, any overdue payment of
interest and any overdue payment of Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), at a rate per annum equal to 9.50%. As
used herein, "Business Day" means any day, other than Saturday or Sunday, on
which commercial banks are open for business in New York, New York.
Exhibit 1
Page 1
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of BNP Paribas in New York, New York (presently
located at 787 7th Avenue, Suite 300, New York, New York 10019) or at such other
place as the holder hereof shall designate to the Company in writing.
This Note is one of a series of Senior Subordinated Second Lien Mortgage
Notes (herein called the "Notes") issued pursuant to the Note Purchase
Agreement, dated as of June 27, 2003 (as from time to time amended, the "Note
Purchase Agreement"), among the Company, BNP Paribas, as collateral agent, and
the respective Purchasers named therein and is entitled to the benefits thereof.
Each holder of this Note will be deemed, by its acceptance hereof, (i) to have
agreed to the confidentiality provisions set forth in Section 17.11 of the Note
Purchase Agreement and (ii) to have made the representations set forth in
ARTICLE VI of the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is subject to optional and mandatory prepayment, in whole or from
time to time in part, at the times and on the terms specified in the Note
Purchase Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement, occurs
and is continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner, at the price (including any applicable
Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.
Notwithstanding any other provision of this Note, in no event shall the
interest payable hereon, whether before or after maturity, exceed the maximum
amount of interest which, under applicable law, may be charged on this Note, and
this Note is expressly made subject to the provisions of the Note Purchase
Agreement which more fully set out the limitations on how interest accrues
hereon.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief or other court proceedings, the Company and all endorsers, sureties and
guarantors of this Note jointly and severally agree to pay reasonable attorneys'
fees and collection costs to the holder hereof in addition to the principal,
interest and Make-Whole Amount payable hereunder.
Exhibit 1
Page 2
The Company and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK AS PROVIDED IN THE NOTE PURCHASE AGREEMENT.
QUICKSILVER RESOURCES INC.
By
--------------------------------------
Name:
Title:
Exhibit 1
Page 3
EXHIBIT 2
PAYMENT OF THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN ARTICLE XVI OF THE
NOTE PURCHASE AGREEMENT DATED JUNE 27, 2003 BY AND AMONG QUICKSILVER RESOURCES,
INC., BNP PARIBAS, AS COLLATERAL AGENT AND THE PURCHASERS PARTIES THERETO, BE
SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL
SENIOR INDEBTEDNESS, THE PROVISIONS OF WHICH ARTICLE XVI OF SUCH NOTE PURCHASE
AGREEMENT BEING INCORPORATED HEREIN AND BY THIS REFERENCE BEING MADE A PART
HEREOF.
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER EITHER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE
SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF
COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE A VIOLATION OF THE 1933 ACT AND THE STATE
ACTS.
FLOATING RATE SENIOR SUBORDINATED SECOND LIEN
MORTGAGE NOTE DUE 2006
New York, New York
No. [___] [Date]
$[______] PPN [______________]
FOR VALUE RECEIVED, the undersigned, Quicksilver Resources Inc. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to [____________], or registered
assigns, the principal sum of [_____________________] DOLLARS on December 31,
2006, with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the Adjusted LIBO Rate plus the
Applicable Margin (or at the Alternate Base Rate plus the Applicable Margin, as
more particularly described in the Note Purchase Agreement referred to below)
from the date hereof, payable quarterly, on the next to last Business Day in the
fiscal quarters ending on March 31, June 30, September 30 and December 31 in
each year, commencing with the next to last Business Day in the fiscal quarter
ending on September 30, 2003, until the principal hereof shall have become due
and payable, and (b) to the extent permitted by law, if an Event of Default has
occurred and is continuing, on the unpaid balance thereof and on any overdue
payment of (including any overdue prepayment) principal, and any overdue payment
of interest, at a rate per annum equal to the Default Rate applicable to
Floating Rate Notes. As used herein, "Business Day" means any day, other than
Saturday or Sunday, on which commercial banks are open for business in New York,
New York.
Exhibit 2
Page 1
Payments of principal of and interest on this Note are to be made in lawful
money of the United States of America at the principal office of BNP Paribas in
New York, New York (presently located at 787 7th Avenue, Suite 300, New York,
New York 10019) or at such other place as the holder hereof shall designate to
the Company in writing.
This Note is one of a series of Senior Subordinated Second Lien Mortgage
Notes (herein called the "Notes") issued pursuant to the Note Purchase
Agreement, dated as of June 27, 2003 (as from time to time amended, the "Note
Purchase Agreement"), among the Company, BNP Paribas, as collateral agent, and
the respective Purchasers named therein and is entitled to the benefits thereof.
Each holder of this Note will be deemed, by its acceptance hereof, (i) to have
agreed to the confidentiality provisions set forth in Section 17.11 of the Note
Purchase Agreement and (ii) to have made the representations set forth in
ARTICLE VI of the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is subject to optional and mandatory prepayment, in whole or from
time to time in part, at the times and on the terms specified in the Note
Purchase Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement, occurs
and is continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner, at the price and with the effect provided
in the Note Purchase Agreement. The holder of this Note is not entitled to the
payment of any Make-Whole Amount (as defined in the Note Purchase Agreement)
under any circumstances but is entitled to increased costs pursuant to Section
7.12 of the Note Purchase Agreement and breakage costs pursuant to Section 7.13
of the Note Purchase Agreement.
Notwithstanding any other provision of this Note, in no event shall the
interest payable hereon, whether before or after maturity, exceed the maximum
amount of interest which, under applicable law, may be charged on this Note, and
this Note is expressly made subject to the provisions of the Note Purchase
Agreement which more fully set out the limitations on how interest accrues
hereon.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief or other court proceedings, the Company and all endorsers, sureties and
guarantors of this Note jointly and severally agree to pay reasonable attorneys'
fees and collection costs to the holder hereof in addition to the principal,
interest and
Exhibit 2
Page 2
increased costs pursuant to Section 7.12 of the Note Purchase Agreement and
breakage costs pursuant to Section 7.13 of the Note Purchase Agreement payable
hereunder.
The Company and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK AS PROVIDED IN THE NOTE PURCHASE AGREEMENT.
QUICKSILVER RESOURCES INC.
By
--------------------------------------
Name:
Title:
Exhibit 2
Page 3
EXHIBIT 3
FORM OF
OPINION OF COUNSEL FOR THE COLLATERAL AGENT AND THE PURCHASERS
Exhibit 3
Page 1
EXHIBIT 4
FORM OF
FUNDS DELIVERY INSTRUCTION LETTER
Company's Letterhead
[Names and Addresses of Purchasers]
Re: Funds Delivery Instruction
Ladies and Gentlemen:
As contemplated by Section 4.1(t) of the Note Purchase Agreement,
dated as of June 27, 2003, among BNP Paribas, as Collateral Agent, the
undersigned and you (the "Agreement"), the undersigned hereby instructs you to
deliver, on the date of closing, the proceeds of the Notes in the manner
required by Section 3.1 of the Agreement to the undersigned's account identified
below:
Account Name:
Account No.:
Bank:
Bank City & State:
Bank ABA No.:
Reference:
This instruction has been executed and delivered by an authorized
representative of the undersigned.
Very truly yours,
QUICKSILVER RESOURCES, INC.
By:
-------------------------------------
Name:
Title:
Exhibit 4
Page 1
EXHIBIT 5
FORM OF
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he/she is the [___] of Quicksilver
Resources Inc., a Delaware corporation (the "Company"), and that as such her/she
is authorized to execute this certificate on behalf of the Company. Reference is
made to that certain Note Purchase Agreement dated as of June 27, 2003, (as the
same may from time to time be amended, modified, supplemented or restated, the
"Agreement"), by and among the Company, BNP Paribas, as collateral agent, and
the Purchasers from time to time party thereto, which Agreement is in full force
and effect on the date hereof. Terms which are defined in the Agreement are used
herein with the meanings given them in the Agreement.
This Certificate is furnished pursuant to [Section 4.1(g)/Section
8.1(b)(iv)] of the Agreement. Together herewith the Company is furnishing to the
Purchasers the Company's [audited/unaudited] financial statements (the
"Financial Statements") as of [___] (the "Reporting Date"). The undersigned, on
behalf of the Company, hereby represents, warrants, and acknowledges to the
Collateral Agent and to all Purchasers that:
(a) The representations and warranties of the Company contained in
ARTICLE V of the Agreement and in the Transaction Documents and otherwise made
in writing by or on behalf of the Company pursuant to the Agreement and the
Transaction Documents were true and correct when made, and are repeated at and
as of the time of delivery hereof and are true and correct at and as of the time
of delivery hereof, except to the extent such representations and warranties are
expressly limited to an earlier date, in which case such representations and
warranties continue to be true and correct as of such earlier date, or the
Majority Purchasers have expressly consented in writing to the contrary;
(b) The Company has performed and complied with all agreements and
conditions contained in the Agreement and in the Transaction Documents required
to be performed or complied with by it prior to or at the time of delivery
hereof [or specify default and describe];
(c) Since December 31, 2002, no change has occurred, either in any
case or in the aggregate, in the condition, financial or otherwise, of the
Company or any Subsidiary which could reasonably be expected to have a Material
Adverse Effect [or specify event];
(d) The Financial Statements fairly present, in accordance with GAAP
and in all material respects, the matters set forth therein and satisfy the
requirements of the Agreement;
(e) Attached hereto is a schedule of calculations showing the
Company's compliance as of the Reporting Date with the requirements of Section
9.1(h), Section 9.1(q), Section 9.1(r) and Section 9.1(s) of the Agreement [and
non-compliance as of such date with the requirements of Section(s) [___] of the
Agreement]; and
Exhibit 5
Page 1
(f) On the Reporting Date the Company was, and on the date hereof the
Company is, in full compliance with the disclosure requirements of Section
8.1(e) of the Agreement, and no Default otherwise existed on the Reporting Date
or otherwise exists on the date of this instrument or existed during the period
covered hereby [except for Default(s) under Section(s) [____] of the Agreement,
which [is/are] more fully described on a schedule attached hereto][if any such
Default existed or exists, specify the nature and period of existence thereof
and what action the Company shall have taken or proposes to take with respect
thereto].
The officer of the Company signing this instrument hereby certifies that
he/she has reviewed the Transaction Documents and the Financial Statements and
the transactions and conditions of the Company and its Subsidiaries from the
beginning of the quarterly or annual period covered by the statements being
furnished hereunder to the date hereof and has otherwise undertaken such inquiry
as is in his/her opinion necessary to enable him/her to express an informed
opinion with respect to the above representations, warranties and
acknowledgments of the Company.
IN WITNESS WHEREOF, this instrument is executed as of [_________], 200[__].
QUICKSILVER RESOURCES INC.
By:
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Name:
Title:
Exhibit 5
Page 2
EXHIBIT 6
FORM OF
GUARANTY AGREEMENT
Exhibit 6
Page 1
EXHIBIT 7
FORM OF
PLEDGE AGREEMENT
Exhibit 7
Page 1