<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
------- -------
COMMISSION FILE NO. 0-21411
---------------------
COSTILLA ENERGY, INC.
(Exact name of registrant as specified in its charter)
---------------------
DELAWARE 75-2658940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 WEST ILLINOIS, SUITE 1000
MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip code)
(915) 683-3092
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
AS OF OCTOBER 31, 1997 . . . . . . . . . . . . . . . . . . . 10,268,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COSTILLA ENERGY, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 1997 and
1996 (unaudited). . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the three and
nine months ended September 30, 1997 and
1996 (unaudited). . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements (unaudited). . . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 9
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COSTILLA ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,580 $ 12,618
Accounts receivable:
Trade, net 6,597 6,675
Affiliates - 332
Oil and gas sales 10,758 9,031
Prepaid and other current assets 508 1,753
-------- --------
Total current assets 24,443 30,409
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Oil and gas properties, using the successful efforts
method of accounting:
Proved properties 204,125 140,477
Unproved properties 33,021 4,482
Accumulated depletion, depreciation and amortization (35,287) (20,435)
-------- --------
201,859 124,524
Other property and equipment, net 3,386 2,420
-------- --------
Total property, plant and equipment 205,245 126,944
-------- --------
OTHER ASSETS:
Deferred charges 4,318 4,503
Note receivable - other 250 250
Other 3,258 684
-------- --------
Total other assets 7,826 5,437
-------- --------
$237,514 $162,790
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,198 $ 98
Trade accounts payable 20,945 12,718
Undistributed revenue 4,431 3,517
Other current liabilities 6,502 3,756
-------- --------
Total current liabilities 37,076 20,089
-------- --------
LONG-TERM DEBT, LESS CURRENT MATURITIES 162,506 100,262
-------- --------
OTHER NONCURRENT LIABILITIES - 1,870
-------- --------
STOCKHOLDERS' EQUITY :
Preferred stock, $.10 par value (3,000,000 shares
authorized; no shares outstanding) - -
Common stock, $.10 par value (20,000,000 shares authorized;
10,268,000 shares outstanding at September 30, 1997 and
10,475,000 shares outstanding at December 31, 1996) 1,027 1,047
Additional paid-in capital 38,665 41,081
Retained earnings (deficit) (1,760) (1,559)
-------- --------
Total stockholders' equity 37,932 40,569
-------- --------
COMMITMENTS AND CONTINGENCIES - -
-------- --------
$237,514 $162,790
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COSTILLA ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $19,339 $15,343 $54,231 $34,787
Other (38) 89 882 169
------- ------- ------- -------
19,301 15,432 55,113 34,956
------- ------- ------- -------
EXPENSES:
Oil and gas production 6,875 6,451 21,038 14,729
General and administrative 2,172 1,132 5,543 3,941
Exploration and abandonments 634 698 3,748 1,006
Depreciation, depletion and amortization 6,038 3,454 15,758 8,073
Interest 3,340 4,274 8,856 8,430
------- ------- ------- -------
19,059 16,009 54,943 36,179
------- ------- ------- -------
Income (loss) before federal income taxes 242 (577) 170 (1,223)
PROVISION FOR FEDERAL INCOME TAXES
Current - 17 62 17
Deferred 90 - 90 -
------- ------- ------- -------
Income (loss) before extraordinary item 152 (594) 18 (1,240)
Extraordinary loss resulting from early
extinguishment of debt, net of deferred
tax benefit of $129 (219) - (219) (1,640)
------- ------- ------- -------
NET LOSS $ (67) $ (594) $ (201) $(2,880)
------- ------- ------- -------
------- ------- ------- -------
PREFERRED RETURN AND ACCRETION OF
REDEEMABLE MEMBERS' CAPITAL $ - $ (825) $ - $(2,420)
------- ------- ------- -------
------- ------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM
APPLICABLE TO COMMON EQUITY $ 152 $(1,419) $ 18 $(3,660)
------- ------- ------- -------
------- ------- ------- -------
NET LOSS APPLICABLE TO COMMON EQUITY $ (67) $(1,419) $ (201) $(5,300)
------- ------- ------- -------
------- ------- ------- -------
INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item $ 0.01 $ (0.27) $ 0.00 $ (0.70)
Extraordinary loss resulting from
early extinguishment of debt, net of
deferred tax benefit of $129 (0.02) - (0.02) (0.32)
------- ------- ------- -------
NET LOSS $ (0.01) $ (0.27) $ (0.02) $ (1.02)
------- ------- ------- -------
------- ------- ------- -------
WEIGHTED AVERAGE SHARES OUTSTANDING 10,340 5,200 10,425 5,200
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
COSTILLA ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (67) $ (594) $ (201) $ (2,880)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization 6,038 3,454 15,758 8,073
Exploration and abandonments 78 - 136 -
Amortization of deferred charges 604 824 1,214 993
Deferred income tax expense (39) - (39) -
Allowance for doubtful accounts - - 208 -
Other noncash - - - 79
Gain (loss) on sale of oil and gas properties - (33) 30 (73)
Extraordinary loss resulting from early extinguishment of debt 348 - 348 1,640
Gain on investment transactions 447 - (534) -
-------- ------- -------- --------
7,409 3,651 16,920 7,832
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,181) (5,444) (1,317) (6,653)
(Increase) decrease in other assets (3,240) 901 (3,669) (1,289)
Increase (decrease) in accounts payable 5,707 5,302 9,142 4,422
Increase (decrease) in other liabilities 2,555 810 2,747 1,482
Decrease in deferred revenue - (536) - (1,232)
-------- ------- -------- --------
Net cash provided by operating activities 9,250 4,684 23,823 4,562
-------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (61,854) (5,299) (97,732) (53,026)
Proceeds from sale of oil and gas properties 2,460 - 5,169 -
Additions to other property and equipment (378) (172) (1,663) (2,168)
-------- ------- -------- --------
Net cash used in investing activities (59,772) (5,471) (94,226) (55,194)
-------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt 72,704 2,817 87,304 128,207
Payments of long-term debt (19,923) - (19,960) (74,519)
Proceeds from issuance of common stock, net - - 14 -
Purchase of common stock (1,203) - (2,451) -
Deferred loan and financing costs (481) (1,245) (542) (3,973)
-------- ------- -------- --------
Net cash provided by financing activities 51,097 1,572 64,365 49,715
-------- ------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 575 785 (6,038) (917)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,005 1,164 12,618 2,866
-------- ------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,580 $ 1,949 $ 6,580 $ 1,949
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
COSTILLA ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial information as of September 30, 1997, and for the
nine months ended September 30, 1997 and 1996, is unaudited. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted in this Form 10-Q pursuant to the rules and regulations of
the Securities and Exchange Commission. However, in the opinion of management,
these interim financial statements include all the necessary adjustments to
fairly present the results of the interim periods and all such adjustments are
of a normal recurring nature. The interim consolidated financial statements
should be read in conjunction with the audited financial statements for the year
ended December 31, 1996.
Costilla Energy, Inc. ("Costilla" or the "Company") was incorporated in
Delaware in June 1996 to consolidate and continue the activities previously
conducted by Costilla Energy, L.L.C., a Texas limited liability company (the
"LLC"), and its wholly owned subsidiaries, to acquire the assets of CSL
Management Corporation (which owned certain office equipment used by the
Company), and to acquire the stock of Valley Gathering Company. Costilla was
formed for the purpose of conducting a $60 million initial public offering of
common stock and a $100 million senior notes offering (the "Offerings"), which
Offerings were completed in early October 1996.
The Company is an oil and gas exploration and production concern with
properties located principally in West Texas and Southeast New Mexico, South and
East Texas, and the Rocky Mountain regions of the United States.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 128, Earnings per Share. FAS No.
128 establishes standards for computing and presenting earnings per share and is
effective for periods ending after December 15, 1997. The impact of the adoption
of FAS No. 128 on the Company's earnings per share is expected to be immaterial.
3. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to manage well-defined
interest rate and commodity price risks. The Company is exposed to credit
losses in the event of nonperformance by the counterparties to its interest rate
swap agreements and its commodity hedges. The Company anticipates, however,
that such counterparties will be able to fully satisfy their obligations under
the contracts. The Company does not obtain collateral or other security to
support financial instruments subject to credit risk but monitors the credit
standing of the counterparties.
COMMODITY HEDGES. The Company utilizes option contracts to hedge the effect
of price changes on future oil and gas production. If market prices of oil and
gas exceed the strike price of put options, the options will expire unexercised,
therefore reducing the effective price received for oil and gas sales by the
cost of the related put option.
6
<PAGE>
The following table sets forth the future volumes hedged by year and the
weighted-average strike price of the option contracts at September 30, 1997:
<TABLE>
<CAPTION>
Oil Gas
Volume Volume Strike Price
(Bbls) (Mmbtu) per Bbl/Mmbtu
---------- ---------- --------------------
<S> <C> <C> <C>
Oil:
1997. . . . . . . . . . . . 1,028,000 - $17.65 - $22.02(a)
1998. . . . . . . . . . . . 1,579,500 - $18.50 - $22.55(a)
Gas:
1997. . . . . . . . . . . . - 755,000 $1.87(b)
1998. . . . . . . . . . . . - 1,520,000 $2.00(b)
</TABLE>
- --------------------
(a) Represents the weighted-average price of a purchased put option
contract and of a collar established with the purchase of a put option
contract and the sale of a call option contract.
(b) Represents the strike price on purchased put option contracts.
INTEREST RATE SWAP AGREEMENTS. Prior to the Offerings, the Company
utilized two interest rate swap agreements to reduce the potential impact of
increases in interest rates on floating-rate long-term debt. Concurrent with
the issuance of the $100 million of 10.25% fixed-rate senior notes in early
October 1996, the two interest rate swap agreements ceased to be hedges. These
interest rate swap agreements were marked-to-market and the related liability
recorded. The liability for the two interest rate swap agreements was
$1,712,000 at December 31, 1996. A $60 million interest rate swap agreement
expired in May, 1997. As a result of the Company's borrowings against its line
of credit, which bears interest on a floating rate basis, the remaining interest
rate swap agreement again qualifies as a hedge during the third quarter of 1997.
At each borrowing date, the interest rate swap agreement was marked-to-market
and the hedge portion is being amortized over the remaining life of the
agreement. As a result of expiration and marking the agreements to market
during the three and nine month periods ended September 30, 1997, the Company
recorded a net investment loss of approximately $69,000 for the three month
period then ended and net investment income of $534,000 for the nine month
period then ended. The following table sets forth the term, fixed rate and
notional amounts of the interest rate swap agreement in place as of September
30, 1997:
NOTIONAL
PRINCIPAL FIXED
TERM AMOUNT INTEREST RATE
------------------------------ ----------- -------------
Jan. 25, 1996 to Jan. 25, 1999 $24 million 7.50%
4. ACQUISITIONS
On August 28, 1997, the Company consummated the purchase from Ballard
Petroleum LLC ("Ballard") of certain oil and gas properties for an estimated
adjusted purchase price of approximately $41.2 million (the "Ballard
Acquisition"). The properties are located primarily in the Rocky Mountain
region of the United States. The transaction was accounted for using the
purchase method. The results of operations of the acquired properties are
included in the Consolidated Statements of Operations as of the acquisition
closing date, August 28, 1997. In addition, the Company and Ballard have
entered into an Acquisition and Exploration Agreement that establishes an
area of mutual interest in the Rocky Mountain Region in which the parties
will jointly own, acquire, explore and develop properties.
On June 14, 1996, the Company consummated the purchase from Parker and
Parsley Petroleum Company of certain oil and gas properties for an estimated
adjusted purchase price of approximately $38.7 million (the "1996 Acquisition").
The properties are located primarily in south and west Texas. The transaction
was accounted for using the purchase method. The results of operations of the
acquired properties are included in the Consolidated Statements of Operations
beginning on the acquisition closing date, June 14, 1996.
7
<PAGE>
PRO FORMA RESULTS OF OPERATIONS
The following table reflects the pro forma results of operations for the
nine months ended September 30, 1997 and 1996, as though the 1996
Acquisition, the Offerings and the Ballard Acquisition had each occurred as
of January 1, 1996. The pro forma amounts are not necessarily indicative of
results that may be reported in the future.
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
-------- ------
(IN THOUSANDS)
Revenues $60,801 $52,665
Net loss before extraordinary items (1,125) (1,104)
Net loss per share before extraordinary items $ (0.11) $ (0.11)
5. GAS IMBALANCES
The Company uses the entitlements method of accounting for natural gas
revenues. Under this method, revenues are recognized based upon actual
production of natural gas. As of September 30, 1997, the Company had recorded a
net gas imbalance receivable for gas previously produced of approximately
$2,743,000, comprised of approximately 1,647,000 mcf at a net price of $1.67 per
mcf.
6. LONG TERM DEBT
In August 1997, the Company entered into a credit agreement (the "Revolving
Credit Facility") with Bankers Trust Company, as agent, to refinance its
existing bank indebtedness and to finance a portion of the Ballard Acquisition
purchase price. The Revolving Credit Facility provides for a maximum
availability of $75.0 million, with an initial borrowing base of $50.0 million,
$37.5 million of which was borrowed at September 30, 1997. Borrowings under the
Revolving Credit Facility bear interest, at the Company's option, at a floating
rate which is at or above the Lender's prime rate or above the applicable
Eurodollar rate, depending on the percentage of committed funds which have been
borrowed. Interest is payable quarterly as to base rate loans, and at the end
of the applicable interest period as to Eurodollar loans. The borrowing base of
the Revolving Credit Facility is automatically reduced by 5% each quarter
beginning in August 1999, and payments of principal are required in each quarter
in which the outstanding principal balance is greater than the reduced borrowing
base. The remaining balance is payable on August 28, 2002, the maturity date of
the Revolving Credit Facility. Under the Revolving Credit Facility, the Company
is obligated to pay certain fees to the lender, including a commitment fee based
on the unused portion of the commitment. The Revolving Credit Facility contains
customary restrictive covenants (including restrictions on the payment of
dividends and the incurrence of additional indebtedness) and requires the
Company to maintain (i) a current ratio of not less than 1.0 to 1.0, including
amounts available under the Revolving Credit Facility and excluding current
maturities under the Revolving Credit Facility and the Acquisition Credit
Facility, (ii) a ratio of EBITDA to interest expense of not less than 2.50 to 1
and (iii) a minimum tangible net worth. Borrowings under the Revolving Credit
Facility are secured by substantially all of the assets of the Company.
In August 1997, the Company also entered into a second credit agreement (the
"Acquisition Credit Facility") with Bankers Trust company, as agent, to provide
funds for a substantial portion of the Ballard Acquisition purchase price. The
Acquisition Credit Facility is a term loan in the amount of $30.0 million and is
subject to a borrowing base to be determined at least semi-annually. Borrowings
under the Acquisition Credit Facility bear interest, at the Company's option, at
a floating rate which is above the Lender's prime rate or the applicable
Eurodollar rate. Interest is payable quarterly as to base rate loans, and at
the end of the applicable interest period as to Eurodollar loans. Principal
payments commence in February 1998, and are $1.7 million quarterly for the first
year and $1.4 million each quarter thereafter for two years, with all remaining
amounts due at maturity, February 28, 2001. Borrowings under the Acquisition
Credit Facility are secured by the assets acquired in the Ballard Acquisition.
8
<PAGE>
COSTILLA ENERGY, INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of Costilla to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the volatility of oil and gas prices, the Company's drilling results and ability
to replace oil and gas reserves, the availability of capital resources, the
reliance upon estimates of proved reserves, operating hazards and uninsured
risks, competition, government regulation, and the ability of the Company to
implement its business strategy, and other factors referenced in the Company's
recent prospectus for its initial public offering of common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Costilla is an independent energy company engaged in the exploration,
acquisition and development of oil and gas properties. The Company's
predecessor began operating in 1988 and through mid-1995 had grown primarily
through a series of small acquisitions of oil and gas properties and the
exploitation of those properties. In June 1995, Costilla consummated the
acquisition of certain oil and gas properties for a purchase price of
approximately $46.6 million (the "1995 Acquisition"), in June 1996, Costilla
consummated the acquisition of certain oil and gas properties for a purchase
price of approximately $38.7 million (the "1996 Acquisition") and in August
1997, Costilla consummated the purchase of certain oil and gas properties for
a purchase price of approximately $41.2 million (the "Ballard Acquisition").
Costilla's strategy is to utilize its technical staff and technological
advances to increase its oil and gas reserves, production and cash flow from
operations through an active exploration program with the acquisition and
development of proved reserves. In addition, Costilla continues to evaluate the
acquisition of undeveloped acreage for its exploration efforts. Costilla has
in-house exploration expertise using 3-D seismic technology to identify new
drilling opportunities as well as for the exploitation of acquired properties.
To date, the Company has achieved its high rate of growth primarily through
acquisitions which impacted its reported financial results in a number of ways.
Properties sold by others frequently have not received focused attention prior
to sale. After acquisition, certain of these properties are in need of
maintenance, workovers, recompletions and other remedial activity not
constituting capital expenditures, which substantially increase lease operating
expenses. The increased production and revenue resulting from these
expenditures is predominately realized in periods subsequent to the period of
expense. In addition, the rapid growth of the Company has required it to
develop operating, accounting and administrative personnel compatible with its
increased size. The Company believes it has now achieved a sufficient size to
expand its reserve base without a corresponding increase in its general and
administrative expense. The Company also believes it now has a sufficient
inventory of prospects and the professional staff necessary to follow a more
balanced program of exploration and development activities to complement its
acquisition efforts.
9
<PAGE>
Costilla has shown a significant increase in its oil and gas reserves and
production, especially due to its acquisitions from 1995 through 1997. The
following table sets forth certain operating data of Costilla for the periods
presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OIL AND GAS PRODUCTION:
Oil (Mbbls) 565 502 1,601 1,211
Gas (Mmcf) 4,824 2,698 11,545 6,202
MBOE (1) 1,369 951 3,525 2,245
AVERAGE SALES PRICES:
Oil (per Bbbl) $ 16.91 $ 20.02 $ 18.08 $ 18.92
Gas (per Mcf) 2.03 1.96 2.19 1.92
COSTS PER BOE (1):
Production cost $ 5.02 $ 6.78 $ 5.97 $ 6.56
Depreciation, depletion and amortization 4.40 3.63 4.47 3.60
General and administrative expenses 1.59 1.19 1.57 1.76
</TABLE>
(1) BOE represents equivalent barrels of oil. In reference to natural gas,
natural gas equivalents are determined using the ratio of six Mcf of
natural gas to one barrel of crude oil, condensate or natural gas liquids.
MBOE represents one thousand barrels of oil equivalent.
Costilla uses the successful efforts method of accounting for its oil and
gas activities. Costs to acquire mineral interests in oil and gas properties,
to drill and equip exploratory wells that result in proved reserves, and to
drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not result in proved reserves, geological, geophysical and seismic
costs, and costs of carrying and retaining unproved properties are expensed.
Capitalized costs of producing oil and gas properties, after considering
estimated dismantlement and abandonment costs and estimated salvage values, are
depreciated and depleted using the units-of-production method. Unproved oil and
gas properties that are individually significant are periodically reviewed for
impairment of value, and a loss is recognized at the time of impairment by
providing an impairment allowance. Other unproved properties are amortized
based on the Company's experience of successful drilling and average holding
period.
The Company utilizes option contracts to hedge the effect of price changes
on a portion of its future oil and gas production. Premiums paid and amounts
receivable under the option contracts are amortized and accrued to oil and gas
sales, respectively. If market prices of oil and gas exceed the strike price of
put options, the options will expire unexercised, therefore, reducing the
effective price received for oil and gas sales by the cost of the related
option. Conversely, if market prices of oil and gas decline below the strike
price of put options, the options will be exercised, therefore, increasing the
effective price received for oil and gas sale by the proceeds received from the
related option. The net effect of the Company's commodity hedging activities
reduced oil and gas revenues by $338,950 for the three months ended September
30, 1997, by $563,074 for the three months ended September 30, 1996, by
$1,085,280 for the nine months ended September 30, 1997 and by $1,254,829 for
the nine months ended September 30, 1996. As of October 31, 1997, the Company
had purchased put options on 6,500 barrels of oil per day which establish a
floor price of $18.50 per barrel and sold call options on 6,500 barrels of oil
per day at $22.55 per barrel. These option contracts continue through August
1998. Additionally, the Company had purchased put options on 5,000 Mmbtu of gas
per day which provide for a floor of $2.00 per Mmbtu through October 1998.
The Company utilizes interest rate swap agreements to reduce the potential
impact of increases in interest rates on floating-rate, long term debt. If
market rates of interest experienced during the applicable swap term are below
the rate of interest effectively fixed by the swap agreement, the rate of
interest incurred by the Company will exceed the rate that would have been
experienced under the Credit Agreement. The net effect of the Company's interest
rate hedging activities increased interest expense by $359,000 for the nine
months and $328,000 for the
10
<PAGE>
three months ended September 30, 1996. Concurrent with the payment of all of
the Company's floating rate debt from proceeds of the Offerings in the fourth
quarter of 1996, the interest rate swap agreements ceased to qualify as hedges.
These interest rate swap agreements were marked-to-market and the related
liability recorded. A $60 million interest rate swap expired in May, 1997. As
a result of the Company's borrowings against its line of credit, which bears
interest on a floating rate basis, the remaining interest rate swap agreement
again qualifies as a hedge during the third quarter of 1997. At each borrowing
date, the interest rate swap agreement was marked-to-market and the hedge
portion is being amortized over the remaining life of the agreement. As a
result of expiration and marking the agreements to market during the three and
month periods ended September 30, 1997, the Company recorded a net investment
loss of approximately $69,000 for the three month period then ended and net
investment income of $534,000 for the nine month period then ended.
The Company's predecessors were classified as partnerships for federal
income tax purposes. Therefore, no income taxes were paid or provided for by
the Company prior to the Offerings. Future tax amounts, if any, will be
dependent upon several factors, including but not limited to the Company's
results of operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
The Company's total oil and gas revenues for the three months ended
September 30, 1997 were $19,339,000, representing an increase of $3,996,000
(26%) over revenues of $15,343,000 in 1996. Gas imbalances accounted for
approximately $2,743,000 (69%) of the increase, with an average price of $1.67
per mcf. Approximately 50% of the gas imbalance relates to production in prior
periods against which a valuation allowance had been recorded due to uncertainty
of ultimate collection. During the quarter ended September 30, 1997,
uncertainties related to these imbalances were substantially reduced and the
related valuation allowance reversed. Management does not expect similar
effects from gas imbalances in future periods. In addition, the Ballard
Acquisition accounted for approximately $935,000 of the increase. The remainder
of the increase was due to a combination of successful drilling activities and
the enhancement of existing production offset by lower oil prices. The average
oil price per barrel received in 1997 was $16.91 compared to $20.02 in 1996, a
16% decrease, and the average gas price received in 1997 was $2.03 compared to
$1.96 in 1996, a 3% increase.
Oil and gas reported production was 1,369 MBOE in 1997 compared to 951
MBOE in 1996, a 44% increase. Of the 418 MBOE increase, gas imbalances
accounted for approximately 274 MBOE of the increase, offset partially by 122
MBOE attributable to a change in prior production estimates. The Ballard
Acquisition properties accounted for approximately 66 MBOE of the increase.
The remainder of the increase was due to a combination of successful drilling
activities and the enhancement of existing production.
Other loss was $38,000 for the three month period ended September 30, 1997
compared to income of $89,000 for the comparable 1996 third quarter period,
representing a 143% decrease. Interest and other revenues were $101,000 for the
three months ended September 30, 1997 compared to $48,000 in 1996, representing
an increase of $53,000, virtually all of which was related to increased interest
income due to increased funds earning interest. Losses on investment
transactions of $139,000 were recorded for the three months ended September 30,
1997 as a result of marking to market certain option contracts. No comparable
transactions existed in 1996.
Oil and gas production costs for the three month period ended September 30,
1997 were $6,875,000 ($5.02 per BOE), compared to $6,451,000 in 1996 ($6.78 per
BOE), representing an increase of $423,000 (7%), due principally to the Ballard
Acquisition. On a per BOE basis, production costs decreased $1.76 (26%) due to
a combination of the sale of certain high operating cost properties in April,
1997, the gas imbalance volumes and lower production costs on newly completed
wells. Of the $1.76 per BOE decrease in production costs, the net reduction
due to the gas imbalance volumes and the change in previous production
estimates was approximately $0.63 per BOE.
General and administrative expenses for the three months ended September 30,
1997 were $2,172,000, representing an increase of $1,101,000 (103%) from 1996 of
$1,132,000. The increase is primarily due to an increase in personnel and
related costs necessary to accommodate the acceleration of the Company's oil and
gas activities, the Ballard Acquisition, increased insurance costs and costs
related to becoming a public company in October, 1996.
11
<PAGE>
Exploration and abandonment expense decreased to $634,000 for the three
months ended September 30, 1997 compared to $698,000 in 1996. The Company
incurred $90,000 of seismic costs for the three months ended September 30, 1997,
compared to $601,000 in the comparable period in 1996. Dry hole and abandonment
costs increased to $343,000 in 1997 from $97,000 in 1996. The Company incurred
$201,000 of other geological and geophysical costs during the three month period
ended September 30, 1997. No comparable costs were incurred during the same
period in 1996. The increase in exploration and abandonments expense was
primarily related to the Company's increased drilling activities in 1997
compared to a very low level of activity in 1996.
Depreciation, depletion and amortization expense for the three month
period ended September 30, 1997 was $6,038,000 compared to $3,454,000 for
1996, representing an increase of $2,584,000 (75%). During the 1997 period,
depreciation, depletion and amortization ("D D & A") on oil and gas
production was provided at an average rate of $4.41 per BOE compared to $3.63
per BOE for 1996. Approximately $1,232,000 of the increase was due to to the
recording of gas imbalances. The remainder of the increase was due primarily
to the Company's decision to increase the D D & A rate based upon the
expectation of lower oil and gas prices during 1997 than those experienced at
December 31, 1996.
Interest expense was $3,340,000 for the three months ended September 30,
1997, compared to $4,274,000 for the comparable period in 1996. The $939,000
(22%) decrease was attributable primarily to higher interest rates experienced
during the comparable period in 1996 and the amortization of certain financing
costs. The average amounts of applicable interest-bearing debt in 1997 and 1996
were $134,352,000 and $124,651,000, respectively. The effective annualized
interest rate in 1997 was 9.9%, as compared to 13.7% in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
The Company's total oil and gas revenues for the nine months ended September
30, 1997 were $54,231,000, representing an increase of $19,444,000 (56%) over
revenues of $34,787,000 in 1996. This increase was primarily due to the 1996
Acquisition, which accounted for approximately $10,456,000 of increased revenue.
Gas imbalances accounted for approximately $2,743,000 (14%) of the increase,
with an average price of $1.67 per mcf. Approximately 50% of the gas imbalance
relates to production in prior periods against which a valuation allowance had
been recorded due to uncertainty of ultimate collection. During the quarter
ended September 30, 1997, uncertainties related to these imbalances were
substantially reduced and the related valuation allowance reversed. Management
does not expect similar effects from gas imbalances in future periods. The
Ballard Acquisition accounted for approximately $935,000 of the increase with
the remainder of the increase due to a combination of increased gas prices,
successful drilling activities and the enhancement of existing production,
offset by the sale of certain properties in April, 1997 and December 31, 1996
and lower oil prices. The average oil price per barrel received in 1997 was
$18.08 compared to $18.92 in 1996, a 4% decrease, and the average gas price
received in 1997 was $2.19 compared to $1.92 in 1996, a 14% increase.
Oil and gas production was 3,525 MBOE in 1997 compared to 2,245 MBOE in
1996, a 57% increase. Of the 1,280 MBOE increase, approximately 612 MBOE was
due to the properties acquired in the 1996 Acquisition. Gas imbalances
accounted for approximately 274 MBOE of the increase, offset partially by 122
MBOE attributable to a change in prior production estimates. The Ballard
Acquisition properties accounted for approximately 66 MBOE of the increase.
The remainder of the increase was due to a combination of successful drilling
activities and the enhancement of existing production. The sale of certain
properties in April, 1997 and December, 1996 partially offset the increased
production volumes.
Other income was $882,000 for the nine month period ended September 30, 1997
compared to $169,000 for the comparable 1996 nine month period, representing a
421% increase. Interest and other revenues were $462,000 for the nine months
ended September 30, 1997 compared to $96,000 in 1996, representing an increase
of $366,000, virtually all of which was related to increased interest income due
to increased funds earning interest. Gains on investment transactions of
$534,000 were recorded for the nine months ended September 30, 1997 related to
the interest rate swap contract which was marked-to-market. No comparable
transactions existed in 1996. Losses of $70,000 related to the oil collar which
was marked-to-market. No comparable transactions existed in 1996.
12
<PAGE>
Oil and gas production costs for the nine month period ended September 30,
1997 were $21,038,000 ($5.97 per BOE), compared to $14,729,000 in 1996 ($6.56
per BOE), representing an increase of $6,308,000 (43%), with approximately
$4,479,000 of the increase relating to the 1996 Acquisition. The remainder of
the increase was due primarily to successful drilling activities and, to a
lesser extent, the Ballard Acquisition, offset by the sale of certain high
operating cost properties in April 1997. On a per BOE basis, production
costs decreased $0.59 (9%) due to a combination of the sale of certain high
operating cost properties in April 1997, the gas imbalance volumes and lower
production costs on newly completed wells. Of the $0.59 per BOE decrease in
production costs, the net reduction due to the gas imbalance volumes and the
change in previous production estimates is approximately $0.27 per BOE.
General and administrative expenses for the nine months ended September 30,
1997 were $5,543,000, representing an increase of $1,602,000 (41%) from 1996 of
$3,941,000. Included in the 1997 amount is a non-cash item for $208,000 related
to a provision for doubtful accounts on a note receivable. The remaining
increase is primarily due to an increase in personnel and related costs
necessary to accommodate the acceleration of the Company's oil and gas
activities, the Ballard Acquisition, increased insurance costs and costs related
to becoming a public company in October, 1996.
Exploration and abandonment expense increased to $3,748,000 for the nine
months ended September 30, 1997 compared to $1,006,000 in 1996. The Company
incurred $983,000 of seismic costs for the nine months ended September 30, 1997,
compared to $605,000 in the comparable period in 1996. Dry hole and abandonment
costs increased to $2,200,000 in 1997 from $401,000 in 1996. The Company
incurred $566,000 of other geological and geophysical costs during the nine
month period ended September 30, 1997. No comparable costs were incurred during
the same period in 1996. The increase in exploration and abandonments expense
was primarily related to the Company's increased drilling activities in 1997
compared to a very low level of activity in 1996.
D D & A expense for the nine month period ended September 30, 1997 was
$15,758,000 compared to $8,073,000 for 1996, representing an increase of
$7,685,000 (95%). During the 1997 period, D D & A on oil and gas production
was provided at an average rate of $4.47 per BOE compared to $3.60 per BOE
for 1996. Approximately $2,735,000 of this increase was due to the 1996
Acquisition and an additional $1,232,000 of the increase was due to to the
recording of gas imbalances. The remainder of the increase was due primarily
to the Company's decision to increase the D D & A rate based upon the
expectation of lower oil and gas prices during 1997 than those experienced at
December 31, 1996.
Interest expense was $8,856,000 for the nine months ended September 30,
1997, compared to $8,430,000 for the comparable period in 1996. The $426,000
(5%) increase was attributable primarily to increased levels of debt offset in
part by a decrease in the effective interest rate. The average amounts of
applicable interest-bearing debt in 1997 and 1996 were $113,077,000 and
$93,429,000, respectively. The effective annualized interest rate in 1997 was
10.4%, as compared to 11.5% in 1996.
Results of operations for the nine months ended September 30, 1997 include
an extraordinary charge of $348,000 compared to $1,640,000 for the comparable
period in 1996. These extraordinary charges related to the early extinguishment
of the Company's prior bank credit facilities and consisted of previously
capitalized debt issuance costs. In August, 1997, the Company entered into the
Revolving Credit Facility and the Acquisition Credit Facility with Bankers Trust
Company. The facilities replaced a credit facility with NationsBank entered
into in 1996. In 1996, a credit facility with NationsBank originating in 1995
was replaced with a bridge loan facility outstanding at September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
NET CASH PROVIDED BY OPERATING ACTIVITIES
For the nine months ended September 30, 1997, net cash provided by operating
activities increased to $23.8 million from $4.6 million for 1996. Cash provided
by operations, before changes in operating assets and liabilities, increased to
$16.9 million from $7.8 million for 1996, due primarily to the 1996 Acquisition
and the increase in results of operations therefrom, and also due to increases
in production from new drilling activities.
NET CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities for the nine months ended
September 30, 1997 was $94.2 million. Approximately $41.2 million was used for
the Ballard Acquisition, $56.5 million was used for exploration and
13
<PAGE>
development activities and $1.7 million for other property and equipment.
Proceeds from the sale of various oil and gas assets resulted in net cash
provided from investing activities of approximately $5.2 million. For the nine
months ended September 30, 1996, net cash used in investing activities was $55.2
million. Approximately $38.7 million was used for the 1996 Acquisition, $14.3
million was used for exploration and development activities and $2.2 million
primarily for other property and equipment.
NET CASH PROVIDED BY FINANCING ACTIVITIES
For the nine months ended September 30, 1997, the Company incurred $87.3
million of debt, of which approximately $20.0 million was used to repay certain
prior bank debt, $41.2 million was used for the Ballard acquisition and the
remainder was used in connection with its exploration and development
activities. In addition, the Company used approximately $2.5 million for the
purchase of 213,000 shares of its common stock. For the nine months ended
September 30, 1996, the Company incurred approximately $125.0 million of debt.
Approximately $74.5 million of such amount was used for the extension and
refinancing of prior debt, $38.7 million was used for the 1996 Acquisition and
approximately $11.8 million was used for general corporate purposes.
CAPITAL RESOURCES
Funding for the Company's business activities has historically been provided
by bank financings, cash flow from operations, private equity sales, property
divestitures and joint ventures with industry participants. The Company plans
to finance its continuing operations and execute its business strategy with cash
flow from operations, borrowings under the Revolving Credit Facility, new
borrowings for acquisitions, the possible sale of additional equity and proceeds
from the divestiture of non-core, non-strategic assets.
On August 28, 1997, the Company closed the Ballard Acquisition for
approximately $41.2 million. While the Company regularly engages in discussions
relating to potential acquisitions, the Company has no present agreement,
commitment or understanding with respect to any such acquisition, other than the
acquisition of undeveloped acreage and various mineral interests in its normal
course of business. Any future acquisition may require additional financing and
will be dependent upon financing arrangements available at the time.
In August 1997, the Company entered into a credit agreement (the "Revolving
Credit Facility") with Bankers Trust Company, as agent, to refinance its
existing bank indebtedness and to finance a portion of the Ballard Acquisition
purchase price. The Revolving Credit Facility provides for a maximum
availability of $75.0 million, with an initial borrowing base of $50.0 million,
$37.5 million of which was borrowed at September 30, 1997. Borrowings under the
Revolving Credit Facility bear interest, at the Company's option, at a floating
rate which is at or above the Lender's prime rate or above the applicable
Eurodollar rate, depending on the percentage of committed funds which have been
borrowed. Interest is payable quarterly as to base rate loans, and at the end
of the applicable interest period as to Eurodollar loans. The borrowing base of
the Revolving Credit Facility is automatically reduced by 5% each quarter
beginning in August 1999, and payments of principal are required in each quarter
in which the outstanding principal balance is greater than the reduced borrowing
base. The remaining balance is payable on August 28, 2002, the maturity date of
the Revolving Credit Facility. Under the Revolving Credit Facility, the Company
is obligated to pay certain fees to the lender, including a commitment fee based
on the unused portion of the commitment. The Revolving Credit Facility contains
customary restrictive covenants (including restrictions on the payment of
dividends and the incurrence of additional indebtedness) and requires the
Company to maintain (i) a current ratio of not less than 1.0 to 1.0, including
amounts available under the Revolving Credit Facility and excluding current
maturities under the Revolving Credit Facility and the Acquisition Credit
Facility, (ii) a ratio of EBITDA to interest expense of not less than 2.50 to 1
and (iii) a minimum tangible net worth. Borrowings under the Revolving Credit
Facility are secured by substantially all of the assets of the Company.
In August 1997, the Company also entered into a second credit agreement (the
"Acquisition Credit Facility") with Bankers Trust company, as agent, to provide
funds for a substantial portion of the Ballard Acquisition purchase price. The
Acquisition Credit Facility is a term loan in the amount of $30.0 million and is
subject to a borrowing base to be determined at least semi-annually. Borrowings
under the Acquisition Credit Facility bear interest, at the Company's option, at
a floating rate which is above the Lender's prime rate or the applicable
Eurodollar rate. Interest is payable quarterly as to base rate loans, and at
the end of the applicable interest period as to Eurodollar loans. Principal
payments commence in February 1998, and are $1.7 million quarterly for the first
year and $1.4
14
<PAGE>
million each quarter thereafter for two years, with all remianing amounts due at
maturity, February 28, 2001. Borrowings under the Acquisition Credit Facility
are secured by the assets acquired in the Ballard Acquisition.
The Company believes that cash flow from operations, supplemented by
borrowings from the Revolving Credit Facility, will be sufficient for its
budgeted 1997 capital expenditures. However, because the Company's ultimate
1997 capital expenditures, future cash flows and the availability of
financing are subject to a number of variables, there can be no assurance
that the Company's capital resources will be sufficient to maintain its
capital expenditures. In addition, if the Company is unable to generate
sufficient cash flow from operations to service its debt, it may be required
to refinance all or a portion of its debt, including the Notes, or to obtain
additional financing. There can be no assurance that any such refinancing
would be possible or that any additional financing could be obtained.
CAPITAL EXPENDITURES
The Company requires capital primarily for the exploration, development and
acquisition of oil and gas properties, the repayment of indebtedness and general
working capital needs. During the nine months ended September 30, 1997, the
Company expended approximately $56.5 million in oil and gas activities,
excluding the Ballard Acquisition, as a result of the Company's acceleration of
such expenditures during the period. The Company has currently reduced the pace
of its oil and gas exploration and development activities when compared to the
first nine months of 1997 and has approximately $6.2 million budgeted for the
fourth quarter of 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("FAS") No. 128,
Earnings per Share. FAS No. 128 establishes standards for computing and
presenting earnings per share and is effective for periods ending after December
15, 1997. The impact of the adoption of FAS No. 128 on the Company's earnings
per share is expected to be immaterial.
REPORTING COMPREHENSIVE INCOME - In June 1997, the FASB issued Statement of
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") which
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Specifically,
SFAS 130 requires that an enterprise (i) classify items of other comprehensive
income by their nature in a financial statement and (ii) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. This statement is effective for fiscal years beginning after December
15, 1997. The Company anticipates that it will adopt the provisions of SFAS 130
in its year ended December 31, 1998 consolidated financial statements.
Comprehensive income consists of the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. Specifically, this includes net income and other
comprehensive income, which is made up of certain changes in assets and
liabilities that are not reported in a statement of operations but are included
in the balances within a separate component of equity in a statement of
financial position. Such changes include, but are not limited to, unrealized
gains for marketable securities and future contracts, foreign currency
translation adjustments and minimum pension liability adjustments.
SEGMENT REPORTING - In June 1997, the FASB issued Statement of Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") which establishes standards for public business
enterprises for reporting information about operating segments in annual
financial statements and requires that such enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997.
The Company operates in the one product line of oil and gas production in
limited geographic areas. This information and information about major customers
historically has been disclosed in the Company's annual financial statements.
The Company plans to implement SFAS 131 in its year ended December 31, 1998
financial statements.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
*10.1 Amended and Restated Credit Agreement dated as of
August 28, 1997 between Bankers Trust Company, as
Agent and Union Bank of California, N.A., as Co-
Agent and the Company
*10.2 Acquisition Credit Agreement dated as of August
28, 1997 between Bankers Trust Company, as Agent
and Union Bank of California, N.A., as Co-Agent
and the Company
*10.3 Purchase and Sale Agreement dated July 2, 1997
between Ballard Petroleum LLC, as seller and the
Company, as buyer
*10.4 Acquisition and Exploration Agreement effective as
of July 1, 1997 by and between Ballard Petroleum
LLC and the Company
*27.1 Financial Data Schedule
* Filed herewith
REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on September 12, 1997
reporting the acquisition of oil and gas properties from Ballard
Petroleum LLC.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COSTILLA ENERGY, INC.
Date: November 12, 1997 By: /s/ BOBBY W. PAGE
------------------------------
Bobby W. Page
Senior Vice President
and Chief Financial Officer
17
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
*10.1 Amended and Restated Credit Agreement dated as of
August 28, 1997 between Bankers Trust Company, as
Agent and Union Bank of California, N.A., as Co-
Agent and the Company
*10.2 Acquisition Credit Agreement dated as of August
28, 1997 between Bankers Trust Company, as Agent
and Union Bank of California, N.A., as Co-Agent
and the Company
*10.3 Purchase and Sale Agreement dated July 2, 1997
between Ballard Petroleum LLC, as seller and the
Company, as buyer
*10.4 Acquisition and Exploration Agreement effective as
of July 1, 1997 by and between Ballard Petroleum
LLC and the Company
*27.1 Financial Data Schedule
* Filed herewith
18
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED CREDIT AGREEMENT
-------------
COSTILLA ENERGY, INC.,
AS THE BORROWER,
THE BANKS NAMED HEREIN,
AND
BANKERS TRUST COMPANY,
AS AGENT
AND
UNION BANK OF CALIFORNIA, N.A.,
AS CO-AGENT
-------------
DATED AS OF AUGUST 28, 1997
REVOLVING FACILITY
<PAGE>
TABLE OF CONTENTS
PRELIMINARY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . 1
Section 1.02. Accounting Terms . . . . . . . . . . . . . . . . . . . . . 1
Section 1.03. Computation of Time Periods. . . . . . . . . . . . . . . . 2
Section 1.04. References, Etc. . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II COMMITMENTS AND TERMS OF CREDIT. . . . . . . . . . . . . . . . . . 2
Section 2.01. Commitments. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.02. Borrowing Procedures; Conversions. . . . . . . . . . . . . 3
Section 2.03. Extension of Initial Commitment Period . . . . . . . . . . 4
Section 2.04. Borrowing Base . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.05. The Notes. . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.06. Reduction of the Commitments . . . . . . . . . . . . . . . 6
Section 2.07. Mandatory Repayment of Loans . . . . . . . . . . . . . . . 6
Section 2.08. Interest Accrual, Payments . . . . . . . . . . . . . . . . 7
Section 2.09. Optional Prepayments . . . . . . . . . . . . . . . . . . . 9
Section 2.10. Payments, Notice of Certain Repayments and Computations. . 9
Section 2.11. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 2.12. Setoff, Counterclaims and Taxes. . . . . . . . . . . . . .11
Section 2.13. Funding Losses . . . . . . . . . . . . . . . . . . . . . .13
Section 2.14. Change of Law. . . . . . . . . . . . . . . . . . . . . . .14
Section 2.15. Increased Costs. . . . . . . . . . . . . . . . . . . . . .14
Section 2.16. Original Credit Agreement. . . . . . . . . . . . . . . . .15
ARTICLE III CONDITIONS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . .16
Section 3.01. Conditions Precedent to Effectiveness. . . . . . . . . . .16
Section 3.02. Conditions Precedent to all Loans. . . . . . . . . . . . .18
ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . .19
Section 4.01. Corporate Existence. . . . . . . . . . . . . . . . . . . .19
Section 4.02. Corporate Authority; Binding Obligations . . . . . . . . .19
Section 4.03. No Conflict. . . . . . . . . . . . . . . . . . . . . . . .19
Section 4.04. No Consent . . . . . . . . . . . . . . . . . . . . . . . .20
Section 4.05. No Defaults or Violations of Law . . . . . . . . . . . . .20
Section 4.06. Financial Position . . . . . . . . . . . . . . . . . . . .20
Section 4.07. Litigation . . . . . . . . . . . . . . . . . . . . . . . .20
Section 4.08. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . .20
Section 4.09. Governmental Regulation. . . . . . . . . . . . . . . . . .21
-i- REVOLVING FACILITY
<PAGE>
Section 4.10. Disclosure . . . . . . . . . . . . . . . . . . . . . . . .21
Section 4.11. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 4.12. Payment of Taxes . . . . . . . . . . . . . . . . . . . . .22
Section 4.13. Title and Liens. . . . . . . . . . . . . . . . . . . . . .22
Section 4.14. Gas Imbalances . . . . . . . . . . . . . . . . . . . . . .23
Section 4.15. Environmental Matters. . . . . . . . . . . . . . . . . . .23
Section 4.16. Consummation of Acquisition. . . . . . . . . . . . . . . .24
ARTICLE V AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . .24
Section 5.01. Reporting Requirements . . . . . . . . . . . . . . . . . .24
Section 5.02. Taxes; Claims. . . . . . . . . . . . . . . . . . . . . . .26
Section 5.03. Compliance with Laws . . . . . . . . . . . . . . . . . . .27
Section 5.04. Insurance. . . . . . . . . . . . . . . . . . . . . . . . .27
Section 5.05. Corporate Existence. . . . . . . . . . . . . . . . . . . .27
Section 5.06. Inspections. . . . . . . . . . . . . . . . . . . . . . . .28
Section 5.07. Maintenance of Properties. . . . . . . . . . . . . . . . .28
Section 5.08. Accounting Systems . . . . . . . . . . . . . . . . . . . .28
Section 5.09. Use of Loans . . . . . . . . . . . . . . . . . . . . . . .28
Section 5.10. Reserve Reports. . . . . . . . . . . . . . . . . . . . . .28
Section 5.11. Title. . . . . . . . . . . . . . . . . . . . . . . . . . .30
Section 5.12. Additional Collateral. . . . . . . . . . . . . . . . . . .30
Section 5.13. Further Assurances in General. . . . . . . . . . . . . . .30
Section 5.14. Enforcement of Acquisition Documents . . . . . . . . . . .30
Section 5.15. Costilla Redeco Pledge . . . . . . . . . . . . . . . . . .30
ARTICLE VI NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . .31
Section 6.01. Indebtedness Restriction . . . . . . . . . . . . . . . . .31
Section 6.02. Lien Restriction . . . . . . . . . . . . . . . . . . . . .31
Section 6.03. Derivatives. . . . . . . . . . . . . . . . . . . . . . . .33
Section 6.04. Interest Coverage Ratio. . . . . . . . . . . . . . . . . .33
Section 6.05. Current Ratio. . . . . . . . . . . . . . . . . . . . . . .33
Section 6.06. Tangible Net Worth . . . . . . . . . . . . . . . . . . . .33
Section 6.07. Sales of Properties. . . . . . . . . . . . . . . . . . . .34
Section 6.08. Consolidation and Mergers. . . . . . . . . . . . . . . . .34
Section 6.09. Restricted Disbursements . . . . . . . . . . . . . . . . .34
Section 6.10. Lines of Business. . . . . . . . . . . . . . . . . . . . .35
Section 6.11. Transactions with Affiliates . . . . . . . . . . . . . . .35
-ii- REVOLVING FACILITY
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ARTICLE VII DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . .35
Section 7.01. Events of Default. . . . . . . . . . . . . . . . . . . . .35
Section 7.02. Setoff in Event of Default . . . . . . . . . . . . . . . .38
Section 7.03. No Waiver; Remedies. . . . . . . . . . . . . . . . . . . .38
Section 7.04. Hydrocarbon Proceeds . . . . . . . . . . . . . . . . . . .38
Section 7.05. Application of Proceeds After Acceleration . . . . . . . .39
ARTICLE VIII THE AGENT AND THE CO-AGENT . . . . . . . . . . . . . . . . . . .40
Section 8.01. Authorization and Action . . . . . . . . . . . . . . . . .40
Section 8.02. Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . .40
Section 8.03. BTCo and Affiliates. . . . . . . . . . . . . . . . . . . .41
Section 8.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . .42
Section 8.05. Indemnification. . . . . . . . . . . . . . . . . . . . . .42
Section 8.06. Employees of the Agent . . . . . . . . . . . . . . . . . .42
Section 8.07. Successor Agent. . . . . . . . . . . . . . . . . . . . . .43
Section 8.08. Successor Co-Agent . . . . . . . . . . . . . . . . . . . .43
Section 8.09. Notice of Default. . . . . . . . . . . . . . . . . . . . .44
Section 8.10. Execution of Loan Documents. . . . . . . . . . . . . . . .44
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .44
Section 9.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . .44
Section 9.02. Participation Agreements and Assignments . . . . . . . . .45
Section 9.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . . .47
Section 9.04. Costs and Expenses . . . . . . . . . . . . . . . . . . . .48
Section 9.05. Successors and Assigns . . . . . . . . . . . . . . . . . .49
Section 9.06. Independence of Covenants. . . . . . . . . . . . . . . . .49
Section 9.07. Survival of Representations and Warranties . . . . . . . .49
Section 9.08. Separability . . . . . . . . . . . . . . . . . . . . . . .49
Section 9.09. Captions . . . . . . . . . . . . . . . . . . . . . . . . .50
Section 9.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . .50
Section 9.11. Governing Law. . . . . . . . . . . . . . . . . . . . . . .50
Section 9.12. Submission to Jurisdiction . . . . . . . . . . . . . . . .50
Section 9.13. Limitation on Interest . . . . . . . . . . . . . . . . . .51
Section 9.14. Indemnification. . . . . . . . . . . . . . . . . . . . . .51
Section 9.15. Confidentiality. . . . . . . . . . . . . . . . . . . . . .52
Section 9.16. Final Agreement of the Parties . . . . . . . . . . . . . .53
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EXHIBITS AND SCHEDULES
Exhibit 2.02(a) Form of Borrowing Request
Exhibit 2.02(c) Form of Conversion Notice
Exhibit 2.03 Form of Extension Request
Exhibit 2.05 Form of Revolving Note
Exhibit 9.02 Form of Assignment and Acceptance Agreement
Schedule 4.01 List of Borrower's Subsidiaries
Schedule 4.04 Consents
Schedule 4.07 Litigation
Schedule 4.13 Titles and Liens
Schedule 4.14 Gas Imbalances
Schedule 6.01 Indebtedness
Schedule 6.09 Restricted Disbursements
Schedule 6.11 Affiliate Transactions
-iv- REVOLVING FACILITY
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AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 28,
1997 is among COSTILLA ENERGY, INC., a Delaware corporation (the "BORROWER"),
the banks named on the signature pages hereto (together with their respective
successors and assigns in such capacity, the "BANKS"), and BANKERS TRUST
COMPANY, as agent for the Banks (together with its successors and assigns in
such capacity, the "AGENT"), and UNION BANK OF CALIFORNIA, N.A., as co-agent
for the Banks (together with its successors and assigns in such capacity, the
"CO-AGENT"). Unless otherwise defined herein, all capitalized terms used
herein and defined in ARTICLE I are used herein as so defined.
PRELIMINARY STATEMENT
A. The Borrower, NationsBank of Texas, N.A., as agent, and
certain financial institutions (the "ORIGINAL BANKS") entered into that
certain Credit Agreement dated as of October 10, 1996 (the "ORIGINAL CREDIT
AGREEMENT") whereby the Original Banks agreed to make certain loans to the
Borrower.
B. The Original Banks have assigned all of their rights and
obligations under the Original Credit Agreement and the Security Documents
(as defined in the Original Credit Agreement) to the Banks, pursuant to that
certain Assignment of Notes and Loan Documents and that certain Assignment of
Liens and Security Interests both dated as of even date herewith.
C. The Borrower, the Agent and the Banks desire to amend and
restate the Original Credit Agreement in its entirety, to provide for among
other things, the modification, extension and renewal of the commitments to
make Advances (as defined in the Original Credit Agreement) under the
Original Credit Agreement, which are the Commitments referred to herein.
Accordingly, in consideration of the foregoing and the mutual
covenants set forth herein, the parties agree that the Original Credit
Agreement is hereby amended and restated in its entirety to read as follows:
ARTICLE I
DEFINITIONS, ETC.
Section 1.01. CERTAIN DEFINED TERMS. Capitalized terms used in
this Agreement and not otherwise defined herein, shall have the respective
meanings set forth in ANNEX A hereto (such meanings to be equally applicable
to both singular and plural forms of the terms defined).
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Section 1.02. ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the
preparation of the consolidated financial statements referred to in SECTION
4.06.
Section 1.03. COMPUTATION OF TIME PERIODS. In this Agreement in
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each means "to but excluding."
Section 1.04. REFERENCES, ETC. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of
this Agreement. All references herein to Sections, Annexes, Exhibits and
Schedules shall, unless the context requires a different construction, be
deemed to be references to the Sections of this Agreement and the Annexes,
Exhibits and Schedules attached hereto and made a part hereof. In this
Agreement, unless a clear contrary intention appears the word "including"
(and with correlative meaning "include") means including, without limiting
the generality of any description preceding such term. No provision of this
Agreement shall be interpreted or construed against any Person solely because
that Person or its legal representative drafted such provision.
ARTICLE II
COMMITMENTS AND TERMS OF CREDIT
Section 2.01. COMMITMENTS. (a)(i) Each Bank severally agrees,
on the terms and conditions hereinafter set forth, to make one or more loans
(the "LOANS") to the Borrower from time to time on any Business Day during
the period from the Effective Date up to, but excluding, the Maturity Date in
an aggregate amount outstanding for such Bank not to exceed at any time an
amount equal to such Bank's Commitment. Each Loan shall be made as either a
Base Rate Loan or a Eurodollar Rate Loan and as part of a single Borrowing
made on the same day by the Banks ratably according to their respective
Commitment Percentages. Each Base Rate Borrowing shall be in an aggregate
amount not less than $1,000,000, or, if less, the entire unfunded portion of
the Total Commitment. Each Eurodollar Rate Borrowing shall be in an
aggregate amount not less than $1,000,000 or an integral multiple of $500,000
in excess thereof. Within the limits set forth above and subject to the
terms and conditions of this Agreement, the Borrower may borrow, repay
pursuant to SECTION 2.07 or prepay pursuant to SECTION 2.09 and reborrow
under this SECTION 2.01(a).
(ii) Notwithstanding any other term or provision hereof no Loan
shall be made if after giving effect to the making of such Loan the
aggregate amount of Credit Outstanding would exceed the Total Commitment.
(b) Loans of more than one Type may be outstanding at the same
time, but the Borrower shall not be entitled to request any Borrowing or to
Convert Loans comprising any Borrowing into Loans of another Type, if after
giving effect to such Borrowing or Conversion, as
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the case may be, any Bank would have outstanding (i) at any one time more
than four (4) different Types of Loans. Loans having different Interest
Periods, regardless of whether they commence on the same date or have the
same type of interest rate, shall be considered different Types of Loans;
provided, however, that all Base Rate Loans are the same type of Loan so long
as they remain Base Rate Loans.
Section 2.02. BORROWING PROCEDURES; CONVERSIONS. (a)(i) Each
Borrowing shall be made upon the written, telecopied or facsimile transmitted
request of the Borrower, given to the Agent not later than 11:00 a.m. (New
York time) on (A) the third Business Day prior to the proposed Borrowing Date
in the case of a Eurodollar Rate Borrowing, or (B) the Business Day
immediately preceding the proposed Borrowing Date in the case of a Base Rate
Borrowing, and the Agent shall give each other member of the Bank Group
prompt notice of such request by telecopier, telex or cable.
(ii) Each request for a Borrowing (a "BORROWING REQUEST") made by the
Borrower shall be in substantially the form of EXHIBIT 2.02(a), specifying
therein (A) the Borrowing Date for such Borrowing, (B) the Type of Loans
comprising such Borrowing, (C) the aggregate amount of such Borrowing and
(D) in the case of a Eurodollar Rate Borrowing, the Interest Period for the
Loans comprising such Borrowing. Each Bank shall, before 12:00 Noon (New
York time) on the date of such Borrowing, make available for the account of
its Applicable Lending Office to the Agent at its address referred to in
SECTION 9.03, in same day funds, such Bank's ratable portion of such
Borrowing. After the Agent's receipt of such funds and upon fulfillment of
the applicable conditions set forth in ARTICLE III, the Agent will make
such funds available to the Borrower at the Agent's aforesaid address.
Each Borrowing Request shall be irrevocable and binding on the Borrower.
(b) Unless the Agent shall have received notice from a Bank prior
to the date of any Borrowing that such Bank will not make available to the
Agent such Bank's ratable portion of such Borrowing, the Agent may assume
that such Bank has made such portion available to the Agent on the date of
such Borrowing in accordance with subsection (a) of this SECTION 2.02 and the
Agent may, in reliance upon such assumption, make available to the Borrower
on such date a corresponding amount. If and to the extent that such Bank
shall not have so made such ratable portion available to the Agent, such Bank
and the Borrower severally agree to repay to the Agent forthwith on demand
such corresponding amount, together with interest thereon for each day from
the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such Borrowing
and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank
shall repay to the Agent such corresponding amount, such amount so repaid
shall constitute such Bank's Loan as part of such Borrowing for purposes of
this Agreement, and Borrower shall be relieved of Borrower's obligation to
repay such amount under this SECTION 2.02(b). The failure of any Bank to make
the Loan to be made by it as part of any Borrowing shall not relieve any
other Bank of its obligation, if any, hereunder to make its Loan on the date
of such Borrowing or any subsequent Borrowing Date, but
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<PAGE>
no Bank shall be responsible for the failure of any other Bank to make the
Loan to be made by such other Bank on the date of any Borrowing.
(c) The Borrower may, subject to the terms of this Agreement, on
any Business Day, upon written, telecopied or facsimile transmitted notice to
the Agent, given not later than 11:00 a.m. (New York time) on (i) the third
Business Day prior to the proposed Conversion Date in the case of a
Conversion of Loans into Eurodollar Rate Loans, or (ii) the Business Day
immediately preceding the proposed Conversion Date in the case of a
Conversion of Loans into Base Rate Loans, Convert Loans into Borrowings
comprised of Loans of another Type, and the Agent shall promptly transmit the
contents of such notice to each other member of the Bank Group by telecopier,
telex or cable. Notwithstanding any other term or provision hereof, after
giving effect to any such Conversion, the size of all Borrowings outstanding
hereunder, and the number of different Types of Loans outstanding hereunder,
shall conform to the requirements of SECTION 2.01. In the event of any
Conversion of Eurodollar Rate Loans on any day other than the last day of the
Interest Period applicable thereto, the Borrower shall be obligated to
reimburse the Banks in respect thereof pursuant to SECTION 2.13. Each notice
of a Conversion (a "CONVERSION NOTICE") given by the Borrower shall be in
substantially the form of EXHIBIT 2.02(c) hereto, specifying therein (A) the
Conversion Date for such Conversion, (B) the Type of Loans to which such
Loans are to be Converted and (C) in the case of a Conversion into Eurodollar
Rate Loans, the Interest Period for such Converted Loans. If the Borrower
shall fail to give a timely Conversion Notice conforming to the requirements
of this Agreement with respect to any Eurodollar Rate Loans prior to the
expiration of the Interest Period applicable thereto, such Eurodollar Rate
Loans shall, automatically on the last day of such Interest Period, be
Converted into Base Rate Loans.
Section 2.03. EXTENSION OF INITIAL COMMITMENT PERIOD. (a)
Provided no Default or Event of Default shall have occurred and be
continuing, the Borrower may request an extension of the Initial Commitment
Period and the then current Maturity Date for an additional one-year period
by giving notice to the Agent (an "EXTENSION REQUEST"), substantially in the
form of EXHIBIT 2.03(a) hereto, on or before forty-five (45) days but not
more than ninety (90) days prior to the last day of the Initial Commitment
Period. The Agent shall promptly transmit the contents of each such
Extension Request to each other member of the Bank Group by telecopier, telex
or cable. Each Bank may, in its sole and absolute discretion, indicate its
consent to such requested extension by acknowledging such Extension Request
and returning it to the Agent within five (5) Business Days after receipt.
Notwithstanding any other term or provision hereof, no Bank shall have any
obligation to consent to any extension of the Initial Commitment Period and
no extension shall be effective unless the Agent shall have received
acknowledged consents from 100% of the members of the Bank Group.
(b) Provided the Agent shall have received on or before thirty
(30) days prior to the expiration of the Initial Commitment Period, consents
acknowledged by 100% of the members of the Bank Group, the Initial Commitment
Period and the then current Maturity Date shall be extended for an additional
one-year period, subject to the other terms and conditions of this Agreement,
and any other modification agreed to by the parties in connection with said
extension.
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Section 2.04. BORROWING BASE. (a) The Borrowing Base in effect
from time to time shall represent the maximum amount (subject to the Total
Commitment) of Loans that the Banks will make to the Borrower. During the
period from and after the Effective Date until the Borrowing Base is
redetermined in accordance with this Section, the amount of the Borrowing
Base shall be $50,000,000. The Borrowing Base shall be determined in
accordance with SECTION 2.04(b) by the Agent and approved by all of the Banks
or the Majority Banks, as applicable. The Borrowing Base is subject to
redetermination in accordance with SECTION 2.04(d). Upon any redetermination
of the Borrowing Base, such redetermination shall remain in effect until the
next successive date that the redetermined Borrowing Base becomes effective
subject to the notice requirements specified in SECTION 2.04(e) for both the
scheduled redetermination and unscheduled redeterminations. So long as any
part of the Commitments are in effect and until all of the Loans outstanding
hereunder are paid in full, this Agreement shall be governed by the then
effective Borrowing Base.
(b) The Agent will within thirty (30) days after receipt of the
most recent Reserve Report delivered to the Banks under SECTION 5.10, and
such other data and supplemental information as may from time to time be
reasonably requested by the Agent, but in no event later than March 15 and
September 15 of each year commencing March 15, 1998, redetermine the
Borrowing Base based on such Reserve Report. The Agent will redetermine the
Borrowing Base in accordance with its normal and customary oil and gas
lending criteria as such exist at that particular time taking into account
all of the assets and liabilities of the Borrower and its Subsidiaries
including, without limitation, liabilities arising under the Acquisition
Credit Agreement. The Agent and each Bank, in their sole discretion, may make
adjustments to the rates, volumes and prices and other assumptions set forth
in the Reserve Reports and such other data and supplemental information. Each
redetermination of the Borrowing Base which would increase the Borrowing Base
must satisfy all of the conditions set forth in SECTION 2.04(f) and must be
approved by all of the Banks, and each other redetermination of the Borrowing
Base must be approved by the Majority Banks. Failure of a Bank to object to
a redetermination within 14 days after notice of such redetermination is
given to such Bank by the Agent shall be deemed an approval of such
redetermination by such Bank.
(c) The Agent may exclude any Oil and Gas Property or a portion of
production therefrom from the Borrowing Base, at any time, because the status
of title to such Oil or Gas Property is not reasonably satisfactory to Agent
or because such Oil and Gas Property is not subject to a first priority lien
in favor of the Agent as security for the Obligations.
(d) So long as any of the Commitments are in effect and until
payment in full of all Loans hereunder, effective on or about March 15 and
September 15 of each year commencing March 15, 1998 (each being a "SCHEDULED
REDETERMINATION DATE"), the Agent with the approval of all of the Banks or
the Majority Banks, as applicable, shall redetermine the amount of the
Borrowing Base in accordance with SECTION 2.04(b). In addition, at any time
after the first scheduled Redetermination Date, (i) the Borrower may request
a redetermination of the Borrowing Base on its own initiation at any time in
connection with a proposed acquisition of Oil and Gas Properties with a fair
market value in excess of $10,000,000 and at one additional time during any
consecutive
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<PAGE>
twelve (12) month period (an "UNSCHEDULED REDETERMINATION"), and (ii) the
Agent may initiate a redetermination of the Borrowing Base at any time as the
Agent may so elect; provided, however, that the Agent may initiate only one
such Unscheduled Redetermination during any consecutive twelve (12) month
period (each being an "UNSCHEDULED REDETERMINATION DATE"). Any
redetermination of the Borrowing Base on an Unscheduled Redetermination Date
shall be in accordance with SECTION 2.04(b).
(e) The Agent shall promptly notify in writing the Borrower and
the Banks of the new Borrowing Base. Such redetermination of the Borrowing
Base shall not be in effect until notice is sent to the Borrower.
(f) Notwithstanding any other provision of this SECTION 2.04, no
redetermination of the Borrowing Base which would increase the Borrowing Base
shall be effective unless: (i) such increase in the Borrowing Base does not
(A) constitute a breach of any provision contained in the Indenture,
including, without limitation, as a result of increasing the Obligations or
the Total Commitment, or (B) require that the Senior Unsecured Notes be
secured pursuant to the terms of the Indenture and (ii) the provisions of the
Indenture do not prohibit any increase in the Obligations resulting from such
increase in the Borrowing Base from being secured by the Liens created under
the Security Documents.
Section 2.05. THE NOTES. The Loans made by each Bank shall be
evidenced by a single Note issued to such Bank by the Borrower, (i) dated
the date of this Agreement (or such other date as may be specified in SECTION
9.02), (ii) payable to the order of such Bank in a principal amount equal to
such Bank's Commitment Percentage of the Aggregate Maximum Commitment and
(iii) otherwise duly completed. Each Loan made by a Bank to the Borrower and
all payments made on account of the principal amount thereof shall be entered
by such Bank in its records or on the schedule (or a continuation thereof)
attached to the Note of such Bank, PROVIDED, that prior to any transfer of
any such Note, such Bank shall endorse the amount and maturity of any
outstanding Loans on the schedule (or a continuation thereof) attached to
such Note.
Section 2.06. REDUCTION OF THE COMMITMENTS. (a) The Borrower
shall have the right, upon at least three Business Days' notice to the Agent
to terminate in whole or reduce ratably in part the unused portions of the
Aggregate Maximum Commitment; PROVIDED, that each partial reduction in the
Aggregate Maximum Commitment shall be in the aggregate amount of $1,000,000
or an integral multiple of $1,000,000 in excess thereof. Any such reduction
or termination shall be irrevocable by the Borrower.
(b) On each Commitment Reduction Date, the Reducing Commitment
Amount shall automatically be reduced by an amount equal to 5% of the
Reducing Commitment Amount as of the day immediately prior to the first
Commitment Reduction Date. On the Maturity Date the Commitment of each Bank
shall automatically be reduced to zero.
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Section 2.07. MANDATORY REPAYMENT OF LOANS. (a) The Borrower
shall from time to time repay the Loans comprising part of the same Borrowing
in such amounts as shall be necessary so that at all times the Credit
Outstanding shall not be in excess of the Total Commitment. Except to the
extent that repayment is required solely as a result of a Borrowing Base
Deficiency under SECTION 2.07(b), any repayment required by this SECTION
2.07(a) shall be due and payable on the date such repayment obligation
accrues pursuant to the preceding sentence.
(b) In addition to any other repayments required under SECTION
2.07(a), if a Borrowing Base Deficiency exists, the Borrower shall from time
to time either (i) repay the Loans comprising part of the same Borrowing in
whole or ratably in part in an amount equal to the Borrowing Base Deficiency,
or (ii) provide to the Agent within thirty (30) days after receipt of notice
of the existence of a Borrowing Base Deficiency from the Agent, Security
Documents in form and substance satisfactory to the Agent, granting,
confirming, and perfecting first and prior Liens in favor of the Agent for
the benefit of the Bank Group covering additional Oil and Gas Properties of
the Borrower not evaluated in the most recent Reserve Report delivered to the
Bank Group and acceptable to the Majority Banks, having a Borrowing Base
value at least equal to such Borrowing Base Deficiency (as determined by the
Majority Banks in the same manner as the Borrowing Base is determined under
SECTION 2.04) or other collateral acceptable to the Majority Banks. Any
repayment required by this SECTION 2.07(b) shall be due and payable in six
(6) equal monthly installments, each in an amount equal to one-sixth (1/6th)
of the original amount of such Borrowing Base Deficiency, commencing on the
last day of the calendar month immediately following such redetermination of
the Borrowing Base and continuing on the same day of each subsequent calendar
month.
(c) All outstanding Loans shall be fully due and payable on the
Maturity Date, together with any unpaid interest and fees accrued thereon.
(d) Each repayment of Loans required by this SECTION 2.07 shall be
accompanied by payment of accrued interest to the date of such payment on the
principal amount paid. In the event of any payment of a Eurodollar Rate
Loan, the Borrower shall be obligated to reimburse the Banks in respect
thereof pursuant to SECTION 2.13. All principal payments required by this
SECTION 2.07 shall first be applied to Base Rate Borrowings, and second to
Eurodollar Rate Borrowings.
Section 2.08. INTEREST ACCRUAL, PAYMENTS. (a) ACCRUAL AND
PAYMENT. Subject to the provisions of SECTION 9.13, the Borrower shall pay
interest on the unpaid principal amount of each Loan made by each Bank from
the date of such Loan until such principal amount shall be paid in full, on
the dates and at the rates per annum specified as follows:
(i) BASE RATE LOANS. If such Loan is a Base Rate Loan, a rate per
annum equal at all times to the lesser of (A) the Highest Lawful Rate and
(B) the Base Rate in effect from time to time PLUS the Applicable Margin in
effect from time to time, and unpaid accrued
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interest on such Loans shall be due and payable on each Quarterly Payment
Date and on the date such Base Rate Loan shall be paid in full.
(ii) EURODOLLAR RATE LOANS. If such Loan is a Eurodollar Rate Loan, a
rate per annum equal at all times during the Interest Period for such Loan
to the lesser of (A) the Highest Lawful Rate and (B) the sum of the
Eurodollar Rate for such Interest Period PLUS the Applicable Margin in
effect as of the first day of such Interest Period, and unpaid accrued
interest on such Loans shall be due and payable on the last day of such
Interest Period and, in the case of any Interest Period in excess of three
months, on the date three (3) months after the date on which such Interest
Period began.
Any amount of principal or, to the extent permitted by applicable law,
interest which is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest from the date on which such
amount is due until such amount is paid in full, at a rate per annum equal at
all times to the lesser of (A) the Highest Lawful Rate and (B) the Base Rate
in effect from time to time during the applicable period PLUS the Applicable
Margin in effect from time to time during such period PLUS two percent (2%)
(the "DEFAULT RATE"), payable on demand.
(b) DETERMINATION OF INTEREST RATES. (i) The Agent shall give
prompt notice to the Borrower and each other member of the Bank Group of the
applicable interest rate determined by the Agent hereunder for each
Borrowing. Each determination by the Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error.
(ii) If the Majority Banks shall, at least one Business Day before
the date of any requested Eurodollar Rate Borrowing, notify the Agent that
the Eurodollar Rate applicable to such Borrowing will not adequately reflect
the cost to such Banks of making, funding or maintaining their respective
Eurodollar Rate Loans for such Borrowing, the right of the Borrower to select
Eurodollar Rate Loans for such Borrowing or any subsequent Borrowing shall be
suspended until the Agent shall notify the Borrower and each other member of
the Bank Group that the circumstances causing such suspension no longer
exist, and each Loan comprising such Borrowing shall be made as, or Converted
into, as applicable, a Base Rate Loan.
(c) APPLICABLE MARGIN. As used in this Agreement and the other
Loan Documents, "APPLICABLE MARGIN" means, as to Loans consisting of a single
Borrowing, a rate per annum determined by reference to the Type of Loans
comprising such Borrowing as follows:
(i) if the aggregate amount of Loans outstanding as of the date of
determination is equal to or greater than 75% of the Total Commitment as of
such date, then such rate per annum shall be one-half of one percent
(1/2%) for Base Rate Loans, and one and three-quarters percent (1 3/4%) for
Eurodollar Rate Loans;
(ii) if the aggregate amount of Loans outstanding as of the date of
determination is equal to or greater than 50% but less than 75% of the
Total Commitment as of such date,
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such rate per annum shall be zero percent (0%) for Base Rate Loans and one
and three-eighths percent (1 3/8%) for Eurodollar Rate Loans; and
(iii) if the aggregate amount of Loans outstanding as of the date
of determination is less than 50% of the Total Commitment of such date,
such rate per annum shall be zero percent (0%) for Base Rate Loans, and one
percent (1%) for Eurodollar Rate Loans.
Section 2.09. OPTIONAL PREPAYMENTS. (a) The Borrower may, from
time to time on any Business Day, upon notice to the Agent stating the
proposed date and aggregate principal amount thereof, and if such notice is
given the Borrower shall, prepay the outstanding principal amount of the Base
Rate Loans (without premium or penalty) comprising part of the same Borrowing
in whole or ratably in part; PROVIDED, that any partial prepayment of such
Base Rate Loans shall be in an aggregate principal amount of not less than
$1,000,000. The Borrower may from time to time upon at least three Business
Days' notice to the Agent stating the proposed date and the aggregate
principal amount thereof, and if such notice is given the Borrower shall,
prepay the outstanding principal amount of the Eurodollar Rate Loans
comprising part of the same Borrowing in whole or ratably in part; PROVIDED,
that any partial prepayment of such Eurodollar Rate Loans shall be in an
aggregate principal amount of not less than $1,000,000 or an integral
multiple of $500,000 in excess thereof.
(b) Each prepayment of Loans made pursuant to this SECTION 2.09
shall be accompanied by a payment of accrued interest to the date of such
prepayment on the principal amount prepaid. In the event of any prepayment
of a Eurodollar Rate Loan, the Borrower shall be obligated to reimburse the
Banks in respect thereof pursuant to SECTION 2.13.
Section 2.10. PAYMENTS, NOTICE OF CERTAIN REPAYMENTS AND
COMPUTATIONS. (a) All payments of principal, interest, commitment fees and
other amounts hereunder, under the Notes and the other Loan Documents (other
than Bank Group Derivatives) shall be made in Dollars to the Agent at its
address specified in SECTION 9.03 for the account of each of the Banks, in
immediately available funds not later than 10:00 a.m. (New York time) on the
date when due. Upon receipt of such payments, the Agent will promptly cause
to be distributed like funds relating to the payment of principal or interest
or commitment fees ratably (other than amounts payable pursuant to SECTION
2.12, SECTION 2.13, SECTION 2.14 or SECTION 2.15) to the Banks, for the
account of their respective Applicable Lending Offices, and like funds
relating to the payment of any other amount payable to any Bank, to such Bank
for the account of its Applicable Lending Office, in each case to be applied
in accordance with the terms of this Agreement.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks under the Loan
Documents that the Borrower will not make such payment in full, the Agent may
assume that the Borrower has made such payment in full to the Agent on such
date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then
due such Bank. If and to the extent the Borrower shall not have made such
payment in full to the Agent each Bank
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shall repay to the Agent forthwith on demand such amount distributed to such
Bank, together with interest thereon for each day from the date such amount
is distributed to such Bank until the date such Bank repays such amount to
the Agent at the Federal Funds Rate.
(c) All payments by the Borrower of the fees payable to the Agent
shall be made in Dollars directly to such Person at its address specified in
SECTION 9.03 in immediately available funds not later than 10:00 a.m. (New
York time) on the date when due.
(d) All computations of interest based on the Base Rate shall be
made on the basis of a year of 365 or 366 days, as the case may be, and all
computations of interest based on the Eurodollar Rate or the Federal Funds
Rate, as well as commitment fees, shall be made on the basis of a year of 360
days (unless use of a 360 day year would cause the interest contracted for,
charged or received hereunder to exceed the Highest Lawful Rate, in which
case such computations shall be made on the basis of a year of 365 or 366
days, as the case may be), in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period
for which such interest or commitment fees are payable.
(e) Whenever any payment under the Loan Documents shall be stated
to be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or commitment fee,
as the case may be; PROVIDED, if such extension would cause payment of
interest on or principal of Eurodollar Rate Loans to be made in the next
following calendar month, such payment shall be made on the immediately
preceding Business Day.
(f) If any Bank shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of setoff, or otherwise) on
account of the Loans made by it (other than pursuant to SECTION 2.12, SECTION
2.13, SECTION 2.14 or SECTION 2.15), in excess of its ratable share of
payments on account of the Loans obtained by all the Banks, such Bank shall
forthwith purchase from the other Banks such participations in the Loans made
by such other Banks, as shall be necessary to cause such purchasing Bank to
share the excess payment ratably with each of them. The Borrower agrees that
any Bank so purchasing a participation from another Bank pursuant to this
SECTION 2.10(f) may, to the fullest extent permitted by law and this
Agreement, exercise all its rights of payment (including the right of setoff)
with respect to such participation as fully as if such Bank were the direct
creditor of the Borrower in the amount of such participation.
Section 2.11. FEES. (a) Subject to the provisions of SECTION 9.13,
the Borrower agrees to pay to each Bank a commitment fee as follows:
(i) if the aggregate amount of Loans outstanding as of the date of
determination is equal to or greater than 50% of the Total Commitment as of
such date, such fee per annum shall equal three-eighths of one percent
(3/8%) of the average unused portion of the Commitment of such Bank in
effect from time to time for the period from the Execution Date to, but
excluding, the Maturity Date (or if earlier, the termination in full of the
Total Commitment); and
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(ii) if the aggregate amount of Loans outstanding as of the date of
determination is less than 50% of the Total Commitment as of such date,
such fee per annum shall equal one-quarter of one percent (1/4%) of the
average unused portion of the Commitment of such Bank in effect from time
to time for the period from the Execution Date to, but excluding, the
Maturity Date (or if earlier, the termination in full of the Total
Commitment).
Accrued commitment fees shall be due and payable in arrears on each Quarterly
Payment Date in each year, on the date of any reduction or termination of the
Commitment of such Bank and on the Maturity Date (or if earlier, the
termination in full of the Total Commitment), and shall be computed for the
period commencing with the day to which such fee was last paid (or, in the
case of the first commitment fee payment date, for the period commencing with
and including the Execution Date) to the date such fee is due and payable.
(b) Subject to the provisions of SECTION 9.13, so long as any
Obligation shall remain outstanding or any Bank shall a have Commitment
hereunder, the Borrower shall pay the Agent an annual agency fee of $25,000
on each anniversary date of this Agreement commencing August 28, 1998.
Section 2.12. SETOFF, COUNTERCLAIMS AND TAXES. (a) All payments
of principal, interest, expenses, reimbursements, compensation, commitment
fees, arrangement fees or administration fees and any other amount from time
to time due under the Notes, this Agreement or any other Loan Document shall
be made by the Borrower without setoff or counterclaim and shall be made free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each member of the Bank
Group, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such member of the Bank Group is
organized or any political subdivision thereof and, in the case of each Bank,
taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred
to as "TAXES"). If the Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder or under any Loan Document to
any member of the Bank Group, (i) the sum payable shall be increased as may
be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this SECTION 2.12)
such member of the Bank Group receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under the Notes
or the other Loan Documents or from the execution,
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delivery or registration of, or otherwise with respect to, this Agreement,
the Notes or the other Loan Documents (hereinafter referred to as "OTHER
TAXES").
(c) The Borrower will indemnify each member of the Bank Group for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under
this SECTION 2.12) paid, by such member of the Bank Group (whether paid on
its own behalf or on behalf of any other member of the Bank Group) and any
liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. This indemnification shall be made within 10 days from
the date such member of the Bank Group makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Agent, at its address referred to in SECTION
9.03, the original or a certified copy of a receipt evidencing payment
thereof. If no Taxes are payable in respect of any payment hereunder or
under the Notes or the other Loan Documents, upon the reasonable request of
the Agent, the Borrower will furnish to the Agent at its address referred to
in SECTION 9.03, a certificate from each appropriate taxing authority, or an
opinion of counsel acceptable to the Agent stating that such payment is
exempt from or not subject to Taxes.
(e) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this SECTION 2.12 shall survive the payment in full of the
Credit Outstanding and all other amounts owing under the other Loan
Documents. The provisions of this SECTION 2.12 are in all respects subject
to SECTION 9.13 hereof.
(f) Each Bank represents and warrants to the Agent and the
Borrower that such Bank is either (i) a corporation organized under the laws
of the United States or a state thereof or (ii) entitled to complete
exemption from United States withholding tax imposed on or with respect to
any payments, including fees, to be made to it pursuant to this Agreement and
the other Loan Documents (x) under an applicable provision of a tax
convention to which the United States is a party or (y) because it is acting
through a branch, agency or office in the United States and any payment to be
received by it hereunder is effectively connected with a trade or business in
the United States. Upon becoming a party to this Agreement (whether by
assignment or as an original signatory hereto), and in any event, from time
to time upon the request of the Agent or the Borrower, each Bank which is not
a corporation organized under the laws of the United States or any state
thereof shall deliver to the Agent and the Borrower such forms, certificates
or other instruments as may be required by the Agent in order to establish
that such Bank is entitled to complete exemption from United States
withholding taxes imposed on or with respect to any payments, including fees,
to be made to such Bank under this Agreement and the other Loan Documents.
Each Bank also agrees to deliver to the Borrower and the Agent and such other
supplemental forms as may at any time be required as a result of the passage
of time or changes in applicable law or regulation in order to confirm or
maintain in effect its entitlement to exemption from U.S. withholding tax on
any
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payments hereunder; PROVIDED, that the circumstances of the Bank at the
relevant time and applicable laws permit it to do so. If a Bank determines,
as a result of any change in either (1) applicable law, regulation or treaty,
or in any official application thereof or (2) its circumstances, that it is
unable to submit any form or certificate that it is obligated to submit
pursuant to this SECTION 2.12(f), or that it is required to withdraw or
cancel any such form or certificate previously submitted, it shall promptly
notify the Borrower and the Agent of such fact. If a Bank is organized under
the laws of a jurisdiction outside the United States, and the Borrower and
the Agent have not received forms, certificates or other instruments
indicating to their satisfaction that all payments to be made to such Bank
hereunder are not subject to United States withholding tax or the Agent
otherwise has reason to believe that such Bank is subject to U.S. withholding
tax, the Borrower shall withhold taxes from such payments at the applicable
statutory rate. Each Bank shall indemnify and hold the Borrower and the
Agent harmless from any United States taxes, penalties, interest and other
expenses, costs and losses incurred or payable by them as a result of either
(A) such Bank's failure to submit any form or certificate that it is required
to provide pursuant to this SECTION 2.12(f) or (B) reliance by the Borrower
or the Agent on any such form or certificate which such Bank has provided to
them pursuant to this SECTION 2.12(f).
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Section 2.13. FUNDING LOSSES. The Borrower shall indemnify each Bank
against any loss or reasonable expense (including, but not limited to, any loss
or reasonable expense sustained or incurred or to be sustained or incurred in
liquidating or reemploying deposits from third parties acquired to effect or
maintain such Loan or any part thereof as a Eurodollar Rate Loan) which such
Bank may sustain or incur as a consequence of (a) any failure by the Borrower to
fulfill on the date of any Borrowing hereunder the applicable conditions set
forth in ARTICLE III, (b) any failure by the Borrower to borrow hereunder, or to
Convert Loans hereunder after a Borrowing Request, or Conversion Notice,
respectively, has been given, (c) any payment, prepayment or Conversion of a
Eurodollar Rate Loan required or permitted by any other provisions of this
Agreement, including, without limitation, payments made due to the acceleration
of the maturity of the Notes pursuant to SECTION 7.01, or otherwise made on a
date other than the last day of the applicable Interest Period, (d) any default
in the payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, by notice of prepayment or otherwise) or (e) the occurrence of an
Event of Default. Such loss or reasonable expense shall include, without
limitation, an amount equal to the excess, if any, as determined by each Bank of
(i) its cost of obtaining the funds for the Loan being paid, prepaid or
Converted or not borrowed or Converted (based on the Eurodollar Rate applicable
thereto) for the period from the date of such payment, prepayment or Conversion
or failure to borrow or Convert to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow or Convert, the Interest Period for
the Loan which would have commenced on the date of such failure to borrow or
Convert) over (ii) the amount of interest (as estimated by such Bank) that would
be realized by such Bank in reemploying the funds so paid, prepaid or Converted
or not borrowed or Converted for such period or Interest Period, as the case may
be. A certificate of each Bank setting forth any amount or amounts which such
Bank is entitled to receive pursuant to this SECTION 2.13 shall be delivered to
the Borrower (with a copy to the Agent and the Co-Agent) and shall be
conclusive, if made in good faith, absent manifest error. The Borrower shall
pay to the Agent for the account of each Bank the amount shown as due on any
certificate within 10 days after its receipt of the same. Notwithstanding the
foregoing, in no event shall any Bank be permitted to receive any compensation
hereunder constituting interest in excess of the Highest Lawful Rate. Without
prejudice to the survival of any other obligations of the Borrower hereunder,
the obligations of the Borrower under this SECTION 2.13 shall survive the
termination of this Agreement and/or the payment or assignment of any of the
Notes.
Section 2.14. CHANGE OF LAW. (a) If at any time any Bank determines
in good faith (which determination shall be conclusive) that any change in any
applicable law, rule or regulation or in the interpretation, application or
administration thereof makes it unlawful, or any central bank or other
Governmental Authority asserts that it is unlawful, for such Bank or its foreign
branch or branches to fund or maintain any Eurodollar Rate Loan (any of the
foregoing determinations being a "EURODOLLAR EVENT"), then, such Bank, at its
option, may: (i) declare that Eurodollar Rate Loans will no longer be made or
maintained by such Bank, whereupon the right of the Borrower to select
Eurodollar Rate Loans for any Borrowing shall be suspended until such Bank shall
notify the Agent that the circumstances causing such Eurodollar Event no longer
exist; (ii) with respect to any Eurodollar Rate Loans of such Bank then
outstanding, require that all such Eurodollar Rate Loans
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be Converted to Base Rate Loans, in which event all such Eurodollar Rate
Loans shall automatically be Converted into Base Rate Loans on the effective
date of such notice and all payments or prepayments of principal that would
have otherwise been applied to repay such Converted Eurodollar Rate Loans
shall instead be applied to repay the Base Rate Loans resulting from such
Conversion; and/or (iii) with respect to any Eurodollar Rate Loans requested
of such Bank but not yet made as or Converted into such, require that such
Eurodollar Rate Loans be made as or Converted into, as applicable, Base Rate
Loans.
(b) Upon the occurrence of any Eurodollar Event, and at any time
thereafter so long as such Eurodollar Event shall continue, such Bank may
exercise its aforesaid option by giving written notice thereof to the Agent and
the Borrower, such notice to be effective upon receipt thereof by the Borrower.
Any Conversion of any Eurodollar Rate Loan which is required under this
SECTION 2.14 shall be made, together with accrued and unpaid interest and all
other amounts payable to such Bank under this Agreement with respect to such
Converted Loan (including, without limitation, amounts payable pursuant to
SECTION 2.13 hereof), on the date stated in the notice to the Borrower referred
to above.
Section 2.15. INCREASED COSTS. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline issued or request made by
any central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to any Bank of agreeing
to make or making, funding or maintaining Eurodollar Rate Loans, then the
Borrower shall from time to time, subject to the provisions of SECTION 9.13, pay
to the Agent for the account of such Bank additional amounts sufficient to
compensate such Bank for such increased cost upon demand by such Bank.
(b) If any Bank shall have determined in good faith that any law,
rule, regulation or guideline adopted pursuant to or arising out of the
July 1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards" or that the adoption of any applicable law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the interpretation or administration thereof by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or compliance by such Bank (or any lending office of such Bank) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such Governmental Authority or comparable agency, affects
or would affect the amount of capital required or expected to be maintained by
such Bank or any corporation controlling such Bank, then the Borrower shall from
time to time, subject to the provisions of SECTION 9.13, pay to such Bank upon
demand additional amounts sufficient to compensate such Bank or such corporation
in the light of such circumstances, to the extent that such Bank reasonably
determines such increase in capital to be allocable to the existence of such
Bank's Commitment hereunder.
(c) If any law, executive order or regulation is adopted or
interpreted by any central bank or other Governmental Authority so as to affect
any of the Borrower's obligations or the compensation to any Bank, then the
Borrower shall from time to time upon demand, subject to
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the provisions of SECTION 9.13, reimburse or indemnify such Bank, with
respect thereto so that such Bank shall be in the same position as if there
had been no such adoption or interpretation.
(d) Each Bank will notify the Borrower of any event occurring after
the date of this Agreement which will entitle such Bank to compensation pursuant
to this SECTION 2.15 as promptly as practicable after such Bank obtains
knowledge of the occurrence of such event. A certificate of such Bank setting
forth in reasonable detail (i) such amount or amounts as shall be necessary to
compensate such Bank (or participating banks or other entities pursuant to
SECTION 9.02) as specified above and (ii) the calculation of such amount or
amounts shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay to such Bank the amount shown as due on
any such certificate within ten (10) days after its receipt of the same. The
failure of any Bank to demand compensation for any increased costs or reduction
in amounts received or receivable or reduction in return on capital shall not
constitute a waiver of the right of such Bank or any other Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital as such rights are set forth
herein. The protection of this SECTION 2.15 shall be available to the Banks
regardless of any possible contention of invalidity or inapplicability of law,
regulation or condition which shall have been imposed.
Section 2.16. ORIGINAL CREDIT AGREEMENT. On the Effective Date, (a)
all accrued interest, fees and other amounts (other than principal) payable
under the Original Credit Agreement shall be due and payable to the Agent for
the account of the Banks, and (b) all Loans outstanding under the Original
Credit Agreement shall be automatically converted into Eurodollar Rate Loans
with an Interest Period of one month. In addition, the Borrower hereby
irrevocably waives and releases all claims and causes of action or other
liabilities it may have against any of the members of the Bank Group, and all
defenses and counterclaims to payment of the Loans, that exist as a result of
acts or omissions occurring prior to the Effective Date and attributable to the
parties to the Original Credit Agreement.
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ARTICLE III
CONDITIONS OF CREDIT
Section 3.01. CONDITIONS PRECEDENT TO EFFECTIVENESS. The
effectiveness of this Agreement and the obligation of each Bank to make its
initial Loan on the occasion of the initial Borrowing hereunder is subject to
the conditions precedent that the Agent shall have received on or before the
date of such initial Borrowing, all of the following, each in form and substance
reasonably satisfactory to the Bank Group and in such number of counterparts as
may be reasonably requested by the Agent:
(a) The following Loan Documents duly executed by the Persons
indicated below:
(i) this Agreement executed by the Borrower and each member of the
Bank Group,
(ii) the Notes executed by the Borrower,
(iii) the Mortgage executed by the Borrower, and
(iv) the Acquisition Mortgage executed by the Borrower.
(b) Evidence that the Liens created by the Security Documents have
been duly perfected, or will be duly perfected upon the filing of the
instruments referred to in subsections (i) and (ii) below, and constitute valid
first priority Liens, which shall include, without limiting the generality of
the foregoing:
(i) the delivery to the Agent of such financing statements under the
Uniform Commercial Code for filing in such jurisdictions as the Agent may
require, and
(ii) the delivery to the Agent of the Mortgage and the Acquisition
Mortgage for filing in such jurisdictions as the Agent may require.
(c) A certificate of the secretary or an assistant secretary of the
Borrower certifying, INTER ALIA, (i) true and correct copies of resolutions
adopted by the Board of Directors of the Borrower (A) authorizing the execution,
delivery and performance by the Borrower of the Loan Documents to which it is or
will be a party and the Borrowings to be made thereunder and the consummation of
the transactions contemplated thereby, (B) authorizing officers of the Borrower
to negotiate the Loan Documents to which it is a party and which will be
delivered at or prior to the date of the initial Borrowing and (C) authorizing
officers of the Borrower to execute and deliver the Loan Documents to which it
is or will be a party and any related documents, including, without limitation,
any agreement or security document contemplated by this Agreement, (ii) true and
correct copies of the certificate of incorporation and bylaws (or other similar
charter documents) of the
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Borrower and (iii) the incumbency and specimen signatures of the officers of
the Borrower executing any documents on behalf of it.
(d) Certificates of appropriate public officials as to the existence
and good standing of the Borrower in the States of Texas, Delaware, Wyoming,
Montana, Colorado, New Mexico and Oklahoma.
(e) An engineering report covering the Acquisition Properties of the
Borrower prepared by Ryder Scott & Co. dated as of July 1, 1997 and an
engineering report covering the other Oil and Gas Properties of the Borrower
prepared by the chief engineer of the Borrower dated July 1, 1997 (collectively,
the "INITIAL RESERVE REPORT").
(f) The fully executed Acquisition Documents, together with any
disclosure schedules delivered pursuant thereto, containing such terms and
conditions as are satisfactory to the Bank Group, as well as evidence
satisfactory to the Agent that the Acquisition has been consummated in
accordance with the Acquisition Documents and all Requirements of Law and
original counterparts of the assignment of the Acquisition Properties to the
Borrower.
(g) Fully executed assignments to the Bank Group of the notes and
Liens under the Original Credit Agreement in form and substance satisfactory to
the Agent.
(h) Title opinions covering at least 80% of the value of the
Borrower's Oil and Gas Properties included in the Initial Reserve Report in
form, scope and substance satisfactory to the Agent.
(i) Copies of all authorizations, consents, approvals, licenses,
filings or registrations obtained from or made with any Governmental Authority
or any other Person in connection with the Acquisition or the execution,
delivery and performance of the Loan Documents, together with a certificate from
a Responsible Officer of the Borrower to the effect that all such
authorizations, consents, approvals, licenses, filings or registrations have
been obtained or made, as applicable, and are in full force and effect, other
than governmental approvals and consents that are typically obtained subsequent
to the closing of such an acquisition.
(j) A list of all insurance policies and programs in effect with
respect to the properties and businesses of the Borrower and its Subsidiaries,
specifying for each such policy or program the amount thereof, the risks insured
against thereby, the name of the insurer and each insured party thereunder and
the policy or other identification number thereof, together with (i) a
certificate from a Responsible Officer of the Borrower to the effect that all
such policies and programs are in full force and effect and (ii) evidence that
such policies have the endorsement required under SECTION 5.04.
(k) Environmental reports covering the Acquisition Properties and all
other material Oil and Gas Properties of the Borrower, in form, scope and
substance satisfactory to the Agent.
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(l) Releases of the Liens in favor of Union Bank of California, N.A.
covering the Acquisition Properties in form and substance satisfactory to the
Agent.
(m) A certificate signed by a Responsible Officer of the Borrower
certifying as to the satisfaction of the conditions specified in SECTION
3.02(a).
(n) The favorable, signed opinions of Cotton, Bledsoe, Tighe &
Dawson, special counsel to the Borrower and its Subsidiaries, addressed to the
Agent and the Bank Group, in form and substance reasonably satisfactory to the
Agent and its counsel.
(o) A written confirmation from the Process Agent of its appointment
and acceptance as process agent for the Borrower.
(p) The payment to the Bank Group of the fees due to them as of such
date under the Loan Documents and that certain fee letter dated August 26, 1997.
(q) Such other documents, certificates and opinions as the Agent may
reasonably request relating to this Agreement and the other Loan Documents.
(r) All of the conditions to the effectiveness of the Acquisition
Credit Agreement have been satisfied.
Section 3.02. CONDITIONS PRECEDENT TO ALL LOANS. The obligation of
each Bank to make any Loan, shall be subject to the further conditions precedent
that (a) on the Borrowing Date of such Loan the following statements shall be
true, and the Borrower, by virtue of its delivery of a Borrowing Request shall
be deemed to have certified to the Bank Group as of such date that (i) the
representations and warranties contained in ARTICLE IV are true and correct on
and as of such date, before and after giving effect to such Loan and as though
made on and as of such date, (ii) no Default or Event of Default has occurred
and is continuing, or would result from such Loan and (iii) no event has
occurred since the Execution Date that could reasonably be expected to have a
Material Adverse Effect on the Borrower or any of its Subsidiaries and (b) that
the Agent shall have received on or before such date such other documents,
certificates, information and opinions as the Agent may reasonably request
relating to this Agreement and the other Loan Documents, each in form and
substance reasonably satisfactory to the Agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank Group to enter into this Agreement, the
Borrower hereby represents and warrants to the Bank Group as follows:
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Section 4.01. CORPORATE EXISTENCE. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and Costilla Redeco is a limited liability
company duly organized, validly existing and in good standing under the laws of
the jurisdiction of its formation. Both the Borrower and Costilla Redeco are
duly qualified or licensed to transact business as a foreign corporation or
limited liability company, as the case may be, and is in good standing under the
laws of each jurisdiction in which the conduct of its operations or the
ownership or leasing of its properties requires such qualification or licensing,
except where the failure to be so qualified or licensed will not have a Material
Adverse Effect on such Person. SCHEDULE 4.01 is a complete list of the
Borrower's Subsidiaries.
Section 4.02. CORPORATE AUTHORITY; BINDING OBLIGATIONS. Each of the
Borrower and its Subsidiaries has all requisite power and authority, corporate
or otherwise, to conduct its business, to own, operate and encumber its
Property, and to execute, deliver and perform all of its obligations under the
Loan Documents executed by, or to be executed by, such Person. The execution,
delivery and performance of each of the Loan Documents to which the Borrower or
any of its Subsidiaries is a party and the consummation of the transactions
contemplated thereby, including, without limitation, the consummation of the
Acquisition, have been duly authorized by all necessary corporate and
stockholder action. Each of the Loan Documents to which the Borrower or any of
its Subsidiaries is a party has been duly executed and delivered by such Person,
is in full force and effect and constitutes the legal, valid and binding
obligation of such Person, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditor's rights generally and general principles of equity. The Security
Documents create valid Liens in the collateral described therein, securing the
secured obligations described therein.
Section 4.03. NO CONFLICT. The execution, delivery and performance
by the Borrower or any of its Subsidiaries of each Loan Document to which such
Person is a party and the consummation of each of the transactions contemplated
thereby, including, without limitation, the consummation of the Acquisition, do
not and shall not, by the lapse of time, the giving of notice or otherwise:
(a) constitute a violation of any Requirement of Law or a breach of any
provision contained in the articles or certificate of incorporation or bylaws
(or certificate of organization or regulations, if applicable) of such Person,
or any shareholder agreement pertaining to such Person, or contained in any
material agreement, instrument or document to which it is now a party or by
which it or its Properties is bound, except for such violations or breaches that
will not have a Material Adverse Effect on any such Person; or (b) result in or
require the creation or imposition of any Lien whatsoever upon any of the
Properties of the Borrower or any of its Subsidiaries (other than Excepted Liens
and Liens in favor of the Agent arising pursuant to the Loan Documents).
Section 4.04. NO CONSENT. No authorization, consent, approval,
license, or exemption of or filing or registration with, any Governmental
Authority or any other Person, which has not been obtained, was, is or will be
necessary for the valid execution, delivery or performance by the Borrower or
any of its Subsidiaries of any of the Loan Documents to which it is a party and
the consummation of each of the transactions contemplated thereby, including,
without limitation, the consummation of the Acquisition, or the Borrower's or
any of its Subsidiaries' ownership, use
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or operation of any of their Properties other than (a) those listed on
SCHEDULE 4.04 and (b) those that the failure to obtain, file or make will not
have a Material Adverse Effect on any such Person.
Section 4.05. NO DEFAULTS OR VIOLATIONS OF LAW. No Default or Event
of Default has occurred and is continuing. No default (or event or circumstance
occurred which, but for the passage of time or the giving of notice, or both,
would constitute a default) has occurred and is continuing with respect to any
note, indenture, loan agreement, mortgage, lease, deed or other agreement to
which the Borrower or any of its Subsidiaries is a party or by which any of them
or their Properties is bound, except for such defaults that will not have a
Material Adverse Effect on the Borrower or any of its Subsidiaries. Neither the
Borrower nor any of its Subsidiaries is in violation of any applicable
Requirement of Law except for such violations that will not have a Material
Adverse Effect on any such Person.
Section 4.06. FINANCIAL POSITION. (a) Prior to the Execution Date,
the Borrower has furnished to the Agent and the Bank Group audited financials of
the Borrower and its Subsidiaries as of December 31, 1996 and unaudited
financials of the Borrower as of June 30, 1997. The audited financials referred
to in the previous sentence have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved and present fairly the financial condition of the Borrower and its
Subsidiaries as of the dates thereof and the results of their operations for the
periods then ended. No event has occurred since June 30, 1997 that could
reasonably be expected to have a Material Adverse Effect on the Borrower or any
of its Subsidiaries.
(b) Except as fully reflected in the unaudited financials referred to
in paragraph (a) of this SECTION 4.06, as of the date hereof, there are no
liabilities or obligations of the Borrower or any of its Subsidiaries of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in aggregate, would have a
Material Adverse Effect on the Borrower or any of its Subsidiaries.
Section 4.07. LITIGATION. Except as set out in SCHEDULE 4.07, there
are no actions, suits or proceedings pending or, to the knowledge of the
Borrower threatened against or affecting the Borrower or any of its
Subsidiaries, or the Properties of any such Person, before or by any
Governmental Authority or other Person, which, if determined adversely to such
Person could have a Material Adverse Effect on any such Person.
Section 4.08. USE OF PROCEEDS. (a) The Borrower's uses of the
proceeds of the Loans are, and will continue to be, legal and proper corporate
uses (duly authorized by Borrower's board of directors to the extent required),
and such uses are consistent with the terms of the Loan Documents, including,
without limitation, SECTION 5.09, and all Requirements of Law.
(b) Neither the Borrower nor any of its Subsidiaries is engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U), and no part of the proceeds
of any Loan will be used, directly or indirectly, (i) to
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purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock or (ii) for the purpose of
purchasing, carrying or trading in any securities under such circumstances as
to involve the Borrower or any of its Subsidiaries in a violation of
Regulation X.
Section 4.09. GOVERNMENTAL REGULATION. Neither the Borrower nor any
of its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act, as amended, the Investment Company Act of 1940, as amended, or any
other Requirement of Law such that the ability of any such Person to incur
indebtedness is limited or its ability to consummate the transactions
contemplated by this Agreement, the other Loan Documents or any document
executed in connection therewith is impaired.
Section 4.10. DISCLOSURE. The schedules, documents, exhibits,
reports, certificates and other written statements and information furnished by
or on behalf of the Borrower or any of its Subsidiaries to the Bank Group do not
contain any material misstatement of fact, or omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. Neither the Borrower
nor any of its Subsidiaries has intentionally withheld any fact known to it
which has or is reasonably likely to have a Material Adverse Effect on the
Borrower or any of its Subsidiaries.
Section 4.11. ERISA. (a) The Borrower, and each ERISA Affiliate and
Subsidiary have operated and administered each Pension Plan and Other Benefit
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 Borrower nor any ERISA
Affiliate or Subsidiary has incurred any liability pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Internal Revenue Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and no
event, transaction or condition has occurred or exists or is threatened that
could reasonably be expected to result in the incurrence of any such liability
by the Borrower or any ERISA Affiliate or Subsidiary, or in the imposition of
any Lien on any of the rights, properties or assets of the Borrower or any ERISA
Affiliate or Subsidiary, 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
Internal Revenue Code, other than such liabilities or Liens as would not be,
individually or in the aggregate, Material.
(b) The present value of the aggregate benefit liabilities under each
Pension Plan subject to Title IV of ERISA, determined as of the end of such
Pension Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Pension Plan's most recent
actuarial valuation report, did not exceed the aggregate current value of the
assets of such Pension Plan allocable to such benefit liabilities. The term
"benefit liabilities" has the meaning specified in section 4001 of ERISA and the
terms "current value" and "present value" have the meaning specified in Section
3 of ERISA.
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(c) The Borrower and its ERISA Affiliates and Subsidiaries do not
currently and have never had any liability or obligation with respect to any
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of any Multiemployer Plan.
(d) The expected post-retirement benefit obligation (determined as of
the last day of the Borrower'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 Internal Revenue Code ("COBRA")) of the Borrower and its ERISA Affiliates
and Subsidiaries is not Material and, except as modified by COBRA, such
obligations can be unilaterally terminated at any time by the Borrower, or its
ERISA Affiliates and Subsidiaries without any Material liability.
Section 4.12. PAYMENT OF TAXES. The Borrower has filed, and has
caused each of its Subsidiaries to file, all federal, state and local tax
returns and other reports that the Borrower and each such Subsidiary are
required by law to file and have paid all taxes and other similar charges that
are due and payable pursuant to such returns and reports, except to the extent
any of the same may be contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, and with respect to which adequate
reserves have been set aside on the books of such Person in accordance with
generally accepted accounting principles.
Section 4.13. TITLE AND LIENS. (a) Except as set out in SCHEDULE
4.13, each of the Borrower and its Subsidiaries have good and defensible title
to the Mortgaged Property, free and clear of all Liens except Liens permitted by
SECTION 6.02. Except as set forth in SCHEDULE 4.13, after giving full effect
to the Excepted Liens, the Borrower owns the net interests in production
attributable to the Oil and Gas Properties reflected in the Initial Reserve
Report and the ownership of such Oil and Gas Properties shall not in any
material respect obligate the Borrower to bear the costs and expenses relating
to the maintenance, development and operations of each such Oil and Gas Property
in an amount in excess of the working interest of each Oil and Gas Property set
forth in the Initial Reserve Report. Further, upon delivery of each Reserve
Report, the statements made in the preceding sentence shall be true with respect
to such furnished Reserve Reports including the ownership of the Oil and Gas
Properties set forth therein. To the best of the Borrower's knowledge, all
information contained in the Initial Reserve Report is true and correct in all
material respects as of the date thereof.
(b) All material leases and agreements necessary for the conduct of
the business of the Borrower and its Subsidiaries are valid and subsisting, in
full force and effect and, to the knowledge of the Borrower, 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 would affect in any material respect the conduct of the business of the
Borrower and its Subsidiaries.
(c) The rights and Properties presently owned, leased or licensed by
the Borrower and its Subsidiaries including, without limitation, all easements
and rights of way, include all rights
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and Properties necessary to permit the Borrower and its Subsidiaries to
conduct their business in all material respects in the same manner as their
business has been conducted prior to the date hereof.
(d) All of the Properties of the Borrower and its Subsidiaries which
are reasonably necessary for the operation of its business are in good working
condition and are maintained in accordance with prudent business standards.
Section 4.14. GAS IMBALANCES. As of the date of this Agreement,
except as set forth in SCHEDULE 4.14 or on the most recent certificate delivered
pursuant to SECTION 5.10(c), on a net basis there are no gas imbalances, take or
pay or other prepayments with respect to the Borrower's Oil and Gas Properties
which would require the Borrower to deliver Hydrocarbons produced from the Oil
and Gas Properties at some future time without then or thereafter receiving full
payment therefor exceeding a market value of $100,000 in the aggregate.
Section 4.15. ENVIRONMENTAL MATTERS. Except as disclosed in the
environmental reports delivered to the Bank Group on the Effective Date pursuant
to SECTION 3.01 hereof, (a)(i) the Borrower and each of its Subsidiaries
possess all environmental, health and safety licenses, permits, authorizations,
registrations, approvals and similar rights necessary under law or otherwise for
such Person to conduct its operations as now being conducted, (ii) each of such
licenses, permits, authorizations, registrations, approvals and similar rights
is valid and subsisting, in full force and effect and enforceable by such
Person, and (iii) such Person is in compliance with all terms, conditions or
other provisions of such permits, authorizations, registrations, approvals and
similar rights, except to the extent that the failure to do so will not have a
Material Adverse Effect on such Person; (b) neither the Borrower nor any of its
Subsidiaries has received any notices of any violation of, noncompliance with,
or remedial obligation under, Requirements of Environmental Laws, and there are
no writs, injunctions, decrees, orders or judgments outstanding, or lawsuits,
claims, proceedings, investigations or inquiries pending or, to the knowledge of
the Borrower, threatened, relating to the ownership, use, condition,
maintenance, or operation of, or conduct of business related to, any Property
owned, leased or operated by the Borrower or any of its Subsidiaries, other than
those violations, instances of noncompliance, obligations, writs, injunctions,
decrees, orders, judgments, lawsuits, claims, proceedings, investigations or
inquiries that will not have a Material Adverse Effect on such Person; (c)
there are no material obligations, undertakings or liabilities arising out of
or relating to Environmental Laws to which the Borrower or any of its
Subsidiaries has agreed to, assumed or retained, or by which the Borrower or any
of its Subsidiaries is adversely affected, by contract or otherwise; and (d)
neither the Borrower nor any of its Subsidiaries has received a written notice
or claim to the effect that such Person is or may be liable to any Person as the
result of a release or threatened release of a hazardous material or solid
waste.
Section 4.16. CONSUMMATION OF ACQUISITION. The transactions
described in the Acquisition Documents, including, without limitation, the
Acquisition, have been completed in accordance with the terms of the Acquisition
Documents, and with all Requirements of Law.
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ARTICLE V
AFFIRMATIVE COVENANTS
So long as any principal amount of any Loan, any amount of interest
accrued under the Notes or any commitment or other fee, expense, compensation or
any other amount payable to any member of the Bank Group under the Loan
Documents shall remain unpaid or outstanding or any Bank shall have any
Commitment hereunder, unless the Majority Banks shall otherwise consent in
writing:
Section 5.01. REPORTING REQUIREMENTS. The Borrower shall deliver or
cause to be delivered to the Agent (with sufficient copies for the Agent to
distribute the same to the other members of the Bank Group):
(a) As soon as available and in any event within sixty (60) days
after the end of each of the first three fiscal quarters of the Borrower:
(i) copies of the unaudited consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such period, and unaudited
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for that fiscal period and for the portion of
the fiscal year ending with such period, in each case setting forth in
comparative form (on a consolidated basis) the figures for the
corresponding period of the preceding fiscal year, all in reasonable
detail; and
(ii) a certificate of a Responsible Officer of the Borrower (1)
stating that (A) such financial statements fairly present in all material
respects the consolidated financial position and results of operations of
the Borrower and its Subsidiaries in accordance with generally accepted
accounting principles consistently applied, subject to year-end adjustments
and the absence of notes and (B) no Default or Event of Default has
occurred and is continuing or, if any such event has occurred and is
continuing, the action the Borrower is taking or proposes to take with
respect thereto, and (2) setting forth calculations demonstrating
compliance by the Borrower with SECTIONS 6.04, 6.05 AND 6.06.
(b) As soon as available and in any event within one hundred five
(105) days after the end of each fiscal year of the Borrower (i) copies of (A)
the audited consolidated balance sheet of the Borrower and its Subsidiaries as
of the close of such fiscal year and audited consolidated statements of income
and retained earnings and a statement of cash flows of the Borrower and its
Subsidiaries for such fiscal year, and (B) upon the request of the Agent
delivered not more than ninety (90) days after the end of each fiscal year, an
unaudited consolidating balance sheet of the Borrower and its Subsidiaries as of
the close of such fiscal year and unaudited consolidating statements of income
and retained earnings of the Borrower and its Subsidiaries for such fiscal year,
in each case setting forth in comparative form (on a consolidated basis) the
figures for the preceding fiscal year, all in reasonable detail and
accompanied, in the case of the audited financial statements required by
SECTION 5.01(b)(i)(A) above, by an opinion thereon (which shall not be
qualified by
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reason of any limitation imposed by the Borrower) of independent accountants
of recognized national standing selected by the Borrower and reasonably
satisfactory to the Majority Banks, to the effect that such consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied (except for changes in which such
accountants concur) and that such audit has been made in accordance with
generally accepted auditing standards and (ii) a certificate of a Responsible
Officer of the Borrower (A) setting forth calculations demonstrating
compliance by the Borrower with SECTIONS 6.04, 6.05 AND 6.06 and (B) stating
that no Default or Event of Default has occurred and is continuing or, if any
such event has occurred and is continuing, the action the Borrower is taking
or proposes to take with respect thereto.
(c) Promptly after the sending or filing thereof, copies of all
reports and shareholder information which the Borrower or any of its
Subsidiaries sends to any holders of its respective securities, in their
capacities as holders of such securities and not in their capacities as
directors, officers or employees of the Borrower or any of the Borrower's
Subsidiaries, or to the SEC.
(d) As soon as possible and in any event within ten (10) days after
the Borrower or any of its Subsidiaries becomes aware of the occurrence of a
Default or Event of Default, a certificate of a Responsible Officer of the
Borrower setting forth details of such Default or Event of Default and the
action which has been taken or is to be taken with respect thereto.
(e) As soon as possible and in any event within ten (10) days after
the Borrower or any of its Subsidiaries becomes aware thereof, written notice
from a Responsible Officer of the Borrower of (i) the institution of or threat
of, any action, suit, proceeding, governmental investigation or arbitration by
any Governmental Authority or other Person against or affecting the Borrower or
any of its Subsidiaries that could have a Material Adverse Effect on any such
Person and that has not been previously disclosed in writing to the Bank Group
pursuant to this SECTION 5.01 or (ii) any material development in any action,
suit, proceeding, governmental investigation or arbitration already disclosed to
the Bank Group pursuant to this SECTION 5.01 or SECTION 3.01.
(f) As soon as reasonably possible and in any event within ten (10)
days after the Borrower or any of its Subsidiaries becomes aware thereof,
written notice from a Responsible Officer of the Borrower of (i) any violation
of, noncompliance with, or remedial obligations under, Requirements of
Environmental Laws, (ii) any release or threatened release affecting any
Property owned, leased or operated by the Borrower or any of its Subsidiaries,
(iii) the amendment or revocation of any permit, authorization, registration,
approval or similar right that could have a Material Adverse Effect on the
Borrower or any of its Subsidiaries or (iv) changes to Requirements of
Environmental Laws that could have a Material Adverse Effect on the Borrower or
any of its Subsidiaries.
(g) Promptly, and in any event within five (5) days after becoming
aware of any of the following, a written notice setting forth the nature thereof
and the action, if any, that the Borrower or an ERISA Affiliate or Subsidiary
proposes to take with respect thereto: (i) with respect
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to any Pension Plan, any Reportable Event, for which notice thereof has not
been waived pursuant to such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the threatening by the
PBGC of the institution of, proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension
Plan, or the receipt by the Borrower or any ERISA Affiliate or Subsidiary of
a notice from a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction
or condition that could result in the incurrence of any liability by the
Borrower or any ERISA Affiliate or Subsidiary pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Internal Revenue Code
relating to employee benefit plans, or in the imposition of any Lien on any
of the rights, properties or assets of the Borrower or any ERISA Affiliate or
Subsidiary pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions; or (iv) the inability or failure of the Borrower or any ERISA
Affiliate or Subsidiary to make timely any payment or contribution to or with
respect to any Pension Plan, Multiemployer Plan or Other Benefit Plan, if
such failure, either separately or together with all other such failures
could reasonably be expected to be Material; or (v) any event with respect to
any Pension Plan, Multiemployer Plan and/or Other Benefit Plan, individually
or in the aggregate, that could reasonably be expected to be a Material
liability.
(h) As soon as available and in any event simultaneously with the
delivery of the financial statements delivered pursuant to SECTION 5.01(b),
copies of the budget of the Borrower and its Subsidiaries containing a
consolidated balance sheet, and detailed statements of income, cash flow and
projected capital expenditures for the then current fiscal year, together with a
narrative business plan describing the expected results of operation of the
Borrower and its Subsidiaries.
(i) As soon as possible and in any event ten (10) days after the
Borrower becomes aware thereof, any claim by or against the Borrower under the
Acquisition Documents, including claims for breach of warranty and claims for
indemnity.
(j) Such other information as any member of the Bank Group may from
time to time reasonably request respecting the business, properties, operations
or condition, financial or otherwise, of the Borrower or any of its
Subsidiaries.
Section 5.02. TAXES; CLAIMS. The Borrower will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon such Person or upon
its income or profits, or upon any properties belonging to such Person, prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a Lien upon any properties of such Person, other than any
such tax, assessment, charge, levy or claim which is being contested in good
faith by appropriate proceedings promptly initiated and diligently conducted,
and with respect to which adequate reserves are set aside on the books of such
Person in accordance with generally accepted accounting principles.
Section 5.03. COMPLIANCE WITH LAWS. The Borrower will comply, and
will cause each of its Subsidiaries to comply, with all applicable Requirements
of Law imposed by, any
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Governmental Authority, non-compliance with which might have a Material
Adverse Effect on any such Person. Without limitation of the foregoing, the
Borrower shall, and shall cause each of its Subsidiaries to, comply with all
Requirements of Environmental Laws, operate properties and conduct its
business in accordance with good environmental practices, and handle, treat,
store and dispose of hazardous materials or solid waste in accordance with
such practices, except where the failure to do so will not have a Material
Adverse Effect on any such Person.
Section 5.04. INSURANCE. The Borrower will maintain, and will cause
each of its Subsidiaries to maintain, with financially sound and reputable
insurance companies or associations, or self-insure against such risks, and in
such amounts (and with co-insurance and deductibles), as are usually insured
against by Persons of similar size and established reputation engaged in the
same or similar businesses and similarly situated, including insurance against
fire, casualty, business interruption, injury to Persons or property and other
normal hazards normally insured against, but, in any event, such insurance shall
not be substantially dissimilar from that described in the insurance schedule
delivered on the Effective Date pursuant to SECTION 3.01. In addition, if
requested by the Agent, on or before January 31 of each year commencing January
31, 1998, the Borrower will deliver to the Agent a report prepared by Borrower's
insurance broker listing all insurance policies and programs then in effect with
respect to the properties and businesses of the Borrower and each of its
Subsidiaries, specifying for each such policy and program, (a) the amount
thereof, (b) the risks insured against thereby, (c) the name of the insurer and
each insured party thereunder and (d) the policy or other identification number
thereof. Each policy listed on the schedule delivered pursuant to SECTION 3.01
and each additional policy maintained in compliance with this Agreement shall be
endorsed showing the Agent as an additional insured, or a loss payee, as
applicable. All policies of insurance required by the terms of this Agreement
or any Security Document shall provide that at least 30 days' prior written
notice be given to the Agent of any termination, cancellation, reduction or
other modification of such insurance.
Section 5.05. CORPORATE EXISTENCE. The Borrower will preserve and
maintain, and will cause each of its Subsidiaries to preserve and maintain, its
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each of its
Subsidiaries to qualify and remain qualified, as a foreign corporation in each
jurisdiction in which such qualification is material to the business and
operations of such Person or the ownership or leasing of the properties of such
Person except to the extent that a Subsidiary merges or consolidates in
compliance with SECTION 6.08 or ceases to be a Subsidiary of Borrower if such
cessation is permitted under this Agreement.
Section 5.06. INSPECTIONS. From time to time during regular business
hours upon reasonable prior notice, the Borrower will permit, and will cause
each of its Subsidiaries to permit, any agents or representatives of any member
of the Bank Group to examine and make copies of and abstracts from the records
and books of account of, and visit the properties of the Borrower and its
Subsidiaries and to discuss the affairs, finances and accounts of any such
Person with any of its independent public accountants, officers or directors,
all at the expense of the Borrower.
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Section 5.07. MAINTENANCE OF PROPERTIES. The Borrower will maintain
and preserve, and will cause each Subsidiary of the Borrower to maintain and
preserve, all of its Properties necessary for the proper conduct of its business
in good working order and condition, ordinary wear and tear excepted. The
Borrower shall cause, or in the event the Borrower is not the operator of its
Oil and Gas Properties, use reasonable best efforts consistent with its rights
under applicable operating agreements to cause, its Oil and Gas Properties to be
maintained, developed, protected against drainage and operated in a good and
workmanlike manner as would a reasonably prudent operator and in compliance with
all operating agreements, other applicable agreements and all applicable
Requirements of Law.
Section 5.08. ACCOUNTING SYSTEMS. The Borrower will keep, and will
cause each of its Subsidiaries to keep, adequate records and books of account in
which complete entries will be made in accordance with generally accepted
accounting principles consistently applied (subject to year end adjustments),
reflecting all financial transactions of such Person. The Borrower shall
maintain or cause to be maintained a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with generally accepted accounting
principles, and each of the financial statements described herein shall be
prepared from such system and records.
Section 5.09. USE OF LOANS. The Borrower will use the proceeds of
all Loans hereunder for general corporate purposes (including working capital
purposes) and to finance a portion of the Acquisition consistent with the terms
of this Agreement and all Requirements of Law.
Section 5.10. RESERVE REPORTS. (a) By February 15 of each year
commencing February 15, 1998, the Borrower shall furnish to the Agent and the
Banks a Reserve Report dated as of the immediately preceding December 31. Each
such Reserve Report shall be prepared by independent petroleum engineers
acceptable to the Agent. Each such Reserve Report shall be in form and
substance satisfactory to the Agent and shall set forth, as of the immediately
preceding December 31: (i) the Proved Reserves attributable to the Borrower's
Oil and Gas Properties together with a projection of the rate of production and
future net income, taxes, operating expenses and capital expenditures with
respect thereto as of such dates, based upon pricing and escalation assumptions
consistent with SEC reporting requirements at the time and (ii) such other
information as the Agent may reasonably request. By August 15 of each year
commencing August 15, 1998, the Borrower shall furnish to the Agent and the
Banks a Reserve Report dated as of the immediately preceding June 30. Each such
Reserve Report shall be prepared by or under the supervision of the chief
engineer of the Borrower who shall certify, to the best of his knowledge and in
all material respects, such Reserve Report to be true and accurate and to have
been prepared in accordance with the procedures used in the immediately
preceding Reserve Report delivered to the Banks under this SECTION 5.10(a).
(b) With respect to any unscheduled redetermination of the Borrowing
Base, the Borrower shall furnish to the Bank Group a Reserve Report prepared by
or under the supervision of the chief engineer of the Borrower (or upon the
request of the Agent prepared by independent
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<PAGE>
petroleum engineers acceptable to the Agent) covering the Borrower's Oil and
Gas Properties. Such Reserve Report shall be prepared in accordance with the
procedures set forth in SECTION 5.10(a), shall contain such other information
as the Agent may reasonably request and shall have an "as of date" as requested
by the Agent. For any unscheduled redetermination of the Borrowing Base
initiated by the Agent, the Borrower shall provide such Reserve Report as soon
as possible, but in any event no later than 30 days following the Borrower's
receipt of notice of such unscheduled redetermination from the Agent.
(c) With the delivery of each Reserve Report, the Borrower shall
provide to the Bank Group, a certificate from the Responsible Officer that, to
the best of his knowledge and in all material respects, (i) the information
contained in the Reserve Report and any other information delivered therewith is
true and correct, (ii) the Borrower owns good and defensible title to its Oil
and Gas Properties evaluated in such Reserve Report free of all Liens except for
Excepted Liens and that the Borrower has created or allowed to be created no new
Liens on its Oil and Gas Properties except for Excepted Liens, (iii) except as
set forth on an exhibit to the certificate, on a net basis there are no gas
imbalances, take or pay or other prepayments with respect to its Oil and Gas
Properties evaluated in such Reserve Report which would require the Borrower to
delivery Hydrocarbons produced from such Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor, (iv) none of
its Oil and Gas Properties have been sold (other than Hydrocarbons produced and
sold in the ordinary course of business) since the date of the last Borrowing
Base determination except as set forth on an exhibit to the certificate, which
certificate shall list all of its Oil and Gas Properties sold (other than
Hydrocarbons produced and sold in the ordinary course of business) and in such
detail as reasonably required by the Agent, (v) attached to the certificate is a
list of its Oil and Gas Properties added to and deleted from the immediately
prior Reserve Report and an updated list of all Persons (with their addresses)
disbursing proceeds to the Borrower from its Oil and Gas Properties, (vi) except
as set forth on a schedule attached to the certificate, all of the Oil and Gas
Properties evaluated by such Reserve Report are Mortgaged Property, and (vii)
any change in working interest or net revenue interest in its Oil and Gas
Properties occurring since the last Reserve Report and the reason for such
change.
(d) As soon as available and in any event within 45 days after the
end of each calendar quarter commencing with September 30, 1997, the Borrower
shall provide the Bank Group production reports for the Borrower's Oil and Gas
Properties certified by an officer of the Borrower, which reports shall include
quantities or volume of production or gas throughput which have accrued to the
Borrower's accounts for each month in such period, and such other information
with respect thereto as the Agent may reasonably request.
Section 5.11. TITLE. Promptly and in any event within 30 days after
written request therefor by the Agent, the Borrower will provide the Agent with
title opinions reasonably satisfactory to the Agent with respect to the
Borrower's Oil and Gas Properties which are included in the most recent Reserve
Report delivered to the Bank Group and for which title opinions have not been
previously delivered so that the Agent will have acceptable title opinions on at
least eighty percent (80%) of the value of the Borrower's Oil and Gas Properties
included in such Reserve Report. In addition, within 60 days after the Effective
Date, the Borrower shall provide evidence
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reasonably satisfactory to the Agent that all of the title requirements
pertaining to the Acquisition Properties set forth in the title opinions
delivered to the Agent under SECTION 3.01(g) have been satisfied except for
any such title requirements that have been waived in writing by the Agent
prior to such date.
Section 5.12. ADDITIONAL COLLATERAL. Should the Borrower own
additional Oil and Gas Properties that are not subject to a first priority Lien
under the Security Documents or acquire any additional Oil and Gas Properties,
the Borrower will grant to the Agent as security for the Obligations a first
priority Lien (subject only to Excepted Liens) on the Borrower's interest in
such Oil and Gas Properties which Lien will be created and perfected by and in
accordance with the provisions of mortgages, deeds of trust, security agreements
and financing statements, or other Security Documents, all in form and substance
satisfactory to the Agent in its sole discretion and in sufficient executed (and
acknowledged where necessary or appropriate) counterparts for recording
purposes.
Section 5.13. FURTHER ASSURANCES IN GENERAL. The Borrower shall, and
shall cause each of its Subsidiaries to, protect and perfect the Liens
contemplated by the Security Documents. The Borrower at its expense shall, and
shall cause each of its Subsidiaries to, promptly execute and deliver all such
other and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower or any of its
Subsidiaries in the Loan Documents, including, without limitation, the
accomplishment of any condition precedent that may have been waived by the Banks
prior to the initial Borrowing or any subsequent Borrowings.
Section 5.14. ENFORCEMENT OF ACQUISITION DOCUMENTS. The Borrower
will enforce in all material respects all of the terms, covenants, warranties
and representations in favor of the Borrower under the Acquisition Documents.
Section 5.15. COSTILLA REDECO PLEDGE. Within 30 days after the
Effective Date, the Borrower shall execute and deliver Security Documents to the
Agent, in form and substance satisfactory to the Agent, regranting, confirming
and ratifying the security interests covering the Borrower's equity interest in
Costilla Redeco as security for the Obligations.
ARTICLE VI
NEGATIVE COVENANTS
So long as any principal amount of any Loan, any amount of interest
accrued under the Notes or any commitment, facility or other fee, expense,
compensation or any other amount payable to any member of the Bank Group under
the Loan Documents shall remain unpaid or outstanding or any Bank shall have any
Commitment hereunder, unless the Majority Banks shall otherwise consent in
writing:
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<PAGE>
Section 6.01. INDEBTEDNESS RESTRICTION. The Borrower will not, and
will not permit any of its Subsidiaries to, create, incur, assume or suffer to
exist, any Indebtedness other than:
(a) Indebtedness of the Borrower under the Loan Documents;
(b) Indebtedness of the Borrower under the Acquisition Loan
Documents;
(c) Indebtedness of the Borrower or its Subsidiaries in respect of
any Derivatives permitted by SECTION 6.03;
(d) the Indebtedness of the Borrower under the Senior Unsecured
Notes;
(e) Indebtedness set out on SCHEDULE 6.01;
(f) Indebtedness of Borrower and its Subsidiaries in the aggregate
amount not to exceed $1,000,000 in addition to all other Indebtedness permitted
by this SECTION 6.01.
Section 6.02. LIEN RESTRICTION. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume or suffer to be
created, assumed or incurred or to exist, any Lien upon any of such Person's
property or assets, whether now owned or hereafter acquired other than the
following Liens ("EXCEPTED LIENS"):
(a) Liens created pursuant to this Agreement or any other Loan
Document;
(b) Liens created pursuant to any of the Acquisition Loan Documents;
(c) Liens in favor of the trustee under Section 7.07 of the
Indenture;
(d) royalties, overriding royalties, reversionary interests,
production payments and similar burdens with respect to the Borrower's or its
Subsidiaries' Oil and Gas Properties to the extent such burdens do not reduce
the Borrower's net interests in production in its Oil and Gas Properties below
the interests reflected in each Reserve Report or the interests warranted under
this Agreement, the Mortgage and the Acquisition Mortgage, and do not operate to
deprive the Borrower or its Subsidiaries of any material rights in respect of
its assets or properties (except for rights customarily granted with respect to
such interests);
(e) statutory liens, including liens for taxes or other assessments
that are not yet delinquent (or that, if delinquent, are being contested in good
faith by appropriate proceedings and for which the Borrower or its Subsidiaries
have set aside on their books adequate reserves in accordance with generally
accepted accounting principles consistently applied);
(f) easements, rights of way, servitudes, permits, surface leases and
other rights in respect to surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like,
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<PAGE>
conditions, covenants and other restrictions, and easements of streets,
alleys, highways, pipelines, telephone lines, power lines, railways and other
easements and rights of way on, over or in respect of the Borrower's or its
Subsidiaries' Properties;
(g) materialmen's, mechanic's, repairman's, contractor's, sub-
contractor's, operator's and other Liens incidental to the construction,
maintenance, development or operation of the Borrower's or its Subsidiaries'
Properties to the extent not delinquent (or which, if delinquent, are being
contested in good faith by appropriate proceedings and for which the Borrower or
its Subsidiaries have set aside on their books adequate reserves in accordance
with generally accepted accounting principles consistently applied);
(h) all contracts, agreements and instruments, and all defects and
irregularities and other matters affecting the Borrower's or its Subsidiaries'
Properties which were in existence at the time such Properties were originally
acquired by such Person and all routine operational agreements entered into in
the ordinary course of business, which contracts, agreements, instruments,
defects, irregularities and other matters and routine operational agreements do
not reduce the Borrower's net interest in production in its Oil and Gas
Properties below the interests reflected in each Reserve Report or the interests
warranted under this Agreement, the Mortgage, or the Acquisition Mortgage and do
not interfere materially with the operation, value or use of the Borrower's or
its Subsidiaries' Properties;
(i) landlord's liens securing obligations that are not yet delinquent
(or that, if delinquent, are being contested in good faith by appropriate
proceedings and for which the Borrower or its Subsidiaries have set aside on
their books adequate reserves in accordance with generally accepted accounting
principles consistently applied);
(j) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations that are not yet delinquent (or that, if delinquent, are being
contested in good faith by appropriate proceedings and for which the Borrower or
its Subsidiaries have set aside on their books adequate reserves in accordance
with generally accepted accounting principles consistently applied); and
(k) rights reserved to or vested in any municipality, governmental,
statutory or other public authority to control or regulate the Borrower's
Properties in any manner, and all applicable laws, rules and orders from any
Governmental Authority;
PROVIDED, HOWEVER, that the definition of the term "Excepted Liens" does not
include Liens of any kind or character which are prior by perfection to the
Liens on the Mortgaged Property under the Security Documents, or which may, by
operation of law, become prior to such Liens under the Security Documents.
Section 6.03. DERIVATIVES. The Borrower shall not, and shall not
permit any of its Subsidiaries to, enter into any Derivatives other than
(a) commodity price Derivatives related to bona
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<PAGE>
fide hedging activities so long as (i) the aggregate notional amounts of such
commodity price Derivatives during any calculation period do not exceed (A)
with respect to commodity price Derivatives which provide for a floor, but
not a cap, 100% of the Borrower's projected production of Hydrocarbons from
the Borrower's Oil and Gas Properties and (B) with respect to any other
commodity price Derivatives, seventy-five percent (75%) (or such other
percentage as may be acceptable to the Agent) of the Borrower's projected
production of Hydrocarbons from the Borrower's Oil and Gas Properties (in
each case, on a barrel of oil equivalency basis in which gas shall be
converted to oil at a ratio of six thousand cubic feet of gas to one barrel
of oil), and (ii) such commodity price Derivatives have been entered into
with the Agent or such other Person agreed to by the Majority Banks, and (b)
interest rate Derivatives related to bona fide hedging activities to protect
against fluctuations in interest rates on the Loans entered into with the
Agent, the Co-Agent or such other Person agreed to by the Majority Banks, as
well as the interest rate Derivatives required under the terms of the
Acquisition Credit Agreement.
Section 6.04. INTEREST COVERAGE RATIO. The Borrower will not permit
the ratio of (a) EBITDA to (b) Interest Expense, measured as of the last day of
any calendar quarter for the twelve month period then ended, to be less than
2.25 to 1.00 as of the last day of any calendar quarter through September 30,
1997 or to be less than 2.50 to 1.00 as of the last day of any calendar quarter
after September 30, 1997.
Section 6.05. CURRENT RATIO. The Borrower will not permit the ratio
of (i) its consolidated current assets, plus that portion of any unfunded
Commitments available based on the most recent determination of the Borrowing
Base that can be borrowed without causing a "Default" or "Event of Default" to
occur under the Indenture, to (ii) its consolidated current liabilities,
excluding current maturities of Indebtedness under this Agreement and the
Acquisition Credit Agreement, at the end of any calendar quarter ending on or
after September 30, 1997 to be less than 1.00 to 1.00.
Section 6.06. TANGIBLE NET WORTH. The Borrower will not permit its
Consolidated Tangible Net Worth at the end of any calendar quarter ending after
the Effective Date to be less than the sum of (a) $30,000,000.00 plus (b)
seventy-five percent (75%) of Net Income for each calendar quarter ending after
the Effective Date (excluding any such fiscal quarter in which Net Income is a
loss), plus (c) seventy-five percent (75%) of the proceeds of any equity
offering or similar capital infusion after the Effective Date.
Section 6.07. SALES OF PROPERTIES. The Borrower will not, and will
not permit any of its Subsidiaries to, sell, transfer, assign, farm-out, lease
or otherwise transfer or dispose of any Properties other than (a) sales of
Hydrocarbon production in the ordinary course of business and sales of obsolete
or worn-out equipment in the ordinary course of business, (b) sales or transfers
of Properties by any of the Borrower's wholly-owned Subsidiaries to the
Borrower or any such other wholly-owned Subsidiary, and (c) any other sale of
Properties sold at fair market value, so long as the aggregate Net Proceeds for
all such sales made under this subclause (c) during the period between each
redetermination of the Borrowing Base does not exceed $1,000,000.
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<PAGE>
Section 6.08. CONSOLIDATION AND MERGERS. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, consolidate
with or merge into any Person or permit any Person to consolidate with or merge
into it, except that any Subsidiary of the Borrower may merge into or
consolidate with any other Subsidiary of the Borrower and any Subsidiary of the
Borrower may merge into or consolidate with the Borrower, provided in each case
that, immediately after giving effect and pro forma effect thereto, no event
shall occur and be continuing which constitutes either a Default or an Event of
Default, and if the Borrower is a party to such merger, the Borrower is the
surviving entity.
Section 6.09. RESTRICTED DISBURSEMENTS. The Borrower will not, and
will not permit any of its Subsidiaries to approve, make, incur or commit to
incur any Restricted Disbursements other than:
(a) advances or extensions of credit on terms customary in the
industry involved in the form of accounts receivable incurred, and investments,
loans, and advances made in settlement of such accounts receivable, all in the
ordinary course of business;
(b) Permitted Investments;
(c) purchases of not more than 402,000 shares of the Borrower's
common stock under the Borrower's previously announced stock repurchase program;
(d) dividends or other payments by any of the Borrower's Subsidiaries
to the Borrower or any other Subsidiary of the Borrower;
(e) investments or capital contributions made by the Borrower in or
to Costilla Redeco not to exceed $2,500,000 during any calendar year or
$5,000,000 in the aggregate; and
(f) the Restricted Disbursements set out on SCHEDULE 6.09.
Section 6.10. LINES OF BUSINESS. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly engage in any business
other than the acquisition, disposition, exploration, ownership, development and
operation of Oil and Gas Properties.
Section 6.11. TRANSACTIONS WITH AFFILIATES. Except as set out in
SCHEDULE 6.11, neither the Borrower nor any of its Subsidiaries, will enter into
any transaction with an Affiliate other than (a) transactions entered into in
the ordinary course of business and upon terms no less favorable than those that
the Borrower or its Subsidiary, as applicable, could obtain in an arms length
transaction with a Person that is not an Affiliate and (b) transactions between
the Borrower and any of its Subsidiaries, or between such Subsidiaries, that do
not and will not, either directly or indirectly, cause an Event of Default.
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ARTICLE VII
DEFAULT AND REMEDIES
Section 7.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) the Borrower shall fail to pay when due any installment of
principal of the Notes; or
(b) the Borrower shall fail to pay any interest on any Loan or any
arrangement fee, commitment fee, administration fee, funding fee, commission,
expense, compensation, reimbursement or other amount when due and such failure
shall not have been remedied within four (4) days of such due date; or
(c) the Borrower shall fail to perform any term, covenant or
agreement contained in ARTICLE VI, or Section 5.01(e) of this Agreement; or
(d) the Borrower shall fail to perform any term, covenant or
agreement contained in this Agreement (other than those referenced in
subsections (a), (b) and (c) of this SECTION 7.01) and such failure shall not
have been remedied within twenty (20) days after notice thereof from the Agent
to the Borrower; or
(e) the Borrower or any of its Subsidiaries shall fail to perform any
term, covenant or agreement contained in any Loan Document (other than those
referenced in subsections (a), (b), (c) and (d) of this SECTION 7.01) and such
failure shall not have been remedied within twenty (20) days after notice
thereof from the Agent to the Borrower; or
(f) any representation or warranty made by the Borrower, or any of
its officers, in any Loan Document or in any certificate, agreement, instrument
or statement contemplated by or delivered pursuant to, or in connection with,
any Loan Document shall prove to have been incorrect in any material respect
when made; or
(g) the Borrower or any of its Subsidiaries shall (i) fail to pay
Indebtedness having a principal amount in excess of $500,000 in the aggregate
(other than the amounts referred to in subsections (a) and (b) of this
SECTION 7.01) owing by such Person, or any interest or premium thereon, when due
(or, if permitted by the terms of the relevant document, within any applicable
grace period), whether such Indebtedness shall become due by scheduled maturity,
by required prepayment, by acceleration, by demand or otherwise; or (ii) fail to
perform any term, covenant or condition on its part to be performed under any
agreement or instrument evidencing, securing or relating to any such
Indebtedness, when required to be performed, and such failure shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of
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such failure is to accelerate, or to permit the holder or holders of such
Indebtedness to accelerate, the maturity of such Indebtedness; or
(h) any Loan Document shall (other than with the consent of the
Majority Banks), at any time after its execution and delivery and for any
reason, cease to be in full force and effect or to provide the Liens
contemplated thereby, or shall be declared to be null and void, or the validity
or enforceability thereof or of the Liens contemplated thereby shall be
contested by any Person party to the Loan Documents or any such Person shall
deny that it has any or further liability or obligation under any Loan Document;
or
(i) the Borrower or any of its Subsidiaries shall be adjudicated
insolvent, or shall generally not pay, or admit in writing its inability to pay,
its debts as they mature, or make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by any such Person seeking to
adjudicate it insolvent, seeking liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial part
of its property, or the Borrower or any of its Subsidiaries shall take any
action in furtherance of any of the actions set forth above in this
SECTION 7.01(i); or
(j) any proceeding of the type referred to in SECTION 7.01(i) is
filed, or any such proceeding is commenced against the Borrower or any of its
Subsidiaries or any such Person by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order for relief is entered in an
involuntary case under the bankruptcy law of the United States, or an order,
judgment or decree is entered appointing a trustee, receiver, custodian,
liquidator or similar official or adjudicating any such Person insolvent, or
approving the petition in any such proceedings, and such order, judgment or
decree remains in effect for sixty (60) days; or
(k) a final judgment or order for the payment of money in excess of
$500,000 (net of acknowledged, uncontested insurance coverage) shall be rendered
against the Borrower or any of its Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) a stay of enforcement of such judgment or order by reason of a
pending appeal or otherwise, shall not be in effect for any period of thirty
(30) consecutive days; or
(l) if (i) any Pension Plan shall fail to satisfy the minimum funding
standards of ERISA or the Internal Revenue 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 Internal Revenue Code, (ii) a notice
of intent to terminate any Pension Plan shall have been or is reasonably
expected to be filed with the PBGC or the PBGC shall have instituted proceedings
under Section 4042 of ERISA to terminate or appoint a trustee to administer any
Pension Plan or the PBGC shall have notified the Borrower or any ERISA Affiliate
or Subsidiary that a Pension Plan may become a subject to any such proceedings,
(iii) the aggregate "amount of unfunded benefit liabilities"
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(within the meaning of Section 4001(a)(18) of ERISA) under all Pension Plans,
determined in accordance with Title IV of ERISA, shall exceed $100,000, (iv)
the Borrower or any ERISA Affiliate or Subsidiary shall have incurred or is
reasonably expected to incur any liability pursuant to Title I or IV of
ERISA, the penalty or excise tax provisions of the Internal Revenue Code
relating to employee benefit plans and/or other liability with respect to one
or more Other Benefit Plans, (v) the Borrower or any ERISA Affiliate or
Subsidiary withdraws from any Multiemployer Plan, (vi) the Borrower or any
ERISA Affiliate or Subsidiary fails to make any contribution due, or payment
to, any Pension Plan, Multiemployer Plan and/or Other Benefit Plan, or (vii)
the Borrower or any ERISA Affiliate or 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 Borrower or any ERISA
Affiliate or Subsidiary thereunder, and any such event or events described in
clauses (i) through (vii) above, either individually or together with any
other such event or events, could reasonably be expected to have a Material
Adverse Effect; or
(m) any event which has a Material Adverse Effect shall occur; or
(n) a Change of Control shall occur; or
(o) an "Event of Default" shall occur under the Acquisition Credit
Agreement; or
(p) an "Event of Default" shall occur under the Indenture;
then, (i) upon the occurrence of any Event of Default described in
SECTION 7.01(i) or SECTION 7.01(j), (A) the Commitments shall automatically
terminate and (B) the entire unpaid principal amount of all Loans, all interest
accrued and unpaid thereon, and all other amounts payable by the Borrower under
this Agreement, the Notes, the other Loan Documents and any other agreement or
security document contemplated by or delivered in connection with this Agreement
shall automatically become immediately due and payable, without presentment for
payment, demand, protest, notice of intent to accelerate, notice of acceleration
or further notice of any kind, all of which are hereby expressly waived by the
Borrower, and (ii) upon the occurrence of any Event of Default, the Agent may,
and upon the direction of the Majority Banks shall, by notice to the Borrower
(A) declare the Commitments to be terminated, whereupon the same shall forthwith
terminate and (B) declare the entire unpaid principal amount of all Loans, all
interest accrued and unpaid thereon, and all other amounts payable by the
Borrower under this Agreement, the Notes, the other Loan Documents and any other
agreement or security document contemplated by or delivered in connection with
this Agreement, to be forthwith due and payable, whereupon all such amounts
shall become and be forthwith due and payable, without presentment for payment,
demand, protest, notice of intent to accelerate, notice of acceleration or
further notice of any kind, all of which are hereby expressly waived by the
Borrower.
Section 7.02. SETOFF IN EVENT OF DEFAULT. Upon the occurrence and
during the continuance of any Event of Default, each member of the Bank Group is
hereby authorized, at any
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time and from time to time, without notice to the Borrower (any such notice
being expressly waived by the Borrower) and to the fullest extent permitted
by applicable law, to setoff and apply any and all deposits at any time held
and other indebtedness at any time owing by such member of the Bank Group (or
any branch, subsidiary or affiliate of such member of the Bank Group) to or
for the credit or the account of the Borrower against any and all of the
obligations of the Borrower or any other Person, now or hereafter existing
under this Agreement, the Notes or the other Loan Documents, irrespective of
whether or not such member of the Bank Group shall have made any demand for
satisfaction of such obligations and although such obligations may be
unmatured. Any member of the Bank Group exercising such right agrees to
notify the Borrower promptly after any such setoff and application made by
such Person; PROVIDED, that the failure to give such notice shall not affect
the validity of such setoff and application. The rights of the Bank Group
under this SECTION 7.02 are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Bank Group
may have hereunder or under any applicable law.
Section 7.03. NO WAIVER; REMEDIES. No failure on the part of any
member of the Bank Group to exercise, or any delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided in any of the other Loan
Documents or by law.
Section 7.04. HYDROCARBON PROCEEDS. Notwithstanding that, by the
terms of the various Security Documents, Borrower is and will be absolutely and
unconditionally assigning to the Agent for the ratable benefit of the Banks all
Hydrocarbons and all proceeds therefrom accruing to the interest of the Borrower
in the Mortgaged Property, so long as no Event of Default has occurred the
Borrower shall have the right (revocable at any time by the Agent upon the
occurrence of an Event of Default) to receive from the purchasers of production
all such Hydrocarbon proceeds, subject, however, to the Liens created under the
Security Documents, which Liens are hereby affirmed and ratified. Upon the
occurrence of an Event of Default, the Agent may exercise all rights and
remedies granted under the Security Documents, including the right to obtain
possession of all such Hydrocarbon proceeds then held by the Borrower or to
receive directly from the purchasers of production all other such Hydrocarbon
proceeds. In no case shall any failure, whether purposed or inadvertent, by the
Agent to collect directly any such Hydrocarbon 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 such Hydrocarbon proceeds by the Agent to the
Borrower constitute a waiver, remission or release of any other such Hydrocarbon
proceeds or of any rights of the Agent to collect other such proceeds
thereafter.
Section 7.05. APPLICATION OF PROCEEDS AFTER ACCELERATION. If any
Event of Default shall have occurred and be continuing, and if the Obligations
have become due and payable, all cash collateral held by the Agent under this
Agreement and the proceeds of any sale, disposition or other realization by the
Agent upon the Mortgaged Property (or any portion thereof) pursuant to the
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Security Documents, shall be distributed in whole or in part by the Agent in the
following order of priority, unless otherwise directed by all of the Banks:
FIRST, to the Agent and the Co-Agent, ratably, in an amount equal to
all costs and expenses of the Agent and the Co-Agent due and payable as of
the date of such distribution;
SECOND, to the Banks, ratably, in an amount equal to all accrued
interest and fees owing to the Banks under the Credit Agreement due and
payable as of the date of such distribution; PROVIDED, HOWEVER, that in
case such proceeds shall be insufficient to pay in full all such
Obligations, then to the payment thereof to the Banks, ratably, in
proportion to its percentage of the sum of the aggregate amounts of all
such Obligations;
THIRD, to the Banks, ratably, in an amount equal to the principal of
all Loans owing to the Banks under the Credit Agreement due and payable as
of the date of such distribution; PROVIDED, HOWEVER, that in case such
proceeds shall be insufficient to pay in full all such Obligations, then to
the payment thereof to the Banks, ratably, in proportion to its percentage
of the sum of the aggregate amounts of all such Obligations;
FOURTH, to the Banks, ratably, in an amount equal to all amounts owing
to the Banks under all Bank Group Derivatives due and payable as of the
date of such distribution; PROVIDED, HOWEVER, that in case such proceeds
shall be insufficient to pay in full all such Obligations, then to the
payment thereof to the Banks, ratably, in proportion to its percentage of
the sum of the aggregate amounts of all such Obligations;
FIFTH, to the Banks in an amount equal to all other Obligations due
and payable as of the date of such distribution; PROVIDED, HOWEVER, that in
case such proceeds shall be insufficient to pay in full all such
Obligations, then to the payment thereof to the Banks, ratably, in
proportion to its percentage of the sum of the aggregate amounts of all
such Obligations; and
SIXTH, to the extent of any surplus, to the Borrower, as its interests
may appear, except as may be provided otherwise by law;
it being understood that the Borrower shall remain liable to the extent of any
deficiency between the amount of the proceeds of the Mortgaged Property and the
aggregate of the sums referred to in clauses FIRST through FIFTH above.
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ARTICLE VIII
THE AGENT AND THE CO-AGENT
Section 8.01. AUTHORIZATION AND ACTION. Each Bank hereby appoints
and authorizes the Agent to take such action in such capacity on such Bank's
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto. As to any
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes or of amounts owing under the
other Loan Documents), the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Banks, and such instructions shall be
binding upon all Banks and any other holders of Notes; PROVIDED, HOWEVER, that
the Agent shall not be required to take any action which exposes it to personal
liability or which is contrary to the Loan Documents or applicable law. The
Agent is hereby expressly authorized on behalf of the other members of the Bank
Group, without hereby limiting any implied authority, (a) to receive on behalf
of each of the other members of the Bank Group any payment of principal of or
interest on the Loans outstanding hereunder, and all other amounts accrued
hereunder paid to such Persons, and promptly to distribute to each other member
of the Bank Group its proper share of all payments so received; (b) to give
notice within a reasonable time on behalf of each other member of the Bank Group
to the Borrower of any Default or Event of Default specified in this Agreement
of which the Agent has actual knowledge as provided in SECTION 8.09; (c) to
distribute to the other members of the Bank Group copies of all notices,
agreements and other material as provided for in this Agreement as received by
such Person; and (d) to distribute to the Borrower any and all requests, demands
and approvals received by such Person from any other member of the Bank Group.
Nothing herein contained shall be construed to constitute the Agent as a trustee
for any holder of the Notes or of a participation therein, nor to impose on the
Agent any duties or obligations other than those expressly provided for in the
Loan Documents.
Section 8.02. RELIANCE, ETC. None of the Agent, its Affiliates and
their directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement (INCLUDING ANY ACT OR OMISSION CONSTITUTING ORDINARY NEGLIGENCE,
WHETHER SOLE OR CONTRIBUTORY, ON BEHALF OF SUCH PERSON), except for its or their
own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Agent: (a) may treat the payee of any Note as
the holder thereof until the Agent receives and accepts an Assignment and
Acceptance entered into by the Bank which is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in SECTION 9.02;
(b) may consult with legal counsel (including counsel for the Borrower),
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 Bank and shall not be responsible to any Bank
for any statements, warranties or representations (whether written or oral) made
in or in connection with this Agreement or the other Loan Documents; (d) shall
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not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this Agreement or the other Loan
Documents on the part of the Borrower or any other Person or to inspect the
property (including the books and records) of the Borrower or any other Person;
(e) shall not be responsible to any Bank for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of any Loan
Document, any collateral provided for therein, or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in respect of this Agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper party or
parties. None of the Agent, its Affiliates and their directors, officers,
employees or agents shall have any responsibility to the Borrower on account of
the failure or delay in performance or breach by any Bank of any of its
obligations hereunder or to any Bank on account of the failure of or delay in
performance or breach by any other Bank or the Borrower of any of its
obligations hereunder or in connection herewith.
Section 8.03. BTCO AND AFFILIATES. Without limiting the right of any
other Bank to engage in any business transactions with the Borrower or any of
its Affiliates, with respect to its Commitment, the Loans made by it and the
Notes issued to it, Bankers Trust Company ("BTCO") shall have the same rights
and powers under this Agreement as any other Bank and may exercise the same as
though it were not the Bank or the Agent; and the term "Bank" or "Banks" shall,
unless otherwise expressly indicated, include BTCo in its individual capacity.
BTCo, or any of its Affiliates, may be engaged in, or may hereafter engage in,
one or more loan, letter of credit, leasing, derivative or other financing
activities not the subject of the Loan Documents (collectively, the "OTHER
FINANCINGS") with the Borrower or any of its Affiliates, or may act as trustee
on behalf of, or depositary for, or otherwise engage in other business
transactions with the Borrower or any of its Affiliates (all Other Financings
and other such business transactions being collectively, the "OTHER ACTIVITIES")
with no responsibility to account therefor to the Banks. Without limiting the
rights and remedies of the Banks specifically set forth in the Loan Documents,
no other Bank shall have any interest in (a) any Other Activities, (b) any
present or future guarantee by or for the account of the Borrower not
contemplated or included in the Loan Documents, (c) any present or future offset
exercised by BTCo in respect of any such Other Activities, (d) any present or
future property taken as security for any such Other Activities or (e) any
property now or hereafter in the possession or control of BTCo which may be or
become security for the obligations of the Borrower under the Loan Documents by
reason of the general description of indebtedness secured, or of property,
contained in any other agreements, documents or instruments related to such
Other Activities; PROVIDED, that if any payment in respect of such guarantees or
such property or the proceeds thereof shall be applied to reduction of the
obligations evidenced hereunder and by the Notes, then each Bank shall be
entitled to share in such application according to its pro rata portion of such
obligations.
Section 8.04. BANK CREDIT DECISION. Each Bank acknowledges that it
has, independently and without reliance upon any other member of the Bank Group
and based on the financial statements referred to in SECTION 4.06 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each
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Bank also acknowledges that it will, independently and without reliance upon
any other member of the Bank Group 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 this Agreement.
Section 8.05. INDEMNIFICATION. The Banks agree to indemnify each of
the Agent and the Co-Agent, its Affiliates or any of their respective directors,
officers, agents or employees (to the extent not reimbursed by the Borrower),
ratably according to its Commitment Percentages, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against any such Person in any way relating
to or arising out of this Agreement or the other Loan Documents or any action
taken or omitted by any such Person under this Agreement or the other Loan
Documents, PROVIDED, that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Person's gross negligence
or willful misconduct. IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT
THE AGENT, THE CO-AGENT AND THEIR AFFILIATES AND THEIR RESPECTIVE DIRECTORS,
OFFICERS, AGENTS OR EMPLOYEES SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND ARISING OUT OF OR
RESULTING FROM THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH
PERSON. Neither the Agent nor the Co-Agent shall be required to do any act
hereunder or under any other document or instrument delivered hereunder or in
connection herewith or take any action toward the execution or enforcement of
the agencies hereby created, or to prosecute or defend any suit in respect of
this Agreement or the Loan Documents or any collateral security, unless
indemnified to its satisfaction by the holders of the Notes against loss, cost,
liability, and expense. If any indemnity furnished to the Agent and the
Co-Agent, for any purpose is, in the opinion of such Person insufficient or
becomes impaired, such Person may call for additional indemnity and not commence
or cease to do the acts indemnified against until such additional indemnity is
furnished. Without limitation of the foregoing, each Bank agrees to reimburse
the Agent or the Co-Agent, promptly upon demand for its ratable share of any
out-of-pocket expenses (including counsel fees) incurred by such Person in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and the other Loan Documents, to the
extent that the Agent is not reimbursed for such expenses by the Borrower.
Section 8.06. EMPLOYEES OF THE AGENT. The Agent may execute any of
its duties under this Agreement, the other Loan Documents and any instrument,
agreement or document executed, issued or delivered pursuant hereto or thereto
or in connection herewith or therewith, by or through employees, agents and
attorneys-in-fact, and shall not be answerable for the default or misconduct of
any such employee, agent or attorney-in-fact selected by it with reasonable
care. The Agent may, and upon the written instruction of the Majority Banks
shall, enforce on behalf of the
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Banks any claims which the Agent and/or the Banks may have against any such
employee, agent or attorney-in-fact, and any recovery therefrom shall be
applied for the pro rata benefit of the Banks.
Section 8.07. SUCCESSOR AGENT. The Agent may resign at any time by
giving written notice thereof to the other members of the Bank Group and the
Borrower and may be removed at any time with or without cause by the Majority
Banks. Upon any such resignation or removal, the Majority Banks shall have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Majority Banks, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a commercial bank or corporation organized under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under this Agreement, subject to the requirement that
such retiring Agent will execute such documents and take such actions as may be
necessary or desirable to cause the successor Agent to be vested with all such
rights, powers, privileges and duties. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this ARTICLE VIII shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement. All reasonable costs and expenses incurred by the
Bank Group in connection with any amendments or other documentation required by
this SECTION 8.07 shall be paid by the Borrower pursuant to SECTION 9.04 hereof.
Section 8.08. SUCCESSOR CO-AGENT. The Co-Agent may resign at any
time by giving written notice thereof to the other members of the Bank Group and
the Borrower and may be removed at any time with or without cause by the
Majority Banks. Upon any such resignation or removal, the Majority Banks shall
have the right to appoint a successor Co-Agent. If no successor Co-Agent shall
have been so appointed by the Majority Banks, and shall have accepted such
appointment, within thirty (30) days after the retiring Co-Agent's giving of
notice of resignation or the Majority Banks' removal of the retiring Co-Agent,
then the retiring Co-Agent may, on behalf of the Banks, appoint a successor Co-
Agent, which shall be a commercial bank organized under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $500,000,000. Upon the acceptance of any appointment as Co-
Agent hereunder by a successor Co-Agent, such successor Co-Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Co-Agent, and the retiring Co-Agent shall be discharged from its
duties and obligations under this Agreement, subject to the requirement that
such retiring Co-Agent will execute such documents and take such actions as may
be necessary or desirable to cause the successor Co-Agent to be vested with all
such rights, powers, privileges and duties. After any retiring Co-Agent's
resignation or removal hereunder as Co-Agent, the provisions of this
ARTICLE VIII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Co-Agent under this Agreement. All reasonable costs
and expenses incurred by the Bank Group in connection with any amendments or
other documentation required by this SECTION 8.08 shall be paid by the Borrower
pursuant to SECTION 9.04 hereof.
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Section 8.09. NOTICE OF DEFAULT. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it shall have received notice from a Bank or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default" or "notice of event of
default," as applicable. If the Agent receives such a notice from the Borrower,
the Agent shall give notice thereof to the other members of the Bank Group and,
if such notice is received from a Bank, the Agent shall give notice thereof to
the other members of the Bank Group and the Borrower. The Agent shall be
entitled to take action or refrain from taking action with respect to such
Default or Event of Default as provided in this ARTICLE VIII.
Section 8.10. EXECUTION OF LOAN DOCUMENTS. Each member of the Bank
Group hereby authorizes and directs the Agent to execute and deliver on its
behalf each Loan Document to be executed by the Agent pursuant to the terms of
this Agreement.
ARTICLE IX
MISCELLANEOUS
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Section 9.01. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement, any Note or any other Loan Document, or consent to
any departure by any Person herefrom or therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Borrower and the
Majority Banks, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; PROVIDED, that
no amendment, waiver or consent shall, unless in writing and signed by all the
Banks, do any of the following: (a) waive any of the conditions specified in
ARTICLE III, (b) increase the Commitments of the Banks or subject the Banks to
any additional obligations, (c) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, (e) release the Borrower or any other Person
from its payment obligations to the Bank Group, regardless of whether such
obligations are those of a primary obligor, a guarantor or surety, or otherwise,
(f) authorize the Agent to release Liens against a substantial portion of any
collateral covered by the Security Documents, (g) take action which expressly
requires the signing of all the Banks pursuant to the terms of this Agreement,
(h) reduce the Commitment Percentages or the aggregate unpaid principal amount
of the Notes, or the number of Banks, as the case may be, required for the Agent
or the Banks or any of them to take any action under this Agreement or reduce
the percentage of Majority Banks or (i) amend this SECTION 9.01; PROVIDED,
FURTHER, that no amendment, waiver or consent shall (1) unless in writing and
signed by the Co-Agent in addition to the Banks required above to take such
action, effect the rights or duties of the Co-Agent under this Agreement or any
other Loan Documents and (2) unless in writing and signed by the Agent in
addition to the Banks required above to take such action, affect the rights or
duties of the Agent under this Agreement or any other Loan Document.
Notwithstanding the foregoing, the Agent may (without the consent of the Banks)
release the Lien created under the Security Documents on any assets of the
Borrower or any of its Subsidiaries if the sale of such assets is permitted
under SECTION 6.07.
Section 9.02. PARTICIPATION AGREEMENTS AND ASSIGNMENTS. (a) Each
Bank may assign to one or more Eligible Assignees all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and the Loans owing to it, the Note or the Notes held
by it and the other Loan Documents); PROVIDED, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all rights and
obligations of the assignor under this Agreement, the other Loan Documents and
the Acquisition Loan Documents, and no assignment shall be made unless it covers
a pro rata share of all rights and obligations of such assignor under this
Agreement, the other Loan Documents and the Acquisition Loan Documents, (ii) the
amount of the Commitment of the assigning Bank being assigned pursuant to each
such assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall, unless otherwise agreed to by the Agent or
unless such assignment is to a member of the Bank Group, in no event be less
than $5,000,000, (iii) each such assignment to an Eligible Assignee who is not a
member of the Bank Group must be approved by the Agent and, so long as no
Default exists, the Borrower, which approval shall not be unreasonably withheld
and (iv) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance and recording in the Register (defined below), an
Assignment and Acceptance, together with any Note subject to such assignment and
a recordation fee in the aggregate amount of $3,500 for processing such
assignment and the
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related assignment under the Acquisition Credit Agreement. Upon such
execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, (x) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations under
the Loan Documents have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank under the Loan
Documents, (y) the assigning Bank thereunder shall, to the extent that rights
and obligations under the Loan Documents have been assigned by it pursuant to
such Assignment and Acceptance, relinquish its rights and be released from
further obligations under the Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an
assigning Bank's rights and obligations under this Agreement, such Bank shall
cease to be a party hereto) and (z) be deemed to have made, as of such
effective date, to the Agent and the Borrower the representations and
warranties set forth in SECTION 2.12(f) hereof.
(b) By executing and delivering an Assignment and Acceptance, the
assigning Bank thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Bank makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement or any other instrument or document furnished
pursuant hereto; (ii) such assigning Bank makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or any other Person or the performance or observance by the Borrower or
any other Person of any of its obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement and the other Loan Documents,
together with copies of the financial statements referred to in SECTION 4.06 and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon any member of
the Bank Group (including such assigning Bank) 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 this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Agent, to take such action on its behalf and to exercise such
powers under this Agreement and the other Loan Documents as are delegated to
such Person by the terms thereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement and the other Loan Documents are required to be performed by it as a
Bank.
(c) The Agent shall maintain at its address referred to in
SECTION 9.03 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the Banks
and the Commitment of, and principal amount of the Loans owing to, each Bank
from time to time (the "REGISTER"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the Borrower
and each member of the Bank Group may treat each Person whose name is recorded
in the Register as a Bank
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hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any member of the Bank Group at
any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee representing that it is an Eligible Assignee,
together with any Notes subject to such assignment and the administrative fee
payable to the Agent for such assignment, the Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of
EXHIBIT 9.02 hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within five (5) Business Days after its receipt of
such notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for the surrendered Notes, new Notes to the order of such
Eligible Assignee in an amount corresponding to the Commitment assumed by such
Eligible Assignee pursuant to such Assignment and Acceptance and, if the
assigning Bank has retained a Commitment hereunder, new Notes to the order of
the assigning Bank in an amount corresponding to the Commitment retained by it
hereunder. Such new Notes shall be in an aggregate principal amount equal to
the aggregate principal amount of such surrendered Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form prescribed by SECTION 2.05 hereto.
(e) Each Bank may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the Loans owing to it); PROVIDED, that (i) such Bank's obligations under this
Agreement (including, without limitation, its Commitment to the Borrower
hereunder) and the other Loan Documents shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, and the participating banks or other entities shall not be
considered a "Bank" for purposes of the Loan Documents, (iii) the participating
banks or other entities shall be entitled to the cost protection provisions
contained in SECTIONS 2.12 through 2.15 to the same extent that the Bank from
which such participating bank or other entity acquired its participation would
be entitled to the benefit of such cost protection provisions, and (iv) the
Borrower and the other members of the Bank Group shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement and the other Loan Documents, and such Bank
shall retain the sole right to enforce the obligations of the Borrower relating
to the Loans and to approve any amendment, modification or waiver of any
provision of this Agreement (other than amendments, modifications or waivers
with respect to the amounts of any fees payable hereunder or the amount of
principal of or the rate at which interest is payable on the Loans or the dates
fixed for payments of principal or interest on the Loans).
(f) Any Bank may at any time pledge or assign all or any portion of
its rights under this Agreement and the other Loan Documents to any Federal
Reserve Bank without notice to or consent of the Borrower. No such pledge or
assignment shall release the assigning Bank from its obligations hereunder.
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(g) The Agent and each Bank may furnish any information concerning
the Borrower or its Subsidiaries in the possession of the Agent or such Bank
from time to time to Affiliates of the Agent or such Bank (including without
limitation, in the case of Bankers Trust Company, BT Securities Corporation and
its employees, to the extent necessary for the purposes contemplated by this
Agreement, including, without limitation, the syndication of the credit
facilities contemplated hereby) and, in the case of each Bank, to assignees and
participants (including prospective assignees and participants) of such Bank.
Each Bank will take reasonable steps to protect the confidentiality of any
information concerning the Borrower or its Subsidiaries provided to a respective
participant or assignee and known by such Bank to be confidential, and, if
requested by the Borrower, such Bank will identify the prospective assignees and
participants that have received such information.
Section 9.03. NOTICES. All correspondence, statements, notices,
requests and demands (collectively "COMMUNICATIONS") shall be in writing
(including telegraphic Communications) and mailed, telegraphed, telecopied,
facsimile transmitted or delivered as follows:
if to the Borrower --
Costilla Energy, Inc.
400 West Illinois, Suite 1000
Midland, Texas 79701
P. O. Box 10369
Midland, Texas 79702
Attention: Bobby Page
Telecopier: 915-686-6080
if to the Agent--
Bankers Trust Company
130 Liberty Street, 14th Floor
New York, New York 10006
Attention: Deal Administrator
Telecopier: 212-250-6029 or 212-250-7351
with a copy to --
BT Securities Corporation
909 Fannin Street, Suite 3000
Houston, Texas 77010
Attention: Richard J. Doleshek
Telecopier: 713-759-6708
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<PAGE>
if to any Bank, at its Domestic Lending Office, or as to each such party, at
such other address as such party shall designate in a written Communication to
each of the other parties hereto. All such Communications shall be effective,
in the case of written or telegraphed Communications, when deposited in the
mails or delivered to the telegraph company, respectively, and, in the case of a
Communication by telecopy or facsimile transmission, when telecopied or
transmitted against receipt of a confirmation, in each case addressed as
aforesaid, except that Communications to any member of the Bank Group pursuant
to ARTICLE II and ARTICLE VIII shall not be effective until received by such
Persons.
Section 9.04. COSTS AND EXPENSES. The Borrower agrees to pay on
demand (a) all reasonable costs and expenses of the Agent (including, without
limitation, fees and expenses of legal counsel, consultants and engineers of the
Agent), incurred in connection with the preparation, execution, delivery,
filing, administration and recording of the Loan Documents and any other
agreements or security documents delivered in connection with or pursuant to any
of the Loan Documents, any amendment, waiver or other modification relating to
the foregoing, and the syndication of this Agreement both before and after the
date hereof (other than the legal fees of the Agent's counsel incurred in
connection with the initial preparation and execution of the Loan Documents to
be borne by the Agent under that certain fee letter dated July 31, 1997), and
(b) all reasonable costs and expenses of any member of the Bank Group incurred
in connection with the enforcement of the Loan Documents and any other
agreements or security documents executed in connection with or pursuant to any
of the Loan Documents, including, but not limited to, the reasonable fees and
out-of-pocket expenses of counsel for any member of the Bank Group, and local
counsel who may be retained by such counsel, with respect thereto, and the costs
and expenses in connection with the custody, preservation, use or operation of,
or the sale of, or collection from, or other realization upon the sale of, or
collection from, or other realization upon any collateral covered by any of the
other documents executed in connection with or pursuant to any of the Loan
Documents. The agreements of Borrower contained in this SECTION 9.04 shall
survive the termination of the Commitments and the payment of all other amounts
owing hereunder or under any of the other Loan Documents.
Section 9.05. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the Borrower, the Agent, the Banks and
their respective successors and assigns, except that the Borrower may not assign
or transfer its rights hereunder without the prior written consent of the Banks.
Section 9.06. INDEPENDENCE OF COVENANTS. All covenants contained in
the Loan Documents and the Acquisition Loan Documents shall be given independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that such action or condition would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default hereunder of a "Default" or an "Event of
Default" under the Acquisition Credit Agreement or an Event of Default if such
action is taken or condition exists.
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<PAGE>
Section 9.07. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement and the other Loan
Documents or made in writing by the Borrower in connection herewith or
therewith, shall survive the execution and delivery of this Agreement, the Notes
and the other Loan Documents, and the repayment of the Loans. Any investigation
by any member of the Bank Group shall not diminish in any respect whatsoever its
right to rely on such representations and warranties.
Section 9.08. SEPARABILITY. Should any clause, sentence, paragraph,
subsection, Section or Article of this Agreement be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement, and the parties hereto
agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom by the
parties hereto, and the remainder will have the same force and effectiveness as
if such stricken part or parts had never been included herein.
Section 9.09. CAPTIONS. The captions in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatsoever in construing the terms and provisions of this
Agreement.
Section 9.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
Section 9.11. GOVERNING LAW. THIS AGREEMENT (INCLUDING THE VALIDITY
AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK. Chapter 15, Subtitle 3, Title 79, of
the Revised Civil Statutes of Texas, 1925, as amended (relating to revolving
loans and revolving triparty accounts), shall not apply to this Agreement or the
Notes or the transactions contemplated hereby.
Section 9.12. SUBMISSION TO JURISDICTION. (a) The Borrower hereby
irrevocably submits to the non-exclusive jurisdiction of any New York state
court located in the Borough of Manhattan, City and State of New York, or any
federal court located in the Southern District of New York over any action or
proceeding arising out of or relating to this Agreement or any of the other Loan
Documents, and the Borrower irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such New York state or
federal court; PROVIDED, nothing in this SECTION 9.12 is intended to waive the
right of any member of the Bank Group to remove any such action or proceeding
commenced in any such New York state court to an appropriate New York federal
court to the extent the basis for such removal exists under applicable law. The
Borrower hereby irrevocably appoints CT Corporation (the "PROCESS AGENT"), with
an office on the date hereof at 1633 Broadway, New York, New York 10019, as its
agent to receive on behalf of it and its
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properties service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding. Such service
may be made by mailing by certified mail a copy of such process to the
Borrower in care of the Process Agent at the Process Agent's above address,
with a copy to such Person at its address specified herein and the Borrower
hereby irrevocably authorizes and directs the Process Agent to accept such
service on its behalf. As an alternative method of service, the Borrower
also irrevocably consents to the service of any and all process in any such
action or proceeding by the mailing by certified mail of copies of such
process to it at its address specified herein. The Borrower agrees that a
final judgment in any such action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(b) Nothing in this SECTION 9.12 shall affect the right of any member
of the Bank Group to serve legal process in any other manner permitted by law or
affect the right of any member of the Bank Group to bring any action or
proceeding against the Borrower, or such Person's properties, in the courts of
any other jurisdiction.
Section 9.13. LIMITATION ON INTEREST. Each provision in this
Agreement and each other Loan Document is expressly limited so that in no event
whatsoever shall the amount paid, or otherwise agreed to be paid, by the
Borrower for the use, forbearance or detention of the money to be loaned under
this Agreement or any other Loan Document or otherwise (including any sums paid
as required by any covenant or obligation contained herein or in any other Loan
Document which is for the use, forbearance or detention of such money), exceed
that amount of money which would cause the effective rate of interest to exceed
the Highest Lawful Rate, and all amounts owed under this Agreement and each
other Loan Document shall be held to be subject to reduction to the effect that
such amounts so paid or agreed to be paid which are for the use, forbearance or
detention of money under this Agreement or such Loan Document shall in no event
exceed that amount of money which would cause the effective rate of interest to
exceed the Highest Lawful Rate. To the extent that the Highest Lawful Rate
applicable to a Bank is at any time determined by Texas law, such rate shall be
the "indicated rate ceiling" described in Section (a)(1) of Article 1.04 of
Chapter 1, Subtitle 1, Title 79, of the Revised Civil Statutes of Texas, 1925,
as amended; PROVIDED, to the extent permitted by such Article, the Banks from
time to time by notice from the Agent to Borrower may revise the aforesaid
election of such interest rate ceiling as such ceiling affects the then-current
or future balances of the Loans outstanding under the Notes. Notwithstanding
any provision in this Agreement or any other Loan Document to the contrary, if
the maturity of the Notes or the obligations in respect of the other Loan
Documents are accelerated for any reason, or in the event of prepayment of all
or any portion of the Notes or the obligations in respect of the other Loan
Documents by the Borrower or in any other event, earned interest on the Loans
and such other obligations of the Borrower may never exceed the maximum amount
permitted by applicable law, and any unearned interest otherwise payable under
the Notes or the obligations in respect of the other Loan Documents that is in
excess of the maximum amount permitted by applicable law shall be cancelled
automatically as of the date of such acceleration or prepayment or other such
event and, if theretofore paid, shall be credited on the principal of the Notes
or, if the principal of the Notes has been paid in full, held as collateral for
any contingent or unmatured obligation of the Borrower, or,
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<PAGE>
if there are no contingent or unmatured obligations of the Borrower then
outstanding, refunded to the Borrower. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the Highest
Lawful Rate, the Borrower and the Banks shall, to the maximum extent
permitted by applicable law, amortize, prorate, allocate and spread, in equal
parts during the period of the actual term of this Agreement, all interest at
any time contracted for, charged, received or reserved in connection with
this Agreement.
Section 9.14. INDEMNIFICATION. The Borrower agrees to indemnify,
defend and hold the Agent and each member of the Bank Group, their Affiliates
and their officers, employees, agents, directors, shareholders and Affiliates
(collectively, "INDEMNIFIED PERSONS") harmless from and against any and all
loss, liability, damage, judgment, claim, deficiency or reasonable expense
(including interest, penalties, reasonable attorneys' fees and amounts paid in
settlement) incurred by or asserted against any Indemnified Person arising out
of, in any way connected with, or as a result of (i) the execution and delivery
of this Agreement and the other documents contemplated hereby, the performance
by the parties hereto and thereto of its obligations hereunder and thereunder
(including but not limited to the making of the Commitments of each Bank) and
consummation of the transactions contemplated hereby and thereby, (ii) the
actual or proposed use of the proceeds of the Loans, (iii) any violation by the
Borrower or any of its Subsidiaries of any Requirement of Law, including but not
limited to Environmental Laws, (iv) ownership by the Bank Group of any real or
personal property following foreclosure under the Security Documents, to the
extent such losses, liabilities, damages, judgments, claims, deficiencies or
expenses arise out of or result from the presence, disposal or release of any
hazardous materials or solid waste in, on or under such property during the
period owned, leased or operated by the Borrower or any of its Subsidiaries,
including, without limitation, losses, liabilities, damages, judgments, claims,
deficiencies or expenses which are imposed under Environmental Laws upon Persons
by virtue of their ownership, (v) any member of the Bank Group being deemed an
operator of any such real or personal property in circumstances in which no
member of the Bank Group is generally operating or generally exercising control
over such property, to the extent such losses, liabilities, damages, judgments,
claims, deficiencies or expenses arise out of or result from any hazardous
materials or solid waste located in, on or under such property or (vi) any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnified Person is a party thereto; PROVIDED that such
indemnity shall not apply to any such losses, claims, damages, liabilities or
related expenses that are determined by a court of competent jurisdiction by
final and nonappealable judgment to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. WITHOUT LIMITING ANY PROVISION
OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, IT IS THE EXPRESS
INTENTION OF THE BORROWER THAT EACH INDEMNIFIED PERSON SHALL BE INDEMNIFIED AND
HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DEFICIENCIES,
JUDGMENTS OR REASONABLE EXPENSES ARISING OUT OF OR RESULTING FROM THE ORDINARY
NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH INDEMNIFIED PERSON. THE
OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 9.14 SHALL SURVIVE THE
TERMINATION OF THIS AGREEMENT.
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<PAGE>
Section 9.15. CONFIDENTIALITY. In the event that the Borrower
provides to the Agent or the Banks written confidential information belonging to
the Borrower, if the Borrower shall denominate such information in writing as
"confidential," the Agent and the Banks shall thereafter maintain such
information in confidence in accordance with the standards of care and diligence
that each utilizes in maintaining its own confidential information. This
obligation of confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of the public
domain without the Agent or the Banks breaching their obligation of confidence
to the Borrower, (iii) are previously known by the Agent or the Banks from some
source other than the Borrower, (iv) are hereafter obtained by or available to
the Agent or the Banks from a third party who owes no obligation of confidence
to the Borrower with respect to such information or through any other means
other than through disclosure by the Borrower, (vi) are disclosed with the
Borrower's consent, (vii) must be disclosed either pursuant to any Requirements
of Law or to Persons regulating the activities of the Agent or the Banks, or
(viii) as may be required by law or regulation or order of any Governmental
Authority in any judicial, arbitration or governmental proceeding. Further, the
Agent or a Bank may disclose any such information to any other Bank, any
independent petroleum engineers or consultants, any independent certified public
accountants, any legal counsel employed by such Person in connection with this
Agreement or any Security Document, including without limitation, the
enforcement or exercise of all rights and remedies thereunder, or any assignee
or participant (including prospective assignees and participants) in the Loans;
provided, however, that the Agent or Bank imposes on the Person to whom such
information is disclosed the same obligation to maintain the confidentiality of
such information as is imposed upon it hereunder. Notwithstanding anything to
the contrary provided herein, this obligation of confidence shall cease three
(3) years from the date the information was furnished, unless the Borrower
requests in writing at least thirty (30) days prior to the expiration of such
three year period, to maintain the confidentiality of such information for an
additional three year period. The Borrower waives any and all other rights
it may have to confidentiality as against the Agent and the Banks arising by
contract, agreement, statute or law except as expressly stated in this
SECTION 9.15.
Section 9.16. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by its officers thereunto duly authorized as of the date first above
written.
COSTILLA ENERGY, INC.
By: /s/ Michael J. Grella
----------------------------------
Name: Michael J. Grella
Title: President
BANKERS TRUST COMPANY, as Agent
By: /s/
----------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
as Co-Agent
By: /s/
----------------------------------
Name:
Title:
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<PAGE>
Bank:
-----
Commitment: $37,500,000.00 BANKERS TRUST COMPANY
By: /s/
----------------------------------
Name:
Title:
Address:
130 Liberty Street, 14th Floor
New York, New York 10006
Telecopy No.: (212) 250-6029
DOMESTIC LENDING OFFICE
Bankers Trust Company
130 Liberty Street, 14th Floor
New York, New York 10006
EURODOLLAR LENDING OFFICE
Bankers Trust Company
130 Liberty Street, 14th Floor
New York, New York 10006
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<PAGE>
Bank:
-----
Commitment: $37,500,000.00 UNION BANK OF CALIFORNIA, N.A.
By: /s/
----------------------------------
Name:
Title:
Address:
500 North Akard, Suite 4200
Dallas, Texas 75201
Telecopy No.: 214-922-4209
DOMESTIC LENDING OFFICE
Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, California 90071
EURODOLLAR LENDING OFFICE
Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, California 90071
REVOLVING FACILITY
<PAGE>
ANNEX A
DEFINITIONS
"ACQUISITION" means the transfer of the Acquisition Properties by
Ballard Petroleum LLC to the Borrower.
"ACQUISITION CREDIT AGREEMENT" means that certain Acquisition
Credit Agreement by and among, the Borrower, the Agent and the Banks dated of
even date herewith as the same may from time to time be amended,
supplemented, restated or modified and in effect.
"ACQUISITION DOCUMENTS" means, collectively, the Purchase and Sale
Agreement by and between the Borrower and Ballard Petroleum LLC dated as of
July 2, 1997 and all documents, assignments and agreements related thereto.
"ACQUISITION FACILITY COMMITMENT" means, as of any date, the amount
equal to the sum of the Banks' commitments under the Acquisition Credit
Agreement.
"ACQUISITION LOAN DOCUMENTS" means the Loan Documents (as defined
in the Acquisition Credit Agreement).
"ACQUISITION MORTGAGE" means the Mortgage-Collateral Real Estate
Mortgage, Deed of Trust, Line of Credit Mortgage, Assignment of Production,
Security Agreement and Financing Statement of even date herewith executed by
the Borrower in favor of the Agent covering the Acquisition Properties, as
same may be amended, supplemented, restated or otherwise modified from time
to time.
"ACQUISITION PROPERTIES" means the Oil and Gas Properties and
other related assets owned by Ballard Petroleum LLC, that are to be sold and
assigned to the Borrower under the terms of the Acquisition Documents.
"AFFILIATE" means, when used with respect to any Person, any other
Person (including any member of the immediate family of any such natural
person) who directly or indirectly beneficially owns or controls five percent
(5%) or more of the total voting power of shares of capital stock of such
Person having the right to vote for directors under ordinary circumstances,
any person controlling, controlled by or under common control with any such
person. As used in this definition, "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
REVOLVING FACILITY
<PAGE>
"AGENT" has the meaning specified in the introduction to this
Agreement.
"AGGREGATE MAXIMUM COMMITMENT" means $75,000,000 as such amount may
be reduced in accordance with SECTION 2.06(a).
"AGREEMENT" means this Amended and Restated Credit Agreement, as
the same may from time to time be amended, supplemented, restated or modified
and in effect.
"APPLICABLE LENDING OFFICE" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of a Base Rate Loan and such
Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Loan.
"APPLICABLE MARGIN" has the meaning specified in SECTION 2.08.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by a Bank and an Eligible Assignee and accepted by the Agent, in
substantially the form of EXHIBIT 9.02 hereto.
"BANK GROUP" means, collectively, the Agent, the Co-Agent and the
Banks.
"BANK GROUP DERIVATIVES" means any Derivative entered into between
the Borrower and any member of the Bank Group.
"BANKS" has the meaning specified in the introduction to this
Agreement.
"BASE RATE" means, as of any particular date, the rate per annum
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum) equal
to the greater of (a) the Prime Rate per annum in effect on such day, and (b)
the Federal Funds Rate in effect on such day plus 1/2 of 1% per annum.
"BORROWER" has the meaning specified in the introduction to this
Agreement.
"BORROWING" means a group of Loans of a single Type made by the
Banks, or Converted into such, as applicable, on a single date and, in the
case of a Eurodollar Rate Loan, as to which a single Interest Period is in
effect.
"BORROWING BASE" means as of the date of determination an amount
equal to the amount determined and in effect in accordance with SECTION 2.04.
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<PAGE>
"BORROWING BASE DEFICIENCY" means, the excess of (i) the Credit
Outstanding as of any redetermination of the Borrowing Base pursuant to
SECTION 2.04 over (ii) the Borrowing Base as of such date.
"BORROWING DATE" means, when used with respect to the initial
funding of any Borrowing, the date upon which the proceeds of such Borrowing
are to be made available to the Borrower.
"BORROWING REQUEST" has the meaning specified in SECTION 2.02.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in New York and, if the applicable Business
Day relates to any Eurodollar Rate Loans, on which dealings are carried on in
the applicable Eurodollar interbank market.
"CAPITAL EXPENDITURES" means, as to the Borrower and its
Subsidiaries on a consolidated basis and for any period, the expenditures and
costs made by the Borrower and its Subsidiaries during such period (whether
paid in cash or accrued as liabilities during that period and including that
portion of Capital Leases that is capitalized on the consolidated balance
sheet of the Borrower and its Subsidiaries) that, in accordance with
generally accepted accounting principles consistently applied, are costs
incurred in the acquisition or exploration of Oil and Gas Properties, or are
required to be included in or reflected by the other property, plant or
equipment or similar fixed asset accounts reflected in the consolidated
balance sheet of such Person.
"CAPITAL LEASE" means, as to the Borrower and its Subsidiaries, any
lease or rental agreement in respect of which such Person's obligations as
lessee under such lease or rental agreement constitute obligations which
shall have been in accordance with generally accepted accounting principles
consistently applied, capitalized on the balance sheet of such Person.
"CERCLA" shall have the meaning provided in the definition of
"Environmental Laws."
"CHANGE OF CONTROL" means any of (a) the acquisition by any Person
or two or more Persons (excluding underwriters in the course of their
distribution of voting stock in an underwritten public offering) acting in
concert, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Security Exchange Act of 1934, as amended) of 35% or
more of the outstanding shares of voting stock of the Borrower, (b) 50% or
more of the members of the Board of Directors of the Borrower on any date
shall not have been (i) members of the Board of Directors of the Borrower on
the date 12 months prior to such date or (ii) approved (by recommendation,
nomination, election or otherwise) by Persons who constitute at least a
majority of the members of the Board of Directors of the Borrower as
constituted on the date 12 months prior to such date, (c) all
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or substantially all of the assets of the Borrower are sold in a single
transaction or series or related transactions to any Person or (d) the
Borrower merges or consolidates with or into any other Person, with the
effect that immediately after such transaction the stockholders of the
Borrower immediately prior to such transaction hold less than 75% of the
total voting power entitled to vote in the election of directors, managers or
trustees of the Person surviving such transaction.
"CO-AGENT" has the meaning specified in the introduction to this
Agreement.
"COMMITMENT" means as to any Bank, as of the date of determination,
an amount equal to such Bank's Commitment Percentage of the lesser of (a) the
Aggregate Maximum Commitment, (b) the Reducing Commitment Amount, and (c) the
Borrowing Base then in effect.
"COMMITMENT PERCENTAGE" means, as to any Bank, a percentage
determined pursuant to the following formula: (C DIVIDED BY T) x 100 = CP;
where C is such Bank's commitment set forth on the signature page of such
Bank hereto (without giving effect to any termination of the Commitments
pursuant to SECTION 7.01), T is the Aggregate Maximum Commitment (without
giving effect to any termination of the Commitments pursuant to SECTION 7.01)
and CP is such percentage as modified from time to time to reflect any
assignments permitted by SECTION 9.02.
"COMMITMENT REDUCTION DATE" means each Quarterly Payment Date,
commencing September 30, 1999 and continuing through June 30, 2002.
"CONSOLIDATED TANGIBLE NET WORTH" means, the sum of the par value
or stated value of the capital stock (excluding treasury stock), capital in
excess of par or stated value of shares of capital stock, retained earnings
(or minus accumulated deficit) and any other account which, in accordance
with generally accepted accounting principles consistently applied,
constitute stockholders' equity of the Borrower and its Subsidiaries
determined on a consolidated basis, excluding any effect of foreign currency
translation computed pursuant to Financial Accounting Standards Board
Statement No. 52, as amended, supplemented or modified from time to time, or
otherwise in accordance with generally accepted accounting principles
consistently applied LESS the amount of any items which are treated as
intangible assets in accordance with generally accepted accounting principles
consistently applied.
"CONVERSION DATE" means, when used with respect to the Conversion
of any group of Loans, the date such Loans are to be Converted into Loans of
another Type pursuant to SECTION 2.02 or otherwise in accordance with ARTICLE
II.
"CONVERSION NOTICE" has the meaning specified in SECTION 2.02(c).
-4- REVOLVING FACILITY
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"CONVERT," "CONVERSION" AND "CONVERTED" each refers to a conversion
of Loans of one Type into Loans of another Type pursuant to SECTION 2.02(c)
or otherwise in accordance with ARTICLE II.
"COSTILLA REDECO" means Costilla Redeco Energy, L.L.C., a Texas
limited liability company.
"CREDIT OUTSTANDING" means, at any time, without duplication, the
aggregate unpaid principal amount of the Loans.
"DEFAULT" means an Event of Default or an event which with the
giving of notice or the lapse of time or both could, unless cured or waived,
become an Event of Default.
"DEFAULT RATE" has the meaning specified in SECTION 2.08.
"DERIVATIVES" means, with respect to any Person, foreign exchange
transactions and commodity, currency and interest rate swaps, floors, caps,
collars, forward sales, options, other similar transactions and combinations
of the foregoing.
"DOLLARS" and "$" each means lawful money of the United States.
"DOMESTIC LENDING OFFICE" means, with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office" below its name
on SCHEDULE I hereto, or such other office of such Bank as such Bank may from
time to time specify to the Borrower and the Agent.
"EBITDA" means, as to the Borrower and its Subsidiaries on a
consolidated basis and for any period, the sum of the following: (a) the Net
Income for such period, (b) all non-cash charges (such as deferred taxes,
depreciation and depletion expense and amortization of intangibles and
capitalized debt issuance costs) which were deducted from gross income in
determining such Net Income for such period, (c) the amount of Interest
Expense which was deducted in the calculation of such Net Income for such
period, (d) the amount of income taxes deducted in the calculation of such
Net Income for such period, (e) exploration and abandonment costs and (f)
extraordinary loss resulting from extinguishment of indebtedness taken into
account in determining the Net Income for such period.
"EFFECTIVE DATE" means the date on which the conditions set forth
in ARTICLE III to this Agreement are first satisfied.
"ELIGIBLE ASSIGNEE" means (i) any Bank or any Affiliate of any
Bank; (ii) a commercial bank organized under the laws of the United States,
or any state thereof, having deposits
-5- REVOLVING FACILITY
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rated in either of the two highest generic letter rating categories (without
regard to subcategories) from either Standard & Poor's Corporation or Moody's
Investors Service, Inc.; (iii) a commercial bank organized under the laws of
any other country which is a member of the Organization for Economic
Cooperation and Development ("OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, provided that
such bank is acting through a branch or agency located in the country in
which it is organized or another country which is also a member of the OECD;
(iv) the central bank of any country which is a member of the OECD; (v) any
other Person which is an "accredited investor" (as defined in Regulation D of
the Securities Act of 1933) that extends credit or buys loans as one of its
businesses, including insurance companies mutual funds and lease financing
companies; and (vi) any other financial institution approved by the Agent
and, so long as no Default exists, the Borrower.
"ENVIRONMENTAL LAWS" means federal, state or local laws, rules or
regulations, and any judicial, arbitral or administrative interpretations
thereof, including, without limitation, any judicial, arbitral or
administrative order, judgment, permit, approval, decision or determination
pertaining to health, safety or the environment in effect at the time in
question, including, without limitation, the Clean Air Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended ("CERCLA"), the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act, as amended, the Resource Conservation and
Recovery Act, as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendment and
Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, comparable state and local laws, and other
environmental conservation and protection laws. The terms "hazardous
substance," "release" and "threatened release" shall have the meanings
specified in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") shall have the meanings specified in RCRA and the term "oil"
shall have the meaning specified in the Oil Pollution Act, as amended
("OPA"); PROVIDED, that (i) in the event either CERCLA, RCRA or OPA is
amended so as to broaden the meaning of any term defined thereby, such
broader meaning shall apply subsequent to the effective date of such
amendment with respect to all provisions of this Agreement, (ii) to the
extent the laws of the state or states in which any Property of the Borrower
or its Subsidiaries is located establish a meaning for "hazardous substance,"
"release," "threatened release," "solid waste," "disposal" or "oil" which is
broader than that specified in CERCLA, RCRA or OPA, such broader meaning
shall apply.
"ERISA" means the Employee Retirement Income Security Act of 1974,
and any successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time.
"ERISA AFFILIATE" means any (i) corporation which is a member of
the same controlled group of corporations (within the meaning of Section
414(b) of the Internal Revenue Code) as the Borrower, (ii) partnership or
other trade or business (whether or not incorporated) under
-6- REVOLVING FACILITY
<PAGE>
common control (within the meaning of Section 414(c) of the Internal Revenue
Code) with the Borrower, (iii) member of the same affiliated service group
(within the meaning of Section 414(m) of the Internal Revenue Code) as the
Borrower, any corporation described in clause (i) above or any partnership or
trade or business described in clause (ii) above or (iv) other Person
required to be aggregated with the Borrower or an ERISA Affiliate thereof, as
defined above, pursuant to Section 414(o) of the Internal Revenue Code.
"EUROCURRENCY LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor category of liabilities under Regulation D), as in effect from time
to time.
"EURODOLLAR EVENT" has the meaning specified in SECTION 2.14(a).
"EURODOLLAR LENDING OFFICE" means, with respect to any Bank, the
office of such Bank specified as its "Eurodollar Lending Office" below its
name on SCHEDULE I hereto (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Bank as such Bank may from time
to time specify to the Borrower and the Agent.
"EURODOLLAR RATE" means, with respect to each Interest Period for
each Eurodollar Rate Loan, (i) the arithmetic average (rounded to the
nearest 1/16 of 1%) of the offered quotation to first-class banks in the
interbank Eurodollar market by the Agent for US dollar deposits of an amount
in same day funds comparable to the outstanding principal amount of the
Eurodollar Rate Loan of the Agent for which an interest rate is then being
determined with maturities comparable to the Interest Period to be applicable
to such Eurodollar Rate Loan, determined as of 10:00 a.m. (New York time) on
the date which is two Business Days prior to the commencement of such
Interest Period, divided (and rounded upward to the next whole multiple of
1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum
rate of all reserve requirements (including without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of Eurocurrency Liabilities.
"EURODOLLAR RATE BORROWING" means a Borrowing consisting of
Eurodollar Rate Loans.
"EURODOLLAR RATE LOAN" means a Loan that the Borrower has
designated, or is deemed to have designated, as such in accordance with
ARTICLE II.
"EVENTS OF DEFAULT" has the meaning specified in SECTION 7.01.
"EXCEPTED LIENS" has the meaning specified in SECTION 6.02.
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"EXECUTION DATE" means the date upon which this Agreement shall
have been executed by the Borrower, the Banks, the Agent and the Co-Agent.
"EXTENSION REQUEST" has the meaning specified in Section 2.03.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is
not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
federal, state, province, city, town, municipality, county, local or other
political subdivision thereof or thereto and any court, tribunal, department,
commission, board, bureau, instrumentality, agency or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"GUARANTIES" means, as to any Person, all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or, in effect,
guaranteeing any Indebtedness, dividend or other obligation, of any other
Person (the "primary obligor') in any manner, whether directly or indirectly,
including all obligations incurred through an agreement, contingent or
otherwise, by such Person: (a) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (b) to advance or
supply funds (i) for the purchase or payment of such Indebtedness or
obligation or (ii) to maintain working capital or other balance sheet
condition or otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligation, (c) to lease property or to
purchase securities or other property or services primarily for the purpose
of assuring the owner of such Indebtedness or obligation of the ability of
the primary obligor to make payment of the Indebtedness or obligation or (d)
otherwise to assure the owner of the Indebtedness or obligation of the
primary obligor against loss in respect thereof. For the purposes of all
computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to
the principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum
aggregate amount of such obligation, liability or dividend.
"HIGHEST LAWFUL RATE" means, as to any Bank, at the particular time
in question, the maximum nonusurious rate of interest which, under applicable
law, such Bank is then permitted to
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<PAGE>
charge the Borrower on the Loans or the other obligations of the Borrower
hereunder, and as to any other Person, at the particular time in question,
the maximum nonusurious rate of interest which, under applicable law, such
Person is then permitted to charge with respect to the obligation in
question. If the maximum rate of interest which, under applicable law, the
Banks are permitted to charge the Borrower on the Loans or the other
obligations of the Borrower hereunder shall change after the date hereof, the
Highest Lawful Rate shall be automatically increased or decreased, as the
case may be, as of the effective time of such change without notice to the
Borrower or any other Person.
"HYDROCARBON INTEREST" 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, operating rights, net
profit interests, production payment interests and other similar types of
interests, including any reserved or residual interest 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, and all other
substances produced in association therewith.
"INDEBTEDNESS" of any Person shall mean, without duplication: (a)
any obligation of such Person for borrowed money, including: (i) any
obligation of such Person evidenced by bonds, debentures, notes or other
similar debt instruments and (ii) any obligation for borrowed money which is
non-recourse to the credit of such Person but which is secured by any asset
of such Person, (b) all obligations of such Person under conditional sale or
other title retention agreements relating to property purchased by such
Person, (c) any obligation of such Person for the deferred purchase price of
any property or services, except accounts payable arising in the ordinary
course of such Person's business that have been outstanding less than ninety
(90) days since the due date, (d) all liabilities appearing on its balance
sheet in accordance with generally accepted accounting principles in respect
of Capital Leases, (e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account by
banks and other financial institutions (whether or not representing
obligations for borrowed money), (f) liabilities in respect of Derivatives,
(g) Guaranties by such Person to the extent required pursuant to the
definition thereof, and (h) any Indebtedness of another Person secured by a
Lien on any asset of such first Person, whether or not such Indebtedness is
assumed by such first Person.
"INDENTURE" means that certain indenture by and between the
Borrower as issuer and State Street Bank & Trust Company as trustee, pursuant
to which Borrower issued the Senior Unsecured Notes.
"INITIAL COMMITMENT PERIOD" means the period from the Effective
Date to September 30, 1999, as such may be extended from time to time
pursuant to SECTION 2.03.
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"INITIAL RESERVE REPORT" has the meaning specified in SECTION
3.01(e).
"INTEREST EXPENSE" means, for any period, the aggregate of all
interest expense deducted in the calculation of the Net Income for such
period excluding amortized loan fees.
"INTEREST PERIOD" means, for each Eurodollar Rate Loan comprising
part of the same Borrowing, the period commencing on the date of such
Eurodollar Rate Loan or the date of the Conversion of such Eurodollar Rate
Loan, as applicable, and ending on the last day of the period selected by the
Borrower pursuant to the provisions below. The duration of each such
Interest Period shall be 1, 2, 3 or 6 months; PROVIDED, that:
(i) the Borrower may not select any Interest Period for a Loan
that ends after the Maturity Date;
(ii) Interest Periods commencing on the same date for Loans
comprising part of the same Borrowing shall be of the same duration; and
(iii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day,
PROVIDED that if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time (or any successor statute), and the regulations
promulgated thereunder.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or
capital lease, upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust
agreements and all similar arrangements).
"LOAN" has the meaning specified in Section 2.01. Each Loan shall
be either a Base Rate Loan or a Eurodollar Rate Loan (each of which shall be
a "TYPE" of Loan).
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Security
Documents, any agreement evidencing any Bank Group Derivatives, and all other
agreements, instruments and documents, including, without limitation,
security agreements, notes, warrants, guaranties, mortgages, deeds of trust,
subordination agreements, pledges, powers of attorney, consents,
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<PAGE>
assignments, collateral assignments, letter agreements, contracts, notices,
leases, amendments, financing statements, letter of credit applications and
reimbursement agreements, and all other writings heretofore, now, or
hereafter executed by or on behalf of the Borrower or any of its
Subsidiaries, any of their respective Affiliates or any other Person in
connection with or relating to this Agreement, together with all agreements,
instruments and documents referred to therein or contemplated thereby.
"MAJORITY BANKS" means at any time (a) the Agent, regardless of the
amounts held and (b) Banks holding at least seventy-five percent (75%) of the
then aggregate unpaid principal amount of the Loans or, if no Loans are
outstanding, Banks having Commitment Percentages in the aggregate equal to at
least seventy-five percent (75%).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties
of the Borrower or any of its Subsidiaries, or (b) the ability of the
Borrower or any of its Subsidiaries to perform their obligations under this
Agreement and the other Loan Documents, or (c) the validity or enforceability
of this Agreement or the other Loan Documents or (d) the value of the
Borrower's interest in its Oil and Gas Properties.
"MATURITY DATE" means August 28, 2002.
"MORTGAGE" means the Amended and Restated Mortgage-Collateral Real
Estate Mortgage, Deed of Trust, Line of Credit Mortgage, Assignment of
Production, Security Agreement and Financing Statement of even date herewith
executed by the Borrower in favor of the Agent, covering certain of the
Borrower's existing Oil and Gas Properties, as same may be amended,
supplemented, restated or otherwise modified from time to time.
"MORTGAGED PROPERTY" means the Property owned by the Borrower which
is subject to the Liens, privileges, priorities and security interest
existing and to exist under the terms of the Security Documents.
"MULTIEMPLOYER PLAN" means any employee benefit plan that is a
"multiemployer plan," as such term is defined in section 4001(a)(3) of ERISA.
"NET INCOME" means, for any period, the consolidated net earnings
or loss of the Borrower and its Subsidiaries for such period, determined in
accordance with generally accepted accounting principles.
"NET PROCEEDS" means with respect to any sale of an interest in an
asset of the Borrower or any of its Subsidiaries (other than sales of
Hydrocarbon production in the ordinary course of business and sales of
obsolete or worn-out equipment in the ordinary course of business),
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the gross proceeds thereof received by the Borrower or such Subsidiary (or,
if such Subsidiary is not a Wholly Owned Subsidiary a proportionate share of
such gross proceeds based upon the Borrower's aggregate direct and indirect
ownership interest in such Subsidiary), less the reasonable fees, taxes and
expenses paid by the Borrower or such Subsidiary and directly related to the
consummation of such transaction.
"NOTES" means the Revolving Notes of the Borrower payable to the
order of each Bank, in substantially the form of EXHIBIT 2.05 hereto,
evidencing the aggregate indebtedness of the Borrower to such Bank resulting
from the Loans made by such Bank, together with all modifications,
extensions, renewals and rearrangements thereof from time to time in effect.
"OBLIGATIONS" means all obligations, Indebtedness and liabilities
of the Borrower or any of its Subsidiaries to any member of the Bank Group,
now existing or hereafter arising under or in connection with any Loan
Document, whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several, including the
obligations, Indebtedness and liabilities of the Borrower under the Notes or
otherwise pursuant to the terms of the other Loan Documents, and all interest
accruing thereon (including any interest that accrues after the commencement
of any proceeding by or against the Borrower or any other Person under any
bankruptcy, insolvency, liquidation, moratorium, receivership, reorganization
or other debtor relief law) and all attorneys' fees and other expenses
incurred in the collection or enforcement thereof.
"OIL AND GAS PROPERTIES" means Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests;
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 have jurisdiction) which may affect all or any portion
of the Hydrocarbon Interests; all operating agreements, contracts and other
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 Interest; all Hydrocarbons in and under and
which may be produced and saved or attributable to the Hydrocarbon Interests,
the lands covered thereby and all oil in tanks and all rents, issues,
profits, proceeds, products, revenues and other income from or attributable
to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or incidental to
the Hydrocarbon Interests, Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any
of such Hydrocarbon Interests or Property (excluding drilling rigs,
automotive equipment 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,
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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.
"OTHER BENEFIT PLAN" means any employee benefit plan, within the
meaning of Section 3(3) of ERISA, employment or other compensation plan,
program or contract, including, without limitation, a "cafeteria plan" under
Section 125 of the Internal Revenue Code, under any of which the Borrower or
any ERISA Affiliate or Subsidiary has any liability or obligation, but
excluding any Pension Plan or Multiemployer Plan.
"OTHER TAXES" has the meaning specified in SECTION 2.12.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"PENSION PLAN" means any employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Internal Revenue Code, and in respect of which the
Borrower, or any ERISA Affiliate. or Subsidiary is an "employer" as defined
in Section 3(5) of ERISA or has any liability or obligations.
"PERMITTED INVESTMENTS" means any of the following investments: (a)
securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (PROVIDED that the full faith
and credit of the United States of America is pledged in support thereof)
having a maturity not exceeding thirty (30) days from the date of
acquisition; (b) time deposits and certificates of deposit of any commercial
bank of recognized standing having capital and surplus in excess of
$500,000,000, PROVIDED that the long-term senior unsecured debt of such bank
is rated at least A+ or the equivalent thereof by Standard & Poor's Rating
Group (a division of McGraw Hill) ("S&P") or at least A1 or the equivalent
thereof by Moody's Investor Services, Inc. ("MOODY'S"), having a maturity not
exceeding thirty (30) days from the date of acquisition; (c) commercial paper
issued by the parent corporation of any commercial bank or by any domestic
corporation, PROVIDED that such commercial paper is rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, having a maturity not exceeding thirty (30) days from the date of
acquisition; and (d) investments in money market funds having a rating in the
highest rating category by S&P or Moody's for which Bankers Trust Company or
any Affiliates is investment manager or advisor.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or other entity, or Governmental Authority.
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"PRIME RATE" means, the rate per annum which BTCo announces from
time to time as its "prime lending rate," the Prime Rate to change when and
as such prime lending rate changes. The Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate actually charged to
any customer. BTCo may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate.
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"PROVED PRODUCING RESERVES" means Proved Reserves that are
recoverable from existing wells with current operating methods and expenses
and are producing.
"PROVED RESERVES" means recoverable Hydrocarbon reserves that have
been proved to a high degree of certainty by analysis of the producing
history of a reservoir and/or by volumetric analysis of adequate geological
and engineering data. Commercial productivity has been established by actual
production, successful testing, or in certain cases by favorable core
analyses and electrical-log interpretation when the producing characteristics
of the formation are known from nearby fields.
"QUARTERLY PAYMENT DATE" means the last Business Day of each of
September, December, March and June.
"REDUCING COMMITMENT AMOUNT" means, from the Effective Date until
the day immediately prior to the first Commitment Reduction Date, the amount
of the then effective Borrowing Base, and at any time thereafter, the amount
of the Borrowing Base in effect as of the day immediately prior to the first
Commitment Reduction Date as such amount is reduced pursuant to SECTION
2.06(b).
"REGISTER" has the meaning specified in SECTION 9.02.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System (respecting margin credit extended by banks), as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System (respecting borrowers who obtain margin credit) as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
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"REQUIREMENTS OF ENVIRONMENTAL LAWS" means the requirements of any
applicable Environmental Law relating to or affecting the Borrower or any of
its Subsidiaries or the condition or operation of such Person's business or
its properties, both real and personal.
"REQUIREMENTS OF LAW" shall mean any applicable federal, state or
local law, rule or regulation, permit or other binding determination of any
Governmental Authority.
"RESERVE REPORT" means each of the Initial Reserve Report and each
report delivered to the Agent and the Banks under SECTION 5.10(a) or 5.10(b).
"RESPONSIBLE OFFICER" means, as to any Person, the Chief Executive
Officer, the President, the Chief Financial Officer or the Treasurer of such
Person, or any employee of such Person designated in writing as a Responsible
Officer by the Chief Executive Officer of such Person.
"RESTRICTED DISBURSEMENT" means, as to any Person, any: (a) loan or
advance to or investment in any other Person, or any commitment to make such
a loan, advance or investment in any other Person; (b) acquisition by such
Person of or investments by such Person in the debt of or equity of, and any
capital contribution (including capital contributions by transfer of assets
or services) by such Person to, another Person; (c) purchase, redemption or
exchange of any shares of any class of capital stock of such Person or any
options, rights or warrants to purchase any such stock or setting aside funds
for any such purpose; (d) declaration or payment of any dividends on shares
of any class of capital stock of such Person (other than dividends payable in
capital stock, or rights to acquire capital stock, of such Person); (e)
distribution to a sinking fund or other payment or distribution made to or
for the benefit of any holders of the capital stock of such Person with
respect to such capital stock (other than distributions payable in capital
stock, or rights to acquire capital stock, of such Person) or setting aside
funds for any such purpose; and (f) payment, purchase or redemption by such
Person of Indebtedness owing by such Person to any of its Affiliates.
"SCHEDULED REDETERMINATION DATE" has the meaning specified in
SECTION 2.04(d).
"SEC" means the Securities and Exchange Commission.
"SECURITY DOCUMENTS" means the Mortgage, the Acquisition Mortgage
and, when executed and delivered, as each may be amended from time to time,
and any other security agreement or pledge agreement, hypothecation
agreement, fixed charge agreement, floating charge agreement, deed of trust,
mortgage or any other agreement, in form and substance satisfactory to the
Agent and the Majority Banks, executed and delivered by the Borrower or any
other Person in connection with or pursuant to this Agreement for the purpose
of creating a Lien on any of its property or assets, as it may be modified or
amended from time to time.
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"SENIOR UNSECURED NOTES" means the $100,000,000 of Senior Unsecured
Notes due 2006 issued under the Indenture.
"SUBSIDIARY" means, as to any Person, any other Person in which
such Person or one or more of its Subsidiaries or such Person and one or more
of its Subsidiaries owns sufficient equity or voting interests to enable it
or them (as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of such
other Person, and any partnership or joint venture if either (i) more than a
50% interest in the profits or capital thereof is owned by such Person or one
or more of its Subsidiaries or (ii) such Person or one or more of its
Subsidiaries is a general partner in such partnership or joint venture.
"TAXES" has the meaning specified in SECTION 2.12(a).
"TOTAL COMMITMENT" means, as of any date, an amount equal to the
sum of the Banks' Commitments, as of such date.
"TYPE" has the meaning set forth in the definition of Loan.
"UNSCHEDULED REDETERMINATION" has the meaning specified in Section
2.04(d).
"UNSCHEDULED REDETERMINATION DATE" has the meaning specified in
SECTION 2.04(d).
"WHOLLY OWNED SUBSIDIARY" means any Subsidiary of the Borrower of
which all the outstanding voting securities normally entitled to vote in the
election of directors are owned, directly or indirectly, by the Borrower.
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EXHIBIT 10.2
ACQUISITION CREDIT AGREEMENT
--------------------
COSTILLA ENERGY, INC.,
AS THE BORROWER,
THE BANKS NAMED HEREIN,
AND
BANKERS TRUST COMPANY,
AS AGENT
AND
UNION BANK OF CALIFORNIA, N.A.,
AS CO-AGENT
--------------------
DATED AS OF AUGUST 28, 1997
ACQUISITION FACILITY
<PAGE>
TABLE OF CONTENTS
PRELIMINARY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . 1
Section 1.02. Accounting Terms . . . . . . . . . . . . . . . . . . . . . 1
Section 1.03. Computation of Time Periods. . . . . . . . . . . . . . . . 1
Section 1.04. References, Etc. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II COMMITMENTS AND TERMS OF CREDIT. . . . . . . . . . . . . . . . . . 2
Section 2.01. Commitments. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.02. Borrowing Procedures; Conversions. . . . . . . . . . . . . 2
Section 2.03. Borrowing Base . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.04. The Notes. . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.05. Mandatory Repayment of Loans . . . . . . . . . . . . . . . 5
Section 2.06. Interest Accrual, Payments . . . . . . . . . . . . . . . . 6
Section 2.07. Optional Prepayments . . . . . . . . . . . . . . . . . . . 7
Section 2.08. Payments, Notice of Certain Repayments and Computations. . 7
Section 2.09. Setoff, Counterclaims and Taxes. . . . . . . . . . . . . . 8
Section 2.10. Funding Losses . . . . . . . . . . . . . . . . . . . . . .10
Section 2.11. Change of Law. . . . . . . . . . . . . . . . . . . . . . .11
Section 2.12. Increased Costs. . . . . . . . . . . . . . . . . . . . . .12
ARTICLE III CONDITIONS OF CREDIT. . . . . . . . . . . . . . . . . . . . . .13
Section 3.01. Conditions Precedent to Loans. . . . . . . . . . . . . . .13
ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . .15
Section 4.01. Corporate Existence. . . . . . . . . . . . . . . . . . . .15
Section 4.02. Corporate Authority; Binding Obligations . . . . . . . . .16
Section 4.03. No Conflict. . . . . . . . . . . . . . . . . . . . . . . .16
Section 4.04. No Consent . . . . . . . . . . . . . . . . . . . . . . . .16
Section 4.05. No Defaults or Violations of Law . . . . . . . . . . . . .16
Section 4.06. Financial Position . . . . . . . . . . . . . . . . . . . .17
Section 4.07. Litigation . . . . . . . . . . . . . . . . . . . . . . . .17
Section 4.08. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . .17
Section 4.09. Governmental Regulation. . . . . . . . . . . . . . . . . .17
Section 4.10. Disclosure . . . . . . . . . . . . . . . . . . . . . . . .18
Section 4.11. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 4.12. Payment of Taxes . . . . . . . . . . . . . . . . . . . . .19
Section 4.13. Title and Liens. . . . . . . . . . . . . . . . . . . . . .19
Section 4.14. Gas Imbalances . . . . . . . . . . . . . . . . . . . . . .19
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Section 4.15. Environmental Matters. . . . . . . . . . . . . . . . . . .20
Section 4.16. Consummation of Acquisition. . . . . . . . . . . . . . . .20
ARTICLE V AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . .20
Section 5.01. Reporting Requirements . . . . . . . . . . . . . . . . . .21
Section 5.02. Taxes; Claims. . . . . . . . . . . . . . . . . . . . . . .23
Section 5.03. Compliance with Laws . . . . . . . . . . . . . . . . . . .23
Section 5.04. Insurance. . . . . . . . . . . . . . . . . . . . . . . . .23
Section 5.05. Corporate Existence. . . . . . . . . . . . . . . . . . . .24
Section 5.06. Inspections. . . . . . . . . . . . . . . . . . . . . . . .24
Section 5.07. Maintenance of Properties. . . . . . . . . . . . . . . . .24
Section 5.08. Accounting Systems . . . . . . . . . . . . . . . . . . . .25
Section 5.09. Use of Loans . . . . . . . . . . . . . . . . . . . . . . .25
Section 5.10. Reserve Reports. . . . . . . . . . . . . . . . . . . . . .25
Section 5.11. Title. . . . . . . . . . . . . . . . . . . . . . . . . . .26
Section 5.12. Further Assurances in General. . . . . . . . . . . . . . .26
Section 5.13. Enforcement of Acquisition Documents . . . . . . . . . . .27
Section 5.14. Derivative Transactions. . . . . . . . . . . . . . . . . .27
ARTICLE VI NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . .27
Section 6.01. Indebtedness Restriction . . . . . . . . . . . . . . . . .27
Section 6.02. Lien Restriction . . . . . . . . . . . . . . . . . . . . .28
Section 6.03. [Intentionally Omitted]. . . . . . . . . . . . . . . . . .29
Section 6.04. Interest Coverage Ratio. . . . . . . . . . . . . . . . . .29
Section 6.05. Current Ratio. . . . . . . . . . . . . . . . . . . . . . .30
Section 6.06. Tangible Net Worth . . . . . . . . . . . . . . . . . . . .30
Section 6.07. Sales of Properties. . . . . . . . . . . . . . . . . . . .30
Section 6.08. Consolidation and Mergers. . . . . . . . . . . . . . . . .30
Section 6.09. Restricted Disbursements . . . . . . . . . . . . . . . . .30
Section 6.10. Lines of Business. . . . . . . . . . . . . . . . . . . . .31
Section 6.11. Transactions with Affiliates . . . . . . . . . . . . . . .31
ARTICLE VII DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . .31
Section 7.01. Events of Default. . . . . . . . . . . . . . . . . . . . .31
Section 7.02. Setoff in Event of Default . . . . . . . . . . . . . . . .34
Section 7.03. No Waiver; Remedies. . . . . . . . . . . . . . . . . . . .34
Section 7.04. Hydrocarbon Proceeds . . . . . . . . . . . . . . . . . . .34
Section 7.05. Application of Proceeds After Acceleration . . . . . . . .35
ARTICLE VIII THE AGENT AND THE CO-AGENT . . . . . . . . . . . . . . . . . . .36
Section 8.01. Authorization and Action . . . . . . . . . . . . . . . . .36
Section 8.02. Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . .36
Section 8.03. BTCo and Affiliates. . . . . . . . . . . . . . . . . . . .37
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Section 8.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . .38
Section 8.05. Indemnification. . . . . . . . . . . . . . . . . . . . . .38
Section 8.06. Employees of the Agent . . . . . . . . . . . . . . . . . .39
Section 8.07. Successor Agent. . . . . . . . . . . . . . . . . . . . . .39
Section 8.08. Successor Co-Agent . . . . . . . . . . . . . . . . . . . .39
Section 8.09. Notice of Default. . . . . . . . . . . . . . . . . . . . .40
Section 8.10. Execution of Loan Documents. . . . . . . . . . . . . . . .40
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .40
Section 9.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . .40
Section 9.02. Participation Agreements and Assignments . . . . . . . . .41
Section 9.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . . .44
Section 9.04. Costs and Expenses . . . . . . . . . . . . . . . . . . . .44
Section 9.05. Successors and Assigns . . . . . . . . . . . . . . . . . .45
Section 9.06. Independence of Covenants. . . . . . . . . . . . . . . . .45
Section 9.07. Survival of Representations and Warranties . . . . . . . .45
Section 9.08. Separability . . . . . . . . . . . . . . . . . . . . . . .45
Section 9.09. Captions . . . . . . . . . . . . . . . . . . . . . . . . .46
Section 9.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . .46
Section 9.11. Governing Law. . . . . . . . . . . . . . . . . . . . . . .46
Section 9.12. Submission to Jurisdiction . . . . . . . . . . . . . . . .46
Section 9.13. Limitation on Interest . . . . . . . . . . . . . . . . . .47
Section 9.14. Indemnification. . . . . . . . . . . . . . . . . . . . . .47
Section 9.15. Confidentiality. . . . . . . . . . . . . . . . . . . . . .48
Section 9.16. Final Agreement of the Parties . . . . . . . . . . . . . .49
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<PAGE>
EXHIBITS AND SCHEDULES
Exhibit 2.02(a) Form of Borrowing Request
Exhibit 2.02(c) Form of Conversion Notice
Exhibit 2.04 Form of Term Note
Exhibit 9.02 Form of Assignment and Acceptance Agreement
Schedule 4.01 List of Borrower's Subsidiaries
Schedule 4.04 Consents
Schedule 4.07 Litigation
Schedule 4.13 Titles and Liens
Schedule 4.14 Gas Imbalances
Schedule 6.01 Indebtedness
Schedule 6.09 Restricted Disbursements
Schedule 6.11 Affiliate Transactions
ACQUISITION FACILITY
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ACQUISITION CREDIT AGREEMENT
THIS ACQUISITION CREDIT AGREEMENT dated as of August 28, 1997 is among
COSTILLA ENERGY, INC., a Delaware corporation (the "BORROWER"), the banks named
on the signature pages hereto (together with their respective successors and
assigns in such capacity, the "BANKS"), and BANKERS TRUST COMPANY, as agent for
the Banks (together with its successors and assigns in such capacity, the
"AGENT"), and UNION BANK OF CALIFORNIA, N.A., as co-agent for the Banks
(together with its successors and assigns in such capacity, the "CO-AGENT").
Unless otherwise defined herein, all capitalized terms used herein and defined
in ARTICLE I are used herein as so defined.
PRELIMINARY STATEMENT
The Borrower has requested that the Banks provide the Borrower with a
$30,000,000 term loan facility which will be used as specified herein. The
Banks have agreed to provide the Borrower with such facility upon the terms and
conditions set forth in this Agreement.
Accordingly, in consideration of the foregoing and the mutual
covenants set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS, ETC.
Section 1.01. CERTAIN DEFINED TERMS. Capitalized terms used in this
Agreement and not otherwise defined herein, shall have the respective meanings
set forth in ANNEX A hereto (such meanings to be equally applicable to both
singular and plural forms of the terms defined).
Section 1.02. ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the consolidated financial statements referred to in SECTION 4.06.
Section 1.03. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding."
Section 1.04. REFERENCES, ETC. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. All references herein to Sections, Annexes, Exhibits and Schedules
shall, unless the context requires a different construction, be deemed to be
references to the Sections of this Agreement and the Annexes, Exhibits and
Schedules attached
ACQUISITION FACILITY
<PAGE>
hereto and made a part hereof. In this Agreement, unless a clear contrary
intention appears the word "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term. No provision of this Agreement shall be
interpreted or construed against any Person solely because that Person or its
legal representative drafted such provision.
ARTICLE II
COMMITMENTS AND TERMS OF CREDIT
Section 2.01. COMMITMENTS. (a) Each Bank severally agrees, on the
terms and conditions hereinafter set forth, to make a term loan to the Borrower
(the "LOANS") on the Effective Date in an aggregate amount equal to such Bank's
Commitment. The Loans shall be made as a single Borrowing comprised of Loans
made ratably by the Banks. Each Base Rate Borrowing shall be in an aggregate
amount not less than $2,000,000. Each Eurodollar Rate Borrowing shall be in an
aggregate amount not less than $2,000,000 or an integral multiple of $1,000,000
in excess thereof. Loans, once repaid, may not be reborrowed.
(b) Subject to SECTION 5.14, Loans of more than one Type may be
outstanding at the same time, but the Borrower shall not be entitled to request
any Borrowing or to Convert Loans comprising any Borrowing into Loans of another
Type, if after giving effect to such Borrowing or Conversion, as the case may
be, any Bank would have outstanding (i) at any one time more than four (4)
different Types of Loans. Loans having different Interest Periods, regardless
of whether they commence on the same date or have the same type of interest
rate, shall be considered different Types of Loans; provided, however, that all
Base Rate Loans are the same type of Loan so long as they remain Base Rate
Loans.
Section 2.02. BORROWING PROCEDURES; CONVERSIONS. (a) The Borrowing to
be funded on the Effective Date shall be made upon the written, telecopied or
facsimile transmitted request of the Borrower, given to the Agent not later than
11:00 a.m. (New York time) on (i) the third Business Day prior to the Effective
Date in the case of a Eurodollar Rate Borrowing, or (ii) the Business Day prior
to the Effective Date in the case of a Base Rate Borrowing, and the Agent shall
give each other member of the Bank Group prompt notice of such request by
telecopier, telex or cable. The request for such Borrowing (a "BORROWING
REQUEST") made by the Borrower shall be in substantially the form of
EXHIBIT 2.02(a), specifying therein (A) the Type of Loans comprising such
Borrowing, and (B) in the case of a Eurodollar Rate Borrowing, the Interest
Period for the Loans comprising such Borrowing. Each Bank shall, before 12:00
Noon (New York time) on the date of such Borrowing, make available for the
account of its Applicable Lending Office to the Agent at its address referred to
in SECTION 9.03, in same day funds, such Bank's ratable portion of such
Borrowing. After the Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in ARTICLE III, the Agent will make such funds
available to the Borrower at the Agent's aforesaid address. Each Borrowing
Request shall be irrevocable and binding on the Borrower.
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<PAGE>
(b) Unless the Agent shall have received notice from a Bank prior to
the Effective Date that such Bank will not make available to the Agent such
Bank's ratable portion of the Borrowing to be made on such date, the Agent may
assume that such Bank has made such portion available to the Agent on the date
of such Borrowing in accordance with subsection (a) of this SECTION 2.02 and the
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Bank shall not
have so made such ratable portion available to the Agent, such Bank and the
Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount, together with interest thereon for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent at (i) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Bank, the Federal Funds Rate. If such Bank shall repay to the
Agent such corresponding amount, such amount so repaid shall constitute such
Bank's Loan as part of such Borrowing for purposes of this Agreement, and
Borrower shall be relieved of Borrower's obligation to repay such amount under
this SECTION 2.02(b). The failure of any Bank to make the Loan to be made by it
as part of any Borrowing shall not relieve any other Bank of its obligation, if
any, hereunder to make its Loan on the date of such Borrowing or any subsequent
Borrowing Date, but no Bank shall be responsible for the failure of any other
Bank to make the Loan to be made by such other Bank on the date of any
Borrowing.
(c) The Borrower may, subject to the terms of this Agreement, on any
Business Day, upon written, telecopied or facsimile transmitted notice to the
Agent, given not later than 11:00 a.m. (New York time) on (i) the third Business
Day prior to the proposed Conversion Date in the case of a Conversion of Loans
into Eurodollar Rate Loans, or (ii) the Business Day immediately preceding the
proposed Conversion Date in the case of a Conversion of Loans into Base Rate
Loans, Convert Loans into Borrowings comprised of Loans of another Type, and the
Agent shall promptly transmit the contents of such notice to each other member
of the Bank Group by telecopier, telex or cable. Notwithstanding any other term
or provision hereof, after giving effect to any such Conversion, the size of all
Borrowings outstanding hereunder, and the number of different Types of Loans
outstanding hereunder, shall conform to the requirements of SECTION 2.01 and
SECTION 5.14. In the event of any Conversion of Eurodollar Rate Loans on any
day other than the last day of the Interest Period applicable thereto, the
Borrower shall be obligated to reimburse the Banks in respect thereof pursuant
to SECTION 2.10. Each notice of a Conversion (a "CONVERSION NOTICE") given by
the Borrower shall be in substantially the form of EXHIBIT 2.02(c) hereto,
specifying therein (A) the Conversion Date for such Conversion, (B) the Type of
Loans to which such Loans are to be Converted and (C) in the case of a
Conversion into Eurodollar Rate Loans, the Interest Period for such Converted
Loans. If the Borrower shall fail to give a timely Conversion Notice conforming
to the requirements of this Agreement with respect to any Eurodollar Rate Loans
prior to the expiration of the Interest Period applicable thereto, such
Eurodollar Rate Loans shall, automatically on the last day of such Interest
Period, be Converted into Base Rate Loans.
Section 2.03. BORROWING BASE. (a) During the period from and after
the Effective Date until the Borrowing Base is redetermined in accordance with
this Section, the amount of the Borrowing Base shall be $30,000,000. The
Borrowing Base shall be determined in accordance with
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<PAGE>
SECTION 2.03(b) by the Agent and approved by the Majority Banks. The Borrowing
Base is subject to redetermination in accordance with SECTION 2.03(d). Upon
any redetermination of the Borrowing Base, such redetermination shall remain
in effect until the next successive date that the redetermined Borrowing Base
becomes effective subject to the notice requirements specified in SECTION
2.03(e) for both the scheduled redetermination and unscheduled redeterminations.
Until all of the Loans outstanding hereunder are paid in full, this Agreement
shall be governed by the then effective Borrowing Base.
(b) The Agent will within thirty (30) days after receipt of the most
recent Reserve Report covering the Acquisition Properties delivered to the Banks
under SECTION 5.10, and such other data and supplemental information as may
from time to time be reasonably requested by the Agent, but in no event later
than March 15 and September 15 of each year commencing March 15, 1998,
redetermine the Borrowing Base based on the Acquisition Properties covered by
such Reserve Report. The Agent will redetermine the Borrowing Base in
accordance with its normal and customary oil and gas lending criteria as such
exist at that particular time taking into account all of the assets and
liabilities of the Borrower and its Subsidiaries including, without limitation,
liabilities arising under the Revolving Credit Agreement. The Agent and each
Bank, in their sole discretion, may make adjustments to the rates, volumes and
prices and other assumptions set forth in the Reserve Reports and such other
data and supplemental information. Each redetermination of the Borrowing Base
must be approved by the Majority Banks. Failure of a Bank to object to a
redetermination within 14 days after notice of such redetermination is given to
such Bank by the Agent shall be deemed an approval of such redetermination by
such Bank. Notwithstanding anything herein to the contrary, no redetermination
of the Borrowing Base will increase the Borrowing Base above the amount of the
Borrowing Base in effect at the time of such redetermination.
(c) The Agent may exclude any Acquisition Property or a portion of
production therefrom from the Borrowing Base, at any time, because the status of
title to such Acquisition Property is not reasonably satisfactory to Agent or
because such Acquisition Property is not subject to a first priority lien in
favor of the Agent as security for the Obligations.
(d) Until payment in full of all Loans hereunder, effective on or
about March 15 and September 15 of each year commencing March 15, 1998 (each
being a "SCHEDULED REDETERMINATION DATE"), the Agent with the approval of the
Majority Banks shall redetermine the amount of the Borrowing Base in accordance
with SECTION 2.03(b). In addition, at any time after the first scheduled
Redetermination Date, the Agent may request a redetermination of the Borrowing
Base on its own initiation at any time; provided, however, that the Agent may
initiate only one such unscheduled redetermination during any consecutive twelve
(12) month period (each being an "UNSCHEDULED REDETERMINATION DATE"). Any
redetermination of the Borrowing Base on an Unscheduled Redetermination Date
shall be in accordance with SECTION 2.03(b).
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<PAGE>
(e) The Agent shall promptly notify in writing the Borrower and the
Banks of the new Borrowing Base. Such redetermination of the Borrowing Base
shall not be in effect until notice is sent to the Borrower.
Section 2.04. THE NOTES. The Loans made by each Bank shall be
evidenced by a single Note issued to such Bank by the Borrower, (i) dated the
date of this Agreement (or such other date as may be specified in SECTION 9.02),
(ii) payable to the order of such Bank in a principal amount equal to such
Bank's Commitment and (iii) otherwise duly completed.
Section 2.05. MANDATORY REPAYMENT OF LOANS.
(a) On each Quarterly Payment Date, Borrower shall repay the Loans in
an amount equal to the Repayment Amount for such Quarterly Payment Date. As
used herein, "Repayment Amount" means, for any Quarterly Payment Date, the
amount specified below for such Quarterly Payment Date:
Quarterly Payment Date Repayment Amount
---------------------- ----------------
February 28, 1998 $1,700,000
May 31, 1998 $1,700,000
August 31, 1998 $1,700,000
November 30, 1998 $1,700,000
February 28, 1999 $1,400,000
May 31, 1999 $1,400,000
August 31, 1999 $1,400,000
November 30, 1999 $1,400,000
February 28, 2000 $1,400,000
May 31, 2000 $1,400,000
August 31, 2000 $1,400,000
November 30, 2000 $1,400,000
February 28, 2001 $12,000,000
(b) In addition to the scheduled repayments required under SECTION
2.05(a), if a Borrowing Base Deficiency exists, the Borrower shall from time to
time repay the Loans comprising part of the same Borrowing in whole or ratably
in part in an amount equal to the Borrowing Base Deficiency. Any repayment
required by this SECTION 2.05(b) shall be due and payable in six (6) equal
monthly installments, each in an amount equal to one-sixth (1/6th) of the
original amount of such Borrowing Base Deficiency, commencing on the last day of
the calendar month immediately following such redetermination of the Borrowing
Base and continuing on the same day of each subsequent calendar month. Any
repayments of the Loans required under this SECTION 2.05(b) shall be applied
against the installments required under SECTION 2.05(a) in inverse order of
maturity.
(c) At any time prior to the Maturity Date, if all of the
Indebtedness under the Revolving Credit Agreement shall be paid in full and the
Revolving Credit Agreement shall have
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<PAGE>
terminated, all outstanding Loans shall be fully due and payable at such
time, together with any unpaid interest accrued thereon.
(d) All outstanding Loans shall be fully due and payable on the
Maturity Date, together with any unpaid interest and fees accrued thereon.
(e) Each repayment of Loans required by this SECTION 2.05 shall be
accompanied by payment of accrued interest to the date of such payment on the
principal amount paid. In the event of any payment of a Eurodollar Rate Loan,
the Borrower shall be obligated to reimburse the Banks in respect thereof
pursuant to SECTION 2.10. All principal payments required by this SECTION 2.05
shall first be applied to Base Rate Borrowings, and second to Eurodollar Rate
Borrowings.
Section 2.06. INTEREST ACCRUAL, PAYMENTS. (a) ACCRUAL AND PAYMENT.
Subject to the provisions of SECTION 9.13, the Borrower shall pay interest on
the unpaid principal amount of each Loan made by each Bank from the date of such
Loan until such principal amount shall be paid in full, on the dates and at the
rates per annum specified as follows:
(i) BASE RATE LOANS. If such Loan is a Base Rate Loan, a rate per
annum equal at all times to the lesser of (A) the Highest Lawful Rate and
(B) the Base Rate in effect from time to time PLUS the Applicable Margin in
effect from time to time, and unpaid accrued interest on such Loans shall
be due and payable on each Quarterly Payment Date commencing November 30,
1997 and on the date such Base Rate Loan shall be paid in full.
(ii) EURODOLLAR RATE LOANS. If such Loan is a Eurodollar Rate Loan, a
rate per annum equal at all times during the Interest Period for such Loan
to the lesser of (A) the Highest Lawful Rate and (B) the sum of the
Eurodollar Rate for such Interest Period PLUS the Applicable Margin in
effect as of the first day of such Interest Period, and unpaid accrued
interest on such Loans shall be due and payable on the last day of such
Interest Period.
Any amount of principal or, to the extent permitted by applicable law, interest
which is not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest from the date on which such amount is due until
such amount is paid in full, at a rate per annum equal at all times to the
lesser of (A) the Highest Lawful Rate and (B) the Base Rate in effect from time
to time during the applicable period PLUS the Applicable Margin in effect from
time to time during such period PLUS two percent (2%) (the "DEFAULT RATE"),
payable on demand.
(b) DETERMINATION OF INTEREST RATES. (i) The Agent shall give
prompt notice to the Borrower and each other member of the Bank Group of the
applicable interest rate determined by the Agent hereunder for each Borrowing.
Each determination by the Agent of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
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<PAGE>
(ii) If the Majority Banks shall, at least one Business Day before the
date of any requested Eurodollar Rate Borrowing, notify the Agent that the
Eurodollar Rate applicable to such Borrowing will not adequately reflect the
cost to such Banks of making, funding or maintaining their respective Eurodollar
Rate Loans for such Borrowing, the right of the Borrower to select Eurodollar
Rate Loans for such Borrowing or any subsequent Borrowing shall be suspended
until the Agent shall notify the Borrower and each other member of the Bank
Group that the circumstances causing such suspension no longer exist, and each
Loan comprising such Borrowing shall be made as, or Converted into, as
applicable, a Base Rate Loan.
(c) APPLICABLE MARGIN. As used in this Agreement and the other Loan
Documents, "APPLICABLE MARGIN" means, as to Loans consisting of a single
Borrowing, a rate per annum determined by reference to the Type of Loans
comprising such Borrowing shall be three-quarters of one percent (3/4%) for
Base Rate Loans, and two percent (2%) for Eurodollar Rate Loans.
Section 2.07. OPTIONAL PREPAYMENTS. (a) The Borrower may, from time
to time on any Business Day, upon notice to the Agent stating the proposed date
and aggregate principal amount thereof, and if such notice is given the Borrower
shall, prepay the outstanding principal amount of the Base Rate Loans (without
premium or penalty) comprising part of the same Borrowing in whole or ratably in
part; PROVIDED, that any partial prepayment of such Base Rate Loans shall be in
an aggregate principal amount of not less than $1,000,000. The Borrower may
from time to time upon at least three Business Days' notice to the Agent stating
the proposed date and the aggregate principal amount thereof, and if such notice
is given the Borrower shall, prepay the outstanding principal amount of the
Eurodollar Rate Loans comprising part of the same Borrowing in whole or ratably
in part; PROVIDED, that any partial prepayment of such Eurodollar Rate Loans
shall be in an aggregate principal amount of not less than $1,000,000 or an
integral multiple of $500,000 in excess thereof.
(b) Each prepayment of Loans made pursuant to this SECTION 2.07 shall
be accompanied by a payment of accrued interest to the date of such prepayment
on the principal amount prepaid. In the event of any prepayment of a Eurodollar
Rate Loan, the Borrower shall be obligated to reimburse the Banks in respect
thereof pursuant to SECTION 2.10.
Section 2.08. PAYMENTS, NOTICE OF CERTAIN REPAYMENTS AND
COMPUTATIONS. (a) All payments of principal, interest, commitment fees and
other amounts hereunder, under the Notes and the other Loan Documents (other
than Bank Group Derivatives) shall be made in Dollars to the Agent at its
address specified in SECTION 9.03 for the account of each of the Banks, in
immediately available funds not later than 10:00 a.m. (New York time) on the
date when due. Upon receipt of such payments, the Agent will promptly cause to
be distributed like funds relating to the payment of principal or interest
ratably (other than amounts payable pursuant to SECTION 2.09, SECTION 2.10,
SECTION 2.11 or SECTION 2.12) to the Banks, for the account of their respective
Applicable Lending Offices, and like funds relating to the payment of any other
amount payable to any Bank, to such Bank for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement.
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(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks under the Loan
Documents that the Borrower will not make such payment in full, the Agent may
assume that the Borrower has made such payment in full to the Agent on such date
and the Agent may, in reliance upon such assumption, cause to be distributed to
each Bank on such due date an amount equal to the amount then due such Bank. If
and to the extent the Borrower shall not have made such payment in full to the
Agent each Bank shall repay to the Agent forthwith on demand such amount
distributed to such Bank, together with interest thereon for each day from the
date such amount is distributed to such Bank until the date such Bank repays
such amount to the Agent at the Federal Funds Rate.
(c) All payments by the Borrower of the fees payable to the Agent
shall be made in Dollars directly to such Person at its address specified in
SECTION 9.03 in immediately available funds not later than 10:00 a.m. (New York
time) on the date when due.
(d) All computations of interest based on the Base Rate shall be made
on the basis of a year of 365 or 366 days, as the case may be, and all
computations of interest based on the Eurodollar Rate or the Federal Funds Rate
shall be made on the basis of a year of 360 days (unless use of a 360 day year
would cause the interest contracted for, charged or received hereunder to exceed
the Highest Lawful Rate, in which case such computations shall be made on the
basis of a year of 365 or 366 days, as the case may be), in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
(e) Whenever any payment under the Loan Documents shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest; PROVIDED, if such extension
would cause payment of interest on or principal of Eurodollar Rate Loans to be
made in the next following calendar month, such payment shall be made on the
immediately preceding Business Day.
(f) If any Bank shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of setoff, or otherwise) on
account of the Loans made by it (other than pursuant to SECTION 2.09,
SECTION 2.10, SECTION 2.11 or SECTION 2.12), in excess of its ratable share of
payments on account of the Loans obtained by all the Banks, such Bank shall
forthwith purchase from the other Banks such participations in the Loans made by
such other Banks, as shall be necessary to cause such purchasing Bank to share
the excess payment ratably with each of them. The Borrower agrees that any Bank
so purchasing a participation from another Bank pursuant to this SECTION 2.08(f)
may, to the fullest extent permitted by law and this Agreement, exercise all its
rights of payment (including the right of setoff) with respect to such
participation as fully as if such Bank were the direct creditor of the Borrower
in the amount of such participation.
Section 2.09. SETOFF, COUNTERCLAIMS AND TAXES. (a) All payments of
principal, interest, expenses, reimbursements, compensation, arrangement fees or
administration fees and any
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other amount from time to time due under the Notes, this Agreement or any
other Loan Document shall be made by the Borrower without setoff or
counterclaim and shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the
case of each member of the Bank Group, taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction under the laws of which
such member of the Bank Group is organized or any political subdivision
thereof and, in the case of each Bank, taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction of such Bank's Applicable
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "TAXES"). If the Borrower shall be required
by law to deduct any Taxes from or in respect of any sum payable hereunder or
under any Loan Document to any member of the Bank Group, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this SECTION 2.09) such member of the Bank Group receives an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under the Notes or
the other Loan Documents or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement, the Notes or the other Loan Documents
(hereinafter referred to as "OTHER TAXES").
(c) The Borrower will indemnify each member of the Bank Group for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this SECTION
2.09) paid, by such member of the Bank Group (whether paid on its own behalf or
on behalf of any other member of the Bank Group) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within 10 days from the date such member of
the Bank Group makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Agent, at its address referred to in SECTION 9.03,
the original or a certified copy of a receipt evidencing payment thereof. If no
Taxes are payable in respect of any payment hereunder or under the Notes or the
other Loan Documents, upon the reasonable request of the Agent, the Borrower
will furnish to the Agent at its address referred to in SECTION 9.03, a
certificate from each appropriate taxing authority, or an opinion of counsel
acceptable to the Agent stating that such payment is exempt from or not subject
to Taxes.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 2.09 shall
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survive the payment in full of the Credit Outstanding and all other amounts
owing under the other Loan Documents. The provisions of this SECTION 2.09
are in all respects subject to SECTION 9.13 hereof.
(f) Each Bank represents and warrants to the Agent and the Borrower
that such Bank is either (i) a corporation organized under the laws of the
United States or a state thereof or (ii) entitled to complete exemption from
United States withholding tax imposed on or with respect to any payments,
including fees, to be made to it pursuant to this Agreement and the other Loan
Documents (x) under an applicable provision of a tax convention to which the
United States is a party or (y) because it is acting through a branch, agency or
office in the United States and any payment to be received by it hereunder is
effectively connected with a trade or business in the United States. Upon
becoming a party to this Agreement (whether by assignment or as an original
signatory hereto), and in any event, from time to time upon the request of the
Agent or the Borrower, each Bank which is not a corporation organized under the
laws of the United States or any state thereof shall deliver to the Agent and
the Borrower such forms, certificates or other instruments as may be required by
the Agent in order to establish that such Bank is entitled to complete exemption
from United States withholding taxes imposed on or with respect to any payments,
including fees, to be made to such Bank under this Agreement and the other Loan
Documents. Each Bank also agrees to deliver to the Borrower and the Agent and
such other supplemental forms as may at any time be required as a result of the
passage of time or changes in applicable law or regulation in order to confirm
or maintain in effect its entitlement to exemption from U.S. withholding tax on
any payments hereunder; PROVIDED, that the circumstances of the Bank at the
relevant time and applicable laws permit it to do so. If a Bank determines, as
a result of any change in either (1) applicable law, regulation or treaty, or in
any official application thereof or (2) its circumstances, that it is unable to
submit any form or certificate that it is obligated to submit pursuant to this
SECTION 2.09(f), or that it is required to withdraw or cancel any such form or
certificate previously submitted, it shall promptly notify the Borrower and the
Agent of such fact. If a Bank is organized under the laws of a jurisdiction
outside the United States, and the Borrower and the Agent have not received
forms, certificates or other instruments indicating to their satisfaction that
all payments to be made to such Bank hereunder are not subject to United States
withholding tax or the Agent otherwise has reason to believe that such Bank is
subject to U.S. withholding tax, the Borrower shall withhold taxes from such
payments at the applicable statutory rate. Each Bank shall indemnify and hold
the Borrower and the Agent harmless from any United States taxes, penalties,
interest and other expenses, costs and losses incurred or payable by them as a
result of either (A) such Bank's failure to submit any form or certificate that
it is required to provide pursuant to this SECTION 2.09(f) or (B) reliance by
the Borrower or the Agent on any such form or certificate which such Bank has
provided to them pursuant to this SECTION 2.09(f).
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Section 2.10. FUNDING LOSSES. The Borrower shall indemnify each
Bank against any loss or reasonable expense (including, but not limited to,
any loss or reasonable expense sustained or incurred or to be sustained or
incurred in liquidating or reemploying deposits from third parties acquired
to effect or maintain such Loan or any part thereof as a Eurodollar Rate
Loan) which such Bank may sustain or incur as a consequence of (a) any
failure by the Borrower to fulfill on the date of any Borrowing hereunder the
applicable conditions set forth in ARTICLE III, (b) any failure by the
Borrower to borrow hereunder, or to Convert Loans hereunder after a Borrowing
Request, or Conversion Notice, respectively, has been given, (c) any payment,
prepayment or Conversion of a Eurodollar Rate Loan required or permitted by
any other provisions of this Agreement, including, without limitation,
payments made due to the acceleration of the maturity of the Notes pursuant
to SECTION 7.01, or otherwise made on a date other than the last day of the
applicable Interest Period, (d) any default in the payment or prepayment of
the principal amount of any Loan or any part thereof or interest accrued
thereon, as and when due and payable (at the due date thereof, by notice of
prepayment or otherwise) or (e) the occurrence of an Event of Default. Such
loss or reasonable expense shall include, without limitation, an amount equal
to the excess, if any, as determined by each Bank of (i) its cost of
obtaining the funds for the Loan being paid, prepaid or Converted or not
borrowed or Converted (based on the Eurodollar Rate applicable thereto) for
the period from the date of such payment, prepayment or Conversion or failure
to borrow or Convert to the last day of the Interest Period for such Loan
(or, in the case of a failure to borrow or Convert, the Interest Period for
the Loan which would have commenced on the date of such failure to borrow or
Convert) over (ii) the amount of interest (as estimated by such Bank) that
would be realized by such Bank in reemploying the funds so paid, prepaid or
Converted or not borrowed or Converted for such period or Interest Period, as
the case may be. A certificate of each Bank setting forth any amount or
amounts which such Bank is entitled to receive pursuant to this SECTION 2.10
shall be delivered to the Borrower (with a copy to the Agent) and shall be
conclusive, if made in good faith, absent manifest error. The Borrower shall
pay to the Agent for the account of each Bank the amount shown as due on any
certificate within 10 days after its receipt of the same. Notwithstanding
the foregoing, in no event shall any Bank be permitted to receive any
compensation hereunder constituting interest in excess of the Highest Lawful
Rate. Without prejudice to the survival of any other obligations of the
Borrower hereunder, the obligations of the Borrower under this SECTION 2.10
shall survive the termination of this Agreement and/or the payment or
assignment of any of the Notes.
Section 2.11. CHANGE OF LAW. (a) If at any time any Bank
determines in good faith (which determination shall be conclusive) that any
change in any applicable law, rule or regulation or in the interpretation,
application or administration thereof makes it unlawful, or any central bank
or other Governmental Authority asserts that it is unlawful, for such Bank or
its foreign branch or branches to fund or maintain any Eurodollar Rate Loan
(any of the foregoing determinations being a "EURODOLLAR EVENT"), then, such
Bank, at its option, may: (i) declare that Eurodollar Rate Loans will no
longer be made or maintained by such Bank, whereupon the right of the
Borrower to select Eurodollar Rate Loans for any Borrowing shall be suspended
until such Bank shall notify the Agent that the circumstances causing such
Eurodollar Event no longer exist; (ii) with respect to any Eurodollar Rate
Loans of such Bank then outstanding, require that all such Eurodollar Rate
Loans be Converted to Base Rate Loans, in which event all such Eurodollar
Rate Loans shall automatically
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be Converted into Base Rate Loans on the effective date of such notice and
all payments or prepayments of principal that would have otherwise been
applied to repay such Converted Eurodollar Rate Loans shall instead be
applied to repay the Base Rate Loans resulting from such Conversion; and/or
(iii) with respect to any Eurodollar Rate Loans requested of such Bank but
not yet made as or Converted into such, require that such Eurodollar Rate
Loans be made as or Converted into, as applicable, Base Rate Loans.
(b) Upon the occurrence of any Eurodollar Event, and at any time
thereafter so long as such Eurodollar Event shall continue, such Bank may
exercise its aforesaid option by giving written notice thereof to the Agent
and the Borrower, such notice to be effective upon receipt thereof by the
Borrower. Any Conversion of any Eurodollar Rate Loan which is required under
this SECTION 2.11 shall be made, together with accrued and unpaid interest
and all other amounts payable to such Bank under this Agreement with respect
to such Converted Loan (including, without limitation, amounts payable
pursuant to SECTION 2.10 hereof), on the date stated in the notice to the
Borrower referred to above.
Section 2.12. INCREASED COSTS. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline issued or request made
by any central bank or other Governmental Authority (whether or not having
the force of law), there shall be any increase in the cost to any Bank of
agreeing to make or making, funding or maintaining Eurodollar Rate Loans,
then the Borrower shall from time to time, subject to the provisions of
SECTION 9.13, pay to the Agent for the account of such Bank additional
amounts sufficient to compensate such Bank for such increased cost upon
demand by such Bank.
(b) If any Bank shall have determined in good faith that any law,
rule, regulation or guideline adopted pursuant to or arising out of the July
1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and
Capital Standards" or that the adoption of any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change in any of
the foregoing or in the interpretation or administration thereof by any
central bank or other Governmental Authority charged with the interpretation
or administration thereof, or compliance by such Bank (or any lending office
of such Bank) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental Authority
or comparable agency, affects or would affect the amount of capital required
or expected to be maintained by such Bank or any corporation controlling such
Bank, then the Borrower shall from time to time, subject to the provisions of
SECTION 9.13, pay to such Bank upon demand additional amounts sufficient to
compensate such Bank or such corporation in the light of such circumstances,
to the extent that such Bank reasonably determines such increase in capital
to be allocable to the existence of such Bank's Commitment hereunder.
(c) If any law, executive order or regulation is adopted or
interpreted by any central bank or other Governmental Authority so as to
affect any of the Borrower's obligations or the compensation to any Bank,
then the Borrower shall from time to time upon demand, subject to
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the provisions of SECTION 9.13, reimburse or indemnify such Bank, with
respect thereto so that such Bank shall be in the same position as if there
had been no such adoption or interpretation.
(d) Each Bank will notify the Borrower of any event occurring
after the date of this Agreement which will entitle such Bank to compensation
pursuant to this SECTION 2.12 as promptly as practicable after such Bank
obtains knowledge of the occurrence of such event. A certificate of such
Bank setting forth in reasonable detail (i) such amount or amounts as shall
be necessary to compensate such Bank (or participating banks or other
entities pursuant to SECTION 9.02) as specified above and (ii) the
calculation of such amount or amounts shall be delivered to the Borrower and
shall be conclusive absent manifest error. The Borrower shall pay to such
Bank the amount shown as due on any such certificate within ten (10) days
after its receipt of the same. The failure of any Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
the right of such Bank or any other Bank to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction
in return on capital as such rights are set forth herein. The protection of
this SECTION 2.12 shall be available to the Banks regardless of any possible
contention of invalidity or inapplicability of law, regulation or condition
which shall have been imposed.
ARTICLE III
CONDITIONS OF CREDIT
Section 3.01. CONDITIONS PRECEDENT TO LOANS. The obligation of
each Bank to make its Loan is subject to the conditions precedent that the
Agent shall have received on or before the date of such Borrowing, all of the
following, each in form and substance reasonably satisfactory to the Bank
Group and in such number of counterparts as may be reasonably requested by
the Agent:
(a) The following Loan Documents duly executed by the Persons
indicated below:
(i) this Agreement executed by the Borrower and each member of the
Bank Group,
(ii) the Notes executed by the Borrower, and
(iii) the Acquisition Mortgage executed by the Borrower.
(b) Evidence that the Liens created by the Security Documents have
been duly perfected, or will be duly perfected upon the filing of the
instruments referred to in subsections (i) and (ii) below, and constitute
valid first priority Liens, which shall include, without limiting the
generality of the foregoing:
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(i) the delivery to the Agent of such financing statements under the
Uniform Commercial Code for filing in such jurisdictions as the Agent may
require, and
(ii) the delivery to the Agent of the Acquisition Mortgage for filing
in such jurisdictions as the Agent may require.
(c) A certificate of the secretary or an assistant secretary of
the Borrower certifying, INTER ALIA, (i) true and correct copies of
resolutions adopted by the Board of Directors of the Borrower (A) authorizing
the execution, delivery and performance by the Borrower of the Loan Documents
to which it is or will be a party and the Borrowings to be made thereunder
and the consummation of the transactions contemplated thereby, (B)
authorizing officers of the Borrower to negotiate the Loan Documents to which
it is a party and which will be delivered at or prior to the date of the
initial Borrowing and (C) authorizing officers of the Borrower to execute and
deliver the Loan Documents to which it is or will be a party and any related
documents, including, without limitation, any agreement or security document
contemplated by this Agreement, (ii) true and correct copies of the
certificate of incorporation and bylaws (or other similar charter documents)
of the Borrower and (iii) the incumbency and specimen signatures of the
officers of the Borrower executing any documents on behalf of it.
(d) Certificates of appropriate public officials as to the
existence and good standing of the Borrower in the States of Texas, Delaware,
Wyoming, Montana, Colorado, New Mexico and Oklahoma.
(e) An engineering report covering Acquisition Properties prepared
by Ryder Scott & Co. dated as of July 1, 1997 (the "INITIAL RESERVE REPORT").
(f) The fully executed Acquisition Documents, together with any
disclosure schedules delivered pursuant thereto, containing such terms and
conditions as are satisfactory to the Bank Group, as well as evidence
satisfactory to the Agent that the Acquisition has been consummated in
accordance with the Acquisition Documents and all Requirements of Law and
original counterparts of the assignment of the Acquisition Properties to the
Borrower.
(g) Title opinions covering at least 80% of the value of the
Acquisition Properties included in the Initial Reserve Report in form, scope
and substance satisfactory to the Agent.
(h) Copies of all authorizations, consents, approvals, licenses,
filings or registrations obtained from or made with any Governmental
Authority or any other Person in connection with the Acquisition or the
execution, delivery and performance of the Loan Documents, together with a
certificate from a Responsible Officer of the Borrower to the effect that all
such authorizations, consents, approvals, licenses, filings or registrations
have been obtained or made, as applicable, and are in full force and effect,
other than governmental approvals and consents that are typically obtained
subsequent to the closing of such an acquisition.
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(i) A list of all insurance policies and programs in effect with
respect to the properties and businesses of the Borrower and its
Subsidiaries, specifying for each such policy or program the amount thereof,
the risks insured against thereby, the name of the insurer and each insured
party thereunder and the policy or other identification number thereof,
together with (i) a certificate from a Responsible Officer of the Borrower to
the effect that all such policies and programs are in full force and effect
and (ii) evidence that such policies have the endorsements required under
SECTION 5.04.
(j) Environmental reports covering the Acquisition Properties in
form, scope and substance satisfactory to the Agent.
(k) Releases of the Liens in favor of Union Bank of California,
N.A. covering the Acquisition Properties in form and substance satisfactory
to the Agent.
(l) A certificate signed by a Responsible Officer of the Borrower
certifying as to the satisfaction of the following conditions: (i) the
representations and warranties contained in ARTICLE IV are true and correct
on and as of such date, before and after giving effect to the Loan and as
though made on and as of such date, (ii) no Default or Event of Default has
occurred and is continuing, or would result from the Loan and (iii) no event
has occurred since the Execution Date that could reasonably be expected to
have a Material Adverse Effect on the Borrower or any of its Subsidiaries.
(m) The favorable, signed opinions of Cotton, Bledsoe, Tighe &
Dawson, special counsel to the Borrower and its Subsidiaries, addressed to
the Agent and the Bank Group, in form and substance reasonably satisfactory
to the Agent and its counsel.
(n) A written confirmation from the Process Agent of its
appointment and acceptance as process agent for the Borrower.
(o) The payment to the Bank Group of the fees due to them as of
such date under the Loan Documents and that certain fee letter dated August
26, 1997.
(p) Such other documents, certificates and opinions as the Agent
may reasonably request relating to this Agreement and the other Loan
Documents.
(q) All of the conditions to the effectiveness of the Revolving
Credit Agreement have been satisfied.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank Group to enter into this Agreement, the
Borrower hereby represents and warrants to the Bank Group as follows:
Section 4.01. CORPORATE EXISTENCE. The Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and Costilla Redeco is a limited liability
company duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation. Both the Borrower and Costilla Redeco
are duly qualified or licensed to transact business as a foreign corporation
or limited liability company, as the case may be, and is in good standing
under the laws of each jurisdiction in which the conduct of its operations or
the ownership or leasing of its properties requires such qualification or
licensing, except where the failure to be so qualified or licensed will not
have a Material Adverse Effect on such Person. SCHEDULE 4.01 is a complete
list of the Borrower's Subsidiaries.
Section 4.02. CORPORATE AUTHORITY; BINDING OBLIGATIONS. Each of
the Borrower and its Subsidiaries has all requisite power and authority,
corporate or otherwise, to conduct its business, to own, operate and encumber
its Property, and to execute, deliver and perform all of its obligations
under the Loan Documents executed by, or to be executed by, such Person. The
execution, delivery and performance of each of the Loan Documents to which
the Borrower or any of its Subsidiaries is a party and the consummation of
the transactions contemplated thereby, including, without limitation, the
consummation of the Acquisition, have been duly authorized by all necessary
corporate and stockholder action. Each of the Loan Documents to which the
Borrower or any of its Subsidiaries is a party has been duly executed and
delivered by such Person, is in full force and effect and constitutes the
legal, valid and binding obligation of such Person, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditor's rights generally and general
principles of equity. The Security Documents create valid Liens in the
collateral described therein, securing the secured obligations described
therein.
Section 4.03. NO CONFLICT. The execution, delivery and
performance by the Borrower or any of its Subsidiaries of each Loan Document
to which such Person is a party and the consummation of each of the
transactions contemplated thereby, including, without limitation, the
consummation of the Acquisition, do not and shall not, by the lapse of time,
the giving of notice or otherwise: (a) constitute a violation of any
Requirement of Law or a breach of any provision contained in the articles or
certificate of incorporation or bylaws (or certificate of organization or
regulations, if applicable) of such Person, or any shareholder agreement
pertaining to such Person, or contained in any material agreement, instrument
or document to which it is now a party or by which it or its Properties is
bound, except for such violations or breaches that will not have a Material
Adverse Effect on any such Person; or (b) result in or require the creation
or imposition of any Lien whatsoever upon any of the Properties of the
Borrower or any of its Subsidiaries (other than Excepted Liens and Liens in
favor of the Agent arising pursuant to the Loan Documents).
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Section 4.04. NO CONSENT. No authorization, consent, approval,
license, or exemption of or filing or registration with, any Governmental
Authority or any other Person, which has not been obtained, was, is or will
be necessary for the valid execution, delivery or performance by the Borrower
or any of its Subsidiaries of any of the Loan Documents to which it is a
party and the consummation of each of the transactions contemplated thereby,
including, without limitation, the consummation of the Acquisition, or the
Borrower's or any of its Subsidiaries' ownership, use or operation of any of
their Properties other than (a) those listed on SCHEDULE 4.04 and (b) those
that the failure to obtain, file or make will not have a Material Adverse
Effect on any such Person.
Section 4.05. NO DEFAULTS OR VIOLATIONS OF LAW. No Default or
Event of Default has occurred and is continuing. No default (or event or
circumstance occurred which, but for the passage of time or the giving of
notice, or both, would constitute a default) has occurred and is continuing
with respect to any note, indenture, loan agreement, mortgage, lease, deed or
other agreement to which the Borrower or any of its Subsidiaries is a party
or by which any of them or their Properties is bound, except for such
defaults that will not have a Material Adverse Effect on the Borrower or any
of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries is in
violation of any applicable Requirement of Law except for such violations
that will not have a Material Adverse Effect on any such Person.
Section 4.06. FINANCIAL POSITION. (a) Prior to the Execution
Date, the Borrower has furnished to the Agent and the Bank Group audited
financials of the Borrower and its Subsidiaries as of December 31, 1996 and
unaudited financials of the Borrower as of June 30, 1997. The audited
financials referred to in the previous sentence have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and present fairly the financial condition of
the Borrower and its Subsidiaries as of the dates thereof and the results of
their operations for the periods then ended. No event has occurred since June
30, 1997 that could reasonably be expected to have a Material Adverse Effect
on the Borrower or any of its Subsidiaries.
(b) Except as fully reflected in the unaudited financials referred
to in paragraph (a) of this SECTION 4.06, as of the date hereof, there are no
liabilities or obligations of the Borrower or any of its Subsidiaries of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in aggregate, would have a
Material Adverse Effect on the Borrower or any of its Subsidiaries.
Section 4.07. LITIGATION. Except as set out in SCHEDULE 4.07,
there are no actions, suits or proceedings pending or, to the knowledge of
the Borrower threatened against or affecting the Borrower or any of its
Subsidiaries, or the Properties of any such Person, before or by any
Governmental Authority or other Person, which, if determined adversely to
such Person could have a Material Adverse Effect on any such Person.
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Section 4.08. USE OF PROCEEDS. (a) The Borrower's uses of the
proceeds of the Loans are, and will continue to be, legal and proper
corporate uses (duly authorized by Borrower's board of directors to the
extent required), and such uses are consistent with the terms of the Loan
Documents, including, without limitation, SECTION 5.09, and all Requirements
of Law.
(b) Neither the Borrower nor any of its Subsidiaries is engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U), and no part of the
proceeds of any Loan will be used, directly or indirectly, (i) to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock or (ii) for the purpose of
purchasing, carrying or trading in any securities under such circumstances as
to involve the Borrower or any of its Subsidiaries in a violation of
Regulation X.
Section 4.09. GOVERNMENTAL REGULATION. Neither the Borrower nor
any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act, as amended, the Investment Company Act of 1940, as
amended, or any other Requirement of Law such that the ability of any such
Person to incur indebtedness is limited or its ability to consummate the
transactions contemplated by this Agreement, the other Loan Documents or any
document executed in connection therewith is impaired.
Section 4.10. DISCLOSURE. The schedules, documents, exhibits,
reports, certificates and other written statements and information furnished
by or on behalf of the Borrower or any of its Subsidiaries to the Bank Group
do not contain any material misstatement of fact, or omit to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading. Neither the
Borrower nor any of its Subsidiaries has intentionally withheld any fact
known to it which has or is reasonably likely to have a Material Adverse
Effect on the Borrower or any of its Subsidiaries.
Section 4.11. ERISA. (a) The Borrower, and each ERISA Affiliate
and Subsidiary have operated and administered each Pension Plan and Other
Benefit 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 Borrower nor
any ERISA Affiliate or Subsidiary has incurred any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the
Internal Revenue Code relating to employee benefit plans (as defined in
Section 3 of ERISA), and no event, transaction or condition has occurred or
exists or is threatened that could reasonably be expected to result in the
incurrence of any such liability by the Borrower or any ERISA Affiliate or
Subsidiary, or in the imposition of any Lien on any of the rights, properties
or assets of the Borrower or any ERISA Affiliate or Subsidiary, 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 Internal Revenue Code,
other than such liabilities or Liens as would not be, individually or in the
aggregate, Material.
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(b) The present value of the aggregate benefit liabilities under
each Pension Plan subject to Title IV of ERISA, determined as of the end of
such Pension Plan's most recently ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Pension Plan's
most recent actuarial valuation report, did not exceed the aggregate current
value of the assets of such Pension Plan allocable to such benefit
liabilities. The term "benefit liabilities" has the meaning specified in
section 4001 of ERISA and the terms "current value" and "present value" have
the meaning specified in Section 3 of ERISA.
(c) The Borrower and its ERISA Affiliates and Subsidiaries do not
currently and have never had any liability or obligation with respect to any
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of any Multiemployer Plan.
(d) The expected post-retirement benefit obligation (determined as
of the last day of the Borrower'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 Internal Revenue Code ("COBRA")) of the Borrower and
its ERISA Affiliates and Subsidiaries is not Material and, except as modified
by COBRA, such obligations can be unilaterally terminated at any time by the
Borrower, or its ERISA Affiliates and Subsidiaries without any Material
liability.
Section 4.12. PAYMENT OF TAXES. The Borrower has filed, and has
caused each of its Subsidiaries to file, all federal, state and local tax
returns and other reports that the Borrower and each such Subsidiary are
required by law to file and have paid all taxes and other similar charges
that are due and payable pursuant to such returns and reports, except to the
extent any of the same may be contested in good faith by appropriate
proceedings promptly initiated and diligently conducted, and with respect to
which adequate reserves have been set aside on the books of such Person in
accordance with generally accepted accounting principles.
Section 4.13. TITLE AND LIENS. (a) Except as set out in SCHEDULE
4.13 each of the Borrower and its Subsidiaries have good and defensible title
to the Mortgaged Property, free and clear of all Liens except Liens permitted
by SECTION 6.02. Except as set forth in SCHEDULE 4.13, after giving full
effect to the Excepted Liens, the Borrower owns the net interests in
production attributable to the Oil and Gas Properties reflected in the
Initial Reserve Report and the ownership of such Oil and Gas Properties shall
not in any material respect obligate the Borrower to bear the costs and
expenses relating to the maintenance, development and operations of each such
Oil and Gas Property in an amount in excess of the working interest of each
Oil and Gas Property set forth in the Initial Reserve Report. Further, upon
delivery of each Reserve Report, the statements made in the preceding
sentence shall be true with respect to such furnished Reserve Reports
including the ownership of the Oil and Gas Properties set forth therein. To
the best of the Borrower's knowledge, all information contained in the
Initial Reserve Report is true and correct in all material respects as of the
date thereof.
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(b) All material leases and agreements necessary for the conduct
of the business of the Borrower and its Subsidiaries are valid and
subsisting, in full force and effect and, to the knowledge of the Borrower,
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 would affect in any material respect the conduct
of the business of the Borrower and its Subsidiaries.
(c) The rights and Properties presently owned, leased or licensed
by the Borrower and its Subsidiaries including, without limitation, all
easements and rights of way, include all rights and Properties necessary to
permit the Borrower and its Subsidiaries to conduct their business in all
material respects in the same manner as their business has been conducted
prior to the date hereof.
(d) All of the Properties of the Borrower and its Subsidiaries
which are reasonably necessary for the operation of its business are in good
working condition and are maintained in accordance with prudent business
standards.
Section 4.14. GAS IMBALANCES. As of the date of this Agreement,
except as set forth in SCHEDULE 4.14 or on the most recent certificate
delivered pursuant to SECTION 5.10(c), on a net basis there are no gas
imbalances, take or pay or other prepayments with respect to the Borrower's
Oil and Gas Properties which would require the Borrower to deliver
Hydrocarbons produced from the Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor exceeding a market
value of $100,000 in the aggregate.
Section 4.15. ENVIRONMENTAL MATTERS. Except as disclosed in the
environmental reports delivered to the Bank Group on the Effective Date
pursuant to SECTION 3.01 hereof, (a) (i) the Borrower and each of its
Subsidiaries possess all environmental, health and safety licenses, permits,
authorizations, registrations, approvals and similar rights necessary under
law or otherwise for such Person to conduct its operations as now being
conducted, (ii) each of such licenses, permits, authorizations,
registrations, approvals and similar rights is valid and subsisting, in full
force and effect and enforceable by such Person, and (iii) such Person is in
compliance with all terms, conditions or other provisions of such permits,
authorizations, registrations, approvals and similar rights, except to the
extent that the failure to do so will not have a Material Adverse Effect on
such Person; (b) neither the Borrower nor any of its Subsidiaries has
received any notices of any violation of, noncompliance with, or remedial
obligation under, Requirements of Environmental Laws, and there are no writs,
injunctions, decrees, orders or judgments outstanding, or lawsuits, claims,
proceedings, investigations or inquiries pending or, to the knowledge of the
Borrower, threatened, relating to the ownership, use, condition, maintenance,
or operation of, or conduct of business related to, any Property owned,
leased or operated by the Borrower or any of its Subsidiaries, other than
those violations, instances of noncompliance, obligations, writs,
injunctions, decrees, orders, judgments, lawsuits, claims, proceedings,
investigations or inquiries that will not have a Material Adverse Effect on
such Person; (c) there are no material obligations, undertakings or
liabilities arising out of or relating to Environmental Laws to which the
Borrower or any of its Subsidiaries has agreed to, assumed or retained, or by
which the Borrower or any of its Subsidiaries is adversely
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affected, by contract or otherwise; and (d) neither the Borrower nor any of
its Subsidiaries has received a written notice or claim to the effect that
such Person is or may be liable to any Person as the result of a release or
threatened release of a hazardous material or solid waste.
Section 4.16. CONSUMMATION OF ACQUISITION. The transactions
described in the Acquisition Documents, including, without limitation, the
Acquisition, have been completed in accordance with the terms of the
Acquisition Documents, and with all Requirements of Law.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any principal amount of any Loan, any amount of interest
accrued under the Notes or any commitment or other fee, expense, compensation
or any other amount payable to any member of the Bank Group under the Loan
Documents shall remain unpaid or outstanding, unless the Majority Banks shall
otherwise consent in writing:
Section 5.01. REPORTING REQUIREMENTS. The Borrower shall deliver
or cause to be delivered to the Agent (with sufficient copies for the Agent
to distribute the same to the other members of the Bank Group):
(a) As soon as available and in any event within sixty (60) days
after the end of each of the first three fiscal quarters of the Borrower:
(i) copies of the unaudited consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such period, and unaudited
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for that fiscal period and for the portion of
the fiscal year ending with such period, in each case setting forth in
comparative form (on a consolidated basis) the figures for the
corresponding period of the preceding fiscal year, all in reasonable
detail; and
(ii) a certificate of a Responsible Officer of the Borrower (1)
stating that (A) such financial statements fairly present in all material
respects the consolidated financial position and results of operations of
the Borrower and its Subsidiaries in accordance with generally accepted
accounting principles consistently applied, subject to year-end adjustments
and the absence of notes and (B) no Default or Event of Default has
occurred and is continuing or, if any such event has occurred and is
continuing, the action the Borrower is taking or proposes to take with
respect thereto, and (2) setting forth calculations demonstrating
compliance by the Borrower with SECTIONS 6.04, 6.05 AND 6.06.
(b) As soon as available and in any event within one hundred five
(105) days after the end of each fiscal year of the Borrower (i) copies of
(A) the audited consolidated balance sheet of the Borrower and its
Subsidiaries as of the close of such fiscal year and audited consolidated
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statements of income and retained earnings and a statement of cash flows of
the Borrower and its Subsidiaries for such fiscal year, and (B) upon the
request of the Agent delivered not more than ninety (90) days after the end
of each fiscal year, an unaudited consolidating balance sheet of the Borrower
and its Subsidiaries as of the close of such fiscal year and unaudited
consolidating statements of income and retained earnings of the Borrower and
its Subsidiaries for such fiscal year, in each case setting forth in
comparative form (on a consolidated basis) the figures for the preceding
fiscal year, all in reasonable detail and accompanied, in the case of the
audited financial statements required by SECTION 5.01(b)(i)(A) above, by an
opinion thereon (which shall not be qualified by reason of any limitation
imposed by the Borrower) of independent accountants of recognized national
standing selected by the Borrower and reasonably satisfactory to the Majority
Banks, to the effect that such consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied (except for changes in which such accountants concur)
and that such audit has been made in accordance with generally accepted
auditing standards and (ii) a certificate of a Responsible Officer of the
Borrower (A) setting forth calculations demonstrating compliance by the
Borrower with SECTIONS 6.04, 6.05 AND 6.06 and (B) stating that no Default or
Event of Default has occurred and is continuing or, if any such event has
occurred and is continuing, the action the Borrower is taking or proposes to
take with respect thereto.
(c) Promptly after the sending or filing thereof, copies of all
reports and shareholder information which the Borrower or any of its
Subsidiaries sends to any holders of its respective securities, in their
capacities as holders of such securities and not in their capacities as
directors, officers or employees of the Borrower or any of the Borrower's
Subsidiaries, or to the SEC.
(d) As soon as possible and in any event within ten (10) days
after the Borrower or any of its Subsidiaries becomes aware of the occurrence
of a Default or Event of Default, a certificate of a Responsible Officer of
the Borrower setting forth details of such Default or Event of Default and
the action which has been taken or is to be taken with respect thereto.
(e) As soon as possible and in any event within ten (10) days
after the Borrower or any of its Subsidiaries becomes aware thereof, written
notice from a Responsible Officer of the Borrower of (i) the institution of
or threat of, any action, suit, proceeding, governmental investigation or
arbitration by any Governmental Authority or other Person against or
affecting the Borrower or any of its Subsidiaries that could have a Material
Adverse Effect on any such Person and that has not been previously disclosed
in writing to the Bank Group pursuant to this SECTION 5.01 or (ii) any
material development in any action, suit, proceeding, governmental
investigation or arbitration already disclosed to the Bank Group pursuant to
this SECTION 5.01 or SECTION 3.01.
(f) As soon as reasonably possible and in any event within ten
(10) days after the Borrower or any of its Subsidiaries becomes aware
thereof, written notice from a Responsible Officer of the Borrower of (i) any
violation of, noncompliance with, or remedial obligations under, Requirements
of Environmental Laws, (ii) any release or threatened release affecting any
Property owned, leased or operated by the Borrower or any of its
Subsidiaries, (iii) the amendment or revocation of any permit, authorization,
registration, approval or similar right that could have a
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Material Adverse Effect on the Borrower or any of its Subsidiaries or (iv)
changes to Requirements of Environmental Laws that could have a Material
Adverse Effect on the Borrower or any of its Subsidiaries.
(g) Promptly, and in any event within five (5) days after becoming
aware of any of the following, a written notice setting forth the nature
thereof and the action, if any, that the Borrower or an ERISA Affiliate or
Subsidiary proposes to take with respect thereto: (i) with respect to any
Pension Plan, any Reportable Event, for which notice thereof has not been
waived pursuant to such regulations as in effect on the date hereof; or (ii)
the taking by the PBGC of steps to institute, or the threatening by the PBGC
of the institution of, proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension
Plan, or the receipt by the Borrower or any ERISA Affiliate or Subsidiary of
a notice from a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction
or condition that could result in the incurrence of any liability by the
Borrower or any ERISA Affiliate or Subsidiary pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Internal Revenue Code
relating to employee benefit plans, or in the imposition of any Lien on any
of the rights, properties or assets of the Borrower or any ERISA Affiliate or
Subsidiary pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions; or (iv) the inability or failure of the Borrower or any ERISA
Affiliate or Subsidiary to make timely any payment or contribution to or with
respect to any Pension Plan, Multiemployer Plan or Other Benefit Plan, if
such failure, either separately or together with all other such failures
could reasonably be expected to be Material; or (v) any event with respect to
any Pension Plan, Multiemployer Plan and/or Other Benefit Plan, individually
or in the aggregate, that could reasonably be expected to be a Material
liability.
(h) As soon as available and in any event simultaneously with the
delivery of the financial statements delivered pursuant to SECTION 5.01(b),
copies of the budget of the Borrower and its Subsidiaries containing a
consolidated balance sheet, and detailed statements of income, cash flow and
projected capital expenditures for the then current fiscal year, together
with a narrative business plan describing the expected results of operation
of the Borrower and its Subsidiaries.
(i) As soon as possible and in any event ten (10) days after the
Borrower becomes aware thereof, any claim by or against the Borrower under
the Acquisition Documents, including claims for breach of warranty and claims
for indemnity.
(j) Such other information as any member of the Bank Group may
from time to time reasonably request respecting the business, properties,
operations or condition, financial or otherwise, of the Borrower or any of
its Subsidiaries.
Section 5.02. TAXES; CLAIMS. The Borrower will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon such Person or
upon its income or profits, or upon any properties belonging to such Person,
prior to the date on which penalties attach thereto, and all lawful claims
which, if
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unpaid, might become a Lien upon any properties of such Person, other than
any such tax, assessment, charge, levy or claim which is being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted, and with respect to which adequate reserves are set aside on the
books of such Person in accordance with generally accepted accounting
principles.
Section 5.03. COMPLIANCE WITH LAWS. The Borrower will comply, and
will cause each of its Subsidiaries to comply, with all applicable
Requirements of Law imposed by, any Governmental Authority, non-compliance
with which might have a Material Adverse Effect on any such Person. Without
limitation of the foregoing, the Borrower shall, and shall cause each of its
Subsidiaries to, comply with all Requirements of Environmental Laws, operate
properties and conduct its business in accordance with good environmental
practices, and handle, treat, store and dispose of hazardous materials or
solid waste in accordance with such practices, except where the failure to do
so will not have a Material Adverse Effect on any such Person.
Section 5.04. INSURANCE. The Borrower will maintain, and will
cause each of its Subsidiaries to maintain, with financially sound and
reputable insurance companies or associations, or self-insure against such
risks, and in such amounts (and with co-insurance and deductibles), as are
usually insured against by Persons of similar size and established reputation
engaged in the same or similar businesses and similarly situated, including
insurance against fire, casualty, business interruption, injury to Persons or
property and other normal hazards normally insured against, but, in any
event, such insurance shall not be substantially dissimilar from that
described in the insurance schedule delivered on the Effective Date pursuant
to SECTION 3.01. In addition, if requested by the Agent, on or before
January 31 of each year commencing January 31, 1998, the Borrower will
deliver to the Agent a report prepared by Borrower's insurance broker listing
all insurance policies and programs then in effect with respect to the
properties and businesses of the Borrower and each of its Subsidiaries,
specifying for each such policy and program, (a) the amount thereof, (b) the
risks insured against thereby, (c) the name of the insurer and each insured
party thereunder and (d) the policy or other identification number thereof.
Each policy listed on the schedule delivered pursuant to SECTION 3.01 and
each additional policy maintained in compliance with this Agreement shall be
endorsed showing the Agent as an additional insured, or a loss payee, as
applicable. All policies of insurance required by the terms of this
Agreement or any Security Document shall provide that at least 30 days' prior
written notice be given to the Agent of any termination, cancellation,
reduction or other modification of such insurance.
Section 5.05. CORPORATE EXISTENCE. The Borrower will preserve and
maintain, and will cause each of its Subsidiaries to preserve and maintain,
its existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each of its
Subsidiaries to qualify and remain qualified, as a foreign corporation in
each jurisdiction in which such qualification is material to the business and
operations of such Person or the ownership or leasing of the properties of
such Person except to the extent that a Subsidiary merges or consolidates in
compliance with SECTION 6.08 or ceases to be a Subsidiary of Borrower if such
cessation is permitted under this Agreement.
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Section 5.06. INSPECTIONS. From time to time during regular business
hours upon reasonable prior notice, the Borrower will permit, and will cause
each of its Subsidiaries to permit, any agents or representatives of any member
of the Bank Group to examine and make copies of and abstracts from the records
and books of account of, and visit the properties of the Borrower and its
Subsidiaries and to discuss the affairs, finances and accounts of any such
Person with any of its independent public accountants, officers or directors,
all at the expense of the Borrower.
Section 5.07. MAINTENANCE OF PROPERTIES. The Borrower will maintain
and preserve, and will cause each Subsidiary of the Borrower to maintain and
preserve, all of its Properties necessary for the proper conduct of its business
in good working order and condition, ordinary wear and tear excepted. The
Borrower shall cause, or in the event the Borrower is not the operator of its
Oil and Gas Properties, use reasonable best efforts consistent with its rights
under applicable operating agreements to cause, its Oil and Gas Properties to be
maintained, developed, protected against drainage and operated in a good and
workmanlike manner as would a reasonably prudent operator and in compliance with
all operating agreements, other applicable agreements and all applicable
Requirements of Law.
Section 5.08. ACCOUNTING SYSTEMS. The Borrower will keep, and will
cause each of its Subsidiaries to keep, adequate records and books of account in
which complete entries will be made in accordance with generally accepted
accounting principles consistently applied (subject to year end adjustments),
reflecting all financial transactions of such Person. The Borrower shall
maintain or cause to be maintained a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with generally accepted accounting
principles, and each of the financial statements described herein shall be
prepared from such system and records.
Section 5.09. USE OF LOANS. The Borrower will use the proceeds of
all Loans hereunder to finance a portion of the Acquisition consistent with the
terms of this Agreement and all Requirements of Law.
Section 5.10. RESERVE REPORTS. (a) By February 15 of each year
commencing February 15, 1998, the Borrower shall furnish to the Agent and the
Banks a Reserve Report dated as of the immediately preceding December 31. Each
such Reserve Report shall be prepared by independent petroleum engineers
acceptable to the Agent. Each such Reserve Report shall be in form and
substance satisfactory to the Agent and shall set forth, as of the immediately
preceding December 31: (i) the Proved Reserves attributable to the Acquisition
Properties together with a projection of the rate of production and future net
income, taxes, operating expenses and capital expenditures with respect thereto
as of such dates, based upon pricing and escalation assumptions consistent with
SEC reporting requirements at the time and (ii) such other information as the
Agent may reasonably request. By August 15 of each year commencing August 15,
1998, the Borrower shall furnish to the Agent and the Banks a Reserve Report
dated as of the immediately preceding June 30. Each such Reserve Report shall
be prepared by or under the supervision of the chief engineer of the Borrower
who shall certify, to the best of his knowledge and in all material respects,
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such Reserve Report to be true and accurate and to have been prepared in
accordance with the procedures used in the immediately preceding Reserve Report
delivered to the Banks under this SECTION 5.10(a).
(b) With respect to any unscheduled redetermination of the Borrowing
Base, the Borrower shall furnish to the Bank Group a Reserve Report prepared by
or under the supervision of the chief engineer of the Borrower (or upon the
request of the Agent prepared by independent petroleum engineers acceptable to
the Agent) covering the Acquisition Properties. Such Reserve Report shall be
prepared in accordance with the procedures set forth in SECTION 5.10(a), shall
contain such other information as the Agent may reasonably request and shall
have an "as of date" as requested by the Agent. For any unscheduled
redetermination of the Borrowing Base the Borrower shall provide such Reserve
Report as soon as possible, but in any event no later than 30 days following the
Borrower's receipt of notice of such unscheduled redetermination from the Agent.
(c) With the delivery of each Reserve Report, the Borrower shall
provide to the Bank Group, a certificate from the Responsible Officer that, to
the best of his knowledge and in all material respects, (i) the information
contained in the Reserve Report and any other information delivered therewith is
true and correct, (ii) the Borrower owns good and defensible title to the
Acquisition Properties evaluated in such Reserve Report free of all Liens except
for Excepted Liens and that the Borrower has created or allowed to be created no
new Liens on such Acquisition Properties except for Excepted Liens, (iii)
except as set forth on an exhibit to the certificate, on a net basis there are
no gas imbalances, take or pay or other prepayments with respect to the
Acquisition Properties evaluated in such Reserve Report which would require the
Borrower to delivery Hydrocarbons produced from such Acquisition Properties at
some future time without then or thereafter receiving full payment therefor,
(iv) none of the Acquisition Properties have been sold (other than Hydrocarbons
produced and sold in the ordinary course of business) since the date of the last
Borrowing Base determination except as set forth on an exhibit to the
certificate, which certificate shall list all of the Acquisition Properties sold
(other than Hydrocarbons produced and sold in the ordinary course of business)
and in such detail as reasonably required by the Agent, (v) attached to the
certificate is a list of the Acquisition Properties added to and deleted from
the immediately prior Reserve Report and an updated list of all Persons (with
their addresses) disbursing proceeds to the Borrower from the Acquisition
Properties, (vi) except as set forth on a schedule attached to the certificate,
all of the Acquisition Properties evaluated by such Reserve Report are Mortgaged
Property, and (vii) any change in working interest or net revenue interest in
the Acquisition Properties occurring since the last Reserve Report and the
reason for such change.
(d) As soon as available and in any event within 45 days after the
end of each calendar quarter commencing with September 30, 1997, the Borrower
shall provide the Bank Group production reports for the Acquisition Properties
certified by an officer of the Borrower, which reports shall include quantities
or volume of production or gas throughput which have accrued to the Borrower's
accounts for each month in such period, and such other information with respect
thereto as the Agent may reasonably request.
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Section 5.11. TITLE. Promptly and in any event within 30 days after
written request therefor by the Agent, the Borrower will provide the Agent with
title opinions reasonably satisfactory to the Agent with respect to the
Acquisition Properties which are included in the most recent Reserve Report
delivered to the Bank Group and for which title opinions have not been
previously delivered so that the Agent will have acceptable title opinions on at
least eighty percent (80%) of the value of the Acquisition Properties included
in such Reserve Report. In addition, within 60 days after the Effective Date,
the Borrower shall provide evidence reasonably satisfactory to the Agent that
all of the title requirements pertaining to the Acquisition Properties set forth
in the title opinions delivered to the Agent under SECTION 3.01(g) have been
satisfied except for any such title requirements that have been waived in
writing by the Agent prior to such date.
Section 5.12. FURTHER ASSURANCES IN GENERAL. The Borrower shall, and
shall cause each of its Subsidiaries to, protect and perfect the Liens
contemplated by the Security Documents. The Borrower at its expense shall, and
shall cause each of its Subsidiaries to, promptly execute and deliver all such
other and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower or any of its
Subsidiaries in the Loan Documents, including, without limitation, the
accomplishment of any condition precedent that may have been waived by the Banks
prior to the initial Borrowing or any subsequent Borrowings.
Section 5.13. ENFORCEMENT OF ACQUISITION DOCUMENTS. The Borrower
will enforce in all material respects all of the terms, covenants, warranties
and representations in favor of the Borrower under the Acquisition Documents.
Section 5.14. DERIVATIVE TRANSACTIONS. (a) Within six months
following the Execution Date, the Borrower shall enter into one or more oil and
gas price Derivatives, providing for monthly settlements and having the economic
effect of establishing a floor or fixed price of not less than $18.00 per barrel
for oil production and $2.00 per MMBtu for gas production from the Borrower's
Oil and Gas Properties in volumes sufficient to assure the receipt by the
Borrower of the following gross amounts from such volumes for the years
indicated: (i) 1998 - $8,995,000 and (ii) 1999 - $7,288,000; (b) within twelve
months following the Execution Date, the Borrower shall enter into one or more
oil and gas price Derivatives, providing for monthly settlements and having the
economic effect of establishing a floor or fixed price of not less than $18.00
per barrel for oil production and $2.00 per MMBtu for gas production from the
Borrower's Oil and Gas Properties in volumes sufficient to assure the receipt by
the Borrower of $6,840,000 from such volumes for the calendar year 2000; and (c)
within six months following the Execution Date, the Borrower shall enter into
one or more fixed-for-floating interest rate Derivatives, with the Borrower as
fixed rate payer at a rate per annum not greater than 8%, the floating rate
payers' obligations to be based on one month or three month London interbank
offering rate, the notional principal amount thereof for each calculation period
to be not less than seventy-five percent (75%) of the corresponding amount of
Credit Outstanding during such period and the term of such interest rate
Derivative to be for a period initially equal to at least twenty-four months
from the effective date of such Derivatives, and, after the first six months of
such initial twenty-four month period, for a period at all times equal to at
least the following eighteen months not to exceed the Maturity Date. All such
Derivatives shall
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be with creditworthy counterparties and otherwise on terms and conditions
satisfactory to the Majority Banks and shall provide that all payments to the
Borrower shall be made to an account of the Borrower maintained with the
Agent. Upon the occurrence of an Event of Default the Borrower shall cause
such payments to be applied to the Obligations.
ARTICLE VI
NEGATIVE COVENANTS
So long as any principal amount of any Loan, any amount of interest
accrued under the Notes or any commitment, facility or other fee, expense,
compensation or any other amount payable to any member of the Bank Group under
the Loan Documents shall remain unpaid or outstanding, unless the Majority Banks
shall otherwise consent in writing:
Section 6.01. INDEBTEDNESS RESTRICTION. The Borrower will not
create, incur, assume or suffer to exist, any Indebtedness other than:
(a) Indebtedness of the Borrower under the Loan Documents;
(b) Indebtedness of the Borrower under the Revolving Loan Documents;
(c) Indebtedness of the Borrower in respect of any Derivatives
permitted by SECTION 6.03 of the Revolving Credit Agreement;
(d) the Indebtedness of the Borrower under the Senior Unsecured
Notes;
(e) Indebtedness set out on SCHEDULE 6.01;
(f) Indebtedness of Borrower in the aggregate amount not to exceed
$1,000,000 in addition to all other Indebtedness permitted by this SECTION 6.01.
Section 6.02. LIEN RESTRICTION. The Borrower will not create,
incur, assume or suffer to be created, assumed or incurred or to exist, any Lien
upon any of the Borrower's Properties, whether now owned or hereafter acquired
other than the following Liens ("EXCEPTED LIENS"):
(a) Liens created pursuant to this Agreement or any other Loan
Document;
(b) Liens created pursuant to any of the Revolving Loan Documents;
(c) Liens in favor of the trustee under Section 7.07 of the
Indenture;
(d) royalties, overriding royalties, reversionary interests,
production payments and similar burdens with respect to the Borrower's Oil and
Gas Properties to the extent such burdens do not reduce the Borrower's net
interests in production in its Oil and Gas Properties below the
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interests reflected in each Reserve Report or the interests warranted under
this Agreement and the Acquisition Mortgage, and do not operate to deprive
the Borrower or its Subsidiaries of any material rights in respect of its
assets or properties (except for rights customarily granted with respect to
such interests);
(e) statutory liens, including liens for taxes or other assessments
that are not yet delinquent (or that, if delinquent, are being contested in good
faith by appropriate proceedings and for which the Borrower has set aside on
their books adequate reserves in accordance with generally accepted accounting
principles consistently applied);
(f) easements, rights of way, servitudes, permits, surface leases and
other rights in respect to surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like, conditions, covenants and other
restrictions, and easements of streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other easements and rights of way on, over or
in respect of the Borrower's Properties;
(g) materialmen's, mechanic's, repairman's, contractor's, sub-
contractor's, operator's and other Liens incidental to the construction,
maintenance, development or operation of the Borrower's Properties to the extent
not delinquent (or which, if delinquent, are being contested in good faith by
appropriate proceedings and for which the Borrower has set aside on its books
adequate reserves in accordance with generally accepted accounting principles
consistently applied);
(h) all contracts, agreements and instruments, and all defects and
irregularities and other matters affecting the Borrower's Properties which were
in existence at the time such Properties were originally acquired by the
Borrower and all routine operational agreements entered into in the ordinary
course of business, which contracts, agreements, instruments, defects,
irregularities and other matters and routine operational agreements do not
reduce the Borrower's net interest in production in its Oil and Gas Properties
below the interests reflected in each Reserve Report or the interests warranted
under this Agreement or the Acquisition Mortgage and do not interfere materially
with the operation, value or use of the Borrower's Properties;
(i) landlord's liens securing obligations that are not yet delinquent
(or that, if delinquent, are being contested in good faith by appropriate
proceedings and for which the Borrower has set aside on its books adequate
reserves in accordance with generally accepted accounting principles
consistently applied);
(j) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations that are not yet delinquent (or that, if delinquent, are being
contested in good faith by appropriate proceedings and for which the Borrower or
its Subsidiaries have set aside on their books adequate reserves in accordance
with generally accepted accounting principles consistently applied);
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(k) rights reserved to or vested in any municipality, governmental,
statutory or other public authority to control or regulate the Borrower's
Properties in any manner, and all applicable laws, rules and orders from any
Governmental Authority;
PROVIDED, HOWEVER, that the definition of the term "Excepted Liens" does not
include Liens of any kind or character which are prior by perfection to the
Liens on the Mortgaged Property under the Security Documents, or which may, by
operation of law, become prior to such Liens under the Security Documents.
Section 6.03. [INTENTIONALLY OMITTED].
Section 6.04. INTEREST COVERAGE RATIO. The Borrower will not permit
the ratio of (a) EBITDA to (b) Interest Expense, measured as of the last day of
any calendar quarter for the twelve month period then ended, to be less than
2.25 to 1.00 as of the last day of any calendar quarter through September 30,
1997 or to be less than 2.50 to 1.00 as of the last day of any calendar quarter
after September 30, 1997.
Section 6.05. CURRENT RATIO. The Borrower will not permit the ratio
of (i) its consolidated current assets, plus that portion of any unfunded
Revolving Facility Commitment available based on the most recent determination
of the "Borrowing Base" under the Revolving Credit Agreement that can be
borrowed without causing a "Default" or "Event of Default" to occur under the
Indenture, to (ii) its consolidated current liabilities, excluding current
maturities of Indebtedness under this Agreement and the Revolving Credit
Agreement, at the end of any calendar quarter ending on or after September 30,
1997 to be less than 1.00 to 1.00.
Section 6.06. TANGIBLE NET WORTH. The Borrower will not permit its
Consolidated Tangible Net Worth at the end of any calendar quarter ending after
the Effective Date to be less than the sum of (a) $30,000,000.00 plus (b)
seventy-five percent (75%) of Net Income for each fiscal quarter ending after
the Effective Date (excluding any such calendar quarter in which Net Income is a
loss), plus (c) seventy-five percent (75%) of the proceeds of any equity
offering or similar capital infusion after the Effective Date.
Section 6.07. SALES OF PROPERTIES. The Borrower will not sell,
transfer, assign, farm-out, lease or otherwise transfer or dispose of any
Properties other than (a) sales of Hydrocarbon production in the ordinary course
of business and sales of obsolete or worn-out equipment in the ordinary course
of business, and (b) any other sale of Properties sold at fair market value, so
long as the aggregate Net Proceeds for all such sales made under this subclause
(b) during the period between each redetermination of the Borrowing Base does
not exceed $1,000,000.
Section 6.08. CONSOLIDATION AND MERGERS. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, consolidate
with or merge into any Person or permit any Person to consolidate with or merge
into it, except that any Subsidiary of the Borrower may merge into or
consolidate with any other Subsidiary of the Borrower and any Subsidiary of the
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Borrower may merge into or consolidate with the Borrower, provided in each case
that, immediately after giving effect and pro forma effect thereto, no event
shall occur and be continuing which constitutes either a Default or an Event of
Default, and if the Borrower is a party to such merger, the Borrower is the
surviving entity.
Section 6.09. RESTRICTED DISBURSEMENTS. The Borrower will not
approve, make, incur or commit to incur any Restricted Disbursements other than:
(a) advances or extensions of credit on terms customary in the
industry involved in the form of accounts receivable incurred, and investments,
loans, and advances made in settlement of such accounts receivable, all in the
ordinary course of business;
(b) Permitted Investments;
(c) purchases of not more than 402,000 shares of the Borrower's
common stock under the Borrower's previously announced stock repurchase program;
(d) investments or capital contributions made by the Borrower in or
to Costilla Redeco not to exceed $2,500,000 during any calendar year or
$5,000,000 in the aggregate; and
(e) the Restricted Disbursements set out on SCHEDULE 6.09.
Section 6.10. LINES OF BUSINESS. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly engage in any business
other than the acquisition, disposition, exploration, ownership, development and
operation of Oil and Gas Properties.
Section 6.11. TRANSACTIONS WITH AFFILIATES. Except as set out in
SCHEDULE 6.11, neither the Borrower nor any of its Subsidiaries, will enter into
any transaction with an Affiliate other than (a) transactions entered into in
the ordinary course of business and upon terms no less favorable than those that
the Borrower or its Subsidiary, as applicable, could obtain in an arms length
transaction with a Person that is not an Affiliate and (b) transactions between
the Borrower and any of its Subsidiaries, or between such Subsidiaries, that do
not and will not, either directly or indirectly, cause an Event of Default.
ARTICLE VII
DEFAULT AND REMEDIES
Section 7.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) the Borrower shall fail to pay when due any installment of
principal of the Notes; or
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(b) the Borrower shall fail to pay any interest on any Loan or any
arrangement fee, administration fee, funding fee, commission, expense,
compensation, reimbursement or other amount when due and such failure shall not
have been remedied within four (4) days of such due date; or
(c) the Borrower shall fail to perform any term, covenant or
agreement contained in ARTICLE VI or SECTION 5.01(e) of this Agreement; or
(d) the Borrower shall fail to perform any term, covenant or
agreement contained in this Agreement (other than those referenced in
subsections (a), (b) and (c) of this SECTION 7.01) and such failure shall not
have been remedied within twenty (20) days after notice thereof from the Agent
to the Borrower; or
(e) the Borrower or any of its Subsidiaries shall fail to perform any
term, covenant or agreement contained in any Loan Document (other than those
referenced in subsections (a), (b), (c) and (d) of this SECTION 7.01) and such
failure shall not have been remedied within twenty (20) days after notice
thereof from the Agent to the Borrower; or
(f) any representation or warranty made by the Borrower, or any of
its officers, in any Loan Document or in any certificate, agreement, instrument
or statement contemplated by or delivered pursuant to, or in connection with,
any Loan Document shall prove to have been incorrect in any material respect
when made; or
(g) the Borrower or any of its Subsidiaries shall (i) fail to pay
Indebtedness having a principal amount in excess of $500,000 in the aggregate
(other than the amounts referred to in subsections (a) and (b) of this
SECTION 7.01) owing by such Person, or any interest or premium thereon, when due
(or, if permitted by the terms of the relevant document, within any applicable
grace period), whether such Indebtedness shall become due by scheduled maturity,
by required prepayment, by acceleration, by demand or otherwise; or (ii) fail to
perform any term, covenant or condition on its part to be performed under any
agreement or instrument evidencing, securing or relating to any such
Indebtedness, when required to be performed, and such failure shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such failure is to accelerate, or to permit the
holder or holders of such Indebtedness to accelerate, the maturity of such
Indebtedness; or
(h) any Loan Document shall (other than with the consent of the
Majority Banks), at any time after its execution and delivery and for any
reason, cease to be in full force and effect or to provide the Liens
contemplated thereby, or shall be declared to be null and void, or the validity
or enforceability thereof or of the Liens contemplated thereby shall be
contested by any Person party to the Loan Documents or any such Person shall
deny that it has any or further liability or obligation under any Loan Document;
or
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(i) the Borrower or any of its Subsidiaries shall be adjudicated
insolvent, or shall generally not pay, or admit in writing its inability to pay,
its debts as they mature, or make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by any such Person seeking to
adjudicate it insolvent, seeking liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial part
of its property, or the Borrower or any of its Subsidiaries shall take any
action in furtherance of any of the actions set forth above in this
SECTION 7.01(i); or
(j) any proceeding of the type referred to in SECTION 7.01(i) is
filed, or any such proceeding is commenced against the Borrower or any of its
Subsidiaries or any such Person by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order for relief is entered in an
involuntary case under the bankruptcy law of the United States, or an order,
judgment or decree is entered appointing a trustee, receiver, custodian,
liquidator or similar official or adjudicating any such Person insolvent, or
approving the petition in any such proceedings, and such order, judgment or
decree remains in effect for sixty (60) days; or
(k) a final judgment or order for the payment of money in excess of
$500,000 (net of acknowledged, uncontested insurance coverage) shall be rendered
against the Borrower or any of its Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) a stay of enforcement of such judgment or order by reason of a
pending appeal or otherwise, shall not be in effect for any period of thirty
(30) consecutive days; or
(l) if (i) any Pension Plan shall fail to satisfy the minimum funding
standards of ERISA or the Internal Revenue 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 Internal Revenue Code, (ii) a notice
of intent to terminate any Pension Plan shall have been or is reasonably
expected to be filed with the PBGC or the PBGC shall have instituted proceedings
under Section 4042 of ERISA to terminate or appoint a trustee to administer any
Pension Plan or the PBGC shall have notified the Borrower or any ERISA Affiliate
or Subsidiary that a Pension Plan may become a subject to any such proceedings,
(iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning
of Section 4001(a)(18) of ERISA) under all Pension Plans, determined in
accordance with Title IV of ERISA, shall exceed $100,000, (iv) the Borrower or
any ERISA Affiliate or Subsidiary shall have incurred or is reasonably expected
to incur any liability pursuant to Title I or IV of ERISA, the penalty or excise
tax provisions of the Internal Revenue Code relating to employee benefit plans
and/or other liability with respect to one or more Other Benefit Plans, (v) the
Borrower or any ERISA Affiliate or Subsidiary withdraws from any Multiemployer
Plan, (vi) the Borrower or any ERISA Affiliate or Subsidiary fails to make any
contribution due, or payment to, any Pension Plan, Multiemployer Plan and/or
Other Benefit Plan, or (vii) the Borrower or any ERISA Affiliate or 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
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Borrower or any ERISA Affiliate or Subsidiary thereunder, and any such event or
events described in clauses (i) through (vii) above, either individually or
together with any other such event or events, could reasonably be expected to
have a Material Adverse Effect; or
(m) any event which has a Material Adverse Effect shall occur; or
(n) a Change of Control shall occur; or
(o) an "Event of Default" shall occur under the Indenture; or
(p) an "Event of Default" shall occur under the Revolving Credit
Agreement;
then, (i) upon the occurrence of any Event of Default described in
SECTION 7.01(i) or SECTION 7.01(j), (A) the Commitments shall automatically
terminate and (B) the entire unpaid principal amount of all Loans, all interest
accrued and unpaid thereon, and all other amounts payable by the Borrower under
this Agreement, the Notes, the other Loan Documents and any other agreement or
security document contemplated by or delivered in connection with this Agreement
shall automatically become immediately due and payable, without presentment for
payment, demand, protest, notice of intent to accelerate, notice of acceleration
or further notice of any kind, all of which are hereby expressly waived by the
Borrower, and (ii) upon the occurrence of any Event of Default, the Agent may,
and upon the direction of the Majority Banks shall, by notice to the Borrower
(A) declare the Commitments to be terminated, whereupon the same shall forthwith
terminate and (B) declare the entire unpaid principal amount of all Loans, all
interest accrued and unpaid thereon, and all other amounts payable by the
Borrower under this Agreement, the Notes, the other Loan Documents and any other
agreement or security document contemplated by or delivered in connection with
this Agreement, to be forthwith due and payable, whereupon all such amounts
shall become and be forthwith due and payable, without presentment for payment,
demand, protest, notice of intent to accelerate, notice of acceleration or
further notice of any kind, all of which are hereby expressly waived by the
Borrower.
Section 7.02. SETOFF IN EVENT OF DEFAULT. Upon the occurrence and
during the continuance of any Event of Default, each member of the Bank Group is
hereby authorized, at any time and from time to time, without notice to the
Borrower (any such notice being expressly waived by the Borrower) and to the
fullest extent permitted by applicable law, to setoff and apply any and all
deposits at any time held and other indebtedness at any time owing by such
member of the Bank Group (or any branch, subsidiary or affiliate of such member
of the Bank Group) to or for the credit or the account of the Borrower against
any and all of the obligations of the Borrower or any other Person, now or
hereafter existing under this Agreement, the Notes or the other Loan Documents,
irrespective of whether or not such member of the Bank Group shall have made any
demand for satisfaction of such obligations and although such obligations may be
unmatured. Any member of the Bank Group exercising such right agrees to notify
the Borrower promptly after any such setoff and application made by such Person;
PROVIDED, that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of the Bank Group under this
SECTION 7.02 are
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in addition to other rights and remedies (including, without limitation,
other rights of setoff) which the Bank Group may have hereunder or under any
applicable law.
Section 7.03. NO WAIVER; REMEDIES. No failure on the part of any
member of the Bank Group to exercise, or any delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided in any of the other Loan
Documents or by law.
Section 7.04. HYDROCARBON PROCEEDS. Notwithstanding that, by the
terms of the various Security Documents, Borrower is and will be absolutely and
unconditionally assigning to the Agent for the ratable benefit of the Banks all
Hydrocarbons and all proceeds therefrom accruing to the interest of the Borrower
in the Mortgaged Property, so long as no Event of Default has occurred the
Borrower shall have the right (revocable at any time by the Agent upon the
occurrence of an Event of Default) to receive from the purchasers of production
all such Hydrocarbon proceeds, subject, however, to the Liens created under the
Security Documents, which Liens are hereby affirmed and ratified. Upon the
occurrence of an Event of Default, the Agent may exercise all rights and
remedies granted under the Security Documents, including the right to obtain
possession of all such Hydrocarbon proceeds then held by the Borrower or to
receive directly from the purchasers of production all other such Hydrocarbon
proceeds. In no case shall any failure, whether purposed or inadvertent, by the
Agent to collect directly any such Hydrocarbon 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 such Hydrocarbon proceeds by the Agent to the
Borrower constitute a waiver, remission or release of any other such Hydrocarbon
proceeds or of any rights of the Agent to collect other such proceeds
thereafter.
Section 7.05. APPLICATION OF PROCEEDS AFTER ACCELERATION. If any
Event of Default shall have occurred and be continuing, and if the Obligations
have become due and payable, all cash collateral held by the Agent under this
Agreement and the proceeds of any sale, disposition or other realization by the
Agent upon the Mortgaged Property (or any portion thereof) pursuant to the
Security Documents, shall be distributed in whole or in part by the Agent in the
following order of priority, unless otherwise directed by all of the Banks:
FIRST, to the Agent and the Co-Agent, ratably, in an amount equal to
all costs and expenses of the Agent and the Co-Agent due and payable as of
the date of such distribution;
SECOND, to the Banks, ratably, in an amount equal to all accrued
interest and fees owing to the Banks under the Credit Agreement due and
payable as of the date of such distribution; PROVIDED, HOWEVER, that in
case such proceeds shall be insufficient to pay in full all such
Obligations, then to the payment thereof to the Banks, ratably, in
proportion to its percentage of the sum of the aggregate amounts of all
such Obligations;
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THIRD, to the Banks, ratably, in an amount equal to the principal of
all Loans owing to the Banks under the Credit Agreement due and payable as
of the date of such distribution; PROVIDED, HOWEVER, that in case such
proceeds shall be insufficient to pay in full all such Obligations, then to
the payment thereof to the Banks, ratably, in proportion to its percentage
of the sum of the aggregate amounts of all such Obligations;
FOURTH, to the Banks, ratably, in an amount equal to all amounts owing
to the Banks under all Bank Group Derivatives due and payable as of the
date of such distribution; PROVIDED, HOWEVER, that in case such proceeds
shall be insufficient to pay in full all such Obligations, then to the
payment thereof to the Banks, ratably, in proportion to its percentage of
the sum of the aggregate amounts of all such Obligations;
FIFTH, to the Banks in an amount equal to all other Obligations due
and payable as of the date of such distribution; PROVIDED, HOWEVER, that in
case such proceeds shall be insufficient to pay in full all such
Obligations, then to the payment thereof to the Banks, ratably, in
proportion to its percentage of the sum of the aggregate amounts of all
such Obligations; and
SIXTH, to the extent of any surplus, to the Borrower, as its interests
may appear, except as may be provided otherwise by law;
it being understood that the Borrower shall remain liable to the extent of any
deficiency between the amount of the proceeds of the Mortgaged Property and the
aggregate of the sums referred to in clauses FIRST through FIFTH above.
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ARTICLE VIII
THE AGENT AND THE CO-AGENT
Section 8.01. AUTHORIZATION AND ACTION. Each Bank hereby appoints
and authorizes the Agent to take such action in such capacity on such Bank's
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto. As to any
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes or of amounts owing under the
other Loan Documents), the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Banks, and such instructions shall be
binding upon all Banks and any other holders of Notes; PROVIDED, HOWEVER, that
the Agent shall not be required to take any action which exposes it to personal
liability or which is contrary to the Loan Documents or applicable law. The
Agent is hereby expressly authorized on behalf of the other members of the Bank
Group, without hereby limiting any implied authority, (a) to receive on behalf
of each of the other members of the Bank Group any payment of principal of or
interest on the Loans outstanding hereunder, and all other amounts accrued
hereunder paid to such Persons, and promptly to distribute to each other member
of the Bank Group its proper share of all payments so received; (b) to give
notice within a reasonable time on behalf of each other member of the Bank Group
to the Borrower of any Default or Event of Default specified in this Agreement
of which the Agent has actual knowledge as provided in SECTION 8.09; (c) to
distribute to the other members of the Bank Group copies of all notices,
agreements and other material as provided for in this Agreement as received by
such Person; and (d) to distribute to the Borrower any and all requests, demands
and approvals received by such Person from any other member of the Bank Group.
Nothing herein contained shall be construed to constitute the Agent as a trustee
for any holder of the Notes or of a participation therein, nor to impose on the
Agent any duties or obligations other than those expressly provided for in the
Loan Documents.
Section 8.02. RELIANCE, ETC. None of the Agent, its Affiliates and
their directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement (INCLUDING ANY ACT OR OMISSION CONSTITUTING ORDINARY NEGLIGENCE,
WHETHER SOLE OR CONTRIBUTORY, ON BEHALF OF SUCH PERSON), except for its or their
own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Agent: (a) may treat the payee of any Note as
the holder thereof until the Agent receives and accepts an Assignment and
Acceptance entered into by the Bank which is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in SECTION 9.02;
(b) may consult with legal counsel (including counsel for the Borrower),
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 Bank and shall not be responsible to any Bank
for any statements, warranties or representations (whether written or oral) made
in or in connection with this Agreement or the other Loan Documents; (d) shall
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not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this Agreement or the other Loan
Documents on the part of the Borrower or any other Person or to inspect the
property (including the books and records) of the Borrower or any other Person;
(e) shall not be responsible to any Bank for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of any Loan
Document, any collateral provided for therein, or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in respect of this Agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper party or
parties. None of the Agent, its Affiliates and their directors, officers,
employees or agents shall have any responsibility to the Borrower on account of
the failure or delay in performance or breach by any Bank of any of its
obligations hereunder or to any Bank on account of the failure of or delay in
performance or breach by any other Bank or the Borrower of any of its
obligations hereunder or in connection herewith.
Section 8.03. BTCO AND AFFILIATES. Without limiting the right of any
other Bank to engage in any business transactions with the Borrower or any of
its Affiliates, with respect to its Commitment, the Loans made by it and the
Notes issued to it, Bankers Trust Company ("BTCO") shall have the same rights
and powers under this Agreement as any other Bank and may exercise the same as
though it were not the Bank or the Agent; and the term "Bank" or "Banks" shall,
unless otherwise expressly indicated, include BTCo in its individual capacity.
BTCo, or any of its Affiliates, may be engaged in, or may hereafter engage in,
one or more loan, letter of credit, leasing, derivative or other financing
activities not the subject of the Loan Documents (collectively, the "OTHER
FINANCINGS") with the Borrower or any of its Affiliates, or may act as trustee
on behalf of, or depositary for, or otherwise engage in other business
transactions with the Borrower or any of its Affiliates (all Other Financings
and other such business transactions being collectively, the "OTHER ACTIVITIES")
with no responsibility to account therefor to the Banks. Without limiting the
rights and remedies of the Banks specifically set forth in the Loan Documents,
no other Bank shall have any interest in (a) any Other Activities, (b) any
present or future guarantee by or for the account of the Borrower not
contemplated or included in the Loan Documents, (c) any present or future offset
exercised by BTCo in respect of any such Other Activities, (d) any present or
future property taken as security for any such Other Activities or (e) any
property now or hereafter in the possession or control of BTCo which may be or
become security for the obligations of the Borrower under the Loan Documents by
reason of the general description of indebtedness secured, or of property,
contained in any other agreements, documents or instruments related to such
Other Activities; PROVIDED, that if any payment in respect of such guarantees or
such property or the proceeds thereof shall be applied to reduction of the
obligations evidenced hereunder and by the Notes, then each Bank shall be
entitled to share in such application according to its pro rata portion of such
obligations.
Section 8.04. BANK CREDIT DECISION. Each Bank acknowledges that it
has, independently and without reliance upon any other member of the Bank Group
and based on the financial statements referred to in SECTION 4.06 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each
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Bank also acknowledges that it will, independently and without reliance upon
any other member of the Bank Group 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 this Agreement.
Section 8.05. INDEMNIFICATION. The Banks agree to indemnify each of
the Agent and the Co-Agent, its Affiliates or any of their respective directors,
officers, agents or employees (to the extent not reimbursed by the Borrower),
ratably according to its Commitment Percentages, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against any such Person in any way relating
to or arising out of this Agreement or the other Loan Documents or any action
taken or omitted by any such Person under this Agreement or the other Loan
Documents, PROVIDED, that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Person's gross negligence
or willful misconduct. IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT
THE AGENT, THE CO-AGENT AND AFFILIATES AND THEIR RESPECTIVE DIRECTORS, OFFICERS,
AGENTS OR EMPLOYEES SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND ARISING OUT OF OR RESULTING FROM
THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH PERSON. Neither
the Agent nor the Co-Agent shall be required to do any act hereunder or under
any other document or instrument delivered hereunder or in connection herewith
or take any action toward the execution or enforcement of the agencies hereby
created, or to prosecute or defend any suit in respect of this Agreement or the
Loan Documents or any collateral security, unless indemnified to its
satisfaction by the holders of the Notes against loss, cost, liability, and
expense. If any indemnity furnished to the Agent and the Co-Agent, for any
purpose is, in the opinion of such Person insufficient or becomes impaired, such
Person may call for additional indemnity and not commence or cease to do the
acts indemnified against until such additional indemnity is furnished. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent or the
Co-Agent, promptly upon demand for its ratable share of any out-of-pocket
expenses (including counsel fees) incurred by such Person in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
and the other Loan Documents, to the extent that the Agent is not reimbursed for
such expenses by the Borrower.
Section 8.06. EMPLOYEES OF THE AGENT. The Agent may execute any of
its duties under this Agreement, the other Loan Documents and any instrument,
agreement or document executed, issued or delivered pursuant hereto or thereto
or in connection herewith or therewith, by or through employees, agents and
attorneys-in-fact, and shall not be answerable for the default or misconduct of
any such employee, agent or attorney-in-fact selected by it with reasonable
care. The Agent may, and upon the written instruction of the Majority Banks
shall, enforce on behalf of the
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Banks any claims which the Agent and/or the Banks may have against any such
employee, agent or attorney-in-fact, and any recovery therefrom shall be
applied for the pro rata benefit of the Banks.
Section 8.07. SUCCESSOR AGENT. The Agent may resign at any time by
giving written notice thereof to the other members of the Bank Group and the
Borrower and may be removed at any time with or without cause by the Majority
Banks. Upon any such resignation or removal, the Majority Banks shall have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Majority Banks, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a commercial bank or corporation organized under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under this Agreement, subject to the requirement that
such retiring Agent will execute such documents and take such actions as may be
necessary or desirable to cause the successor Agent to be vested with all such
rights, powers, privileges and duties. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this ARTICLE VIII shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement. All reasonable costs and expenses incurred by the
Bank Group in connection with any amendments or other documentation required by
this SECTION 8.07 shall be paid by the Borrower pursuant to SECTION 9.04 hereof.
Section 8.08. SUCCESSOR CO-AGENT. The Co-Agent may resign at any
time by giving written notice thereof to the other members of the Bank Group and
the Borrower and may be removed at any time with or without cause by the
Majority Banks. Upon any such resignation or removal, the Majority Banks shall
have the right to appoint a successor Co-Agent. If no successor Co-Agent shall
have been so appointed by the Majority Banks, and shall have accepted such
appointment, within thirty (30) days after the retiring Co-Agent's giving of
notice of resignation or the Majority Banks' removal of the retiring Co-Agent,
then the retiring Co-Agent may, on behalf of the Banks, appoint a successor Co-
Agent, which shall be a commercial bank organized under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $500,000,000. Upon the acceptance of any appointment as Co-
Agent hereunder by a successor Co-Agent, such successor Co-Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Co-Agent, and the retiring Co-Agent shall be discharged from its
duties and obligations under this Agreement, subject to the requirement that
such retiring Co-Agent will execute such documents and take such actions as may
be necessary or desirable to cause the successor Co-Agent to be vested with all
such rights, powers, privileges and duties. After any retiring Co-Agent's
resignation or removal hereunder as Co-Agent, the provisions of this
ARTICLE VIII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Co-Agent under this Agreement. All reasonable costs
and expenses incurred by the Bank Group in connection with any amendments or
other documentation required by this SECTION 8.08 shall be paid by the Borrower
pursuant to SECTION 9.04 hereof.
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Section 8.09. NOTICE OF DEFAULT. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it shall have received notice from a Bank or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default" or "notice of event of
default," as applicable. If the Agent receives such a notice from the Borrower,
the Agent shall give notice thereof to the other members of the Bank Group and,
if such notice is received from a Bank, the Agent shall give notice thereof to
the other members of the Bank Group and the Borrower. The Agent shall be
entitled to take action or refrain from taking action with respect to such
Default or Event of Default as provided in this ARTICLE VIII.
Section 8.10. EXECUTION OF LOAN DOCUMENTS. Each member of the Bank
Group hereby authorizes and directs the Agent to execute and deliver on its
behalf each Loan Document to be executed by the Agent pursuant to the terms of
this Agreement.
ARTICLE IX
MISCELLANEOUS
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Section 9.01. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement, any Note or any other Loan Document, or consent to
any departure by any Person herefrom or therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Borrower and the
Majority Banks, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; PROVIDED, that
no amendment, waiver or consent shall, unless in writing and signed by all the
Banks, do any of the following: (a) waive any of the conditions specified in
ARTICLE III, (b) increase the Commitments of the Banks or subject the Banks to
any additional obligations, (c) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, (e) release the Borrower or any other Person
from its payment obligations to the Bank Group, regardless of whether such
obligations are those of a primary obligor, a guarantor or surety, or otherwise,
(f) authorize the Agent to release Liens against a substantial portion of any
collateral covered by the Security Documents, (g) take action which expressly
requires the signing of all the Banks pursuant to the terms of this Agreement,
(h) reduce the Commitment Percentages or the aggregate unpaid principal amount
of the Notes, or the number of Banks, as the case may be, required for the Agent
or the Banks or any of them to take any action under this Agreement or reduce
the percentage of Majority Banks or (i) amend this SECTION 9.01; PROVIDED,
FURTHER, that no amendment, waiver or consent shall, (1) unless in writing and
signed by the Co-Agent in addition to the Banks required above to take such
action, effect the rights or duties of the Co-Agent under this Agreement or any
other Loan Documents and (2) unless in writing and signed by the Agent in
addition to the Banks required above to take such action, affect the rights or
duties of the Agent under this Agreement or any other Loan Document.
Notwithstanding the foregoing, the Agent may (without the consent of the Banks)
release the Lien created under the Security Documents on any assets of the
Borrower or any of its Subsidiaries if the sale of such assets is permitted
under SECTION 6.07.
Section 9.02. PARTICIPATION AGREEMENTS AND ASSIGNMENTS. (a) Each
Bank may assign to one or more Eligible Assignees all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and the Loans owing to it, the Note or the Notes held
by it and the other Loan Documents); PROVIDED, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all rights and
obligations of the assignor under this Agreement, the other Loan Documents, and
the Revolving Loan Documents and no assignment shall be made unless it covers a
pro rata share of all rights and obligations of such assignor under this
Agreement, the other Loan Documents and the Revolving Loan Documents, (ii) the
amount of the Commitment of the assigning Bank being assigned pursuant to each
such assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall, unless otherwise agreed to by the Agent or
unless such assignment is to a member of the Bank Group, in no event be less
than $5,000,000, (iii) each such assignment to an Eligible Assignee who is not a
member of the Bank Group must be approved by the Agent and, so long as no
Default exists, the Borrower, which approval shall not be unreasonably withheld
and (iv) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance and recording in the Register (defined below), an
Assignment and Acceptance, together with any Note subject to such assignment and
a recordation fee in the aggregate amount of $3,500 for processing such
assignment and the
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related assignment under the Revolving Credit Agreement. Upon such execution,
delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (x) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations under
the Loan Documents have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank under the Loan
Documents, (y) the assigning Bank thereunder shall, to the extent that rights
and obligations under the Loan Documents have been assigned by it pursuant to
such Assignment and Acceptance, relinquish its rights and be released from
further obligations under the Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an
assigning Bank's rights and obligations under this Agreement, such Bank shall
cease to be a party hereto) and (z) be deemed to have made, as of such
effective date, to the Agent and the Borrower the representations and
warranties set forth in SECTION 2.09(f) hereof.
(b) By executing and delivering an Assignment and Acceptance, the
assigning Bank thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Bank makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement or any other instrument or document furnished
pursuant hereto; (ii) such assigning Bank makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or any other Person or the performance or observance by the Borrower or
any other Person of any of its obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement and the other Loan Documents,
together with copies of the financial statements referred to in SECTION 4.06 and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon any member of
the Bank Group (including such assigning Bank) 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 this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Agent, to take such action on its behalf and to exercise such
powers under this Agreement and the other Loan Documents as are delegated to
such Person by the terms thereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement and the other Loan Documents are required to be performed by it as a
Bank.
(c) The Agent shall maintain at its address referred to in
SECTION 9.03 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the Banks
and the Commitment of, and principal amount of the Loans owing to, each Bank
from time to time (the "REGISTER"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the Borrower
and each member of the Bank Group may treat each Person whose name is recorded
in the Register as a Bank
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hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any member of the Bank Group at
any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee representing that it is an Eligible Assignee,
together with any Notes subject to such assignment and the administrative fee
payable to the Agent for such assignment, the Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of
EXHIBIT 9.02 hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within five (5) Business Days after its receipt of
such notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for the surrendered Notes, new Notes to the order of such
Eligible Assignee in an amount corresponding to the Commitment assumed by such
Eligible Assignee pursuant to such Assignment and Acceptance and, if the
assigning Bank has retained a Commitment hereunder, new Notes to the order of
the assigning Bank in an amount corresponding to the Commitment retained by it
hereunder. Such new Notes shall be in an aggregate principal amount equal to
the aggregate principal amount of such surrendered Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form prescribed by SECTION 2.04 hereto.
(e) Each Bank may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the Loans owing to it); PROVIDED, that (i) such Bank's obligations under this
Agreement (including, without limitation, its Commitment to the Borrower
hereunder) and the other Loan Documents shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, and the participating banks or other entities shall not be
considered a "Bank" for purposes of the Loan Documents, (iii) the participating
banks or other entities shall be entitled to the cost protection provisions
contained in SECTIONS 2.09 through 2.12 to the same extent that the Bank from
which such participating bank or other entity acquired its participation would
be entitled to the benefit of such cost protection provisions, and (iv) the
Borrower and the other members of the Bank Group shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement and the other Loan Documents, and such Bank
shall retain the sole right to enforce the obligations of the Borrower relating
to the Loans and to approve any amendment, modification or waiver of any
provision of this Agreement (other than amendments, modifications or waivers
with respect to the amounts of any fees payable hereunder or the amount of
principal of or the rate at which interest is payable on the Loans or the dates
fixed for payments of principal or interest on the Loans).
(f) Any Bank may at any time pledge or assign all or any portion of
its rights under this Agreement and the other Loan Documents to any Federal
Reserve Bank without notice to or consent of the Borrower. No such pledge or
assignment shall release the assigning Bank from its obligations hereunder.
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(g) The Agent and each Bank may furnish any information concerning
the Borrower or its Subsidiaries in the possession of the Agent or such Bank
from time to time to Affiliates of the Agent or such Bank (including without
limitation, in the case of Bankers Trust Company, BT Securities Corporation and
its employees, to the extent necessary for the purposes contemplated by this
Agreement, including, without limitation, the syndication of the credit
facilities contemplated hereby) and, in the case of each Bank, to assignees and
participants (including prospective assignees and participants) of such Bank.
Each Bank will take reasonable steps to protect the confidentiality of any
information concerning the Borrower or its Subsidiaries provided to a respective
participant or assignee and known by such Bank to be confidential, and, if
requested by the Borrower, such Bank will identify the prospective assignees and
participants that have received such information.
Section 9.03. NOTICES. All correspondence, statements, notices,
requests and demands (collectively "COMMUNICATIONS") shall be in writing
(including telegraphic Communications) and mailed, telegraphed, telecopied,
facsimile transmitted or delivered as follows:
if to the Borrower --
Costilla Energy, Inc.
400 West Illinois, Suite 1000
Midland, Texas 79701
P. O. Box 10369
Midland, Texas 79702
Attention: Bobby Page
Telecopier: 915-686-6080
if to the Agent--
Bankers Trust Company
130 Liberty Street, 14th Floor
New York, New York 10006
Attention: Deal Administrator
Telecopier: 212-250-6029 or 212-250-7351
with a copy to --
BT Securities Corporation
909 Fannin Street, Suite 3000
Houston, Texas 77010
Attention: Richard J. Doleshek
Telecopier: 713-759-6708
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if to any Bank, at its Domestic Lending Office, or as to each such party, at
such other address as such party shall designate in a written Communication to
each of the other parties hereto. All such Communications shall be effective,
in the case of written or telegraphed Communications, when deposited in the
mails or delivered to the telegraph company, respectively, and, in the case of a
Communication by telecopy or facsimile transmission, when telecopied or
transmitted against receipt of a confirmation, in each case addressed as
aforesaid, except that Communications to any member of the Bank Group pursuant
to ARTICLE II and ARTICLE VIII shall not be effective until received by such
Persons.
Section 9.04. COSTS AND EXPENSES. The Borrower agrees to pay on
demand (a) all reasonable costs and expenses of the Agent (including, without
limitation, fees and expenses of legal counsel, consultants and engineers of the
Agent), incurred in connection with the preparation, execution, delivery,
filing, administration and recording of the Loan Documents and any other
agreements or security documents delivered in connection with or pursuant to any
of the Loan Documents, any amendment, waiver or other modification relating to
the foregoing, and the syndication of this Agreement both before and after the
date hereof (other than the legal fees of the Agent's counsel incurred in
connection with the initial preparation and execution of the Loan Documents to
be borne by the Agent under that certain fee letter dated July 31, 1997), and
(b) all reasonable costs and expenses of any member of the Bank Group incurred
in connection with the enforcement of the Loan Documents and any other
agreements or security documents executed in connection with or pursuant to any
of the Loan Documents, including, but not limited to, the reasonable fees and
out-of-pocket expenses of counsel for any member of the Bank Group, and local
counsel who may be retained by such counsel, with respect thereto, and the costs
and expenses in connection with the custody, preservation, use or operation of,
or the sale of, or collection from, or other realization upon the sale of, or
collection from, or other realization upon any collateral covered by any of the
other documents executed in connection with or pursuant to any of the Loan
Documents. The agreements of Borrower contained in this SECTION 9.04 shall
survive the termination of the Commitments and the payment of all other amounts
owing hereunder or under any of the other Loan Documents.
Section 9.05. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the Borrower, the Agent, the Banks and
their respective successors and assigns, except that the Borrower may not assign
or transfer its rights hereunder without the prior written consent of the Banks.
Section 9.06. INDEPENDENCE OF COVENANTS. All covenants contained in
the Loan Documents and the Revolving Loan Documents shall be given independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that such action or condition would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default hereunder or a
"Default" or an "Event of Default" under the Revolving Credit Agreement if such
action is taken or condition exists.
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Section 9.07. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement and the other Loan
Documents or made in writing by the Borrower in connection herewith or
therewith, shall survive the execution and delivery of this Agreement, the Notes
and the other Loan Documents, and the repayment of the Loans. Any investigation
by any member of the Bank Group shall not diminish in any respect whatsoever its
right to rely on such representations and warranties.
Section 9.08. SEPARABILITY. Should any clause, sentence, paragraph,
subsection, Section or Article of this Agreement be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement, and the parties hereto
agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom by the
parties hereto, and the remainder will have the same force and effectiveness as
if such stricken part or parts had never been included herein.
Section 9.09. CAPTIONS. The captions in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatsoever in construing the terms and provisions of this
Agreement.
Section 9.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
Section 9.11. GOVERNING LAW. THIS AGREEMENT (INCLUDING THE VALIDITY
AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK. Chapter 15, Subtitle 3, Title 79, of
the Revised Civil Statutes of Texas, 1925, as amended (relating to revolving
loans and revolving triparty accounts), shall not apply to this Agreement or the
Notes or the transactions contemplated hereby.
Section 9.12. SUBMISSION TO JURISDICTION. (a) The Borrower hereby
irrevocably submits to the non-exclusive jurisdiction of any New York state
court located in the Borough of Manhattan, City and State of New York, or any
federal court located in the Southern District of New York over any action or
proceeding arising out of or relating to this Agreement or any of the other Loan
Documents, and the Borrower irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such New York state or
federal court; PROVIDED, nothing in this SECTION 9.12 is intended to waive the
right of any member of the Bank Group to remove any such action or proceeding
commenced in any such New York state court to an appropriate New York federal
court to the extent the basis for such removal exists under applicable law. The
Borrower hereby irrevocably appoints CT Corporation (the "PROCESS AGENT"), with
an office on the date hereof at 1633 Broadway, New York, New York 10019, as its
agent to receive on behalf of it and its
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properties service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding. Such service
may be made by mailing by certified mail a copy of such process to the
Borrower in care of the Process Agent at the Process Agent's above address,
with a copy to such Person at its address specified herein and the Borrower
hereby irrevocably authorizes and directs the Process Agent to accept such
service on its behalf. As an alternative method of service, the Borrower
also irrevocably consents to the service of any and all process in any such
action or proceeding by the mailing by certified mail of copies of such
process to it at its address specified herein. The Borrower agrees that a
final judgment in any such action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(b) Nothing in this SECTION 9.12 shall affect the right of any member
of the Bank Group to serve legal process in any other manner permitted by law or
affect the right of any member of the Bank Group to bring any action or
proceeding against the Borrower, or such Person's properties, in the courts of
any other jurisdiction.
Section 9.13. LIMITATION ON INTEREST. Each provision in this
Agreement and each other Loan Document is expressly limited so that in no event
whatsoever shall the amount paid, or otherwise agreed to be paid, by the
Borrower for the use, forbearance or detention of the money to be loaned under
this Agreement or any other Loan Document or otherwise (including any sums paid
as required by any covenant or obligation contained herein or in any other Loan
Document which is for the use, forbearance or detention of such money), exceed
that amount of money which would cause the effective rate of interest to exceed
the Highest Lawful Rate, and all amounts owed under this Agreement and each
other Loan Document shall be held to be subject to reduction to the effect that
such amounts so paid or agreed to be paid which are for the use, forbearance or
detention of money under this Agreement or such Loan Document shall in no event
exceed that amount of money which would cause the effective rate of interest to
exceed the Highest Lawful Rate. To the extent that the Highest Lawful Rate
applicable to a Bank is at any time determined by Texas law, such rate shall be
the "indicated rate ceiling" described in Section (a)(1) of Article 1.04 of
Chapter 1, Subtitle 1, Title 79, of the Revised Civil Statutes of Texas, 1925,
as amended; PROVIDED, to the extent permitted by such Article, the Banks from
time to time by notice from the Agent to Borrower may revise the aforesaid
election of such interest rate ceiling as such ceiling affects the then-current
or future balances of the Loans outstanding under the Notes. Notwithstanding
any provision in this Agreement or any other Loan Document to the contrary, if
the maturity of the Notes or the obligations in respect of the other Loan
Documents are accelerated for any reason, or in the event of prepayment of all
or any portion of the Notes or the obligations in respect of the other Loan
Documents by the Borrower or in any other event, earned interest on the Loans
and such other obligations of the Borrower may never exceed the maximum amount
permitted by applicable law, and any unearned interest otherwise payable under
the Notes or the obligations in respect of the other Loan Documents that is in
excess of the maximum amount permitted by applicable law shall be cancelled
automatically as of the date of such acceleration or prepayment or other such
event and, if theretofore paid, shall be credited on the principal of the Notes
or, if the principal of the Notes has been paid in full, held as collateral for
any contingent or unmatured obligation of the Borrower, or,
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<PAGE>
if there are no contingent or unmatured obligations of the Borrower then
outstanding, refunded to the Borrower. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the Highest
Lawful Rate, the Borrower and the Banks shall, to the maximum extent
permitted by applicable law, amortize, prorate, allocate and spread, in equal
parts during the period of the actual term of this Agreement, all interest at
any time contracted for, charged, received or reserved in connection with
this Agreement.
Section 9.14. INDEMNIFICATION. The Borrower agrees to indemnify,
defend and hold the Agent and each member of the Bank Group, their Affiliates
and their officers, employees, agents, directors, shareholders and Affiliates
(collectively, "INDEMNIFIED PERSONS") harmless from and against any and all
loss, liability, damage, judgment, claim, deficiency or reasonable expense
(including interest, penalties, reasonable attorneys' fees and amounts paid in
settlement) incurred by or asserted against any Indemnified Person arising out
of, in any way connected with, or as a result of (i) the execution and delivery
of this Agreement and the other documents contemplated hereby, the performance
by the parties hereto and thereto of its obligations hereunder and thereunder
(including but not limited to the making of the Commitments of each Bank) and
consummation of the transactions contemplated hereby and thereby, (ii) the
actual or proposed use of the proceeds of the Loans, (iii) any violation by the
Borrower or any of its Subsidiaries of any Requirement of Law, including but not
limited to Environmental Laws, (iv) ownership by the Bank Group of any real or
personal property following foreclosure under the Security Documents, to the
extent such losses, liabilities, damages, judgments, claims, deficiencies or
expenses arise out of or result from the presence, disposal or release of any
hazardous materials or solid waste in, on or under such property during the
period owned, leased or operated by the Borrower or any of its Subsidiaries,
including, without limitation, losses, liabilities, damages, judgments, claims,
deficiencies or expenses which are imposed under Environmental Laws upon Persons
by virtue of their ownership, (v) any member of the Bank Group being deemed an
operator of any such real or personal property in circumstances in which no
member of the Bank Group is generally operating or generally exercising control
over such property, to the extent such losses, liabilities, damages, judgments,
claims, deficiencies or expenses arise out of or result from any hazardous
materials or solid waste located in, on or under such property or (vi) any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnified Person is a party thereto; PROVIDED that such
indemnity shall not apply to any such losses, claims, damages, liabilities or
related expenses that are determined by a court of competent jurisdiction by
final and nonappealable judgment to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. WITHOUT LIMITING ANY PROVISION
OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, IT IS THE EXPRESS
INTENTION OF THE BORROWER THAT EACH INDEMNIFIED PERSON SHALL BE INDEMNIFIED AND
HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DEFICIENCIES,
JUDGMENTS OR REASONABLE EXPENSES ARISING OUT OF OR RESULTING FROM THE ORDINARY
NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH INDEMNIFIED PERSON. THE
OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 9.14 SHALL SURVIVE THE
TERMINATION OF THIS AGREEMENT.
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<PAGE>
Section 9.15. CONFIDENTIALITY. In the event that the Borrower
provides to the Agent or the Banks written confidential information belonging to
the Borrower, if the Borrower shall denominate such information in writing as
"confidential," the Agent and the Banks shall thereafter maintain such
information in confidence in accordance with the standards of care and diligence
that each utilizes in maintaining its own confidential information. This
obligation of confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of the public
domain without the Agent or the Banks breaching their obligation of confidence
to the Borrower, (iii) are previously known by the Agent or the Banks from some
source other than the Borrower, (iv) are hereafter obtained by or available to
the Agent or the Banks from a third party who owes no obligation of confidence
to the Borrower with respect to such information or through any other means
other than through disclosure by the Borrower, (vi) are disclosed with the
Borrower's consent, (vii) must be disclosed either pursuant to any Requirements
of Law or to Persons regulating the activities of the Agent or the Banks, or
(viii) as may be required by law or regulation or order of any Governmental
Authority in any judicial, arbitration or governmental proceeding. Further, the
Agent or a Bank may disclose any such information to any other Bank, any
independent petroleum engineers or consultants, any independent certified public
accountants, any legal counsel employed by such Person in connection with this
Agreement or any Security Document, including without limitation, the
enforcement or exercise of all rights and remedies thereunder, or any assignee
or participant (including prospective assignees and participants) in the Loans;
provided, however, that the Agent or Bank imposes on the Person to whom such
information is disclosed the same obligation to maintain the confidentiality of
such information as is imposed upon it hereunder. Notwithstanding anything to
the contrary provided herein, this obligation of confidence shall cease three
(3) years from the date the information was furnished, unless the Borrower
requests in writing at least thirty (30) days prior to the expiration of such
three year period, to maintain the confidentiality of such information for an
additional three year period. The Borrower waives any and all other rights
it may have to confidentiality as against the Agent and the Banks arising by
contract, agreement, statute or law except as expressly stated in this
SECTION 9.15.
Section 9.16. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by its officers thereunto duly authorized as of the date first above
written.
COSTILLA ENERGY, INC.
By: /s/ Michael J. Grella
------------------------------------
Name: Michael J. Grella
Title: President
BANKERS TRUST COMPANY,
as Agent
By: /s/
------------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
as Co-Agent
By: /s/
------------------------------------
Name:
Title:
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<PAGE>
Bank:
-----
Commitment: $15,000,000.00 BANKERS TRUST COMPANY
By: /s/
------------------------------------
Name:
Title:
Address:
130 Liberty Street, 14th Floor
New York, New York 10006
Telecopy No.: 212-250-6029
DOMESTIC LENDING OFFICE
Bankers Trust Company
130 Liberty Street, 14th Floor
New York, New York 10006
EURODOLLAR LENDING OFFICE
Bankers Trust Company
130 Liberty Street, 14th Floor
New York, New York 10006
ACQUISITION FACILITY
<PAGE>
Bank:
-----
Commitment: $15,000,000.00 UNION BANK OF CALIFORNIA, N.A.
By: /s/
------------------------------------
Name:
Title:
Address:
500 North Akard, Suite 4200
Dallas, Texas 75201
Telecopy No.: 214-922-4209
DOMESTIC LENDING OFFICE
Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, California 90071
EURODOLLAR LENDING OFFICE
Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, California 90071
ACQUISITION FACILITY
<PAGE>
ANNEX A
DEFINITIONS
"ACQUISITION" means the transfer of the Acquisition Properties by
Ballard Petroleum LLC to the Borrower.
"ACQUISITION DOCUMENTS" means, collectively, the Purchase and Sale
Agreement among the Borrower and Ballard Petroleum LLC dated as of July 2, 1997,
and all documents, assignments and agreements related thereto.
"ACQUISITION MORTGAGE" means the Mortgage-Collateral Real Estate
Mortgage, Deed of Trust, Line of Credit Mortgage, Assignment of Production,
Security Agreement and Financing Statement of even date herewith executed by the
Borrower in favor of the Agent covering the Acquisition Properties, as same may
be amended, supplemented, restated or otherwise modified from time to time.
"ACQUISITION PROPERTIES" means the Oil and Gas Properties and other
related assets owned by Ballard Petroleum LLC, that are to be sold and assigned
to the Borrower under the terms of the Acquisition Documents.
"AFFILIATE" means, when used with respect to any Person, any other
Person (including any member of the immediate family of any such natural person)
who directly or indirectly beneficially owns or controls five percent (5%) or
more of the total voting power of shares of capital stock of such Person having
the right to vote for directors under ordinary circumstances, any person
controlling, controlled by or under common control with any such person. As used
in this definition, "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"AGENT" has the meaning specified in the introduction to this
Agreement.
"AGREEMENT" means this Acquisition Credit Agreement, as the same may
from time to time be amended, supplemented, restated or modified and in effect.
"APPLICABLE LENDING OFFICE" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of a Base Rate Loan and such Bank's
Eurodollar Lending Office in the case of a Eurodollar Rate Loan.
"APPLICABLE MARGIN" has the meaning specified in SECTION 2.06.
ACQUISITION FACILITY
<PAGE>
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by a Bank and an Eligible Assignee and accepted by the Agent, in
substantially the form of EXHIBIT 9.02 hereto.
"BANK GROUP" means, collectively, the Agent, the Co-Agent and the
Banks.
"BANK GROUP DERIVATIVES" means any Derivative entered into between the
Borrower and any member of the Bank Group.
"BANKS" has the meaning specified in the introduction to this
Agreement.
"BASE RATE" means, as of any particular date, the rate per annum
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum) equal to
the greater of (a) the Prime Rate per annum in effect on such day, and (b) the
Federal Funds Rate in effect on such day plus 1/2 of 1% per annum.
"BORROWER" has the meaning specified in the introduction to this
Agreement.
"BORROWING" means a group of Loans of a single Type made by the Banks,
or Converted into such, as applicable, on a single date and, in the case of a
Eurodollar Rate Loan, as to which a single Interest Period is in effect.
"BORROWING BASE" means as of the date of determination an amount equal
to the amount determined and in effect in accordance with SECTION 2.03.
"BORROWING BASE DEFICIENCY" means, the excess of (i) the Credit
Outstanding as of any redetermination of the Borrowing Base pursuant to SECTION
2.03 over (ii) the Borrowing Base as of such date.
"BORROWING DATE" means, when used with respect to the initial funding
of any Borrowing, the date upon which the proceeds of such Borrowing are to be
made available to the Borrower.
"BORROWING REQUEST" has the meaning specified in SECTION 2.02.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in New York and, if the applicable Business Day relates
to any Eurodollar Rate Loans, on which dealings are carried on in the applicable
Eurodollar interbank market.
"CAPITAL EXPENDITURES" means, as to the Borrower and its Subsidiaries
on a consolidated basis and for any period, the expenditures and costs made by
the Borrower and its
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<PAGE>
Subsidiaries during such period (whether paid in cash or accrued as
liabilities during that period and including that portion of Capital Leases
that is capitalized on the consolidated balance sheet of the Borrower and its
Subsidiaries) that, in accordance with generally accepted accounting
principles consistently applied, are costs incurred in the acquisition or
exploration of Oil and Gas Properties, or are required to be included in or
reflected by the other property, plant or equipment or similar fixed asset
accounts reflected in the consolidated balance sheet of such Person.
"CAPITAL LEASE" means, as to the Borrower and its Subsidiaries, any
lease or rental agreement in respect of which such Person's obligations as
lessee under such lease or rental agreement constitute obligations which shall
have been in accordance with generally accepted accounting principles
consistently applied, capitalized on the balance sheet of such Person.
"CERCLA" shall have the meaning provided in the definition of
"Environmental Laws."
"CHANGE OF CONTROL" means any of (a) the acquisition by any Person or
two or more Persons (excluding underwriters in the course of their distribution
of voting stock in an underwritten public offering) acting in concert, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Security Exchange Act of 1934, as amended) of 35% or more of the outstanding
shares of voting stock of the Borrower, (b) 50% or more of the members of the
Board of Directors of the Borrower on any date shall not have been (i) members
of the Board of Directors of the Borrower on the date 12 months prior to such
date or (ii) approved (by recommendation, nomination, election or otherwise) by
Persons who constitute at least a majority of the members of the Board of
Directors of the Borrower as constituted on the date 12 months prior to such
date, (c) all or substantially all of the assets of the Borrower are sold in a
single transaction or series or related transactions to any Person or (d) the
Borrower merges or consolidates with or into any other Person, with the effect
that immediately after such transaction the stockholders of the Borrower
immediately prior to such transaction hold less than 75% of the total voting
power entitled to vote in the election of directors, managers or trustees of the
Person surviving such transaction.
"CO-AGENT" has the meaning specified in the introduction to this
Agreement.
"COMMITMENT" means as to any Bank an amount equal to such Bank's
Commitment set forth on the signature page of such Bank hereto.
"COMMITMENT PERCENTAGE" means, as to any Bank, a percentage
determined pursuant to the following formula: (C DIVIDED BY T) TIMES 100 =
CP; where C is such Bank's Commitment (without giving effect to any
termination of the Commitments pursuant to SECTION 7.01), T is the Total
Commitment (without giving effect to any termination of the Commitments
pursuant to SECTION 7.01) and CP is such percentage as modified from time to
time to reflect any assignments permitted by SECTION 9.02.
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<PAGE>
"CONSOLIDATED TANGIBLE NET WORTH" means, the sum of the par value or
stated value of the capital stock (excluding treasury stock), capital in excess
of par or stated value of shares of capital stock, retained earnings (or minus
accumulated deficit) and any other account which, in accordance with generally
accepted accounting principles consistently applied, constitute stockholders'
equity of the Borrower and its Subsidiaries determined on a consolidated basis,
excluding any effect of foreign currency translation computed pursuant to
Financial Accounting Standards Board Statement No. 52, as amended, supplemented
or modified from time to time, or otherwise in accordance with generally
accepted accounting principles consistently applied LESS the amount of any items
which are treated as intangible assets in accordance with generally accepted
accounting principles consistently applied.
"CONVERSION DATE" means, when used with respect to the Conversion of
any group of Loans, the date such Loans are to be Converted into Loans of
another Type pursuant to SECTION 2.02 or otherwise in accordance with
ARTICLE II.
"CONVERSION NOTICE" has the meaning specified in SECTION 2.02(c).
"CONVERT," "CONVERSION" AND "CONVERTED" each refers to a conversion of
Loans of one Type into Loans of another Type pursuant to SECTION 2.02(c) or
otherwise in accordance with ARTICLE II.
"COSTILLA REDECO" means Costilla Redeco Energy, L.L.C., a Texas
limited liability company.
"CREDIT OUTSTANDING" means, at any time, without duplication, the
aggregate unpaid principal amount of the Loans.
"DEFAULT" means an Event of Default or an event which with the giving
of notice or the lapse of time or both could, unless cured or waived, become an
Event of Default.
"DEFAULT RATE" has the meaning specified in SECTION 2.06.
"DERIVATIVES" means, with respect to any Person, foreign exchange
transactions and commodity, currency and interest rate swaps, floors, caps,
collars, forward sales, options, other similar transactions and combinations of
the foregoing.
"DOLLARS" and "$" each means lawful money of the United States.
-4- ACQUISITION FACILITY
<PAGE>
"DOMESTIC LENDING OFFICE" means, with respect to any Bank, the office
of such Bank specified as its "Domestic Lending Office" below its name on
SCHEDULE I hereto, or such other office of such Bank as such Bank may from time
to time specify to the Borrower and the Agent.
"EBITDA" means, as to the Borrower and its Subsidiaries on a
consolidated basis and for any period, the sum of the following: (a) the Net
Income for such period, (b) all non-cash charges (such as deferred taxes,
depreciation and depletion expense and amortization of intangibles and
capitalized debt issuance costs) which were deducted from gross income in
determining such Net Income for such period, (c) the amount of Interest Expense
which was deducted in the calculation of such Net Income for such period, (d)
the amount of income taxes deducted in the calculation of such Net Income for
such period, (e) exploration and abandonment costs and (f) extraordinary loss
resulting from extinguishment of indebtedness taken into account in determining
the Net Income for such period.
"EFFECTIVE DATE" means the date on which the conditions set forth in
ARTICLE III to this Agreement are first satisfied.
"ELIGIBLE ASSIGNEE" means (i) any Bank or any Affiliate of any Bank;
(ii) a commercial bank organized under the laws of the United States, or any
state thereof, having deposits rated in either of the two highest generic letter
rating categories (without regard to subcategories) from either Standard &
Poor's Corporation or Moody's Investors Service, Inc.; (iii) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development ("OECD"), or a political
subdivision of any such country, and having total assets in excess of
$1,000,000,000, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the OECD; (iv) the central bank of any country which is a member of
the OECD; (v) any other Person which is an "accredited investor" (as defined in
Regulation D of the Securities Act of 1933) that extends credit or buys loans as
one of its businesses, including insurance companies mutual funds and lease
financing companies; and (vi) any other financial institution approved by the
Agent and, so long as no Default exists, the Borrower.
"ENVIRONMENTAL LAWS" means federal, state or local laws, rules or
regulations, and any judicial, arbitral or administrative interpretations
thereof, including, without limitation, any judicial, arbitral or administrative
order, judgment, permit, approval, decision or determination pertaining to
health, safety or the environment in effect at the time in question, including,
without limitation, the Clean Air Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended ("CERCLA"),
the Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act, as amended, the Resource Conservation and Recovery Act, as amended,
the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, the Superfund Amendment and Reauthorization Act of 1986, as amended,
-5- ACQUISITION FACILITY
<PAGE>
the Hazardous Materials Transportation Act, as amended, comparable state and
local laws, and other environmental conservation and protection laws. The terms
"hazardous substance," "release" and "threatened release" shall have the
meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") shall have the meanings specified in RCRA and the term "oil" shall
have the meaning specified in the Oil Pollution Act, as amended ("OPA");
PROVIDED, that (i) in the event either CERCLA, RCRA or OPA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment with respect to all
provisions of this Agreement, (ii) to the extent the laws of the state or states
in which any Property of the Borrower or its Subsidiaries is located establish a
meaning for "hazardous substance," "release," "threatened release," "solid
waste," "disposal" or "oil" which is broader than that specified in CERCLA, RCRA
or OPA, such broader meaning shall apply.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
any successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time.
"ERISA AFFILIATE" means any (i) corporation which is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Internal Revenue Code) as the Borrower, (ii) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Internal Revenue Code) with the Borrower, (iii) member
of the same affiliated service group (within the meaning of Section 414(m) of
the Internal Revenue Code) as the Borrower, any corporation described in clause
(i) above or any partnership or trade or business described in clause (ii) above
or (iv) other Person required to be aggregated with the Borrower or an ERISA
Affiliate thereof, as defined above, pursuant to Section 414(o) of the Internal
Revenue Code.
"EUROCURRENCY LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System (or any
other successor category of liabilities under Regulation D), as in effect from
time to time.
"EURODOLLAR EVENT" has the meaning specified in SECTION 2.11(a).
"EURODOLLAR LENDING OFFICE" means, with respect to any Bank, the
office of such Bank specified as its "Eurodollar Lending Office" below its name
on SCHEDULE I hereto (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Bank as such Bank may from time to time
specify to the Borrower and the Agent.
"EURODOLLAR RATE" means, with respect to each Interest Period for each
Eurodollar Rate Loan, (i) the arithmetic average (rounded to the nearest 1/16
of 1%) of the offered quotation to first-class banks in the interbank Eurodollar
market by the Agent for US dollar deposits of an
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<PAGE>
amount in same day funds comparable to the outstanding principal amount of
the Eurodollar Rate Loan of the Agent for which an interest rate is then
being determined with maturities comparable to the Interest Period to be
applicable to such Eurodollar Rate Loan, determined as of 10:00 a.m. (New
York time) on the date which is two Business Days prior to the commencement
of such Interest Period, divided (and rounded upward to the next whole
multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then
stated maximum rate of all reserve requirements (including without
limitation, any marginal, emergency, supplemental, special or other reserves)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency Liabilities.
"EURODOLLAR RATE BORROWING" means a Borrowing consisting of Eurodollar
Rate Loans.
"EURODOLLAR RATE LOAN" means a Loan that the Borrower has designated,
or is deemed to have designated, as such in accordance with ARTICLE II.
"EVENTS OF DEFAULT" has the meaning specified in SECTION 7.01.
"EXCEPTED LIENS" has the meaning specified in SECTION 6.02.
"EXECUTION DATE" means the date upon which this Agreement shall have
been executed by the Borrower, the Banks, the Agent and the Co-Agent.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, province, city, town, municipality, county, local or other political
subdivision thereof or thereto and any court, tribunal, department, commission,
board, bureau, instrumentality, agency or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GUARANTIES" means, as to any Person, all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or, in effect, guaranteeing
any Indebtedness, dividend or other obligation, of any other Person (the
"primary obligor') in any manner, whether directly or indirectly, including all
-7- ACQUISITION FACILITY
<PAGE>
obligations incurred through an agreement, contingent or otherwise, by such
Person: (a) to purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (b) to advance or supply funds (i) for
the purchase or payment of such Indebtedness or obligation or (ii) to maintain
working capital or other balance sheet condition or otherwise to advance or make
available funds for the purchase or payment of such Indebtedness or obligation,
(c) to lease property or to purchase securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of the
Indebtedness or obligation or (d) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"HIGHEST LAWFUL RATE" means, as to any Bank, at the particular time in
question, the maximum nonusurious rate of interest which, under applicable law,
such Bank is then permitted to charge the Borrower on the Loans or the other
obligations of the Borrower hereunder, and as to any other Person, at the
particular time in question, the maximum nonusurious rate of interest which,
under applicable law, such Person is then permitted to charge with respect to
the obligation in question. If the maximum rate of interest which, under
applicable law, the Banks are permitted to charge the Borrower on the Loans or
the other obligations of the Borrower hereunder shall change after the date
hereof, the Highest Lawful Rate shall be automatically increased or decreased,
as the case may be, as of the effective time of such change without notice to
the Borrower or any other Person.
"HYDROCARBON INTEREST" 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, operating rights, net profit
interests, production payment interests and other similar types of interests,
including any reserved or residual interest 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, and all other substances produced
in association therewith.
"INDEBTEDNESS" of any Person shall mean, without duplication: (a) any
obligation of such Person for borrowed money, including: (i) any obligation of
such Person evidenced by bonds, debentures, notes or other similar debt
instruments and (ii) any obligation for borrowed money which is non-recourse to
the credit of such Person but which is secured by any asset of such Person,
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(b) all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person, (c) any
obligation of such Person for the deferred purchase price of any property or
services, except accounts payable arising in the ordinary course of such
Person's business that have been outstanding less than ninety (90) days since
the due date, (d) all liabilities appearing on its balance sheet in
accordance with generally accepted accounting principles in respect of
Capital Leases, (e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account by
banks and other financial institutions (whether or not representing
obligations for borrowed money), (f) liabilities in respect of Derivatives,
(g) Guaranties by such Person to the extent required pursuant to the
definition thereof, and (h) any Indebtedness of another Person secured by a
Lien on any asset of such first Person, whether or not such Indebtedness is
assumed by such first Person.
"INDENTURE" means that certain indenture by and between the Borrower
as issuer and State Street Bank & Trust Company as trustee, pursuant to which
the Borrower issued the Senior Unsecured Notes.
"INITIAL RESERVE REPORT" has the meaning specified in SECTION 3.01(e).
"INTEREST EXPENSE" means, for any period, the aggregate of all
interest expense deducted in the calculation of the Net Income for such period
excluding amortized loan fees.
"INTEREST PERIOD" means, for each Eurodollar Rate Loan comprising part
of the same Borrowing, the period commencing on the date of such Eurodollar Rate
Loan or the date of the Conversion of such Eurodollar Rate Loan, as applicable,
and ending on the last day of the period selected by the Borrower pursuant to
the provisions below. The duration of each such Interest Period shall be 1 or 3
months; PROVIDED, that:
(i) the Borrower may not select any Interest Period for a Loan that
ends after the Maturity Date;
(ii) the Borrower may not select any Interest Period for a Loan that
ends after a Quarterly Payment Date unless, after giving effect thereto,
the aggregate amount of Eurodollar Rate Loans with Interest Periods ending
on or before such Quarterly Payment Date and Base Rate Loans equals or
exceeds the amount of principal due and payable on such Quarterly Payment
Date;
(iii) Interest Periods commencing on the same date for Loans
comprising part of the same Borrowing shall be of the same duration; and
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<PAGE>
(iv) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day,
PROVIDED that if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time (or any successor statute), and the regulations
promulgated thereunder.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or capital lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"LOAN" has the meaning specified in Section 2.01. Each Loan shall be
either a Base Rate Loan or a Eurodollar Rate Loan (each of which shall be a
"TYPE" of Loan).
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Security
Documents, any agreement evidencing any Bank Group Derivatives, and all other
agreements, instruments and documents, including, without limitation, security
agreements, notes, warrants, guaranties, mortgages, deeds of trust,
subordination agreements, pledges, powers of attorney, consents, assignments,
collateral assignments, letter agreements, contracts, notices, leases,
amendments, financing statements, letter of credit applications and
reimbursement agreements, and all other writings heretofore, now, or hereafter
executed by or on behalf of the Borrower or any of its Subsidiaries, any of
their respective Affiliates or any other Person in connection with or relating
to this Agreement, together with all agreements, instruments and documents
referred to therein or contemplated thereby.
"MAJORITY BANKS" means at any time (a) the Agent, regardless of the
amounts held and (b) Banks holding at least seventy-five percent (75%) of the
then aggregate unpaid principal amount of the Loans or, if no Loans are
outstanding, Banks having Commitment Percentages in the aggregate equal to at
least seventy-five percent (75%).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Borrower or any of its Subsidiaries, or (b) the ability of the Borrower or any
of its Subsidiaries to perform their obligations under this Agreement and the
other Loan Documents, or (c) the validity or enforceability of this Agreement or
the other Loan Documents or (d) the value of the Borrower's interest in its Oil
and Gas Properties.
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"MATURITY DATE" means February 28, 2001.
"MORTGAGED PROPERTY" means the Property owned by the Borrower which is
subject to the Liens, privileges, priorities and security interest existing and
to exist under the terms of the Security Documents.
"MULTIEMPLOYER PLAN" means any employee benefit plan that is a
"multiemployer plan," as such term is defined in section 4001(a)(3) of ERISA.
"NET INCOME" means, for any period, the consolidated net earnings or
loss of the Borrower and its Subsidiaries for such period, determined in
accordance with generally accepted accounting principles.
"NET PROCEEDS" means with respect to any sale of an interest in an
asset of the Borrower (other than sales of Hydrocarbon production in the
ordinary course of business and sales of obsolete or worn-out equipment in the
ordinary course of business), the gross proceeds thereof received by the
Borrower, less the reasonable fees, taxes and expenses paid by the Borrower and
directly related to the consummation of such transaction.
"NOTES" means the Term Notes of the Borrower payable to the order of
each Bank, in substantially the form of EXHIBIT 2.04 hereto, evidencing the
aggregate indebtedness of the Borrower to such Bank resulting from the Loans
made by such Bank, together with all modifications, extensions, renewals and
rearrangements thereof from time to time in effect.
"OBLIGATIONS" means all obligations, Indebtedness and liabilities of
the Borrower or any of its Subsidiaries to any member of the Bank Group, now
existing or hereafter arising under or in connection with any Loan Document,
whether direct, indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several, including the obligations,
Indebtedness and liabilities of the Borrower under the Notes or otherwise
pursuant to the terms of the other Loan Documents, and all interest accruing
thereon (including any interest that accrues after the commencement of any
proceeding by or against the Borrower or any other Person under any bankruptcy,
insolvency, liquidation, moratorium, receivership, reorganization or other
debtor relief law) and all attorneys' fees and other expenses incurred in the
collection or enforcement thereof.
"OIL AND GAS PROPERTIES" means Hydrocarbon Interests; the Properties
now or hereafter pooled or unitized with Hydrocarbon Interests; 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 have
jurisdiction) which may affect all or any portion of the Hydrocarbon Interests;
all operating agreements, contracts and other agreements which relate to any of
the Hydrocarbon Interests or the
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production, sale, purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interest; all Hydrocarbons in and under and
which may be produced and saved or attributable to the Hydrocarbon Interests,
the lands covered thereby and all oil in tanks and all rents, issues,
profits, proceeds, products, revenues and other income from or attributable
to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or incidental to
the Hydrocarbon Interests, Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any
of such Hydrocarbon Interests or Property (excluding drilling rigs,
automotive equipment 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.
"OTHER BENEFIT PLAN" means any employee benefit plan, within the
meaning of Section 3(3) of ERISA, employment or other compensation plan, program
or contract, including, without limitation, a "cafeteria plan" under Section 125
of the Internal Revenue Code, under any of which the Borrower or any ERISA
Affiliate or Subsidiary has any liability or obligation, but excluding any
Pension Plan or Multiemployer Plan.
"OTHER TAXES" has the meaning specified in SECTION 2.09.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"PENSION PLAN" means any employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Internal Revenue Code, and in respect of which the Borrower,
or any ERISA Affiliate. or Subsidiary is an "employer" as defined in
Section 3(5) of ERISA or has any liability or obligations.
"PERMITTED INVESTMENTS" means any of the following investments:
(a) securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (PROVIDED that the full faith
and credit of the United States of America is pledged in support thereof) having
a maturity not exceeding thirty (30) days from the date of acquisition; (b) time
deposits and certificates of deposit of any commercial bank of recognized
standing having capital and surplus in excess of $500,000,000, PROVIDED that the
long-term senior
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unsecured debt of such bank is rated at least A+ or the equivalent thereof by
Standard & Poor's Rating Group (a division of McGraw Hill) ("S&P") or at
least A1 or the equivalent thereof by Moody's Investor Services, Inc.
("MOODY'S"), having a maturity not exceeding thirty (30) days from the date
of acquisition; (c) commercial paper issued by the parent corporation of any
commercial bank or by any domestic corporation, PROVIDED that such commercial
paper is rated at least A-1 or the equivalent thereof by S&P or at least P-1
or the equivalent thereof by Moody's, having a maturity not exceeding thirty
(30) days from the date of acquisition; and (d) investments in money market
funds having a rating in the highest rating category by S&P or Moody's for
which Bankers Trust Company or any Affiliates is investment manager or
advisor.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or other entity, or Governmental Authority.
"PRIME RATE" means, the rate per annum which BTCo announces from time
to time as its "prime lending rate," the Prime Rate to change when and as such
prime lending rate changes. The Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer.
BTCo may make commercial loans or other loans at rates of interest at, above or
below the Prime Rate.
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"PROVED PRODUCING RESERVES" means Proved Reserves that are recoverable
from existing wells with current operating methods and expenses and are
producing.
"PROVED RESERVES" means recoverable Hydrocarbon reserves that have
been proved to a high degree of certainty by analysis of the producing history
of a reservoir and/or by volumetric analysis of adequate geological and
engineering data. Commercial productivity has been established by actual
production, successful testing, or in certain cases by favorable core analyses
and electrical-log interpretation when the producing characteristics of the
formation are known from nearby fields.
"QUARTERLY PAYMENT DATE" means the last Business Day of each of
August, November, February and May.
"REGISTER" has the meaning specified in SECTION 9.02.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System (respecting margin credit extended by banks), as the same
is from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
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"REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System (respecting borrowers who obtain margin credit) as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"REPORTABLE EVENT" means any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder.
"REQUIREMENTS OF ENVIRONMENTAL LAWS" means the requirements of any
applicable Environmental Law relating to or affecting the Borrower or any of its
Subsidiaries or the condition or operation of such Person's business or its
properties, both real and personal.
"REQUIREMENTS OF LAW" shall mean any applicable federal, state or
local law, rule or regulation, permit or other binding determination of any
Governmental Authority.
"RESERVE REPORT" means each of the Initial Reserve Report and each
report delivered to the Agent and the Banks under SECTION 5.10(a) or 5.10(b).
"RESPONSIBLE OFFICER" means, as to any Person, the Chief Executive
Officer, the President, the Chief Financial Officer or the Treasurer of such
Person, or any employee of such Person designated in writing as a Responsible
Officer by the Chief Executive Officer of such Person.
"RESTRICTED DISBURSEMENT" means, as to any Person, any: (a) loan or
advance to or investment in any other Person, or any commitment to make such a
loan, advance or investment in any other Person; (b) acquisition by such Person
of or investments by such Person in the debt of or equity of, and any capital
contribution (including capital contributions by transfer of assets or services)
by such Person to, another Person; (c) purchase, redemption or exchange of any
shares of any class of capital stock of such Person or any options, rights or
warrants to purchase any such stock or setting aside funds for any such purpose;
(d) declaration or payment of any dividends on shares of any class of capital
stock of such Person (other than dividends payable in capital stock, or rights
to acquire capital stock, of such Person); (e) distribution to a sinking fund or
other payment or distribution made to or for the benefit of any holders of the
capital stock of such Person with respect to such capital stock (other than
distributions payable in capital stock, or rights to acquire capital stock, of
such Person) or setting aside funds for any such purpose; and (f) payment,
purchase or redemption by such Person of Indebtedness owing by such Person to
any of its Affiliates.
"REVOLVING CREDIT AGREEMENT" means that certain Revolving Credit
Agreement by and among, the Borrower, the Agent and the Banks dated of even date
herewith as the same may from time to time be amended, supplemented, restated or
modified and in effect.
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"REVOLVING FACILITY COMMITMENT" means, as of any date, the amount
equal to the sum of the Banks' commitments under the Revolving Credit Agreement.
"REVOLVING LOAN DOCUMENTS" means the Loan Documents (as defined in the
Revolving Credit Agreement).
"SCHEDULED REDETERMINATION DATE" has the meaning specified in SECTION
2.03(d).
"SEC" means the Securities and Exchange Commission.
"SECURITY DOCUMENTS" means the Acquisition Mortgage and, when executed
and delivered, as each may be amended from time to time, and any other security
agreement or pledge agreement, hypothecation agreement, fixed charge agreement,
floating charge agreement, deed of trust, mortgage or any other agreement, in
form and substance satisfactory to the Agent and the Majority Banks, executed
and delivered by the Borrower or any other Person in connection with or pursuant
to this Agreement for the purpose of creating a Lien on any of its property or
assets, as it may be modified or amended from time to time.
"SENIOR UNSECURED NOTES" means the $100,000,000 of Senior Unsecured
Notes due 2006 issued under the Indenture.
"SUBSIDIARY" means, as to any Person, any other Person in which such
Person or one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient equity or voting interests to enable it or them (as
a group) ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such other Person, and
any partnership or joint venture if either (i) more than a 50% interest in the
profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or (ii) such Person or one or more of its Subsidiaries is a general
partner in such partnership or joint venture.
"TAXES" has the meaning specified in SECTION 2.09(a).
"TOTAL COMMITMENT" means $30,000,000.
"TYPE" has the meaning set forth in the definition of Loan.
"UNSCHEDULED REDETERMINATION DATE" has the meaning specified in
SECTION 2.03(d).
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EXHIBIT 10.3
PURCHASE AND SALE AGREEMENT
BETWEEN
BALLARD PETROLEUM LLC
AND
COSTILLA ENERGY, INC.
DATED JULY 2, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 THE PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 CREDITS; ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . 2
ARTICLE 2. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 ADJUSTMENTS TO PURCHASE PRICE . . . . . . . . . . . . . . . . 3
ARTICLE 3. REPRESENTATIONS OF SELLER. . . . . . . . . . . . . . . . . . . 4
3.1 EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 FOREIGN PERSON. . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 NON-CANCELABLE CONTRACTS. . . . . . . . . . . . . . . . . . . 5
3.8 NO TAKE-OR-PAY CONTRACTS. . . . . . . . . . . . . . . . . . . 5
3.9 NO CASUALTY LOSS. . . . . . . . . . . . . . . . . . . . . . . 5
3.10 ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.11 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.12 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.13 VALID AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . 6
3.14 THIRD-PARTY RIGHTS. . . . . . . . . . . . . . . . . . . . . . 6
3.15 PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.16 COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . 6
3.17 CALLS ON PRODUCTION . . . . . . . . . . . . . . . . . . . . . 6
3.18 ACCESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.19 AUTHORIZATION FOR EXPENDITURE . . . . . . . . . . . . . . . . 7
3.20 EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.21 UNPLUGGED WELLS . . . . . . . . . . . . . . . . . . . . . . . 7
3.22 ENVIRONMENTAL . . . . . . . . . . . . . . . . . . . . . . . . 7
3.23 GAS IMBALANCES. . . . . . . . . . . . . . . . . . . . . . . . 7
3.24 TAX PARTNERSHIPS. . . . . . . . . . . . . . . . . . . . . . . 7
3.25 SECTION 29 TAX CREDITS. . . . . . . . . . . . . . . . . . . . 7
3.26 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 4. REPRESENTATIONS OF BUYER . . . . . . . . . . . . . . . . . . . 8
4.1 EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 FURTHER DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . 8
4.6 FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . 8
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ARTICLE 5. DISCLAIMER OF CERTAIN WARRANTIES . . . . . . . . . . . . . . . 8
5.1 INFORMATION PROVIDED. . . . . . . . . . . . . . . . . . . . . 8
5.2 WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 6. TITLE MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 DEFINITION OF MARKETABLE TITLE. . . . . . . . . . . . . . . . 10
6.2 DEFINITION OF PERMITTED ENCUMBRANCES. . . . . . . . . . . . . 11
6.3 NOTICE OF TITLE DEFECT. . . . . . . . . . . . . . . . . . . . 12
6.4 REMEDIES FOR TITLE DEFECTS. . . . . . . . . . . . . . . . . . 13
6.5 VALUE OF LEASEHOLD INTEREST OR TITLE DEFECT . . . . . . . . . 14
6.6 CONSENTS; PREFERENTIAL RIGHTS . . . . . . . . . . . . . . . . 14
6.7 RISK OF LOSS. . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 7. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . 15
7.1 ENVIRONMENTAL DEFECTS . . . . . . . . . . . . . . . . . . . . 15
7.2 ENVIRONMENTAL LAWS. . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 8. COVENANTS OF SELLER. . . . . . . . . . . . . . . . . . . . . . 16
8.1 ACCESS TO RECORDS . . . . . . . . . . . . . . . . . . . . . . 16
8.2 OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.3 PERMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 9. COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . 18
9.1 RETURN OF DATA. . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 INDEMNITY REGARDING ACCESS. . . . . . . . . . . . . . . . . . 18
ARTICLE 10. SELLER'S CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . 18
10.1 REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 18
10.2 PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.3 PENDING MATTERS . . . . . . . . . . . . . . . . . . . . . . . 19
10.4 RESOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.5 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 11. BUYER'S CONDITIONS OF CLOSING. . . . . . . . . . . . . . . . . 19
11.1 REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 19
11.2 PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.3 PENDING MATTERS . . . . . . . . . . . . . . . . . . . . . . . 19
11.4 RESOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.5 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 12. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.1 TIME AND PLACE OF CLOSING . . . . . . . . . . . . . . . . . . 19
12.2 CLOSING OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . 20
12.3 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . 21
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ARTICLE 13. ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 21
13.1 CALCULATION OF ADJUSTED PURCHASE PRICE. . . . . . . . . . . . 21
13.2 RECEIPTS AND CREDITS. . . . . . . . . . . . . . . . . . . . . 22
13.3 RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
13.4 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
13.5 RECORDING DOCUMENTS . . . . . . . . . . . . . . . . . . . . . 23
13.6 RIGHT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . 23
13.7 SALES TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.8 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.9 INCOME TAX REIMBURSEMENT. . . . . . . . . . . . . . . . . . . 24
ARTICLE 14. ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION . . . . . . . . . . 24
14.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.2 ASSUMPTION OF CONTRACTS . . . . . . . . . . . . . . . . . . . 24
14.3 IMBALANCES. . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.4 SELLER'S GENERAL INDEMNITY. . . . . . . . . . . . . . . . . . 25
14.5 BUYER'S GENERAL INDEMNITY . . . . . . . . . . . . . . . . . . 25
14.6 SELLER'S ENVIRONMENTAL INDEMNIFICATION. . . . . . . . . . . . 25
14.7 BUYER'S ENVIRONMENTAL INDEMNIFICATION . . . . . . . . . . . . 26
ARTICLE 15. ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.1 SELECTION OF ARBITRATORS. . . . . . . . . . . . . . . . . . . 26
15.2 DETERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 26
15.3 DECISION BINDING. . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 16. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 27
16.1 OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 27
16.2 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16.3 GENDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16.4 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 27
16.5 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . 27
16.6 SURVIVABILITY . . . . . . . . . . . . . . . . . . . . . . . . 27
16.7 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 27
16.8 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 27
16.9 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . 28
16.10 ASSIGNABILITY . . . . . . . . . . . . . . . . . . . . . . . . 28
16.11 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 28
16.12 AMENDED EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . 28
16.13 EXHIBIT "A-1" . . . . . . . . . . . . . . . . . . . . . . . . 28
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") dated as of July 2, 1997, is
between BALLARD PETROLEUM LLC, a Montana limited liability company, whose
address is 621 17th Street, Suite 1800, Denver, Colorado 80293 ("Seller"), and
COSTILLA ENERGY, INC., a Texas corporation, whose address is 400 West Illinois,
Suite 1000, Midland, Texas 79701 ("Buyer").
In consideration of the mutual covenants and agreements contained herein,
the benefits to be derived by each party hereunder, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE 1. PURCHASE AND SALE
1.1 THE PROPERTIES. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and convey to Buyer, and Buyer agrees to
purchase from Seller, but effective as of 7:00 a.m. July 1, 1997, at the
location of the respective Properties (the "Effective Time") 60% of Seller's
right, title, and interest (the "Sale Interest") in and to the following, less
and except the Excluded Property (defined below):
(a) All oil, gas and/or other mineral properties, rights and estates
owned by Seller of every kind and nature and wherever located, including,
without limitation, all oil, gas and/or other mineral leases, leasehold estates
and interests, all mineral, royalty, overriding royalty, production payment,
reversionary, net profits, contractual leasehold and other similar rights,
estates and interests, and further including, without limitation, the oil, gas
and/or other mineral leases and estates described in EXHIBIT "A" attached hereto
(together with all other leases owned by Seller, the "Leases") covering the
lands described on EXHIBIT "A" attached hereto (together with all other lands
covered by the Leases in which Seller owns an interest, the "Lands"), together
with all the property and rights incident thereto, including all rights in any
pooled, unitized or communitized acreage by virtue of the Lands or Leases being
a part thereof, all production from the pool or unit allocated to any such Lands
or Leases, and all interests in any wells within the pool or unit associated
with the Lands or Leases;
(b) All producing, nonproducing, shut-in and abandoned oil and gas
wells, salt water disposal wells, injection wells, and water wells located on
the Leases or lands pooled or unitized therewith, including, without limitation,
the wells described on EXHIBIT "A-1" attached hereto, and all personal property,
equipment, fixtures, compressors, pipelines, gathering, disposal,
transportation, storage and treating facilities and other improvements located
on, related to, appurtenant to or used or useful in connection with the Leases
and Lands;
(c) To the extent transferrable by Seller, all contracts and
contractual rights and interests, including, without limitation, all farmout and
farmin agreements, operating agreements,
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production sales and purchase contracts, saltwater disposal agreements,
surface leases, division and transfer orders, licenses and other contracts or
agreements covering or affecting any or all of the interests described or
referred to above (the "Contracts");
(d) To the extent transferable, all easements, rights-of-way, surface
leases, fee estates, licenses, authorizations, permits, and similar rights and
interests applicable to, or used or useful in connection with, any or all of the
above-described interests;
(e) All proprietary data, including without limitation, all
geophysical, seismic, geologic and other technical data and interpretations
thereof, and to the extent transferable, all non-proprietary data and
information;
(f) All oil, condensate, natural gas, natural gas liquids, other
gases (including CO2) and other minerals produced after the Effective Time
attributable to the Properties; and
(g) The Records as defined in Section 13.3.
Seller specifically excludes from this transaction (i) furniture, office
supplies and office equipment, office leases, telephones and radio or other
telecommunication systems, tools and store stock, 3-D and 2-D workstations and
all computer equipment and software, and (ii) all real and personal property,
rights and obligations of Seller located in or related to the North Padre Island
Field, Block A-72, Federal Offshore Texas (collectively, the "Excluded
Property").
All of the above real and personal properties, rights, titles, and
interests described in subparagraphs (a) through (g) above, subject to the
limitations and terms expressly set forth herein but excluding the Excluded
Property, are hereinafter collectively called the "Properties" or, individually,
a "Property".
1.2 CREDITS; ACCOUNTS RECEIVABLE. All trade credits, accounts receivable,
notes receivable, and other receivables attributable to the Sale Interest in the
Properties with respect to any period or time prior to the Effective Time of the
purchase and sale shall remain the property of the Seller and be excluded from
this sale, unless specified otherwise elsewhere herein, and Buyer shall bear no
responsibility or cost in connection with the use or collection of any such
credits or receivables.
ARTICLE 2. PURCHASE PRICE
2.1 PURCHASE PRICE. Buyer shall pay to Seller at Closing the sum of
Thirty-Eight Million Seven Hundred Ninety Thousand and no/100 Dollars
($38,790,000.00) (the "Purchase Price"), as may be adjusted pursuant to this
Agreement (the "Adjusted Purchase Price").
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2.2 DEPOSIT. Purchaser shall pay to Seller $1,000,000 (the "Deposit")
contemporaneously with the execution of this Agreement by wire transfer of
immediately available funds as follows:
Wire to: Norwest Bank Minnesota, N.A.: For Further
Routing to Norwest Bank, Billings
Account: Ballard Petroleum LLC
Account No.: 186-781
ABA Routing No.: 091000019
Attention: Dexter Sherman
If Closing occurs, the Deposit shall be applied to reduce the Adjusted Purchase
Price. If Closing does not occur, the Deposit shall be applied as provided in
Section 13.6. Until disposed of in accordance with the terms of this Agreement,
the Deposit shall be held and invested by Seller in marketable obligations
issued or unconditionally guaranteed by the United States of America or an
instrumentality or agent thereof and entitled to the full faith and credit of
the United States of America, or in money market and/or mutual funds that invest
solely in such obligations.
2.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be adjusted
by the following:
(a) The Purchase Price shall be increased by an amount equal to the
sum of the following amounts (determined without duplication and on an accrual
basis in accordance with generally accepted accounting principles consistently
applied):
(i) The value, less taxes (other than taxes on net income), of
merchantable oil and other liquids in storage in the tanks (above the pipeline
connection, if applicable) as of the Effective Time that is credited to the Sale
Interest in the Properties, at the prevailing market value at the time of sale
in the area, adjusted for grade and gravity;
(ii) The amount of all expenses incurred and paid or to be paid
by or on behalf of Seller, in connection with or attributable to the ownership
or operation of the Sale Interest in the Properties during the period from the
Effective Time to the Closing Date, including, but not limited to, royalties,
rentals, and other charges and expenses billed under applicable operating
agreements, or in the absence of an operating agreement, expenses of the sort
customarily billed under such agreements, and including the customary overhead
charges related to the Sale Interest in the Properties;
(iii) An amount equal to all prepaid expenses attributable to
the Sale Interest in the Properties that are paid or to be paid by or on behalf
of Seller prior to the Closing Date and that are, in accordance with generally
accepted accounting principles, attributable to the period after the Effective
Time, including, without limitation, prepaid ad valorem, property, production,
severance, and similar taxes (but not including income taxes) based upon or
measured by the
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ownership of property or the production of hydrocarbons or the receipt of
proceeds therefrom (any refund of ad valorem tax attributable to the period
before the Effective Time and received by Buyer shall be paid to Seller); and
(iv) Any other amounts required under this Agreement or otherwise
agreed upon by Seller and Buyer.
(b) The Purchase Price shall be decreased by an amount equal to the
sum of the following amounts (determined without duplication and on an accrual
basis in accordance with generally accepted accounting principles consistently
applied):
(i) The amount of all proceeds received by Seller prior to the
Closing Date attributable to the Sale Interest in the Properties and that are
attributable to the time after the Effective Time;
(ii) An amount equal to all unpaid ad valorem, property,
production, severance, and similar taxes and assessments (but not including
income taxes) based upon or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom accruing to the
Sale Interest in the Properties prior to the Effective Time, which to the extent
not actually assessed shall be computed based upon such taxes assessed against
the applicable portion of the Sale Interest in the Properties for the preceding
calendar year or, if such taxes are assessed on other than a calendar year
basis, for the tax-related year last ended;
(iii) An amount for Title Defects as determined pursuant to
Section 6.4 and an amount for Environmental Defects as determined pursuant to
Section 7.1; and
(iv) Any other amounts required under this Agreement or
otherwise agreed upon by Seller and Buyer.
ARTICLE 3. REPRESENTATIONS OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 EXISTENCE. Seller is a limited liability company duly organized,
validly existing, and in good standing under the laws of the State of Montana,
and is duly qualified to do business in each State where its business operations
require such qualification.
3.2 AUTHORIZATION. Seller has all authority necessary to enter into this
Agreement and to perform all its obligations hereunder. This Agreement has been
duly executed and delivered on Seller's behalf, and at the Closing all documents
and instruments required hereunder to be executed and delivered by Seller will
have been duly executed and delivered. This Agreement, and all such documents
and instruments shall constitute legal, valid, and binding obligations of Seller
enforceable
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in accordance with their respective terms, except to the extent enforceability
may be affected by bankruptcy, reorganization, insolvency, or similar laws
affecting creditors' rights generally.
3.3 POWER. Subject to preferential rights and restrictions on assignment
of the type typically found in the oil and gas industry, and to rights to
consent by, required notices to, and filings with or actions by other
governmental entities, Seller's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its articles of organization, regulations, or
other governing documents; (ii) result in the breach of any term or condition
of, or constitute a default or cause the acceleration of any obligation under
any agreement or instrument to which it is a party or by which it is bound; or
(iii) violate or conflict with any applicable judgment, decree, order, permit,
law, rule, or regulation.
3.4 BROKERS. Seller has incurred no liability, contingent or otherwise,
for broker's or finder's fees in respect of this transaction, for which Buyer
shall have any responsibility whatsoever.
3.5 FOREIGN PERSON. Seller is not a "foreign person" within the meaning
of Sections 1445 and 7701 of the Internal Revenue Code of 1986, as amended (the
"Code") (i.e. Seller is not a nonresident alien, foreign corporation, foreign
partnership, foreign trust, or foreign estate as those terms are defined in the
Code and any regulations promulgated thereunder).
3.6 LITIGATION. There is no suit, claim, action, or other proceeding,
pending or, to Seller's best knowledge, threatened, before any court or
governmental agency as of the date of this Agreement that relates to Seller's
interest in the Properties. Seller shall promptly notify Buyer of any such
proceeding arising prior to Closing.
3.7 NON-CANCELABLE CONTRACTS. With the exception of the Contracts listed
on SCHEDULE 3.7 attached hereto, Seller's interest in the Properties, or
production therefrom, is not subject to any crude oil or gas purchase agreement,
transportation agreement, gathering agreement, or similar agreement not
cancelable on thirty (30) days or less notice.
3.8 NO TAKE-OR-PAY CONTRACTS. Seller has not received any material
advance, "take-or-pay" or other similar payments under hydrocarbon production
sales contracts relating to the Properties that entitle the purchasers to "make
up" or otherwise receive deliveries of production at any time after the
Effective Time without paying at such time the contract price therefor.
3.9 NO CASUALTY LOSS. Since January 1, 1997, there has not been: (a) any
material adverse change, damage, destruction, or other Casualty Loss (defined
herein as any and all loss, damage, or reduction in value resulting from
catastrophic occurrences or acts of God, which are not the result of normal wear
and tear or of natural reservoir changes) of or to the Properties; and, (b) to
Seller's best knowledge, any equipment removed from the Properties which is not
surplus to the operation of the Properties.
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3.10 ROYALTIES. All royalties (other than royalties properly held in
suspense), rentals and other payments due under the Leases have been properly
and timely paid and all conditions necessary to keep the Leases in force have
been fully performed. No notices have been received by Seller of any claim to
the contrary and, to Seller's best knowledge, all of the Leases are in full
force and effect. All royalties paid by Seller have included any premium
payments over and above posted prices in the area.
3.11 TAXES. All ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom on Seller's
interest in the Properties have been properly and timely paid and all such taxes
and assessments which would become due and payable prior to the Effective Time
shall be properly and timely paid by Seller.
3.12 LIENS. Except as disclosed on SCHEDULE 3.12 attached hereto, Seller's
interest in the Properties is not subject to any liens, security interests or
mortgages of any kind or nature.
3.13 VALID AGREEMENTS. All material agreements and contracts constituting
a part of or affecting Seller's interest in the Properties, including, without
limitation the Contracts, are valid and in full force and effect, Seller is not
in material breach or default with respect to any of its obligations thereunder
and no party has given Seller notice of any material breach or default
thereunder.
3.14 THIRD-PARTY RIGHTS. Except as reflected on EXHIBIT "A-1" attached
hereto, there are no reversionary interests, conversion rights or back-in
interests held by third parties which affect Seller's interest in the
Properties.
3.15 PERMITS. Seller possesses all material licenses, permits,
certificates, order, approvals and authorizations necessary or appropriate to
own its interest in the Properties and to carry on its business as now
conducted.
3.16 COMPLIANCE WITH LAW. Seller is in material compliance with all laws,
ordinances, rules, regulations and orders applicable to its interest in the
Properties, including, without limitation, all Environmental Laws, ordinances,
rules, regulations and orders, and Seller has not received any notice of any
claimed noncompliance therewith. Seller is not aware of any facts, conditions
or circumstances in connection with, related to or associated with the
Properties that could reasonably be expected to give rise to any claim or
assertion that Seller, the Properties or the ownership or operation of any
thereof is not in material compliance with any applicable law, rule, regulation,
ordinance, or order of any governmental authority or with any term or conditions
of any applicable permit, license, approval, consent, certificate or other
authorization.
3.17 CALLS ON PRODUCTION. No person has any option to purchase or similar
right under any agreement with respect to production attributable to Seller's
interest in any Property which could
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reasonably be expected to materially and adversely affect the value of
Seller's interest in any such Property.
3.18 ACCESS. To Seller's best knowledge, no condition exists with respect
to any of the Properties which could reasonably be expected to restrict access
thereto or the right of Seller to explore and develop its interests therein.
3.19 AUTHORIZATION FOR EXPENDITURE. Except as set forth on SCHEDULE 3.19
attached hereto, (i) there are no outstanding calls under Authorizations for
Expenditures for payments with respect to the Properties which are due or which
Seller has committed to make which have not been made; and (ii) there are no
commitments of which Seller is aware for the expenditure of funds for drilling
or other capital projects relating to the Properties.
3.20 EQUIPMENT. All of the equipment, fixtures and improvements on the
Properties Seller operates have been maintained in a state of repair so as to be
adequate for normal operations, and since January 1, 1997, Seller has not
exchanged any of such property for property of lesser value or sold or removed
from the Properties any of such property which is not surplus to the operation
thereof.
3.21 UNPLUGGED WELLS. Except as set forth on SCHEDULE 3.21 attached
hereto, there are no wells located on the Properties Seller operates which (i)
are shut-in and not capable of producing, or (ii) are abandoned and unplugged.
3.22 ENVIRONMENTAL. Seller and the Properties Seller operates are in
compliance in all material respects with all applicable Environmental Laws.
Neither Seller nor, to Seller's knowledge, any prior or other owner or operator
of the Properties has received any notice or inquiry that alleges non-compliance
with such laws.
3.23 GAS IMBALANCES. Except as set forth on SCHEDULE 3.23 attached hereto,
Seller has no gas or oil imbalances with respect to production from the
Properties, whether or not a balancing agreement exists.
3.24 TAX PARTNERSHIPS. No interest of Seller in the Properties is subject
to any tax partnership agreement or provision requiring a partnership income tax
return to be filed under the Code, or any similar state statute.
3.25 SECTION 29 TAX CREDITS. To Seller's best knowledge, none of the oil
or gas production from the Properties qualifies or has qualified for the credit
under Section 29 of the Code and none has been claimed or taken by Seller on
such production.
3.26 ACCESS TO INFORMATION. To Seller's best knowledge, Seller has
provided Buyer with access to all of its Records respecting the Properties which
Seller has in its possession or as to which
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Seller has access as required in Section 8.1 hereof, except to the extent
that legal restrictions prohibit Seller from providing Buyer with such access.
ARTICLE 4. REPRESENTATIONS OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 EXISTENCE. Buyer is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware and is duly
qualified to do business in each State where its business operations require
such qualification.
4.2 AUTHORIZATION. Buyer has all authority necessary to enter into this
Agreement and to perform all its obligations hereunder. This Agreement has been
duly executed and delivered on Buyer's behalf, and at the Closing all documents
and instruments required hereunder to be executed and delivered by Buyer will
have been duly executed and delivered. This Agreement, and all such documents
and instruments shall constitute legal, valid, and binding obligations of Buyer
enforceable in accordance with their respective terms, except to the extent
enforceability may be affected by bankruptcy, reorganization, insolvency, or
similar laws affecting creditors' rights generally.
4.3 POWER. Subject to preferential rights and restrictions on assignment
of the type typically found in the oil and gas industry, and to rights to
consent by, required notices to, and filings with or actions by other
governmental entities, Buyer's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its certificate of incorporation, by-laws, or
other governing documents; (ii) result in the breach of any term or condition
of, or constitute a default or cause the acceleration of any obligation under
any agreement or instrument to which it is a party or by which it is bound; or
(iii) violate or conflict with any applicable judgment, decree, order, permit,
law, rule, or regulation.
4.4 BROKERS. Buyer has incurred no liability, contingent or otherwise,
for broker's or finder's fees in respect of this transaction, for which Seller
shall have any responsibility whatsoever.
4.5 FURTHER DISTRIBUTION. Buyer (i) is acquiring an interest in the
Properties for its own account and without a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended; and (ii) has such
knowledge and experience in business, financial, and oil and gas matters that it
is capable of evaluation of the merits and risks of entering into and of
carrying out its obligations in connection with the acquisition of an interest
in the Properties in the manner contemplated herein.
4.6 FINANCIAL CONDITION. Buyer will have at Closing financial resources
sufficient to consummate the transactions contemplated by this Agreement and
fulfill its obligations hereunder.
ARTICLE 5. DISCLAIMER OF CERTAIN WARRANTIES
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5.1 INFORMATION PROVIDED. All the information, statistics, summaries, and
facsimiles furnished by or on behalf of Seller herewith, hereunder, or prior to
the execution of this Agreement are furnished or will be furnished for Buyer's
use at Buyer's sole risk. All such information has been compiled or prepared by
Seller based upon its files and records and such information represents true and
correct copies of materials out of its files or materials delivered to it by
third parties and it has no actual knowledge of facts different from the facts
set forth in the materials delivered, but SELLER MAKES NO REPRESENTATION,
EXPRESS OR IMPLIED, AS TO THE ACCURACY, CORRECTNESS, COMPLETENESS, OR THE
ADEQUACY OF SAME AND DOES NOT WARRANT OR GUARANTEE SUCH INFORMATION IN ANY WAY.
SELLER HAS MADE NO STATEMENTS OR REPRESENTATIONS CONCERNING THE PRESENT OR
FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS, OR PROFITS, IF ANY, TO BE DERIVED
FROM THE PROPERTIES. BUYER IS RESPONSIBLE FOR MAKING SUCH INDEPENDENT
INVESTIGATION AND EVALUATION OF THE PROPERTIES AS BUYER SHALL DEEM APPROPRIATE,
REALIZING THAT SELLER DOES NOT ASSUME AND SHALL HAVE NO LIABILITY TO BUYER OR
ANY OTHER PARTY FOR ANY RELIANCE WHICH MAY BE PLACED ON THE INFORMATION,
STATISTICS, SUMMARIES, OR FACSIMILES FURNISHED HEREWITH OR HEREUNDER.
SPECIFICALLY, BUT WITHOUT LIMITING THE GENERALITY OF THE FOREGOING:
(i) THE DESCRIPTION OF LEASES INCLUDED IN THE PROPERTIES, THE ACREAGE
PURPORTED TO BE COVERED THEREBY, DEPTH LIMITATIONS (IF ANY), ROYALTY AND OTHER
BURDENS AFFECTING SAME, AND QUANTUM OF INTEREST HAVE BEEN DERIVED STRICTLY FROM
SELLER'S RECORDS AND SELLER HAS NOT UNDERTAKEN ANY EXAMINATION OF TITLE TO
VERIFY SAME. SELLER WARRANTS TITLE TO THE SALE INTEREST IN THE PROPERTIES ONLY
AS TO ANY CLAIMS BROUGHT BY, THROUGH, OR UNDER SELLER, BUT NOT OTHERWISE, AND
BUYER SHOULD THEREFORE UNDERTAKE SUCH TITLE EXAMINATION AS IT DEEMS APPROPRIATE
PRIOR TO CLOSING; AND
(ii) ANY DESCRIPTION OF WELLS AND EQUIPMENT INCLUDED IN THE PROPERTIES
HAS BEEN COMPILED STRICTLY FROM SELLER'S RECORDS RATHER THAN FROM AN
ON-THE-GROUND INVENTORY. PRIOR TO SALE, BUYER SHOULD UNDERTAKE SUCH INSPECTION
OR INVENTORY AS IT DEEMS APPROPRIATE TO DETERMINE WHETHER THE EQUIPMENT SO
DESCRIBED IS IN FACT IN PLACE.
5.2 WARRANTIES. EXCEPT AS OTHERWISE PROVIDED HEREIN, CONVEYANCE OF THE
SALE INTEREST IN ALL PERSONAL PROPERTY WILL BE MADE WITHOUT WARRANTIES, EXPRESS
OR IMPLIED IN FACT OR IN LAW, AS TO MERCHANTABILITY, DURABILITY, USE, OPERATION,
OR FITNESS FOR ANY PARTICULAR PURPOSE.
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ARTICLE 6. TITLE MATTERS
6.1 DEFINITION OF MARKETABLE TITLE. As used herein, the term "Marketable
Title" shall mean:
(a) In the case of the producing Leases, such right, title and
interest that, except for Permitted Encumbrances (defined below):
(i) is free from reasonable doubt to the end that a prudent
person engaged in the business of purchasing and owning, developing and
operating producing oil and gas properties with knowledge of all of the facts
and their legal bearing would be willing to accept the same at the agreed price;
(ii) entitles Seller to receive not less than the interest set
forth in EXHIBIT "A-1" as the "Net Revenue Interest" or "NRI" with respect to
the oil, gas, and associated hydrocarbon minerals produced, saved and marketed
from each unit or well, as the case may be, that relates to the presently
producing intervals in the lands and depths included within each property
identified on EXHIBIT "A-1" (each such identified property being herein referred
to as "Property");
(iii) obligates Seller to pay costs and expenses relating to
the operations on and the maintenance and development of each unit or well, as
the case may be, that relates to the presently producing intervals in the lands
and depths included within each Property, in an amount not greater than the
"Working Interest" of "WI" set forth in EXHIBIT "A-1" with respect to such
Property, without a corresponding increase in the Net Revenue Interest for such
Property; and
(iv) is free and clear of any encumbrances, mortgages, liens, or
consent requirements.
(b) In the case of non-producing Leases, such right, title and
interest that, except for Permitted Encumbrances:
(i) is free of reasonable doubt to the end that a prudent
person engaged in the business of purchasing, owning and developing
non-producing oil and gas properties with knowledge of all the facts and
their legal bearing would be willing to accept the same at the agreed price;
(ii) other than the royalties provided for therein, is free and
clear of any leasehold burdens which would reduce the interest of Seller with
respect to the oil and gas produced therefrom;
(iii) entitles Seller to participate in operations thereon to
the extent of the "Working Interest" set forth in EXHIBIT "A" attached hereto;
and
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(iv) is free and clear of any encumbrances, mortgages, liens, or
consent requirements.
6.2 DEFINITION OF PERMITTED ENCUMBRANCES. As used herein, the term
"Permitted Encumbrances" shall mean:
(a) Lessors' royalties, overriding royalties, reversionary interests,
and similar burdens affecting a Lease if the net cumulative effect of such
burdens does not operate to reduce the interest of Seller with respect to oil
and gas produced from any units or wells below the "Net Revenue Interest" or
"NRI" set forth in EXHIBIT "A-1" for the Property to which such units or wells
relate;
(b) Division orders and undisclosed sales contracts terminable
without penalty upon no more than 30 days notice to the purchaser;
(c) Preferential rights to purchase and required third-party consents
to assignments and similar agreements with respect to which waivers or consents
are obtained from the appropriate parties or the appropriate time period for
asserting the rights has expired without an exercise of such rights;
(d) Materialman's, mechanic's, repairman's, employee's, operator's,
tax, and other similar liens or charges arising in the ordinary course of
business for obligations that are not delinquent or that will be paid and
discharged in the ordinary course of business or, if delinquent, that are being
contested in good faith by appropriate action;
(e) All rights of approval by, required notices to, filings with, or
other actions by governmental entities in connection with the sale or conveyance
of oil and gas leases or interests therein which are customarily obtained after
the consummation of transactions of the type contemplated hereunder;
(f) Conventional rights of reassignment prior to abandonment
requiring notice to holders of such rights;
(g) Easements, rights-of-way, servitudes, permits, surface leases,
and other rights of third parties in respect of surface operations, which are
not such as to interfere materially with the operation or use of any Property or
materially reduce the value thereof;
(h) All rights reserved to or vested in any municipality or
governmental statutory or public authority to control or regulate any of the
Leases in any manner, and all applicable laws, rules, and orders of any such
authority which are not such as to interfere materially with the operation or
use of any Property or materially reduce the value thereof;
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(i) Any Title Defects Buyer may have expressly waived in writing or
which are deemed to have been waived under Section 6.3 or any other matters that
are included in the adjustments to the Purchase Price pursuant to Section 2.3;
(j) The terms and provisions of all operating agreements, unit
agreements, unit operating agreements, and communitization agreements affecting
the Leases identified on Exhibit "A" and all pooling agreements and pooling
designations affecting the Leases (other than any terms or provisions of such
agreements that affect the NRI or WI of such Leases or the ability of Seller to
transfer the Sale Interest in the Properties to Buyer);
(k) Calls on or preferential rights to purchase production, held by
parties other than Seller or its affiliates, which could not reasonably be
expected to materially and adversely affect the value of any Property;
(l) The Deeds of Trust, Mortgages and other security documents listed
on SCHEDULE 3.12 hereof; and
(m) All other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects, and irregularities affecting the Leases or
the units or wells to which they relate that, individually or in the aggregate:
(i) are not such as to interfere with the operation, value or
use of the Leases (or portion thereof) affected thereby;
(ii) have not delayed the receipt or prevented Seller from
receiving its share of the proceeds of production from any of the units or wells
to which the Leases relate;
(iii) do not reduce the interest of Seller with respect to
all oil and gas produced from any unit or well to which the Leases relate below
the "Net Revenue Interest" or "NRI" set forth in EXHIBIT "A-1" for the Property
to which such unit or well relates; and
(iv) do not increase Seller's portion of the costs and expenses
relating to the operations on and the maintenance and development of the lands
and depths included in any unit or well to which the Leases relate above the
"Working Interest" or "WI" set forth in EXHIBIT "A-1" for the Property to which
such unit or well relates.
6.3 NOTICE OF TITLE DEFECT. Except for consents and preferential rights
to purchase, subject to Section 16.12 hereof, Buyer shall notify Seller in
writing as soon as practicable, after Buyer discovers any matter, and in no
event later than August 18, 1997, at 4:00 p.m., Denver, Colorado time (the
"Notification Deadline"), that would cause Seller's title to any of the
Properties not to be Marketable Title ("Title Defect"), in each case together
with a detailed explanation of (a) the nature of such Title Defect, (b) the
Property (or portions thereof) affected thereby, and (c) Buyer's proposed Defect
Value (as hereinafter defined for such Title Defect). Except for consents
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and preferential rights to purchase any matters that would otherwise
constitute Title Defects but which are not specifically raised in writing
(with the detailed explanation as contemplated in the immediately preceding
sentence) by Buyer prior to the Notification Deadline shall conclusively be
deemed waived by Buyer. As used herein, the term "Defect Value" shall mean
with respect to each Title Defect, the reduction in the "Allocated Value" of
the affected Property as a result of such Title Defect, as determined
pursuant to Section 6.5.
6.4 REMEDIES FOR TITLE DEFECTS.
(a) Seller shall have the right, but not the obligation, to attempt
to cure any Title Defect with respect to which it has received notice from Buyer
as contemplated in Section 6.3 prior to Closing.
(b) With respect to any Title Defect for which Seller received the
required notice from Buyer before the Notification Deadline and which has not
been cured by Closing, Seller may, subject to the terms of the last sentence of
this Section 6.4(b), elect at Closing from among the following options with
respect to Title Defects that remain uncured:
(i) Seller may elect to exclude the Property subject to the
Title Defect from the sale hereunder, in which event the Purchase Price shall be
reduced by the Allocated Value (as defined in Section 6.5) of the Sale Interest
in such Property; or
(ii) If Seller has not elected the foregoing, the Sale Interest
in such Property subject to such Title Defect shall be sold to Buyer hereunder
and the Purchase Price shall be reduced by the Defect Value for such Title
Defect.
There shall be no reduction in the Purchase Price for Title Defects pursuant to
the terms of this Section 6.4(b), unless and until the aggregate of all Defect
Values exceeds $250,000, and then only with respect to the excess of such
aggregate Defect Values over $250,000.
(c) Notwithstanding anything to the contrary contained in this
Agreement:
(i) except as set forth in item (iii) below, the existence of a
Title Defect shall not result in Buyer having any right to exclude any Property
from the sale hereunder or to fail to perform its obligations at Closing;
(ii) there shall be no adjustment of the Purchase Price as a
result of Seller's title to any of the Properties other than the Leases; and
(iii) either Buyer or Seller shall have the option, but not
the obligation, to terminate the entire transaction contemplated herein in the
event that the aggregate value of all Title Defects and Environmental Defects
exceeds 30% of the Purchase Price.
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6.5 VALUE OF LEASEHOLD INTEREST OR TITLE DEFECT. As used herein, the term
"Allocated Value" shall mean, with respect to any Lease, or any unit or well
relating thereto, the amount set forth by Buyer on EXHIBIT "B" for the Sale
Interest in each Property. If Seller does not agree with Buyer's proposed
Defect Value or the parties are unable to agree upon whether a Title Defect
exists, then the parties shall enter into good faith negotiations and shall
attempt to agree on such matter, and any values to be agreed upon shall be based
upon the Allocated Value on EXHIBIT "B". If the parties are unable to reach an
agreement on the existence of a Title Defect or the Defect Value of a Title
Defect, in any such case within 10 days after the commencement of good faith
negotiations, at either party's option, upon notice to the other party, such
shall be determined by arbitration as provided in Article 15. In the event
arbitration is not concluded prior to the Closing Date, the Property affected by
the alleged Title Defect shall be excluded from the sale to Buyer under this
Agreement, and the Purchase Price shall be reduced by the Allocated Value
therefor. If the arbitration determines that there should be an adjustment to
the Allocated Value, Seller will elect among the options in Section 6.4(b) as to
the affected Property; if the arbitration determines that there should be no
adjustment to the Allocated Value, then Seller will convey the Sale Interest in
the Property to Buyer and Buyer will pay to Seller the Allocated Value therefor.
6.6 CONSENTS; PREFERENTIAL RIGHTS. Should any of the Leases or Contracts
require a consent to assignment of any of the Properties, Seller shall make a
good faith effort to obtain such consent or a waiver of such consent. Seller
shall not be obligated to incur any expenses to obtain such consent or waiver
and shall not be liable to Buyer by reason of any inability or failure to obtain
any such waiver or consent which shall be a Title Defect. Notification of a
consent requirement or of a preferential right to purchase may be given by Buyer
to Seller at any time prior to Closing. If any of the Properties are subject to
a preferential right to purchase and, prior to Closing, any holder of a
preferential right to purchase notifies Seller that it intends to consummate the
purchase of the Sale Interest in the Property to which its preferential right
applies, the affected Properties shall be excluded from the sale to Buyer under
this Agreement, and the Purchase Price shall be reduced by the Allocated Value
of the Sale Interest in such Property. If the preferential right has been
waived or if the time for the exercise of such right has not expired the Sale
Interest in the affected Property shall be conveyed to Buyer at Closing.
Thereafter, if the holder of the preferential right timely and properly
exercises its right to purchase, Buyer shall be obligated to convey the Sale
Interest in such Property to such third party and shall receive the purchase
price therefor.
6.7 RISK OF LOSS. If, after the Effective Time and prior to the Closing
any part of the Properties shall be destroyed or harmed by fire or any other
casualty or cause or shall be taken by condemnation or the exercise of eminent
domain, Buyer shall be entitled to any applicable insurance proceeds (to the
extent actually received by Seller) or condemnation awards, or Buyer may elect
to exclude such Property from this transaction and the Purchase Price shall be
reduced by the Allocated Value for the Sale Interest in such Property. This
adjustment shall not be subject to the limitations of Section 6.4(b).
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ARTICLE 7. ENVIRONMENTAL MATTERS
7.1 ENVIRONMENTAL DEFECTS. If (i) Buyer notifies Seller in writing on or
before August 18, 1997 (the "Environmental Notice Deadline") of the existence of
any environmental conditions on the property interests comprising a part of the
Properties that constitutes a violation of any Environmental Law, Contract or
Lease as in effect on the date hereof, (ii) the cost to remediate such
conditions on each such Property affected is in excess of $20,000 (as determined
utilizing the most cost effective method of remediation available that is, or
would reasonably be expected to be, acceptable to the regulatory agency having
jurisdiction in such matters) (any such condition being herein referred to as
"Environmental Defect"), and (iii) of the aggregate remediation costs of all
such Environmental Defects exceed $250,000, then Seller may, at its sole option,
and as to each such Property affected:
(a) include the affected Property and reduce the Purchase Price by
60% of the mutually agreed upon cost to remediate in excess of $20,000, which
latter amount shall be borne by the Buyer; or
(b) exclude the affected Property and reduce the Purchase Price by
the Allocated Value for the Sale Interest in such Property.
If the provisions of Section 7.1(i), 7.1(ii) and 7.1(iii) above are applicable,
then notwithstanding the elections of Seller, Buyer may elect to exclude any
affected Property and reduce the Purchase Price by the Allocated Value of the
Sale Interest therein. Buyer shall provide Seller with a copy of all
independent environmental reports obtained by Buyer in connection herewith,
except to the extent that the providing of any such reports would violate a
third party agreement.
7.2 ENVIRONMENTAL LAWS. As used herein, the term "Environmental Laws"
shall mean any and all laws, statutes, regulations, rules, orders, ordinances,
permits, or determinations of any governmental authority pertaining to health or
the environment in effect in any and all jurisdictions in which the Property is
located, including, without limitation, the Clean Air Act, as amended, the
Federal Water Pollution Control Act, as amended, the River and Harbor Act, as
amended, the Safe Drinking Water Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), as amended,
the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), as amended,
the Resource Conservation and Recovery Act ("RCRA"), as amended, the Hazardous
and Solid Waste Amendment Acts of 1984, as amended, the Toxic Substances Control
Act, as amended, the Occupational Safety and Health Act ("OSHA"), as amended,
and other federal, state, and local laws whose purpose is to conserve or protect
health, the environment, wildlife, or natural resources. The terms "hazardous
substance", "release", and "threatened release" shall have the meanings
specified in CERCLA; provided, however, that (a) to the extent the laws of the
state in which the Property is located are applicable and have established a
meaning for "hazardous substance", "release", "threatened release", "solid
waste", "hazardous waste", and "disposal" that is broader than that specified in
CERCLA or RCRA, such broader meaning shall apply with respect to the matters
covered by such laws, and (b) the term "solid waste" shall include
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all oil and gas exploration, development, and production wastes, even if such
wastes are specifically exempt from classification as hazardous substances or
hazardous wastes pursuant to CERCLA or RCRA, or the state analogues to those
statutes.
ARTICLE 8. COVENANTS OF SELLER
Seller covenants and agrees with Buyer as follows:
8.1 ACCESS TO RECORDS. Prior to the Closing Date, Seller shall grant
Buyer reasonable access to the Records for the review and copying thereof, at
Buyer's expense, during Seller's normal business hours upon reasonable prior
notification, subject to any confidentiality agreements previously signed by
Buyer. The Records shall be made available at their present location together
with suitable office facilities for review and copying purposes. Buyer will use
its best efforts to conduct such operations in a manner that will not disrupt
Seller's normal business activities. From and after the date of the execution
of this Agreement through the Closing Date, Seller shall not add to or remove
from the Records any contracts, instruments, documents or other materials except
for such additions and removals as are done in the ordinary course of business
with respect to ongoing operations. Any contracts, instruments, documents or
other materials removed from the Records by Seller during such period of time
will be replaced in the Records by Seller after their use.
8.2 OPERATIONS. From the date of this Agreement until Closing (the
"Interim Period"), except as otherwise approved by Buyer, Seller:
(a) shall permit Buyer to have access to those Properties operated by
Seller and shall use reasonable efforts to provide Buyer access to those
Properties not operated by Seller;
(b) shall operate the Properties for which it is the operator in a
prudent, good and workmanlike manner in compliance with all laws and
governmental regulations and in compliance with all Contracts or other
agreements relating to the Properties;
(c) shall not transfer, sell, hypothecate, encumber, or otherwise
dispose of any of the Properties (other than sale of production in the ordinary
course of business or as required in connection with the exercise of
preferential rights to purchase any of the Properties), or substantially modify
or terminate any Contract or other material agreement;
(d) shall not abandon any wells or surrender any Leases (other than
as required by law or governmental order or regulation or in connection with an
emergency);
(e) shall not enter into any production sale, processing, treating or
other agreements affecting the Properties not terminable on no more than thirty
(30) days' notice;
(f) shall promptly notify Buyer of any notice received by Seller
relating to any claims or lawsuits relating to the Properties;
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(g) shall not make any commitments to expend funds in connection with
the ownership or operation of any Property (other than as required by law or
governmental order or regulation or in connection with an emergency) in an
amount in excess of $40,000. If Buyer fails to respond within a period of time
reasonably requested by Seller (taking into account any time limitations imposed
on Seller) following delivery by Seller of a request for approval with respect
to any such proposed action or expenditure, then Buyer shall be deemed to have
agreed with Seller's election or other determination with respect thereto;
(h) shall maintain all permits, certificates, licenses,
authorizations and insurance now in force with respect to Seller's interest in
the Properties, and pay or cause to be paid all costs and expenses in connection
therewith;
(i) shall not participate in the drilling of any new well on the
Properties or fail to participate in operations on the Properties proposed by
other parties, without the advanced written consent of Buyer, which consent or
non-consent must be given by Buyer within five (5) days of receipt of notice
from Seller;
(j) shall carry on its business with respect to the Properties in
substantially the same manner as it has heretofore, not introducing any new
method of management, operation or accounting with respect to the Properties
except as may be required by applicable statutes, rules or regulations or by
applicable presently existing contractual obligations;
(k) shall not resign or otherwise voluntarily relinquish its rights
as operator of any Properties for which it serves as operator on the date
hereof;
(l) shall not grant any preferential right to purchase or similar
right or agree to require the consent of any party to the transfer and
assignment of Seller's interest in the Properties to Buyer;
(m) shall not enter into any transaction the effect of which,
considered as a whole, would be to cause Seller's ownership interests in any of
the Properties to be altered from its ownership interest as of the date hereof;
(n) shall not enter into any settlement of or relinquish any
outstanding receivables which are a part of the Properties (including, without
limitation, the right to receive any retroactive price adjustments, take-or-pay
monies, FERC mandated refunds, accounting adjustments, tax adjustments, and
Minerals Management Service refunds);
(o) shall give Buyer prompt written notice of any notice of default
(or written threat of default, whether disputed or denied) received or given by
Seller under any instrument or agreement affecting the Properties to which
Seller is a party or which it or any of the Properties is bound;
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(p) shall promptly provide Buyer with a copy of each authority for
expenditure, agreement and contract affecting the interest of Seller in the
Properties and entered into after the date hereof; and
(q) shall provide Buyer daily with reports as to all drilling
operations and other materials operations being conducted on the Properties and
shall provide appropriate personnel for weekly meetings with Buyer's
representatives to discuss such drilling and other material operations.
8.3 PERMISSIONS. During the Interim Period, Seller will use reasonable
efforts to obtain all permissions, approvals, and consents of federal, state,
and local governmental authorities and other third parties as may be required to
consummate the sale contemplated hereunder (excluding governmental permissions,
approvals, and consents which are customarily obtained after the consummation of
transactions of the type contemplated hereunder).
ARTICLE 9. COVENANTS OF BUYER
Buyer covenants and agrees with Seller as follows:
9.1 RETURN OF DATA. Buyer agrees that if this Agreement is terminated for
any reason whatsoever, Buyer shall, at Seller's request, promptly return to
Seller all information and data furnished by or on behalf of Seller to Buyer,
its officers, employees, and representatives in connection with this Agreement,
and Buyer shall deliver to Seller all copies, extracts, or excerpts of such
information and data.
9.2 INDEMNITY REGARDING ACCESS. Buyer agrees to protect, indemnify,
defend, and hold harmless Seller from and against any and all Losses in
connection with personal injuries, death, or property damage arising out of or
relating to the access of Buyer, its officers, employees, and representatives to
the Properties from the date hereof to the Closing Date, REGARDLESS OF WHETHER
SUCH INJURIES, DEATH, OR DAMAGES ARE CAUSED IN PART BY THE SOLE, PARTIAL OR
CONCURRENT NEGLIGENCE OF SELLER.
ARTICLE 10. SELLER'S CONDITIONS OF CLOSING
The obligation of Seller to close this transaction shall be subject to and
conditioned upon the following, any one or more of which may be waived by
Seller, in whole or in part:
10.1 REPRESENTATIONS. The representations of Buyer under Article 4 of this
Agreement shall be true and accurate in all material respects as of the date
when made and shall be deemed to be made again at and as of the time of the
Closing and shall then be true and accurate in all material respects.
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10.2 PERFORMANCE. Buyer shall have performed and complied with each
covenant, agreement, and condition required by this Agreement to be performed or
complied with by it prior to or at Closing.
10.3 PENDING MATTERS. At Closing, no litigation, proceeding,
investigation, or inquiry shall be pending or threatened to enjoin or prevent
the consummation of the transactions contemplated by this Agreement.
10.4 RESOLUTION. Buyer shall have furnished Seller a certified copy of
resolutions of the board of directors of Buyer authorizing the execution and
delivery of this Agreement and delivery of all documents contemplated herein.
10.5 OPINION OF COUNSEL. Buyer shall have furnished to Seller an opinion
of its counsel with respect to the matters represented in Sections 4.1, 4.2 and
4.3 above.
ARTICLE 11. BUYER'S CONDITIONS OF CLOSING
The obligation of Buyer to close this transaction shall be subject to and
conditioned upon the following, any one or more of which may be waived by Buyer,
in whole or in part:
11.1 REPRESENTATIONS. The representations of Seller under Article 3 of
this Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to be made again at and as of the time of the
Closing and shall then be true and accurate in all material respects.
11.2 PERFORMANCE. Seller shall have performed and complied with each
covenant, agreement, and condition required by this Agreement to be performed or
complied with by it prior to or at Closing.
11.3 PENDING MATTERS. At Closing, no suit or action shall have been
instituted or threatened that questions or reasonably appears to portend
subsequent questioning of the validity or legality of this Agreement of the
transactions contemplated by this Agreement.
11.4 RESOLUTION. Seller shall have furnished Buyer a certified copy of
Resolutions of the board of directors of the Manager of Seller authorizing the
execution and delivery of this Agreement and delivery of all documents
contemplated herein.
11.5 OPINION OF COUNSEL. Seller shall have furnished to Buyer an opinion
of its counsel with respect to the matters represented in Sections 3.1, 3.2 and
3.3 above.
ARTICLE 12. CLOSING
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12.1 TIME AND PLACE OF CLOSING. Subject to the conditions stated in this
Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall occur on August 28, 1997 or on such other date that the parties
may mutually agree upon and designate in writing (the "Closing Date"); provided,
however, that if all of the conditions to Closing set forth in Articles 10 and
11 have not been satisfied or waived by such date or any extended date for
Closing, the party whose obligations are subject to the conditions that have not
been satisfied or waived shall have the right to extend the date of Closing for
successive periods of up to seven days each until such conditions shall have
been satisfied or waived. The Closing shall be held at Seller's office in
Denver, Colorado, or at such other location as may be mutually agreed upon by
Seller and Buyer.
12.2 CLOSING OBLIGATIONS.
(a) At Closing, Seller shall deliver to Buyer the following:
(i) Executed Assignments, Bills of Sale and Conveyances of the
Sale Interest in the Properties, in the form attached hereto as EXHIBIT "C" and
in sufficient counterparts for recording in each appropriate filing
jurisdiction;
(ii) An initial settlement statement reflecting adjustments to
the Purchase Price as provided in Article 2 above (Seller shall provide Buyer a
copy of the statement at least 3 business days before the Closing Date);
(iii) Executed releases of the Deeds of Trust, Mortgages and
other security documents listed on SCHEDULE 3.12 hereof and all related
financing statements (the "Releases"), in form and substance satisfactory to
Buyer;
(iv) Letters-in-lieu of transfer orders, directing that all
proceeds of production from the Sale Interest in the Properties which have
heretofore been paid to Seller shall be paid to the account of Buyer as of and
after the Effective Time;
(v) Resolutions of the board of directors of the Manager of
Seller in compliance with Section 11.4 hereof;
(vi) Possession of the Sale Interest in the Properties;
(vii) An executed Acquisition and Exploration Agreement in
the form attached hereto as EXHIBIT "D" (the "Acquisition and Exploration
Agreement");
(viii) Appropriate executed state and federal lease
assignments on the prescribed forms; and
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(ix) An executed Operating Agreement in the form of Exhibit "B"
attached to the Acquisition and Exploration Agreement covering the Properties
which are not subject to a third party operating agreement (the "Operating
Agreement").
(b) At Closing, Buyer shall:
(i) Deliver to Seller the Adjusted Purchase Price by wire
transfer to Seller's account as identified by Seller;
(ii) Execute the Assignments, Bills of Sale and Conveyances
delivered by Seller to Buyer at Closing, evidencing Buyer's acceptance of same;
(iii) Deliver to Seller Resolutions of the Board of Directors
of Buyer in compliance with Section 10.4 hereof;
(iv) Execute and deliver to Seller the Acquisition and
Exploration Agreement in the form attached hereto as EXHIBIT "D"; and
(v) Execute and deliver to Seller the Operating Agreement.
12.3 FURTHER ASSURANCES. The parties shall execute, acknowledge, and
deliver any other documents and shall take such other actions as may be
necessary to carry out their obligations under this Agreement.
ARTICLE 13. ADDITIONAL AGREEMENTS
13.1 CALCULATION OF ADJUSTED PURCHASE PRICE. Within 90 days after the
Closing, Seller shall prepare, in accordance with this Agreement and with
generally accepted accounting principles consistently applied, and deliver to
Buyer a statement setting forth each adjustment to the Purchase Price required
pursuant to Section 2.3 and showing the calculation of each such adjustment.
Within 30 days after receipt of such statement from Seller, Buyer shall deliver
to Seller a written report containing all changes with explanations and
documentation therefor that Buyer proposes be made to such statement, it being
agreed that Buyer's failure to deliver such report to Seller within such time
period shall constitute acceptance by Buyer of Seller's statement. From and
after the expiration of such 30-day period, no additional changes to the
statement provided by Seller shall be considered by the parties. If Buyer has
timely delivered such written report, the parties shall then undertake to agree
on the items in dispute and the final Adjusted Purchase Price no later than 15
days after the receipt by Seller of Buyer's statement of proposed changes (it
being agreed that any disputes as to adjustments relating to Title Defects shall
be resolved prior to such time pursuant to the provisions of Article 6).
Following the final determination of the Adjusted Purchase Price pursuant to
this Section 13.1, Seller or Buyer, as the case may be, shall make the payment
required within five business days after such final determination. Seller and
Buyer will provide any information reasonably requested by the other in order to
prepare such statement or verify Buyer's written report.
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13.2 RECEIPTS AND CREDITS.
(a) Subject to the terms hereof and except to the extent same have
already been taken into account as an adjustment to the Purchase Price, all
monies, proceeds, receipts, credits, and income attributable to the Sale
Interest in the Properties;
(i) for the period subsequent to the Effective Time, shall be
the sole property and entitlement of Buyer, and, to the extent received by
Seller, Seller shall fully disclose, account for, and transmit same to Buyer
promptly.
(ii) for the period prior to the Effective Time, shall be the
sole property and entitlement of Seller, and, to the extent received by Buyer,
Buyer shall fully disclose, account for, and transmit same to Seller promptly.
(b) Subject to the terms of this Agreement and except to the extent
same have already been taken into account as an adjustment to the Purchase
Price, all costs, expenses, disbursements, obligations, and liabilities
attributable to the Sale Interest in the Properties;
(i) for the period prior to the Effective Time, regardless of
when due or payable, shall be the sole obligation of Seller and Seller shall
promptly pay, or if paid by Buyer, promptly reimburse Buyer for and hold Buyer
harmless from and against same and;
(ii) for the period subsequent to the Effective Time, regardless
of when due or payable, shall be the sole obligation of Buyer and Buyer shall
promptly pay, or if paid by Seller, promptly reimburse Seller for and hold
Seller harmless from and against same.
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13.3 RECORDS. Copies of all files, records, documentation, and data of
Seller that Buyer may reasonably request relating to (or evidencing) Seller's
ownership or rights in the Properties or other rights and interests described
herein, including, but not limited to lease files, land files, well files,
production sales agreements files, division order files, title opinions and
abstracts, governmental filings, production reports, proprietary seismic data,
production logs, core sample reports, and land maps, as such data is assembled
and maintained in the normal course of business (collectively, the "Records"),
will be, as soon as is reasonably possible after Closing, delivered to Buyer's
offices. To the extent not obtained or satisfied as of Closing, Seller agrees to
continue to use all reasonable efforts and to cooperate with Buyer's efforts to
obtain for Buyer access to files, records and data relating to the Property in
the possession of third parties. To the extent Seller may do so without
violating third party agreements, Seller shall provide Buyer with access to all
of Seller's seismic data and information.
13.4 NOTICES. All notices hereunder shall be in writing and any
communication or delivery hereunder shall be deemed to have been duly made when
personally delivered to the individual indicated below, or if mailed, when
received by the party charged with such notice and addressed as follows:
SELLER: Ballard Petroleum LLC
621 17th Street, Suite 1800
Denver, Colorado 80202
Attention: H.J. Kagie
Facsimile: (303) 675-0400
with a copy to: Ballard Petroleum LLC
845 12th Street West
P.O. Box 20174
Billings, Montana 59104
Attention: W.W. Ballard
Facsimile: (406) 259-3884
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BUYER: Costilla Energy, Inc.
400 West Illinois, Suite 1000
Midland, Texas 79701
Attention: Mr. Clifford Hair
Facsimile: (915) 686-6083
Any party may, by written notice so delivered to the other, change the address
of the individual to which or to whom delivery shall thereafter be made.
13.5 RECORDING DOCUMENTS. Buyer shall pay all documentary, filing, and
recording fees incurred in connection with the filing and recording of the
instruments of conveyance. Seller shall pay all fees incurred in connection
with the filing and recording of the Releases. As soon as practicable after
Closing, Buyer shall provide Seller with a schedule reflecting the recording
information for all recorded documents conveying the Sale Interest in the
Properties to Buyer and copies of the recorded documents.
13.6 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time at or prior to the Closing by
mutual agreement of Buyer and Seller in writing, or by either party due to the
failure of the other party to meet a material condition to Closing. Upon the
failure of Buyer to meet a material condition to Closing, Seller shall have as
its sole remedy the right to terminate this Agreement and retain the Deposit,
and Buyer shall be obligated to pay Seller an additional break up fee of
$4,000,000 (the "Break Up Fee") on or before September 15, 1997. The retention
of the Deposit and the receipt of the Break Up Fee by Seller shall constitute
Seller's liquidated damages in lieu of all other damages or remedies, all other
remedies being expressly waived by Seller. Upon the failure of Seller to meet
a material condition to Closing, Buyer, at its sole option, may (i) enforce
whatever legal or equitable rights may be appropriate and applicable, or (ii)
terminate this Agreement and receive back the Deposit, thereby waiving all other
remedies available to it.
13.7 SALES TAXES. The Purchase Price provided for hereunder excludes any
sales taxes or other taxes in connection with the sale of the Sale Interest in
the Properties pursuant to this Agreement. If a determination is ever made that
a sales tax or other transfer tax applies, Buyer shall pay such tax as well as
any applicable conveyance, transfer, and recording fees, and real estate
transfer stamps or taxes imposed on any transfer of property pursuant to this
Agreement. Buyer shall defend, indemnify, and hold Seller harmless with respect
to the reporting and payment of all such taxes, if any, including any interest
or penalties assessed thereon.
13.8 TAXES. All ad valorem, severance, or other such production or
property taxes relating to the Sale Interest in the Properties shall be shared
in proportion to the period of ownership of the Sale Interest in the Properties.
Any such ad valorem, severance, or other such production or property tax
relating to the period prior to the Effective Time shall be the responsibility
of the Seller. Any such ad valorem, severance, or other such production or
property tax relating to the period after the
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Effective Time and beyond shall be the responsibility of the Buyer. Accounting
for taxes shall be made as provided in Section 2.3.
13.9 INCOME TAX REIMBURSEMENT. As soon as possible following December 31,
1997 (but in no event later than April 1, 1998), Seller's independent
accountants, Janke Winchell & Ehrlick shall furnish Buyer with the amount of
Seller's "Tax Distribution" (as defined in Section 1 of Seller's LLC Operating
Agreement) resulting from Seller's 1997 net taxable income. Within thirty (30)
days of the date of receipt of such information, Buyer shall reimburse Seller
(who shall, in turn, make distributions to the Members of Seller) for the
aggregate amount of said Tax Distribution; provided, however, that the liability
of Buyer under this Section 13.9 shall not exceed $3,000,000 in the aggregate.
Buyer shall have the right to audit the Tax Distribution provided by Seller's
independent accountants as provided above at any time within 180 days after
receiving the same and shall be entitled to reimbursement from Seller to the
extent that such audit reveals that the Tax Distribution amount previously
provided to Buyer was in excess of the correct Tax Distribution amount.
ARTICLE 14. ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION
14.1 DEFINITIONS. As used in this Agreement, "Losses" means any
liabilities, losses, claims, demands, causes of action, costs and expenses
(including, but not limited to, court costs and reasonable attorneys' fees and
other costs and expenses incident to proceedings or investigations respecting,
or the prosecution or defense of, a claim) of every kind and character.
14.2 ASSUMPTION OF CONTRACTS. The sale of the Sale Interest in the
Properties is and will be made subject to the Contracts to which the Properties
are presently subject. Buyer shall assume and be responsible for its
proportionate 60% part of all obligations accruing under the Contracts after the
Effective Time.
14.3 IMBALANCES. Buyer shall accept its proportionate 60% part of all gas
and oil imbalances disclosed on SCHEDULE 3.23 hereto, if any, that exist on the
Sale Interest in the Properties as of the Effective Time and shall assume its
proportionate part of all responsibility to settle with other interest owners
for any such disclosed over or under gas or oil imbalances that exist on the
Sale Interest in the Properties. If the disclosed gas or oil imbalance on a
particular Sale Interest in the Property is a net liability, Buyer shall defend,
indemnify, and hold Seller harmless for that net liability. For purposes hereof,
an "imbalance" shall include any circumstance regarding production taken or
marketed from the Properties which could result in (i) a portion of Buyer's
interest in such production being sold without Buyer receiving payment therefor;
or (ii) Buyer being obligated to make payment to any person or entity as a
result of such imbalance; or (iii) any other circumstance by which Buyer would
be obligated by virtue of any prepayment arrangement, take-or-pay agreement, or
similar arrangement binding on the Properties after Closing, to deliver
hydrocarbons produced from the Properties at some future time without then
receiving full payment therefor.
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14.4 SELLER'S GENERAL INDEMNITY. Subject to the limitations set forth in
this Section 14.4, Seller shall be responsible for and discharge all claims,
costs, expenses and liabilities with respect to the Sale Interest in the
Property which accrue or relate to the times prior to the Effective Time
including (i) all costs attributable to the operation of the Properties for work
actually performed and expense actually incurred prior to the Effective Time and
(ii) any asserted liability arising from any injury or occurrence prior to the
Effective Time. Seller shall save harmless and indemnify Buyer, its directors,
officers and stockholders from all loss, cost, expense (including attorneys'
fees and expenses), penalties and liabilities from Seller's failure to perform
such obligations.
14.5 BUYER'S GENERAL INDEMNITY. Buyer shall be responsible for and
discharge all claims, costs, expenses and liabilities with respect to the Sale
Interest in the Properties which accrue or relate to the times after the
Effective Time including (i) all costs attributable to the operation of the
Properties for work actually performed and expense actually incurred after the
Effective Time and, (ii) any asserted liability arising from any injury or
occurrence after the Effective Time. Buyer shall save harmless and indemnify
Seller, its directors, officers and stockholders from all loss, cost, expense
(including attorneys' fees and expenses), penalties and liabilities from Buyer's
failure to perform such obligations.
14.6 SELLER'S ENVIRONMENTAL INDEMNIFICATION. Subject to the limitations
set forth in Section 7.1 and in this Section 14.6, Seller, its successors and
assigns, hereby agree to indemnify Buyer against, and defend and hold Buyer
harmless from all Losses, including but not limited to any civil fines,
penalties, expenses, costs of clean-up or remediation, brought by any and all
persons, including, but not limited to, Seller's employees, agents, or
representatives and also any private citizens, persons, or organizations and any
agency, branch, or representative of federal, state, or local government, on
account of any personal injury, disease, or death or any damage, destruction,
loss of property or contamination of natural resources (including air, soil,
surface water, or ground water) resulting from, arising out of any liability
caused by, or connected with any environmental condition of, on, or resulting
from the Properties which accrue on or before the Effective Time, including, but
not limited to, the presence, disposal, or release of any material of any kind,
on or under the Properties or other affected property, caused by or connected
with acts or omissions of any party's employees, representatives, or agents with
regard to the use, ownership, or operatorship of the Properties which accrue on
or before the Effective Time; PROVIDED, HOWEVER, Seller shall not be obligated
to indemnify Buyer in any manner whatsoever under this Section 14.6 with respect
to any environmental claims for Losses for which the Purchase Price has been
reduced by the cost to remediate in accordance with Section 7.1(a).
14.7 BUYER'S ENVIRONMENTAL INDEMNIFICATION. Buyer, its successors and
assigns, hereby agree to indemnify Seller against, and defend and hold Seller
harmless from its proportionate 60% part all Losses, including but not limited
to any civil fines, penalties, expenses, costs of clean-up or remediation, and
plugging liabilities for any and all wells, brought by any and all persons,
including, but not limited to, Buyer's and Seller's employees, agents, or
representatives and also any private citizens, persons, or organizations and any
agency, branch, or representative of federal, state, or local government, on
account of any personal injury, disease, or death or any damage, destruction,
loss
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of property or contamination of natural resources (including air, soil,
surface water, or ground water) resulting from, arising out of any liability
caused by or connected with any environmental condition of, on, or resulting
from the Sale Interest in the Properties which accrue after the Effective
Time, including, but not limited to, the presence, disposal, or release of any
material of any kind in, on or under the Properties or other affected
property, or caused by or connected with acts or omissions of any party's
employees, representatives, or agents with regard to the use, ownership, or
operatorship of the Properties which accrue after the Effective Time.
ARTICLE 15. ARBITRATION
15.1 SELECTION OF ARBITRATORS. Any controversy between the parties hereto
arising under this Agreement and not resolved by agreement shall be determined
by a board of arbitration upon notice of submission given by either party to the
other, which notice shall name a qualified, independent arbitrator. Within ten
(10) days after the receipt of such notice, the other party shall name a
qualified, independent arbitrator, or if it fails to do so, the party giving
notice shall name the second. The two arbitrators so appointed shall name the
third qualified, independent arbitrator with thirty (30) days of the appointment
of the second arbitrator, or if they fail to do so, the arbitrator may be
appointed by the Senior Judge (in service) of the United States District Court
for Colorado. Each party shall pay for the fees and expenses of the arbitrator
it names and shall share equally the fees and expenses of the third arbitrator.
Each party shall pay its experts' fees and expenses.
15.2 DETERMINATION. The arbitrators selected to act hereunder shall be
qualified by education and experience to pass on the particular question in
dispute. The arbitrators shall promptly hear and determine (after due notice of
hearing and giving the parties a reasonable opportunity to be heard) the
questions submitted, and shall render their decision within sixty (60) days
after appointment of the third arbitrator. If within said period, a decision is
not rendered by the board, or by a majority thereof, new arbitrators may be
named and shall act hereunder, at the election of either Buyer or Seller, in
like manner as if none had been previously named.
15.3 DECISION BINDING. The decision of the arbitrators, or the majority
thereof, made in writing shall be final and binding upon the parties hereto as
to the questions submitted, and Buyer and Seller will abide by and comply with
such decision. The prevailing party shall be entitled to recover reasonable
attorneys' fees and expenses.
ARTICLE 16. MISCELLANEOUS
16.1 OPERATIONS. Seller shall be the operator of all of the Properties it
currently operates, subject to the terms of the Acquisition and Exploration
Agreement and the Operating Agreement.
16.2 AMENDMENT. This Agreement may not be amended nor any rights hereunder
waived except by an instrument in writing signed by the party to be charged with
such amendment or waiver and delivered by such party to the party claiming the
benefit of such amendment or waiver.
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16.3 GENDER. References made in this Agreement, including use of a
pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships, or corporations. As used in this
Agreement, "person" shall mean any natural person, corporation, partnership,
trust, estate, or other entity.
16.4 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
among the parties with respect to the subject matter hereof, superseding all
negotiations, prior discussions, and prior agreements and understandings
relating to such subject matter.
16.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and assigns; and except as otherwise
stated herein, nothing contained in this Agreement, or implied herefrom, is
intended to confer upon any other person or entity any benefits, rights, or
remedies.
16.6 SURVIVABILITY. Except as otherwise specifically provided in this
Agreement, all indemnifications, covenants, agreements, representations,
guaranties, and warranties shall survive the execution of the Agreement, the
Closing, and the delivery and recordation of any deeds, assignments, or bills of
sale which convey the Sale Interest in the Properties from Seller to Buyer.
Nothing in this Agreement shall be deemed to affect the special warranty of
Seller as provided in the Assignment delivered pursuant to this Agreement. Said
special warranty shall prevail over any provisions of this Agreement which might
otherwise be considered inconsistent therewith.
16.7 SEVERABILITY. If a court of competent jurisdiction determines that
any clause or provisions of this Agreement is void, illegal, or unenforceable,
the other clauses and provisions of the Agreement shall remain in full force and
effect and the clauses and provisions which are determined to be void, illegal,
or unenforceable shall be limited so that they shall remain in effect to the
extent permissible by law.
16.8 GOVERNING LAW. This Agreement shall be governed and construed under
the laws of the State of Texas (excluding any conflict of laws provision that
would require the application of any other jurisdiction).
16.9 CONFIDENTIALITY. Seller and Buyer agree to keep all information
regarding the terms and provisions of this Agreement and the transactions
contemplated hereby confidential at all times and agree not to disclose any
information which cannot be obtained from public sources, except where required
to do so by law, without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
16.10 ASSIGNABILITY. Neither party hereto shall assign this Agreement
or any of its rights or obligations hereunder without the prior written consent
of the other party.
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16.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other party.
16.12 AMENDED EXHIBITS. EXHIBIT "A" (the "Original Exhibit") has been
prepared by Seller based upon Seller's best knowledge on the date of this
Agreement as to the information contained in such Exhibit. Seller shall have up
to and including the close of business on July 16, 1997, to amend such Original
Exhibit. To effect such amendment, Seller shall deliver a copy of the amended
Exhibit to Buyer on or before such date. Upon such delivery, the Exhibit, as so
amended, shall supersede and replace the Original Exhibit. The information
contained in such amended Exhibit shall be used for title matters referred to in
Article 6 hereof and Buyer shall not submit any notices with respect to Title
Defects pursuant to Section 6.3 hereof until on or after July 16, 1997 and, if
the Original Exhibit has been amended on or before such date, such notices shall
apply only to the information contained in the amended Exhibit.
16.13 EXHIBIT "A-1". It is the intent of Buyer and Seller that Exhibit
"A-1" attached hereto shall include all of the wells and working and net revenue
interests set forth in Exhibit C, pages 1 through 5, of that certain Ryder Scott
Company Engineering Report dated as of April 1, 1997 covering the Properties
(the "Ryder Scott Report"). If any working or net revenue interest set forth on
Exhibit "A-1" hereto is inconsistent with such corresponding interest as set
forth in the Ryder Scott Report, the interest in the Ryder Scott Report shall be
controlling as if set forth on Exhibit "A-1" hereto.
The parties have executed on this Agreement as of the date first above
mentioned.
SELLER:
BALLARD PETROLEUM LLC
By: /s/ H.J. Kagie
------------------------------------------
Name: H.J. Kagie
Title: Senior Vice President of Acquisitions,
Engineering and Operations of Ballard
& Associates, Inc., Manager
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BUYER:
COSTILLA ENERGY, INC.
By: /s/ Michael J. Grella
------------------------------------------
Name: Michael J. Grella
Title: President
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EXHIBIT 10.4
ACQUISITION AND EXPLORATION AGREEMENT
This Acquisition and Exploration Agreement (the "Agreement"), effective as
of July 1, 1997 (the "Effective Date"), by and between Costilla Energy, Inc., a
Delaware corporation ("CEI"), and Ballard Petroleum LLC, a Montana limited
liability company ("BPL"). CEI and BPL are sometimes herein referred to
individually as a "Party" and collectively as the "Parties".
RECITALS
1. By separate agreement, effective the Effective Date, BPL has sold to
CEI certain developed and undeveloped oil and gas properties located within the
AMI (as hereinafter defined) pursuant to that certain Purchase and Sale
Agreement between BPL and CEI dated July 2, 1997 (the "Acquisition Agreement");
2. CEI and BPL wish to enter into this Agreement to set forth their
understanding concerning their conduct of oil and gas activities within the AMI
during the term of this Agreement.
NOW, THEREFORE, the Parties agree as follows:
I.
DEFINITIONS
In addition to the terms defined elsewhere herein, the following
definitions shall apply to this Agreement:
"ACQUISITION COSTS" shall mean all costs associated with the acquisition of
Prospects in the AMI, including, without limitation, costs of brokerage services
and actual out of pocket expenses.
"AMI" shall mean the area of mutual interest established pursuant to
Article VI hereof constituting the States of Colorado, Kansas, Montana, North
Dakota, Nebraska, Nevada, South Dakota, Utah and Wyoming and the counties of San
Juan and Rio Arriba in New Mexico and Kay County, Oklahoma; provided, however,
that the lands described on Exhibit "A" attached hereto shall be excluded from
the AMI.
"BPL G&A" shall include all general and administrative, legal, accounting,
geological, land, engineering, travel, cost-of-office occupancy, telephone and
postage, employee compensation and other incidental expenses necessary to the
conduct of the oil and gas business of BPL; provided, however, that BPL G&A will
be reduced by (1) costs of services of engineering and geological consultants
when such services relate and are charged to a specific oil and gas property and
(2) overhead reimbursements to BPL under the Operating Agreements or Third Party
Operating Agreements (as defined in Article V).
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"CASING POINT" means the time when a well has been drilled to the objective
depth stated in the initial notice, appropriate tests have been made, and the
operator notifies the drilling parties of its recommendation with respect to the
running and setting of a production string of casing and completing the well.
"OPERATING AGREEMENT" shall mean the form of Operating Agreement attached
hereto as Exhibit "B".
"G&A BUDGET" shall mean each of the budgets established annually pursuant
to Article IV hereof to provide for BPL G&A, as such budgets may be amended from
time to time pursuant to this Agreement.
"PROSPECT" shall mean either a producing oil and gas property or properties
or a geographical area whose subsurface contains the potential of commercial
hydrocarbon accumulation based upon geological and/or geophysical evaluation
which has been designated as provided in this Agreement and shall include all
oil and gas estates of whatever nature acquired within such Prospect. As
additional information is developed, the area of the Prospect may be enlarged,
subdivided or reduced, subject to agreement of the Parties hereto and any other
party in such Prospect.
II.
OBLIGATIONS OF THE PARTIES
In addition to their obligations as specified in the Operating Agreement,
the parties shall be obligated as follows:
2.1 BPL OBLIGATIONS. BPL shall, throughout the term of this Agreement,
utilize its best efforts to generate and present to CEI opportunities for
acquisitions of undeveloped and producing oil and gas properties within the AMI,
as well as evaluate and make recommendations for activities to be conducted on
the properties subject to the Acquisition Agreement. BPL shall limit its
activities to the AMI.
2.2 CEI OBLIGATIONS. CEI shall, throughout the term of this Agreement,
present to BPL for its review any opportunities presented to it for acquisition
of undeveloped or producing properties within the AMI and will assist and
cooperate with BPL in the performance of BPL's obligations herein.
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III.
TERM
3.1 TERM. This Agreement shall commence as of the Effective Date and,
except as specifically provided otherwise in Section 3.4, shall expire on June
30, 2002, unless sooner terminated pursuant to the provisions of this Agreement
or by agreement of the Parties.
3.2 TERMINATION BY CEI. CEI shall have the right to terminate this
Agreement upon 90 days prior written notice of termination delivered to BPL, at
any time after July 1, 1998, if BPL is not performing its obligations under this
Agreement in a reasonable and prudent manner in accordance with industry-
accepted standards. If BPL disagrees with such notice, the matter will be
submitted to arbitration pursuant to Article VIII hereof. The sole issue to be
determined by the arbitrators is whether BPL is not performing its obligations
hereunder in a reasonable and prudent manner in accordance with industry-
accepted standards. This Agreement shall remain in effect while the
arbitrators' decision is pending. In addition, if any of William W. Ballard,
Dave Ballard or Joe Kagie shall cease to be an officer or full-time employee of
BPL, CEI, at its option, may terminate this Agreement.
3.3 OPERATIONS FOLLOWING TERMINATION FOR CAUSE. Upon termination of this
Agreement, the obligations of the Parties under this Agreement shall cease, but
the provisions of the respective Operating Agreements or Third Party Operating
Agreements covering the properties acquired by the Parties pursuant to this
Agreement or subject to the Acquisition Agreement shall continue to apply to the
operation of such properties; provided, however, that CEI shall have the right
to submit to arbitration pursuant to Article XIII hereof, following the
termination of this Agreement, the issue of whether BPL is performing its
responsibilities as operator of any of the properties acquired pursuant to this
Agreement or properties subject to the Acquisition Agreement in a reasonable and
prudent manner in accordance with industry-accepted standards. If the
arbitrators determine that BPL is not performing its responsibilities as to any
such property in a reasonable and prudent manner in accordance with industry-
accepted standards, BPL shall resign as operator of such property within 30 days
after such determination and shall support CEI being designated as operator
thereof.
3.4 OPERATIONS FOLLOWING END OF TERM. Notwithstanding anything contained
herein or in the Operating Agreement to the contrary, at any time after June 30,
2002, CEI shall have the right to become the operator of any or all Exploratory
Wells drilled by the Parties pursuant to the terms of this Agreement, together
with all associated acreage and all development wells related to any such
Exploratory Wells. As used herein the term "Exploratory Wells" shall mean wells
drilled to find and produce oil or gas in an unproved area to find a new
reservoir and designated as such in the original Authority For Expenditure
submitted in connection therewith. If CEI exercises such right, BPL shall
resign as operator of such properties and shall support CEI as the operator
thereof.
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IV.
PAYMENT OF BPL G&A
4.1. SHARING OF BPL G&A. All BPL G&A shall be borne 60% by CEI and 40% by
BPL; provided, however, that CEI shall not be required to pay its share of BPL
G&A that exceeds the G&A Budget. CEI shall pay its portion of BPL G&A to BPL at
the address specified in Section 9.3 hereof, by the last day of the month
following the month for which such BPL G&A is allocated pursuant to the Budget.
BPL shall pay the BPL G&A as such costs are incurred.
4.2 FIRST YEAR BUDGET. CEI and BPL have agreed that the G&A Budget for
the first year of this Agreement (i.e., July 1, 1997 to June 30, 1998) shall be
the Budget attached hereto as Exhibit "C" (the "First Year G&A Budget").
4.3 SUBSEQUENT YEARS' BUDGETS. The Parties shall establish G&A Budgets
annually during the term of this Agreement covering the next 12 months period
commencing July 1st. On or before May 1st in each year, commencing, May 1,
1998, BPL shall submit to CEI a proposed G&A Budget for approval by the Parties
by June 1st. If CEI does not approve the G&A Budget by such date, the matter
will be submitted to arbitration pursuant to Article VIII hereof. The issue to
be determined by the arbitrators is whether the G&A Budget submitted by BPL is
consistent with the First Year G&A Budget. Such consistency shall be determined
by accessing reasonable industry criteria (including, but not be limited to, G&A
cost per barrel of oil equivalent produced, number of operated and non-operated
wells managed, number of wells anticipated to be drilled, anticipated level of
acquisition activity, etc.) and comparing such criteria as per the First Year
G&A Budget to the G&A Budget submitted by BPL for approval. If the panel of
arbitrators determines that using such criteria, the proposed G&A Budget is not
consistent with the First Year G&A Budget, then the panel will determine what
the G&A Budget should be by applying such criteria. While the arbitrators
decision is pending, the current G&A Budget shall remain in effect and the
Parties shall pay BPL's costs on such basis. If the arbitrators issue their
decision after July 1st, such decision shall be applied retroactively to July
1st. Each G&A Budget shall be in writing and shall be attached to this
Agreement as an Exhibit.
4.4 MODIFICATIONS TO THE G&A BUDGET. If BPL or CEI reasonably believes
that, as the result of the occurrence of a material event (e.g., a significant
acquisition, divestiture, exploration successes, properties rejected by CEI and
pursued by BPL involving an expected expenditure of $1,000,000 or more, etc.)
costs covered by the current G&A Budget have increased or decreased by a
material amount, BPL or CEI may propose and submit to the other Party a proposed
revised G&A Budget for such year. If CEI and BPL agree with such revised G&A
Budget, it shall be adopted as the current year's G&A Budget and shall be
applied retroactively to the date the costs increased or decreased. If the
Parties cannot agree to such revised G&A Budget, the matter will be submitted to
arbitration pursuant to Article VIII hereof. The sole issue to be determined by
the arbitrators is whether the revised G&A Budget accurately reflects an
increase or decrease in BPL's costs covered by the G&A Budget directly related
to the material event. While the arbitrators' decision is pending, the current
G&A Budget shall remain in effect and the Parties
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shall pay BPL's costs on such basis. If the arbitrators decision approves the
revised G&A Budget, such Budget shall be applied retroactively to the date the
costs increased or decreased.
V.
OPERATING AGREEMENT
5.1 OPERATING AGREEMENT. The Operating Agreement shall apply to all oil
and gas properties acquired jointly by the Parties pursuant to this Agreement
and to properties subject to the Acquisition Agreement to the extent such
properties are not subject to a Third Party Operating Agreement (as hereinafter
defined). Upon the execution of this Agreement, the Parties shall execute the
Operating Agreement with the Contract Area provided for therein being the
properties subject to the Acquisition Agreement to the extent such properties
are not subject to a Third Party Operating Agreement. Upon the joint
acquisition of properties within a Prospect pursuant to this Agreement, the
Parties shall execute a separate Operating Agreement in the form of Exhibit "B"
hereto covering each such Prospect.
5.2 THIRD PARTY OPERATING AGREEMENTS. The Parties acknowledge that some
of the oil and gas properties acquired pursuant to this Agreement will have
existing operating agreements, or may require a different operating agreement
because of the presence of third party interest owners (in each case, a "Third
Party Operating Agreement"). In such event, the Parties shall attempt to
conform such Third Party Operating Agreement to the Operating Agreement to the
greatest extent possible. When a Third Party Operating Agreement is utilized,
it shall supersede the provisions of the Operating Agreement only with respect
to the properties covered by such Third Party Operating Agreement.
5.3 OPERATOR. BPL shall be Operator of all of the properties acquired
pursuant to this Agreement and of all of the properties subject to the
Acquisition Agreement, unless there is a third party operator of such properties
under a Third Party Operating Agreement. CEI shall always vote in favor of BPL
becoming operator of any such properties or retaining such operatorship. If,
however, CEI reasonably believes that BPL is not operating a property acquired
pursuant to this Agreement in a reasonable and prudent manner, it may so notify
BPL and request that BPL resign as operator of such properties and assign such
operatorship to CEI or support CEI for operatorship if there are third party
interest owners in such properties. If BPL disagrees with CEI's notice and
refuses to resign, the matter shall be referred to arbitration pursuant to
Article VIII hereof. The sole issue for the arbitrators to determine shall be
whether BPL is operating the properties at issue in a reasonable and prudent
manner. While the arbitrators' decision is pending, BPL shall continue to
operate the properties.
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VI.
AREA OF MUTUAL INTEREST
6.1. AMI PROPERTIES. The Parties hereby create the AMI. Either Party may
recommend to the other Party the acquisition, exploration or development of a
Prospect within the AMI.
6.2 AUCTIONS. If the proposed acquisition is to be made pursuant to a
multi-party bid or a public sale, the Parties shall consult at least 10 business
days prior to the bid deadline and attempt to agree upon the price to be bid.
BPL shall be responsible for making such bids. If the Parties do not agree, the
Party wishing to submit the highest bid may pursue the bid independently.
6.3 AMI PROCEDURES. Either Party (the "Acquiring Party") which proposes
to conduct an operation not covered by an Operating Agreement or to acquire an
interest or right to participate in a Prospect located within the AMI after
execution of this Agreement shall offer in writing to the other Party (the "Non-
Acquiring Party") a right to participate in such operation or acquisition as
soon as possible, giving full details of the anticipated costs and terms of such
operation or acquisition and providing the Non-Acquiring Party with all
information in its possession concerning the Prospect. The Non-Acquiring Party
may elect to participate in such proposed operation or acquisition by (1)
delivering written notice of its election to participate within the lesser of 30
days after its receipt of the proposal or prior to the day the Acquiring Party
must commit to the proposed operation or acquisition and (2) paying the
Acquiring Party its share of the costs of the proposed operation or acquisition
prior to the time the Acquiring Party must pay for such operation or
acquisition. If the Non-Acquiring Party elects not to participate in the
proposed operation or acquisition or if the Non-Acquiring Party's fails to
respond within such time, the Non-Acquiring Party shall have relinquished its
right to acquire its share of such Prospect, and such Prospect shall no longer
be subject to the terms of this Agreement. If the Non-Acquiring Party delivers
notice of its election to participate but fails to timely pay its share of
costs, then the Non-Acquiring Party shall also be liable to the Acquiring Party
for any damages incurred by the Acquiring Party as a result of the Non-Acquiring
Party's failure to pay. Upon payment of a proportionate share of the out-of-
pocket costs incurred by the other Party to obtain the interest or the right to
participate in such interest, each Party shall have the right to participate in
any such Prospect such that the proportion of ownership in such Prospect shall
be CEI 60% and BPL 40%.
Either Party may propose operations, including exploration or development
operations, in the AMI. In the event the proposed operations are subject to the
terms of a Third Party Operating Agreement at the time the operations are
proposed, then the terms of the Third Party Operating Agreement shall control.
If the proposed operations are not subject to a Third Party Operating Agreement
but are still subject to the terms of this Agreement, then the terms of the
Operating Agreement shall control.
Page #6
<PAGE>
6.4 ACQUISITION AND DRILLING COSTS. CEI will pay all of BPL's costs or
expenses (i) to acquire Prospects under this Agreement and/or (ii) to explore
and develop such Prospects and the properties subject to the Acquisition
Agreement to Casing Point on each well drilled on such Prospects or properties,
until CEI has expended an aggregate amount of $4,050,000 (the "Carried Amount"),
whether or not CEI participates in the Prospect. In the event CEI does not
participate in a Prospect the Carried Amount shall only apply to 40% of BPL's
interest in such Prospect. Following the expenditure of the Carried Amount, all
future costs in the Prospects jointly owned by the Parties will be borne 60% by
CEI and 40% by BPL.
VII.
CONFIDENTIALITY; ACCESS TO DATA
7.1 CONFIDENTIALITY. All information pertaining to properties acquired by
the Parties pursuant to this Agreement and to the properties subject to the
Acquisition Agreement shall be treated by the Parties as confidential unless and
until mutually agreed that the same may be released; provided, however, either
Party shall be entitled to disseminate information to the public to the extent
required by applicable laws or any listing or trading agreement concerning its
publicly traded securities or if such disclosure is consistent with the Party's
normal disclosure policies. If additional parties are permitted to acquire
interests within a property subject to this Agreement or the Acquisition
Agreement, such information may be released to such parties provided that they
agree to similar confidentiality restrictions.
7.2 ACCESS TO INFORMATION. Each Party shall have access to all data and
information acquired or developed hereunder (to extent such access is not
prohibited by third-party agreements) during normal business hours and without
disrupting the other Party's business activities. Each Party shall furnish the
other Party with copies of any such data and information that the other Party
may reasonably request, to the extent the furnishing of same will not violate
any third-party agreement.
VIII.
ARBITRATION
8.1 SELECTION OF ARBITRATORS. Any controversy between the Parties arising
under this Agreement and not resolved by agreement shall be determined by a
board of arbitration upon notice of submission given by either Party to the
other, which notice shall name a qualified, independent arbitrator. Within 10
days after the receipt of such notice, the other Party shall name a qualified,
independent arbitrator, or if it fails to do so, the Party giving notice shall
name the second arbitrator. The two arbitrators so appointed shall name the
third qualified, independent arbitrator within 30 days after the appointment of
the second arbitrator or, if they fail to do so, the arbitrator may be
appointed by the Senior Judge (in service) of the United States District Court
for the District of Colorado. Each Party shall pay the fees and expenses of the
arbitrator it names and shall share equally the fees and expenses of the third
arbitrator. Each Party shall pay its experts' fees and expenses.
Page #7
<PAGE>
8.2 DETERMINATION. The arbitrators selected to act hereunder shall be
qualified by education and experience to pass on the particular question in
dispute. The arbitrators shall promptly hear and determine (after due notice of
hearing and giving the parties a reasonable opportunity to be heard) the
questions submitted, and shall render their decision within 60 days after
appointment of the third arbitrator. If within said period a decision is not
rendered by the board, or by a majority thereof, new arbitrators may be named
and shall act hereunder, at the election of either Party, in like manner as if
none had been previously named.
8.3 DECISION BINDING. The decision of the arbitrators, or the majority
thereof, made in writing shall be final and binding upon the Parties as to the
questions submitted, and the Parties will abide by and comply with such
decision. The prevailing Party shall be entitled to be paid by the other Party
for its reasonable attorneys' fees and expenses.
IX.
MISCELLANEOUS
9.1 DELIVERY OF INFORMATION TO CEI. BPL agrees that it shall make such
modifications to its internal systems and programs so that it may deliver to CEI
information concerning the properties operated by BPL in the fashion, and upon
the time schedule, reasonably required by CEI. All costs of converting and
maintaining existing BPL systems at the request of CEI shall be borne by CEI.
9.2 ASSIGNMENT. Neither Party may assign all or any part of its rights or
obligations under this Agreement without the prior written consent of the other
Party; provided, however, that BPL shall not have the right to withhold its
consent to any such assignment by CEI unless BPL reasonably believes that the
assignee of CEI does not have the financial capability to perform the
obligations of CEI hereunder. This Agreement shall be binding upon and enure to
the benefit of the parties hereto and their respective successors and their
respective assigns of rights hereunder. Any assignment of interests subject to
this Agreement, however, shall specifically refer to and be made subject to the
terms of this Agreement.
9.3 NOTICES AND RESPONSES. All notices, responses and other
communications required or permitted under this Agreement shall be in writing
and, unless otherwise specifically provided, shall be delivered personally, or
by mail, telecopier or facsimile or delivery service, to the address set forth
opposite the signature of the Parties to this Agreement, and shall be considered
delivered upon the date of receipt. Each Party may specify a change in its
address by giving notice to the other Party in the manner provided in this
Section 9.3, at least 10 days prior to the effective date of such change of
address.
9.4 RELATIONSHIP OF THE PARTIES. This Agreement is not intended to
create, and shall not be construed to create, a partnership, mining partnership,
joint venture or other relationship or association for profit between or among
CEI and BPL, except to the limited extent provided in
Page #8
<PAGE>
the Operating Agreement. Each of CEI and BPL shall maintain title to, and
shall be free to mortgage or dispose of their respective oil and gas
properties within the AMI. Except as expressly provided in this Agreement,
each Party shall have the right to independently engage in, and to receive the
full benefits from, business opportunities and activities inside or outside
the AMI, whether or not competitive with activities pursuant to this
Agreement, without consulting the other Party.
9.5 CONFLICTS. In the event of a conflict between the terms and
conditions of an Operating Agreement and the terms and conditions of this
Agreement, the terms and conditions of this Agreement shall control.
9.6 ENTIRE AGREEMENT. This Agreement, the Acquisition Agreement and the
Operating Agreement constitute the entire agreement and understanding between
the Parties with respect to the subject matter hereof, and may not be changed or
amended in any way, except with the mutual consent of both Parties, expressed in
a written document executed by both Parties.
9.7 SEVERABILITY CHOICE OF LAW. In the event that any provision of this
Agreement shall be held to be invalid, illegal or unenforceable, the remaining
provisions shall be construed as if the invalid, illegal or unenforceable
portion or portions were deleted. The construction of this Agreement shall be
governed by the laws of the State of Texas.
9.8 SURVIVAL. Except by mutual agreement of the Parties, the provisions
of Sections 3.4 and 7.1 of this Agreement shall remain in effect as between the
Parties and their successors and assigns, for so long any properties acquired
under this Agreement remain subject to an Operating Agreement or Third Party
Operating Agreement, notwithstanding the termination of this Agreement.
9.9 EXECUTION. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
Party and delivered to the other Party.
EXECUTED AS OF THE dates set forth opposite the respective signatures
below, effective, however, as of the Effective Date.
ADDRESSES COMPANY
400 West Illinois COSTILLA ENERGY, INC.
Suite 100
PO Box 10369
Midland, TX 79702-6053
Fax: (915) 686-6053
Page #9
<PAGE>
Dated: August 28, 1997 By: /s/ Clifford N. Hair, Jr.
--------------------------
Clifford N. Hair, Jr.
Vice President - Land
845 12th Street West BALLARD PETROLEUM LLC
P.O. Box 20174
Billings, Montana 59104
Fax: (406) 259-3884
Dated: August 28, 1997 By: /s/ H.J. Kagie
--------------------------
H. J. Kagie
Attorney-in-Fact
Page #10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF COSTILLA ENERGY, INC. FOR THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,580
<SECURITIES> 0
<RECEIVABLES> 17,355
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,443
<PP&E> 241,443
<DEPRECIATION> 36,198
<TOTAL-ASSETS> 237,514
<CURRENT-LIABILITIES> 37,076
<BONDS> 162,506
0
0
<COMMON> 1,027
<OTHER-SE> 36,905
<TOTAL-LIABILITY-AND-EQUITY> 237,514
<SALES> 54,231
<TOTAL-REVENUES> 55,113
<CGS> 21,038
<TOTAL-COSTS> 24,786
<OTHER-EXPENSES> 15,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,856
<INCOME-PRETAX> 170
<INCOME-TAX> 152
<INCOME-CONTINUING> 18
<DISCONTINUED> 0
<EXTRAORDINARY> (219)
<CHANGES> 0
<NET-INCOME> (201)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
