<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 333-12707
MARINER ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0460233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
580 WESTLAKE PARK BLVD., SUITE 1300
HOUSTON, TEXAS 77079
(Address of principal executive offices including Zip Code)
(281) 584-5500
Registrant's telephone number)
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 requirement for the past 90 days. Yes [ ] No [X]
Note: The Company is not subject to the filing requirements of the
Securities Exchange Act of 1934. This quarterly report is filed pursuant to
contractual obligations imposed on the Company by an Indenture, dated as of
August 1, 1996, under which the Company is the issuer of certain debt.
As of May 13, 1999, there were 1,378 shares of the registrant's common
stock outstanding.
- --------------------------------------------------------------------------------
<PAGE> 2
MARINER ENERGY, INC.
FORM 10-Q
MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- -----------------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Balance Sheets at March 31, 1999 (unaudited) and December 31, 1998....................................... 1
Statements of Operations for the three months ended March 31, 1999 and 1998 (unaudited).................. 2
Statements of Cash Flows for the three months ended March 31, 1999 and 1998 (unaudited).................. 3
Notes to Financial Statements (unaudited)................................................................ 4
Independent Certified Public Accountants' Report on Review of Interim Financial Information.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................... 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................................................ 13
Item 2. Changes in Securities.................................................................................... 14
Item 3. Defaults Upon Senior Securities.......................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders...................................................... 14
Item 5. Other Information........................................................................................ 14
Item 6. Exhibits and Reports on Form 8-K......................................................................... 14
SIGNATURE ........................................................................................................ 14
</TABLE>
<PAGE> 3
PART I, ITEM 1. MARINER ENERGY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 48 $ 2
Receivables 15,027 16,007
Prepaid expenses and other 6,317 7,234
------------ ------------
Total current assets 21,392 23,243
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas properties, at full cost:
Proved 329,338 316,056
Unproved, not subject to amortization 94,649 84,076
------------ ------------
Total 423,987 400,132
Other property and equipment 3,448 3,300
Accumulated depreciation, depletion and amortization (175,139) (167,846)
------------ ------------
Total property and equipment, net 252,296 235,586
------------ ------------
OTHER ASSETS, NET OF AMORTIZATION 3,438 3,513
------------ ------------
TOTAL ASSETS $ 277,126 $ 262,342
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 28,531 $ 20,375
Accrued liabilities 20,263 29,082
Accrued interest 1,858 4,503
Revolving Credit Facility -- 53,400
------------ ------------
Total current liabilities 50,652 107,360
------------ ------------
OTHER LIABILITIES 3,112 2,824
LONG-TERM DEBT:
Subordinated notes 99,636 99,624
Revolving Credit Facility 52,500 --
Affiliate Credit Facility -- 25,000
------------ ------------
Total long-term debt 152,136 124,624
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 2,000 and 1,000 shares authorized, 1,378 and
1,000 issued and outstanding,
at March 31, 1999 and 1998, respectively 1 1
Additional paid-in-capital 172,036 124,856
Accumulated deficit (100,811) (97,323)
------------ ------------
Total stockholder's equity 71,226 27,534
------------ ------------
TOTAL LIABILITIES and STOCKHOLDER'S EQUITY $ 277,126 $ 262,342
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
1
<PAGE> 4
MARINER ENERGY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Oil sales $ 1,884 $ 3,332
Gas sales 9,137 11,039
----------- -----------
Total revenues 11,021 14,371
----------- -----------
COSTS AND EXPENSES:
Lease operating expenses 2,575 2,467
Depreciation, depletion and amortization 7,466 8,386
General and administrative expenses 1,538 794
Provision for litigation -- 2,960
----------- -----------
Total costs and expenses 11,579 14,607
----------- -----------
OPERATING INCOME (LOSS) (558) (236)
INTEREST:
Income 10 130
Expense (2,940) (2,867)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (3,488) (2,973)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME (LOSS) $ (3,488) $ (2,973)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
2
<PAGE> 5
MARINER ENERGY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (3,488) $ (2,973)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 7,704 8,614
Provision for litigation -- 2,960
Changes in operating assets and liabilities:
Receivables 157 (9,157)
Other current assets 917 (773)
Other assets (38) (175)
Accounts payable and accrued liabilities (3,306) (8,610)
------------- -------------
Net cash provided by (used for) operating activities 1,946 (10,114)
------------- -------------
INVESTING ACTIVITIES:
Additions to oil and gas properties (23,855) (28,227)
Additions to other property and equipment (148) (43)
------------- -------------
Net cash used for investing activities (24,003) (28,270)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from (repayment of) revolving credit facility (900) 27,000
Capital Contributed by Parent 23,003 --
------------- -------------
Net cash provided by financing activities 22,103 27,000
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 46 (11,384)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2 9,131
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD(*) $ 48 $ (2,253)
============= =============
</TABLE>
(*) Negative amount represents outstanding checks in excess of short-term
investments.
The accompanying notes are an integral part of these
financial statements.
3
<PAGE> 6
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The financial statements of Mariner Energy, Inc. (the "Company")
included herein have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they
reflect all adjustments (consisting only of normal, recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of the
financial results for the interim periods. Certain information and notes
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1998.
2. Oil and Gas Properties
Under the full cost method of accounting for oil and gas
properties, the net carrying value of proved oil and gas properties is limited
to an estimate of the future net revenues, discounted at 10%, from proved oil
and gas reserves based on period-end prices and costs plus the lower of cost or
estimated fair value of unproved properties. Price increases subsequent to March
31, 1999 were sufficient to avoid an impairment charge at March 31, 1999, but
given the unpredictable volatility of future prices, impairments may be required
in the future.
3. Revolving Credit Facility
Following the semi-annual borrowing base redetermination in May
1999, the borrowing base under the Company's revolving credit facility (the
"Revolving Credit Facility"), with Bank of America as agent for a group of
lenders, was reaffirmed at $60 million and the maturity date of the facility was
extended from October 1, 1999 to October 1, 2002. As part of the
redetermination, the Company pledged certain mineral interests to secure the
Revolving Credit Facility. Accordingly, the Revolving Credit Facility was
reclassified from a current liability to a non-current liability as of March 31,
1999.
4. Affiliate Credit Facilities
During the first quarter of 1999, the Company's parent, Mariner
Energy LLC ("LLC") and Enron Capital & Trade Resources Corp. ("ECT") amended an
existing unsecured, subordinated credit facility (the "LLC Facility") provided
by ECT to LLC to increase the amount available thereunder from $25 million to
$50 million. LLC has contributed the proceeds from the LLC Facility to the
Company in the form of common equity. The facility requires that any funds
received pursuant to a private or public equity or debt offering by LLC must
first be applied to repay the amount outstanding thereunder. Once funds
outstanding under the facility have been repaid, those funds may not be
reborrowed. The facility has been amended to extend its maturity date from April
30, 1999 to April 30, 2000 and to give ECT the option to convert the facility to
equity in LLC at any time through maturity. Interest accruing on the outstanding
principal under the facility from April 15, 1999 through April 30, 2000 will be
payable at maturity by LLC. At March 31, 1999, LLC had fully drawn this facility
and contributed the net proceeds to the Company as equity.
The Board of Directors of LLC has resolved not to require the use
of cash flow from the Company's operations or sales of the Company's stock or
assets to repay the amounts outstanding under
4
<PAGE> 7
the LLC Facility. Consequently, the Company has reclassified the LLC Facility
balance as of January 1, 1999, net of capitalized fees, to equity. This
reclassification was not included in the cash flow statement as it represented a
non-cash transaction.
Subsequent to March 31, 1999, the Company also established a $25
million borrowing-based, short-term credit facility with ECT (the "ECT
Facility"). This facility matures on December 31, 1999 and has an annual
interest rate of LIBOR plus 2.5%.
5. Commitments and Contingencies
Hedging - The Company uses crude oil and natural gas price swaps
and other similar hedging transactions to reduce its exposure to price
decreases. In the three-month period ended March 31, 1999, none of the Company's
production was covered by hedging contracts. During that time period, the
Company entered into a natural gas commodity price hedging contract under a
costless collar covering the period April through October 1999, with an
extension of the contract at the counterparty's option for the same volumes for
the period November 1999 through March 2000 at a higher price. In March 1999,
the Company also entered into a three-year natural gas hedging agreement
covering the period November 1999 through October 2002. The following table sets
forth the Company's open hedging positions as of March 31, 1999.
<TABLE>
<CAPTION>
Average Fair Value at
Daily March 31,
Volume Strike Price ($ per Mmbtu) 1999
-----------------------------------------------
Time Period (Mmbtu) Floor Ceiling Fixed Price (in thousands)
- ----------- ------- ----- ------- ----------- --------------
<S> <C> <C> <C> <C> <C>
April 1 - October 31, 1999 60 $1.85 $2.05 - $ (291)
November 1 - December 31,1999 44 - - $2.18 $ (504)
January 1 - December 31, 2000 30 - - $2.18 $ (1,084)
January 1 - December 31, 2001 12 - - $2.18 $ (526)
January 1 - October 31, 2002 6 - - $2.18 $ (301)
</TABLE>
Subsequent to March 31, 1999, the Company entered into two oil
commodity price hedging contracts for a combined 1,200 barrels of oil per day
for the period May through December 1999 at an average price of $16.54 per
barrel. All hedging contracts mentioned above were entered into with an
affiliate of the Company. Including these contracts, hedging arrangements for
1999 cover approximately 55% of the Company's expected 1999 equivalent
production for the year.
Deepwater Rig - The Company executed a letter of intent in
February 1998 regarding the provision of a Deepwater rig to the Company and
another company on an equally shared basis for five years beginning in late 1999
or early 2000. The Company is currently in discussions with the owner of the rig
to determine if a mutually acceptable drilling contract can be negotiated.
5
<PAGE> 8
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT ON REVIEW OF INTERIM FINANCIAL
INFORMATION
Board of Directors and Stockholder
Mariner Energy, Inc.
Houston, Texas
We have reviewed the accompanying balance sheet of Mariner Energy, Inc. as of
March 31, 1999 and the related statements of operations and cash flows for the
three-month periods ended March 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists primarily of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1998, and the related statements
of operations, stockholder's equity, and cash flows for the year ended December
31, 1998 (not presented herein), and in our report dated April 14, 1999, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying balance sheet as of December 31,
1998 is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
May 13, 1999
6
<PAGE> 9
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following review of operations for the three-month periods
ended March 31, 1999 and 1998 should be read in conjunction with the financial
statements of the Company and Notes thereto included elsewhere in this Form 10-Q
and with the Financial Statements, Notes and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, filed
with the Securities and Exchange Commission on April 15, 1999.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included
in this quarterly report on Form 10-Q, including, without limitation, statements
contained in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy, plans and objectives of management of the Company for future
operations, Year 2000 readiness and industry conditions, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct, and actual results could
differ materially from the Company's expectations. Factors that could influence
these results include, but are not limited to, oil and gas price volatility,
results of future drilling, availability of drilling rigs, and future production
and costs and other factors described in the Company's annual report on Form
10-K for the year ended December 31, 1998, filed with the Securities and
Exchange Commission on April 15, 1999.
7
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth certain information regarding results of
operations for the periods shown:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Total revenue, $MM $ 11.0 $ 14.4
EBITDA, $MM (a) 6.9 11.1
Net income (loss), $MM (3.5) (3.0)
Production:
Oil and condensate (Mbbls) 169 231
Natural gas (Mmcf) 4,915 4,644
Natural gas equivalents (Mmcfe) 5,929 6,032
Average sales prices post-hedging:
Oil and condensate ($/Bbl) $ 11.17 $ 14.41
Natural gas ($/Mcf) 1.86 2.38
Natural gas equivalents ($/Mcfe) 1.86 2.38
Cash Margin (b) per Mcfe:
Revenue (pre-hedge) $ 1.86 $ 2.39
Hedging impact -- (0.01)
Lease operating expenses (0.43) (0.41)
Gross G&A costs (0.56) (0.37)
------------- -------------
Cash Margin $ 0.87 $ 1.60
============= =============
Capital Expenditures, $MM:
Exploration: -- --
Leasehold and G&G cost 4.8 11.4
Drilling 0.6 8.3
Development & other 16.1 6.9
Capitalized G&A and interest costs 2.5 1.7
------------- -------------
Total $ 24.0 $ 28.3
============= =============
</TABLE>
(a) - EBITDA equals earnings before interest, income taxes, depreciation,
depletion, amortization, provision for litigation and impairment of oil and gas
properties. EBITDA should be used as a supplement to, and not as a substitute
for, net earnings and net cash provided by operating activities (as disclosed in
the financial statements) in analyzing the Company's results of operations and
liquidity.
(b) - Cash margin measures the net cash generated by a company's operations
during a given period, without regard to the period such cash is physically
received or spent by the company. Cash margin should be used as a supplement to,
and not as a substitute for, net earnings and net cash provided by operating
activities (as disclosed in the financial statements) in analyzing the Company's
results of operations and liquidity.
8
<PAGE> 11
RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 1999
NET PRODUCTION decreased 2% to 5.9 Bcfe for the first quarter of 1999 from
6.0 Bcfe for the first quarter of 1998. Production from the Company's offshore
Gulf of Mexico properties increased to 3.8 Bcfe in the quarter ended March 31,
1999, compared to 3.1 Bcfe in the same period of 1998, primarily as a result of
production from two new wells in the Rembrandt field located in Galveston block
151. This increase was offset by reduced production from the Company's Sandy
Lake field onshore Texas due to production problems in two wells in the field.
Total Company production for the remainder of 1999 is anticipated to increase
primarily as a result of production from the Dulcimer field, which began in
April 1999 and is currently producing 23 million cubic feet of natural gas per
day net to Mariner, and scheduled production from the Pluto field, which is
expected to commence in the fourth quarter of 1999.
OIL AND GAS REVENUES decreased 24% to $11.0 million for the first quarter of
1999 from $14.4 million for the first quarter of 1998. Realized prices declined
22 percent to $1.86 per Mcfe in the first quarter 1999 compared to $2.38 per
Mcfe in the same period last year, in addition to the production decrease
discussed above.
LEASE OPERATING EXPENSES increased 4% to $2.6 million for the first quarter
of 1998, from $2.5 million for the first quarter of 1998, due primarily to
higher offshore production discussed above.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE (DD&A) decreased 11% to $7.5
million for the first quarter of 1999, from $8.4 million for the first quarter
of 1998, as a result of the 2% decrease in equivalent volumes produced and
decrease in the unit-of-production depreciation, depletion and amortization rate
to $1.26 per Mcfe from $1.39 per Mcfe. The lower rate for the first quarter of
1999 was primarily due to the $50.8 million non-cash full cost ceiling test
impairment recorded in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES, which are net of overhead reimbursements
received by the Company from other working interest owners, increased 94% to
$1.5 million for the first quarter of 1999, from $0.8 million for the first
quarter of 1998, due primarily to increased personnel related costs in 1999
needed for the Company to transition to larger, more complex projects.
INTEREST EXPENSE for the first quarter of 1999 was relatively unchanged from
the first quarter of 1998.
INCOME (LOSS) BEFORE INCOME TAXES was a $3.5 million loss for the first
quarter of 1999 primarily as a result of the oil and gas revenue decreases
mentioned above.
LIQUIDITY, CAPITAL EXPENDITURES AND CAPITAL RESOURCES
At March 31, 1999, the Company had a working capital deficit of approximately
$29.3 million, compared to a working capital deficit of $84.1 million at
December 31, 1998. The reduction in the working capital deficit was primarily a
result of the reclassification of the Company's Revolving Credit Facility back
to long-term debt. At December 31, 1998, the Revolving Credit Facility was
scheduled to mature on October 1, 1999, requiring the classification of
outstanding borrowings as current liabilities. Subsequent to December 31, 1998,
agreement was reached with the Company's bank group to extend the facility's
maturity to October 1, 2002, allowing the classification of the March 31, 1999
balance of $52.5 million as long-term debt. The Company expects its 1999 capital
expenditures, including capitalized indirect costs, to be $50 to $55 million,
which will exceed cash flow from operations. To obtain the necessary funds to
reduce the working capital deficit and continue its planned capital expenditure
program, in April 1999, the Company established a $25 million short-term credit
facility with ETC. However, there can be no assurance that the Company's access
to capital will be sufficient to meet its needs for capital.
9
<PAGE> 12
As such, the Company may be required to reduce its planned capital expenditures
and forego planned exploratory drilling or monetize portions of its proved
reserves or undeveloped inventory if additional capital resources are not
available to the Company on terms it considers reasonable.
The Company's net cash inflows equaled its net cash outflows the first three
months of 1999. The Company's primary sources of cash during the first three
months of 1999 were $23.0 million in proceeds from a capital contribution from
LLC, and $1.9 million from operations. The primary uses of cash for the same
period were for capital expenditures associated with exploration and development
($24.0 million) and net payments on the Revolving Credit Facility ($0.9
million).
Net cash provided by operating activities was $1.9 million in the first three
months of 1999, an increase of $12.1 million from the same period of 1998. A
quarter to quarter decrease in operating cash flow before changes in working
capital of approximately $4.5 million was due primarily to lower commodity
prices and a $3.0 million provision for litigation, and was more than offset by
a $16.6 million increase in net cash provided by changes in working capital.
Cash used in investing activities in the first three months of 1999 decreased
to $24.0 million from $28.3 million for the same period in 1998 due primarily to
lower exploratory leasehold acquisition and exploratory drilling expenditures,
offset in part by increased capital expenditures for development activities
related primarily to the Company's "Dulcimer" and "Pluto" projects.
Cash provided by financing activities was $22.1 million for the first three
months of 1999 compared to $27.0 million for the same period in 1998. The
Company's primary source of cash for the first three months of 1999 was $23.0
million in proceeds from a capital contribution from LLC, which funds were
provided to LLC through a credit facility with ECT, offset in part by a net $0.9
million repayment of borrowings against the Company's Revolving Credit Facility.
The energy markets have historically been very volatile, and there can be no
assurance that oil and natural gas prices will not be subject to wide
fluctuations in the future. During the first quarter of 1999, oil and natural
gas prices decreased from year-end 1998 levels, then recovered above year-end
1998 levels by early May 1999. To reduce the effects of the volatility of the
price of oil and natural gas on the Company's operating cash flow, management
has adopted a policy of hedging oil and natural gas prices from time to time
through the use of commodity futures, options and swap agreements. While the use
of these hedging arrangements limits the downside risk of adverse price
movements, it may also limit future gains from favorable movements.
The following table sets forth the increase (decrease) in the Company's oil
and natural gas sales as a result of hedging transactions and the effects of
hedging transactions on prices during the periods indicated.
10
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Increase (decrease) in natural gas sales (in thousands) .............. -- $ (56)
Decrease in oil sales (in thousands) ................................. -- --
Effect of hedging transactions on average natural gas sales price
(per Mcf) ......................................................... -- (0.01)
Effect of hedging transactions on average oil sales price (per Bbl) ... --
</TABLE>
A table setting forth the Company's open hedging positions as of March 31,
1999 is contained in footnote 5. "Commitments and Contingencies" in the
footnotes to the financial statements in Part I, Item 1. of this report.
Subsequent to March 31, 1999, the Company entered into two oil commodity
price hedging contracts for a combined 1,200 barrels of oil per day for the
period May through December 1999 at an average price of $16.54 per barrel.
Including these contracts, hedging arrangements for 1999 cover approximately 55%
of the Company's anticipated equivalent production for the year. Hedging
arrangements for 2000, 2001 and 2002 cover approximately 30%, 10% and 3% of the
Company's anticipated equivalent production for those years, respectively.
Capital expenditures for the first three months of 1999, excluding
capitalized indirect costs of $2.5 million, were $21.5 million with $5.4 million
related to exploration and $16.0 million related to development.
Of the $5.4 million related to exploration, expenditures for exploratory
drilling for the quarter amounted to $0.6 million. During the quarter, the
Company announced a significant discovery in the Deepwater Gulf of Mexico on its
Aconcagua prospect located in Mississippi Canyon block 305 in 7,100 feet of
water. As a result of previous arrangements, Mariner's share of the exploratory
drilling costs for this well was covered by its partners. An appraisal well is
planned for the second half of 1999 to quantify reserve estimates and to ensure
appropriate development.
Leasehold and geological expenditures in the first quarter amounted to $4.8
million. The Company was the apparent high bidder on three blocks in the
Deepwater Gulf of Mexico at the Central Gulf of Mexico oil and gas lease sale
held in March 1999. Mariner's share of the bids is $8.9 million, of which $1.8
million was paid in the first quarter. Expenditures for development activities
included facility costs for the Company's Pluto project and completion and
facility costs for the Dulcimer field.
During the remainder of 1999, the Company intends to continue to pursue a
flexible plan in order to maximize the opportunity for growth in proved reserves
and related value while conserving cash. The Company expects to drill three or
four exploratory wells, including two or three in the Deepwater Gulf, and three
or four development wells, including the appraisal well on the Aconcagua
discovery. Total capital expenditures for 1999 excluding capitalized indirect
costs are now expected to be between $40 million and $45 million.
11
<PAGE> 14
Debt outstanding as of March 31, 1999 was approximately $152.1 million,
including $99.6 million of subordinated senior notes and $52.5 million drawn on
the Revolving Credit Facility. Following the semi-annual borrowing base
redetermination, in May 1999, the borrowing base under the Revolving Credit
Facility was reaffirmed at $60 million and the maturity date of the facility was
extended from October 1, 1999 to October 1, 2002. As part of the
redetermination, the Company pledged certain mineral interests to secure the
Revolving Credit Facility.
In April 1999, the Company also established a $25 million borrowing-based,
short-term credit facility with ECT to obtain funds needed to execute the
Company's 1999 capital expenditure program and for short-term working capital
needs. The ECT Facility matures on December 31, 1999, and is expected to be
repaid from internally-generated cash flows.
In April 1999, the Company repaid $2.5 million under the Revolving Credit
Facility and borrowed $10 million under the ECT Facility, leaving total
availability of approximately $25 million as of April 30, 1999. There can be no
assurance that funds available to the Company under the Revolving Credit
Facility and the ECT Facility will be sufficient for the Company to fund its
currently planned capital expenditures. Further, there can be no assurance that
the Company's cash flows will be sufficient to repay the ECT Facility when it
matures in December 1999. The Company may be required to reduce its planned
capital expenditures and forego planned exploratory drilling or to monetize
portions of its proved reserves or undeveloped inventory if additional capital
resources are not available to the Company on terms it considers reasonable.
During the first quarter of 1999, LLC and ECT amended the LLC Facility to
increase the amount available thereunder from $25 million to $50 million. LLC
has contributed the net proceeds from the LLC Facility to the Company in the
form of common equity. The facility requires that a portion of the proceeds of
any private or public equity or debt offering by LLC be applied to repay amounts
outstanding under that facility, following which no additional amounts will be
available for borrowing under the facility. The facility has also been amended
to extend its maturity from April 30, 1999 to April 30, 2000, and to give ECT
the option to convert the facility to equity in the Company's parent at any time
through maturity. At March 31, 1999, LLC had fully drawn this facility and
contributed the net proceeds to the Company as equity.
The Company believes it will have adequate cash flow in order for the Company
to fund its remaining planned activities in 1999. However, the Company
anticipates it will be required to raise additional debt and/or equity financing
to fund part of its planned activities in the year 2000. The Company's capital
resources still may not be sufficient to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments of
principal and interest on its indebtedness. There can be no assurance that
anticipated growth will be realized, that the Company's business will generate
sufficient cash flow from operations or that future borrowings or equity capital
will be available in an amount sufficient to enable the Company to service its
indebtedness or make necessary capital expenditures. In addition, depending on
the levels of its cash flow and capital expenditures (the latter of which are,
to a large extent, discretionary), the Company may need to refinance a portion
of the principal amount of its senior subordinated debt at or prior to maturity.
However, there can be no assurance that the Company would be able to obtain
financing on acceptable terms to complete a refinancing.
12
<PAGE> 15
YEAR 2000 READINESS DISCLOSURE
Year 2000 issues result from the inability of computer programs or
computerized equipment to accurately calculate, store or use a date subsequent
to December 31, 1999. The erroneous date can be interpreted in a number of
different ways; typically the year 2000 is represented as the year 1900. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business transactions.
The Company has performed an initial assessment of its primary Information
Technology ("IT") systems with the vendors from which the systems were purchased
and believes these systems were Year 2000 compliant as of December 31, 1998.
Subsequent to the initial assessment conducted in 1998, a formal Year 2000
readiness program was initiated to confirm initial assessment results and to
establish a program to receive Year 2000 readiness assurances from vendors,
suppliers, and customers. The program scope was also expanded to include
assessments of the Company's non-IT systems, such as technology embedded within
its operations equipment. The goal of the Company is to complete its formal
assessment, testing and remediation (where needed) by October 1999. A consulting
firm has been engaged to assist in this effort. The Company believes the
potential impact, if any, of these IT, non-IT or third-party systems not being
Year 2000 compliant should not materially impact the Company's ability to
continue exploration, drilling, production and sales activities. Based on
reviews conducted to date and other preliminary information, costs of addressing
potential problems are not expected to have a material adverse impact on the
Company's financial position, results of operations, or cash flow in future
periods. Costs to date have been immaterial as are expected future expenditures.
The Company relies on other producers and transmission companies to conduct
its basic operations. Should any third party with which the Company has a
material relationship fail, the impact could be a significant challenge to the
Company's ability to perform its basic operations. Examples of such changes are
an inability to transport production to market or an inability to continue
drilling activities. As part of the above-mentioned review, the Company will
address the most reasonably likely worst-case Year 2000 scenarios and potential
costs. The Company will also develop a Year 2000 contingency plan for unknown
events. The Company is scheduled to have these plans completed by July 1999.
Statements in this section are intended to be and are hereby designated "Year
2000 Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act.
PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See Part I, Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's 1998 Form 10-K, on February 8, 1999, the Company
settled a claim awarded to ETOCO, Inc. in the district court of Hardin County,
Texas for the amount previously provided by the Company.
13
<PAGE> 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith.
10.1 Second Amended and Restated Credit Agreement dated as of
April 15, 1999 between Mariner Energy LLC and Enron
Capital & Trade Resources Corp.
10.2 Revolving Credit Agreement dated as of April 15, 1999
between Mariner Energy, Inc. and Enron Capital & Trade
Resources Corp.
27.1 Financial Data Schedule
(b) The Company filed no Current Reports on Form 8-K during the quarter ended
March 31, 1999.
SIGNATURE
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.
MARINER ENERGY, INC.
Date: May 17, 1999 /s/ Frank A. Pici
-----------------------------
Frank A. Pici
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer
and Officer Duly Authorized to
Sign on Behalf of the
Registrant)
14
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.1 Second Amended and Restated Credit Agreement dated as
of April 15, 1999 between Mariner Energy LLC and Enron
Capital & Trade Resources Corp.
10.2 Revolving Credit Agreement dated as of April 15, 1999
between Mariner Energy, Inc. and Enron Capital & Trade
Resources Corp.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF APRIL 15, 1999
BETWEEN
MARINER ENERGY LLC
AS BORROWER
AND
ENRON CAPITAL & TRADE RESOURCES CORP.,
AS LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
<S> <C> <C>
Section 1.01 Terms Defined Above................................................................... 2
Section 1.02 Certain Defined Terms................................................................. 2
Section 1.03 Accounting Terms and Determinations................................................... 8
ARTICLE II
LOANS AND COMMITMENTS
Section 2.01 Loans................................................................................. 8
Section 2.02 Borrowing............................................................................. 8
Section 2.03 Note.................................................................................. 9
Section 2.04 Prepayments........................................................................... 9
Section 2.05 Conversion Rights of the Lender.......................................................10
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans....................................................................10
Section 3.02 Interest..............................................................................10
ARTICLE IV
PAYMENTS; COMPUTATIONS; ETC.
Section 4.01 Payments..............................................................................11
Section 4.02 Computations..........................................................................11
Section 4.03 Taxes.................................................................................11
</TABLE>
-i-
<PAGE> 3
<TABLE>
ARTICLE V
CAPITAL ADEQUACY
<S> <C> <C>
Section 5.01 Capital Adequacy; Additional Costs....................................................12
Section 5.02 Limitation on Eurodollar Advances.....................................................13
Section 5.03 Illegality............................................................................14
Section 5.04 Base Rate Advances Pursuant to Sections 5.01, 5.02 and 5.03...........................14
Section 5.05 Compensation..........................................................................14
ARTICLE VI
COVENANTS
Section 6.01 Financial Covenants...................................................................14
Section 6.02 Limitation on Indebtedness............................................................15
Section 6.03 Limitation on Common Shares Issuance..................................................15
ARTICLE VII
[RESERVED]
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.01 Events of Default.....................................................................15
Section 8.02 Remedies..............................................................................17
ARTICLE IX
MISCELLANEOUS
Section 9.01 Waiver................................................................................18
Section 9.02 Notices...............................................................................18
Section 9.03 Payment of Expenses, Indemnities, etc.................................................18
Section 9.04 Amendments, Etc.......................................................................20
Section 9.05 Successors and Assigns................................................................20
Section 9.06 Assignments and Participations........................................................20
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 9.07 Invalidity............................................................................21
Section 9.08 Counterparts..........................................................................21
Section 9.09 References............................................................................21
Section 9.10 Survival..............................................................................21
Section 9.11 Captions..............................................................................22
Section 9.12 NO ORAL AGREEMENTS....................................................................22
Section 9.13 GOVERNING LAW; WAIVERS; ARBITRATION...................................................22
Section 9.14 Interest..............................................................................23
Section 9.15 EXCULPATION PROVISIONS................................................................24
Exhibit A - Form of Note
</TABLE>
-iii-
<PAGE> 5
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement")
dated as of April 15, 1999 is between: MARINER ENERGY LLC, a Delaware limited
liability company (together with its permitted successors and assigns hereunder,
the "Borrower") and ENRON CAPITAL & TRADE RESOURCES CORP., a Delaware
corporation (together with its permitted successors and assigns hereunder, the
"Lender").
R E C I T A L S
A. The Lender and Mariner Holdings, Inc., a Delaware corporation (the
"Original Borrower"), previously entered into the Credit and Subordination
Agreement dated as of September 2, 1998 (the "Original Credit Agreement")
pursuant to which, and upon the terms and conditions stated therein, the Lender
made loans to the Original Borrower in the aggregate principal amount of
$25,000,000 (the "Original Loan") evidenced by a promissory note of the Original
Borrower dated September 2, 1998 (the "Original Loan Note"), subject to the
terms and conditions of the Original Credit Agreement and the Original Loan
Note.
B. Pursuant to the Assignment and Assumption of Liabilities and
Obligations and Release dated as of January 12, 1999 (the "Assignment"), the
Original Borrower assigned all of its right, title and interest in and to the
Original Credit Agreement to the Borrower and the Borrower assumed all of the
Original Borrower's obligations thereunder and under the Original Loan Note and
the Original Borrower was released from all liabilities and obligations under
the Original Credit Agreement and the Original Loan Note.
C. The Lender and the Borrower previously entered into the First
Amended and Restated Credit Agreement dated as of January 12, 1999 (the "First
Amended and Restated Credit Agreement") pursuant to which, and upon the terms
and conditions stated therein, (i) the Lender and the Borrower amended and
restated the terms and conditions of the Original Credit Agreement pursuant to
which the Lender made the Original Loan and (ii) the Lender made an additional
loan to the Borrower in the aggregate principal amount of $25,000,000 (the
"Additional Loan") as evidenced by a promissory note of the Borrower dated
January 12, 1999 (the "Additional Loan Note").
D. The Borrower has requested that the Lender modify, among other
things, the definition of Final Maturity Date as it relates to the Additional
Loan and the Original Loan.
E. The Lender has agreed to such modifications and to make the Loans
(as hereinafter defined) subject to the terms and conditions of this Agreement.
F. In consideration of the mutual covenants and agreements herein
contained and of the loans hereinafter referred to, the parties hereto agree to
amend and restate the First Amended and Restated Credit Agreement to read as
follows:
<PAGE> 6
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used herein, the terms "Additional
Loan", "Additional Loan Note", "Assignment", "Borrower", "First Amended and
Restated Credit Agreement", "Lender", "Original Borrower", "Original Credit
Agreement", "Original Loan" and "Original Loan Note" shall have the meanings
indicated above.
Section 1.02 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Article I or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa).
"Additional Costs" shall have the meaning assigned such term in Section
5.01(a).
"Advance" shall mean an advance made pursuant to Section 2.01 or
pursuant to the First Amended and Restated Credit Agreement, or a continuation
or a conversion thereof pursuant to Section 2.02 or Article V.
"Affiliate" of any Person shall mean (i) any Person directly or
indirectly controlled by, controlling or under common control with such first
Person, (ii) any director or officer of such first Person or of any Person
referred to in clause (i) above and (iii) if any Person in clause (i) above is
an individual, any member of the immediate family (including parents, spouse and
children) of such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any Person who is
controlled by any such member or trust. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean any Person which owns directly or indirectly 10% or
more of the securities having ordinary voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such corporation
or other Person.
"Agreement" shall mean this Second Amended and Restated Credit
Agreement, as the same may from time to time be amended or supplemented.
"Base Rate" at any time shall mean a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum shall at all
times be equal to the higher of (i) the Prime Commercial Lending Rate as in
effect from time to time and (ii) the Federal Funds Rate as in effect from time
to time plus one-half of one percent (1/2%) per annum.
"Base Rate Advances" shall mean Advances that bear interest at the Base
Rate.
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in New York, New York and, if such day
relates to a borrowing or continuation of, a payment or prepayment of principal
of or interest on, or the Interest Period for,
-2-
<PAGE> 7
a Eurodollar Advance or a notice by the Borrower with respect to any such
borrowing, payment, prepayment, or Interest Period, any day which is also a day
on which dealings in Dollar deposits are carried out in the London interbank
market.
"Closing Date" shall mean April 15, 1999.
"Common Shares" shall have the meaning assigned to such term in the
Note.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, as to the Borrower and its Subsidiaries on a
consolidated basis, and for any twelve month period, the amount equal to net
income of the Borrower and its Subsidiaries, plus, to the extent deducted from
net income, interest expense, depreciation, depletion and impairment,
amortization of leasehold and intangibles, other non-cash expenses (including
deferred taxes), and cash taxes; provided, that, gains or losses on the
disposition of assets shall not be included in EBITDA.
"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health or the environment in effect in any and all jurisdictions
in which the Borrower or any of its Subsidiaries is conducting or at any time
has conducted business, or where any Property of the Borrower or any of its
Subsidiaries is located, including without limitation, the Oil Pollution Act of
1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and "release"
(or "threatened release") have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and (ii)
to the extent the laws of the state in which any Property of the Borrower or any
of its Subsidiaries is located establish a meaning for "oil," "hazardous
substance," "release," "solid waste" or "disposal" which is broader than that
specified in either OPA, CERCLA or RCRA, such broader meaning shall apply.
"Eurodollar Advances" shall mean an Advance during the period of time
that the interest rate is determined on the basis of the rate referred to in the
definition of "Eurodollar Rate."
"Eurodollar Rate" for each Interest Period shall mean an interest rate
per annum equal to four and one-half percent per annum (4 1/2%) plus the rate of
interest per annum at which deposits in Dollars in immediately available funds
are offered to prime banks in the London interbank market at 11:00 a.m. (London
time) on the Interest Setting Date in an amount substantially equal to the
-3-
<PAGE> 8
applicable Advance and for a period equal to such Interest Period, determined on
the basis of the provisions set forth below:
(i) On the Interest Setting Date the Lender will determine the
interest rate for deposits in Dollars, for a period equal to that of
the Interest Period to which such Interest Setting Date relates, which
appears on the Bloomberg Financial Markets Services Display Screen as
of 11:00 a.m. (London time) on such date or if such screen on such
service ceases to display such information, such other screen as may
replace it on that service for the purpose of display of such
information (the "Bloomberg Rate"). If such rate does not appear on the
Bloomberg Financial Markets Services Display Screen, then the rate will
be determined in accordance with clause (ii) below.
(ii) If the Lender is unable to determine the Bloomberg Rate,
then on the Interest Setting Date, the Lender will determine the
arithmetic mean (rounded if necessary to the nearest one-hundredth
percent (1/100%)) of the interest rate for a period equal to that of
the Interest Period to which such Interest Setting Date relates quoted
on Reuters Screen page "LIBO" or (a) if such page on such service
ceases to display such information, such other page as may replace it
on that service for the purpose of displaying such information or (b)
if that service ceases to display such information, such page as
displays such information on such service (or, if more than one, that
one approved by the Lender as may replace the Reuters Screen) as at or
about 11:00 a.m. (London time) on that Interest Setting Date (the rate
quoted as aforesaid being the "LIBOR Screen Rate"). If the Lender is to
make a determination pursuant to this paragraph and one or more of the
LIBOR Screen Rates required for such determination shall be
unavailable, the determination shall be made on the basis of those
rates which are available.
"Event of Default" shall have the meaning set forth in Section 8.01.
"Existing Principal Amount" shall have the meaning set forth in Section
2.01(a).
"Federal Funds Rate" shall mean, for any day, a fluctuating interest
rate per annum equal, for such day, 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 Lender from three Federal funds brokers of recognized standing
selected by the Lender.
"Final Maturity Date" shall mean the earlier of (i) the date the Note
is prepaid pursuant to Section 2.04 (a) or (b) hereof, (ii) the date the Note
becomes due and payable pursuant to the provisions of Section 8.02, (iii) the
date that is one Business Day following the IPO Date, and (iv) April 30, 2000.
"GAAP" shall mean United States generally accepted accounting
principles as applied in accordance with Section 1.03.
-4-
<PAGE> 9
"Governmental Authority" shall include the country, the state, county,
city and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department, commission, board, bureau
or instrumentality of any of them including monetary authorities which exercises
valid jurisdiction over any such Person or such Person's Property. Unless
otherwise specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable, the
Borrower or any of its Subsidiaries or any of their respective Property or the
Lender.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement (whether or not having the force of law), including, without
limitation, environmental laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate,
if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Note under laws applicable to the Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
"Indebtedness" shall mean for any Person, without duplication, (i) all
indebtedness or other obligations of such Person for borrowed money and all
indebtedness of such Person with respect to any other items (other than accounts
payable, income taxes payable, deferred taxes and deferred credits) which would,
in accordance with GAAP, be classified as a liability on the balance sheet of
such Person, (ii) obligations of such Person to pay the deferred purchase price
of property or services (other than accounts payable in the ordinary course of
business), (iii) obligations of such Person (contingent or otherwise) under
reimbursement or similar agreements with respect to the issuance of letters of
credit, (iv) the aggregate of the present values (discounted in accordance with
sound financial practice at a rate of 10.00% per annum) of the net amount of all
rental and other minimum lease payments that such Person is obligated to pay, or
has guaranteed, during the remaining term of all Principal Operating Leases
(and, in the case of guarantees by such Person, all leases which would be
Principal Operating Leases if such Person were the lessee thereunder) (including
any period for which any such lease has been extended or may, at the option of
the lessor, be extended) (the net amount of rental and other minimum lease
payments required to be paid under any such lease for any such term shall be the
amount of the rent payable by the lessee with respect to such period, after
excluding amounts required to be paid on account of maintenance and repairs,
insurance, Taxes, assessments, water rates and similar charges and contingent
rents such as those based on sales), (v) all indebtedness or other obligations
of any other Person of the type specified in clause (i), (ii), (iii), or (iv)
above, the payment or collection of which such Person has guaranteed (except by
reason of endorsement for collection in the ordinary course of business) or in
respect of which such Person is liable, contingently or otherwise, including,
without limitation, liable by way of agreement to purchase products or
securities, to provide funds for payment, to maintain working capital or other
balance sheet conditions or otherwise to assure a creditor against loss, and
(vi) all indebtedness or other obligations of any other Person of the type
specified in clause (i), (ii), (iii), (iv),
-5-
<PAGE> 10
or (v) above secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any lien, upon or in
property (including, without limitation, accounts and contract rights) owned by
such Person, whether or not such Person has assumed or becomes liable for the
payment of such indebtedness or obligations.
"Indemnity Matters" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands and
causes of action made or threatened against a Person and, in connection
therewith, all losses, liabilities, damages (including, without limitation,
consequential damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or concurrent
negligence of such Person seeking indemnification.
"Interest Period" shall mean, with respect to Eurodollar Advances, the
period commencing on and including (i) the Closing Date, (ii) the date of
expiration of the then current Interest Period applicable thereto if any
Eurodollar Advance is continued pursuant to Section 2.02(b), or (iii) the date
of any conversion of a Base Rate Advance back to a Eurodollar Advance pursuant
to Section 5.04, and ending on but excluding the numerically corresponding day
in each month thereafter, provided that, each Interest Period which commences on
the last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month),
shall end on the last Business Day of the appropriate subsequent calendar month,
and provided further that, each Interest Period which would otherwise end on a
day which is not a Business Day shall end on the next succeeding Business Day
(or, if such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day).
"Interest Setting Date" shall mean the date which is two Business Days
before the first day of a particular Interest Period.
"IPO Date" shall mean the closing date of the initial public offering
of equity securities of the Borrower in a firm commitment underwriting
registered under the Securities Act of 1933, as amended.
"Loans" shall mean the Original Loan and the Additional Loan, extended
hereunder as the Existing Principal Amount.
"Note" shall mean the note evidencing the Loans, substantially in the
form of Exhibit A hereto, together with any and all renewals, extensions for any
period, increases, rearrangements, substitutions or modifications thereof.
"Other Taxes" shall have the meaning assigned such term in Section
4.03(b).
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government or any agency, instrumentality or political subdivision thereof, or
any other form of entity.
-6-
<PAGE> 11
"Post-Default Rate" shall mean, in respect of any principal or any
other amount payable by the Borrower under this Agreement or the Note which is
not paid when due (whether at stated maturity, by acceleration or otherwise), a
rate per annum during the period commencing on the due date until such amount is
paid in full or the default is cured or waived equal to 2% per annum above the
Base Rate or the Eurodollar Rate, as applicable, but in no event to exceed the
Highest Lawful Rate.
"Prime Commercial Lending Rate" shall mean that per annum rate of
interest from time to time announced by The Chase Manhattan Bank, N.A. at its
principal office as its prime commercial lending rate (or comparable rate, if
The Chase Manhattan Bank, N.A. does not so designate a "prime commercial lending
rate"), the Prime Commercial Lending Rate to change when and as such prime
commercial lending rate changes. The Prime Commercial Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. The Chase Manhattan Bank, N.A. may make
commercial loans or other loans at rates of interest at, above or below the
Prime Commercial Lending Rate. For purposes hereof, the principal office of The
Chase Manhattan Bank, N.A. as of the date hereof, is its office located at 4
Chase Metrotech Center, 13th Floor, Brooklyn, New York 11245.
"Principal Office" shall mean the principal office of the Lender,
presently located at 1400 Smith Street, Houston, Texas 77002.
"Principal Operating Lease" shall mean a lease (other than a capital
lease) of the Borrower or any of its Subsidiaries in respect of which lease the
aggregate of the present values (discounted in accordance with sound financial
practice at a rate of 10% per annum) of the net amount of all rental and other
minimum lease payments that the Borrower or any of its Subsidiaries is obligated
to pay during the remaining term of such lease (including any period for which
any such lease has been extended or may, at the option of the lessor, be
extended) is equal to or greater than five percent of the net worth of the
Borrower and its Subsidiaries on a consolidated basis at the time such
determination is made. The net amount of rental and other minimum lease payments
required to be paid under any Principal Operating Lease for any such term shall
be the amount of rent payable by the lessee with respect to such period, after
excluding amounts required to be paid on account of maintenance and repairs,
insurance, Taxes, assessments, water rates and similar charges and contingent
rents such as those based on sales; provided, that, in no event shall the
Borrower's lease of office space for its principal place of business be
considered a Principal Operating Lease.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Refunding Debt" means Indebtedness for borrowed money incurred by the
Borrower or any of its Subsidiaries after the date hereof. Provided, however,
the Loans (and any Advances pursuant thereto) and any Senior Indebtedness are
not Refunding Debt.
"Regulatory Change" shall mean any change after the Closing Date in any
Governmental Requirement or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders
(including the Lender) of or under any Governmental Requirement
-7-
<PAGE> 12
(whether or not having the force of law) by any Governmental Authority charged
with the interpretation or administration thereof.
"Senior Indebtedness" shall mean obligations in respect of any and all
of the loans to Mariner Energy, Inc. pursuant to (i) that certain Credit
Agreement dated June 28, 1996 among Mariner Energy, Inc. and the banks party
thereto, or (ii) that certain Revolving Credit Facility dated April 15, 1999
between Mariner Energy, Inc. and the Lender, and all indebtedness, liabilities
and obligations of Mariner Energy, Inc. evidenced by such credit agreements, as
such agreements may be amended, renewed, extended, supplemented, restated,
refinanced, increased, or otherwise modified from time to time, including
without limitation, as such agreement may be refinanced with and increased by
different lenders under a different agreement.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture, limited liability company or other entity in which such Person and/or
one or more Subsidiaries of such Person has more than a 50% equity interest at
the time.
"Taxes" shall have the meaning assigned such term in Section 4.03(a).
Section 1.03 Accounting Terms and Determinations. Unless otherwise
defined or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, and all financial records
shall be maintained in accordance with GAAP applied on a consistent basis.
ARTICLE II
LOANS AND COMMITMENTS
Section 2.01 Loans.
(a) Existing Loans. Pursuant to the First Amended and Restated Credit
Agreement, the Lender has heretofore advanced $50,000,000 (the "Existing
Principal Amount") and such advances are deemed to be Loans and Advances
outstanding under this Agreement.
(b) Not a Revolving Facility. Advances that are prepaid may not be
reborrowed.
Section 2.02 Borrowing. (a) Borrowing. Initially, each Advance shall be
a Eurodollar Advance and the Interest Period shall be one month.
-8-
<PAGE> 13
(b) Continuation. Except as otherwise provided in Article V, the entire
amount of each Eurodollar Advance shall be automatically continued beyond the
expiration of the then current Interest Period relating thereto as a Eurodollar
Advance with an Interest Period of one month.
Section 2.03 Note. The Loans shall be evidenced by a single promissory
note of the Borrower in substantially the form of Exhibit A hereto dated as of
the Closing Date, payable to the order of the Lender and otherwise duly
completed. The Note shall be issued by the Borrower in exchange for the note of
the Borrower evidencing the Original Loan and the note of the Borrower
evidencing the Additional Loan, each of which shall be returned to the Borrower,
marked "Cancelled", upon execution and delivery by the Borrower to the Lender of
the Note. The date, amount, interest rate, and Interest Period of each Advance
and all payments made on account of the principal thereof, shall be recorded by
the Lender on its books for the Note, and, prior to any transfer, endorsed by
the Lender on the schedule attached to the Note or any continuation thereof.
Such records shall be deemed conclusive absent manifest error.
Section 2.04 Prepayments.
(a) Optional Prepayments. Subject to the terms of Section 5.05, the
Borrower may prepay the Loans upon not less than three (3) Business Day's prior
written notice to the Lender, which notice shall specify the prepayment date
(which shall be a Business Day). Such prepayments shall be in the minimum
principal amount of $1,000,000 and in integral multiples of $100,000, or in the
aggregate unpaid principal amount of the Loans outstanding. Upon such
prepayment, all accrued and unpaid interest with respect to the prepaid
principal amount of the Loans is due and payable by the Borrower to the Lender
on the date of such prepayment.
(b) Mandatory Prepayments. The Borrower shall prepay the Loans:
(i) in whole or in part, together with interest accrued
thereon, from the net cash proceeds received by the Borrower with
respect to the securities offering effected on the IPO Date, within one
Business Day after the IPO Date; and
(ii) in whole or in part, together with interest accrued
thereon, from the net cash proceeds of Refunding Debt or sale of equity
(other than in an initial public offering) within one Business Day
after the date any Refunding Debt is incurred or such sale is
consummated.
Any partial prepayment shall be applied first to accrued, unpaid interest on and
then to the principal of the Note.
(c) Prepayments permitted or required under this Section 2.04 shall be
without premium or penalty, except as required under Section 5.05.
(d) Prepayments permitted or required under this Section 2.04 shall be
subject to the conversion rights of the Lender under the Note, which, among
other things, allow the Lender to require any prepayment made by the Buyer to be
in Common Shares rather than in cash.
-9-
<PAGE> 14
Section 2.05 Conversion Rights of the Lender. To the extent that the
Lender has elected to convert all or any portion of the aggregate unpaid
principal amount of the Loans into Common Shares in accordance with the
provisions of the Note, such principal amount shall, upon such conversion, be
deemed to have been prepaid on the date of such conversion, and accrued and
unpaid interest on such amount shall be due and payable by the Borrower to the
Lender on the date of such conversion (except to the extent the Lender has
elected to convert such interest into Common Shares and in accordance with the
provisions of the Note).
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. Subject to the conversion rights of
the Lender under the Note, the Borrower will pay to the Lender the entire
outstanding principal balance of the Loans on the Final Maturity Date.
Section 3.02 Interest.
(a) The Borrower will pay to the Lender interest on the unpaid
principal amount of each Advance, for the period commencing on the date such
Advance is funded to but excluding the date such Advance plus interest thereon
shall be paid in full, at the following rates per annum:
(i) if such Advance is a Eurodollar Advance, for each Interest
Period relating thereto, the Eurodollar Rate (as in effect from time to
time), but in no event to exceed the Highest Lawful Rate; and
(ii) if such Advance is a Base Rate Advance, the Base Rate,
but in no event to exceed the Highest Lawful Rate.
(b) Notwithstanding the foregoing, the Borrower will pay to the Lender
interest at the applicable Post-Default Rate on any principal of the Loans, and
(to the fullest extent permitted by law) on any other amount payable by the
Borrower hereunder or under the Note which shall not be paid in full when due
(whether at stated maturity, by acceleration or otherwise), for the period
commencing on the due date thereof until the same is paid in full.
(c) Subject to the terms and conditions of Section 2.05, accrued and
unpaid interest on the Loans shall be payable at maturity (whether by
acceleration or otherwise), and after maturity, on demand.
(d) Promptly after the determination of any interest rate provided for
herein or any change therein, the Lender shall notify the Borrower thereof. Each
determination by the Lender of an interest rate or fee hereunder shall, except
in cases of manifest error, be final, conclusive and binding on the parties.
-10-
<PAGE> 15
ARTICLE IV
PAYMENTS; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be made by the Borrower
under this Agreement and the Note shall be made in Dollars, in immediately
available funds, to the Lender at CitiBank N.A., New York, New York, ABA No.
021000089 for the account of ECT-Finance, Account No. 4067-3621, Re: Mariner,
not later than 11:00 a.m. (New York time) on the date on which such payments
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). Such payments
shall be made without (to the fullest extent permitted by applicable law)
defense, set-off or counterclaim. All payments shall be applied first to
interest and then to principal.
Section 4.02 Computations. Interest on a Eurodollar Advance shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable, unless such calculation would exceed the Highest Lawful Rate, in which
case interest shall be calculated on the per annum basis of a year of 365 or 366
days, as the case may be. Interest on a Base Rate Advance and fees shall be
computed on the basis of a year of 365 or 366 days, as the case may be.
Section 4.03 Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 4.01, 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, taxes imposed on Lender's income, and franchise or similar taxes
imposed on the Lender, by (i) any jurisdiction (or political subdivision
thereof) of which the Lender, is a citizen or resident, (ii) the jurisdiction
(or any political subdivision thereof) in which the Lender is organized, or
(iii) any jurisdiction (or political subdivision thereof) in which the Lender is
presently or hereafter doing business which taxes are imposed solely as a result
of doing business in such jurisdiction (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 to the Lender (i) the sum
payable shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 4.03) the Lender shall receive 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 taxing authority or other Governmental Authority in accordance
with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted by
applicable law, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from
-11-
<PAGE> 16
the execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE BORROWER WILL INDEMNIFY THE LENDER FOR THE FULL AMOUNT OF TAXES AND OTHER
TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY
GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.03) PAID BY THE
LENDER, 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 UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY
OR LEGALLY ASSERTED AND THE LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS
THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT
TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE THE
LENDER MAKES WRITTEN DEMAND THEREFOR. IF THE LENDER RECEIVES A REFUND OR CREDIT
IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH THE LENDER HAS RECEIVED PAYMENT
FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND OR CREDIT
AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS
AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE
BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO),
PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST
(BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER,
UPON THE REQUEST OF THE LENDER, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS
PENALTIES, INTEREST OR OTHER CHARGES) TO THE LENDER IN THE EVENT THE LENDER IS
REQUIRED TO REPAY SUCH REFUND OR CREDIT.
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 Capital Adequacy; Additional Costs.
(a) Eurodollar Regulations, etc. The Borrower shall pay directly to
Lender from time to time such amounts as the Lender may determine to be
necessary to compensate the Lender for any costs which it determines are
attributable to its making or maintaining of Eurodollar Advances hereunder or
its obligation to make any Eurodollar Advance hereunder, or any reduction in any
amount receivable by the Lender hereunder in respect of any Eurodollar Advance
or such obligation (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs") resulting from any Regulatory Change
which: (i) changes the basis of taxation of any amounts payable to the Lender
under this Agreement or the Note in respect of Eurodollar Advances (other than
taxes imposed on the overall net income of the Lender for the Eurodollar
Advances by the jurisdiction of the Principal Office); or (ii) imposes or
modifies any reserve, special deposit, minimum capital, capital ratio or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of the Lender (including Eurodollar Advances
or deposits referred to in the definition of "Eurodollar Rate" in Section 1.02
hereof) or the Eurodollar interbank market; or (iii) imposes any other condition
affecting this Agreement or the Note (or any of such extensions of credit or
liabilities). The Lender will notify the Borrower of any event
-12-
<PAGE> 17
occurring after the Closing Date which will entitle the Lender to compensation
pursuant to this Section 5.01(a) as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation.
(b) Regulatory Change. Without limiting the effect of the provisions of
Section 5.01(a), in the event that, by reason of any Regulatory Change or any
other circumstances arising after the Closing Date affecting the Lender, the
Eurodollar interbank market or the Lender's position in such market, the Lender
either (i) incurs Additional Costs or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may hold, then,
if the Lender so elects by notice to the Borrower, the obligation of the Lender
to continue Eurodollar Advances shall be terminated.
(c) Capital Adequacy. Without limiting the effect of the foregoing
provisions of this Section 5.01 (but without duplication), the Borrower shall
pay directly to the Lender from time to time on request such amounts as the
Lender may reasonably determine to be necessary to compensate it or its parent
or holding company for any costs which it determines are attributable to the
maintenance by it or its parent or holding company pursuant to any Governmental
Requirement following any Regulatory Change, of capital in respect of the Note
or the Advances (such compensation to include, without limitation, an amount
equal to any reduction of the rate of return on assets or equity of the Lender
or its parent or holding company to a level below that which the Lender or its
parent or holding company could have achieved but for such Governmental
Requirement). The Lender will notify the Borrower that the Lender is entitled to
compensation pursuant to this Section 5.01(c) as promptly as practicable after
it determines to request such compensation.
(d) Compensation Procedure. If Lender notifies the Borrower of the
incurrence of Additional Costs under this Section 5.01, such notice to the
Borrower shall set forth the basis and amount of its request for compensation.
Determinations and allocations by the Lender for purposes of this Section 5.01
of the effect of any Regulatory Change pursuant to Section 5.01(a) or (b), or of
the effect of capital maintained pursuant to Section 5.01(c), on its costs or
rate of return of maintaining the Advances or its obligation to make the
Advances, or on amounts receivable by it in respect of the Advances, and of the
amounts required to compensate the Lender under this Section 5.01, shall be
conclusive and binding for all purposes, provided that such determinations and
allocations are made on a reasonable basis. Any request for additional
compensation under this Section 5.01 shall be paid by the Borrower within thirty
(30) days of the receipt by the Borrower of the notice described in this Section
5.01(d).
Section 5.02 Limitation on Eurodollar Advances. Notwithstanding
anything herein to the contrary, if, on or prior to the determination of any
Eurodollar Rate for any Interest Period:
(i) the Lender determines (which determination shall be conclusive
absent manifest error) that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Rate" in Section 1.02 are
not being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for the Eurodollar Advances as
provided herein; or
-13-
<PAGE> 18
(ii) the Lender determines (which determination shall be conclusive
absent manifest error) that the relevant rates of interest referred to in the
definition of "Eurodollar Rate" in Section 1.02 upon the basis of which the rate
of interest for the Eurodollar Advances for such Interest Period is to be
determined are not likely to cover the cost to the Lender of making or
maintaining the Eurodollar Advances;
then the Lender shall give the Borrower prompt notice thereof, and the
obligation of the Lender to continue the Eurodollar Advances shall be
terminated.
Section 5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Lender to honor its
obligation to make or maintain the Eurodollar Advances hereunder, then the
Lender shall promptly notify the Borrower thereof and the Lender's obligation to
continue the Eurodollar Advances shall be terminated.
Section 5.04 Base Rate Advances Pursuant to Sections 5.01, 5.02 and
5.03. If the obligation of the Lender to make or maintain Eurodollar Advances
shall be terminated pursuant to Sections 5.01, 5.02 or 5.03, all Eurodollar
Advances shall be automatically converted to a Base Rate Advance.
Notwithstanding anything to the contrary contained in this Article V, the Lender
agrees that it will immediately notify the Borrower if any of the matters that
were described in any notice provided by the Lender pursuant to Section 5.01,
5.02 or 5.03 cease to exist, and each such notice shall constitute a withdrawal
of the notice given by the Lender pursuant to such Section. Upon delivery of the
notice referred to in the immediately preceding sentence, the Base Rate Advance
shall automatically convert back to a Eurodollar Advance with an Interest Period
of one month, beginning on the date of conversion. If the Lender requests
additional compensation under Section 5.01, the Borrower shall have the right,
if no Event of Default then exists, to convert each of the Eurodollar Advances
to a Base Rate Advance on the last day of such Eurodollar Advance's current
Interest Period, upon payment of all such compensation accrued to the date of
such conversion.
Section 5.05 Compensation. The Borrower shall pay to the Lender within
thirty (30) days of receipt of written request of the Lender (which request
shall set forth, in reasonable detail, the basis for requesting such amounts and
which shall be conclusive and binding for all purposes provided that such
determinations are made on a reasonable basis), such amount or amounts as shall
compensate it for any funding losses or other loss, cost, expense or liability
which the Lender may sustain as a result of any prepayment of all or any portion
of the Eurodollar Advances for any reason (including, without limitation, the
acceleration of the Advances pursuant to Section 8.02) on any day other than the
last day of the applicable Interest Period.
ARTICLE VI
COVENANTS
Section 6.01 Financial Covenants. So long as any Loan remains unpaid,
the Borrower shall:
-14-
<PAGE> 19
(a) Cash Flow Coverage Ratio. Maintain for itself and its
Subsidiaries on a consolidated basis and for each twelve month period
ending on the last day of each fiscal quarter, a ratio of (i) EBITDA to
(ii) the sum of (A) interest expense of the Borrower and its
Subsidiaries on a consolidated basis during such period plus (B)
maintenance capital expenditures of the Borrower and its Subsidiaries
on a consolidated basis during such twelve month period plus (C) cash
taxes paid by or on behalf of the Borrower and its Subsidiaries on a
consolidated basis during such period of at least 1.25 to 1.00. For
purposes of this Section 6.01(a), "maintenance capital expenditures"
shall mean the annual capital expenditures made by the Borrower and its
Subsidiaries on a consolidated basis as necessary to maintain proved
producing reserves at the levels set forth for the Properties listed in
the most recent annual Ryder Scott Company Reserve Report relating to
the Company; and
(b) Interest Coverage Ratio. Maintain for itself and its
Subsidiaries on a consolidated basis and for each twelve month period
ending on the last day of each fiscal quarter, a ratio of (i) EBITDA to
(ii) interest expense of the Borrower and its Subsidiaries on a
consolidated basis during such period of at least 1.65 to 1.00.
Section 6.02 Limitation on Indebtedness. The Borrower shall not, and
shall not permit its Subsidiaries to, create, incur, assume or suffer to exist
any consolidated Indebtedness other than consolidated Indebtedness outstanding
on the Closing Date, Refunding Debt, the Loans and the Senior Indebtedness.
Section 6.03 Limitation on Common Shares Issuance. The Borrower shall
reserve and refrain from issuing, other than in accordance with the terms and
conditions of this Agreement and the Note, a sufficient number of Common Shares
such that the Borrower may satisfy the conversion rights of the Lender under the
Note with authorized, unissued Common Shares. The initial number of such
reserved Common Shares shall be 3,800,000; provided that, such number may change
as a result of the exercise by the Lender of its conversion rights under the
Note or as a result of other events described in the Note. In the event that the
Common Shares are reclassified or replaced as described in the Note, the
Borrower shall reserve and refrain from issuing to any Person other than the
Lender replacement assets sufficient to satisfy the conversion rights of the
Lender under the Note.
ARTICLE VII
[RESERVED]
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.01 Events of Default. One or more of the following events
shall constitute an "Event of Default":
(a) the Borrower shall default in the payment or prepayment when due of
(i) any principal of the Loans or any fees; or (ii) any interest on the Loans or
any other amount payable by
-15-
<PAGE> 20
the Borrower hereunder, and such failure to pay interest or other amounts
continues unremedied for a period of five (5) Business Days; or
(b) the Borrower shall default in the performance of any other covenant
on the part of the Borrower to be performed hereunder, and such default
continues for a period of thirty (30) days after receipt of written notice from
the Lender of such default; or
(c) the Borrower or any of its Subsidiaries shall admit in writing its
inability to, or be generally unable to, pay their respective debts as such
debts become due; or
(d) the Borrower or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its Property, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up,
liquidation or composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), or (vi) take any corporate action for the purpose of
effecting any of the foregoing; or
(e) a proceeding or case shall be commenced, without the application or
consent of the Borrower or any of its Subsidiaries, as applicable, in any court
of competent jurisdiction, seeking (i) its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a trustee, receiver, custodian, liquidator or the like of the
Borrower or such Subsidiary of all or any substantial part of its assets, or
(iii) similar relief in respect of the Borrower or such Subsidiary under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60 days; or (iv)
an order for relief against the Borrower or such Subsidiary shall be entered in
an involuntary case under the Federal Bankruptcy Code (as now or hereafter in
effect); or
(f) a judgment or judgments for the payment of money in excess of
$5,000,000 in the aggregate shall be rendered by a court against the Borrower or
any of its Subsidiaries and the same shall not be discharged (or provision shall
not be made for such discharge), or a stay of execution thereof shall not be
procured, within thirty (30) days from the date of entry thereof and the
Borrower or such Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal; or
(g) proceeds from the issuance of any Refunding Debt are not used to
repay the Loans; or
(h) the Borrower or any of its Subsidiaries becomes an "investment
company" within the meaning of the Investment Company Act of 1940, as amended;
or
-16-
<PAGE> 21
(i) the Borrower or any of its Subsidiaries becomes a "holding
company", a "subsidiary company" of a "holding company", an "affiliate" of a
"holding company", or an "affiliate" of a "subsidiary company" of a "holding
company", in each case, as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended; or
(j) the Borrower or any of its Subsidiaries shall:
(i) fail to make any payment or payments of any Indebtedness
when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness, or
(ii) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement
or instrument evidencing Indebtedness (other than any failure to
perform any term contemplated by subclause (i) hereof) and such failure
shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness,
if, in either case, the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, the maturity of any Indebtedness
(other than Indebtedness in respect of the Loans or this Agreement), and any
obligee (or obligees) of such Indebtedness has or have claimed a default
thereunder, and has or have not waived in writing the Borrower's or the
Borrower's Subsidiaries' obligation to such performance or observance.
Section 8.02 Remedies.
(a) In the case of an Event of Default other than one referred to in
clauses (c), (d) or (e) of Section 8.01, the Lender may, by notice to the
Borrower, declare the principal amount then outstanding of, and the accrued
interest on, the Loans and all other amounts payable by the Borrower hereunder
and under the Note to be forthwith due and payable, whereupon such amounts shall
be immediately due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default referred to in
clauses (c), (d) or (e) of Section 8.01, the principal amount then outstanding
of, and the accrued interest on, the Loans and all other amounts payable by the
Borrower hereunder and under the Note shall become automatically immediately due
and payable without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other formalities of any kind, all of
which are hereby expressly waived by the Borrower.
(c) All proceeds received after maturity of the Note, whether by
acceleration or otherwise shall be applied first to reimbursement of expenses
and indemnities provided for in this Agreement; second to accrued interest on
the Note; third to principal outstanding on the Note; and, to the extent of any
excess, to the Borrower or as otherwise required by any Governmental
Requirement.
-17-
<PAGE> 22
ARTICLE IX
MISCELLANEOUS
Section 9.01 Waiver. No failure on the part of the Lender to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under this Agreement or the Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or the Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Section 9.02 Notices. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made by telex, telecopy,
courier or U.S. Mail or in writing and telexed, telecopied, mailed or delivered
to the intended recipient at the "Address for Notices" specified below its name
on the signature pages hereof or, as to any party, at such other address as
shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted, if transmitted before 1:00 p.m. local
time on a Business Day (otherwise on the next succeeding Business Day) by telex
or telecopier and evidence or confirmation of receipt is obtained, or personally
delivered or, in the case of a mailed notice, on the date deposited in the
mails, postage prepaid, in each case given or addressed as aforesaid.
Section 9.03 Payment of Expenses, Indemnities, etc. The Borrower
agrees:
(a) To pay all reasonable expenses of the Lender, in its capacity as
Lender hereunder, but not in any other capacity, in the administration (both
before and after the execution hereof and including advice of counsel as to the
rights and duties of the Lender with respect thereto) of, and in connection with
the negotiation, syndication, investigation, preparation, execution and delivery
of, recording or filing of, preservation of rights under, enforcement of, and
refinancing, renegotiation or restructuring of, this Agreement and any
amendment, waiver or consent relating thereto (including, without limitation,
travel, photocopy, mailing, courier, telephone and other similar expenses of the
Lender, the cost of environmental audits, surveys and appraisals at reasonable
intervals, the reasonable fees and disbursements of counsel and other outside
consultants for the Lender and, in the case of enforcement, the reasonable fees
and disbursements of counsel for the Lender), and to reimburse promptly the
Lender for all amounts expended, advanced or incurred by the Lender to satisfy
any obligation of the Borrower under this Agreement;
(b) TO INDEMNIFY THE LENDER AND ITS AFFILIATES (OTHER THAN THE BORROWER
AND ITS SUBSIDIARIES) AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED
PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY
OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR
ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS
DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED
TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OR ANY OF ITS
-18-
<PAGE> 23
SUBSIDIARIES OF THE PROCEEDS OF THE LOANS, OTHER THAN INDEMNITY MATTERS SOUGHT
AGAINST THE INDEMNIFIED PARTIES BY ANY THIRD PARTY FOR USURPATION OF A CORPORATE
OPPORTUNITY OF SUCH THIRD PARTY, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF
THIS AGREEMENT BY BORROWER, (III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER
OR ANY OF ITS SUBSIDIARIES, OR (IV) THE FAILURE OF THE BORROWER OR ANY OF ITS
SUBSIDIARIES TO COMPLY WITH THE TERMS OF THIS AGREEMENT, OR WITH ANY
GOVERNMENTAL REQUIREMENT INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT,
PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND
INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF
ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY
REASON OF CLAIMS OF THE LENDER'S SHAREHOLDERS AGAINST THE LENDER OR BY REASON OF
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY;
AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED
PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH
PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE
BORROWER, ANY OF ITS SUBSIDIARIES OR ANY OF THEIR RESPECTIVE PROPERTIES,
INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES
ON ANY OF THEIR RESPECTIVE PROPERTIES, (II) AS A RESULT OF THE BREACH OR
NON-COMPLIANCE BY THE BORROWER OR ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL
LAW APPLICABLE TO THE BORROWER OR SUCH SUBSIDIARY, (III) DUE TO PAST OWNERSHIP
BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF ANY OF THEIR RESPECTIVE PROPERTIES
OR PAST ACTIVITY ON ANY OF THEIR RESPECTIVE PROPERTIES WHICH, THOUGH LAWFUL AND
FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE
PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES
ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THIS AGREEMENT, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE
AFFORDED UNDER THIS SECTION 9.03(c) IN RESPECT OF ANY PROPERTY FOR ANY
OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE LENDER DURING THE PERIOD
AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED
POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF
FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified without
the consent of the indemnitor, such consent not to be unreasonably withheld;
provided, that the indemnitor may not reasonably withhold consent to any
settlement that an Indemnified Party proposes, if the indemnitor does not have
the financial ability to pay all its obligations outstanding and asserted
against the indemnitor at that time, including the maximum potential claims
against the Indemnified Party to be indemnified pursuant to this Section 9.03.
(e) In the case of any indemnification hereunder, the Lender shall give
notice to the Borrower of any such claim or demand being made against the
Indemnified Party and the Borrower shall have the non-exclusive right to join in
the defense against any such claim or demand provided
-19-
<PAGE> 24
that if the Borrower provides a defense, the Indemnified Party shall bear its
own cost of defense unless there is a conflict between the Borrower and such
Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER
WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN
OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON
ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED
PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT
SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY
REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
INDEMNIFIED PARTY.
(g) The Borrower's obligations under this Section 9.03 shall survive
any termination of this Agreement and the payment of the Note and shall continue
thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this Section 9.03
within thirty (30) days of the receipt by the Borrower of notice of the amount
due.
Section 9.04 Amendments, Etc. Any provision of this Agreement may be
amended, modified or waived with the Borrower's and the Lender's prior written
consent.
Section 9.05 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 9.06 Assignments and Participations.
(a) The Borrower may not assign its rights or obligations hereunder or
under the Note without the prior consent of the Lender.
(b) The Lender may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement. Any assignment will become
effective upon the execution and delivery of the assignment to the Borrower.
Upon receipt and acceptance of such executed assignment, the Borrower, will, at
the Lender's expense, execute and deliver a new Note to each of the assignor
and/or assignee, as appropriate, in accordance with their respective interests
as they appear. Upon the effectiveness of any assignment pursuant to this
Section 9.06(b), the assignee will become a "Lender," if not already a "Lender,"
for all purposes of this Agreement. The assignor shall be relieved of its
obligations hereunder to the extent of such assignment (and if the assigning
Lender no longer holds any rights or obligations under this Agreement, such
assigning Lender shall cease to be a "Lender" hereunder except that its rights
under Sections 5.01, 5.05 and 9.03 shall not be affected).
-20-
<PAGE> 25
(c) The Lender may transfer, grant or assign participations in all or
any part of its interests hereunder pursuant to this Section 9.06(c) to any
Person, provided that: (i) the Lender shall remain the "Lender" for all purposes
of this Agreement and the transferee of such participation shall not constitute
a "Lender" hereunder; and (ii) no participant under any such participation shall
have rights to approve any amendment to or waiver of any provision of this
Agreement or the Note, except to the extent such amendment or waiver would (x)
extend the Final Maturity Date or (y) reduce the interest rate (other than as a
result of waiving the applicability of any post-default increases in interest
rates) or fees applicable to the Loans in which such participant is
participating, or postpone the payment of any thereof. In the case of any such
participation, the participant shall not have any rights under this Agreement
(the participant's rights against the Lender in respect of such participation to
be those set forth in the agreement creating such participation), and all
amounts payable by the Borrower hereunder shall be determined as if the Lender
had not sold such participation, provided that such participant shall be
entitled to receive additional amounts under Article V on the same basis as if
it were a Lender and be indemnified under Section 9.03 as if it were a Lender.
(d) The Lender may furnish any information concerning the Borrower in
its possession from time to time to assignees and participants (including
prospective assignees and participants).
Section 9.07 Invalidity. In the event that any one or more of the
provisions contained in the Agreement or the Note shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of such documents.
Section 9.08 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 9.09 References. The words "herein," "hereof," "hereunder" and
other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any reference herein
to an exhibit or schedule shall be deemed to refer to the applicable exhibit or
schedule attached hereto unless otherwise stated herein.
Section 9.10 Survival. The obligations of the parties under Section
4.03, Article V, and Section 9.03 shall survive the repayment of the Loans. To
the extent that any payments of the Loans or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the portion of the Loans so satisfied shall be revived and continue as
if such payment or proceeds had not been received and the Lender's liens,
security interests, rights, powers and remedies under this Agreement shall
continue in full force and effect.
-21-
<PAGE> 26
Section 9.11 Captions. Captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
Section 9.12 NO ORAL AGREEMENTS. THIS AGREEMENT AND THE NOTE EMBODY THE
ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THIS AGREEMENT AND THE NOTE 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
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF
THIS AGREEMENT AND THE NOTE.
Section 9.13 GOVERNING LAW; WAIVERS; ARBITRATION.
(a) THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) EACH OF THE BORROWER AND THE LENDER HEREBY (I) IRREVOCABLY WAIVE,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (II) CERTIFY
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(III) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 9.13.
(c) ANY ACTION, DISPUTE, CLAIM OR CONTROVERSY OF ANY KIND BETWEEN THE
BORROWER AND THE LENDER ARISING OUT OF, OR PERTAINING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (A "DISPUTE") SHALL BE RESOLVED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE TERMS HEREOF. ANY PARTY MAY, BY SUMMARY
PROCEEDINGS, BRING AN ACTION IN COURT TO COMPEL ARBITRATION OF ANY DISPUTE. ANY
ARBITRATION SHALL BE ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION
("AAA") IN ACCORDANCE WITH THE TERMS OF THIS SECTION, THE COMMERCIAL ARBITRATION
RULES OF THE AAA, AND, TO THE MAXIMUM EXTENT APPLICABLE, THE FEDERAL ARBITRATION
ACT. JUDGMENT ON ANY AWARD RENDERED BY AN ARBITRATOR MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY ARBITRATION SHALL BE CONDUCTED BEFORE A THREE PERSON
PANEL OF ARBITRATORS. SUCH PANEL SHALL CONSIST OF ONE PERSON DESIGNATED BY THE
BORROWER, ONE DESIGNATED BY THE LENDER AND ONE DESIGNATED BY THE NOMINEES OF THE
BORROWER AND THE LENDER (COLLECTIVELY, THE "ARBITRATORS"). SUCH ARBITRATORS
DESIGNATED BY EACH OF THE BORROWER AND THE LENDER DO NOT HAVE TO BE NEUTRAL. IF
EITHER OF THE BORROWER OR THE LENDER FAILS TO DESIGNATE AN ARBITRATOR WITHIN TEN
(10) DAYS AFTER THE FILING OF THE DISPUTE WITH THE AAA, OR EITHER OF THE
BORROWER'S OR THE LENDER'S ARBITRATORS FAILS TO DESIGNATE A THIRD ARBITRATOR
WITHIN THIRTY (30) DAYS AFTER THEIR APPOINTMENTS, SUCH PARTY-APPOINTED
ARBITRATOR AND THE THIRD ARBITRATOR, AS APPLICABLE, SHALL BE APPOINTED
-22-
<PAGE> 27
BY THE AAA. ANY ARBITRATION PROCEEDING HEREUNDER SHALL BE CONDUCTED IN HOUSTON,
TEXAS AND SHALL BE CONCLUDED WITHIN 180 DAYS OF THE FILING OF THE DISPUTE WITH
THE AAA. THE ARBITRATORS SHALL BE EMPOWERED TO AWARD SANCTIONS AND TO TAKE SUCH
OTHER ACTIONS AS THEY DEEM NECESSARY, TO THE SAME EXTENT A JUDGE COULD IMPOSE
SANCTIONS OR TAKE SUCH OTHER ACTIONS PURSUANT TO THE FEDERAL RULES OF CIVIL
PROCEDURE AND APPLICABLE LAW. NO AWARD BY THE ARBITRATORS SHALL ASSESS
CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES BUT MAY ASSESS COSTS AND EXPENSES
IN A MANNER DEEMED EQUITABLE. THE ARBITRATORS SHALL MAKE SPECIFIC WRITTEN
FINDINGS OF FACT AND CONCLUSIONS OF LAW. THE DECISION OF THE ARBITRATORS SHALL
BE FINAL AND BINDING ON EACH PARTY. ALL FEES OF THE ARBITRATORS AND ANY
ENGINEER, ACCOUNTANT OR OTHER CONSULTANT ENGAGED BY THE ARBITRATORS, SHALL BE
PAID BY THE BORROWER AND THE LENDER AS AWARDED BY THE ARBITRATORS.
Section 9.14 Interest. It is the intention of the parties hereto that
Lender shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to the Lender under
laws applicable to it (including the laws of the United States of America or any
other jurisdiction whose laws may be mandatorily applicable to the Lender
notwithstanding the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in this Agreement or the Note or any
agreement entered into in connection with or as security for the Note, it is
agreed as follows: (i) the aggregate of all consideration which constitutes
interest under law applicable to the Lender that is contracted for, taken,
reserved, charged or received by the Lender in connection with the Note shall
under no circumstances exceed the maximum amount allowed by such applicable law,
and any excess shall be canceled automatically and if theretofore paid shall be
credited by the Lender on the principal amount of the Loans (or, to the extent
that the principal amount of the Loans shall have been or would thereby be paid
in full, refunded by the Lender to the Borrower); and (ii) in the event that the
maturity of the Note is accelerated by reason of an election of the holder
thereof resulting from any Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such consideration
that constitutes interest under law applicable to the Lender may never include
more than the maximum amount allowed by such applicable law, and excess
interest, if any, provided for in this Agreement or otherwise shall be canceled
automatically by the Lender as of the date of such acceleration or prepayment
and, if theretofore paid, shall be credited by the Lender on the principal
amount of the Loans (or, to the extent that the principal amount of the Loans
shall have been or would thereby be paid in full, refunded by the Lender to the
Borrower). All sums paid or agreed to be paid to the Lender for the use,
forbearance or detention of sums due hereunder shall, to the extent permitted by
law applicable to the Lender, be amortized, prorated, allocated and spread
throughout the full term of the Loans evidenced by the Note until payment in
full so that the rate or amount of interest on account of the Loans hereunder
does not exceed the maximum amount allowed by such applicable law. If at any
time and from time to time (i) the amount of interest payable to the Lender on
any date shall be computed at the Highest Lawful Rate applicable to the Lender
pursuant to this Section 9.14 and (ii) in respect of any subsequent interest
computation period the amount of interest otherwise payable to the Lender would
be less than the amount of interest payable to the Lender computed at the
Highest Lawful Rate applicable to the Lender, then the amount of interest
payable to the Lender in respect of such subsequent interest computation period
shall continue to be computed at the Highest Lawful Rate applicable to the
Lender until the total amount of interest payable to the Lender shall equal the
total amount of interest which would have been payable to the
-23-
<PAGE> 28
Lender if the total amount of interest had been computed without giving effect
to this Section 9.14.
Section 9.15 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND AGREES THAT IT
IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT; THAT IT HAS
IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS
BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT; AND HAS RECEIVED THE
ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT; AND THAT IT RECOGNIZES
THAT CERTAIN OF THE TERMS OF THIS AGREEMENT RESULT IN ONE PARTY ASSUMING THE
LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER
PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND
COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS AGREEMENT ON THE BASIS THAT THE PARTY HAD NO
NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
-24-
<PAGE> 29
The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER: MARINER ENERGY LLC
By: /s/ Robert Henderson
--------------------------------
Name: Robert Henderson
Title: President
Address for Notices:
580 WestLake Park Blvd.
Suite 1300
Houston, Texas 77079
Telecopier No.:(281) 584-5690
Telephone No.:(281) 584-5540
Attention: VP, Finance and CFO
LENDER: ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ [ILLEGIBLE]
--------------------------------
Name:
Title:
Address for Notices:
1400 Smith Street
Houston, Texas 77002
Telecopier No.: (713) 646-3602
Telephone No.: (713) 853-5259
Attention: Donna Lowry
<PAGE> 30
EXHIBIT A
FORM OF NOTE
$50,000,000 April 15, 1999
FOR VALUE RECEIVED, MARINER ENERGY LLC, a Delaware limited liability
company (the "Borrower") hereby promises to pay to the order of ENRON CAPITAL &
TRADE RESOURCES CORP. or its designees (the "Lender"), at New York, New York, or
such other location as the Lender may hereafter specify, the principal sum of
FIFTY MILLION DOLLARS ($50,000,000), or such lesser amount as shall equal the
aggregate unpaid principal amount of the Loans made by the Lender hereunder to
the Borrower pursuant to the Credit Agreement, as defined below, in lawful money
of the United States of America and in immediately available funds, on the dates
and in the principal amounts provided in the Credit Agreement (hereinafter
defined), and to pay interest at such location, in like money and funds, at the
rates per annum and on the dates provided in the Credit Agreement.
In addition to and cumulative of any payments required to be made
against this Note pursuant to the Credit Agreement, this Note, including all
principal and accrued interest then unpaid, shall be due and payable on the
Final Maturity Date. All payments shall be applied first to accrued interest and
the balance to principal, except as otherwise expressly provided in the Credit
Agreement. Prepayments on this Note shall be applied in the manner set forth in
the Credit Agreement.
This Note is the Note referred to in that certain Second Amended and
Restated Credit Agreement of even date herewith between the Borrower and the
Lender and evidences the Loans made by the Lender thereunder (such Agreement as
the same may be amended or supplemented from time to time, the "Credit
Agreement"). Capitalized terms used in this Note have the respective meanings
assigned to them in the Credit Agreement. This Note is being issued in exchange
for those two certain promissory notes of the Borrower dated as of January 12,
1999.
Notwithstanding the foregoing, the Lender shall have the right at any
time to convert all or any portion (the "Conversion Amount") of the aggregate
unpaid principal amount of the Loans and the accrued and unpaid interest
thereunder into fully paid and nonassessable Common Shares (as defined below),
free of any preemptive rights not validly waived. This conversion right may be
exercised one or more times until all of the aggregate unpaid principal amount
of the Loans and the accrued and unpaid interest thereunder has been so
converted or otherwise paid. The number of Common Shares into which the
Conversion Amount shall be converted shall be determined by dividing (rounding
up to next integer) the Conversion Amount on the date of conversion (as
designated by the Lender) by the Conversion Price (as defined below). "Common
Shares" shall have the meaning ascribed to that term in the Borrower's Limited
Liability Company Agreement dated as of September 2, 1998, as amended.
"Conversion Price" shall mean $14.5833; provided, however that (i) if the
Borrower shall (a) pay a dividend, or make a distribution, in shares of its
Common Shares (or its equivalent), (b) subdivide its outstanding Common Shares
(or its equivalent) into a
A-1
<PAGE> 31
greater number of shares, (c) combine its outstanding Common Shares (or its
equivalent) into a smaller number of shares or (d) issue by reclassification of
its Common Shares (or its equivalent) any shares of its capital stock (or its
equivalent), the Conversion Price in effect immediately prior to such action
shall be adjusted so that the Lender shall be entitled to receive the number of
Common Shares or other securities or assets which it would have owned
immediately following such action had the Conversion Amount been converted
immediately prior thereto and (ii) if any event shall occur as to which the
provisions of clause (i) of this sentence is not applicable but the failure to
make an adjustment to the Conversion Price would not fairly protect the Lender
against dilution, then the Conversion Price shall be adjusted to fairly protect
the Lender against such dilution. In addition, if any of the following shall
occur after the date of the Credit Agreement: (a) any consolidation or merger of
the Borrower or share exchange involving the Borrower as a result of which the
holders of Common Shares shall be entitled to receive stock, other securities or
other assets (including cash) with respect to or in exchange for Common Shares;
or (b) any conveyance, transfer or lease of the properties and assets of the
Borrower substantially as an entirety to any entity, then the Lender shall
receive upon any conversion hereunder the kind and amount of shares of stock and
other securities and assets (including cash) receivable upon or in connection
with such consolidation, merger, share exchange, conveyance, transfer or lease
by a holder of the number of Common Shares issuable upon conversion of the
Conversion Amount immediately prior to such consolidation, merger, share
exchange, conveyance, transfer or lease. Upon the receipt of any Common Shares
hereunder, the Lender shall become entitled to the benefits (as a non-Management
Shareholder) under, and shall be subject to the restrictions provided in, the
Amended and Restated Shareholders' Agreement, as amended, among the Borrower and
the shareholders of Borrower. As promptly as practicable after the conversion of
the Conversion Amount, the Borrower at its expense will issue and deliver to the
Lender a certificate or certificates for the number of full Common Shares or
other securities issuable upon such conversion. No certificates representing
fractional Common Shares or other securities shall be issued upon such
conversion. In lieu of any fractional Common Share or other securities, the
Borrower will pay to the Lender, in lawful money of the United States of America
and in immediately available funds, an amount equal to the fraction of the
Common Share (or the Common Share equivalent of the fraction of the other
security) multiplied by $14.5833.
The Lender is hereby authorized by the Borrower to endorse on Schedule A
(or a continuation thereof) attached to this Note the date and the amount of
each payment or prepayment of principal of the Loans received by the Lender, and
the interest rates applicable to the Loans; provided that any failure by the
Lender to make any such endorsement shall not affect the obligations of the
Borrower under the Credit Agreement or under this Note in respect of the Loans.
This Note is issued pursuant to the Credit Agreement and is entitled to
the benefits provided for in the Credit Agreement. All of the terms of the
Credit Agreement, including without limitation, the usury savings provisions
thereof, are incorporated herein by this reference. The Credit Agreement
provides for the acceleration of the maturity of this Note upon the occurrence
of certain events, for prepayments of the Loans upon the terms and conditions
specified therein and other provisions relevant to this Note.
A-2
<PAGE> 32
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
MARINER ENERGY LLC
By: /s/ Robert Henderson
---------------------------------
Name: Robert Henderson
------------------------------
Title: President
-----------------------------
A-3
<PAGE> 33
SCHEDULE A
This Note evidences Advances made by the Lender with respect to the Original
Loan under the within-described Credit Agreement to the Borrower, in the
principal amounts set forth below, which Advances are at the interest rate and
were made on the dates set forth below, subject to the payments of principal set
forth below:
<TABLE>
<CAPTION>
Principal Date of
Amount of Payment or Amount Paid Balance
Date Made Advance Interest Rate Prepayment or Prepaid Outstanding
--------- ------- ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<PAGE> 1
EXHIBIT 10.2
REVOLVING CREDIT AGREEMENT
DATED AS OF APRIL 15, 1999
BETWEEN
MARINER ENERGY, INC.
AS BORROWER
AND
ENRON CAPITAL & TRADE RESOURCES CORP.,
AS LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above................................................................... 1
Section 1.02 Certain Defined Terms................................................................. 1
Section 1.03 Accounting Terms and Determinations................................................... 9
ARTICLE II
LOANS AND COMMITMENTS
Section 2.01 Loans................................................................................. 9
Section 2.02 Borrowing.............................................................................10
Section 2.03 Note..................................................................................10
Section 2.04 Prepayments...........................................................................10
Section 2.05 Fees..................................................................................11
Section 2.06 Borrowing Base........................................................................11
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans....................................................................12
Section 3.02 Interest..............................................................................12
ARTICLE IV
PAYMENTS; COMPUTATIONS; ETC.
Section 4.01 Payments..............................................................................13
Section 4.02 Computations..........................................................................13
Section 4.03 Taxes.................................................................................13
</TABLE>
-i-
<PAGE> 3
<TABLE>
ARTICLE V
CAPITAL ADEQUACY
<S> <C> <C>
Section 5.01 Capital Adequacy; Additional Costs....................................................14
Section 5.02 Limitation on Eurodollar Loans........................................................15
Section 5.03 Illegality............................................................................16
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03..............................16
Section 5.05 Compensation..........................................................................16
ARTICLE VI
COVENANTS
Section 6.01 Financial Covenants...................................................................16
Section 6.02 Limitation on Indebtedness............................................................17
Section 6.03 Use of Proceeds.......................................................................17
Section 6.04 Engineering Reports...................................................................17
ARTICLE VII
[RESERVED]
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.01 Events of Default.....................................................................18
Section 8.02 Remedies..............................................................................20
ARTICLE IX
MISCELLANEOUS
Section 9.01 Waiver................................................................................21
Section 9.02 Notices...............................................................................21
Section 9.03 Payment of Expenses, Indemnities, etc.................................................21
Section 9.04 Amendments, Etc.......................................................................23
Section 9.05 Successors and Assigns................................................................23
Section 9.06 Assignments and Participations........................................................23
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 9.07 Invalidity............................................................................24
Section 9.08 Counterparts..........................................................................24
Section 9.09 References............................................................................24
Section 9.10 Survival..............................................................................25
Section 9.11 Captions..............................................................................25
Section 9.12 NO ORAL AGREEMENTS....................................................................25
Section 9.13 GOVERNING LAW; WAIVERS; ARBITRATION...................................................25
Section 9.14 Interest..............................................................................26
Section 9.15 EXCULPATION PROVISIONS................................................................27
</TABLE>
Exhibit A - Form of Note
-iii-
<PAGE> 5
THIS REVOLVING CREDIT AGREEMENT dated as of April 15, 1999 is between
MARINER ENERGY, INC., a Delaware corporation (together with its permitted
successors and assigns hereunder, the "Borrower") and ENRON CAPITAL & TRADE
RESOURCES CORP., a Delaware corporation (together with its permitted successors
and assigns hereunder, the "Lender").
R E C I T A L S
A. The Borrower has requested that the Lender provide certain loans to
the Borrower.
B. The Lender has agreed to make such loans subject to the terms and
conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement, the terms
"Borrower" and "Lender" shall have the meanings indicated above.
Section 1.02 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Article I or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa).
"Additional Costs" shall have the meaning assigned such term in Section
5.01(a).
"Affiliate" of any Person shall mean (i) any Person directly or
indirectly controlled by, controlling or under common control with such first
Person, (ii) any director or officer of such first Person or of any Person
referred to in clause (i) above and (iii) if any Person in clause (i) above is
an individual, any member of the immediate family (including parents, spouse and
children) of such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any Person who is
controlled by any such member or trust. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean any Person which owns directly or indirectly 10% or
more of the securities having ordinary voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such corporation
or other Person.
"Agreement" shall mean this Revolving Credit Agreement, as the same may
from time to time be amended or supplemented.
"Applicable Margin" shall mean (i) 0% per annum with respect to the
Base Rate Loans; and (ii) 2.50% per annum with respect to the Eurodollar Loans.
<PAGE> 6
"Base Rate" at any time shall mean a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum shall at all
times be equal to the higher of (i) the Prime Commercial Lending Rate as in
effect from time to time and (ii) the Federal Funds Rate as in effect from time
to time plus one-half of one percent (1/2%) per annum.
"Base Rate Interest Payment Date" shall mean July 31, 1999, October 31,
1999 and the Termination Date; provided, however, that if any such day is not a
Business Day, such Base Rate Interest Payment Date shall be the next succeeding
Business Day, or, in the case of the Termination Date, the next preceding
Business Day.
"Base Rate Loan" shall mean the Loans during the period of time that
the interest rate is determined on the basis of the rate referred to in the
definition of "Base Rate."
"Borrowing Base" shall mean at any time an amount equal to the amount
determined in accordance with Section 2.06.
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in New York, New York and, if such day
relates to a borrowing or continuation of, a payment or prepayment of principal
of or interest on, or the Interest Period for, a Eurodollar Loan or a notice by
the Borrower with respect to any such borrowing, payment, prepayment, or
Interest Period, any day which is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"Change of Control" means Enron Corp., an Oregon corporation, shall
cease to beneficially own, directly or indirectly, (i) at least 50% of the
outstanding shares of voting stock of the Borrower, (ii) at least 50% of the
outstanding shares of voting stock of Mariner Holdings, Inc., a Delaware
corporation, or (iii) at least 50% of the ownership interests in the Parent.
"Closing Date" shall mean the date the initial Loan is made.
"Commitment" shall mean the obligation of the Lender to make Loans to
the Borrower under Section 2.01 hereof, at all times not to exceed the lesser of
$25,000,000 or the then effective Borrowing Base.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, as to the Borrower and its Subsidiaries on a
consolidated basis, and for any twelve month period, the amount equal to net
income of the Borrower and its Subsidiaries, plus, to the extent deducted from
net income, interest expense, depreciation, depletion and impairment,
amortization of leasehold and intangibles, other non-cash expenses (including
deferred taxes), and cash taxes; provided, that, gains or losses on the
disposition of assets shall not be included in EBITDA.
"Engineering Reports" shall have the meaning assigned such term in
Section 2.06.
-2-
<PAGE> 7
"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health or the environment in effect in any and all jurisdictions
in which the Borrower or any of its Subsidiaries is conducting or at any time
has conducted business, or where any Property of the Borrower or any of its
Subsidiaries is located, including without limitation, the Oil Pollution Act of
1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and "release"
(or "threatened release") have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and (ii)
to the extent the laws of the state in which any Property of the Borrower or any
of its Subsidiaries is located establish a meaning for "oil," "hazardous
substance," "release," "solid waste" or "disposal" which is broader than that
specified in either OPA, CERCLA or RCRA, such broader meaning shall apply.
"Eurodollar Interest Payment Date" shall mean July 31, 1999, October
31, 1999 and the Termination Date; provided, however, that if any such day is
not a Business Day, such Eurodollar Interest Payment Date shall be the next
succeeding Business Day, or , in case of the Termination Date, the next
preceding Business Day.
"Eurodollar Loan" shall mean a Loan during the period of time that the
interest rate is determined on the basis of the rate referred to in the
definition of "Eurodollar Rate."
"Eurodollar Rate" for each Eurodollar Loan shall mean an interest rate
per annum equal to the rate of interest per annum at which deposits in Dollars
in immediately available funds are offered to prime banks in the London
interbank market at 11:00 a.m. (London time) on the Interest Setting Date in an
amount substantially equal to the applicable Loan and for a period equal the
applicable Interest Period, determined on the basis of the provisions set forth
below:
(i) On the Interest Setting Date the Lender will determine the
interest rate for deposits in Dollars, for a period equal to that of
the Interest Period to which such Interest Setting Date relates, which
appears on the Bloomberg Financial Markets Services Display Screen as
of 11:00 a.m. (London time) on such date or if such screen on such
service ceases to display such information, such other screen as may
replace it on that service for the purpose of display of such
information (the "Bloomberg Rate"). If such rate does not appear on the
Bloomberg Financial Markets Services Display Screen, then the rate will
be determined in accordance with clause (ii) below.
(ii) If the Lender is unable to determine the Bloomberg Rate,
then on the Interest Setting Date, the Lender will determine the
arithmetic mean (rounded if necessary to the
-3-
<PAGE> 8
nearest one-hundredth percent (1/100%)) of the interest rates for a
period equal to that of the Interest Period to which such Interest
Setting Date relates quoted on Reuters Screen page "LIBO" or (a) if
such page on such service ceases to display such information, such
other page as may replace it on that service for the purpose of
displaying such information or (b) if that service ceases to display
such information, such page as displays such information on such
service (or, if more than one, that one approved by the Lender as may
replace the Reuters Screen) as at or about 11:00 a.m. (London time) on
that Interest Setting Date (the rate quoted as aforesaid being the
"LIBOR Screen Rate"). If the Lender is to make a determination pursuant
to this paragraph and one or more of the LIBOR Screen Rates required
for such determination shall be unavailable, the determination shall be
made on the basis of those rates which are available.
"Event of Default" shall have the meaning set forth in Section 8.01.
"Federal Funds Rate" shall mean, for any day, a fluctuating interest
rate per annum equal, for such day, 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 Lender from three Federal funds brokers of recognized standing
selected by the Lender.
"GAAP" shall mean United States generally accepted accounting
principles as applied in accordance with Section 1.03.
"Governmental Authority" shall include the country, the state, county,
city and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department, commission, board, bureau
or instrumentality of any of them including monetary authorities which exercises
valid jurisdiction over any such Person or such Person's Property. Unless
otherwise specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable, the
Borrower or any of its Subsidiaries or any of their respective Property or the
Lender.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement (whether or not having the force of law), including, without
limitation, environmental laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate,
if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Note under laws applicable to the Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
-4-
<PAGE> 9
"Hydrocarbon Interests" shall mean all rights, titles, interests and
estates now or hereafter acquired in and to oil and gas leases, oil, gas and
mineral leases, or other liquid or gaseous Hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests and
production payment interests, including any reserved or residual interests of
whatever nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom.
"Indebtedness" shall mean for any Person, without duplication, (i) all
indebtedness or other obligations of such Person for borrowed money and all
indebtedness of such Person with respect to any other items (other than accounts
payable, income taxes payable, deferred taxes and deferred credits) which would,
in accordance with GAAP, be classified as a liability on the balance sheet of
such Person, (ii) obligations of such Person to pay the deferred purchase price
of property or services (other than accounts payable in the ordinary course of
business), (iii) obligations of such Person (contingent or otherwise) under
reimbursement or similar agreements with respect to the issuance of letters of
credit, (iv) the aggregate of the present values (discounted in accordance with
sound financial practice at a rate of 10.00% per annum) of the net amount of all
rental and other minimum lease payments that such Person is obligated to pay, or
has guaranteed, during the remaining term of all Principal Operating Leases
(and, in the case of guarantees by such Person, all leases which would be
Principal Operating Leases if such Person were the lessee thereunder) (including
any period for which any such lease has been extended or may, at the option of
the lessor, be extended) (the net amount of rental and other minimum lease
payments required to be paid under any such lease for any such term shall be the
amount of the rent payable by the lessee with respect to such period, after
excluding amounts required to be paid on account of maintenance and repairs,
insurance, Taxes, assessments, water rates and similar charges and contingent
rents such as those based on sales), (v) all indebtedness or other obligations
of any other Person of the type specified in clause (i), (ii), (iii), or (iv)
above, the payment or collection of which such Person has guaranteed (except by
reason of endorsement for collection in the ordinary course of business) or in
respect of which such Person is liable, contingently or otherwise, including,
without limitation, liable by way of agreement to purchase products or
securities, to provide funds for payment, to maintain working capital or other
balance sheet conditions or otherwise to assure a creditor against loss, and
(vi) all indebtedness or other obligations of any other Person of the type
specified in clause (i), (ii), (iii), (iv), or (v) above secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien, upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, whether or not
such Person has assumed or becomes liable for the payment of such indebtedness
or obligations.
"Indemnity Matters" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands and
causes of action made or threatened against a Person and, in connection
therewith, all losses, liabilities, damages (including, without limitation,
consequential damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or concurrent
negligence of such Person seeking indemnification.
-5-
<PAGE> 10
"Initial Reserve Report" shall mean the report of Ryder Scott Company,
dated February 1, 1999 with respect to the Oil and Gas Properties of the
Borrower as of January 1, 1999, a copy of which has been delivered to the
Lender.
"Interest Period" shall mean, with respect to Eurodollar Loans, the
period commencing on and including (i) the Closing Date, (ii) the date of
expiration of the then current Eurodollar Loan if such Eurodollar Loan is
continued pursuant to Section 2.02(b), or (iii) the date of any conversion of
the Base Rate Loan back to a Eurodollar Loan pursuant to Section 5.04, and
ending on but excluding the numerically corresponding day in the third month
thereafter.
"Interest Setting Date" shall mean the date which is two Business Days
before the first day of a particular Interest Period.
"IPO Date" means the closing date of the initial public offering of
equity securities of the Parent in a firm commitment underwriting registered
under the Securities Act of 1933, as amended.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the lien or security interest arising from a mortgage, encumbrance,
pledge, security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term "Lien" shall include,
without limitation, reservations, exceptions, encroachments, easements, rights
of way, covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property.
"Loan" shall have the meaning set forth in Section 2.01.
"NationsBank Credit Agreement" shall mean that certain Credit Agreement
dated June 28, 1996 among the Borrower, NationsBank of Texas, N.A., as agent,
and the banks party thereto, as amended and as such agreement may be amended,
renewed, extended, supplemented, restated, refinanced, increased, or otherwise
modified from time to time, including without limitation, as such agreement may
be refinanced and increased with different lenders under a different agreement.
"NationsBank Indebtedness" shall mean all indebtedness, liabilities and
obligations of the Parent or any of its Subsidiaries evidenced by the
NationsBank Credit Agreement.
"Note" shall mean the Note provided for by Section 2.04, together with
any and all renewals, extensions for any period, increases, rearrangements,
substitutions or modifications thereof.
"Oil and Gas Properties" shall mean 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)
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 Interests; all
Hydrocarbons in and under and which may be produced and saved or attributable to
the Hydrocarbon
-6-
<PAGE> 11
Interests, including all oil in tanks, the lands covered thereby and all rents,
issues, profits, proceeds, products, revenues and other incomes 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; and all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment 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 Taxes" shall have the meaning assigned such term in Section
4.03(b).
"Parent" shall mean Mariner Energy LLC, a Delaware limited liability
company.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government or any agency, instrumentality or political subdivision thereof, or
any other form of entity.
"Post-Default Rate" shall mean, in respect of any principal of the
Loans or any other amount payable by the Borrower under this Agreement or the
Note which is not paid when due (whether at stated maturity, by acceleration or
otherwise), a rate per annum during the period commencing on the due date until
such amount is paid in full or the default is cured or waived equal to 2% per
annum above the Base Rate or the Eurodollar Rate, as applicable, plus the
Applicable Margin, but in no event to exceed the Highest Lawful Rate.
"Prime Commercial Lending Rate" shall mean that per annum rate of
interest from time to time announced by The Chase Manhattan Bank, N.A. at its
principal office as its prime commercial lending rate (or comparable rate, if
The Chase Manhattan Bank, N.A. does not so designate a "prime commercial lending
rate"), the Prime Commercial Lending Rate to change when and as such prime
commercial lending rate changes. The Prime Commercial Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. The Chase Manhattan Bank, N.A. may make
commercial loans or other loans at rates of interest at, above or below the
Prime Commercial Lending Rate. For purposes hereof, the principal office of The
Chase Manhattan Bank, N.A. as of the date hereof, is its office located at 4
Chase Metrotech Center, 13th Floor, Brooklyn, New York 11245.
"Principal Office" shall mean the principal office of the Lender,
presently located at 1400 Smith Street, Houston, Texas 77002.
-7-
<PAGE> 12
"Principal Operating Lease" shall mean a lease (other than a capital
lease) of the Borrower or any of its Subsidiaries in respect of which lease the
aggregate of the present values (discounted in accordance with sound financial
practice at a rate of 10% per annum) of the net amount of all rental and other
minimum lease payments that the Borrower or any of its Subsidiaries is obligated
to pay during the remaining term of such lease (including any period for which
any such lease has been extended or may, at the option of the lessor, be
extended) is equal to or greater than five percent of the net worth of the
Borrower and its Subsidiaries on a consolidated basis at the time such
determination is made. The net amount of rental and other minimum lease payments
required to be paid under any Principal Operating Lease for any such term shall
be the amount of rent payable by the lessee with respect to such period, after
excluding amounts required to be paid on account of maintenance and repairs,
insurance, Taxes, assessments, water rates and similar charges and contingent
rents such as those based on sales; provided, that, in no event shall the
Borrower's lease of office space for its principal place of business be
considered a Principal Operating Lease.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Refunding Debt" means Indebtedness for borrowed money incurred by the
Parent or any of its Subsidiaries after the date hereof, other than Indebtedness
under the Second Amended and Restated Credit Agreement or the NationsBank Credit
Facility.
"Regulatory Change" shall mean any change after the Closing Date in any
Governmental Requirement or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders
(including the Lender) of or under any Governmental Requirement (whether or not
having the force of law) by any Governmental Authority charged with the
interpretation or administration thereof.
"Reserve Report" shall mean a report, in customary form and substance
satisfactory to the Lender, setting forth, as of the date specified in Section
6.04(a); (i) the oil and gas 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 date, based upon the pricing assumptions consistent with SEC
reporting requirements at the time and (ii) such other information as the Lender
may reasonably request.
"Responsible Officer" shall mean, with respect to any corporation, the
chairman of the board, the president, any executive vice president, the vice
president of finance, the chief executive officer, the chief financial officer,
the chief operating officer or the treasurer of such corporation.
"Second Amended and Restated Credit Agreement" shall mean the Second
Amended and Restated Credit Agreement dated April 15, 1999 between the Parent
and the Lender, as such agreement may be amended, renewed, extended,
supplemented, restated, refinanced, increased, or otherwise modified from time
to time.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the
-8-
<PAGE> 13
directors of such corporation (irrespective of whether or not at the time stock
of any class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time owned by
such Person and/or one or more Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Subsidiaries of such Person has more than a 50% equity
interest at the time.
"Taxes" shall have the meaning assigned such term in Section 4.03(a).
"Termination Date" shall mean, unless the Commitment is sooner
terminated pursuant to Section 8.02 hereof, December 31, 1999.
Section 1.03 Accounting Terms and Determinations. Unless otherwise
defined or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, and all financial records
shall be maintained in accordance with GAAP applied on a consistent basis.
ARTICLE II
LOANS AND COMMITMENTS
Section 2.01 Loans. The Lender agrees, subject to the terms and
conditions of this Agreement, to advance funds (each such advance, a "Loan")
from time to time prior to the earlier of the IPO Date and the Termination Date
to the Borrower in an aggregate principal amount not to exceed the Commitment.
An initial Loan of $10,000,000 shall be made by way of a single borrowing made
on the Closing Date. Whenever the Borrower desires that the Lender make an
additional Loan hereunder after the Closing Date, the Borrower shall give at
least three (3) Business Days advance written notice to the Lender specifying,
subject to the provisions hereof, (i) the aggregate principal amount of such
Loan to be made (which shall be in a minimum amount of $1,000,000 and in
integral amounts of $100,000, or, if the unused portion of the Commitment is
less than $1,000,000, in the amount of such remaining Commitment) and (ii) the
date of such Loan (which shall be a Business Day). The Lender shall make such
additional Loans to the Borrower in an aggregate amount which, when added to the
principal amount of all other outstanding Loans, does not exceed the unused
portion of the Commitment so long as (A) no condition or event that constitutes
or would, with notice or lapse of time or both, constitute, an Event of Default
has occurred and is continuing and (B) there has been no material adverse change
in (1) the assets, liabilities, financial condition or operations of the
Borrower and its Subsidiaries taken as a whole or (2) the ability of the
Borrower to carry out its business or meet its obligations under this Agreement
and the Note. Subject to the terms and conditions of this Agreement, during the
period from the Closing Date to but excluding the Termination Date, the Borrower
may borrow, repay and reborrow (other than Loans prepaid pursuant to Section
2.04(b)) the amount described in this Section 2.01.
-9-
<PAGE> 14
Section 2.02 Borrowing.
(a) Borrowing. Initially, each Loan shall be a Eurodollar Loan.
(b) Continuation. Each Eurodollar Loan shall expire on the next
succeeding Eurodollar Interest Payment Date, and subject to Section 3.01 and
except as otherwise provided in Article V, the entire amount of each Eurodollar
Loan shall be automatically continued beyond such expiration as a Eurodollar
Loan with interest calculated in accordance with Section 3.02(a)(i).
Section 2.03 Note. The Loans shall be evidenced by a single promissory
note of the Borrower in substantially the form of Exhibit A hereto, dated as of
the Closing Date, payable to the order of the Lender in a principal amount equal
to the Commitment and otherwise duly completed. The date, amount, and interest
rate of each Loan and all payments made on account of the principal thereof,
shall be recorded by the Lender on its books for the Note, and, prior to any
transfer, endorsed by the Lender on the schedule attached to the Note or any
continuation thereof. Such records shall be deemed conclusive absent manifest
error.
Section 2.04 Prepayments.
(a) Optional Prepayments. The Borrower may prepay the Base Rate Loans
upon not less than three (3) Business Day's prior written notice to the Lender,
which notice shall specify the prepayment date (which shall be a Business Day)
and the amount of the prepayment (which shall be at least $100,000 or the
remaining principal balance outstanding on the Note) and shall be irrevocable
and effective only upon receipt by the Lender, provided that interest on the
principal prepaid, accrued to the prepayment date, shall be paid on the
prepayment date. The Borrower may prepay Eurodollar Loans on the same conditions
as for Base Rate Loans and in addition such prepayments of Eurodollar Loans
shall be subject to the terms of Section 5.05.
(b) Mandatory Prepayments.
(i) The Borrower shall prepay the Loans, together with accrued
interest thereon, in whole or in part, in an amount at least equal to
the lesser of (A) the amount of the outstanding principal balance of
and accrued and unpaid interest on the Loans and (B) the net cash
proceeds received by the Parent with respect to the securities offering
effected on the IPO Date, within one Business Day after the IPO Date.
(ii) The Borrower shall prepay the Loans, together with
accrued interest thereon, in whole or in part, in an amount at least
equal to the lesser of (A) the amount of the outstanding principal
balance of and accrued and unpaid interest on the Loans and (B) the net
cash proceeds of each Refunding Debt or sale of equity by the Parent or
any of its Subsidiaries after the date hereof (other than in an initial
public offering) within one Business Day after the date any Refunding
Debt is incurred or such sale is consummated.
(iii) The Borrower shall prepay the Loans in whole, together
with accrued interest thereon, within one Business Day after the date
of a Change of Control.
-10-
<PAGE> 15
(iv) Upon any redetermination of the Borrowing Base in
accordance with Section 2.06, if the redetermined Borrowing Base is
less than the aggregate outstanding principal amount of the Loans, then
the Borrower shall within thirty (30) days of receipt of written notice
thereof prepay the Loans in an aggregate principal amount equal to such
excess, together with interest on the principal amount accrued to the
date of such prepayment.
Any partial prepayment shall be applied first to accrued, unpaid interest on and
then to the principal of the Note.
(c) Prepayments permitted or required under this Section 2.04 shall be
without premium or penalty, except as required under Section 5.05.
Section 2.05 Fees. The Borrower shall pay to ECT Securities Limited
Partnership for its account the structuring fee in the amount and at the time
set forth in the fee letter between ECT Securities Limited Partnership and the
Borrower dated the date hereof.
Section 2.06 Borrowing Base.
(a) During the period from and after the Closing Date until the first
redetermination pursuant to Section 2.06(b), the amount of the Borrowing Base
shall be $25,000,000. The Borrowing Base is subject to redetermination by the
Lender in accordance with Section 2.06(b). Such a redetermined Borrowing Base
shall become effective in accordance with Section 2.06(d), and shall remain
effective until the next successive redetermination becomes effective. So long
as the Commitment is in effect or Loans are outstanding hereunder, this facility
shall be governed by the then effective Borrowing Base.
(b) So long as the Commitment is in effect and until payment in full of
all Loans hereunder, the Lender may, at any time in its discretion, initiate a
redetermination of the Borrowing Base. The Lender will initiate the
redetermination by making a written request to the Borrower for the reports
required by Section 6.04. Upon receipt of the reports required by Section 6.04
and such other reports, data and supplemental information as may from time to
time be reasonably requested by the Lender (the "Engineering Reports"), the
Lender will redetermine the Borrowing Base. The Lender, in its sole discretion,
may make adjustments to the rates, volumes and prices and other assumptions set
forth in the Engineering Reports.
(c) The Lender may exclude any Oil and Gas Property or portion of
production therefrom or any income from any other Property from the Borrowing
Base, at any time, because title information with respect to such Oil Gas
Property or such other Property is not reasonably satisfactory.
(d) The Lender shall promptly notify in writing the Borrower of the new
Borrowing Base. Any redetermination of the Borrowing Base shall not be in effect
until written notice is received by the Borrower.
-11-
<PAGE> 16
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. The Borrower will pay to the Lender
the entire outstanding principal balance of and accrued and unpaid interest on
the Loans on the Termination Date.
Section 3.02 Interest.
(a) The Borrower will pay to the Lender interest on the unpaid
principal amount of the Loans, for the period commencing on the Closing Date, to
but excluding, the date the Loans are paid in full, at the following rates per
annum:
(i) if such a Loan is a Eurodollar Loan, the Eurodollar Rate
(as determined on the Interest Setting Date applicable to the Interest
Period commencing simultaneously with such Eurodollar Loan) plus the
Applicable Margin, but in no event to exceed the Highest Lawful Rate;
and
(ii) if such a Loan is a Base Rate Loan, the Base Rate for
such Loan plus the Applicable Margin, but in no event to exceed the
Highest Lawful Rate.
(b) Notwithstanding the foregoing, the Borrower will pay to the Lender
interest at the applicable Post-Default Rate on any principal of the Loans, and
(to the fullest extent permitted by law) on any other amount payable by the
Borrower hereunder or under the Note which shall not be paid in full when due
(whether at stated maturity, by acceleration or otherwise), for the period
commencing on the due date thereof until the same is paid in full.
(c) Accrued interest on the Loans shall be payable as follows:
(i) if such Loan is a Eurodollar Loan, on each Eurodollar
Interest Payment Date, at maturity (whether by acceleration or
otherwise), and after maturity, on demand; and
(ii) if such Loan is a Base Rate Loan, on each Base Rate
Interest Payment Date, at maturity (whether by acceleration or
otherwise), and after maturity, on demand.
(d) Promptly after the determination of any interest rate provided for
herein or any change therein, the Lender shall notify the Borrower thereof. Each
determination by the Lender of an interest rate or fee hereunder shall, except
in cases of manifest error, be final, conclusive and binding on the parties.
-12-
<PAGE> 17
ARTICLE IV
PAYMENTS; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be made by the Borrower
under this Agreement and the Note shall be made in Dollars, in immediately
available funds, to the Lender at CitiBank N.A., New York, New York, ABA No.
021000089 for the account of ECT-Finance, Account No. 4067-3621, Re: Mariner,
not later than 11:00 a.m. (New York time) on the date on which such payments
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). Such payments
shall be made without (to the fullest extent permitted by applicable law)
defense, set-off or counterclaim. All payments shall be applied first to
interest and then to principal.
Section 4.02 Computations. Interest on Eurodollar Loans shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable, unless such calculation would exceed the Highest Lawful Rate, in which
case interest shall be calculated on the per annum basis of a year of 365 or 366
days, as the case may be. Interest on a Base Rate Loan and fees shall be
computed on the basis of a year of 365 or 366 days, as the case may be.
Section 4.03 Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 4.01, 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, taxes imposed on Lender's income, and franchise or similar taxes
imposed on the Lender, by (i) any jurisdiction (or political subdivision
thereof) of which the Lender, is a citizen or resident, (ii) the jurisdiction
(or any political subdivision thereof) in which the Lender is organized, or
(iii) any jurisdiction (or political subdivision thereof) in which the Lender is
presently or hereafter doing business which taxes are imposed solely as a result
of doing business in such jurisdiction (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 to the Lender (i) the sum
payable shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 4.03) the Lender shall receive 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 taxing authority or other Governmental Authority in accordance
with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted by
applicable law, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the
-13-
<PAGE> 18
execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE BORROWER WILL INDEMNIFY THE LENDER FOR THE FULL AMOUNT OF TAXES AND OTHER
TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY
GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.03) PAID BY THE
LENDER, 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 UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY
OR LEGALLY ASSERTED AND THE LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS
THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT
TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE THE
LENDER MAKES WRITTEN DEMAND THEREFOR. IF THE LENDER RECEIVES A REFUND OR CREDIT
IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH THE LENDER HAS RECEIVED PAYMENT
FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND OR CREDIT
AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS
AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE
BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO),
PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST
(BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER,
UPON THE REQUEST OF THE LENDER, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS
PENALTIES, INTEREST OR OTHER CHARGES) TO THE LENDER IN THE EVENT THE LENDER IS
REQUIRED TO REPAY SUCH REFUND OR CREDIT.
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 Capital Adequacy; Additional Costs.
(a) Eurodollar Regulations, etc. The Borrower shall pay directly to
Lender from time to time such amounts as the Lender may determine to be
necessary to compensate the Lender for any costs which it determines are
attributable to its making or maintaining of Eurodollar Loans hereunder or its
obligation to make any Eurodollar Loans hereunder, or any reduction in any
amount receivable by the Lender hereunder in respect of any Eurodollar Loan or
such obligation (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), resulting from any Regulatory Change
which: (i) changes the basis of taxation of any amounts payable to the Lender
under this Agreement or the Note in respect of the Eurodollar Loans (other than
taxes imposed on the overall net income of the Lender for the Eurodollar Loans
by the jurisdiction of the Principal Office); or (ii) imposes or modifies any
reserve, special deposit, minimum capital, capital ratio or similar requirements
relating to any extensions of credit or other assets of, or any deposits with or
other liabilities of the Lender (including Eurodollar Loans or any deposits
referred to in the definition of "Eurodollar Rate" in Section 1.02 hereof), or
the Eurodollar interbank market; or (iii) imposes any other condition affecting
this Agreement or the Note (or any of such extensions of
-14-
<PAGE> 19
credit or liabilities). The Lender will notify the Borrower of any event
occurring after the Closing Date which will entitle the Lender to compensation
pursuant to this Section 5.01(a) as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation.
(b) Regulatory Change. Without limiting the effect of the provisions of
Section 5.01(a), in the event that, by reason of any Regulatory Change or any
other circumstances arising after the Closing Date affecting the Lender, the
Eurodollar interbank market or the Lender's position in such market, the Lender
either (i) incurs Additional Costs or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may hold, then,
if the Lender so elects by notice to the Borrower, the obligation of the Lender
to continue Eurodollar Loans shall be terminated.
(c) Capital Adequacy. Without limiting the effect of the foregoing
provisions of this Section 5.01 (but without duplication), the Borrower shall
pay directly to the Lender from time to time on request such amounts as the
Lender may reasonably determine to be necessary to compensate it or its parent
or holding company for any costs which it determines are attributable to the
maintenance by it or its parent or holding company pursuant to any Governmental
Requirement following any Regulatory Change, of capital in respect of the Note
or the Loans (such compensation to include, without limitation, an amount equal
to any reduction of the rate of return on assets or equity of the Lender or its
parent or holding company to a level below that which the Lender or its parent
or holding company could have achieved but for such Governmental Requirement).
The Lender will notify the Borrower that the Lender is entitled to compensation
pursuant to this Section 5.01(c) as promptly as practicable after it determines
to request such compensation.
(d) Compensation Procedure. If Lender notifies the Borrower of the
incurrence of Additional Costs under this Section 5.01, such notice to the
Borrower shall set forth the basis and amount of its request for compensation.
Determinations and allocations by the Lender for purposes of this Section 5.01
of the effect of any Regulatory Change pursuant to Section 5.01(a) or (b), or of
the effect of capital maintained pursuant to Section 5.01(c), on its costs or
rate of return of maintaining the Loans or its obligation to make the Loans, or
on amounts receivable by it in respect of the Loans, and of the amounts required
to compensate the Lender under this Section 5.01, shall be conclusive and
binding for all purposes, provided that such determinations and allocations are
made on a reasonable basis. Any request for additional compensation under this
Section 5.01 shall be paid by the Borrower within thirty (30) days of the
receipt by the Borrower of the notice described in this Section 5.01(d).
Section 5.02 Limitation on Eurodollar Loans. Notwithstanding anything
herein to the contrary, if, on or prior to the determination of any Eurodollar
Rate for any Interest Period:
(i) the Lender determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for
the relevant deposits referred to in the definition of "Eurodollar
Rate" in Section 1.02 are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of
interest for the Eurodollar Loans as provided herein; or
-15-
<PAGE> 20
(ii) the Lender determines (which determination shall be
conclusive absent manifest error) that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section 1.02 upon
the basis of which the rate of interest for the Eurodollar Loans for
such Interest Period is to be determined are not likely to adequately
cover the cost to the Lender of making or maintaining the Eurodollar
Loans;
then the Lender shall give the Borrower prompt notice thereof, and the
obligation of the Lender to continue the Eurodollar Loans shall be terminated.
Section 5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Lender to honor its
obligation to make or maintain the Eurodollar Loans hereunder, then the Lender
shall promptly notify the Borrower thereof and the Lender's obligation to
continue the Eurodollar Loans shall be terminated.
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03.
If the obligation of the Lender to make Eurodollar Loans shall be terminated
pursuant to Sections 5.01, 5.02 or 5.03, all Eurodollar Loans shall be
automatically converted to a Base Rate Loan. Notwithstanding anything to the
contrary contained in this Article V, the Lender agrees that it will immediately
notify the Borrower if any of the matters that were described in any notice
provided by the Lender pursuant to Section 5.01, 5.02 or 5.03 cease to exist,
and each such notice shall constitute a withdrawal of the notice given by the
Lender pursuant to such Section. Upon delivery of the notice referred to in the
immediately preceding sentence, the Base Rate Loan shall automatically convert
back to a Eurodollar Loan with an Interest Period of one month, beginning on the
date of conversion. If the Lender requests additional compensation under Section
5.01, the Borrower shall have the right, if no Event of Default then exists, to
convert each of the Eurodollar Loans to a Base Rate Loan on the last day of such
Eurodollar Loan's current Interest Period, upon payment of all such compensation
accrued to the date of such conversion.
Section 5.05 Compensation. The Borrower shall pay to the Lender within
thirty (30) days of receipt of written request of the Lender (which request
shall set forth, in reasonable detail, the basis for requesting such amounts and
which shall be conclusive and binding for all purposes provided that such
determinations are made on a reasonable basis), such amount or amounts as shall
compensate it for any funding losses or other loss, cost, expense or liability
which the Lender may sustain as a result of any prepayment of the Eurodollar
Loans for any reason (including, without limitation, the acceleration of the
Loans pursuant to Section 8.02) on any day other than the last day of the
applicable Interest Period.
ARTICLE VI
COVENANTS
Section 6.01 Financial Covenants. So long as the Commitment is
outstanding hereunder or any Loan remains unpaid, the Borrower shall:
-16-
<PAGE> 21
(a) Cash Flow Coverage Ratio. Maintain for itself and its
Subsidiaries on a consolidated basis and for each twelve month period
ending on the last day of each fiscal quarter, a ratio of (i) EBITDA to
(ii) the sum of (A) interest expense of the Borrower and its
Subsidiaries on a consolidated basis during such period plus (B)
maintenance capital expenditures of the Borrower and its Subsidiaries
on a consolidated basis during such twelve month period plus (C) cash
taxes paid by or on behalf of the Borrower and its Subsidiaries on a
consolidated basis during such period of at least 1.50 to 1.00. For
purposes of this Section 6.01(a), "maintenance capital expenditures"
shall mean the annual capital expenditures made by the Borrower and its
Subsidiaries on a consolidated basis as necessary to maintain proved
producing reserves at the levels set forth for the Properties listed in
the most recent annual Ryder Scott Company Reserve Report relating to
the Company; and
(b) Interest Coverage Ratio. Maintain for itself and its
Subsidiaries on a consolidated basis and for each twelve month period
ending on the last day of each fiscal quarter, a ratio of (i) EBITDA to
(ii) interest expense of the Borrower and its Subsidiaries on a
consolidated basis during such period of at least 2.25 to 1.00.
Section 6.02 Limitation on Indebtedness. The Borrower shall not, and
shall not permit its Subsidiaries to, create, incur, assume or suffer to exist
any consolidated Indebtedness other than consolidated Indebtedness outstanding
on the Closing Date, Refunding Debt, the Loans and the NationsBank Indebtedness.
Section 6.03 Use of Proceeds. The proceeds of the Loans will be used
only for general working capital purposes, including expenses associated with
the acquisition, exploration and development of oil and gas properties. No part
of the proceeds of any Loan will be used, directly or indirectly, to pay any
Indebtedness (other than Indebtedness in respect of the Loans or this
Agreement).
Section 6.04 Engineering Reports.
(a) In the event of a redetermination of the Borrowing Base pursuant to
Section 2.06(b), the Borrower shall furnish to the Lender a Reserve Report
prepared by or under the supervision of the chief engineer of the Borrower who
shall certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the Initial Reserve Report.
The Borrower shall provide such Reserve Report with an "as of" date as required
by the Lender as soon as possible, but in no event later than 15 calendar days
following the receipt of the request by the Lender for such Reserve Report.
(b) With the delivery of each Reserve Report, the Borrower shall
provide to the Lender a certificate from a Responsible Officer certifying 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 in
connection therewith is true and correct, (ii) the Borrower owns good and
indefeasible title to the Oil and Gas Properties evaluated in such Reserve
Report and such Properties are free and clear of all Liens except for Liens
identified on an exhibit to the certificate, (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
-17-
<PAGE> 22
would require the Borrower to deliver 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 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 and in such detail as reasonably required by the Lender, (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 a list showing any change
in working interest or net revenue interest in its Oil and Gas Properties
occurring and the reason for such change, and (vi) attached to the certificate
is a list of all Persons disbursing proceeds to the Borrower from its Oil and
Gas Properties.
ARTICLE VII
[RESERVED]
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.01 Events of Default. One or more of the following events
shall constitute an "Event of Default":
(a) the Borrower shall default in the payment or prepayment when due of
(i) any principal of the Loans or any fees; or (ii) any interest on the Loans or
any other amount payable by the Borrower hereunder, and such failure to pay
interest or other amounts continues unremedied for a period of five (5) Business
Days; or
(b) the Borrower shall default in the performance of any other covenant
on the part of the Borrower to be performed hereunder, and such default
continues for a period of thirty (30) days after receipt of written notice from
the Lender of such default; or
(c) the Borrower, the Parent or any of their Subsidiaries shall admit
in writing its inability to, or be generally unable to, pay their respective
debts as such debts become due; or
(d) the Borrower, the Parent or any of their Subsidiaries shall (i)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its Property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code (as
now or hereafter in effect), (iv) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization, winding-up,
liquidation or composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code, or (vi)
take any corporate action for the purpose of effecting any of the foregoing; or
-18-
<PAGE> 23
(e) a proceeding or case shall be commenced, without the application or
consent of the Borrower, the Parent or any of their Subsidiaries, as applicable,
in any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of the Borrower, the Parent or such Subsidiary of all or any
substantial part of its assets, or (iii) similar relief in respect of the
Borrower, the Parent or such Subsidiary under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts,
and such proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 days; or (iv) an order for relief
against the Borrower, the Parent or such Subsidiary shall be entered in an
involuntary case under the Federal Bankruptcy Code; or
(f) a judgment or judgments for the payment of money in excess of
$5,000,000 in the aggregate shall be rendered by a court against the Borrower,
the Parent or any of their Subsidiaries and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within thirty (30) days from the date of entry thereof
and the Borrower, the Parent or such Subsidiary shall not, within said period of
30 days, or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(g) proceeds from the issuance of any Refunding Debt are not used to
repay the Loans; or
(h) the Borrower or any of its Subsidiaries becomes an "investment
company" within the meaning of the Investment Company Act of 1940, as amended;
or
(i) the Borrower or any of its Subsidiaries becomes a "holding
company", a "subsidiary company" of a "holding company", an "affiliate" of a
"holding company", or an "affiliate" of a "subsidiary company" of a "holding
company", in each case, as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended; or
(j) the Borrower or any of its Subsidiaries shall:
(i) fail to make any payment or payments of any Indebtedness
when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness, or
(ii) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement
or instrument evidencing Indebtedness (other than any failure to
perform any term contemplated by subclause (i) hereof) and such failure
shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness.
-19-
<PAGE> 24
if, in either case, the effect of such failure to perform or observe is
to accelerate, or to permit the acceleration of the maturity of any Indebtedness
(other than Indebtedness in respect of the Loans or this Agreement), and any
obligee (or obligees) of such Indebtedness has or have claimed a default
thereunder, and has or have not waived in writing the Borrower's or the
Borrower's Subsidiaries' obligation to such performance or observance.
(k) the Parent shall:
(i) fail to make any payment or payments of any Indebtedness
under the Second Amended and Restated Credit Agreement when due
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness, or
(ii) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under the Second
Amended and Restated Credit Agreement (other than any failure to
perform any term contemplated by subclause (i) hereof) and such failure
shall continue after the applicable grace period, if any, specified in
the Second Amended and Restated Credit Agreement.
if, in either case, the effect of such failure to perform or observe is
to accelerate, or to permit the acceleration of the maturity of any Indebtedness
under the Second Amended and Restated Credit Agreement, and any obligee (or
obligees) of such Indebtedness has or have claimed a default thereunder, and has
or have not waived in writing the Parent's obligation to such performance or
observance.
Section 8.02 Remedies.
(a) In the case of an Event of Default other than one referred to in
clauses (c), (d) or (e) of Section 8.01, the Lender may, by notice to the
Borrower, cancel the Commitment and/or declare the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Borrower hereunder and under the Note to be forthwith due and
payable, whereupon such amounts shall be immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
(b) In the case of the occurrence of an Event of Default referred to in
clauses (c), (d) or (e) of Section 8.01, the Commitment shall be automatically
canceled and the principal amount then outstanding of, and the accrued interest
on, the Loans and all other amounts payable by the Borrower hereunder and under
the Note shall become automatically immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
(c) All proceeds received after maturity of the Note, whether by
acceleration or otherwise shall be applied first to reimbursement of expenses
and indemnities provided for in this
-20-
<PAGE> 25
Agreement; second to accrued interest on the Note; third to principal
outstanding on the Note; and, to the extent of any excess, to the Borrower or as
otherwise required by any Governmental Requirement.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Waiver. No failure on the part of the Lender to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under this Agreement or the Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or the Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Section 9.02 Notices. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made by telex, telecopy,
courier or U.S. Mail or in writing and telexed, telecopied, mailed or delivered
to the intended recipient at the "Address for Notices" specified below its name
on the signature pages hereof or, as to any party, at such other address as
shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted, if transmitted before 1:00 p.m. local
time on a Business Day (otherwise on the next succeeding Business Day) by telex
or telecopier and evidence or confirmation of receipt is obtained, or personally
delivered or, in the case of a mailed notice, on the date deposited in the
mails, postage prepaid, in each case given or addressed as aforesaid.
Section 9.03 Payment of Expenses, Indemnities, etc. The Borrower
agrees:
(a) To pay all reasonable expenses of the Lender, in its capacity as
Lender hereunder, but not in any other capacity, in the administration (both
before and after the execution hereof and including advice of counsel as to the
rights and duties of the Lender with respect thereto) of, and in connection with
the negotiation, syndication, investigation, preparation, execution and delivery
of, recording or filing of, preservation of rights under, enforcement of, and
refinancing, renegotiation or restructuring of, this Agreement and any
amendment, waiver or consent relating thereto (including, without limitation,
travel, photocopy, mailing, courier, telephone and other similar expenses of the
Lender, the cost of environmental audits, surveys and appraisals at reasonable
intervals, the reasonable fees and disbursements of counsel and other outside
consultants for the Lender and, in the case of enforcement, the reasonable fees
and disbursements of counsel for the Lender), and to reimburse promptly the
Lender for all amounts expended, advanced or incurred by the Lender to satisfy
any obligation of the Borrower under this Agreement;
(b) TO INDEMNIFY THE LENDER AND ITS AFFILIATES (OTHER THAN THE BORROWER
AND ITS SUBSIDIARIES) AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES,
-21-
<PAGE> 26
AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD
EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF
THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR
INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO)
AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR
PROPOSED USE BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF THE PROCEEDS OF THE
LOANS, OTHER THAN INDEMNITY MATTERS SOUGHT AGAINST THE INDEMNIFIED PARTIES BY
ANY THIRD PARTY FOR USURPATION OF A CORPORATE OPPORTUNITY OF SUCH THIRD PARTY,
(II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT, (III) THE
OPERATIONS OF THE BUSINESS OF THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (IV)
THE FAILURE OF THE BORROWER OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH THE TERMS
OF THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, INCLUDING, WITHOUT
LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER
EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO
DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS,
LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY
REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL
INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS OF THE LENDER'S
SHAREHOLDERS AGAINST THE LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED
PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH
PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE
BORROWER, ANY OF ITS SUBSIDIARIES OR ANY OF THEIR RESPECTIVE PROPERTIES,
INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES
ON ANY OF THEIR RESPECTIVE PROPERTIES, (II) AS A RESULT OF THE BREACH OR
NON-COMPLIANCE BY THE BORROWER OR ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL
LAW APPLICABLE TO THE BORROWER OR SUCH SUBSIDIARY, (III) DUE TO PAST OWNERSHIP
BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF ANY OF THEIR RESPECTIVE PROPERTIES
OR PAST ACTIVITY ON ANY OF THEIR RESPECTIVE PROPERTIES WHICH, THOUGH LAWFUL AND
FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE
PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES
ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THIS AGREEMENT, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE
AFFORDED UNDER THIS SECTION 9.03(C) IN RESPECT OF ANY PROPERTY FOR ANY
OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE LENDER DURING THE PERIOD
AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED
POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF
FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified without
the consent of the indemnitor, such consent not to be unreasonably withheld;
provided, that the indemnitor may not reasonably withhold consent to any
settlement that an Indemnified Party proposes, if the indemnitor does not have
the financial ability to pay all its obligations outstanding and asserted
-22-
<PAGE> 27
against the indemnitor at that time, including the maximum potential claims
against the Indemnified Party to be indemnified pursuant to this Section 9.03.
(e) In the case of any indemnification hereunder, the Lender shall give
notice to the Borrower of any such claim or demand being made against the
Indemnified Party and the Borrower shall have the non-exclusive right to join in
the defense against any such claim or demand provided that if the Borrower
provides a defense, the Indemnified Party shall bear its own cost of defense
unless there is a conflict between the Borrower and such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER
WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN
OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON
ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED
PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT
SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY
REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
INDEMNIFIED PARTY.
(g) The Borrower's obligations under this Section 9.03 shall survive
any termination of this Agreement and the payment of the Note and shall continue
thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this Section 9.03
within thirty (30) days of the receipt by the Borrower of notice of the amount
due.
Section 9.04 Amendments, Etc. No provision of this Agreement shall be
amended, modified or waived without both the Borrower's and the Lender's prior
written consent.
Section 9.05 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 9.06 Assignments and Participations.
(a) The Borrower may not assign its rights or obligations hereunder or
under the Note without the prior consent of the Lender.
(b) The Lender may not assign its rights or obligations hereunder or
under the Note without the prior written consent of the Borrower; provided that,
the Lender may assign to one or more Persons described in clause (i) of the
definition of "Affiliates" in Section 1.02 all or a portion of its rights and
obligations under this Agreement without the prior written consent of the
Borrower. Any assignment will become effective upon the execution and delivery
of the assignment to the Borrower. Upon receipt and acceptance of such executed
assignment, the
-23-
<PAGE> 28
Borrower, will, at the Lender's expense, execute and deliver new Notes to the
assignor and/or assignee, as appropriate, in accordance with their respective
interests as they appear. Upon the effectiveness of any assignment pursuant to
this Section 9.06(b), the assignee will become a "Lender," if not already a
"Lender," for all purposes of this Agreement. The assignor shall be relieved of
its obligations hereunder to the extent of such assignment (and if the assigning
Lender no longer holds any rights or obligations under this Agreement, such
assigning Lender shall cease to be a "Lender" hereunder except that its rights
under Sections 5.01, 5.05 and 9.03 shall not be affected).
(c) The Lender may transfer, grant or assign participations in all or
any part of its interests hereunder pursuant to this Section 9.06(c) to any
Person, provided that: (i) the Lender shall remain the "Lender" for all purposes
of this Agreement and the transferee of such participation shall not constitute
a "Lender" hereunder; and (ii) no participant under any such participation shall
have rights to approve any amendment to or waiver of any provision of this
Agreement or the Note, except to the extent such amendment or waiver would (x)
extend the Termination Date or (y) reduce the interest rate (other than as a
result of waiving the applicability of any post-default increases in interest
rates) or fees applicable to the Loans in which such participant is
participating, or postpone the payment of any thereof. In the case of any such
participation, the participant shall not have any rights under this Agreement
(the participant's rights against the Lender in respect of such participation to
be those set forth in the agreement creating such participation), and all
amounts payable by the Borrower hereunder shall be determined as if the Lender
had not sold such participation, provided that such participant shall be
entitled to receive additional amounts under Article V on the same basis as if
it were a Lender and be indemnified under Section 9.03 as if it were a Lender.
(d) The Lender may furnish any information concerning the Borrower in
its possession from time to time to assignees and participants (including
prospective assignees and participants).
Section 9.07 Invalidity. In the event that any one or more of the
provisions contained in the Agreement or the Note shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of such documents.
Section 9.08 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 9.09 References. The words "herein," "hereof," "hereunder" and
other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any reference herein
to an exhibit or schedule shall be deemed to refer to the applicable exhibit or
schedule attached hereto unless otherwise stated herein.
-24-
<PAGE> 29
Section 9.10 Survival. The obligations of the parties under Section
4.03, Article V, and Section 9.03 shall survive the repayment of the Loans. To
the extent that any payments of the Loans or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the Loans so satisfied shall be revived and continue as if such payment
or proceeds had not been received and the Lender's liens, security interests,
rights, powers and remedies under this Agreement shall continue in full force
and effect.
Section 9.11 Captions. Captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
Section 9.12 NO ORAL AGREEMENTS. THIS AGREEMENT AND THE NOTE EMBODY THE
ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THIS AGREEMENT AND THE NOTE 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
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF
THIS AGREEMENT AND THE NOTE.
Section 9.13 GOVERNING LAW; WAIVERS; ARBITRATION.
(a) THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) EACH OF THE BORROWER AND THE LENDER HEREBY (I) IRREVOCABLY WAIVES,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (II)
CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR
ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (III) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 9.13.
(c) ANY ACTION, DISPUTE, CLAIM OR CONTROVERSY OF ANY KIND BETWEEN THE
BORROWER AND THE LENDER ARISING OUT OF, OR PERTAINING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (A "DISPUTE") SHALL BE RESOLVED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE TERMS HEREOF. ANY PARTY MAY, BY SUMMARY
PROCEEDINGS, BRING AN ACTION IN COURT TO COMPEL ARBITRATION OF ANY DISPUTE. ANY
ARBITRATION SHALL BE ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION
("AAA") IN ACCORDANCE WITH THE TERMS OF THIS SECTION, THE COMMERCIAL ARBITRATION
RULES OF THE
-25-
<PAGE> 30
AAA, AND, TO THE MAXIMUM EXTENT APPLICABLE, THE FEDERAL ARBITRATION ACT.
JUDGMENT ON ANY AWARD RENDERED BY AN ARBITRATOR MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY ARBITRATION SHALL BE CONDUCTED BEFORE A THREE PERSON
PANEL OF ARBITRATORS. SUCH PANEL SHALL CONSIST OF ONE PERSON DESIGNATED BY THE
BORROWER, ONE DESIGNATED BY THE LENDER AND ONE DESIGNATED BY THE NOMINEES OF THE
BORROWER AND THE LENDER (COLLECTIVELY, THE "ARBITRATORS"). SUCH ARBITRATORS
DESIGNATED BY EACH OF THE BORROWER AND THE LENDER DO NOT HAVE TO BE NEUTRAL. IF
EITHER OF THE BORROWER OR THE LENDER FAILS TO DESIGNATE AN ARBITRATOR WITHIN TEN
(10) DAYS AFTER THE FILING OF THE DISPUTE WITH THE AAA, OR EITHER OF THE
BORROWER'S OR THE LENDER'S ARBITRATORS FAILS TO DESIGNATE A THIRD ARBITRATOR
WITHIN THIRTY (30) DAYS AFTER THEIR APPOINTMENTS, THE THIRD ARBITRATOR SHALL BE
APPOINTED BY THE AAA. AN ARBITRATION PROCEEDING HEREUNDER SHALL BE CONDUCTED IN
HOUSTON, TEXAS AND SHALL BE CONCLUDED WITHIN 180 DAYS OF THE FILING OF THE
DISPUTE WITH THE AAA. THE ARBITRATORS SHALL BE EMPOWERED TO AWARD SANCTIONS AND
TO TAKE SUCH OTHER ACTIONS AS THEY DEEM NECESSARY, TO THE SAME EXTENT A JUDGE
COULD IMPOSE SANCTIONS OR TAKE SUCH OTHER ACTIONS PURSUANT TO THE FEDERAL RULES
OF CIVIL PROCEDURE AND APPLICABLE LAW. NO AWARD BY THE ARBITRATORS SHALL ASSESS
CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES BUT MAY ASSESS COSTS AND EXPENSES
IN A MANNER DEEMED EQUITABLE. THE ARBITRATOR SHALL MAKE SPECIFIC WRITTEN
FINDINGS OF FACT AND CONCLUSIONS OF LAW. THE DECISION OF THE ARBITRATOR SHALL BE
FINAL AND BINDING ON EACH PARTY. ALL FEES OF THE ARBITRATORS AND ANY ENGINEER,
ACCOUNTANT OR OTHER CONSULTANT ENGAGED BY THE ARBITRATORS, SHALL BE PAID BY THE
BORROWER AND THE LENDER AS AWARDED BY THE ARBITRATORS.
Section 9.14 Interest. It is the intention of the parties hereto that
the Lender shall conform strictly to usury laws applicable to it. Accordingly,
if the transactions contemplated hereby would be usurious as to the Lender under
laws applicable to it (including the laws of the United States of America or any
other jurisdiction whose laws may be mandatorily applicable to the Lender
notwithstanding the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in this Agreement or the Note or any
agreement entered into in connection with or as security for the Note, it is
agreed as follows: (i) the aggregate of all consideration which constitutes
interest under law applicable to the Lender that is contracted for, taken,
reserved, charged or received by the Lender in connection with the Note shall
under no circumstances exceed the maximum amount allowed by such applicable law,
and any excess shall be canceled automatically and if theretofore paid shall be
credited by the Lender on the principal amount of the Loans (or, to the extent
that the principal amount of the Loans shall have been or would thereby be paid
in full, refunded by the Lender to the Borrower); and (ii) in the event that the
maturity of the Note is accelerated by reason of an election of the holder
thereof resulting from any Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such consideration
that constitutes interest under law applicable to the Lender may never include
more than the maximum amount allowed by such applicable law, and excess
interest, if any, provided for in this Agreement or otherwise shall be canceled
automatically by the Lender as of the date of such acceleration or prepayment
and, if theretofore paid, shall be credited by the Lender on the principal
amount of the Loans (or, to the extent that the principal amount of the Loans
shall have been or would thereby be paid in full, refunded by the Lender to the
Borrower). All sums paid or agreed to be paid to the Lender for the use,
forbearance or
-26-
<PAGE> 31
detention of sums due hereunder shall, to the extent permitted by law applicable
to the Lender, be amortized, prorated, allocated and spread throughout the full
term of the Loans evidenced by the Note until payment in full so that the rate
or amount of interest on account of the Loans hereunder does not exceed the
maximum amount allowed by such applicable law. If at any time and from time to
time (i) the amount of interest payable to the Lender on any date shall be
computed at the Highest Lawful Rate applicable to the Lender pursuant to this
Section 9.14 and (ii) in respect of any subsequent interest computation period
the amount of interest otherwise payable to the Lender would be less than the
amount of interest payable to the Lender computed at the Highest Lawful Rate
applicable to the Lender, then the amount of interest payable to the Lender in
respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to the Lender until the total
amount of interest payable to the Lender shall equal the total amount of
interest which would have been payable to the Lender if the total amount of
interest had been computed without giving effect to this Section 9.14.
Section 9.15 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND AGREES THAT IT
IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT; THAT IT HAS
IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS
BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT; THAT IT HAS RECEIVED THE
ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT; AND THAT IT RECOGNIZES
THAT CERTAIN OF THE TERMS OF THIS AGREEMENT RESULT IN ONE PARTY ASSUMING THE
LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER
PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND
COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS AGREEMENT ON THE BASIS THAT THE PARTY HAD NO
NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
-27-
<PAGE> 32
The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER: MARINER ENERGY, INC.
By: /s/ Robert Henderson
----------------------------------
Name:
Title:
Address for Notices:
580 WestLake Park Blvd.
Suite 1300
Houston, Texas 77079
Telecopier No.:(281) 584-5690
Telephone No.:(281) 584-5540
Attention: VP, Finance and CFO
LENDER: ENRON CAPITAL & TRADE RESOURCES CORP.
By:
----------------------------------
Name:
Title:
Address for Notices:
1400 Smith Street
Houston, Texas 77002
Telecopier No.: (713) 646-3602
Telephone No.: (713) 853-5259
Attention: Donna Lowry
-28-
<PAGE> 33
EXHIBIT A
FORM OF NOTE
$25,000,000 April 15, 1999
FOR VALUE RECEIVED, MARINER ENERGY, INC., a Delaware corporation (the
"Borrower") hereby promises to pay to the order of ENRON CAPITAL & TRADE
RESOURCES CORP. or its designees (the "Lender"), at New York, New York, or such
other location as the Lender may hereafter specify, the principal sum of
TWENTY-FIVE MILLION DOLLARS ($25,000,000.00), or such lesser amount as shall
equal the aggregate unpaid principal amount of the Loans made by the Lender
hereunder to the Borrower pursuant to the Credit Agreement, as defined below, in
lawful money of the United States of America and in immediately available funds,
on the dates and in the principal amounts provided in the Credit Agreement
(hereinafter defined), and to pay interest at such location, in like money and
funds, at the rates per annum and on the dates provided in the Credit Agreement.
In addition to and cumulative of any payments required to be made
against this Note pursuant to the Credit Agreement, this Note, including all
principal and accrued interest then unpaid, shall be due and payable on the
Termination Date. All payments shall be applied first to accrued interest and
the balance to principal, except as otherwise expressly provided in the Credit
Agreement. Prepayments on this Note shall be applied in the manner set forth in
the Credit Agreement.
This Note is the Note referred to in that certain Revolving Credit
Agreement of even date herewith between the Borrower and the Lender and
evidences the Loans made by the Lender thereunder (such Agreement as the same
may be amended or supplemented from time to time, the "Credit Agreement").
Capitalized terms used in this Note have the respective meanings assigned to
them in the Credit Agreement.
The Lender is hereby authorized by the Borrower to endorse on Schedule A
(or a continuation thereof) attached to this Note, the amount and date of each
Loan, the date and the amount of each payment or prepayment of principal of each
Loan received by the Lender, and the interest rates applicable to each Loan;
provided that any failure by the Lender to make any such endorsement shall not
affect the obligations of the Borrower under the Credit Agreement or under this
Note in respect of such Loans.
This Note is issued pursuant to the Credit Agreement and is entitled to
the benefits provided for in the Credit Agreement. All of the terms of the
Credit Agreement, including without limitation, the usury savings provisions
thereof, are incorporated herein by this reference. The Credit Agreement
provides for the acceleration of the maturity of this Note upon the occurrence
of certain events, for prepayments of the Loans upon the terms and conditions
specified therein and other provisions relevant to the Note.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
<PAGE> 34
MARINER ENERGY, INC.
By: /s/ Robert Henderson
---------------------------
Name: Robert Henderson
Title: President
-2-
<PAGE> 35
SCHEDULE A
This Note evidences Loans made by the Lender under the within-described Credit
Agreement to the Borrower, in the principal amounts set forth below, which Loans
are at the interest rate and were made on the dates set forth below, subject to
the payments of principal set forth below:
<TABLE>
<CAPTION>
Principal Date of
Amount of Payment or Amount Paid Balance
Date Made Advance Interest Rate Prepayment or Prepaid Outstanding
--------- ------- ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 15,027
<ALLOWANCES> 0
<INVENTORY> 6,005
<CURRENT-ASSETS> 21,392
<PP&E> 427,435
<DEPRECIATION> 175,139
<TOTAL-ASSETS> 277,126
<CURRENT-LIABILITIES> 50,652
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 71,225
<TOTAL-LIABILITY-AND-EQUITY> 277,126
<SALES> 11,021
<TOTAL-REVENUES> 11,021
<CGS> 0
<TOTAL-COSTS> 7,723
<OTHER-EXPENSES> 1,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,930
<INCOME-PRETAX> (3,488)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,488)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
