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Exhibit 10.7
AMENDED AND RESTATED CREDIT AGREEMENT
among
MILLER EXPLORATION COMPANY,
as the Company,
and
VARIOUS SUBSIDIARIES OF THE COMPANY,
together with the Company, as Borrowers,
BANK ONE, TEXAS, N.A.
as Agent
and
CERTAIN FINANCIAL INSTITUTIONS,
as Lenders
_______________________________________________________
$ 50,000,000 Reducing Revolving Credit Facility
July 18, 2000
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AMENDED AND RESTATED CREDIT AGREEMENT
This Agreement, dated as of July 18, 2000, is among MILLER EXPLORATION
COMPANY, a Delaware corporation (the "Company"), and the Subsidiaries of the
Company listed on the signature pages hereto or which hereafter become a party
hereto pursuant to an Addendum (as herein defined) (each such Subsidiary and
Parent, and their respective successors and assigns, a "Borrower", and
collectively, "Borrowers"), Bank One, Texas, N.A., individually and as agent (in
its agent capacity herein "Agent"), and the Lenders referenced to below.
RECITALS
1. Miller Oil Corporation, a Subsidiary of the Company and a Borrower, and
the Company entered into that certain Credit Agreement dated February
9, 1998 with Bank of Montreal, as agent, and lenders named therein (as
amended, the "Existing Agreement"), pursuant to which Miller Oil
Corporation executed and delivered that certain Promissory Note dated
February 9, 1998 payable to the order of Bank of Montreal in the
original principal amount of $75,000,000 (the "Existing Note"), the
Company executed and delivered a Guaranty Agreement in favor of Bank of
Montreal, guaranteeing the indebtedness and obligations under the
Existing Agreement and Existing Note (the "Existing Guaranty"), and the
Company and certain other Borrowers executed and delivered various
Security Instruments (as defined in the Existing Agreement) to secure
the indebtedness and obligations owing under the Existing Agreement,
the Existing Note and the Existing Guaranty (the "Existing Security
Instruments").
2. Pursuant to that certain Assignment of Note and Liens of even date
herewith by Bank of Montreal, as assignor, in favor of Bank One, as
assignee, Bank of Montreal has assigned all of its Rights in, to and
under the Existing Agreement, the Existing Note, the Existing
Guaranties and the Existing Security Instruments to Bank One.
3. Borrowers and Bank One desire to amend the obligations and indebtedness
under the Existing Agreement, the Existing Note, the Existing Guaranty
and the Existing Security Instruments. Accordingly, the parties hereto
agree as follows:
ARTICLE IDEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which any
Borrower (i) acquires any going business or all or substantially all of the
assets of any Person, whether through purchase of assets, merger or otherwise,
or (ii) directly or indirectly acquires (in one transaction or as the most
recent transaction in a series of transactions) at least a majority (in number
of votes) of the securities of a corporation which have ordinary voting power
for the election of directors (other than securities having such power only by
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reason of the happening of a contingency) or a majority (by percentage or voting
power) of the outstanding ownership interests of a partnership or limited
liability company.
"Advance" means a borrowing hereunder, (i) made by the Lenders on the same
Borrowing Date, or (ii) converted or continued by the Lenders on the same date
of conversion or continuation, consisting, in either case, of the aggregate
amount of the several Loans of the same Type and, in the case of Eurodollar
Loans, for the same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" means Bank One in its capacity as contractual representative of the
Lenders pursuant to Article X, and not in its individual capacity as a Lender,
and any successor Agent appointed pursuant to Article X.
"Aggregate Commitment" means the aggregate of the Commitments of all the
Lenders, as reduced from time to time pursuant to the terms hereof.
"Aggregate Outstanding Credit Exposure" means, at any time, the aggregate
of the Outstanding Credit Exposure of all the Lenders.
"Agreement" means this Credit Agreement, as it may be amended or modified
and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day; and (ii) the
sum of the Federal Funds Effective Rate for such day plus 1/2% per annum.
"Amerada Hess Indebtedness" means indebtedness of the Company in favor of
Amerada Hess Corporation, a Delaware corporation in an amount not to exceed
$1,500,000, which indebtedness shall be subordinate to the Obligations of
Borrowers.
"Applicable Fee Rate" means one-half percent (0.5%) per annum.
"Applicable Margin" means (a) with respect to Floating Rate Advances, two
percent (2.00%) per annum, and (b) with respect to Eurodollar Advances, four
percent (4.00%) per annum.
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"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the Chairman of the Board, President,
Treasurer, or any Vice President of any Borrower, acting singly.
"Available Borrowing Base" means, at any time, the Borrowing Base then in
effect minus the Aggregate Outstanding Credit Exposure at such time.
"Bank One" means Bank One, Texas, N.A., a national banking association
having its principal office in Houston, Texas, in its individual capacity, and
its successors.
"Borrower" has the meaning set forth in the introductory paragraph hereof.
"Borrowing Base" shall mean the amount of indebtedness which can be
adequately supported by the value of oil and gas reserves attributable to the
Collateral, which value shall be determined by the Lenders, in the exercise of
their sole discretion, in accordance with the Lenders' customary practices and
standards for oil and gas loans, all as more particularly set forth in Section
2.2.
"Borrowing Base Reduction Amount" means (a) for each Payment Date
commencing August 1, 2000 until the next semi-annual Borrowing Base
redetermination pursuant to Section 2.2.2, $500,000, and (b) for each Payment
Date thereafter, such amount as Required Lenders may designate.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.9.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities, interbank wire
transfers can be made on the Fedwire system and dealings in United States
dollars are carried on in the London interbank market and (ii) for all other
purposes, a day (other than a Saturday or Sunday) on which banks generally are
open in Chicago for the conduct of substantially all of their commercial lending
activities and interbank wire transfers can be made on the Fedwire system.
"Capital Expenditures" means, without duplication, any expenditures for any
purchase or other acquisition of any asset which would be classified as a fixed
or capital asset on a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
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"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Cash Equivalent Investments" means (i) short-term obligations of, or fully
guaranteed by, the United States of America, (ii) commercial paper rated A-1 or
better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts
maintained in the ordinary course of business, and (iv) certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000; provided in each case that
the same provides for payment of both principal and interest (and not principal
alone or interest alone) and is not subject to any contingency regarding the
payment of principal or interest.
"Change in Control" means (i) the Company shall at any time cease to own,
directly or indirectly, free and clear of all Liens or other encumbrances, all
of the outstanding capital stock of each other Borrower, or (ii) the acquisition
by any Person, or two or more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934) of 15% or more of the outstanding
shares of voting stock of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral" means any Property or asset of any Borrower, now or hereafter
acquired, which is subject to a Lender Lien in favor of the Lenders (or in favor
of the Agent for the benefit of the Lenders) or which, under the terms of any
Collateral Document or otherwise, is purported to be subject to such a Lien, as
described in Section 2.21.
"Collateral Documents" means, collectively, the Deed of Trust, Security
Agreement, Security Agreement-Pledge, and all financing statements, notices, and
other documents executed in connection therewith.
"Collateral Shortfall Amount" is defined in Section 8.1.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans to, and participate in Facility LCs issued upon the application of, any
Borrower in an aggregate amount not exceeding the amount set forth opposite its
signature below or as set forth in any Notice of Assignment relating to any
assignment that has become effective pursuant to Section 12.3.2, as such amount
may be modified from time to time pursuant to the terms hereof.
"Company" means Miller Exploration Company, a Delaware corporation.
"Consolidated EBITDA" means Consolidated Net Income plus, to the extent
deducted from revenues in determining Consolidated Net Income, (i) Consolidated
Interest Expense, (ii) expense for taxes paid or accrued, (iii) depreciation,
(iv) amortization and (v) extraordinary losses incurred other than in the
ordinary course of business, minus, to the extent included in Consolidated Net
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Income, extraordinary gains realized other than in the ordinary course of
business, all calculated for the Company and its Subsidiaries on a consolidated
basis.
"Consolidated Interest Expense" means, with reference to any period, the
interest expense of the Company and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Net Worth" means at any time the consolidated stockholders'
equity of the Company and its Subsidiaries calculated on a consolidated basis as
of such time.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or the obligations of any such Person as general
partner of a partnership with respect to the liabilities of the partnership.
"Conversion/Continuation Notice" is defined in Section 2.10.
"Controlled Group" means all members of a controlled group of corporations
or other business entities and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any of
its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate or prime rate of interest announced by Bank One or by its parent, BANK ONE
CORPORATION, from time to time, changing when and as said corporate base rate or
prime rate changes.
"Credit Extension" means the making of an Advance or the issuance of a
Facility LC hereunder.
"Credit Extension Date" means the Borrowing Date for an Advance or the
issuance date for a Facility LC.
"Deed of Trust" means the Amended and Restated Deed of Trust, Mortgage,
Assignment, Security Agreement and Financing Statement executed by Borrowers in
favor of the Agent, for the ratable benefit of the Lenders, as it may be amended
or modified and in effect from time to time.
"Default" means an event described in Article VII.
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"Determining Lenders" means Lenders in the aggregate having at least 75% of
the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 75% of the Aggregate Outstanding
Credit Exposure.
"Disclosure Schedule" means Schedule 1 hereto.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, Laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which, except as otherwise provided
in Section 2.12, bears interest at the applicable Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the applicable British Bankers' Association Interest
Settlement Rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as
of 11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period, provided
that, if Reuters Screen FRBD is not available to the Agent for any reason, the
applicable Eurodollar Base Rate for the relevant Interest Period shall instead
be the rate determined by the Agent to be the rate at which Bank One or one of
its Affiliate banks offers to place deposits in U.S. dollars with first-class
banks in the London interbank market at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period, in the
approximate amount of Bank One's relevant Eurodollar Loan and having a maturity
equal to such Interest Period.
"Eurodollar Loan" means a Loan which, except as otherwise provided in
Section 2.12, bears interest at the applicable Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) the Applicable Margin.
"Excluded Taxes" means, in the case of each Lender or applicable Lending
Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Lender or the Agent is incorporated or organized or (ii) the jurisdiction
in which the Agent's or such Lender's principal executive office or such
Lender's applicable Lending Installation is located.
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"Exhibit" refers to an exhibit to this Agreement, unless another document
is specifically referenced.
"Facility LC" is defined in Section 2.20.1.
"Facility LC Application" is defined in Section 2.20.3.
"Facility LC Collateral Account" is defined in Section 2.20.11.
"Facility Termination Date" means January 12, 2003 or any earlier date on
which the Aggregate Commitment is reduced to zero or otherwise terminated
pursuant to the terms hereof.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately 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 at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Financial Contract" of a Person means (i) any exchange-traded or over-the-
counter futures, forward, swap or option contract or other financial instrument
with similar characteristics, or (ii) any Rate Management Transaction.
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case
changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which, except as otherwise
provided in Section 2.12, bears interest at the Floating Rate.
"Floating Rate Loan" means a Loan which, except as otherwise provided in
Section 2.12, bears interest at the Floating Rate.
"Guardian Indebtedness" means indebtedness of the Company in favor of
Guardian Energy Management Corp., a Michigan corporation, in an amount not to
exceed $5,500,000, which indebtedness shall be subordinate to the Obligations of
Borrowers.
"Hazardous Substance" means any substance regulated under any Environmental
Law whether as pollutants, contaminants, or chemicals, or as industrial, toxic,
or hazardous substances or wastes, or otherwise.
"Highest Lawful Rate" means the maximum rate (or, if the context so
permits, an amount calculated at such rate) of interest which, at the time in
question, would not cause the interest charged to exceed the maximum amount
which the Lenders would be allowed to contract for, charge,
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take, reserve or receive under applicable Law after taking into account, to the
extent required by applicable Law, any and all relevant payments or charges
under the Loan Documents.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous Hydrocarbons and
all products refined or separated therefrom and all other minerals.
"Hydrocarbons Interests" means all rights, titles, interests and estates 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 interest of whatever nature.
"Indebtedness" of a Person means such Person's (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price of Property or
services (other than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in the trade), (iii) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from Property now or hereafter owned or acquired by such Person, (iv)
obligations which are evidenced by notes, acceptances, or other instruments, (v)
obligations of such Person to purchase securities or other Property arising out
of or in connection with the sale of the same or substantially similar
securities or Property, (vi) Capitalized Lease Obligations and (vii) any other
obligation for borrowed money or other financial accommodation which in
accordance with Agreement Accounting Principles would be shown as a liability on
the consolidated balance sheet of such Person.
"Initial Reserve Report" means the reserve report dated March 31, 2000,
prepared by Miller and Lents Limited as of March 1, 2000, concerning the Oil and
Gas Properties and the oil and gas reserves therein and thereunder, that
reflects the net interest of the Borrowers therein, a copy of which has been
delivered to each Lender.
"Interest Period" means, with respect to a Eurodollar Advance, a period of
one, two, three or six months commencing on a Business Day selected by any
Borrower pursuant to this Agreement. Such Interest Period shall end on the day
which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable arising
in the ordinary course of business on terms customary in the trade) or
contribution of capital by such Person; stocks, bonds, mutual funds, partnership
interests, notes, debentures or other securities owned by such Person; any
deposit accounts and certificate of deposit owned by such Person; and structured
notes, derivative financial instruments and other similar instruments or
contracts owned by such Person.
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"Law" means all applicable statutes, laws, ordinances, regulations, orders,
writs, injunctions or decrees of any state, commonwealth, nation, country,
territory, possession, county, parish, municipality or tribunal.
"LC Fee" is defined in Section 2.20.4.
"LC Issuer" means Bank One (or any subsidiary or affiliate of Bank One
designated by Bank One) in its capacity as issuer of Facility LCs hereunder.
"LC Obligations" means, at any time, the sum, without duplication, of (i)
the aggregate undrawn stated amount under all Facility LCs outstanding at such
time plus (ii) the aggregate unpaid amount at such time of all Reimbursement
Obligations.
"LC Payment Date" is defined in Section 2.20.5.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lender Liens" means the Liens granted in the Collateral in favor of the
Agent for the ratable benefit of the Lenders or directly for the benefit of any
Lender pursuant to the Loan Documents.
"Lending Installation" means, with respect to a Lender or the Agent, the
office, branch, subsidiary or affiliate of such Lender or the Agent listed on
the signature pages hereof or on a Schedule or otherwise selected by such Lender
or the Agent pursuant to Section 2.18.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, security interest,
mechanic's or materialsman's lien, production payment, tax lien, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement). "Lien" also means any filed financing statement, registration of a
pledge (such as with an issuer of uncertificated securities), or any other
arrangement or action which would serve to perfect a Lien described in the
preceding sentence, regardless of whether such financing statement is filed,
such registration is made, or such arrangement or action is undertaken before or
after such Lien exists.
"Loan" means, with respect to a Lender, such Lender's loan made pursuant to
Article II (or any conversion or continuation thereof).
"Loan Documents" means this Agreement, the Facility LC Applications, any
Notes issued pursuant to Section 2.14.4, and the Collateral Documents.
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"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of any Borrower, (ii) the ability of any Borrower to perform its
obligations under the Loan Documents to which it is a party, (iii) the validity
or enforceability of any of the Loan Documents or the rights or remedies of the
Agent, the LC Issuer or the Lenders thereunder; or (iv) the Collateral or Lender
Liens on the Collateral or the priority of any such lien.
"Material Indebtedness" is defined in Section 7.5.
"Modify" and "Modification" are defined in Section 2.20.1.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which any Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Net Borrowing Base" means the Borrowing Base as determined by Lenders for
the then subsequent six month period, minus projected principal payments on the
Amerada Hess Indebtedness, plus projected cash flow (calculation of which shall
be acceptable to Lenders in their sole discretion) of the Borrowers for such
period, minus projected Capital Expenditures for such period.
"Net Mark-to-Market Exposure" of a Person means, as of any date of
determination, the excess (if any) of all unrealized losses over all unrealized
profits of such Person arising from Rate Management Transactions. "Unrealized
losses" means the fair market value of the cost to such Person of replacing such
Rate Management Transaction as of the date of determination (assuming the Rate
Management Transaction were to be terminated as of that date), and "unrealized
profits" means the fair market value of the gain to such Person of replacing
such Rate Management Transaction as of the date of determination (assuming such
Rate Management Transaction were to be terminated as of that date).
"Net Proceeds from Production" means the amounts attributable to the
Borrowers' interest in proceeds from the sale of Hydrocarbons from the Oil and
Gas Properties covered by the Deeds of Trust after deduction of (i) royalties;
(ii) pipeline, severance and windfall profit taxes chargeable against such
production; (iii) overriding royalties; (iv) other interests in and measured by
production burdening said properties; and (v) that portion of operating and
marketing costs which are allocable to the Borrowers' interests in said Oil and
Gas Properties allowed under the applicable joint operating agreement, if any.
"Non-U.S. Lender" is defined in Section 3.5.4.
"Note" means any promissory note issued at the request of a Lender pursuant
to Section 2.14.4 in the form of Exhibit E.
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"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Loans, all Reimbursement Obligations, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of any Borrower to
the Lenders or to any Lender, the Agent, the LC Issuer or any indemnified party
arising under the Loan Documents.
"Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any Sale and Leaseback
Transaction which is not a Capitalized Lease, (iii) any liability under any so-
called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.
"Oil and Gas Properties" means Hydrocarbon Interests; the properties now or
hereafter pooled or unitized with Hydrocarbon Interests; all presently existing
or future unitization, pooling agreements and declarations of pooled units and
the units created thereby (including without limitation all units created under
orders, regulations and rules of any governmental body or agency having
jurisdiction) which may affect all or any portion of the Hydrocarbon Interests;
all operating agreements, contracts and other agreements which relate to any of
the Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon Interests;
all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, the lands covered thereby and all oil
in tanks and all rents, issues, profits, proceeds, products, revenues and other
incomes from or attributable to the Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and properties in anywise appertaining, belonging,
affixed or incidental to the Hydrocarbon Interests, properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment 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.
"Operating Lease" of a Person means any lease of Property (other than a
Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals and any renewals effective at the option of the
lessor) of one year or more.
"Operating Lease Obligations" means, as at any date of determination, the
amount obtained by aggregating the present values, determined in the case of
each particular Operating Lease by applying a discount rate (which discount rate
shall equal the discount rate which would be applied under Agreement Accounting
Principles if such Operating Lease were a Capitalized Lease) from the date on
which each fixed lease payment is due under such Operating Lease to such date of
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determination, of all fixed lease payments due under all Operating Leases of the
Company and its Subsidiaries.
"Other Taxes" is defined in Section 3.5.2.
"Outstanding Credit Exposure" means, as to any Lender at any time, the sum
of (i) the aggregate principal amount of its Loans outstanding at such time,
plus (ii) an amount equal to its Pro Rata Share of the LC Obligations at such
time.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the first day of each month.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which any Borrower or any member of the Controlled Group may have any
liability.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Pro Rata Share" means, with respect to a Lender, a portion equal to a
fraction the numerator of which is such Lender's Commitment and the denominator
of which is the Aggregate Commitment.
"Purchasers" is defined in Section 12.3.1.
"Rate Management Transaction" means any transaction (including an agreement
with respect thereto) now existing or hereafter entered into between any
Borrower and any Lender or Affiliate thereof which is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or equity
index swap, equity or equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor transaction, collar
transaction, forward transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions) or any combination
thereof, whether linked to one or more interest rates, foreign currencies,
commodity prices, equity prices or other financial measures.
"Rate Management Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Management Transactions, and (ii) any and all cancellations, buy backs,
reversals, terminations or assignments of any Rate Management Transactions.
Page 12
<PAGE>
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reimbursement Obligations" means, at any time, the aggregate of all
obligations of the Borrowers then outstanding under Section 2.20 to reimburse
the LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.
"Release" means a release as defined in 42 U.S.C. (S) 9601(22) and means
the presence or disposal, as defined in 42 U.S.C. (S) 6903(c) of Hazardous
Substances, including pesticides and fertilizers, on any Property or at any
site, property, facility or location.
"Rentals" of a Person means the aggregate fixed amounts payable by such
Person under any Operating Lease.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Reports" is defined in Section 9.6.
"Required Lenders" means Lenders in the aggregate having at least 66 2/3%
of the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 66 2/3% of the Aggregate Outstanding
Credit Exposure.
"Reserve Report" means the Initial Reserve Report and each reserve report
delivered pursuant to Section 6.1.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Rights" means rights, remedies, powers, and privileges.
"S&P" means Standard and Poor's Ratings Services, a division of The McGraw
Hill Companies, Inc.
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<PAGE>
"Sale and Leaseback Transaction" means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.
"Schedule" refers to a specific schedule to this Agreement, unless another
document is specifically referenced.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Secured Obligations" means, collectively, (i) the Obligations, and (ii)
all Rate Management Obligations owing to one or more Lenders.
"Security Agreements" means those certain Security Agreements of even date
herewith and any and all other Security Agreement now or hereafter executed by
the Borrowers in favor of the Agent, for the ratable benefit of the Lenders, as
they may be amended or modified and in effect from time to time.
"Security Agreement-Pledge" means that certain Security Agreement-Pledge of
even date herewith executed by the Company in favor of the Agent, for the
ratable benefit of the Lenders, as it may be amended or modified and in effect
from time to time.
"Single Employer Plan" means a Plan maintained by any Borrower or any
member of the Controlled Group for employees of any Borrower or any member of
the Controlled Group.
"Subordinated Indebtedness" of a Person means any Indebtedness of such
Person the payment of which is subordinated to payment of the Obligations to the
written satisfaction of the Required Lenders. For purposes of the Agreement the
Amerada Hess Indebtedness, the Guardian Indebtedness and the Veritas
Indebtedness shall be deemed to be Subordinated Indebtedness.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries; or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Company.
"Substantial Portion" means, with respect to the Property of the Borrowers,
Property which (i) represents more than 10% of the consolidated assets of the
Borrowers as would be shown in the consolidated financial statements of
Borrowers as at the beginning of the twelve-month period ending with the month
in which such determination is made, or (ii) is responsible for more than 10% of
the consolidated net sales or of the Consolidated Net Income of Borrowers as
reflected in the financial statements referred to in clause (i) above.
Page 14
<PAGE>
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings, and any and all liabilities with respect to
the foregoing, but excluding Excluded Taxes and Other Taxes.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Floating Rate
Advance or a Eurodollar Advance.
"Unfunded Liabilities" means the amount (if any) by which the present value
of all vested and unvested accrued benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Veritas Indebtedness" means indebtedness of the Company in favor of
Veritas DGC Land, Inc., a Delaware corporation in an amount not to exceed
$4,696,040.60, which indebtedness shall be subordinate to the Obligations of
Borrowers.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS, COLLATERAL AND OTHER SECURITY
------------------------------------------
2.1. Commitment. From and including the date of this Agreement and
----------
prior to the Facility Termination Date, each Lender severally agrees, on the
terms and conditions set forth in this Agreement to (i) make Loans to the
Borrowers and (ii) participate in Facility LCs issued upon the request of the
Borrowers, provided, that, after giving effect to the making of each such Loan
and the issuance of each such Facility LC, such Lender's Outstanding Credit
Exposure shall not exceed its Commitment. Subject to the terms of this
Agreement, the Borrowers may borrow, repay and reborrow at any time prior to the
Facility Termination Date. The Commitments to extend credit hereunder shall
expire on the Facility Termination Date. The LC Issuer will issue Facility LCs
hereunder on the terms and conditions set forth in Section 2.20.
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<PAGE>
2.2. Borrowing Base.
--------------
2.2.1 During the period from the date of this Agreement to the date as of
which the Borrowing Base is first redetermined pursuant to Section 2.2.2, the
Borrowing Base shall be $11,500.000.00.
2.2.2 On or before May 15 and November 15 of each year the Borrowers shall
furnish to each Lender all information, reports, and data which the Agent has
then requested concerning the Borrowers' businesses and properties (including
their Oil and Gas Properties and interests and the reserves and production
relating thereto), together with the Reserve Report described in Section
6.1(xi). Within 45 days after receiving such information, or as promptly
thereafter as practicable, (i) the Agent shall determine and the Determining
Lenders shall approve an amount for the Borrowing Base (provided that all
Lenders must agree to any increase in the Borrowing Base) and (ii) the Agent
shall by notice to the Borrowers designate such amount as the new Borrowing Base
available to the Borrowers hereunder, which designation shall take effect
immediately on the date such notice is sent and shall remain in effect until,
but not including, the next date as of which the Borrowing Base is redetermined.
If the Borrowers do not furnish all such information, reports, and data by the
date specified in the first sentence of this section, the Agent may nonetheless
designate the Borrowing Base at any amount which the Determining Lenders have
approved and may redesignate the Borrowing Base from time to time thereafter
until each Lender receives all such information, reports, and data, whereupon
the Determining Lenders shall designate a new Borrowing Base as described above.
Any redetermination of the Borrowing Base shall not be effective until written
notice is sent to the Borrowers.
2.2.3 In addition to the foregoing, Required Lenders or the Borrowers may
initiate a redetermination of the Borrowing Base at any other time as it so
elects, provided, however, that the Borrowers may initiate only two (2) such
unscheduled redeterminations during any consecutive twelve (12) month period by
specifying in writing to the Lenders the date on which the Borrowers will
furnish the information required by Section 2.2.2 and the date on which it
desires such redetermination to occur. The Lenders shall have at least forty-
five (45) days after the delivery of the information required by Section 2.2.2
to make any unscheduled redetermination of the Borrowing Base requested by the
Borrowers. The Lenders may, at any time, initiate an unscheduled
redetermination of the Borrowing Base by specifying in writing to the Borrowers
the date by which the Borrowers are to furnish the information required by
Section 2.2.2 and the projected date on which such redetermination is to occur.
The Lenders shall promptly notify the Borrowers, in writing, of the new
Borrowing Base.
2.2.4 The Agent shall determine and the Determining Lenders shall approve
the amount of the Borrowing Base based upon the loan collateral value which they
in their discretion assign to the various Oil and Gas Properties included in the
Collateral of the Borrowers at the time in question and based upon such other
credit factors (including, without limitation, the assets, liabilities, cash
flow, hedged and unhedged exposure to price, foreign exchange rate, and interest
rate changes, business, properties, prospects, management, and ownership of the
Borrowers and their Affiliates) as they in their discretion deem significant.
It is expressly understood that the Lenders and the Agent have no obligation to
agree upon or designate the Borrowing Base at any particular amount, whether in
relation to the Aggregate Commitment or otherwise, and that the Lenders'
commitments to
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<PAGE>
advance funds hereunder is determined by reference to the Borrowing Base from
time to time in effect, and, to the extent permitted by Law and regulatory
authorities, for the purposes of capital adequacy determination and
reimbursements under Section 3.2.
2.2.5 The Borrowing Base shall automatically reduce by the applicable
Borrowing Base Reduction Amount on each Payment Date.
2.2.6 In the event the Outstanding Credit Exposure shall, at any time, be
in excess of the amount of the Borrowing Base in effect at such time, then the
Borrowers shall immediately prepay Credit Extensions in an amount at least equal
to such excess.
2.3. Termination. The Aggregate Outstanding Credit Exposure and all
-----------
other unpaid Obligations shall be paid in full by the Borrowers on the Facility
Termination Date.
2.4. Ratable Loans. Each Advance hereunder shall consist of Loans made
-------------
from the several Lenders ratably according to their Pro Rata Shares.
2.5. Types of Advances. The Advances may be Floating Rate Advances or
-----------------
Eurodollar Advances, or a combination thereof, selected by the Borrowers in
accordance with Sections 2.9 and 2.10.
2.6. Commitment Fee; Reductions in Borrowing Base. The Borrowers
--------------------------------------------
jointly and severally agree to pay to the Agent for the account of each Lender
according to its Pro Rata Share a commitment fee at a per annum rate equal to
the Applicable Fee Rate on the average daily Available Borrowing Base from the
date hereof to and including the Facility Termination Date, payable on each
Payment Date hereafter and on the Facility Termination Date. The Borrowers may
permanently reduce the Borrowing Base in whole, or in part ratably among the
Lenders in integral multiples of $1,000,000, upon at least five Business Days'
written notice to the Agent, which notice shall specify the amount of any such
reduction, provided, however, that the amount of the Borrowing Base may not be
reduced below the Aggregate Outstanding Credit Exposure. All accrued commitment
fees shall be payable on the effective date of any termination of the
obligations of the Lenders to make Credit Extensions hereunder.
2.7. Minimum Amount of Each Advance. Each Eurodollar Advance shall be
------------------------------
in the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess
thereof), and each Floating Rate Advance shall be in the minimum amount of
$500,000 (and in multiples of $100,000 if in excess thereof), provided, however,
that any Floating Rate Advance may be in the amount of the Available Borrowing
Base.
2.8. Optional Principal Payments. The Borrowers may from time to time
---------------------------
pay, without penalty or premium, all outstanding Floating Rate Advances, or, in
a minimum aggregate amount of $500,000 or any integral multiple of $100,000 in
excess thereof, any portion of the outstanding Floating Rate Advances upon one
Business Days' prior notice to the Agent. The Borrowers may from time to time
pay, subject to the payment of any funding indemnification amounts required by
Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances,
or, in a minimum aggregate amount of $500,000 or any integral multiple of
$100,000 in excess thereof, any portion
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<PAGE>
of the outstanding Eurodollar Advances on the last day of the then current
Interest Period upon three Business Days' prior notice to the Agent.
2.9. Method of Selecting Types and Interest Periods for New Advances.
---------------------------------------------------------------
The Borrowers shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable thereto from time to time.
The Borrowers shall give the Agent irrevocable notice (a "Borrowing Notice")
substantially in the form of Exhibit B hereto, not later than 10:00 a.m.
(Chicago time) at least one Business Day before the Borrowing Date of each
Floating Rate Advance and three Business Days before the Borrowing Date for each
Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest Period
applicable thereto.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans in funds immediately available in Chicago to
the Agent at its address specified pursuant to Article XIII. The Agent will
make the funds so received from the Lenders available to the Borrowers at the
Agent's aforesaid address.
2.10. Conversion and Continuation of Outstanding Advances. Floating
---------------------------------------------------
Rate Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Eurodollar Advances pursuant to this
Section 2.10 or are repaid in accordance with Section 2.8. Each Eurodollar
Advance shall continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such Eurodollar Advance shall
be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.8 or (y) the
Borrowers shall have given the Agent a Conversion/Continuation Notice (as
defined below) requesting that, at the end of such Interest Period, such
Eurodollar Advance continue as a Eurodollar Advance for the same or another
Interest Period. Subject to the terms of Section 2.7, the Borrowers may elect
from time to time to convert all or any part of a Floating Rate Advance into a
Eurodollar Advance. The Borrowers shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
into a Eurodollar Advance or continuation of a Eurodollar Advance not later than
10:00 a.m. (Chicago time) at least three Business Days prior to the date of the
requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation,
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued, and
(iii) the amount of such Advance which is to be converted into or
continued as a Eurodollar Advance and the duration of the Interest
Period applicable thereto.
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2.11. Changes in Interest Rate, etc. Each Floating Rate Advance shall
------------------------------
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is automatically converted from a
Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.10, to but
excluding the date it is paid or is converted into a Eurodollar Advance pursuant
to Section 2.10 hereof, at a rate per annum equal to the Floating Rate for such
day. Changes in the rate of interest on that portion of any Advance maintained
as a Floating Rate Advance will take effect simultaneously with each change in
the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the
outstanding principal amount thereof from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined by the Agent as applicable to
such Eurodollar Advance based upon the Borrowers' selections under Sections 2.9
and 2.10 and otherwise in accordance with the terms hereof. No Interest Period
may end after the Facility Termination Date.
2.12. Rates Applicable After Default. Notwithstanding anything to the
------------------------------
contrary contained in Section 2.9 or 2.10, during the continuance of a Default
or Unmatured Default the Required Lenders may, at their option, by notice to the
Borrowers, declare that no Advance may be made as, converted into or continued
as a Eurodollar Advance. During the continuance of a Default the Required
Lenders may, at their option, by notice to the Borrowers, declare that (i) each
Eurodollar Advance shall bear interest for the remainder of the applicable
Interest Period at the rate otherwise applicable to such Interest Period plus 2%
per annum, (ii) each Floating Rate Advance shall bear interest at a rate per
annum equal to the Floating Rate in effect from time to time plus 2% per annum
and (iii) the LC Fee shall be increased by 2% per annum, provided that, during
the continuance of a Default under Section 7.6 or 7.7, the interest rates set
forth in clauses (i) and (ii) above and the increase in the LC Fee set forth in
clause (iii) above shall be applicable to all Credit Extensions without any
election or action on the part of the Agent or any Lender.
2.13. Method of Payment. All payments of the Obligations hereunder
-----------------
shall be made, without setoff, deduction, or counterclaim, in immediately
available funds to the Agent at the Agent's address specified pursuant to
Article XIII, or at any other Lending Installation of the Agent specified in
writing by the Agent to the Borrowers, by noon (local time) on the date when due
and shall (except in the case of Reimbursement Obligations for which the LC
Issuer has not been fully indemnified by the Lenders, or as otherwise
specifically required hereunder) be applied ratably by the Agent among the
Lenders. Each payment delivered to the Agent for the account of any Lender
shall be delivered promptly by the Agent to such Lender in the same type of
funds that the Agent received at its address specified pursuant to Article XIII
or at any Lending Installation specified in a notice received by the Agent from
such Lender. The Agent is hereby authorized to charge the account of any
Borrower maintained with Bank One for each payment of principal, interest,
Reimbursement Obligations and fees as it becomes due hereunder. Each reference
to the Agent in this Section 2.13 shall also be deemed to refer, and shall apply
equally, to the LC Issuer, in the case of payments required to be made by the
Borrowers to the LC Issuer pursuant to Section 2.20.6.
2.14. Noteless Agreement; Evidence of Indebtedness.
--------------------------------------------
2.14.1 Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrowers to such Lender
resulting from each Loan
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<PAGE>
made by such Lender from time to time, including the amounts of principal and
interest payable and paid to such Lender from time to time hereunder.
2.14.2 The Agent shall also maintain accounts in which it will record (i)
the amount of each Loan made hereunder, the Type thereof and the Interest Period
with respect thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrowers to each Lender
hereunder, (c) the original stated amount of each Facility LC and the amount of
LC Obligations outstanding at any time, and (d) the amount of any sum received
by the Agent hereunder from the Borrowers and each Lender's share thereof.
2.14.3 The entries maintained in the accounts maintained pursuant to
paragraphs (i) and (ii) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Agent or any Lender to maintain such accounts or any error therein shall
not in any manner affect the obligation of the Borrowers to repay the
Obligations in accordance with their terms.
2.14.4 Any Lender may request that its Loans be evidenced by a promissory
note (a "Note"). In such event, the Borrowers shall prepare, execute and
deliver to such Lender a Note payable to the order of such Lender in a form
supplied by the Agent. Thereafter, the Loans evidenced by such Note and
interest thereon shall at all times (including after any assignment pursuant to
Section 12.3) be represented by one or more Notes payable to the order of the
payee named therein or any assignee pursuant to Section 12.3, except to the
extent that any such Lender or assignee subsequently returns any such Note for
cancellation and requests that such Loans once again be evidenced as described
in paragraphs (i) and (ii) above.
2.15. Telephonic Notices. The Borrowers hereby authorize the Lenders
------------------
and the Agent to extend, convert or continue Advances, effect selections of
Types of Advances and to transfer funds based on telephonic notices made by any
person or persons the Agent or any Lender in good faith believes to be acting on
behalf of the Borrowers, it being understood that the foregoing authorization is
specifically intended to allow Borrowing Notices and Conversion/Continuation
Notices to be given telephonically. The Borrowers agree to deliver promptly to
the Agent a written confirmation, if such confirmation is requested by the Agent
or any Lender, of each telephonic notice signed by an Authorized Officer. If
the written confirmation differs in any material respect from the action taken
by the Agent and the Lenders, the records of the Agent and the Lenders shall
govern absent manifest error.
2.16. Interest Payment Dates; Interest and Fee Basis. Interest accrued
----------------------------------------------
on each Floating Rate Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof, on any date on which
the Floating Rate Advance is prepaid, whether due to acceleration or otherwise,
and at maturity. Interest accrued on that portion of the outstanding principal
amount of any Floating Rate Advance converted into a Eurodollar Advance on a day
other than a Payment Date shall be payable on the date of conversion. Interest
accrued on each Eurodollar Advance shall be payable on the last day of its
applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest
accrued on each Eurodollar Advance having an Interest Period longer than three
months shall also be payable on the last day of each three-month interval during
such Interest Period. Interest on all
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<PAGE>
Eurodollar Loans shall be calculated for actual days elapsed on the basis of a
360-day year. Interest on Floating Rate Loans, commitment fees and LC Fees shall
be calculated for actual days elapsed on a basis of a 365, or when appropriate a
366, day year. Interest shall be payable for the day an Advance is made but not
for the day of any payment on the amount paid if payment is received prior to
noon (local time) at the place of payment. If any payment of principal of or
interest on an Advance shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and, in the case
of a principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.17. Notification of Advances, Interest Rates, Prepayments and Commitment
--------------------------------------------------------------------
Reductions. Promptly after receipt thereof, the Agent will notify each Lender of
----------
the contents of each Aggregate Commitment reduction notice, Borrowing Notice,
Conversion/Continuation Notice, and repayment notice received by it hereunder.
Promptly after notice from the LC Issuer, the Agent will notify each Lender of
the contents of each request for issuance of a Facility LC hereunder. The Agent
will notify each Lender of the interest rate applicable to each Eurodollar
Advance promptly upon determination of such interest rate and will give each
Lender prompt notice of each change in the Alternate Base Rate.
2.18. Lending Installations. Each Lender may book its Loans and its
---------------------
participation in any LC Obligations and the LC Issuer may book the Facility LCs
at any Lending Installation selected by such Lender or the LC Issuer, as the
case may be, and may change its Lending Installation from time to time. All
terms of this Agreement shall apply to any such Lending Installation and the
Loans, Facility LCs, participations in LC Obligations and any Notes issued
hereunder shall be deemed held by each Lender or the LC Issuer, as the case may
be, for the benefit of any such Lending Installation. Each Lender and the LC
Issuer may, by written notice to the Agent and the Borrowers in accordance with
Article XIII, designate replacement or additional Lending Installations through
which Loans will be made by it or Facility LCs will be issued by it and for
whose account Loan payments or payments with respect to Facility LCs are to be
made.
2.19. Non-Receipt of Funds by the Agent. Unless the Borrowers or a Lender,
---------------------------------
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrowers, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrowers, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (x) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day for the first three days and,
thereafter, the interest rate applicable to the relevant Loan or (y) in the case
of payment by the Borrowers, the interest rate applicable to the relevant Loan.
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2.20. Facility LCs.
------------
2.20.1. Issuance. The LC Issuer hereby agrees, on the terms and conditions
--------
set forth in this Agreement, to issue standby and commercial letters of credit
(each, a "Facility LC") and to renew, extend, increase, decrease or otherwise
modify each Facility LC ("Modify," and each such action a "Modification"), from
time to time from and including the date of this Agreement and prior to the
Facility Termination Date upon the request of the Borrowers; provided that
immediately after each such Facility LC is issued or Modified, (i) the aggregate
amount of the outstanding LC Obligations shall not exceed $500,000 and (ii) the
Aggregate Outstanding Credit Exposure shall not exceed the Aggregate Commitment.
No Facility LC shall have an expiry date later than the earlier of (x) the fifth
Business Day prior to the Facility Termination Date and (y) one year after its
issuance.
2.20.2. Participations. Upon the issuance or Modification by the LC Issuer
--------------
of a Facility LC in accordance with this Section 2.20, the LC Issuer shall be
deemed, without further action by any party hereto, to have unconditionally and
irrevocably sold to each Lender, and each Lender shall be deemed, without
further action by any party hereto, to have unconditionally and irrevocably
purchased from the LC Issuer, a participation in such Facility LC (and each
Modification thereof) and the related LC Obligations in proportion to its Pro
Rata Share.
2.20.3. Notice. Subject to Section 2.20.1, the Borrowers shall give the LC
------
Issuer notice prior to 10:00 a.m. (Chicago time) at least five Business Days
prior to the proposed date of issuance or Modification of each Facility LC,
specifying the beneficiary, the proposed date of issuance (or Modification) and
the expiry date of such Facility LC, and describing the proposed terms of such
Facility LC and the nature of the transactions proposed to be supported thereby.
Upon receipt of such notice, the LC Issuer shall promptly notify the Agent, and
the Agent shall promptly notify each Lender, of the contents thereof and of the
amount of such Lender's participation in such proposed Facility LC. The issuance
or Modification by the LC Issuer of any Facility LC shall, in addition to the
conditions precedent set forth in Article IV (the satisfaction of which the LC
Issuer shall have no duty to ascertain), be subject to the conditions precedent
that such Facility LC shall be satisfactory to the LC Issuer and that the
Borrowers shall have executed and delivered such application agreement and/or
such other instruments and agreements relating to such Facility LC as the LC
Issuer shall have reasonably requested (each, a "Facility LC Application"). In
the event of any conflict between the terms of this Agreement and the terms of
any Facility LC Application, the terms of this Agreement shall control.
2.20.4. LC Fees. The Borrowers shall pay to the Agent, for the account of
-------
the Lenders ratably in accordance with their respective Pro Rata Shares, with
respect to each standby Facility LC, a letter of credit fee at a per annum rate
equal to the Applicable Margin for Eurodollar Loans in effect from time to time
on the average daily undrawn stated amount under such standby Facility LC, such
fee to be payable in arrears on each Payment Date ("LC Fee"). The Borrowers
shall also pay to the LC Issuer for its own account (x) at the time of issuance
of each Facility LC, a fronting fee in an amount to be agreed upon between the
LC Issuer and the Borrowers, and (y) documentary and processing charges in
connection with the issuance or Modification of and draws under Facility LCs in
accordance with the LC Issuer's standard schedule for such charges as in effect
from time to time.
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2.20.5. Administration; Reimbursement by Lenders. Upon receipt from the
----------------------------------------
beneficiary of any Facility LC of any demand for payment under such Facility LC,
the LC Issuer shall notify the Agent and the Agent shall promptly notify the
Borrowers and each other Lender as to the amount to be paid by the LC Issuer as
a result of such demand and the proposed payment date (the "LC Payment Date").
The responsibility of the LC Issuer to the Borrowers and each Lender shall be
only to determine that the documents (including each demand for payment)
delivered under each Facility LC in connection with such presentment shall be in
conformity in all material respects with such Facility LC. The LC Issuer shall
endeavor to exercise the same care in the issuance and administration of the
Facility LCs as it does with respect to letters of credit in which no
participations are granted, it being understood that in the absence of any gross
negligence or willful misconduct by the LC Issuer, each Lender shall be
unconditionally and irrevocably liable without regard to the occurrence of any
Default or any condition precedent whatsoever, to reimburse the LC Issuer on
demand for (i) such Lender's Pro Rata Share of the amount of each payment made
by the LC Issuer under each Facility LC to the extent such amount is not
reimbursed by the Borrowers pursuant to Section 2.20.6 below, plus (ii) interest
on the foregoing amount to be reimbursed by such Lender, for each day from the
date of the LC Issuer's demand for such reimbursement (or, if such demand is
made after 11:00 a.m. (Chicago time) on such date, from the next succeeding
Business Day) to the date on which such Lender pays the amount to be reimbursed
by it, at a rate of interest per annum equal to the Federal Funds Effective Rate
for the first three days and, thereafter, at a rate of interest equal to the
rate applicable to Floating Rate Advances.
2.20.6. Reimbursement by Borrowers. The Borrowers shall be irrevocably and
--------------------------
unconditionally jointly and severally obligated to reimburse the LC Issuer on or
before the applicable LC Payment Date for any amounts to be paid by the LC
Issuer upon any drawing under any Facility LC, without presentment, demand,
protest or other formalities of any kind; provided that neither the Borrowers
nor any Lender shall hereby be precluded from asserting any claim for direct
(but not consequential) damages suffered by the Borrowers or such Lender to the
extent, but only to the extent, caused by (i) the willful misconduct or gross
negligence of the LC Issuer in determining whether a request presented under any
Facility LC issued by it complied with the terms of such Facility LC or (ii) the
LC Issuer's failure to pay under any Facility LC issued by it after the
presentation to it of a request strictly complying with the terms and conditions
of such Facility LC. All such amounts paid by the LC Issuer and remaining unpaid
by the Borrowers shall bear interest, payable on demand, for each day until paid
at a rate per annum equal to (x) the rate applicable to Floating Rate Advances
for such day if such day falls on or before the applicable LC Payment Date and
(y) the sum of 2% plus the rate applicable to Floating Rate Advances for such
day if such day falls after such LC Payment Date. The LC Issuer will pay to each
Lender ratably in accordance with its Pro Rata Share all amounts received by it
from the Borrowers for application in payment, in whole or in part, of the
Reimbursement Obligation in respect of any Facility LC issued by the LC Issuer,
but only to the extent such Lender has made payment to the LC Issuer in respect
of such Facility LC pursuant to Section 2.20.5. Subject to the terms and
conditions of this Agreement (including without limitation the submission of a
Borrowing Notice in compliance with Section 2.8 and the satisfaction of the
applicable conditions precedent set forth in Article IV), the Borrowers may
request an Advance hereunder for the purpose of satisfying any Reimbursement
Obligation.
2.20.7. Obligations Absolute. The Borrowers' obligations under this
--------------------
Section 2.20 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff,
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counterclaim or defense to payment which the Borrowers may have or have had
against the LC Issuer, any Lender or any beneficiary of a Facility LC. The
Borrowers further agree with the LC Issuer and the Lenders that the LC Issuer
and the Lenders shall not be responsible for, and the Borrowers' Reimbursement
Obligation in respect of any Facility LC shall not be affected by, among other
things, the validity or genuineness of documents or of any endorsements thereon,
even if such documents should in fact prove to be in any or all respects
invalid, fraudulent or forged, or any dispute between or among the Borrowers,
any of their Affiliates, the beneficiary of any Facility LC or any financing
institution or other party to whom any Facility LC may be transferred or any
claims or defenses whatsoever of the Borrowers or of any of their Affiliates
against the beneficiary of any Facility LC or any such transferee. The LC Issuer
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Facility LC. The Borrowers agree that any
action taken or omitted by the LC Issuer or any Lender under or in connection
with each Facility LC and the related drafts and documents, if done without
gross negligence or willful misconduct, shall be binding upon the Borrowers and
shall not put the LC Issuer or any Lender under any liability to the Borrowers.
Nothing in this Section 2.20.7 is intended to limit the right of the Borrowers
to make a claim against the LC Issuer for damages as contemplated by the proviso
to the first sentence of Section 2.20.6.
2.20.8. Actions of LC Issuer. The LC Issuer shall be entitled to rely,
--------------------
and shall be fully protected in relying, upon any Facility LC, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon advice and statements of legal
counsel, independent accountants and other experts selected by the LC Issuer.
The LC Issuer shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first have received such advice or
concurrence of the Required Lenders as it reasonably deems appropriate or it
shall first be indemnified to its reasonable satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. Notwithstanding any other
provision of this Section 2.20, the LC Issuer shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement in
accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon the
Lenders and any future holders of a participation in any Facility LC.
2.20.9. Indemnification. The Borrowers hereby agree to jointly and
---------------
severally indemnify and hold harmless each Lender, the LC Issuer and the Agent,
and their respective directors, officers, agents and employees from and against
any and all claims and damages, losses, liabilities, costs or expenses which
such Lender, the LC Issuer or the Agent may incur (or which may be claimed
against such Lender, the LC Issuer or the Agent by any Person whatsoever) by
reason of or in connection with the issuance, execution and delivery or transfer
of or payment or failure to pay under any Facility LC or any actual or proposed
use of any Facility LC, including, without limitation, any claims, damages,
losses, liabilities, costs or expenses which the LC Issuer may incur by reason
of or in connection with (i) the failure of any other Lender to fulfill or
comply with its obligations to the LC Issuer hereunder (but nothing herein
contained shall affect any rights the Borrowers may have against any defaulting
Lender) or (ii) by reason of or on account of the LC Issuer issuing any Facility
LC which specifies that the term "Beneficiary" included therein includes any
successor by operation of law of the named Beneficiary, but which Facility LC
does not require that any drawing
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<PAGE>
by any such successor Beneficiary be accompanied by a copy of a legal document,
satisfactory to the LC Issuer, evidencing the appointment of such successor
Beneficiary; provided that the Borrowers shall not be required to indemnify any
Lender, the LC Issuer or the Agent for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (x) the
willful misconduct or gross negligence of the LC Issuer in determining whether a
request presented under any Facility LC complied with the terms of such Facility
LC or (y) the LC Issuer's failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and conditions
of such Facility LC. Nothing in this Section 2.20.9 is intended to limit the
obligations of the Borrowers under any other provision of this Agreement.
2.20.10. Lenders' Indemnification. Each Lender shall, ratably in
------------------------
accordance with its Pro Rata Share, indemnify the LC Issuer, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrowers) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees' gross negligence or willful
misconduct or the LC Issuer's failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and conditions
of the Facility LC) that such indemnitees may suffer or incur in connection with
this Section 2.20 or any action taken or omitted by such indemnitees hereunder.
2.20.11. Facility LC Collateral Account. The Borrowers agree that they
------------------------------
will, upon the request of the Agent or the Required Lenders and until the final
expiration date of any Facility LC and thereafter as long as any amount is
payable to the LC Issuer or the Lenders in respect of any Facility LC, maintain
a special collateral account pursuant to arrangements satisfactory to the Agent
(the "Facility LC Collateral Account") at the Agent's office at the address
specified pursuant to Article XIII, in the name of the Borrowers but under the
sole dominion and control of the Agent, for the benefit of the Lenders and in
which the Borrowers shall have no interest other than as set forth in Section
8.1. The Borrowers hereby pledge, assign and grant to the Agent, on behalf of
and for the ratable benefit of the Lenders and the LC Issuer, a security
interest in all of the Borrowers' right, title and interest in and to all funds
which may from time to time be on deposit in the Facility LC Collateral Account
to secure the prompt and complete payment and performance of the Obligations.
The Agent will invest any funds on deposit from time to time in the Facility LC
Collateral Account in certificates of deposit of Bank One having a maturity not
exceeding 30 days. Nothing in this Section 2.20.11 shall either obligate the
Agent to require the Borrowers to deposit any funds in the Facility LC
Collateral Account or limit the right of the Agent to release any funds held in
the Facility LC Collateral Account in each case other than as required by
Section 8.1.
2.20.12. Rights as a Lender. In its capacity as a Lender, the LC Issuer
------------------
shall have the same rights and obligations as any other Lender.
2.21 Collateral. The full and complete payment and performance of the
----------
Secured Obligations shall be secured under the Collateral Documents ratably and
pari passu by first and prior Lender Liens in, to and on all of the Borrowers'
Rights, titles, and interests in and to (but none of the Borrowers' obligations
with respect to) the following items and types of Property, all as more
particularly set forth in the Collateral Documents:
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<PAGE>
(i) All present and future Rights, titles and interests that the Borrowers
may now have or hereafter acquire in and to the Oil and Gas Properties
included in any determination or redetermination of the Borrowing Base,
including, but not limited to, oil and gas and/or oil, gas and mineral
leases and interests, royalty and overriding royalty interests,
production payment and net profits interests, mineral fee interests, and
Rights therein, including, without limitation, all reversionary or
carried interests relating to the foregoing, together with all present
and future Rights, titles and interests in and to all present and future
unitization, communitization and pooling agreements (and all properties
covered and units created thereby), whether arising by contract or
operation of Law, which now or hereafter include all or any part of the
foregoing and together with all lands now or hereafter subject to any of
the foregoing, and all tenements, hereditaments, appurtenances, and
properties in anywise appertaining, belonging, affixed or incidental to
any of the foregoing; and
(ii) All present and future oil, gas or other liquid and gaseous
hydrocarbons, and other minerals now or hereafter accruing to or
produced from mineral interests described in (i) preceding and/or to
which the Borrowers now or hereafter may be entitled as a result of
ownership thereof; and
(iii) Whether now owned or hereafter acquired, all present and future Rights,
titles and interests of the Borrowers (including without limitation, the
Rights to receive payments due thereunder) in and to any and all gas
sales contracts, oil, gas or other condensates or other products sales
contracts now or hereafter existing in connection with the Collateral
described hereinabove;
(iv) All present and future increases, profits, combinations and
reclassifications of, and substitutions and replacements for, all or
part of the Collateral heretofore described.
provided, Agent may elect, in its sole discretion, to not record Collateral
Documents with respect to certain minor value Property not to exceed ten percent
(10%) of the total value of Borrowers' producing Oil and Gas Property.
The Lender Liens in the Collateral shall be further evidenced and governed
by the Collateral Documents.
ARTICLE III
YIELD PROTECTION; TAXES
-----------------------
3.1. Yield Protection. If, on or after the date of this Agreement, the
----------------
adoption of any Law or any governmental or quasi-governmental rule, regulation,
policy, guideline or directive (whether or not having the force of Law), or any
change in the interpretation or administration thereof by any governmental or
quasi-governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender or
applicable Lending Installation or the LC Issuer with any request or directive
(whether or not having the force of Law) of any such authority, central bank or
comparable agency:
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(i) subjects any Lender or any applicable Lending Installation or the LC
Issuer to any Taxes, or changes the basis of taxation of payments
(other than with respect to Excluded Taxes) to any Lender or the LC
Issuer in respect of its Eurodollar Loans, Facility LCs or
participations therein or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended
by, any Lender or any applicable Lending Installation or the LC
Issuer (other than reserves and assessments taken into account in
determining the interest rate applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of which is to increase the
cost to any Lender or any applicable Lending Installation or the LC
Issuer of making, funding or maintaining its Eurodollar Loans, or of
issuing or participating in Facility LCs, or reduces any amount
receivable by any Lender or any applicable Lending Installation or
the LC Issuer in connection with its Eurodollar Loans, Facility LCs
or participations therein, or requires any Lender or any applicable
Lending Installation or the LC Issuer to make any payment calculated
by reference to the amount of Eurodollar Loans, Facility LCs or
participations therein held or interest or LC Fees received by it, by
an amount deemed material by such Lender or the LC Issuer as the case
may be,
and the result of any of the foregoing is to increase the cost to such Lender or
applicable Lending Installation or the LC Issuer, as the case may be, of making
or maintaining its Eurodollar Loans or Commitment or of issuing or participating
in Facility LCs or to reduce the return received by such Lender or applicable
Lending Installation or the LC Issuer, as the case may be, in connection with
such Eurodollar Loans, Commitment, Facility LCs or participations therein, then,
within 15 days of demand by such Lender or the LC Issuer, as the case may be,
the Borrowers shall pay such Lender or the LC Issuer, as the case may be, such
additional amount or amounts as will compensate such Lender or the LC Issuer, as
the case may be, for such increased cost or reduction in amount received.
3.2. Changes in Capital Adequacy Regulations. If a Lender or the LC Issuer
---------------------------------------
determines the amount of capital required or expected to be maintained by such
Lender or the LC Issuer, any Lending Installation of such Lender or the LC
Issuer, or any corporation controlling such Lender or the LC Issuer is increased
as a result of a Change, then, within 15 days of demand by such Lender or the LC
Issuer, the Borrowers shall pay such Lender or the LC Issuer the amount
necessary to compensate for any shortfall in the rate of return on the portion
of such increased capital which such Lender or the LC Issuer determines is
attributable to this Agreement, its Outstanding Credit Exposure or its
Commitment to make Loans and issue or participate in Facility LCs, as the case
may be, hereunder (after taking into account such Lender's or the LC Issuer's
policies as to capital adequacy). "Change" means (i) any change after the date
of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of
or change in any other Law, governmental or quasi-governmental rule, regulation,
policy, guideline, interpretation, or directive (whether or not having the force
of Law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by any Lender or the LC Issuer or any
Lending Installation or any corporation controlling any Lender or the LC Issuer.
"Risk-Based Capital Guidelines" means
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(i) the risk-based capital guidelines in effect in the United States on the date
of this Agreement, including transition rules, and (ii) the corresponding
capital regulations promulgated by regulatory authorities outside the United
States implementing the July 1988 report of the Basle Committee on Banking
Regulation and Supervisory Practices Entitled "International Convergence of
Capital Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
3.3. Availability of Types of Advances. If any Lender determines that
---------------------------------
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable Law, rule, regulation, or directive, whether or not
having the force of Law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available or (ii) the interest rate applicable to Eurodollar Advances does not
accurately reflect the cost of making or maintaining Eurodollar Advances, then
the Agent shall suspend the availability of Eurodollar Advances and require any
affected Eurodollar Advances to be repaid or converted to Floating Rate
Advances, subject to the payment of any funding indemnification amounts required
by Section 3.4.
3.4. Funding Indemnification. If any payment of a Eurodollar Advance
-----------------------
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrowers for any reason other
than default by the Lenders, the Borrowers will jointly and severally indemnify
each Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain such Eurodollar Advance.
3.5. Taxes.
-----
3.5.1 All payments by the Borrowers to or for the account of any Lender,
the LC Issuer or the Agent hereunder or under any Note or Facility LC
Application shall be made free and clear of and without deduction for any and
all Taxes. If the Borrowers shall be required by Law to deduct any Taxes from or
in respect of any sum payable hereunder to any Lender, the LC Issuer or the
Agent, (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 3.5) such Lender, the LC Issuer or the Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrowers shall make such deductions, (iii)
the Borrowers shall pay the full amount deducted to the relevant authority in
accordance with applicable Law and (d) the Borrowers shall furnish to the Agent
the original copy of a receipt evidencing payment thereof within 30 days after
such payment is made.
3.5.2 In addition, the Borrowers hereby jointly and severally agree to pay
any present or future stamp or documentary taxes and any other excise or
property taxes, charges or similar levies which arise from any payment made
hereunder or under any Note or Facility LC Application or from the execution or
delivery of, or otherwise with respect to, this Agreement or any Note or
Facility LC Application ("Other Taxes").
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3.5.3 The Borrowers hereby jointly and severally agree to indemnify the
Agent, the LC Issuer and each Lender for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed on amounts
payable under this Section 3.5) paid by the Agent, the LC Issuer or such Lender
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto. Payments due under this indemnification shall be made
within 30 days of the date the Agent, the LC Issuer or such Lender makes demand
therefor pursuant to Section 3.6.
3.5.4 Each Lender that is not incorporated under the Laws of the United
States of America or a state thereof (each a "Non-U.S. Lender") agrees that it
will, not less than ten Business Days after the date of this Agreement, (i)
deliver to each of the Borrowers and the Agent two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224, certifying in either
case that such Lender is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes, and
(ii) deliver to each of the Borrowers and the Agent a United States Internal
Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to
an exemption from United States backup withholding tax. Each Non-U.S. Lender
further undertakes to deliver to each of the Borrowers and the Agent (x)
renewals or additional copies of such form (or any successor form) on or before
the date that such form expires or becomes obsolete, and (y) after the
occurrence of any event requiring a change in the most recent forms so delivered
by it, such additional forms or amendments thereto as may be reasonably
requested by the Borrowers or the Agent. All forms or amendments described in
the preceding sentence shall certify that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, Law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form or amendment with respect to it and such Lender advises
the Borrowers and the Agent that it is not capable of receiving payments without
any deduction or withholding of United States federal income tax.
3.5.5 For any period during which a Non-U.S. Lender has failed to provide
the Borrowers with an appropriate form pursuant to Section 3.5.4 above (unless
such failure is due to a change in treaty, Law or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
occurring subsequent to the date on which a form originally was required to be
provided), such Non-U.S. Lender shall not be entitled to indemnification under
this Section 3.5 with respect to Taxes imposed by the United States; provided
that, should a Non-U.S. Lender which is otherwise exempt from or subject to a
reduced rate of withholding tax become subject to Taxes because of its failure
to deliver a form required under clause (iv), above, the Borrowers shall take
such steps as such Non-U.S. Lender shall reasonably request to assist such Non-
U.S. Lender to recover such Taxes.
3.5.6 Any Lender that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Note
pursuant to the Law of any relevant jurisdiction or any treaty shall deliver to
the Borrowers (with a copy to the Agent), at the time or times prescribed by
applicable Law, such properly completed and executed documentation prescribed by
applicable Law as will permit such payments to be made without withholding or at
a reduced rate.
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3.5.7 If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered or properly completed, because such Lender failed to notify
the Agent of a change in circumstances which rendered its exemption from
withholding ineffective, or for any other reason), such Lender shall indemnify
the Agent fully for all amounts paid, directly or indirectly, by the Agent as
tax, withholding therefor, or otherwise, including penalties and interest, and
including taxes imposed by any jurisdiction on amounts payable to the Agent
under this Section 3.5.7, together with all costs and expenses related thereto
(including attorneys fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent). The obligations of the Lenders under
this Section 3.5.7 shall survive the payment of the Obligations and termination
of this Agreement.
3.6. Lender Statements; Survival of Indemnity. To the extent reasonably
----------------------------------------
possible, each Lender shall designate an alternate Lending Installation with
respect to its Eurodollar Loans to reduce any liability of the Borrowers to such
Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of
Eurodollar Advances under Section 3.3, so long as such designation is not, in
the judgment of such Lender, disadvantageous to such Lender. Each Lender shall
deliver a written statement of such Lender to the Borrowers (with a copy to the
Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such
written statement shall set forth in reasonable detail the calculations upon
which such Lender determined such amount and shall be final, conclusive and
binding on the Borrowers in the absence of manifest error. Determination of
amounts payable under such Sections in connection with a Eurodollar Loan shall
be calculated as though each Lender funded its Eurodollar Loan through the
purchase of a deposit of the type and maturity corresponding to the deposit used
as a reference in determining the Eurodollar Rate applicable to such Loan,
whether in fact that is the case or not. Unless otherwise provided herein, the
amount specified in the written statement of any Lender shall be payable on
demand after receipt by the Borrowers of such written statement. The obligations
of the Borrowers under Sections 3.1, 3.2, 3.4 and 3.5 shall survive payment of
the Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.1. Initial Credit Extension. The Lenders shall not be required to make
------------------------
the initial Credit Extension hereunder unless the Borrowers have furnished the
following to the Agent with sufficient copies for the Lenders:
(i) This Agreement.
(ii) Copies of the articles or certificate of incorporation of each
Borrower, together with all amendments, and a certificate of good
standing, each certified by the appropriate governmental officer in
its jurisdiction of incorporation or organization.
(iii) Copies certified by the Secretary or Assistant Secretary of each
Borrower, of its by-laws (or partnership, operating or other
management agreement) and of its Board
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of Directors' (or partners' or members') resolutions and of
resolutions or actions of any other body authorizing the execution of
the Loan Documents to which such Borrower is a party.
(iv) Incumbency certificates, executed by the Secretary or Assistant
Secretary of each Borrower, which shall identify by name and title and
bear the signatures of the Authorized Officers and any other officers
of such Borrower authorized to sign the Loan Documents to which such
Borrower is a party, upon which certificate the Agent and the Lenders
shall be entitled to rely until informed of any change in writing by
such Borrower.
(v) A certificate, signed by the chief financial officer of the Borrowers,
stating that on the initial Credit Extension Date no Default or
Unmatured Default has occurred and is continuing.
(vi) If the initial Credit Extension will be the issuance of a Facility LC,
a properly completed Facility LC Application.
(vii) A written opinion of the counsel of Borrowers, addressed to the Agent
and Lenders and their counsel in substantially the form of Exhibit A-
1, and the written opinions of the local counsel of Borrowers in the
State of Mississippi addressed to the Agent and Lenders and their
counsel in substantially the form of Exhibit A-2.
(viii) Any Notes requested by a Lender pursuant to Section 2.14.4 payable to
the order of each such requesting Lender.
(ix) The Deeds of Trust, executed by the Borrowers, in a form satisfactory
to the Agent, the Lenders and their counsel with respect to the
Properties therein described, which are part of the Collateral, and
such other agreements, documents and instruments as may be necessary
and appropriate, in form and substance satisfactory to the Agent and
the Lenders executed and delivered by the Borrowers, as mortgagors or
assignors, in favor of the Agent, ratably for the Lenders, in order to
create and perfect the Lender Liens in and to all Collateral described
therein.
(x) [Intentionally Omitted]
(xi) The Pledge Agreement, executed by the Company in a form satisfactory
to the Agent, the Lenders, and their counsels with respect to the
Properties therein described, which are a part of the Collateral, and
such other agreements, documents and instruments as may be necessary
and appropriate, in a form and substance satisfactory to the Agent and
the Lenders executed and delivered by the Company as debtor or
assignor, in favor of the Agent, ratably for the Lenders, in order to
create and perfect the Lender Liens in and to all the Collateral
described therein.)
(xii) Written money transfer instructions, in substantially the form of
Exhibit D, addressed to the Agent and signed by an Authorized Officer
of the Borrowers, together with
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such other related money transfer authorizations as the Agent may have
reasonably requested.
(xiii) The Financial Statements described in Section 5.4, together with a
closing balance sheet, as of May 31, 2000, reflecting working capital
and capitalization consistent with the pro forma balance sheet
previously delivered to Agent.
(xiv) Title Opinions from counsel with respect to the producing Oil and Gas
Properties included in the Collateral and in a form acceptable to the
Agent and the Lenders, covering at least ninety percent of the
aggregate value of the Borrowers in such Oil and Gas Properties.
(xv) The Initial Reserve Report.
(xvi) [Intentionally Omitted]
(xvii) Documents (a) confirming the payment in full of all Indebtedness
under the Existing Agreement, (b) assigning all Liens on any of the
Borrowers' Property securing such Indebtedness to the Agent for the
benefit of the Lenders, and (c) terminating the Existing Agreement.
(xviii) Documents confirming (a) the consummation of the Company's proposed
common equity offering and the receipt by the Company of gross
proceeds of not less than $5,000,000 as evidenced by the documents and
instruments governing the Guardian Indebtedness and confirming that no
cash interest or principal payments will be paid thereon , (b) that
the outstanding amount of the Amerada Hess Indebtedness does not
exceed $1,500,000, (c) that all proceeds of the Company's common
equity offering exceeding $5,000,000 have been applied to reduce the
outstanding Veritas Indebtedness, and (d) that the Veritas
Indebtedness has been converted to a note maturing in not less than 36
months and requiring no cash interest or principal payments except as
permitted herein.
(xix) Documents in form and substance satisfactory to Agent subordinating
the Amerada Hess Indebtedness, the Guardian Indebtedness and the
Veritas Indebtedness to the Obligations.
(xx) Completion of a satisfactory field audit by Agent with respect to
Borrowers' accounts receivable and accounts payable.
(xxi) A certificate, signed by the President of the Borrowers stating that
the representations and warranties contained in Article V hereof shall
be true and correct on and as of the date of the making of the initial
Credit Extension with the same effect as if made on and as of such
date.
(xxii) The insurance certificate(s) described in Section 5.19.
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(xxiii) There shall not have been, in the sole judgment of the Agent, any
material adverse change in the financial condition, business, or
operations of any Borrower.
(xxiv) Payment of all facility and administrative fees required to be paid
pursuant to any Loan Document or any commitment agreement heretofore
entered into and legal fees and disbursements of Agent's counsel.
(xxv) Documents in form and substance satisfactory to Agent establishing
the Rate Management Transactions required pursuant to Section 6.25.
(xxvi) Such other documents as any Lender or its counsel may have reasonably
requested.
4.2. Each Credit Extension. The Lenders shall not be required to make any
---------------------
Credit Extension unless on the applicable Credit Extension Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are true and
correct as of such Credit Extension Date except to the extent any such
representation or warranty is stated to relate solely to an earlier
date, in which case such representation or warranty shall have been
true and correct on and as of such earlier date.
(iii) There exists no litigation, arbitration, governmental investigation,
proceeding or inquiry pending threatened against the Borrowers which,
if adversely determined, could reasonably be expected to have a
Material Adverse Effect.
(iv) All legal matters incident to the making of such Credit Extension
shall be satisfactory to the Lenders and their counsel.
(v) There shall not have been, in the sole judgment of the Lenders, any
change from any Borrower's financial condition and operation as
reflected in the Company's consolidated financial statements dated
December 31, 1999, that would have a Material Adverse Effect on the
financial condition, business or operations of any Borrower.
Each Borrowing Notice or request for issuance of a Facility LC with respect
to each such Credit Extension shall constitute a representation and warranty by
the Borrowers that the conditions contained in Sections 4.2(i) and (ii) have
been satisfied. Any Lender may require a duly completed compliance certificate
in substantially the form of Exhibit E as a condition to making a Credit
Extension.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrowers represent and warrant to the Lenders that:
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5.1. Existence and Standing. Each Borrower is a corporation,
----------------------
partnership (in the case of Subsidiaries only) or limited liability company duly
and properly incorporated or organized, as the case may be, validly existing and
(to the extent such concept applies to such entity) in good standing under the
Laws of its jurisdiction of incorporation or organization and has all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted. No Borrower has used or transacted business under any other
corporate or trade name in the five (5) year period preceding the date hereof.
5.2. Authorization and Validity. Each Borrower has the power and authority
--------------------------
and legal right to execute and deliver the Loan Documents to which it is a party
and to perform its obligations thereunder. The execution and delivery by each
Borrower of the Loan Documents to which it is a party and the performance of its
obligations thereunder have been duly authorized by proper corporate
proceedings, and the Loan Documents to which each Borrower is a party constitute
legal, valid and binding obligations of such Borrower enforceable against such
Borrower in accordance with their terms, except as enforceability may be limited
by bankruptcy, insolvency or similar Laws affecting the enforcement of
creditors' rights generally.
5.3. No Conflict; Government Consent. Neither the execution and
-------------------------------
delivery by any Borrower of the Loan Documents to which it is a party, nor the
consummation of the transactions therein contemplated, nor compliance with the
provisions thereof will violate (i) any Law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Borrowers or (ii) any
Borrower's articles or certificate of incorporation, partnership agreement,
certificate of partnership, articles or certificate of organization, by-laws, or
operating or other management agreement, as the case may be, or (iii) the
provisions of any indenture, instrument or agreement to which any Borrower is a
party or is subject, or by which it, or its Property, is bound, or conflict with
or constitute a default thereunder, or result in, or require, the creation or
imposition of any Lien in, of or on the Property of any Borrower pursuant to the
terms of any such indenture, instrument or agreement. No order, consent,
adjudication, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, or other action in respect of
any governmental or public body or authority, or any subdivision thereof, which
has not been obtained by the Borrowers, is required to be obtained by the
Borrowers in connection with the execution and delivery of the Loan Documents,
the borrowings under this Agreement, the payment and performance by the
Borrowers of the Obligations or the legality, validity, binding effect or
enforceability of any of the Loan Documents.
5.4. Financial Statements. The December 31, 1999 audited and March 31,
--------------------
2000 unaudited consolidated financial statements of the Company and its
Subsidiaries heretofore delivered to the Lenders were prepared in accordance
with generally accepted accounting principles in effect on the date such
statements were prepared and fairly present the consolidated financial condition
and operations of the Company and its Subsidiaries at such date and the
consolidated results of their operations for the period then ended.
5.5. Material Adverse Change. Since December 31, 1999, there has been no
-----------------------
change in the business, Property, prospects, condition (financial or otherwise)
or results of operations of any Borrower which could reasonably be expected to
have a Material Adverse Effect.
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<PAGE>
5.6. Taxes. The Borrowers have filed all United States federal tax
-----
returns and all other tax returns which are required to be filed and have paid
all Taxes due pursuant to said returns or pursuant to any assessment received by
the Borrowers, except such Taxes, if any, as are being contested in good faith
and as to which adequate reserves have been provided in accordance with
Agreement Accounting Principles and as to which no Lien exists. No tax liens
have been filed and no claims are being asserted with respect to any such Taxes.
The charges, accruals and reserves on the books of the Borrowers in respect of
any Taxes or other governmental charges are adequate. If any Borrower is a
limited liability company, each such limited liability company qualifies for
partnership tax treatment under United States federal tax law.
5.7. Litigation and Contingent Obligations. There is no litigation,
-------------------------------------
arbitration, governmental investigation, proceeding or inquiry pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrowers which could reasonably be expected to have a Material Adverse Effect
or which seeks to prevent, enjoin or delay the making of any Credit Extensions.
Other than any liability incident to any litigation, arbitration or proceeding
which is set forth on the Disclosure Schedule, the Borrowers have no material
Contingent Obligations not provided for or disclosed in the financial statements
referred to in Section 5.4.
5.8. Subsidiaries. Schedule 5.8 contains an accurate list of all
------------
Subsidiaries of the Company as of the date of this Agreement, setting forth
their respective jurisdictions of organization and the percentage of their
respective capital stock or other ownership interests owned by the Company or
other Subsidiaries. All of the issued and outstanding shares of capital stock
or other ownership interests of such Subsidiaries have been (to the extent such
concepts are relevant with respect to such ownership interests) duly authorized
and issued and are fully paid and non-assessable.
5.9. ERISA. The Unfunded Liabilities of all Single Employer Plans do
-----
not in the aggregate exceed $100,000. Neither the Borrowers nor any other
member of the Controlled Group has incurred, or is reasonably expected to incur,
any withdrawal liability to Multiemployer Plans in excess of $100,000 in the
aggregate. Each Plan complies in all material respects with all applicable
requirements of Law and regulations, no Reportable Event has occurred with
respect to any Plan, no Borrower nor any other member of the Controlled Group
has withdrawn from any Plan or initiated steps to do so, and no steps have been
taken to reorganize or terminate any Plan.
5.10. Accuracy of Information. No information, exhibit or report
-----------------------
furnished by the Borrowers to the Agent or to any Lender in connection with the
negotiation of, or compliance with, the Loan Documents contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein not misleading.
5.11. Regulation U. Margin stock (as defined in Regulation U)
------------
constitutes less than 25% of the value of those assets of the Borrowers which
are subject to any limitation on sale, pledge, or other restriction hereunder.
5.12. Material Agreements. Except as set forth on Schedule 5.12, no
-------------------
Borrower is a party to any agreement or instrument or subject to any charter or
other corporate restriction which could reasonably be expected to have a
Material Adverse Effect. No Borrower is in default in the
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<PAGE>
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in (i) any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect or (ii) any
agreement or instrument evidencing or governing Indebtedness.
5.13. Compliance With Laws. The Borrowers have complied with all
--------------------
applicable statutes, rules, regulations, orders and restrictions of any domestic
or foreign government or any instrumentality or agency thereof having
jurisdiction over the conduct of their respective businesses or the ownership of
their respective Property, except for any failure to comply with any of the
foregoing which could not reasonably be expected to have a Material Adverse
Effect. The Borrowers have all licenses, permits, franchises, or other
governmental authorizations necessary for the ownership and operation of the Oil
and Gas Properties or the conduct of their respective business, and are in
compliance with the terms and conditions or all such licenses, permits,
franchises, or other governmental authorizations. The Oil and Gas Properties
(and properties unitized therewith) have been maintained, operated and developed
in a good and worker like manner and in conformity with all applicable Laws and
all rules, regulations and orders of all duly constituted Tribunals having
jurisdiction and in conformity with the provisions of all leases, subleases or
other contracts comprising a part of the Hydrocarbon Interests and other
contracts and agreements forming a part of the Oil and Gas Properties;
specifically in this connection, (i) after the Closing Date, no Oil and Gas
Property is subject to having allowable production reduced below the full and
regular allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) prior to
the Closing Date; and (ii) none of the wells comprising a part of the Oil and
Gas Properties (or properties unitized therewith) are deviated from the vertical
more than the maximum permitted by applicable Laws and regulations, rules and
orders of any Tribunal having appropriate jurisdiction, and such wells are, in
fact, bottomed under and are producing from, and the wellbores are wholly
within, the Oil and Gas Properties (or in the case of wells located on
properties unitized therewith, such unitized properties).
5.14. Ownership/Title to the Property; Licenses; Liens.
------------------------------------------------
5.14.1 Except as set forth on Schedule 5.14, on the date of this Agreement,
the Borrowers have good title, free of all Liens other than those permitted by
Section 6.16, to all of the Property (including but not limited to their
respective material Oil and Gas Properties) and assets reflected in the
Borrowers' most recent consolidated financial statements provided to the Agent
as owed by the Borrowers. On the date of this Agreement, after giving full
effect to the Liens permitted under Section 6.16, the Borrowers own the net
interests in production attributable to the wells and units evaluated in the
Initial Reserve Report or the most recent Reserve Report furnished to the
Lenders pursuant to Section 6.1(xi). The ownership of the Oil and Gas
Properties shall not in any material respect obligate the Borrowers to bear the
costs and expenses relating to the maintenance, development and operations of
each such Oil and Gas Property in any amount in excess of the working interest
of each Oil and Gas Property set forth in the Initial Reserve Report or the most
recent Reserve Report furnished to the Lenders pursuant to Section 6.1. The
Borrowers have paid all royalties payable under the oil and gas leases to which
they are operator, except those contested in accordance with the terms of the
applicable joint operating agreement or otherwise contested in good faith by
appropriate proceedings. Upon the delivery of each Reserve Report furnished to
the Lenders pursuant to Section 6.1, the statements made in the preceding
sentences of this section shall be true with respect to such Reserve Reports.
All information contained in the Initial Reserve Report
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<PAGE>
or the most recent Reserve Report provided to the Lenders (whichever is most
recent) is true and correct in all material respects.
5.14.2 The Borrowers possess all licenses, permits, franchises, patents,
copyrights, trademarks and trade names, and other intellectual property (or
otherwise possess the right to use such intellectual property without violation
of the rights of any other Person) which are necessary to carry out its business
as presently conducted and as presently proposed to be conducted hereafter, and
no Borrower is in violation in any material respect of the terms under which it
possesses such intellectual property or the right to use such intellectual
property.
5.14.3 Upon filing of the Deeds of Trust with the Clerk of the County or
Parish where the Property thereby covered is located and the financing
statements with the appropriate governmental entity, the Collateral Documents
will constitute legal, valid and continuing perfected first liens on the
Collateral as security for the Obligation, free and clear of all other Liens,
except for the Liens permitted by Section 6.16.
5.15. Plan Assets; Prohibited Transactions. No Borrower is an entity
------------------------------------
deemed to hold "plan assets" within the meaning of 29 C.F.R. (S) 2510.3-101 of
an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject
to Title I of ERISA or any plan (within the meaning of Section 4975 of the
Code), and neither the execution of this Agreement nor the making of Credit
Extension hereunder gives rise to a prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code.
5.16 Environmental Matters. As used in this section, "CERCLA" means
---------------------- ------
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and "CERCLIS" means the Comprehensive Environmental Response,
-------
Compensation and Liability Information System List of the Environmental
Protection Agency. The Disclosure Schedule identifies (a) all environmental
audits, analyses, assessments, or occupational health studies (whether routine
or special) with regard to any Property ordered or undertaken by the Borrowers
or under the direction, suggestion of or by any government, lender or other
person with an interest in such Property, any insurer or any predecessor
landowner or lessee of such Property or predecessor in interest; (b) the results
of any and all tests or analyses of water, soil, air, buildings on or near any
Property, whether or not compliance was questioned or indicated which have been
taken or made in the period five (5) years prior to the date hereof, whether
conducted by the Borrowers or any predecessor landowner or lessee of the
Property, any government or any other person; (c) the results of and
circumstances surrounding any government inspection or audit of any Property or
each operating entity of the Borrowers whether routine or relating directly or
indirectly to its use of contamination or non-compliance with the Environmental
Laws; or (d) any claim or complaint concerning the Environmental Laws relative
to the Borrowers. Except as set forth in the Disclosure Schedule or a
Disclosure Report:
(i) The Borrowers are conducting their businesses in compliance with all
applicable Laws, including Environmental Laws, and have all permits,
licenses, and authorizations required in connection with the conduct
of their businesses. The Borrowers are in compliance with the terms
and conditions of all such permits, licenses, and authorizations, and
are also in compliance with all other limitations,
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<PAGE>
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in any applicable
Environmental Law or in any regulation, code, law, order, decree,
judgment, injunction, notice, or demand letter issued, entered,
promulgated, or approved thereunder, except to the extent failure to
comply could not have a Material Adverse Effect.
(ii) No notice, notification, demand, request for information, citation,
summons, or order has been issued, no complaint has filed, no
penalty has been assessed, and no investigation or review is pending
or threatened by any Tribunal or any other Person with respect to
(a) any alleged generation, treatment, storage, recycling,
transportation, disposal, or Release of any Hazardous Materials by
the Borrowers or on any Property owned by the Borrowers, (b) any
material remedial action which might be needed to respond to any
such alleged generation, treatment, storage, recycling,
transportation, disposal, or Release, or (c) any alleged failure by
the Borrowers to have any permit, license, or authorization required
in connection with the conduct of their businesses or with respect
to any such generation, treatment, storage, recycling,
transportation, disposal, or Release.
(iii) No Borrower otherwise has any known material contingent liability in
connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of Hazardous
Materials.
(iv) No Borrower has handled any Hazardous Materials, other than a
generator, on any properties now or previously owned or leased by
the Borrowers to an extent that such handling has or could have a
Material Adverse Effect; and
(a) no PCBs are or have been present at any properties now or
previously owned or leased by the Borrowers;
(b) no asbestos is or has been present at any properties now or
previously owned or leased by the Borrowers;
(c) there are no underground storage tanks for Hazardous Materials,
active or abandoned, at any properties now or previously owned
or leased by the Borrowers, and those tanks, if any, listed on
the Disclosure Schedule are presently and have been in the past
in good conditions and do not leak and the Borrowers are in
full compliance with the regulations set forth in 40 C.F.R.
Part 280, as amended;
(d) no Hazardous Materials have been Released, in a reportable
quantity, where such quantity has been established by statute,
ordinance, rule, regulation, or order, at, on or under any
properties now or previously owned or leased by the Borrowers;
and
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<PAGE>
(e) no Hazardous Materials have been otherwise Released, at on or
under any properties now or previously owned or leased by the
Borrowers to an extent that such Release has or could have a
Material Adverse Effect.
(v) No Borrower has transported or arranged for the transportation of
any Hazardous Materials to any location which is listed on the
National Priorities List under CERCLA, listed for possible inclusion
on the National Priorities List by the Environmental Protection
Agency in CERCLIS, or listed on any similar state list or which is
the subject of federal, state, or local enforcement actions, or
other investigations which may lead to claims against the Borrowers
for clean-up costs, remedial work, damages to natural resources or
for personal injury claims, including, but not limited, to claims
under CERCLA.
(vi) No Hazardous Material generated by the Borrowers has been recycled,
treated, stored, disposed or released by the Borrowers at any
location other than those listed in the Disclosure Schedule.
(vii) No oral or written notification of a Release of a Hazardous Material
has been filed by or on behalf of the Borrowers (and to the best
knowledge of the Borrowers, no such notification has been filed with
respect to the Borrowers by any other Person), and no Property now
or previously owned or leased by the Borrowers is listed or proposed
for listing on the National Priority List promulgated pursuant to
CERCLA, in CERCLIS, or on any other similar state list of sites
requiring investigation or clean-up.
(viii) There are no Liens arising under or pursuant to any Environmental
Laws on any of the real properties or properties owned or leased by
the Borrowers, and no government actions have been taken or are in
process which could subject any of such properties to such Liens;
nor would the Borrowers be required to place any notice or
restrictions relating to the presence of Hazardous Materials at any
properties owned by it in any deed to such properties.
(ix) There have been no environmental investigations, studies, audits,
tests, review, no other analyses conducted by or which are in the
possession of the Borrowers in relation to any properties or
facility now or previously owned or leased by the Borrowers, which
have not been made available to Agent.
5.17. Investment Company Act. No Borrower is an "investment company" or
----------------------
a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
5.18. Public Utility Holding Company Act; Federal Power Act. No Borrower
-----------------------------------------------------
is a "holding company" or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or subject to the Federal Power Act or any other
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<PAGE>
Law relating to common contract carriers or the sale of electricity, gas, steam,
water, or other public utility.
5.19. Insurance. The certificate signed by the President or Chief
---------
Financial Officer of the Borrowers, that attests to the existence and adequacy
of, and summarizes, the property and casualty insurance program carried by the
Borrowers with respect to themselves and that has been furnished by the
Borrowers to the Agent and the Lenders, is complete and accurate. This summary
includes the insurer's or insurers' name(s), policy number(s), expiration
date(s), amount(s) of coverage, type(s) of coverage, exclusion(s), and
deductibles. This summary also includes similar information, and describes any
reserves, relating to any self-insurance program that is in effect.
5.20. Solvency.
--------
5.20.1 Immediately after the consummation of the transactions to occur on
the date hereof and immediately following the making of each Loan, if any, made
on the date hereof and after giving effect to the application of the proceeds of
such Loans, (i) the fair value of the assets of the Borrowers on a consolidated
basis, at a fair valuation, will exceed the debts and liabilities, subordinated,
contingent or otherwise, of the Borrowers on a consolidated basis; (ii) the
present fair saleable value of the Property of the Borrowers on a consolidated
basis will be greater than the amount that will be required to pay the probable
liability of the Borrowers on a consolidated basis on their debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (iii) the Borrowers on a consolidated
basis will be able to pay their debts and liabilities, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured; and
(iv) the Borrowers on a consolidated basis will not have unreasonably small
capital with which to conduct the businesses in which they are engaged as such
businesses are now conducted and are proposed to be conducted after the date
hereof.
5.20.2 No Borrower intends to, and does not believe that it will, incur
debts beyond its ability to pay such debts as they mature, taking into account
the timing of and amounts of cash to be received by it and the timing of the
amounts of cash to be payable on or in respect of its Indebtedness.
5.21. Burdensome Provisions. No Borrower is a party to any agreement or
---------------------
instrument containing any burdensome or uncustomary provisions, or subject to
any charter or other corporate restrictions or to any judgment, order, writ,
injunction, decree, award, rule or regulation, which will or could cause a
Material Adverse Effect.
5.22. Relationship with the Lenders. No Borrower nor any Person having
-----------------------------
"control" (as that term is defined in 12 U.S.C. (S) 375b(9) or in regulations
promulgated pursuant thereto) of any Borrower is an "executive officer,"
"director," or "principal shareholder" (as those terms are defined in 12 U.S.C.
(S) 375b(8) or (9) or in regulations promulgated pursuant thereto) of any
Lender, or a bank holding company of which Lender is a Subsidiary or of any
Subsidiary of a bank holding company of which any Lender is a Subsidiary.
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5.23. Principal Office. The principal place of business, the chief
----------------
executive office and the place at which the books and records of the Borrowers
are located at the address of the Borrowers set forth on the signature pages
hereto.
5.24. Full Disclosure. Neither the Loan Documents nor any other agreement,
---------------
document, certificate or statement furnished to the Lenders by or on behalf of
the Borrowers in connection with the transactions contemplated in any of the
Loan Documents contains any untrue statement of material fact or omits to state
a material fact necessary in order to make statements contained herein or
therein not misleading. There are no significant material facts or conditions
relating to the making of Advances, any of the Collateral and/or the financial
condition and business of the Borrowers which could, collectively or
individually, cause a Material Adverse Effect, and which have not been fully
disclosed, in writing, to the Lenders. There are no statements or conclusions in
any Reserve Report which are based upon or include misleading information or
fail to take into account material information regarding the matter reported
therein, it being understood that each Reserve Report is necessarily based upon
professional opinions, estimates, projections, and that Borrowers do not warrant
that such opinions, estimates, and projections will ultimately prove to have
been accurate. The Borrowers have heretofore delivered to each Lender true,
correct and complete copies of the Initial Reserve Report. All writings
heretofore or hereafter exhibited or delivered to the Lenders by or on behalf of
the Borrowers are and will be genuine and in all respects what they purport to
be.
5.25. Gas Imbalances. As of the date of this Agreement, except as set
--------------
forth on the Disclosure Schedule, on a net basis there are no gas imbalances,
take or pay or other prepayments with respect to the Borrowers' Oil and Gas
Properties which would require the Borrowers to deliver Hydrocarbons produced
from the Borrowers' Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor.
5.26. Development Drilling. No Borrower has incurred any obligation for
--------------------
development or exploratory drilling.
5.27. No Default. No event has occurred and is continuing which
----------
constitutes a Default.
ARTICLE VI
COVENANTS
---------
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrowers will maintain a system of
-------------------
accounting established and administered in accordance with generally accepted
accounting principles, and furnish to the Lenders:
(i) Within 90 days after the close of each of its fiscal years, an
unqualified audit report certified by independent certified public
accountants acceptable to the Lenders, prepared in accordance with
Agreement Accounting Principles on a consolidated and consolidating
basis (consolidating statements need not be certified by such
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accountants) for the Company and its Subsidiaries, including balance
sheets as of the end of such period, related profit and loss and
reconciliation of surplus statements, and a statement of cash flows,
accompanied by (a) any management letter prepared by said
accountants, and (b) a certificate of said accountants that, in the
course of their examination necessary for their certification of the
foregoing, they have obtained no knowledge of any Default or
Unmatured Default, or if, in the opinion of such accountants, any
Default or Unmatured Default shall exist, stating the nature and
status thereof.
(ii) Within 45 days after the close of the first three quarterly periods
of each of its fiscal years, for the Company and its Subsidiaries,
consolidated and consolidating unaudited balance sheets as at the
close of each such period and consolidated and consolidating profit
and loss and reconciliation of surplus statements and a statement of
cash flows for the period from the beginning of such fiscal year to
the end of such quarter, all certified by its chief financial
officer.
(iii) As soon as available, but in any event within 30 days after the
beginning of each fiscal year of the Company, a copy of the plan and
forecast (including a projected consolidated and consolidating
balance sheet, income statement and funds flow statement) of the
Company for such fiscal year.
(iv) Together with the financial statements required under Sections
6.1(i) and (ii), a compliance certificate in substantially the form
of Exhibit E signed by its chief financial officer showing the
calculations necessary to determine compliance with this Agreement
and stating that no Default or Unmatured Default exists, or if any
Default or Unmatured Default exists, stating the nature and status
thereof.
(v) Within 270 days after the close of each fiscal year, a statement of
the Unfunded Liabilities of each Single Employer Plan, certified as
correct by an actuary enrolled under ERISA.
(vi) As soon as possible and in any event within 10 days after the
Borrowers knows that any Reportable Event has occurred with respect
to any Plan, a statement, signed by the chief financial officer of
the Borrowers, describing said Reportable Event and the action which
the Borrowers propose to take with respect thereto.
(vii) As soon as possible and in any event within 10 days after receipt by
the Borrowers, a copy of (a) any notice or claim to the effect that
the Borrowers are or may be liable to any Person as a result of the
release by the Borrowers or any other Person of any toxic or
hazardous waste or substance into the environment, and (b) any
notice alleging any violation of any federal, state or local
environmental, health or safety Law or regulation by the Borrowers.
(viii) Promptly upon the furnishing thereof to the shareholders of the
Borrowers, copies of all financial statements, reports and proxy
statements so furnished.
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(ix) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports
which the Borrowers file with the Securities and Exchange
Commission.
(x) Such other information (including non-financial information) as the
Agent or any Lender may from time to time reasonably request.
(xi) By May 15/th/ of each year, a Reserve Report prepared by Miller and
Lents Limited or other independent petroleum engineer chosen by the
Borrowers and acceptable to the Required Lenders (the "Independent
Engineer"), which report shall be dated as of January 1 of such
year, concerning the Oil and Gas Properties and interests owned by
Borrowers which are located in or offshore of the United States and
which have attributable to them proved oil or gas reserves. This
report shall be satisfactory to Agent, shall contain sufficient
information to enable the Borrowers to meet the reporting
requirements concerning oil and gas reserves contained in
Regulations S-K and S-X promulgated by the Securities and Exchange
Commission, shall take into account any "over-produced" status under
gas balancing arrangements, and shall contain information and
analysis comparable in scope to that contained in the Initial
Reserve Report, including the proven oil and gas reserves of the
Borrowers as of the date of such report, any updated production
history of the proven oil and gas reserves of the Borrowers as of
such date, the discounted net present value (at a rate acceptable to
the Lenders), the lease operating expenses attributable to the Oil
and Gas Properties of the Borrowers for the prior twelve month
period, together with any other information as to the operations of
the Borrowers as reasonably requested by the Lenders. Together with
such report, the Borrowers shall furnish to the Lenders such
additional data and information concerning pricing, quantities, or
volume of production from or attributable to the Oil and Gas
Properties with respect thereto as the Lenders may reasonably
request. This report shall distinguish (or shall be delivered
together with a certificate from an appropriate officer of the
Borrowers which distinguishes) those properties treated in the
report which are Collateral from those properties treated in the
report which are not Collateral.
(xii) By November 15/th/ of each year, and promptly following notice of an
additional Borrowing Base redetermination under Section 2.2, a
Reserve Report prepared as of the preceding October 1/st/ (or the
first day of the preceding calendar month in the case of an
additional redetermination) by petroleum engineers who are employees
of the Borrowers, together with an accompanying report on Oil and
Gas Property sales, Oil and Gas Property purchases and changes in
categories, both in the same form and scope as the reports in clause
(xi) above.
(xiii) As soon as available, and in any event within forty-five (45) days
after the end of each month, a report describing by lease or unit
the gross volume of production and sales attributable to production
during such month from the Oil and Gas Properties constituting
Collateral and describing the related severance taxes, other taxes,
leasehold operating expenses and capital costs attributable thereto
and incurred during such month.
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(xiv) As soon as available, and in any event within forty-five (45) days
after the end of each fiscal quarter, a report setting forth volumes,
prices and margins for all marketing activities of the Borrowers,
(xv) As soon as available, and in any event within forty-five days after
the end of each fiscal quarter, a list, by name and address, of those
Persons who have purchased production during such fiscal quarter from
the Oil and Gas Properties constituting Collateral, giving each such
purchaser's owner number for the Borrowers and each such purchaser's
property number for each such mortgaged Oil and Gas Property.
6.2. Use of Proceeds. The Borrowers will use the proceeds of the Credit
---------------
Extensions for working capital, operating expenses and to refinance the
Indebtedness under the Existing Agreement. The Borrowers will not use any of the
proceeds of the Advances to purchase or carry any "margin stock" (as defined in
Regulation U) or extend credit to others for the purpose of purchasing or
repurchasing or carrying margin stock.
6.3. Notice of Default. The Borrowers will give prompt notice in writing
-----------------
to the Lenders of the occurrence of any Default or Unmatured Default and of any
other development, financial or otherwise, which could reasonably be expected to
have a Material Adverse Effect.
6.4. Conduct of Business. Each Borrower will carry on and conduct its
-------------------
business in substantially the same manner and in substantially the same fields
of enterprise as it is presently conducted and do all things necessary to remain
duly incorporated or organized, validly existing and (to the extent such concept
applies to such entity) in good standing as a domestic corporation, partnership
or limited liability company in its jurisdiction of incorporation or
organization, as the case may be, and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted,
except where the failure to maintain such authority could not reasonably be
expected to have a Material Adverse Effect on the Company.
6.5. Taxes. Each Borrower will timely file complete and correct United
-----
States federal and applicable foreign, state and local tax returns required by
Law and pay when due all Taxes, assessments and governmental charges and levies
upon it or its income, profits or Property, except those which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside in accordance with Agreement Accounting
Principles. At any time that any Borrower is organized as a limited liability
company, each such limited liability company will qualify for partnership tax
treatment under United States federal tax law.
6.6 Trade Liabilities. Each Borrower will timely pay all liabilities
-----------------
owed by it on ordinary trade terms to vendors, suppliers, and other Persons
providing goods and services used by it in the ordinary course of its business,
except those which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been set aside in accordance
with Agreement Accounting Principles.
6.7. Insurance. Each Borrower will maintain with financially sound and
---------
reputable insurance companies insurance on all their Property in such amounts
and covering such risks as is
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consistent with sound business practice, and the Borrowers will furnish to any
Lender upon request full information as to the insurance carried.
6.8. Compliance with Laws. Each Borrower will comply with all Laws,
--------------------
rules, regulations, orders, writs, judgments, injunctions, decrees or awards to
which it may be subject including, without limitation, all Environmental Laws.
6.9. Maintenance of Properties. Each Borrower will do all things
-------------------------
necessary to maintain, preserve, protect and keep its Property in good repair,
working order and condition in accordance with good industry practices all of
the Collateral and the Oil and Gas Properties owned by Borrowers including,
without limitation, all equipment, machinery and facilities, and will make all
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times. The
state and condition of the Collateral and the Oil and Gas Properties owned by
the Borrowers will be fully preserved and maintained, except to the extent a
portion of such Oil and Gas Properties is no longer capable of producing
Hydrocarbons in economically reasonable amounts. Each Borrower will promptly pay
and discharge or cause to be paid and discharged all delay Rentals, royalties,
expenses and debt accruing under, and perform or cause to be performed each and
every act, matter or thing required by, each and all of the assignments, deeds,
leases, sub-leases, contracts and agreements affecting the Borrowers' interests
in its Oil and Gas Properties and will do all other things necessary to keep
unimpaired the Borrowers' rights with respect thereto and prevent any forfeiture
thereof or a default thereunder, except to the extent a portion of the Oil and
Gas Properties is no longer capable of producing Hydrocarbons in economically
reasonable amounts. The Borrowers will operate the Oil and Gas Properties owned
by the Borrowers or cause such Oil and Gas Properties to be operated in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
in all material respects with all Governmental Requirements.
6.10 Inspection. Each Borrower will permit the Agent and the Lenders, by
----------
their respective representatives and agents, to inspect any of the Property,
books and financial records of the Borrowers, to examine and make copies of the
books of accounts and other financial records of the Borrowers, and to discuss
the affairs, finances and accounts of the Borrowers with, and to be advised as
to the same by, their respective officers at such reasonable times and intervals
as the Agent or any Lender may designate.
6.11. Dividends and Payments on Indebtedness. No Borrower will declare or
--------------------------------------
pay any dividends or make any distributions on its capital stock (other than
dividends payable in its own capital stock) or redeem, repurchase or otherwise
acquire or retire any of its capital stock at any time outstanding, except that
any Borrower may declare and pay dividends or make distributions to another
Borrower. Except as provided below, no Borrower shall make any payments of
principal or interest on the Subordinated Indebtedness. Notwithstanding the
foregoing: (a) payments of principal and/or interest on the Veritas Indebtedness
shall be permitted provided that (i) they are limited to an amount which would
result in the Obligations not exceeding more than 80% of the Net Borrowing Base
following the making of such payments, or (ii) made out of the net proceeds of
equity offerings of the Company other than the first $5,000,000 in equity issued
to Guardian Energy Management Corp.; and (b) scheduled payments of principal and
interest on the Amerada Hess Indebtedness
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<PAGE>
provided that no Default shall have occurred and be continuing at the time of,
or result from, any such payment.
6.12. Indebtedness. No Borrower will directly or indirectly, create,
------------
incur or suffer to exist any Indebtedness, except:
(i) The Loans and the Reimbursement Obligations.
(ii) Indebtedness existing on the date hereof and described in Schedule
6.12.
(iii) Indebtedness arising under Rate Management Transactions permitted
under Section 6.25.
(iv) Indebtedness among Borrowers subordinated to the Obligations on
terms and conditions satisfactory to the Agent and the Required
Lenders.
(v) The Amerada Hess Indebtedness, the Guardian Indebtedness and the
Veritas Indebtedness, provided such Indebtedness is subordinated to
the Obligations on terms and conditions satisfactory to the Agent
and the Required Lenders.
(vi) Indebtedness associated with bonds or surety obligations required by
any governmental or regulatory authority in connection with the
ownership or operating of the Oil and Gas Properties in the ordinary
course of business.
6.13. Acquisitions and Merger. No Borrower will, directly or indirectly,
-----------------------
acquire all or any substantial portion of the property, assets or stock of, or
interest in, any Person, or merge or consolidate with or into any other Person,
except that a Borrower may merge into another Borrower.
6.14. Sale of Assets. No Borrower will, directly or indirectly, lease,
--------------
sell or otherwise dispose of its Property to any other Person, except:
(i) Sales of inventory in the ordinary course of business.
(ii) Leases, sales or other dispositions of its Property that, together
with all other Property of the Borrowers previously leased, sold or
disposed of (other than inventory in the ordinary course of
business) as permitted by this Section during the twelve-month
period ending with the month in which any such lease, sale or other
disposition occurs, do not constitute a Substantial Portion of the
Property of the Borrowers.
Notwithstanding the foregoing, without the prior consent of the Lenders, no
Borrower will sell, assign, farmout, convey or otherwise transfer any Oil and
Gas Property or any interest in any Oil and Gas Property or any other
Collateral, except for (a) the sale of Hydrocarbons in the ordinary course of
business; (b) farmouts of undeveloped acreage and assignments in connection with
such farmouts; (c) the sale or transfer of equipment that is no longer necessary
for the business of the Borrowers or is replaced by equipment of at least
comparable value and use; and (d) during any consecutive twelve
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month period, sales in ordinary course of business of Oil and Gas Properties
which shall not exceed $100,000 in the aggregate, and will not materially impair
or diminish the value of the Collateral or the Borrowers' financial condition.
6.15. Investments and Acquisitions. No Borrower will, directly or
----------------------------
indirectly, make or suffer to exist any Investments (including without
limitation, loans and advances to, and other Investments in, Subsidiaries), or
commitments therefor, or to create any Subsidiary or to become or remain a
partner in any partnership or joint venture, or to make any Acquisition of any
Person, except:
(i) Cash Equivalent Investments.
(ii) Existing Investments in Subsidiaries and other Investments in
existence on the date hereof and described in Schedule 6.15.
6.16. Liens. No Borrower will create, incur, or suffer to exist any Lien
-----
in, of or on the Property of the Borrowers, except:
(i) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings and for which adequate
reserves in accordance with Agreement Accounting Principles shall
have been set aside on its books.
(ii) Liens imposed by Law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more than
60 days past due.
(iii) Liens arising out of pledges or deposits under worker's compensation
Laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation.
(iv) Utility easements, building restrictions and such other encumbrances
or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which
do not in any material way affect the marketability of the same or
interfere with the use thereof in the business of the Borrowers.
(v) Liens in favor of the Agent, for the benefit of the Lenders, granted
pursuant to any Collateral Document.
6.17. Capital Expenditures. No Borrower will expend, or be committed to
--------------------
expend, Capital Expenditures in excess of the amount of Capital Expenditures
approved by Required Lenders as set forth in the most-recent annual budget
furnished to Agent and Lenders pursuant to Section 6.1(iii).
6.18. Rentals. No Borrower will create, incur or suffer to exist
-------
obligations for Rentals in excess of $500,000 during any one fiscal year on a
non-cumulative basis in the aggregate for the
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<PAGE>
Borrowers; provided, however, the foregoing limitations shall not apply to oil
and gas leases entered into in the ordinary course of business.
6.19. Affiliates. No Borrower will enter into any transaction (including,
----------
without limitation, the purchase or sale of any Property or service) with, or
make any payment or transfer to, any Affiliate except in the ordinary course of
business and pursuant to the reasonable requirements of the Borrowers' business
and upon fair and reasonable terms no less favorable to the Borrowers than the
Borrowers would obtain in a comparable arms-length transaction.
6.20. Agreement to Deliver Collateral Documents. The Borrowers agree to
-----------------------------------------
deliver to deliver, to further secure the Obligations whenever requested by the
Agent in its sole and absolute discretion, deeds of trust, mortgages, chattel
mortgages, security agreements, financing statements and other Collateral
Documents in form and substance satisfactory to the Agent for the purpose of
granting, confirming, and perfecting first and prior liens or security interests
in any real or personal Property now owned or hereafter acquired by the
Borrowers. The Borrowers also agree to deliver, whenever requested by the Agent
in its sole and absolute discretion, favorable title opinions from legal counsel
acceptable to the Agent with respect to any of the Borrowers' Oil and Gas
Properties designated by the Agent, based upon abstract or record examinations
to dates acceptable to the Agent and (i) stating that such Person has good and
defensible title to such properties and interests, free and clear of all Liens
other than Liens permitted under Section 6.16, (ii) confirming that such
properties and interests are subject to Collateral Documents securing the
Obligations that constitute and create legal, valid and duly perfected first
deed of trust or mortgage liens in such properties and interests and first
priority assignments of and security interests in the oil and gas attributable
to such properties and interests and the proceeds thereof, and (iii) covering
such other matters as the Agent may request.
6.21. Maintenance of Liens. The Borrowers will perform such acts and
--------------------
duly authorize, execute, acknowledge, deliver, file and record such additional
assignments, security agreements, deeds of trust, mortgages and other
agreements, documents, instruments and certificates as the Lenders may
reasonably deem necessary or appropriate in order to perfect and maintain the
Liens in favor of the Lenders and preserve and protect the Rights of the
Lenders.
6.22. Title Information. By May 15/th/ and November 15/th/ of each year,
-----------------
the Borrowers will deliver acquisition summaries, title opinions and due
diligence reports prepared in connection with the acquisition and the financing
of the acquisition of such Oil and Gas Properties prepared for the Borrowers or
the Person financing such acquisition and such additional title information in
form and substance acceptable to the Lenders as is requested so that the Lenders
shall have received, together with the title information previously received by
the Lenders, satisfactory title information covering Oil and Gas Properties
representing ninety percent (90%) of the value of such Oil and Gas Properties as
set forth in such Reserve Report, as such value is set forth therein.
6.23. Production Proceeds. Notwithstanding that, by the terms of the
-------------------
various Loan Documents, the Borrowers are and will be assigning to the Agent and
the Lenders all of the "Production Proceeds" (as defined therein) accruing to
the Property covered thereby, so long as no Default has occurred the Borrowers
may continue to receive from the purchasers of production all such Production
Proceeds, subject, however, to the Liens created under the Loan Documents, which
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Liens are hereby affirmed and ratified. Upon the occurrence of a Default, the
Agent and the Lenders may exercise all rights and remedies granted under the
Loan Documents, including the right to obtain possession of all Production
Proceeds then held by the Borrowers or to receive directly from the purchasers
of production all other Production Proceeds. In no case shall any failure,
whether purposed or inadvertent, by the Agent or the Lenders to collect directly
any such Production Proceeds constitute in any way a waiver, remission or
release of any of their rights under the Loan Documents, nor shall any release
of any Production Proceeds by the Agent or the Lenders to the Borrowers or any
Subsidiary constitute a waiver, remission, or release of any other Production
Proceeds or of any rights of the Agent or the Lenders to collect other
Production Proceeds thereafter.
6.24. General and Administrative Expense Limitation. The Borrowers will
---------------------------------------------
not permit, on a combined basis, as of the close of any fiscal quarter, general
and administrative expenses of the Borrowers net of all COPAS and other expense
recoveries for the preceding four quarters, determined in accordance with the
Agreement Accounting Principles, to exceed $750,000 for such fiscal quarter.
6.25. Rate Management Transactions. The Borrowers will not be a party
----------------------------
to or in any manner be liable on any Rate Management Transactions except:
(i) contracts entered into with the purpose of fixing prices on oil or
gas expected to be produced by the Borrowers, provided that at all
times: (a) no such contract fixes a price for a term of more than
twelve (12) months; (b) the aggregate monthly production covered by
all such contracts (determined, in the case of contracts that are
not settled on a monthly basis, by a monthly proration acceptable to
the Agent) for any single month does not in the aggregate exceed
seventy-five percent (75%) of the Borrowers' aggregate Projected Oil
and Gas Production anticipated to be sold in the ordinary course of
such Persons' businesses for such month, (c) no such contract
requires the Borrowers to put up money, assets, letters of credit or
other security against the event of its non performance prior to
actual default by such Person in performing its obligations
thereunder, and (d) each such contract is with a counterparty or has
a guarantor of the obligation of the counterparty who (unless such
counterparty is a Lender or one of its Affiliates) at the time the
agreement is made has long-term obligations rated AA or AA2 or
better, respectively, by either Rating Agency or is an investment
grade-rated industry participant. As used in this subsection, the
term "Projected Oil and Gas Production" means the projected
production of oil or gas (measured by volume unit or BTU equivalent,
not sales price) for the term of the contracts or a particular
month, as applicable, from properties and interests owned by the
Borrowers which are located in or offshore of the United States and
which have attributable to them proved oil or gas reserves, as such
production is projected in the most recent report delivered pursuant
to Section 6.1, after deducting projected production from any
properties or interests sold or under contract for sale that had
been included in such report and after adding projected production
from any properties or interests that had not been reflected in such
report but that are reflected in a separate or supplemental reports
meeting the requirements of Section 6.1 above and otherwise are
satisfactory to the Agent.
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(ii) contracts entered into by the Borrowers with the purpose and effect
of fixing interest rates on a principal amount of indebtedness of
such Person that is accruing interest at a variable rate, provided
that (a) the aggregate notional amount of such contracts never
exceeds seventy-five percent (75%) of the anticipated outstanding
principal balance of the indebtedness to be hedged by such contracts
or an average of such principal balances calculated using a
generally accepted method of matching interest swap contracts to
declining principal balances, (b) the floating rate index of each
such contract generally matches the index used to determine the
floating rates of interest on the corresponding indebtedness to be
hedged by such contract and (c) each such contract is with a
counterparty or has a guarantor of the obligation of the
counterparty who (unless such counterparty is a Lender or one of its
Affiliates) at the time the contract is made has long-term
obligations rated AA or AA2 or better, respectively, by either
Rating Agency or is an investment grade-rated industry participant.
The Borrowers shall at all times maintain Rate Management Transactions
consisting of contracts entered into with the purpose of fixing prices on oil or
gas expected to be produced by the Borrowers (a) with a term of not less than
nine (9) months, and (b) covering aggregate monthly production (determined, in
the case of contracts that are not settled on a monthly basis, by a monthly
proration acceptable to the Agent) for any single month of not less than fifty
percent (50%) of the Borrowers' aggregate Projected Oil and Gas Production
anticipated to be sold in the ordinary course of such Persons' businesses for
such month.
6.26. Operating Leases. No Borrower will enter into or remain liable
----------------
upon any Operating Lease, except for Operating Leases which have Operating Lease
Obligations of not more than $250,000 at any one time outstanding.
6.27. Sale of Accounts. No Borrower will sell or otherwise dispose of
----------------
any notes receivable or accounts receivable, with or without recourse.
6.28. Sale and Leaseback Transactions and other Off-Balance Sheet
-----------------------------------------------------------
Liabilities. No Borrower will enter into or suffer to exist any (i) Sale and
-----------
Leaseback Transaction or (ii) any other transaction pursuant to which it incurs
or has incurred Off-Balance Sheet Liabilities, except for Rate Management
Obligations permitted to be incurred under the terms of Section 6.25.
6.29. Contingent Obligations. No Borrower will make or suffer to exist
----------------------
any Contingent Obligation (including, without limitation, any Contingent
Obligation with respect to the obligations of a Subsidiary), except (i) by
endorsement of instruments for deposit or collection in the ordinary course of
business, and (ii) the Reimbursement Obligations.
6.30. Letters of Credit. No Borrower will apply for or become liable upon
-----------------
or in respect of any Letter of Credit other than Facility LCs.
6.31. Financial Contracts. No Borrower will enter into or remain liable
-------------------
upon any Financial Contract, except: Rate Management Transactions required under
Section 6.25.
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6.32. Financial Covenants. For purposes of calculating the following
-------------------
financial covenants, Borrowers may make such calculations assuming the Guardian
Indebtedness has been converted into equity of the Company:
6.32.1 Interest Coverage Ratio. The Company will not permit the ratio
-----------------------
of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense, determined as
of (a) December 31, 2000, for the two fiscal quarter period ending on such date,
(b) March 31, 2000, for the three fiscal quarter period ending on such date, and
(c) thereafter, as of the end of each of its fiscal quarters for the then most-
recently ended four fiscal quarters, to be less than 3.0 to 1.0.
6.32.2 Minimum Net Worth. The Company will at all times maintain
-----------------
Consolidated Net Worth of not less than the sum of (i) $26,000,000, plus (ii)
75% of Consolidated Net Income earned in each fiscal quarter beginning with the
quarter ending June 30, 2000 (without deduction for losses), plus (iii) 50% of
the net proceeds of any offering, sale, or other transfer of any capital stock
or other equity securities of any kind of the Borrowers after the date hereof.
6.32.3 Current Ratio. The Company will not permit the ratio of (i) the
-------------
Company's consolidated current assets to consolidated current liabilities to be
less than 1.0 to 1.0 at any time. For purposes of this section, (a) the
Company's consolidated current assets will include the Available Borrowing Base
then available to be borrowed and (b) the Company's consolidated current
liabilities will exclude the Obligations and non-current suspended receivables.
6.33 Subordinated Indebtedness. No Borrower shall amend the terms and
-------------------------
conditions of any documents or instruments evidencing the Subordinated
Indebtedness.
ARTICLE VII
DEFAULTS
--------
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Any representation or warranty made or deemed made by or on
behalf of any Borrower to the Lenders or the Agent under or in connection with
this Agreement, any Credit Extension, or any certificate or information
delivered in connection with this Agreement or any other Loan Document shall be
materially false on the date as of which made.
7.2. Nonpayment of principal of any Loan when due, nonpayment of any
Reimbursement Obligation within one Business Day after the same becomes due, or
nonpayment of interest upon any Loan or of any commitment fee, LC Fee or other
obligations under any of the Loan Documents within five days after the same
becomes due.
7.3. The breach by any Borrower of any of the terms or provisions of
Section 6.2, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19, or
6.32.
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7.4. The breach by any Borrower (other than a breach which constitutes a
Default under another Section 7.3 of this Article VII) of any of the terms or
provisions of this Agreement which is not remedied within five days after
written notice from the Agent or any Lender.
7.5. Failure of any Borrower to pay when due any Indebtedness aggregating
in excess of $250,000 ("Material Indebtedness"); or the default by any Borrower
in the performance beyond the applicable grace period with respect thereto, if
any, of any term, provision or condition contained in any agreement under which
any such Material Indebtedness was created or is governed, or any other event
shall occur or condition exist, the effect of which default or event is to
cause, or to permit the holder or holders of such Material Indebtedness to
cause, such Material Indebtedness to become due prior to its stated maturity; or
any Material Indebtedness of any Borrower shall be declared to be due and
payable or required to be prepaid or repurchased (other than by a regularly
scheduled payment) prior to the stated maturity thereof; or any Borrowers shall
not pay, or admit in writing its inability to pay, its debts generally as they
become due.
7.6. Any Borrower shall (i) have an order for relief entered with respect
to it under the Federal bankruptcy Laws as now or hereafter in effect, (ii) make
an assignment for the benefit of creditors, (iii) apply for, seek, consent to,
or acquiesce in, the appointment of a receiver, custodian, trustee, examiner,
liquidator or similar official for it or any Substantial Portion of its
Property, (iv) institute any proceeding seeking an order for relief under the
Federal bankruptcy Laws as now or hereafter in effect or seeking to adjudicate
it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any Law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (v) take any corporate or
partnership action to authorize or effect any of the foregoing actions set forth
in this Section 7.6 or (vi) fail to contest in good faith any appointment or
proceeding described in Section 7.7.
7.7. Without the application, approval or consent of any Borrower, a
receiver, trustee, examiner, liquidator or similar official shall be appointed
for such Borrower or any Substantial Portion of its Property, or a proceeding
described in Section 7.6(iv) shall be instituted against any Borrower and such
appointment continues undischarged or such proceeding continues undismissed or
unstayed for a period of 30 consecutive days.
7.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of, all or any portion of the
Property of any Borrower which, when taken together with all other Property of
the Borrowers so condemned, seized, appropriated, or taken custody or control
of, during the twelve-month period ending with the month in which any such
action occurs, constitutes a Substantial Portion.
7.9. Any Borrower shall fail within 30 days to pay, bond or otherwise
discharge one or more (i) judgments or orders for the payment of money in excess
of $250,000 (or the equivalent thereof in currencies other than U.S. Dollars) in
the aggregate, or (ii) nonmonetary judgments or orders which, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect,
which judgment(s), in any such case, is/are not stayed on appeal or otherwise
being appropriately contested in good faith.
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7.10. The Unfunded Liabilities of all Single Employer Plans shall exceed
in the aggregate $100,000 or any Reportable Event shall occur in connection with
any Plan.
7.11. Any Borrower or any other member of the Controlled Group shall have
been notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan in an amount which, when
aggregated with all other amounts required to be paid to Multiemployer Plans by
the Borrowers or any other member of the Controlled Group as withdrawal
liability (determined as of the date of such notification), exceeds $100,000 or
requires payments exceeding $100,000 per annum.
7.12. Any Borrower or any other member of the Controlled Group shall have
been notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of Title IV
of ERISA, if as a result of such reorganization or termination the aggregate
annual contributions of the Borrowers and the other members of the Controlled
Group (taken as a whole) to all Multiemployer Plans which are then in
reorganization or being terminated have been or will be increased over the
amounts contributed to such Multiemployer Plans for the respective plan years of
each such Multiemployer Plan immediately preceding the plan year in which the
reorganization or termination occurs by an amount exceeding $100,000.
7.13. Any Borrower shall (i) be the subject of any proceeding or
investigation pertaining to the release by the Borrowers or any other Person of
any toxic or hazardous waste or substance into the environment, or (ii) violate
any Environmental Law, which, in the case of an event described in clause (i) or
clause (ii), could reasonably be expected to have a Material Adverse Effect.
7.14. Any Change in Control shall occur, provided , however, the exercise
of any rights to convert the Guardian Indebtedness to equity of the Borrowers
shall not be deemed a Change in Control so long as either Gene Miller or Kelly
E. Miller remains as the Chief Executive Officer of the Borrowers.
7.15. The occurrence of any "default", as defined in any Loan Document
(other than this Agreement) or the breach of any of the terms or provisions of
any Loan Document (other than this Agreement), which default or breach continues
beyond any period of grace therein provided.
7.16. Nonpayment by any Borrower of any Rate Management Obligation when
due or the breach by any Borrower of any term, provision or condition contained
in any Rate Management Transaction.
7.17. Any Collateral Document shall for any reason fail to create a valid
and perfected first priority security interest in any collateral purported to be
covered thereby, except as permitted by the terms of any Collateral Document, or
any Collateral Document shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of any Collateral Document, or any Borrower shall fail to
comply with any of the terms or provisions of any Collateral Document.
7.18. The representations and warranties set forth in Section 5.15 (Plan
Assets; Prohibited Transactions) shall at any time not be true and correct.
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7.19. Any Borrower shall fail to pay when due any Operating Lease
Obligation, obligation with respect to a Letter of Credit, obligation under a
Sale and Leaseback Transaction or Contingent Obligation.
7.20. Borrowers shall fail to convert the Guardian Indebtedness to shares
of common stock of the Company prior to December 31, 2000.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
8.1. Acceleration. (i) If any Default described in Section 7.6 or 7.7
------------
occurs with respect to the Borrowers, the obligations of the Lenders to make
Loans hereunder and the obligation and power of the LC Issuer to issue Facility
LCs shall automatically terminate and the Obligations shall immediately become
due and payable without any election or action on the part of the Agent, the LC
Issuer or any Lender and the Borrowers will be and become thereby
unconditionally jointly and severally obligated, without any further notice, act
or demand, to pay to the Agent an amount in immediately available funds, which
funds shall be held in the Facility LC Collateral Account, equal to the
difference of (x) the amount of LC Obligations at such time, less (y) the amount
on deposit in the Facility LC Collateral Account at such time which is free and
clear of all rights and claims of third parties and has not been applied against
the Obligations (such difference, the "Collateral Shortfall Amount"). If any
other Default occurs, the Required Lenders (or the Agent with the consent of the
Required Lenders) may (a) terminate or suspend the obligations of the Lenders to
make Loans hereunder and the obligation and power of the LC Issuer to issue
Facility LCs, or declare the Obligations to be due and payable, or both,
whereupon the Obligations shall become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which the Borrowers
hereby expressly jointly and severally waive, and (b) upon notice to the
Borrowers and in addition to the continuing right to demand payment of all
amounts payable under this Agreement, make demand on the Borrowers to pay, and
the Borrowers will, forthwith upon such demand and without any further notice or
act, pay to the Agent the Collateral Shortfall Amount, which funds shall be
deposited in the Facility LC Collateral Account.
(ii) If at any time while any Default is continuing, the Agent determines
that the Collateral Shortfall Amount at such time is greater than zero, the
Agent may make demand on the Borrowers to pay, and the Borrowers will, forthwith
upon such demand and without any further notice or act, pay to the Agent the
Collateral Shortfall Amount, which funds shall be deposited in the Facility LC
Collateral Account.
(iii) The Agent may at any time or from time to time after funds are
deposited in the Facility LC Collateral Account, apply such funds to the payment
of the Obligations and any other amounts as shall from time to time have become
due and payable by the Borrowers to the Lenders or the LC Issuer under the Loan
Documents.
(iv) At any time while any Default is continuing, neither the Borrowers
nor any Person claiming on behalf of or through the Borrowers shall have any
right to withdraw any of the funds held in the Facility LC Collateral Account.
After all of the Obligations have been indefeasibly paid
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<PAGE>
in full and the Aggregate Commitment has been terminated, any funds remaining in
the Facility LC Collateral Account shall be returned by the Agent to the
Borrowers or paid to whomever may be legally entitled thereto at such time.
(v) If, within ten (10)days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make Loans and
the obligation and power of the LC Issuer to issue Facility LCs hereunder as a
result of any Default (other than any Default as described in Section 7.6 or 7.7
with respect to the Borrowers) and before any judgment or decree for the payment
of the Obligations due shall have been obtained or entered, the Required Lenders
(in their sole discretion) shall so direct, the Agent shall, by notice to the
Borrowers, rescind and annul such acceleration and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
----------
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrowers may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrowers hereunder or waiving
any Default hereunder; provided, however, that no such supplemental agreement
shall, without the consent of all of the Lenders:
(i) Extend the final maturity of any Loan, or extend the expiry date of
any Facility LC to a date after the Facility Termination Date or
forgive all or any portion of the principal amount thereof or any
Reimbursement Obligation related thereto, or reduce the rate or
extend the time of payment of interest or fees thereon or
Reimbursement Obligations related thereto.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
(iii) Extend the Facility Termination Date, or reduce the amount or extend
the payment date for, the mandatory payments required under Section
2.3, or increase the amount of the Aggregate Commitment above
$75,000,000, or increase the Commitment of any Lender hereunder or
the commitment to issue Facility LCs, or permit any Borrower to
assign its rights under this Agreement.
(iv) Amend this Section 8.2.
(v) Except as provided in the Collateral Documents, release all or
substantially all of the Collateral.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent, and no Amendment of any
provision relating to the LC Issuer shall be effective without the written
consent of the LC Issuer. The Agent may waive payment of the fee required under
Section 12.3.2 without obtaining the consent of any other party to this
Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders, the
----------------------
LC Issuer or the Agent to exercise any right under the Loan Documents shall
impair such right or be construed to be a waiver of any Default or an
acquiescence therein, and the making of a Credit Extension
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<PAGE>
notwithstanding the existence of a Default or the inability of the Borrowers to
satisfy the conditions precedent to such Credit Extension shall not constitute
any waiver or acquiescence. Any single or partial exercise of any such right
shall not preclude other or further exercise thereof or the exercise of any
other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.2, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by Law afforded shall be cumulative and all shall be
available to the Agent, the LC Issuer and the Lenders until the Obligations have
been paid in full.
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1. Survival of Representations; Joint and Several Obligations. All
----------------------------------------------------------
representations and warranties of the Borrowers contained in this Agreement
shall survive the making of the Credit Extensions herein contemplated. The
Obligations of Borrowers hereunder and under the other Loan Documents are joint
and several obligations and liabilities.
9.2. Governmental Regulation. Anything contained in this Agreement to
-----------------------
the contrary notwithstanding, neither the LC Issuer nor any Lender shall be
obligated to extend credit to the Borrowers in violation of any limitation or
prohibition provided by any applicable statute or regulation.
9.3. Headings. Section headings in the Loan Documents are for
--------
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
9.4. ENTIRE AGREEMENT. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT
----------------
AND UNDERSTANDING AMONG THE BORROWERS, THE AGENT, THE LC ISSUER AND THE LENDERS
AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS AMONG THE BORROWERS, THE
AGENT, THE LC ISSUER AND THE LENDERS RELATING TO THE SUBJECT MATTER THEREOF
OTHER THAN THE FEE LETTER DESCRIBED IN SECTION 10.13.
9.5. Several Obligations; Benefits of this Agreement. The respective
-----------------------------------------------
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any
of its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
9.6. Expenses; Indemnification.
-------------------------
9.6.1 The Borrowers shall reimburse the Agent for any costs, internal
charges and out-of-pocket expenses (including attorneys' fees and time charges
of attorneys for the Agent, which attorneys may be employees of the Agent) paid
or incurred by the Agent in connection with the preparation, negotiation,
execution, delivery, syndication, review, amendment, modification, and
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<PAGE>
administration of the Loan Documents. The Borrowers also jointly and severally
agree to reimburse the Agent, the LC Issuer and the Lenders for any costs,
internal charges and out-of-pocket expenses (including attorneys' fees and time
charges of attorneys for the Agent, the LC Issuer and the Lenders, which
attorneys may be employees of the Agent, the LC Issuer or the Lenders) paid or
incurred by the Agent, the LC Issuer or any Lender in connection with the
collection and enforcement of the Loan Documents. Expenses being reimbursed by
the Borrowers under this Section include, without limitation the cost and
expense of obtaining an appraisal of each parcel of real property or interest in
real property described in the relevant Collateral Documents, which appraisal
shall be in conformity with the applicable requirements of any law or any
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law), or any interpretation thereof, including, without
limitation, the provisions of Title XI of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended, reformed or otherwise modified
from time to time, and any rules promulgated to implement such provisions and,
costs and expenses incurred in connection with the Reports described in the
following sentence. The Borrowers acknowledge that from time to time Agent may
prepare and may distribute to the Lenders (but shall have no obligation or duty
to prepare or to distribute to the Lenders) certain audit reports (the
"Reports") pertaining to the Borrowers's assets for internal use by Agent from
information furnished to it by or on behalf of the Borrowers, after Agent has
exercised its rights of inspection pursuant to this Agreement.
9.6.2 The Borrowers hereby further jointly and severally agree to
indemnify the Agent, the LC Issuer, each Lender, their respective affiliates and
each of their directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or not
the Agent, the LC Issuer or any Lender or any affiliate is a party thereto)
which any of them may pay or incur arising out of or relating to this Agreement,
the other Loan Documents, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Credit
Extension hereunder except to the extent that they are determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of the party seeking
indemnification. The obligations of the Borrowers under this Section 9.6 shall
survive the termination of this Agreement.
9.7. Numbers of Documents. All statements, notices, closing documents,
--------------------
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
9.8. Accounting. Except as provided to the contrary herein, all
----------
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles, except that any calculation or determination which is to be made on
a consolidated basis shall be made for the Company and all its Subsidiaries,
including those Subsidiaries, if any, which are unconsolidated on the Company's
audited financial statements.
9.9. Severability of Provisions. Any provision in any Loan Document
--------------------------
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
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<PAGE>
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
9.10. Nonliability of Lenders. The relationship between the Borrowers on
-----------------------
the one hand and the Lenders, the LC Issuer and the Agent on the other hand
shall be solely that of borrower and lender. Neither the Agent nor any Lender
shall have any fiduciary responsibilities to the Borrowers. Neither the Agent,
the LC Issuer nor any Lender undertakes any responsibility to the Borrowers to
review or inform the Borrowers of any matter in connection with any phase of the
Borrowers's business or operations. The Borrowers agree that neither the Agent,
the LC Issuer nor any Lender shall have liability to the Borrowers (whether
sounding in tort, contract or otherwise) for losses suffered by the Borrowers in
connection with, arising out of, or in any way related to, the transactions
contemplated and the relationship established by the Loan Documents, or any act,
omission or event occurring in connection therewith, unless it is determined in
a final non-appealable judgment by a court of competent jurisdiction that such
losses resulted from the gross negligence or willful misconduct of the party
from which recovery is sought. Neither the Agent, the LC Issuer nor any Lender
shall have any liability with respect to, and the Borrowers hereby jointly and
severally waive, release and agree not to sue for, any special, indirect or
consequential damages suffered by the Borrowers in connection with, arising out
of, or in any way related to the Loan Documents or the transactions contemplated
thereby.
9.11. Confidentiality. Each Lender agrees to hold any confidential
---------------
information which it may receive from the Borrowers pursuant to this Agreement
in confidence, except for disclosure (i) to its Affiliates and to other Lenders
and their respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to such Lender or to a Transferee, (iii) to regulatory
officials, (iv) to any Person as requested pursuant to or as required by Law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which such Lender is a party, (vi) to such Lender's direct or
indirect contractual counterparties in swap agreements or to legal counsel,
accountants and other professional advisors to such counterparties, and (vii)
permitted by Section 12.4.
9.12. Nonreliance. Each Lender hereby represents that it is not relying on
-----------
or looking to any margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) for the repayment of the Credit
Extensions provided for herein.
9.13. Disclosure. The Borrowers and each Lender hereby (i) acknowledge
----------
and agree that Bank One and/or its Affiliates from time to time may hold
investments in, make other loans to or have other relationships with the
Borrowers and its Affiliates, and (ii) waive any liability of Bank One or such
Affiliate of Bank One to the Borrowers or any Lender, respectively, arising out
of or resulting from such investments, loans or relationships other than
liabilities arising out of the gross negligence or willful misconduct of Bank
One or its Affiliates.
9.14 Interest. It is the intention of the Parties to comply with
--------
applicable usury Laws; accordingly, it is agreed that notwithstanding any
provisions to the contrary in any Loan Document, in no event shall any Loan
Document permit the collection of interest in excess of the maximum amount
permitted by such Laws. If any such excess of interest is contracted for,
charged or received under any Loan Document or if the maturity of the Obligation
is accelerated in whole or in part, or in the event that all or part of the
principal or interest of the Obligation shall be prepaid, so that under
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<PAGE>
any of such circumstances the amount of interest contracted for, charged or
received under any Loan Document on the amount of principal actually outstanding
from time to time under the Obligation shall exceed the maximum amount of
interest permitted by applicable usury Laws, then in any such event (i) the
provisions of this Section 9.14 shall govern and control; (ii) no Person now or
hereafter liable for the payment of the Obligation shall be obligated to pay the
amount of such interest to the extent that it is in excess of the maximum amount
of interest permitted to be contracted for by, charged to or received from the
Person obligated thereon under the applicable usury Laws; (iii) any such excess
which may have been collected shall be either applied as a credit against the
then unpaid principal amount on the Obligation or refunded to the Person paying
the same, at the holder's option; and (iv) the effective rate of interest shall
be automatically reduced to the maximum lawful rate of interest permitted to be
contracted for by, charged to or received from the Person obligated thereon
under the applicable usury Laws as now or hereafter construed by the courts
having jurisdiction thereof. To the extent the Laws of the State of Texas are
applicable for purposes of determining the "Highest Lawful Rate," such term
shall mean the "weekly rate ceiling" from time to time in effect under Chapter
303 of the Texas Finance Code, as amended from time to time in effect, subject
to the Lender's right subsequently to change such method in accordance with
applicable law. The provisions of Chapter 346 of Tex. Finance Code Ann. (Vernon
1998), regulating certain revolving credit accounts shall not govern or in any
manner apply to the Obligation.
9.15 NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
9.16 Survival of Representations. All representations and warranties
---------------------------
herein contained or made in writing in connection with this Agreement shall
survive the execution and delivery of this Agreement and the making of the Loans
hereunder and shall continue in full force and effect until the Obligation shall
have been paid in full.
ARTICLE X
THE AGENT
---------
10.1. Appointment; Nature of Relationship. Bank One is hereby appointed
-----------------------------------
by each of the Lenders as its contractual representative (herein referred to as
the "Agent") hereunder and under each other Loan Document, and each of the
Lenders irrevocably authorizes the Agent to act as the contractual
representative of such Lender with the rights and duties expressly set forth
herein and in the other Loan Documents. The Agent agrees to act as such
contractual representative upon the express conditions contained in this Article
X. Notwithstanding the use of the defined term "Agent," it is expressly
understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement or any other Loan
Document and that the Agent is merely acting as the contractual representative
of the Lenders with only those duties as are expressly set forth in this
Agreement and the other Loan Documents. In its capacity as the Lenders'
contractual representative, the Agent (i) does not hereby assume any fiduciary
duties to any of the Lenders, (ii) is a "representative" of the Lenders within
the meaning of Section 9-105 of the Uniform Commercial
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<PAGE>
Code and (iii) is acting as an independent contractor, the rights and duties of
which are limited to those expressly set forth in this Agreement and the other
Loan Documents. Each of the Lenders hereby agrees to assert no claim against the
Agent on any agency theory or any other theory of liability for breach of
fiduciary duty, all of which claims each Lender hereby waives.
10.2. Powers. The Agent shall have and may exercise such powers under
------
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
----------------
officers, agents or employees shall be liable to the Borrowers or any Lender for
any action taken or omitted to be taken by it or them hereunder or under any
other Loan Document or in connection herewith or therewith except to the extent
such action or inaction is determined in a final non-appealable judgment by a
court of competent jurisdiction to have arisen from the gross negligence or
willful misconduct of such Person.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor
-------------------------------------------
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (a) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
hereunder; (b) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered solely to the Agent; (d) the existence
or possible existence of any Default or Unmatured Default; (e) the validity,
enforceability, effectiveness, sufficiency or genuineness of any Loan Document
or any other instrument or writing furnished in connection therewith; (f) the
value, sufficiency, creation, perfection or priority of any Lien in any
collateral security; or (g) the financial condition of any Borrower of any of
the Obligations. The Agent shall have no duty to disclose to the Lenders
information that is not required to be furnished by the Borrowers to the Agent
at such time, but is voluntarily furnished by the Borrowers to the Agent (either
in its capacity as Agent or in its individual capacity).
10.5. Action on Instructions of Lenders. The Agent shall in all cases be
---------------------------------
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders. The Lenders hereby
acknowledge that the Agent shall be under no duty to take any discretionary
action permitted to be taken by it pursuant to the provisions of this Agreement
or any other Loan Document unless it shall be requested in writing to do so by
the Required Lenders. The Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Loan Document unless it shall
first be indemnified to its satisfaction by the Lenders pro rata against any and
all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of its
--------------------------------
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and
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attorneys-in-fact and shall not be answerable to the Lenders, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Agent shall be entitled to advice of counsel concerning the
contractual arrangement between the Agent and the Lenders and all matters
pertaining to the Agent's duties hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely
------------------------------
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
-----------------------------------------
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by the Borrowers for which the Agent is entitled to reimbursement by
the Borrowers under the Loan Documents, (ii) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents
(including, without limitation, for any expenses incurred by the Agent in
connection with any dispute between the Agent and any Lender or between two or
more of the Lenders) and (iii) for any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of the Loan
Documents or any other document delivered in connection therewith or the
transactions contemplated thereby (including, without limitation, for any such
amounts incurred by or asserted against the Agent in connection with any dispute
between the Agent and any Lender or between two or more of the Lenders), or the
enforcement of any of the terms of the Loan Documents or of any such other
documents, provided that (i) no Lender shall be liable for any of the foregoing
to the extent any of the foregoing is found in a final non-appealable judgment
by a court of competent jurisdiction to have resulted from the gross negligence
or willful misconduct of the Agent and (ii) any indemnification required
pursuant to Section 3.5.7 shall, notwithstanding the provisions of this Section
10.8, be paid by the relevant Lender in accordance with the provisions thereof.
The obligations of the Lenders under this Section 10.8 shall survive payment of
the Obligations and termination of this Agreement.
10.9. Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Default or Unmatured Default hereunder unless
the Agent has received written notice from a Lender or the Borrowers referring
to this Agreement describing such Default or Unmatured Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall give prompt notice thereof to the Lenders.
10.10. Rights as a Lender. In the event the Agent is a Lender, the Agent
------------------
shall have the same rights and powers hereunder and under any other Loan
Document with respect to its Commitment and its Loans as any Lender and may
exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent and
its Affiliates may accept
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deposits from, lend money to, and generally engage in any kind of trust, debt,
equity or other transaction, in addition to those contemplated by this Agreement
or any other Loan Document, with the Borrowers or any of its Subsidiaries in
which the Borrowers or such Subsidiary is not restricted hereby from engaging
with any other Person.
10.11. Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrowers and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
10.12. Successor Agent. The Agent may resign at any time by giving
---------------
written notice thereof to the Lenders and the Borrowers, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. The Agent may be removed at any time with or without cause
by written notice received by the Agent from the Required Lenders, such removal
to be effective on the date specified by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint, on
behalf of the Borrowers and the Lenders, a successor Agent. If no successor
Agent shall have been so appointed by the Required Lenders within thirty days
after the resigning Agent's giving notice of its intention to resign, then the
resigning Agent may appoint, on behalf of the Borrowers and the Lenders, a
successor Agent. Notwithstanding the previous sentence, the Agent may at any
time without the consent of the Borrowers or any Lender, appoint any of its
Affiliates which is a commercial bank as a successor Agent hereunder. If the
Agent has resigned or been removed and no successor Agent has been appointed,
the Lenders may perform all the duties of the Agent hereunder and the Borrowers
shall make all payments in respect of the Obligations to the applicable Lender
and for all other purposes shall deal directly with the Lenders. No successor
Agent shall be deemed to be appointed hereunder until such successor Agent has
accepted the appointment. Any such successor Agent shall be a commercial bank
having capital and retained earnings of at least $100,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning or removed Agent. Upon
the effectiveness of the resignation or removal of the Agent, the resigning or
removed Agent shall be discharged from its duties and obligations hereunder and
under the Loan Documents. After the effectiveness of the resignation or removal
of an Agent, the provisions of this Article X shall continue in effect for the
benefit of such Agent in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent hereunder and under the other Loan
Documents. In the event that there is a successor to the Agent by merger, or the
Agent assigns its duties and obligations to an Affiliate pursuant to this
Section 10.12, then the term "Corporate Base Rate" as used in this Agreement
shall mean the prime rate, base rate or other analogous rate of the new Agent.
10.13. Agent's Fees. The Borrowers agrees to pay to the Agent, for its own
------------
account, the fees agreed to by the Borrowers and the Agent pursuant to that
certain letter agreement of even date herewith, or as otherwise agreed from time
to time.
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10.14. Delegation to Affiliates. The Borrowers and the Lenders agree that
------------------------
the Agent may delegate any of its duties under this Agreement to any of its
Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents
and employees) which performs duties in connection with this Agreement shall be
entitled to the same benefits of the indemnification, waiver and other
protective provisions to which the Agent is entitled under Articles IX and X.
10.15. Execution of Collateral Documents. The Lenders hereby empower and
---------------------------------
authorize the Agent to execute and deliver to the Borrowers on their behalf the
Security Agreement(s) and all related financing statements and any financing
statements, agreements, documents or instruments as shall be necessary or
appropriate to effect the purposes of the Security Agreement(s).
10.16. Collateral Releases. The Lenders hereby empower and authorize the
-------------------
Agent to execute and deliver to the Borrowers on their behalf any agreements,
documents or instruments as shall be necessary or appropriate to effect any
releases of Collateral which shall be permitted by the terms hereof or of any
other Loan Document or which shall otherwise have been approved by the Required
Lenders (or, if required by the terms of Section 8.2, all of the Lenders) in
writing.
10.17. Co-Agents, Documentation Agent, Syndication Agent, etc. Neither any
-------------------------------------------------------
of the Lenders identified in this Agreement as a "co-agent" nor any
documentation agent or syndication agent shall have any right, power,
obligation, liability, responsibility or duty under this Agreement other than
those applicable to all Lenders as such. Without limiting the foregoing, none of
such Lenders shall have or be deemed to have a fiduciary relationship with any
Lender. Each Lender hereby makes the same acknowledgments with respect to such
Lenders as it makes with respect to the Agent in Section 10.11.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
------------------------
11.1. Setoff. In addition to, and without limitation of, any rights of
------
the Lenders under applicable Law, if any Borrower becomes insolvent, however
evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender or
any Affiliate of any Lender to or for the credit or account of any Borrower may
be offset and applied toward the payment of the Secured Obligations owing to
such Lender, whether or not the Secured Obligations, or any part thereof, shall
then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise,
----------------
has payment made to it upon its Outstanding Credit Exposure (other than payments
received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than
that received by any other Lender, such Lender agrees, promptly upon demand, to
purchase a portion of the Outstanding Credit Exposure held by the other Lenders
so that after such purchase each Lender will hold its Pro Rata Share of the
Aggregate Outstanding Credit Exposure. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in
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proportion to their respective Pro Rata Shares of the Aggregate Outstanding
Credit Exposure. In case any such payment is disturbed by legal process, or
otherwise, appropriate further adjustments shall be made. If an amount to be
setoff is to be applied to Indebtedness of the Borrowers to a Lender other than
Indebtedness comprised of the Outstanding Credit Exposure of such Lender, such
amount shall be applied ratably to such other Indebtedness and to the
Indebtedness comprised of such Outstanding Credit Exposure.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
12.1. Successors and Assigns. The terms and provisions of the Loan
----------------------
Documents shall be binding upon and inure to the benefit of the Borrowers and
the Lenders and their respective successors and assigns, except that (i) no
Borrower shall have any right to assign its rights or obligations under the Loan
Documents and (ii) any assignment by any Lender must be made in compliance with
Section 12.3. The parties to this Agreement acknowledge that clause (ii) of this
Section 12.1, relates only to absolute assignments and does not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by any Lender of all or any portion of its rights under
this Agreement and any Note to a Federal Reserve Bank; provided, however, that
no such pledge or assignment creating a security interest shall release the
transferor Lender from its obligations hereunder unless and until the parties
thereto have complied with the provisions of Section 12.3. The Agent may treat
the Person which made any Loan or which holds any Note as the owner thereof for
all purposes hereof unless and until such Person complies with Section 12.3
provided, however, that the Agent may in its discretion (but shall not be
required to) follow instructions from the Person which made any Loan or which
holds any Note to direct payments relating to such Loan or Note to another
Person. Any assignee of the rights to any Loan or any Note agrees by acceptance
of such assignment to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the owner of the
rights to any Loan (whether or not a Note has been issued in evidence thereof),
shall be conclusive and binding on any subsequent holder or assignee of the
rights to such Loan.
12.2. Participations.
--------------
12.2.1 Permitted Participants; Effect. Any Lender may, in the ordinary
------------------------------
course of its business and in accordance with applicable Law, at any time sell
to one or more banks or other entities ("Participants") participating interests
in any Outstanding Credit Exposure of such Lender, any Note held by such Lender,
any Commitment of such Lender or any other interest of such Lender under the
Loan Documents. In the event of any such sale by a Lender of participating
interests to a Participant, such Lender's obligations under the Loan Documents
shall remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender shall remain
the owner of its Outstanding Credit Exposure and the holder of any Note issued
to it in evidence thereof for all purposes under the Loan Documents, all amounts
payable by the Borrowers under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Borrowers and the
Agent shall continue to deal solely and
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directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents.
12.2.2 Voting Rights. Each Lender shall retain the sole right to approve,
-------------
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Credit Extension or Commitment in which such
Participant has an interest which forgives principal, interest, fees or any
Reimbursement Obligation or reduces the interest rate or fees payable with
respect to any such Credit Extension or Commitment, extends the Facility
Termination Date, postpones any date fixed for any regularly-scheduled payment
of principal of or interest on any Loan in which such Participant has an
interest, or any regularly-scheduled payment of fees on any such Credit
Extension any such Loan or Commitment, releases any Guarantor of any such Credit
Extension or releases any collateral held in the Facility LC Collateral Account
(except in accordance with the terms hereof) or all or substantially all or any
other collateral, if any, securing any such Credit Extension.
12.2.3 Benefit of Setoff. Each Borrower agrees that each Participant shall
-----------------
be deemed to have the right of setoff provided in Section 11.1 in respect of its
participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Loan Documents, provided that each Lender shall retain the
right of setoff provided in Section 11.1 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to share
with each Participant, and each Participant, by exercising the right of setoff
provided in Section 11.1, agrees to share with each Lender, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with Section 11.2 as if each Participant were a Lender.
12.3. Assignments.
-----------
12.3.1 Permitted Assignments. Any Lender may, in the ordinary course of
---------------------
its business and in accordance with applicable Law, at any time assign to one or
more banks or other entities ("Purchasers") all or any part of its rights and
obligations under the Loan Documents. Such assignment shall be substantially in
the form of Exhibit C or in such other form as may be agreed to by the parties
thereto. The consent of the Borrowers, the Agent and the LC Issuer shall be
required prior to an assignment becoming effective with respect to a Purchaser
which is not a Lender or an Affiliate thereof; provided, however, that if a
Default has occurred and is continuing, the consent of the Borrowers shall not
be required. Such consent shall not be unreasonably withheld or delayed. Each
such assignment with respect to a Purchaser which is not a Lender or an
Affiliate thereof shall (unless each of the Borrowers and the Agent otherwise
consents) be in an amount not less than the lesser of (i) $5,000,000 or (ii) the
remaining amount of the assigning Lender's Commitment (calculated as at the date
of such assignment) or outstanding Loans (if the applicable Commitment has been
terminated).
12.3.2 Effect; Effective Date. Upon (i) delivery to the Agent of an
----------------------
assignment, together with any consents required by Section 12.3.1, and (ii)
payment of a $3,500 fee to the Agent for processing such assignment (unless such
fee is waived by the Agent), such assignment shall become effective on the
effective date specified in such assignment. The assignment shall contain a
representation by the Purchaser to the effect that none of the consideration
used to make the purchase of the
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Commitment and Outstanding Credit Exposure under the applicable assignment
agreement constitutes "plan assets" as defined under ERISA and that the rights
and interests of the Purchaser in and under the Loan Documents will not be "plan
assets" under ERISA. On and after the effective date of such assignment, such
Purchaser shall for all purposes be a Lender party to this Agreement and any
other Loan Document executed by or on behalf of the Lenders and shall have all
the rights and obligations of a Lender under the Loan Documents, to the same
extent as if it were an original party hereto, and no further consent or action
by the Borrowers, the Lenders or the Agent shall be required to release the
transferor Lender with respect to the percentage of the Aggregate Commitment and
Outstanding Credit Exposure assigned to such Purchaser. Upon the consummation of
any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor
Lender, the Agent and the Borrowers shall, if the transferor Lender or the
Purchaser desires that its Loans be evidenced by Notes, make appropriate
arrangements so that new Notes or, as appropriate, replacement Notes are issued
to such transferor Lender and new Notes or, as appropriate, replacement Notes,
are issued to such Purchaser, in each case in principal amounts reflecting their
respective Commitments, as adjusted pursuant to such assignment.
12.4. Dissemination of Information. The Borrowers authorize each Lender to
----------------------------
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of Law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrowers, including without limitation
any information contained in any Reports; provided that each Transferee and
prospective Transferee agrees to be bound by Section 9.11 of this Agreement.
12.5. Tax Treatment. If any interest in any Loan Document is transferred
-------------
to any Transferee which is organized under the Laws of any jurisdiction other
than the United States or any State thereof, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to comply
with the provisions of Section 3.5.4.
ARTICLE XIII
NOTICES
-------
13.1. Notices. Except as otherwise permitted by Section 2.15 with respect
-------
to borrowing notices, all notices, requests and other communications to any
party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party: (i)
in the case of the Borrowers or the Agent, at its address or facsimile number
set forth on the signature pages hereof, (ii) in the case of any Lender, at its
address or facsimile number set forth below its signature hereto or (iii) in the
case of any party, at such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrowers in
accordance with the provisions of this Section 13.1. Each such notice, request
or other communication shall be effective (i) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (ii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, or (iii) if given by any other means, when delivered
(or, in the case of electronic transmission, received) at the address specified
in this Section; provided that notices to the Agent under Article II shall not
be effective until received.
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13.2. Change of Address. The Borrowers, the Agent and any Lender may each
-----------------
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XIV
COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrowers, the Agent, the LC Issuer
and the Lenders and each party has notified the Agent by facsimile transmission
or telephone that it has taken such action.
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
------------------------------------------------------------
15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
-------------
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
15.2. CONSENT TO JURISDICTION. THE BORROWERS HEREBY IRREVOCABLY SUBMITS TO
-----------------------
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS STATE COURT
SITTING IN HOUSTON, TEXAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND EACH BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE
AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT
OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE
RIGHT OF THE AGENT, THE LC ISSUER OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWERS IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY
THE BORROWERS AGAINST THE AGENT, THE LC ISSUER OR ANY LENDER OR ANY AFFILIATE OF
THE AGENT, THE LC ISSUER OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN HOUSTON, TEXAS.
15.3. WAIVER OF JURY TRIAL. EACH BORROWER, THE AGENT, THE LC ISSUER AND
--------------------
EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF,
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RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED
THEREUNDER.
15.4. Amendment and Restatement. Borrower has heretofore been indebted to
-------------------------
Lenders, as assignees, under the Existing Agreement. Upon the execution and
delivery of this Agreement by each of the parties hereto, any loans made under
the Existing Agreement and outstanding as of the date hereof shall be deemed
Loans made hereunder as of the date hereof and shall be deemed made under, and
evidenced by, the Notes and subject to the terms and conditions hereof and
thereof, and all accrued and unpaid interest on the Loans and all accrued and
unpaid fees and expenses under the Existing Agreement shall be deemed to be
outstanding under and governed by this Agreement. This Agreement amends and
restates the Existing Agreement in its entirety, and upon the effectiveness
hereto, all terms and provisions hereof shall supersede the terms and provisions
thereof.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the Borrowers, the Lenders, the LC Issuer and the Agent
have executed this Agreement as of the date first above written.
BORROWERS: MILLER EXPLORATION COMPANY
By: /s/ Kelly E. Miller
---------------------------------------
Kelly E. Miller, President
MILLER OIL CORPORATION
By: /s/ Kelly E. Miller
---------------------------------------
Kelly E. Miller, President
Address for Borrowers:
Miller Exploration Company
3104 Logan Valley Road
Traverse City, Michigan 49685-0348
Attention: Kelly E. Miller
Telephone: (616) 941-0004
Fax: (616) 941-8312
LENDERS: BANK ONE, TEXAS, N.A.,
Individually and as the Agent and LC Issuer
Commitment: $50,000,000.00
By: /s/ Charles Kingwell-Smith
---------------------------------------
Charles Kingswell-Smith
First Vice President
Address:
Bank One, Texas, N.A.
910 Travis
Houston, Texas 77002
Attention: Charles Kingswell-Smith
Telephone: (713) 751-7803
Fax: (713) 751-3544
To Miller Exploration Company
Credit Agreement
Signature Page 1
