<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .......... to ..........
Commission file number: 001-14837
Quicksilver Resources Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2756163 (I.R.S. Employer Identification No.)
777 West Rosedale, Fort Worth, Texas 76104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 665-5000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value American Stock Exchange
$0.01 per share
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 11, 2000, the registrant had 18,267,148 outstanding shares of its
common stock, $0.01 par value.
<PAGE>
Quicksilver Resources Inc.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Independent Accountants' Report 3
Condensed Consolidated Balance Sheets at March 31, 2000 (unaudited) and December 31, 1999 4
Condensed Consolidated Statements of Operations for the three months ended March 31, 2000 5
and 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 6
and 1999 (unaudited)
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
ITEM 1. Financial Statements
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Quicksilver Resources Inc.
Fort Worth, Texas
We have reviewed the accompanying condensed consolidated balance sheet of
Quicksilver Resources Inc. (the Company) as of March 31, 2000, and the related
condensed consolidated statements of operations for the three month periods
ended March 31, 2000 and 1999, and condensed consolidated statements of cash
flows for the three month periods ended March 31, 2000 and 1999. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 1999, and the related consolidated statement of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated March 10, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
May 11, 2000
3
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Quicksilver Resources Inc.
Condensed Consolidated Balance Sheets
In thousands, except share and per share amounts
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,250 $ 2,557
Accounts receivable, net of allowance for doubtful accounts
of $1,350 12,618 15,555
Inventories and other current assets 1,356 780
------------ ------------
Total current assets 16,224 18,892
INVESTMENTS IN EQUITY AFFILIATES 2,969 3,100
PROPERTIES, PLANT AND EQUIPMENT - NET ("full cost") 358,438 170,800
DEFERRED FINANCING COSTS 6,604 1,203
OTHER ASSETS 945 307
------------ ------------
$ 385,180 $ 194,302
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 2,131 $ 2,134
Accounts payable 3,543 7,234
Accrued liabilities 7,013 2,356
------------ ------------
Total current liabilities 12,687 11,724
LONG-TERM DEBT 236,102 94,952
OTHER LONG-TERM LIABILITIES 27,906 2,800
DEFERRED INCOME TAXES 37,491 15,088
MINORITY INTEREST 215 187
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value
Authorized 10,000,000 shares, issued and outstanding-none - -
Common stock, $0.01 par value
Authorized 40,000,000 shares,
21,644,900 issued and 17,984,092 outstanding 216 180
Paid in capital in excess of par value 75,905 61,383
Treasury Stock of 3,660,808 shares at March 31, 2000
and 10,808 shares at December 31, 1999 (14,672) (73)
Retained earnings 9,330 8,061
------------ ------------
Total stockholders' equity 70,779 69,551
------------ ------------
$ 385,180 $ 194,302
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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Quicksilver Resources Inc.
Condensed Consolidated Statements of Operations
In thousands, except per share data - Unaudited
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUE
Oil, gas and related product sales $ 14,735 $ 8,790
Other income 1,244 904
---------- ----------
Total revenues 15,979 9,694
---------- ----------
EXPENSES
Operating expenses 6,541 3,890
Depletion and depreciation 4,091 2,815
Provision for doubtful accounts - 1,350
General and administrative 1,258 820
Interest 2,115 1,695
---------- ----------
Total expenses 14,005 10,570
---------- ----------
Income (loss) before income taxes
and minority interest 1,974 (876)
Minority interest in net loss
of MSR Exploration Ltd. - 141
---------- ----------
Income (loss) before income taxes 1,974 (735)
Income tax expense (benefit) 705 (250)
---------- ----------
NET INCOME (LOSS) $ 1,269 $ (485)
========== ==========
Basic earnings per share $ 0.07 $ (0.04)
========== ==========
Diluted earnings per share $ 0.07 $ (0.04)
========== ==========
Basic weighted average number of shares outstanding for the periods 18,267 11,939
========== ==========
Diluted weighted average number of shares outstanding for the periods 18,436 11,939
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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Quicksilver Resources Inc.
Condensed Consolidated Statements of Cash Flows
In thousands - Unaudited
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,269 $ (485)
Charges and credits to net income not affecting cash
Depletion and depreciation 4,091 2,815
Deferred income taxes 554 (250)
Recognition of unearned revenue - (203)
Minority interest in loss of subsidiary (28) (141)
Amortization of deferred loan costs 76 32
Provision for doubtful accounts - 1,350
Equity interest in loss of subsidiary 131 -
Changes in assets and liabilities, excluding the effect of the acquisition
Accounts receivable 3,237 (3,134)
Inventory and other current assets (35) 4
Accounts payable (4,654) 3,735
Accrued liabilities 2,200 (574)
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 6,841 3,149
--------- ---------
INVESTING ACTIVITIES
Acquisition of properties and equipment (168,380) (2,742)
Acquisition of pipeline and facilities (2,469) (2,700)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (170,849) (5,442)
--------- ---------
FINANCING ACTIVITIES
Notes payable, bank proceeds 236,000 3,214
Principal payments on long-term debt (94,850) (555)
Monetization of Section 29 tax credits 25,000 -
Deferred financing costs (2,431) (31)
Stock registration fees (18) (225)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES 163,701 2,403
--------- ---------
NET (DECREASE) INCREASE IN CASH (307) 110
CASH AT BEGINNING OF PERIOD 2,557 294
--------- ---------
CASH AT END OF PERIOD $ 2,250 $ 404
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest expense $ 2,709 $ 2,240
========= =========
Cash payments for income taxes $ - $ -
========= =========
Common stock of 1,377,000 shares used for acquisition of
minority interest in MSR $ - $ 10,327
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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Quicksilver Resources Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DISCLOSURES
In the opinion of management of Quicksilver Resources Inc. ("Quicksilver or the
Company"), the Company's Condensed Consolidated Financial Statements contain all
adjustments (consisting of only normal, recurring accruals) necessary to present
fairly the financial position of the Company as of March 31, 2000, and the
results of operations for the three months ended March 31, 2000 and 1999 and
cash flows for the three months ended March 31, 2000 and 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-K for the year
ended December 31, 1999. The results of operations for the three-month period
ended March 31, 2000 are not necessarily indicative of the operating results to
be expected for the full fiscal year.
In June 1999, the Company reclassified marketing and processing costs to
operating expense. These costs were previously reported as deductions from
revenue. All prior periods have been reclassified.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income or
loss by the weighted average number of shares of common stock outstanding during
the period. Diluted net income (loss) per common share is calculated in the
same manner but also considers the impact on net income and common shares for
the potential dilution from stock options, stock warrants, and any other
convertible securities outstanding. For the three months ended March 31, 2000
and 1999 there were no adjustments to net income for purposes of calculating
diluted net income (loss) per common share. The following is a reconciliation
of the weighted average common shares used in the basic and diluted net income
(loss) per common share calculations for the three months ended March 31, 2000
and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
2000 1999
----------------- -----------------
(Unaudited, in thousands)
<S> <C> <C>
Weighted average common shares-basic 17,984 11,939
Unregistered shares issuable to Unocal 283 -
----------------- -----------------
Total weighted average common shares-basic 18,267 11,939
Potentially dilutive securities
Stock options 165 -
Stock warrants 4 -
----------------- -----------------
Weighted average common shares-diluted 18,436 11,939
================= =================
</TABLE>
For the three months ended March 31, 2000, 283,056 of the original 404,381
contingently issuable unregistered shares of common stock currently held in
escrow to be released over a three year period in connection with the Company's
acquisition of properties from Unocal Corporation's Spirit Energy 76 Unit in May
of 1999 are included in the basic and diluted net income per share computation
(see note 2, Unocal). Approximately 25,000 shares under option were excluded
from the diluted net income per share calculation as the exercise price exceeded
the average market price of the Company's common stock. Warrants representing
1,128,000 shares of common stock were also excluded from the diluted net income
per share computation as the exercise price exceeded the average market price of
the Company's common stock. For the first quarter of 1999, all potentially
dilutive securities were excluded from the calculation of diluted loss per
share, as their effect would have been anti-dilutive.
7
<PAGE>
2. ACQUISITIONS
CMS Acquisition
On March 31, 2000, the Company completed the previously announced acquisition
from CMS Oil and Gas Company, a subsidiary of CMS Energy Corporation, of CMS
properties located primarily in Michigan for $164 million, subject to subsequent
adjustments. The CMS properties consist of interests in approximately 3,050
gross (650 net) producing oil and gas wells located on approximately 512,000
gross (450,000 net) acres. Holditch-Reservoir Technologies Consulting Services,
a Schlumberger company, estimated proved reserves attributable to the CMS
acquisition of 315.1 Bcf of natural gas and 747.8 Mbbls of crude oil and
condensate, and 143.9 Mbbls of natural gas liquids, or a total of 320.4 Bcfe
with an estimated SEC PV-10 value as of January 1, 2000 of $184.0 million.
Approximately 81% of the proved reserve volumes is classified as proved
developed. Current daily production from the CMS properties is estimated to be
49 Mmcfe.
Financing for the acquisition was accomplished through restructuring
Quicksilver's senior bank facility, the sale of $43 million in Subordinated
Notes, and the monetization of a portion of the accompanying Section 29 tax
credits to a major financial institution (see note 5).
The acquisition was accounted for under the purchase accounting method, and
consists of both CMS producing properties as well as common stock of Terra
Energy Ltd.
Summary pro forma results of operations for the quarters ended March 31, 2000
and March 31, 1999 giving effect to the acquisition as though the acquisition
had occurred at the beginning of each period are presented below. Adjustments
were made to reflect a combined depletion rate, restatement for the full cost
accounting method, incremental general and administrative expense, interest
expense on acquisition debt, and the sale of Section 29 tax credits.
<TABLE>
<CAPTION>
For the Three Months Ended
(In Thousands, except per share data) March 31,
--------------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Revenues $30,549 $19,680
Expenses $27,237 $22,443
Net Income $ 2,146 $(1,729)
Basic and diluted earnings per share $ .12 $ (.14)
</TABLE>
Unocal Acquisition
On May 17, 1999, the Company completed a purchase from Unocal Corporation's
Spirit Energy 76 Unit of substantially all of Unocal's natural gas and crude oil
assets in Michigan. The purchase price consisted of $25.8 million in cash and
404,381 unregistered shares of the Company's common stock. The stock component
of the purchase price totaling $3 million was placed in escrow. The Company
currently estimates that 283,056 shares will be distributed to Unocal over a
three-year period, subject to adjustment pending the resolution of certain
contingencies (see note 7).
3. DEFERRED FINANCING COSTS
The Company amended its credit facility agreement (see note 4) on March 31, 2000
and incurred additional deferred loan costs to be amortized over the remainder
of the agreement terminating March 21, 2003.
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------------- -----------------------
(In thousands)
(Unaudited)
<S> <C> <C>
Deferred financing costs $6,987 $1,510
Less accumulated amortization (383) (307)
------ ------
Net deferred financing costs $6,604 $1,203
====== ======
</TABLE>
8
<PAGE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------------- -----------------------
(Unaudited)
<S> <C> <C>
Long-term debt, in thousands, consists of:
Notes payable to banks
(9.03% at March 31, 2000 and 8.315% at
December 31, 1999) $180,000 $84,850
(8.63% at March 31, 2000 and 8.465% at
December 31, 1999) 13,000 8,000
(8.5% at December 31, 1999) - 2,000
Subordinated Notes (14.75%, second mortgage note) 43,000 -
Other loans 2,233 2,236
-------- -------
238,233 97,086
Less current maturities (2,131) (2,134)
-------- -------
$236,102 $94,952
======== =======
</TABLE>
Long-term maturities are as follows, in thousands of dollars:
<TABLE>
<CAPTION>
Periods Ending March 31, 2000
-------------- --------------
(Unaudited)
<S> <C> <C>
2000 2,131
2001 -
2002 -
2003 193,000
2004 -
Thereafter 43,102
--------
$238,233
========
</TABLE>
As part of the acquisition of the CMS properties and Terra Energy Ltd, the
Company amended the agreement setting forth the terms of its credit facility
("Credit Facility"). The Credit Facility permits the Company to obtain
revolving credit loans and to issue letters of credit for the account of the
Company from time to time in an aggregate amount not to exceed $225 million.
The Borrowing Base is $200 million and is subject to semi-annual determination
and certain other redeterminations based upon a variety of factors, including
the discounted present value of estimated future net cash flow from the
Company's natural gas and crude oil production. At the Company's option, loans
may be prepaid, and revolving credit commitments may be reduced in whole or in
part at any time in certain minimum amounts. The Company can designate the
interest rate on amounts outstanding at either the London Interbank Offered Rate
(LIBOR) +1.65% or bank prime rate. The collateral for the Credit Facility
consists of substantially all of the existing assets of the Company and any
future reserves acquired. The loan agreements contain certain dividend
restrictions and restrictive covenants, which, among other things, require the
maintenance of a minimum current ratio. The Company currently is in compliance
with all such restrictions. The Credit Facility terminates March 31, 2003.
The Company also sold $43 million of 14.75% Second Mortgage Notes ("Subordinated
Notes") on March 31, 2000. The Company may not prepay the Subordinated Notes,
in whole or any part, until after March 28, 2003. Prepayments will require a
premium payment ranging from 3% to 6%. Quarterly interest payments to the note
holders may be paid in kind with respect to all or any portion of interest in
excess of 10% by issuing additional notes. The collateral for the Subordinated
Notes consists of substantially all of the existing assets of the Company and
any future reserves acquired. The Subordinated Notes contain certain restrictive
covenants, which, among other things, require maintenance of working capital,
collateral coverage ratio and an earnings ratio before interest, taxes,
depreciation and amortization, costs associated with seismic geological and
geophysical services in connection and attributable to oil and gas exploration
("EBITDAX"). The Subordinated Notes are due and payable in full on March 30,
2009.
MGV Energy Inc. has a balance of US$2,130,630 in debt related to the acquisition
of the Monogram Unit in August 1999. The interest rate is 0.75% over Canadian
Imperial Bank of Commerce ("CIBC") prime. CIBC's prime was 7% and 6.5%,
respectively, as of March 31, 2000 and December 31, 1999.
9
<PAGE>
5. OTHER LONG-TERM LIABILITIES
Quicksilver's properties include certain properties which carry IRS Code Section
29 income tax benefits. Code Section 29 allows a credit against regular federal
income tax liability for certain eligible gas production. During 1997, tax
credits were conveyed through the sale of working interests to a bank. The
purchase and sale agreement and ancillary agreements with the bank provide that
the Company will receive cash, payment for future production on the properties,
and payment for a portion of the tax credits taken by the bank. A portion of the
initial cash payment made by the bank represented an advance payment for the
first eighteen months of tax benefits. As of March 31, 2000, and December 31,
1999, a balance of $800,000 remained as a result of the cash consideration
received in excess of the tax benefit earned. The balance of $800,000 will be
applied towards the repurchase of the properties after the tax benefits of the
IRS Code Section 29 expire at December 31, 2002.
Additionally, on March 31, 2000, the Company conveyed to a bank Section 29
credits for 99.5% of the interests acquired from CMS and the Terra interests in
Devonian shale gas production from certain wells located in Michigan. Cash
proceeds received from the sale were $25 million and are included in long-term
liabilities. The purchase and sale agreement and ancillary agreements with the
bank include a production payment in favor of Quicksilver burdening future
production on the properties.
Long-term liabilities also include $2 million representing the non-current
portion of the Unocal property acquisition discussed in note 2.
6. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
The Company is authorized to issue 40 million shares of common stock with a par
value per share of one cent ($0.01) and 10 million shares of preferred stock
with a par value per share of one cent ($0.01). At March 31, 2000, the Company
had 18,267,148 shares of common stock outstanding, including 283,056 of the
404,381 unregistered shares contingently issuable to Unocal (see note 2), and no
shares of preferred stock outstanding. Pursuant to a Purchase and Sale
Agreement between the Company and CMS Oil and Gas Company, dated March 4, 2000,
the Company issued 3,650,000 shares of its common stock to CMS as a portion of
an earnest money performance deposit. Such shares, which were valued on the
date of issuance at $4.00 per share, were returned to the Company at closing of
the acquisition and are now held as treasury shares.
Warrants and Options
The Company has warrants outstanding to purchase 550,000 shares of common stock
at $12.50 per share, 550,000 shares of common stock at $20.00 per share, 28,000
shares of common stock at $33.75 per share, and 5,750 shares of common stock at
$0.10 per share (exercisable only after the market price of the Company's common
stock reaches $10.00 per share), and options outstanding to purchase 24,857
shares of common stock at $8.75 per share.
On October 4, 1999, the Board of Directors adopted the 1999 Stock Option and
Stock Retention Plan ("the Plan"), which will be submitted for approval at the
next stockholders' meeting on June 6, 2000. There are 1.3 million shares of
common stock reserved for issuance under the Plan, which provides for the grant
of incentive stock options, non-qualified stock options, stock appreciation
rights and retention stock awards. No employee of the Company or subsidiary may
receive options or awards aggregating more than 20% of the shares of common
stock available under the Plan.
On February 10, 2000, the Company granted incentive stock options covering
459,203 shares of common stock to certain employees. These options were granted
at an exercise price of $3.6875 and vest equally in three annual installments
beginning one year from the date of grant. No compensation cost was recognized
at date of grant because the exercise price at date of grant was equal to the
fair value of the common stock at date of grant. There were no options
exercisable at March 31, 2000.
7. CONTINGENCIES
The Company's customers are large natural gas and crude oil purchasers. The
Company does not generally require collateral, and receivables are usually due
and collected in 30 to 60 days. On March 10, 1999, one of the Company's natural
gas purchasers filed for protection under Chapter 11 of the Federal Bankruptcy
Code.
10
<PAGE>
Management considers a portion of the approximately $2,450,000 account
receivable associated with this purchaser to be uncollectible; accordingly, an
allowance for doubtful accounts of $1,350,000 was established in the first
quarter of 1999 and remains in place at March 31, 2000. All contracts with that
purchaser have been terminated, and the gas has been recontracted with a credit-
worthy purchaser. The Company believes that based on information currently
available regarding the bankruptcy proceeding, the net receivable will be
recovered.
In connection with the purchase of certain properties from Unocal (see note 2),
the Company placed 404,381 unregistered shares of Company common stock in
escrow. These shares will be distributed to Unocal over a three-year period,
subject to downward adjustment pending the resolution of certain contingencies.
The Company currently estimates it will spend approximately $900,000 for
environmental clean up on the properties and that it will therefore issue 94,352
shares each in the second quarter of 2000, 2001 and 2002. Unocal has not agreed
with this estimate, and the final outcome may differ. Nevertheless, shares
considered outstanding for purposes of earnings per share calculation include
the 283,056 shares the Company anticipates issuing for the contingent purchase
price.
Related Party Transactions
The Darden Family has effective beneficial ownership of 56.53% of Quicksilver's
shares outstanding including shares owned by Mercury Exploration Company and
Quicksilver Energy L.C. Frank Darden, Thomas Darden, Glenn Darden and Anne
Darden Self are also Directors of the Company. Mercury operates the Company's
oil and gas properties, and until April 1, 2000, provided most of the Company's
accounting, treasury and administrative functions. On April 1, 2000 accounting
employees were transferred from Mercury to Quicksilver. The employees involved
in operating Quicksilver's oil and gas properties will transfer to the Company
on July 1, 2000. As a result, Quicksilver's dependence on Mercury will be
significantly reduced. All transactions with any affiliates are at arms length
and require approval of a majority of the disinterested members of the Board of
Directors. During the first quarter of 2000, Quicksilver paid $737,247 for
services rendered by affiliated companies.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following should be read in conjunction with the Company's financial
statements contained herein and in its Form 10-K for the year ended December 31,
1999, along with Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in such Form 10-K. Any capitalized terms used
but not defined in the following discussion have the same meaning given to them
in the Form 10-K.
The statements contained in this Quarterly Report on Form 10-Q ("Quarterly
Report") that are not historical facts, including, but not limited to,
statements found in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements, as that
term is defined in Section 21E of the Securities and Exchange Act of 1934, as
amended, that involve a number of risks and uncertainties. Such forward-looking
statements may be or may concern, among other things, capital expenditures,
drilling activity, acquisition plans and proposals and dispositions, development
activities, cost savings, production efforts and volumes, hydrocarbon reserves,
hydrocarbon prices, liquidity, regulatory matters and competition. Such
forward-looking statements generally are accompanied by words such as "plan,"
"estimate," "budgeted," "expect," "predict," "anticipate," "projected,"
"should," "assume," "believe" or other words that convey the uncertainty of
future events or outcomes. Such forward-looking information is based upon
management's current plans, expectations, estimates and assumptions and is
subject to a number of risks and uncertainties that could significantly affect
current plans, anticipated actions, the timing of such actions and the Company's
financial condition and results of operations. As a consequence, actual results
may differ materially from expectations, estimates or assumptions expressed in
or implied by any forward-looking statements made by or on behalf of the
Company. Among the factors that could cause actual results to differ materially
are: fluctuations of the prices received or demand for the Company's oil and
natural gas, the uncertainty of drilling results and reserve estimates,
operating hazards, acquisition risk, requirements for capital, general economic
conditions, competition and government regulations, as well as the risks and
uncertainties discussed in this Quarterly Report, including, without limitation,
the portions referenced above, and the uncertainties set forth from time to time
in the Company's other public reports, filings and public statements.
11
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
General
The following discussion compares the Company's financial condition at March 31,
2000, to its financial condition at December 31, 1999. For the twelve months
ended December 31, 1999 and the three months ended March 31, 2000, the Company
spent approximately $43.5 and $171 million, respectively, on acquisition and
development activities. The capital program was financed from operations,
additional borrowings, restructured bank facility, monetization of a portion of
acquired Section 29 tax credits, sale of Subordinated Notes and, sale of the
Company's common stock.
Cash Flow
The Company believes that its capital resources are adequate to meet the
requirements of its business. However, future cash flows are subject to a number
of variables including the level of production and oil and gas prices, and there
can be no assurance that operations and other capital resources will provide
cash in sufficient amounts to maintain planned levels of capital expenditures.
The Company's principal operating sources of cash include sales of natural gas
and crude oil and revenues from transportation and processing. The Company
sells approximately 65% of its natural gas production under long- term
contracts. As a result, the Company benefits from significant predictability of
its natural gas revenues. Commodity market prices affect cash flow for that
portion of natural gas not under contract as well as most of the Company's crude
oil sales.
The Company's net cash provided by operations for the three months ended March
31, 2000 was $6,841,000, compared to $3,149,000 for the same period last year.
The increase resulted from higher earnings and a $2,450,000 account receivable
not collected in the first quarter of 1999, which was partially offset by other
working capital changes.
The Company's net cash used in investing for the three months ended March 31,
2000 was $170,849,000. Investing activities were comprised primarily of
additions to oil and gas properties through acquisitions and development and, to
a lesser extent, exploration and additions of field service assets. The
Company's activities have been financed through a combination of operating cash
flow, bank borrowings, Subordinated Notes and monetization of a portion of
acquired Section 29 tax credits.
The Company's net cash from financing activities for the three months ended
March 31, 2000 was $163,701,000. Sources of financing used by the Company have
been borrowings under its Credit Facility, Subordinated Notes and monetization
of a portion of Section 29 tax credits.
RESULTS OF OPERATIONS
Primarily as a result of the increased production and product prices between the
quarters, net income, and cash flow from operations increased between the first
quarter of 1999 and the first quarter of 2000 as set forth below.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
<S> <C> <C>
Per Mcfe data 2000 1999
----------------- -----------------
Revenue $ 2.91 $ 2.44
Production taxes (0.16) (0.15)
Lease operating expenses (1.03) (0.83)
----------------- -----------------
Production netback 1.72 1.46
General and administrative expenses (0.23) (0.21)
Net cash interest expense (0.38) (0.43)
Other 0.13 (0.03)
----------------- -----------------
Cash flow from operations (a) 1.24 0.79
Depletion and depreciation (0.74) (0.71)
Other non-cash items (0.27) (0.20)
----------------- -----------------
Net income (loss) $ 0.23 $(0.12)
================= =================
</TABLE>
(a) Represents cash flow provided by operations, exclusive of the net change in
non-cash working capital balances.
12
<PAGE>
Three Months Ended March 31, 2000 Compared with the Three Months Ended March 31,
1999
Revenues: Total revenues for the three months ended March 31, 2000 were
$15,979,000, an increase of 64.8% from the $9,694,000 reported in the three
months ended March 31, 1999.
The Company's results of operations for the first quarter of 2000 increased
significantly over the comparable quarter last year as further set forth below.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
2000 1999
--------------- ----------------
<S> <C> <C>
Average daily production volume
Gas - Mcf/d 44,949 35,550
Oil - Bbls/d 2,271 1,133
NGL - Bbls/d 302 285
Operating income (in thousands)
Natural gas sales $10,538 $ 7,587
Oil sales 3,558 948
Natural gas liquid ("NGL") sales 639 255
--------------- ----------------
Total oil, gas and related product sales $14,735 $ 8,790
=============== ================
Production taxes $ 896 $ 605
Lease operating expenses 5,645 3,285
--------------- ----------------
Total operating expenses $ 6,541 $ 3,890
=============== ================
Unit prices-including impact of hedges
Gas price per thousand cubic feet ("Mcf") $ 2.58 $ 2.37
Oil price per barrel ("Bbls") $ 17.22 $ 9.14
NGL per barrel ("Bbls") $ 23.22 $ 9.94
</TABLE>
Gas sales of $10,538,000 in the first quarter of 2000 were 38.9% higher than the
$7,587,000 for the first quarter 1999. Gas volumes increased 27.8% to 4,090,396
Mcf in 2000 reflecting the additional production from the interests purchased
from Unocal in May 1999 and increased prices. Average gas prices were $2.58 per
Mcf in the three months ended March 31, 2000, $0.21 per Mcf higher than the
average received in the 1999 period.
Oil sales grew 275.3% to $3,558,000 in the three month period ended March 31,
2000 compared to $948,000 in the 1999 quarter as a result of higher volumes and
prices. Crude oil production for the first quarter 2000 was 206,630 barrels
compared to 102,000 barrels in 1999. Average oil sales prices in the 2000
quarter were $17.22 per barrel compared to $9.14 per barrel in 1999.
Natural gas liquid sales increased 151% for the 2000 first quarter compared to
the 1999 first quarter. NGL prices increased from $9.94 to $23.22 per Bbl.
Other income, which primarily consists of pipeline and processing fees,
increased by $340,000 to $1,244,000 in the first quarter 2000 compared to
$904,000 in the comparable 1999 period as a result of higher marketing revenue,
transportation fees and processing fees.
Expenses: Total expenses of $14,005,000 in the first quarter of 2000 were 32.5%
higher than the $10,570,000 incurred in the first quarter 1999. Operating
expenses of $6,541,000 increased 68.1% from the 1999 quarter reflecting higher
production. The increases were in compressor charges, chemicals, transportation
fees, field payroll, material and supplies, repairs, maintenance, gas
compression and property taxes. Most of the increases were a result of the
additional Unocal properties.
13
<PAGE>
Depletion and Depreciation
<TABLE>
<CAPTION>
Three Months Ended
(In thousands, except per unit amounts) March 31,
---------------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
Depletion $3,963 $2,707
Depreciation of other fixed assets 128 108
------ ------
Total depletion and depreciation $4,091 $2,815
====== ======
Average DD&A cost per Mcfe $ 0.74 $ 0.71
====== ======
</TABLE>
Depletion and depreciation increased to $4,091,000 in the March 31, 2000 quarter
from $2,815,000 in the 1999 quarter, as a result of higher production volumes
and a higher depletion rate.
General and Administrative Expenses
General and administrative costs incurred during the first quarter of $1,258,000
were 53.4% higher than in the 1999 period, reflecting higher salaries,
professional fees and franchise taxes required of a larger public company due to
the acquisitions of CMS and Unocal.
Interest Expense
Interest expense of $2,115,000 in the 2000 quarter increased 24.8% from the
comparable 1999 period reflecting higher debt levels in 2000.
Income Taxes
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
Income tax provision (benefit) (in thousands) $ 705 $(250)
Average income tax expense (benefit) per Mcf $0.13 $(.06)
Effective tax rate 35.7% 34%
</TABLE>
Based on the Company's pre-tax income of $2.0 million for the quarter ended
March 31, 2000, the income tax provision for the quarter was established using
an effective tax rate of 35.7%. As of March 31, 2000, the Company had a
deferred tax liability of $37.5 million. The increase in the deferred tax
liability over the previous year is primarily the result of the acquisition of
the Terra stock.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company uses derivative financial instruments in limited instances and for
other trading purposes to manage risk as it relates to gas and oil sales and
interest rates. Where the Company has fixed interest rates or gas and oil sales
through the use of swaps, futures or forward contracts, the Company has
mitigated the downside risk of adverse price and rate movements: however, it has
also limited future gains from favorable movements.
Market and Credit Risk
The Company addresses market risk related to these instruments by selecting
instruments whose value fluctuations highly correlate with the underlying item
being hedged. Credit risk related to derivative financial instruments, which is
minimal, is managed by requiring high credit standards for counter parties and
monthly settlements.
Commodity Price
The Company enters into various financial contracts to hedge its exposure to
commodity price risk associated with anticipated future oil and gas production.
These contracts consist of price ceilings and floors, no-cost collars and fixed
price swaps.
The Company sells approximately 65% of its natural gas under long-term, fixed
price contracts, and swap agreements and therefore, benefits from significant
predictability of its natural gas revenues. Commodity market
14
<PAGE>
price fluctuations affect those natural gas volumes that are not sold under
contract, and also affect crude oil sales that are not hedged.
The Company has entered into interest rate swap agreements covering $50 million
of its debt. These agreements consist of one covering $25 million through May 8,
2000, which converts the debt floating LIBOR base rate to a 5.75% fixed rate,
and a second for $25 million through June 17, 2002, which converts the debt
floating LIBOR base rate to a 5.70% fixed rate. Interest expense for the three
months ended March 31, 2000 was $77,962 lower as a result of these rate swaps.
As of March 31, 2000, the Company had zero-cost financial contracts ("collars")
in place that hedged a total of 1,000 barrels of oil per day ("MMcf/d") through
July 2000 and 500 barrels of oil per day through November 2000. The first set
of contracts had a weighted average ceiling price of approximately $20.65 per
barrel and the second set of contracts had a ceiling price of $25.85 per barrel.
These contracts had a floor price of $18.50 and $21.00 per barrel, respectively.
The Company also has fixed price swaps for 500 barrels per day at $19.35 per
barrel through July 2000 and 7,500 mcf per day at $2.40 per mcf through April
2004. MGV Energy Inc. has a fixed price swap for an average of 20,852 Giga
Joules (which approximates 20,800 mcf) per month at $3.09 Canadian through
October 2004.
Gain or loss on these derivative commodity contracts would be offset by a
corresponding gain or loss on the hedged commodity positions. There has been no
material change in market prices since December 31, 1999.
As a result of these hedging activities for the three months ended March 31,
2000, gas revenues were decreased by $195,585 and oil revenues were decreased by
$1,291,830.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
Pursuant to a Purchase and Sale Agreement between the Company and CMS Oil and
Gas Company, dated March 4, 2000, the Company issued 3,650,000 shares of its
common stock to CMS as a portion of an earnest money performance deposit. Such
shares, which were valued on the date of issuance at $4.00 per share, were
returned to the Company at closing of the acquisition and are now held as
treasury shares. Issuance of the shares to CMS was not registered under the
Securities Act of 1933, as amended, in reliance upon Section 4(2) of such Act.
Reference is made to note 4 to the financial statements included in Part I of
this report describing dividend restrictions and restrictive covenants imposed
by instruments and agreements under which the Company's long-term debt is
outstanding.
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
+ 2.1 Purchase and Sale Agreement, dated March 4, 2000, between
CMS Oil and Gas Company and Quicksilver Resources Inc.
(filed as Exhibit 2.1 to the Company's Form 8-K filed April
14, 2000 and included herein by reference).
+ 4.1 Note Purchase Agreement, dated March 31, 2000, between the
Company and the Purchasers identified therein (filed as
Exhibit 4.1 to the Company's Form 8-K filed April 14, 2000
and included herein by reference).
* 10.1 Third Amended and Restated Credit Agreement dated as of
March 31, 2000, among Quicksilver Resources Inc., as
Borrower, Bank of America, N.A., as Administrative Agent,
and the financial institutions listed on Schedule 1
thereto.
* 10.2 Third Amendment to Third Amended and Restated Credit
Agreement, dated effective as of April 24, 2000, among the
parties described in Exhibit 10.1 above.
* 10.3 Amended and Restated Purchase and Sale Agreement, dated as
of March 31, 2000, between Quicksilver Resources Inc., as
Seller, and Mariner Gas LLC, as Buyer.
* 15 Awareness letter of Deloitte & Touche LLP.
* 23 Consent of Holditch-Reservoir Technologies Consulting
Services.
* 27 Financial Data Schedule
* Filed herewith
+ Previously filed
(b) Reports on Form 8-K:
On April 14, 2000, the Company filed a current report on SEC Form 8-K
announcing the acquisition from CMS Oil and Gas Company.
16
<PAGE>
Quicksilver Resources Inc.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 12, 2000
Quicksilver Resources Inc.
By: /s/ Glenn Darden
-----------------------------------
Glenn Darden
President and Chief Executive
Officer
By: /s/ Bill Lamkin
-----------------------------------
Bill Lamkin,
Executive Vice President, Chief
Financial Official and Secretary
17
<PAGE>
EXHIBIT 10.1
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
among
QUICKSILVER RESOURCES INC.,
as Borrower,
BANK OF AMERICA, N.A.,
as Administrative Agent,
and
The Financial Institutions Listed on Schedule 1 Hereto,
as Banks
$225,000,000
dated as of
March 31, 2000
BANC OF AMERICA SECURITIES LLC,
as Sole Lead Arranger and Book Manager
PARIBAS, as Syndication Agent
MEESPIERSON CAPITAL CORP., as Documentation Agent
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE I
AMENDMENT AND RESTATEMENT
ARTICLE II
TERMS DEFINED
SECTION 2.1. Definitions....................................................2
SECTION 2.2. Accounting Terms and Determinations...........................29
SECTION 2.3. Petroleum Terms...............................................29
SECTION 2.4. Money.........................................................29
ARTICLE III
THE CREDIT
SECTION 3.1. Commitments...................................................29
SECTION 3.2. Notes.........................................................34
SECTION 3.3. Interest Rates; Payments......................................34
SECTION 3.4. Mandatory Prepayments Resulting From Borrowing Base
Deficiency....................................................36
SECTION 3.5. ..............................................................36
SECTION 3.6. Voluntary Prepayments.........................................36
SECTION 3.7. Voluntary Reduction of Commitments............................36
SECTION 3.8. Termination of Commitments; Final Maturity....................37
SECTION 3.9. Unused Commitment Fee.........................................37
SECTION 3.10. Agency and other Fees.........................................37
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.1. Delivery and Endorsement of Notes.............................37
SECTION 4.2. General Provisions as to Payments.............................38
i
<PAGE>
ARTICLE V
CHANGE IN CIRCUMSTANCES
SECTION 5.1. Increased Cost and Reduced Return.............................39
SECTION 5.2. Limitation on Types of Loans..................................40
SECTION 5.3. Illegality....................................................40
SECTION 5.4. Treatment of Affected Loans...................................41
SECTION 5.5. Compensation..................................................41
SECTION 5.6. Taxes.........................................................42
SECTION 5.7. Discretion of Banks as to Manner of Funding...................43
ARTICLE VI
BORROWING BASE
SECTION 6.1. Reserve Report; Proposed Borrowing Base.......................43
SECTION 6.2. Scheduled Redeterminations of the Borrowing Base; Procedures and
Standards.....................................................44
SECTION 6.3. Special Redetermination.......................................44
SECTION 6.4. CMS Redetermination...........................................45
SECTION 6.5. Post-Closing Redetermination..................................45
SECTION 6.6. Post-Closing Redetermination..................................45
SECTION 6.7. Borrowing Base Deficiency.....................................45
SECTION 6.8. Initial Borrowing Base........................................45
ARTICLE VII
COLLATERAL AND GUARANTEES
SECTION 7.1. Security......................................................46
SECTION 7.2. Guarantees....................................................47
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.1. Conditions to Amendment and Restatement and Initial Borrowing
and Participation in Letter of Credit Exposure................47
SECTION 8.2. Conditions to Each Borrowing and each Letter of Credit........52
SECTION 8.3. Post-Closing Deliveries.......................................53
SECTION 8.4. Materiality of Conditions.....................................53
ii
<PAGE>
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
SECTION 9.1. Existence and Power...........................................53
SECTION 9.2. Credit Party and Governmental Authorization; Contravention....53
SECTION 9.3. Binding Effect................................................53
SECTION 9.4. Financial Information.........................................54
SECTION 9.5. Litigation....................................................54
SECTION 9.6. ERISA.........................................................54
SECTION 9.7. Taxes and Filing of Tax Returns...............................55
SECTION 9.8. Ownership of Properties Generally.............................55
SECTION 9.9. Mineral.......................................................55
SECTION 9.10. Licenses, Permits, Etc........................................56
SECTION 9.11. Compliance with Law...........................................56
SECTION 9.12. Full Disclosure...............................................56
SECTION 9.13. Organizational Structure; Nature of Business..................56
SECTION 9.14. Environmental Matters.........................................56
SECTION 9.15. Burdensome Obligations........................................57
SECTION 9.16. Fiscal Year...................................................58
SECTION 9.17. No Default....................................................58
SECTION 9.18. Government Regulation.........................................58
SECTION 9.19. Insider.......................................................58
SECTION 9.20. Gas Balancing Agreements and Advance Payment Contracts........58
SECTION 9.21. Closing Documents; Management Agreement.......................58
SECTION 9.22. Year 2000 Matters.............................................58
SECTION 9.23. Cinnabar......................................................59
SECTION 9.24. Commodity Price R.............................................59
ARTICLE X
AFFIRMATIVE COVENANTS
SECTION 10.1. Information...................................................59
SECTION 10.2. Business of Borrower..........................................61
SECTION 10.3. Maintenance of Existence......................................61
SECTION 10.4. Title Data....................................................61
SECTION 10.5. Right of Inspection...........................................62
SECTION 10.6. Maintenance of Insurance......................................62
SECTION 10.7. Payment of Taxes and Claims...................................62
SECTION 10.8. Compliance with Laws and Documents............................62
SECTION 10.9. Operation of Properties and Equipment.........................63
SECTION 10.10. Environmental Law Compliance..................................63
SECTION 10.11. ERISA Reporting Requirements..................................63
SECTION 10.12. Additional Documents..........................................64
iii
<PAGE>
SECTION 10.13. Environmental Review..........................................64
SECTION 10.14. Year 2000 Compatibility.......................................64
SECTION 10.15. Commodity Price Risk Policy...................................64
ARTICLE XI
NEGATIVE COVENANTS
SECTION 11.1. Incurrence of Debt............................................65
SECTION 11.2. Restricted Payments...........................................65
SECTION 11.3. Negative Pledge...............................................65
SECTION 11.4. Consolidations and Mergers....................................65
SECTION 11.5. Asset Dispositions............................................66
SECTION 11.6. Amendments to Organizational Documents; Other Material
Agreements....................................................66
SECTION 11.7. Use of Proceeds..............................................66
SECTION 11.8. Investments...................................................67
SECTION 11.9. Transactions with Affiliates..................................67
SECTION 11.10. ERISA.........................................................67
SECTION 11.11. Hedge Transactions............................................67
SECTION 11.12. Fiscal Year...................................................67
SECTION 11.13. Change in Business............................................68
SECTION 11.14. Subordinate Debt..............................................68
SECTION 11.15. Cinnabar......................................................68
ARTICLE XII
FINANCIAL COVENANTS
ARTICLE XIII
DEFAULTS
SECTION 13.1. Events of Default.............................................68
ARTICLE XIV
AGENTS
SECTION 14.1. Appointment, Powers, and Immunities...........................71
SECTION 14.2. Reliance by Agents............................................71
SECTION 14.3. Defaults......................................................72
SECTION 14.4. Rights as Bank................................................72
SECTION 14.5. Indemnification...............................................72
SECTION 14.6. Non-Reliance on Agents and Other Banks........................72
iv
<PAGE>
SECTION 14.7. Resignation of Agents.........................................73
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. Notices.......................................................73
SECTION 15.2. No Waivers....................................................73
SECTION 15.3. Expenses; Indemnification.....................................74
SECTION 15.4. Right of Set-off; Adjustments.................................74
SECTION 15.5. Amendments and Waivers........................................75
SECTION 15.6. Survival......................................................75
SECTION 15.7. Limitation on Interest........................................76
SECTION 15.8. Invalid Provisions............................................76
SECTION 15.9. Waiver of Consumer Credit Laws................................76
SECTION 15.10. Assignments and Participations................................76
SECTION 15.11. TEXAS LAW.....................................................78
SECTION 15.12. Consent to Jurisdiction; Waiver of Immunities.................78
SECTION 15.13. Counterparts; Effectiveness...................................79
SECTION 15.14. No Third Party Beneficiaries..................................79
SECTION 15.15. COMPLETE AGREEMENT............................................79
SECTION 15.16. WAIVER OF JURY TRIAL..........................................79
SECTION 15.17. Confidentiality...............................................79
v
<PAGE>
EXHIBITS
--------
EXHIBIT A FORM OF PLEDGE AGREEMENT
EXHIBIT B FORM OF NOTE
EXHIBIT C FORM OF GUARANTY
EXHIBIT D FORM OF REQUEST FOR BORROWING
EXHIBIT E FORM OF REQUEST FOR LETTER OF CREDIT
EXHIBIT F FORM OF NOTICE OF CONTINUATION OR CONVERSION
EXHIBIT G FORM OF CERTIFICATE OF OWNERSHIP INTERESTS
EXHIBIT H FORM OF CERTIFICATE OF FINANCIAL OFFICER
EXHIBIT I FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
EXHIBIT J FORM OF CERTIFICATE OF EFFECTIVENESS
EXHIBIT K FORM OF SUBORDINATION AGREEMENT
EXHIBIT L COMMODITY PRICE RISK POLICY
SCHEDULES
---------
SCHEDULE 1 FINANCIAL INSTITUTIONS
SCHEDULE 2 INVESTMENTS
SCHEDULE 3 LITIGATION
SCHEDULE 4 CAPITALIZATION
SCHEDULE 5 ENVIRONMENTAL DISCLOSURE
vi
<PAGE>
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------------
THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is
entered into as of the 31st day of March, 2000, among QUICKSILVER RESOURCES
INC., a Delaware corporation ("Borrower"), BANK OF AMERICA, N.A., successor by
merger to NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.,
as Administrative Agent ("Administrative Agent"), and the financial institutions
listed on Schedule 1 hereto as Banks (individually a "Bank" and collectively
"Banks").
W I T N E S S E T H:
-------------------
WHEREAS, Borrower, Administrative Agent and the other financial
institutions named and defined therein as Banks (the "Existing Banks") and
Agents are parties to that certain Second Amended and Restated Credit Agreement
dated as of March 1, 1999, pursuant to which Existing Banks provided certain
loans and other extensions of credit to Borrower (the "Existing Credit
Agreement"); and
WHEREAS, after giving effect to the amendment and restatement of the
Existing Credit Agreement pursuant to the terms hereof, the Commitment
Percentage (as herein defined) of each Bank (including each Existing Bank)
hereunder will be as set forth on Schedule 1 hereto; and
WHEREAS, upon the consummation of the Closing Transactions (as hereinafter
defined), or contemporaneously therewith, the parties hereto desire to amend and
restate the Existing Credit Agreement in the form of this Agreement and Borrower
desires to obtain Borrowings (as herein defined) (a) to refinance the
indebtedness under the Existing Credit Agreement, (b) to finance in part the CMS
Acquisition, (c) to increase from $200,000,000 to $225,000,000 the aggregate
Commitments of Banks, and (d) for other purposes permitted herein; and
WHEREAS, subject to and upon the terms and conditions herein contained,
Banks are willing to provide the credit facility described herein; and
WHEREAS, pursuant to Article XIV of this Agreement, Bank of America, N.A.
has been appointed Administrative Agent for Banks hereunder; and
WHEREAS, pursuant to certain separate agreements among Bank of America,
N.A., Banc of America Securities LLC ("BAS") and Borrower, BAS has been
appointed Sole Lead Arranger and Book Manager for the credit facility provided
herein.
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, Administrative Agent, and Banks agree as follows:
1
<PAGE>
ARTICLE I
AMENDMENT AND RESTATEMENT
Subject to the satisfaction of each condition precedent contained in
Section 8.1 hereof, the satisfaction of which shall be evidenced by the
execution by Borrower and Administrative Agent of the Certificate of
Effectiveness (as hereinafter defined), the Existing Credit Agreement shall be
amended and restated as of the Closing Date in the form of this Agreement.
ARTICLE II
TERMS DEFINED
SECTION 2.1 Definitions. The following terms, as used herein, have the
following meanings:
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by Administrative Agent to be equal to the
quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar Loan
for such Interest Period by (b) 1 minus the Reserve Requirement for such
Eurodollar Loan for such Interest Period.
"Administrative Agent" means Bank of America, N.A., successor by merger to
NationsBank, N.A., successor by merger to NationsBank of Texas, N.A., in its
capacity as administrative agent for Banks hereunder or any successor thereto.
"Advance Payment Contract" means any contract whereby any Credit Party
either (a) receives or becomes entitled to receive (either directly or
indirectly) any payment (an "Advance Payment") to be applied toward payment of
the purchase price of Hydrocarbons produced or to be produced from Mineral
Interests owned by any Credit Party and which Advance Payment is, or is to be,
paid in advance of actual delivery of such production to or for the account of
the purchaser regardless of such production, or (b) grants an option or right of
refusal to the purchaser to take delivery of such production in lieu of payment,
and, in either of the foregoing instances, the Advance Payment is, or is to be,
applied as payment in full for such production when sold and delivered or is, or
is to be, applied as payment for a portion only of the purchase price thereof or
of a percentage or share of such production; provided that inclusion of the
standard "take or pay" provision in any gas sales or purchase contract or any
other similar contract shall not, in and of itself, constitute such contract as
an Advance Payment Contract for the purposes hereof.
"Affiliate" means, as to any Person, any Subsidiary of such Person, or any
other Person which, directly or indirectly, controls, is controlled by, or is
under common control with, such Person and, with respect to any Credit Party,
means, any director, executive officer, general partner or manager of such
Credit Party and any Person who holds five percent (5%) or more of the voting
stock, partnership interests, membership interests or other ownership interests
of such Credit Party.
2
<PAGE>
For the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, membership
interests or partnership interests, or by contract or otherwise.
"Agent" means Administrative Agent, Sole Lead Arranger or Book Manager and
"Agents" means Administrative Agent, Sole Lead Arranger and Book Manager,
collectively.
"Agreement" means this Third Amended and Restated Credit Agreement as the
same may hereafter be modified, amended or supplemented from time to time.
"Applicable Environmental Law" means any federal, state or local law,
common law, ordinance, regulation or policy, as well as order, decree, permit,
judgment or injunction issued, promulgated, approved, or entered thereunder,
relating to the environment, health and safety, or Hazardous Substances
(including, without limitation, the use, handling, transportation, production,
disposal, discharge or storage thereof) or to industrial hygiene or the
environmental conditions on, under, or about any real property owned, leased or
operated at any time by any Credit Party or any real property owned, leased or
operated by any other party including, without limitation, soil, groundwater,
and indoor and ambient air conditions.
"Applicable Lending Office" means, for each Bank and for each Type of Loan,
the "Lending Office" of such Bank (or of an affiliate of such Bank) designated
for such Type of Loan on the signature pages hereof or such other office of such
Bank (or an affiliate of such Bank) as such Bank may from time to time specify
to Administrative Agent and Borrower by written notice in accordance with the
terms hereof as the office by which Loans of such Type are to be made and
maintained.
"Applicable Margin" means, on any date, with respect to each Eurodollar
Loan, an amount determined by reference to the ratio of Outstanding Credit to
the Borrowing Base on such date in accordance with the table below:
<TABLE>
<CAPTION>
=============================================================================
Ratio of Outstanding Applicable Margin for
Credit to Borrowing Base Eurodollar Tranches
- -----------------------------------------------------------------------------
<S> <C>
less than or equal to .50 to 1 1.500%
- -----------------------------------------------------------------------------
greater than .50 to 1
less than or equal to .75 to 1 1.750%
- -----------------------------------------------------------------------------
greater than .75 to 1
less than or equal to .90 to 1 2.125%
- -----------------------------------------------------------------------------
greater than .90 to 1 2.500%
=============================================================================
</TABLE>
Notwithstanding the foregoing or anything else to the contrary contained
herein or in any other Loan Paper, in the event Borrower consummates the Post-
Closing Debt Issuance on or prior to the Post-Closing Debt Issuance Trigger
Date, then, from and after such date, the Applicable Margin for Eurodollar
Tranches will decrease by .250% at all levels in the table shown above.
3
<PAGE>
"Approved Petroleum Engineer" means Schlumberger Holditch-Reservoir
Technologies Consulting Services, or any other reputable firm of independent
petroleum engineers as shall be selected by Borrower and approved by Required
Banks, such approval not to be unreasonably withheld.
"Assignment and Acceptance Agreement" has the meaning given such term in
Section 15.10(a).
"Authorized Officer" means, as to any Person, its Chief Executive Officer,
its President, its Chief Financial Officer, any of its Vice Presidents, its
Treasurer or its corporate Secretary.
"Availability" means, as of any date, the remainder of (a) the Borrowing
Base in effect on such date, minus (b) the Outstanding Credit on such date.
"Bank" means any financial institution reflected on Schedule 1 hereto as
having a Commitment and its successors and permitted Assignees, and "Banks"
-----
shall mean all Banks.
"Bank of America" means Bank of America, N.A., a national banking
association, in its capacity as a Bank.
"BAS" means Banc of America Securities LLC.
"Base Rate" means, for any day, the rate per annum equal to the higher of
(a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and
(b) the Prime Rate for such day. Any change in the Base Rate due to a change in
the Prime Rate or the Federal Funds Rate shall be effective automatically and
without notice to Borrower or any Bank on the effective date of such change in
the Prime Rate or Federal Funds Rate.
"Base Rate Loan" means the portion of the principal of the Loan bearing
interest with reference to the Base Rate.
"Book Manager" means Banc of America Securities LLC in its capacity as book
manager for the credit facility hereunder or any successor thereto.
"Borrower" means Quicksilver Resources Inc., a Delaware corporation.
"Borrower Pledge Agreement" means a Pledge Agreement substantially in the
form of Exhibit A hereto (with applicable conforming changes) to be executed by
Borrower pursuant to which Borrower shall pledge to Administrative Agent, for
the ratable benefit of Banks, all of the issued and outstanding Equity owned by
Borrower of each existing or hereafter acquired Subsidiary of Borrower to secure
the Obligations.
"Borrowing" means any disbursement to Borrower under, or to satisfy the
obligations of any Credit Party under, any of the Loan Papers. Any Borrowing
which will constitute a part of the Base
4
<PAGE>
Rate Loan is referred to herein as a "Base Rate Borrowing," and any Borrowing
which will constitute a Eurodollar Loan is referred to herein as a "Eurodollar
Borrowing."
"Borrowing Base" means the loan value attributable to certain of Borrower's
and Terra's Mineral Interests as determined in accordance with Article VI
----------
hereof.
"Borrowing Base Deficiency" means, as of any date, the amount, if any, by
which the Outstanding Credit on such date exceeds the Borrowing Base in effect
on such date; provided, that, for purposes of determining the existence and
amount of any Borrowing Base Deficiency, Letter of Credit Exposure will not be
deemed to be outstanding to the extent it is secured by cash in the manner
contemplated by Section 3.1(b).
"Borrowing Base Properties" means all Mineral Interests evaluated by Banks
for purposes of establishing the Borrowing Base. The Borrowing Base Properties
on the Closing Date are described in the Property Description and constitute all
of the Mineral Interests described in the Existing Reserve Report and the CMS
Reserve Report.
"Borrowing Date" means the Eurodollar Business Day or the Domestic Business
Day, as the case may be, upon which the proceeds of any Borrowing are made
available to Borrower or to satisfy any obligation of any Credit Party.
"Certificate of Effectiveness" means a Certificate of Effectiveness in the
form of Exhibit J attached hereto to be executed by Borrower and Administrative
Agent upon the satisfaction of each of the conditions precedent contained in
Section 8.1 hereof.
"Certificate of Ownership Interests" means a Certificate of Ownership
Interests in the form of Exhibit G attached hereto to be executed and delivered
by an Authorized Officer of Borrower pursuant to Section 8.1(a)(xvi) hereof.
"Change of Control" means that, for any reason, either (a) any Person or
group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) other
than the Darden Group shall become the legal and beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) of greater than thirty percent (30%) of the
outstanding voting power of all classes of capital stock then outstanding of
Borrower entitled (without regard to the occurrence of any contingency) to vote
in elections of directors of Borrower, or (b) the Darden Group shall cease to be
the legal and beneficial owner (as defined in Rule 13d-3 under the Exchange Act)
of more than twenty percent (20%) of the outstanding voting power of all classes
of capital stock then outstanding of Borrower entitled (without regard to the
occurrence of any contingency) to vote in elections of directors of Borrower.
"Cinnabar" means Cinnabar Energy Services and Trading, L.L.C., a Michigan
limited liability company.
"Cinnabar Marketing Obligations" means obligations of Cinnabar to pay (a)
to third party producers or marketers of Hydrocarbons the purchase price of any
Hydrocarbons purchased by Cinnabar from such third parties and then aggregated
for resale with Hydrocarbons produced by
5
<PAGE>
Borrower and its Subsidiaries, and (b) to third party providers the costs of
storage, pipeline and processing services with respect to such aggregated
Hydrocarbons.
"Closing Date" means the date upon which all of the conditions precedent
set forth in Section 8.1 have been satisfied, and Borrower and Administrative
Agent have executed and delivered the Certificate of Effectiveness; provided,
that, in no event shall such date be later than March 31, 2000.
"Closing Documents" means the CMS Acquisition Documents, the Mariner
Section 29 Documents, the Subordinate Note Documents and all other material
documents, instruments and agreements executed or delivered by Borrower or any
other Credit Party in connection with or otherwise pertaining to the Closing
Transactions.
"Closing Title Review Requirement" means with respect to any requirement
contained herein for delivery to Administrative Agent or its counsel of title
opinions or other evidence of title to Mineral Interests purported to be owned
by Borrower, a requirement that such title opinions be delivered in form and
substance acceptable to Administrative Agent and its counsel with respect to CMS
Properties with an aggregate Recognized Value at least equal to thirty three
percent (33%) of the Recognized Value of all CMS Properties.
"Closing Transactions" means the transactions to occur on the Closing Date
pursuant to the Closing Documents and this Agreement, including, without
limitation, (a) the completion of the CMS Acquisition pursuant to the terms of
the CMS Acquisition Documents, (b) the completion of the Mariner Section 29 Sale
pursuant to the terms of the Mariner Section 29 Documents and the application of
approximately $25,000,000 of the proceeds thereof to finance in part the CMS
Acquisition, (c) the completion of the transactions contemplated by the
Subordinate Note Documents pursuant to the terms of such Subordinate Note
Documents, and the receipt by Borrower of not less than $43,000,000 from the
issuance and sale of Subordinate Notes and the application thereof to finance in
part the CMS Acquisition, (d) the amendment and restatement of the Existing
Credit Agreement, including, without limitation, the refinancing of all Debt of
Borrower under the Existing Credit Agreement with proceeds of the Loan, and (e)
the payment of all fees and expenses of Agents and their Affiliates in
connection with the credit facility provided herein.
"CMS" means CMS Oil and Gas Company, a Michigan corporation.
"CMS Acquisition" means the purchase by Borrower of the CMS Properties
pursuant to the CMS Acquisition Agreement, which purchase shall be on terms and
conditions reasonably acceptable to Administrative Agent and Required Banks,
which shall include, without limitation, the purchase by Borrower of all of the
outstanding Equity of Terra.
"CMS Acquisition Agreement" means that certain Purchase and Sale Agreement
dated as of March 4, 2000, by and between Borrower and CMS, which Purchase and
Sale Agreement shall expressly provide for and permit the assignment of all of
Borrower's rights thereunder (including, without limitation, indemnification
rights) to Administrative Agent for the benefit of Banks.
6
<PAGE>
"CMS Acquisition Documents" means the CMS Acquisition Agreement and all
agreements, assignments, deeds, conveyances, certificates and other documents
and instruments now or hereafter executed and delivered by or between Borrower
and CMS pursuant to the CMS Acquisition Agreement or in connection with the CMS
Acquisition.
"CMS Properties" means, collectively, the "Assets" and the "Terra Assets"
as each such term is defined in the CMS Acquisition Agreement.
"CMS Redetermination" means any Redetermination of the Borrowing Base
pursuant to Section 6.4. Notwithstanding anything to the contrary contained
herein, no CMS Redetermination shall be deemed or construed to be a Special
Redetermination hereunder.
"CMS Redetermination Date" means any date on which either (a) any Borrowing
Base Property (or any interest therein) is excluded from the CMS Acquisition
pursuant to the terms of the CMS Acquisition Agreement, including, without
limitation, pursuant to the terms of Sections 12.2, 13.10 and Article XX of the
CMS Acquisition Agreement, or (b) the Purchase Price or the Final Settlement
Statement (as each such term is defined in the CMS Acquisition Agreement) is
adjusted downward pursuant to the terms of the CMS Acquisition Agreement,
including, without limitation, pursuant to the terms of Sections 13.3, 13.4,
13.9, 13.10, 16.1 and Article XX of the CMS Acquisition Agreement.
"CMS Reserve Report" means an engineering and economic analysis of the CMS
Properties prepared as of January 1, 2000 by Schlumberger Holditch-Reservoir
Technologies Consulting Services.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Assignment" means, collectively, that certain (i) Third Amended
and Restated Collateral Assignment of Promissory Notes and Contract Rights dated
as of the Closing Date executed by Borrower in favor of Administrative Agent,
pursuant to which Borrower assigns to Administrative Agent and grants
Administrative Agent a security interest in certain of the Existing Section 29
Documents, (ii) Second Amended and Restated Collateral Assignment of Promissory
Notes and Contract Rights dated as of the Closing Date executed by Borrower in
favor of Administrative Agent, pursuant to which Borrower assigns to
Administrative Agent and grants Administrative Agent a security interest in
certain of the Existing Section 29 Documents, and (iii) Collateral Assignment of
Promissory Notes and Contract Rights dated as of the Closing Date executed by
Borrower in favor of Administrative Agent, pursuant to which Borrower assigns to
Administrative Agent and grants Administrative Agent a security interest in
certain of the Mariner Section 29 Documents.
"Commitment" means, with respect to any Bank, the commitment of such Bank
to lend its Commitment Percentage of the Total Commitment to Borrower pursuant
to Section 3.1 hereof, as such Commitment may be terminated and reduced from
time to time in accordance with the provisions hereof. On the Closing Date the
amount of each Bank's Commitment is the amount set forth opposite such Bank's
name on Schedule 1 hereto; provided, that, after giving effect to any
7
<PAGE>
Assignment and Acceptance Agreement, the Commitment of each Bank shall be the
amount set forth in the Register maintained by Administrative Agent pursuant to
Section 15.10(b).
"Commitment Percentage" means, with respect to each Bank, the Commitment
Percentage for such Bank set forth on Schedule 1 hereto; provided, that, after
giving effect to any Assignment and Acceptance Agreement, the Commitment of each
Bank shall be the amount set forth in the Register maintained by Administrative
Agent pursuant to Section 15.10(b).
"Commodity Price Risk Policy" has the meaning set forth in Section 9.24.
"Consolidated Current Assets" means, for any Person at any time, the
current assets of such Person and its Consolidated Subsidiaries at such time,
plus, in the case of Borrower, the Availability at such time.
"Consolidated Current Liabilities" means, for any Person at any time, the
current liabilities of such Person and its Consolidated Subsidiaries at such
time, but, in the case of Borrower, excluding current maturities of Long Term
Debt of Borrower and its Consolidated Subsidiaries outstanding at such time.
"Consolidated EBITDAX" means, for any Person for any period, the
Consolidated Net Income of such Person for such period, plus each of the
following determined for such Person and its Consolidated Subsidiaries on a
consolidated basis for such period: (a) any provision for (or less any benefit
from) income or franchise Taxes included in determining Consolidated Net Income;
(b) Consolidated Net Interest Expense deducted in determining Consolidated Net
Income; (c) depreciation, depletion and amortization expense deducted in
determining Consolidated Net Income; (d) other noncash charges deducted in
determining Consolidated Net Income to the extent not already included in
clauses (b) and (c) of this definition; and (e) costs and expenses associated
with seismic, geological and geophysical services performed in connection with,
and attributable to, oil and gas exploration, to the extent deducted in
determining Consolidated Net Income.
"Consolidated Net Income" means, for any Person as of any period, the net
income (or loss) of such Person and its Consolidated Subsidiaries for such
period determined in accordance with GAAP, but excluding: (a) the income of any
other Person (other than its Consolidated Subsidiaries) in which such Person or
any of its Subsidiaries has an ownership interest, unless received by such
Person or its Consolidated Subsidiaries in a cash distribution; (b) any after-
tax gains attributable to asset dispositions; and (c) to the extent not included
in clauses (a) and (b) above, any after-tax (i) extraordinary gains (net of
extraordinary losses) or (ii) non-cash nonrecurring gains.
"Consolidated Net Interest Expense" means, for any Person for any period,
the remainder of the following for such Person and its Consolidated Subsidiaries
for such period: (a) interest expense, minus (b) interest income.
"Consolidated Subsidiary" or "Consolidated Subsidiaries" means, for any
Person, any Subsidiary or other entity the accounts of which would be
consolidated with those of such Person in its consolidated financial statements.
8
<PAGE>
"Continue," "Continuation," and "Continued" shall refer to the continuation
pursuant to Section 3.3(c) and/or Article V hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Convert," "Conversion," and "Converted" shall refer to a conversion
pursuant to Section 3.3(c) and/or Article V hereof of one Type of Loan into
another Type of Loan.
"Credit Parties" means, collectively, Borrower and each Subsidiary of
Borrower, and "Credit Party" means any one of the foregoing.
------------
"Darden Group" means, collectively, Mercury, QELC, Frank Darden, Anne
Darden Self, Glenn Darden and Thomas Darden and their respective designees,
heirs and estates.
"Debt" means, for any Person at any time, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all other indebtedness (including capitalized lease obligations, other than
usual and customary oil and gas leases) of such Person on which interest charges
are customarily paid or accrued, (d) all Guarantees by such Person, (e) the
unfunded or unreimbursed portion of all letters of credit issued for the account
of such Person, (f) any amount owed by such Person representing the deferred
purchase price of property or services other than accounts payable incurred in
the ordinary course of business and in accordance with customary trade terms and
which have not been outstanding for more than ninety (90) days past the invoice
date, (g) all obligations of such Person secured by a Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is non-recourse to the
credit of that Person, and (h) all liability of such Person as a general partner
of a partnership for obligations of such partnership of the nature described in
(a) through (g) preceding.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice, lapse of time or both would, unless
cured or waived, become an Event of Default.
"Default Rate" means, in respect of any principal of the Loan or any other
amount payable by Borrower under any Loan Paper which is not paid when due
(whether at stated maturity, by acceleration, or otherwise), a rate per annum
during the period commencing on the due date until such amount is paid in full
equal to the sum of (i) three percent (3%), plus (ii) the Base Rate as in effect
from time to time (provided, that if such amount in default is principal of a
Eurodollar Borrowing and the due date is a day other than the last day of an
Interest Period therefor, the "Default Rate" for such principal shall be, for
the period from and including the due date and to but excluding the last day of
the Interest Period therefor, (a) three percent (3%), plus (b) the Applicable
Margin, plus (c) the Eurodollar Rate for such Borrowing for such Interest Period
as provided in Section 3.3 hereof, and thereafter, the rate provided for above
in this definition).
"Distribution" by any Person, means (a) with respect to any stock issued by
such Person or any partnership, joint venture, limited liability company,
membership or other interest of such Person, the retirement, redemption,
purchase, or other acquisition for value of any such stock or
9
<PAGE>
partnership, joint venture, limited liability company, membership or other
interest, (b) the declaration or payment of any dividend or other distribution
on or with respect to any stock, partnership, joint venture, limited liability
company, membership or other interest of any Person, and (c) any other payment
by such Person with respect to such stock, partnership, joint venture, limited
liability company, membership or other interest of such Person.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which national banks in Dallas, Texas, are authorized by Law to close.
"Domestic Lending Office" means, as to each Bank, (a) its office located at
its address identified on Schedule 1 hereto as its Domestic Lending Office, (b)
its office located at its address identified on the Register (as defined in
Section 15.10(b)) as its Domestic Lending Office, or (c) such other office as
such Bank may hereafter designate as its Domestic Lending Office by notice to
Borrower and Administrative Agent.
"EAO" means Energy Acquisition Operating Corporation, a Michigan
corporation, and a wholly owned Subsidiary of Terra.
"Eligible Assignee" means (i) a Bank, (ii) an Affiliate of a Bank, and
(iii) any other Person approved by Administrative Agent and, unless an Event of
Default has occurred and is continuing at the time any assignment is effected in
accordance with Section 15.10, Borrower, such approval not to be unreasonably
withheld or delayed by Borrower and such approval to be deemed given by Borrower
if no objection is received by the assigning Bank and Administrative Agent from
Borrower within two (2) Domestic Business Days after notice of such proposed
assignment has been provided by the assigning Bank to Borrower; provided,
however, that neither Borrower nor an Affiliate of Borrower shall qualify as an
Eligible Assignee.
"Environmental Complaint" means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, proceeding, judgment, letter
or other communication from any federal, state or municipal authority or any
other party against any Credit Party involving (a) a Hazardous Discharge from,
onto or about any real property owned, leased or operated at any time by any
Credit Party, (b) a Hazardous Discharge caused, in whole or in part, by any
Credit Party or by any Person acting on behalf of or at the instruction of any
Credit Party, or (c) any violation of any Applicable Environmental Law by any
Credit Party.
"Equity" means shares of capital stock or a partnership, profits, capital,
member or other equity interest, or options, warrants or any other rights to
substitute for or otherwise acquire the capital stock or a partnership, profits,
capital, member or other equity interest of any Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any corporation or trade or business under common
control with any Credit Party as determined under section 4001(a)(14) of ERISA.
10
<PAGE>
"Eurodollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in the applicable eurodollar interbank market.
"Eurodollar Lending Office" means, as to each Bank, (a) its office, branch
or affiliate located at its address identified on Schedule 1 hereto as its
Eurodollar Lending Office, (b) its office, branch or affiliate located at its
address identified on the Register (as defined in Section 15.10(b)) as its
Eurodollar Lending Office, or (c) such other office, branch or affiliate of such
Bank as it may hereafter designate as its Eurodollar Lending Office by notice to
Borrower and Administrative Agent.
"Eurodollar Loans" means Loans that bear interest at rates based upon the
Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Loan which is the subject of a Eurodollar
Tranche for any Interest Period therefor, the rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or
any successor page) as the London interbank offered rate for deposits in Dollars
at approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior
to the first day of such Interest Period for a term comparable to such Interest
Period. If for any reason such rate is not available, the term "Eurodollar Rate"
shall mean, for the principal amount of the Loan which is the subject of a
Eurodollar Tranche for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one rate is specified on Reuters Screen
LIBO Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%).
"Events of Default" has the meaning set forth in Section 13.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Accounts" means, collectively, all accounts receivable or other
Debt which are owed to Borrower by its directors, Affiliates, employees or
shareholders (each a "Related Party") other than those which arise in the
ordinary course of business as a result of sales of goods to, or rendering of
services to, a Related Party who has the ability to pay, and is expected to pay,
the same.
"Exhibit" refers to an exhibit attached to this Agreement and incorporated
herein by reference, unless specifically provided otherwise.
"Existing Credit Agreement" has the meaning assigned to such term in the
recitals hereto.
"Existing Reserve Report" means an engineering and economic analysis of
certain of the Borrowing Base Properties prepared as of January 1, 2000 by
Schlumberger Holditch-Reservoir Technologies Consulting Services.
11
<PAGE>
"Existing Section 29 Documents" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(a) Assignment, dated as of December 1, 1997, by and between Mercury,
as assignor, and MA Gas LLC ("MAG"), as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 477, Page 1232, (ii) Crawford County, Michigan, December 23, 1997,
under Liber 444, Page 01, (iii) Montmorency County, Michigan, December 22,
1997, under Liber 405, Page 01, and (iv) Otsego County, Michigan, December
22, 1997, under Liber 662, Page 579;
(b) Assignment by and between Mercury, as assignor, and Borrower, as
assignee, and recorded in the county records of (i) Antrim County,
Michigan, April 15, 1998, under Liber 485, Page 1046, and Liber 485, Page
1087, (ii) Crawford County, Michigan, April 15, 1998, under Liber 451, Page
251, (iii) Montmorency County, Michigan, April 15, 1998, under Liber 408,
Page 0008, and (iv) Otsego County, Michigan, April 15, 1998, under Liber
675, Page 217;
(c) Partial Assignment of Reversionary Interest, dated effective as of
December 1, 1997, by and between Borrower, as assignor, and MAG, as
assignee, and recorded in the county records of Antrim, Crawford,
Montmorency and Otsego Counties, Michigan;
(d) Conveyance of Production Payment, dated as of December 1, 1997, by
and between MAG, as assignor, and Mercury, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 477, Page 1273, (ii) Crawford County, Michigan, December 23, 1997,
under Liber 444, Page 42, (iii) Montmorency County, Michigan, December 22,
1997, under Liber 405, Page 42, and (iv) Otsego County, Michigan, December
22, 1997, under Liber 662, Page 620;
(e) Amendment to Conveyance of Production Payment, dated effective as
of December 1, 1997, by and between MAG, as assignor, and Borrower, as
assignee, and recorded in the county records of Antrim, Crawford,
Montmorency and Otsego Counties, Michigan;
(f) Second Amendment to Conveyance of Production Payment, dated
effective as of March 1, 1997, by and between MAG and Borrower, and
recorded in the county records of Antrim, Crawford, Montmorency and Otsego
Counties, Michigan;
(g) Mortgage, dated as of December 1, 1997, by and between MAG, as
mortgagor, and Mercury, as mortgagee, and recorded in the county records of
(i) Antrim County, Michigan, December 23, 1997, under Liber 477, Page 1413,
(ii) Crawford County, Michigan, December 23, 1997, under Liber 444, Page
182, (iii) Montmorency County, Michigan, December 22, 1997, under Liber
134, Page 528, and (iv) Otsego County, Michigan, December 22, 1997, under
Liber 662, Page 760;
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<PAGE>
(h) Assignment, dated as of December 1, 1997 by and between MGP, as
assignor, and MGP Gas L.L.C. ("MGPG"), as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 478, Page 1, and (ii) Otsego County, Michigan, December 22, 1997,
under Liber 662, Page 802;
(i) Partial Assignment of Reversionary Interest, dated effective as of
December 1, 1997, by and between Borrower, as assignor, and MGPG, as
assignee, and recorded in the county records of Antrim and Otsego Counties,
Michigan;
(j) Conveyance of Production Payment, dated as of December 1, 1997, by
and between MGPG, as assignor, and MGP, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 478, Page 9, and (ii) Otsego County, Michigan, December 22, 1997,
under Liber 662, Page 810;
(k) Amendment to Conveyance of Production Payment, dated effective as
of December 1, 1997, by and between MGPG, as assignor, and Borrower, as
assignee, and recorded in the county records of Antrim and Otsego Counties,
Michigan;
(l) Mortgage, dated as of December 1, 1997, by and between MGPG, as
mortgagor, and MGP, as mortgagee, and recorded in the county records of (i)
Antrim County, Michigan, December 23, 1997, under Liber 478, Page 37, and
(ii) Otsego County, Michigan, December 22, 1997, under Liber 662, Page 838;
(m) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between Mercury, as Seller, and MAG, as buyer;
(n) Amendment of Purchase and Sale Agreement, dated effective as of
December 1, 1997, by and among Mercury, Borrower and MAG;
(o) Second Amendment to Purchase Agreement, dated as of March 31,
2000, by and between Borrower and MAG;
(p) Credit Payment Note, dated December 1, 1997, executed by MAG, as
maker, payable to the order of Mercury, as payee;
(q) Amended and Restated Credit Payment Note, dated as of December 1,
1997, executed by MAG, as maker, payable to the order of Borrower, as
payee;
(r) Fixed Payment Note, dated December 1, 1997, executed by MAG, as
maker, payable to the order of Mercury, as payee, in the original principal
amount of $5,092,721;
(s) Amended and Restated Fixed Payment Note, dated as of December 1,
1997, executed by MAG, as maker, payable to the order of Borrower, as
payee;
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<PAGE>
(t) Assignment of Enforcement Rights, dated effective December 1,
1997, by and between MAG and Mercury, and acknowledged and consented to by
State Street and Antrim Corporation;
(u) Management Agreement, dated as of December 1, 1997, by and between
MAG and Mercury, as manager;
(v) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between MGP, as seller, and MGPG, as buyer;
(w) Credit Payment Note, dated December 1, 1997, executed by MGPG, as
maker, payable to the order of MGP, as payee;
(x) Fixed Payment Note, dated December 1, 1997, executed by MGPG, as
maker, payable to the order of MGP, as payee, in the original principal
amount of $2,017,373;
(y) Assignment of Enforcement Rights, dated effective December 1,
1997, by and between MGPG and MGP, and acknowledged and consented to by
State Street and Antrim Corporation; and
(z) Management Agreement, dated as of December 1, 1997, by and between
MGPG and MGP, as manager.
"Existing Section 29 Mortgages" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(a) Mortgage, dated as of December 1, 1997, by and between Mercury, as
mortgagor, and MAG, as mortgagee, and recorded in the county records of (i)
Antrim County, Michigan, December 23, 1997, under Liber 477, Page 1370,
(ii) Crawford County, Michigan, December 23, 1997, under Liber 444, Page
139, (iii) Montmorency County, Michigan, December 22, 1997, under Liber
134, Page 485, and (iv) Otsego County, Michigan, December 22, 1997, under
Liber 662, Page 717; and
(b) Mortgage, dated as of December 1, 1997, by and between MGPG, as
mortgagor, and MGP, as mortgagee, and recorded in the county records of (i)
Antrim County, Michigan, December 23, 1997, under Liber 478, Page 37, and
(ii) Otsego County, Michigan, December 22, 1997, under Liber 662, Page 838.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) 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 by
the Federal Reserve Bank of New York on the Domestic Business Day next
succeeding such day; provided that (a) if the day for which such rate is to be
determined is not a Domestic Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Domestic Business
Day as so published on the next succeeding Domestic
14
<PAGE>
Business Day, and (b) if such rate is not so published on such next succeeding
Domestic Business Day, the Federal Funds Rate for any day shall be the average
rate charged to Administrative Agent on such day on such transactions as
determined by Administrative Agent.
"Financial Officer" of any Person means its Chief Financial Officer;
provided, that if no Person serves in such capacity, "Financial Officer" shall
mean the highest ranking executive officer of such Person with responsibility
for accounting, financial reporting, cash management and similar functions.
"Fiscal Quarter" means the three (3) month periods ending on March 31,
June 30, September 30 and December 31 of each Fiscal Year.
"Fiscal Year" means a twelve (12) month period ending December 31.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or by the Financial
Accounting Standards Board or through other appropriate boards or committees
thereof and which are consistently applied for all periods after the Closing
Date so as to properly reflect the financial condition, and the results of
operations and changes in financial position, of a Person and its Consolidated
Subsidiaries, except that any accounting principle or practice required to be
changed by the said Accounting Principles Board or Financial Accounting
Standards Board (or other appropriate board or committee of the said Boards) in
order to continue as a generally accepted accounting principle or practice may
be so changed.
"Gas Balancing Agreement" means any agreement or arrangement whereby any
Credit Party, or any other party having an interest in any Hydrocarbons to be
produced from Mineral Interests in which any Credit Party owns an interest, has
a right to take more than its proportionate share of production therefrom.
"Governmental Authority" means any court or governmental department,
commission, board, bureau, agency, or instrumentality of any nation or of any
province, state, commonwealth, nation, territory, possession, county, parish, or
municipality, whether now or hereafter constituted or existing.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions, by "comfort letter"
or other similar undertaking of support or otherwise) or (b) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business.
15
<PAGE>
"Hazardous Discharge" means any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping of any Hazardous Substance from or onto any real property
owned, leased or operated at any time by any Credit Party or any real property
owned, leased or operated by any other party.
"Hazardous Substance" means any pollutant, toxic substance, hazardous
waste, compound, element or chemical that is defined as hazardous, toxic,
noxious, dangerous or infectious pursuant to any Applicable Environmental Law or
which is otherwise regulated by any Applicable Environmental Law or is required
to be investigated and/or remediated by or pursuant to any Applicable
Environmental Law.
"Hedge Agreements" means, collectively, any agreement, instrument,
arrangement or schedule or supplement thereto evidencing any Hedge Transaction.
"Hedge Transaction" means any commodity, interest rate, currency or other
swap, option, collar, futures contract or other contract pursuant to which a
Person hedges risks related to commodity prices, interest rates, currency
exchange rates, securities prices or financial market conditions. Hedge
Transactions expressly includes Oil and Gas Hedge Transactions.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasolines, natural
gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons
produced or to be produced in conjunction therewith, and all products, by-
products and all other substances derived therefrom or the processing thereof,
and all other minerals and substances, including, but not limited to, sulphur,
lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon dioxide,
helium, and any and all other minerals, ores, or substances of value, and the
products and proceeds therefrom, including, without limitation, all gas
resulting from the in-situ combustion of coal or lignite.
"Initial Borrowing Base" means a Borrowing Base in the amount of
$200,000,000, which shall be in effect during the period commencing on the
Closing Date and continuing until the first Redetermination after the Closing
Date.
"Interest Period" means, with respect to each Eurodollar Borrowing and each
Continuation of Eurodollar Loans and each Conversion of all or part of the Base
Rate Loan to Eurodollar Loans, the period commencing on the date of such
Borrowing, Continuation or Conversion and ending one (1), two (2), three (3)
and, if available to all Banks, six (6) months thereafter, as Borrower may elect
in the applicable Request for Borrowing or Notice of Continuation or Conversion;
provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in
another calendar month, in which case such Interest Period shall end
on the next preceding Eurodollar Business Day;
(b) any Interest Period which begins on the last Eurodollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in
16
<PAGE>
the calendar month at the end of such Interest Period) shall, subject
to clause (c) below, end on the last Eurodollar Business Day of a
calendar month;
(c) if any Interest Period includes a date on which any payment of
principal of the Eurodollar Loans which are the subject of such
Borrowing, Continuation or Conversion is required to be made
hereunder, but does not end on such date, then (i) the principal
amount of such Eurodollar Loans required to be repaid on such date
shall have an Interest Period ending on such date, and (ii) the
remainder of each such Eurodollar Loans shall have an Interest Period
determined as set forth above; and
(d) no Interest Period shall extend past the Termination Date.
"Investment" means, with respect to any Person, any loan, advance,
extension of credit, capital contribution to, investment in or purchase of the
stock or other securities of, or interests in, any other Person; provided, that
"Investment" shall not include customer and trade accounts which are payable in
accordance with customary trade terms.
"Kristen" means Kristen Corporation, a Michigan corporation, and a wholly
owned Subsidiary of Terra.
"Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, township, parish, municipality or Governmental
Authority.
"Lending Office" means, as to any Bank, its Domestic Lending Office or its
Eurodollar Lending Office, as the context may require.
"Letter of Credit Exposure" of any Bank means such Bank's aggregate
participation in the unfunded portion and the funded but unreimbursed portion of
Letters of Credit outstanding at any time.
"Letter of Credit Fee" means, with respect to any Letter of Credit issued
hereunder, a fee in an amount equal to a percentage of the stated amount of such
Letter of Credit (calculated on a per annum basis based on the stated term of
such Letter of Credit) determined by reference to the ratio of the Outstanding
Credit to the Borrowing Base in effect on the date such Letter of Credit is
issued in accordance with the table below:
<TABLE>
<CAPTION>
=============================================================================
Ratio of Outstanding Per Annum Letter of
Credit to Borrowing Base Credit Fee
- -----------------------------------------------------------------------------
<S> <C>
less than or equal to.50 to 1 1.500%
----------------------------------------------------------------------------
greater than .50 to 1
less than or equal to .75 to 1 1.750%
- -----------------------------------------------------------------------------
greater than .75 to 1
less than or equal to .90 to 1 2.125%
- -----------------------------------------------------------------------------
greater than .90 to 1 2.500%
=============================================================================
</TABLE>
17
<PAGE>
Notwithstanding the foregoing or anything else to the contrary contained
herein or in any other Loan Paper, in the event Borrower consummates the Post-
Closing Debt Issuance on or prior to the Post-Closing Debt Issuance Trigger
Date, then, from and after such date, the Letter of Credit Fee will decrease by
.250% at all levels in the table shown above.
"Letter of Credit Fronting Fee" means, with respect to any Letter of Credit
issued hereunder, a fee equal to one hundred twenty five one thousandths of one
percent (.125%) per annum of the stated amount of such Letter of Credit.
"Letters of Credit" means letters of credit issued for the account of
Borrower pursuant to Section 3.1(b).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, Borrower and its Subsidiaries shall be
deemed to own subject to a Lien any asset which is acquired or held subject to
the interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" means the revolving credit loan in an amount outstanding at any time
not to exceed the amount of the Total Commitment then in effect less the amount
of the Letter of Credit Exposure then outstanding to be made by Banks to
Borrower in accordance with Section 3.1 hereof. The Loan may be comprised of
the Base Rate Loan and one or more Eurodollar Loans as Borrower may select in a
Request for Borrowing or a Notice of Continuation and Conversion.
"Loan Papers" means this Agreement, the Notes, any Subsidiary Guaranty
(which may hereafter be executed), all Mortgages now or at any time hereafter
delivered pursuant to Section 7.1, the Collateral Assignments, any Borrower
Pledge Agreement (which may hereafter be executed), any Subsidiary Pledge
Agreement (which may hereafter be executed), the Subordination Agreements and
all other certificates, documents or instruments delivered in connection with
this Agreement, as the foregoing may be amended from time to time.
"Long Term Debt" means Debt which matures more than one year from the date
it is incurred, or which can be extended at the option of the obligor(s) to a
date more than one year from the date it is incurred.
"Management Agreement" means that certain Management Agreement dated
September 1, 1998, to be effective on the Closing Date, by and between Mercury
and Borrower, pursuant to which Mercury shall operate all of Borrower's Mineral
Interests (other than the CMS Properties) and provide certain general and
administrative services necessary for the operation of Borrower's business and
properties (other than the CMS Properties). Borrower shall operate and be the
named and listed operator of, and shall retain all COPAS reimbursements
associated with, all of the CMS Properties to which it is entitled to operate.
18
<PAGE>
"Mandatory Redetermination" means any reduction of the Borrowing Base
pursuant to Section 6.5. Notwithstanding anything to the contrary contained
herein, no Mandatory Redetermination shall be deemed or construed to be a
Special Redetermination hereunder.
"Margin Regulations" means Regulations T, U and X of the Board of Governors
of the Federal Reserve System, as in effect from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U.
"Mariner" means Mariner Gas LLC, a Massachusetts limited liability company.
"Mariner Purchase and Sale Agreement" means that certain Purchase and Sale
Agreement, dated as of March 31, 2000, by and between Borrower, as Seller, and
Mariner, as buyer.
"Mariner Section 29 Documents" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(a) Assignment, dated effective as of April 1, 2000, by and between
Borrower, as assignor, and Mariner, as assignee, and recorded in the county
records of (i) Antrim County, Michigan, (ii) Oscoda County, Michigan, (iii)
Montmorency County, Michigan, and (iv) Otsego County, Michigan;
(b) Conveyance of Production Payment, dated as of March 31, 2000, by
and between Mariner, as assignor, and Borrower, as assignee, and recorded
in the county records of (i) Antrim County, (ii) Oscoda County, Michigan,
(iii) Montmorency County, Michigan, and (iv) Otsego County, Michigan;
(c) Mortgage, dated as of March 31, 2000, by and between Mariner, as
mortgagor, and Borrower, as mortgagee, and recorded in the county records
of (i) Antrim County, Michigan, (ii) Oscoda County, Michigan, (iii)
Montmorency County, Michigan, and (iv) Otsego County, Michigan;
(d) the Mariner Purchase and Sale Agreement;
(e) Fixed Payment Note, dated April 1, 2000, executed by Mariner, as
maker, payable to the order of Borrower, as payee, in the original
principal amount of $22,803,169;
(f) Assignment of Enforcement Rights, dated effective March 31, 2000,
by and between Mariner and Borrower, and acknowledged and consented to by
State Street;
(g) Management Agreement, dated as of March 31, 2000, by and between
Mariner and Borrower, as manager; and
(h) Intercreditor Agreement, dated as of March 31, 2000, by and among
Administrative Agent, TCW Agent and Mariner.
19
<PAGE>
"Mariner Section 29 Mortgage" means that certain Mortgage, dated as of
March 31, 2000, by and between Borrower, as mortgagor, and Mariner, as
mortgagee, and recorded in the county records of (i) Antrim County, Michigan,
(ii) Oscoda County, Michigan, (iii) Montmorency County, Michigan, and (iv)
Otsego County, Michigan (as the same may have been amended, modified, extended
or supplemented).
"Mariner Section 29 Sale" means the purchase by Mariner of 99.5% of (i) the
interests to be acquired by Borrower from CMS pursuant to the CMS Acquisition
Agreement, and (ii) the interests owned by Terra, in Devonian shale gas
production from certain gas wells located in Michigan and described in the
Mariner Section 29 Documents, together with certain other rights and interests
described in, and all pursuant to the terms and conditions contained in, the
Mariner Section 29 Documents, which sale shall be on terms and conditions
acceptable to Administrative Agent and Banks.
"Material Adverse Change" means any circumstance or event that has had or
would reasonably be expected to have (a) a material and adverse effect on the
financial condition, business operations, prospects, properties or assets of any
Credit Party, (b) an adverse effect on (i) the validity and enforceability of
any Loan Paper, or (ii) the perfection or priority of any Lien purported to be
created thereby, or (c) a material adverse effect on the right or ability of any
Credit Party to fully, completely and timely pay and perform its obligations
under the Loan Papers.
"Material Agreement" means any material written or oral agreement,
contract, commitment, or understanding to which a Person is a party, by which
such Person is directly or indirectly bound, or to which any assets of such
Person may be subject, which is not cancelable by such Person upon notice of
thirty (30) days or less without liability for further payment other than
nominal penalty.
"Material Gas Imbalance" means, with respect to all Gas Balancing
Agreements to which any Credit Party is a party or by which any Mineral Interest
owned by any Credit Party is bound, a net negative gas imbalance to any Credit
Party in excess of $250,000.
"Maximum Lawful Rate" means, for each Bank, the maximum rate (or, if the
context so permits or requires, an amount calculated at such rate) of interest
which, at the time in question would not cause the interest charged on the
portion of the Loan owed to such Bank at such time to exceed the maximum amount
which such Bank would be allowed to contract for, charge, take, reserve, or
receive under applicable Laws after taking into account, to the extent required
by applicable Laws, any and all relevant payments or charges under the Loan
Papers. To the extent the Laws of the State of Texas are applicable for
purposes of determining the "Maximum Lawful Rate," such term shall mean the
"indicated rate ceiling" from time to time in effect under Chapter 303 of the
Texas Finance Code, as amended, substituted for or restated, or, if permitted by
applicable Law and effective upon the giving of the notices required by such
Chapter 303 (or effective upon any other date otherwise specified by applicable
Law), the "quarterly ceiling" or "annualized ceiling" from time to time in
effect under such Chapter 303, whichever Administrative Agent (with the approval
of Required Banks) shall elect to substitute for the "indicated rate ceiling,"
and vice versa, each such substitution to have the effect provided in such
Chapter 303, and Administrative Agent (with the approval of Required Banks)
shall be entitled to make such election from time to time and
20
<PAGE>
one or more times and, without notice to Borrower, to leave any such substitute
rate in effect for subsequent periods in accordance with such Chapter 303.
"Mercury" means Mercury Exploration Company, a Texas corporation.
"MGP" means Michigan Gas Partners, Limited Partnership, formerly a Texas
limited partnership prior to its merger with and into Borrower.
"MGV" means MGV Energy Inc., a corporation organized under the laws of
Canada.
"MGV Investment" means the investment by Borrower of approximately
$1,500,000 to purchase approximately ninety percent (90%) of the ownership
interests of MGV.
"Mineral Interests" means rights, estates, titles, and interests in and to
oil and gas leases and any oil and gas interests, royalty and overriding royalty
interest, production payment, net profits interests, oil and gas fee interests,
and other rights therein, including, without limitation, any reversionary or
carried interests relating to the foregoing, together with rights, titles, and
interests created by or arising under the terms of any unitization,
communization, and pooling agreements or arrangements, and all properties,
rights and interests covered thereby, whether arising by contract, by order, or
by operation of Laws, which now or hereafter include all or any part of the
foregoing. Without limiting the foregoing, in the case of Borrower, "Mineral
Interests" also includes all rights of Borrower under the Section 29 Documents.
"Monthly Date" means the fifteenth day of each calendar month.
"Mortgages" means all mortgages, deeds of trusts, amendments to mortgages,
security agreements, amendments to security agreements, assignments of
production, amendments to assignments of production, pledge agreements,
collateral mortgages, collateral chattel mortgages, collateral assignments,
financing statements and other documents, instruments and agreements evidencing,
creating, perfecting or otherwise establishing the Liens required by Section 7.1
-----------
hereof. All Mortgages shall be in form and substance satisfactory to
Administrative Agent in its sole discretion.
"Non-Recourse Debt" means indebtedness (a) secured solely by the assets
acquired with the proceeds of such indebtedness, (b) with respect to which no
Credit Party shall have any liability for repayment beyond the assets pledged,
and (c) with respect to which Borrower has delivered to Banks an opinion in a
form satisfactory to Required Banks of counsel acceptable to Administrative
Agent stating that such indebtedness meets the criteria set forth in (a) and (b)
preceding.
"Note" means a promissory note of Borrower payable to the order of a Bank,
in substantially the form of Exhibit B hereto, in the amount of such Bank's
Commitment, evidencing the obligation of Borrower to repay to such Bank its
Commitment Percentage of the Loan, together with all modifications, extensions,
renewals, and rearrangements thereof, and "Notes" means all of such Notes
collectively.
21
<PAGE>
"Notice of Continuation or Conversion" has the meaning set forth in Section
3.3(c).
"Obligations" means all present and future indebtedness, obligations and
liabilities, and all renewals and extensions thereof, or any part thereof, of
each Credit Party to Administrative Agent or to any Bank or any Affiliate of any
Bank arising pursuant to the Loan Papers or pursuant to any Hedge Agreement or
Hedge Transaction entered into with any Bank or any Affiliate of any Bank, and
all interest accrued thereon and costs, expenses, and attorneys' fees incurred
in the enforcement or collection thereof, regardless of whether such
indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several.
"Oil & Gas Hedge Transaction" means a Hedge Transaction pursuant to which
any Person hedges the price to be received by it for future production of
Hydrocarbons.
"Outstanding Credit" means, on any date, the sum of (a) the aggregate
outstanding Letter of Credit Exposure on such date, including the Letter of
Credit Exposure attributable to Letters of Credit to be issued on such date,
plus (b) the aggregate outstanding principal balance of the Loan on such date,
including the amount of any Borrowing to be made on such date.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted CMS Title Defects" means "Title Defects" as defined in the CMS
Acquisition Agreement with respect to which Borrower has the right to obtain
title adjustment payments from CMS that fairly represent the reduction in value
of such CMS Properties due to such Title Defects.
"Permitted Encumbrances" means with respect to any asset:
(a) Liens (if any) securing the Notes in favor of Banks;
(b) minor defects in title which do not secure the payment of money
and otherwise have no material adverse effect on the value or the operation of
the subject property, and for the purposes of this Agreement, a minor defect in
title shall include, but not be limited to, easements, rights-of-way,
servitudes, permits, surface leases and other similar rights in respect of
surface operations, and easements for pipelines, streets, alleys, highways,
telephone lines, power lines, railways and other easements and rights-of-way,
on, over or in respect of any of the properties of any Credit Party that are
customarily granted in the oil and gas industry;
(c) inchoate statutory or operators' Liens securing obligations for
labor, services, materials and supplies furnished to Mineral Interests which are
not delinquent (except to the extent permitted by Section 10.7);
(d) mechanic's, materialmen's, warehouseman's, journeyman's and
carrier's Liens and other similar Liens arising by operation of Law in the
ordinary course of business which are not delinquent (except to the extent
permitted by Section 10.7);
22
<PAGE>
(e) Liens for Taxes or assessments not yet due or not yet delinquent,
or, if delinquent, that are being contested in good faith in the normal course
of business by appropriate action, as permitted by Section 10.7;
(f) lease burdens payable to third parties which are deducted in the
calculation of discounted present value in the Reserve Report including, without
limitation, any royalty, overriding royalty, net profits interest, production
payment, carried interest or reversionary working interest;
(g) the Section 29 Mortgages;
(h) the TCW Royalty Documents;
(i) Liens in favor of TCW Agent and the Subordinate Noteholders to
secure the Subordinate Debt which are junior, subordinate and inferior to the
Liens of the Mortgages;
(j) until, but excluding, June 30, 2000, Permitted CMS Title Defects;
and
(k) Liens perfected or purportedly perfected under the following
financing statements: (i) file #C975864, naming Terra, as debtor, filed with the
Secretary of State of Michigan on May 30, 1995; (ii) file #C982828, naming
Terra, as debtor, filed with the Secretary of State of Michigan on June 16,
1995; (iii) file #C971103, naming Guardian Energy Management Corporation and
Terra, as debtors, filed with the Secretary of State of Michigan on May 17,
1995; (iv) file #C998172, naming Guardian Energy Management Corporation and
Terra, as debtors, filed with the Secretary of State of Michigan on August 1,
1995; (v) file #C998173, naming Guardian Energy Management Corporation and
Terra, as debtors, filed with the Secretary of State of Michigan on August 1,
1995; (vi) file #C971101, naming Guardian Energy Management Corporation and
Terra, as debtors, filed with the Secretary of State of Michigan on May 17,
1995; and (vii) file #D4D2038, naming Guardian Energy Management Corporation and
Terra, as debtors, filed with the Secretary of State of Michigan on July 23,
1998.
"Permitted Investments" means (a) readily marketable direct obligations of
the United States of America (or investments in mutual funds or similar funds
which invest solely in such obligations), (b) fully insured time deposits and
certificates of deposit with maturities of one year or less of any commercial
bank operating in the United States having capital and surplus in excess of
$500,000,000, (c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest ratings categories of
Standard and Poor's Corporation or Moody's Investors Service, (d) Investments
described on Schedule 2 hereto, (e) Investments by any Credit Party in a
Subsidiary of Borrower that has provided a Subsidiary Guaranty and the Equity of
which has been pledged to Administrative Agent pursuant to a Borrower Pledge
Agreement or a Subsidiary Pledge Agreement, and (f) other Investments; provided
that, the aggregate amount of all other Investments made pursuant to this clause
(f) outstanding at any time shall not exceed $500,000 (measured on a cost
basis).
23
<PAGE>
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a Government Authority.
"Plan" means an employee benefit plan within the meaning of section 3(3) of
ERISA, and any other similar plan, policy or arrangement, including an
employment contract, whether formal or informal and whether legally binding or
not, under which any Credit Party or an ERISA Affiliate of a Credit Party has
any current or future obligation or liability or under which any present or
former employee of any Credit Party or an ERISA Affiliate of a Credit Party, or
such present or former employee's dependents or beneficiaries, has any current
or future right to benefits resulting from the present or former employee's
employment relationship with any Credit Party or an ERISA Affiliate of a Credit
Party.
"Post-Closing Debt Issuance" means the incurrence by Borrower of additional
Subordinate Debt in connection with the issuance and sale of Subordinate Notes
(and the receipt by Borrower of the proceeds thereof) in an amount not less than
$7,000,000 but not in excess of $10,000,000; provided, that, the Subordinate
Debt shall not, at any time, exceed $53,000,000.
"Post-Closing Debt Issuance Trigger Date" means May 31, 2000.
"Post-Closing Redetermination" means any Redetermination of the Borrowing
Base pursuant to Section 6.6. Notwithstanding anything to the contrary
contained herein, the Post-Closing Redetermination shall not be deemed or
construed to be a Special Redetermination.
"Post-Closing Title Review Requirement" means with respect to any
requirement contained herein for delivery to Administrative Agent or its counsel
of title opinions or other evidence of title to Mineral Interests purported to
be owned by Borrower, a requirement that such title opinions be delivered in
form and substance acceptable to Administrative Agent and its counsel with
respect to CMS Properties with an aggregate Recognized Value at least equal to
eighty percent (80%) of the Recognized Value of all CMS Properties.
"Prime Rate" means the per annum rate of interest established from time to
time by Bank of America as its prime rate, which rate may not be the lowest rate
of interest charged by Bank of America to its customers.
"Property Description" means the legal description of Mineral Interests
attached to the Certificate of Ownership Interests.
"Proved Mineral Interests" means, collectively, Proved Producing Mineral
Interests, Proved Nonproducing Mineral Interests, and Proved Undeveloped Mineral
Interests.
"Proved Nonproducing Mineral Interests" means all Mineral Interests which
constitute proved developed nonproducing reserves.
"Proved Producing Mineral Interests" means all Mineral Interests which
constitute proved developed producing reserves.
24
<PAGE>
"Proved Undeveloped Mineral Interests" means all Mineral Interests which
constitute proved undeveloped reserves.
"QELC" means Quicksilver Energy, L.C., a Michigan limited liability
company.
"Quarterly Date" means the last day of each March, June, September and
December.
"Recognized Value" means, with respect to Mineral Interests, the discounted
present value of the estimated net cash flow to be realized from the production
of Hydrocarbons from such Mineral Interests as determined by Bank of America for
purposes of determining the portion of the Borrowing Base which it attributes to
such Mineral Interests in accordance with Article VI hereof.
"Redetermination" means (i) any Scheduled Redetermination, (ii) any Special
Redetermination, (iii) any CMS Redetermination, (iv) any Mandatory
Redetermination, and (v) the Post-Closing Redetermination.
"Redetermination Date" means (a) with respect to any Scheduled
Redetermination, each May1 and November 1, commencing November 1, 2000, (b) with
respect to any Special Redetermination, the first day of the first month which
is not less than twenty (20) Domestic Business Days following the date of a
request for a Special Redetermination, (c) with respect to each CMS
Redetermination, each CMS Redetermination Date, (d) with respect to each
Mandatory Redetermination, the date upon which Borrower consummates any Post-
Closing Debt Issuance in accordance with the terms of Section 6.5, and (e) with
respect to the Post-Closing Redetermination, June 1, 2000.
"Regulation A" means Regulation A of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Part 221, as in effect from time to time.
"Request for Borrowing" has the meaning set forth in Section 3.1(d).
"Request for Letter of Credit" has the meaning set forth in Section 3.1(e).
"Required Banks" means Banks holding at least sixty-six and two-thirds
percent (66 2/3%) of the Total Commitment.
"Required Reserve Value" means Proved Mineral Interests that have a
Recognized Value of not less than eighty percent (80%) of the Recognized Value
of all Proved Mineral Interests held by Borrower and its Subsidiaries.
"Reserve Report" means an unsuperseded engineering analysis of the Mineral
Interests owned by Borrower, in form and substance reasonably acceptable to
Required Banks, prepared in accordance with customary and prudent practices in
the petroleum engineering industry and Financial Accounting Standards Board
Statement 69. Each Reserve Report required to be delivered by March 31 of each
year pursuant to Section 6.1 shall be prepared by the Approved Petroleum
Engineer. Each other Reserve Report shall be prepared by Borrower's in-house
staff.
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Notwithstanding the foregoing, in connection with any Special Redetermination
requested by Borrower, the Reserve Report shall be in form and scope mutually
acceptable to Borrower and Required Banks. Until superseded, each of the
Existing Reserve Report and the CMS Reserve Report shall be considered a Reserve
Report.
"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against in the case of
Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks with
respect to (i) any category of liabilities which includes deposits by reference
to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category
of extensions of credit or other assets which include Eurodollar Loans. The
Adjusted Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Requirement.
"Restricted Payment" means, with respect to any Person, (a) any
Distribution by such Person, (b) the retirement, redemption or prepayment prior
to scheduled maturity by such Person or any Affiliate of such Person of any Debt
of such Person, (c) the retirement, redemption or payment by Borrower or any
affiliate of Borrower of any part of the principal of the Subordinate Debt at
any time prior to the termination of all Commitments and the payment and
performance in full of the Obligations, or (d) upon the occurrence and during
the continuance of a Default, Event of Default or Borrowing Base Deficiency, and
to the extent not otherwise prohibited pursuant to the terms hereof or the terms
of the Subordination Agreements, the payment by Borrower or any affiliate of
Borrower in cash of any interest on the Subordinate Debt in excess of ten
percent (10%).
"Schedule" means a "schedule" attached to this Agreement and incorporated
herein by reference, unless specifically indicated otherwise.
"Scheduled Redetermination" means any Redetermination of the Borrowing Base
pursuant to Section 6.2.
"Section" refers to a "section" or "subsection" of this Agreement unless
specifically indicated otherwise.
"Section 29 Documents" means, collectively, the Existing Section 29
Documents and the Mariner Section 29 Documents.
"Section 29 Mortgages" means, collectively, the Existing Section 29
Mortgages and the Mariner Section 29 Mortgages.
"Sole Lead Arranger" means Banc of America Securities LLC in its capacity
as sole lead arranger for the credit facility hereunder or any successor
thereto.
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"Solvent" means, with respect to any Person on a particular date, the
condition that, on such date, (a) the fair value of the property of such Person
is greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair saleable value of
the assets of such Person is not less than the amount that will be required to
pay the liability of such Person on its debts as they become absolute and
matured, (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such Person does not intend to,
and such Person does not believe that it will, incur debts or liabilities beyond
its ability to pay as such debts and liabilities mature, and (v) such Person is
not engaged in a business or transaction, and such Person is not about to engage
in a business or transaction for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged.
"Special Redetermination" means any Redetermination of the Borrowing Base
pursuant to Section 6.3.
"State Street" means State Street Bank and Trust Company, a Massachusetts
trust company.
"Subordinate Debt" means all Debt of Borrower outstanding under the
Subordinate Note Agreement, including all renewals and extensions thereof to the
extent permitted hereunder; provided, that, the Subordinate Debt shall not, at
any time, exceed $53,000,000. As of the Closing Date, the aggregate principal
amount of Subordinate Debt is $43,000,000.
"Subordinate Note Agreement" means that certain Note Purchase Agreement
dated as of March 31, 2000, by and among Borrower, TCW Agent and Subordinate
Noteholders, as the same may be modified, amended, renewed, extended or restated
from time to time to the extent permitted hereunder and under the Subordination
Agreements.
"Subordinate Note Documents" means the Subordinate Note Agreement, the
Subordinate Notes, and all promissory notes, security agreements, deeds of
trust, assignments, guarantees and other documents, instruments and agreements
executed and delivered pursuant to the Subordinate Note Agreement evidencing,
securing, guaranteeing or otherwise pertaining to the Subordinate Debt and the
other obligations arising under the Subordinate Note Agreement, as the foregoing
may be amended, renewed, extended, supplemented, increased or otherwise modified
from time to time to the extent permitted hereunder and under the Subordination
Agreements.
"Subordinate Noteholders" means each holder of Subordinate Notes, and their
successors and assigns.
"Subordinate Notes" means, collectively, each of Borrower's 14.75% Second
Mortgage Notes due March 30, 2009.
"Subordination Agreements" means one or more Subordination Agreements in
the form of Exhibit K attached hereto to be executed by Administrative Agent,
each Bank, TCW Collateral Agent and each Subordinate Noteholder.
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"Subsidiary" means, for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions (including that of a general partner) are at the time directly or
indirectly owned, collectively, by such Person and any Subsidiaries of such
Person. The term Subsidiary shall include Subsidiaries of Subsidiaries (and so
on). Unless otherwise expressly stated herein, Terra is, and shall be deemed, a
Subsidiary of Borrower, and MGV, EAO, Kristen and TPC shall not be deemed
Subsidiaries of Borrower.
"Subsidiary Guaranty" means a Guaranty substantially in the form of Exhibit
C hereto to be executed by each existing and future Subsidiary of Borrower in
favor of Banks pursuant to which each Subsidiary of Borrower guaranties payment
and performance in full of the Obligations.
"Subsidiary Pledge Agreement" means a Pledge Agreement substantially in the
form of Exhibit A attached hereto (with applicable conforming changes) to be
executed by each existing and future Subsidiary of Borrower (for purposes of
this definition and Section 7.1(d) hereof, such Subsidiary is referred to herein
and therein as a "First Tier Subsidiary "), pursuant to which such First Tier
Subsidiary shall pledge to Administrative Agent, for the ratable benefit of
Banks, all of the issued and outstanding Equity owned by such First Tier
Subsidiary of each existing or hereafter created Subsidiary of such First Tier
Subsidiary to secure the Obligations.
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, capital transaction
taxes, foreign exchange taxes or other charges, or other charges of any nature
whatsoever, from time to time or at any time imposed by Law or any Governmental
Authority. "Tax" means any one of the foregoing.
"TCW Agent" means TCW Asset Management Company, a California corporation,
as collateral agent for the Subordinate Noteholders under the Subordinate Note
Agreement.
"TCW Royalty Documents" means, collectively, (a) the Royalty Agreement
dated November 14, 1996 by and between QELC and TCW Portfolio No. 1555 DR V Sub-
Custody Partnership, L.P., as amended by a First Amendment to Royalty Agreement
dated as of April 9, 1998, and (b) the Conveyance of Adjustable Overriding
Royalty Interest dated November 14, 1996 granted by QELC to TCW Portfolio No.
1555 DR V Sub-Custody Partnership, L.P., as amended by an Amendment to
Conveyance of Overriding Royalty Interest dated as of April 9, 1998.
"Termination Date" means March 31, 2003.
"Terra" means Terra Energy Ltd., a Michigan corporation.
"Total Commitment" means the Commitments of all Banks in an initial
aggregate amount of $225,000,000 as such amount may be reduced from time to time
pursuant to Section 3.7.
"TPC" means Terra Pipeline Company, a Michigan corporation, and a wholly
owned Subsidiary of Terra.
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"Tranche" means the Base Rate Loan or a Eurodollar Loan and "Tranches"
means the Base Rate Loan or Eurodollar Loans or any combination thereof.
"Type" means with reference to a Loan, the characterization of such Loan as
the Base Rate Loan or a Eurodollar Loan based on the method by which the accrual
of interest on such Tranche is calculated.
"Unused Commitment Fee Percentage" means, for any day, the percentage
determined pursuant to the table below based on the ratio of the Outstanding
Credit on such date to the Borrowing Base in effect on such date:
<TABLE>
<CAPTION>
Ratio of Outstanding Unused Commitment
Credit to Borrowing Base Fee Percentage
<S> <C>
less than or equal to .50 to 1 .250%
greater than .50 to 1 less than or equal to .75 to 1 .375%
greater than .75 to 1 less than or equal to .90 to 1 .375%
greater than .90 to 1 .500%
</TABLE>
"Working Capital" means Borrower's Consolidated Current Assets minus
Borrower's Consolidated Current Liabilities; provided, that, for purposes of
determining Working Capital, Consolidated Current Assets will be calculated (a)
by including the Availability, and (b) without including any accounts
receivables or other rights to payment arising from (i) the sale of gas
production, unless the same are due and payable (and reasonably expected by
Borrower to be paid) within sixty (60) days after the month in which gas is
produced; (ii) the sale of oil production, unless the same are due and payable
(and reasonably expected by Borrower to be paid) within thirty (30) days after
the month in which oil is produced; or (iii) Excluded Accounts.
SECTION 2.2 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP,
applied on a basis consistent with the most recent audited consolidated
financial statements of Borrower and its Consolidated Subsidiaries delivered to
Banks prior to the date hereof except for changes concurred in by Borrower's
independent certified public accountants and which are disclosed to
Administrative Agent on the next date on which financial statements are required
to be delivered to Banks pursuant to Section 10.1.
SECTION 2.3 Petroleum Terms. As used herein, the terms "proved
reserves," "proved developed reserves," "proved developed producing reserves,"
"proved developed nonproducing reserves," and "proved undeveloped reserves" have
the meaning given such terms from time to time and at the time in question by
the Society of Petroleum Engineers of the American Institute of Mining
Engineers.
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SECTION 2.4 Money. Unless expressly stipulated otherwise, all
references herein to "dollars," "money," "funds," "payments," "prepayments" or
other similar financial or monetary terms, are references to currency of the
United States of America.
ARTICLE III
THE CREDIT
SECTION 3.1 Commitments. (a) Each Bank severally agrees, subject to
Sections 3.1(c), 8.1 and 8.2 and the other terms and conditions set forth in
this Agreement, to lend to Borrower from time to time prior to the Termination
Date amounts requested by Borrower not to exceed in the aggregate at any one
time outstanding, the amount of such Bank's Commitment reduced by an amount
equal to such Bank's Letter of Credit Exposure. Each Borrowing shall be in an
aggregate principal amount of $1,000,000 or any larger integral multiple of
$100,000 (except that any Base Rate Borrowing may be in an amount equal to the
Availability at such time), and (ii) shall be made from Banks ratably in
accordance with their respective Commitment Percentages. Subject to the
foregoing limitations and the other provisions of this Agreement, prior to the
Termination Date Borrower may borrow under this Section 3.1(a), repay amounts
borrowed and request new Borrowings to be made under this Section 3.1(a).
(b) Administrative Agent will, from time to time prior to the
Termination Date, upon request by Borrower, issue Letters of Credit for the
account of Borrower, so long as (i) the sum of (A) the total Letter of Credit
Exposure then existing, and (B) the amount of the requested Letter of Credit
does not exceed ten percent (10%) of the Borrowing Base, and (ii) Borrower would
be entitled to a Borrowing under Sections 3.1(a) and 3.1(c) in the amount of the
requested Letter of Credit. Not less than three (3) Domestic Business Days
prior to the requested date of issuance of any such Letter of Credit, Borrower
shall execute and deliver to Administrative Agent, Administrative Agent's
customary letter of credit application. Each Letter of Credit shall be in the
minimum amount of $10,000 and shall be in form and substance acceptable to
Administrative Agent. No Letter of Credit shall have an expiration date later
than the Termination Date. Upon the date of issuance of a Letter of Credit,
Administrative Agent shall be deemed to have sold to each other Bank, and each
other Bank shall be deemed to have unconditionally and irrevocably purchased
from Administrative Agent, a non-recourse participation in the related Letter of
Credit and Letter of Credit Exposure equal to such Bank's Commitment Percentage
of such Letter of Credit and Letter of Credit Exposure. Upon request of any
Bank, but not less often than quarterly, Administrative Agent shall provide
notice to each Bank by telephone, teletransmission or telex setting forth each
Letter of Credit issued and outstanding pursuant to the terms hereof and
specifying the beneficiary and expiration date of each such Letter of Credit,
each Bank's percentage of each such Letter of Credit and the actual dollar
amount of each Bank's participation held by Administrative Agent thereof for
such Bank's account and risk. At the time of issuance of each Letter of Credit,
Borrower shall pay to Administrative Agent in respect of such Letter of Credit
(a) the applicable Letter of Credit Fee, and (b) the applicable Letter of Credit
Fronting Fee. Administrative Agent shall distribute the Letter of Credit Fee
payable upon the issuance of each Letter of Credit to Banks in accordance with
their respective Commitment Percentages, and Administrative Agent shall retain
the Letter of Credit
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Fronting Fee for its own account. Any (y) material amendment or modification, or
(z) renewal or extension of any Letter of Credit shall be deemed to be the
issuance of a new Letter of Credit for purposes of this Section 3.1(b).
Notwithstanding anything to the contrary contained herein, Borrower shall pay to
Administrative Agent in connection with any amendment or modification of any
nature, Administrative Agent's usual and customary fees for amendments or
modifications to, and processing of, Letters of Credit.
Immediately upon the occurrence of an Event of Default, Borrower shall
deposit with Administrative Agent cash in such amounts as Administrative Agent
may request, up to a maximum amount equal to the aggregate existing Letter of
Credit Exposure of all Banks. Any amounts so deposited shall be held by
Administrative Agent for the ratable benefit of all Banks as security for the
outstanding Letter of Credit Exposure and the other Obligations, and Borrower
will, in connection therewith, execute and deliver such security agreements in
form and substance satisfactory to Administrative Agent which Administrative
Agent may, in its discretion, require. As drafts or demands for payment are
presented under any Letter of Credit, Administrative Agent shall apply such cash
to satisfy such drafts or demands. When all Letters of Credit have expired and
the Obligations have been repaid in full (and no Bank has any obligation to lend
or issue Letters of Credit hereunder) or such Event of Default has been cured to
the satisfaction of Required Banks, Administrative Agent shall release to
Borrower any remaining cash deposited under this Section 3.1(b). Whenever
Borrower is required to make deposits under this Section 3.1(b) and fails to do
so on the day such deposit is due, Administrative Agent or any Bank may, without
notice to Borrower, make such deposit (whether by application of proceeds of any
collateral for the Obligations, by transfers from other accounts maintained with
any Bank or otherwise) using any funds then available to any Bank of any Credit
Party, any guarantor, or any other party liable for repayment of the
Obligations.
Notwithstanding anything to the contrary contained herein, Borrower hereby
agrees to reimburse Administrative Agent immediately upon demand by
Administrative Agent, and in immediately available funds, for any payment or
disbursement made by Administrative Agent under any Letter of Credit issued by
it. Payment shall be made by Borrower with interest on the amount so paid or
disbursed by Administrative Agent from and including the date payment is made
under any Letter of Credit to and including the date of payment, at the lesser
of (i) the Maximum Lawful Rate, or (ii) the Default Rate. The obligations of
Borrower under this paragraph will continue until all Letters of Credit have
expired and all reimbursement obligations with respect thereto have been paid in
full by Borrower and until all other Obligations shall have been paid in full.
Borrower shall be obligated to reimburse Administrative Agent upon demand
for all amounts paid under Letters of Credit as set forth in the immediately
preceding paragraph hereof; provided, however, if Borrower for any reason fails
to reimburse Administrative Agent in full upon demand, Banks shall reimburse
Administrative Agent in accordance with each Banks' Commitment Percentage for
amounts due and unpaid from Borrower as set forth hereinbelow; provided,
however, that no such reimbursement made by Banks shall discharge Borrower's
obligations to reimburse Administrative Agent. All reimbursement amounts
payable by any Bank under this Section 3.1(b) shall include interest thereon at
the Federal Funds Rate, from the date of the payment of such amounts by
Administrative Agent to the date of reimbursement by such Bank. No Bank shall
be
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liable for the performance or nonperformance of the obligations of any other
Bank under this paragraph. The reimbursement obligations of Banks under this
paragraph shall continue after the Termination Date and shall survive
termination of this Agreement and the other Loan Papers.
Borrower shall indemnify and hold Administrative Agent and each Bank, and
their respective officers, directors, representatives and employees harmless
from loss for any claim, demand or liability which may be asserted against any
or such indemnified party in connection with actions taken under Letters of
Credit or in connection therewith (including losses resulting from the
negligence of any or such indemnified party), and shall pay each indemnified
party for reasonable fees of attorneys and legal costs paid or incurred by each
indemnified party in connection with any matter related to Letters of Credit,
except for losses and liabilities incurred as a direct result of the gross
negligence or willful misconduct of such indemnified party, IT BEING THE EXPRESS
INTENTION OF THE PARTIES THAT EACH INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR
THE CONSEQUENCES OF ITS OWN ORDINARY NEGLIGENCE. If Borrower for any reason
fails to indemnify or pay such indemnified party as set forth herein in full,
Banks shall indemnify and pay such indemnified party upon demand, in accordance
with each Bank's Commitment Percentage of such amounts due and unpaid from
Borrower. The provisions of this paragraph shall survive the termination of
this Agreement.
Administrative Agent does not make any representation or warranty, and does
not assume any responsibility with respect to the validity, legality,
sufficiency or enforceability of any letter of credit application executed and
delivered in connection with any Letter of Credit issued hereunder or any
document relative thereto or to the collectibility thereunder. Administrative
Agent does not assume any responsibility for the financial condition of Borrower
or for the performance of any obligation of Borrower. Administrative Agent may
use its discretion with respect to exercising or refraining from exercising any
rights, or taking or refraining from taking any action which may be vested in it
or which it may be entitled to take or assert with respect to any Letter of
Credit or any letter of credit application. FURTHERMORE, EXCEPT AS SET FORTH
HEREIN, ADMINISTRATIVE AGENT SHALL BE UNDER NO LIABILITY TO ANY BANK, WITH
RESPECT TO ANYTHING ADMINISTRATIVE AGENT MAY DO OR REFRAIN FROM DOING IN THE
EXERCISE OF ITS JUDGMENT, THE SOLE LIABILITY AND RESPONSIBILITY OF
ADMINISTRATIVE AGENT BEING TO HANDLE EACH BANK'S SHARE ON AS FAVORABLE A BASIS
AS ADMINISTRATIVE AGENT HANDLES ITS OWN SHARE. ADMINISTRATIVE AGENT SHALL NOT
HAVE ANY DUTIES OR RESPONSIBILITIES EXCEPT THOSE EXPRESSLY SET FORTH HEREIN AND
THOSE DUTIES AND LIABILITIES SHALL BE SUBJECT TO THE LIMITATIONS AND
QUALIFICATIONS SET FORTH HEREIN. FURTHERMORE, NEITHER ADMINISTRATIVE AGENT, NOR
ANY OF ITS DIRECTORS, OFFICERS, OR EMPLOYEES SHALL BE LIABLE FOR ANY ACTION
TAKEN OR OMITTED (WHETHER OR NOT SUCH ACTION TAKEN OR OMITTED IS EXPRESSLY SET
FORTH HEREIN) UNDER OR IN CONNECTION HEREWITH OR UNDER ANY OTHER INSTRUMENT OR
DOCUMENT IN CONNECTION HEREWITH, EXCEPT FOR GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. Administrative Agent shall not incur any liability to any Bank,
Borrower, or any Affiliate of any Bank or Borrower, in acting upon any notice,
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<PAGE>
document, order, consent, certificate, warrant or other instrument reasonably
believed by Administrative Agent to be genuine or authentic and to be signed by
the proper party.
(c) No Bank will be obligated to lend to Borrower hereunder or incur
Letter of Credit Exposure, and Borrower shall not be entitled to borrow
hereunder or obtain Letters of Credit hereunder, in an amount which would cause
the Outstanding Credit to exceed the Borrowing Base then in effect. No Bank
shall be obligated to fund Borrowings hereunder and Borrower shall not be
entitled to Borrowings hereunder during the existence of a Borrowing Base
Deficiency. Nothing in this Section 3.1(c) shall be deemed to limit any Bank's
obligation to reimburse Administrative Agent with respect to its participation
in Letters of Credit as a result of the drawing under any Letter of Credit
pursuant to Section 3.1(b).
(d) In order to request any Borrowing under this Section 3.1, Borrower
shall hand deliver, telex or telecopy to Administrative Agent a duly completed
Request for Borrowing (herein so called) prior to 12:00 noon (Dallas, Texas
time), (i) at least one (1) Domestic Business Day before the Borrowing Date
specified for a proposed Base Rate Borrowing, and (ii) at least three (3)
Eurodollar Business Days before the Borrowing Date of a proposed Eurodollar
Borrowing. Each such Request for Borrowing shall be substantially in the form
of Exhibit D hereto, and shall specify:
(i) the Borrowing Date of such Borrowing, which shall be a
Domestic Business Day in the case of a Base Rate Borrowing or a
Eurodollar Business Day in the case of a Eurodollar Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether such Borrowing is to be a Base Rate Borrowing or a
Eurodollar Borrowing; and
(iv) in the case of a Eurodollar Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
Upon receipt of a Request for Borrowing, Administrative Agent shall promptly
notify each Bank of the contents thereof and the amount of the Borrowing to be
loaned by such Bank pursuant thereto, and such Request for Borrowing shall not
thereafter be revocable by Borrower. Not later than 12:00 noon (Dallas, Texas
time) on the date of each Borrowing, each Bank shall make available its
Commitment Percentage of such Borrowing, in Federal or other funds immediately
available in Dallas, Texas to Administrative Agent at its address set forth on
Schedule 1 hereto. Notwithstanding the foregoing, if Borrower delivers to
Administrative Agent a Request for Borrowing prior to 10:00 a.m. (Dallas, Texas
time) on a Domestic Business Day requesting a Base Rate Borrowing on such day,
each Bank shall use its best efforts to make available to Administrative Agent
its Commitment Percentage of such Borrowing by 1:00 p.m. (Dallas, Texas time) on
the same day. Unless Administrative Agent determines that any applicable
condition specified in Section 8.2 has not been satisfied, Administrative Agent
will make the funds so received from Banks available to Borrower at
Administrative Agent's aforesaid address.
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(e) In order to request any Letter of Credit hereunder, Borrower shall
hand deliver, telex or telecopy to Administrative Agent a duly completed Request
for Letter of Credit (herein so called) prior to 12:00 noon (Dallas, Texas time)
at least three (3) Domestic Business Days before the date specified for issuance
of such Letter of Credit. Each Request for Letter of Credit shall be
substantially in the form of Exhibit E hereto, shall be accompanied by
Administrative Agent's duly completed and executed letter of credit application
and agreement and shall specify:
(i) the requested date for issuance of such Letter of Credit;
(ii) the terms of such requested Letter of Credit, including the
name and address of the beneficiary, the stated amount, the expiration
date and the conditions under which drafts under such Letter of Credit
are to be available; and
(iii) the purpose of such Letter of Credit.
Upon receipt of a Request for Letter of Credit, Administrative Agent shall
promptly notify each Bank of the contents thereof, including the amount of the
requested Letter of Credit, and such Request for Letter of Credit shall not
thereafter be revocable by Borrower. No later than 12:00 noon (Dallas, Texas
time) on the date each Letter of Credit is requested, unless Administrative
Agent determines that any applicable condition precedent set forth in Section
8.2 hereof has not been satisfied, Administrative Agent will issue and deliver
such Letter of Credit pursuant to the instructions of Borrower.
SECTION 3.2 Notes. Each Bank's Commitment Percentage of the Loan shall
be evidenced by a single Note payable to the order of such Bank in an amount
equal to such Bank's Commitment.
SECTION 3.3 Interest Rates; Payments. (a) The principal amount of the
Base Rate Loan outstanding from day to day shall bear interest at a rate per
annum equal to the Base Rate in effect from day to day; provided that in no
event shall the rate charged hereunder or under the Notes exceed the Maximum
Lawful Rate. Interest on the Base Rate Loan shall be payable as it accrues on
each Quarterly Date, and on the Termination Date.
(b) The principal amount of each Eurodollar Loan outstanding from day to
day shall bear interest for the Interest Period applicable thereto at a rate per
annum equal to the sum of (i) the Applicable Margin plus (ii) the applicable
Adjusted Eurodollar Rate; provided that in no event shall the rate charged
hereunder or under the Notes exceed the Maximum Lawful Rate. Interest on any
portion of the principal of each Eurodollar Loan subject to an Interest Period
of one (1), two (2) or three (3) months shall be payable on the last day of the
Interest Period applicable thereto. Interest on any portion of the principal of
each Eurodollar Loan having an Interest Period of six (6) months shall be
payable on the last day of the Interest Period applicable thereto and on each
Quarterly Date.
(c) So long as no Default or Event of Default shall be continuing, subject
to the provisions of this Section 3.3, Borrower shall have the option of having
all or any portion of the principal outstanding under the Loan be a Base Rate
Loan or one (1) or more Eurodollar Loans,
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<PAGE>
which shall bear interest at rates determined by reference to the Base Rate and
the Adjusted Eurodollar Rate, respectively; provided, that each Eurodollar Loan
shall be in a minimum amount of $1,000,000 and shall be in an amount which is an
integral multiple of $100,000. Prior to the termination of each Interest Period
with respect to each Eurodollar Loan, Borrower shall give written notice (a
"Notice of Continuation or Conversion") in the form of Exhibit F attached hereto
to Administrative Agent of the Type of Loan which shall be applicable to the
principal of such Eurodollar Loan upon the expiration of such Interest Period.
Such Notice of Continuation or Conversion shall be given to Administrative Agent
at least one (1) Domestic Business Day, in the case of a Base Rate Loan
selection, and three (3) Eurodollar Business Days, in the case of a Eurodollar
Loan selection, prior to the termination of the Interest Period then expiring.
If Borrower shall specify a Eurodollar Loan, such Notice of Continuation or
Conversion shall also specify the length of the succeeding Interest Period
(subject to the provisions of the definition of such term) selected by Borrower.
Each Notice of Continuation or Conversion shall be irrevocable and effective
upon notification thereof to Administrative Agent. If the required Notice of
Continuation or Conversion shall not have been timely received by Administrative
Agent, Borrower shall be deemed to have elected that the principal of the
Eurodollar Loan subject to the Interest Period then expiring be Converted to the
Base Rate Loan upon the expiration of such Interest Period and Borrower will be
deemed to have given Administrative Agent notice of such election. Subject to
the limitations set forth in this Section 3.3(c) on the amount and number of
Eurodollar Loans, Borrower shall have the right to Convert all or any part of
the Base Rate Loan to a Eurodollar Loan by giving Administrative Agent a Notice
of Continuation or Conversion of such election at least three (3) Eurodollar
Business Days prior to the date on which Borrower elects to make such Conversion
(a "Conversion Date"). The Conversion Date selected by Borrower shall be a
Eurodollar Business Day. Notwithstanding anything in this Section 3.3 to the
contrary, no portion of the principal of the Base Rate Loan may be Converted to
a Eurodollar Loan and no Eurodollar Loan may be Continued as such when any
Default or Event of Default has occurred and is continuing, but each such
Eurodollar Loan shall be automatically Converted to the Base Rate Loan on the
last day of each applicable Interest Period. Borrower shall not be permitted to
have more than five (5) Eurodollar Loans in effect at any time.
(d) Notwithstanding anything to the contrary set forth in Section 3.3(a) or
(b) above, after the occurrence of an Event of Default, interest shall accrue on
the outstanding principal balance of the Loan, and to the extent permitted by
Law, on the accrued but unpaid interest on the Loan and all other Obligations
from the period from and including the occurrence of such Event of Default to
but excluding the date the same is remedied at a rate per annum equal to the
lesser of (a) the Default Rate, and (b) the Maximum Lawful Rate.
(e) Administrative Agent shall determine each interest rate applicable to
the Loan in accordance with the terms hereof. Administrative Agent shall
promptly notify Borrower and Banks by telex, telecopy or cable of each rate of
interest so determined, and its determination thereof shall be conclusive in the
absence of manifest error.
(f) Notwithstanding the foregoing, if at any time the rate of interest
calculated with reference to the Base Rate or the Eurodollar Rate hereunder (the
"contract rate") is limited to the Maximum Lawful Rate, any subsequent
reductions in the contract rate shall not reduce the rate of
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interest on the Loan below the Maximum Lawful Rate until the total amount of
interest accrued equals the amount of interest which would have accrued if the
contract rate had at all times been in effect. In the event that at maturity
(stated or by acceleration), or at final payment of any Note, the total amount
of interest paid or accrued on such Note is less than the amount of interest
which would have accrued if the contract rate had at all times been in effect
with respect thereto, then at such time, to the extent permitted by law,
Borrower shall pay to the holder of such Note an amount equal to the difference
between (i) the lesser of the amount of interest which would have accrued if the
contract rate had at all times been in effect and the amount of interest which
would have accrued if the Maximum Lawful Rate had at all times been in effect,
and (ii) the amount of interest actually paid on such Note.
(g) Interest payable hereunder on each Eurodollar Loan shall be computed
based on the number of actual days elapsed assuming that each calendar year
consisted of 360 days. Interest payable hereunder on the Base Rate Loan shall
be computed based on the actual number of days elapsed assuming that each
calendar year consisted of 365 days.
SECTION 3.4 Mandatory Prepayments Resulting From Borrowing Base
Deficiency. Except with respect to a CMS Redetermination pursuant to Section 6.4
hereof, a Mandatory Redetermination pursuant to Section 6.5 hereof, or a Post-
Closing Redetermination pursuant to Section 6.6 hereof, in the event a Borrowing
Base Deficiency exists after giving effect to any Redetermination, Borrower
shall, at its option, either (a) eliminate such Borrowing Base Deficiency by
making a single mandatory prepayment of principal on the Loan in an amount equal
to the entire amount of such Borrowing Base Deficiency on the first Monthly Date
following the date on which such Borrowing Base Deficiency is determined to
exist, or (b) eliminate such deficiency by making six (6) consecutive mandatory
prepayments of principal on the Loan each of which shall be in the amount of one
sixth (1/6th) of the amount of such Borrowing Base Deficiency commencing on the
first Monthly Date following the date on which such Borrowing Base Deficiency is
determined to exist and continuing on each Monthly Date thereafter. If a
Borrowing Base Deficiency cannot be eliminated pursuant to this Section 3.4 by
prepayment of the Loan in full (as a result of outstanding Letter of Credit
Exposure) on each Monthly Date, Borrower shall also deposit cash with
Administrative Agent, to be held by Administrative Agent to secure outstanding
Letter of Credit Exposure in the manner contemplated by Section 3.1(b), in an
amount at least equal to one sixth (1/6th) of the balance of such Borrowing Base
Deficiency (i.e., one-sixth (1/6th) of the difference between the Borrowing Base
Deficiency and the remaining outstanding principal under the Loan on the date
such Borrowing Base Deficiency is first determined to occur). In the event a
Borrowing Base Deficiency shall occur (or an increase in any pre-existing
Borrowing Base Deficiency shall occur) as a result of a CMS Redetermination
pursuant to Section 6.4, a Mandatory Redetermination pursuant to Section 6.5, or
a Post-Closing Redetermination pursuant to Section 6.6, Borrower shall
immediately make a single mandatory prepayment of principal on the Loan in an
amount equal to the entire amount of such Borrowing Base Deficiency.
SECTION 3.5 Mandatory Prepayment Following Debt Issuance. Immediately
upon the consummation by Borrower of any Post-Closing Debt Issuance, Borrower
shall make a mandatory prepayment in the amount of such Post-Closing Debt
Issuance to the principal of the Loan.
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SECTION 3.6 Voluntary Prepayments. Borrower may, subject to Section 5.5
and the other provisions of this Agreement, upon three (3) Domestic Business
Days advance notice to Administrative Agent, prepay the principal of the Loan in
whole or in part. Any partial prepayment shall be in a minimum amount of
$1,000,000 and shall be in an integral multiple of $100,000.
SECTION 3.7 Voluntary Reduction of Commitments. Borrower may, by notice
to Administrative Agent five (5) Domestic Business Days prior to the effective
date of any such reduction, reduce the Total Commitment (and thereby reduce the
Commitment of each Bank ratably) in amounts not less than $5,000,000 and in an
amount which is an integral multiple of $1,000,000. On the effective date of any
such reduction, Borrower shall, to the extent required as a result of such
reduction, make a principal payment on the Loan in an amount sufficient to cause
the principal balance of the Loan then outstanding to be equal to or less than
the Total Commitment as thereby reduced. Notwithstanding the foregoing,
Borrower shall not be permitted to voluntarily reduce the Total Commitment to an
amount less than the aggregate Letter of Credit Exposure of all Banks.
SECTION 3.8 Termination of Commitments; Final Maturity of Loan. The
Total Commitment (and the Commitment of each Bank) shall terminate, and the
entire outstanding principal balance of the Loan, all interest accrued thereon,
all accrued but unpaid fees hereunder and all other outstanding Obligations
shall be due and payable in full on the Termination Date.
SECTION 3.9 Unused Commitment Fee. On the Termination Date, on each
Quarterly Date prior to the Termination Date, and, in the event the Commitments
are terminated in their entirety prior to the Termination Date, on the date of
such termination, Borrower shall pay to Administrative Agent, for the ratable
benefit of each Bank based on each Bank's Commitment Percentage, a commitment
fee equal to the Unused Commitment Fee Percentage in effect from day to day
(applied on a per annum basis and computed on the basis of actual days elapsed
and as if each calendar year consisted of 365 days) of the average daily
Availability for the Fiscal Quarter (or portion thereof) ending on the date such
payment is due.
SECTION 3.10 Agency and other Fees. Borrower shall pay to Administrative
Agent and its Affiliates such other fees and amounts as Borrower shall be
required to pay to Administrative Agent and its Affiliates from time to time
pursuant to any separate agreement between Borrower and Administrative Agent or
such Affiliates. Such fees and other amounts shall be retained by
Administrative Agent and its Affiliates, and no Bank (other than Administrative
Agent) shall have any interest therein. Administrative Agent may disburse any
fees paid to Administrative Agent and its Affiliates pursuant to this Section
3.10 in any manner Administrative Agent desires in its sole discretion
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.1 Delivery and Endorsement of Notes. On the Closing Date,
Administrative Agent shall deliver to each Bank the Note payable to such Bank.
Each Bank may
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endorse (and prior to any transfer of its Note shall endorse) on the schedules
attached and forming a part thereof appropriate notations to evidence the date
and amount of its Commitment Percentage of each Borrowing, the Interest Period
applicable thereto, and the date and amount of each payment of principal made by
Borrower with respect thereto; provided that the failure by any Bank to so
endorse its Note shall not affect the liability of Borrower for the repayment of
all amounts outstanding under such Note together with interest thereon. Each
Bank is hereby irrevocably authorized by Borrower to endorse its Note and to
attach to and make a part of any such Note a continuation of any such schedule
as required.
SECTION 4.2 General Provisions as to Payments. (a) Borrower shall make
each payment of principal of, and interest on, the Loan, and all fees payable
hereunder shall be paid, not later than 12:00 noon (Dallas, Texas time) on the
date when due, in Federal or other funds immediately available in Dallas, Texas,
to Administrative Agent at its address set forth on Schedule 1 hereto.
Administrative Agent will promptly (and if such payment is received by
Administrative Agent by 10:00 a.m., and otherwise if reasonably possible, on the
same Domestic Business Day) distribute to each Bank its Commitment Percentage of
each such payment received by Administrative Agent for the account of Banks.
Whenever any payment of principal of, or interest on, any portion of the Loan
subject to a Base Rate Tranche or of fees shall be due on a day which is not a
Domestic Business Day, the date for payment thereof shall be extended to the
next succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, any portion of the Loan subject to a Eurodollar Tranche shall be
due on a day which is not a Eurodollar Business Day, the date for payment
thereof shall be extended to the next succeeding Eurodollar Business Day
(subject to the provisions of the definition of Interest Period). If the date
for any payment of principal is extended by operation of Law or otherwise,
interest thereon shall be payable for such extended time. Borrower hereby
authorizes Administrative Agent to charge from time to time against Borrower's
accounts with Administrative Agent any amount then due.
(b) Prior to the occurrence of an Event of Default, all principal
payments received by Banks with respect to the Loan shall be applied first to
Eurodollar Tranches outstanding with Interest Periods ending on the date of such
payment, then to Base Rate Tranches, and then to Eurodollar Tranches next
maturing until such principal payment is fully applied.
(c) After the occurrence of an Event of Default, all amounts collected
or received by Administrative Agent or any Bank shall be applied first to the
payment of all proper costs incurred by Administrative Agent in connection with
the collection thereof (including reasonable expenses and disbursements of
Administrative Agent), second to the payment of all proper costs incurred by
Banks in connection with the collection thereof (including reasonable expenses
and disbursements of Banks), third to the reimbursement of any advances made by
Banks to effect performance of any unperformed covenants of any Credit Party
under any of the Loan Papers, fourth to the payment of any unpaid fees required
pursuant to Section 3.10, fifth to the payment of any unpaid fees required
pursuant to Sections 3.1(b) and 3.9, sixth, to payment to each Bank of its
Commitment Percentage of the outstanding principal of the Loan and accrued but
unpaid interest thereon, and seventh to establish the deposits required in
Section 3.1(b). All payments received by a Bank after the occurrence of an
Event of Default for application to the principal of the Loan shall be applied
by such Bank in the manner provided in Section 4.2(b).
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ARTICLE V
CHANGE IN CIRCUMSTANCES
SECTION 5.1 Increased Cost and Reduced Return.
(a) If, after the date hereof, the adoption of any applicable law, rule, or
regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank, or comparable agency:
(i) shall subject such Bank (or its Applicable Lending Office) to
any tax, duty, or other charge with respect to any Eurodollar Loans,
its Note, or its obligation to make Eurodollar Loans, or change the
basis of taxation of any amounts payable to such Bank (or its
Applicable Lending Office) under this Agreement or its Note in respect
of any Eurodollar Loans (other than taxes imposed on the overall net
income of such Bank or such Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve, special
deposit, assessment, compulsory loan, or similar requirement (other
than the Reserve Requirement utilized in the determination of the
Adjusted Eurodollar Rate) relating to any extensions of credit or
other assets of, or any deposits with or other liabilities or
commitments of, such Bank (or its Applicable Lending Office),
including the Commitment of such Bank hereunder; or
(iii) shall impose on such Bank (or its Applicable Lending Office) or
on the London interbank market any other condition affecting this
Agreement or its Note or any of such extensions of credit or
liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Bank (or its Applicable Lending Office) under this Agreement or its Note
with respect to any Eurodollar Loans, then Borrower shall pay to such Bank on
demand such amount or amounts as will compensate such Bank for such increased
cost or reduction. If any Bank requests compensation by Borrower under this
Section 5.1(a), Borrower may, by notice to such Bank (with a copy to
Administrative Agent), suspend the obligation of such Bank to make or Continue
Eurodollar Loans or to Convert all or part of the Base Rate Loan owing to such
Bank into Eurodollar Loans, until the event or condition giving rise to such
request ceases to be in effect (in which case the provisions of Section 5.4
shall be applicable); provided that such suspension shall not affect the right
of such Bank to receive the compensation so requested.
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(b) If, after the date hereof, any Bank shall have determined that the
adoption of any applicable law, rule, or regulation regarding capital adequacy
or any change therein or in the interpretation or administration thereof by any
Governmental Authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank, or comparable agency, has or would have
the effect of reducing the rate of return on the capital of such Bank or any
corporation controlling such Bank as a consequence of such Bank's obligations
hereunder to a level below that which such Bank or such corporation could have
achieved but for such adoption, change, request, or directive (taking into
consideration its policies with respect to capital adequacy), then, from time to
time upon demand, Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
(c) Each Bank shall promptly notify Borrower and Administrative Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section 5.1 and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to it. Any Bank claiming
compensation under this Section 5.1 shall furnish to Borrower and Administrative
Agent a statement setting forth the additional amount or amounts to be paid to
it hereunder which shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
SECTION 5.2 Limitation on Types of Loans. If on or prior to the first
day of any Interest Period for any Eurodollar Loan:
(a) Administrative Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
for such Interest Period; or
(b) Required Banks determine (which determination shall be conclusive)
and notify Administrative Agent that the Adjusted Eurodollar Rate will not
adequately and fairly reflect the cost to Banks of funding Eurodollar Loans for
such Interest Period;
then Administrative Agent shall give Borrower prompt notice thereof specifying
the relevant Type of Loans and the relevant amounts or periods, and so long as
such condition remains in effect, Banks shall be under no obligation to make
additional Loans of such Type, Continue Loans of such Type, or to Convert Loans
of any other Type into Loans of such Type and Borrower shall, on the last day(s)
of the then current Interest Period(s) for the outstanding Loans of the affected
Type, either prepay such Loans or Convert such Loans into another Type of Loan
in accordance with the terms of this Agreement.
SECTION 5.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to make, maintain, or fund Eurodollar Loans hereunder, then such
Bank shall promptly notify Borrower thereof and such Bank's obligation to make
or Continue Eurodollar Loans and to Convert other Types of Loans into Eurodollar
Loans shall be suspended until such time as such Bank may again
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make, maintain, and fund Eurodollar Loans (in which case the provisions of
Section 5.4 shall be applicable).
SECTION 5.4 Treatment of Affected Loans. If the obligation of any Bank
to make particular Eurodollar Loans or to Continue Loans, or to Convert Loans of
another Type into Loans of a particular Type shall be suspended pursuant to
Section 5.1 or 5.3 hereof (Loans of such Type being herein called "Affected
Loans" and such Type being herein called the "Affected Type"), such Bank's
Affected Loans shall be automatically Converted into the Base Rate Loan on the
last day(s) of the then current Interest Period(s) for Affected Loans (or, in
the case of a Conversion required by Section 5.3 hereof, on such earlier date as
such Bank may specify to Borrower with a copy to Administrative Agent) and,
unless and until such Bank gives notice as provided below that the circumstances
specified in Section 5.1 or 5.3 hereof that gave rise to such Conversion no
longer exist:
(a) to the extent that such Bank's Affected Loans have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to such Bank's Affected Loans shall be applied instead to the Base Rate
Loan; and
(b) all Loans that would otherwise be made or Continued by such Bank
as Loans of the Affected Type shall be made or Continued instead as part of the
Base Rate Loan, and all Loans of such Bank that would otherwise be Converted
into Loans of the Affected Type shall be Converted instead into (or shall
remain) as part of the Base Rate Loan.
If such Bank gives notice to Borrower (with a copy to Administrative Agent) that
the circumstances specified in Section 5.1 or 5.3 hereof that gave rise to the
Conversion of such Bank's Affected Loans pursuant to this Section 5.4 no longer
exist (which such Bank agrees to do promptly upon such circumstances ceasing to
exist) at a time when Loans of the Affected Type made by other Banks are
outstanding, such Bank's portion of the Base Rate Loan shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type to the extent necessary so that,
after giving effect thereto, all Loans held by Banks holding Loans of the
Affected Type and by such Bank are held pro rata (as to principal amounts, Types
and Interest Periods) in accordance with their respective Commitments.
SECTION 5.5 Compensation. Upon the request of any Bank, Borrower shall
pay to such Bank such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost, or expense
(including loss of anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar Loan for
any reason (including, without limitation, the acceleration of the Loan) on a
date other than the last day of the Interest Period for such Loan; or
(b) any failure by Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in Article VIII to
be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Loan on the
date for such Borrowing, Conversion, Continuation, or prepayment
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specified in the relevant Request for Borrowing, Notice of Continuation or
Conversion, or other notice of Borrowing, prepayment, Continuation, or
Conversion under this Agreement.
SECTION 5.6 Taxes. (a) Any and all payments by Borrower to or for the
account of any Bank or Administrative Agent hereunder or under any other Loan
Paper shall be made free and clear of and without deduction for any and all
present or future taxes, duties, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Bank and Administrative Agent, taxes imposed on its income, and
franchise taxes imposed on it, by any relevant taxation authority (all such non-
excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to in this Section 5.6 as "Non-Excluded
Taxes"). If Borrower shall be required by law to deduct any Non-Excluded Taxes
from or in respect of any sum payable under this Agreement or any other Loan
Paper to any Bank or Administrative 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 5.6) such
Bank or Administrative Agent receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Borrower shall make such
deductions, (iii) Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law, and
(iv) Borrower shall furnish to Administrative Agent, at its address set forth in
Schedule 1 hereto, the original or a certified copy of a receipt evidencing
payment thereof.
(b) In addition, Borrower agrees to pay any and all present or future stamp
or documentary taxes and any other excise or property taxes or charges or
similar levies which arise from any payment made under this Agreement or any
other Loan Paper or from the execution or delivery of, or otherwise with respect
to, this Agreement or any other Loan Paper (hereinafter referred to as "Other
Taxes").
(c) Borrower agrees to indemnify each Bank and Administrative Agent for the
full amount of Non-Excluded Taxes and Other Taxes (including, without
limitation, any Non-Excluded Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 5.6) paid by such Bank or
Administrative Agent (as the case may be) and any liability (including
penalties, interest, and expenses) arising therefrom or with respect thereto.
(d) Each Bank organized under the laws of a jurisdiction outside the United
States, on or prior to the date of its execution and delivery of this Agreement
in the case of each Bank listed on Schedule 1 hereto and on or prior to the date
on which it becomes a Bank in the case of each other Bank, and from time to time
thereafter if requested in writing by Borrower or Administrative Agent (but only
so long as such Bank remains lawfully able to do so), shall provide Borrower and
Administrative Agent with (i) Internal Revenue Service Form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Bank is entitled to benefits under an income tax treaty to
which the United States is a party which reduces the rate of withholding tax on
payments of interest or certifying that the income receivable pursuant to this
Agreement is effectively connected with the conduct of a trade or business in
the United States, (ii) Internal Revenue Service Form W-8 or W-9, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
and (iii) any other form or certificate required by any taxing authority
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(including any certificate required by Sections 871(h) and 881(c) of the
Internal Revenue Code), certifying that such Bank is entitled to an exemption
from or a reduced rate of tax on payments pursuant to this Agreement or any of
the other Loan Papers.
(e) For any period with respect to which a Bank has failed to provide
Borrower and Administrative Agent with the appropriate form pursuant to Section
5.6(d) (unless such failure is due to a change in treaty, law, or regulation
occurring subsequent to the date on which a form originally was required to be
provided), such Bank shall not be entitled to indemnification under Section
5.6(a) or 5.6(b) with respect to Non-Excluded Taxes imposed by the United
States; provided, however, that should a Bank, which is otherwise exempt from or
subject to a reduced rate of withholding tax, become subject to Non-Excluded
Taxes because of its failure to deliver a form required hereunder, Borrower
shall take such steps as such Bank shall reasonably request to assist such Bank
to recover such Non-Excluded Taxes.
(f) If Borrower is required to pay additional amounts to or for the account
of any Bank pursuant to this Section 5.6, then such Bank will agree to use
reasonable efforts to change the jurisdiction of its Applicable Lending Office
so as to eliminate or reduce any such additional payment which may thereafter
accrue if such change, in the judgment of such Bank, is not otherwise
disadvantageous to such Bank.
(g) Within thirty (30) days after the date of any payment of Non-Excluded
Taxes, Borrower shall furnish to Administrative Agent the original or a
certified copy of a receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this Section
5.6 shall survive the termination of the Commitments and the payment in full of
the Notes.
SECTION 5.7 Discretion of Banks as to Manner of Funding.
Notwithstanding any provisions of this Agreement to the contrary, each Bank
shall be entitled to fund and maintain its funding of all or any part of its
Commitment in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if such
Bank had actually funded and maintained each Eurodollar Loan during the Interest
Period for such Eurodollar Loan through the purchase of deposits having a
maturity corresponding to the last day of such Interest Period and bearing an
interest rate equal to the Adjusted Eurodollar Rate for such Interest Period.
ARTICLE VI
BORROWING BASE
SECTION 6.1 Reserve Report; Proposed Borrowing Base. As soon as
available and in any event by March 31 and September 30 of each year commencing
September 30, 2000, Borrower shall deliver to Administrative Agent and each Bank
a Reserve Report prepared as of the immediately preceding December 31 and June
30 respectively. Simultaneously with the delivery
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to Administrative Agent and each Bank of each Reserve Report, Borrower shall
notify Administrative Agent and each Bank of the amount of the Borrowing Base
which Borrower requests become effective on the next Redetermination Date (or
such date promptly following such Redetermination Date as Required Banks shall
elect).
SECTION 6.2 Scheduled Redeterminations of the Borrowing Base; Procedures
and Standards. Based in part on the Reserve Reports made available to Banks
pursuant to Section 6.1, Banks shall redetermine the Borrowing Base on or prior
to the next Redetermination Date (or such date promptly thereafter as reasonably
possible based on the engineering and other information available to Banks).
Any Borrowing Base which becomes effective as a result of any Redetermination of
the Borrowing Base shall be subject to the following restrictions: (a) such
Borrowing Base shall not exceed the Borrowing Base requested by Borrower
pursuant to Sections 6.1 or 6.3 (as applicable), (b) such Borrowing Base shall
not exceed the Total Commitment then in effect, (c) to the extent such Borrowing
Base represents an increase from the Borrowing Base in effect prior to such
Redetermination, such Borrowing Base shall be approved by all Banks, and (d) to
the extent such Borrowing Base represents a decrease in the Borrowing Base in
effect prior to such Redetermination, or a reaffirmation of such prior Borrowing
Base, such Borrowing Base shall be approved by Required Banks. Each
Redetermination shall be made by Banks in their sole discretion. Without
limiting such discretion, Borrower acknowledges and agrees that Banks (i) may
make such assumptions regarding appropriate existing and projected pricing for
Hydrocarbons as they deem appropriate in their sole discretion, (ii) may make
such assumptions regarding projected rates and quantities of future production
of Hydrocarbons from the Mineral Interests owned by Borrower as they deem
appropriate in their sole discretion, (iii) may consider the projected cash
requirements of the Credit Parties, (iv) except with respect to the Initial
Borrowing Base, are not required to consider any asset other than Proved Mineral
Interests owned by Borrower which are subject to first and prior Liens in favor
of Administrative Agent for the ratable benefit of Banks to the extent required
by Section 7.1 hereof, and (v) may make such other assumptions, considerations
and exclusions as Banks deem appropriate in the exercise of their sole
discretion. It is further acknowledged and agreed that each Bank may consider
such other credit factors as it deems appropriate in the exercise of its sole
discretion and shall have no obligation in connection with any Redetermination
to approve any increase from the Borrowing Base in effect prior to such
Redetermination. Promptly following any Redetermination of the Borrowing Base,
Administrative Agent shall notify Borrower of the amount of the Borrowing Base
as redetermined, which Borrowing Base shall be effective as of the date
specified in such notice, and shall remain in effect for all purposes of this
Agreement until the next Redetermination.
SECTION 6.3 Special Redetermination. (a) In addition to Scheduled
Redeterminations, Required Banks shall be permitted to make a Special
Redetermination of the Borrowing Base once in each period between Scheduled
Redeterminations. Any request by Required Banks pursuant to this Section 6.3(a)
shall be submitted to Administrative Agent and Borrower.
(b) In addition to Scheduled Redeterminations, Borrower shall be
permitted to request a Special Redetermination of the Borrowing Base once in
each Fiscal Year. Such request shall be submitted to Administrative Agent and
Required Banks and at the time of such request
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Borrower shall deliver to Administrative Agent and each Bank a Reserve Report.
Together with such request, Borrower shall also notify Administrative Agent and
each Bank of the Borrowing Base requested by Borrower in connection with such
Special Redetermination.
(c) Any Special Redetermination shall be made by Banks in accordance
with the procedures and standards set forth in Section 6.2; provided, that, no
Reserve Report will be required to be delivered to Administrative Agent and
Banks in connection with any Special Redetermination requested by Required Banks
pursuant to clause (a) above.
SECTION 6.4 CMS Redetermination. In addition to Scheduled
Redeterminations, Special Redeterminations, Mandatory Redeterminations and the
Post-Closing Redetermination, Required Banks shall be permitted to make an
additional Redetermination of the Borrowing Base on each CMS Redetermination
Date (or as of a date shortly thereafter to be designated by Administrative
Agent in a notice to Borrower), pursuant to which Required Banks may reduce the
Borrowing Base by such amount as Required Banks shall determine in their sole
discretion as a result of (a) the existence of any uncured title, environmental
or other defect with respect to the CMS Properties, and any downward adjustment
to the Purchase Price or Final Settlement Statement (as each such term is
defined in the CMS Acquisition Agreement), and (b) the exclusion from the CMS
Acquisition of any Borrowing Base Properties (or any interest therein) pursuant
to the terms of the CMS Acquisition Agreement, including, without limitation,
pursuant to the terms of Sections 12.2, 13.3, 13.4, 13.9, 13.10, 16.1 and
Article XX of the CMS Acquisition Agreement.
SECTION 6.5 Mandatory Redetermination; Mandatory Reduction of Borrowing
Base. Notwithstanding anything to the contrary contained herein, the Borrowing
Base shall reduce immediately upon the consummation by Borrower of any Post-
Closing Debt Issuance to an amount equal to $195,000,000 (unless the Borrowing
Base has previously been reduced to an amount less than $195,000,000 pursuant to
any other Redetermination).
SECTION 6.6 Post-Closing Redetermination. In addition to Scheduled
Redeterminations, Special Redeterminations, CMS Redeterminations and Mandatory
Redeterminations, in the event Borrower does not consummate the Post-Closing
Debt Issuance on or prior to the Post-Closing Debt Issuance Trigger Date,
Required Banks shall be permitted to make an additional Redetermination of the
Borrowing Base on June 1, 2000 (or as of a date shortly thereafter to be
designated by Administrative Agent in a notice to Borrower).
SECTION 6.7 Borrowing Base Deficiency. If a Borrowing Base Deficiency
exists after giving effect to any Redetermination, Borrower shall be obligated
to eliminate such Borrowing Base Deficiency by making the mandatory prepayments
of the Loan required by Section 3.4.
SECTION 6.8 Initial Borrowing Base. Notwithstanding anything to the
contrary contained herein, the Borrowing Base in effect during the period
commencing on the Closing Date and ending on the effective date of the first
Redetermination after the Closing Date shall be the Initial Borrowing Base.
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ARTICLE VII
COLLATERAL AND GUARANTEES
SECTION 7.1 Security. (a) The Obligations shall be secured by first and
prior Liens (subject only to Permitted Encumbrances) covering and encumbering
(i) one hundred percent (100%) of all Borrowing Base Properties, (ii) all of the
issued and outstanding Equity owned by Borrower of each existing and future
Subsidiary of Borrower (including, without limitation, Terra), and (iii) all
right, title and interest of Borrower under the Management Agreement. On the
Closing Date, Borrower shall deliver to Administrative Agent for the ratable
benefit of each Bank, (A) a Borrower Pledge Agreement together with (i) all
certificates evidencing the issued and outstanding Equity owned by Borrower of
each existing Subsidiary of Borrower (including, without limitation, Terra) of
every class which shall be duly endorsed or accompanied by stock powers executed
in blank, and (ii) such UCC-1 financing statements (each duly authorized and
executed) as Administrative Agent shall deem necessary or appropriate to grant,
evidence and perfect first and prior Liens in all of the issued and outstanding
Equity owned by Borrower of each existing Subsidiary of Borrower (including,
without limitation, Terra), and (B) the Mortgages in form and substance
acceptable to Administrative Agent and duly executed by Borrower or Terra (as
applicable), together with such other assignments, conveyances, amendments,
agreements and other writings, including, without limitation, UCC-1 and UCC-3
financing statements (each duly authorized and executed) as Administrative Agent
shall deem necessary or appropriate to grant, evidence and perfect first and
prior Liens in all Borrowing Base Properties and other interests of Borrower and
Terra (as applicable) required by this Section 7.1(a).
(b) On or before each Redetermination Date after the Closing Date and
at such other times as Administrative Agent or Required Banks shall request,
Borrower and its Subsidiaries (which shall, from and after January 1, 2001,
include, for purposes of this Section 7.1(b), 7.1(c), 7.1(d) and 7.2, EAO,
Kristen and TPC) shall execute and deliver to Administrative Agent, for the
ratable benefit of each Bank, Mortgages in form and substance acceptable to
Administrative Agent and duly executed by Borrower and any such Subsidiary (as
applicable) together with such other assignments, conveyances, amendments,
agreements and other writings, including, without limitation, UCC-1 financing
statements (each duly authorized and executed) as Administrative Agent shall
deem necessary or appropriate to grant, evidence and perfect the Liens required
by Section 7.1(a) preceding with respect to Borrowing Base Properties acquired
by Borrower and its Subsidiaries subsequent to the last date on which Borrower
or any such Subsidiary was required to execute and deliver Mortgages pursuant to
this Section 7.1(b), or which, for any other reason are not the subject of
valid, enforceable, perfected first priority Liens (subject only to Permitted
Encumbrances) in favor of Administrative Agent for the ratable benefit of Banks.
(c) At any time Borrower or any of its Subsidiaries is required to
execute and deliver Mortgages to Administrative Agent pursuant to this Section
7.1, Borrower shall also deliver to Administrative Agent such opinions of
counsel (including, if so requested, title opinions, and in each case addressed
to Administrative Agent) and other evidence of title as Administrative Agent
shall deem necessary or appropriate to verify (i) Borrower's or such
Subsidiary's title to the Required Reserve Value of the Proved Mineral Interests
which are subject to such Mortgages, and (ii) the
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validity, perfection and priority of the Liens created by such Mortgages and
such other matters regarding such Mortgages as Administrative Agent shall
reasonably request.
(d) On the date of the creation or acquisition by Borrower of any
Subsidiary, or on the date of creation or acquisition by any First Tier
Subsidiary of any Subsidiary, Borrower or such First Tier Subsidiary (as
applicable) shall execute and deliver to Administrative Agent a Borrower Pledge
Agreement or a Subsidiary Pledge Agreement (as applicable) together with (i) all
certificates (or other evidence acceptable to Administrative Agent) evidencing
the issued and outstanding Equity of any such Subsidiary of every class owned by
Borrower or such First Tier Subsidiary (as applicable) which shall be duly
endorsed or accompanied by stock powers executed in blank (as applicable), and
(ii) such UCC-1 financing statements as Administrative Agent shall deem
necessary or appropriate to grant, evidence and perfect the Liens required by
Section 7.1(a)(ii) in the issued and outstanding Equity of each such Subsidiary.
SECTION 7.2 Guarantees. Payment and performance of the Obligations
shall be fully guaranteed by each existing or hereafter created or acquired
Subsidiary of Borrower pursuant to a Subsidiary Guaranty. On the date of
creation or acquisition by Borrower of any Subsidiary, Borrower shall cause such
Subsidiary to execute and deliver to Administrative Agent a Subsidiary Guaranty.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 8.1 Conditions to Amendment and Restatement and Initial
Borrowing and Participation in Letter of Credit Exposure. The obligation of
each Bank to amend and restate the Existing Credit Agreement in the form of this
Agreement and the obligation of each Bank to loan its Commitment Percentage of
the initial Borrowing made hereunder, and the obligation of Administrative Agent
to issue (or cause another Bank to issue) the initial Letter of Credit issued
hereunder is subject to the satisfaction of each of the following conditions:
(a) Closing Deliveries. Administrative Agent shall have received each
of the following documents, instruments and agreements, each of which shall be
in form and substance and executed in such counterparts as shall be acceptable
to Administrative Agent and each Bank and each of which shall, unless otherwise
indicated, be dated the Closing Date:
(i) a Note payable to the order of each Bank, each in the amount of
such Bank's Commitment, duly executed by Borrower;
(ii) a Borrower Pledge Agreement duly executed and delivered by
Borrower together with (A) certificates evidencing one-hundred percent
(100%) of the issued and outstanding Equity of Terra (and all of the
issued and outstanding Equity owned by Borrower of each other
Subsidiary of Borrower, as applicable) of every class, which
certificates shall be duly endorsed or accompanied by stock powers
executed in blank, and (B) such financing statements executed by
Borrower as Administrative
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Agent shall request to evidence and perfect the Liens granted pursuant
to such Borrower Pledge Agreement;
(iii) the Mortgages to be executed on the Closing Date pursuant to
Section 7.1(a), duly executed and delivered by Borrower and Terra (as
applicable), together with such other assignments, conveyances,
amendments, agreements and other writings, including, without
limitation, UCC-1 and UCC-3 financing statements, in form and
substance satisfactory to Administrative Agent, creating first and
prior Liens in all Borrowing Base Properties;
(iv) the Collateral Assignments duly executed by Borrower, together
with such financing statements executed by Borrower as Administrative
Agent shall request to evidence and perfect the Liens granted pursuant
to such Collateral Assignments;
(v) the Subordination Agreements duly executed and delivered by
Administrative Agent, Banks and Subordinate Noteholders;
(vi) such financing statements (including, without limitation, the
financing statements referenced in subclauses (ii), (iii) and (iv)
above) in form and substance acceptable to Administrative Agent and
executed by each Credit Party as Administrative Agent shall specify to
fully evidence and perfect all Liens contemplated by the Loan Papers,
all of which shall be filed of record in such jurisdictions as
Administrative Agent shall require in its sole direction;
(vii) a copy of the articles or certificate of incorporation,
certificate of limited partnership, articles of organization or
comparable charter documents, and all amendments thereto, of each
Credit Party accompanied by a certificate that such copy is true,
correct and complete, and dated within ten (10) days of the Closing
Date (or within such other period as acceptable to Administrative
Agent), issued by the appropriate Governmental Authority of the
jurisdiction of incorporation or organization of each Credit Party,
and accompanied by a certificate of the Secretary or comparable
Authorized Officer of each Credit Party that such copy is true,
correct and complete on the Closing Date;
(viii) a copy of the bylaws, partnership agreement, regulations,
operating agreement or comparable charter documents, and all
amendments thereto, of each Credit Party accompanied by a certificate
of the Secretary or comparable Authorized Officer of each Credit Party
that such copy is true, correct and complete as of the Closing Date;
(ix) certain certificates and other documents issued by the
appropriate Governmental Authorities of such jurisdictions as
Administrative Agent has requested relating to the existence of each
Credit Party and to the effect that each Credit Party is in good
standing with respect to the payment of franchise and similar Taxes
and is duly qualified to transact business in such jurisdictions;
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(x) a certificate of incumbency of all officers of each Credit
Party who will be authorized to execute or attest to any Loan Paper,
dated the Closing Date, executed by the Secretary or comparable
Authorized Officer of each Credit Party;
(xi) copies of resolutions or comparable authorizations approving
the Loan Papers and authorizing the transactions contemplated by this
Agreement and the other Loan Papers, duly adopted by the Board of
Directors or comparable authority of each Credit Party accompanied by
certificates of the Secretary or comparable officer of each Credit
Party that such copies are true and correct copies of resolutions duly
adopted at a meeting of or (if permitted by applicable Law and, if
required by such Law, by the bylaws or other charter documents of such
Credit Party) by the unanimous written consent of the Board of
Directors of each Credit Party, and that such resolutions constitute
all the resolutions adopted with respect to such transactions, have
not been amended, modified, or revoked in any respect, and are in full
force and effect as of the Closing Date;
(xii) an opinion of Cantey & Hanger, L.L.P., special counsel for
Borrower, dated the Closing Date, favorably opining as to the
enforceability of each of the Loan Papers and otherwise in form and
substance satisfactory to Administrative Agent;
(xiii) an opinion of Warner Norcross & Judd LLP, special Michigan
counsel for Administrative Agent, dated the Closing Date, favorably
opining as to the enforceability of the Mortgages in Michigan and
otherwise in form and substance satisfactory to Administrative Agent;
(xiv) an opinion of Herschler, Freudenthal, Salzburg, Bonds & Zerga,
P.C., special Wyoming counsel for Administrative Agent, dated the
Closing Date, favorably opining as to the enforceability of the
Mortgages in Wyoming and otherwise in form and substance satisfactory
to Administrative Agent;
(xv) opinion of Crowley, Haughey, Hanson, Toole & Dietrich, special
Montana counsel for Administrative Agent, dated the Closing Date,
favorably opining as to the enforceability of the Mortgages in Montana
and otherwise in form and substance satisfactory to Administrative
Agent;
(xvi) a certificate signed by an Authorized Officer of Borrower
stating that (a) the representations and warranties contained in this
Agreement and the other Loan Papers are true and correct in all
respects, (b) no Default or Event of Default has occurred and is
continuing, (c) all conditions set forth in this Section 8.1 and
Section 8.2 have been satisfied, and (d) after giving effect to the
Closing Transactions, Borrower, Terra and each other Credit Party are
Solvent;
(xvii) a Certificate of Ownership Interests executed by an Authorized
Officer of Borrower in the form of Exhibit G attached hereto;
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(xviii) certificates from Borrower's insurance broker setting forth
the insurance maintained by Borrower, stating that such insurance is
in full force and effect, that all premiums due have been paid and
stating that such insurance is adequate and complies with the
requirements of Section 10.6;
(xix) a copy of each of the Closing Documents accompanied by a
certificate executed by an Authorized Officer of Borrower certifying
that (A) such copies are accurate and complete and represent the
complete understanding and agreement of the parties thereto, (B) no
material right or obligation of any party thereto has been modified,
amended or waived, and (C) subject only to funding the initial
Borrowing to be made hereunder, the Closing Transactions have been
consummated on the terms set forth in such Closing Documents;
(xx) a report or reports in form, scope and detail acceptable to
Administrative Agent and Banks setting forth the results of a review
of Borrower's Mineral Interests (after giving effect to the Closing
Transactions) and other operations, which report(s) shall not reflect
the existence of facts or circumstances which would constitute a
material violation of any Applicable Environmental Law or which are
likely to result in a material liability to any Credit Party, and/or
otherwise reveal any condition or circumstance which would reflect
that the representations and warranties contained in Section 9.14
hereof are inaccurate in any respect;
(xxi) a letter executed by CMS consenting to the assignment by
Borrower to Administrative Agent of all of Borrower's rights and
interests under the CMS Acquisition Agreement;
(xxii) to the extent an opinion is delivered by counsel to CMS and
Terra in connection with the CMS Acquisition, a letter from such
counsel (or a provision in such opinion) permitting Administrative
Agent, each Bank and their counsel to rely on the opinions provided by
such counsel in connection with the consummation of the CMS
Acquisition; and
(xxiii) a copy of each Hedge Agreement to which Borrower or any other
Credit Party is a party accompanied by a certificate executed by an
Authorized Officer of Borrower certifying that such copies are
accurate and complete and represent the complete understanding and
agreement of the parties thereto.
(b) Closing Transactions. Subject only to disbursement and
application of the initial Borrowing, the Closing Transactions shall have
occurred (or Administrative Agent shall be satisfied that such transactions will
occur simultaneously therewith). Without limiting the foregoing, each of the
following shall have occurred (or Administrative Agent shall be satisfied that
each of the following shall occur simultaneously therewith):
(i) the CMS Acquisition shall have been completed pursuant to the
terms of the CMS Acquisition Documents;
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(ii) the Mariner Section 29 Sale shall have been completed pursuant
to the terms of the Mariner Section 29 Documents, and approximately
$25,000,000 of the proceeds of such sale shall have been applied to
finance in part the CMS Acquisition;
(ii) the transactions contemplated by the Subordinate Note Documents
shall have been completed pursuant to the terms of such Subordinate
Note Documents, and Borrower shall have received not less than
$43,000,000 from the issuance and sale of Subordinate Notes and
applied such proceeds to finance in part the CMS Acquisition; and
(iv) all fees and expenses of Agents and their Affiliates in
connection with the credit facility provided herein shall have been
paid.
(c) Title Review. Administrative Agent or its counsel shall have
completed a review of title (including opinions of title) with respect to that
portion of the CMS Properties which is necessary to satisfy the Closing Title
Review Requirement, and such review shall not have revealed any condition or
circumstance which would reflect that the representations and warranties
contained in Section 9.9 hereof are inaccurate in any respect.
(d) No Material Adverse Change. In the sole discretion of each Bank,
no Material Adverse Change shall have occurred since December 31, 1999 with
respect to Borrower or its Subsidiaries (including, without limitation, no
Material Adverse Change with respect to any facts or information regarding such
Persons as represented to any Agent or any Bank on or prior to the Closing
Date).
(e) No Legal Prohibition. The transactions contemplated by this
Agreement shall be permitted by applicable Law and regulation and shall not
subject any Agent, any Bank, or any Credit Party to any Material Adverse Change.
(f) No Litigation. No litigation, arbitration or similar proceeding
shall be pending or threatened which calls into question the validity or
enforceability of this Agreement, the other Loan Papers or the transactions
contemplated hereby or thereby.
(g) Hedge Transactions. In addition to existing Hedge Transactions
currently in place under the Existing Credit Agreement, Borrower shall have
additionally entered into Hedge Transactions with respect to production from the
CMS Properties which shall in all events provide Borrower a fixed NYMEX price
that equals or exceeds $2.60 per thousand cubic feet covering not less than
thirty million cubic feet per day of Borrower's and its Subsidiaries' production
of natural gas for a period of not less than five (5) years (such period shall
be measured from the effective date of each separate Hedge Transaction), and
such Hedge Transactions to otherwise be on terms and conditions satisfactory to
Administrative Agent and Banks.
(h) Closing Fees. Borrower shall have paid to Administrative Agent
for the ratable benefit of each Bank, and shall have paid to Administrative
Agent and its Affiliates (for its own account), the fees to be paid on the
Closing Date pursuant to Section 3.10.
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(i) Other Matters. All matters related to this Agreement, the other
Loan Papers, the Closing Documents, the Closing Transactions and the Credit
Parties shall be acceptable to each Bank in its sole discretion, and each Credit
Party shall have delivered to Administrative Agent and each Bank such evidence
as they shall request to substantiate any matters related to this Agreement and
the other Loan Papers, as Administrative Agent or any Bank shall request.
Upon satisfaction of each of the conditions set forth in this Section 8.1,
Borrower and Administrative Agent shall execute the Certificate of
Effectiveness. Upon the execution and delivery of the Certificate of
Effectiveness, the Existing Credit Agreement shall automatically and completely
be amended and restated on the terms set forth herein without necessity of any
other action on the part of any Bank, any Agent or Borrower. Until execution
and delivery of the Certificate of Effectiveness, the Existing Credit Agreement
shall remain in full force and effect in accordance with its terms. Each Bank
hereby authorizes Administrative Agent to execute the Certificate of
Effectiveness on its behalf and acknowledges and agrees that the execution of
the Certificate of Effectiveness by Administrative Agent shall be binding on
each such Bank.
SECTION 8.2 Conditions to Each Borrowing and each Letter of Credit. The
obligation of each Bank to loan its Commitment Percentage of each Borrowing and
the obligation of Administrative Agent to issue a Letter of Credit on the date
such Letter of Credit is to be issued is subject to the further satisfaction of
the following conditions:
(a) timely receipt by Administrative Agent of a Request for Borrowing
or a Request for Letter of Credit (as applicable);
(b) immediately before and after giving effect to such Borrowing or
issuance of such Letter of Credit, no Default or Event of Default shall have
occurred and be continuing and the funding of such Borrowing or the issuance of
the requested Letter of Credit (as applicable) shall not cause a Default or
Event of Default;
(c) the representations and warranties of each Credit Party contained
in this Agreement and the other Loan Papers shall be true and correct on and as
of the date of such Borrowing or issuance of such Letter of Credit (as
applicable);
(d) the amount of the requested Borrowing or the amount of the
requested Letter of Credit (as applicable) shall not exceed the Availability;
(e) no Material Adverse Change shall have occurred; and
(f) the funding of such Borrowing or the issuance of such Letter of
Credit (as applicable) shall be permitted by applicable Law.
The funding of each Borrowing and the issuance of each Letter of Credit
hereunder shall be deemed to be a representation and warranty by Borrower on the
date of such Borrowing and the date of issuance of each Letter of Credit as to
the facts specified in Sections 8.2(b) through (f).
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SECTION 8.3 Post-Closing Deliveries. As soon as available, and in any
event on or prior to June 30, 2000, Borrower shall deliver opinions of title and
other evidence of title in form and substance acceptable to Administrative Agent
and its counsel regarding that portion of the CMS Properties which is necessary
to satisfy the Post-Closing Title Review Requirement.
SECTION 8.4 Materiality of Conditions. Each condition precedent herein
is material to the transactions contemplated herein, and time is of the essence
in respect of each thereof.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Administrative Agent and each Bank that
each of the following statements is true and correct on the date hereof, will be
true and correct on the Closing Date after giving effect to the Closing
Transactions, and will be true and correct on the occasion of each Borrowing and
the issuance of each Letter of Credit:
SECTION 9.1 Existence and Power. Each Credit Party (a) is a
corporation, partnership or limited liability company duly incorporated or
organized (as applicable), validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, (b) has all corporate,
partnership or limited liability company power (as applicable) and all material
governmental licenses, authorizations, consents and approvals required to carry
on its businesses as now conducted and as proposed to be conducted, and (c) is
duly qualified to transact business as a foreign corporation, partnership or
limited liability company in each jurisdiction where a failure to be so
qualified could result in a Material Adverse Change.
SECTION 9.2 Credit Party and Governmental Authorization; Contravention.
The execution, delivery and performance of this Agreement and the other Loan
Papers by each Credit Party (to the extent each Credit Party is a party to this
Agreement and such Loan Papers) are within such Credit Party's corporate,
partnership or limited liability company powers, when executed will be duly
authorized by all necessary corporate, partnership or limited liability company
action, require no action by or in respect of, or filing with, any Governmental
Authority and do not contravene, or constitute a default under, any provision of
applicable Law (including, without limitation, the Margin Regulations) or of the
articles or certificate of incorporation, bylaws, regulations, partnership
agreement or comparable charter documents of any Credit Party or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
any Credit Party or result in the creation or imposition of any Lien on any
asset of any Credit Party other than the Liens securing the Obligations.
SECTION 9.3 Binding Effect. This Agreement constitutes a valid and
binding agreement of Borrower; the other Loan Papers when executed and delivered
in accordance with this Agreement, will constitute valid and binding obligations
of each Credit Party executing the same; and each Loan Paper is, or when
executed and delivered will be, enforceable against each Credit Party which
executes the same in accordance with its terms except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar Laws affecting
creditors rights generally, and
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(ii) the availability of equitable remedies may be limited by equitable
principles of general applicability.
SECTION 9.4 Financial Information. (a) The most recent annual audited
consolidated balance sheet of Borrower and the related consolidated statements
of operations and cash flows for the Fiscal Year then ended, copies of which
have been delivered to each Bank, fairly present, in conformity with GAAP, the
consolidated financial position of Borrower as of the end of such Fiscal Year
and its consolidated results of operations and cash flows for such Fiscal Year.
(b) The most recent quarterly unaudited consolidated balance sheet of
Borrower delivered to Banks, and the related unaudited consolidated statements
of operations and cash flows for the portion of Borrower's Fiscal Year then
ended, fairly present, in conformity with GAAP applied on a basis consistent
with the financial statements referred to in Section 9.4(a), the consolidated
financial position of Borrower as of such date and its consolidated results of
operations and cash flows for such portion of Borrower's Fiscal Year.
(c) Except as disclosed in writing to Banks prior to the execution and
delivery of this Agreement, since December 31, 1999, no Material Adverse Change
has occurred with respect to Borrower or its Subsidiaries (including, without
limitation, no Material Adverse Change with respect to any facts or information
regarding such Persons as represented to any Agent or any Bank on or prior to
the Closing Date).
(d) After giving effect to the transactions contemplated by this
Agreement (including the Closing Transactions), each Credit Party is Solvent.
SECTION 9.5 Litigation. Except for matters disclosed on Schedule 3
attached hereto, there is no action, suit or proceeding pending against, or to
the knowledge of any Credit Party, threatened against or affecting any Credit
Party before any Governmental Authority in which there is a reasonable
possibility of an adverse decision which could result in a Material Adverse
Change or which could in any manner draw into question the validity of the Loan
Papers.
SECTION 9.6 ERISA. No Credit Party nor any ERISA Affiliate of any
Credit Party maintains or has ever maintained or been obligated to contribute to
any Plan covered by Title IV of ERISA or subject to the funding requirements of
Section 412 of the Code or Section 302 of ERISA. Each Plan maintained by any
Credit Party or any ERISA Affiliate of any Credit Party is in compliance in all
material respects with all applicable Laws. Except in such instances where an
omission or failure would not result in a Material Adverse Change, (a) all
returns, reports and notices required to be filed with any regulatory agency
with respect to any Plan have been filed timely, and (b) no Credit Party nor any
ERISA Affiliate of any Credit Party has failed to make any contribution or pay
any amount due or owing as required by the terms of any Plan. There are not
pending or, to the best of Borrower's knowledge, threatened claims, lawsuits,
investigations or actions (other than routine claims for benefits in the
ordinary course) asserted or instituted against, and no Credit Party nor any
ERISA Affiliate of any Credit Party has knowledge of any threatened litigation
or claims against, the assets of any Plan or its related trust or against any
fiduciary of a Plan with respect to the operation of such Plan that are likely
to result in liability of any Credit Party resulting in a Material Adverse
Change. Except in such instances where an omission or failure would not result
in a Material Adverse Change, each Plan that is intended to be "qualified"
within the meaning of section 401(a) of the Code is, and has been during the
period from its adoption to date, so qualified, both as to form and operation
and all necessary governmental approvals, including a favorable determination as
to the qualification under the Code of such Plan and each amendment thereto,
have been or will be timely obtained. No Credit Party nor any ERISA Affiliate
of any Credit Party has engaged in any prohibited transactions, within the
meaning of section 406 of ERISA or section 4975 of the Code, in connection with
any Plan which would result in liability of any Credit Party resulting in a
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Material Adverse Change. No Credit Party nor any ERISA Affiliate of any Credit
Party maintains or contributes to any Plan that provides a post-employment
health benefit, other than a benefit required under Section 601 of ERISA, or
maintains or contributes to a Plan that provides health benefits that is not
fully funded except where the failure to fully fund such Plan would not result
in a Material Adverse Change. No Credit Party nor any ERISA Affiliate of any
Credit Party maintains, has established or has ever participated in a multiple
employer welfare benefit arrangement within the meaning of section 3(40)(A) of
ERISA.
SECTION 9.7 Taxes and Filing of Tax Returns. Each Credit Party has
filed all tax returns required to have been filed and has paid all Taxes shown
to be due and payable on such returns, including interest and penalties, and all
other Taxes which are payable by such party, to the extent the same have become
due and payable. No Credit Party knows of any proposed material Tax assessment
against it and all Tax liabilities of each Credit Party are adequately provided
for. Except as disclosed in writing to Banks prior to the date hereof, no
income tax liability of any Credit Party has been asserted by the Internal
Revenue Service or other Governmental Authority for Taxes in excess of those
already paid. The production from the wells subject to the Section 29 Documents
is, to the extent represented by Borrower in those documents, entitled to the
benefits of tax credits under Section 29 of the Code.
SECTION 9.8 Ownership of Properties Generally. Each Credit Party has
good and valid fee simple or leasehold title to all material properties and
assets purported to be owned by it, including, without limitation, all assets
reflected in the balance sheets referred to in Section 9.4 (a) and all assets
which are used by the Credit Parties in the operation of their respective
businesses, and none of such properties or assets is subject to any Lien other
than Permitted Encumbrances.
SECTION 9.9 Mineral Interests. The Property Description is an accurate
and complete description of all Borrowing Base Properties on the Closing Date.
Subject only to Immaterial Title Deficiencies (as herein defined), after giving
effect to the Closing Transactions, Borrower and/or Terra (as applicable) will
have good and defensible title to all Mineral Interests described in the Reserve
Report, including, without limitation, all Borrowing Base Properties, free and
clear of all Liens except for Permitted Encumbrances. Subject only to Permitted
CMS Title Defects and Immaterial Title Deficiencies, all Mineral Interests
described in the Reserve Report are valid, subsisting, and in full force and
effect, and all rentals, royalties, and other amounts due and payable in respect
thereof have been duly paid. Without regard to any consent or non-consent
provisions of any joint operating agreement covering any of Borrower's or
Terra's (as applicable) Proved Mineral Interests, after giving effect to the
Closing Transactions, but subject to Permitted CMS Title Defects and Immaterial
Title Deficiencies, Borrower's and/or Terra's (as applicable) share
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of (a) the costs for each Proved Mineral Interest described in the Reserve
Report is not greater than the decimal fraction set forth in the Reserve Report,
before and after payout, as the case may be, and described therein by the
respective designations "working interests," "WI," "gross working interest,"
"GWI," or similar terms, and (b) production from, allocated to, or attributed to
each such Proved Mineral Interest is not less than the decimal fraction set
forth in the Reserve Report, before and after payout, as the case may be, and
described therein by the designations "net revenue interest," "NRI," or similar
terms. As used herein, the term "Immaterial Title Deficiencies" means minor
defects or deficiencies in title which do not effect, in the aggregate, more
than two percent (2%) (by value) of all Borrowing Base Properties. Each well
drilled in respect of each Proved Producing Mineral Interest described in the
Reserve Report (y) is capable of, and is presently, producing Hydrocarbons in
commercially profitable quantities, and after giving effect to the Closing
Transactions, Borrower and/or Terra (as applicable) will receive payments on a
current basis for its share of production, with no funds in respect of any
thereof held in suspense, other than any such funds held in suspense pending
delivery of appropriate division orders, and (z) has been drilled, bottomed,
completed, and operated in compliance with all applicable Laws and no such well
which is currently producing Hydrocarbons is subject to any penalty in
production by reason of such well having produced in excess of its allowable
production.
SECTION 9.10. Licenses, Permits, Etc. Each Credit Party possesses such
valid franchises, certificates of convenience and necessity, operating rights,
licenses, permits, consents, authorizations, exemptions and orders of
Governmental Authorities, as are necessary to carry on its business as now
conducted and as proposed to be conducted, except to the extent a failure to
obtain any such item would not result in a Material Adverse Change.
SECTION 9.11. Compliance with Law. The business and operations of the
Credit Parties have been and are being conducted in accordance with all
applicable Laws other than violations of Laws which do not (either individually
or collectively) result in a Material Adverse Change.
SECTION 9.12. Full Disclosure. All information heretofore furnished by
each Credit Party to Administrative Agent or any Bank for purposes of or in
connection with this Agreement, any Loan Paper or any transaction contemplated
hereby or thereby is, and all such information hereafter furnished by or on
behalf of any Credit Party to Administrative Agent or any Bank will be, true,
complete and accurate in every material respect. The Credit Parties have
disclosed or have caused to be disclosed to Banks in writing any and all facts
(other than facts of general public knowledge) which might reasonably be
expected to result in a Material Adverse Change.
SECTION 9.13. Organizational Structure; Nature of Business. The Credit
Parties are engaged only in the business of acquiring, exploring, developing and
operating Mineral Interests and the production, marketing, processing and
transporting of Hydrocarbons therefrom. After giving effect to the Closing
Transactions, Schedule 4 hereto accurately reflects (i) the jurisdiction of
incorporation or organization of each Credit Party, (ii) each jurisdiction in
which each Credit Party is qualified to transact business as a foreign
corporation, foreign partnership or foreign limited liability company, and (iii)
the authorized, issued and outstanding Equity of each Credit Party.
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SECTION 9.14. Environmental Matters. Except for matters disclosed on
Schedule 5 hereto, and after giving effect to the Closing Transactions, no
operation conducted by any Credit Party and no real or personal property now or
previously owned or leased by any Credit Party (including, without limitation,
Mineral Interests) and no operations conducted thereon, and to any Credit
Parties' knowledge, no operations of any prior owner, lessee or operator of any
such properties, is or has been in violation of any Applicable Environmental Law
other than violations which neither individually nor in the aggregate could
result in a Material Adverse Change. Except for matters disclosed on Schedule 5
hereto, and after giving effect to the Closing Transactions, no Credit Party,
nor any such property nor operation is the subject of any existing, pending or,
to any Credit Parties' knowledge, threatened Environmental Complaint which
could, individually or in the aggregate, result in a Material Adverse Change.
All notices, permits, licenses, and similar authorizations, required to be
obtained or filed (after giving effect to the Closing Transactions) in
connection with the ownership of each tract of real property or operations of
any Credit Party thereon and each item of personal property owned, leased or
operated by any Credit Party, including, without limitation, notices, licenses,
permits and authorizations required in connection with any past or present
treatment, storage, disposal, or release of Hazardous Substances into the
environment, have been duly obtained or filed except to the extent the failure
to obtain or file such notices, licenses, permits and authorizations would not
result in a Material Adverse Change. All Hazardous Substances, generated at
each tract of real property and by each item of personal property owned, leased
or operated by any Credit Party (after giving effect to the Closing
Transactions) have been transported, treated, and disposed of only by carriers
or facilities maintaining valid permits under RCRA (as hereinafter defined) and
all other Applicable Environmental Laws for the conduct of such activities
except in such cases where the failure to obtain such permits could not,
individually or in the aggregate, result in a Material Adverse Change. Except
for matters disclosed on Schedule 5 hereto, and after giving effect to the
Closing Transactions, there have been no Hazardous Discharges which were not in
compliance with Applicable Environmental Laws other than Hazardous Discharges
which would not, individually or in the aggregate, result in a Material Adverse
Change. Except for matters disclosed on Schedule 5 hereto, and after giving
effect to the Closing Transactions, no Credit Party nor any Subsidiary of any
Credit Party has any contingent liability in connection with any Hazardous
Discharge which could reasonably be expected to result in a Material Adverse
Change. As used in this Section 9.14, the term "RCRA" shall mean the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Solid Waste Recovery Act of 1976, as amended by the Solid Waste
Disposal Act of 1980, and the Hazardous and Solid Waste Amendments of 1984, as
the same may be further amended and in effect from time to time.
SECTION 9.15. Burdensome Obligations. No Credit Party, nor any of the
properties of any Credit Party is subject to any Law or any pending or
threatened change of Law or subject to any restriction under its articles (or
certificate) of incorporation, bylaws, regulations, partnership agreement or
comparable charter documents or under any agreement or instrument to which any
Credit Party or by which any Credit Party or any of their properties may be
subject or bound, which is so unusual or burdensome as to be likely in the
foreseeable future to result in a Material Adverse Change. Without limiting the
foregoing, no Credit Party is a party to or bound by any agreement or subject to
any order of any Governmental Authority which prohibits or restricts in any way
the right of such Credit Party to make Distributions.
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SECTION 9.16. Fiscal Year. Borrower's Fiscal Year is January 1 through
December 31.
SECTION 9.17. No Default. Neither a Default nor an Event of Default has
occurred or will exist after giving effect to the transactions contemplated by
this Agreement or the other Loan Papers.
SECTION 9.18. Government Regulation. No Credit Party is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act (as any of the preceding acts have been
amended), the Investment Company Act of 1940 or any other Law which regulates
the incurring by such Credit Party of Debt, including, but not limited to Laws
relating to common contract carriers or the sale of electricity, gas, stream,
water or other public utility services.
SECTION 9.19. Insider. No Credit Party is, and no Person having "control"
(as that term is defined in 12 U.S.C. Section 375(b) or regulations promulgated
thereunder) of any Credit Party is an "executive officer," "director" or
"shareholder" of any Bank or any bank holding company of which any Bank is a
Subsidiary or of any Subsidiary of such bank holding company.
SECTION 9.20. Gas Balancing Agreements and Advance Payment Contracts. On
the date of this Agreement and on the Closing Date, (a) there is no Material Gas
Imbalance, and (b) the aggregate amount of all Advance Payments received by any
Credit Party under Advance Payment Contracts which have not been satisfied by
delivery of production does not exceed $250,000.
SECTION 9.21. Closing Documents; Management Agreement. Borrower has
provided (or on the Closing Date Borrower will provide) Administrative Agent
with a true and correct copy of each of the Closing Documents and the Management
Agreement including all amendments and modifications thereto. No material
rights or obligations of any party to any of such Closing Documents or the
Management Agreement have been (or will be on the Closing Date) waived, and no
Credit Party, nor to the best knowledge of Borrower, any other party to any of
such Closing Documents or the Management Agreement, is (or will be on the
Closing Date) in default of its obligations thereunder. Each of the Closing
Documents and the Management Agreement is (or will be on the Closing Date) a
valid, binding and enforceable obligation of the parties thereto in accordance
with its terms and is (or will be on the Closing Date) in full force and effect.
Each representation and warranty made by each Credit Party, and to the best
knowledge of Borrower, by each other party to the Closing Documents and the
Management Agreement, in the Closing Documents and the Management Agreement (a)
was true and correct when made, and (b) will be true and correct on the Closing
Date.
SECTION 9.22. Year 2000 Matters. Borrower has (a) completed a review and
assessment of all areas within its and each other Credit Party's business and
operations (including those affected by customers and vendors) that would be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications and devices containing imbedded computer chips used by any Credit
Party (or their respective customers and vendors) may be unable to recognize and
perform properly date - sensitive functions involving certain dates prior to and
any
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date after December 31, 1999), (b) developed a plan and timeline for addressing
the Year 2000 Problem on a timely basis, and (c) substantially completed
implementation of that plan in accordance with that timetable. The Year 2000
Problem has not resulted in, and Borrower reasonably believes that the Year 2000
Problem will not result in, a Material Adverse Change.
SECTION 9.23. Cinnabar. Borrower owns a fifty percent (50%) membership or
other equity interest in Cinnabar, and Cinnabar's business is presently being
carried out in compliance with Section 11.15, and Cinnabar has no Debt other
than as permitted in such Section 11.15.
SECTION 9.24. Commodity Price Risk Policy. Borrower's policy with respect
to commodity price risk as presently in effect, addressing Borrower's policies
with respect to Hedge Agreements for Hydrocarbons, is attached hereto as Exhibit
L (as such policy is adopted by Borrower's Board of Directors in accordance with
Section 10.15, the "Commodity Price Risk Policy"). The Commodity Price Risk
Policy has not been rescinded, revoked, modified or amended in any respect, and
is in full force and effect.
ARTICLE X
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any Bank has any commitment
to lend or participate in Letter of Credit Exposure hereunder or any amount
payable under any Note remains unpaid or any Letter of Credit remains
outstanding:
SECTION 10.1. Information. Borrower will deliver, or cause to be
delivered, to each Bank:
(a) as soon as available and in any event within ninety (90) days
after the end of each Fiscal Year, a consolidated and consolidating balance
sheet of Borrower and each other Credit Party as of the end of such Fiscal Year
and the related consolidated and consolidating statements of income and
statements of cash flow for such Fiscal Year, setting forth in each case in
comparative form the figures for the previous Fiscal Year, all reported by such
Credit Party in accordance with GAAP and audited by a firm of independent public
accountants of nationally recognized standing and acceptable to Administrative
Agent;
(b) (i) as soon as available and in any event within forty-five
(45) days after the end of each of the first three (3) Fiscal Quarters of each
Fiscal Year, consolidated and consolidating balance sheets of Borrower and each
other Credit Party as of the end of such Fiscal Quarter and the related
consolidated and consolidating statements of income and statements of cash flow
for such quarter and for the portion of such Credit Party's Fiscal Year ended at
the end of such Fiscal Quarter, setting forth in each case in comparative form
the figures for the corresponding quarter and the corresponding portion of such
Credit Party's previous Fiscal Year;
(c) simultaneously with the delivery of each set of financial
statements referred to in Sections 10.1(a) and (b), a certificate of a Financial
Officer of Borrower in the form of
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Exhibit H attached hereto, (i) setting forth in reasonable detail the
calculations required to establish whether Borrower was in compliance with the
requirements of Article XII on the date of such financial statements, (ii)
stating whether there exists on the date of such certificate any Default and, if
any Default then exists, setting forth the details thereof and the action which
Borrower is taking or proposes to take with respect thereto, (iii) stating
whether or not such financial statements fairly reflect in all material respects
the results of operations and financial condition of Borrower and each other
Credit Party as of the date of the delivery of such financial statements and for
the period covered thereby, (iv) setting forth (A) whether as of such date there
is a Material Gas Imbalance and, if so, setting forth the amount of net gas
imbalances under Gas Balancing Agreements to which any Credit Party is a party
or by which any Mineral Interests owned by Borrower is bound, and (B) the
aggregate amount of all Advance Payments received under Advance Payment
Contracts to which any Credit Party is a party or by which any Mineral Interests
owned by Borrower is bound which have not been satisfied by delivery of
production, if any, and (v) setting forth a summary of the Hedge Transactions to
which each Credit Party is a party on such date and attaching a copy of each
Hedge Agreement evidencing such Hedge Transactions (or a statement certifying
that Borrower has previously delivered to Administrative Agent true and correct
copies of all such Hedge Agreements, the same have not been modified or amended
in any respect, and such Hedge Agreements represent the valid, binding and
enforceable obligations of the Credit Party a party thereto);
(d) promptly upon the mailing thereof to the stockholders of any
Credit Party generally, copies of all financial statements, reports and proxy
statements so mailed;
(e) promptly upon the filing thereof, copies of all final
registration statements post effective amendments thereto and annual, quarterly
or special reports which any Credit Party shall have filed with the Securities
and Exchange Commission; provided, that Borrower must deliver, or cause to be
delivered, any annual reports which any Credit Party shall have filed with the
Securities and Exchange Commission, within ninety (90) days after the end of
each Fiscal Year of such Credit Party, and any quarterly reports which any
Credit Party shall have filed with the Securities and Exchange Commission,
within forty-five (45) days after the end of each of the first three (3) Fiscal
Quarters of each Fiscal Year of such Credit Party;
(f) promptly upon receipt of same, any notice or other information
received by any Credit Party indicating (i) any potential, actual or alleged
non-compliance with or violation of the requirements of any Applicable
Environmental Law which could result in liability to any Credit Party for fines,
clean up or any other remediation obligations or any other liability in excess
of $50,000 in the aggregate; (ii) any threatened Hazardous Discharge which
Hazardous Discharge would impose on any Credit Party a duty to report to a
Governmental Authority or to pay cleanup costs or to take remedial action under
any Applicable Environmental Law which could result in liability to any Credit
Party for fines, clean up and other remediation obligations or any other
liability in excess of $50,000 in the aggregate; or (iii) the existence of any
Lien arising under any Applicable Environmental Law securing any obligation to
pay fines, clean up or other remediation costs or any other liability in excess
of $50,000 in the aggregate. Without limiting the foregoing, each Credit Party
shall provide to Banks promptly upon receipt of same by any Credit Party copies
of all environmental consultants or engineers reports received by any Credit
Party which would
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render the representations and warranties (or any of them) contained in Section
9.14 untrue or inaccurate in any respect;
(g) in the event any notification is provided to any Bank or
Administrative Agent pursuant to Section 10.1(f) hereof or Administrative Agent
or any Bank otherwise learns of any event or condition under which any such
notice would be required, then, upon request of Required Banks, Borrower shall
within thirty (30) days of such request, cause to be furnished to Administrative
Agent and each Bank a report by an environmental consulting firm acceptable to
Administrative Agent and Required Banks, stating that a review of such event,
condition or circumstance has been undertaken (the scope of which shall be
acceptable to Administrative Agent and Required Banks) and detailing the
findings, conclusions and recommendations of such consultant; Borrower shall
bear all expenses and costs associated with such review and updates thereof;
(h) immediately upon any Authorized Officer becoming aware of the
occurrence of any Default, a certificate of an Authorized Officer setting forth
the details thereof and the action which Borrower is taking or proposes to take
with respect thereto;
(i) no later than March 31 and September 30 of each year, commencing
September 30, 2000, reports of production volumes, revenue, expenses and product
prices for all Mineral Interests owned by Borrower for the periods of six (6)
months ending the preceding December 31 and June 30, respectively. Such reports
shall be prepared on an accrual basis and shall be reported on a field by field
basis;
(j) promptly notify Banks of any Material Adverse Change; and
(k) from time to time such additional information regarding the
financial position or business of any Credit Party as Administrative Agent, at
the request of any Bank, may reasonably request.
SECTION 10.2. Business of Borrower. The sole business of Borrower shall
be the acquisition, exploration, development and operation of Mineral Interests
and the production, marketing, processing and transportation of Hydrocarbons
therefrom.
SECTION 10.3. Maintenance of Existence. Borrower shall, and shall cause
each other Credit Party to, at all times (a) maintain its corporate, partnership
or limited liability company existence in its state of incorporation or
organization, and (b) maintain its good standing and qualification to transact
business in all jurisdictions where the failure to maintain good standing or
qualification to transact business could result in a Material Adverse Change.
SECTION 10.4. Title Data. Borrower shall, upon the request of Required
Banks, cause to be delivered to Administrative Agent such title opinions and
other information regarding title to Mineral Interests owned by Borrower and the
perfection and priority of Administrative Agent's Liens therein as are
appropriate to determine the status thereof.
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SECTION 10.5. Right of Inspection. Borrower will permit, and will cause
each other Credit Party to permit, any officer, employee or agent of
Administrative Agent or of any Bank to visit and inspect any of the assets of
any Credit Party, examine each Credit Party's books of record and accounts, take
copies and extracts therefrom, and discuss the affairs, finances and accounts of
each Credit Party with such Credit Party's officers, accountants and auditors,
all at such reasonable times and as often as Administrative Agent or any Bank
may desire, and upon and during the continuance of an Event of Default all at
the expense of Borrower.
SECTION 10.6. Maintenance of Insurance. Borrower will, and will cause
each other Credit Party to, at all times maintain or cause to be maintained
insurance covering such risks as are customarily carried by businesses similarly
situated, including, without limitation, the following: (a) workmen's
compensation insurance; (b) employer's liability insurance; (c) comprehensive
general public liability and property damage insurance; (d) insurance against
losses customarily insured against as a result of damage by fire, lightning,
hail, tornado, explosion and other similar risk; and (e) comprehensive
automobile liability insurance. All loss payable clauses or provisions in all
policies of insurance maintained by Borrower pursuant to this Section 10.6 shall
be endorsed in favor of and made payable to Administrative Agent for the ratable
benefit of Banks, as their interests may appear. Administrative Agent shall
have the right, for the ratable benefit of Banks, to collect, and Borrower
hereby assigns to Administrative Agent for the ratable benefit of Banks, any and
all monies that may become payable under any such policies of insurance by
reason of damage, loss or destruction of any property which stands as security
for the Obligations or any part thereof, and Administrative Agent may, at its
election, either apply for the ratable benefit of Banks all or any part of the
sums so collected toward payment of the Obligations, whether or not such
Obligations are then due and payable, in such manner as Administrative Agent may
elect, or release same to the applicable Credit Party.
SECTION 10.7. Payment of Taxes and Claims. Borrower will, and will cause
each other Credit Party to, pay (a) all Taxes imposed upon it or any of its
assets or with respect to any of its franchises, business, income or profits
before any material penalty or interest accrues thereon and (b) all material
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a Lien (other than a Permitted Encumbrance) on any of its assets;
provided, however, no payment of Taxes or claims shall be required if (i) the
amount, applicability or validity thereof is currently being contested in good
faith by appropriate action promptly initiated and diligently conducted in
accordance with good business practices and no material part of the property or
assets of any Credit Party is subject to any pending levy or execution, (ii) the
Credit Parties, as and to the extent required in accordance with GAAP, shall
have set aside on their books reserves (segregated to the extent required by
GAAP) deemed by them to be adequate with respect thereto, and (iii) the Credit
Parties have notified Administrative Agent of such circumstances, in detail
satisfactory to Administrative Agent.
SECTION 10.8. Compliance with Laws and Documents. Borrower will, and will
cause each other Credit Party to, comply with all Laws, their respective
certificates (or articles) of incorporation, bylaws, regulations and similar
organizational documents and all Material
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Agreements to which any Credit Party is a party, if a violation, alone or when
combined with all other such violations, could result in a Material Adverse
Change.
SECTION 10.9. Operation of Properties and Equipment. (a) Borrower will,
and will cause each of its Subsidiaries to, maintain, develop and operate (or
use its best efforts to cause the operator to maintain and operate to the extent
Borrower is not the operator) its Mineral Interests in a good and workmanlike
manner, and observe and comply with all of the terms and provisions, express or
implied, of all oil and gas leases relating to such Mineral Interests so long as
such Mineral Interests are capable of producing Hydrocarbons and accompanying
elements in paying quantities. Borrower will operate, and be the named and
listed operator of, and shall retain all COPAS reimbursements associated with,
all of the CMS Properties to which it is entitled to operate.
(b) Borrower will, and will cause each of its Subsidiaries to, comply
in all respects with all contracts and agreements applicable to or relating to
its Mineral Interest or the production and sale of Hydrocarbons and accompanying
elements therefrom.
(c) Borrower will, and will cause each of its Subsidiaries to, at all
times maintain, preserve and keep all operating equipment used with respect to
its Mineral Interests in proper repair, working order and condition, and make
all necessary or appropriate repairs, renewals, replacements, additions and
improvements thereto so that the efficiency of such operating equipment shall at
all times be properly preserved and maintained; provided further that no item of
operating equipment need be so repaired, renewed, replaced, added to or
improved, if Borrower shall in good faith determine that such action is not
necessary or desirable for the continued efficient and profitable operation of
the business of such Credit Party.
SECTION 10.10. Environmental Law Compliance. Borrower will, and will
cause each other Credit Party to, comply with all Applicable Environmental Laws,
including, without limitation, (a) all licensing, permitting, notification and
similar requirements of Applicable Environmental Laws, and (b) all provisions of
all Applicable Environmental Laws regarding storage, discharge, release,
transportation, treatment and disposal of Hazardous Substances. Borrower will,
and will cause each other Credit Party to, promptly pay and discharge when due
all legal debts, claims, liabilities and obligations with respect to any clean-
up or remediation measures necessary to comply with Applicable Environmental
Laws.
SECTION 10.11. ERISA Reporting Requirements. Borrower shall furnish, or
cause to be furnished, to Administrative Agent:
(a) promptly and in any event (i) within thirty (30) days after Borrower
or any ERISA Affiliate receives notice from any regulatory agency of the
commencement of an audit, investigation or similar proceeding with respect to a
Plan, and (ii) within ten (10) days after Borrower or any ERISA Affiliate
contacts the Internal Revenue Service for the purpose of participation in a
closing agreement or any voluntary resolution program with respect to a Plan or
knows or has reason to know that any event with respect to any Plan of Borrower
or any ERISA Affiliate has occurred, a written notice describing such event and
describing what action is being taken or is proposed to be taken with respect
thereto, together with a copy of any notice of event that is given to the PBGC;
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(b) promptly and in any event within thirty (30) days after the receipt by
Borrower of a request therefor by a Bank, copies of any annual and other report
(including Schedule B thereto) with respect to a Plan filed by Borrower or any
ERISA Affiliate with the United States Department of Labor, the Internal Revenue
Service or the PBGC;
(c) notification within thirty (30) days of the effective date thereof of
any material increases in the benefits, or material change in the funding
method, of any existing Plan which is not a multiemployer plan (as defined in
section 4001(a)(3) of ERISA), or the establishment of any material new Plans, or
the commencement of contributions to any Plan to which Borrower or any ERISA
Affiliate was not previously contributing; and
(d) promptly after receipt of written notice of commencement thereof,
notice of all (i) claims made by participants or beneficiaries with respect to
any Plan and (ii) actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting Borrower or any ERISA Affiliate with respect to
any Plan, except those which, in the aggregate, if adversely determined could
not result in a Material Adverse Change.
SECTION 10.12. Additional Documents. Borrower will, and will cause each
other Credit Party (to the extent each is party thereto) to, cure promptly any
defects in the creation and issuance of each Note, and the execution and
delivery of this Agreement and the other Loan Papers and, at Borrower's expense,
Borrower shall promptly and duly execute and deliver to each Bank, and cause
each other Credit Party to promptly and duly execute and deliver to each Bank,
upon reasonable request, all such other and further documents, agreements and
instruments in compliance with or accomplishment of the covenants and agreements
of the Credit Parties in this Agreement and the other Loan Papers as may be
reasonably necessary or appropriate in connection therewith.
SECTION 10.13. Environmental Review. Not later than thirty (30) days
prior to the date of any acquisition by any Credit Party of Mineral Interests or
related assets, other than an acquisition of additional interests in Mineral
Interests in which a Credit Party previously held an interest, Borrower shall
deliver to Administrative Agent a report in form, scope and detail acceptable to
Administrative Agent from environmental engineering firms acceptable to
Administrative Agent, which report or reports shall set forth the results of a
Phase I environmental review of such Mineral Interests and related assets.
SECTION 10.14. Year 2000 Compatibility. Borrower will promptly notify
Administrative Agent and each Bank in the event Borrower discovers or determines
that the "Year 2000 Problem" (that is, the risk that computer applications and
devices containing imbedded computer chips used by any Credit Party (or their
respective customers and vendors) may be unable to recognize and perform
properly date - sensitive functions involving certain dates prior to and any
date after December 31, 1999) has resulted in, or is reasonably expected to
result in, a Material Adverse Change.
SECTION 10.15. Commodity Price Risk Policy. On or before June 30, 2000,
Borrower's Board of Directors will adopt, as the stated policy of Borrower with
respect to
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commodity price risk, either the policy attached hereto as Exhibit L or a policy
with similar terms that is acceptable to Required Banks. In the event Borrower's
Board of Directors adopts a policy different than the policy attached hereto as
Exhibit L, Borrower shall promptly deliver such new policy to Administrative
Agent and execute and deliver an amendment to this Agreement substituting such
policy for the policy attached hereto as Exhibit L as of the Closing Date.
ARTICLE XI
NEGATIVE COVENANTS
Borrower agrees that, so long as any Bank has any commitment to lend or
participate in Letter of Credit Exposure hereunder or any amount payable under
any Note remains unpaid or any Letter of Credit remains outstanding:
SECTION 11.1. Incurrence of Debt. Borrower will not, nor will Borrower
permit any other Credit Party to, incur, become or remain liable for any Debt
other than (i) the Obligations, (ii the Subordinate Debt, (iii) Debt of Terra
(but not guarantees of such Debt by Borrower) that exists on the Closing Date in
the amount of approximately $2,100,000 which Debt is expressly being retained by
CMS pursuant to the terms of the CMS Acquisition Agreement because it pertains
to an asset excluded from the CMS Acquisition, and (iv) the guarantee by
Borrower of a percentage of the Cinnabar Marketing Obligations; provided, that
the percentage referred to in any such guaranty shall not exceed the percentage
of Cinnabar's common equity owned by Borrower at the time such guaranty is
executed; provided, further that, in the event no Default, Event of Default or
Borrowing Base Deficiency has occurred which is continuing, (a) Borrower may
incur and remain liable for Non-Recourse Debt to the extent such Non-Recourse
Debt has been specifically approved in writing by Required Banks, and (b)
Borrower and its Subsidiaries may incur and remain liable for other Debt in an
aggregate amount outstanding at any time not to exceed $2,000,000.
SECTION 11.2. Restricted Payments. Borrower will not, nor will Borrower
permit any other Credit Party to, directly or indirectly, declare or pay, or
incur any liability to declare or pay, any Restricted Payment; provided, that,
any Subsidiary of Borrower that has provided a Subsidiary Guaranty, and all of
the Equity of which owned by Borrower has been pledged to Administrative Agent
pursuant to a Borrower Pledge Agreement, may make Distributions to Borrower.
SECTION 11.3. Negative Pledge. Except in connection with the MGV
Investment, and except with respect to the shareholders' agreement executed and
entered into in connection therewith, Borrower will not, nor will Borrower
permit any other Credit Party to, create, assume or suffer to exist any Lien on
any of their respective assets other than Permitted Encumbrances. Borrower will
not, nor will Borrower permit any other Credit Party to, enter into or become
bound by any agreement (other than this Agreement) that prohibits or otherwise
restricts the right of Borrower or any other Credit Party to create, assume or
suffer to exist any Lien on any of their respective assets in favor of
Administrative Agent for the ratable benefit of Banks.
SECTION 11.4. Consolidations and Mergers. Borrower will not, nor will
Borrower permit any other Credit Party to, consolidate or merge with or into any
other Person; provided, that,
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so long as no Default or Event of Default exists or will result (a) Borrower may
merge or consolidate with another Person so long as Borrower is the surviving
corporation, and (b) any wholly owned Subsidiary of Borrower may merge or
consolidate with any other Person so long as a wholly owned Subsidiary of
Borrower is the surviving Person.
SECTION 11.5. Asset Dispositions, etc. Borrower will not, nor will
Borrower permit any other Credit Party to, sell, lease, transfer, abandon or
otherwise dispose of any asset other than the sale in the ordinary course of
business of Hydrocarbons produced from Borrower's and any other Credit Party's
Mineral Interests (and not pursuant to Advance Payment Contracts); provided,
that, so long as no Default or Event of Default has occurred which is
continuing, Borrower shall be permitted to sell or dispose of (a) machinery and
equipment which is obsolete or otherwise not necessary or useful in the
operation of Borrower's business, (b) Mineral Interests during any period
between Scheduled Redeterminations with an aggregate Recognized Value (measured
at the time of such sale or disposition) not in excess of three percent (3%) of
the Borrowing Base in effect during such period, and (c) the Seller's Interests
(as defined in the Mariner Purchase and Sale Agreement) pursuant to the terms of
the Buyer's Option (as defined in the Mariner Purchase and Sale Agreement) and
in accordance with Article X of the Mariner Purchase and Sale Agreement;
provided, however, and without limiting the foregoing, Borrower will not, nor
will Borrower permit any other Credit Party to, (i) sell any Hydrocarbons under
Advance Payment Contracts, (ii) sell or securitize any of their accounts
receivable (other than those deemed doubtful or uncollectible), (iii) sell any
production payment or other term royalty, (iv) purchase property subject to any
production payment or term royalty created within 180 days prior to such
purchase, or (v) sell assets and then lease them back (or commit to lease them
back) within 180 days after such sale. Borrower will not sell, transfer or
dispose of, or permit any other Credit Party to sell, transfer or dispose of,
any capital stock or other equity interest in any Subsidiary of Borrower.
SECTION 11.6. Amendments to Organizational Documents; Other Material
Agreements. Borrower will not, nor will Borrower permit any other Credit Party
to, enter into or permit any modification or amendment of, or waive any material
right or obligation of any Person under, (a) its certificate or articles of
incorporation, bylaws, partnership agreement, regulations or other
organizational documents other than amendments, modifications and waivers which
could not, individually or in the aggregate, result in a Material Adverse
Change, (b) the Closing Documents, (c) the Subordinate Note Documents, (d) the
Section 29 Documents, or (e) the Management Agreement; provided, that, Borrower
may enter into amendments to the Subordinate Note Documents which do not provide
for or have any of the following effects: (i) increases the overall principal
amount of the Subordinate Debt beyond the $53,000,000 presently outstanding (as
reduced by any principal payments hereafter made with the express written
consent of Required Banks); (ii) increases the amount of any scheduled payment
of principal or interest on the Subordinate Debt; (iii) hastens or accelerates
the date upon which any installment of principal or interest of any Subordinate
Debt is due or otherwise accelerates the amortization schedule with respect to
such Subordinate Debt; (iv) increases the rate of interest accruing on the
Subordinate Debt; (v) provides for the payment of additional fees or for any
increase in existing fees in connection with any Subordinate Debt; or (vi)
amends, modifies or adds any performance obligation of Borrower to any
Subordinate Noteholder in a manner which requires Borrower to comply with more
restrictive financial ratios or is otherwise more onerous or more restrictive to
Borrower.
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SECTION 11.7. Use of Proceeds. The proceeds of Borrowings will not be
used for any purpose other than (a) working capital, (b) to finance the
acquisition, exploration and development of Mineral Interests and related
capital assets, and (c) to refinance the obligations outstanding under the
Existing Credit Agreement. None of such proceeds (including, without
limitation, proceeds of Letters of Credit issued hereunder) will be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock, and none of such proceeds
will be used in violation of applicable Law (including, without limitation, the
Margin Regulations). Letters of Credit will be issued hereunder only for the
purpose of securing bids, tenders, bonds, contracts and other obligations
entered into in the ordinary course of Borrower's business. Without limiting
the foregoing, no Letters of Credit will be issued hereunder for the purpose of
providing credit enhancement with respect to any Debt or equity security of any
Credit Party or to secure any Credit Party's obligations with respect to Hedge
Transactions other than Hedge Transactions with a Bank.
SECTION 11.8. Investments. Except for the MGV Investment, Borrower will
not, nor will Borrower permit any other Credit Party to, directly or indirectly,
make or have outstanding any Investment other than Permitted Investments.
SECTION 11.9. Transactions with Affiliates. Borrower will not, nor will
Borrower permit any other Credit Party to, engage in any transaction with an
Affiliate unless such transaction is as favorable to such party as could be
obtained in an arm's length transaction with an unaffiliated Person in
accordance with prevailing industry customs and practices.
SECTION 11.10. ERISA. Except in such instances where an omission or
failure would not result in a Material Adverse Change, Borrower will not, nor
will Borrower permit any other Credit Party to (a) take any action or fail to
take any action which would result in a violation of ERISA, the Code or other
Laws applicable to the Plans maintained or contributed to by it or any ERISA
Affiliate, or (b) modify the term of, or the funding obligations or contribution
requirements under any existing Plan, establish a new Plan, or become obligated
or incur any liability under a Plan that is not maintained or contributed to by
Borrower or any ERISA Affiliate as of the Closing Date.
SECTION 11.11. Hedge Transactions. With the exception of Oil and Gas
Hedge Transactions entered into pursuant to Section 8.1(g), Borrower will not,
nor will Borrower permit any other Credit Party to, enter into Oil and Gas Hedge
Transactions which would cause the volume of Hydrocarbons with respect to which
a settlement payment is calculated under such Oil and Gas Hedge Transactions to
exceed seventy-five percent (75%) of the aggregate of (a) Borrower's anticipated
production from Proved Mineral Interests plus (b) associated royalty owners' gas
produced from the same wells, and which gas Borrower has the authority to market
and sell, during the period from the immediately preceding settlement date (or
the commencement of such Hedge Transaction if there is no prior settlement date)
to such settlement date. Borrower will not materially amend the Commodity Price
Risk Policy after the same is adopted pursuant to the terms of Section 10.15.
SECTION 11.12. Fiscal Year. Borrower will not, and Borrower will not
permit any other Credit Party to, change its Fiscal Year.
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SECTION 11.13. Change in Business. Borrower will not, nor will Borrower
permit any other Credit Party to, engage in any business other than the
businesses engaged in by such parties on the date hereof as described in Section
9.13 hereof.
SECTION 11.14. Subordinate Debt. Borrower will not make any payment on or
with respect to any Subordinate Debt except as expressly permitted by the terms
hereof and by the terms of the Subordination Agreements.
SECTION 11.15. Cinnabar. In marketing the Hydrocarbons of Borrower and
its Subsidiaries, Cinnabar shall act as their marketing agent, and Borrower will
not, nor will Borrower permit any other Credit Party to, claim or take title to
any Hydrocarbons which Cinnabar markets on their behalf or to claim or take
title to any accounts receivable resulting from the sale of such Hydrocarbons,
and all payments for the sale of such Hydrocarbons by the purchasers obtained by
Cinnabar shall be made directly to Borrower or to the Subsidiary of Borrower
selling such Hydrocarbons. So long as any guaranty by Borrower of any Cinnabar
Marketing Obligations is in effect, Borrower will not permit Cinnabar to (a)
incur Debt, or (b) grant a Lien on its accounts receivable or other assets to
any Person other than Borrower (provided, that, Cinnabar may grant such a Lien
to any other guarantor of Cinnabar Marketing Obligations in proportion to the
amount guaranteed by such other guarantor).
ARTICLE XII
FINANCIAL COVENANTS
Borrower agrees that so long as any Bank has any commitment to lend or
participate in Letter of Credit Exposure hereunder or any amount payable under
any Note remains unpaid or any Letter of Credit remains outstanding:
(a) Borrower will not permit its Working Capital to be less than
$3,000,000 at any time.
(b) As of the end of any Fiscal Quarter, commencing with the Fiscal
Quarter ending June 30, 2000, Borrower will not permit its ratio of (i)
Consolidated EBITDAX (for the four (4) Fiscal Quarters ending on such date) to
(ii) Consolidated Net Interest Expense (for the four (4) Fiscal Quarters ending
on such date) to be less than 2.50 to 1.
ARTICLE XII
DEFAULTS
SECTION 13.1. Events of Default. If one or more of the following events
(collectively "Events of Default" and individually an "Event of Default") shall
have occurred and be continuing:
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(a) Borrower shall fail to pay when due any principal on any Note;
(b) Borrower shall fail to pay when due accrued interest on any Note
or any fees or any other amount payable hereunder and such failure shall
continue for a period of three (3) days following the due date;
(c) Borrower shall fail to observe or perform any covenant or
agreement contained in Article XI or Article XII of this Agreement;
(d) any Credit Party shall fail to observe or perform any covenant or
agreement contained in this Agreement or any other Loan Paper (other than those
referenced in Sections 13.1(a), (b) and (c)) and such failure continues for a
period of twenty (20) days after the earlier of (i) the date any Authorized
Officer of any Credit Party acquires knowledge of such failure, or (ii) written
notice of such failure has been given to any Credit Party by Administrative
Agent or any Bank;
(e) any representation, warranty, certification or statement made or
deemed to have been made by any Credit Party in any certificate, financial
statement or other document delivered pursuant to this Agreement shall prove to
have been incorrect in any material respect when made;
(f) any Credit Party shall fail to make any payment when due on any
Debt of such Person in a principal amount equal to or greater than $250,000 or
any other event or condition shall occur which (i) results in the acceleration
of the maturity of any such Debt, or (ii) entitles the holder of such Debt to
accelerate the maturity thereof;
(g) any Credit Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar Law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate, partnership or limited liability company
action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against any Credit Party seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar Law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days; or an
order for relief shall be entered against any Credit Party under the federal
bankruptcy Laws as now or hereafter in effect;
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(i) one (1) or more final judgments or orders for the payment of
money aggregating in excess of $250,000 shall be rendered against any Credit
Party and such judgment or order shall continue unsatisfied or unstayed for
thirty (30) days;
(j) any event occurs with respect to any Plan or Plans pursuant to
which any Credit Party and/or any ERISA Affiliate incur a liability due and
owing at the time of such event, without existing funding therefor, for benefit
payments under such Plan or Plans in excess of $250,000; or (ii) any Credit
Party, any ERISA Affiliate, or any other "party-in-interest" or "disqualified
person," as such terms are defined in section 3(14) of ERISA and section
4975(e)(2) of the Code, shall engage in transactions which in the aggregate
would reasonably result in a direct or indirect liability to any Credit Party or
any ERISA Affiliate in excess of $250,000 under section 409 or 502 of ERISA or
section 4975 of the Code;
(k) this Agreement or any other Loan Paper shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by any Credit Party, or
any Credit Party shall deny that it has any further liability or obligation
under any of the Loan Papers to which it is a party, or any Lien created by the
Loan Papers shall for any reason (other than the release thereof in accordance
with the Loan Papers) cease to be a valid, first priority, perfected Lien upon
any of the Proved Mineral Interests purported to be covered thereby;
(l) a Material Adverse Change shall occur with respect to any Credit
Party;
(m) a Change of Control shall occur;
(n) a default or event of default shall occur under any Subordinate
Note Document; or
(o) Borrower, any Subordinate Noteholder or TCW Agent shall (i)
default in the observance or performance of any obligation to be observed or
performed by such party under any Subordination Agreement, (ii) breach any
representation or warranty made by such party in any Subordination Agreement in
any material respect, or (iii) repudiate any Subordination Agreement or assert
in writing that any Subordination Agreement or any provision thereof is not
valid, binding and enforceable against any such party;
then, and in every such event, Administrative Agent shall without presentment,
notice or demand (unless expressly provided for herein) of any kind (including,
without limitation, notice of intention to accelerate and acceleration), all of
which are hereby waived, (i) if requested by Required Banks, terminate the
Commitments and they shall thereupon terminate, and (ii) if requested by
Required Banks, take such other actions as may be permitted by the Loan Papers
including, declaring the Notes (together with accrued interest thereon) to be,
and the Notes shall thereupon become, immediately due and payable; provided
that, in the case of any of the Events of Default specified in Sections 13.1(g)
or (h), without any notice to any Credit Party or any other act by
Administrative Agent or Banks, the Commitments shall thereupon terminate and the
Notes (together with accrued interest thereon) shall become immediately due and
payable.
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ARTICLE XIV
AGENTS
SECTION 14.1. Appointment, Powers, and Immunities. Each Bank hereby
irrevocably appoints and authorizes each Agent to act as its agent under this
Agreement and the other Loan Papers with such powers and discretion as are
specifically delegated to each such Agent by the terms of this Agreement and the
other Loan Papers, together with such other powers as are reasonably incidental
thereto. No Agent (which term as used in this sentence and in Section 14.5 and
the first sentence of Section 14.6 hereof shall include their Affiliates and
their own and their Affiliates' officers, directors, employees, and agents):
(a) shall have any duties or responsibilities except those expressly set forth
in this Agreement and the other Loan Papers and no Agent shall be a trustee or
fiduciary for any Bank; (b) shall be responsible to Banks for any recital,
statement, representation, or warranty (whether written or oral) made in or in
connection with any Loan Paper or any certificate or other document referred to
or provided for in, or received by any of them under, any Loan Paper, or for the
value, validity, effectiveness, genuineness, enforceability, or sufficiency of
any Loan Paper, or any other document referred to or provided for therein or for
any failure by any Credit Party or any other Person to perform any of its
obligations thereunder; (c) shall be responsible for or have any duty to
ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by any Credit Party or the satisfaction of any condition
or to inspect the property (including the books and records) of any Credit Party
or any of their Subsidiaries or Affiliates; (d) shall be required to initiate or
conduct any litigation or collection proceedings under any Loan Paper; and (e)
shall be responsible for any action taken or omitted to be taken by it under or
in connection with any Loan Paper, except for its own gross negligence or
willful misconduct. Each Agent may employ agents and attorneys-in-fact and
shall not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by any such Agent with reasonable care. Each Bank
hereby authorizes Administrative Agent to execute an Intercreditor Agreement
with TCW Agent and Mariner. Banks identified as either the Syndication Agent or
the Documentation Agent under this Agreement shall not have any right, power,
obligation, liability, responsibility or duty under this Agreement in such
capacity. Each Bank acknowledges that it has not relied, and will not rely, on
any Bank identified as either the Syndication Agent or the Documentation Agent
in deciding to enter into this Agreement or in taking or not taking action
hereunder.
SECTION 14.2. Reliance by Agents. Each Agent shall be entitled to rely
upon any certification, notice, instrument, writing, or other communication
(including, without limitation, any thereof by telephone or telecopy) believed
by it to be genuine and correct and to have been signed, sent or made by or on
behalf of the proper Person or Persons, and upon advice and statements of legal
counsel (including counsel for any Credit Party), independent accountants, and
other experts selected by any such Agent. Each Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof unless and until
Administrative Agent receives and accepts an Assignment and Acceptance Agreement
executed in accordance with Section 15.10 hereof. As to any matters not
expressly provided for by this Agreement, no Agent shall be required to exercise
any discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of Required Banks, and such
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instructions shall be binding on Banks; provided, however, that no Agent shall
be required to take any action that exposes such Agent to personal liability or
that is contrary to any Loan Paper or applicable Law unless it shall first be
indemnified to its satisfaction by Banks against any and all liability and
expense which may be incurred by it by reason of taking any such action.
SECTION 14.3. Defaults. No Agent shall be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless such Agent has
received written notice from a Bank or Borrower specifying such Default or Event
of Default and stating that such notice is a "Notice of Default". In the event
that Administrative Agent receives such a notice of the occurrence of a Default
or Event of Default, Administrative Agent shall give prompt notice thereof to
Banks. Administrative Agent shall (subject to Section 14.2 hereof) take such
action with respect to such Default or Event of Default as shall reasonably be
directed by Required Banks; provided that, unless and until Administrative Agent
shall have received such directions, Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interest of Banks.
SECTION 14.4. Rights as Bank. With respect to its Commitment and the
Loans made by it, Bank of America (and any successor acting as Administrative
Agent) in its capacity as a Bank hereunder shall have the same rights and powers
hereunder as any other Bank and may exercise the same as though it were not
acting as Administrative Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include Administrative Agent in its individual
capacity. Bank of America (and any successor acting as Administrative Agent),
each other Agent and their Affiliates may (without having to account therefor to
any Bank) accept deposits from, lend money to, make investments in, provide
services to, and generally engage in any kind of lending, trust, or other
business with Borrower or any of its Subsidiaries or Affiliates as if it were
not acting as Agent, and Bank of America (and any successor acting as
Administrative Agent), each other Agent and their Affiliates may accept fees and
other consideration from Borrower or any of its Subsidiaries or Affiliates for
services in connection with this Agreement or otherwise without having to
account for the same to Banks.
SECTION 14.5. Indemnification. Banks agree to indemnify each Agent (to
the extent not reimbursed by Borrower or any Subsidiary of Borrower hereof, but
without limiting the obligations of any Credit Party to so reimburse) ratably in
accordance with their respective Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorneys' fees), or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against any such
Agent (including by any Bank) in any way relating to or arising out of any Loan
Paper or the transactions contemplated thereby or any action taken or omitted by
any Agent under any Loan Paper (INCLUDING ANY OF THE FOREGOING ARISING FROM THE
NEGLIGENCE OF ANY AGENT); provided that no Bank shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Person to be indemnified. Without limitation of the
foregoing, each Bank agrees to reimburse each Agent promptly upon demand for its
ratable share of any costs or expenses payable by Borrower hereunder, to the
extent that any such Agent is not promptly reimbursed for such costs and
expenses by Borrower. The agreements contained in this Section 14.5 shall
survive
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payment and performance in full of the Obligations and all other amounts
payable under this Agreement.
SECTION 14.6. Non-Reliance on Agents and Other Banks. Each Bank agrees
that it has, independently and without reliance on any Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of each Credit Party and decision to enter into this
Agreement and that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under the Loan Papers. Except for notices, reports,
and other documents and information expressly required to be furnished to Banks
by Administrative Agent hereunder, no Agent shall have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition, or business of any Credit Party or
their Affiliates that may come into the possession of any such Agent or any of
their Affiliates.
SECTION 14.7. Resignation of Agents. Any Agent may resign at any time
by giving notice thereof to Banks and Borrower. Upon any such resignation,
Required Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by Required Banks and shall have
accepted such appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on behalf of
Banks, appoint a successor Agent which shall be a commercial bank organized
under the Laws of the United States of America having combined capital and
surplus of at least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article XIV shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telecopy or
similar writing) and shall be given, if to Administrative Agent or any Bank, at
its address or telecopier number set forth on Schedule 1 hereto, and if given to
Borrower, at its address or telecopy number set forth on the signature pages
hereof (or in either case, at such other address or telecopy number as such
party may hereafter specify for the purpose by notice to the other parties
hereto). Each such notice, request or other communication shall be effective (a)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section 15.1 and the appropriate answerback is received or
receipt is otherwise confirmed, (b) if given by mail, three (3) Domestic
Business Days after deposit in the mails with first class postage prepaid,
addressed as aforesaid or (c) if given by any other means,
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when delivered at the address specified in this Section 15.1; provided that
notices to Administrative Agent under Article III or IV shall not be effective
until received.
SECTION 15.2. No Waivers. No failure or delay by Administrative Agent
or any Bank in exercising any right, power or privilege hereunder or under any
Note or other Loan Paper shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by Law or in any of the other Loan Papers.
SECTION 15.3. Expenses; Indemnification. (a) Borrower agrees to pay on
demand all reasonable costs and expenses of each Agent in connection with the
syndication, preparation, execution, delivery, modification, and amendment of
this Agreement, the other Loan Papers, and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and expenses of
counsel for Administrative Agent (including the cost of internal counsel) with
respect thereto and with respect to advising Administrative Agent as to its
rights and responsibilities under the Loan Papers. Borrower further agrees to
pay on demand all reasonable costs and expenses of Administrative Agent and
Banks, if any (including, without limitation, reasonable attorneys' fees and
expenses and the cost of internal counsel), in connection with the enforcement
(whether through negotiations, legal proceedings, or otherwise) of the Loan
Papers and the other documents to be delivered hereunder.
(b) Borrower agrees to indemnify and hold harmless each Agent and each Bank
and each of their Affiliates and their respective officers, directors,
employees, agents, and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities, costs, and expenses
(including, without limitation, reasonable attorneys' fees) that may be incurred
by or asserted or awarded against any Indemnified Party, in each case arising
out of or in connection with or by reason of (including, without limitation, in
connection with any investigation, litigation, or proceeding or preparation of
defense in connection therewith) the Loan Papers, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the Loan
(INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE INDEMNIFIED
PARTY), except to the extent such claim, damage, loss, liability, cost, or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 15.3 applies, such indemnity
shall be effective whether or not such investigation, litigation or proceeding
is brought by Borrower, its directors, shareholders or creditors or an
Indemnified Party or any other Person or any Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated. Borrower agrees not to assert any claim against any Agent, any
Bank, any of their Affiliates, or any of their respective directors, officers,
employees, attorneys, agents, and advisers, on any theory of liability, for
special, indirect, consequential, or punitive damages arising out of or
otherwise relating to the Loan Papers, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loan.
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(c) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this Section
15.3 shall survive the payment in full of the Loans and all other amounts
payable under this Agreement.
SECTION 15.4. Right of Set-off; Adjustments. (a) Upon the occurrence
and during the continuance of any Event of Default, each Bank (and each of its
Affiliates) is hereby authorized at any time and from time to time, to the
fullest extent permitted by Law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank (or any of its Affiliates) to
or for the credit or the account of Borrower against any and all of the
Obligations, irrespective of whether such Bank shall have made any demand under
this Agreement or Note held by such and although such obligations may be
unmatured. Each Bank agrees promptly to notify Borrower after any such set-off
and application made by such Bank; provided, however, that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Bank under this Section 15.4 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that such Bank
may have.
(b) If any Bank (a "benefitted Bank") shall at any time receive any payment
of all or part of the Loans owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
or otherwise), in a greater proportion than any such payment to or collateral
received by any other Bank, if any, in respect of such other Bank's Loans owing
to it, or interest thereon, such benefitted Bank shall purchase for cash from
the other Banks a participating interest in such portion of each such other
Bank's Loans owing to it, or shall provide such other Banks with the benefits of
any such collateral, or the proceeds thereof, as shall be necessary to cause
such benefitted Bank to share the excess payment or benefits of such collateral
or proceeds ratably with each other Bank; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefitted Bank, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest.
Borrower agrees that any Bank so purchasing a participation from a Bank pursuant
to this Section 15.4 may, to the fullest extent permitted by Law, exercise all
of its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Person were the direct creditor of Borrower in
the amount of such participation.
SECTION 15.5. Amendments and Waivers. Any provision of this Agreement
or any other Loan Paper may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by Borrower and Required Banks (and, if
Article XIV or the rights or duties of any Agent are affected thereby, by such
Agent); provided that no such amendment or waiver shall, unless signed by each
Bank directly affected thereby, (i) increase the Commitments of Banks, (ii)
reduce the principal of or rate of interest on any Loan or any fees or other
amounts payable hereunder, (iii) postpone any date fixed for the payment of any
scheduled installment of principal of or interest on any Loan or any fees or
other amounts payable hereunder or for termination of any Commitment, (iv)
change the percentage of the Commitments or of the unpaid principal amount of
the Notes, or the number of Banks, which shall be required for Banks or any of
them to take any action under this Section 15.5 or any other provision of this
Agreement, or (v) release any guarantor of the Obligations or all or
substantially all of the collateral securing the Obligations.
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SECTION 15.6. Survival. All representations, warranties and covenants
made by any Credit Party herein or in any certificate or other instrument
delivered by it or in its behalf under the Loan Papers shall be considered to
have been relied upon by Banks and shall survive the delivery to Banks of such
Loan Papers or the extension of the Loan (or any part thereof), regardless of
any investigation made by or on behalf of Banks. The indemnity provided in
Section 15.3(b) herein shall survive the repayment of all credit advances
hereunder and/or the discharge or release of any Lien granted hereunder or in
any other Loan Paper, contract or agreement between Borrower or any other Credit
Party and any Agent or any Bank.
SECTION 15.7. Limitation on Interest. Regardless of any provision
contained in the Loan Papers, Banks shall never be entitled to receive, collect,
or apply, as interest on the Loan, any amount in excess of the Maximum Lawful
Rate, and in the event any Bank ever receives, collects or applies as interest
any such excess, such amount which would be deemed excessive interest shall be
deemed a partial prepayment of principal and treated hereunder as such; and if
the Loan is paid in full, any remaining excess shall promptly be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Lawful Rate, Borrower and Banks shall,
to the extent permitted under applicable Law, (a) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof and (c) amortize, prorate,
allocate and spread, in equal parts, the total amount of the interest throughout
the entire contemplated term of the Notes, so that the interest rate is the
Maximum Lawful Rate throughout the entire term of the Notes; provided, however,
that if the unpaid principal balance thereof is paid and performed in full prior
to the end of the full contemplated term thereof, and if the interest received
for the actual period of existence thereof exceeds the Maximum Lawful Rate,
Banks shall refund to Borrower the amount of such excess and, in such event,
Banks shall not be subject to any penalties provided by any Laws for contracting
for, charging, taking, reserving or receiving interest in excess of the Maximum
Lawful Rate.
SECTION 15.8. Invalid Provisions. If any provision of the Loan Papers
is held to be illegal, invalid, or unenforceable under present or future Laws
effective during the term thereof, such provision shall be fully severable, the
Loan Papers shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of the Loan Papers a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 15.9. Waiver of Consumer Credit Laws. Pursuant to Chapter 346
of the Texas Finance Code, as amended, Borrower agrees that such Chapter 346
shall not govern or in any manner apply to the Loan.
SECTION 15.10. Assignments and Participations. (a) Each Bank may assign
to one or more Eligible Assignees all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
interest in the Loan, its Note, and its Commitment); provided, however, that,
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(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Bank or an
assignment of all of a Bank's rights and obligations under this Agreement, any
such partial assignment shall be in an amount at least equal to $5,000,000 or an
integral multiple of $100,000 in excess thereof;
(iii) each such assignment by a Bank shall be of a constant, and not
varying, percentage of all of its rights and obligations under this Agreement
and its Note; and
(iv) the parties to such assignment shall execute and deliver to
Administrative Agent for its acceptance an Assignment and Acceptance Agreement
(herein so called) in the form of Exhibit I hereto, together with any Notes
subject to such assignment and a processing fee to be paid by the assigning Bank
of $3,500.
Upon execution, delivery, and acceptance of such Assignment and Acceptance
Agreement, the assignee thereunder shall be a party hereto and, to the extent of
such assignment, have the obligations, rights, and benefits of a Bank hereunder
and the assigning Bank shall, to the extent of such assignment, relinquish its
rights and be released from its obligations under this Agreement. Upon the
consummation of any assignment pursuant to this Section 15.10(a), the assignor,
Administrative Agent and Borrower shall make appropriate arrangements so that,
if required, new Notes are issued to the assignor and the assignee. If the
assignee is not incorporated under the Laws of the United States of America or a
state thereof, it shall deliver to Borrower and Administrative Agent
certification as to exemption from deduction or withholding of Taxes in
accordance with Section 5.6.
(b) Administrative Agent shall maintain at its address set forth on
Schedule 1 hereto, a copy of each Assignment and Acceptance Agreement delivered
to and accepted by it and a register for the recordation of the names and
addresses of Banks and the Commitment of, and principal amount of the Loan owing
to, each Bank and the Commitment Percentage of each Bank from time to time (the
"Register"). The entries in the Register shall be conclusive and binding for
all purposes, absent manifest error, and Borrower, Administrative Agent and
Banks may treat each Person whose name is recorded in the Register as a Bank
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by Borrower or any Bank at any reasonable time and from time to
time upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance Agreement executed by
the parties thereto, together with any Notes subject to such assignment and
payment of the processing fee, Administrative Agent shall, if such Assignment
and Acceptance Agreement has been completed and is in substantially the form of
Exhibit I hereto, (i) accept such Assignment and Acceptance Agreement, (ii)
record the information contained therein in the Register, and (iii) give prompt
notice thereof to the parties thereto.
(d) Each Bank may sell participations to one or more Persons in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and its interest in the Loan); provided, however, that
(i) such Bank's obligations under this Agreement shall
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<PAGE>
remain unchanged, (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participant
shall be entitled to the benefit of the yield protection provisions contained in
Article V and the right of set-off contained in Section 15.4, and (iv) Borrower
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement, and such Bank shall
retain the sole right to enforce the obligations of Borrower relating to its
interest in the Loan and its Note and to approve any amendment, modification, or
waiver of any provision of this Agreement (other than amendments, modifications,
or waivers decreasing the amount of principal of or the rate at which interest
is payable on the Loan or the Notes, extending any scheduled principal payment
date or date fixed for the payment of interest on the Loan or the Notes, or
extending its Commitment).
(e) Notwithstanding any other provision set forth in this Agreement, any
Bank may at any time assign and pledge all or any portion of its interest in the
Loan and its Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank. No
such assignment shall release the assigning Bank from its obligations hereunder.
(f) Any Bank may furnish any information concerning Borrower or any of its
Subsidiaries in the possession of such Bank from time to time to assignees and
participants (including prospective assignees and participants).
(g) Borrower shall not assign or transfer any rights or obligations under
any Loan Paper or permit any Credit Party to assign or transfer any rights or
obligations under any Loan Paper without first obtaining all Banks' consent, and
any purported assignment or transfer without all Banks' consent is void.
SECTION 15.11. TEXAS LAW. THIS AGREEMENT, EACH NOTE AND THE OTHER LOAN
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND
THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE LAWS OF
ANY STATE IN WHICH ANY PROPERTY INTENDED AS SECURITY FOR THE OBLIGATIONS IS
LOCATED NECESSARILY GOVERN (A) THE PERFECTION AND PRIORITY OF THE LIENS IN FAVOR
OF ADMINISTRATIVE AGENT AND BANKS WITH RESPECT TO SUCH PROPERTY, AND (B) THE
EXERCISE OF ANY REMEDIES (INCLUDING FORECLOSURE) WITH RESPECT TO SUCH PROPERTY.
SECTION 15.12. Consent to Jurisdiction; Waiver of Immunities. (a)
Borrower hereby irrevocably submits to the jurisdiction of any Texas State or
Federal court sitting in the Northern District of Texas over any action or
proceeding arising out of or relating to this Agreement or any other Loan
Papers, and Borrower hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such Texas State or
Federal court. As an alternative, Borrower irrevocably consents to the service
of any and all process in any such action or proceeding by the mailing of copies
of such process to such Person at its address specified in Section 15.1.
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Borrower agrees that a final judgment on any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by Law.
(b) Nothing in this Section 15.12 shall affect any right of Banks to
serve legal process in any other manner permitted by Law or affect the right of
any Bank to bring any action or proceeding against any Credit Party or their
properties in the courts of any other jurisdictions.
(c) To the extent that Borrower has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, such
Person hereby irrevocably waives such immunity in respect of its obligations
under this Agreement and the other Loan Papers.
SECTION 15.13. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. Subject to the terms and conditions herein set forth, this Agreement
shall become effective when Administrative Agent shall have received
counterparts hereof signed by all of the parties hereto or, in the case of any
Bank as to which an executed counterpart shall not have been received,
Administrative Agent shall have received telegraphic or other written
confirmation from such Bank of execution of a counterpart hereof by such Bank.
SECTION 15.14. No Third Party Beneficiaries. Except for the provisions
hereof inuring to the benefit of Agents not a party to this Agreement, it is
expressly intended that there shall be no third party beneficiaries of the
covenants, agreements, representations or warranties herein contained other than
third party beneficiaries permitted pursuant to Section 15.10.
SECTION 15.15. COMPLETE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG BANKS,
ADMINISTRATIVE AGENT, AND THE CREDIT PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BANKS,
ADMINISTRATIVE AGENT, AND THE CREDIT PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG BANKS, ADMINISTRATIVE AGENT, AND THE CREDIT PARTIES.
SECTION 15.16. WAIVER OF JURY TRIAL. BORROWER, ADMINISTRATIVE AGENT,
AND BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
PAPERS AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 15.17 Confidentiality. Administrative Agent and each Bank
(each, a "Lending Party") agrees to keep confidential any information furnished
or made available to it by Borrower pursuant to this Agreement that is marked
confidential; provided that nothing herein shall prevent any Lending Party from
disclosing such information (a) to any other Lending Party or any Affiliate of
any Lending Party, or any officer, director, employee, agent, or advisor of any
Lending
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Party or Affiliate of any Lending Party, (b) to any other Person if reasonably
incidental to the administration of the credit facility provided herein, (c) as
required by any Law, rule, or regulation, (d) upon the order of any court or
administrative agency, (e) upon the request or demand of any regulatory agency
or authority, (f) that is or becomes available to the public or that is or
becomes available to any Lending Party other than as a result of a disclosure by
any Lending Party prohibited by this Agreement, (g) in connection with any
litigation to which such Lending Party or any of its Affiliates may be a party,
(h) to the extent necessary in connection with the exercise of any remedy under
this Agreement or any other Loan Paper, and (i) subject to provisions
substantially similar to those contained in this Section 15.17, to any actual or
proposed participant or assignee.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective Authorized Officers on the day and year first
above written.
[Signature pages follow]
80
<PAGE>
SIGNATURE PAGE
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND AMONG
QUICKSILVER RESOURCES INC., AS BORROWER,
BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT,
AND
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AS BANKS
BORROWER:
QUICKSILVER RESOURCES INC.,
a Delaware corporation
By: /s/ GLENN DARDEN
-------------------------
Glenn Darden,
President
Address for Notice prior to May 1, 2000:
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attn: Glenn Darden
Fax No. (817) 877-3829
Address for Notice on and after May 1, 2000:
777 West Rosedale Street
Fort Worth, Texas 76104
Attn: Glenn Darden
Fax No. (817) 877-3829
Signature Page
<PAGE>
SIGNATURE PAGE
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND AMONG
QUICKSILVER RESOURCES INC., AS BORROWER,
BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT,
AND
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AS BANKS
ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A.
By: /s/ J. SCOTT FOWLER
------------------------------------
J. Scott Fowler, Managing Director
Signature Page
<PAGE>
SIGNATURE PAGE
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND AMONG
QUICKSILVER RESOURCES INC., AS BORROWER,
BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT,
AND
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AS BANKS
BANKS:
BANK OF AMERICA, N.A.
By: /s/ J. SCOTT FOWLER
------------------------------------
J. Scott Fowler, Managing Director
Signature Page
<PAGE>
SIGNATURE PAGE
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND AMONG
QUICKSILVER RESOURCES INC., AS BORROWER,
BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT,
AND
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AS BANKS
PARIBAS
By: /s/ BRIAN M. MALONE
-----------------------
Name: Brian M. Malone
Title: Director
By: /s/ MICHAEL H. FINZAT
-----------------------
Name: Michael H. Finzat
Title: Vice President
Signature Page
<PAGE>
SIGNATURE PAGE
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND AMONG
QUICKSILVER RESOURCES INC., AS BORROWER,
BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT,
AND
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AS BANKS
MEESPIERSON CAPITAL CORP.
By: /s/ CHRISTOPHER S. PARADA
------------------------------
Christopher S. Parada,
Vice President
By: /s/ DARRELL W. HOLLEY
------------------------------
Name: Darrell W. Holley
Title: Managing Director
Signature Page
<PAGE>
SIGNATURE PAGE
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND AMONG
QUICKSILVER RESOURCES INC., AS BORROWER,
BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT,
AND
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AS BANKS
THE FUJI BANK, LTD.
By: /s/ YOSHIAKI INOUE
-----------------------------------
Name: Yoshiaki Inoue
Title: Senior Vice President & Manager
Signature Page
<PAGE>
SIGNATURE PAGE
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND AMONG
QUICKSILVER RESOURCES INC., AS BORROWER,
BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT,
AND
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AS BANKS
CIBC INC.
By: /s/ M. BETH MILLER
------------------------
Name: M. Beth Miller
Title: Authorized Signatory
Signature Page
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO
------------------
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------------
This First Amendment to Third Amended and Restated Credit Agreement (this
"First Amendment") is entered into effective as the Effective Date (as
hereinafter defined) by and among QUICKSILVER RESOURCES INC., a Delaware
corporation ("Borrower"), BANK OF AMERICA, N.A., a national banking association,
as Administrative Agent ("Administrative Agent") and each of the financial
institutions a party hereto as Banks.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower, Administrative Agent, Bank of America, N.A., Paribas,
MeesPierson Capital Corp., The Fuji Bank, Ltd. and CIBC Inc. (collectively, the
"Banks") are parties to that certain Third Amended and Restated Credit Agreement
dated as of March 31, 2000 (as amended, the "Credit Agreement") (unless
otherwise defined herein, all terms used herein with their initial letter
capitalized shall have the meaning given such terms in the Credit Agreement);
and
WHEREAS, pursuant to the Credit Agreement, the Banks have made a Loan to
Borrower and provided certain other credit accommodations to Borrower; and
WHEREAS, pursuant to the Subordinate Note Agreement, Borrower has issued,
and certain Subordinate Noteholders have purchased, Subordinate Notes; and
WHEREAS, Borrower, TCW Collateral Agent and Subordinate Noteholders desire
to enter into a First Amendment to Note Purchase Agreement (the "Amendment to
Subordinate Note Agreement") pursuant to which the Subordinate Note Agreement
will be amended to, among other things, (i) provide for the issuance by
Borrower, and the purchase by New York Life Insurance Company and New York Life
Insurance and Annuity Corporation (collectively, the "New Purchasers"), of
additional Subordinate Notes (the "Additional Subordinate Notes") in an
aggregate amount of $10,000,000, and (ii) modify the EBITDAX to Consolidated
Fixed Charges ratio (the "Fixed Charge Ratio") contained in Section 9.1(m) of
the Subordinate Note Agreement for the period commencing on the effective date
of the Amendment to Subordinate Note Agreement and ending on the Initial
Amortization Date (as defined in the Subordinate Note Agreement) from its
current level of 1.25 to 1 to an amended level of 2.0 to 1, such Fixed Charge
Ratio to revert to 1.25 to 1 from and after the Initial Amortization Date (the
proposed amendment to the Fixed Charge Ratio being referred to herein as the
"Financial Ratio Amendment"); and
WHEREAS, the issuance by Borrower, and the purchase by the New Purchasers,
of the Additional Subordinate Notes constitutes the "Post-Closing Debt Issuance"
defined in the Credit Agreement; and
WHEREAS, Borrower has requested that (i) the Credit Agreement be amended in
certain respects as set forth herein, and (ii) the Banks consent to the
Financial Ratio Amendment; and
WHEREAS, subject to the terms and conditions herein contained, the Banks
have agreed to Borrower's requests.
<PAGE>
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed,
Borrower, Administrative Agent and the Banks hereby agree as follows:
SECTION 1. Amendments. In reliance on the representations, warranties,
covenants and agreements contained in this First Amendment, and subject to the
satisfaction of the conditions precedent set forth in Section 5 hereof, the
Credit Agreement is hereby amended effective as of April 24, 2000 (which date
shall be the date of the consummation of the Post-Closing Debt Issuance and
shall be referred to herein as the "Effective Date") in the manner provided in
this Section 1.
1.1 Additional Definition. Section 2.1 of the Credit Agreement is
amended to add thereto in alphabetical order the definition of "First Amendment"
which shall read in full as follows:
"First Amendment" means that certain First Amendment to Third
Amended and Restated Credit Agreement dated effective as of April 24, 2000
among Borrower, Administrative Agent and the financial institutions a party
thereto as Banks.
1.2 Amendment to Definitions. The definitions of "Applicable Margin,"
"Letter of Credit Fee" and "Loan Papers" set forth in Section 2.1 of the Credit
Agreement are amended to read in full as follows:
"Applicable Margin" means, on any date, with respect to each Eurodollar
Loan, an amount determined by reference to the ratio of Outstanding Credit to
the Borrowing Base on such date in accordance with the table below:
===========================================================================
Ratio of Outstanding Applicable Margin for
Credit to Borrowing Base Eurodollar Tranches
---------------------------------------------------------------------------
less than or equal to .50 to 1 1.250%
--------------------------------------------------------------------------
greater than .50 to 1 less than or equal to .75 to 1 1.500%
--------------------------------------------------------------------------
greater than .75 to 1 less than or equal to .90 to 1 1.875%
--------------------------------------------------------------------------
greater than .90 to 1 less than or equal to 1 2.250%
==========================================================================
"Letter of Credit Fee" means, with respect to any Letter of Credit issued
hereunder, a fee in an amount equal to a percentage of the stated amount of such
Letter of Credit (calculated on a per annum basis based on the stated term of
such Letter of Credit) determined by reference to the ratio of the Outstanding
Credit to the Borrowing Base in effect on the date such Letter of Credit is
issued in accordance with the table below:
2
<PAGE>
===========================================================================
Ratio of Outstanding Per Annum Letter of
Credit to Borrowing Base Credit Fee
---------------------------------------------------------------------------
less than or equal to .50 to 1 1.250%
--------------------------------------------------------------------------
greater than .50 to 1 less than or equal to .75 to 1 1.500%
--------------------------------------------------------------------------
greater than .75 to 1 less than or equal to .90 to 1 1.875%
--------------------------------------------------------------------------
greater than .90 to 1 less than or equal to 1 2.250%
==========================================================================
"Loan Papers" means this Agreement, the First Amendment, the
Notes, any Subsidiary Guaranty (which may hereafter be executed), all
Mortgages now or at any time hereafter delivered pursuant to Section 7.1,
the Collateral Assignments, any Borrower Pledge Agreement (which may
hereafter be executed), any Subsidiary Pledge Agreement (which may
hereafter be executed), the Subordination Agreements and all other
certificates, documents or instruments delivered in connection with this
Agreement, as the foregoing may be amended from time to time.
1.3 Amendment to Cinnabar Provisions. Section 11.15 of the Credit
Agreement is amended to read in full as follows:
" SECTION 11.15 Cinnabar. In marketing the Hydrocarbons of
Borrower and its Subsidiaries, Cinnabar shall act as their marketing agent,
and Borrower will not, nor will Borrower permit any other Credit Party to,
permit Cinnabar to claim or take title to any Hydrocarbons which Cinnabar
markets on their behalf or to claim or take title to any accounts
receivable resulting from the sale of such Hydrocarbons, and all payments
for the sale of such Hydrocarbons by the purchasers obtained by Cinnabar
shall be made directly to Borrower or to the Subsidiary of Borrower selling
such Hydrocarbons. So long as any guaranty by Borrower of any Cinnabar
Marketing Obligations is in effect, Borrower will not permit Cinnabar to
(a) incur Debt, or (b) grant a Lien on its accounts receivable or other
assets to any Person other than Borrower (provided, that, Cinnabar may
grant such a Lien to any other guarantor of Cinnabar Marketing Obligations
in proportion to the amount guaranteed by such other guarantor)."
1.4 New Schedule 2. The Credit Agreement shall be amended by deleting
the Schedule 2 attached thereto and replacing the same with the Schedule 2
attached to this First Amendment.
SECTION 2. Consent. Subject to and upon the terms and conditions
contained herein, the Banks hereby consent to the Financial Ratio Amendment.
The consent herein contained is limited solely to the Financial Ratio Amendment,
and nothing contained herein shall be deemed a consent to any action other than
the amendment to the Subordinate Note Agreement evidencing the Financial Ratio
Amendment.
SECTION 3. Borrowing Base. Pursuant to, and in accordance with,
Section 6.5 of the Credit Agreement, the Borrowing Base shall (a) reduce
immediately upon the consummation of the Post-Closing Debt Issuance to an amount
equal to $195,000,000, and (b) continue to be $195,000,000 until the next
Redetermination of the Borrowing Base thereafter. If a Borrowing Base
3
<PAGE>
Deficiency exists after giving effect to the Redetermination described in this
Section 3 and required by Section 6.5 of the Credit Agreement, Borrower shall
eliminate such Borrowing Base Deficiency by making a single mandatory prepayment
of principal on the Loan in an amount equal to the entire amount of such
Borrowing Base Deficiency as required by Section 3.4 of the Credit Agreement.
SECTION 4. Mandatory Prepayment. Pursuant to, and in accordance with,
Section 3.5 of the Credit Agreement, immediately upon the consummation of the
Post-Closing Debt Issuance, Borrower shall make a mandatory prepayment in the
amount of $10,000,000 to the principal of the Loan.
SECTION 5. Conditions Precedent. The effectiveness of (a) the
amendments to the Credit Agreement contained in Section 1 hereof, and (b) the
consent by the Banks contained in Section 2 hereof, is subject to the
satisfaction of each of the following conditions precedent.
5.1 Subordinate Note Documents. Administrative Agent shall have
received a copy of the Amendment to Subordinate Note Agreement, together with
each Additional Subordinate Note, each of which shall be accompanied by a
certificate executed by an Authorized Officer of Borrower certifying that such
copies are accurate and complete and represent the complete understanding and
agreement of the parties thereto.
5.2 Fees and Expenses. Borrower shall have paid all reasonable fees
and expenses of counsel to Administrative Agent incurred by Administrative Agent
in connection with the preparation, negotiation and execution of this First
Amendment and all related documents.
5.3 Borrowing Base Deficiency. Borrower shall have eliminated any
Borrower Base Deficiency resulting from the Redetermination described in Section
3 hereof and Section 6.5 of the Credit Agreement as required by Section 3.4 of
the Credit Agreement.
5.4 Mandatory Prepayment. Borrower shall have made the mandatory
prepayment required by Section 4 hereof and Section 3.5 of the Credit Agreement.
SECTION 6. Representations and Warranties of Borrower. To induce the
Banks and Administrative Agent to enter into this First Amendment, Borrower
hereby represents and warrants to Administrative Agent and the Banks as follows:
6.1 Credit Agreement. Each representation and warranty of Borrower
and its Subsidiaries contained in the Credit Agreement and the other Loan Papers
is true and correct on the date thereof.
6.2 Authorization. The execution, delivery and performance by
Borrower of this First Amendment are within Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
filing with, any governmental body, agency or official and do not violate or
constitute a default under any provision of applicable Law or Material Agreement
binding upon Borrower or any of its Subsidiaries or result in the creation or
imposition of any Lien upon any of the assets of Borrower or any of its
Subsidiaries other than the Liens securing the Obligations.
4
<PAGE>
6.3 Binding Effect. This First Amendment constitutes the valid and
binding obligation of Borrower enforceable in accordance with its terms, except
as (a) the enforceability thereof may be limited by bankruptcy, insolvency or
similar Laws affecting creditors rights generally, and (b) the availability of
equitable remedies may be limited by equitable principles of general
application.
6.4 No Defenses. Borrower has no defenses to payment, counterclaim or
rights of set-off with respect to the Obligations existing on the date hereof.
SECTION 7. Miscellaneous.
7.1 Reaffirmation of Loan Papers; Extension of Liens. Any and all of
the terms and provisions of the Credit Agreement and the Loan Papers shall,
except as amended and modified hereby, remain in full force and effect. Borrower
hereby extends the Liens securing the Obligations until the Obligations have
been paid in full or are specifically released by Administrative Agent and the
Banks prior thereto, and agrees that the amendments and modifications herein
contained shall in no manner adversely affect or impair the Obligations or the
Liens securing payment and performance thereof.
7.2 Parties in Interest. All of the terms and provisions of this
First Amendment shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
7.3 Legal Expenses. Borrower hereby agrees to pay on demand all
reasonable fees and expenses of counsel to Administrative Agent incurred by
Administrative Agent; however, no party shall be bound by this First Amendment
until Borrower and Required Banks have executed a counterpart hereof in
connection with the preparation, negotiation and execution of this First
Amendment and all related documents.
7.4 Counterparts. This First Amendment may be executed in
counterparts, and all parties need not execute the same counterpart however, no
party shall be bound by this First Amendment until Borrower and Required Banks
have executed a counterpart hereof. Facsimiles shall be effective as originals.
7.5 Complete Agreement. THIS FIRST AMENDMENT, THE CREDIT AGREEMENT
AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE
PARTIES.
7.6 Headings. The headings, captions and arrangements used in this
First Amendment are, unless specified otherwise, for convenience only and shall
not be deemed to limit, amplify or modify the terms of this First Amendment, nor
affect the meaning thereof.
[Signature Pages Follow]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed by their respective Authorized Officers effective as of the
Effective Date.
BORROWER:
--------
QUICKSILVER RESOURCES INC., a Delaware corporation
By: /s/ Glenn Darden
--------------------------------------------
Glenn Darden, President
ADMINISTRATIVE AGENT:
--------------------
BANK OF AMERICA, N.A.
By: /s/ J. Scott Fowler
--------------------------------------------
J. Scott Fowler,
Managing Director
BANKS:
-----
BANK OF AMERICA, N.A.
By: /s/ J. Scott Fowler
--------------------------------------------
J. Scott Fowler,
Managing Director
PARIBAS
By: /s/ Marian Livingston
--------------------------------------------
Name: MARIAN LIVINGSTON
--------------------------------------------
Title: Vice President
--------------------------------------------
By: /s/ Michael H. Fiuzat
--------------------------------------------
Name: MICHAEL H. FIUZAT
--------------------------------------------
Title: Vice President
--------------------------------------------
<PAGE>
MEESPIERSON CAPITAL CORP.
By: /s/ Christopher S. Parada
--------------------------------------------
Name: CHRISTOPHER S. PARADA
--------------------------------------------
Title: Vice President
--------------------------------------------
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
CIBC INC.
By: /s/ M. Beth Miller
--------------------------------------------
Name: M. BETH MILLER
--------------------------------------------
Title: Authorized Signatory
--------------------------------------------
THE FUJI BANK, LTD.
By: /s/ Yoshiaki Inoue
--------------------------------------------
Name: YOSHIAKI INOUE
--------------------------------------------
Title: SENIOR VICE PRESIDENT & MANAGER
--------------------------------------------
<PAGE>
SCHEDULE 2
INVESTMENTS
1. Borrower:
a. Fifty percent (50%) Equity in Beaver Creek Pipeline, LLC, a Michigan
limited liability company;
b. Fifty percent (50%) Equity in Cinnabar Energy Services and Trading,
LLC, a Michigan limited liability company;
c. One hundred percent (100%) Equity in Terra Energy Ltd., a Michigan
corporation.
2. Terra:
a. One hundred percent (100%) Equity in Energy Acquisition Operating
Corporation, a Michigan corporation;
b. One hundred percent (100%) Equity in Kristen Corporation, a Michigan
corporation;
c. One hundred percent (100%) Equity in Terra Pipeline Company, a
Michigan corporation;
d. Minority Equity interest in each of the following:
State 26 Production Company, Inc.
J.R. Productions, Inc.
Eagle Productions, Inc.
Northwest Operations, Inc.
Phoenix Operating Company, Inc.
Terra-Westside Processing Company Partnership
Terra-Hayes Pipeline General Partnership
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC.
as Seller
and
MARINER GAS LLC
as Buyer
- --------------------------------------------------------------------------------
Dated as of March 31, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I DEFINITIONS................................................... 2
ARTICLE II PURCHASE AND SALE; PURCHASE PRICE............................. 14
2.01 Purchase and Sale; Purchase Price............................. 14
2.02 Effective Date; Allocation of Revenue, Expenses, Taxes, Rights
and Obligations............................................... 14
2.03 Purchase Price Allocation..................................... 15
ARTICLE III REPRESENTATIONS AND WARRANTIES................................ 15
3.01 Representations and Warranties of Seller...................... 15
3.02 Representations and Warranties of Buyer....................... 25
3.03 Disclaimers of Other Representations and Warranties........... 26
ARTICLE IV COVENANTS..................................................... 27
4.01 Covenants of Seller........................................... 27
ARTICLE V CLOSING....................................................... 29
5.01 Date of Closing............................................... 29
5.02 Place of Closing.............................................. 29
5.03 Closing Obligations........................................... 29
5.04 Additional Actions............................................ 31
ARTICLE VI TAX CREDIT MATTERS............................................ 31
6.01 Quarterly Statements.......................................... 31
6.02 Annual Recalculation.......................................... 31
6.03 Change in Law Recalculations.................................. 32
ARTICLE VII CALCULATION OF AGGREGATE TAX CREDITS.......................... 34
7.01 Credit Calculation Representation............................. 34
7.02 Credit Calculation Assumption; Buyer-Assumed Risks............ 34
7.03 Correction of Net Profits Calculation for Tax Loss............ 36
7.04 Buyer's Covenants............................................. 36
7.05 Requirement to Contest........................................ 37
7.06 Control....................................................... 37
7.07 Information................................................... 38
7.08 Settlements................................................... 38
7.09 Waiver........................................................ 38
7.10 Adjustments................................................... 39
i
<PAGE>
ARTICLE VIII OTHER OBLIGATIONS AFTER CLOSING............................... 39
8.01 Sales Taxes and Recording Fees................................ 39
8.02 Indemnification (Other Than For Lost Tax Credits)............. 39
8.03 Further Assurances............................................ 42
8.04 Survival...................................................... 42
8.05 Tax Reporting and Ruling...................................... 42
8.06 Allocation of Unit Production................................. 46
8.07 Preferential Rights; CMS Title Defects;
Corrective Assignments........................................ 46
8.08 Compression Arrangements...................................... 48
ARTICLE IX SELLER'S OPTION TO PURCHASE OIL AND GAS INTERESTS............. 49
9.01 Grant of Seller's Option...................................... 49
9.02 Term of the Seller's Option................................... 49
9.03 Exercise of the Seller's Option............................... 49
9.04 The Seller's Option Purchase Price............................ 50
9.05 Seller's Option Closing Date.................................. 52
9.06 Refund of Unused Abandonment Reserve.......................... 53
9.07 Extension of Option Period.................................... 53
ARTICLE X BUYER'S OPTION TO PURCHASE OIL AND GAS INTERESTS.............. 54
10.01 Grant of Buyer's Option....................................... 54
10.02 Term of the Buyer's Option.................................... 54
10.03 Exercise of the Buyer's Option................................ 55
10.04 The Buyer's Option Purchase Price............................. 55
10.05 Buyer's Option Closing Date................................... 56
10.06 Assignability................................................. 57
10.07 Extension of Option Period.................................... 58
ARTICLE XI ARBITRATION................................................... 58
11.01 Submission to Arbitration..................................... 58
11.02 Initiation of Arbitration and Selection of Arbitrators........ 58
11.03 Arbitration Procedures........................................ 58
11.04 Enforcement................................................... 59
11.05 Fees and Costs................................................ 59
ARTICLE XII MISCELLANEOUS................................................. 59
12.01 Exhibits and Schedules........................................ 59
12.02 Expenses...................................................... 59
12.03 Notices....................................................... 59
12.04 Amendment..................................................... 60
12.05 Assignment.................................................... 60
12.06 Announcements................................................. 61
12.07 Confidentiality............................................... 61
12.08 Headings...................................................... 62
12.09 Counterparts.................................................. 62
ii
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12.10 References.................................................... 62
12.11 Governing Law................................................. 62
12.12 Entire Agreement.............................................. 62
12.13 Mutually Drafted.............................................. 62
12.14 Parties in Interest........................................... 63
12.15 Late Payments................................................. 63
iii
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
Exhibits
--------
Exhibit Description
- ------- -----------
A Interests
B Amended and Restated Assignment of Enforcement Rights
C Non-Foreign Status Certificate
D Opinion of Buyer's Counsel
E-1 Opinion of Seller's Counsel
E-2 Opinion of Seller's Michigan Counsel
F Amended and Restated Fixed Payment Note
G Assignment
H-1 Conveyance of Production Payment
H-2 First Amendment to Conveyance of Production Payment
I CMS Estoppel Certificate
J Form of Cinnabar Gas Sales Contract
Schedules
---------
Schedule Description
- -------- -----------
1.1 Scheduled Amounts
1.2 [Intentionally Omitted]
1.3 Qualified Wells
1.4 Rework Operations
3.01(h)(7) Contested Taxes
3.01(h)(8) Contested Mechanics Liens
3.01(k) Lease Defaults
3.01(l) Material Contracts Requiring Further Action
3.01(m) Unpaid Royalties, Rentals and Other Payments
3.01(n) Preferential Rights
3.01(q) Threatened or Pending Litigation
3.01(w) Marketing, Sales and Transportation Contracts
3.01(x)(i) API Well Numbers
3.01(x)(ii)(A) Wells Affected by IRS Claim
3.01(aa) License Agreements
3.01(cc) Gas Gathering, Compression, Dehydration, Water Disposal,
CO\\2\\Removal, and Gas Marketing
3.01(gg) Persons Taking Gas
5.03(i)(1) Title Opinions
5.03(i)(2) Title Reports
5.03(k) Certificates of Existing Insurance
iv
<PAGE>
8.05(f) Rulings to be Requested
8.08 Compression Contracts
v
<PAGE>
AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT (this "Agreement")
executed this ___ day of May, 2000, to be effective for all purposes as of March
31, 2000, is between QUICKSILVER RESOURCES INC., a Delaware corporation
("Seller"), and MARINER GAS LLC, a Massachusetts limited liability company
("Buyer"). Seller and Buyer are sometimes individually referred to herein as a
"party" or collectively as the "parties."
RECITALS
--------
A. The parties executed and delivered that Purchase and Sale Agreement
dated March 31, 2000 (the "Original Agreement") pursuant to which Seller sold
the Interests (as defined below) to Buyer.
B. The parties desire to correct and clarify certain provisions of the
Original Purchase Agreement and, accordingly, are amending and restating the
Original Purchase Agreement in its entirety as set forth below.
In consideration of the mutual promises contained herein, the benefits to
be derived by each party hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller
hereby amend and restate the Original Purchase Agreement as follows:
ARTICLE I
---------
DEFINITIONS
"AAA" means the American Arbitration Association.
"Adverse Consequences" means all actions, suits, arbitrations,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, reasonable amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses, and fees, including court costs and attorneys',
consultants' and experts' fees and expenses.
"Adverse Tax Bill" means a bill which (i) if enacted would have the
effect of reducing or eliminating the availability to Buyer or any member of
Buyer of Aggregate Tax Credits and (ii) has a reasonable possibility of being
enacted into law, such determination to be made by Buyer using its reasonable
good faith judgment after consultation with Seller and consideration of who is
sponsoring the bill, whether it is being considered by committee, the
disposition of similar bills in prior years and other relevant factors.
2
<PAGE>
"Affiliate" means, with respect to any Person, any other Person which
either directly or indirectly controls, is controlled by, or is under common
control with such Person. For purposes hereof "control" means the right or
power to direct the policies of another through management authority, stock
ownership, delegated authority, voting rights, contract or otherwise.
"Aggregate Discounted CIL Loss" is defined in Section 6.03.
"Aggregate Tax Credits" means, with respect to any Quarterly Period,
the product of (i) the amount of Qualified Production (expressed in MMBtus) and
(ii) the Tax Credit Rate, which amounts will be accurately reflected by Seller
in the Quarterly Statement delivered to Buyer with respect to such Quarterly
Period and which will reflect any Change in Law.
"Allocated Value" is defined in Section 8.02(c).
"Applicable Interest" means, with respect to any payment amount and
period specified in this Agreement, interest on such amount calculated at the
Applicable Rate during such period, expressed as an average daily rate and
compounded monthly.
"Applicable Rate" means, at any time, the lesser of (i) the highest
rate of interest payable on any outstanding loans from Senior Lenders under the
Senior Loan Document (determined as if no Event of Default (as defined in the
Senior Loan Document) has occurred), provided, if there are no loans outstanding
from the Senior Lenders, then the rate under this clause (i) shall be the Prime
Rate; and (ii) the maximum non-usurious rate of interest under applicable law.
"Assignment" means that certain Assignment dated as of the Effective
Date conveying the Interests from Seller to Buyer.
"Assignment of Enforcement Rights" means the Amended and Restated
Assignment of Enforcement Rights between Buyer and Seller substantially in the
form of Exhibit B hereto, which amends and restates in its entirety that
Assignment of Enforcement Rights (the "Original Assignment of Enforcement
Rights") executed and delivered by Buyer and Seller at the Closing.
"BOA" means Bank of America, N.A.
"Buyer-Assumed Risk Event" is defined in Section 7.02.
"Buyer's Exercise Termination Date" is defined in Section 10.04.
"Buyer's Option" is defined in Section 10.01.
"Buyer's Option Closing Date" is defined in Section 10.03.
3
<PAGE>
"Buyer's Option Exercise Date" is defined in Section 10.03.
"Buyer's Option Purchase Price" is defined in Section 10.02.
"Capital Contribution Termination Date" means December 31, 2002, or
such later date through which Qualified Production qualifies for tax credits
under section 29 of the Code as a result of an amendment to or affecting section
29(f) of the Code.
"Carried Claim" is defined in Section 7.05.
"Cash Portion of the Purchase Price" is defined in Section 2.01.
"CERCLA" is defined in Section 3.01(t).
"Change in Law" means any (i) amendment to or repeal of (or the
enactment of legislation affecting) section 29 of the Code (or any renumbered,
successor or replacement provision of the Code) enacted after the Closing Date,
(ii) issuance or amendment of temporary or final regulations, rulings or other
materials under section 29 of the Code by the IRS or the Treasury Department
after the Closing Date, or (iii) administrative or judicial decision after the
Closing Date interpreting a provision of section 29 of the Code, or another
section of the Code the interpretation of which affects the application of
section 29 of the Code, that reduces or eliminates the amount of section 29 tax
credits available to the Buyer or any member of Buyer. A Change in Law shall
not include any of the items described in the preceding sentence if a Final
Determination incorporating such items would be a Buyer-Assumed Risk Event under
Sections 7.02(a)(ii), (iii) or (iv). The adjustments to the Tax Credit Rate for
the Inflation Adjustment Factor, as published from time to time, pursuant to
section 29 of the Code as it exists on the Effective Date, shall not constitute
a Change in Law.
"CIL Effective Date" is defined in Section 6.03.
"CIL Loss" is defined in Section 6.03.
"CIL Rescheduled Amount" is defined in Section 6.03.
"Cinnabar" means Cinnabar Energy Services & Trading LLC, which is
owned 50% by Seller.
"Cinnabar Gas Sales Contract" means that Gas Purchase Agreement dated
effective as of March 31, 2000 between the Buyer, as seller, and Cinnabar, as
purchaser, providing for the purchase of gas produced from the Interests for a
period of five years, in the form of Exhibit J hereto.
"Claim Notice" is defined in Section 8.02(e).
4
<PAGE>
"Closing" is defined in Section 5.01.
"Closing Date" is defined in Section 5.01.
"CMS" means CMS Oil and Gas Company.
"CMS Agreement" means that Purchase and Sale Agreement dated as of
March 4, 2000, between CMS, as seller, and Seller, as buyer.
"CMS Estoppel Certificate" means the Agreement dated March 31, 2000
between CMS and Buyer.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" is defined in Section 12.07.
"Credit Calculation Assumption" is defined in Section 7.02.
"Credit Calculation Representation" is defined in Section 7.01.
"Disallowed Credits" is defined in Section 7.03.
"Effective Date" means 7:00 A.M. Central Standard Time on March 31,
2000.
"Engineering Firm" is defined in Section 9.04(b).
"Environmental Laws" is defined in Section 3.01(t).
"Excess Credit Capital Contribution" is defined in Section 3.2(a) of
the LLC Agreement.
"Excess Credit Contribution Cap" is defined in Section 3.3(a) of the
LLC Agreement.
"Excess Tax Credits" means, with respect to any Quarterly Period, the
amount, if any, by which the Aggregate Tax Credits exceed the Scheduled Amount
for such Quarterly Period.
"FERC" is defined in Section 3.01(x).
"Final Determination" means, with respect to a Tax Claim, (i) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
after all allowable appeals by either party to the action have been exhausted or
after the time for filing such appeals has expired, or (ii)
5
<PAGE>
a settlement agreement binding upon Buyer that is entered into in connection
with an administrative or judicial proceeding following Buyer's receipt of
either (A) Seller's Waiver or (B) a Settlement Acceptance Notice.
"Fixed Payment Note" means that Amended and Restated Fixed Payment
Note made by Buyer to Seller, substantially in the form of Exhibit F, which
amends and restates in its entirety that Fixed Payment Note (the "Original Fixed
Payment Note") executed and delivered by Buyer to Seller at the Closing.
"4/1/2000 Discounted CIL Loss" is defined in Section 6.03.
"Full Production Date" means 7:00 A.M. local time, of the day after
the day on which 183,949,431 Mcf of Gas attributable to the Interests have been
produced and sold after the Effective Date from the Wells.
"Gas" means Devonian shale hydrocarbon gas produced from the Wells
from the Antrim Formation.
"Hazardous Substances" is defined in Section 3.01(t).
"Hydrocarbons" is defined in paragraph (ii) of the definition of
Working Interests.
"Imputed Discount Rate" is defined in Section 6.03.
"Independent Tax Counsel" means (i) in the case of Seller, Cantey &
Hanger, L.L.P., or any other law firm selected by Seller and reasonably
acceptable to Buyer and (ii) in the case of Buyer, Holme Roberts & Owen LLP or
any other law firm selected by Buyer and reasonably acceptable to Seller.
"Infill Wells" means any additional wells located on the Land or
recompletions of wells on the Land (other than recompletions of the Qualified
Wells in the Antrim Formation that produce Qualified Production).
"Inflation Adjustment Factor" means the inflation adjustment factor
published by the IRS pursuant to section 29 d)(2)(B) of the Code.
"Intercreditor Agreement" means the Intercreditor Agreement dated
March 31, 2000 by and among Buyer, BOA, as Agent for the Senior Lenders, and
TCW, as Agent for the Note Purchasers.
"Interests" means all of the following, subject to the Production
Payment:
(i) 99.5% of the Working Interests set forth in Exhibit A,
Part I of II attached hereto, insofar and only insofar as Working Interests
were acquired by
6
<PAGE>
Seller pursuant to that certain Assignment dated March 31, 2000 from CMS
Oil and Gas Company, a Michigan corporation, into Seller;
(ii) 100% of the Working Interests set forth on Exhibit A, Part
II of II attached hereto, insofar and only insofar as such Working
Interests were acquired by Seller pursuant to that certain Assignment dated
March 31, 2000 from Terra Energy Ltd., a Michigan corporation, into Seller;
(iii) the Interests shall not include, and Seller further
reserves and excepts unto itself, the right to receive all oil, gas and
other hydrocarbons that are produced, saved and sold from wells other than
the Wells and Seller shall bear and pay all operating costs and other costs
and expenses attributable to such reserved production;
(iv) the Interests shall not include, and Seller also reserves
the right to use the lateral pipelines downstream of the central processing
facilities for the Wells and Units to the extent there is capacity in
excess of that necessary to transport gas produced from the Wells; and
Seller also reserves any unused second-line or multiple-line rights under
the rights-of-way and easements for such lateral pipelines and any other
pipeline or gas transportation rights necessary to comply with applicable
law;
(v) the Interests shall not include, and Seller also reserves,
the compressors owned by Seller and used to compress gas produced from the
Wells and the lateral pipelines downstream from such compressors to the
point such lateral pipelines connect to a lateral pipeline or other
pipeline owned by a third party; and
(vi) the Buyer's Option.
"IRS" means the Internal Revenue Service.
"Knowledge" shall mean, with respect to any entity, the actual
knowledge of any officer, manager, or member of such entity.
"Land" shall mean all of the land described in Exhibit A or otherwise
included within the boundary of any Unit, limited to the Antrim Formation.
"Late Payment Interest Rate" means the lesser of (i) the Prime Rate
plus three percent and (ii) the maximum non-usurious rate of interest under
applicable law.
"Leases" is defined in paragraph (i) of the definition of Working
Interests.
"Legal Opinion" means a written opinion of Seller's Independent Tax
Counsel addressed to Buyer and meeting customary professional standards relating
to opinions of such type.
7
<PAGE>
"LLC Agreement" means the Mariner Gas LLC Operating Agreement dated
effective as of March 8, 2000, between State Street Bank and Trust Company and
Antrim Corporation, as the members.
"Loss" is defined in Section 8.02(e).
"Lost Scheduled Amount" with respect to any Qualified Well shall be an
amount equal to $20,000,000.00 multiplied by a fraction whose numerator is the
Allocated Value of such Qualified Well and whose denominator is the Allocated
Value of all the Qualified Wells.
"Management Agreement" means that certain Amended and Restated
Management Agreement dated as of the Effective Date between the Manager and
Buyer with respect to the Interests, which amends and restates in its entirety
that Management Agreement (the "Original Management Agreement") executed and
delivered by Buyer and Seller at the Closing.
"Manager" means Quicksilver Resources Inc., a Delaware corporation, or
any successor Manager under the Management Agreement.
"Mariner Mortgage" means that certain Mortgage dated as of the
Effective Date given by Buyer, as mortgagor, to Seller, as mortgagee, covering
the Interests, as amended by that First Amendment to Mortgage dated as of the
Effective Date.
"Mariner Lien Documents" means those lien affidavits, UCC-l's and
other documents requested by Buyer or by Seller to evidence of record the liens
and security interests granted by the Mariner Mortgage and the Quicksilver
Mortgage.
"Mcf" mean 1,000 cubic feet at a temperature of sixty degrees
Fahrenheit (60F) and at a pressure of fourteen and sixty-five one-hundredths
pounds per square inch absolute (14.65 psia).
"MMBtu" means million British thermal units.
"Negative Final Determination" means a Final Determination which
upholds the position of the IRS set forth in a Tax Claim.
"Net Profits" is defined in the PP Document.
"Net Profits Account" is defined in the PP Document.
"Net Revenue Interests" is defined in Section 3.01(i).
"NGPA" is defined in Section 3.01(x).
8
<PAGE>
"NGPA Regulations" is defined in Section 3.01(x).
"No Ruling Notice" is defined in Section 8.5(f).
"Non-Mariner Properties" is defined in Section 8.07(e).
"Non-Qualified Wells" means the Wells other than the Qualified Wells.
"Permitted Encumbrances" is defined in Section 3.01(h).
"Person" means any natural person, association, trust, partnership,
limited liability company, corporation, governmental entity, or other legal
entity.
"Positive Final Determination" means a Final Determination which
rejects the position of the IRS set forth in a Tax Claim.
"PP Document" means that certain Conveyance of Production Payment
dated as of the Effective Date between Buyer, as assignor, and Seller, as
assignee, covering the Interests, as amended by that First Amendment to
Conveyance of Production Payment dated as of the Effective Date.
"PP Partial Release Payment" is defined in Section 10.04(b).
"Prime Rate" means the lesser of (i) the rate of interest charged by
Bank of America, N.A., or its successor, from time to time, as announced by such
bank as its prime or base rate of interest, and (ii) the maximum non-usurious
rate under applicable law.
"Production Payment" means the production payment conveyed by Buyer to
Seller in the PP Document.
"Projected Qualified Production" is defined in Section 6.03.
"Purchase Price" is defined in Section 2.01.
"Qualified Production" means Gas produced and sold from the Qualified
Wells after the Effective Date but if and only if, and only to the extent that,
such Gas constitutes "qualified fuel" under section 29(c)(1)(B)(i) of the Code
to which the credit provided for by section 29(a) of the Code applies. The
amount of Qualified Production with respect to any Quarterly Period shall be
estimated for purposes of delivery of a Quarterly Statement and shall be
subsequently adjusted as provided in Section 6.02.
"Qualified Wells" means the wells listed on Schedule 1.3 hereto.
"Quarterly Period" means a calendar quarter, provided that the first
Quarterly Period shall mean the period from the Effective Date up to and
including June 30,
9
<PAGE>
2000 and the last Quarterly Period shall mean that portion of the calendar
quarter in which the Capital Contribution Termination Date occurs from the
beginning of such calendar quarter up to and including the Capital Contribution
Termination Date.
"Quarterly Scheduled Amount Deficit" is defined in the PP Document.
"Quarterly Statement" is defined in Section 6.01.
"Quicksilver Abandonment Account-PP" is defined in the PP Document.
"Quicksilver Guaranty" means that certain Amended and Restated
Guaranty Agreement of even date from Seller to Buyer guarantying the payment and
performance of 50% of Cinnabar's obligations under the Cinnabar Gas Sales
Contract, which amends and restates in its entirety that Guaranty Agreement (the
"Original Guaranty") executed and delivered by Seller at the Closing.
"Quicksilver Mortgage" means that certain Mortgage dated as of the
Effective Date given by Seller, as mortgagor, to Buyer, as mortgagee, covering
the Production Payment, the Reversionary Interest and Seller's other interests
in the Land, Wells and Units, as amended by that First Amendment to Mortgage
dated as of the Effective Date.
"RCRA" is defined in Section 3.01(t).
"Recalculation Statement" is defined in Section 6.02.
"Reserve Report" means the reserve report prepared by Schlumberger
Holditch-Reservoir Technologies Consulting Services dated March 8, 2000
effective as of April 1, 2000, covering the Interests.
"Reversionary Interest" means 75% of the Interests ((i) excluding
equipment and other tangible Interests disposed of in the ordinary course of
business, and Leases and Units that have expired, been terminated or defeased in
the ordinary course of business or by the Manager under the Management
Agreement, and (ii) including any additions to the equipment and other tangible
property owned by Buyer and located on the Land, appurtenant thereto or used or
obtained in connection therewith or with the production, gathering, treatment,
processing, sale or disposal of Hydrocarbons or water produced therefrom or
attributable thereto), which shall automatically revert to and vest in Seller on
the Full Production Date.
"Rework Operations" means the fracturing and other reworking
operations described on Schedule 1.4 to be undertaken by the Seller, in its
capacity as the Manager under the Management Agreement, after the Effective Date
for the purpose of increasing the volumes of Qualified Production produced from
the subject Qualified Wells.
10
<PAGE>
"Scheduled Amount" means, for each Quarterly Period ending on or
before December 31, 2002, the amount set forth in Schedule 1.1.
"Scheduled Amount Deficit Distributions" is defined in the Management
Agreement.
"Section 7.03 Amount" is defined in Section 7.03.
"Seller's Acknowledgment" is defined in Section 7.05.
"Seller's Exercise Termination Date" is defined in Section 9.02.
"Seller's Interests" is defined in Section 10.01.
"Seller's Option" is defined in Section 9.01.
"Seller's Option Closing Date" is defined in Section 9.02.
"Seller's Option Exercise Date" is defined in Section 9.02.
"Seller's Option Purchase Price" is defined in Section 9.02.
"Seller's Waiver" is defined in Section 7.05.
"Senior Lenders" is defined in Section 3.01(ee).
"Senior Loan Document" is defined in Section 3.01(ee).
"Settlement Acceptance Notice" is defined in Section 7.08.
"Settlement Notice" is defined in Section 7.08.
"Sub-Debt Lenders" is defined in Section 3.01(ff).
"Sub-Debt Note Purchase Agreement" is defined in Section 3.01(ff).
"Tax Claim Notice" is defined in Section 7.04(b).
"Tax Claim" means any claim by the IRS contained in a written
notification to Buyer, but only to the extent such claim (i) proposes to
disallow any portion of the Aggregate Tax Credits claimed by Buyer as set forth
in a Quarterly Statement for a Quarterly Period and (ii) could result in Seller
incurring an obligation to make payment of a Section 7.03 Amount to Buyer under
Section 7.03 hereof if such proposed disallowance were sustained.
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"Tax Credit Rate" means, for any Quarterly Period, the dollar value
per MMBtu of the credit provided for federal income tax purposes under section
29 of the Code for natural gas produced from Devonian shale, taking into account
any Change in Law. For purposes of delivery of a Quarterly Statement, it shall
be assumed that the Inflation Adjustment Factor for the calendar year which
includes such Quarterly Period is equal to 102% of the Inflation Adjustment
Factor applicable to the preceding calendar year. The Tax Credit Rate shall be
subsequently adjusted as provided in Section 6.02.
"Tax Indemnity" means the indemnity provisions of Article VII.
"Tax Loss" shall occur if there is a Final Determination that Buyer
was not entitled to all or any portion of the Aggregate Tax Credits claimed by
Buyer, to the extent such Aggregate Tax Credits were reflected on a Quarterly
Statement.
"Tax Loss Notice" is defined in Section 7.03.
"TCW" means TCW Asset Management Company.
"Terra" is defined in Section 3.01(j).
"Transaction" means the transactions contemplated by this Agreement.
"Transaction Documents" means this Agreement, the Fixed Payment Note,
the Assignment of Enforcement Rights, the Assignment, the PP Document, the
Quicksilver Mortgage, the Mariner Mortgage, Mariner Lien Documents, the
Management Agreement, the Cinnabar Gas Sales Contract, the Quicksilver Guaranty,
and each instrument and document delivered pursuant to this Agreement.
"Treasury Regulations" means the regulations promulgated by the United
States Treasury Department with respect to the Code.
" Trigger Date" is defined in Section 9.02(a).
"Undiscounted CIL Loss" is defined in Section 6.03.
"Units" means the units described in Exhibit A covering the Land,
limited to the Antrim Formation.
"Variables" is defined in Section 8.07(d).
"Wells" means the oil and gas wells described in Exhibit A and all
other oil and gas wells included within any Unit, but excluding Infill Wells.
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"Working Interests" means all of the following:
(i) All of Seller's rights, title and interest in and to the
entire estates created by all leases, and in and to all royalties,
overriding royalty interests, mineral fee interests and other interests,
licenses, permits and other agreements described in Exhibit A, insofar and
only insofar as they cover and relate to the Land (the "Leases"), and the
Units, together with all of Seller's rights, title and interest in and to
the Qualified Wells and the Non-Qualified Wells, all of Seller's other
right, title and interest in and to the Leases, royalties, overriding
royalty interests, mineral fee interests and other interests, Land, Units
and Wells, the property and rights incident thereto, including all rights
in, to and under all agreements, product purchase and sale contracts,
leases, permits, rights-of-way, easements, licenses, farmouts, options and
orders in any way relating thereto, insofar as they relate thereto;
(ii) All of Seller's right, title and interest in and to all of
the personal property, fixtures and improvements, permits, licenses,
approvals, servitudes, rights-of-way, easements, surface leases and other
surface rights (including, but not limited to, any wells, tanks, boilers,
buildings, injection and disposal wells, injection facilities, saltwater
disposal facilities, central processing facilities, metering facilities,
compression facilities, gathering systems, laterals and other appurtenances
and facilities) now or as of the Effective Date on the Land, appurtenant
thereto or used or obtained in connection therewith or with the production,
gathering, treatment, processing, sale or disposal of oil, gas and other
hydrocarbons and non-hydrocarbon gas from the Wells (including, without
limitation, carbon dioxide) (collectively, "Hydrocarbons") or water
produced therefrom or attributable thereto; and all other appurtenances
thereunto belonging insofar and only insofar as the same relate to the
Wells and Seller's Net Revenue Interest for each Unit arising from Seller's
interests in the Wells within each such Unit, the operation thereof and the
production, gathering, treatment, processing, sale or disposal of
Hydrocarbons therefrom;
(iii) All of Seller's right, title and interest, to the extent
transferable, in and to all existing and effective unitization, pooling and
communitization agreements, declarations and orders, and the properties
covered thereby and the production of Hydrocarbons attributable to said
properties and interests after the Effective Date, insofar and only insofar
as the same arise from the interests of Seller described in paragraphs (i)
or (ii) above; and
(iv) All of Seller's right, title and interest, to the extent
transferable, in and to existing and effective oil, gas (including carbon
dioxide), liquids, condensate, casinghead gas and gas sales, purchase,
exchange, gathering, transportation and processing contracts, operating
agreements, balancing agreements, joint venture agreements, partnership
agreements, farmout agreements and other contracts, agreements and
instruments, insofar and only insofar as they
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relate to any of the properties and interests of Seller described in
paragraphs (i), (ii), or (iii) above.
ARTICLE II
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PURCHASE AND SALE; PURCHASE PRICE
2.01 Purchase and Sale; Purchase Price. Seller agrees to sell and
convey and Buyer agrees to purchase and pay for the Interests, subject to the
terms and conditions of this Agreement. The purchase price for the Interests
(the "Purchase Price") shall be: (i) cash in the amount of $25,000,000.00 to the
Seller (the "Cash Portion of the Purchase Price"), which is being paid in
immediately available funds at the Closing to CMS on behalf of Seller, (ii) the
Production Payment burdening the Interests, which is being conveyed by Buyer to
Seller in the PP Document and (iii) amounts payable to Seller pursuant to the
Fixed Payment Note.
2.02 Effective Date; Allocation of Revenue, Expenses, Taxes, Rights
and Obligations. The effective date of the conveyance of the Interests for
purposes of allocating revenue, expenses and taxes in regard to the Interests,
shall be the Effective Date. Buyer shall be entitled to revenue from operations
and the sale of Hydrocarbons produced from or attributable to the Interests on
or after the Effective Date, and Buyer shall pay for expenses relating to such
production. Seller shall be entitled to revenue from operations and the sale of
Hydrocarbons produced from or attributable to the Interests before the Effective
Date, and shall pay expenses relating to such production. Taxes relating to the
Interests, including ad valorem, property, production, severance and other taxes
(other than income taxes) shall be allocated in the same manner as other
expenses, with taxes that are measured by or relate to production being treated
as expenses in connection with such production regardless of the period for
which such taxes are assessed.
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2.03 Purchase Price Allocation. Seller and Buyer shall cooperate in
the preparation of Internal Revenue Service Form 8594, including all required
amendments thereto, in accordance with section 1060 of the Code and the Treasury
Regulations promulgated thereunder, to report the allocation of the Purchase
Price among the Interests.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) Seller has all requisite corporate power and authority to
carry on its business as presently conducted, to enter into the Transaction
Documents, and to perform its obligations under the Transaction Documents.
The consummation of the transactions contemplated by the Transaction
Documents will not violate, nor be in conflict with, any provision of
Seller's articles or certificate of incorporation, bylaws or other
governing documents, or any agreement or instrument to which Seller is a
party or is bound, or any judgment, decree, order, statute, rule or
regulation applicable to Seller.
(c) The execution, delivery and performance of the Transaction
Documents and the transactions contemplated hereby and thereby have been
duly and validly authorized by all requisite corporate action on the part
of Seller.
(d) This Agreement has been duly executed and delivered on
behalf of Seller, and at the Closing all of the Transaction Documents and
all other documents and instruments required hereunder and thereunder to be
executed and delivered by Seller shall have been duly executed and
delivered. This Agreement does, and the other Transaction Documents and
such other documents and instruments shall, constitute legal, valid and
binding obligations of Seller enforceable in accordance with their terms,
subject, however, to the effects of bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect, as well as to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(e) Seller has delivered to Buyer, its audited financial
statements dated as of December 31, 1998 and December 31, 1999 and the
related statements of operations for the fiscal periods then ended audited
by Deloitte & Touche LLP. Seller will deliver like financial statements for
each calendar year to Buyer within 90 days after the end of such calendar
year. Such financial statements do and will
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fairly present in accordance with generally accepted accounting principles
applied on a consistent basis except as disclosed in the notes thereto, the
financial position of Seller at the date and for the period therein set
forth. Since December 31, 1999 there has been no material adverse change in
the financial condition of Seller, and there has been no occurrence or
other event or condition that might reasonably be expected to result in
such a material adverse effect after the date hereof, other than economic
trends affecting the oil and gas industry generally.
(f) Seller has incurred no liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions contemplated by
the Transaction Documents for which Buyer shall have any responsibility
whatsoever.
(g) Seller is not a foreign person (as that term is defined in
section 1445 of the Code and the rules and regulations promulgated
thereunder).
(h) Except as specifically set forth in Exhibit A and except for
Permitted Encumbrances (as defined below), Seller has good and defensible
title to the Interests, free and clear of all liens, encumbrances, burdens,
claims and defects of title of any kind.
"Permitted Encumbrances" as used herein shall mean the following:
(1) the burdens, encumbrances and obligations created by or
arising under the Leases and the agreements set forth in Exhibit A, and
overriding royalty interests, back-in rights and other burdens taken into
account in computing the "Net Revenue Interests" set forth in Exhibit A;
(2) the Production Payment, the Reversionary Interest, the
Seller's Option and the Buyer's Option;
(3) all rights to consent by, required notices to, filings
with, or other actions by governmental entities in connection with the sale
or conveyance of the Interests if the same are customarily obtained
subsequent to such sale or conveyance and there is no reason to believe
that such consents or actions will not be obtained or taken in due course;
(4) rights of reassignment upon surrender of the Leases
held by Seller's predecessors in interest;
(5) easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface use, so long as the existing
locations of the Wells and other facilities and the continued use thereof
in the same manner as they have been historically used are not in conflict
with the foregoing;
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(6) rights and regulatory powers reserved to or vested in
any municipality or governmental, statutory or public authority;
(7) liens for taxes, fees, claims, charges, assessments,
government charges or levies not yet due, or which are being contested in
good faith and by appropriate proceedings and for which adequate reserves
have been established in the event that such contests are unsuccessful
(which contested matters and reserves are described in Schedule
3.01(h)(7));
(8) mechanics', materialmen's, operators' or other like
liens arising in the ordinary course of business which are not yet due, or
which are being contested in good faith and by appropriate proceedings and
for which there is no material risk of forfeiture or loss of any of the
Interests (which contested matters are described in Schedule 3.01(h)(8));
(9) rights to require the removal of lands or leases from
unitization agreements or pooling provisions, or the units created thereby,
insofar as and to the extent that such rights or the exercise of such
rights do not cause the Working Interests (as defined below) to exceed or
the Net Revenue Interests (as defined below) to be less than the amount
represented and warranted by Seller in Section 3.01(i) as set forth on
Exhibit A as to any Unit;
(10) division orders and sales contracts terminable without
penalty upon no more than 30 days notice to the purchaser;
(11) liens created by law for royalty or for compliance with
the terms of the Leases; and
(12) terms and provisions of the operating agreements and
other agreements described on Exhibit A.
(i) The Interests, without regard to the Production Payment,
entitle Seller to receive not less than 99.5% of the undivided interests
set forth in Exhibit A as "Net Revenue Interests" of all Hydrocarbons
produced, saved and sold from or attributable to the Land and the Wells or
Units through the plugging, abandonment and salvage of the Wells within the
Units respectively. Seller's obligation with respect to the Interests, to
bear costs and expenses relating to the development of and operations on
the Leases, Land and Wells thereon or attributable thereto is not, and,
through the plugging, abandonment and salvage of such wells, shall not be,
greater than 99.5% of the "Working Interests" set forth in Exhibit A,
except for obligations under operating agreements to bear a proportionate
share of any operating costs payable by co-owners who fail to pay their
share of operating costs.
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(j) Immediately prior to Seller's acquisition of the Interests
from CMS Oil and Gas Company ("CMS") and Terra Energy Ltd. ("Terra"), CMS
and Terra were, to Seller's Knowledge, receiving from all purchasers of
production from the Interests not less than the "Net Revenue Interests" set
forth in Exhibit A without any material portion being held in suspense or
any indemnity other than the normal division order warranty of title.
Immediately prior to Seller's acquisition of the Interests from CMS and
Terra, CMS and Terra were, to Seller's Knowledge, paying for the
development and operation of the Interests not more than the "Working
Interests" set forth in Exhibit A, and Seller is current for all costs and
expenses pertaining to the development and operation of the Interests.
(k) The Leases are in full force and effect, are valid and
subsisting, and except for the matters described in Schedule 3.01(k),
neither Terra, CMS, or Seller has been notified by any lessor under any
Lease or by any other party of a material default under any Lease that has
not been resolved or of any requirements or demands to drill additional
wells on any of the Land. The Leases cover the Antrim Formation and entitle
the owner(s) thereof to all Gas produced from the Wells, subject to
existing royalties and overriding royalty interests and subject to the unit
agreements for the Units described in Exhibit A.
(l) Neither Seller, CMS nor Terra is in default in any material
respect under any contract or agreement pertaining to the Interests except
for those alleged defaults described in Schedule 3.01(k), and, except as
specifically indicated in Schedule 3.01(l), there are no contracts or other
agreements, other than existing operating agreements, pertaining to the
Interests which require any further capital expenditures on the part of
Seller or require Seller to perform any material obligations thereunder in
order to earn, maintain or retain the Interests.
(m) Except for the matters described in Schedule 3.01(m), all
royalties, rentals and other payments that have become due and payable
under the Leases have been properly and timely paid, and all conditions
necessary to keep the Leases in force have been performed.
(n) Schedule 3.01(n) sets forth the preferential rights to
purchase all or any portion of the Interests that have been identified by
Seller through the date of this Agreement that have not been waived with
respect to the transactions contemplated herein. All consents or waivers
identified by Seller through the date of this Agreement necessary to convey
the Interests pursuant to this Agreement have been obtained, except the
consent of the Director of the Michigan Department of Natural Resources as
to the Leases granted by the State of Michigan (and Seller has no reason to
believe that such consent will not be obtained). Seller has given the
holders of the preferential rights described in Schedule 3.01(n) notice of
the Transaction as required by such rights.
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(o) There are no gas imbalances existing as of the Effective
Date. Neither Seller, CMS nor Terra is obligated, by virtue of a prepayment
arrangement, a "take or pay" arrangement, a production payment or any other
arrangement, to deliver Hydrocarbons produced from the Interests at some
future time without then or thereafter receiving full payment therefor. The
production from the Wells has not been prorated by the Michigan Public
Service Commission.
(p) All ad valorem, property, production, severance, net
profits, excise and similar taxes and assessments based on or measured by
the ownership of property or the production of Hydrocarbons or the receipt
of proceeds therefrom on the Interests that have become due and payable
have been properly and timely paid.
(q) Except as set forth in Schedule 3.01(q), no suit, action or
other proceeding is pending or, to the Knowledge of Seller, threatened
before any court or governmental agency that, if resolved adversely to
Seller, would have a material adverse effect on the Interests.
(r) All laws, rules, regulations, ordinances and orders of all
local, state and federal governmental bodies, authorities and agencies
having jurisdiction over the Interests have been complied with in all
material respects.
(s) All necessary and material plans for development,
applications, inspection reports, certificates and other instruments
pertaining to operational and environmental matters have been filed with
the appropriate local, state and federal governmental bodies, authorities
and agencies and all permits necessary for the legal operation of the
Interests in material compliance with all laws, rules, regulations,
ordinances and orders, including without limitation Environmental Laws (as
hereinafter defined, and as such laws are in effect and consistently
enforced as of the Closing Date), have been obtained, and the Interests are
in material compliance with all such laws, rules, regulations, ordinances
and orders. Seller is qualified to hold interests in those Leases issued by
the State of Michigan.
(t) (i) To Seller's Knowledge, at all times during CMS's or
Terra's ownership or operation of the Interests, the Interests have been
operated in material compliance with all applicable Environmental Laws (as
such laws are in effect and consistently enforced as of the Closing Date),
and no conditions exist that would subject Seller, CMS, Terra or Buyer to
any material damages (including, without limitation, actual, consequential,
exemplary or punitive damages), penalties, injunctive relief or cleanup
costs under any Environmental Laws (as such laws are in effect and
consistently enforced as of the Closing Date), or that require or are
likely to require material cleanup, removal, remedial action or other
response by Seller, CMS, Terra or Buyer pursuant to Environmental Laws (as
such laws are in effect and consistently enforced as of the Closing Date).
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(ii) With respect to the Interests, neither Seller, CMS
nor Terra is a party to any litigation or administrative proceeding, nor,
to Seller's Knowledge, is any litigation or administrative proceeding
threatened against Seller, CMS, Terra or the Interests, which asserts or
alleges that Seller, CMS, Terra or any of their predecessors violated or is
violating Environmental Laws (as such laws are in effect and consistently
enforced as of the Closing Date) or that Seller, CMS or Terra is required
to undertake any material clean up, removal or remedial or other responsive
action due to the use, storage, treatment, disposal, discharge, leaking or
release of any Hazardous Substances (as hereinafter defined). Neither
Seller, CMS, Terra, nor to Seller's Knowledge, any of their predecessors,
or any part of the Interests is subject to any judgment, decree, order or
citation related to or arising out of Environmental Laws (as such laws are
in effect and consistently enforced as of the Closing Date relating to or
affecting the Interests), and, to Seller's Knowledge, neither Seller, CMS,
nor Terra has been named or listed as a "potentially responsible party"
under CERCLA (as defined below) with respect to the Interests. To Seller's
Knowledge, there are no underground storage tanks located on or in the
Interests.
(iii) As used herein, the term "Environmental Laws" shall
mean any and all present and future laws (whether common or statutory),
compacts, treaties, conventions, rules, regulations, orders, decrees,
judgments, injunctions, promulgated or entered under such laws by any
federal, state or local governmental entity relating to public or employee
health and safety, pollution or protection of the environment, including
without limitation, common law claims and theories of liability in
negligence, trespass, nuisance, or any other common law theory, the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended by the Superfund Amendment and Reauthorization Act and otherwise
("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), the
Federal Safe Drinking Water Act, the Federal Water Pollution Control Act,
the Emergency Planning and Community Right-to-Know Act, the Clean Air Act,
the Oil Pollution Act, and any and all other federal, state, and local
laws, rules, regulations and orders relating to reclamation of land,
wetlands and waterways or relating to use, storage, emissions, discharges,
cleanup, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or Hazardous Substances (as hereinafter
defined) on or into the workplace or the environment (including without
limitation, ambient air, oceans, waterways, wetlands, surface water, ground
water (tributary and non-tributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation or handling of pollutants,
contaminants, chemicals, or industrial, toxic, hazardous or similar
substances, as all of the foregoing may be amended, supplemented and
reauthorized from time to time.
(iv) As used herein, the term "Hazardous Substances"
shall mean any and all (1) "hazardous substances," as defined by CERCLA;
(2) "solid wastes" and "hazardous wastes," as defined by RCRA; (3) any
pollutant, contaminant or hazardous, dangerous or toxic chemicals,
materials or substances within the meaning
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of any Environmental Law; (4) any radioactive material, including any
source, special nuclear or by-product material as defined at 42 U.S.C. (S)
2011 et seq., as amended, or any naturally occurring radioactive materials;
(5) asbestos in any form or condition; and (6) petroleum and petroleum
products.
(v) As used herein, the term "release" shall have the
meaning specified in CERCLA, and the term "disposal" or "disposed" shall
have the meaning specified in RCRA.
In the event CERCLA, RCRA or any other applicable Environmental
Law is amended so as to broaden the meaning of any terms defined thereby,
such broader meaning shall apply subsequent to the effective date of such
amendment; and to the extent that applicable state or local laws establish
a meaning for "hazardous substance," "release," "solid waste," "hazardous
wastes," or "disposal" that is broader than that specified in either CERCLA
or RCRA, such broader meaning shall apply.
(u) [Intentionally Omitted.]
(v) No portion of the Interests (1) has been contributed to and
is currently owned by a tax partnership; (2) is subject to any form of
agreement (whether formal or informal, written or oral) deemed by any
federal tax statute, rule or regulation to be or to have created a tax
partnership; or (3) otherwise constitutes "partnership property" (as that
term is used throughout Subchapter K of Chapter 1 of Subtitle A of the
Code) of a tax partnership. For purposes of this Section 3.01(v) a "tax
partnership" is any entity, organization or group deemed to be a
partnership within the meaning of section 761 of the Code or any similar
federal statute, rule or regulation, and that is not excluded from the
application of the partnership provisions of Subchapter K of Chapter 1 of
Subtitle A of the Code by reasons of elections made, pursuant to section
761(a) of the Code and all such similar federal statutes, rules and
regulations, to be excluded from the application of all such partnership
provisions.
(w) Other than the Cinnabar Gas Sales Contract, arrangements for
sales of gas to third parties for providing compression services on or near
the Units, and the gathering, transporting, processing contracts set forth
in Schedule 3.01(w), no Hydrocarbons produced from the Interests are
subject to a sales contract or other agreement relating to the production,
gathering, transporting, processing, treating or marketing of Hydrocarbons,
and no Person has any call upon or option to purchase the Interests or the
production therefrom.
(x) (i) Schedule 3.01(x)(i) sets forth the correct API
identification number for each Well. The Reserve Report accurately
reflects the total number of producing Wells in each Unit. All applications
for well determinations for each Qualified Well have been filed with the
applicable state and federal agencies under
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the Natural Gas Policy Act of 1978, as amended (the "NGPA") and the rules
and regulations of the Federal Energy Regulatory Commission (the "FERC")
under such act (the "NGPA Regulations") requesting a determination that all
of the gas produced from each Qualified Well is produced from "Devonian
shale." Each such application has been approved by the applicable state
agency and by the FERC and has been finally approved under and in
accordance with Section 503 of the NGPA (as evidenced by appropriate FERC
certification). Such applications comply with the requirements of the NGPA
and the NGPA Regulations. True and correct copies of such certifications
have been furnished to Buyer. No further applications are required under
the NGPA and the NGPA Regulations to allow the legal sale of all Gas
produced from the Interests at a price equal to the price for such Gas
currently being received. No production from the Interests qualifies for
incentive prices under section 107 or the deregulation provisions of the
NGPA or Subtitle 13 of title I of the NGPA.
(ii) (A) Each Qualified Well was drilled (within the
meaning of section 29(f) of the Code) after
December 31, 1979 and prior to January 1, 1993,
and was completed as a well capable of
producing from the formation described in
Section 3.01(x)(iii); (provided that the
parties recognize that the IRS has claimed that
the Wells described in Schedule 3.01(x)(ii)(A)
were not drilled within such time period and
the parties agree that no Aggregate Tax Credits
attributable to production from such Wells
shall be included in Aggregate Tax Credits, or
reflected as such on any Quarterly Statement or
Recalculation Statement, until such time as
such IRS claim has been resolved and is finally
determined not to be correct).
(B) All gas (except carbon dioxide) produced from
each Qualified Well is a "qualified fuel" under
section 29(c) of the Code.
(iii) The Qualified Wells are perforated only in the
Antrim Formation and the gas produced from each Qualified Well is not
commingled with any gas from that well that is not produced from such
formation.
(iv) Prior to January 1, 1980, there was no production of
coal seam, Devonian shale, geopressured brine or tight formation gas in
marketable quantities from the "property" (as used in section 29 of the
Code) on which any Qualified Well is located.
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(v) No oil or gas produced from the Qualified Wells
qualifies or has qualified for the enhanced oil recovery credit or any
other credit under section 43 of the Code and none has been claimed or
taken on such oil or gas.
(vi) No credits referred to in section 29(b)(4) of the
Code have been claimed with respect to property used in connection with the
Interests.
(vii) No grants have been provided by the United States, a
State or a political subdivision of a State "for use in connection with any
project" (within the meaning of section 29(b)(3)(A)(i)(I) of the Code) that
includes any of the Interests.
(viii) No proceeds of any issue of State or local
government obligations has been "used to provide financing for any project"
(within the meaning of section 29(b)(3)(A)(i)(II) of the Code) that
includes any of the Interests.
(ix) No "subsidized energy financing" (within the meaning
of section 48(a)(4)(c) of the Code) has been "provided in connection with
any project" (within the meaning of section 29(b)(3)(A)(i)(III) of the
Code) that includes any of the Interests.
(x) All Gas produced from the Qualified Wells during any
Quarterly Period will constitute Qualified Production.
(y) All of the factual information furnished by Seller to Buyer
in writing in connection with the Transaction, and all factual information
furnished in writing to Schlumberger Holditch - Reservoir Technologies
Consulting Services in connection with its preparation of the Reserve
Report, do not (1) contain any untrue statement of material fact or (2)
omit any statement of material fact necessary to make the statements
therein not misleading.
(z) Seller has had the opportunity to consult with its own
attorneys, accountants, and other consultants regarding the business, tax,
and legal merits of executing this Agreement and consummating the
transactions contemplated herein.
(aa) Except for the rights of the licensors under the license
agreements described in Schedule 3.01(aa), no third party intellectual
property rights exist, including without limitation patents, patent
applications and trade secrets, which would be infringed, interfered with
or otherwise violated by consummation of the transactions contemplated in
this Agreement or by Buyer's ownership and continued operation of the
Interests, in each case where such infringement, interference or violation
would have a material adverse impact on any portion of the Interests.
(bb) None of the operations set forth on Schedule 1.4 will cause
any gas produced and sold from the reworked Qualified Well not to be
Qualified Production. The capital expenditures set forth in Schedule 1.4
are sufficient to conduct the
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Rework Operations and Seller reasonably believes that the Rework Operations
will be adequate to achieve the increased production anticipated in the
preparation of the Reserve Report. Seller has ongoing business
relationships with reputable service companies which have available
adequate crews and equipment to perform the Rework Operations on or before
the schedule set forth in Schedule 1.4.
(cc) Schedule 3.01(cc) accurately summarizes the gas gathering,
processing, treatment, CO\\2\\ removal, water disposal, marketing, and
points of sale relating to Gas produced from the Interests.
(dd) The representations and warranties made by Seller to CMS in
the CMS Agreement were true and correct when made and would be true and
correct if restated and made as of the Effective Date, all conditions
precedent to the CMS Agreement have been satisfied, the closing under the
CMS Agreement has occurred and Seller has the right to record the
assignment from CMS to Seller of that portion of the Interests owned by
CMS.
(ee) The representations and warranties made by Seller to the
Senior Lenders (as defined below) in that certain Third Amended and
Restated Credit Agreement (the "Senior Loan Document") dated as of March
31, 2000 among Quicksilver Resources Inc., as borrower, and Bank of
America, N.A., as Administrative Agent, and the financial institutions
listed on Schedule 1 thereto, as Banks (the "Senior Lenders") were true and
correct when made and would be true and correct if restated and made as of
the Effective Date, and all conditions precedent under the Senior Loan
Document to the advances necessary to fund the purchase price payable to
CMS under the CMS Agreement have been satisfied.
(ff) The representations and warranties made by Seller to the
Sub-Debt Lenders (as defined below) in that certain Note Purchase Agreement
(the "Sub-Debt Note Purchase Agreement") dated March 31, 2000 among
Quicksilver Resources Inc. and TCW, as Agent for the Note Purchasers, and
Life Insurance Company of Georgia, et al., as Note Purchasers (the "Sub-
Debt Lenders"), were true and correct when made and would be true and
correct if restated and made as of the Effective Date, and all conditions
precedent under the Sub-Debt Note Purchase Agreement to the advances
necessary to fund the purchase price payable to CMS under the CMS Agreement
have been satisfied.
(gg) Except as set forth on Schedule 3.01(gg), no landowners,
lessors, or royalty owners have taken, or currently take gas produced from
any of the Wells in kind, and any such Person listed on Schedule 3.01(gg)
is covered by Seller's insurance policies represented by the Certificates
of Insurance listed in Schedule 5.03(k).
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3.02 Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
(a) Buyer is a limited liability company duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts.
(b) Buyer has all requisite limited liability company power and
authority to carry on its business as presently conducted, to enter into
the Transaction Documents, to purchase the Interests on the terms described
in this Agreement and to perform its other obligations under the
Transaction Documents. The consummation of the transactions contemplated by
the Transaction Documents will not violate, nor be in conflict with, any
provision of Buyer's limited liability company operating agreement, other
governing documents, or any agreement or instrument to which Buyer is a
party or is bound, or any judgment, decree, order, statute, rule or
regulation applicable to Buyer.
(c) The execution, delivery and performance of the Transaction
Documents and the transactions contemplated hereby and thereby have been
duly and validly authorized by all requisite limited liability company
action on the part of Buyer.
(d) This Agreement has been duly executed and delivered on
behalf of Buyer, and at the Closing the Transaction Documents and all other
documents and instruments required hereunder and thereunder to be executed
and delivered by Buyer shall have been duly executed and delivered. This
Agreement and the other Transaction Documents do, and such documents and
instruments shall, constitute legal, valid and binding obligations of Buyer
enforceable in accordance with their terms, subject, however, to the
effects of bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect, as well as to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(e) Buyer has incurred no liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions contemplated by
the Transaction Documents for which Seller shall have any responsibility
whatsoever.
(f) Buyer is qualified to hold interests in those Leases issued
by the State of Michigan.
(g) Buyer is acquiring the Interests for its own account and not
with a view to, or for resale in connection with, any distribution or
public offering. Buyer is an "accredited investor," as defined in Rule 501
of Regulation D under the Securities Act of 1933, as amended. Buyer has
such knowledge and experience in financial and business matters (including
oil and gas investments) that it is capable of evaluating the merits and
risks of acquiring the Interests and of making an informed
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investment decision and is able to bear the economic risk of such
investment. Buyer is familiar with the Interests and has been provided
with, or had access to, such information that it deems necessary to, or
useful in, its evaluation of the merits and risks of an investment in the
Interests and the making of an informed investment decision. Buyer has been
afforded the opportunity to ask questions of Seller concerning the
Interests, and all such questions have been answered to the satisfaction of
Buyer. In addition, Buyer has had the opportunity to consult with its own
attorneys, accountants, and other consultants regarding the business, tax,
and legal merits of acquiring the Interests.
3.03 Disclaimers of Other Representations and Warranties.
(a) The representations and warranties in this Agreement
constitute the only representations and warranties that are being made by
Seller and Buyer in connection with the transactions contemplated hereby,
and all other representations and warranties are expressly disclaimed and
negated. Each party acknowledges that, in making its decision to enter into
this Agreement and consummate such transactions, it has relied solely on
the basis of its own independent investigation and upon the express
representations and warranties of the other party set forth in this Article
III.
(b) Without limiting the generality of Section 3.03(a), SELLER
HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY,
EXPRESSED (ORALLY OR IN WRITING), IMPLIED, AT THE COMMON LAW, BY STATUTE,
OR OTHERWISE, RELATING TO (i) THE CONDITION OF THE INTERESTS (INCLUDING ANY
IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS) OR (ii) ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO BUYER
BY OR ON BEHALF OF SELLER (INCLUDING WITH RESPECT TO GEOLOGICAL,
GEOPHYSICAL AND SEISMIC DATA, THE EXISTENCE OR EXTENT OF HYDROCARBON
RESERVES, THE RECOVERABILITY OF (OR THE COST OF RECOVERING) ANY SUCH
RESERVES, THE VALUE OF SUCH RESERVES, ANY PRODUCT PRICING ASSUMPTIONS, OR
THE ABILITY TO SELL HYDROCARBON PRODUCTION AFTER CLOSING; IT BEING AGREED
BY BUYER THAT IT IS ACQUIRING THE INTERESTS "AS-IS," "WHERE-IS," WITH ALL
FAULTS; provided, however, that the foregoing disclaimer and negation of
representations and warranties shall not affect or impair the express
representations, warranties, and indemnities of Seller set forth in Section
3.01, Article VII and Section 8.02.
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ARTICLE IV
----------
COVENANTS
4.01 Covenants of Seller. Seller covenants and agrees with Buyer as
follows:
(a) So long as Buyer, its successors or assigns, own an interest
in the Interests, Seller shall, subject to execution of a mutually
agreeable confidentiality agreement, provide Buyer access to geophysical,
geological, title, production, contract, marketing, unit, operational,
environmental, permitting and other data and information, other than
Seller's proprietary information and data, owned by Seller pertaining to
the Interests, together with all balancing and disbursement statements
reported and relating to the Interests and such other information,
statements and documents reasonably requested by Buyer or its
representatives, as is available in Seller's files. Seller's files
pertaining to the Interests will be made available to Buyer for examination
at Seller's offices during normal working hours. Seller shall provide Buyer
and its agents and representatives (and the state and federal regulatory
authorities with jurisdiction over Buyer or the members of Buyer), during
the period in which Buyer has an interest in the Interests, the right to
inspect, review and copy any such data or information (or studies, maps,
evaluations, interpretations or reports derived therefrom) which relates to
the Interests, and to consult with Seller's independent certified public
accountants and independent petroleum engineers and Seller's technical
personnel, if any, with respect to the Interests and production therefrom.
The costs of such copying and any fees charged by any third-party
accountants or consultants for consulting with Buyer shall be paid by Buyer
directly to such third parties.
Notwithstanding the foregoing, Buyer shall not have the right to
copy or receive copies of any such data or information if Seller is subject
to a valid and effective agreement prohibiting Seller from copying or
distributing such data or information unless the agreement pursuant to
which it was acquired permits copies to be made and then only if Buyer
requesting such information or any of its agents or representatives agrees
to be bound by the terms of such agreement prior to copying or receiving
copies of such data or information, in which case Buyer or such agent or
representative shall have the right to copy or receive copies of such data
or information promptly after it agrees to be so bound. To the extent it
may legally do so, Seller shall disclose to Buyer that such data or
information exists and the restrictions on copying or distributing the
same.
(b) With regard to the Interests, Seller shall provide to Buyer,
promptly upon receipt, copies of any notice, pleading, citation,
indictment, complaint, order, decree, or other document received or
obtained from any person or other source asserting or alleging a violation
of any law, rule, regulation or order, including without limitation any
Environmental Laws, or a circumstance or condition which requires or could
require a financial contribution by Seller or Buyer or a cleanup,
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removal, remedial action or other response by or on the part of Seller or
Buyer under Environmental Laws, or which seeks damages or civil, criminal
or punitive penalties from Seller or Buyer for an alleged violation of
Environmental Laws, or which names or lists Seller or Buyer as a
potentially responsible party under any Environmental Laws.
(c) Except as provided in this Section 4.01(c), neither Seller
nor its Affiliates shall have the power or authority to, and they shall
not, participate in the drilling of any Infill Well and shall object to and
vote against the drilling of any Infill Well. Seller may propose or
participate in the drilling of an Infill Well if such Infill Well will be
located on a spacing unit of not less than 80 acres and will be metered
individually. If Seller or any of its Affiliates elect to participate in
the drilling of a permitted Infill Well, it shall first notify the Buyer of
such election. Buyer shall assign to Seller or one of Seller's Affiliates
designated by Seller Buyer's interests in such proposed Infill Well (and
associated facilities) only insofar as such interests entitle the owner
thereof to participate in such Infill Well and reserving all rights to the
Wells and production therefrom; provided, however, that (i) the Buyer shall
have no obligation to pay any costs associated with such Infill Well, (ii)
Seller or its Affiliate shall bear all of the costs of drilling, completing
and operating such Infill Well and shall keep the Interests free of all
liens that may arise from drilling and operating the Infill Well, and (iii)
the Production Payment shall not burden such Infill Well.
(d) If Seller, in its capacity as an owner of working interests
in the same Leases or Units as the Interests, participates in any
additional drilling, recompletion, rework or other operation on any Unit,
Seller shall bear all of the costs thereof. If such activities could result
in the imposition of any lien on the Interests under the applicable
operating agreement or otherwise, prior to electing to participate in such
activity Seller shall demonstrate to Buyer's reasonable satisfaction that
it has the funds to pay its share of the costs of such activity and Seller
shall keep the Interests free of all such liens.
(e) Within 3 days after Seller' receipt thereof, Seller shall
provide to Buyer, at Seller's expense, copies of all title opinions and all
title reports obtained by Seller during Seller's Extended Due Diligence
Period, as defined in Section 13.1 of the CMS Agreement.
(f) Within 30 days after the Closing Seller shall furnish Buyer
with copies, certified as true and complete, of all of the documents
executed and delivered in connection with closing the transactions under
the CMS Agreement, the Senior Loan Document and the Sub-Debt Note Purchase
Agreement, and Seller shall furnish Buyer with copies of all amendments
thereto, certified as true and complete, within 15 days after the execution
thereof. Seller shall furnish Buyer with copies of all certificates,
engineering reports and other reports hereafter furnished to the Senior
Lenders or the Sub-Debt Lenders and all notices of default received from
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the Senior Lenders or the Sub-Debt Lenders, and Seller will notify Buyer of
the occurrence of any event that constitutes, or with the passage of time
will constitute, an Event of Default under and as defined in the Senior
Loan Document or the Sub-Debt Note Purchase Agreement. Within 15 days after
Closing Seller shall furnish Buyer with a copy of the most recent Ryder
Scott report covering the Interests in Seller's possession.
(g) Within 30 days after the Closing, Seller shall use its best
efforts to identify all preferential rights to purchase all or any portion of
the Interests in addition to those set forth in Schedule 3.01(n) and shall give
the required notices to the holders thereof.
ARTICLE V
---------
CLOSING
5.01 Date of Closing. The consummation of the transactions
contemplated by this Agreement occurred on March 31, 2000 (the "Closing Date")
simultaneously with the execution of the Original Agreement (the "Closing").
5.02 Place of Closing. The Closing was held at the offices of Vinson
& Elkins LLP in Dallas, Texas.
5.03 Closing Obligations. At or prior to the Closing the following
events occurred, each being a condition precedent to the others and each being
deemed to have occurred simultaneously with the others:
(a) Seller and Buyer executed, acknowledged and delivered the
Assignment (in sufficient counterparts to facilitate recording) to Buyer or
Buyer's designee in form and substance as set forth in Exhibit G hereto.
Seller shall also execute, acknowledge and deliver separate assignments of
the Interests on officially approved forms in sufficient counterparts to
satisfy applicable statutory and regulatory requirements. Such forms shall
be deemed to contain the same terms, provisions and limitations as the
Assignment.
(b) Seller and Buyer executed, acknowledged and delivered to
each other, as appropriate, the Mariner Lien Documents.
(c) Buyer delivered to Seller, by wire transfer, the Cash
Portion of the Purchase Price.
(d) Buyer executed and delivered to Seller the Original Fixed
Payment Note.
(e) [Intentionally Omitted]
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(f) [Intentionally Omitted]
(g) Buyer executed and delivered and caused its members to
execute and deliver to Seller the Original Assignment of Enforcement
Rights.
(h) Seller executed, acknowledged and delivered to Buyer a Non-
Foreign Status Certificate dated as of the Closing Date in the form and
substance as set forth in Exhibit C hereto.
(i) Seller delivered to Buyer title opinions acceptable to Buyer
covering the interests of CMS, Terra and Seller in the Units described in
Schedule 5.03(i)(1) and title reports prepared by an independent landman
based, among other things, on a review of the applicable real property
records through a recent date covering the interests of CMS, Terra and
Seller in those Units described in Schedule 5.03(i)(2). The costs
associated with the preparation of such title opinions and title reports
shall be paid by Seller. In addition, Seller shall pay to Buyer 50% of the
costs incurred by Buyer for work by landmen in connection with Buyer's
review of CMS's and Seller's title to the Interests, provided, and only to
the extent that, Seller receives copies of the reports from such landmen
covering such work, such work covers portions of the Interests other than
that portion of the Interests covered by the title opinions and reports
described in Schedules 5.03(i)(1) and 5.03(i)(2), and Buyer substantiates
the cost of such work.
(j) Buyer and Seller executed, acknowledged and delivered the
Original Management Agreement.
(k) Seller delivered to Buyer certificates of insurance
reflecting that Buyer has been named as a co-insured on all insurance
coverage carried by Seller pertaining to the Interests, copies of which
certificates are attached hereto as Schedule 5.03(k).
(l) Buyer executed and deliver the PP Document in form and
substance as set forth in Exhibit H-1 hereto.
(m) Buyer executed and delivered the Mariner Mortgage.
(n) Seller executed and delivered the Quicksilver Mortgage.
(o) CMS executed and delivered the CMS Estoppel Certificate, in
form and substance as set forth in Exhibit I hereto.
(p) Cinnabar and Buyer executed and delivered the Cinnabar Gas
Sales Contract, which shall be terminable by Buyer upon termination of the
Management Agreement and Seller executed and delivered the Original
Quicksilver Guaranty.
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5.04 Additional Actions.
(a) Buyer shall cause counsel for Buyer to deliver to Seller a
legal opinion contemporaneously with the execution of this Agreement, in
the form and substance as set forth in Exhibit D hereto regarding certain
matters relating to the Buyer and Buyer's members and the transactions
contemplated hereby.
(b) Seller shall cause counsel for Seller to deliver to Buyer
legal opinions, contemporaneously with the execution of this Agreement, in
the form and substance as set forth in Exhibits E-1 and E-2 hereto
regarding certain matters relating to Seller and the transactions
contemplated hereby.
(c) Contemporaneously with the execution and delivery of this
Agreement, the parties are executing and delivering a First Amendment to
Conveyance of Production Payment, an Amended and Restated Management
Agreement, an Amended and Restated Fixed Payment Note, an Amended and
Restated Assignment of Enforcement Rights, a First Amendment to Mortgage
(Mariner Gas LLC to Quicksilver), and a First Amendment to Mortgage
(Quicksilver to Mariner Gas LLC), to correct and clarify certain provisions
of the respective agreements being so amended.
ARTICLE VI
-----------
TAX CREDIT MATTERS
6.01 Quarterly Statements. Within 60 days after the end of each
Quarterly Period, Seller shall deliver to Buyer a statement (a "Quarterly
Statement") showing the calculation of the Aggregate Tax Credits with respect to
such Quarterly Period. Each Quarterly Statement shall also set forth the
interest rate described in clause (i) of the definition of Applicable Rate.
6.02 Annual Recalculation. With respect to any calendar year as to
which Seller has delivered a Quarterly Statement Seller shall, within 30 days
following the issuance by the IRS of the Inflation Adjustment Factor for such
calendar year, deliver to Buyer a statement (the "Recalculation Statement")
showing a recomputation of the Aggregate Tax Credits with respect to each
Quarterly Period included within such calendar year. The Recalculation
Statement shall show any changes to the amount of Qualified Production, Tax
Credit Rate, or the Aggregate Tax Credits shown on a prior Quarterly Statement.
If the sum of the recalculated Aggregate Tax Credits shown on the Recalculation
Statement exceeds the sum of the Aggregate Tax Credits shown on the prior
corresponding Quarterly Statements, then, Buyer shall treat such excess as an
addition to the Aggregate Tax Credits for purposes of determining Net Profits
pursuant to Sections 3.1, 3.2 and 3.3 of the PP Document. If the sum of the
Aggregate Tax Credits shown on the prior corresponding Quarterly Statements
exceeds the sum of the recalculated Aggregate Tax Credits shown on
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the Recalculation Statement, then, Buyer and Seller shall redetermine the
payments to which Seller would have been entitled pursuant to the Production
Payment if the Aggregate Tax Credits allowed in the calculation of Net Profits
pursuant to Sections 3.1, 3.2 and 3.3 of the Production Payment for each
Quarterly Period beginning with the first Quarterly Period affected by the
Recalculation Statement had been the tax credits allowed after taking the
Recalculation Statement into account. Any resulting overpayment, together with
Applicable Interest as provided in Section 3.7 of the PP Document, shall be
debited to the Net Profits Account for the then current month pursuant to
Section 3.3(p) of the PP Document but only if the Production Payment is still in
effect and only up to the amount that would otherwise be payable to Seller for
such month as the holder of the Production Payment but for such debit. The
balance of the overpayment, together with Applicable Interest, shall be repaid
by Seller to Buyer as provided in Section 3.7 of the PP Document.
6.03 Change in Law Recalculations. Within 30 days after the enactment
of a Change in Law the following amounts shall be determined and the following
adjustments, amendments and recalculations shall be made and performed with
respect to each Quarterly Period from and after the Quarterly Period during
which the Change in Law becomes effective (whether such effective date is prior
to, on or after the enactment date, the "CIL Effective Date") through the
Quarterly Period ending December 31, 2002, and the PP Document and the other
Transaction Documents shall be deemed amended as necessary to give effect
thereto:
(a) The "Projected Qualified Production" shall be that quantity
of Qualified Production that would be necessary to generate Aggregate Tax
Credits equal to the Scheduled Amount for such Quarterly Period if such
Change in Law had not occurred, using a tax credit rate of $1.0969 for
2000, $1.1188 for 2001 and $1.1412 for 2002.
(b) The "CIL Rescheduled Amount" shall be an amount equal to
the Aggregate Tax Credits, after giving effect to the Change in Law, that
would be generated in such Quarterly Period if (x) the Devonian shale
hydrocarbon gas production from the Qualified Wells for such Quarterly
Period (to the extent such production would have constituted Qualified
Production without giving effect to the Change in Law) equals (y) the
Projected Qualified Production for such Quarterly Period, after giving
effect to the Change in Law.
(c) The "Undiscounted CIL Loss" for such Quarterly Period shall
be the amount, if any, by which the Scheduled Amount for such Quarterly
Period (prior to giving effect to the amendment to the Scheduled Amount
described in Section 6.03(g)) exceeds the CIL Rescheduled Amount for such
Quarterly Period.
(d) The "4/1/2000 Discounted CIL Loss" for such Quarterly
Period shall be an amount equal to the net present value, as of April 1,
2000, of the Undiscounted CIL Loss for such Quarterly Period discounted
using the Imputed Discount Rate, compounded quarterly, from the last day of
such Quarterly Period to
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April 1, 2000. The "Imputed Discount Rate" shall be that percentage
discount rate which causes the sum described in clause (ii) to equal
$20,000,000 after performing the following calculations: (i) discount the
Scheduled Amount (prior to giving effect to the amendment to the Scheduled
Amount described in Section 6.03(g)) for each Quarterly Period from the
last day of such Quarterly Period to April 1, 2000 using the Imputed
Discount Rate, compounded quarterly, and then (ii) sum the discounted
amounts described in clause (i).
(e) The "CIL Loss" for such Quarterly Period shall be an amount
equal to the 4/1/2000 Discounted Loss plus Applicable Interest thereon,
compounded quarterly, from April 1, 2000 to the last day of the Quarterly
Period in which the CIL Effective Date occurs.
(f) The "Aggregate CIL Loss" shall mean an amount equal to the
sum of the CIL Loss for all such Quarterly Periods.
(g) The Scheduled Amount for such Quarterly Period shall be
deemed amended to equal the CIL Rescheduled Amount for such Quarterly
Period.
(h) The Quarterly Scheduled Amount Deficit for the Quarterly
Period in which the CIL Effective Date occurs shall be an amount equal to
(x) the Quarterly Scheduled Amount Deficit for such Quarterly Period, after
giving effect to the amendment to the Scheduled Amount described in Section
6.03(g), plus (y) the Aggregate CIL Loss.
(i) If the CIL Effective Date occurs in a Quarterly Period for
which a Quarterly Statement has not yet been delivered, the Change in Law
and the calculations and amendments described in Sections 6.03(a) through
(h) shall be given effect in the Quarterly Statement for such Quarterly
Period and subsequent Quarterly Statements.
(j) If the CIL Effective Date occurs during a Quarterly Period
for which a Quarterly Statement has been delivered pursuant to Section
6.01, then Buyer and Seller shall redetermine the payments to which Seller
would have been entitled pursuant to the Production Payment, giving effect
to the Change in Law and the calculations and amendments described in
Sections 6.03(a) through (h). The Aggregate CIL Loss, together with
Applicable Interest from the last day of the Quarterly Period in which the
CIL Effective Date occurs until paid as provided in Section 3.7 of the PP
Document, shall be debited to the Net Profits Account for the then current
month and each succeeding month pursuant to Section 3.3(p) of the PP
Document but only if the Production Payment is still in effect and only up
to the amount that would otherwise be payable to Seller for such month as
the holder of the Production Payment but for such debit. The balance of the
Aggregate CIL Loss, together with Applicable Interest, shall be repaid by
Seller to Buyer upon the earlier of the Seller's Option Closing Date (which
payment shall be a condition to Buyer's
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obligations under Article IX) and the Production Payment Termination Date
(as such term is defined in the PP Document).
(k) The determinations, adjustments, amendments, calculations,
debits, and payments described in this Section 6.03 shall be Buyer's only
recourse and Seller's only liability in respect of a Change in Law.
ARTICLE VII
------------
CALCULATION
OF AGGREGATE TAX CREDITS
7.01 Credit Calculation Representation. Seller represents and
warrants to Buyer that Seller's calculation of the Aggregate Tax Credits for
each Quarterly Period, as reflected in the Quarterly Statement delivered to
Buyer with respect to each Quarterly Period, shall be correct and shall be
determined in a manner consistent with section 29 of the Code, judicial
interpretations thereof and regulations published thereunder, whether final or
temporary in form, and shall give effect to any Change in Law (the "Credit
Calculation Representation").
7.02 Credit Calculation Assumption; Buyer-Assumed Risks.
(a) The inclusion of Aggregate Tax Credits in the calculation
of Quarterly Scheduled Amount Deficits and as a component of Excess Tax
Credits which are a credit to the Net Profits Account pursuant to Section
3.2 of the PP Document and the obligation of the members of Buyer to make
Excess Credit Capital Contributions to Buyer pursuant to Section 3.2 of the
LLC Agreement, will not be reduced, excused, relieved or otherwise affected
by the occurrence of any of the following events (each a "Buyer-Assumed
Risk Event"):
(i) Other than a Change in Law, any (1) amendment to the
Code enacted after the Closing Date, (2) issuance or amendment of
any temporary or final regulations, rulings or other materials
under the Code by the IRS or the Treasury Department after the
Closing Date, (3) administrative or judicial decision after the
Closing Date interpreting a provision of the Code, or (4) other
federal, state or local tax law change enacted after the Closing
Date;
(ii) any Tax Claim, Final Determination or any other
determination that Buyer is not the owner of the Interests or that
the Interests do not constitute "economic interests" for federal
income tax purposes as held by Buyer, but only if (1) the Seller
is treated as the owner of the Interests for federal income tax
purposes immediately prior to the
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Closing and would have continued to be treated as the owner of the
Interests for federal income tax purposes had the Transaction not
occurred and Seller had continued to hold the Interests, (2) the
Interests constitute "economic interests" for federal income tax
purposes as held by Seller immediately prior to the Closing and
would have continued to constitute "economic interests" for
federal income tax purposes in the hands of Seller had the
Transaction not occurred and Seller had continued to hold the
Interests; and (3) the failure to get any necessary lessor or
other consent to or approval for the transfer of the Interests to
Buyer does not cause Buyer not to be the owner of the economic
interest in the Interests after the Effective Date; provided,
however, that notwithstanding any provision of this Agreement to
the contrary, Aggregate Tax Credits shall not be included in (x)
the calculation of the Production Payment in accordance with
Section 3.2 of the PP Document with respect to tax credits under
section 29 of the Code, or (y) the calculation of Excess Credit
Capital Contributions under Section 3.2 of the LLC Agreement, to
the extent such credits are not available to Buyer because the
assumptions set forth in "(1)," "(2)" or "(3)" are not correct;
(iii) any Tax Claim, Final Determination or any other
determination that the transfer of the Interests to Buyer will not
be treated as a sale for federal income tax purposes, except to
the extent provided in (ii);
(iv) the failure of any of the assumptions or treatments
described in Section 8.05(a), (b), (c) and the first sentence of
Section 8.05(d);
(v) any application of Sections 465, 469 or 29(b)(6) of
the Code or the "alternative minimum tax" (as defined in the
Code);
(vi) any application of rules relating to short taxable
years;
(vii) any failure of any member of Buyer to timely or
properly claim any credits under section 29 of the Code; or
(viii) any failure of any member of Buyer to have
sufficient income or tax liability to benefit fully from credits
under section 29 of the Code (after giving effect to carryovers
and carrybacks).
(b) In addition, the occurrence of a Buyer-Assumed Risk Event
will not constitute a Tax Loss or a breach of the Credit Calculation
Representation or otherwise result in the application of Section 7.03.
Nothing in this Section 7.02, however, will relieve Seller of its
obligations under Section 8.05.
7.03 Correction of Net Profits Calculation for Tax Loss. If Buyer
incurs a Tax Loss as a result of a breach of the Credit Calculation
Representation then, upon notice
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delivered by Buyer to Seller of such Tax Loss (a "Tax Loss Notice"), the
following provisions of this Section 7.03 shall apply, subject to the provisions
of Section 7.04 through 7.10. (For clarity, the parties acknowledge that the
remedy for a Tax Loss resulting from a Change in Law shall be as provided in
Section 6.03.) Upon delivery of the Tax Loss Notice, Buyer and Seller shall
redetermine the payments to which Seller would have been entitled pursuant to
the Production Payment if the Aggregate Tax Credits allowed in the calculation
of Net Profits pursuant to Sections 3.1, 3.2 and 3.3 of the PP Document for each
Quarterly Period beginning with the first Quarterly Period affected by the Tax
Loss had been the tax credits allowed after taking the Tax Loss into account.
Subject to the limitation set forth in the last sentence of this Section 7.03,
any resulting overpayment, together with Applicable Interest as provided in
Section 3.7 of the PP Document, (the "Section 7.03 Amount") shall be debited to
the Net Profits Account for the then current month and the two succeeding months
pursuant to Section 3.3(p) of the PP Document but only if the Production Payment
is still in effect and only up to the amount that would otherwise be payable to
Seller as the holder of the Production Payment for such months. Subject to the
limitation set forth in the last sentence of this Section 7.03, the balance of
the overpayment, together with Applicable Interest, shall be repaid by Seller to
Buyer as provided in Section 3.7 of the PP Document. The remedy provided by this
Section 7.03 shall be Buyer's only recourse and Seller's only liability, in
respect of a Tax Loss. The aggregate of all Section 7.03 Amounts shall be
limited to an amount equal to (i) $20,000,000 plus Applicable Interest thereon
from April 1, 2000, plus (ii) Excess Credit Capital Contributions (as defined in
the LLC Agreement), if any, made by the members of Buyer to the Designated
Account (as defined in the Management Agreement) plus Applicable Interest
thereon from the date such contributions were made to the Designated Account,
plus (iii) Section 7.03 Amounts attributable to overstatements on Quarterly
Statements of the MMBtus of Gas produced from the Qualified Wells, in the case
of clauses (i), (ii) and (iii) above, determined as of the date such limitation
is being applied. If such aggregate limitation on Section 7.03 Amounts is ever
achieved so as to limit the aggregate Section 7.03 Amounts, Applicable Interest
under clause (i) shall not accrue on the amount set forth in clause (i) after
such time to cause an increase in such aggregate limitation.
7.04 Buyer's Covenants. To the extent that any Section 7.03 Amount is
increased because Buyer does not substantially comply with its covenants in this
Section 7.04, Seller shall not be liable to Buyer for the amount of the increase
in the Section 7.03 Amount resulting from Buyer's noncompliance.
(a) Buyer shall provide Seller with copies of any written
communications received from the IRS (including any memoranda, statements,
reports or other correspondence) within 30 days after receipt thereof to
the extent such written communication relates in a material way to the
Credit Calculation Representation. In addition, if the IRS discusses or
otherwise raises inquiries with Buyer that relate in a material way to the
Credit Calculation Representation, Buyer shall keep Seller reasonably
informed of such oral discussions and of the course and conduct of all
material matters that could be the subject of a Section 7.03 Amount. Buyer
shall reasonably allow Seller to review and comment on any written
communication
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prepared by Buyer in response to any oral or written communication or
inquiry from the IRS, prior to delivery of such response to the IRS, to the
extent such written communication relates in a material way to matters that
are the subject of a potential Section 7.03 Amount.
(b) If the IRS makes a Tax Claim against Buyer, Buyer shall
promptly (but in any event no more than 30 days following the receipt of
such Tax Claim) notify Seller in writing of such Tax Claim (a "Tax Claim
Notice").
7.05 Requirement to Contest. Buyer shall use its reasonable
commercial efforts to contest any Tax Claim in accordance with the terms of this
Section 7.05; provided, however, Buyer shall not be required to contest a Tax
Claim unless it has received on a timely basis a notice ("Seller's
Acknowledgment") from Seller in which Seller acknowledges that such Tax Claim,
if sustained in a Final Determination, is subject to Section 7.03. Failure of
Seller to deliver a Seller's Acknowledgment to Buyer within 30 days after
Seller's receipt of a Tax Claim Notice shall result in Seller's waiver of any
obligation of Buyer to contest a Tax Claim (a "Seller's Waiver"). In contesting
any Tax Claim pursuant to this Section 7.05, Buyer shall conduct such contest
with Buyer's Independent Tax Counsel and the reasonable contest costs (including
accountant's fees, investigatory fees, and fees and disbursements of counsel)
incurred by Buyer in good faith in contesting the Tax Claim shall be borne by
Seller; provided, however, Seller shall only bear Buyer's contest costs with
respect to a Tax Claim to the extent that the basis for such position, if
successfully asserted by the IRS, would result in a Section 7.03 Amount (a
"Carried Claim"). To the extent a contest involves more claims by the IRS that
do not relate to the loss of Aggregate Tax Credits in addition to a Carried
Claim, Buyer shall reasonably allocate its contest costs to determine that
portion of such costs directly related to the Carried Claim and Seller shall
bear such allocated costs.
7.06 Control. Except or unless otherwise specifically provided
herein, Buyer shall control the nature of all action to be taken to contest a
Tax Claim. Buyer shall be required to proceed beyond the administrative level
to either the Tax Court, the appropriate federal district court or the U.S.
Claims Court only if Seller delivers to Buyer a Legal Opinion (the cost of which
shall be borne by Seller), which opinion states that there is a realistic
possibility (as that term is interpreted under Section 6694 of the Code) that
Buyer will prevail on the merits of its case. Buyer shall be required to appeal
an adverse decision of such court only if Seller delivers a Legal Opinion (the
cost of which shall be borne by Seller) which opinion states that, after taking
into account conclusions of fact and law contained in the lower court's
decision, it is more likely than not that Buyer will prevail on appeal. In no
event shall Buyer be required to appeal an adverse determination of any court
beyond the first appeal.
7.07 Information. Buyer shall keep Seller reasonably informed as to
the status and progress of all matters materially related to the contest of the
Tax Claim. Buyer shall provide Seller, within 15 days of the receipt thereof,
with copies of all written communications received from the IRS relating to the
Tax Claim. Buyer shall discuss with
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Seller the course and conduct of all matters that are the subject of a potential
Section 7.03 Amount and shall permit representatives of Seller to participate in
meetings and discussions with the IRS regarding any Tax Claim to the extent
practicable under then applicable IRS procedures and without providing Seller
information relating to matters that are not the subject of a potential Section
7.03 Amount; provided, however, Seller's role at any meetings and discussions
with the IRS regarding a Tax Claim will be as an expert consultant acting at the
direction of Buyer in providing factual and legal support for the
representations and covenants indemnified hereunder.
7.08 Settlements. In the case of any Tax Claim subject to the contest
provisions hereof, Buyer may at any time settle such Tax Claim it is otherwise
required to contest pursuant to the terms hereof. Any such settlement, without
the consent of Seller, which consent will not be unreasonably withheld, shall be
deemed an unconditional waiver by Buyer of its rights to a Section 7.03 Amount
with respect to any Tax Loss to which the Tax Claim relates and with respect to
any other Tax Loss which arises in any subsequent year the contest of which is
precluded or materially prejudiced by such failure to contest. If, in the
course of contesting any Tax Claim, Buyer receives an offer from the IRS that
would permit Buyer to settle such Tax Claim (a "Settlement Notice"), Buyer shall
promptly notify Seller of such proposed settlement within 30 days of receipt
thereof. If such offer would not affect the contest of any items unrelated to
the Tax Claim (either in the current or any other taxable year) and Seller
determines that such offer is favorable, then, within 15 days after receiving
notice of the Settlement Notice from Buyer, Seller may request in writing (a
"Settlement Acceptance Notice") that Buyer agree to such settlement (which
request shall include an acknowledgment by Seller that the Section 7.03 Amount
applicable to such Tax Claim will include an amount calculated in accordance
with Section 7.03 with respect to all years affected by such settlement and an
acknowledgment that, to the extent such settlement does not control the outcome
of prior or subsequent taxable years, that Section 7.03 will continue to apply
to such prior or subsequent years). Upon receipt of a Settlement Acceptance
Notice, Buyer shall either agree to accept such settlement or to treat an amount
equal to the Section 7.03 Amount that would result from such settlement as the
Section 7.03 Amount with respect to the claimed Tax Loss to which the settlement
related. Notwithstanding the preceding provisions of this Section 7.08, if
Seller provided Buyer with a Settlement Acceptance Notice, but the settlement
contemplated by such notice is not accepted by the IRS, Section 7.03 shall
continue to apply.
7.09 Waiver. Notwithstanding any of the foregoing provisions to the
contrary, Buyer, by written notice to Seller, may refrain from contesting any
Tax Claim. Any failure by Buyer to contest, unless such failure is excused
pursuant to the second sentence of Section 7.05, shall be deemed to be a waiver
of rights to a Section 7.03 Amount for the year or years to which such Tax Claim
relates and to all prior or subsequent years in which both (i) additional Tax
Claims are made based upon the same legal or factual theory as such Tax Claim,
and (ii) the contest of which Tax Claim is precluded or materially prejudiced by
Buyer's failure to contest.
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7.10 Adjustments. If Seller delivers a Recalculation Statement under
Section 6.02 before a Tax Claim is delivered to Buyer, this Tax Indemnity shall
apply only with respect to the adjusted figures for Qualified Production, Tax
Credit Rate and Aggregate Tax Credits shown on the latter of any such
statements, and any prior figures shall be ignored for the purposes of this Tax
Indemnity.
ARTICLE VIII
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OTHER OBLIGATIONS AFTER CLOSING
8.01 Sales Taxes and Recording Fees. Seller shall pay all sales or
use taxes occasioned by the purchase and sale of the Interests and all
documentary, filing and recording fees required in connection with the filing
and recording of the assignments described in Section 5.03(a) above.
8.02 Indemnification (Other Than For Lost Tax Credits). After the
Closing, Buyer and Seller shall indemnify each other as set forth below.
Notwithstanding anything to the contrary contained in this Section 8.02, the
indemnity obligations of Seller set forth in this Section 8.02 shall not extend
to or cover any loss of Aggregate Tax Credits by Buyer other than partial
refunds of the Cash Portion of the Purchase Price pursuant to Section 8.07.
Buyer's sole remedy for any claimed loss of Aggregate Tax Credits shall be as
provided in Article VII, except for claims for partial refunds of the Cash
Portion of the Purchase Price pursuant to Section 8.07.
(a) Indemnity by Seller for Pre-Effective Date Matters. Seller
shall defend, indemnify and save and hold harmless Buyer for, from and
against and shall promptly reimburse Buyer with respect to any and all
Adverse Consequences with respect to the Interests which accrue or relate
to times prior to the Effective Date (but not to the extent such Adverse
Consequences result from or are attributable to any representation of Buyer
contained in this Agreement being untrue or a breach of any warranty or
covenant of Buyer contained in this Agreement). Seller's aggregate
liability under the indemnity obligations under this Section 8.02(a) shall
not be limited in amount except as otherwise provided in Section
8.02(c)(ii).
(b) Indemnity by Seller for Environmental Matters. Seller shall
defend, indemnify and save and hold Buyer harmless for, from and against
and shall promptly reimburse Buyer with respect to, any and all Adverse
Consequences of any and every kind or character, known or unknown, fixed or
contingent, asserted by any federal, state, local or other governmental
entity or other party against Buyer or incurred by Buyer to comply with
applicable law, by reason of or arising out of (i) any violation or breach
of any Environmental Laws by Seller, any of its predecessors or its
employees or agents before Closing; (ii) any act, omission, event or
circumstance existing or occurring on the Interests before Closing
(including, without limitation, the use; transportation; handling; storage;
treatment; removal;
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actual, proposed or threatened release or emission; generation; or presence
of Hazardous Substances on or under the Interests or other property,
wetlands or waterways) that constitutes or results in a violation or breach
of or liability under any Environmental Laws; or (iii) any matter that
would constitute a breach of Seller's representations in Section 3.01(t)
applied without regard to whether such matters are within Seller's
Knowledge. Seller's aggregate liability under the indemnity obligations
under this Section 8.02(b) shall not be limited in amount except as
otherwise provided in Section 8.02(c)(ii).
(c) Indemnity by Seller for Breach.
(i) Seller shall defend, indemnify and save and hold
harmless Buyer for, from and against and shall promptly reimburse Buyer
with respect to any and all Adverse Consequences that result from or are
attributable to any representation or warranty of Seller contained in this
Agreement being untrue, or any warranty, agreement or covenant of Seller
contained in this Agreement being breached, subject to the limitations
hereinafter set forth. Except with respect to claims for loss of Aggregate
Tax Credits (Buyer's sole remedy for which shall be as provided in Article
VI, Article VII and Section 8.07), the indemnification provided in this
Section 8.02(c) and the implementation thereof as provided in the other
provisions of this Article VIII shall be the sole and exclusive remedy of
Buyer for breach of any of Seller's representations, warranties, agreements
or covenants of Seller contained in this Agreement. Seller's aggregate
liability under the indemnity obligations under this Section 8.02(c) shall
not be limited in amount, except as otherwise provided in Section
8.02(c)(ii).
(ii) Notwithstanding any other provisions of this
Agreement, Seller's aggregate liability under Sections 8.02(a), 8.02(b) and
8.02(c)(i) for claims by Buyer (A) for loss of title to any Well or Unit,
(B) based on Seller's failure to receive the Net Revenue Interests in any
Well or Unit as set forth in Exhibit A, (C) otherwise based on a loss in
value of the Interests (including any equipment included therein) or (D)
any other claim asserted by Buyer under Section 8.02(a) that is not
attributable to a third-party claim against Buyer, shall be limited
(provided that this limitation shall not limit Seller's obligations with
respect to any claims asserted against Buyer by third Persons who are not
successors in interest to Buyer with respect to the Interests) to an amount
equal to (1) the Allocated Value of the affected Wells, plus (2) interest,
compounded monthly, at the Applicable Rate on the amount described in "(1)"
from the Effective Date through the date Seller pays the applicable
indemnity claim by Buyer; and provided further that the dollar amount of
any such lost value shall be determined using the same methodology as used
in preparing the Reserve Report. "Allocated Value" means as to any Unit, an
amount equal to $5,000,000.00 multiplied by a fraction whose numerator is
an amount equal to 99.5% of the "PV10 value" of such Unit as reflected on
the Reserve Report and whose denominator is $83,872,000. The Allocated
Value of any Well shall be the
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Allocated Value of the Unit in which such Well is located divided by the
number of Wells in the Unit.
(d) Buyer's Indemnification of Seller. Buyer shall defend,
indemnify and save and hold harmless Seller for, from and against and shall
promptly reimburse Seller with respect to any and all Adverse Consequences
that result from or are attributable to any representation or warranty of
Buyer contained in this Agreement being untrue or any warranty, agreement
or covenant of Buyer contained in this Agreement being breached. The
indemnification provided in this Section 8.02(d) and the implementation
thereof as provided in the other provisions of this Article VIII shall be
the sole and exclusive remedy of Seller for breach of any of Buyer's
representations, warranties, agreements or covenants of Buyer set forth in
Section 3.02.
(e) Procedures. The indemnification contained in this Section
8.02 shall be implemented as follows:
(1) Such indemnity shall extend to any actual loss, cost,
expense, liability, obligation or damage ("Loss") incurred or suffered by
the indemnified party, its officers, directors, shareholders, partners,
members and managers, including reasonable fees and expenses of attorneys,
technical experts and expert witnesses reasonably incident to the Adverse
Consequences indemnified against.
(2) The amount of each payment claimed by an indemnified
party to be owing and the basis for such claim, together with a list
identifying to the extent reasonably possible each separate item of Loss
for which payment is so claimed, shall be set forth by such party in a
statement delivered to the indemnifying party ("Claim Notice"). The amount
claimed shall be paid by such indemnifying party as and to, and only to the
extent required herein within 30 days after receipt of such statement or
after the amount of such payment has been finally established, whichever
last occurs.
(3) Promptly after notification to an indemnified party
with respect to any claim or legal action or other matter that may result
in a Loss for which indemnification may be sought under this Section 8.02,
but in any event in time sufficient for the indemnifying party to contest
any action, claim proceeding or other matter that has become the subject of
proceedings before any court or tribunal, such indemnified party shall give
written notice of such claim, legal action or other matter to the
indemnifying party and, at the request of such indemnifying party, shall
furnish the indemnifying party or its counsel with copies of all pleadings
and other information with respect to such claim, legal action or other
matter and shall, at the election of the indemnifying party made within 60
days after receipt of such notice, permit the indemnifying party to assume
control of such claim, legal action or other matter (to the extent only
that such claim, legal action or other matter relates to a Loss for which
the indemnifying party is liable), including the determination of all
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appropriate actions, the negotiation of settlements on behalf of the
indemnified party, and the conduct of litigation, through attorneys of the
indemnifying party's choice; provided, however, that no such settlement can
result in any liability or cost to the indemnified party without its
consent. In the event of such an election by the indemnifying party to
assume control, (A) any expense incurred by the indemnified party
thereafter for investigation or defense of the matter shall be borne by the
indemnified party, and (B) the indemnified party shall give all reasonable
information and assistance, other than pecuniary, that the indemnifying
party shall deem necessary to the proper defense of such claim, legal
action, or other matter. In the absence of such an election, the
indemnified party will use its best efforts to defend, at the indemnifying
party's expense, any claim, legal action or other matter to which such
other party's indemnification under this Section 8.02 applies until the
indemnifying party assumes such defense, and, if the indemnifying party
fails to assume such defense within the time period provided above, settle
the same in the indemnified party's reasonable discretion at the
indemnifying party's expense.
(f) Any party entitled to indemnification hereunder shall use
commercially reasonable efforts to minimize any Adverse Consequences for
which indemnification is sought hereunder.
8.03 Further Assurances. Seller and Buyer shall execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered such instruments
and take such other action as may be reasonably necessary or advisable to carry
out their obligations under this Agreement and under any Exhibit, Schedule,
document, certificate or other instrument delivered pursuant hereto.
8.04 Survival. The representations, warranties, covenants, agreements
and indemnities included or provided in this Agreement, or in any Exhibit,
Schedule, document, certificate or other instrument delivered pursuant hereto,
shall survive the Closing.
8.05 Tax Reporting and Ruling.
(a) Inclusion in Tax Basis and Amount Realized. Buyer and
Seller shall treat the Production Payment as a contingent payment debt
instrument governed by the provisions of Treasury Regulation
Section 1.1275-4(c). The "issue price" of such debt instrument shall be
determined under Treasury Regulation Section 1.1274-2(g). Buyer shall
include the issue price of such debt instrument in its tax basis for the
Interests as of the Closing Date pursuant to Treasury Regulation Section
1.1012-1(g). Seller shall determine the amount realized upon the
disposition of the Interests attributable to such debt instrument pursuant
to Treasury Regulation Section 1.1001-1(g).
(b) Principal and Interest Computations. The portion of each
payment made pursuant to the Production Payment that will be treated as
principal and the
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portion of each such payment that will be treated as
interest shall be determined pursuant to the principles set forth in
Treasury Regulation Section 1.1275-4(c)(4).
(c) Treatment of Fixed Payment Note Both Buyer and Seller
agree to treat the Fixed Payment Note as a fixed yield obligation under
Treasury Regulation Section 1.1272-1(d) and will recognize interest expense
to Buyer and income to Seller, respectively, as such.
(d) Interests Owned By Buyer. Prior to the Full Production
Date, the parties shall treat the entire interest in the Interests as owned
by Buyer for all purposes, including, but not limited to, for federal
income tax purposes. To that end, Buyer, its successors and assigns, shall
at all times treat production income attributable to the entire interest in
the Interests prior to the Full Production Date as its income for federal
income tax purposes, and Seller, its successors and assigns, shall treat
such production income as the income of Buyer for federal income tax
purposes. Seller and Buyer shall treat the transfer of the Interests as a
sale for federal income tax purposes.
(e) Michigan Single Business Tax. Buyer agrees to take the
position that because it will pay severance taxes on sales of Hydrocarbon
production from the Interests it will be exempt from any single business
tax under the Michigan Single Business Tax Act, as currently enacted and
enforced, attributable to its ownership of the Interests and the sale of
production therefrom under the rationale of Cowen v. Department of
Treasury, 204 Mich. App. 428 (1994). The parties will cooperate reasonably
to sustain this position, provided neither party will have any obligation
to contest the imposition of such tax or any claim for payment of such tax
by the State of Michigan. If this filing position is challenged by the
State of Michigan or the single business tax is amended such that Buyer is
required to pay any single business tax, the parties acknowledge that
during the term of the Production Payment reserved to Seller in the PP
Document 100% of such tax shall be debited to the Net Profits Account under
such Production Payment as provided in Section 3.3(c) thereof.
(f) Private Letter Ruling. Buyer may request a private letter
ruling from the Internal Revenue Service seeking rulings to substantially
the effect described in Schedule 8.05(f). Seller shall cooperate as Buyer
reasonably requests in seeking such rulings including agreeing to
modifications to the Transaction Documents requested by Buyer to the extent
necessary to obtain such rulings; provided that Seller shall not be
required to agree to any modification that would adversely affect Seller
from an economic, tax, legal, operational or security standpoint. If Buyer
files the request for ruling on or before May 19, 2000 but does not receive
a favorable private letter ruling regarding such matters by December 24,
2000, Buyer may elect to give a "No Ruling Notice" by delivering such a
notice to Seller on or before December 31, 2000, which notice shall have
the effect described in Section 8.05(g).
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(g) No Ruling Notice. If Buyer timely gives a No Ruling Notice
pursuant to Section 8.05(f), then, as of December 31, 2000, the Transaction
Documents shall be deemed amended as follows and the parties shall execute
and deliver such amendments and other documents necessary to give effect to
such amendments:
(i) The cumulative Quarterly Scheduled Amount Deficit (as
defined in the PP Document) shall be deemed to be an amount equal to (1)
the Cash Portion of the Purchase Price plus Applicable Interest thereon
from March 31, 2000, through December 31, 2000, plus (2) Excess Credit
Capital Contributions (as defined in the LLC Agreement), if any, made by
the members of Buyer to the Designated Account (as defined in the
Management Agreement) prior to December 31, 2000 plus Applicable Interest
thereon from the date such contributions were made to the Designated
Account through December 31, 2000, less (3) any Scheduled Amount Deficit
Distributions made to the members of Buyer prior to December 31, 2000 plus
interest thereon at the Applicable Rate from the date such distributions
were made through December 31, 2000.
(ii) The Qualified Production, the Aggregate Tax Credits,
the Scheduled Amount, the CIL Rescheduled Amount, the Excess Tax Credits,
the Quicksilver Monthly Abandonment Reserve (as defined in the PP
Document), and the Management Fee (as defined in the Management Agreement)
for each Quarterly Period commencing on or after April 1, 2000 shall be
deemed amended to be zero. No further payments shall be due on the Fixed
Payment Note. No amounts shall be reserved in the Quicksilver Monthly
Abandonment Reserve, the Working Capital Reserves, the Tax Claim Reserves,
or the Payment Reserves (as such terms are defined in the Management
Agreement). Neither Seller, any Senior Lender or any Sub-Debt Lender will
seek to restrain or prevent the distribution of any Scheduled Amount
Deficit Distribution to the members of Buyer, or seek to require the
members of Buyer to recontribute the same to Buyer or pay such amounts to
any other Person.
(iii) At such time as Buyer has received Scheduled Amount
Deficit Distributions sufficient to reduce the Unrecouped Scheduled Amount
& Interest Deficit (as defined in the PP Document) to zero (provided that
Seller shall have the right to pay to the members of Buyer (99% to State
Street Bank and Trust Company and 1% to Antrim Corporation) amounts in
addition to the Scheduled Amount Deficit Distributions which payments by
Seller shall be deemed to constitute Scheduled Amount Deficit Distributions
for purposes of this Section 8.05(g)(iii)):
(1) the Fixed Payment Note shall be deemed canceled;
(2) the Production Payment shall be deemed
terminated;
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(3) within 30 days thereafter Buyer shall execute,
acknowledge, and deliver to Seller sufficient numbers of
assignments of the Interests to Seller ((A) excluding equipment
and other tangible Interests disposed of in the ordinary course of
business, and Leases and Units that have expired, been terminated
or defeased in the ordinary course of business, and (B) including
any additions to the equipment and other tangible property owned
by Buyer and located on the Land, appurtenant thereto or used or
obtained in connection therewith or with the production,
gathering, treatment, processing, sale or disposal of Hydrocarbons
or water produced therefrom or attributable thereto) to permit
Seller to record said assignments of record, such assignments to
be in a form reasonably satisfactory to Buyer and Seller; such
assignments will contain legally sufficient property descriptions
of such Interests, comply with all recordation and governmental
requirements, will be made effective as of the date on which Buyer
received Scheduled Amount Deficit Distributions sufficient to
reduce the Unrecouped Scheduled Amount & Interest Deficit to zero,
and will contain a special warranty of title, subject to the
Reversionary Interest;
(4) Seller shall assume and release and indemnify,
defend and save and hold harmless Buyer from all liabilities and
obligations relating to the Interests, including but not limited
to those arising under the Production Payment and all liabilities
and other Adverse Consequences, including, without limitation,
those arising under Environmental Laws that are attributable to
the Interests (whether arising before, during or after Buyer's
period of ownership and whether or not attributable to the actions
of Buyer); provided, however, that notwithstanding any other
provision of this Agreement or the other Transaction Documents,
Seller shall have no obligation in regard to liabilities and other
Adverse Consequences to the extent the same are attributable to
the gross negligence or willful misconduct of Buyer or to the
breach by Buyer of the Transaction Documents; provided, however,
that acts of Seller (its successors and assigns) as Buyer's
manager under the Management Agreement shall not be deemed to be
acts of Buyer.
(iv) If Buyer, its successors or assigns, claims on its federal
income tax return any tax credits under section 29 of the Code on
production from the Interests, then, for purposes of Section 8.05(g)(iii),
the members of Buyer shall be deemed to have received an additional
Scheduled Amount Deficit Distribution equal to the amount of such credits
as of last day of the Quarterly Period during which the Gas giving rise to
such credits was produced. The decision regarding whether or not to claim
any such tax credits shall be within the sole and absolute discretion of
the Buyer.
(v) Neither Seller, nor any successor or assign of Seller,
shall claim any tax credits under section 29 of the Code on any gas
produced from the Interests until the earlier of (x) the closing of
Seller's exercise of the Seller's Option
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and (y) the effective time of the reconveyance of the Interests by Buyer to
Seller under Section 8.05(g)(iii).
8.06 Allocation of Unit Production. The parties recognize that the
Units include the Wells and the Non-Qualified Wells, and that additional wells
may be drilled on lands included in the Units. The parties further recognize
that because of the relatively low volumes of gas produced from each well it may
be economically impractical to meter separately production from each well in the
Unit and that production from the Qualified Wells is or may be commingled with
production from the Non-Qualified Wells and other wells included in the Units
prior to metering and that the commingled production will be centrally metered.
In such instances, subject to the last sentence of this Section 8.06, the
parties agree, and agree to use their commercially reasonable efforts to cause
third parties, to deem that each producing well in a Unit produces the same
volume of Hydrocarbons (for example, if 10,000 Mcfs are produced from a Unit in
a month by 10 producing wells then each well shall be deemed to have produced
1,000 Mcfs during the month). Within 30 days after Closing the parties shall
cause the Engineering Firm to review the production allocation methodology
described in this Section 8.06 to determine whether such allocation is
reasonable for the Interests in light of their particular production
characteristics, giving due consideration to local oil and gas industry
practices, and can be adequately demonstrated for the purposes of the Code; if
the Engineering Firm does not conclude that such allocation can be so
substantiated, the parties shall agree upon an allocation methodology that can
be so substantiated for purposes of the Code.
8.07 Preferential Rights; CMS Title Defects; Corrective Assignments.
(a) Seller shall promptly notify Buyer if any preferential
purchase rights with respect to the Interests are exercised or if the requisite
notice period has elapsed without said rights having been exercised.
(b) Seller shall promptly provide Buyer with copies of all
Claims of Title Defects (as defined in the CMS Agreement) relating to the
Interests that are given to CMS pursuant to the post-closing title procedure set
forth in Article XIII of the CMS Agreement. Seller shall keep Buyer informed on
a current basis of the status and CMS response to all such claims by providing,
from time to time as appropriate, a status report describing which claims have
been cured, indemnified or bonded over and which claims, if any, resulted in a
purchase price adjustment and the amount of the adjustment for each such claim.
Seller shall promptly pay to Buyer all purchase price adjustment amounts
received by it from CMS for portions of the Interests that are not required to
be reconveyed to CMS pursuant to Section 8.07(c) below up to an amount equal to
the Allocated Value plus the Lost Scheduled Amount attributable to the affected
Interests. If purchase price adjustments would otherwise be due to Seller for
any portion of the Interests under such post-closing title procedure but are not
paid to Seller by CMS because of the limits on title adjustments set forth in
Section 13.5 of the CMS Agreement, then Seller shall, within ten days after
written notice from Buyer, deliver to Buyer in immediately available funds an
amount equal to the unpaid purchase price adjustment attributable to such
portion of the Interests. Seller
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agrees to use its commercially reasonable efforts to cure any title defects
relating to the Interests identified in the title opinions and title reports
described in Schedules 5.03(i)(1) and 5.03(i)(2), and any defects noticed by
Buyer to Seller after the Closing.
(c) (i) If a third party elects to purchase any portion of the
Interests subject to a valid preferential right after the Closing Date, (ii) if
any portion of the Interests are reconveyed to CMS pursuant to the CMS
Agreement, (iii) if any required consent to the assignment of any portion of the
Interests from Terra to Seller, from CMS to Seller, or from Seller to Buyer is
not obtained within 120 days after the Closing and Buyer does not elect to waive
obtaining such consent, or (iv) if Buyer is required to reconvey any portion of
the Interests to Terra, CMS or Seller by court order, then Buyer shall be
obligated to convey such portion of the Interests to such third party or CMS,
Terra or Seller, as the case may be, and shall be entitled to receive all
amounts payable by such third party or by CMS, Terra or Seller, as the case may
be, in connection therewith up to an amount equal to the Allocated Value plus
the Lost Scheduled Amount attributable to the affected Interests. If the amount
so received by Buyer is less than the Allocated Value plus the Lost Scheduled
Amount attributable to each Well or interest therein included in such portion of
the Interests, Seller shall, within ten days after written notice from Buyer,
deliver to Buyer in immediately available funds an amount equal to the amount by
which (x) such Allocated Value and Lost Scheduled Amount exceeds (y) the amount
so received by Buyer.
(d) If any portion of the Interests is conveyed to CMS or
another third party pursuant to this Section 8.07, Seller shall cause the
Engineering Firm to rerun the Reserve Report and Buyer and Seller shall agree
upon appropriate adjustments to the Excess Credit Contribution Cap, the amount
of the Fixed Payment Note and the amortization thereof, the Full Production
Date, the Production Payment Termination Date, and the Scheduled Amount for each
Quarterly Period (collectively, the "Variables"), to adjust the Variables to
what they would have been had the portion of the Interests conveyed to CMS,
Terra, Seller or another third party not been included in the Interests, the
Reserve Report or the original determination of the Variables. The parties agree
to promptly execute and deliver such amendments to the Transaction Documents as
are necessary to reflect the changes in the Variables and Seller shall pay all
recording and filing fees associated with recording and filing such amendments.
Seller shall also pay all costs for the Engineering Firm to rerun the Reserve
Report to determine the changes in the Variables. The foregoing procedure in
this Section 8.07(d) shall also apply, where appropriate, to any portions of the
Interests as to which purchase price adjustments are made under the CMS
Agreement for title defects but which are not conveyed to CMS, Terra or another
third party under Section 8.07(c).
(e) It is the intent of the parties that the Units included in
the Interests include and be limited solely to the Units (which are described as
"projects" in the Reserve Report) described in the Reserve Report, including all
Qualified Wells and Non-Qualified Wells within such Units. Buyer agrees that in
the event any legal description attached to or included in the Assignment, the
PP Document, the Mariner Mortgage, the Quicksilver Mortgage or any of the other
Transaction Documents is determined to cover properties in
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addition to those which are described in and the subject of the Reserve Report
(the "Non-Mariner Properties"), Buyer will execute and deliver such conveyances,
terminations, releases and other corrective or curative documents as Seller
requests to reconvey such Non-Mariner Properties to Quicksilver and otherwise
release and terminate any liens or encumbrances held by Buyer on such Non-
Mariner Properties. Seller agrees to execute and deliver, or cause Terra to
execute and deliver, such supplemental and corrective assignments as may be
necessary (i) to convey all of Terra's interest to Quicksilver and (ii) to
convey all of Quicksilver's interest to Buyer, in the Units and projects which
are described in and the subject of the Reserve Report.
(f) Seller shall cause the official forms for assignment of all
State of Michigan Leases to be completed and submitted to the Michigan
Department of Natural Resources within 10 days after Closing.
8.08 Compression Arrangements. Seller has reserved certain
compressors used to compress gas produced from the Interests and the lateral
pipelines downstream from such compressors to the point such lateral pipelines
connect to a lateral pipeline or other pipeline owned by a third party. After
the Closing Buyer, as the successor in title to CMS, Terra and Seller, will be a
party to contracts with Gas Compression Services or other third parties pursuant
to which such third party purchases Gas produced from the Interests to fuel the
compressors retained by Seller and the other compressors used to compress the
Gas prior to its delivery to Cinnabar. Such contracts are set forth in Schedule
8.08 attached hereto. Seller shall furnish Buyer with copies of all such
contracts by May 30, 2000 in order that Buyer may review such contracts and
determine if such contracts are sufficient to permit the Gas sold to such third
party compression service providers to be treated as Qualified Production. If
Buyer is not satisfied that such Gas may be treated as Qualified Production, the
parties shall use their reasonable commercial efforts to cause such arrangements
to be amended, or enter into other arrangements, in order that such Gas may be
treated as Qualified Production. Such Gas shall not be included in Qualified
Production on any Quarterly Statement unless and until Buyer is satisfied that
it qualifies as Qualified Production. Seller agrees to lease or otherwise make
available the compressors retained by Seller to such third party compression
service providers in order to enable them to provide such services. Seller, its
successors and assigns, agrees to continue to deliver the Gas after compression
to the third party lateral or pipeline, and, after the termination of the above
described third party compression arrangements, to compress the Gas, on terms no
less favorable to Buyer, its successors and assigns, than arms' length terms for
similar services in the area provided by third parties.
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ARTICLE IX
SELLER'S OPTION TO PURCHASE OIL AND GAS INTERESTS
9.01 Grant of Seller's Option. For and in consideration of $10.00 and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Buyer hereby grants to Seller, its successors and assigns,
an exclusive and irrevocable option to purchase all (but not less than all) of
the Interests ((i) excluding equipment and other tangible Interests disposed of
in the ordinary course of business, and Leases and Units that have expired, been
terminated or defeased in the ordinary course of business, and (ii) including
any additions to the equipment and other tangible property owned by Buyer and
located on the Land, appurtenant thereto or used or obtained in connection
therewith or with the production, gathering, treatment, processing, sale or
disposal of Hydrocarbons or water produced therefrom or attributable thereto)
(the "Seller's Option"), such Seller's Option to be exercisable as set forth in
Sections 9.02 through 9.07 below. The Seller's Option is subject to any
restrictions, exceptions, reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to the Interests other than
matters arising by, through or under Buyer. To the extent transferable, upon
Seller's exercise of the Seller's Option, Buyer will transfer to Seller the
benefit of and right to enforce all covenants and warranties, if any, which
Buyer is entitled to enforce against Buyer's predecessors in title to the
Interests.
9.02 Term of the Seller's Option.
(a) The Seller's Option is a presently vested interest in real
property exercisable by Seller on or after each of the following dates
(each being a "Trigger Date"):
(1) Subject to Section 9.07, September 1, 2002; and
(2) When the cumulative Excess Credit Capital
Contributions made by the members of Buyer to Buyer pursuant to
Section 3.2 of the LLC Agreement, equals or exceeds the Excess
Credit Contribution Cap.
(b) Each time the Seller's Option shall have become
exercisable, Seller's right to exercise the Seller's Option shall terminate
if not timely exercised in accordance with the terms hereof on or before
11:59 p.m. Eastern Time on the date which is 180 days following the
applicable Trigger Date (the "Seller's Exercise Termination Date"). Subject
to Section 9.07, but notwithstanding any other provision of this Article
IX, Seller's option to repurchase the Interests under this Article IX shall
terminate if Seller has not exercised such option by March 31, 2003.
9.03 Exercise of the Seller's Option. Seller shall exercise the
Seller's Option by providing written notice to Buyer on or before the Seller's
Exercise Termination Date (the "Seller's Option Exercise Date"). Subject to
Section 9.07, the parties agree that the date on
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which the transaction contemplated by exercising the Seller's Option closes
(the "Seller's Option Closing Date") shall be on or before 60 days following the
Seller's Option Exercise Date, provided, however, the Seller's Option Closing
Date shall not occur before December 31, 2002.
9.04 The Seller's Option Purchase Price. The cash purchase price to
be paid by Seller to Buyer on the Seller's Option Closing Date for the Interests
(the "Seller's Option Purchase Price") shall be the fair market value of the
Interests as of the Seller's Option Exercise Date, subject to all encumbrances
thereon except encumbrances placed on the Interests by Buyer, including, without
limitation, the Production Payment and the Reversionary Interest, with
appropriate adjustments for Expense Loans (as defined in the Management
Agreement), costs and expenses paid, revenues received, gas imbalances and other
benefits and liabilities accruing with respect to the Interests prior to the
Seller's Option Closing Date. The parties shall attempt to agree upon the fair
market value of the Interests within 15 days after delivery of notice of the
exercise of the Seller's Option. If the parties are unable to so agree, then
the fair market value of the Interests shall be equal to (i) the net present
value of the remaining recoverable proved developed producing reserves, and all
proved developed nonproducing reserves attributable to any Rework Operations
that have not been conducted, as of the Seller's Option Exercise Date,
determined without deduction of the Production Payment, less (ii) the net
present value of the Production Payment as of the Seller's Option Exercise Date.
The net present value of the remaining recoverable proved developed
producing reserves, and all proved developed nonproducing reserves attributable
to any Rework Operations that have not been conducted, shall be established in
the following manner and in accordance with the following agreed valuation
principles:
(a) the fair market value shall be net of the Reversionary
Interest;
(b) recoverable reserves, projected recovery rates, and
operating expense forecasts will be made by Schlumberger
Holditch - Reservoir Technologies Consulting Services, or
such other firm of independent petroleum engineers as the
parties shall agree (the "Engineering Firm");
(c) gas prices will be equal to the then volume-weighted
average price received by Buyer under the Cinnabar Gas
Sales Contract and existing arms' length gas contracts with
third parties or other arms' length spot sales to third
parties for gas produced from the Interests for the 12
months immediately preceding the Seller's Option Exercise
Date adjusted for any future price escalation or de-
escalation under any such arms' length third party
contracts (with such weighted average price otherwise
unescalated);
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(d) the resulting net revenue stream prepared by the
Engineering Firm will be discounted at the rate equal to
the Prime Rate plus 400 basis points;
(e) otherwise generally utilizing the same methodology used in
preparing the Reserve Report; and
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(f) assuming that all of the representations and warranties
made by Seller in this Agreement as to the Interests were
true and correct as of the Closing notwithstanding that any
such representation or warranty may be discovered not to
have been true and correct, except that changes from the
state of facts so represented or warranted by Seller in the
case of (1) events occurring after Closing or (2) changes
necessary to reflect the state of facts giving rise to any
payment by Seller to Buyer pursuant to Section 8.02(c)
shall be given full effect and accounted for in the
valuation.
The net present value of the Production Payment shall be an amount equal to the
net present value of the projected payments to Seller under the Production
Payment determined in a similar manner for the remaining recoverable proved
developed producing reserves, and all proved developed nonproducing reserves
attributable to any Rework Operations that have not been conducted, burdened
thereby and after giving effect to all projected debits to the Net Profits
Account under the PP Document including, without limitation, projected debits
for payments of principal and interest under the Fixed Payment Note pursuant to
Section 3.3(n) of the PP Document, projected debits for any Unrecouped Scheduled
Amount & Interest Deficits pursuant to Section 3.3(o) of the PP Document, and
projected debits pursuant to Section 3.3(p) of the PP Document, in each case at
the times and in the amounts projected to be made prior to the Production
Payment Termination Date (as defined in the PP Document). For purposes of
calculating projected Quarterly Scheduled Amount Deficits, Cumulative Scheduled
Amount Deficits, Excess Tax Credits, and Unrecouped Scheduled Amount & Interest
Deficits (as such terms are defined in the PP Document), it shall be assumed
that the Aggregate Tax Credits from and after the Seller's Option Closing Date
will be zero.
Seller shall engage the Engineering Firm and be responsible for payment of the
fees and expenses of the Engineering Firm. If the parties cannot agree on the
Seller's Option Purchase Price, the parties agree to submit the issue to binding
arbitration in accordance with the arbitration procedures set forth in Article
XI. The determination of the Seller's Option Purchase Price by the arbitrators
shall be conclusive and binding upon the parties.
9.05 Seller's Option Closing Date. On the Seller's Option Closing
Date, the following shall occur:
(a) Seller shall pay to Buyer, by wire transfer in immediately
available funds, (i) the Seller's Option Purchase Price, less (ii) the
outstanding balance of principal and accrued interest under the Fixed
Payment Note as of the Seller's Option Exercise Date, but not to exceed the
Seller's Option Purchase Price. The amount in "(ii)" shall be applied
toward prepayment of the Fixed Payment Note and if such amount is
sufficient to pay the Fixed Payment Note in full, the Fixed Payment Note
shall be deemed discharged and canceled; if the amount in "(ii)" is
insufficient to discharge the Fixed Payment Note, the Fixed Payment Note
shall continue in full
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force and effect, no further monthly payments shall be due or payable
thereunder, and the remaining outstanding balance, together with interest
thereon as provided in the Fixed Payment Note, shall be due and payable on
the Maturity Date (as defined therein);
(b) Buyer shall execute, acknowledge, and deliver to Seller
sufficient numbers of assignments of the Interests ((i) excluding equipment
and other tangible Interests disposed of in the ordinary course of
business, and Leases and Units that have expired, been terminated or
defeased in the ordinary course of business, and (ii) including any
additions to the equipment and other tangible property owned by Buyer and
located on the Land, appurtenant thereto or used or obtained in connection
therewith or with the production, gathering, treatment, processing, sale or
disposal of Hydrocarbons or water produced therefrom or attributable
thereto) to permit Seller to record said assignments of record, such
assignments to be in a form reasonably satisfactory to Buyer and Seller.
The assignments will contain legally sufficient property descriptions of
such Interests, comply with all recordation and governmental requirements,
be made effective as of the Seller's Option Exercise Date, and contain a
special warranty of title, subject to the Production Payment and the
Reversionary Interest.
(c) Seller shall assume and release and indemnify, defend and
save and hold harmless Buyer from all liabilities and obligations relating
to the Interests, including but not limited to those arising under the
Production Payment and all liabilities and other Adverse Consequences,
including, without limitation, those arising under Environmental Laws that
are attributable to the Interests (whether arising before, during or after
Buyer's period of ownership and whether or not attributable to the actions
of Buyer); provided, however, that notwithstanding any other provision of
this Agreement or the other Transaction Documents, Seller shall have no
obligation in regard to liabilities and other Adverse Consequences to the
extent the same are attributable to the gross negligence or willful
misconduct of (1) Buyer or to the breach by Buyer of the Transaction
Documents; provided, however, that acts of Seller (its successors and
assigns) as Buyer's manager under the Management Agreement shall not be
deemed to be acts of Buyer or (2) any manager or operator of the Interests
other than Seller (its successors or assigns), under any agreement similar
to or in substitution for the Management Agreement following the
termination of the Management Agreement.
9.06 Refund of Unused Abandonment Reserve. Upon any such repurchase
by Seller, any funds remaining in the Quicksilver Abandonment Account-PP, and
any funds received by Buyer from such account but not applied to pay Abandonment
Costs (as defined in the PP Document), shall be paid to Seller.
9.07 Extension of Option Period. If, by reason of an amendment to or
affecting section 29(f) of the Code, the Capital Contribution Termination Date
is after December 31, 2002, the dates certain in Sections 9.02 and 9.03 shall be
deemed extended by that number
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of days equal to the number of days between December 31, 2002 and the Capital
Contribution Termination Date.
ARTICLE X
BUYER'S OPTION TO PURCHASE OIL AND GAS INTERESTS
10.01 Grant of Buyer's Option. For and in consideration of $10.00 and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Seller hereby grants to Buyer, its successors and assigns,
an exclusive and irrevocable option (the "Buyer's Option") to purchase:
(a) If the Buyer's Option is exercised as to all of the Wells,
Leases and Units, the (i) Production Payment, and (ii) the Reversionary
Interest and all other right, title and interest of Seller in and to the
Wells, Leases and Units (excluding equipment and other tangible Interests
disposed of in the ordinary course of business, and Leases and Units that
have expired, been terminated or defeased in the ordinary course of
business and including any additions to the equipment and other tangible
property owned by Seller and located on the Land, appurtenant thereto or
used or obtained in connection therewith or with the production, gathering,
treatment, processing, sale or disposal of Hydrocarbons or water produced
therefrom or attributable thereto) (the "Seller's Interests").
(b) If the Buyer's Option is exercised with respect to less
than all of the Wells, Leases and Units, Buyer, or its designee or
assignee, shall purchase the interests described in clause (a)(ii) above
insofar as they relate to the Wells, Leases and Units being purchased and,
instead of purchasing the Production Payment, that portion of the Wells,
Leases and Units with respect to which the Buyer's Option is exercised
shall be released from the Production Payment.
Buyer's Option shall be exercisable as set forth in Sections 10.02 through 10.07
below. The Buyer's Option is subject to any restrictions, exceptions,
reservations, conditions, limitations, burdens, contracts, agreements and other
matters applicable to the Seller's Interests other than matters arising by,
through or under Seller. To the extent transferable, upon Buyer's exercise of
the Buyer's Option, Seller will transfer to Buyer the benefit of and right to
enforce all covenants and warranties, if any, which Seller is entitled to
enforce against Seller's predecessors in title to the Seller's Interests.
10.02 Term of the Buyer's Option
(a) Buyer may exercise the Buyer's Option for all or any part
of Seller's Interests provided, however, any partial exercise of the
Buyer's Option shall not cover less than all of any Unit.
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(b) Subject to Section 10.07, the Buyer's Option is exercisable
by Buyer from time to time with respect to any Unit for a period of three
years after June 1, 2003; provided, however, Buyer shall not have the right
to exercise Buyer's Option until Seller's Option has expired unexercised.
(c) Subject to Section 10.07, Buyer's right to exercise the
Buyer's Option shall terminate at 5:00 p.m. Central Time on June 1, 2006
(the "Buyer's Exercise Termination Date").
10.03 Exercise of the Buyer's Option. Buyer shall exercise the Buyer's
Option by providing written notice to Seller on or before the Buyer's Exercise
Termination Date (the "Buyer's Option Exercise Date"). The parties agree that
the date on which the transaction contemplated by exercising the Buyer's Option
closes (the "Buyer's Option Closing Date") shall be on or before 120 days
following the Buyer's Option Exercise Date.
10.04 The Buyer's Option Purchase Price.
(a) If Buyer exercises the Buyer's Option with respect to all
of Seller's Interests, the cash purchase price to be paid by Buyer to
Seller on the Buyer's Option Closing Date for the Seller's Interests (the
"Buyer's Option Purchase Price") shall be the fair market value of the
Seller's Interests, free and clear of all encumbrances arising by, through
and under Seller which will be released on the Buyer's Option Closing Date,
and other liabilities accruing with respect to the Seller's Interests prior
to the Buyer's Option Closing Date.
The fair market value of the Seller's Interests shall be equal to (i) the
net present value of the remaining recoverable proved reserves attributable
to the Reversionary Interest plus (ii) the net present value of the
projected payments to Seller under the Production Payment as of the Buyer's
Option Exercise Date (which shall be determined in the same manner as
described in Section 9.04).
The net present value of the remaining recoverable proved reserves
attributable to the Reversionary Interest shall be established in the
following manner and in accordance with the following agreed valuation
principles:
(i) recoverable reserves, projected recovery rates, and
operating expense forecasts will be made by the Engineering
Firm, or such other firm of independent petroleum engineers
as the parties shall agree;
(ii) gas prices will be equal to the then volume-weighted
average price received by Buyer under the Cinnabar Gas
Sales Contract and existing arms' length gas contracts with
third parties or other arms' length spot sales to third
parties for gas produced from the Interests for the 12
months immediately preceding the Buyer's Option Exercise
Date adjusted for any future price escalation or de-
escalation under
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any such arms' length third party contracts (with such
weighted average price otherwise unescalated);
(iii) the resulting net revenue stream prepared by the
Engineering Firm will be discounted at the rate equal to
the Prime Rate plus 400 basis points; and
(iv) otherwise generally utilizing the same methodology used in
preparing the Reserve Report.
(b) If Buyer exercises its option with respect to less than all
of Seller's Interests, the purchase price to be paid to Seller on the
Buyer's Option Closing Date shall be (i) the fair market value of that
portion of the Reversionary Interest attributable to the Wells, Leases and
Units with respect to which the Buyer's Option is exercised, which shall be
determined as provided in Section 10.04(a), plus (ii) the PP Partial
Release Payment. The "PP Partial Release Payment" shall be an amount equal
to the excess, if any, of (x) the net present value of the Production
Payment calculated as provided in Section 10.04(a) over (y) the net present
value of the Production Payment calculated as provided in Section 10.04(a)
but assuming that the Production Payment did not burden the Wells, Leases
and Units with respect to which the Buyer's Option is exercised.
(c) Buyer shall engage the Engineering Firm and be responsible
for payment of the fees and expenses of the Engineering Firm. If the
parties cannot agree on the Buyer's Option Purchase Price, the parties
agree to submit the issue to binding arbitration in accordance with the
arbitration procedures set forth in Article XI. The determination of the
Buyer's Option Purchase Price by the arbitrators shall be conclusive and
binding upon the parties.
10.05 Buyer's Option Closing Date. On the Buyer's Option Closing Date,
the following shall occur:
(a) Buyer shall pay to the Senior Lenders and Sub-Debt Lenders
the amount, not to exceed the Buyer's Option Purchase Price, necessary to
obtain a release of the Bank Liens and TCW Liens (as such terms are defined
in the Intercreditor Agreement) as provided in Section 9 of the
Intercreditor Agreement and Buyer shall pay the balance, if any, of the
Buyer's Option Purchase Price to Seller by wire transfer in immediately
available funds.
(b) Seller shall execute, acknowledge, and deliver to Buyer
sufficient numbers of assignments of the Seller's Interests to permit Buyer
to record said assignments of record, such assignments to be in a form
reasonably satisfactory to Buyer and Seller. The assignments will contain
legally sufficient property descriptions of the Seller's Interests, comply
with all recordation and governmental
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requirements, be made effective as of the Buyer's Option Exercise Date, and
contain a special warranty of title.
(c) Buyer shall assume and release and indemnify, defend and
save and hold harmless Seller from all liabilities and obligations relating
to the Seller's Interests, including but not limited to Adverse
Consequences, including, without limitation, those arising under
Environmental Laws that are attributable to the Seller's Interests arising
after the Buyer's Option Closing Date; provided, however, that
notwithstanding any other provision of this Agreement or the other
Transaction Documents, Buyer shall have no obligation in regard to
liabilities and other Adverse Consequences to the extent the same are
attributable to the gross negligence or willful misconduct of Seller or to
the breach by Seller of the Transaction Documents.
(d) If the Buyer's Option is exercised with respect to all of
the Wells, Leases and Units, Buyer shall pay to Seller the outstanding
balance of principal and interest under the Fixed Payment Note as of the
Buyer's Option Exercise Date, the Fixed Payment Note shall be canceled and
the Quicksilver Mortgage shall be completely released. If the Buyer's
Option is exercised with respect to less than all of the Wells, Leases and
Units, Buyer shall make a prepayment on the Fixed Payment Note in an amount
equal to the outstanding balance of principal and interest under the Fixed
Payment Note as of the Buyer's Option Exercise Date multiplied by a
fraction whose numerator is the Allocated Value of the Wells, Leases and
Units with respect to which the Buyer's Option is exercised and whose
denominator is $83,872,000, and the Quicksilver Mortgage shall be released
insofar as it covers the Wells, Leases and Units with respect to which the
Buyer's Option is exercised.
(e) If the Buyer's Option is exercised with respect to less
than all of the Wells, Leases and Units, (i) the volume that triggers the
Production Payment Termination Date shall be reduced by the Mcf of Gas
attributable to the Interests projected to be produced and sold from the
Wells with respect to which the Buyer's Option is exercised from the
Buyer's Option Exercise Date through the Production Payment Termination
Date (prior to this adjustment), as projected by the Engineering Firm, and
(ii) the parties shall execute an amendment in recordable form to the PP
Document reflecting such reduction and releasing from the Production
Payment the Wells, Leases and Units with respect to which Buyer's Option
was exercised.
10.06 Assignability. Buyer shall have the right to assign Buyer's
Option, insofar as it covers all or any number of the Units, to any third party
who purchases, or is purchasing on the Buyer's Option Closing Date, Buyer's
interests in such Unit(s). Buyer may assign all or any portion of Buyer's
Option to such third parties; provided, however, any partial assignment of
Buyer's Option shall be on a "Unit-by-Unit" basis.
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10.07 Extension of Option Period. If, by reason or an amendment to or
affecting section 29(f) of the Code, Capital Contribution Termination Date is
after December 31, 2002, the dates certain in Sections 10.02(b) and 10.02(c)
shall be deemed extended by that number of days equal to the number of days
between December 31, 2002 and the Capital Contribution Termination Date.
ARTICLE XI
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ARBITRATION
11.01 Submission to Arbitration. The parties hereby submit all
controversies, claims and matters of difference to arbitration. Without
limiting the generality of the foregoing, the following shall be considered
controversies for this purpose: (a) all questions relating to the
interpretation or breach of this Agreement, and (b) all questions as to whether
the right to arbitrate any question exists. Buyer and Seller shall each have
the right but not the obligation to consolidate into one arbitration proceeding
any matters subject to arbitration under this Agreement or any other Transaction
Document.
11.02 Initiation of Arbitration and Selection of Arbitrators. The
party desiring arbitration shall so notify the other party identifying in
reasonable detail the matters to be arbitrated and the relief sought.
Arbitration hereunder shall be before a three-person panel of neutral
arbitrators, consisting of one person from each of the following categories: (1)
an attorney with at least ten year's experience in oil and gas tax law; (2) an
attorney with at least ten years' experience in general commercial law including
oil and gas matters; and (3) a person with at least ten years' experience in the
petroleum industry. The AAA shall submit a list of persons meeting the criteria
outlined above for each category of arbitrator, and the parties shall select one
person from each category in the manner established by the AAA. In the event
that any party fails to select arbitrators as required above, the AAA shall
select such arbitrators. The arbitrators shall be entitled to a fee
commensurate with their fees for professional services requiring similar time
and effort. If the arbitrators so desire they shall have the authority to
retain the services of a neutral judge or attorney (whose fees shall be treated
as an arbitrator's fees) to assist them in administering the arbitration and
conducting any hearings and taking evidence at such hearings or otherwise.
11.03 Arbitration Procedures. All matters arbitrated hereunder shall
be arbitrated in Detroit, Michigan, pursuant to Michigan law and shall be
conducted in accordance with the Commercial Arbitration Rules of the AAA. The
arbitrators shall conduct a hearing no later than 45 days after submission of
the matter to arbitration, and a decision shall be rendered by the arbitrators
within 10 days of the hearing. At the hearing, the parties shall present such
evidence and witnesses as they may choose, with or without counsel. Adherence to
formal rules of evidence shall not be required but the arbitration panel shall
consider any evidence and testimony that it determines to be relevant, in
accordance with procedures that it determines to be appropriate. Any award
entered in an arbitration shall be made by a written opinion stating the reasons
for the award made.
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11.04 Enforcement. This submission and agreement to arbitrate shall be
specifically enforceable. Arbitration may proceed in the absence of any party
if notice of the proceedings has been given to such party. The parties agree to
abide by all awards rendered in such proceedings. Such awards shall be final
and binding on all parties to the extent and in the manner provided by Michigan
law. All awards may be filed with the clerk of one or more courts, state,
federal or foreign having jurisdiction over the party against whom such award is
rendered or its property, as a basis of judgment and of the issuance of
execution for its collection. The parties hereby irrevocably consent to, and
waive all objections with respect to, the jurisdiction and venue of the state
and federal district courts in Detroit, Michigan as to all matters arising out
of or related to this Agreement and the Transaction Documents. No party shall
be considered in default of an obligation hereunder during the pendency of
arbitration proceedings specifically relating to such obligation.
11.05 Fees and Costs. The arbitrator's fees and other costs of the
arbitration and the reasonable attorney fees, expert witness fees and costs of
the prevailing party shall be borne by the non-prevailing party. In its written
opinion, the arbitration panel shall, after comparing the respective positions
asserted in the arbitration claim and answer thereto, declare as the prevailing
party the party whose position was closest to the arbitration award (not
necessarily the party in favor of which the award on the arbitration claim is
rendered) and declare the other party to be the non-prevailing party. The
arbitration award shall include an award of the fees and costs provided by this
Section 11.05 against the non-prevailing party.
ARTICLE XII
-----------
MISCELLANEOUS
12.01 Exhibits and Schedules. The Exhibits and Schedules referred to
in this Agreement are hereby incorporated in this Agreement by reference and
constitute a part of this Agreement. Each party to this Agreement and its
counsel has received a complete set of Exhibits and Schedules prior to and as of
the execution of this Agreement.
12.02 Expenses. Except as otherwise specifically provided in this
Agreement, all fees, costs and expenses incurred by Buyer or Seller in
negotiating this Agreement or in consummating the transactions contemplated by
this Agreement shall be paid by the party incurring the same, including without
limitation, legal and accounting fees, costs and expenses.
12.03 Notices. All notices and communications required or permitted
under this Agreement shall be in writing and shall be delivered by hand, by
nationally recognized overnight delivery service, by facsimile transmission or
by registered or certified mail, postage prepaid, addressed as follows:
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If to the Seller:
Quicksilver Resources Inc.
777 West Rosedale Street
Fort Worth, TX 76104
Attn: Glenn M. Darden
Fax: (817) 665-5005
If to the Buyer:
Mariner Gas LLC
c/o State Street Bank and Trust Company
225 Franklin Street, M-8
Boston, MA 02110
Attn: Susan A. Feig
Fax: (617) 664-4850
All notices and communications shall be effective upon actual receipt. Either
party may, by written notice so delivered to the other, change the address or
number to which delivery or facsimile shall thereafter be made.
12.04 Amendment. This Agreement may not be altered or amended, nor any
rights hereunder be waived, except by an instrument in writing executed by the
party or parties to be charged with such amendment or waiver. No waiver of any
term, provision or condition of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
12.05 Assignment.
(a) Seller may not assign any portion of its rights or delegate
any portion of its duties or obligations under this Agreement without the
prior written consent of Buyer; provided, however, that Seller may
mortgage, assign, pledge or hypothecate all or any portion of its rights
under the Transaction Documents including, without limitation, the
Production Payment, Reversionary Interest, Seller's Option, and Fixed
Payment Note (i) to the Senior Lenders and the Sub-Debt Lenders, without
the prior consent of Buyer, subject to the Intercreditor Agreement or (ii)
to another lender of Seller with Buyer's prior written consent, which
consent will not be unreasonably withheld but which may be conditioned upon
such other lenders entering into an agreement similar to the Intercreditor
Agreement with Buyer; provided however, that if Buyer exercises the Buyer's
Option, Buyer shall acquire Seller's interests free and clear of any such
mortgage, assignment, pledge or hypothecation and the provisions of such
documents provide for a release of the subject liens upon the closing of
Buyer's Option without any further payment from Buyer other than the
Buyer's Option Purchase Price. Notwithstanding the foregoing or any
provisions of
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any Transaction Document, Buyer's consent shall not be required for any
assignment or reassignment from time to time of Seller's rights and
interests under the Transaction Documents (other than the Management
Agreement), provided (1) Seller shall remain liable for all its obligations
hereunder, (2) each assignment or reassignment shall include all of
Seller's rights and interests under all of the Transaction Documents
excluding the Management Agreement, and (3) the assignee is an Affiliate of
Seller and remains an Affiliate of Seller through the expiration of Buyer's
Option.
(b) Buyer shall have the right to assign all or any part of its
rights under this Agreement without Seller's consent; provided that Buyer
shall remain liable for payment and performance of all of Buyer's
obligations under this Agreement unless expressly released therefrom by the
written consent of Seller.
12.06 Announcements. Seller and Buyer shall consult with each other
with regard to all press releases and other announcements concerning this
Agreement or the transactions contemplated hereby and, except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange, neither Buyer nor Seller shall issue any such press
release or make any other announcement without the prior written consent of the
other party. Each party shall furnish to the other party a copy of any such
release or announcement prior to its release.
12.07 Confidentiality.
(a) Buyer and Seller shall keep this Agreement and the other
Transaction Documents confidential (i) except Buyer may furnish copies of
the Transaction Documents to the IRS in connection with seeking the Private
Letter Ruling and each party may disclose the terms of the Transaction
Documents to the IRS as necessary, and (ii) except to the extent either
party may be required to disclose the contents of the Management Agreement
to third parties in carrying on the business of Buyer or filing the
official forms of conveyances covering the Interests with appropriate
governmental authorities, or to the extent required in the operation of the
Interests, pursuant to the Management Agreement, by law, regulation or
order, by stock exchange requirements, in connection with obtaining third
party consents and waivers of preferential purchase rights and other
matters, or in connection with any public announcement issued in accordance
with Section 11.06.
(b) Buyer will keep confidential the Confidential Information
furnished to Buyer or State Street Bank and Trust Company by Seller
concerning Seller and the Interests, except (1) to the extent that
disclosure to a third party is required by applicable law or regulation or
by stock exchange requirements; (2) information which, at the time of
disclosure, is generally available to the public (other than as a result of
a breach of this Agreement) as evidenced by a generally available document
or publication; (3) information that was in its possession prior to
disclosure and was not acquired directly or indirectly from Seller; (4) to
the extent disclosure is
61
<PAGE>
necessary or advisable, to its employees, consultants or advisors for the
purpose of carrying out their obligations hereunder; (5) potential
purchasers of the Interests or membership interests in Buyer and their
financial institutions, accountants, consultants, legal counsel or
investment advisors; (6) to the extent necessary, disclosure to third
parties to enforce this Agreement, or (7) to a member or manager, or any
Affiliate of Buyer; provided, however, that in each case of disclosure
pursuant to (4), (5), or (7), the persons to whom disclosure is made agree
to be bound by this confidentiality provision. As used in this paragraph,
the term "Confidential Information" shall mean information concerning the
Interests, the operations thereof, business, trade secrets, technical know-
how and other non-public information relating to Seller.
12.08 Headings. The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.
12.09 Counterparts. This Agreement may be executed by Buyer and Seller
in any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument. This Agreement shall become operative when each party has executed
at least one counterpart of this Agreement. Delivery of an executed counterpart
of this Agreement (or any other documents related to the transactions
contemplated by this Agreement) by facsimile shall be equally effective as
delivery of a manually executed counterpart of this Agreement or any such
document, and the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability or binding effect of this Agreement or any
such document.
12.10 References. References made in this Agreement, including use of
a pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships or corporations.
12.11 Governing Law. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
State of Michigan, without application of such state's conflict of laws rules.
12.12 Entire Agreement. This Agreement and the other Transaction
Documents (including the Exhibits and Schedules hereto and thereto) constitute
the entire understanding between the parties with respect to the subject matter
hereof and supersedes all negotiations, prior discussions and prior agreements
and understandings relating to such subject matter.
12.13 Mutually Drafted. The parties stipulate and agree that the
Transaction Documents and the language used in the Transaction Documents are the
product of both parties' efforts in consultation with their attorneys and other
consultants and each party hereby irrevocably waives the benefit of any rule of
contract construction which disfavors the drafter of an agreement.
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12.14 Parties in Interest. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and assigns. Nothing contained in this
Agreement, express or implied, is intended to confer upon any other person or
entity any benefits, rights or remedies.
12.15 Late Payments. In the event that any amount owed by one party to
the other party under this Agreement is not paid when it becomes due and
payable, in addition to any other remedies at law or in equity, Buyer or Seller,
as the case may be, agrees to pay interest at the Late Payment Interest Rate,
compounded monthly, on such past due amount from the due date until paid.
[SIGNATURES ON NEXT PAGE]
63
<PAGE>
MARINER GAS LLC
By: Antrim Corporation
Manager
By: /s/ Susan A. Feig
--------------------------------------
Name: Susan A. Feig
Title: President
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
--------------------------------------
Name: Glenn Darden
Title: President and Chief Executive
Officer
64
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EXHIBIT 15
May 12, 2000
Quicksilver Resources Inc.
777 West Rosedale
Fort Worth, Texas 76104
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of Quicksilver Resources Inc. and subsidiaries for the
periods ended March 31, 2000 and 1999, as indicated in our report dated May 11,
2000; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, is
incorporated by reference in Registration Statement No. 333-94387 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
Fort Worth, Texas
<PAGE>
EXHIBIT 23
Holditch-Reservoir Technologies Consulting Services
1310 Commerce Drive
Park Ridge 1
Pittsburgh, PA 15275-1011
Tel: 412-787-5403
Fax: 412-787-2906
12 May, 2000
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
Holditch-Reservoir Technologies Consulting Services hereby consents to the
references to our firm in the form and context in which they appear in the
Quarterly Report on Form 10-Q of Quicksilver Resources Inc. (the "Company") for
the quarter ended March 31, 2000. We hereby further consent to the use of
information contained in our reports, as of April 1, 2000 setting forth the
estimates of revenues from the Company's oil and gas reserves. We further
consent to the incorporation by references of the Form 10-Q into the Company's
Registration Statement on Form S-8 (Registration No. 333-94387).
Very truly yours,
/s/ Joseph H. Frantz, Jr.
Joseph H. Frantz, Jr.
Manager
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