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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1999
(DATE OF REPORT) (DATE OF EARLIEST EVENT REPORTED)
VENUS EXPLORATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-14334 13-3299127
(COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
1250 N.E. LOOP 410
SUITE 1000
SAN ANTONIO, TEXAS 78209
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (210) 930-4900
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1999, EXUS Energy, LLC, a Delaware limited liability
company ("EXUS"), owned 50% by EXCO Resources, Inc. ("EXCO") and 50% by Venus
Exploration, Inc. ("Venus"), completed the acquisition from Apache Corporation
of certain oil and natural gas properties located in Jackson Parish, Louisiana
(the "Jackson Parish Properties"). Exco is a publicly-held oil and gas company
based in Dallas, Texas. The Jackson Parish Properties include 17 gross (14.25
net) producing wells. EXCO is the named operator of the Jackson Parish
Properties and assumed operations of all 17 wells acquired in the transaction.
The Jackson Parish Properties include 6,411 gross (5,672 net) developed acres
and 1,532 gross (1,148 net) undeveloped acres. As of April 1, 1999, the Jackson
Parish Properties were estimated to contain 2,815 barrels of oil ("Bbls") and
66.5 billion cubic feet ("Bcf") of gas. The purchase price, before closing
adjustments, was approximately $28.5 million, and after adjustments (the
adjustments principally reflect production since March 1, 1999, the effective
date of the acquisition), was $27.6 million cash. The purchase price was funded
with $14 million drawn under a new credit facility established by EXUS and $14
million of EXUS equity capital. The purchase price was determined based upon
arms-length negotiations between Apache Corporation and Venus taking into
account reserve estimates and other items customarily considered in acquisitions
of this type.
Purchase and Sale Agreement. The Jackson Parish Properties were
acquired pursuant to the terms of a Purchase and Sale Agreement (the "Purchase
Agreement"), dated as of May 13, 1999, entered into between Apache Corporation
and Venus. At closing of the acquisition, EXUS was assigned Venus' rights and
obligations under the Purchase Agreement. The Purchase Agreement includes
representations, warranties, covenants and closing conditions customary for
transactions of this type.
Limited Liability Company Agreement. EXCO and Venus have entered into a
Limited Liability Company Agreement (the "LLC Agreement"). EXCO and Venus each
own a 50% equity interest in EXUS and thereby entitled to a 50% share of the
profits and losses of EXUS, subject to special allocations in certain events.
EXUS' principal business purpose is initially the management and development of
the Jackson Parish Properties. EXCO and Venus have established an area of mutual
interest in respect of the Jackson Parish Properties which governs any
additional acquisitions of properties by either partner within the area. In
addition, the partners may also undertake other acquisitions of oil and gas
properties through EXUS.
EXUS shall be managed by a management committee comprised of two
persons designated by EXCO (initially, EXCO's representatives are Douglas H.
Miller, its Chairman and Chief Executive Officer, and T.W. Eubank, its
President) and two persons designated by Venus (initially, Venus'
representatives are Eugene L. Ames, Jr., its Chairman and Chief Executive
Officer, and John Y. Ames, its President and Chief Operating Officer). EXUS'
officers are: Eugene L. Ames, Jr., Chairman of the Management Committee; T.W.
Eubank, President, J. Douglas Ramsey, Vice President and Treasurer; and Richard
E. Miller, Secretary.
Most actions of the members require majority consent. Certain actions
require consent of members holding 66 2/3% of the membership interests
including: merger, sale of all of EXUS' assets, liquidation, conversion of the
legal form of the entity to another form or amending the LLC Agreement to change
any minority membership interest protection.
EXCO and Venus initially capitalized EXUS with $14 million of equity
capital, all of which was applied to fund the purchase of the Jackson Parish
Properties. EXUS also arranged a credit facility (discussed in greater detail
below) through NationsBank, N.A. to fund a portion of the Jackson Parish
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Properties acquisition, to fund additional development drilling of the
properties and to fund additional acquisitions.
The members have identified to date certain additional development
drilling opportunities in the Jackson Parish Properties and have initially
budgeted $5.1 million (subject to lender approval) to fund those activities. The
LLC Agreement permits the Management Committee to call for additional capital
contributions from the members to fund the capital needs of EXUS. Furthermore,
either member may propose a Subsequent Operation (as that term is defined in the
joint operating agreement between EXUS and EXCO governing operation of the
Jackson Parish Properties) on the Jackson Parish Properties. A "Subsequent
Operation" would encompass significant drilling activities such as a new well,
recompletion of an existing well or workover project. In the event EXCO and
Venus are unable to agree to fund the project through EXUS, the proposing member
may elect to proceed with the Subsequent Operation in EXUS's name, but the
Subsequent Operation will be funded solely by the proposing member. In that
event, all expenses, losses, gain or income from the project shall be specially
allocated solely to the proposing member until the proposing member has recouped
a sum equal to 300% of the additional capital contribution that would have been
funded by the non-proposing member had it participated in the project.
Thereafter, all losses, expenses, gain or income shall be allocated to the
members pro rata according to their equity interest in EXUS.
The LLC Agreement includes other customary terms including terms
governing transfers of membership interests, voting, meetings and tax matters.
In conjunction with the LLC Agreement, Venus and EXCO have entered into
an Agreement Among Members governing transfer of the membership interests
(including a right of first refusal) and buy/sell rights in the event of a
deadlock between EXCO and Venus on a matter that requires a super-majority vote
of the members under the LLC Agreement.
Convertible Note. Of the initial $14 million of EXUS equity capital, $7
million was provided by EXCO from its cash on hand, and $7 million was provided
by Venus from borrowed funds. On June 30, 1999, Venus borrowed $7 million from
EXCO under the terms of an $8 million Convertible Promissory Note (the "Note").
The Note provides for borrowings up to $8 million, subject to restrictions on
the use of proceeds. As stated above, Venus drew $7 million under this Note to
fund Venus' capital contribution to EXUS. The Note provides for additional draws
beginning after January 1, 2000 not to exceed $1 million solely to fund
additional capital contributions to EXUS and/or to fund the expenses of one
equity issuance. Venus is not permitted to draw any of the $1 million until it
has obtained the stockholder approval described below. All borrowings under the
Note are secured by a first priority lien providing a security interest in the
membership interest of Venus in EXUS, and the distribution and income rights of
Venus in EXUS and/or to fund the expenses of one equity issuance. The Note
provides that advances will bear interest, which can be paid in cash or, at
Venus' election, Venus common stock, at a rate of 10% from June 30, 1999 through
June 30, 2000, with interest increasing 1% per year through June 30, 2004.
Advances will bear interest at a rate of 15% thereafter in the event of default.
If interest is paid in Venus common stock, the number of shares to be issued
shall be determined by dividing the interest payment due by the average market
price of one share of Venus common stock for the twenty trading days immediately
preceding the interest payment date. Interest is payable semi-annually
commencing on January 1, 2000. The Note matures on July 1, 2004 at which time
all of the unpaid principal is due and payable.
Beginning on July 1, 2000 and continuing until the payment in full of
the Note, EXCO, at its option, may convert all or any portion of the outstanding
principal balance and accrued interest into shares of Venus common stock for
$1.50 per share, subject to adjustment in certain events. On or before December
15, 1999, Venus is required to obtain approval of its stockholders (as required
by the rules of the
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Nasdaq SmallCap Market) of the issuance of the Venus common stock which may be
issued upon the conversion of principal or accrued interest under the terms of
the Note. In the event Venus is unable to obtain such stockholder approval,
Venus would be required to prepay $3 million of the Note plus accrued interest
thereon. (Venus is currently authorized to issue shares of its common stock upon
conversion of up to $4 million of the principal of the Note without such
stockholder approval; accordingly the $3 million mandatory prepayment equates to
the principal amount EXCO would not be able to convert to Venus common stock if
stockholder approval was not obtained.) Alternatively, Venus may elect to
transfer membership interests in EXUS held by Venus equal to 21.43% of the
aggregate outstanding interests of EXUS (this approximates 3/7 of Venus' equity
interest in EXUS) in exchange for a cancellation of $3 million of principal owed
under the Note.
The Note also requires a mandatory prepayment of principal equal to 50%
of the net proceeds of each equity issuance by Venus on or after June 30, 1999
(excluding the first $5 million of aggregate net proceeds of all equity
issuances after June 30, 1999). Venus may also voluntarily prepay any or all of
the Note (subject to a prepayment penalty of 3.57% of the principal prepaid for
any prepayment occurring on or prior to July 1, 2000).
The Note contains other customary terms including certain
representations, affirmative covenants (such as conduct of Venus' business,
reports to EXCO, compliance with laws), negative covenants (including no
purchase or redemption of Venus' common stock and no sale, transfer, mortgage or
pledge of the collateral securing the Note), and events of default (including
failure to pay principal or interest as required, violation of covenants in the
Note, bankruptcy, change of control of Venus, or default under Venus' secured
credit facility). An event of default would occur if Venus is unable to obtain
stockholder approval.
The shares which may be issued under the terms of the Note are subject
to a Registration Rights Agreement dated June 30, 1999. The Registration Rights
Agreement requires Venus to register with the Securities and Exchange Commission
10,133,333 shares of Venus common stock that may be issuable to EXCO under the
Note for resale by EXCO from time to time. The 10,133,333 shares represents (i)
5,333,333 that would be issued if EXCO were to convert $8 million of principal
under the Note at $1.50 per share and (ii) 4,800,000 shares assuming Venus were
to elect to pay all interest accruing on $8 million principal of the Note at an
assumed market price of $1.00 per share. The Registration Rights Agreement
provides that a registration statement must be filed with the SEC by September
28, 1999 and effective on or prior to the 120th day following the first issuance
of any shares under the Note (which 120 day period may be extended to 210 days
if Venus has timely complied with its covenants under the Registration Rights
Agreement, but the registration statement is still under review by the
Securities and Exchange Commission). The Registration Rights Agreement contains
other customary terms and provisions including indemnification for certain
facilities under applicable securities laws. A breach of the agreement would
constitute an event of default under the Note.
EXUS Credit Facility. On June 30, 1999, EXUS entered into a credit
facility with NationsBank, N.A. as administrative agent and lender. The credit
facility provides for borrowings up to $50 million, subject to borrowing base
limitations. The bank has sole discretion to determine the borrowing base based
on its valuation of EXUS' reserves valued semi-annually.
The credit facility consists of a regular revolver, which on July 15,
1999, had a borrowing base of $19.5 million. At July 15, 1999, EXUS had
approximately $5.5 million available for borrowing under the credit facility. A
portion of the borrowing base is available for the issuance of letters of
credit. All
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borrowings under the credit facility are secured by a first lien mortgage
providing a security interest in substantially all assets owned by EXUS
including all mineral interests.
The credit facility provides that if the aggregate outstanding
indebtedness of EXUS is less than 75% of the borrowing base, then advances will
bear interest at 1.5% over LIBOR. If the borrowing base usage equals or exceeds
75%, then advances will bear interest at 1.75% over LIBOR.
Under the terms of the credit facility, EXUS must not permit its
consolidated current assets to its consolidated current liabilities to be less
than 1.0 to 1.0 at any time. Furthermore, EXUS must not incur or pay general and
administrative expenses in an aggregate amount exceeding $100,000 during the
period from June 30, 1999 through December 31, 1999, or $200,000 during any
fiscal year thereafter. On July 15, 1999, EXUS was in compliance with both the
current ratio covenant and the general and administrative expense covenant.
Commencing on September 25, 1999 and continuing each month thereafter
until maturity, EXUS shall make mandatory prepayments on the credit facility in
an amount equal to 50% of EXUS' Net Revenues (as defined in the credit
facility) for the immediately preceding calendar month. Each such payment shall
be applied first to accrued but unpaid interest and then to principal. However,
if a borrowing base deficiency were to exist after giving effect to a
redetermination, then EXUS would have to do one of the following:
o eliminate the borrowing base deficiency by making a single mandatory
prepayment of principal on the revolving loan in an amount equal to the
entire amount of the borrowing base deficiency on the first monthly
date following the date on which the borrowing base deficiency is
determined to exist;
o eliminate the deficiency by making six consecutive mandatory
prepayments of principal on the revolving loan each of which shall be
in the amount of one sixth (1/6th) of the amount of the borrowing base
deficiency commencing on the first monthly date following the date on
which the borrowing base deficiency is determined to exist and
continuing on each monthly date thereafter; or
o eliminate the borrowing base deficiency by submitting additional
mineral interests to the banks on the first monthly date following the
date on which the borrowing base deficiency is determined to exist for
evaluation as borrowing base properties which the banks, in their sole
discretion, determine have a value sufficient to increase the borrowing
base by at least the amount of the borrowing base deficiency.
The credit facility matures on June 30, 2002. The next borrowing base
redetermination is scheduled for January 1, 2000, and on or about each April 30
and October 31, thereafter. EXUS may seek additional borrowing capacity at that
time for its development drilling program. However, we and EXUS cannot assure
you that the current development program of EXUS will result in increased
collateral values or that these values will enable us to borrow the funds EXUS
needs to continue the program.
The credit facility contains a number of covenants affecting the
liquidity and capital resources of EXUS, including restrictions on the ability
to incur indebtedness at any time in an amount exceeding $25,000 or to pledge
assets outside of the credit facility, the maintenance of a current ratio,
limitations on general and administrative expenses, and restrictions on the
payment of dividends on the equity capital units of EXUS.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
As permitted by Form 8-K, the required historical financial
statements in respect of the Jackson Parish Properties will be
filed by amendment to this Form 8-K no later than September
13, 1999.
(b) Pro Forma Financial Information.
As permitted by Form 8-K, the required pro forma financial
information in respect of the Jackson Parish Properties will
be filed by amendment to this Form 8-K no later than September
13, 1999.
(c) Exhibits.
Number Document
10.1 Purchase and Sale Agreement between Apache
Corporation as seller, and Venus
Exploration, Inc., buyer, dated May 13,
1999.
10.2 Credit Agreement among EXUS Energy, LLC, as
borrower, NationsBank, N.A., as
administrative agent, and financial
institutions listed on Schedule I, dated
June 30, 1999.
10.3 Limited Liability Company Agreement of EXUS
Energy, LLC, dated June 30, 1999.
10.4 Convertible Promissory Note made by Venus
Exploration, Inc. in favor of EXCO
Resources, Inc., dated June 30, 1999.
10.5 Pledge Agreement made by Venus Exploration,
Inc. for the benefit of EXCO Resources,
Inc., dated June 30, 1999.
10.6 Registration Rights Agreement between EXCO
Resources, Inc. and Venus Exploration, Inc.,
dated June 30, 1999.
10.7 Agreement Among Members between EXCO
Resources, Inc. and Venus Exploration, Inc.,
dated June 30, 1999.
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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, hereunto duly authorized.
VENUS EXPLORATION, INC.
By: /s/ PATRICK A. GARCIA
-------------------------------------
Patrick A. Garcia,
Chief Financial Officer and Treasurer
Dated: July 15, 1999
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Index To Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Purchase and Sale Agreement between Apache Corporation as seller, and
Venus Exploration, Inc., buyer, dated May 13, 1999.
10.2 Credit Agreement among EXUS Energy, LLC, as borrower, NationsBank,
N.A., as administrative agent, and financial institutions listed on
Schedule I, dated June 30, 1999.
10.3 Limited Liability Company Agreement of EXUS Energy, LLC, dated June 30,
1999.
10.4 Convertible Promissory Note made by Venus Exploration, Inc. in favor of
EXCO Resources, Inc., dated June 30, 1999.
10.5 Pledge Agreement made by Venus Exploration, Inc. for the benefit of
EXCO Resources, Inc., dated June 30, 1999.
10.6 Registration Rights Agreement between EXCO Resources, Inc. and Venus
Exploration, Inc., dated June 30, 1999.
10.7 Agreement Among Members between EXCO Resources, Inc. and Venus
Exploration, Inc., dated June 30, 1999.
</TABLE>
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EXHIBIT 10.1
PURCHASE AND SALE AGREEMENT
dated
May 13, 1999
between
APACHE CORPORATION
as
Seller
and
VENUS EXPLORATION, INC.
Buyer
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TABLE OF CONTENTS
<TABLE>
<S> <C>
1. PURCHASE AND SALE. .............................................................. 1
1.1 PURCHASE AND SALE. .............................................................. 1
1.2 INTERESTS. ...................................................................... 1
1.3 RESERVED INTERESTS. ............................................................. 2
1.4 EFFECTIVE TIME. ................................................................. 3
1.5 LIKE KIND EXCHANGE. ............................................................. 3
2. PURCHASE PRICE. ................................................................. 3
2.1 PURCHASE PRICE. ................................................................. 3
2.2 ADJUSTMENTS TO PURCHASE PRICE. .................................................. 4
3. REPRESENTATIONS AND WARRANTIES. ................................................. 5
3.1 REPRESENTATIONS AND WARRANTIES OF SELLER. ....................................... 5
3.2 REPRESENTATIONS AND WARRANTIES OF BUYER. ........................................ 6
4. COVENANTS AND AGREEMENTS. ....................................................... 7
4.1 COVENANTS AND AGREEMENTS OF SELLER. ............................................. 7
4.2 COVENANTS AND AGREEMENTS OF BUYER. .............................................. 8
5. TITLE MATTERS. ...................................................................... 10
5.1 DEFENSIBLE TITLE. ............................................................... 10
5.2 TITLE DEFECT ADJUSTMENTS. ....................................................... 11
5.3 PREFERENTIAL RIGHTS AND CONSENTS. ............................................... 12
5.4 CASUALTY LOSS. .................................................................. 12
6. ENVIRONMENTAL MATTERS. .......................................................... 13
6.1 ENVIRONMENTAL OBLIGATIONS. ...................................................... 13
6.2 DEFINITION OF ENVIRONMENTAL CLAIM, ENVIRONMENTAL CONDITION AND
ENVIRONMENTAL LAW. .............................................................. 14
6.3 WAIVER. ......................................................................... 15
6.4 REMEDIES FOR VIOLATION OF ENVIRONMENTAL LAW. .................................... 15
6.5 LIMITATIONS. .................................................................... 15
7. CONDITIONS TO CLOSING. .......................................................... 16
7.1 SELLER'S CONDITIONS. ............................................................ 16
7.2 BUYER'S CONDITIONS. ............................................................. 16
8. CLOSING. ........................................................................ 17
8.1 DATE OF CLOSING. ................................................................ 17
8.2 PLACE OF CLOSING. ............................................................... 17
8.3 CLOSING OBLIGATIONS. ............................................................ 17
</TABLE>
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<TABLE>
<S> <C>
9. OBLIGATIONS AFTER CLOSING. ...................................................... 18
9.1 POST-CLOSING ADJUSTMENT PROCEDURE. .............................................. 18
9.2 FILES AND RECORDS. .............................................................. 19
9.3 POST-CLOSING ADMINISTRATIVE ACCOUNTING RESPONSIBILITIES. ........................ 19
9.4 FURTHER ASSURANCES. ............................................................. 20
9.5 ASSUMPTION OF OBLIGATIONS. ...................................................... 20
9.6 INDEMNIFICATION. ................................................................ 22
10. TERMINATION OF AGREEMENT. ....................................................... 22
10.1 TERMINATION. .................................................................... 22
10.2 LIABILITIES UPON TERMINATION OR BREACH. ......................................... 23
11. MISCELLANEOUS. ..................................................................... 23
11.1 EXHIBITS. ....................................................................... 23
11.2 EXPENSES. ....................................................................... 23
11.3 NOTICES. ........................................................................ 23
11.4 WIRE TRANSFER INSTRUCTIONS. ..................................................... 24
11.5 AMENDMENTS. ..................................................................... 24
11.6 ASSIGNMENT. ..................................................................... 24
11.7 CONDITIONS. ..................................................................... 25
11.8 COUNTERPARTS. ................................................................... 25
11.9 GOVERNING LAW. .................................................................. 25
11.10 ENTIRE AGREEMENT. ............................................................... 25
11.11 PARTIES IN INTEREST. ............................................................ 25
11.12 SURVIVAL. ....................................................................... 25
11.13 ARBITRATION. .................................................................... 26
11.14 TAX MATTERS. .................................................................... 26
</TABLE>
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement"), dated the 13th day of May,
1999, is between APACHE CORPORATION ("Seller"), a Delaware corporation and VENUS
EXPLORATION, INC. ("Buyer").
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 agree
as follows:
1. PURCHASE AND SALE.
1.1 PURCHASE AND SALE.
Seller agrees to sell and convey and Buyer agrees to purchase and pay for the
Interests (as defined in Section 1.2), subject to the terms and conditions of
this Agreement.
1.2 INTERESTS.
Subject to the reservations set forth in Section 1.3, all of Seller's, right,
title and interest in and to the following shall herein be called the
"Interests":
(a) The oil and gas wells described in EXHIBIT "A-I" hereto (the "Wells"),
together with all oil, gas and mineral production from the Wells;
(b) The leasehold estates created by the leases, licenses, permits and other
agreements described in EXHIBIT "A-II", INSOFAR BUT ONLY INSOFAR as they cover
and relate to the lands (the "Lands") described in EXHIBIT "A-II" (the leasehold
estates insofar as they cover the Lands are called the "Leases"); together with
all overriding royalty interests, production payments and other payments out of
or measured by the value of oil and gas production;
(c) All oil, gas, casinghead gas, condensate, distillate, liquid hydrocarbons,
gaseous hydrocarbons and all products refined therefrom, together with all
minerals produced in association with these substances (collectively called the
"Hydrocarbons") in and under and which may be produced and saved from or
attributable to the Leases or Wells, and all rents, issues, profits, proceeds,
products, revenues and other income from or attributable thereto;
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(d) All of the personal property, fixtures and improvements appurtenant to the
Wells, or the Leases or used or obtained in connection with the operation of the
Wells, or the Leases or with the production, treatment, sale or disposal of
hydrocarbons or water produced therefrom or attributable thereto, including
without limitation, pipelines, disposal systems, gathering systems and
compression facilities appurtenant to or located upon the Leases; and
(e) All the property, rights, privileges, benefits and appurtenances in any way
belonging, incidental to, or pertaining to the property, interests and rights
described in Sections 1.2(a) through 1.2(d) including the Wells, the Lands and
the Leases, including, to the extent transferable, all agreements, product
purchase and sale contracts, surface leases, gas gathering contracts, salt water
disposal leases and wells, processing agreements, compression agreements,
equipment leases, permits, gathering lines, rights-of-way, easements, licenses,
farmouts and farmins, options, orders, pooling, spacing or consolidation
agreements and operating agreements and all other agreements relating thereto
(the "Contracts"); and
(f) All of the files, records, data, and other documentary information
maintained in the normal course of business by Seller pertaining to the Leases,
Equipment, Hydrocarbons and the Contracts (collectively, the "Data") in the
format maintained by Seller. The Data shall not, however, include any
information, which, if disclosed, would cause Seller to breach any contract or
agreement. Seller will use reasonable efforts to obtain any required consent to
disclose such information.
1.3 RESERVED INTERESTS.
Seller shall reserve and except from the sale and conveyance of the Interests in
favor of itself, its successors and assigns the following:
(a) All accounts receivable attributable to the Interests that are, in
accordance with generally accepted accounting principles, attributable to the
period prior to the Effective Time;
(b) All claims and rights relating to overpayments of costs and expenses
attributable to periods prior to the Effective Time, including, without
limitation, the right to initiate, prosecute or participate, at Seller's sole
cost and expense, in all audits, audit claims and tax claims or proceedings
relating to or including periods prior to the Effective Time, regardless of when
commenced, arising under applicable law, operating or product sale agreements or
otherwise, and to recover all costs and expenses claimed or shown by such audits
or proceedings as owing to the owner of the Interests for periods prior to the
Effective Time; and
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(c) All rights, if any, to recover additional production or proceeds or
requirements to refund monies attributable to such production or proceeds
therefrom attributable to the Interests for any production month prior to the
Effective Time, resulting from any adjustment to the net revenue interest
attributable to the Interests in the applicable division orders.
1.4 EFFECTIVE TIME.
The purchase and sale of the Interests shall be effective as of March 1, 1999,
at 7:00 a.m., at the location of the Interests (the "Effective Time").
1.5 LIKE KIND EXCHANGE.
Seller and Buyer each shall have the right at their respective sole options, to
dispose of the Interests, or any portion thereof, through a transaction that is
structured to qualify as a like-kind exchange of property within the meaning of
Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code").
Seller and Buyer agree to cooperate with the other in effecting a qualifying
like-kind exchange through a trust, escrow or other means as mutually determined
by the Parties; provided, however, that the party electing to utilize a
like-kind exchange (the "Electing Party") shall hold the other party (the
"Non-Electing Party") harmless from any expense, obligation or liability,
without limitation, which the Non-Electing Party may suffer in connection with
or arising out of the Non-Electing Party's cooperation with the Electing Party's
treatment of the Interests as part of a like-kind exchange. The Electing Party
shall have the right to assign its rights, but not its obligations, under this
Agreement, in whole or in part, to a "qualified intermediary" [as defined in
Treasury Regulations Section 1.1031(k)-l(g)(4)] or as otherwise necessary or
appropriate to effectuate a like-kind exchange and the Non-Electing Party agrees
to recognize said qualified intermediary. The Electing Party shall be solely
responsible for assuring the effectiveness for the exchange for its tax purposes
and the Non-Electing Party does not represent to the Electing Party any
particular tax treatment will result to the Electing Party as a result thereof.
In no event shall any like-kind exchange contemplated by this provision cause an
extension of the Closing Date set forth herein.
2. PURCHASE PRICE.
2.1 PURCHASE PRICE.
The purchase price for the Interests shall be TWENTY EIGHT MILLION FIVE HUNDRED
THOUSAND DOLLARS AND NO/100 ($28,500,000.00) (the "Purchase
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Price"), subject to adjustment as set forth in Section 2.2, and payable at
closing, subject to any post closing adjustments as provided herein.
2.2 ADJUSTMENTS TO PURCHASE PRICE.
The Purchase Price shall be adjusted as follows:
(a) The Purchase Price shall be adjusted upward by the following:
(1) the value of all oil in storage above the pipeline connection as of
the Effective Time and not previously sold by Seller that is
attributable to the Interests, such value to be the actual price in
effect as of the Effective Time less applicable taxes and gravity
adjustments.
(2) the amount of all expenditures; rentals and other charges; ad
valorem, property, production, excise, severance and similar taxes
based upon or measured by the ownership of property or the production
of hydrocarbons or the receipt of proceeds therefrom; expenses billed
under applicable operating agreements and, in the absence of an
operating agreement, expenses of the sort customarily billed under such
agreements (COPAS overhead charges on Apache operated wells is
specifically included), paid by or on behalf of Seller in connection
with the operation of the Interests, in accordance with generally
accepted accounting principles, to the extent not provided for in
Section 2.2 (a) (3), attributable to the period after the Effective
Time;
(3) an amount equal to all prepaid expenses attributable to the
Interests that are paid by or on behalf of Seller that are, in
accordance with generally accepted accounting principles, attributable
to the period after the Effective Time, including without limitation
prepaid utility charges and prepaid ad valorem, property, production,
severance and similar taxes based upon or measured by the ownership of
property or the production of hydrocarbons or the receipt of proceeds
therefrom;
(4) the value of the underproduction of gas attributable to the
Interests as of the Effective Time, such value to be $1.50 MCF, less
applicable royalties and taxes, the volume of such underproduction
estimated for purposes of Closing to be as set forth on a Well-by-Well
basis on EXHIBIT "E" hereto, subject to final adjustment as set forth
in Section 9.1;
(5) any other amount agreed upon by Seller and Buyer; and
(b) The Purchase Price shall be adjusted downward by the following:
(1) proceeds received by Seller attributable to the Interests that are,
in accordance with generally accepted accounting principles,
attributable to the period of time from and after the Effective Time;
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(2) an amount equal to unpaid ad valorem, property, production,
severance and similar taxes and assessments based upon or measured by
the ownership of the Interests that are attributable to periods of time
prior to the Effective Time, which amounts shall, to the extent not
actually assessed, be computed based on such taxes and assessments for
the preceding tax year (such amount to be prorated for the period of
Seller's and Buyer's ownership before and after the Effective Time);
(3) an amount equal to the sum of all Title Defect and Environmental
Defect adjustments;
(4) the value of the overproduction of gas attributable to the
Interests as of the Effective Time, such value to be $1.50 MCF, less
applicable royalties and taxes, and the volume of such overproduction
estimated for Closing purposes to be as set forth on a Well-by-Well
basis on EXHIBIT "E" hereto, subject to final adjustment as set forth
in Section 9.1;
(5) any other amount agreed upon by Seller and Buyer.
3. REPRESENTATIONS AND WARRANTIES.
3.1 REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants as of the date hereof and as of the Closing Date
to Buyer as follows:
(a) The consummation of the transactions contemplated by this Agreement will not
violate, or be in conflict with any provision of any agreement or instrument to
which Seller is a party or by which it is bound.
(b) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is duly qualified to carry
on its business in each state where the Interests are located.
(c) Seller has all requisite corporate power and authority to carry on its
business as presently conducted, to enter into this Agreement, and to perform
its obligations under this Agreement. The consummation of the transactions
contemplated by this Agreement will not violate, or be in conflict with, (i) any
provision of its articles of incorporation or bylaws; (ii) any provision of any
agreement or instrument to which it is a party or by which it is bound,
noncompliance with which would have a material adverse effect upon Buyer's
ownership or operation of the Interests, or upon any of the transactions
contemplated by this Agreement, and (iii) to its knowledge, any judgment,
decree, order, statute, rule or regulation applicable to Seller.
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(d) This Agreement has been duly authorized, executed and delivered on behalf of
Seller and constitutes the legal, valid and binding obligation of Seller,
enforceable in accordance with its terms, subject, however, to the effects of
bankruptcy, insolvency, reorganization and other laws for the protection of
creditors.
(e) Seller has incurred no liability, contingent or otherwise, for brokers or
finders fees relating to the transactions contemplated by this Agreement for
which Buyer shall have any responsibility whatsoever.
(f) There are no bankruptcy, reorganization or arrangement proceedings pending,
being contemplated by or, to the knowledge of Seller, threatened against Seller.
3.2 REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants as of the date hereof and as of the Closing Date
to Seller as follows:
(a) The consummation of the transactions contemplated by this Agreement will not
violate, or be in conflict with any provision of any agreement or instrument to
which Buyer is a party or by which it is bound.
(b) This Agreement constitutes the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms, subject, however, to the effects of
bankruptcy, insolvency, reorganization and other laws for the protection of
creditors.
(c) Buyer has incurred no liability, contingent or otherwise, for brokers or
finders fees relating to the transactions contemplated by this Agreement for
which Seller shall have any responsibility whatsoever.
(d) The Interests to be acquired by Buyer pursuant to this Agreement are being
acquired by it for its own account for investment purposes and not for
distribution within the meaning of any securities law. In acquiring the
Interests, it is acting in the conduct of its own business and not under any
specific contractual commitment to any third party, or any specific nominee
agreement with any third party, to transfer to, or to hold title on behalf of,
such third party, with respect to all or any part of the Interests.
(e) There are no bankruptcy, reorganization or arrangement proceedings pending,
being contemplated by or, to the knowledge of Buyer, threatened against Buyer.
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4. COVENANTS AND AGREEMENTS.
4.1 COVENANTS AND AGREEMENTS OF SELLER.
Seller covenants and agrees with Buyer as follows:
(a) Upon execution of this Agreement, Seller will make available to Buyer for
examination at a location designated by Seller, all of Seller's title
information, production information and other information relating to the
Interests, including without limitation, accounting files, production files,
land files, lease files, well files, division order files, contract files and
marketing files, and, subject to the consent and cooperation of operators and
other third parties, will cooperate with Buyer in Buyer's efforts to obtain, at
Buyer's expense, such additional information relating to the Interests as Buyer
may reasonably desire, to the extent in each case that Seller may do so without
violating legal constraints or any obligation of confidence or other contractual
commitment of Seller to a third party.
(b) Seller shall, or in the case of any third-party operated wells, use
reasonable efforts to cause the operator thereof, to permit Buyer's authorized
representative to conduct, at Buyer's sole risk and expense, on-site inspections
of the Interests. All such inspections shall be conducted at the sole risk, cost
and expense of Buyer, and Buyer shall indemnify and defend Seller from and
against any and all losses arising from such inspections.
(c) During the period from the date of this Agreement to the Closing Date,
Seller agrees, unless specifically waived by Buyer in writing, as follows:
(1) Subject to the provisions of applicable operating and other
agreements, Seller shall continue to operate and administer the
Interests in a good and workmanlike manner consistent with its past
practices, and shall carry on its business with respect to the
Interests in substantially the same manner as before execution of this
Agreement.
(2) Seller shall, except for emergency action taken in the face of risk
to life, property or the environment, submit to Buyer for prior written
approval, all requests for operating or capital expenditures and all
proposed contracts and agreements relating to the Interests that
involve individual commitments of more than $20,000.00 net to Seller's
interest, or a cumulative total of $75,000 net to Seller's interest.
(3) Buyer acknowledges that Seller owns an undivided interest in
certain of the Interests, and Buyer agrees that the acts or omissions
of the other working interest owners who are not affiliated with Seller
shall not constitute a violation of the provisions of this Agreement,
nor shall any action required by a vote of working interest owners
constitute such a violation so long as Seller has voted its interest in
a manner that complies with the provisions of this Section. To the
extent that
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Seller is not the operator of any of the Interests, the
obligations of Seller in this Agreement shall be construed to require
that Seller use reasonable efforts (without being obligated to incur
any expense or institute any cause of action) to cause the operator of
such Interests to take such actions or render such performance within
the constraints of the applicable operating agreements and other
applicable agreements.
(4) Notwithstanding anything to the contrary in this Agreement, Seller
shall have no liability to Buyer for the incorrect payment of delay
rentals, royalties, shut-in royalties or similar payments or for any
failure to make any such payments through mistake or oversight
(including Seller's negligence), unless caused by Seller's gross
negligence or willful misconduct provided, however, Seller shall advise
Buyer of any such mistakes or oversights upon Seller becoming aware of
same.
4.2 COVENANTS AND AGREEMENTS OF BUYER.
Buyer covenants and agrees with Seller that:
(a) Buyer shall use its best efforts to ensure that as of the Closing Date it
will not be under any material legal or contractual restriction that would
prohibit or delay the timely consummation of such transaction.
(b) Buyer shall, subject to the applicable terms of existing operating
agreements, take over operations as of 7:00 a.m. local time at the wellsites on
the Closing Date, with respect to Seller-operated Wells included in the
Interests assigned to Buyer at the Closing. Upon taking over operations, Buyer
will post all necessary state, federal and local bonds and shall assist Seller
in having Seller's existing bonds released, or in the alternative, having the
wells operated by Buyer released from Seller's existing bond.
(c) Certain of the Leases are burdened or encumbered by and subject to that
certain Member Gas Purchase Agreement dated effective January 1, 1996, ("Member
Agreement") among Apache Corporation and MW Petroleum Corporation, as Sellers,
and Producers Energy Marketing, LLC, as Buyer, as described on EXHIBIT "C"
hereto. Before Closing, Seller will make good faith, commercially reasonable
efforts to obtain releases of certain requirements insofar as they affect such
Leases. If such releases are not obtained, such Leases shall remain subject to
the terms and conditions of the Member Agreement, and as of the Effective Time,
Seller shall assume all duties and obligations of Buyer thereunder insofar as
they affect such Leases.
(d) Purchaser acknowledges and confirms that it has been advised by Apache of
and has received information concerning the following:
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(1) Apache and The Municipal Gas Authority of Georgia ("MGAG"), entered
into an agreement dated December 20, 1994, wherein Apache, in exchange
for the advance payment of certain consideration, agreed to sell MGAG
certain volumes of natural gas with the incremental delivery of same to
occur annually for a period of years set forth therein ("MGAG-2
Transactions"). To ensure the delivery of the pre-purchased natural gas
volumes by Apache to MGAG, MGAG received from Apache a security
interest in Apache's interest in certain wells and/or properties more
specifically described in exhibits to the MGAG-2 Transactions
documents.
(2) Apache and MGAG entered into an agreement dated effective September
1, 1997, wherein Apache, in exchange for the advance payment of certain
consideration, agreed to sell MGAG certain volumes of natural gas with
the incremental delivery of same to occur annually for a period of
years set forth therein ("MGAG-3 Transactions"). To ensure the delivery
of the pre-purchased natural gas volumes by Apache to MGAG, MGAG
received from Apache a security interest in Apache's interests in
certain wells and/or Interests more specifically described in exhibits
to the MGAG-3 Transactions documents.
(3) The MGAG-2 Transactions and MGAG-3 Transactions, and Seller's
interests in the wells and Interests which are the subject matter
thereof, are subject to the terms and conditions contained in the
applicable documents and agreements attendant thereto, in their
entirety. No party to the MGAG-2 Transactions or MGAG-3 Transactions
can assign its respective rights under the documents and agreements
thereto without the express written consent of the other parties.
Seller and MGAG are required to maintain the contents of all documents
and agreements related to the aforedescribed transactions and matters
in the strictest confidence, and to obtain the prior written consent of
the other parties before disclosing any portion of same to any third
party.
(4) All or a portion of Seller's interests in one or more of the Wells
and/or Interests which are the subject matter of the transactions
contemplated in this Agreement, shall, unless fully released by MGAG
prior to the assignment thereof to Buyer, be subject to and burdened
by, and Buyer shall assume, all of the rights enjoyed by, and
obligations in favor of, MGAG as fully set forth in each of the
documents and agreements that govern and concern the particular MGAG
transaction and/or matter affecting Seller's interests in said Well
and/or Interests.
(5) Certain of the Leases are burdened or encumbered by and subject to
that certain Amended and Restated Gas Purchase Agreement dated
effective July 1, 1998, ("Gas Purchase Agreement") among Apache
Corporation and MW Petroleum Corporation, as Sellers, and Producers
Energy Marketing, LLC, as Buyer, as described on Exhibit "C" hereto.
Before Closing, Seller will make good faith, commercially reasonable
efforts to obtain releases of certain requirements insofar as they
affect such Leases. If such releases are not obtained, such Leases
shall become subject to a Restricted Gas Purchase Agreement, and as of
the
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Effective Time, Buyer shall assume all duties and obligations of Seller
thereunder insofar as they affect such Leases.
5. TITLE MATTERS.
5.1 DEFENSIBLE TITLE.
(a) The term "Defensible Title" shall mean, as to the Interests, such title,
whether held by Seller, that, except for and subject to the Permitted
Encumbrances (as defined in Section 5.1(b)): (i) entitles Seller to receive as
to each Interest set forth in EXHIBIT "A-I", not less than the "Net Revenue
Interest" set forth in EXHIBIT "A-I" as to such Lease in the oil, gas and
associated liquid and gaseous hydrocarbons produced, saved and marketed from any
Well located on such Interests as to its presently producing formations; (ii)
obligates Seller to bear costs and expenses relating to the maintenance,
development and operation of any Well located on such Lease in an amount not
greater than the "Working Interest" set forth in EXHIBIT "A-I" without a
proportionate increase in the Net Revenue Interest, and (iii) is free and clear
of liens and material encumbrances and defects.
(b) The term "Permitted Encumbrances," as used herein, shall mean, as follows:
(1) lessors' royalties, overriding royalties, unitization and pooling
designations and agreements, reversionary interests and similar
burdens;
(2) required third party consents to assignments and similar agreements
with respect to which (i) waivers or consents have been or will be
obtained from the appropriate parties prior to the closing date, or
(ii) the appropriate time period for asserting such rights has expired
without an exercise of such rights;
(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 oil and gas leases or interests therein if the same are
customarily obtained subsequent to such sale or conveyance;
(4) easements, rights-of-way, servitudes, permits, surface leases and
other rights with respect to surface operations, pipelines, grazing,
logging, canals, ditches, reservoirs or the like; conditions, covenants
or other restrictions; and easements for streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other easements
and rights-of-way, on, over or in respect of any of the Interests;
(5) materialmen's, mechanics', repairmen's, employees', contractors',
operators', tax and other similar liens or charges arising in the
ordinary course of business incidental to construction, maintenance or
operation of any of the Interests
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(i) if they have not been filed pursuant to law, (ii) if filed, they
have not yet become due and payable or payment is being withheld as
provided by law, or (iii) if their validity is being contested in good
faith in the ordinary course of business by appropriate action;
(6) any other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects or irregularities of any kind
whatsoever affecting the Interests that individually or in the
aggregate are not such as to have a materially adverse effect, do not
prevent Seller from receiving the proceeds of production and that do
not operate to (i) reduce the net revenue interest of Seller below that
set forth on EXHIBIT "A-I", or (ii) increase the working interest of
Seller above that set forth on EXHIBIT "A-I" without a proportionate
increase in the Net Revenue Interest of Seller; and
(7) all those contracts, agreements and other matters described on
EXHIBIT "D".
(c) The term "Title Defect" as used herein shall mean any material encumbrance
or defect in Seller's title to the Interests (expressly excluding Permitted
Encumbrances), that renders Seller's title to the Interests less than Defensible
Title. The term "Allocated Value" as used herein means the value allocated to
the Well as set forth in EXHIBIT "A-I" hereto, as adjusted for overproduction or
underproduction in the manner set forth in Section 2.2.
5.2 TITLE DEFECT ADJUSTMENTS.
(a) No adjustment to the Purchase Price for Title Defects shall be made unless
and until, and only to the extent that the individual value of each Title Defect
exceeds $25,000.00 or the aggregate value of all Title Defects exceeds one
percent (1%) of the Purchase Price.
(b) Buyer shall give Seller written notice of Title Defects ten (10) days prior
to the Closing Date. Such notice shall be in writing and shall include (i) a
description of the Title Defect, (ii) the Allocated Value of the Well affected
by the Title Defect and (iii) the amount by which Buyer believes the Allocated
Value of such Well has been reduced because of such Title Defect. Buyer shall be
deemed to have waived all Title Defects of which Seller has not been given
timely notice by Buyer and all Title Defects that do not meet the thresholds for
an adjustment to the Purchase Price set forth in Section 5.2(a).
(c) Subject to the limitation contained in Section 5.2(a), a Well affected by a
Title Defect and the Leases comprising the production unit or proration unit for
the Well shall be excluded from the Interests to be purchased by Buyer hereunder
and the Purchase Price shall be reduced in accordance with Section 2.2 by an
amount equal to the Allocated Value of such Well unless prior to closing, (i)
the Title Defect has been removed, (ii) Buyer
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agrees to waive the relevant Title Defect and purchase the affected Interests
notwithstanding the defect, (iii) Seller agrees to indemnify Buyer against all
losses, costs, expenses and liabilities with respect to such Title Defect, or
(iv) Buyer and Seller agree to an amount by which the Allocated Value of the
Well has been reduced and the Purchase Price is reduced by such amount in
accordance with Section 2.2.
5.3 PREFERENTIAL RIGHTS AND CONSENTS.
(a) Some of the Leases may be subject to preferential rights to purchase in
favor of third parties or third party consents to assignment and notices of
sale. The form and content of all solicitations for the waivers and consents
affecting the Interests, shall be determined by Seller but shall not be
inconsistent with any of the terms of this Agreement.
(b) In the event a third party exercises an applicable preferential right to
purchase any of the Interests prior to the Closing Date, the affected Interests
shall be removed from this Agreement and the Purchase Price shall be adjusted by
the Allocated Value of the Interests. In the event such third party fails or
refuses to close on such preferential right within sixty (60) days of the date
of such third party's exercise of its preferential right, then Buyer shall
purchase such affected Interests covered by the preferential right for its
Allocated Value as of the Effective Time and the closing for such transaction
shall take place on a mutually acceptable date not more than thirty (30) days
following such failure or refusal. If any preferential right to purchase any
portion of the Interests is exercised after the Closing Date, such affected
portion of the Interests shall not be treated as a Title Defect, and no
adjustment shall be made on account of such exercise. All Interests that are
subject to preferential rights to purchase that have not been exercised as of
such date and time shall be conveyed to Buyer at the Closing. If any such
preferential right is exercised after such date and time, Buyer agrees to convey
such affected Interests to the party exercising such right on the same terms and
conditions under which Seller conveyed such Interests to Buyer. Buyer shall
retain all amounts paid by the party exercising such preferential right to
purchase. In the event of such exercise, Buyer shall prepare a form of
conveyance of such interests from Buyer to such exercising party, such
conveyance to be in form and substance as provided in this Agreement, except
that such conveyance shall be made free and clear of all liens, encumbrances,
royalty interests, production payments and other charges or defects created by,
through or under Buyer. Buyer agrees to hold harmless and indemnify Seller
regarding any claims made by third parties claiming preferential rights
subsequent to Closing.
5.4 CASUALTY LOSS.
If subsequent to the date of this Agreement and, prior to the Closing, all or
any material portion of the Interests to be conveyed to Buyer at the Closing is
destroyed by fire or other casualty, is taken in condemnation or under the right
of eminent domain or proceedings
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for such purposes are pending or threatened, subject to the limitations set
forth in Sections 5.2 and 6.4, Buyer shall purchase such Interests
notwithstanding any such destruction, taking or pending or threatened taking and
the Purchase Price shall be adjusted in accordance with the diminution in value.
Seller shall, at the Closing, pay to Buyer all sums paid to Seller by third
parties by reason of the destruction or taking of such Interests to be assigned
to Buyer, and shall assign, transfer and set over unto Buyer all of the right,
title and interest of Seller in and to any unpaid awards or other payments from
third parties arising out of the destruction, taking or pending or threatened
taking as to such Interests to be conveyed to Buyer. Seller shall not
voluntarily compromise, settle or adjust any material amounts payable by reason
of any material destruction, taking or pending or threatened taking as to the
Interests to be conveyed to Buyer without first obtaining the written consent of
Buyer.
6. ENVIRONMENTAL MATTERS.
6.1 ENVIRONMENTAL OBLIGATIONS.
ASSUMING THE OCCURRENCE OF CLOSING AND EXCEPT AS PROVIDED IN THIS SECTION 6.1
BELOW, BUYER SHALL (i) ASSUME ALL LIABILITY AND COSTS WITH REGARD TO THE LEASES,
EQUIPMENT AND PRODUCTION CONTAINING HAZARDOUS MATERIALS, INCLUDING BUT NOT
LIMITED TO NATURALLY OCCURRING RADIOACTIVE MATERIAL (NORM), NOT BEING IN
COMPLIANCE WITH APPLICABLE ENVIRONMENTAL LAWS OR PERMITS AND THE EXISTENCE OR
PRESENCE OF ADVERSE PHYSICAL CONDITIONS, INCLUDING BUT NOT LIMITED TO UNKNOWN OR
ABANDONED OIL AND GAS WELLS, WATER WELLS, SUMPS AND PIPELINES THAT MAY NOT HAVE
BEEN REVEALED BY BUYER'S INVESTIGATION; (ii) COMPLY WITH ALL LAWS, INCLUDING
ENVIRONMENTAL LAWS, WITH RESPECT TO ALL OPERATIONS ON THE LEASES, INCLUDING
ABANDONMENT OF WELLS AND REGARDING INACTIVE OR UNPLUGGED WELLS, INCLUDING
BONDING REQUIREMENTS, AND SURFACE WORK AS SPECIFIED IN THE LEASES OR APPLICABLE
LAW OR REGULATION; AND (iii) HEREBY EXPRESSLY AGREES TO PROTECT, RELEASE,
DEFEND, INDEMNIFY AND HOLD SELLER, ITS OFFICERS, DIRECTORS, REPRESENTATIVES,
AGENTS AND ITS EMPLOYEES FREE AND HARMLESS FROM AND AGAINST ANY AND ALL COSTS,
EXPENSES, CLAIMS, DEMANDS, LITIGATION COSTS, ATTORNEYS FEES, AND CAUSES OF
ACTION OF EVERY KIND AND CHARACTER, INCLUDING BUT NOT LIMITED TO INJURIES OR
DEATH TO PERSONS, DAMAGES TO OR LOSS OF PROPERTY, ENVIRONMENTAL CLAIMS OR
ENVIRONMENTAL CONDITIONS, ARISING OUT OF OR IN CONNECTION WITH THE USE,
OPERATION, OCCUPANCY, OCCUPATION, RESALE OR ABANDONMENT OF THE INTERESTS
ASSIGNED TO BUYER HEREUNDER REGARDLESS OF WHETHER THE CLAIM IS A RESULT OF AN
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ACT OR OMISSION OCCURRING OR CONDITION EXISTING PRIOR TO OR AFTER THE CLOSING
DATE. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE INDEMNITY PROVIDED FOR IN THIS
SECTION COMPLIES WITH THE EXPRESS NEGLIGENCE RULE.
IF ANY TERM OR OTHER PROVISION OF THIS INDEMNIFICATION IS INVALID, ILLEGAL, OR
INCAPABLE OF BEING ENFORCED BY ANY RULE OF LAW OR PUBLIC POLICY, ALL OTHER
CONDITIONS AND PROVISIONS OF THIS INDEMNIFICATION SHALL NEVERTHELESS REMAIN IN
FULL FORCE AND EFFECT SO LONG AS THE ECONOMIC OR LEGAL SUBSTANCE OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT REMAIN IN EFFECT. BUYER REPRESENTS
THAT IT HAS HAD AN ADEQUATE OPPORTUNITY TO REVIEW THE INDEMNITY PROVISION
CONTAINED IN THIS SECTION 6.1, INCLUDING THE OPPORTUNITY TO SUBMIT THE SAME TO
LEGAL COUNSEL FOR REVIEW AND COMMENT, AND UNDERSTANDS THE INDEMNITY OBLIGATIONS
CONTAINED HEREIN.
6.2 DEFINITION OF ENVIRONMENTAL CLAIM, ENVIRONMENTAL CONDITION AND ENVIRONMENTAL
LAW.
For purposes of this Agreement, (i) "Environmental Claim" shall mean any action,
suit, investigation, proceeding, demand, claim or written notice by any person
alleging or inquiring as to potential liability arising out of, based on or
resulting from any violation, or alleged violation, of any Environmental Law
with respect to the Interests, (ii) "Environmental Condition" shall mean any
existing condition with respect to the soil, subsurface, surface waters,
groundwater, atmosphere or any environmental medium, whether or not yet
discovered which could result in any damage, loss, cost, expense or claim
against Seller with respect to the Interests, (iii) "Environmental Laws" shall
mean all laws, statutes, ordinances, permits, orders, judgments, rules or
regulations which are promulgated, issued or enacted by a governmental entity or
tribal authority as of the Effective Time having appropriate jurisdiction
relating to the protection of the public health, welfare, and the environment,
including, without limitation, those that, (a) relate to the prevention of
pollution or environmental damage, (b) the remediation of pollution or
environmental damage, or (c) the protection of the environment generally;
including without limitation, the Clean Air Act, as amended, the Clean Water
Act, as amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Federal Water Pollution Control Act, as
amended, the Resource Conservation and Recovery Act of 1976, as amended, the
Safe Drinking Water Act, as amended, the Toxic Substance and Control Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Hazardous and the Solid Waste Amendments Act of 1984, as amended, and the
Oil Pollution Act of 1990, as amended, and (d) are in effect as of the Effective
Time, and (iv) "Violation of Environmental Laws"
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shall mean the violation of or failure to meet specific objective requirements
or standards that are clearly applicable to the Interests under Environmental
Laws where such requirements or standards are in effect as of the Effective
Time, and which are the subject of governmental action as of the Effective Time
and the term does not include good or desirable operating practices or standards
that may be employed or adopted by other oil or gas well operators or
recommended by a governmental authority.
6.3 WAIVER.
BUYER SHALL HAVE NO RIGHT TO SEEK AN ADJUSTMENT, MAKE A CLAIM AGAINST SELLER OR
SEEK INDEMNIFICATION FROM SELLER ASSOCIATED WITH THE ENVIRONMENTAL OR PHYSICAL
CONDITION OF THE INTERESTS ACQUIRED BY BUYER, EXCEPT IN ACCORDANCE WITH ARTICLE
6.4 BELOW. BUYER REPRESENTS THAT IT HAS HAD AN ADEQUATE OPPORTUNITY TO REVIEW
THE WAIVER PROVISION CONTAINED IN THIS SECTION 6.3, INCLUDING THE OPPORTUNITY TO
SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW AND COMMENT, AND UNDERSTANDS THE
RIGHTS BEING WAIVED HEREIN.
6.4 REMEDIES FOR VIOLATION OF ENVIRONMENTAL LAW.
Before Closing, with respect to each Violation of Environmental Laws, Seller and
Buyer shall (i) agree on an adjustment to the Purchase Price which adjustment
shall reflect the cost to remedy such Violation of Environmental Law, (ii)
remediate the condition at Seller's cost or (iii) remove that portion of the
Interests from the Interests being conveyed and adjust the Purchase Price
accordingly. If the parties cannot agree on a course of action, option (iii)
above shall apply. If Seller and Buyer agree to an adjustment to the Purchase
Price pursuant to (i) above, said adjustment shall not reflect any costs to
remediate beyond remediation required by Environmental Laws. No adjustment to
the Purchase Price for Violation of Environmental Law shall be made unless and
until and only to the extent that each Violation of Environmental Law exceeds
the $25,000.00 or aggregate value of all Violations of Environmental Laws
exceeds two percent (2%) of the Purchase Price.
6.5 LIMITATIONS.
NOTWITHSTANDING ANYTHING TO THE CONTRARY AND EXCEPT AS PROVIDED IN SECTION 6.1
ABOVE, THIS ARTICLE 6 IS INTENDED TO BE THE SOLE AND EXCLUSIVE REMEDY THAT BUYER
SHALL HAVE AGAINST SELLER WITH RESPECT TO ANY MATTER OR CIRCUMSTANCE RELATING TO
ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR PROTECTION
OF THE ENVIRONMENT OR HEALTH. BUYER HEREBY RELEASES AND DISCHARGES ANY AND ALL
CLAIMS AT LAW OR IN EQUITY, INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL CLAIMS
AND ENVIRONMENTAL CONDITIONS, KNOWN
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OR UNKNOWN, WHETHER NOW EXISTING OR ARISING IN THE FUTURE, CONTINGENT OR
OTHERWISE, AGAINST SELLER WITH RESPECT TO ANY MATTER OR CIRCUMSTANCE RELATING TO
ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR PROTECTION
OF THE ENVIRONMENT OR HEALTH. BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE AND
WILL MAKE NO REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE
RELATING TO ENVIRONMENTAL LAWS, ENVIRONMENTAL CONDITIONS OR ENVIRONMENTAL
CLAIMS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE
ENVIRONMENT OR HEALTH. BUYER HEREBY AGREES TO ASSUME THE RISK THAT THE INTERESTS
MAY CONTAIN WASTE MATERIALS, INCLUDING NATURALLY OCCURRING RADIOACTIVE
MATERIALS, OR HAZARDOUS SUBSTANCES, THAT ADVERSE PHYSICAL CONDITIONS, INCLUDING
THE PRESENCE OF UNKNOWN ABANDONED OIL AND GAS WELLS, WATER WELLS, SUMPS AND
PIPELINES MAY NOT HAVE BEEN REVEALED BY BUYER'S INVESTIGATION.
7. CONDITIONS TO CLOSING.
7.1 SELLER'S CONDITIONS.
The obligations of Seller at the Closing are subject, to the satisfaction at or
prior to the Closing of the following conditions:
(a) All representations and warranties of Buyer contained in this Agreement
shall be true in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, and Buyer
shall have performed and satisfied all material agreements in all material
respects required by this Agreement to be performed and satisfied by Buyer at or
prior to the Closing;
(b) No order shall have been entered by any court or governmental agency having
jurisdiction over the parties or the subject matter of this Agreement that
restrains or prohibits the purchase and sale contemplated by this Agreement and
which remains in effect at the time of such Closing; and
(c) The aggregate sum of Title Defect adjustments and adjustments for Violation
of Environmental Laws not exceed fifteen percent (15%) of the Purchase Price.
7.2 BUYER'S CONDITIONS.
The obligations of Buyer at the Closing are subject to the satisfaction at or
prior to the Closing of the following conditions:
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(a) All representations of Seller contained in this Agreement shall be true in
all material respects at and as of the Closing as if such representations were
made at and as of the Closing, and Seller shall have performed and satisfied all
material agreements in all material respects required by this Agreement to be
performed and satisfied by Seller at or prior to the Closing;
(b) No order shall have been entered by any court or governmental agency having
jurisdiction over the parties or the subject matter of this Agreement that
restrains or prohibits the purchase and sale contemplated by this Agreement and
which remains in effect at the time of such Closing; and
(c) The aggregate sum of Title Defect adjustments and adjustments for Violation
of Environmental Laws not exceed fifteen percent (15%) of the Purchase Price.
8. CLOSING.
8.1 DATE OF CLOSING.
Unless the parties agree otherwise in writing and subject to the conditions
stated in this Agreement, the consummation of the transactions contemplated
hereby (the "Closing") shall be held on or before June 30, 1999. The date the
Closing actually occurs is called the "Closing Date."
8.2 PLACE OF CLOSING.
The Closing shall be held at the offices of Seller in Houston, Texas.
8.3 CLOSING OBLIGATIONS.
At the Closing the following events shall occur, each being a condition
precedent to the others and each being deemed to have occurred simultaneously
with the others:
(a) Seller and Buyer shall execute, acknowledge and deliver: an assignment, bill
of sale and conveyance (in sufficient counterparts to facilitate recording) in
substantially the form of EXHIBIT "B" hereto conveying to Buyer the Interests;
and
(b) Seller and Buyer shall execute and deliver a settlement statement, prepared
in accordance with this Agreement and generally accepted accounting principles
(the "Preliminary Settlement Statement") prepared by Seller that shall set forth
the Preliminary Purchase Price and each adjustment and the calculation of such
adjustments used to determine such amount. Seller shall provide Buyer with the
Preliminary Settlement Statement three business days prior to Closing for
Buyer's review and approval. The term "Preliminary Purchase Price" shall mean
the Purchase Price, adjusted as provided in Section 2.2, using for such
adjustments the best information then available.
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(c) Buyer shall deliver to Seller the Preliminary Purchase Price by direct bank
or wire transfer in immediately available federal funds.
(d) Seller and Buyer shall execute, acknowledge and deliver transfer orders or
letters in lieu thereof directing all purchasers of production to make payment
to Buyer of proceeds attributable to production from the Interests assigned to
Buyer.
(e) Seller shall prepare such notices to third-party operators of the change in
ownership of the Interests from Seller to Buyer and such notices of change in
operatorship for those Seller-operated Wells for which Buyer has taken over
operations as are reasonable and customary in the industry. Further, Seller
shall deliver to Buyer executed copies of Change of Operator forms for signature
and Seller shall promptly file the same as soon as practical after closing but
in no event later than 5 days from closing.
9. OBLIGATIONS AFTER CLOSING.
9.1 POST-CLOSING ADJUSTMENT PROCEDURE.
(a) As soon as practicable after the Closing Date, but no later than 90 days
after the Closing Date, Seller shall prepare and deliver to Buyer, in accordance
with this Agreement and generally accepted accounting principles, a statement
(the "Final Settlement Statement") setting forth each adjustment or payment that
was not finally determined as of the Closing Date and showing the calculation of
such adjustments. Within fifteen days after receipt of the Final Settlement
Statement, Buyer shall deliver to Seller a written report containing any changes
that Buyer proposes be made to the Final Settlement Statement. The parties shall
undertake to agree with respect to the amounts due pursuant to such post-closing
adjustment no later than fifteen days after Seller has received Buyer's proposed
changes. The date upon which such agreement is reached or upon which the "Final
Purchase Price" is established, shall be called the "Final Settlement Date." If
(i) the Final Purchase Price is more than the Preliminary Purchase Price, Buyer
shall pay in immediately available federal funds the amount of such difference
to Seller or to Seller's account (as designated by Seller), or (ii) the Final
Purchase Price is less than the Preliminary Purchase Price, Seller shall pay in
immediately available federal funds the amount of such difference to Buyer or to
Buyer's account (as designated by Buyer). Payment by Buyer or Seller shall be
made within five days after the Final Settlement Date.
(b) The parties will use their best efforts to update (to the Effective Time)
the volume amounts listed on EXHIBIT "E" within sixty (60) days from the Closing
Date. If the gas imbalance of a Well indicated on EXHIBIT "E" changes or
additional Wells are added as a result of this update, the parties will make the
appropriate payments to one another on the final Settlement Date based on a
value of $1.50 per MCF less applicable royalties and taxes to reflect the
updated imbalance volume and the resulting balancing value for the Well. If
Seller and a third party operator disagree as to the amount of any imbalance,
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<PAGE> 22
Buyer and Seller shall mutually agree to an amount. If a Well is deleted from
the transaction pursuant to some other provision of this Agreement, the Well
shall also be deleted from any adjustments pursuant to this paragraph. After the
Final Settlement Date, there shall be no further adjustment made as to gas
imbalance on any of the Wells listed on EXHIBIT "E".
9.2 FILES AND RECORDS.
Within thirty days after the Closing Date, Seller shall make available to Buyer
originals of all of Seller's files and records relating to the Interests in the
format maintained by Seller, but excluding any records or data that cannot be
transferred because of prior contractual restrictions. Buyer shall retain and
make available to Seller for seven full calendar years following the Closing
Date, in Buyer's office during normal business hours, files and records relating
to the Interests. Seller shall retain division order files until the last day of
the month in which Seller retains disbursement responsibilities.
9.3 POST-CLOSING ADMINISTRATIVE ACCOUNTING RESPONSIBILITIES.
To the extent Seller is presently involved in the administration of the
Interests, Seller shall retain the obligation and responsibility for the
administration of the Interests for the period ending on the Closing Date.
However, Seller and Buyer recognize that Buyer's obligation to immediately
assume administrative accounting responsibilities for the Interests upon Closing
may be impractical and will present certain difficulties for both Seller and
Buyer in regards to transfer of such administrative responsibilities, timely and
proper revenue distributions, payment of expenses, joint interest billings and
the rendition of post-closing settlement statements.
Therefore, to facilitate a convenient and proper transfer of the administrative
accounting responsibilities relating to the Interests, Seller and Buyer agree
the administrative duties will be transferred from the Seller to the Buyer in
the following manner:
(a) Revenue Distributions:
(1) Seller shall retain the responsibility for distribution of revenues
attributable to production prior to Closing. Such distribution shall be
conducted by Seller through Seller's sales cutoff during the second
month following the month of Closing.
(2) In the event Seller should receive revenues subsequent to the
Seller's cutoff for its last revenue distribution, as described above,
unless such revenues are for production prior to the Effective Time,
then Seller shall promptly remit such revenues to Buyer as soon as is
practical, and Buyer shall be responsible for distributing all such
amounts, including distributions to royalty owners.
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(3) In the event Buyer should receive revenues for production from the
Interests for the production period prior to Effective Time, then Buyer
shall promptly remit such revenues, net of severance taxes and
royalties, to Seller within five (5) business days.
(4) It is understood that Seller will not undertake to change its
distribution master files for purposes of the above discussed revenue
distributions until after the Closing Date, and any information on the
Interests received by Seller related to master file changes subsequent
to the Closing Date will be remitted to the Buyer as soon as is
practical.
(b) Payment of Expenses and Joint Interest Billings:
(1) Seller shall retain, subject to the terms hereof, the
responsibility for the payment of all invoices, expenses and joint
interest billings for such expenses, including COPAS overhead charges
for invoices received and vouchered through Closing after which Buyer
shall assume all responsibility.
(2) All invoices, expenses and joint interest billings for such
expenses received subsequent to Closing Date and attributable to the
period after the Effective Date will be forwarded to the Buyer as
received by the Seller.
9.4 FURTHER ASSURANCES.
After Closing, Seller and Buyer shall execute, acknowledge and deliver or cause
to be executed, acknowledged and delivered such instruments, and shall take such
other action as may be necessary or advisable to carry out their obligations
under this Agreement and under any document, certificate or other instrument
delivered pursuant hereto.
9.5 ASSUMPTION OF OBLIGATIONS.
(a) EXCEPT AS PROVIDED IN SECTION 6.1 ABOVE, ASSIGNMENT OF THE INTERESTS TO
BUYER SHALL CONSTITUTE AN EXPRESS ASSUMPTION BY BUYER OF, AND BUYER EXPRESSLY
AGREES TO PAY, PERFORM, FULFILL AND DISCHARGE ALL CLAIMS, COSTS, EXPENSES,
LIABILITIES AND OBLIGATIONS (INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL CLAIMS
AND ENVIRONMENTAL CONDITIONS) ACCRUING OR RELATING TO THE OWNING, DEVELOPING,
EXPLORING, OPERATING AND MAINTAINING OF THE INTERESTS CONVEYED TO BUYER AT THE
CLOSING, INCLUDING WITHOUT LIMITATION, ALL VIOLATIONS OF ENVIRONMENTAL LAW AND
ALL OBLIGATIONS ARISING UNDER OPERATING AGREEMENTS, PRODUCT SALES AGREEMENTS AND
THE OTHER AGREEMENTS COVERING OR RELATING TO THE INTERESTS, REGARDLESS OF THE
NEGLIGENCE OF SELLER.
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<PAGE> 24
(b) BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER HEREBY EXPRESSLY
DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
RELATING TO THE CONDITION OF ANY REAL OR IMMOVABLE PROPERTY, PERSONAL OR MOVABLE
PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES CONSTITUTING PART OF THE
INTERESTS INCLUDING, WITHOUT LIMITATION, (i) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS OF BUYER UNDER APPROPRIATE
STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE,
(v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK
INFRINGEMENT, (vi) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS,
THE RELEASE OF MATERIALS INTO THE ENVIRONMENT INCLUDING NATURALLY OCCURRING
RADIOACTIVE MATERIAL, OR PROTECTION OF THE ENVIRONMENT OR HEALTH, IT BEING THE
EXPRESS INTENTION OF BUYER AND SELLER THAT THE REAL OR IMMOVABLE PROPERTY,
PERSONAL OR MOVABLE PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES SHALL
BE CONVEYED TO BUYER AS IS AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
BUYER REPRESENTS TO SELLER THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH
INSPECTIONS WITH RESPECT TO THE REAL OR IMMOVABLE PROPERTY, PERSONAL OR MOVABLE
PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES AS BUYER DEEMS
APPROPRIATE AND BUYER WILL ACCEPT THE REAL OR IMMOVABLE PROPERTY, PERSONAL OR
MOVABLE PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES AS IS, IN THEIR
PRESENT CONDITION AND STATE OF REPAIR.
(c) SELLER HEREBY EXPRESSLY NEGATES AND DISCLAIMS, AND BUYER HEREBY WAIVES AND
ACKNOWLEDGES THAT SELLER HAS NOT MADE, ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, RELATING TO (i) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO BUYER BY OR
ON BEHALF OF SELLER OR (ii) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES,
DECLINE RATES, GEOLOGICAL OR GEOPHYSICAL DATA OR INTERPRETATIONS, THE QUALITY,
QUANTITY, RECOVERABILITY OR COST OF RECOVERY OF ANY HYDROCARBON RESERVES, ANY
PRODUCT PRICING ASSUMPTIONS, OR THE ABILITY TO SELL OR MARKET ANY HYDROCARBONS
AFTER CLOSING.
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(d) BUYER SHALL ALSO INDEMNIFY SELLER FOR ALL LIABILITIES WHICH ARE ASSESSED
AGAINST SELLER FOR FEDERAL, STATE, OR LOCAL TAXES, (NOT INCLUDING INCOME TAXES)
TOGETHER WITH PENALTIES OR INTEREST THEREON (PROVIDED THE PENALTIES AND INTEREST
DO NOT RESULT FROM THE NEGLIGENCE, LATE FILING, FRAUD OR OTHER ACTS OF
MALFEASANCE OF SELLER), WHICH RELATE TO ALL OPERATIONS OF THE PROPERTY
TRANSFERRED HEREUNDER AFTER THE EFFECTIVE TIME.
9.6 INDEMNIFICATION.
FROM AND AFTER THE CLOSING DATE, BUYER AND SELLER SHALL INDEMNIFY EACH OTHER AS
FOLLOWS:
(a) SELLER SHALL DEFEND, INDEMNIFY AND SAVE AND HOLD HARMLESS BUYER, ITS
OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, AGAINST ALL LOSSES, DAMAGES, CLAIMS,
DEMANDS, SUITS, COSTS, EXPENSES, LIABILITIES AND SANCTIONS OF EVERY KIND AND
CHARACTER, INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES, COURT COSTS
AND COSTS OF INVESTIGATION, WHICH ARISE FROM OR IN CONNECTION WITH ANY BREACH BY
SELLER OF THIS AGREEMENT.
(b) BUYER SHALL DEFEND, INDEMNIFY AND SAVE AND HOLD HARMLESS SELLER, ITS
OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS AGAINST ALL LOSSES, DAMAGES, CLAIMS,
DEMANDS, SUITS, COSTS, EXPENSES, LIABILITIES AND SANCTIONS OF EVERY KIND AND
CHARACTER, INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES, COURT COSTS
AND COSTS OF INVESTIGATION, WHICH ARISE FROM OR IN CONNECTION WITH (i) ANY OF
THE CLAIMS, COSTS, EXPENSES, LIABILITIES AND OBLIGATIONS ASSUMED BY BUYER
PURSUANT TO SECTIONS 6 AND 9.5, OR (ii) ANY BREACH BY BUYER OF THIS AGREEMENT.
10. TERMINATION OF AGREEMENT.
10.1 TERMINATION.
This Agreement and the transactions contemplated hereby may be terminated in the
following instances:
(a) By Seller if any of the conditions set forth in Section 7.1 are not
satisfied in all material respects or waived as of the Closing Date.
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(b) By Buyer if any of the conditions set forth in Section 7.2 are not satisfied
in all material respects or waived as of the Closing Date.
(c) At any time by the mutual written agreement of Buyer and Seller.
10.2 LIABILITIES UPON TERMINATION OR BREACH.
(a) In the event of the termination of this Agreement by Seller in accordance
with Section 10.1(a), Seller shall have no liability hereunder of any nature
whatsoever to Buyer, including any liability for damages. If Buyer terminates
this Agreement in accordance with Section 10.1(b) above, it shall have no
liability hereunder of any nature whatsoever to the Seller including any
liability for damages.
(b) Except as provided above in this Section 10.2, nothing contained herein
shall be construed to limit Seller's or Buyer's legal or equitable remedies in
the event of breach of this Agreement.
11. MISCELLANEOUS.
11.1 EXHIBITS.
The Exhibits referred to in this Agreement are hereby incorporated in this
Agreement by reference and constitute a part of this Agreement.
11.2 EXPENSES.
Except as otherwise specifically provided, 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.
11.3 NOTICES.
All notices and communications required or permitted under this Agreement shall
be in writing and any communication or delivery hereunder shall be deemed to
have been duly made when personally delivered to the individual indicated below,
or if mailed, when received by the party charged with such notice and addressed
as follows:
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IF TO SELLER:
APACHE CORPORATION
2000 Post Oak Boulevard, Suite 100
Houston, Texas 77056-4400
Attention: Lisa Floyd
Vice President-Business Development
With a copy to: Z.S. Kobiashvili
Vice President and General Counsel
IF TO BUYER:
VENUS EXPLORATION, INC.
1250 N. E. Loop 410, Suite 1000
San Antonio, Texas 78209
Attention: John Y. Ames
President
Any party may, by written notice so delivered to the other parties, change the
address or individual to which delivery shall thereafter be made.
11.4 WIRE TRANSFER INSTRUCTIONS.
Funds payable to Seller shall be wired to:
First National Bank of Chicago
Chicago, IL
ABA #071-000-013
Account Name: Apache Corporation Master
Account No. 55-77446
11.5 AMENDMENTS.
This Agreement may not be amended nor any rights hereunder waived except by an
instrument in writing signed by the party to be charged with such amendment or
waiver and delivered by such party to the party claiming the benefit of such
amendment or waiver.
11.6 ASSIGNMENT.
Neither party may assign all or any portion of its rights or delegate all or any
portion of its duties hereunder unless it continues to remain liable for the
performance of its obligations hereunder and obtains the prior written consent
of the other party, which consent shall not be unreasonably withheld.
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11.7 CONDITIONS.
The inclusion in this Agreement of conditions to Seller's and Buyer's
obligations at the Closing shall not, in and of itself, constitute a covenant of
either Seller or Buyer to satisfy the conditions to the other party's
obligations at the Closing.
11.8 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.
11.9 GOVERNING LAW.
This Agreement and the transactions contemplated hereby shall be construed and
enforced in accordance with the laws of the State of Texas, but without regard
to laws or principles of conflicts of laws that would cause application of the
laws of another jurisdiction. The parties hereby consent to the exclusive venue
of the proper state or federal court located in Harris County, Texas, and hereby
waive all other venues.
11.10 ENTIRE AGREEMENT.
This Agreement (including the Exhibits hereto) constitutes the entire
understanding among the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and prior agreements and
understandings relating to such subject matter.
11.11 PARTIES IN INTEREST.
This Agreement shall be binding upon, and shall inure to the benefit of, the
parties hereto, and their respective successors and assigns, and nothing
contained in this Agreement, express or implied, is intended to confer upon any
other person or entity any benefits, rights or remedies.
11.12 SURVIVAL.
The representations, warranties, covenants, agreements and indemnities provided
for in this Agreement shall survive the Closing and shall not be extinguished by
the doctrine of merger by deed or any similar doctrine and no waiver, release,
or forbearance of the application of the provisions of those paragraphs in any
given circumstance shall operate as a waiver, release, or forbearance of the
provisions of the paragraphs as to any other circumstance.
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11.13 ARBITRATION.
All disputes arising out of or in connection with this agreement, or any
determination required to be made by the parties as to which the parties are
unable to agree (including, without limitation, the determination of Defects),
shall be settled by arbitration in Houston, Texas. Any matter to be submitted to
arbitration hereunder may be submitted to arbitration by either party. Any
matter submitted to arbitration shall be conducted in accordance with the rules
of the American Arbitration Association. Any award by the arbitrator(s) shall be
final, binding and not appealable, and judgment may be entered thereon in any
court of competent jurisdiction. Notwithstanding the above, neither Seller or
Buyer shall be required to resolve any disputes relating to this Agreement
through arbitration if an unrelated third party files suit against both Buyer
and Seller relating to the interests conveyed pursuant to this Agreement, in
such event, it being understood and agreed that Buyer and Seller may assert any
claims and/or defenses arising out of this Agreement against each other in the
lawsuit.
11.14 TAX MATTERS.
(a) PAYMENT AND APPORTIONMENT OF REAL PROPERTY TAXES AND PERSONAL PROPERTY
TAXES. With respect to Taxes:
(1) REAL AND PERSONAL PROPERTY TAXES. All ad valorem taxes, real
property taxes and personal property taxes ("Real and Personal Property
Taxes") for the year in which the Effective Time occurs shall be
apportioned as of the Effective Time between Seller and Buyer. Seller
shall be liable for the portion of such Real and Personal Property
Taxes based upon the number of days in the year occurring prior to the
Effective Time, and Buyer shall be liable for the portion of such taxes
based upon the number of days in the year occurring on and after the
Effective Time. For any year in which an apportionment is required,
Buyer shall file all required reports and returns incident to these
taxes and shall remit to the appropriate taxing authorities all such
taxes assessed for the year in which the Effective Time occurs that are
not paid by Seller as of the closing Date. Seller shall pay to Buyer,
at the time of buyer's remittance, Seller's share of such taxes to the
extent such amounts were not credited to Buyer in calculating
adjustments in the Purchase Price in Sections 2.1 or 2.2 (the "Adjusted
Price").
(2) LIABILITY AND RIGHT TO PURCHASE CLAIMS. Seller shall retain
liability for all adjustments, examinations or claims relating to taxes
that are paid by Seller and that are allocated to Seller pursuant to
this Section 11.14. Buyer shall retain liability for all adjustments,
examinations or claims relating to taxes that are paid by Buyer and
that are allocated to Buyer pursuant to this Section 11.14. Seller
shall administer and defend any examination, claim or adjustments
arising in connection with taxes to be paid by Buyer but which are
allocated to Seller pursuant to this Section 11.14.
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(b) OTHER TAXES. All excise, production, severance, gross receipts,
conservation, oil and gas severance and other similar taxes relating to
production of hydrocarbons attributable to the Interests prior to the Effective
Time shall be allocated to Seller, and all such taxes relating to Buyer's
Production on or after the Effective Time shall be allocated to Buyer. Buyer
shall file any reports or returns not filed as of the Closing, and shall remit
to the proper taxing authorities any such taxes allocated to Seller, but not
paid as of the Closing. Seller shall pay Seller's share of such taxes at the
time Buyer remits such taxes to the extent such amounts were not credited to
Buyer in the Purchase Price as adjusted pursuant to Section 2.2.
(c) SALES TAXES. The Purchase Price does not include any sales taxes or other
transfer taxes imposed in connection with the sale of the Interests. Buyer shall
pay any sales tax or other transfer tax, as well as any applicable conveyance,
transfer and recording fee, and real estate transfer stamps or taxes imposed on
the transfer of the Interests pursuant to the Agreement. If Buyer is of the
opinion that it is exempt from the payment of any such sales tax or other
transfer tax, Buyer shall furnish to Seller the appropriate tax exemption
certificate.
(d) TAX PROCEEDINGS. In the event Buyer or any of Buyer's affiliates receives
notice of any examination, claim, adjustment or other proceeding relating to the
liability for taxes of or with respect to Seller for any period Seller is or may
be liable under Section 11.14(a)(2), Buyer shall notify Seller in writing within
thirty (30) days of receiving notice thereof. As to any such taxes for which
Seller is or may be liable under Section 11.14(a)(2), Seller shall, at Seller's
expense, control or settle the contest of such examination, claim adjustment or
other proceeding, and shall indemnify Buyer against all losses, damages, costs,
expenses, liabilities, claims, demands, penalties, fines, assessments,
settlements, and any related expenses in connection therewith. In the event
adjustment, or other proceeding relating to the liability for taxes of or with
respect to Buyer for any period Buyer is or may be liable under Section
11.14(a)(2), Seller shall notify Buyer in writing within thirty (30) days of
receiving notice thereof. As to any such taxes for which Buyer is or may be
liable under Section 11.14(a)(2), Buyer shall, at Buyer's expense, control or
settle the contest of such examination, claim, adjustment, or other proceeding,
and shall indemnify Seller against all losses, damages, costs, expenses,
liabilities, claims, demands, penalties, fines, assessments, settlements, and
any related expenses in connection therewith. The parties shall cooperate with
each other and with their respective affiliates in the negotiations and
settlement of any proceeding described in this Section 11.14. Each party shall
provide, or cause to be provided, to the other party necessary authorizations,
including powers of attorney, to control any proceeding, which such party is
entitled to control.
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Executed as of the date first above mentioned.
SELLER:
APACHE CORPORATION
/s/ LISA A. FLOYD
------------------------------
By: Lisa A. Floyd
Its: Vice President - Business Development
BUYER:
VENUS EXPLORATION, INC.
/s/ JOHN Y. AMES
------------------------------
John Y. Ames
President
28
<PAGE> 1
EXHIBIT 10.2
CREDIT AGREEMENT
among
EXUS ENERGY, LLC,
as Borrower,
NATIONSBANK, N.A.,
as Administrative Agent
and
The Financial Institutions Listed on Schedule 1 Hereto,
as Banks
$50,000,000
dated
June 30, 1999
Banc of America Securities LLC
as Sole Lead Arranger and Book Manager
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1
<S> <C>
TERMS DEFINED..........................................................................1
SECTION 1.1 Definitions...............................................................1
SECTION 1.2 Accounting Terms and Determinations.....................................19
SECTION 1.3 Petroleum Terms..........................................................20
SECTION 1.4 Money....................................................................20
ARTICLE 2
THE CREDIT............................................................................20
SECTION 2.1 Commitments. ..........................................................20
SECTION 2.2 Notes....................................................................24
SECTION 2.3 Interest Rates; Payments.................................................25
SECTION 2.4 Mandatory Prepayments During Borrowing Base Deficiency...................26
SECTION 2.5 Mandatory Prepayments from Cash Flow.....................................27
SECTION 2.6 Voluntary Reduction of Commitments.......................................27
SECTION 2.7 Termination of Commitments; Final Maturity of Revolving Loan.............27
SECTION 2.8 Unused Commitment Fee....................................................28
SECTION 2.9 Borrowing Base Increase Fee..............................................28
SECTION 2.10 Letter of Credit Fee....................................................28
SECTION 2.11 Agency and other Fees...................................................28
SECTION 2.12 Closing Fee.............................................................28
ARTICLE 3
GENERAL PROVISIONS....................................................................29
SECTION 3.1 Delivery and Endorsement of Notes........................................29
SECTION 3.2 General Provisions as to Payments........................................29
ARTICLE 4
CHANGE IN CIRCUMSTANCES...............................................................30
SECTION 4.1 Increased Cost and Reduced Return........................................30
SECTION 4.2 Limitation on Types of Loans.............................................31
SECTION 4.3 Illegality...............................................................32
SECTION 4.4 Treatment of Affected Loans..............................................32
SECTION 4.5 Compensation.............................................................33
SECTION 4.6 Taxes....................................................................33
SECTION 4.7 Discretion of Banks as to Manner of Funding..............................35
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 5
BORROWING BASE........................................................................35
SECTION 5.1 Reserve Report; Proposed Borrowing Base..................................35
SECTION 5.2 Scheduled Redeterminations of the Borrowing Base; Procedures and
Standards................................................................35
SECTION 5.3 Special Redetermination..................................................36
SECTION 5.4 Borrowing Base Deficiency................................................36
SECTION 5.5 Initial Borrowing Base...................................................37
ARTICLE 6
COLLATERAL AND GUARANTEES.............................................................37
SECTION 6.1 Security.................................................................37
SECTION 6.2 Guarantees...............................................................37
SECTION 6.3 Supporting Documents.....................................................38
ARTICLE 7
CONDITIONS PRECEDENT..................................................................38
SECTION 7.1 Conditions to Initial Borrowing and Participation in Letter of Credit
Exposure.................................................................38
SECTION 7.2 Conditions to Each Borrowing and each Letter of Credit...................42
SECTION 7.3 Materiality of Conditions................................................43
ARTICLE 8
REPRESENTATIONS AND WARRANTIES........................................................43
SECTION 8.1 Existence and Power......................................................43
SECTION 8.2 Necessary Authorization; Contravention...................................43
SECTION 8.3 Binding Effect...........................................................43
SECTION 8.4 Financial Information....................................................44
SECTION 8.5 Litigation...............................................................45
SECTION 8.6 ERISA....................................................................45
SECTION 8.7 Taxes and Filing of Tax Returns..........................................46
SECTION 8.8 Ownership of Properties Generally........................................46
SECTION 8.9 Mineral Interests........................................................46
SECTION 8.10 Licenses, Permits, Etc..................................................46
SECTION 8.11 Compliance with Law.....................................................47
SECTION 8.12 Full Disclosure.........................................................47
SECTION 8.13 Organizational Structure; Nature of Business............................47
SECTION 8.14 Environmental Matters...................................................47
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8.15 Burdensome Obligations....................................................................48
SECTION 8.16 Fiscal Year...............................................................................48
SECTION 8.17 No Default................................................................................48
SECTION 8.18 Government Regulation.....................................................................48
SECTION 8.19 Insider...................................................................................48
SECTION 8.20 Gas Balancing Agreements and Advance Payment Contracts....................................48
SECTION 8.21 Apache Acquisition Documents..............................................................49
ARTICLE 9
AFFIRMATIVE COVENANTS...................................................................................49
SECTION 9.1 Information...............................................................................49
SECTION 9.2. Business of Borrower......................................................................51
SECTION 9.3 Maintenance of Existence..................................................................51
SECTION 9.4 Title Data................................................................................52
SECTION 9.5 Right of Inspection.......................................................................52
SECTION 9.6 Maintenance of Insurance..................................................................52
SECTION 9.7 Payment of Taxes and Claims...............................................................52
SECTION 9.8 Compliance with Laws and Documents........................................................53
SECTION 9.9 Operation of Properties and Equipment.....................................................53
SECTION 9.10 Environmental Law Compliance..............................................................53
SECTION 9.11 ERISA Reporting Requirements..............................................................54
SECTION 9.12 Additional Documents......................................................................55
SECTION 9.13 Environmental Review......................................................................55
ARTICLE 10
NEGATIVE COVENANTS......................................................................................55
SECTION 10.1 Incurrence of Debt.......................................................................55
SECTION 10.2 Distributions............................................................................55
SECTION 10.3 Negative Pledge..........................................................................56
SECTION 10.4 Consolidations and Mergers...............................................................56
SECTION 10.5 Asset Dispositions.......................................................................56
SECTION 10.6 Amendments to Organizational Documents; Other Material Agreements........................56
SECTION 10.7 Use of Proceeds.........................................................................56
SECTION 10.8 Investments..............................................................................57
SECTION 10.9 Transactions with Affiliates.............................................................57
SECTION 10.10 ERISA....................................................................................57
SECTION 10.11 Hedge Transactions.......................................................................57
SECTION 10.12 Fiscal Year..............................................................................57
SECTION 10.13 Change in Business.......................................................................57
SECTION 10.14 Restricted Payments......................................................................57
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE 11
FINANCIAL COVENANTS.....................................................................................58
SECTION 11.1 Current Ratio of Borrower.................................................................58
SECTION 11.2 Maximum General and Administrative Expenses...............................................58
ARTICLE 12
DEFAULTS................................................................................................58
SECTION 12.1 Events of Default.........................................................................58
ARTICLE 13
AGENTS..................................................................................................60
SECTION 13.1 Appointment, Powers, and Immunities.......................................................60
SECTION 13.2 Reliance by Agents........................................................................61
SECTION 13.3 Defaults..................................................................................61
SECTION 13.4 Rights as Bank............................................................................61
SECTION 13.5 Indemnification...........................................................................62
SECTION 13.6 Non-Reliance on Agents and Other Banks....................................................62
SECTION 13.7 Resignation of Agents.....................................................................62
ARTICLE 14
MISCELLANEOUS...........................................................................................63
SECTION 14.1 Notices...................................................................................63
SECTION 14.2 No Waivers................................................................................63
SECTION 14.3 Expenses; Indemnification.................................................................63
SECTION 14.4 Right of Set-off; Adjustments.............................................................64
SECTION 14.5 Amendments and Waivers....................................................................65
SECTION 14.6 Survival..................................................................................65
SECTION 14.7 Limitation on Interest....................................................................65
SECTION 14.8 Invalid Provisions........................................................................66
SECTION 14.9 Waiver of Consumer Credit Laws............................................................66
SECTION 14.10 Assignments and Participations............................................................66
SECTION 14.11 TEXAS LAW.................................................................................68
SECTION 14.12 Consent to Jurisdiction; Waiver of Immunities.............................................68
SECTION 14.13 Counterparts; Effectiveness...............................................................69
SECTION 14.14 No Third Party Beneficiaries..............................................................69
SECTION 14.15 COMPLETE AGREEMENT........................................................................69
SECTION 14.16 WAIVER OF JURY TRIAL......................................................................69
</TABLE>
iv
<PAGE> 6
EXHIBITS
EXHIBIT A FORM OF FACILITY GUARANTEES
EXHIBIT B FORM OF NOTE
EXHIBIT C FORM OF OPERATING AGREEMENT
EXHIBIT D FORM OF SECURITY AGREEMENT
EXHIBIT E FORM OF SUBORDINATION AGREEMENT
EXHIBIT F FORM OF REQUEST FOR BORROWING
EXHIBIT G FORM OF REQUEST FOR LETTER OF CREDIT
EXHIBIT H FORM OF CONTINUATION AND CONVERSION NOTICE
EXHIBIT I FORM OF CERTIFICATE OF OWNERSHIP INTERESTS
EXHIBIT J-1 FORM OF CERTIFICATE OF FINANCIAL OFFICER OF EXCO
EXHIBIT J-2 FORM OF CERTIFICATE OF FINANCIAL OFFICER OF VENUS
EXHIBIT J-3 FORM OF CERTIFICATE OF FINANCIAL OFFICER OF BORROWER
EXHIBIT K FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
SCHEDULES
SCHEDULE 1 FINANCIAL INSTITUTIONS
SCHEDULE 2 APPROVED CAP EX BUDGET
SCHEDULE 3 LITIGATION
SCHEDULE 4 ORGANIZATION STRUCTURE; NATURE OF BUSINESS
v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is entered into as of the 30th
day of June, 1999, among EXUS Energy, LLC, a Delaware limited liability company
("Borrower"), NationsBank, 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 has requested that Banks provide Borrower with a
revolving credit facility, and Banks are willing to provide such facility on the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, pursuant to Article 13 of this Agreement, NationsBank, N.A.
has been appointed Administrative Agent for Banks hereunder; and
WHEREAS, pursuant to separate agreements among NationsBank, Banc of
America Securities LLC ("BAS") and Borrower, BAS has been appointed Sole Lead
Arranger and Book Manager for the credit facility provided hereunder.
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:
ARTICLE 1
TERMS DEFINED
SECTION 1.1 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) 1.00 minus the Reserve Requirement for such
Eurodollar Loan for such Interest Period.
"Administrative Agent" means NationsBank, N.A. in its capacity as
Administrative Agent for Banks hereunder or any successor thereto.
"Advance Payment Contract" means any contract whereby Borrower or any
Subsidiary of Borrower either (a) receives or becomes entitled to receive
(either directly or indirectly) any payment
<PAGE> 8
(an "Advance Payment") to be applied toward payment of the purchase price of
Hydrocarbons produced or to be produced from Mineral Interests owned by Borrower
or any Subsidiary of Borrower and which Advance Payment is paid or 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 Borrower or any
of its Subsidiaries, means any director or executive officer of Borrower or any
of its Subsidiaries and any Person who holds five percent (5%) or more of the
voting stock of Borrower or any of its Subsidiaries. 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 or partnership interests, or
by contract or otherwise.
"Agent" means Administrative Agent, Sole Lead Arranger and Book
Manager, individually, and "Agents" means Administrative Agent, Sole Lead
Arranger and Book Manager, collectively.
"Agreement" means this Agreement as the same may hereafter be modified,
amended or supplemented from time to time.
"Annual Scheduled Redetermination" means the Scheduled Redetermination
to occur on or around January 1, 2000 and each October 31, thereafter.
"Apache Acquisition" means the proposed purchase by Borrower of the
Apache Properties pursuant to the Apache Acquisition Agreement.
"Apache Acquisition Agreement" means that certain Purchase and Sale
Agreement dated May 13, 1999, by and between Venus and Apache Corporation. The
rights of Venus under the Apache Acquisition Agreement were contributed by Venus
to Borrower.
"Apache Acquisition Documents" means the Apache 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 Sellers pursuant to the Apache Acquisition Agreement or in
connection with the Apache Acquisition.
2
<PAGE> 9
"Apache Properties" means the Mineral Interests to be acquired by
Borrower on the Closing Date from Apache Corporation pursuant to the Apache
Acquisition Agreement.
"Applicable Environmental Law" means any Law, statute, ordinance, rule,
regulation, order or determination of any Tribunal or any board of fire
underwriters (or other body exercising similar functions), affecting any real or
personal property owned, operated or leased by Borrower or any of its
Subsidiaries or any other operation of Borrower or any of its Subsidiaries in
any way pertaining to health, safety or the environment, including, without
limitation, all applicable zoning ordinances and building codes, flood disaster
Laws and health, safety and environmental Laws and regulations, and further
including, without limitation, (a) the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (as amended from time to time, herein referred
to as "CERCLA"), (b) 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 amended from time to time, herein referred to
as "RCRA"), (c) the Safe Drinking Water Act, as amended, (d) the Toxic
Substances Control Act, as amended, (e) the Clean Air Act, as amended, (f) the
Occupational Safety and Health Act of 1970, as amended, (g) the Laws, rules and
regulations of any state having jurisdiction over any real or personal property
owned, operated or leased by Borrower or any of its Subsidiaries or any other
operation of Borrower or any of its Subsidiaries which relates to health, safety
or the environment, as each may be amended from time to time, and (h) any
federal, state or municipal Laws, ordinances or regulations which may now or
hereafter require removal of asbestos or other hazardous wastes or impose any
liability related to asbestos or other hazardous wastes. The terms "hazardous
substance", "petroleum", "release" and "threatened release" have the meanings
specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed")
have the meanings specified in RCRA; provided, however, in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of
such amendment with respect to all provisions of this Agreement; and provided
further that, to the extent the Laws of the state in which any real or personal
property owned, operated or leased by Borrower or any of its Subsidiaries is
located establish a meaning for "hazardous substance", "petroleum", "release",
"solid waste" or "disposal" which is broader than that specified in either
CERCLA or RCRA, such broader meaning shall apply in so far as such broader
meaning is applicable to the real or personal property owned, operated or leased
by Borrower or any of its Subsidiaries and located in such state.
"Applicable Lending Office" means, for each Bank and for each Type of
Loan, the Domestic Lending Office or Eurodollar Lending Office of such Bank (or
of an Affiliate of such Bank) designated for such Type of Loan set forth on
Schedule 1 hereto 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 its Loans of such Type are to be made and maintained.
3
<PAGE> 10
"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 Loans
------------------------------------ ---------------------
<S> <C>
Less Than .75 to 1 1.50%
------------------------------------ ---------------------
Greater Than Or Equal To .75 to 1 1.75%
------------------------------------ ---------------------
</TABLE>
"Approved Cap Ex" means capital expenditures to be made by Borrower for
the drilling and completion of two (2) development wells on the Apache Mineral
Interests in accordance with the Approved Cap Ex Budget.
"Approved Cap Ex Budget" means the budget attached hereto as Schedule 2
prepared by Borrower setting forth budgeted capital expenditures for the
drilling and completion of two (2) development wells on the Apache Properties.
"Approved Petroleum Engineer" means Lee Keeling and Associates, Inc. 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 14.10(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 Eligible Assignees, and
"Banks" shall mean all Banks.
"Base Rate" means, the floating rate of interest established from time
to time by Administrative Agent as its "prime rate" of interest, which rate may
not be the lowest rate of interest charged by Administrative Agent, each change
in the Base Rate to become effective without notice to Borrower on the effective
date of each such change.
"Base Rate Loan" means the portion of the principal of the Revolving
Loan bearing interest with reference to the Base Rate.
4
<PAGE> 11
"Book Manager" means Banc of America Securities LLC in its capacity as
Book Manager for the credit facility provided hereunder or any successor
thereto.
"Borrower" means EXUS Energy, LLC, a Delaware limited liability
company.
"Borrowing" means any disbursement to Borrower under, or to satisfy the
obligations of Borrower or any of its Subsidiaries under, any of the Loan
Papers. Any Borrowing of Base Rate Loans is referred to herein as a "Base Rate
Borrowing," and any Borrowing of Eurodollar Loans is referred to herein as a
"Eurodollar Borrowing."
"Borrowing Base" means the loan value attributable to certain of
Borrower's Mineral Interests as determined in accordance with Article 5 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 2.1(b).
"Borrowing Base Properties" means all Mineral Interests evaluated by
Banks for purposes of establishing the Borrowing Base. The Borrowing Base
Properties on the date hereof constitute all of the Mineral Interests described
in the Initial 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 Borrower or any of
its Subsidiaries.
"Change of Control" means the occurrence of (a) any event or
circumstance which, for any reason (including by operation of law), results in
either EXUS or Venus ceasing to own on a fully diluted basis fifty percent (50%)
of the membership interests in Borrower free and clear of all Liens other than
(i) Liens granted by Venus in favor of EXCO encumbering Venus's membership
interest in Borrower, and (ii) as a result of a transfer by Venus of all or any
part of its membership interest in Borrower to EXCO, (b) an EXCO Change of
Control, or (c) a Venus Change of Control.
"Closing Date" means June 30, 1999.
"Code" means the Internal Revenue Code of 1986, as amended.
"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 2.1 hereof. The amount of each Bank's Commitment is
initially the amount set forth opposite such Bank's name on Schedule 1 hereto,
as such Commitment may be terminated or reduced from time to time in accordance
with the provisions hereof; provided, that, after giving effect to any
Assignment and
5
<PAGE> 12
Acceptance Agreement, the Commitment of each Bank shall be the amount set forth
in the Register maintained by Administrative Agent pursuant to Section 14.10(b).
"Commitment Percentage" means, with respect to each Bank, initially,
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 Percentage of each Bank shall be the amount set forth in the
Register maintained by Administrative Agent pursuant to Section 14.10(b).
"Consolidated Current Assets" means, for any Person at any time, the
current assets of such Person and its Consolidated Subsidiaries 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.
"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.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.3(c) 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 2.3(c) hereof of one Type of Loan into another Type of Loan.
"Credit Parties" means Borrower, each Subsidiary of Borrower, EXCO and
Venus, collectively, and "Credit Party" means any such party.
"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.
6
<PAGE> 13
"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
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, (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, and (d) the
payment of any management fee, consulting fee, overhead reimbursement or other
fee or payment of any kind to any holder of any stock, partnership, joint
venture, limited liability company, membership or other interest of such Person
or to any Affiliate of such holder; provided, that "Distribution" will not
include payments made by Borrower to EXCO under the Operating Agreement
"Distribution Limit" means the limitation on the amount of
Distributions permitted to be made by Borrower during any period between Annual
Scheduled Redeterminations pursuant to Section 10.2 as set forth in the notice
provided to Borrower by Administrative Agent pursuant to Section 5.2. The
Distribution Limit in effect at any time shall be determined by Administrative
Agent and approved by Required Banks in their sole discretion.
"Dollars" means the lawful currency of the United States of America.
"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, its office located at
its address identified on Schedule 1 hereto as its Domestic Lending Office or
such other office as such Bank may hereafter designate as its Domestic Lending
Office by notice to Borrower and Administrative Agent.
"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 14.10, 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 Borrower or any of its Subsidiaries
involving (a) a Hazardous Discharge from, onto or about any real property owned,
leased or operated at any time by Borrower or any of its Subsidiaries, (b) a
Hazardous Discharge caused, in whole or in part, by Borrower or any of its
Subsidiaries or by any Person acting on behalf of or at the instruction of
7
<PAGE> 14
Borrower or any of its Subsidiaries, or (c) any violation of any Applicable
Environmental Law by Borrower or any of its Subsidiaries.
"Environmental Liability" means any liability, loss, fine, penalty,
charge, Lien, damage, cost, or expense of any kind that results directly or
indirectly, in whole or in part (a) from the violation of any Applicable
Environmental Law, (b) from the release or threatened release of any Hazardous
Substance, (c) from removal, remediation, or other actions in response to the
release or threatened release of any Hazardous Substance, (d) from actual or
threatened damages to natural resources, (e) from the imposition of injunctive
relief or other orders, (f) from personal injury, death, or property damage
which occurs as a result of Borrower's or any of its Subsidiaries' use, storage,
handling, or the release or threatened release of a Hazardous Substance, or (g)
from any environmental investigation performed at, on, or for any real property
owned by Borrower or any of its Subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rulings and regulations issued thereunder as from time to time
in effect.
"ERISA Affiliate"means any Person that for purposes of Title IV of
ERISA is under common control with Borrower as determined under Section 414(b),
(c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the
regulations and rulings issued thereunder.
"ERISA Event" means, with respect to Borrower and any ERISA Affiliate,
(a) a "reportable event" as defined in section 4043 of ERISA (other than a
reportable event not subject to the provision for thirty (30) days notice to the
PBGC under regulations issued under section 4043 of ERISA), (b) the withdrawal
of Borrower or any ERISA Affiliate from a Plan during a plan year in which it
was a "substantial employer" as defined in section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate a Plan under section 4041(c) of ERISA,
(d) the institution of proceedings to terminate a Plan by the PBGC, (e) the
failure to make required contributions which could result in the imposition of a
Lien under section 412 of the Internal Revenue Code of 1986, as amended or
section 302 of ERISA, or (f) any other event or condition which might reasonably
be expected to constitute grounds under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan or the
imposition of any liability under Title IV of ERISA other than PBGC premiums due
but not delinquent under Section 4007 of ERISA.
"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, its office, branch
or Affiliate located at its address identified on Schedule 1 hereto as its
Eurodollar Lending Office or 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.
8
<PAGE> 15
"Eurodollar Loans" means Loans that bear interest at rates based upon
the Adjusted Eurodollar Rate.
"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%) 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
any Eurodollar Loan 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 12.1.
"EXCO" means EXCO Resources, Inc., a Texas corporation.
"EXCO Change of Control" will be deemed to have occurred if (a) as of
any date, more than fifty percent (50%) of the Persons comprising the Board of
Directors of EXCO were not members of the Board of Directors of EXCO one year
prior to such date, or (b) Douglas H. Miller shall cease, for any reason, to be
actively employed on a full time basis as the Chief Executive Officer of EXCO.
"EXCO/Venus Note" means a Convertible Promissory Note in the principal
amount of $8,000,000 executed by Venus and payable to the order of EXCO.
"Exhibit" refers to an exhibit attached to this Agreement and
incorporated herein by reference, unless specifically provided otherwise.
"Facility Guarantees" means Guarantees substantially in the form of
Exhibit A to be executed by EXCO and Venus and each Subsidiary of Borrower in
favor of Administrative Agent for the ratable benefit of the Banks pursuant to
which each EXCO and Venus and each Subsidiary of Borrower jointly and severally
guarantees payment and performance in full of the Obligations.
"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 such day 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 Business Day, and (b) if no such rate
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<PAGE> 16
is so published on such next succeeding Domestic Business Day, the Federal Funds
Rate for such day shall be the average rate charged to Administrative Agent (in
its individual capacity) 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
date hereof 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
Borrower or any of its Subsidiaries, or any other party having an interest in
any Hydrocarbons to be produced from Mineral Interests in which Borrower or any
of its Subsidiaries 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
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<PAGE> 17
or in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"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 Borrower or any of its Subsidiaries 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 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.
"Incremental Availability" means the incremental increase in
Availability resulting from any increase in the Borrowing Base hereunder.
"Initial Borrowing Base" means a Borrowing Base in the amount of
$19,500,000, which shall be in effect during the period commencing on the
Closing Date and continuing until the first Redetermination after the Closing
Date.
"Initial Reserve Report" means an engineering analysis of the Apache
Mineral Interests, prepared by EXCO's in house engineering staff as of April 1,
1999, a copy of which has been provided to Administrative Agent and each Bank.
"Interest Period" means, with respect to each Eurodollar Borrowing, the
period commencing on the date of such Borrowing 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; provided that:
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<PAGE> 18
(i) 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;
(ii) 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 the calendar month at
the end of such Interest Period) shall, subject to clause
(iii) below, end on the last Eurodollar Business Day of a
calendar month;
(iii) if any Interest Period includes a date on which any
payment of principal of any Eurodollar Loan is required to be
made hereunder, but does not end on such date, then (A) the
principal amount of each Eurodollar Loan required to be repaid
on such date shall have an Interest Period ending on such
date, and (B) the remainder of each such Eurodollar Loan shall
have an Interest Period determined as set forth above; and
(iv) no Interest Period applicable to a Eurodollar Loan 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 current customer and trade accounts which are
payable in accordance with customary trade terms.
"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.
"Letters of Credit" means letters of credit issued for the account of
Borrower pursuant to Section 2.1(b).
"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.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, financing statement, 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.
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"Loan Papers" means this Agreement, the Notes, the Facility Guarantees,
each Security Agreement, the Subordination Agreement, all Mortgages now or at
any time hereafter delivered pursuant to Section 6.1, and all other
certificates, documents or instruments delivered in connection with this
Agreement, as the foregoing may be amended from time to time.
"Margin Regulations" means Regulations G, 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.
"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, including, without limitation, any circumstances or event that has
had, or would reasonably be expected to have a material adverse effect on the
Apache Properties, (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 involves the payment of $50,000 or more in any
Fiscal Year or goods or services with a value in any Fiscal Year of $50,000 or
more and 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 Borrower or any of its Subsidiaries is a party or by which
any Mineral Interest owned by Borrower or any of its Subsidiaries is bound, a
net gas imbalance to Borrower or any of its Subsidiaries 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 Loans 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
"interest rate ceiling" from time to time in effect under Chapter 1D of the
Texas Credit Title, Revised Civil Statutes of Texas, 1925, as amended,
substituted for or restated, or, if permitted by applicable Law and effective
upon the giving of the notices required by such Chapter 1D (or effective upon
any other date otherwise specified by applicable Law), the "quarterly
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<PAGE> 20
ceiling" or "annualized ceiling" from time to time in effect under such Chapter
1D, whichever Administrative Agent (with the approval of Required Banks) shall
elect to substitute for the "interest rate ceiling," and vice versa, each such
substitution to have the effect provided in such Chapter 1D, and Administrative
Agent (with the approval of Required Banks) shall be entitled to make such
election from time to time and 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 1D.
"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.
"Monthly Date" means the last day of each calendar month.
"Mortgages" means all mortgages, deeds of trusts, security agreements,
pledge agreements, collateral mortgages, collateral chattel mortgages, financing
statements and other documents, instruments and agreements evidencing, creating,
perfecting or otherwise establishing the Liens on Mineral Interests required by
Section 6.1 hereof. All Mortgages shall be in form and substance reasonably
satisfactory to Administrative Agent.
"NationsBank" means NationsBank, N.A., a national banking association.
"Net Revenues" means, for Borrower and its Consolidated Subsidiaries
for a month (a) the gross cash receipts of Borrower and its Consolidated
Subsidiaries for such month from whatever source derived, minus (b) the sum of
each of the following for such month (i) severance taxes payable in cash with
respect to Hydrocarbons produced from Borrower's and its Subsidiaries' Mineral
Interests during such month, (ii) lease operating expenses (including payments
under the Operating Agreement) paid by Borrower and its Subsidiaries in cash
during such month, and (iii) ad valorem tax expense accrual attributable to
Borrower and its Subsidiaries' Mineral Interests for such month.
"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
the Loans made by such Bank, together with all modifications, extensions,
renewals and rearrangement thereof, and "Notes" means all of such Notes
collectively.
"Obligations" means all present and future indebtedness, obligations
and liabilities, and all renewals and extensions thereof, or any part thereof,
of any 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
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,
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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.
"Operating Agreement" means an Operating Agreement to be entered into
between Borrower and EXCO in the form of Exhibit C hereto.
"Outstanding Credit" means, on any date, the sum of (a) aggregate
outstanding principal balance of the Revolving Loan on such date, including the
amount of any Borrowing to be made on such date, and (b) the aggregate
outstanding Letter of Credit Exposure on such date, including Letter of Credit
Exposure attributable to Letters of Credit to be issued on such date.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Encumbrances" means with respect to any asset:
(i) Liens (if any) securing the Obligations in favor of Banks;
(ii) 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 Borrower or any of its
Subsidiaries that are customarily granted in the oil and gas
industry;
(iii) Inchoate statutory or operators' liens securing
obligations for labor, services, materials and supplies
furnished to Mineral Interests in the ordinary course of
business which are not delinquent (except to the extent
permitted by Section 9.7);
(iv) 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
9.7);
(v) 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 9.7; and
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(vi) Lease burdens payable to third parties encumbering
Mineral Interests at the time such Mineral Interests are
acquired by Borrower or its Subsidiaries and 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.
"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, and (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.
"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 Borrower or an ERISA Affiliate of Borrower has any current or
future obligation or liability or under which any present or former employee of
Borrower or an ERISA Affiliate of Borrower, 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
Borrower or an ERISA Affiliate of Borrower.
"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.
"Proved Undeveloped Mineral Interests" means all Mineral Interests
which constitute proved undeveloped reserves.
"Quarterly Date" means the last day of each March, June, September and
December.
"Recognized Value" means, with respect to oil and gas properties, the
discounted present value of the estimated net cash flow to be realized from the
production of Hydrocarbons from such oil and gas properties as determined by
NationsBank for purposes of determining the portion of the
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Borrowing Base which it attributed to such oil and gas properties in connection
with the most recent Redetermination of the Borrowing Base as of the date
"Recognized Value" is being determined.
"Redetermination" means (i) any Scheduled Redetermination, or (ii) any
Special Redetermination.
"Regulation U" means Regulation U 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 2.1(d).
"Required Banks" means Banks holding at least sixty-six and sixty-seven
one hundredths of one percent (66.67%) of the Total Commitment.
"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 5.1 shall be prepared by the Approved Petroleum
Engineer. Each other Reserve Report shall be prepared by Borrower's in-house
engineering staff. 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 the
Initial 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 "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 any payment (whether in cash or other
property) by Borrower or any of its subsidiaries of any type, and whether or not
paid to an Affiliate, and including any payment of expenses, costs, liabilities,
obligations, Distributions or Debt, other than (a) payments of Approved Cap Ex,
(b) payments of the Obligations, (c) payments of lease operating expenses,
severance and ad valorem taxes, (d) payments of Distributions expressly
permitted by Section 10.2, (e) payments of general and administrative expenses
expressly permitted by Section 11.2, and (f) other payments in an amount not
exceeding $25,000 in any Fiscal Year.
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"Revolving Loan" means the revolving credit loan in an aggregate 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 2.1 hereof. The Revolving
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 or
Conversion.
"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 5.2.
"Section" refers to a "section" or "subsection" of this Agreement
unless specifically indicated otherwise.
"Security Agreement" means a Security Agreement substantially in the
form of Exhibit D to be executed by Borrower and Subsidiaries of Borrower to
Administrative Agent pursuant to which Borrower and such Subsidiaries grant
first and prior Liens in substantially all of their personal property assets to
Administrative Agent for the ratable benefit of the Banks to secure the
Obligations.
"Sole Lead Arranger" means Banc of America Securities LLC in its
capacity as the Sole Lead Arranger for the credit facility provided hereunder
and any successor thereto.
"Special Redetermination" means any Redetermination of the Borrowing
Base pursuant to Section 5.3.
"Subordination Agreement" means a Subordination Agreement in the form
of Exhibit E hereto to be entered into by and between Administrative Agent and
EXCO and acknowledged by Venus pursuant to which the EXCO/Venus Note will be
subordinated to the Facility Guaranty to be executed by Venus.
"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).
"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.
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"Termination Date" means June 30, 2002.
"Title Review Limit" has the meaning assigned to such term in Section
6.3.
"Total Commitment" means the Commitments of all Banks in an initial
aggregate amount of $50,000,000 as such amount shall be reduced from time to
time pursuant to Section 2.6.
"Tribunal" means any state, commonwealth, federal, foreign, territorial
or other court or governmental body, subdivision, agency, department,
commission, board, bureau or instrumentality of a governmental body.
"Type" shall mean any type of Loan (i.e., the Base Rate Loan or
Eurodollar Loan).
"Unrestricted Advance Limit" means, on any date herein specified, the
remainder of (a) the cumulative total of all mandatory prepayments made on the
Loans pursuant to Section 2.5 (but excluding any portion of such payments which
are applied to reduce mandatory payments required pursuant to Section 2.4) and
all voluntary prepayments made on the Loans pursuant to Section 2.1(a) from and
after the Closing Date to and including such date, minus (b) the cumulative
total of all Unrestricted Borrowings made by Borrower from and after the Closing
Date to and including such date.
"Unrestricted Borrowings" means Borrowings made by Borrower hereunder
other than (a) a Borrowing made on the Closing Date in an amount up to
$14,500,000 to pay a portion of the purchase price for the Apache Acquisition
(including related transaction costs), and (b) Borrowings made on or after the
Closing Date in an aggregate amount not exceeding $4,800,000 utilized to pay
Approved Cap Ex.
"Venus" means Venus Exploration, Inc., a Delaware corporation.
"Venus Change of Control" will be deemed to have occurred if (a) as of
any date, more than fifty percent (50%) of the Persons comprising the Board of
Directors of Venus were not members of the Board of Directors of Venus one year
prior to such date, or (b) Eugene L. Ames, Jr. shall cease, for any reason, to
be actively employed on a full time basis as the Chief Executive Officer of
Venus.
SECTION 1.2 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 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 9.1.
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SECTION 1.3 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.
SECTION 1.4 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 2
THE CREDIT
SECTION 2.1 Commitments.
(a) Each Bank severally agrees, subject to Sections 2.1(c),
2.1(d), 7.1 and 7.2 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 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
$500,000 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 2.1(a), repay amounts borrowed and request new Borrowings to be made
under this Section 2.1.
(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 $200,000, and (ii) Borrower would be entitled to a Borrowing
under Sections 2.1(a), 2.1(c) and 2.1(d) 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 earlier of (i)
the Termination Date, or (ii) one (1) year from the date of issuance. 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,
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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.
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 it 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 2.1(b). Whenever Borrower is
required to make deposits under this Section 2.1(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 sum of (a) two percent (2%), plus
(b) the Base Rate in effect from day to day. 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 2.1(b) shall include interest
thereon at the Federal Funds Rate, from the date of the payment of such amounts
by
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Administrative Agent to the date of reimbursement by such Bank. No Bank shall be
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 wilful 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 collectability 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
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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,
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 at any time that a Borrowing
Base Deficiency exists or in an amount which would cause the Outstanding Credit
to exceed the Borrowing Base then in effect. Nothing in this Section 2.1(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 2.1(c).
(d) proceeds of Borrowings hereunder and Letters of Credit
issued hereunder shall be used only (a) to pay up to $14,500,000 of the purchase
price for the Apache Acquisition (including related transaction costs), (b) to
pay Approved Cap Ex in an amount up to $4,800,000, and (c) for other general
corporate purposes; provided, that no Borrowing shall be made for such other
general corporate purposes in an amount greater than the Unrestricted Advance
Limit in effect immediately prior to giving effect to such Borrowing unless and
to the extent that such Borrowing is made from Incremental Availability. Letters
of Credit may be used for general corporate purposes. Notwithstanding the
foregoing, Borrowing shall be made or Letter of Credit issued for any purpose
prohibited by Section 10.7 hereof.
(e) In order to request any Borrowing under this Section 2.1,
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 F 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;
(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; and
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(v) The use of proceeds of such Borrowing.
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 7.2 has not been satisfied, Administrative Agent
will make the funds so received from Banks available to Borrower at
Administrative Agent's aforesaid address.
(f) 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 G 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
7.2 hereof has not been satisfied, Administrative Agent will issue and deliver
such Letter of Credit pursuant to the instructions of Borrower.
SECTION 2.2 Notes. Each Bank's Commitment Percentage of the Revolving
Loan shall be evidenced by a single Note payable to the order of such Bank in an
amount equal to such Bank's Commitment.
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SECTION 2.3 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
principal of the Base Rate Loan shall be payable as it accrues pursuant to
Section 2.5 and on each Quarterly Date, and on the Termination Date.
(b) The principal amount of each Eurodollar Loan 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 shall be payable as it accrues pursuant to
Section 2.5 and, in the case of accrued interest which is not fully paid
pursuant to Section 2.5 and which (i) accrues on the outstanding principal
balance of a 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, and (ii) on the outstanding principal balance of any Loan
having an Interest Period of more than three (3) 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 2.3, Borrower shall have
the option of having all or any portion of the principal outstanding under the
Revolving Loan be a Base Rate Loan or one (1) or more Eurodollar Loans, 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 $500,000 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 H 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 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 a part of 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 2.3(c) on the amount and number of Eurodollar Loans,
Borrower shall have the right to convert (a "Conversion") all or any part of the
Base Rate Loan to a Eurodollar Loan by giving Administrative
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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 2.3 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 four (4) Eurodollar Loans in effect at any time.
(d) Notwithstanding anything to the contrary set forth in
Section 2.3(a) or 2.3(b) above, all overdue principal of the Obligations and, to
the extent permitted by law, overdue interest, shall bear interest from the date
due, payable on demand, for each day until paid at a rate per annum equal to the
lesser of (a) the sum of (i) two percent (2%), plus (ii) the Base Rate in effect
from day to day, and (b) the Maximum Lawful Rate.
(e) Administrative Agent shall determine each interest rate
applicable to the Revolving 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, to the extent permitted by
law, reduce the rate of interest on the affected 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 computed by reference to the
Eurodollar Rate shall be computed based on the number of actual days elapsed
assuming that each calendar year consisted of 360 days. Interest payable
hereunder computed by reference to the Base Rate shall be computed based on the
actual number of days elapsed assuming that each calendar year consisted of 365
days.
SECTION 2.4 Mandatory Prepayments During Borrowing Base Deficiency. In
the event a Borrowing Base Deficiency exists after giving effect to any
Redetermination, Borrower shall take the action specified in either clause (a),
(b) or (c) following, as specified by Administrative Agent in its sole
discretion in a written notice to Borrower: (a) eliminate such Borrowing Base
Deficiency by
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making a single mandatory prepayment of principal on the Revolving 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, (b) eliminate such Borrowing Base Deficiency by making six
(6) consecutive mandatory prepayments of principal on the Revolving 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, or (c) eliminate such Borrowing Base
Deficiency by submitting additional Mineral Interests to Banks on the first
Monthly Date following the date on which such Borrowing Base Deficiency is
determined to exist for evaluation as Borrowing Base Properties which Banks, in
their sole discretion, determine have a value sufficient to increase the
Borrowing Base by at least the amount of the Borrowing Base Deficiency. If a
Borrowing Base Deficiency cannot be eliminated pursuant to this Section 2.4 by
prepayment of the Revolving 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 2.1(b), in an
amount at least equal to one sixth (1/6th) of the balance of such Borrowing Base
Deficiency (i.e., one-sixth of the difference between the Borrowing Base
Deficiency and the remaining outstanding principal of the Revolving Loan on the
date such Borrowing Base Deficiency is first determined to occur).
SECTION 2.5 Mandatory Prepayments from Cash Flow. Commencing on
September 25, 1999 and continuing on the 20th day of each month thereafter until
the Commitments are terminated and the Obligations are paid in full, Borrower
shall make a mandatory prepayment on the Revolving Loan in an amount equal to
fifty percent (50%) of Borrower's Net Revenues for the immediately preceding
calendar month. Each such payment shall be applied first to accrued but unpaid
interest and then to principal. In the event mandatory prepayments are required
under this Section 2.5 at any time when mandatory prepayments are required under
Section 2.4, the mandatory prepayments required by this Section 2.5 shall be
applied to reduce the prepayments Borrower is required to make pursuant to
Section 2.4 in direct order of maturity.
SECTION 2.6 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 Revolving Loan in an amount
sufficient to cause the principal balance of the Revolving Loan 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 2.7 Termination of Commitments; Final Maturity of Revolving
Loan. The Total Commitment (and the Commitment of each Bank) shall terminate,
and the entire outstanding principal
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balance of the Revolving 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 2.8 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, a commitment fee equal to .375% (computed on a per annum
basis 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 2.9 Borrowing Base Increase Fee. Simultaneously with each
increase in the Borrowing Base, Borrower shall pay to Administrative Agent for
the ratable benefit of each Bank, a borrowing base increase fee in an amount to
be mutually agreed upon by Borrower and Administrative Agent in connection with
such increase.
SECTION 2.10 Letter of Credit Fee.
(a) Borrower shall pay to Administrative Agent for its own
account a fee on the daily average amount of all Letter of Credit Exposure
computed at a per annum rate for each day of .125% of such daily average Letter
of Credit Exposure. Such fee shall be payable in arrears on each Quarterly Date.
Notwithstanding the foregoing, no fee shall accrue or be payable pursuant to
this Section 2.10(a) at any time that there is only one Bank which is a party to
this Credit Agreement.
(b) Borrower shall pay to Administrative Agent for the ratable
benefit of each Bank a fee on the daily average amount of all Letter of Credit
Exposure computed at a per annum rate for each day equal to the Applicable
Margin in effect for Eurodollar Loans on such day. Such fee shall be payable
quarterly in arrears on each Quarterly Date.
SECTION 2.11 Agency and other Fees. Borrower shall pay to
Administrative Agent and its Affiliates such other reasonable 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.
SECTION 2.12 Closing Fee. Borrower shall pay to Administrative Agent,
for the ratable benefit of each Bank, a non-refundable closing fee on the
Closing Date in the amount of $48,750.
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ARTICLE 3
GENERAL PROVISIONS
SECTION 3.1 Delivery and Endorsement of Notes. Simultaneously with the
execution of this Agreement, Administrative Agent shall deliver to each Bank the
Note payable to such Bank. Each Bank may 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 and type of each Loan made by it, 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 Note a continuation of any such schedule as
required.
SECTION 3.2 General Provisions as to Payments.
(a) Borrower shall make each payment of principal of, and
interest on, the Revolving 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. (Dallas,
Texas time) 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 (a) principal of, or interest on, any portion of the Base Rate Loan, or (b)
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 Eurodollar Loan 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 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 shall be applied first to Eurodollar Loans
outstanding with Interest Periods ending on the date of such payment, then to
the Base Rate Loan, and then to Eurodollar Loans, 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
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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 Borrower or any of
its Subsidiaries under any of the Loan Papers, fourth to the payment of any
unpaid fees required pursuant to Section 2.11, fifth to the payment of any
unpaid fees required pursuant to Sections 2.8, 2.9, and 2.10, sixth, to payment
to each Bank of its Commitment Percentage of the outstanding principal of the
Revolving Loan and accrued but unpaid interest thereon, and seventh to establish
the deposits required in Section 2.1(b). All payments received by a Bank after
the occurrence of an Event of Default for application to the principal of the
Revolving Loan shall be applied by such Bank in the manner provided in Section
3.2(b).
ARTICLE 4
CHANGE IN CIRCUMSTANCES
SECTION 4.1 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 by the jurisdiction in which such Bank has
its principal office or such Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, 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;
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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 4.1(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 to Eurodollar Loans, until the event or condition giving rise to such
request ceases to be in effect (in which case the provisions of Section 4.4
shall be applicable); provided that such suspension shall not affect the right
of such Bank to receive the compensation so requested.
(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 4.1 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 4.1 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 4.2 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
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(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 amounts or periods, and so long as such condition remains in
effect, Banks shall be under no obligation to make additional Eurodollar Loans,
Continue Eurodollar Loans, or to Convert all or any part of the Base Rate Loan
into Eurodollar Loans and Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Eurodollar Loans or Convert such Eurodollar Loans into the Base Rate Loan in
accordance with the terms of this Agreement.
SECTION 4.3 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 all or any part of the Base Rate
Loan into Eurodollar Loans shall be suspended until such time as such Bank may
again make, maintain, and fund Eurodollar Loans (in which case the provisions of
Section 2.7 shall be applicable).
SECTION 4.4 Treatment of Affected Loans. If the obligation of any Bank
to make a Eurodollar Loan or to Continue Eurodollar Loans, or to Convert all or
any part of the Base Rate Loan into Eurodollar Loans shall be suspended pursuant
to Section 4.1 or hereof, such Bank's Eurodollar Loans shall be automatically
Converted into the Base Rate Loan on the last day(s) of the then current
Interest Period(s) for such Eurodollar Loans (or, in the case of a Conversion
required by Section 4.3 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 4.1
or 4.3 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal that would otherwise be
applied to such Bank's Eurodollar Loans shall be applied instead to its
Commitment Percentage of the Base Rate Loan; and
(b) all Loans that would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made or Continued instead as a part of
the Base Rate Loan, and all or any part of the Base Rate Loan held by such Bank
that would otherwise be Converted into Eurodollar Loans 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 4.1 or 4.3 hereof that gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this Section 4.4 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans 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 Eurodollar Loans, to the extent
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necessary so that, after giving effect thereto, all Eurodollar Loans held by
Banks holding Eurodollar Loans are held pro rata (as to principal amounts and
Interest Periods) in accordance with their respective Commitments.
SECTION 4.5 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
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
Loans pursuant to Section 12.1) 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 7 to be
satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Loan on the date
for such Borrowing, Conversion, Continuation, or prepayment specified in the
relevant Request for Borrowing, or notice of prepayment, Continuation, or
Conversion under this Agreement.
SECTION 4.6 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, 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 the jurisdiction under the Laws of which such
Bank (or its Applicable Lending Office) or Administrative Agent (as the case may
be) is organized or any political subdivision thereof. If Borrower shall be
required by Law to deduct any 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 4.6) 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 on 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").
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(c) Borrower agrees to indemnify each Bank and Administrative
Agent for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 4.6) 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 (including any certificate required by Sections 871(h) and
881(c) of the 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 4.6(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 4.6(a) or 4.6(b) with respect to 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 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 Taxes.
(f) If Borrower is required to pay additional amounts to or
for the account of any Bank pursuant to this Section 4.6, 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
Taxes Borrower is required to pay pursuant to this Section 4.6, Borrower shall
furnish to Administrative Agent the original or a certified copy of a receipt
evidencing such payment.
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(h) Without prejudice to the survival of any other agreement
of Borrower hereunder, the agreements and obligations of Borrower contained in
this Section 4.6 shall survive the termination of the Commitments and the
payment in full of the Notes.
SECTION 4.7 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 through the
purchase of deposits having a maturity corresponding to the last day of the
Interest Period applicable to such Eurodollar Loan and bearing an interest rate
equal to the Adjusted Eurodollar Rate for such Interest Period.
ARTICLE 5
BORROWING BASE
SECTION 5.1 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, 1999, Borrower shall deliver to each Bank a Reserve Report
prepared as of the immediately preceding December 31 and June 30 respectively.
Simultaneously with the delivery to Administrative Agent and each Bank of each
Reserve Report, Borrower shall notify 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 5.2 Scheduled Redeterminations of the Borrowing Base;
Procedures and Standards. Based in part on the Reserve Reports made available to
Banks pursuant to Section 5.1, Banks shall redetermine the Borrowing Base (i) on
a date selected by Required Banks by written notice to Borrower which date shall
be on or around January 1, 2000, and (ii) on or around each April 30 and October
31 thereafter commencing April 30, 2000 (or, in each such case, on a 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 5.1 or 5.3 (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) any Borrowing Base which represents a decrease in the
Borrowing Base in effect prior to such Redetermination, or a reaffirmation of
such prior 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
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Hydrocarbons from the Mineral Interests owned by Borrower as they deem
appropriate in their sole discretion, (iii) may consider the projected cash
requirements of Borrower and its Subsidiaries, (iv) 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 6.1 hereof, and (v)
may make such other assumptions, considerations and exclusions as each Bank
deems appropriate in the exercise of its 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 deliver
written notice to Borrower specifying (a) 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), and (b) in the case of any Annual Scheduled
Redetermination, the Distribution Limit which shall be in effect for the period
commencing on the date of such notice and continuing until the next Annual
Scheduled Redetermination of the Borrowing Base thereafter
SECTION 5.3 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 5.3(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 Borrower shall deliver to each
Bank a Reserve Report. Together with such request, Borrower shall also notify
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 5.2; provided,
that, no Reserve Report will be required to be delivered to Banks in connection
with any Special Determination requested by Required Banks pursuant to clause
(a) above.
SECTION 5.4 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 Loans or taking the other actions required by Section 2.4.
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SECTION 5.5 Initial Borrowing Base. The Borrowing Base shall be
$19,500,000 for the period commencing on the Closing Date and ending on the
effective date of the first Redetermination after the Closing Date
ARTICLE 6
COLLATERAL AND GUARANTEES
SECTION 6.1 Security.
(a) The Obligations shall be secured by first and prior Liens
(subject only to Permitted Encumbrances) covering and encumbering substantially
all assets owned by Borrower and each of its Subsidiaries, including, without
limitation, all Mineral Interests owned by Borrower and its Subsidiaries. On the
Closing Date, Borrower shall deliver to Administrative Agent for the ratable
benefit of each Bank, a Security Agreement and Mortgages in form and substance
acceptable to Administrative Agent and duly executed by Borrower 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 first and prior Liens in substantially all assets
owned by Borrower, including, without limitation, all Mineral Interests owned by
Borrower.
(b) On or before each Redetermination Date and at such other
times as Administrative Agent or Required Banks shall request, Borrower shall
execute and deliver to Administrative Agent, and cause each of its Subsidiaries
to execute and deliver to Administrative Agent, for the ratable benefit of each
Bank, Mortgages granting, evidencing and perfecting the Liens required by
Section 6.1(a) preceding with respect to all Mineral Interests acquired by
Borrower or any Subsidiaries of Borrower on or subsequent to the last date on
which Borrower or any of its Subsidiaries were required to execute and deliver
Mortgages pursuant to this Section 6.1, 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) On the date of the creation or acquisition by Borrower or
any Subsidiary of Borrower of any Subsidiary of Borrower (a "New Subsidiary"),
Borrower shall cause such New Subsidiary to execute and deliver to
Administrative Agent for the ratable benefit of the Banks, a Security Agreement
and one or more Mortgages, together with such other assignments, conveyances,
amendments, agreements and other writings, including, without limitations 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 on substantially all assets, including, without limitation, all
Mineral Interests, owed by such New Subsidiary.
SECTION 6.2 Guarantees. The Obligations shall be jointly and severally
guaranteed by each EXCO and Venus and each Subsidiary of Borrower pursuant to
Facility Guarantees duly executed
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and delivered by each such Person. On the date of the creation or acquisition by
Borrower or any Subsidiary of Borrower of any New Subsidiary, Borrower shall
cause such New Subsidiary to execute and deliver a Facility Guaranty to
Administrative Agent.
SECTION 6.3 Supporting Documents. At any time Borrower or any of its
Subsidiaries are required to execute and deliver Mortgages, Security Agreements
or Facility Guarantees to Administrative Agent pursuant to this Article 6,
Borrower shall also deliver or cause to be delivered to Administrative Agent
such other documents, instruments and agreements, including, without limitation,
certificates of officers of Borrower and its Subsidiaries, certificates of
Governmental Authorities, opinions of counsel (addressed to Administrative
Agent) and other documents, instruments and agreements Administrative Agent
shall deem necessary or appropriate to verify (i) the valid organization and
existence of the Credit Party executing and delivering such Loan Papers, (ii)
the due authorization, execution and delivery of such Loan Papers, (iii)
Borrower's or such Subsidiaries' title to the property (including Mineral
Interests) purported to be subject to the Liens created by such Loan Papers;
provided, that, in the absence of any Default or Borrowing Base Deficiency,
Borrower shall not be required to provide opinions or other evidence of title
with respect to Mineral Interests with an aggregate Recognized Value in excess
of ninety percent (90%) of the aggregate Recognized Value of all Mineral
Interests owned by Borrower (such limitation is referred to herein as the "Title
Review Limit"); and (iv) the validity, perfection and priority of the Liens
created by such Loan Papers and such other matters related thereto as
Administrative Agent shall reasonably request.
ARTICLE 7
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Initial Borrowing and Participation in Letter
of Credit Exposure. 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 prior to or simultaneously with the initial Borrowing made
hereunder:
(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;
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(ii) Mortgages duly executed and delivered by Borrower
creating first and prior Liens on all Mineral Interests owned
by Borrower, including, without limitation, the Apache
Properties;
(iii) a Security Agreement duly executed and delivered by
Borrower;
(iv) such financing statements on form UCC-1 (or any other
form required by Lender in its reasonable discretion) as
Administrative Agent shall require to evidence and perfect the
Liens created by the Mortgages and the Security Agreement
referenced in clauses (ii) and (iii) above, each of which
shall be executed and delivered by Borrower and filed of
record in such jurisdictions as Administrative Agent shall
require in its sole discretion;
(v) Facility Guarantees duly executed and delivered by Venus
and EXCO;
(vi) the Subordination Agreement duly executed and delivered
by EXCO and acknowledged by Venus;
(vii) a copy of the Articles of Incorporation and all
amendments thereto of EXCO and Venus accompanied by a
certificate that such copy is true, correct and complete, and
dated within ten (10) days of the Closing Date, issued by the
appropriate Governmental Authority of the jurisdiction of
incorporation or organization of each of EXCO and Venus, and
accompanied by a certificate of the Secretary or comparable
Authorized Officer of each of EXCO and Venus that such copy is
true, correct and complete on the Closing Date;
(viii) a copy of the Bylaws and all amendments thereto of each
of EXCO and Venus accompanied by a certificate of the
Secretary or comparable Authorized Officer of EXCO and Venus
that such copy is true, correct and complete as of the date
hereof;
(ix) a copy of the Certificate of Organization and all
amendments thereto of Borrower accompanied by a certificate
that such copy is true, correct and complete and dated within
ten (10) days of the Closing Date, issued by the appropriate
Governmental Authority of the jurisdiction of incorporation or
organization of Borrower, and accompanied by a certificate of
the Secretary or comparable Authorized Officer of Borrower
that such copy is true, correct and complete on the Closing
Date;
(x) a copy of the Limited Liability Company Agreement for
Borrower together with a certificate from an Authorized
Officer of Borrower stating that such copy is a true and
correct copy of the Limited Liability Company Agreement for
Borrower and that such Limited Liability Company Agreement has
not been amended or modified in any respect and is in full
force and effect on the Closing Date;
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(xi) 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 of EXCO, Venus and Borrower and to the effect that of
each of EXCO, Venus and Borrower is in good standing with
respect to the payment of franchise and similar Taxes and is
duly qualified to transact business in such jurisdictions;
(xii) a certificate of incumbency of all officers of each of
EXCO, Venus and Borrower who will be authorized to execute or
attest to any Loan Paper on behalf of EXCO, Venus or Borrower
dated the date hereof, executed by the Secretary or comparable
Authorized Officer of such Person;
(xiii) 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 of each of EXCO and Venus
and the Management Committee of Borrower; accompanied by
certificates of the Secretary or comparable Authorized Officer
of each of EXCO, Venus and Borrower 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 of EXCO or Venus and the Limited Liability
Company Agreement of Borrower) by the unanimous written
consent of the Board of Directors of each of EXCO and Venus
and the Management Committee of Borrower; 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 date hereof;
(xiv) an opinion of Haynes & Boone, L.L.P., counsel for
Borrower, EXCO and Venus, dated the date hereof, favorably
opining as to the enforceability of each of the Loan Papers
and otherwise in form and substance satisfactory to
Administrative Agent and Banks;
(xv) an opinion of Cliffe Laborde, special counsel for
Administrative Agent, favorably opining as to the
enforceability of the Mortgages in the State of Louisiana and
otherwise in form and substance satisfactory to Administrative
Agent and Banks;
(xvi) such UCC-11 search reports as Administrative Agent shall
require, prepared as of a date not more than twenty (20) days
prior to the Closing Date, conducted in such jurisdictions and
reflecting such names as Administrative Agent shall request;
(xvii) 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 material respects, (B) no Default or Event
of Default has
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occurred and is continuing, and (C) all conditions set forth
in this Section 7.1 and Section 7.2 have been satisfied;
(xviii) a Certificate of Ownership Interests signed by an
Authorized Officer of Borrower in the form of Exhibit I
attached hereto;
(xix) a report or reports in form, scope and detail acceptable
to Administrative Agent from environmental engineering firms
acceptable to Administrative Agent setting forth the results
of a current phase I environmental review of the Mineral
Interests, 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 Borrower or any of
its Subsidiaries; and
(xx) 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 9.6.
(b) Title Review. Administrative Agent or its counsel shall
have completed a review of title (including opinions of title) to the Apache
Properties (subject to the Title Review Limit), and such review shall not have
revealed any condition or circumstance which would reflect that the
representations and warranties contained in Section 8.9 hereof are inaccurate in
any respect.
(c) Partner Contributions. EXCO and Venus shall each have
contributed at least $7,000,000 in cash (an aggregate of $14,000,000) to the
partnership capital of Borrower.
(d) Completion of Apache Acquisition. Borrower shall have
completed (or simultaneously with the funding of the initial Borrowing
hereunder, Borrower shall complete) the Apache Acquisition for a total purchase
price of not more than $28,500,000 and otherwise on the terms and conditions
substantially in accordance with the Apache Acquisition Agreement as in effect
on the date hereof, and as a result thereof Borrower shall have acquired, or
simultaneously with the funding of such Borrowing Borrower shall acquire, good
and defensible title to all such Apache Properties, free and clear of all Liens
except Permitted Encumbrances.
(e) No Material Adverse Change. In the sole discretion of each
Bank, since no Material Adverse Change shall have occurred.
(f) No Legal Prohibition. The transactions contemplated by
this Agreement shall be permitted by applicable Law and regulation and shall not
subject Administrative Agent, any Bank, or any Credit Party to any Material
Adverse Change.
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(g) 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.
(h) Closing Fees. Borrower shall have paid to Administrative
Agent for the ratable benefit of each Bank, and shall have paid to
Administrative Agent, the fees to be paid on the Closing Date pursuant to
Section 2.12.
(i) Other Matters. All matters related to this Agreement, the
other Loan Papers and the Credit Parties shall be acceptable to each Bank in its
sole discretion, and Borrower 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.
SECTION 7.2 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 Borrower contained
in this Agreement and the other Loan Papers shall be true and correct in all
material respects on and as of the date of such Borrowing or issuance of such
Letter of Credit (as applicable), with the same effect as though such
representations and warranties had been made on and as of the date of such
Borrowing or issuance of such Letter of Credit (as applicable) or, if such
representations and warranties are expressly limited to particular dates, as of
such particular dates;
(d) after giving effect to such Borrowing or issuance of such
Letter of Credit, the Outstanding Credit shall not exceed the Borrowing Base;
(e) no Material Adverse Change shall have occurred;
(f) the funding of such Borrowing or the issuance of such
Letter of Credit (as applicable) shall be permitted by applicable Law; and
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(g) such Borrowing in such Letter of Credit shall be used only
for a purpose permitted under the Agreement.
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 7.2(b) through 7.2(e).
SECTION 7.3 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 8
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,
and will be true and correct on the occasion of each Borrowing and the issuance
of each Letter of Credit:
SECTION 8.1 Existence and Power. Each Credit Party (a) is a
corporation, limited liability company or partnership duly incorporated or
organized (as applicable), validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization (as applicable), (b) has
all corporate, limited liability company or partnership 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, foreign limited liability company or foreign partnership (as
applicable) in each jurisdiction where a failure to be so qualified could result
in a Material Adverse Change.
SECTION 8.2 Necessary 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 thereto), are within
such Credit Party's corporate, limited liability company or partnership power,
have been duly authorized by all necessary corporate, limited liability company
or partnership 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,
partnership agreement, limited liability company agreement or other
organizational 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 8.3 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 the valid and binding
obligations of each Credit Party (to the extent each Credit Party
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is a party thereto), and each Loan Paper is, or when executed and delivered,
will be, enforceable against each Credit Party (to the extent each Credit Party
is a party thereto), 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 (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability.
SECTION 8.4 Financial Information.
(a) The most recent annual audited consolidated balance sheets
of each of Borrower, EXCO and Venus 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 each of Borrower, EXCO and Venus as of the
end of such Fiscal Year and its consolidated results of operations and cash
flows for such Fiscal Year. (Notwithstanding the foregoing, the representation
and warranty contained in this Section 8.4(a) will not be deemed to be made with
respect to Borrower until such time as annual audited consolidated balance
sheets, statements of operations and cash flows for Borrower for the Fiscal Year
ended December 31, 1999 are delivered to each Bank in accordance with Section
9.1(a)).
(b) The most recent quarterly unaudited consolidated balance
sheet of Borrower, EXCO and Venus delivered to Banks, and the related unaudited
consolidated statements of operations and cash flows for the portion of
Borrower's, EXCO's and Venus's Fiscal Year then ended, fairly present, in
conformity with GAAP applied on a basis consistent with the financial statements
referred to in Section 8.4(a), the consolidated financial position of Borrower,
EXCO and Venus as of such date and its consolidated results of operations and
cash flows for such portion of Borrower's, EXCO's and Venus's Fiscal Year.
(Notwithstanding the foregoing, the representation and warranty contained in
this Section 8.4(b) will not be deemed to be made with respect to Borrower until
such time as quarterly unaudited consolidated balance sheets, statements of
operations and cash flows for Borrower for the Fiscal Quarter ending September
30, 1999 are delivered to each Bank in accordance with Section 9.1(b)).
(c) No Material Adverse Change has occurred.
(d) After giving effect to the transactions contemplated by
this Agreement, (i) the fair value of the property of each Credit Party is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of each Credit Party , (ii) the present fair saleable
value of the assets of each Credit Party is not less than the amount that will
be required to pay the liability of such Credit Party on its debts as they
become absolute and matured, (iii) each Credit Party 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) no Credit
Party intends to, and no Credit Party believes that it will, incur debts or
liabilities beyond its ability to pay as such debts and liabilities mature, and
(v) no Credit Party is engaged in a business or transaction, and no Credit Party
is about to engage in business or a transaction for which such Credit Party's
property would
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constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Credit Party is engaged.
(e) Borrower was formed on June 25, 1999 for the purpose of
acquiring and developing the Apache Properties and producing and marketing
Hydrocarbons therefrom. Prior to giving effect to the acquisition of the Apache
Properties, Borrower had no assets, operations, employees or liabilities of any
nature (contingent or otherwise) other than rights and obligations arising under
the Apache Acquisition Agreement, this Agreement and the other Loan Papers.
SECTION 8.5 Litigation. Except for matters disclosed on Schedule 3
attached hereto, there is no action, suit or proceeding pending against, or to
the knowledge of Borrower, threatened against or affecting Borrower or any of
its Subsidiaries 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 8.6 ERISA. Neither Borrower nor any ERISA Affiliate of Borrower
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 Borrower or any
ERISA Affiliate of Borrower 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 on the business, financial condition or
prospects of Borrower, (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) neither Borrower nor any ERISA Affiliate of Borrower has failed to make any
contribution or pay any amount due or owing as required by the terms of any
Plan. There are no 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 neither
Borrower nor any ERISA Affiliate of Borrower 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 Borrower causing 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. Neither Borrower nor any ERISA Affiliate of Borrower
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 Borrower causing a Material Adverse Change. Neither
Borrower nor any ERISA Affiliate of Borrower 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. Neither
Credit Party nor any ERISA Affiliate of Borrower maintains, has established or
has
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ever participated in a multiple employer welfare benefit arrangement within the
meaning of section 3(40)(A) of ERISA.
SECTION 8.7 Taxes and Filing of Tax Returns. Borrower and each of its
Subsidiaries 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. Borrower does not know of any proposed
material Tax assessment against it or any of its Subsidiaries and all Tax
liabilities of Borrower and its Subsidiaries are adequately provided for. Except
as disclosed in writing to Banks prior to the date hereof, no income tax
liability of Borrower or any of its Subsidiaries has been asserted by the
Internal Revenue Service or other Governmental Authority for Taxes in excess of
those already paid.
SECTION 8.8 Ownership of Properties Generally. Borrower and each of its
Subsidiaries 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
8.4(a) and 8.4(b) and all assets which are used by Borrower and its Subsidiaries
in the operation of their respective businesses, and none of such properties or
assets is subject to any Lien other than Permitted Encumbrances.
SECTION 8.9 Mineral Interests. Borrower has good and defensible title
to all Mineral Interests described in the Reserve Report, including, after
giving effect to the Apache Acquisition, the Apache Properties, free and clear
of all Liens except Permitted Encumbrances. All such Mineral Interests 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 Proved Mineral Interests, Borrower's share 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", "G.I.", 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, NHI, or similar terms. 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 Borrower is currently receiving
payments for its share of production, with no funds in respect of any thereof
being presently held in suspense, other than any such funds being 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 8.10 Licenses, Permits, Etc. Borrower and each of its
Subsidiaries 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
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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 8.11 Compliance with Law. The business and operations of
Borrower and its Subsidiaries 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 8.12 Full Disclosure. All information heretofore furnished by
any 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 Borrower to Administrative Agent or any Bank will be, true, complete
and accurate in every material respect. Borrower has disclosed or has 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 8.13 Organizational Structure; Nature of Business. Borrower is
engaged only in the business of acquiring, owning, exploring, developing and
operating the Apache Properties and the production, marketing, processing and
transporting of Hydrocarbons therefrom. Schedule 4 hereto accurately reflects
(i) the jurisdiction of organization of Borrower, (ii) each jurisdiction in
which Borrower is qualified to transact business as a foreign limited liability
company, (iii) the authorized, issued and outstanding membership interests of
Borrower (and the legal and beneficial owners of such interests), and (iv) all
outstanding warrants, options, subscription rights, convertible securities or
other rights to purchase membership interests of Borrower. Borrower has no
Subsidiaries on the Closing Date.
SECTION 8.14 Environmental Matters. No operation conducted by Borrower
or any Subsidiary of Borrower and no real or personal property now or previously
owned or leased by Borrower or any Subsidiary of Borrower (including, without
limitation, the Apache Properties) and no operations conducted thereon, and to
Borrower's 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. Neither Borrower, any Subsidiary of
Borrower, nor any such property or operation is the subject of any existing,
pending or, to Borrower's knowledge, threatened Environmental Complaint which
could, individually or in the aggregate, result in Material Adverse Change. All
notices, permits, licenses, and similar authorizations, required to be obtained
or filed in connection with the ownership of each tract of real property or
operations of Borrower or any Subsidiary of Borrower thereon and each item of
personal property owned, leased or operated by Borrower or any Subsidiary of
Borrower, 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
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personal property owned, leased or operated by Borrower or any Subsidiary of
Borrower have been transported, treated, and disposed of only by carriers or
facilities maintaining valid permits under RCRA 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. 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. Neither Borrower nor any Subsidiary of Borrower
has any contingent liability in connection with any Hazardous Discharge which
could reasonably be expected to result in a Material Adverse Change.
SECTION 8.15 Burdensome Obligations. Neither Borrower, nor any
Subsidiary of Borrower, nor any of their respective properties 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 or other organizational documents or
under any agreement or instrument to which Borrower or any Subsidiary of
Borrower or by which Borrower or any Subsidiary of Borrower or any of their
respective 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, neither Borrower nor any Subsidiary of
Borrower 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
Borrower or any Subsidiary of Borrower to make Distributions.
SECTION 8.16 Fiscal Year. Borrower's Fiscal Year is January 1 through
December 31.
SECTION 8.17 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 8.18 Government Regulation. Neither Borrower nor any Subsidiary
of Borrower 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 Borrower or any Subsidiary of
Borrower of Debt, including, but not limited to laws relating to common contract
carriers or the sale of electricity, gas, steam, water or other public utility
services.
SECTION 8.19 Insider. Neither Borrower nor any Subsidiary of Borrower
is, and no Person having "control" (as that term is defined in 12 U.S.C. Section
375(b) or regulations promulgated thereunder) of Borrower or any Subsidiary of
Borrower 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 8.20 Gas Balancing Agreements and Advance Payment Contracts.
On the date of this Agreement, (a) there is no Material Gas Imbalance, and (b)
the aggregate amount of all
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Advance Payments received by Borrower under Advance Payment Contracts which have
not been satisfied by delivery of production does not exceed $50,000.
SECTION 8.21 Apache Acquisition Documents. Borrower has provided each
Bank with a true and correct copy of each of the Apache Acquisition Documents
including all amendments and modifications thereto. No material rights or
obligations of any party to any of such Apache Acquisition Documents have been
waived and neither Borrower nor any of its Subsidiaries, nor to the best
knowledge of Borrower or any other party to any of such Apache Acquisition
Documents, is in default of its obligations thereunder. Each of the Apache
Acquisition Documents is a valid, binding and enforceable obligation of the
parties thereto in accordance with its terms and is in full force and effect.
Each representation and warranty made by Borrower, and to the best knowledge of
Borrower, by Sellers in the Apache Acquisition Agreement and the other Apache
Acquisition Documents (a) was true and correct when made, and (b) will be true
and correct on the Closing Date.
ARTICLE 9
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 9.1 Information. Borrower will deliver, or cause to be
delivered, to each Bank:
(a) as soon as available and in any event within one hundred
twenty (120) days after the end of each Fiscal Year, a consolidated balance
sheet of each of Borrower, EXCO and Venus as of the end of such Fiscal Year and
the related consolidated 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 Borrower, EXCO and Venus 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 balance sheets of Borrower, EXCO and
Venus as of the end of such Fiscal Quarter and the related consolidated
statements of income and statements of cash flow for such quarter and for the
portion of Borrower's, EXCO's and Venus'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 Borrower's, EXCO's
and Venus's previous Fiscal Year;
(c) simultaneously with the delivery of each set of financial
statements referred to in Sections 9.1(a) and 9.1(b), a certificate of a
Financial Officer of each of EXCO, Venus or
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Borrower in the form of Exhibit J-1, J-2 or J-3 (as applicable) attached hereto,
(i) setting forth, in the case of the certificate delivered by the Financial
Officer of Borrower, in reasonable detail the calculations required to establish
whether Borrower was in compliance with the requirements of Article 11 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 the Credit Parties are taking or
propose 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, EXCO and Venus 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 Borrower or any of its Subsidiaries is a party or by which
any Mineral Interests owned by Borrower or any of its Subsidiaries are bound,
and (B) the aggregate amount of all Advance Payments received under Advance
Payment Contracts to which Borrower or any of its Subsidiaries is a party or by
which any Mineral Interests owned by Borrower or any of its Subsidiaries are
bound which have not been satisfied by delivery of production, if any, and (v) a
summary of the Hedge Transactions to which Borrower or any of its Subsidiaries
is a party on such date;
(d) as soon as available and in any event within twenty (20)
days after the end of each calendar month, a report of Borrower's Financial
Officer setting forth in reasonable detail Borrower's Net Revenues for the
preceding calendar month;
(e) promptly upon the delivery thereof to Borrower's members
or their Affiliates generally, copies of all financial statements, material
reports and proxy statements so mailed;
(f) 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 Borrower
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;
(g) promptly upon receipt of same, any notice or other
information received by Borrower or any Subsidiary of Borrower indicating any
potential, actual or alleged (i) non-compliance with or violation of the
requirements of any Applicable Environmental Law which could result in liability
to Borrower or any Subsidiary of Borrower for fines, clean up or any other
remediation obligations or any other liability in excess of $100,000 in the
aggregate; (ii) threatened Hazardous Discharge which Hazardous Discharge would
impose on Borrower or any Subsidiary of Borrower 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 Borrower or
any Subsidiary of Borrower for fines, clean up and other remediation obligations
or any other liability in
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excess of $100,000 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 $100,000
in the aggregate. Without limiting the foregoing, Borrower or any Subsidiary of
Borrower shall provide to Banks promptly upon receipt of same by Borrower or any
Subsidiary of Borrower copies of all environmental consultants or engineers
reports received by Borrower or any Subsidiary of Borrower which would render
the representation and warranty contained in Section 8.14 untrue or inaccurate
in any respect;
(h) in the event any notification is provided to any Bank or
Administrative Agent pursuant to Section 9.1(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;
(i) 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;
(j) no later than March 31, and September 30 of each year,
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;
(k) promptly notify Banks of any Material Adverse Change;
(l) on or before July 30, 1999, an engineering analysis of the
Apache Properties in form and substance satisfactory to Administrative Agent and
prepared by Lee Keeling and Associates, Inc.; and
(m) from time to time such additional information regarding
the financial position or business of Borrower and its Subsidiaries as
Administrative Agent, at the request of any Bank, may reasonably request.
SECTION 9.2. Business of Borrower. The sole business of Borrower is and
shall continue to be solely the acquisition, ownership, exploration, development
and operation of the Apache Properties and the production, marketing, processing
and transportation of Hydrocarbons therefrom.
SECTION 9.3 Maintenance of Existence. Borrower shall, and shall cause
each Credit Party to, at all times (a) maintain its corporate, partnership or
limited liability company existence in its state
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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 9.4 Title Data. In addition to the title information required
by Article 7, but subject to the Title Review Limit, 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.
SECTION 9.5 Right of Inspection. Borrower will permit, and will cause
each of its Subsidiaries to permit, any officer, employee or Administrative
Agent of Administrative Agent or of any Bank to visit and inspect any of the
assets of Borrower and its Subsidiaries, examine Borrower's and its
Subsidiaries' books of record and accounts, take copies and extracts therefrom,
and discuss the affairs, finances and accounts of Borrower and its Subsidiaries
with Borrower's and its Subsidiaries' officers, accountants and auditors, all at
such reasonable times and as often as Administrative Agent or any Bank may
reasonably request, all at the expense of Borrower; provided, that, in the
absence of a Default or Event of Default, neither Administrative Agent nor any
Bank will require Borrower to incur any unreasonable cost or expense under this
Section 9.5.
SECTION 9.6 Maintenance of Insurance. Borrower will, and will cause
each of its Subsidiaries 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) comprehensive
automobile liability insurance, and (e) such other perils as are customarily
insured against in the oil and gas industry. All loss payable clauses or
provisions in all policies of insurance maintained by Borrower and its
Subsidiaries pursuant to this Section 9.6 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 the Banks, to collect, and Borrower hereby assigns to Administrative
Agent for the ratable benefit of Banks (and hereby agrees to cause each
Subsidiary of Borrower to assign), any and all monies that may become payable
under any such policies of insurance by reason of damage, loss or destruction of
any of 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 Borrower or the
applicable Subsidiary of Borrower.
SECTION 9.7 Payment of Taxes and Claims. Borrower will, and will cause
each of its Subsidiaries 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
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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 Borrower or
any of its Subsidiaries is subject to any pending levy or execution, (ii)
Borrower and its Subsidiaries, 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 Borrower has notified Administrative Agent of such circumstances in detail
satisfactory to Administrative Agent.
SECTION 9.8 Compliance with Laws and Documents. Borrower will, and will
cause each of its Subsidiaries to, comply with all Laws, their respective
partnership agreements, certificates (or articles) of incorporation, bylaws,
regulations and similar organizational documents and all Material Agreements to
which Borrower or any of its Subsidiaries is a party, if a violation, alone or
when combined with all other such violations, could result in a Material Adverse
Change.
SECTION 9.9 Operation of Properties and Equipment.
(a) Borrower will, and will cause each of its Subsidiaries to,
maintain, develop and operate (or cause the operator to maintain and operate to
the extent Borrower or any of its Subsidiaries 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.
(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 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 Borrower and its Subsidiaries.
SECTION 9.10 Environmental Law Compliance. Borrower will, and will
cause each of its Subsidiaries 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
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of its Subsidiaries 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 9.11 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 knows or has reason to know that any ERISA
Event described in clause (a) of the definition of ERISA Event or any event
described in section 4063(a) of ERISA with respect to any Plan of Borrower or
any ERISA Affiliate has occurred, and (ii) within fifteen (15) days after
Borrower or any ERISA Affiliate knows or has reason to know that any other ERISA
Event with respect to any Plan of Borrower or any ERISA Affiliate has occurred
or a request for minimum funding waiver under section 412 of the Code with
respect to any Plan of Borrower or any ERISA Affiliate has been made, 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;
(b) Promptly and in any event within five (5) Domestic
Business Days after receipt thereof by Borrower or any ERISA Affiliate from the
PBGC, copies of each notice received by Borrower or any ERISA Affiliate of the
PBGC's intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(c) 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;
(d) Promptly, and in any event within ten (10) Domestic
Business Days after receipt thereof, a copy of any correspondence Borrower or
any ERISA Affiliate receives from the Plan Sponsor (as defined by section
4001(a)(10) of ERISA) of any Plan asserting withdrawal liability pursuant to
section 4219 or 4202 of ERISA upon Borrower or any ERISA Affiliate, and a
statement from the chief financial officer of Borrower or such ERISA Affiliate
setting forth details as to the events giving rise to such withdrawal liability
and the action which Borrower or such ERISA Affiliate is taking or proposes to
take with respect thereto;
(e) Notification within thirty (30) days of the effective date
thereof of any material increases in the benefits of any existing Plan which is
not a multiemployer plan (as defined in section 4001(a)(3) of ERISA), or the
establishment of any new Plans, or the commencement of contributions to any Plan
to which Borrower or any ERISA Affiliate was not previously contributing;
(f) Notification within five (5) Domestic Business Days after
Borrower or any ERISA Affiliate knows or has reason to know that Borrower or any
such ERISA Affiliate has or
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intends to file a notice of intent to terminate any Plan under a distress
termination within the meaning of section 4041(c) of ERISA and a copy of such
notice; and
(g) 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 would
not result in a Material Adverse Change.
SECTION 9.12 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 Borrower and each other Credit Party in this Agreement and the other Loan
Papers as may be reasonably necessary or appropriate in connection therewith.
SECTION 9.13 Environmental Review. Not later than thirty (30) days
prior to the date of any acquisition by Borrower of Mineral Interests or related
assets, other than an acquisition of additional interests in Mineral Interests
in which Borrower 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.
ARTICLE 10
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 10.1 Incurrence of Debt. Borrower will not, nor will Borrower
permit any of its Subsidiaries to, incur, become or remain liable for any Debt
other than (a) the Obligations, and (b) other Debt in an aggregate amount
outstanding at any time not to exceed $25,000.
SECTION 10.2 Distributions. Borrower will not, nor will Borrower permit
any of its Subsidiaries to, directly or indirectly, declare or pay, or incur any
liability to declare or pay, any
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Distribution; provided, that, so long as no Default or Borrowing Base Deficiency
has then occurred which is continuing Borrower shall be permitted to make
Distributions to EXCO and Venus in an aggregate amount not exceeding (a) for the
period commencing on the Closing Date and ending on December 31, 1999,
$1,050,000, and (b) for any period between Annual Scheduled Redeterminations
thereafter, an amount not exceeding the Distribution Limit for such period;
provided, that, in no event shall Borrower make Distributions exceeding
$1,000,000 in any Fiscal Year.
SECTION 10.3 Negative Pledge. Borrower will not, nor will Borrower
permit any of its Subsidiaries to, create, assume or suffer to exist any Lien on
any asset of Borrower or any of its Subsidiaries other than Permitted
Encumbrances. Borrower will not, nor will Borrower permit any of its
Subsidiaries to, enter into or become bound by any agreement (other than this
Agreement) that prohibits or otherwise restricts the right of Borrower or any of
its Subsidiaries to create, assume or suffer to exist any Lien on any of
Borrower's or any of its Subsidiaries' assets in favor of Administrative Agent
for the ratable benefit of Banks.
SECTION 10.4 Consolidations and Mergers. Borrower will not, nor will
Borrower permit any Subsidiary to, consolidate or merge with or into any other
Person.
SECTION 10.5 Asset Dispositions. Borrower will not, nor will Borrower
permit any of its Subsidiaries to, sell, lease, transfer, abandon or otherwise
dispose of assets with an aggregate value of $100,000 or greater in any Fiscal
Year other than sales of Hydrocarbons produced from Borrower's Mineral Interests
in the ordinary course of business. In no event will Borrower sell, transfer or
dispose of any capital stock or other equity interest, in any Subsidiary of
Borrower nor will any Subsidiary of Borrower issue or sell, any capital stock or
other equity interest or any option, warrant or other right to acquire such
capital stock or equity interest or security convertible into such capital stock
or equity interest to any Person other than the direct parent of such issuer on
the Closing Date.
SECTION 10.6 Amendments to Organizational Documents; Other Material
Agreements. Borrower will not, nor will Borrower permit any of its Subsidiaries
to, enter into or permit any modification or amendment of, or waive any right or
obligation of any Person under, (a) the Operating Agreement, or (b) its
certificate or articles of incorporation, bylaws, partnership agreement, limited
liability company agreement, regulations or other organizational documents.
SECTION 10.7 Use of Proceeds. The proceeds of Borrowings will not be
used for any purpose other than the purposes expressly permitted by Section
2.1(d) hereof. Without limiting the foregoing, none of such proceeds (including,
without limitation, proceeds of Letters of Credit issued hereunder) will be
used, directly or indirectly, for any other purpose, including, without
limitation, 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
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purpose of providing credit enhancement with respect to any Debt or equity
security of Borrower or any Subsidiary of Borrower or to secure Borrower's or
any of its Subsidiaries' obligations with respect to Hedge Transactions other
than Hedge Transactions with a Bank.
SECTION 10.8 Investments. Borrower will not, nor will Borrower permit
any of its Subsidiaries to, directly or indirectly, make or have outstanding any
Investment other than Permitted Investments other than Investments permitted
pursuant to clause (f) of the definition of Restricted Payments. Borrower will
not create or acquire any Subsidiary.
SECTION 10.9 Transactions with Affiliates. Borrower will not, nor will
Borrower permit any of its Subsidiaries 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. Without limiting the
foregoing, Borrower will not, and Borrower will not permit any of its
Subsidiaries to, pay or become obligated to pay any Distribution to either EXCO
or Venus or any Affiliate of EXCO and Venus other than Distributions expressly
permitted by Section 10.2 hereof. Notwithstanding the foregoing, Borrower shall
be permitted to enter into the Operating Agreement and make the payments to EXCO
expressly contemplated thereof.
SECTION 10.10 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 of its Subsidiaries 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
a Borrower or any ERISA Affiliate as of the Closing Date.
SECTION 10.11 Hedge Transactions. Borrower will not, nor will Borrower
permit any of its Subsidiaries 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 Borrower's anticipated production from Proved
Producing Mineral Interests 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.
SECTION 10.12 Fiscal Year. Borrower will not change its fiscal year.
SECTION 10.13 Change in Business. Borrower will not engage in any
business other than the business engaged in by Borrower on the date hereof as
described in Section 8.13 hereof.
SECTION 10.14 Restricted Payments. Borrower will not make, and Borrower
will not permit any of its Subsidiaries to, make any Restricted Payment.
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ARTICLE 11
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:
SECTION 11.1 Current Ratio of Borrower. Borrower will not permit its
ratio of Consolidated Current Assets to its Consolidated Current Liabilities to
be less than 1.0 to 1.0 at any time.
SECTION 11.2 Maximum General and Administrative Expenses. Borrower will
not incur or pay, nor will Borrower permit any of its Subsidiaries to incur or
pay, general and administrative expenses in an aggregate amount exceeding (a)
$100,000 during the period commencing on the Closing Date and ending December
31, 2000, or (b) $200,000 during any Fiscal Year ending on or after December 31,
2000.
ARTICLE 12
DEFAULTS
SECTION 12.1 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:
(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 10 or Article 11 of this Agreement;
(d) Borrower or any other Credit Party shall fail to observe
or perform any covenant or agreement contained in this Agreement or any other
Loan Papers (other than those referenced in Sections 12.1(a), 12.1(b) and
12.1(c)) and such failure continues for a period of twenty (20) days after the
earlier of (i) the date any Authorized Officer of Borrower acquires knowledge of
such failure, or (ii) written notice of such failure has been given to Borrower
by Administrative Agent or any Bank;
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(e) any representation, warranty, certification or statement
made or deemed to have been made by Borrower or any other 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) Borrower or any other 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 $10,000 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) Borrower or any other 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 action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against Borrower or any other 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 Borrower or any other Credit Party
under the federal bankruptcy Laws as now or hereafter in effect;
(i) one (1) or more final judgments or orders for the payment
of money aggregating in excess of $100,000 shall be rendered against Borrower or
any other Credit Party and such judgment or order shall continue unsatisfied and
unstayed for thirty (30) days;
(j) any event occurs with respect to any Plan or Plans
pursuant to which Borrower 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) Borrower, 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 Borrower or any ERISA Affiliate in
excess of $250,000 under section 409 or 502 of ERISA or section 4975 of the
Code;
(k) Borrower or any Subsidiary of Borrower shall incur
Environmental Liabilities which, individually or when considered in the
aggregate, exceed $250,000;
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(l) 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 Borrower or any other
Credit Party , or Borrower or any other 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;
(m) a Material Adverse Change shall occur; or
(n) a Change of Central shall occur;
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, (a) if requested by Required Banks, terminate the
Commitments and they shall thereupon terminate, and (b) 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 12.1(g) or 12.1(h),
without any notice to Borrower 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.
ARTICLE 13
AGENTS
SECTION 13.1 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 (and any separate agreements entered into among the parties
regarding same), together with such other powers as are reasonably incidental
thereto. No Agent (which term as used in this sentence and in Section 13.5 and
the first sentence of Section 13.6 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
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Party or the satisfaction of any condition or to inspect the property (including
the books and records) of any Credit Party or any of its 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.
SECTION 13.2 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 14.10 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 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 13.3 Defaults. No Agent shall be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless Administrative
Agent has received written notice from a Bank, Parent 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
13.2 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 13.4 Rights as Bank. With respect to its Commitment and the
Loans made by it, NationsBank (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. NationsBank (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
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to, make investments in, provide services to, and generally engage in any kind
of lending, trust, or other business with any Credit Party or Affiliates as if
it were not acting as Agent, and NationsBank (and any successor acting as
Administrative Agent), each other Agent and their Affiliates may accept fees and
other consideration from any Credit Party or Affiliates for services in
connection with this Agreement or otherwise without having to account for the
same to Banks.
SECTION 13.5 Indemnification. Banks agree to indemnify each Agent (to
the extent not reimbursed by Parent and/or Borrower hereof, but without limiting
the obligations of Parent and Borrower 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 Parent and/or Borrower hereunder, to
the extent that any such Agent is not promptly reimbursed for such costs and
expenses by Parent and/or Borrower. The agreements contained in this Section
13.5 shall survive payment and performance in full of the Obligations and all
other amounts payable under this Agreement.
SECTION 13.6 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 13.7 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
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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 13 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 14
MISCELLANEOUS
SECTION 14.1 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 14.1 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, when delivered at the
address specified in this Section 14.1; provided that notices to Administrative
Agent under Article 2 or 3 shall not be effective until received.
SECTION 14.2 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 14.3 Expenses; Indemnification.
(a) Borrower agrees to pay on demand all reasonable costs and
expenses of Administrative 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.
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(b) Borrower agrees to indemnify and hold harmless
Administrative Agent and each Bank and each of their Affiliates and their
respective officers, directors, employees, Administrative 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 Revolving 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 14.3 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 Administrative Agent, any Bank, any of
their Affiliates, or any of their respective directors, officers, employees,
attorneys, Administrative 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 Revolving Loan.
(c) Without prejudice to the survival of any other agreement
of Borrower hereunder, the agreements and obligations of Borrower contained in
this Section 14.3 shall survive the payment in full of the Loans and all other
amounts payable under this Agreement.
SECTION 14.4 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 14.4
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
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(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 Banks; 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 14.4 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 14.5 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 the Required Banks (and, if
Article 13 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 14.5 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.
SECTION 14.6 Survival. All representations, warranties and covenants
made by Borrower or any of its Subsidiaries 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 Loans (or any part thereof),
regardless of any investigation made by or on behalf of Banks. The indemnity
provided in Section 14.3 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 of its
Subsidiaries and Administrative Agent or any Bank.
SECTION 14.7 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 Revolving 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 Revolving 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,
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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 14.8 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 14.9 Waiver of Consumer Credit Laws. Pursuant to Article
15.10(b) of Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925, as
amended, Borrower agrees that such Chapter 15 shall not govern or in any manner
apply to the Revolving Loan.
SECTION 14.10 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 Revolving Loan, its
Note, and its Commitment); provided, however, that
(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)
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in the form of Exhibit K hereto, together with any Note
subject to such assignment and a processing fee 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 14.10(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 4.6(d).
(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
Revolving 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 Note 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 K 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 Revolving
Loan); provided, however, that (i) such Bank's obligations under this Agreement
shall 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 4 and the right of set-off contained in Section 14.4, 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 Revolving 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 Revolving Loan or Note,
extending any scheduled principal payment date
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or date fixed for the payment of interest on the Revolving Loan or Note, 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 Revolving 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 Bank's
consent is void.
SECTION 14.11 TEXAS LAW. THIS AGREEMENT, EACH NOTE AND THE OTHER LOAN
PAPERS SHALL BE 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 14.12 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
14.1. Borrower agrees that a final unappealable 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 14.12 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
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proceeding against Borrower or its Subsidiaries or their respective 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,
Borrower hereby irrevocably waives such immunity in respect of its obligations
under this Agreement and the other Loan Papers.
SECTION 14.13 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.
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 14.14 No Third Party Beneficiaries. 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 14.10.
SECTION 14.15 COMPLETE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG BANKS,
ADMINISTRATIVE AGENT AND BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BANKS, ADMINISTRATIVE
AGENT AND BORROWER. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG BANKS,
ADMINISTRATIVE AGENT AND BORROWER.
SECTION 14.16 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.
(signature page to immediately follow)
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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.
BORROWER:
EXUS Energy, LLC,
a Delaware limited liability company
By: /s/ T.W. EUBANK
--------------------------------------------------
Name: T.W. Eubank
------------------------------------------------
Title: President
-----------------------------------------------
Address for Notice:
5735 Pineland, Suite 235
Dallas, TX 75231
Attn: Douglas H. Miller
Fax No.: (214) 368-2087
With a copy to:
Venus Exploration, Inc.
1250 N.E. Loop 410, Suite 1000
San Antonio, Texas 78209
Attn: Eugene L. Ames, Jr.
<PAGE> 77
BANKS:
NationsBank, N.A.,
a national banking association
By: /s/ DALE T. WILSON
--------------------------------------------------
Name: Dale T. Wilson
Title: Managing Director
Administrative Agent:
NationsBank, N.A.,
a national banking association
By: /s/ DALE T. WILSON
--------------------------------------------------
Name: Dale T. Wilson
Title: Managing Director
<PAGE> 78
EXHIBIT A
FACILITY GUARANTY
THIS FACILITY GUARANTY (this "Guaranty") is dated as of the ____ day of
__________, ____, by [ , A ____________] ("Guarantor"), in favor of NATIONSBANK,
N.A. (NationsBank, N.A., acting as a Bank but not as Administrative Agent, and
each of its successors and assigns are collectively referred to herein as
"Noteholders").
W I T N E S S E T H:
WHEREAS, EXUS Energy, LLC ("Borrower"), NationsBank, N.A., as
Administrative Agent ("Administrative Agent") and the financial institutions
parties thereto as Banks, are parties to that certain Credit Agreement (as from
time to time amended, the "Agreement") dated as of June 30, 1999, pursuant to
which Noteholders have made a revolving credit loan to Borrower and agreed to
issue and participate in letters of credit issued on behalf of Borrower (unless
otherwise defined herein, all terms used herein with their initial letter
capitalized shall have the meaning given such terms in the Agreement); and
WHEREAS, Noteholders have required, as a condition to the extension
and/or the continued extension of credit under the Agreement, that Guarantor
execute and deliver this Guaranty; and
WHEREAS, Guarantor has determined that valuable benefits will be
derived by it as a result of the Agreement and the extension of credit made
(and/or to be made) by Noteholders thereunder; and
WHEREAS, Guarantor has further determined that the benefits accruing to
it from the Agreement exceed Guarantor's anticipated liability under this
Guaranty.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged and confessed, Guarantor hereby covenants and
agrees as follows:
15. Guarantor hereby absolutely and unconditionally guarantees the
prompt, complete and full payment when due, no matter how such shall become due,
of the Obligations, and further guarantees that Borrower will properly and
timely perform the Obligations. Notwithstanding any contrary provision in this
Guaranty, however, Guarantor's maximum liability under this Guaranty is limited,
to the extent, if any, required so that its liability is not subject to
avoidance under applicable Debtor Relief Laws (as such term is defined in
Paragraph 8 hereof). [PRECEDING SENTENCE WILL NOT BE INCLUDED IN FACILITY
GUARANTEES EXECUTED BY VENUS AND EXCO.]
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16. If Guarantor is or becomes liable for any indebtedness owing by
Borrower to any Noteholder by endorsement or otherwise than under this Guaranty,
such liability shall not be in any manner impaired or affected hereby, and the
rights of Noteholders hereunder shall be cumulative of any and all other rights
that Noteholders may ever have against Guarantor. The exercise by any Noteholder
of any right or remedy hereunder or under any other instrument, at law or in
equity, shall not preclude the concurrent or subsequent exercise of any other
right or remedy.
17. In the event of default by Borrower in payment of the Obligations,
or any part thereof, when such Obligations become due, either by their terms or
as the result of the exercise of any power to accelerate, Guarantor shall, on
demand, and without further notice of dishonor and without any notice having
been given to Guarantor previous to such demand of the acceptance by Noteholders
of this Guaranty, and without any notice having been given to such Guarantor
previous to such demand of the creating or incurring of such Obligations, pay
the amount due thereon to Noteholders at Administrative Agent's office as set
forth in the Agreement, and it shall not be necessary for any Noteholder, in
order to enforce such payment by Guarantor, first, to institute suit or exhaust
its remedies against Borrower or others liable on such Obligations, to have
Borrower joined with Guarantor in any suit brought under this Guaranty or to
enforce their rights against any security which shall ever have been given to
secure such indebtedness; provided, however, that in the event any Noteholder
elects to enforce and/or exercise any remedies they may possess with respect to
any security for the Obligations prior to demanding payment from Guarantor,
Guarantor shall nevertheless be obligated hereunder for any and all sums still
owing to Noteholders on the Obligations and not repaid or recovered incident to
the exercise of such remedies.
18. Notice to Guarantor of the acceptance of this Guaranty and of the
making, renewing or assignment of the Obligations and each item thereof, are
hereby expressly waived by Guarantor.
19. Each payment on the Obligations shall be deemed to have been made
by Borrower unless express written notice is given to Noteholders at the time of
such payment that such payment is made by Guarantor as specified in such notice.
20. If all or any part of the Obligations at any time are secured,
Guarantor agrees that Administrative Agent and/or Noteholders may at any time
and from time to time, at their discretion and with or without valuable
consideration, allow substitution or withdrawal of collateral or other security
and release collateral or other security or compromise or settle any amount due
or owing under the Agreement or amend or modify in whole or in part the
Agreement or any Loan Paper executed in connection with same without impairing
or diminishing the obligations of Guarantor hereunder. Guarantor further agrees
that if Borrower executes in favor of any Noteholder any collateral agreement,
mortgage or other security instrument, the exercise by any Noteholder of any
right or remedy thereby conferred on such Noteholder shall be wholly
discretionary with such Noteholder, and that the exercise or failure to exercise
any such right or remedy shall in no way impair or diminish the obligation of
Guarantor hereunder. Guarantor further agrees that Noteholders and
Administrative Agent shall not be liable for their failure to use diligence in
the collection of the Obligations or in preserving the liability of any Person
liable for the Obligations, and Guarantor
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hereby waives presentment for payment, notice of nonpayment, protest and notice
thereof (including, notice of acceleration), and diligence in bringing suits
against any Person liable on the Obligations, or any part thereof.
21. Guarantor agrees that Noteholders, in their discretion, may a)
bring suit against all guarantors (including, without limitation, Guarantor
hereunder) of the Obligations jointly and severally or against any one or more
of them, b) compound or settle with any one or more of such guarantors for such
consideration as Noteholders may deem proper, and c) release one or more of such
guarantors from liability hereunder, and that no such action shall impair the
rights of Noteholders to collect the Obligations (or the unpaid balance thereof)
from other such guarantors of the Obligations, or any of them, not so sued,
settled with or released. Guarantor agrees, however, that nothing contained in
this paragraph, and no action by Noteholders permitted under this paragraph,
shall in any way affect or impair the rights or obligations of such guarantors
among themselves.
22. Guarantor represents and warrants to each Noteholder that a)
Guarantor is a corporation, limited liability company or partnership duly
organized and validly existing under the laws of the jurisdiction of its
incorporation or formation; and b) Guarantor possesses all requisite authority
and power to authorize, execute, deliver and comply with the terms of this
Guaranty; this Guaranty has been duly authorized and approved by all necessary
action on the part of Guarantor and constitutes a valid and binding obligation
of Guarantor enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable Debtor Relief Laws; and no approval or
consent of any court or governmental entity is required for the authorization,
execution, delivery or compliance with this Guaranty which has not been obtained
(and copies thereof delivered to Noteholders). As used in this Guaranty, the
term "Debtor Relief Laws" means the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension
of payments or similar debtor relief Laws from time to time in effect affecting
the rights of creditors generally.
23. Guarantor covenants and agrees that until the Obligations are paid
and performed in full, except as otherwise provided in the Agreement or unless
Noteholders give their prior written consent to any deviation therefrom, it will
a) at all times maintain its existence and authority to transact business in any
State or jurisdiction where Guarantor has assets and operations, b) promptly
deliver to Noteholders and to Administrative Agent such information respecting
its business affairs, assets and liabilities as Noteholders may reasonably
request, and c) duly and punctually observe and perform all covenants applicable
to Guarantor under the Agreement and the other Loan Papers. The failure of
Guarantor to comply with the terms of this paragraph shall be an Event of
Default under the Agreement.
24. This Guaranty is for the benefit of Noteholders, their successors
and assigns, and in the event of an assignment by Noteholders (or their
successors or assigns) of the Obligations, or any part thereof, the rights and
benefits hereunder, to the extent applicable to the Obligations so assigned,
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may be transferred with such Obligations. This Guaranty is binding upon
Guarantor and its successors and assigns.
25. No modification, consent, amendment or waiver of any provision of
this Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by each Noteholder, and
then shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on Guarantor in any case shall, of itself,
entitle Guarantor to any other or further notice or demand in similar or other
circumstances. No delay or omission by Noteholders in exercising any power or
right hereunder shall impair any such right or power or be construed as a waiver
thereof or any acquiescence therein, nor shall any single or partial exercise of
any such power preclude other or further exercise thereof, or the exercise of
any other right or power hereunder. All rights and remedies of Noteholders
hereunder are cumulative of each other and of every other right or remedy which
Noteholders may otherwise have at law or in equity or under any other contract
or document, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
26. No provision herein or in any promissory note, instrument or any
other Loan Paper executed by Borrower or Guarantor evidencing the Obligations
shall require the payment or permit the collection of interest in excess of the
Maximum Lawful Rate. If any excess of interest in such respect is provided for
herein or in any such promissory note, instrument, or any other Loan Paper, the
provisions of this paragraph shall govern, and neither Borrower nor Guarantor
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the amount permitted by law. The intention of the parties being to
conform strictly to any applicable federal or state usury Laws now in force, all
promissory notes, instruments and other Loan Papers executed by Borrower or
Guarantor evidencing the Obligations shall be held subject to reduction to the
amount allowed under said usury Laws as now or hereafter construed by the courts
having jurisdiction.
27. If Guarantor should breach or fail to perform any provision of this
Guaranty, Guarantor agrees to pay Noteholders all costs and expenses (including
court costs and reasonable attorneys fees) incurred by Noteholders in the
enforcement hereof.
28. (a) The liability of Guarantor under this Guaranty shall in no
manner be impaired, affected or released by the insolvency, bankruptcy, making
of an assignment for the benefit of creditors, arrangement, compensation,
composition or readjustment of Borrower, or any proceedings affecting the
status, existence or assets of Borrower or other similar proceedings instituted
by or against Borrower and affecting the assets of Borrower.
(b) Guarantor acknowledges and agrees that any interest on any
portion of the Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Obligations if said proceedings had not been commenced) shall be
included in the Obligations because it is the intention of Guarantor,
Administrative Agent and Noteholders that the Obligations which are
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guaranteed by Guarantor pursuant to this Guaranty should be determined without
regard to any rule of law or order which may relieve Borrower of any portion of
such Obligations. Guarantor will permit any trustee in bankruptcy, receiver,
debtor in possession, assignee for the benefit of creditors or similar Person to
pay Noteholders or Administrative Agent, or allow the claim of Noteholders or
Administrative Agent in respect of, any such interest accruing after the date on
which such proceeding is commenced.
(c) In the event that all or any portion of the Obligations
are paid by Borrower, the obligations of Guarantor hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from Administrative Agent or any Noteholder as a
preference, fraudulent transfer or otherwise, and any such payments which are so
rescinded or recovered shall constitute Obligations for all purposes under this
Guaranty.
29. Guarantor understands and agrees that any amounts of Guarantor on
account with any Noteholder may be offset to satisfy the obligations of
Guarantor hereunder.
30. Guarantor hereby subordinates and makes inferior any and all
indebtedness now or at any time hereafter owed by Borrower to Guarantor to the
Obligations evidenced by the Agreement and agrees after the occurrence of a
Default or Event of Default under the Agreement, not to permit Borrower to
repay, or to accept payment from Borrower of, such indebtedness or any part
thereof without the prior written consent of Noteholders. Without limiting the
foregoing, Guarantor hereby acknowledges and agrees that it will not accept from
Borrower or any of its Subsidiaries any, distribution, dividend, reimbursement,
repayment, payment or transfer of cash or assets of any type which is prohibited
under or pursuant to the terms of the Agreement (a "Prohibited Payment") and to
the extent any such Prohibited Payment is received by Guarantor, Guarantor will
hold the same in trust for the benefit of the Noteholders and promptly pay the
same to Administrative Agent for application to the Obligations.
31. During the period that Noteholders have any commitment to lend or
participate in Letter of Credit Exposure under the Loan Papers, or any amount
payable under any Note remains unpaid or any Letter of Credit remains
outstanding, and throughout any additional preferential period subsequent
thereto, Guarantor hereby waives any and all rights of subrogation to which
Guarantor may otherwise be entitled against Borrower, or any other guarantor of
the Obligations, as a result of any payment made by Guarantor pursuant to this
Guaranty.
32. As of the date hereof, the fair saleable value of the property of
Guarantor is greater than the total amount of liabilities (including contingent
and unliquidated liabilities) of Guarantor, and Guarantor is able to pay all of
its liabilities as such liabilities mature and Guarantor does not have
unreasonably small capital within the meaning of Section 548, Title 11, United
States Code, as amended. In computing the amount of contingent or liquidated
liabilities, such liabilities have been computed at the amount which, in light
of all the facts and circumstances existing as of the date
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hereof, represents the amount that can reasonably be expected to become an
actual or matured liability.
33. If any provision of this Guaranty is held to be illegal, invalid,
or unenforceable, such provision shall be fully severable; this Guaranty shall
be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Guaranty a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid and enforceable.
34. (a) Except to the extent required for the exercise of the remedies
provided in the other security instruments, Guarantor hereby irrevocably submits
to the nonexclusive jurisdiction of any Texas state or federal court over any
action or proceeding arising out of or relating to this Guaranty or any other
Loan Paper, and Guarantor 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. Guarantor hereby irrevocably waives, to the fullest extent
permitted by Law, any objection which it may now or hereafter have to the laying
of venue of any Litigation (as hereinafter defined) arising out of or in
connection with this Guaranty or any of the Loan Papers brought in district
courts of Dallas County, Texas, or in the United States District Court for the
Northern District of Texas, Dallas Division. Guarantor hereby irrevocably waives
any claim that any Litigation brought in any such court has been brought in an
inconvenient forum. Guarantor hereby irrevocably consents to the service of
process out of any of the aforementioned courts in any such Litigation by the
mailing of copies thereof by certified mail, return receipt requested, postage
prepaid, to Guarantor's office at __________________________________________.
Guarantor irrevocably agrees that any legal proceeding against Noteholders shall
be brought in the district courts of Dallas County, Texas, or in the United
States District Court for the Northern District of Texas, Dallas Division.
Nothing herein shall affect the right of any Noteholder to commence legal
proceedings or otherwise proceed against Guarantor in any jurisdiction or to
serve process in any manner permitted by applicable Law. As used herein, the
term "Litigation" means any proceeding, claim, lawsuit or investigation (1)
conducted or threatened by or before any court or governmental department,
commission, board, bureau, agency or instrumentality of the United States or of
any state, commonwealth, nation, territory, possession, county, parish, or
municipality, whether now or hereafter constituted or existing, or (2) pending
before any public or private arbitration board or panel.
(b) Nothing in this Paragraph 20 shall affect any right of any
Noteholder to serve legal process in any other manner permitted by Law or affect
the right of any Noteholder to bring any action or proceeding against Guarantor
in the courts of any other jurisdictions.
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(c) To the extent that Guarantor 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,
Guarantor hereby irrevocably waives such immunity in respect of its obligations
under this Guaranty and the other Loan Papers.
35. THIS GUARANTY AND THE OTHER LOAN PAPERS COLLECTIVELY REPRESENT THE
FINAL AGREEMENT BY AND AMONG NOTEHOLDERS, ADMINISTRATIVE AGENT, AND GUARANTOR
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF NOTEHOLDERS, ADMINISTRATIVE AGENT, AND GUARANTOR. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS AMONG NOTEHOLDERS, ADMINISTRATIVE AGENT, AND
GUARANTOR.
36. GUARANTOR, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RIGHT TO A JURY
TRIAL, IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR
ANY OF THE OTHER LOAN PAPERS.
37. THIS GUARANTY AND THE OTHER LOAN PAPERS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
EXECUTED and effective as of the date first above written.
GUARANTOR:
----------------------
By:
-----------------------------
Name:
--------------------------
Title:
------------------------
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<PAGE> 85
EXHIBIT B
NOTE
$50,000,000 Dallas, Texas June 30, 1999
FOR VALUE RECEIVED, the undersigned, EXUS Energy, LLC, a Delaware
limited liability company ("Borrower"), promises to pay to the order of
NationsBank, N.A. ("Bank"), at the offices of NationsBank, N.A., as
Administrative Agent ("Administrative Agent"), at 901 Main Street, 64th Floor,
Dallas, Texas 75202, the principal sum of Fifty Million Dollars ($50,000,000),
or so much thereof as may be advanced and outstanding, together with interest,
as hereinafter described.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Credit Agreement dated as of June
30, 1999 (as hereafter renewed, extended, amended, or supplemented, the
"Agreement") among Borrower, Bank, certain other financial institutions listed
on Schedule 1 thereto and Administrative Agent. Unless otherwise defined herein
or unless the context hereof otherwise requires, each term used herein with its
initial letter capitalized has the meaning given to such term in the Agreement.
Borrower also promises to pay interest on the unpaid principal amount
hereof in like money at the offices of Administrative Agent above referenced
from the date hereof at the rates applicable to amounts outstanding under the
Revolving Loan provided in the Agreement and on the dates specified in the
Agreement.
The principal balance of this Note shall be paid at the times and in
the amounts required by the Agreement. The entire outstanding principal balance
hereof and all accrued but unpaid interest thereon shall be due and payable in
full on the Termination Date.
Upon and subject to the terms and conditions of the Agreement, Borrower
shall be entitled to prepay the principal of or interest on this Note from time
to time and at any time, in whole or in part.
Upon the occurrence and continuance of an Event of Default, and upon
the conditions stated in the Agreement, Administrative Agent may, at its option,
and shall, to the extent required in accordance with the terms of the Agreement,
declare the entire unpaid principal of and accrued interest on this Note
immediately due and payable (provided that, upon the occurrence of certain
Events of Default, and upon the conditions stated in the Agreement, such
acceleration shall be automatic), without notice (except as otherwise required
by the Agreement), demand, or presentment, all of which are hereby waived, and
the holder hereof shall have the right to offset against this Note any sum or
sums owed by the holder hereof to Borrower. All past-due principal of and, to
the extent permitted by law, accrued interest on this Note shall, at the option
of the holder hereof, bear interest
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<PAGE> 86
at the lesser of (a) the Maximum Lawful Rate, or (b) the Base Rate plus 2% until
paid from the due date.
Notwithstanding the foregoing, if at any time, any rate of interest
calculated under Section 2.3 of the Agreement (the "Contract Rate") exceeds the
Maximum Lawful Rate, the rate of interest hereunder shall be limited to the
Maximum Lawful Rate, but any subsequent reductions in the Contract Rate shall
not reduce the rate of interest on this Note below the Maximum Lawful Rate until
the total amount of interest accrued equals the amount of interest which would
have accrued (including the amount of interest which would have accrued prior to
the payment or prepayment of any portion of this Note) 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 this Note, the total amount of interest
paid or accrued on this 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 Borrower shall pay to the holder of this Note an
amount equal to the difference between (a) 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 (b) the amount of interest actually paid or
accrued on this Note.
EXUS Energy, LLC, a Delaware limited
liability company
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 87
LOANS, MATURITIES, AND
PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
=================================================================================================================================
Bank's
Commitment Expiration Rate of Amount of Amount Unpaid
Borrowing Percentage of Interest Interest Principal of Interest Principal Notation
Date of Period Applicable to Paid Paid Balance Made By
Borrowing Borrowing
============= ============== ================ ================= ================ =============== ============= =============
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
- ------------- -------------- ---------------- ----------------- ---------------- --------------- ------------- -------------
============= ============== ================ ================= ================ =============== ============= =============
</TABLE>
B-3
<PAGE> 88
EXHIBIT C
OPERATING AGREEMENT
[to be attached]
C-1
<PAGE> 89
EXHIBIT D
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is executed and effective as
of June 30, 1999, by EXUS Energy, LLC, a Delaware limited liability company
("Debtor"), in favor of NationsBank, N.A., as Administrative Agent for the Banks
are parties to the Credit Agreement (as herein defined) ("Secured Party").
W I T N E S S E T H :
WHEREAS, Secured Party, Debtor and the financial institutions listed
under the designation "Banks" on the signature pages thereto (the "Banks") are
parties to that certain Credit Agreement dated as of June 30, 1999 pursuant to
which the Banks have agreed to provide Debtor with a multiple advance term
credit facility, all on the terms more particularly set forth therein (such
Credit Agreement, as the same may be modified, amended, renewed, extended or
restated from time to time is hereinafter referred to as the "Credit Agreement";
unless otherwise defined herein, terms used herein with their initial letter
capitalized shall have the meaning given such terms in the Credit Agreement);
and
WHEREAS, the Banks have required, as a condition precedent to making
the Initial Borrowing under the Credit Agreement, that Debtor execute and
deliver this Agreement to Secured Party for the ratable benefit of the Banks.
NOW, THEREFORE, in consideration of these premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, and intending to be legally bound hereby, Debtor
hereby agrees with Secured Party, for the ratable benefit of Banks as follows:
1. Defined Terms. As used herein, the following terms shall have the
following meanings:
"Account Debtor" means, with respect to any Account (as herein
defined) of Debtor, the party that is liable to Debtor with respect to
such Account.
"Accounts" has the meaning assigned in the UCC.
"Chattel Paper" has the meaning assigned in the UCC.
"Collateral" has the meaning assigned to it in Section 2 of
this Agreement.
D-1
<PAGE> 90
"Contracts" means any and all contracts between Debtor and any
other party as the same may from time to time be amended, supplemented
or otherwise modified, including, without limitation, (a) all rights of
Debtor to receive monies due and to become due to it thereunder or in
connection therewith, (b) all rights of Debtor to damages arising out
of, or for, breach or default in respect thereof, and (c) all rights of
Debtor to perform and to exercise all remedies thereunder. Without
limiting the foregoing, "Contracts" shall include that certain
Operating Agreement dated March 1, 1999 by and between Debtor and EXCO
Resources, Inc., a Texas corporation, and all rights of Debtor
thereunder.
"Copyright License" means any written agreement now or
hereafter in existence granting to Debtor any right to use any
Copyright.
"Copyrights" means (a) all copyrights, rights and interests in
copyrights, works protectable by copyright, copyright registrations and
copyright applications now owned or hereafter created or acquired by
Debtor, (b) all renewals of any of the foregoing, (c) all income,
royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing, including, without limitation, damages or
payments for past or future infringements of any of the foregoing, (d)
the right to sue for past, present and future infringements of any of
the foregoing, (e) all rights corresponding to any of the foregoing
throughout the world, and (f) all goodwill associated with and
symbolized by any of the foregoing.
"Deposit Account" has the meaning assigned in the UCC.
"Document" has the meaning assigned in the UCC.
"Equipment" has the meaning assigned in the UCC.
"General Intangibles" has the meaning assigned in the UCC.
"Instrument" has the meaning assigned in the UCC.
"Intellectual Property" means collectively all of the
following: Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks
and Trademark Licenses.
"Inventory" has the meaning assigned in the UCC.
"Mortgage" means that certain Mortgage, Deed of Trust,
Security Agreement, Financing Statement and Assignment of Production of
even date herewith, granted by Debtor to Secured Party and filed (or to
be filed) of record in the real property records of Jackson Parish,
Louisiana.
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<PAGE> 91
"Patent License" means any written agreement now or hereafter
in existence granting to Debtor any right to use any invention on which
a Patent is in existence.
"Patents" means (a) all patents and patent applications now
owned or hereafter created or acquired by Debtor and the inventions and
improvements described and claimed therein, and patentable inventions,
(b) the examinations, reissues, divisions, continuations, renewals,
extensions and continuations-in-part of any of the foregoing, (c) all
income, royalties, damages or payments now and hereafter due and/or
payable under any of the foregoing with respect to any of the
foregoing, including, without limitation, damages or payments for past
or future infringements of any of the foregoing, (d) the right to sue
for past, present and future infringements of any of the foregoing, (e)
all rights corresponding to any of the foregoing throughout the world,
(f) all inventions, designs, proprietary or technical information,
know-how, other data or information, software, databases, all
embodiments or fixations thereof and related documentation, and all
other trade secret rights not described above, and (g) all goodwill
associated with any of the foregoing.
"Permitted Encumbrances" has the meaning given such term in
the Credit Agreement.
"Proceeds" means all "Proceeds" as such term is defined in the
UCC.
"Trademark License" means any written agreement now or
hereafter in existence granting to Debtor any right to use any
Trademark.
"Trademarks" means (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, all
elements of package or trade dress goods and all general intangibles of
like nature together with the goodwill of Debtor's business connected
with the use thereof and symbolized thereby, service marks, logos,
other business identifiers, prints and labels on which any of the
foregoing have appeared or appear, all registrations and recordings
thereof, and all applications in connection therewith including
registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political
subdivision thereof, (b) all reissues, extensions or renewals thereof,
(c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing or with respect to any of the
foregoing including damages or payments for past or future
infringements of any of the foregoing, (d) the right to sue for past,
present and future infringements of any of the foregoing, (e) all
rights corresponding to any of the foregoing throughout the world, and
(f) all goodwill associated with and symbolized by any of the
foregoing.
"UCC" means the Uniform Commercial Code as from time to time
in effect in each of the jurisdictions where the Collateral or a
portion thereof is situated.
D-3
<PAGE> 92
"Vehicles" means all cars, trucks, trailers, construction and
earth moving equipment and other vehicles covered by a certificate of
title under the law of any state and all tires and other appurtenances
to any of the foregoing.
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, Debtor hereby assigns,
mortgages, pledges and hypothecates to Secured Party, and hereby grants to
Secured Party for the ratable benefit of the Banks, a continuing first and prior
lien and security interest in all of the following property wherever located and
now owned or at any time hereafter acquired by Debtor or in which Debtor now has
or at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"), subject to no prior Liens other than Permitted
Encumbrances:
(1) all Accounts;
(2) all Chattel Paper;
(3) all Contracts;
(4) all Copyrights;
(5) all Copyright Licenses;
(6) all Deposit Accounts;
(7) all Documents;
(8) all Equipment;
(9) all General Intangibles;
(10) all Instruments;
(11) all Inventory;
(12) all Patents;
(13) all Patent Licenses;
(14) all Trademarks;
(15) all Trademark Licenses;
D-4
<PAGE> 93
(16) all Vehicles;
(17) all books and records of Debtor (including, without
limitation, customer lists, credit files, computer programs, printouts,
and other computer materials and records);
(18) all other deposit accounts, monies and other property and
assets of Debtor of any kind, whether in Debtor's possession or under
the control of Secured Party or a bailee; and
(19) to the extent not otherwise included, all accessions to,
substitutions for and all replacements, betterments, Proceeds and
products of any and all of the foregoing, including, without
limitation, proceeds of and unearned premiums with respect to insurance
policies insuring any of the foregoing.
3. Rights of Secured Party; Limitations on Secured Party's and Bank's
Obligations. (a) Debtor Remains Liable under Accounts, Chattel Paper and
Contracts. Anything herein to the contrary notwithstanding, Debtor shall remain
liable under each Account, each item of Chattel Paper, and each Contract to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
constituting a part of or giving rise to each such Account or item of Chattel
Paper and in accordance with and pursuant to the terms and provisions of each
such Contract. Neither Secured Party nor any Bank shall have any obligation or
liability under any Account or item of Chattel Paper (or any agreement or item
of Chattel Paper giving rise thereto) or Contract by reason of or arising out of
this Agreement or the receipt by Secured Party or any Bank of any payment
relating to such Account, item of Chattel Paper or Contract pursuant hereto, nor
shall Secured Party be obligated in any manner to perform any of the obligations
of Debtor under or pursuant to any Account or item of Chattel Paper (or any
agreement giving rise thereto) or under or pursuant to any Contract, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party under
any Account (or any agreement giving rise thereto) or under any Contract, to
present or file any claim, to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
(b) Notice to Account Debtor, Obligors under Chattel Paper and
Contracting Parties. At any time during the existence of an Event of Default,
Secured Party may (and upon request of Secured Party, Debtor shall) notify
Account Debtors on the Accounts, obligors with respect to Chattel Paper and
parties to the Contracts that the Accounts, the Chattel Paper and the Contracts
have been assigned to Secured Party and that payments in respect thereof shall
be made directly to Secured Party. At any time during the continuance of an
Event of Default, or at any time before an Event of Default and with the prior
consent of Debtor, which consent shall not be unreasonably withheld, Secured
Party may in its own name or in the name of others, communicate with Account
Debtors on the Accounts, obligors with respect to the Chattel Paper and parties
to the Contracts to
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<PAGE> 94
verify with them to its satisfaction the existence, amount and terms of any
Accounts, Chattel Paper or Contracts.
(c) Collections on Accounts and Contracts. Secured Party hereby
authorizes Debtor to collect the Accounts, Chattel Paper and Contracts, subject
to Secured Party's direction and control, and Secured Party may curtail or
terminate said authority at any time that an Event of Default has occurred which
is continuing. All Proceeds while held by Secured Party (or by Debtor in trust
for Secured Party) shall continue to be collateral security for all of the
Obligations and shall not constitute payment thereof until applied as
hereinafter provided. At Secured Party's request after an Event of Default,
Debtor shall deliver to Secured Party all original and other documents
evidencing, and relating to, the agreements and transactions which gave rise to
the Accounts and Contracts, including, without limitation, all original orders,
invoices and shipping receipts. At Secured Party's request prior to an Event of
Default, Debtor shall deliver to Secured Party certified copies of any and all
such documents.
4. Representations and Warranties. Debtor hereby represents and
warrants that:
(a) Title; No Other Liens. Except for the Permitted Encumbrances,
Debtor is the legal and beneficial owner of each item of the Collateral free and
clear of any and all Liens or claims of others, and no other person or entity
has any right, title or interest therein. No security agreement, financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as may have
been filed in favor of Secured Party or in connection with a Permitted
Encumbrance. No item of Chattel Paper contains any legend or other notation
indicating that it is subject to a Lien in favor of any Person other than
Secured Party or constitutes property or assets of any Person other than Debtor.
(b) Perfected First Priority Liens. Except for and subject only to the
Permitted Encumbrances, the Liens and security interests evidenced hereby
constitute first priority perfected Liens on the Collateral in favor of Secured
Party, which are prior to all other Liens on the Collateral created by Debtor
and in existence on the date hereof and which are enforceable as such against
all creditors of and purchasers from Debtor and against any owner or purchaser
of the real property where any of the Collateral is located and any present or
future creditor obtaining a Lien on such real property.
(c) No Defenses. No dispute, right of setoff, counterclaim or defense
exists with respect to all or any part of the Collateral.
(d) Consents. No consent of any party (other than Debtor) to any
Contract any obligor with respect to any Chattel Paper or any Account Debtor in
respect of any Account is required in connection with the execution, delivery
and performance of this Agreement. Each Account, each item of Chattel Paper and
each Contract is in full force and effect and constitutes a valid and legally
enforceable obligation of the obligor in respect thereof or the parties thereto,
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors'
D-6
<PAGE> 95
rights generally, and (ii) the availability of equitable remedies may be limited
by equitable principals of general applicability. No consent or authorization
of, filing with or other act by or in respect of any Governmental Authority is
required in connection with the execution, delivery, performance, validity or
enforceability of any of the Accounts, Chattel Paper or Contracts by any party
thereto other than those which have been duly obtained, made or performed, and
the same are in full force and effect and do not subject the scope of any such
Account, item of Chattel Paper or Contract to any material adverse limitation,
either specific or general in nature. Neither Debtor, nor (to the best of
Debtor's knowledge) any other party to any Account, item of Chattel Paper or
Contract is in default or is likely to become in default in the performance or
observance of any of the terms thereof. The right, title and interest of Debtor
in, to and under each Account, each item of Chattel Paper and each Contract are
not subject to any defense, offset, counterclaim or other claim, nor have any of
the foregoing been asserted or alleged against Debtor as to any of the
foregoing. Debtor has delivered to Secured Party a complete and correct copy of
each Contract, including all amendments, supplements and other modifications
thereto. No amount payable to Debtor under or in connection with any Account,
item of Chattel Paper or Contract referred to above is evidenced by any
Instrument which has not been delivered to Secured Party.
(e) [Intentionally Deleted].
(f) Chief Executive Office; Employer ID Number. Debtor's principal
place of business (or, if Debtor has more than one principal place of business,
Debtor's chief executive office) is located at the address set forth on Schedule
I hereto. Debtor's Employer Identification Number is set forth on Schedule I
hereto.
(g) Farm Products. None of the Collateral constitutes, or is the
Proceeds of, farm products.
(h) Intellectual Property. Debtor does not own or hold any right or
interest in Intellectual Property with a value (considered in the aggregate) in
excess of $25,000.
(i) Chattel Paper. Debtor does not own or hold any Chattel Paper.
(j) Instruments. Debtor does not own or hold any Instruments.
(k) Vehicles. Debtor does not own or hold any Vehicles.
(l) Deposit Accounts. Schedule II hereto is a true and correct list of
all Deposit Accounts maintained by Debtor on the date hereof.
(m) Power and Authority; Authorization. Debtor has the power and
authority and the legal right to execute and deliver, to perform its obligations
under, and to grant the Liens and security interests on the Collateral pursuant
to, this Agreement and has taken all necessary action to authorize
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its execution, delivery and performance of, and grant of the Liens and security
interests on the Collateral pursuant to, this Agreement.
(n) Enforceability. This Agreement constitutes a legal, valid and
binding obligation of Debtor enforceable in accordance with its terms, except as
(i) the enforceability hereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally, and (ii)
the availability of equitable remedies may be limited by equitable principles of
general applicability.
(o) No Conflict. The execution, delivery and performance of this
Agreement will not violate any provision of any Law or contractual obligation of
Debtor and will not result in the creation or imposition of any Lien on any of
the properties or revenues of Debtor pursuant to any Law or contractual
obligation of Debtor, except as contemplated hereby.
(p) No Consents, etc. No consent or authorization of, filing with, or
other act by or in respect of, any Governmental Authority and no consent of any
other party (including, without limitation, any creditor of Debtor), is required
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement.
5. Covenants. Debtor covenants and agrees with Secured Party for the
ratable benefit of the Banks that, from and after the date of this Agreement
until the Obligations are paid in full:
(a) Further Documentation; Pledge of Instruments. At any time and from
time to time, upon the written request of Secured Party, and at the sole expense
of Debtor, Debtor will promptly and duly execute and deliver such further
assignments, certificates, supplemental writings, instruments and documents and
take such further action as Secured Party may reasonably request for the purpose
of obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the UCC in effect in any jurisdiction
with respect to the Liens and security interests evidenced hereby. Debtor also
hereby authorizes Secured Party to file any such financing or continuation
statement without the signature of Debtor to the extent permitted by applicable
law. A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any jurisdiction. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note or other Instrument, such Instrument
shall be immediately delivered to Secured Party, shall be duly endorsed in a
manner satisfactory to Secured Party, and shall constitute Collateral pursuant
to this Agreement.
(b) Indemnification. Debtor agrees to pay, and to indemnify, defend and
hold Secured Party and each Bank harmless from, any and all liabilities, costs
and expenses (including, without limitation, reasonable legal fees and expenses)
(i) with respect to, or resulting from, any delay in paying any and all excise,
sales or other taxes which may be payable or determined to be payable with
respect to any of the Collateral, (ii) with respect to, or resulting from, any
delay in complying with any Laws applicable to any of the Collateral or (iii) in
connection with any of the transactions contemplated by this Agreement. In any
suit, proceeding or action brought by Secured Party under
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any Account or Contract for any sum owing thereunder, or to enforce any
provisions of any Account or Contract, Debtor will save, indemnify, defend and
hold Secured Party and each Bank harmless from and against all expense, loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction or liability whatsoever of the Account Debtor or obligor thereunder,
arising out of a breach by Debtor of any obligation thereunder or arising out of
any other agreement, indebtedness or liability at any time owing to or in favor
of such Account Debtor or obligor or its successors from Debtor.
(c) Maintenance of Records. Debtor will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral, including,
without limitation, a record of all payments received and all credits granted
with respect to the Accounts, Chattel Paper and Contracts. Debtor will mark its
books and records pertaining to the Collateral to evidence this Agreement and
the Liens and security interests evidenced hereby. For the further security of
Secured Party and the Banks, Secured Party shall have a security interest,
subject to no Liens other than Permitted Encumbrances, in all of Debtor's books
and records pertaining to the Collateral, and, after and during the continuance
of an Event of Default, Debtor shall turn over any such books and records to
Secured Party or to its representatives at the request of Secured Party.
(d) Right of Inspection. Secured Party, each Bank and their respective
representatives shall at all times have full and free access upon reasonable
notice and during normal business hours to all the books, correspondence and
records of Debtor, and Secured Party, each Bank and their respective
representatives may examine the same, take extracts therefrom and make
photocopies thereof. Secured Party, each Bank and their respective
representatives shall at all times also have the right upon reasonable notice
and during normal business hours to enter into and upon any premises where any
of the Inventory or Equipment is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein. Debtor shall
pay the costs incurred by Secured Party and each Bank in connection with any
such exercise of its rights pursuant to this Section 5(d) to the extent required
by the Credit Agreement.
(e) Compliance with Laws, etc. Debtor will comply with all Laws
applicable to the Collateral or any part thereof or to the operation of Debtor's
business.
(f) Compliance with Terms of Chattel Paper and Contracts, etc. Debtor
will perform and comply in all material respects with all of its obligations
under the Chattel Paper and Contracts and all its other contractual obligations
relating to the Collateral.
(g) Payment of Obligations. To the extent required pursuant to Section
8.7 of the Credit Agreement, Debtor will pay promptly when due all Taxes,
assessments and governmental charges or levies imposed upon the Collateral or in
respect of its income or profits therefrom, as well as all claims of any kind
(including, without limitation, claims for labor, materials and supplies)
against or with respect to the Collateral.
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(h) Limitation on Liens on Collateral. Debtor will not create, assume
or permit to exist, will defend the Collateral against, and will take such other
action as is necessary to remove, any Lien or claim on or to the Collateral,
other than the Permitted Encumbrances, and will defend the right, title and
interest of Secured Party and the Banks in and to any of the Collateral against
the claims and demands of all parties whomsoever other than holders of Permitted
Encumbrances with respect to such Permitted Encumbrances.
(i) Limitations on Dispositions of Collateral. Debtor will not sell,
transfer, lease, abandon or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so, except as may be permitted by the Credit
Agreement. Upon the sale, transfer, lease, abandonment or disposition of any of
the Collateral as permitted under the Credit Agreement, the Lien granted by this
Agreement shall continue with respect to any Proceeds received by Debtor upon
such sale, transfer, lease, abandonment or disposition.
(j) Limitations on Modifications, Waivers, Extensions of Agreements
Giving Rise to Accounts and Material Agreements. Debtor will not (i) amend,
modify, terminate or waive any provision of any Contract, any item of Chattel
Paper or any agreement giving rise to or forming a part of an Account or a
Deposit Account or any item of Chattel Paper in any manner, (ii) fail to
exercise promptly and diligently each and every material right which it may have
under each Contract, each item of Chattel Paper and each agreement giving rise
to an Account or a Deposit Account, or (iii) fail to deliver to Secured Party a
copy of each material demand, notice or document received by it relating in any
way to any Contract required to be delivered to Secured Party pursuant to the
terms of the Credit Agreement, Chattel Paper or any agreement giving rise to an
Account or a Deposit Account.
(k) Limitations on Discounts, Compromises, Extensions of Accounts.
Without the prior consent of Secured Party, Debtor will not grant any extension
of the time of payment of any item of Chattel Paper or any Account, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partially, any party liable for the payment thereof, or allow any
credit or discount whatsoever thereon, provided that Debtor may, during any
fiscal year, grant credits or discounts of up to $25,000 in the aggregate on
Accounts.
(l) Maintenance of Equipment. Debtor will maintain each item of
Equipment as provided in the Credit Agreement and Mortgage.
(m) Maintenance of Insurance. Debtor will at all times maintain the
insurance required by the Mortgage.
(n) Further Identification of Collateral. Debtor will furnish to
Secured Party and each Bank from time to time upon request statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail and in form satisfactory to Secured Party.
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(o) Notices. Debtor will advise Secured Party and each Bank promptly,
in reasonable detail, at their respective addresses set forth for notice in the
Credit Agreement, (i) of any Lien (other than Permitted Encumbrances) on, or
claim asserted against, any of the Collateral and (ii) of the occurrence of any
other event which could reasonably be expected to have a Material Adverse Effect
on the aggregate value of the Collateral hereunder.
(p) Changes in Locations, Name, etc. Debtor will not change the
location of its chief executive office from that specified in Schedule I, and
Debtor will not change its name, identity or corporate structure to such an
extent that any financing statement filed by Secured Party in connection with
this Agreement would become seriously misleading, unless it shall give prior
written notice as soon as practicable thereof and prior to effecting any such
change take such steps as Secured Party may deem necessary or advisable to
continue the perfection and priority of the security interest granted pursuant
hereto; provided, that nothing contained herein shall be deemed to permit
anything prohibited by the Credit Agreement.
(q) Vehicles. Debtor will maintain each vehicle in good operating
condition, ordinary wear and tear and immaterial impairments of value and damage
by the elements excepted, and will provide all maintenance, service and repairs
necessary for such purpose. No Vehicle shall be removed from the state which has
issued the certificate of title therefor for a period in excess of thirty (30)
consecutive days. With respect to any Vehicle acquired by Debtor subsequent to
the date hereof, within five (5) days after the date of acquisition thereof, if
requested by Secured Party an application for certificate of title indicating
Secured Party's Lien on the Vehicle covered by such certificate, and any other
necessary documentation, shall be filed in each office in each jurisdiction
which Secured Party shall deem advisable to perfect its Lien on the Vehicle.
(s) Deposit Accounts. Debtor will not amend, modify, terminate or waive
any provision of any agreement giving rise to or forming a part of any Deposit
Account, and Debtor will not open any new Deposit Account or enter into any
agreement giving rise to or forming a part of any new Deposit Account unless,
within thirty (30) days after such event, Debtor advises Secured Party, in
reasonable detail, as to the name of the institution or organization in which
such Deposit Account shall be maintained together with such Deposit Account
number.
(t) Tax I.D. Debtor will not change its employer identification number
set forth on Schedule I of this Agreement unless it shall have given prior
written notice to Secured Party.
6. Secured Party's Appointment as Attorney-in-Fact.
(a) Powers. Debtor hereby irrevocably constitutes and appoints Secured
Party and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of Debtor and in the name of Debtor or in its own name, from
time to time in Secured Party's discretion, for the purpose of carrying out the
terms of this Agreement, but only during the existence of an Event of Default,
to take any and all appropriate action and to execute any and all documents and
instruments which may be necessary or
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desirable to accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, Debtor hereby gives Secured Party the power and
right, on behalf of Debtor, without notice to or assent by Debtor, but only
during the existence of an Event of Default, to do the following:
(1) in the case of any Collateral in the name of Debtor or its
own name, or otherwise, to take possession of and indorse and
collect any checks, drafts, notes, acceptances or other
instruments for the payment of monies due under, or with
respect to, any Collateral and to file any claim or to take
any other action or proceeding in any court of law or equity
or otherwise deemed appropriate by Secured Party for the
purpose of collecting any and all such monies due or with
respect to such Collateral whenever payable;
(2) to pay or discharge Taxes and Liens, other than Permitted
Encumbrances, levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for
by the terms of this Agreement and to pay all or any part of
the premiums therefor and the costs thereof; and
(3) (a) to direct any party liable for any payment under any
of the Collateral to make payment of any and all monies due or
to become due thereunder directly to Secured Party or as
Secured Party shall direct; (b) to ask or demand for, collect,
receive payment of and receipt for, any and all monies, claims
and other amounts due or to become due at any time in respect
of or arising out of any Collateral; (c) to sign and indorse
any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in
connection with any of the Collateral; (d) to commence and
prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other
right in respect of any Collateral; (e) to defend any suit,
action or proceeding brought against Debtor with respect to
any Collateral; (f) to settle, compromise or adjust any suit,
action or proceeding described in the preceding clause and, in
connection therewith, to give such discharges or releases as
Secured Party may deem appropriate; (g) to assign any
Trademark (along with the goodwill of the business to which
any such Trademark pertains), throughout the world for such
term or terms, on such conditions, and in such manner, as
Secured Party shall in its sole discretion determine; and (h)
generally, to sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral
as fully and completely as though Secured Party were the
absolute owner thereof for all purposes, and to do, at Secured
Party's option and Debtor's expense, at any time, or from time
to time, all acts and things which Secured Party deems
necessary to protect, preserve or realize upon the Collateral
and to effect the intent of this Agreement, all as fully and
effectively as Debtor might do.
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Debtor hereby ratifies all that said attorneys shall lawfully do or cause to be
done by virtue hereof. This power of attorney is power coupled with an interest
and shall be irrevocable until the Obligations shall have been paid in full or
this Agreement shall have been terminated.
(b) Other Powers. Debtor also authorizes Secured Party, at any time and
from time to time, during the continuance of an Event of Default, to execute, in
connection with the sale provided for in this Section 6, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
(c) No Duty on the Part of Secured Party. The powers conferred on
Secured Party hereunder are solely to protect the interests of Secured Party and
the Banks in the Collateral and shall not impose any duty upon Secured Party or
any Bank to exercise any such powers. The Banks shall be accountable only for
amounts that they actually receive as a result of the exercise of such powers,
and no Bank nor any Bank's officers, directors, employees or agents shall be
responsible to Debtor for any act or failure to act hereunder, except for its
own gross negligence or willful misconduct, it being the intent of the parties
hereto that Secured Party shall not be accountable for its own negligence.
7. Performance by Secured Party of Company's Obligations. If Debtor
fails to perform or comply with any of its agreements contained herein and
Secured Party, as provided for by the terms of this Agreement, or any Bank shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the expenses of Secured Party and any such Bank incurred in
connection with such performance or compliance, together with interest thereon
at the Maximum Lawful Rate on demand shall be payable by Debtor to Secured
Party, and shall constitute obligations secured hereby.
8. Proceeds. Upon request of Secured Party, during the continuance of
an Event of Default (a) all Proceeds received by Debtor consisting of cash,
checks and other non-cash items shall be held by Debtor in trust for Secured
Party, segregated from other funds of Debtor and shall, forthwith upon receipt
by Debtor be turned over to Secured Party for the ratable benefit of the Banks
in the exact form received by Debtor (duly endorsed by Debtor to Secured Party,
if required), and (b) any and all such Proceeds received by Secured Party
(whether from Debtor or otherwise) may, in the sole discretion of Secured Party,
be held by Secured Party as collateral security for, and/or then or at any time
thereafter may be applied by Secured Party against, the Obligations (whether
matured or unmatured), such application to be in such order as Secured Party
shall elect. Any balance of such Proceeds remaining after the Obligations shall
have been paid in full shall be paid over to Debtor or to whomsoever may be
lawfully entitled to receive the same.
9. Remedies.
(a) General. If an Event of Default shall occur and be continuing,
Secured Party may exercise, in addition to all other rights and remedies granted
to it in this Agreement and in the other Loan Papers, all rights and remedies of
a secured party under the UCC. Without limiting the generality of
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the foregoing, or any other right available to Secured Party hereunder, Secured
Party, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon Debtor or any other party (all and each of which demands,
offenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of Secured Party or elsewhere upon such terms and conditions as
it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. Secured
Party and each Bank shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in Debtor, which right or equity is hereby waived and
released. Debtor further agrees, at Secured Party's request, to assemble, or
cause the assembly of, the Collateral and make it available to Secured Party at
places which Secured Party shall reasonably select, whether at Debtor's premises
or elsewhere. Secured Party shall apply the net Proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of Secured Party hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Obligations, in the manner provided by the Credit
Agreement, and only after such application and after the payment by Secured
Party of any other amount required by any provision of law, need Secured Party
account for the surplus, if any, to Debtor. To the extent permitted by
applicable law, Debtor waives all claims, damages and demands it may acquire
against Secured Party arising out of the exercise by them of any rights
hereunder. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least five (5) days before such sale or other disposition. Debtor shall
remain liable for any deficiency if the Proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by Secured Party to collect
such deficiency.
10. Secured Party's Responsibility With Respect to Collateral. Neither
Secured Party nor any Bank shall have any duty to fix or preserve rights against
prior parties to the Collateral, and neither Secured Party nor any Bank shall
ever be liable for failure to use diligence to collect any amount payable with
respect to the Collateral, or any part thereof, but shall be liable only to
account to Debtor any amount Secured Party or any Bank may actually collect or
receive thereon and for acts constituting gross negligence or willful
misconduct. Secured Party's sole duty with respect to the custody, safekeeping
and physical preservation of the Collateral in its possession, under the UCC or
otherwise, shall be to deal with it in the same manner as Secured Party deals
with similar property for its own account. Neither Secured Party, nor any Bank
nor any of their directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any
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Collateral upon the request of Debtor or otherwise other than acts constituting
gross negligence or willful misconduct.
11. Waiver of Certain Rights. To the full extent that it may lawfully
so agree, Debtor agrees that it will not at any time plead, claim or take the
benefit of any appraisement, valuation, stay, extension, moratorium or
redemption law nor or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of all or any part of the
Collateral or the possession thereof by any purchaser at any sale hereunder, and
Debtor hereby waives the benefit of all such laws to the extent it lawfully may.
12. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
13. Performance at Debtor's Expense. The cost and expense of performing
or complying with any and all of the Obligations shall be borne solely by
Debtor, subject to any specific limitations thereon provided for in the Credit
Agreement, and no portion of such cost and expense shall be, in any way and to
any extent, credited against any installment on or portion of the Obligations.
14. Survival. Each and all of the Obligations and each and all of
Debtor's representations and warranties hereunder shall survive the execution
and delivery of this Agreement, and shall continue in full force and effect
until the Obligations shall have been paid in full.
15. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable, this Agreement 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 so as
to achieve the original intent of Debtor and Secured Party. Furthermore, in lieu
of such illegal, invalid, or unenforceable provision there shall be added
automatically as part of this Agreement a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid and enforceable.
16. Paragraph Headings. The paragraph headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
17. Cumulative Remedies. 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.
18. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto, the Banks parties
to the Credit Agreement and each such Persons' respective successors and
assigns; except, that Debtor may not assign or otherwise transfer any of its
rights under this Agreement.
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19. Limitation on Interest. Regardless of any provision contained in
this Agreement or in the other Loan Papers, no Bank shall be entitled to
receive, collect, or apply, as interest on the Loans, 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 Debtor. In determining whether or not the interest paid or payable under
any specific contingency exceeds the Maximum Lawful Rate, Debtor, Secured Party
and each Bank 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, the Banks shall refund to Debtor the amount of such
excess and, in such event, neither Secured Party nor any Bank shall 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.
20. GOVERNING LAW. THIS AGREEMENT, THE NOTES, AND THE OTHER LOAN PAPERS
HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE 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 A STATE IN
WHICH COLLATERAL IS LOCATED NECESSARILY GOVERNS (A) THE PERFECTION AND PRIORITY
OF THE LIEN AND SECURITY INTEREST CREATED HEREBY WITH RESPECT TO SUCH
COLLATERAL, AND (B) THE EXERCISE OF ANY REMEDIES (INCLUDING THE FORECLOSURE OF
SUCH LIEN AND SECURITY INTEREST) SUCH WITH RESPECT TO SUCH COLLATERAL.
21. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, telecopy or
similar writing) and shall be given to such party at its address, telex or
telecopy number set forth in the Credit Agreement or such other address, telex
or telecopy number as such party may hereafter specify by notice to the other
party. Each such notice, request or other communication shall be effective (i)
if given by telex or telecopy, when such telex or telecopy is transmitted to the
telex or telecopy number specified in this Section 21 and the appropriate answer
back is received or receipt is otherwise confirmed, (ii) if given by mail, three
(3) Business Days after deposit in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section 21.
22. Multiple Counterparts. This Agreement may be executed in a number
of identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute collectively, one Agreement; but in making
proof of this Agreement, it shall not be necessary to produce or account for
more than one such counterpart. It is not necessary that each party hereto
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execute the same counterpart so long as identical counterparts are executed by
each such party hereto.
23. No Waiver. No course of dealing between any Bank, Secured Party and
Debtor, nor any failure to exercise, nor any delay in exercising on the part of
Secured Party of any right hereunder or under the Loan Papers shall operate as a
waiver hereof or thereof; nor shall any single or partial exercise of any right
hereunder or thereunder preclude any other or further exercise thereof or the
exercise of any other right.
24. Amendments and Modifications. This Agreement shall be modified or
amended only in a written document, signed by Secured Party and Debtor.
25. FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS
COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
26. WAIVER OF JURY TRIAL. DEBTOR, FOR ITSELF, ITS SUCCESSORS AND
ASSIGNS AND SECURED PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY
COUNTERCLAIM THEREIN.
27. SUBMISSION TO JURISDICTION; WAIVER OF SERVICE AND VENUE.
(A) DEBTOR CONSENTS AND AGREES TO THE JURISDICTION OF ANY STATE
COURT SITTING IN THE COUNTY OF DALLAS, STATE OF TEXAS, AND TO THE JURISDICTION
OF ANY FEDERAL COURT SITTING IN THE NORTHERN DISTRICT OF TEXAS, AND WAIVES ANY
OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION
INSTITUTED THEREIN, AND AGREES THAT ANY DISPUTE CONCERNING THE RELATIONSHIP
BETWEEN SECURED PARTY OR ANY BANK, ON THE ONE HAND, AND DEBTOR, ON THE OTHER
HAND, OR THE CONDUCT OF ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE
SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE.
(B) DEBTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL
OR HAND DELIVERY TO DEBTOR AT ITS ADDRESS SET FORTH IN THE SIGNATURE PAGE
HERETO. DEBTOR HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID.
(C) NOTHING IN THIS SECTION 27 SHALL AFFECT THE RIGHT OF SECURED PARTY
OR ANY BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
AFFECT THE RIGHT OF SECURED PARTY OR ANY BANK TO
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BRING ANY ACTION OR PROCEEDING AGAINST DEBTOR OR ANY OF ITS PROPERTY IN THE
COURTS OR ANY OTHER JURISDICTION.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly
executed and delivered as of the date first above written.
Debtor:
EXUS Energy, LLC,
a Delaware limited liability company
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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SCHEDULE I
PRINCIPAL PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE
AND EMPLOYER IDENTIFICATION NUMBER
EXUS Energy, LLC
5735 Pineland, Suite 235
Dallas, Texas 75231
Taxpayer Identification Number: 75-2825676
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SCHEDULE II
DEPOSIT ACCOUNTS
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<PAGE> 109
EXHIBIT E
SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") is executed this the
30th day of June, 1999, by and among EXCO Resources, Inc., a Texas corporation
(the "Subordinate Lender"), and NationsBank, N.A., as Administrative Agent
("Administrative Agent"), for the benefit of the financial institutions now or
hereafter a party to the Senior Credit Agreement (as hereinafter defined) as
Banks (the "Senior Lenders").
W I T N E S S E T H:
WHEREAS, concurrently with the execution of this Agreement, Subordinate
Lender is providing a loan in the amount of $7,000,000 to Venus Exploration,
Inc., a Delaware corporation ("Venus") which loan is evidenced by a Convertible
Promissory Note in the stated principal amount of $7,000,000 executed by Venus
and payable to the order of Subordinate Lender (the "Subordinate Note"); and
WHEREAS, concurrently with the execution of this Agreement, the
Administrative Agent, the Senior Lenders and EXUS Energy, LLC (the "Company")
are entering into a Credit Agreement dated June 30, 1999 (the "Credit
Agreement"), pursuant to which Senior Lenders will agree to extend credit in an
amount up to $50,000,000 to the Company in the form of (a) a revolving credit
loan, and (b) the issuance of certain letters of credit on behalf of the
Company; and
WHEREAS, pursuant to the terms of the Credit Agreement, Venus has
entered into or will enter into a Facility Guarantee (the "Venus Guarantee") in
favor of Administrative Agent for the ratable benefit of the Senior Lenders
pursuant to which Venus has guaranteed payment and performance in full of the
Credit Agreement Obligations (as herein defined); and
WHEREAS, Senior Lenders have required, as a condition to entering into
the Credit Agreement and making the loans and other extensions of credit to be
made thereunder, that Subordinate Lender enter into this Agreement; and
WHEREAS, Subordinate Lender has agreed to enter into this Agreement (a)
due to the valuable benefits to be derived by Subordinate Lender as a result of
the loans and other extensions of credit to be made by Senior Lenders under the
Credit Agreement, and (b) with full knowledge that Senior Lenders would not
enter into the Credit Agreement and make loans and other extensions of credit
thereunder but for the agreements of the Subordinate Lender herein contained.
NOW, THEREFORE, in consideration of the foregoing, the premises and the
mutual promises and covenants contained herein, the parties hereby agree as
follows:
1. Terms Defined. As used herein (a) the terms "Administrative Agent,"
"Agreement," "Senior Lenders," and "Subordinate Lender" shall have the meanings
given such terms in the preamble hereto, (b) the terms "Company,""Credit
Agreement," "Subordinate Notes," and "Venus Guarantee" shall have the meanings
given such terms in the recitals hereto, and (c) the following terms shall have
the following meanings:
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"Company Credit Parties" mean the Company and each existing or
hereafter acquired Subsidiary of the Company.
"Credit Agreement Loan Documents" means the Credit Agreement, the
Credit Agreement Notes, all documents, instruments or agreements now or at
anytime hereafter executed and delivered by Subordinate Lender, any Venus Credit
Party or any Company Credit Party evidencing, securing or otherwise pertaining
to the Credit Agreement Obligations as the same may be modified, amended,
renewed, extended or restated from time to time.
"Credit Agreement Notes" means the Notes (such term is defined in the
Credit Agreement).
"Credit Agreement Obligations" means the collective reference to the
unpaid principal of and interest on all loans outstanding under the Credit
Agreement, all reimbursement obligations with respect to all letters of credit
issued under the Credit Agreement, and all other obligations and liabilities of
any Company Credit Party (including, without limitation, interest accruing at
the then applicable rate provided in the Credit Agreement after the maturity of
such loans and reimbursement obligations and interest accruing at the then
applicable rate provided in the Credit Agreement after the filing of any
Proceeding, whether or not a claim for post-filing or post-petition interest is
allowed in such Proceeding ) to the Administrative Agent or any Senior Lender
(or, in the case of any Hedge Agreements referred to below, any affiliate of the
Administrative Agent or any Senior Lender), whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the Credit Agreement, any
Credit Agreement Loan Documents, or any Hedge Agreement (as defined in the
Credit Agreement) entered unto by any Company Credit Party with any Senior
Lender (or any affiliate of any Senior Lender) or any other document made,
delivered or given in connection therewith, in each case whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and disbursements
of counsel to the Administrative Agent or to the Senior Lenders that are
required to be paid by any Credit Party pursuant to the terms of any of the
foregoing agreements).
"Enforcement Action" means any action by Subordinate Lender to,
directly or indirectly, (a) accelerate the maturity of the Subordinate
Obligations, (b) sue for collection of the Subordinate Obligations, (c)
commence, or join with any other creditor of any Credit Party in the
commencement of, any Proceeding, (d) exercise any right of off-set to collect
any Subordinate Obligation, or (e) foreclose any security interest, pledge or
other right securing all or any part of the Subordinate Obligations.
"Exempt Property" means all of Venus's membership interests in the
Company including, without limitation (a) all of Venus's right, title, and
interest now or hereafter accruing under the LLC Agreement (as defined in the
Pledge Agreement) with respect to any interest now owned or hereafter acquired
or owned by Venus in the Company, and (b) all distributions, proceeds, fees,
preferences, payments, or other benefits, which Venus now or may hereafter
become entitled to receive with respect to such interests in the Company and
with respect to the repayment of all loans now or hereafter made by Venus to the
Company, and Venus's undivided percentage interest in the assets of the Company;
provided, that "Exempt Property" shall not include any Distributions (as defined
in the Credit Agreement) which are made in respect of such membership interests
in violation of the terms of such Credit Agreement.
"PIK" means payments of interest on the Subordinate Note which are made
solely in the form of increases to the principal amount of the Subordinate Notes
pursuant to terms and conditions of the Subordinate Note.
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"Pledge Agreement" means the Pledge Agreement dated June 30, 1999 by
and between Venus and Subordinate Lender pursuant to which Venus pledged to
Subordinate Creditor the limited liability company interest in the Company to
secure the Subordinate Obligations.
"Proceeding" means (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to any Venus Credit Party, (b) any
liquidation, dissolution or winding up of any Venus Credit Party, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of any Venus Credit Party.
"Senior Guaranty Obligations" means all indebtedness obligation and
liabilities any Venus Credit Party, whether direct or indirect, absolute or
contingent, due or to become due or now existing or hereafter incurred, which
may arise out of, or in connection with the Venus Guaranty.
"Subordinate Loan Documents" means the Subordinate Note and all other
documents, instruments or agreements evidencing, securing or otherwise
pertaining to the Subordinate Note as the same may be modified, amended,
renewed, extended or restated from time to time.
"Subordinate Obligations" means the collective reference to the unpaid
principal of and interest on the Subordinate Note and all other obligations and
liabilities of any Venus Credit Party to any Subordinate Lender, whether direct
or indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Subordinate Note or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise that are required
to be paid by any Venus Credit Party pursuant to the terms of any of the
foregoing agreements.
"Venus Credit Parties" means, collectively, Venus and each existing or
hereafter acquired Subsidiary of Venus.
2. Subordination Generally. To the extent and in the manner provided herein, the
Subordinate Obligations shall be subordinate, junior and inferior in right of
payment and collection to the prior payment and collection of the Senior
Guaranty Obligations.
3. Payments Prohibited. Notwithstanding anything contained herein or in the
Subordinate Loan Documents to the contrary, but subject in all respect to
Section 10 hereof, until such time as the Credit Agreement Obligations have been
finally and indefeasibly paid in full in cash and all obligations of the Senior
Lenders under the Credit Agreement Loan Documents have terminated, no Venus
Credit Party shall make, and Subordinate Lender shall not accept, receive or
retain, any payment on the Subordinate Obligations (whether in cash, property or
securities); provided, that, unless such payments are prohibited pursuant to
Sections 4, 5 or 6 hereof, Venus shall be permitted to make, and Subordinate
Lender shall be permitted to receive and retain, regularly scheduled payments of
interest when due on the Subordinate Note at the rates and in the amounts
provided in the Subordinate Note; and provided further that nothing contained
herein shall be deemed to limit the right of Subordinate Lender to (a) convert
the Subordinate Note to the common equity of Venus at any time, or (b) to
receive and retain interest payments which are solely in the form of PIK
payments.
4. Insolvency Proceedings. Upon any distribution of assets of any Venus Credit
Party pursuant to or during any Proceeding, but subject in all respect to
Section 10 hereof, Senior Lenders shall be entitled to receive
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payment in full from such assets of all amounts due or to become due on or in
respect of all Senior Guaranty Obligations, or provision shall be made for such
payment from such assets in money or money's worth, before any Subordinate
Lender shall be entitled to receive any payment of any type from such assets on
account of the Subordinate Obligations, and to that end, but subject in all
respect to Section 10 hereof, Senior Lenders shall be entitled to receive, for
application to the payment of the Senior Guaranty Obligations, any payment or
distribution of any kind or character, whether in cash, property or securities,
which may be payable or deliverable in respect of the Subordinate Obligations in
any such Proceeding. To the extent any Subordinate Lender fails to file in any
such Proceeding, any proof of claim, notice or other instrument or take any
other action in any such Proceeding necessary to preserve any claim in respect
of the Subordinate Obligations on or before twenty (20) days prior to the date
such claim would be barred absent such filing or other action, the
Administrative Agent shall have the right (but not the obligation), in the name
of the Senior Lenders, or in the name of the Subordinate Lender, to file such
proof of claim or notice and take such other action as the Administrative Agent
may determine to be necessary or appropriate for the preservation of the claims
in such Proceeding in respect of the Subordinate Obligations. In furtherance
thereof, the Subordinate Lender hereby irrevocably authorizes and empowers the
Administrative Agent to execute and deliver any such proof of claim or notice
and to take such other actions in the name of Subordinate Lender. In the event
that, notwithstanding the foregoing provisions of this paragraph, Subordinate
Lender shall have received during or pursuant to any Proceeding any payment or
distribution of assets of any Venus Credit Party which is the subject of such
Proceeding of any kind or character, whether in cash, property or securities,
before all Senior Guaranty Obligations are paid in full in cash, but subject in
all respect to Section 10 hereof, such payment or distribution shall be paid
over or delivered forthwith to the Administrative Agent or to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
person making payment or distribution of assets of the Venus Credit Party for
application to the payment of all Senior Guaranty Obligations remaining unpaid,
to the extent necessary to pay all Senior Guaranty Obligations in full, after
giving effect to any concurrent payment or distribution to or for the holders of
the Senior Guaranty Obligations. Subordinate Lender agrees that while it shall
retain the right to vote its claims and otherwise act in any such Proceeding
relative to Venus (including, without limitation, the right to vote to accept or
reject any plan of partial or complete liquidation, reorganization, arrangement,
composition, or extension), Subordinate Lender shall not take any action or vote
in any way so as to contest (a) the validity or the enforceability of any Credit
Agreement Document, the Credit Agreement Obligations, the Senior Guaranty
Obligations, or the liens and security interests purported to be granted to
secure the Credit Agreement Obligations or the Senior Guaranty Obligations, (b)
the rights and duties of the Administrative Agent or any Senior Lender
established in the Credit Agreement Loan Documents or any security documents
with respect to such liens and security interests, or (c) the validity or
enforceability of this Agreement.
5. Payment Following Acceleration of Subordinate Obligations. In the event the
Subordinate Obligations become due and payable before the stated maturity
thereof, but subject in all respect to Section 10 hereof, the Credit Agreement
Obligations outstanding at such time shall be paid in full in cash and all
obligations of the Senior Lenders under the Credit Agreement Loan Documents
shall be terminated, before Subordinate Lender shall be entitled to receive any
payment on account of the Subordinate Obligations.
6. Senior Default. In the event of any default in the payment when due of any
part of the Credit Agreement Obligations (whether principal, interest, fees,
costs, expenses or other amounts due and owing from time to time under the
Credit Agreement Loan Documents) or the occurrence of any other default under
any Senior Loan Document which will permit (or with the giving of notice, lapse
of time or both, unless cured or waived will permit) the Administrative Agent or
any Senior Lender to accelerate the maturity of the Credit Agreement Obligations
(any "Senior Default"), but subject in all respect to Section 10 hereof, no
payment shall
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be made by any Venus Credit Party or received by Subordinate Lender from any
Venus Credit Party on account of the Subordinate Obligations until such Senior
Default shall have been cured or waived or shall have ceased to exist and
acceleration (if any) as a result thereof shall have been rescinded or annulled.
7. Subordinate Obligations Unsecured. Subordinate Lender hereby represents and
warrants to the Administrative Agent for the benefit of each Subordinate Lender
that subject only to the pledge of the membership interest in the Company
pledged by Venus to Subordinate Lender pursuant to the Pledge Agreement, the
payment and performance of the Subordinate Obligations are not secured by any
property of any Venus Credit Party or by any Company Credit Party real, personal
or intangible and have not been directly or indirectly guaranteed by any Venus
Credit Party or by any Company Credit Party. Subordinate Lender hereby covenants
and agrees with the Administrative Agent for the benefit of all Senior Lenders
that, so long as all or any part of the Credit Agreement Obligations remain
outstanding or any Senior Lender has any obligations under any Senior Loan
Document, no lien or security interest whatsoever (other than pursuant to the
Pledge Agreement), nor any guaranty, whether direct or indirect, with respect to
the Subordinate Obligations, shall be granted by any Venus Credit Party or by
any Company Credit Party in favor of, or received or accepted by, Subordinate
Lender.
8. Notice of Subordinate Default. Subordinate Lender shall provide
Administrative Agent with notice of the occurrence of any default or event of
default which occurs under the Subordinate Loan Documents promptly upon
acquiring knowledge thereof. Subordinate Lender shall deliver to Administrative
Agent a duplicate copy of any notice of default or event of default under the
Subordinate Loan Documents Subordinate Lender delivers to any Venus Credit Party
(such duplicate copy to be delivered to Administrative Agent simultaneously with
the delivery of the original thereof to such Venus Credit Party). In the event
Subordinate Lender intends to commence any Enforcement Action, it shall deliver
notice ("Enforcement Notice") thereof to Administrative Agent. Subordinate
Lender shall be prohibited from taking any Enforcement Action until the earliest
of (a) the expiration of one hundred eighty (180) days following delivery of the
Enforcement Notice (provided that the event of default which was the basis for
delivery of the Enforcement Notice has not been cured or waived as of the
expiration of such 180 day period), or (b) the final payment of the Credit
Agreement Obligations in full in cash and the termination of all obligations of
the Senior Lenders under the Credit Agreement Loan Documents.
9. Subrogation. Subject to the payment in full in cash of all Credit Agreement
Obligations and the termination of the commitments of all Senior Lenders under
the Credit Agreement Loan Documents, Subordinate Lender shall be subrogated to
the extent of the payments or distributions made to Senior Lenders pursuant to
the provisions of the Subordinate Loan Documents and this Agreement, to the
right of the Senior Lenders to receive payments or distributions of cash,
property or securities applicable to the Senior Guaranty Obligations. For
purposes of such subrogation, no payments or distributions to the Senior Lenders
of any cash, property or securities to which Subordinate Lender would be
entitled except for the provisions of this Agreement and no payment turned over
to Senior Lenders pursuant to the provisions of this Agreement by Subordinate
Lender shall, as between the Venus Credit Parties and their respective creditors
other than Senior Lenders and Subordinate Lender, be deemed to be a payment or
distribution by the Credit Parties to or on account of the Subordinate
Obligations.
10. Exempt Property. Notwithstanding anything to the contrary contained herein,
the rights and interests of Subordinate Lender in and to the Exempt Property are
not subordinate to the Senior Guaranty Obligations pursuant to this Agreement,
and nothing contained herein shall limit or impair the right of Subordinate
Lender to enforce the Pledge Agreement or receive, retain and apply the Exempt
Property to the payment of the
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Subordinate Obligations notwithstanding that the Senior Guaranty Obligations or
the Credit Agreement Obligations have not been paid or performed in full.
11. Parties in Interest. The provisions of this Agreement are intended solely
for the purpose of defining the relative rights of the Subordinate Lender, on
the one hand, and the Administrative Agent and the Senior Lenders, on the other
hand. Nothing contained in this Agreement is intended to or shall impair, as
between the Venus Credit Parties and its creditors other than the Subordinate
Lender, the Administrative Agent and the Senior Lenders, the obligation of the
Venus Credit Parties, which is absolute and unconditional, to pay to Subordinate
Lender the Subordinate Obligations as and when the same shall become due and
payable in accordance with their terms.
12. Rights of Refinancing Lender. As used in this Section 13, "Refinancing"
means any refinancing or replacement of the Credit Agreement Obligations then
outstanding under the Credit Agreement Loan Documents and any number of
subsequent refinancings or replacements thereof. "Refinancing Lender" means any
party or parties which provide a Refinancing. In the event the Credit Agreement
Obligations are paid in full in whole or in part with the proceeds of one or
more Refinancings, regardless of whether or not the Credit Agreement Loan
Documents then in effect are assigned to the Refinancing Lender, the Refinancing
shall be subrogated to and entitled to all rights of the Administrative Agent
and the Senior Lenders under this Agreements and, (a) the obligations of any
Venus Credit Party to such Refinancing Lender shall be deemed to be Senior
Guaranty Obligations under and as defined in this Agreement, and (b) the
obligations of the Company Credit Parties to such Refinancing Lender shall be
deemed "Credit Agreement Obligations" under and as defined in this Agreement. In
furtherance (but not in limitation of the foregoing), in the event of a
Refinancing: (a) the Subordinate Obligations shall be subordinate to all
obligations owed by Venus or any other Venus Credit Party to the Refinancing
Lender to the same extent as the Subordinate Obligations are subordinate to the
original Senior Guaranty Obligations hereunder, and (b) the Refinancing Lender
shall be entitled to all rights and benefits of and shall be subject to all
terms and conditions applicable to the Administrative Agent and the Senior
Lenders hereunder. Upon a request by Venus or the Company or any existing or
prospective Refinancing Lender, Subordinate Lender shall deliver to such
existing or prospective Refinancing Lender a written confirmation that the
obligations owed (or contemplated to be owed) by Venus or any other Venus Credit
Party to such Refinancing Lender are (or will be) Senior Guaranty Obligations as
defined in this Agreement. Furthermore, upon request of the Company or any such
Refinancing Lender, Subordinate Lender will enter into a Subordination Agreement
with such Refinancing Lender in form and substance identical to this Agreement
but with all necessary conforming changes.
13. Rights Not Impaired. No right of the Administrative Agent or any Senior
Lender to enforce subordination as herein provided shall at any time in any way
be prejudiced or impaired by any act or failure to act on the part of any
Company Credit Party or any Venus Credit Party or by any act or failure to act,
in good faith, by the Administrative Agent or any Senior Lender, or by any
noncompliance by Venus or Subordinate Lender with the terms, provisions and
covenants of this Agreement, regardless of any knowledge thereof the
Administrative Agent or any Senior Lender may have or be otherwise charged with.
14. Disgorged Payments. To the extent any payment of Credit Agreement
Obligations (whether by or on behalf of any Venus Credit Party or any Company
Credit Party as proceeds of security or enforcement of any right of set off or
otherwise) is (a) declared to be fraudulent or preferential, (b) set aside, or
(c) required to be paid to a trustee, receiver or other similar party under any
applicable bankruptcy or insolvency law, then, if such payment is recovered by,
or paid over to, such trustee, receiver or other similar party, the Credit
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Agreement Obligations or part thereof originally intended to be satisfied shall
be deemed to be reinstated and outstanding as if such payment had not occurred.
15. Modification and Amendments to Subordinate Obligations. Senior Lender may,
without notice to Subordinate Lender, at any time, in its sole discretion,
renew, extend, increase, amend, restructure, waive, compromise or otherwise
change the terms of the Credit Agreement Obligations and the Credit Agreement
Loan Documents and release any obligor on or collateral for the Credit Agreement
Obligations without in any way altering or affecting any of the rights of
Administrative Agent, or any Senior Lender under this Agreement.
16. Modifications and Amendments to Subordinate Obligations. Without the prior
written consent of the Administrative Agent, Subordinate Lender shall not renew,
extend, amend, restructure, waive, compromise or otherwise change the terms of
the Subordinate Obligations or the Subordinate Loan Documents.
17. Payments Held in Trust. If, notwithstanding the provisions hereof, any
payment or distribution of any character (whether in cash, securities or other
property) or any security shall be received by Subordinate Lender at any time
that payment to or receipt by Subordinate Lender is prohibited hereunder, then
such Subordinate Lender shall immediately notify the Administrative Agent of the
receipt of such payment, distribution or security and Subordinate Lender shall
hold all payments received in contravention of the terms hereof in trust for the
benefit of, and shall immediately pay the same over or deliver or transfer the
same to, the Administrative Agent for application to the Senior Guaranty
Obligations until all Senior Guaranty Obligations have been paid in full.
18. Legend. The Subordinate Lender shall cause the Subordinate Note and any
subsequent promissory note, bond or other instrument evidencing all or any part
of the Subordinate Obligations to be inscribed with a legend substantially in
form and substance as follows:
THE RIGHTS, TITLE AND INTERESTS OF ANY HOLDER OF THIS PROMISSORY NOTE
ARE SECONDARY, SUBORDINATE AND INFERIOR TO THE RIGHTS, TITLE AND
INTERESTS OF NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT
("ADMINISTRATIVE AGENT") FOR THE BENEFIT OF THE BANKS, PURSUANT TO A
SUBORDINATION AGREEMENT DATED OF JUNE 18, 1999 BY AND BETWEEN EXCO
RESOURCES, INC. AND THE ADMINISTRATIVE AGENT.
19. Continuing Agreement. This is a continuing Agreement and will remain in full
force and effect until all of the Credit Agreement Obligations have been fully
paid, performed and satisfied and until all financing agreements between the
Administrative Agent and the Senior Lenders and all of the Credit Parties have
been terminated.
20. Assignment of Subordinate Obligations. Subordinate Lender shall not assign,
syndicate, participate to any other person, pledge, encumber or subordinate any
part of the Subordinate Obligations or the Subordinate Loan Documents; provided,
that the Subordinate Lender shall be permitted to assign, syndicate and
participate the Subordinate Obligations and the Subordinate Loan Documents if
the Subordinate Lender provides notice thereof (specifying the name and address
of the parties to which such assignment, syndication or participation is to be
effected and the effective date thereof) not less than 5 business days prior to
the effective date thereof and the party to which the Subordinate Obligations
and the Subordinate Loan Documents are assigned, syndicated or participated
expressly consents and agrees in writing to be bound by the terms and provisions
of this Agreement (such consent and agreement to be acceptable in form and
substance to
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Administrative Agent and delivered to Administrative Agent prior to the
effective date of such assignment, participation or syndication).
21. Governing Law, Submission to Jurisdiction, etc. (a) THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE
WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND, TO THE EXTENT
CONTROLLING, THE LAWS OF THE UNITED STATES OF AMERICA.
(b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR
OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF TEXAS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, SUBORDINATE LENDER HEREBY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. SUBORDINATE LENDER HEREBY IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING, BUT NOT LIMITED TO, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.
(c) WAIVER OF CONSEQUENTIAL DAMAGES. TO THE MAXIMUM EXTENT ALLOWED BY
APPLICABLE LAW, SUBORDINATE LENDER AND ADMINISTRATIVE AGENT (i) IRREVOCABLY
WAIVE ANY RIGHT EACH MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR
IN ADDITION TO, ACTUAL DAMAGES; (ii) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVER; AND (iv) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, BASED UPON, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 20.
22. Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including, telecopy or similar teletransmission
or writing) and shall be given to such party at its address or telecopy number
set forth on the signature pages hereof or such other address or telecopy number
as such party may hereafter specify by notice to each other party hereto. Each
such notice, request or other communication shall be effective (a) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid, or (b) if given by any other
means (including, but not limited to, by air courier), when delivered at the
address specified in this Section 21.
23. Multiple Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original but all of which
shall together constitute one and the same instrument.
24. No Waiver. No course of dealing between the Administrative Agent or any
Senior Lender, on the one hand, and Subordinate Lender, on the other hand, nor
any failure to exercise, nor any delay in exercising on the part of the
Administrative Agent or any Senior Lender of any right hereunder or under the
Credit Agreement Loan Documents shall operate as a waiver hereof or thereof; nor
shall any single or partial exercise of any right hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right.
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25. Amendments and Modifications. This Agreement shall be modified or amended
only in a written document, signed by the Administrative Agent and the
Subordinate Lender.
26. Final Agreement. THIS AGREEMENT EMBODIES THE ENTIRE AGREEMENT AND
UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDES ALL PRIOR AGREEMENTS AND
UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
E-9
<PAGE> 118
Executed and delivered as of the date and year first above written.
ADMINISTRATIVE AGENT: NationsBank, N.A.,
a national banking association
By:
-------------------------------
Name: Denise Smith
Title: Senior Vice President
EXCO: EXCO RESOURCES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for Notice:
5735 Pineland, Suite 235
Dallas, TX 75231
Attn: Douglas H. Miller
Fax No.: (214) 368-2087
Venus hereby acknowledges and consents to the terms of this Agreement
as set forth above and hereby agrees to observe each and every provision of this
Agreement applicable to it.
VENUS EXPLORATION, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
Venus Exploration, Inc.
1250 N.E. Loop 410, Suite 1000
San Antonio, Texas 78209
Attn: Eugene L. Ames, Jr.
E-10
<PAGE> 119
EXHIBIT F
REQUEST FOR BORROWING
Reference is made to that certain Credit Agreement dated as of June 30,
1999 (as from time to time amended, the "Agreement"), among EXUS Energy, LLC
("Borrower"), NationsBank, N.A., as Administrative Agent ("Administrative
Agent"), and the financial institutions listed on Schedule 1 thereto, as Banks
("Banks"). Terms which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the Agreement.
Pursuant to the terms of the Agreement, Borrower hereby requests a Borrowing in
the amount of $_____________ to be advanced on _____________, ____.
Borrower requests that the Borrowing to be made hereunder shall be [A
BASE RATE BORROWING] [A EURODOLLAR BORROWING] and shall have the Interest
Periods all as set forth below:
<TABLE>
<CAPTION>
Type of Borrowing Aggregate Amount Interest Period
----------------- ---------------- ---------------
<S> <C> <C>
</TABLE>
Borrower and the Authorized Officer of Borrower signing this instrument
hereby certify that:
(a) Such officer is the duly elected, qualified and acting
officer of Borrower as indicated below such officers signature hereto.
(b) The representations and warranties of Borrower set forth
in the Agreement and the Loan Papers delivered to Administrative Agent
and Banks are true and correct on and as of the date hereof, with the
same effect as though such representations and warranties had been made
on and as of the date hereof or, if such representations and warranties
are expressly limited to particular dates, as of such particular dates.
Since the date of the last financial reports of Borrower delivered to
each Bank pursuant to Section 9.1 of the Agreement, there has not
occurred any event or condition which has resulted in, or could
reasonably be expected to result in, a Material Adverse Change.
(c) There does not exist on the date hereof, any condition or
event which constitutes a Default or Event of Default, nor will any
such Default or Event of Default exist upon Borrower's receipt and
application of the proceeds requested hereby. Borrower will
F-1
<PAGE> 120
use the proceeds hereby requested in compliance with the applicable
provisions of the Agreement.
(d) Borrower has performed and complied with all agreements
and conditions in the Agreement and the other Loan Papers required to
be performed or complied with by Borrower on or prior to the date
hereof, and each of the conditions precedent to the Borrowing contained
in the Agreement remain satisfied in all material respects.
(e) After giving effect to the Borrowing requested hereby, the
Outstanding Credit will not be in excess of the Borrowing Base on the
date requested for the making of such Borrowing.
(f) The Unrestricted Advance Limit on the date hereof, and
prior to giving effect to the Borrowing requested hereby, is $____.
(g) The Borrowing requested herein will be used for the
following purposes:
[ ] Pay a portion of the Purchase Price for the Apache
Acquisition [NOT TO EXCEED $14,500,000].
[ ] Pay Approved CapEx in the amount of $_________ [NOT TO
EXCEED $4,800,000 IN THE AGGREGATE].
[ ] Other general corporate purposes in the amount of $___
[NOT TO EXCEED THE UNRESTRICTED ADVANCE LIMIT UNLESS
MADE FROM INCREMENTAL AVAILABILITY].
IN WITNESS WHEREOF, this instrument is executed as of_________,______.
EXUS Energy, LLC, a Delaware limited
liability company
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
F-2
<PAGE> 121
EXHIBIT G
REQUEST FOR LETTER OF CREDIT
Reference is made to that certain Credit Agreement dated as of June 30,
1999 (as from time to time amended, the "Agreement"), among EXUS Energy, LLC
("Borrower"), NationsBank, N.A., as Administrative Agent ("Administrative
Agent"), and the financial institutions listed on Schedule 1 thereto, as Banks
("Banks"). Terms which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the Agreement.
Pursuant to the terms of the Agreement, Borrower hereby requests
Administrative Agent to issue a Letter of Credit for the account of Borrower as
follows:
<TABLE>
<S> <C>
Type of Commitment:
------------------
Requested Amount $
-------------------
Requested Date of Issuance
--------------------
Requested Expiration Date
--------------------
Summary of Terms
--------------------
(provide a brief description
of the purpose of such Letter
of Credit and the conditions
under which the drafts under
such Letter of Credit are
to be available)
--------------------
Beneficiary (Name/Address)
--------------------
--------------------
--------------------
--------------------
</TABLE>
Such Letter of Credit is more particularly described in the Letter of
Credit Application and Agreement of Administrative Agent which is attached
hereto.
Borrower and the Authorized Officer of Borrower signing this instrument
hereby certify that:
(a) Such officer is the duly elected, qualified and acting
officer of Borrower as indicated below such officer's signature hereto.
(b) The representations and warranties of Borrower set forth
in the Agreement and the other Loan Papers delivered to Administrative
Agent and each Bank are true and correct on and as of the date hereof,
with the same effect as though such representations and warranties had
been made on and as of the date hereof, or if such representations and
warranties are expressly limited to particular dates, as of such
particular dates. No Material
G-1
<PAGE> 122
Adverse Change has occurred since the date of the last financial
reports of Borrower delivered to Banks pursuant to Section 9.1 of the
Agreement.
(c) There does not exist on the date hereof any condition or
event which constitutes a Default or Event of Default, nor will any
such Default or Event of Default exist upon the issuance of the Letter
of Credit requested hereby. Borrower will use the Letter of Credit
solely for purposes permitted by the Agreement.
(d) Borrower has performed and complied with all agreements
and conditions in the Agreement and the other Loan Papers required to
be performed or complied with by Borrower on or prior to the date
hereof, and each of the conditions precedent to the issuance of Letters
of Credit contained in the Agreement remain satisfied in all material
respects.
(e) After the issuance of the Letter of Credit requested
hereby, the Outstanding Credit will not be in excess of the Borrowing
Base in effect on the date requested for the issuance of such Letter of
Credit.
IN WITNESS WHEREOF, this instrument is executed as of ________________,
____.
EXUS Energy, LLC, a Delaware limited
liability company
By:
-------------------------------
Its:
------------------------------
G-2
<PAGE> 123
EXHIBIT H
NOTICE OF CONTINUATION AND CONVERSION NOTICE
Reference is made to that certain Credit Agreement dated as of June 30,
1999 (as from time to time amended, the "Agreement"), among EXUS Energy, LLC
("Borrower"), NationsBank, N.A., as Administrative Agent ("Administrative
Agent"), and the financial institutions listed on Schedule 1 thereto, as Banks
("Banks"). Terms which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the Agreement.
[ ] Reference is hereby made to the existing Eurodollar Loan
outstanding under the Agreement in the amount of $________
which is subject to an Interest Period expiring on
_________________, _____. Borrower hereby requests that on the
expiration of such Interest Period the portion of the
principal of such Eurodollar Loan which is subject to such
Interest Period be made the subject of [ ] the Base Rate Loan
or [ ] a Eurodollar Loan having an Interest Period of ____
months.
[ ] Borrower hereby requests that on ____________, _____, a
portion of the principal of the Base Rate Loan in the amount
of $__________ be made the subject of a Eurodollar Loan having
an Interest Period of ______ (__) months.
Borrower and the Authorized Officer of Borrower signing this instrument
hereby certify that:
(a) Such officer is the duly elected, qualified and acting
officer of Borrower as indicated below such officer's signature hereto;
(b) There does not exist on the date hereof any condition or
event which constitutes a Default or Event of Default; and
(c) The representations and warranties of Borrower set forth
in the Agreement and the Loan Papers delivered to Administrative Agent
and each Bank are true and correct on and as of the date hereof, with
the same effect as though such representations and warranties had been
made on and as of the date hereof or, if such representations and
warranties are expressly limited to particular dates, as of such
particular dates.
H-1
<PAGE> 124
IN WITNESS WHEREOF, this instrument is executed as of _____________,
_____.
EXUS Energy, LLC, a Delaware limited
liability company
By:
-------------------------------
Its:
------------------------------
H-2
<PAGE> 125
EXHIBIT I
CERTIFICATE OF OWNERSHIP INTERESTS
This Certificate of Ownership Interests (this "Certificate") is
executed and delivered pursuant to that certain Credit Agreement dated as of
June 30, 1999 (as amended from time to time, the "Agreement"), among EXUS
Energy, LLC ("Borrower"), NationsBank, N.A., as Administrative Agent
("Administrative Agent"), and the financial institutions listed on Schedule I
thereto, as Banks ("Banks"). Unless otherwise defined herein, all capitalized
terms shall have the meanings given such terms in the Agreement.
In order to induce Banks to extend credit to Borrower under the
Agreement, Borrower hereby represents and warrants to Administrative Agent and
each Bank that (a) Exhibit A attached hereto is a complete and accurate
description of all Mineral Interests described in the Initial Reserve Report
including all Apache Properties (the "Initial Borrowing Base Properties"), (b)
after giving effect to the closing of the Apache Acquisition, Borrower will hold
good and defensible title, subject only to Permitted Encumbrances, to the
Initial Borrowing Base Properties, (c) Borrower's share of (i) the costs for
each of the Initial Borrowing Base Properties is not greater than the decimal
fraction set forth in the Initial 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 (except in
such cases where there is a corresponding increase in the net revenue interest),
and (ii) production from, allocated to, or attributed to each of such Initial
Borrowing Base Properties is not less than the decimal fraction set forth in the
Initial Reserve Report before and after payout, as the case may be, and
described therein by the designations net revenue interest, NRI, or similar
terms, and (d) each well drilled in respect of each of the Initial Borrowing
Base Properties described in the Initial Reserve Report (A) is capable of, and
is presently, producing Hydrocarbons in commercially profitable quantities, and
Borrower is receiving (or will receive) payments for its share of production,
with no funds in respect of any thereof being presently held in suspense, other
than any such funds being held in suspense pending delivery of appropriate
division orders, and (B) 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.
I-1
<PAGE> 126
Borrower acknowledges and agrees that each Bank is relying on this
Certificate and the representations and warranties herein contained in extending
credit under the Agreement and but for Borrower's execution and delivery of this
Certificate, Banks would not extend credit under the Agreement.
Executed as of the 30th day of June, 1999.
EXUS Energy, LLC, a Delaware limited
liability company
By: -------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
I-2
<PAGE> 127
EXHIBIT A
[To be attached]
I-3
<PAGE> 128
EXHIBIT J-1
FINANCIAL OFFICER'S CERTIFICATE
The undersigned, the Chief Financial Officer of EXCO Resources, Inc., a
Texas corporation ("EXCO") hereby (a) delivers this Certificate pursuant to
Section 9.1(c) of that certain Credit Agreement (the "Agreement") dated as of
June 30, 1999, among EXCO, NationsBank, N.A., as Administrative Agent
("Administrative Agent"), and the financial institutions listed on Schedule 1
thereto, as Banks ("Banks"), and (b) certifies to each Bank, with the knowledge
and intent that Banks may, without any independent investigation, rely fully on
the matters herein in connection with the Agreement, as follows:
1. Attached hereto as Schedule I are the financial statements of EXCO
as of and for the Fiscal [ ]Year [ ]Quarter (check one) ended ___________, ____.
2. Such financial statements are true and correct in all materials
respects, have been prepared on a consistent basis in accordance with GAAP
(except as otherwise noted therein) and fairly present the financial condition
of EXCO as of the date indicated therein and the results of operations for the
respective periods indicated therein.
3. Except as described on Schedule II hereto, the representations and
warranties of EXCO set forth in the Loan Papers delivered to Administrative
Agent and each Bank are true and correct on and as of the date hereof, with the
same effect as though such representations and warranties had been made on and
as of the date hereof or, if such representations and warranties are expressly
limited to particular dates, as of such particular dates.
Unless otherwise defined herein, all capitalized terms used herein
shall have the meaning given such terms in the Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Financial
Officer's Certificate as of ___________, _____.
EXCO Resources, Inc., a Texas corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
J-1-1
<PAGE> 129
Schedule I
Financial Statements
(to be attached)
J-1-2
<PAGE> 130
Schedule II
Qualifications to Representations and Warranties
J-1-3
<PAGE> 131
EXHIBIT J-2
FINANCIAL OFFICER'S CERTIFICATE
The undersigned, the Chief Financial Officer of Venus Exploration
Company, a Delaware corporation ("Venus") hereby (a) delivers this Certificate
pursuant to Section 9.1(c) of that certain Credit Agreement (the "Agreement")
dated as of June 30, 1999, among Venus, NationsBank, N.A., as Administrative
Agent ("Administrative Agent"), and the financial institutions listed on
Schedule 1 thereto, as Banks ("Banks"), and (b) certifies to each Bank, with the
knowledge and intent that Banks may, without any independent investigation, rely
fully on the matters herein in connection with the Agreement, as follows:
1. Attached hereto as Schedule I are the financial statements of Venus
as of and for the Fiscal [ ]Year [ ]Quarter (check one) ended ___________, ____.
2. Such financial statements are true and correct in all materials
respects, have been prepared on a consistent basis in accordance with GAAP
(except as otherwise noted therein) and fairly present the financial condition
of Venus as of the date indicated therein and the results of operations for the
respective periods indicated therein.
3. Except as described on Schedule II hereto, the representations and
warranties of Venus set forth in the Loan Papers delivered to Administrative
Agent and each Bank are true and correct on and as of the date hereof, with the
same effect as though such representations and warranties had been made on and
as of the date hereof or, if such representations and warranties are expressly
limited to particular dates, as of such particular dates.
Unless otherwise defined herein, all capitalized terms used herein
shall have the meaning given such terms in the Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Financial
Officer's Certificate as of ___________, _____.
Venus Exploration Company, a Delaware
corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
J-2-1
<PAGE> 132
Schedule I
Financial Statements
(to be attached)
J-2-2
<PAGE> 133
Schedule II
Qualifications to Representations and Warranties
J-2-3
<PAGE> 134
EXHIBIT J-3
FINANCIAL OFFICER'S CERTIFICATE
The undersigned, the Chief Financial Officer of EXUS Energy, LLC, a
Delaware limited liability company ("Borrower") hereby (a) delivers this
Certificate pursuant to Section 9.1(c) of that certain Credit Agreement (the
"Agreement") dated as of June 30, 1999, among Borrower, NationsBank, N.A., as
Administrative Agent ("Administrative Agent"), and the financial institutions
listed on Schedule 1 thereto, as Banks ("Banks"), and (b) certifies to each
Bank, with the knowledge and intent that Banks may, without any independent
investigation, rely fully on the matters herein in connection with the
Agreement, as follows:
1. Attached hereto as Schedule I are the financial statements of
Borrower as of and for the Fiscal [ ]Year [ ]Quarter (check one) ended
____________, ____.
2. Such financial statements are true and correct in all materials
respects, have been prepared on a consistent basis in accordance with GAAP
(except as otherwise noted therein) and fairly present the financial condition
of Borrower as of the date indicated therein and the results of operations for
the respective periods indicated therein.
3. Attached hereto as Schedule II are detailed calculations used by
Borrower to establish that Borrower was in compliance with the requirements of
Article XI of the Agreement on the date of the financial statements attached as
Schedule I hereto.
4. Unless otherwise disclosed on Schedule III attached hereto and
incorporated herein by reference for all purposes, neither a Default nor an
Event of Default has occurred which is in existence on the date hereof;
provided, that for any Default or Event of Default disclosed on Schedule III
attached hereto, Borrower is taking or proposes to take the action to cure such
Default or Event of Default set forth on Schedule III.
5. On the date of the financial statements attached hereto as Schedule
I (a) (check one) [ ] there is no Material Gas Imbalance or [ ] the amount of
the net gas imbalances under Gas Balancing Agreements to which Borrower or any
of its Subsidiaries is a party or by which any Mineral Interests owned by
Borrower or any of its Subsidiaries is bound is ____________, and (b) the
aggregate amount of all Advance Payments received under Advance Payment
Contracts to which Borrower or any of its Subsidiaries is a party or by which
any Mineral Interests owned by Borrower or any of its Subsidiaries is bound
which have not been satisfied by delivery of production, if any, is
______________.
6. Attached hereto as Schedule IV is a summary of the Hedge
Transactions to which Borrower or any of its Subsidiaries is a party on the date
of the financial statements attached hereto as Schedule I.
J-3-1
<PAGE> 135
7. Except as described on Schedule V hereto, the representations and
warranties of Borrower set forth in the Agreement and the Loan Papers delivered
to Administrative Agent and each Bank are true and correct on and as of the date
hereof, with the same effect as though such representations and warranties had
been made on and as of the date hereof or, if such representations and
warranties are expressly limited to particular dates, as of such particular
dates.
Unless otherwise defined herein, all capitalized terms used herein
shall have the meaning given such terms in the Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Financial
Officer's Certificate as of ___________, _____.
EXUS Energy, LLC, a Delaware limited
liability company
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
J-3-2
<PAGE> 136
Schedule I
Financial Statements
(to be attached)
J-3-3
<PAGE> 137
Schedule II
Compliance Calculations
(to be attached)
J-3-4
<PAGE> 138
Schedule III
Defaults/Remedial Action
(to be attached)
J-3-5
<PAGE> 139
Schedule IV
Summary of Hedge Transactions
(to be attached)
J-3-6
<PAGE> 140
Schedule V
Qualifications to Representations and Warranties
J-3-7
<PAGE> 141
EXHIBIT K
ASSIGNMENT AND ACCEPTANCE
Reference is made to that certain Credit Agreement dated as of June 30,
1999 (the "Agreement") among EXUS Energy, LLC ("Borrower"), NationsBank, N.A.,
as Administrative Agent ("Administrative Agent") and the financial institutions
listed on Schedule 1 thereto, as Banks ("Banks"). Terms defined in the Agreement
are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. Assignor hereby sells and assigns to Assignee, without recourse and
without representation or warranty except as expressly set forth herein, and
Assignee hereby purchases and assumes from Assignor, an interest in and to
Assignor's rights and obligations under the Agreement and the other Loan Papers
as of the date hereof equal to the percentage interest specified on Schedule 1
of all outstanding rights and obligations under the Agreement and the other Loan
Papers. After giving effect to such sale and assignment, Assignee's Commitment,
Assignee's Commitment Percentage and the principal amount of the Revolving Loan
owing to Assignee will be as set forth on Schedule 1.
2. Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Papers or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Papers or any other instrument or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of Borrower or the performance or
observance by Borrower of any of its obligations under the Loan Papers or any
other instrument or document furnished pursuant thereto; and (iv) attaches the
Note held by Assignor and requests that Administrative Agent exchange such Note
for new Notes payable to the order of Assignee in an amount equal to the
Commitment assumed by Assignee pursuant hereto and to Assignor in an amount
equal to the Commitment retained by Assignor, if any, as specified on Schedule
1.
3. Assignee (i) confirms that it has received a copy of the Agreement,
together with copies of the financial statements referred to in Section 9.1
thereof and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without reliance upon
Administrative Agent, Assignor or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Agreement; (iii)
confirms that it is an Eligible Assignee; (iv) appoints and authorizes
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Agreement as are delegated to the
Administrative Agent by the terms thereof, together with such powers and
K-1
<PAGE> 142
discretion as are reasonably incidental thereto; (v) agrees that it will perform
in accordance with their terms all of the obligations that by the terms of the
Agreement are required to be performed by it as a Bank; and (vi) attaches any
U.S. Internal Revenue Service or other forms required under Section 4.6(d).
4. Following the execution of this Assignment and Acceptance, it will
be delivered to Administrative Agent for acceptance and recording by
Administrative Agent. The effective date for this Assignment and Acceptance (the
"Effective Date") shall be the date of acceptance hereof by Administrative
Agent, unless otherwise specified on Schedule 1.
5. Upon such acceptance and recording by Administrative Agent, as of
the Effective Date, (i) Assignee shall be a party to the Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Bank thereunder, and (ii) Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Agreement.
6. Upon such acceptance and recording by Administrative Agent, from and
after the Effective Date, Administrative Agent shall make all payments under the
Agreement and the Notes in respect of the interest assigned hereby (including,
without limitation, all payments of principal, interest and commitment fees with
respect thereto) to Assignee. Assignor and Assignee shall make all appropriate
adjustments in payments under the Agreement and the Notes for periods prior to
the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of Texas.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
IN WITNESS WHEREOF, Assignor and Assignee have caused Schedule 1 to
this Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date specified thereon.
K-2
<PAGE> 143
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S> <C>
Percentage interest assigned: %
--------
Assignee's Commitment: $
--------
Assignee's Commitment Percentage: %
--------
Aggregate outstanding principal amount
of Revolving Loans assigned: $
--------
Principal amount of Note payable to Assignee: $
--------
Principal amount of Note payable to Assignor: $
--------
Effective Date (if other than date
of acceptance by Administrative Agent): * , 19
------- --
</TABLE>
[NAME OF ASSIGNOR], as Assignor
By:
--------------------------------------
Title:
--------------------------------
Dated: , 19
-------------- --
[NAME OF ASSIGNEE], as Assignee
By:
--------------------------------------
Title:
--------------------------------
Domestic Lending Office:
Eurodollar Lending Office:
K-3
<PAGE> 144
* This date should be no earlier than five Domestic Business Days after
the delivery of this Assignment and Acceptance to the Administrative
Agent.
Accepted and Approved
this ___ day of ___________, ____
NATIONSBANK, N.A., as Administrative Agent
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Approved this ____ day
of ____________, _____
EXUS Energy, LLC
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
K-4
<PAGE> 145
SCHEDULE 1
FINANCIAL INSTITUTIONS
<TABLE>
<CAPTION>
=================================================================================================================================
Bank Commitment Amount Commitment Percentage
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NationsBank, N.A. $50,000,000 100%
=================================================================================================================================
<CAPTION>
=================================================================================================================================
Domestic Lending Eurodollar Lending Administrative Agent -
Office Office Address for Notice Address
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
901 Main Street, 64th Floor 901 Main Street, 64th 901 Main Street, 64th Floor 901 Main Street, 64th Floor
Dallas, Texas 75202 Floor Dallas, Texas 75202 Dallas, Texas 75202
Fax No. (214) 508-1285 Dallas, Texas 75202 Fax No. (214) 508-1285 Fax No. (214) 508-1285
Fax No. (214) 508-1285
=================================================================================================================================
</TABLE>
Schedule 1
<PAGE> 146
SCHEDULE 2
APPROVED CAP EX BUDGET
Drilling and completion of two (2) development wells on the Apache Properties at
a cost of $2,400,000 per well.
Schedule 2
<PAGE> 147
SCHEDULE 3
LITIGATION
None.
Schedule 3
<PAGE> 148
SCHEDULE 4
ORGANIZATION STRUCTURE; NATURE OF BUSINESS
1. Borrower is a Delaware limited liability company.
2. Borrower is qualified to transact business as a foreign limited
liability company in the State of Louisiana.
3. Borrower's Members:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
INITIAL
CAPITAL PERCENTAGE CLASS A
MEMBER CONTRIBUTION INTEREST UNITS UNITS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Venus $7,000,000 50% 100 100
- ----------------------------------------------------------------------------------------------------------------
EXCO $7,000,000 50% 100 100
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
4. Borrower has no outstanding warrants, options, subscription rights,
convertible securities or other rights to purchase interests in
Borrower.
Schedule 4
<PAGE> 1
EXHIBIT 10.3
EXUS ENERGY, LLC
(A Delaware Limited Liability Company)
LIMITED LIABILITY COMPANY AGREEMENT
THE LIMITED LIABILITY COMPANY INTERESTS REFERENCED HEREIN
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR PURSUANT TO THE PROVISIONS OF ANY STATE
SECURITIES ACT.
CERTAIN RESTRICTIONS ON TRANSFERS OF LIMITED LIABILITY
COMPANY INTERESTS ARE SET FORTH HEREIN.
<PAGE> 2
EXUS ENERGY, LLC
(A Delaware Limited Liability Company)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 Definitions........................................................1
1.1 Definitions...............................................1
1.2 Other Definitions.........................................6
ARTICLE 2 Organization.......................................................7
2.1 Name and Formation........................................7
2.2 Principal Place of Business...............................7
2.3 Registered Office and Registered Agent....................7
2.4 Term......................................................7
2.5 Purposes and Powers.......................................7
2.6 Foreign Qualification.....................................8
2.7 Mergers and Exchanges.....................................8
2.8 No State Law Partnership..................................8
2.9 Other Activities of Members...............................8
ARTICLE 3 Interests..........................................................8
3.1 Classes of Equity Interests...............................8
3.2 Voting....................................................9
ARTICLE 4 Transfers of Interests.............................................9
4.1 Initial Members...........................................9
4.2 Additional Interests......................................9
4.3 Representations and Warranties............................9
4.4 Restrictions on Transfer..................................9
4.5 Information..............................................11
4.6 Liability to Third Parties...............................11
4.7 Withdrawal...............................................12
4.8 Certificates.............................................12
4.9 Lack of Authority........................................12
ARTICLE 5 Management Committee and Officers.................................12
5.1 Management...............................................12
5.2 Election of Management Committee.........................12
5.3 Vacancy..................................................13
5.4 Removal..................................................13
5.5 Authority of the Management Committee....................13
5.6 Duties of Members of the Management Committee............14
</TABLE>
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<TABLE>
<S> <C> <C> <C>
5.7 Place of Meetings........................................14
5.8 Annual Meetings of the Management Committee..............15
5.9 Regular Meetings of Management Committee.................15
5.10 Special Meetings of the Management Committee.............15
5.11 Attendance and Waiver of Notice..........................15
5.12 Compensation of Members of the Management Committee......15
5.13 Conflicts of Interest....................................15
5.14 Actions Without a Meeting and Telephonic Meetings........16
5.15 Officers.................................................16
5.16 Indemnification..........................................16
5.17 Exculpation..............................................17
ARTICLE 6 Meetings of Members...............................................17
6.1 Place of Meetings........................................17
6.2 Annual Meetings of Members...............................17
6.3 Special Meetings of Members..............................17
6.4 Notice of Meetings of Members............................17
6.5 Quorum...................................................18
6.6 Proxy....................................................18
6.7 Registered Members.......................................18
6.8 Actions Without a Meeting and Telephonic Meetings........19
6.9 Major Decisions..........................................19
ARTICLE 7 Compensation of Members...........................................19
ARTICLE 8 Capital and Capital Accounts......................................20
8.1 Capital Contributions....................................20
8.2 Capital Accounts.........................................21
8.3 Withdrawal or Reduction of Members' Capital
Contributions............................................22
8.4 Liability of Members.....................................22
ARTICLE 9 Allocations, Distributions, Elections and Reports.................22
9.1 Allocations of Net Income and Net Loss...................22
9.2 Certain Book/Tax Differences.............................23
9.3 Compliance with Section 704(b)...........................23
9.4 Allocation of Income and Loss in Respect of
Transferred Interests....................................24
9.5 Distributions of Cash....................................24
9.6 Limitation on Distribution...............................24
9.7 Transferred Interests....................................24
9.8 Accounting Principles; Designated Independent Auditor....24
9.9 Records and Reports......................................25
9.10 Returns and Other Elections..............................25
9.11 Tax Matters Partner......................................26
</TABLE>
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<TABLE>
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9.12 Bank Accounts............................................26
ARTICLE 10 Dissolution and Termination.......................................26
10.1 Dissolution..............................................26
10.2 Interim Manager..........................................27
10.3 Winding-up and Termination...............................27
10.4 Distribution of Assets on Dissolution....................27
10.5 Distributions in Kind....................................28
10.6 Certificate of Cancellation..............................28
ARTICLE 11 Miscellaneous Provisions..........................................28
11.1 Notices..................................................28
11.2 Application of Law; Venue...............................29
11.3 No Action for Partition..................................29
11.4 Headings and Sections....................................29
11.5 Amendments...............................................29
11.6 Number and Gender........................................30
11.7 Binding Effect; No Third Party Beneficiaries.............30
11.8 Counterparts.............................................30
11.9 Severability.............................................30
11.10 Entire Agreement.........................................30
11.11 Insurance................................................30
</TABLE>
Attachments:
Exhibit A Company and Member Information
(iii)
<PAGE> 5
LIMITED LIABILITY COMPANY
AGREEMENT
OF
EXUS ENERGY, LLC
This Limited Liability Company Agreement of EXUS Energy, LLC (the
"Agreement") dated as of June 30, 1999, is hereby (i) duly adopted as the
limited liability company agreement of EXUS Energy, LLC, a Delaware limited
liability company, by the Management Committee (defined below), and (ii)
ratified, confirmed and approved as such by the Members (defined below) who
agree to be bound hereby.
The Certificate of Formation of EXUS Energy, LLC, was certified as
filed by the Office of the Secretary of State of the State of Delaware on June
25, 1999. The parties to this Agreement hereby ratify and affirm the execution
and filing of the Certificate of Formation.
ARTICLE 1
Definitions
1.1 Definitions. The following terms used in this Agreement have the
following meanings (unless otherwise expressly provided herein):
"ACT" means the Delaware Limited Liability Company Act, as
amended from time to time.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Member, the deficit balance, if any, in the Capital Account of that Member as
of the end of the relevant Fiscal Year, after giving effect to the following
adjustments: (i) crediting to the Capital Account any amounts that the Member
is obligated to restore or is deemed to be obligated to restore pursuant to IRS
Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentences of IRS
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and (ii) debiting to the
Capital Account the items described in IRS Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted
Capital Account Deficit is intended to comply with the provisions of IRS
Regulations Section 1.704- 1(n)(2)(ii)(d) and shall be interpreted consistently
therewith.
"AGREEMENT" means this Limited Liability Company Agreement as
originally adopted and as amended from time to time.
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"AGREEMENT AMONG MEMBERS" means that certain Agreement Among
Members, dated an even date herewith, among the Company, Venus and EXCO.
"AMI" means the Area of Mutual Interest described in the EXCO
Operating Agreement.
"APACHE AGREEMENT" means the Purchase and Sale Agreement,
dated May 13, 1999, between Apache Corporation and Venus.
"APACHE PROPERTIES" means the Interests (as defined and
described in the Apache Agreement) to be acquired pursuant to the terms of the
Apache Agreement.
"APPROVAL OF THE MANAGEMENT COMMITTEE" means the approval of
not fewer than 3 members of the Management Committee pursuant to Section
5.5(c).
"APPROVAL OF THE MEMBERS" or "APPROVED BY THE MEMBERS" means
the affirmative, written approval of Members who own more than fifty percent of
all the outstanding Class A Units.
"BANKRUPTCY" means, for any Member, that Member's taking or
acquiescing in the taking of an action seeking relief under, or advantage of,
an applicable debtor relief, liquidation, receivership, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
law affecting the rights or remedies of creditors generally, as in effect from
time to time.
"BOOK BASIS" means, with respect to any asset, the asset's
tax basis; provided, however, that (i) if property is contributed to the
Company, the initial Book Basis of such property shall be its fair market value
on the date of contribution; (ii) if the Capital Accounts of the Company are
adjusted pursuant to IRS Regulations Section 1.704-1(b)(2)(iv)(f) to reflect
the fair market value of the Company's assets, the Book Basis of each such
asset shall be adjusted to equal its fair market value as of the time of such
adjustment in accordance with such IRS Regulations; and (iii) the Book Basis of
all assets shall be adjusted thereafter by depreciation and amortization as
provided in IRS Regulations Section 1.704-1(b)(2)(iv)(g).
"BUSINESS DAY" means any day other than a Saturday, a Sunday,
or a holiday on which national banking associations in Texas are closed.
"CAPITAL ACCOUNT" means, with respect to any Member, the
account maintained for that Member in a manner that the appropriate Officer of
the Company determines is in accordance with IRS Regulations Section
1.704-1(b)(2)(iv) and Section 8.2.
"CAPITAL CONTRIBUTION" means, with respect to any Member, the
contributions described in Section 8.1 made by that Member to the capital of
the
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<PAGE> 7
Company, and any subsequent contributions made by the Members as contemplated
by this Agreement.
"CERTIFICATE" has the meaning given that term in Section 2.1.
"CLASS A UNITS" means the units of Class A Interests in the
Company.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time (or any corresponding provisions of succeeding law).
"COMPANY" means EXUS Energy, LLC, a Delaware limited liability
company.
"CONVERTIBLE NOTE" means that certain Convertible Promissory
Note, to be dated on or about June 30, 1999, made by Venus and payable to EXCO.
"CREDIT FACILITY" means the Credit Agreement, to be dated on
or about June 30, 1999, among the Company, NationsBank, N.A., as Administrative
Agent, and the lenders party thereto, as amended from time to time.
"EXCO" means EXCO Resources, Inc., a Texas corporation.
"EXCO NOMINEES" has the meaning given that term in Section
5.2(a).
"EXCO OPERATING AGREEMENT" means that certain Operating
Agreement, dated effective July 1, 1999 between EXCO and the Company.
"EXCO REPAYMENT" means (i) EXCO's loan to Venus pursuant to
the Convertible Note has been repaid in full (including all accrued but unpaid
interest and any other charges or fees payable thereunder) and (ii) EXCO's
obligation to fund draws under the Convertible Note has been terminated and
EXCO is no longer a party to such facility.
"FISCAL YEAR" means the fiscal year of the Company, which
shall be the calendar year.
"INDEPENDENT APPRAISER" means Netherland Sewell & Associates,
Inc.
"INITIAL CAPITAL CONTRIBUTION" has the meaning given that
term in Section 8.1(a).
"INTEREST" means, with respect to each Member, the entire
ownership interest of that Member in the Company (or "limited liability company
interest" as that term is used in the Act), and all rights and liabilities
associated therewith (other than rights as a creditor of the Company), at any
particular time, including without limitation
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<PAGE> 8
rights to distributions (liquidating or otherwise), rights to allocations,
rights to information, and rights to consent or approve, as set forth herein or
in the Act. All Interests hereunder shall be represented by "Units" which shall
be issued in amounts proportionate to the Percentage Interests of the Members.
"IRS REGULATIONS" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"LOSSES" means, for each Fiscal Year, the losses and
deductions of the Company determined in accordance with generally accepted
accounting principles consistently applied from year to year.
"MANAGEMENT COMMITTEE" means the group of four individuals
selected from time to time by the Members pursuant to Section 5.2.
"MAXIMUM LAWFUL RATE" means the maximum lawful, non-usurious
rate that may be charged, collected, or received on a particular loan under
applicable laws.
"MEMBER" means each Person designated as a Member on Exhibit
A, and each Person hereinafter admitted to the Company as a Member as provided
in this Agreement, but does not include a Person who has ceased to be a Member
in the Company.
"MEMBER" means a Member who owns of record Class A Units.
"NET INCOME" or "NET LOSS" means, for each Fiscal Year or
other period, the Company's taxable income or loss for such period, determined
in accordance with Code Section 703(a) without separately stating any items of
income, gain, loss, deduction or credit under Code Section 703(a)(1) (i.e.,
such separately stated items shall be taken into account in determining Net
Income and Net Loss), subject to the following adjustments:
(a) any income of the Company that is exempt from
federal income tax and not otherwise taken into account as an item of
income pursuant to this definition shall be added to such taxable
income or loss;
(b) any expenditures of the Company described in
Section 705(a)(2)(B) of the Code or treated as such expenditures
pursuant to IRS Regulations Section 1.704-1(b)(2)(iv)(i), and not
otherwise taken into account as an item of expense pursuant to this
definition, shall be subtracted from such taxable income or loss;
4
<PAGE> 9
(c) gain or loss resulting from any disposition of
Company assets with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Book
Basis of the property disposed of, notwithstanding that the adjusted
tax basis of such property differs from its Book Basis;
(d) any increase or decrease to Capital Accounts as
a result of any adjustment to the Book Basis of Company assets
pursuant to IRS Regulations Section 1.704-1(b)(2)(iv)(f) shall be
added to or subtracted from, as the case may be, such taxable income
or loss;
(e) in lieu of depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account depreciation for
such period computed in accordance with IRS Regulations Section
1.704-1(b)(2)(iv)(g), if applicable; and
(f) any items specially allocated pursuant to
Section 9.3 shall not be taken into account in computing Net Income or
Net Loss.
"OFFICERS" means the officers (who shall be natural persons)
appointed pursuant to Approval of the Management Committee to operate the
Company on a day-to-day basis pursuant to power and authority delegated by the
Management Committee.
"PERCENTAGE INTEREST" means, with respect to each Member, the
percentage equal to the fraction, the numerator of which is the number of Units
held by that Member and the denominator of which is the number of Units then
held by all Members.
"PERMITTED INVESTMENTS" means (i) readily marketable direct
obligations of the United States of America (or investments in mutual funds or
similar funds which invest solely in such obligations), (ii) 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, (iii) 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, and
(iv) other Investments; provided that, the aggregate amount of all other
Investments made pursuant to this clause (iv) outstanding at any time shall not
exceed $100,000 (measured at cost on a cumulative basis).
"PERSON" has the meaning given that term in the Act.
"PROFITS" means, for each Fiscal Year, the income and gains
of the Company determined in accordance with generally accepted accounting
principles consistently applied from year to year.
5
<PAGE> 10
"PRO RATA" means the ratio computed by dividing the Units of
each Member to whom a particular provision of this Agreement is stated to apply
by the aggregate of the Units then outstanding of all Members to whom that
provision is stated to apply.
"RELATED PERSON" means (i) a natural Person who is a Member,
member of the Management Committee or Officer or who is a member of any such
Person's immediate family, or (ii) a corporation, partnership, limited
liability company, joint venture, trust or other legal entity that is a Member
or is controlled by a Member or controls a Member, member of the Management
Committee or Officer or a member of the immediate family of a Member, member of
the Management Committee or Officer or (iii) another natural Person or entity
that controls, is controlled by, or is under common control with a Member,
member of the Management Committee or Officer.
"REQUIRED VOTE" means the vote of Members required under this
Agreement for a particular action to be taken, which unless otherwise expressly
stated (e.g., a Supermajority Vote of the Members) shall be the same vote
required to achieve the Approval of the Members.
"SUPERMAJORITY VOTE OF THE MEMBERS" means the affirmative
approval of the Members who own in the aggregate more than 66 2/3 % of all the
then outstanding Class A Units.
"TRANSFER" means, as a noun, the sale, assignment, exchange,
pledge, hypothecation or other disposition of a Interest, or any part thereof,
directly or indirectly, or the sale, assignment, exchange, pledge,
hypothecation, or other disposition of a controlling interest in the equity
securities of a Member, and as a verb, voluntarily to transfer, sell, assign,
exchange, pledge, hypothecate or otherwise dispose of.
"UNITS" means Class A Units.
"VENUS" means Venus Exploration, Inc., a Delaware corporation.
"VENUS NOMINEES" has the meaning given that term in Section
5.2(a).
1.2 Other Definitions.
Other terms defined herein have the meanings so given to
them.
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<PAGE> 11
ARTICLE 2
Organization
2.1 Name and Formation. The name of the Company is "EXUS Energy, LLC."
All business of the Company must be conducted in that name or in one or more
other names that comply with applicable law and that are selected by Approval
of the Management Committee from time-to-time. The Certificate of Formation of
the Company (the "Certificate") was certified as filed by the Office of the
Secretary of State of the State of Delaware on June 25, 1999 pursuant to the
Act.
2.2 Principal Place of Business. The principal office and place of
business of the Company are set forth on Exhibit A. The Company may locate its
place(s) of business at any other place or places selected by Approval of the
Management Committee from time-to-time.
2.3 Registered Office and Registered Agent. The registered office of
the Company shall be the office of the initial registered agent named in the
Certificate or such other office selected by Approval of the Management
Committee from time-to-time. The registered agent of the Company is the initial
registered agent named in the Certificate or another Person or Persons selected
by Approval of the Management Committee from time-to-time.
2.4 Term. The term of existence of the Company shall be perpetual,
unless the Company is earlier dissolved in accordance with either this
Agreement or the Act.
2.5 Purposes and Powers. The purpose of the Company shall be to
transact the following business: to acquire the Apache Properties as successor
to Venus under the Apache Agreement; to engage in the acquisition of oil and
gas property interests and the exploration, development and exploitation of
such interests, including the drilling of wells for the production of oil, gas
and water and to acquire by purchase, lease, or otherwise machinery, equipment,
drilling rigs, and pipe for the drilling of oil, gas and water wells; to engage
in the production of oil, natural gas and any and all other petroleum products
and to store, treat and market the same; to transport gasoline, oils, liquefied
petroleum gases, natural gases, and to acquire by purchase, lease or otherwise
trucks, trailers, tanks, pipelines, and other equipment necessary or required
for the transportation of the aforesaid commodities; to manufacture, purchase
or otherwise acquire, invest in, own, mortgage, pledge, sell, assign and
transfer or otherwise dispose of, trade, deal in and deal with goods, wares and
merchandise and real and personal property of every class and description; to
acquire, and pay for in cash, or in Units or bonds of the Company or otherwise,
the good will, rights, assets and property, and to undertake or assume the
whole or any part of the obligations or liabilities of any person, firm,
association or corporation; and to conduct such business ancillary to or in aid
of the foregoing as the Management Committee shall deem necessary or desirable
to the achievement of the Company's business. The Company shall have any and
all powers
7
<PAGE> 12
necessary or desirable to carry out the purposes and business of the Company,
to the extent that the same may be lawfully exercised by limited liability
companies under the Act. Without limiting the foregoing, the Company shall have
any and all powers necessary to borrow money and to enter into other capital
transactions and to provide guaranties and grant security interests in any or
all of its assets in connection therewith.
2.6 Foreign Qualification. The Management Committee shall cause the
Company to comply, to the extent legally possible, with all requirements
necessary to qualify the Company as a foreign limited liability company in each
jurisdiction in which the Company conducts business. To the extent required by
law or as the Management Committee determines is otherwise advisable, one or
more Officers shall execute, acknowledge, swear to and deliver all certificates
and other instruments conforming with this Agreement that are necessary or
appropriate to qualify, continue and terminate the Company as a foreign limited
liability company in all jurisdictions in which the Company conducts business.
2.7 Mergers and Exchanges. The Company may be a party to (i) a merger,
consolidation or share exchange or (ii) an exchange of the type described in
the Act, in accordance with Section 6.9(a).
2.8 No State Law Partnership. The Management Committee and the Members
intend that (i) other than for federal and state income tax and other relevant
tax purposes, as appropriate, the Company not be a partnership (including,
without limitation, a limited partnership) or joint venture, (ii) no Member,
member of the Management Committee or Officer be a partner or joint venturer of
any other Member, member of the Management Committee or Officer, for any
purposes other than federal and state tax purposes, and (iii) this Agreement
may not be construed to suggest otherwise. This Section 2.8 does not prohibit a
Member, member of the Management Committee or Officer, in his or its individual
or independent capacity, from being associated with another Member, member of
the Management Committee or Officer in another Person.
2.9 Other Activities of Members. Neither this Agreement nor any
principle of law or equity shall preclude or limit, in any respect, the right
of any Member to engage in or derive profit or compensation from any activities
or investments, nor give the Company or any Member any right to participate or
share in such activities or investments or any profit or compensation derived
therefrom.
ARTICLE 3
Interests
3.1 Classes of Equity Interests. Equity Interests in the Company shall
consist of Class A Units.
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<PAGE> 13
3.2 Voting. Except as otherwise expressly provided herein, the Members
who own of record Class A Units shall vote together as one class. Each Member
shall be entitled to cast one vote for each whole Unit owned by such Member.
ARTICLE 4
Transfers of Interests
4.1 Initial Members. The initial Members of the Company are set forth
on Exhibit A.
4.2 Additional Interests. Additional Interests may be created and
issued to Persons and to existing Members, on a Supermajority Vote of the
Members, on the terms and conditions determined by a Supermajority Vote of the
Members at the time of such creation or issuance. The terms of issuance must
specify the applicable Percentage Interests and may provide for the creation of
different classes or groups of Members that have different rights, powers and
duties. The Members shall reflect the creation of any new class or group in an
amendment to this Agreement indicating the different rights, powers and duties,
and such an amendment need be executed only by the Members. Any such admission
in connection with such creation or issuance also must comply with the
provisions of Section 4.4(b). The provisions of this Section 4.2 shall not
apply to Transfers of Interests.
4.3 Representations and Warranties. Each Member hereby represents and
warrants to the Company and to each other Member that (i) the Member has full
corporate, limited liability company, partnership, trust, individual or other
applicable power and authority, as appropriate, to execute and agree to this
Agreement and to perform its obligations hereunder, and that all necessary
actions by the board of directors, shareholders, managers, members, partners,
trustees, beneficiaries or other Persons necessary for the due authorization,
execution, delivery and performance of this Agreement by that Member have been
duly taken; (ii) the Member has duly executed and delivered this Agreement; and
(iii) the Member's authorization, execution, delivery, and performance of this
Agreement do not conflict with the documents or instruments (as amended)
pursuant to which the Member was organized or with any other agreement or
arrangement to which the Member is a party or by which it is bound.
4.4 Restrictions on Transfer.
(a) Conditions to Transfer; Effective Date. The Company may
not recognize for any purpose any purported Transfer of all or part of
an Interest until the other applicable provisions of this Section 4.4
have been satisfied, the applicable provisions of any other agreement
relevant thereto to which the Company and any Member are parties have
been complied with and the Management Committee has received, on
behalf of the Company, a document (i)
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<PAGE> 14
executed by both the Member effecting the Transfer (or if the Transfer
is on account of the death, incapacity, or liquidation of the
transferor, executed by the transferor's representative) and the
Person to whom the Interest or part thereof is Transferred whereby
that Person agrees to be bound by this Agreement, (ii) including the
notice address of any Person to be admitted to the Company as a
Member, (iii) setting forth the number and classes of Units and the
corresponding Percentage Interest, after the Transfer, of the Member
effecting the Transfer and the transferee (which together must total
the Percentage Interest of the Member effecting the Transfer before
the Transfer), and (iv) containing a representation and warranty that
(A) the Transfer was made in accordance with applicable laws and
regulations (including securities and tax laws) and (B) that the
representations and warranties in Section 4.3 are true and correct
with respect to that Person.
Each Transfer that complies with the provisions of this
Section 4.4 is effective as of the day on which the Management
Committee receives the notification of Transfer and the other
requirements of this Section 4.4 have been met.
(b) Securities Law Conditions to Transfer. The Company may
not recognize for any purpose any purported Transfer of all or part of
an Interest until the other applicable provisions of this Section 4.4
have been satisfied and the Management Committee has received, on
behalf of the Company, a favorable opinion of legal counsel acceptable
to the Management Committee to the effect that either (i) the Transfer
of the Interests or part thereof subject to the Transfer or admission
has been registered under the Securities Act of 1933, as amended, and
any applicable state securities laws or (ii) the Transfer or admission
is exempt from registration under those laws. The Management
Committee, however, may by Approval of the Management Committee waive
any or all of the requirements of this Section 4.4(b).
(c) Company Expenses Reimbursed by Transferor and Transferee.
The Member effecting a Transfer and any Person admitted to the Company
in connection therewith shall jointly and severally pay, or reimburse
the Company for, all out-of-pocket costs incurred by the Company in
connection with the Transfer or admission (including without
limitation the legal fees incurred in connection with the legal
opinions referred to in Section 4.4(b)) by the tenth day after the
receipt by that Person of the Company's invoice for the amount due. If
payment is not made by the date due, then the unpaid amount shall
accrue interest, at a rate per annum equal to the Maximum Lawful Rate
from the date due until the date paid. The Company may offset any
distributions payable to any Person admitted to the Company against
any such unpaid amount, together with interest thereon.
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(d) Transferor Ceases To Be a Member. A Member who Transfers
all of his Interest ceases to be a Member of the Company and no longer
has the rights or privileges of a Member.
(e) Members May Elect to Adjust Tax Basis. On the Transfer of
all or part of an Interest, at the request of the transferee of that
Interest, the Members may, on Approval of the Members, cause the
Company to elect, pursuant to Code Section 754 or the corresponding
provisions of subsequent law, to adjust the tax basis of the Company's
properties as provided by Code Sections 734 and 743.
4.5 Information.
(a) Requirements of Act. In addition to the other rights
specifically set forth in this Agreement, each Member is entitled to
all information to which that Member is entitled to have access
pursuant to the Act, under the circumstances therein stated.
(b) Confidentiality. The Members acknowledge that, from time
to time, they may receive information from or concerning the Company
in the nature of trade secrets or that otherwise is confidential, the
release of which may damage the Company or Persons with which it does
business. In addition to any other obligations of any Member pursuant
to any agreement between the Company and such Member or otherwise,
each Member agrees that it shall hold in strict confidence any such
information that it receives concerning the Company and may not use or
disclose it to any Person other than another Member, a member of the
Management Committee or an Officer, except for disclosures (i)
compelled by law (but the Member must notify the other Members
promptly of any request for that information, before disclosing it, if
legal and practicable), (ii) to advisers or representatives of the
Member or Persons to whom that Member's Interest may be Transferred as
permitted by this Agreement, but only if the recipients have been
notified of, and have agreed to be bound by, the provisions of this
Section 4.5(b), or (iii) of information that the Member also has
received from a source independent of the Company that the Member
reasonably believes obtained that information without breach of any
obligation of confidentiality. The Members acknowledge that breach of
the provisions of this Section 4.5(b) may cause irreparable injury to
the Company for which monetary damages are inadequate, difficult to
compute, or both. Accordingly, the Members agree that the provisions
of this Section 4.5(b) may be enforced by injunctive relief for
specific performance.
4.6 Liability to Third Parties. No Member, member of the Management
Committee or Officer is liable for the debts, obligations or liabilities of the
Company, including under a judgment, decree or order of a court.
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4.7 Withdrawal. No Member has the right to withdraw from the Company
as a Member other than as permitted by this Agreement or the Agreement Among
Managers.
4.8 Certificates. Certificates in the form determined by the
Management Committee may be delivered representing all Interests to which
Members are entitled. If certificates are delivered, such certificates shall be
consecutively numbered, and shall be entered in the books of the Company as
they are issued. Each such certificate shall state on the face thereof the
holder's name, the Interests and such other matters as may be required by
applicable laws. Each such certificate shall be signed by the Officers of the
Company and may be sealed with the seal of the Company or a facsimile thereof
if adopted. The signature of appropriate Officers upon the certificates may be
facsimile. Subject to Section 4.4, upon surrender to the Company or the
transfer agent of the Company of a certificate for Interests duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
Transfer, it shall be the duty of the Company to issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books and records.
4.9 Lack of Authority. No Member or member of the Management Committee
(other than a Member or a member of the Management Committee who also is an
Officer) has the authority or power to act for or on behalf of the Company, to
do any act that would be binding on the Company or to incur any expenditures on
behalf of the Company.
ARTICLE 5
Management Committee and Officers
5.1 Management. Except for situations in which Approval of the Voting
Members (or other action by the Members) is required by this Agreement or by
nonwaivable provisions of applicable law, the powers of the Company shall be
exercised by or under the authority of, and the business and affairs of the
Company shall be wholly managed under the direction of, the Management
Committee. In managing the business and affairs of the Company and exercising
its powers, the Management Committee shall act (i) collectively through
meetings and written consents or (ii) through Officers to whom authority and
duties have been delegated pursuant to actions of the Management Committee
taken in accordance with this Agreement.
5.2 Election of Management Committee.
(a) The initial members of the Management Committee are
designated on the Company's signature page to this Agreement. Messrs.
Douglas H. Miller and T.W. Eubank are deemed to be the "EXCO
Nominees." Messrs. Eugene L. Ames, Jr. and John Y. Ames are deemed to
be the "Venus Nominees." Unless removed in accordance with this
Agreement, each member of the Management
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Committee shall hold office until his or her successor is elected or
appointed, or until his or her earlier death, resignation or removal.
(b) In the event that (i) Venus shall forfeit or transfer to
EXCO any of its Units by reason of a default upon the Convertible Note
or (ii) any Member, Venus or EXCO shall voluntarily or involuntarily
commence proceedings under the United States Bankruptcy Code, then
EXCO or the non-bankrupt Member (EXCO or the non-bankrupt Member being
the "Majority Member"), as the case may be, shall immediately be
entitled to designate a majority of the members of the Management
Committee. Promptly after the occurrence of such event, the
non-Majority Member shall designate which of its Management Committee
designees shall resign. Said designee shall tender his resignation
promptly thereafter whereupon the Majority Member shall nominate a
person to fill the vacancy created thereby who shall thereafter be
elected to the Management Committee as set forth in Section 4.2(a).
5.3 Vacancy. Except as set forth in Section 5.2 Venus and EXCO,
respectively, shall have the right to elect a replacement to fill any vacancy
occurring for any reason in respect of one of their respective nominees to the
Management Committee.
5.4 Removal. Venus and EXCO may, and shall have the right to, remove
and replace any member of the Management Committee nominated by that Member at
any time and for any reason, with or without cause.
5.5 Authority of the Management Committee.
(a) Subject to Sections 5.6 and 6.9, the Management
Committee, acting as a group, has sole authority to manage the Company
and is authorized to make any contracts, enter into any transactions,
and make and obtain any commitments on behalf of the Company to
conduct or further the Company's business, subject to any delegation
of such authority to any Officer(s) of the Company by this Agreement
or resolution of the Management Committee;
(b) Each member of the Management Committee has one vote in
Management Committee decisions;
(c) Action by the Management Committee requires either
(i) a resolution approved by the affirmative vote of
at least a majority of all the members of the
Management Committee (or such higher number of
members of the Management Committee as may be
required herein for any specified action), such
vote being taken at a meeting of the Management
Committee, scheduled by a prior act of the
Management Committee (taken at a duly called
meeting of
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the Management Committee) or called upon at
least four days' written notice to all members
of the Management Committee signed by at least
two members of the Management Committee and (B)
with a quorum present of at least three members
of the Management Committee, or
(ii) a written action, signed by at least three
members of the Management Committee (or such
higher number of members of the Management
Committee as may be required herein for any
specified action); provided that notice of such
written action must be sent promptly to all
members of the Management Committee who are not
signatories thereto.
(d) The Management Committee may by Approval of the
Management Committee delegate to an Officer or Officers any of the
Management Committee's responsibilities and authority.
(e) Notwithstanding any other provision of this Agreement,
any Member may propose any operation (a "Subsequent Operation")
described in Article VI.B of the EXCO Operating Agreement. Any such
Subsequent Operation shall be proposed, consented to (or not consented
to) and conducted in the manner set forth in said Article VI.B. In the
event the non-proposing Member declines to participate in the proposed
Subsequent Operation, the proposing Member may elect to either proceed
with the Subsequent Operation or cancel the project. If the proposing
Member elects to proceed with the Subsequent Operation as proposed
such project will be conducted in the Company's name (with the Company
being the named party in interest), but funding for the project will
be provided by the proposing Member by way of an additional Capital
Contribution called in accordance with Section 8.1.
5.6 Duties of Members of the Management Committee.
(a) Each member of the Management Committee shall discharge
his or her duties in good faith, with the care an ordinarily prudent
person in a like position would exercise under similar circumstances,
and in a manner the member of the Management Committee reasonably
believes to be in the best interests of the Company.
(b) A member of the Management Committee may rely on
information or advice received from other persons if that reliance is
consistent with the standard of care set forth in under Section
5.6(a).
5.7 Place of Meetings. All meetings of the Management Committee of the
Company may be held either within or without the State of Delaware.
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5.8 Annual Meetings of the Management Committee. The annual meeting of
the Management Committee shall be held, without further notice, immediately
following the annual meeting of Members, and at the same place, or at such
other time and place as shall be fixed with the Approval of the Management
Committee.
5.9 Regular Meetings of Management Committee. Regular meetings of the
Managing Committee may be held without notice at a time and place as is from
time to time determined by the Approval of the Management Committee pursuant to
Section 5.5(c).
5.10 Special Meetings of the Management Committee. Special meetings of
the Management Committee may be called by written notice signed by not fewer
than three members of the Management Committee on not fewer than two days'
notice to the other members of the Management Committee.
5.11 Attendance and Waiver of Notice. Attendance of a member of the
Management Committee at any meeting constitutes a waiver of notice of the
meeting, except where a member of the Management Committee attends a meeting
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Management Committee need be specified in the notice or waiver
of notice of the meeting.
5.12 Compensation of Members of the Management Committee. Members of
the Management Committee, as such, shall not receive any stated salary for
their services, but shall receive such compensation for their services as may
be from time to time be Approved by the Members. This Agreement shall not be
construed to preclude any member of the Management Committee from serving the
Company in any other capacity and receiving compensation for such service. In
addition, the members of the Management Committee shall be entitled to be
reimbursed for reasonable out-of-pocket costs and expenses incurred in the
course of their service hereunder. No portion of a Member's overhead allocable
to a member of the Management Committee acting in such capacity shall be
charged to the Company.
5.13 Conflicts of Interest. Subject to the other express provisions of
this Agreement, the EXCO Operating Agreement (including the AMI) and any other
agreement between the Company and any Member, member of the Management
Committee or Officer, each member of the Management Committee and any Officer
of the Company at any time and from time to time may engage in and possess
interests in other business ventures of any and every type and description,
independently or with others, including ones in competition with the Company,
with no obligation to offer to the Company or any other member of the
Management Committee or Officer the right to participate therein. The Company
may transact business with any Related Person or Officer, provided the terms of
those transactions are no less favorable than those the Company could obtain
from unrelated third parties.
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5.14 Actions Without a Meeting and Telephonic Meetings.
Notwithstanding any other provision contained in this Article 5, but subject to
Section 5.5(c), all actions of the Management Committee provided for herein may
be taken by written consent without a meeting, or any meeting thereof may be
held by means of a conference telephone.
5.15 Officers.
(a) The Management Committee may, from time to time,
designate one or more Persons to be Officers of the Company. Any
Officers so designated shall have such authority and perform such
duties as the Management Committee may, from time to time by Approval
of the Management Committee, delegate to them. The Management
Committee may assign titles to particular Officers. The Management
Committee shall delegate to such Officer the authority and duties that
are set forth in the resolution appointing the Officer. Each Officer
shall hold office until his or her successor shall be duly designated
and shall qualify or until his or her death or until he or she shall
resign or shall have been removed in the manner hereinafter provided.
Any number of offices may be held by the same Person. The salaries or
other compensation, if any, of the Officers and agents of the Company
shall be fixed from time to time by Approval of the Management
Committee.
(b) The Management Committee shall appoint a President of the
Company who shall have responsibility for the day-to-day operations of
the Company. The Management Committee may also appoint a Chairman, one
or more Vice Presidents, a Secretary and Assistant Secretaries, and a
Treasurer and Assistant Treasurers.
(c) Any Officer may resign as such at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein, or if no time be specified, at the time of its
receipt by the Management Committee. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so
provided in the resignation. Any Officer may be removed as such,
either with or without cause, by the Management Committee; provided,
however, that such removal shall be without prejudice to the contract
rights, if any, of the Person so removed. Designation of an Officer
shall not of itself create contract rights. Any vacancy occurring in
any office of the Company may be filled by Approval of the Management
Committee.
5.16 Indemnification. Each member of the Management Committee and each
employee of the Company (each an "Indemnitee") shall be indemnified and held
harmless by the Company, including advancement of expenses, but only to the
extent that the assets of the Company are sufficient therefor, from and against
all claims, liabilities, and expenses (including without limitation reasonable
attorneys' fees) arising out of any action done or omitted to be done, in
either case, in connection with the
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affairs of the Company, but excluding those caused by the gross negligence or
willful misconduct of the Indemnitee, subject to all limitations and
requirements imposed by the Act. These indemnification rights are in addition
to any rights that the Indemnitee may have against third parties. In addition
to these rights, the Company may indemnify and advance expenses to any other
Person for actions taken or omitted by such Person on behalf of the Company,
subject to Approval of all the Members.
5.17 Exculpation. No member of the Management Committee or any officer
of the Company shall be liable to the Company or any Member for monetary
damages for breach of such person's fiduciary duty as a member of the
Management Committee or as an Officer, except for liability (i) for actions
done or omitted to be done, in either case, not in good faith or that involve
intentional misconduct or a knowing violation of law or (ii) for any
transaction from which such member of the Management Committee or the Officer
derived an improper personal benefit.
ARTICLE 6
Meetings of Members
6.1 Place of Meetings. All meetings of the Members shall be held at
the principal office of the Company designated on Exhibit A or pursuant to
Section 2.2, or at such other place within or without the State of Delaware as
may be determined by Approval of the Management Committee and set forth in the
respective notice or waivers of notice of the meeting.
6.2 Annual Meetings of Members. The annual meeting of the Members of
the Company shall be held at the time and date designated by the Management
Committee from time to time and stated in the notice of the meeting. The annual
meeting shall be called in the same manner as provided in this Agreement for
special meetings of the Members, except that the purposes of the meeting need
be enumerated in the notice of the meeting only to the extent required by
applicable law.
6.3 Special Meetings of Members. Special meetings of the Members may
be called by Approval of the Management Committee or by any Member or Members
who owns or own at least 20% of all the then outstanding Class A Units.
Business transacted at all special meetings shall be confined to the purposes
stated in the notice.
6.4 Notice of Meetings of Members. Written or printed notice stating
the place, day and hour of the meeting and, in the case of special meetings,
the purpose or purposes for which the meeting is called, shall be delivered not
fewer than five (5) nor more than sixty days before the date of the meeting, by
or at the direction of the Management Committee or Persons calling the meeting,
to each Member of record entitled to vote at the meeting.
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6.5 Quorum. The presence at a meeting of Members that hold Interests
sufficient for the Required Vote necessary to act on a particular matter
considered at the meeting, constitutes a quorum, but only for those matters for
which the requisite quorum exists, except as otherwise provided by applicable
law or the Certificate. The Members may not act on matters at a meeting for
which a greater affirmative vote of Members is required than is present. Once a
quorum is present, the withdrawal from the meeting of any Member before
adjournment, or the refusal of a Member to vote, shall not affect the presence
of a quorum at the meeting. If, or to the extent that, a quorum is not present
at any meeting of the Members, then the Members entitled to vote at the meeting
may adjourn or recess the meeting from time to time, without notice other than
announcement at the meeting, until the holders of the requisite Interests are
present or represented.
6.6 Proxy. Subject to the following conditions, Members may empower
another Member, Member of the Management Committee, Officer or Person to be the
Member's authorized agent to represent the Member's Interests by proxy, at any
annual or special meeting or event permitted by this Agreement, and to exercise
all rights, benefits and authority of the Member as if the Member were present
at the meeting. To be recognized as an authorized representative entitled to
act on behalf of or vote the proxy of a Member, the following conditions must
have been satisfied:
(a) The affected Member must provide to the Company a written
notice containing the identity of its authorized representative,
specifying the particular meeting, at least forty-eight hours before
the date of the meeting. Unless the notice contains express
restrictions on the authority of the representative, the
representative is entitled to the same authority as the Member could
exercise at the meeting, if the Member were present;
(b) At the time of the meeting, the representative shall
identify himself as a Person named by the Member's notice; and
(c) The representative must deliver to the chair of the
particular meeting an executed, written proxy delineating the
authorization from the Member on whose behalf the representative is
acting.
No proxy is valid after eleven months from the date of its execution
unless the proxy provides otherwise. A proxy is revocable unless the proxy
conspicuously states that it is irrevocable and the proxy is coupled with an
interest.
6.7 Registered Members. The Company may treat the holder of record of
any Interest as the holder in fact of the Interest for all purposes and,
accordingly, is not bound to recognize any equitable or other claim to or
interest in the Interest on the part of any other Person, whether or not it has
express or other notice of the claim or interest, except as expressly provided
by this Agreement or the laws of the State of Delaware.
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6.8 Actions Without a Meeting and Telephonic Meetings. Notwithstanding
any other provision contained in this Article 6, all actions of the Voting
Members provided for herein may be taken by written consent without a meeting,
or any meeting thereof may be held by means of a conference telephone. Any
action that may be taken by the Members without a meeting shall be effective
only if the written consent or consents are in writing, set forth the action so
taken, and are signed by the Members holding not less than the minimum
affirmative votes that would be necessary to take the action at a meeting at
which the holders of all Interests entitled to vote on the action were present
and voted.
6.9 Major Decisions. For so long as Venus and EXCO own any Class A
Units, a Supermajority Vote of the Members shall be required for the Company to
take, or to enter into any agreement to take, any of the following actions:
(a) A merger, consolidation or share exchange;
(b) A sale of all or substantially all of the Company's
assets;
(c) A liquidation and/or dissolution of the Company;
(d) Converting the Company from a limited liability company
to another form of entity, changing the Company's jurisdiction of
organization or causing the Company to become a taxable entity for
federal income tax purposes;
(e) Commencing bankruptcy or insolvency proceedings;
(f) Amending this Agreement to change any minority unitholder
protection set forth therein;
(g) Changing the "tax matters partner" of the Company from
the Member designated as such in Section 9.11; or
(h) Other than in connection with a dissolution of the
Company pursuant to Article 10, distributing non-cash assets of the
Company to any Member.
ARTICLE 7
Compensation of Members
Until changed by a Supermajority Vote of the Members, no compensation
shall be paid by the Company to any Person in their capacity as a Member. This
Article 7 shall not be construed to preclude any Member from receiving payments
of principal and
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interest on any amount loaned to the Company by such Member or from receiving
distributions from cash flow, subject to the terms and conditions set forth
herein.
ARTICLE 8
Capital and Capital Accounts
8.1 Capital Contributions.
(a) Initial Capital Contributions. Simultaneously with the
execution of this Agreement, each Member has contributed cash to the
Company as described on Exhibit A (as to each Member, such amount
being referred to herein as such Member's "Initial Capital
Contribution"), and on delivery of such contribution, each Member has
received its Interest as indicated on Exhibit A. In addition, each
Member has contributed their respective rights, obligations and
liabilities under the Apache Agreement.
(b) Additional Capital Contributions. If (i) the Management
Committee determines that the amounts contributed to the Company by
the Members with regard to the Initial Capital Contributions are
insufficient to carry out the purposes of the Company or (ii) a Member
has proposed a Subsequent Operation in accordance with Section 5.5,
then within 30 days of receipt of notice (the "Contribution Due Date")
provided by the Management Committee or the proposing Member, the
Members shall make additional capital contributions (for which the
Members Pro Rata shall be responsible) to the Company.
(c) Remedies for Failure to Fund Additional Capital
Contributions.
(i) If the Management Committee calls for additional
capital contributions in accordance with
Section 8.1(b)(i) and one or more Members fail
to make their required additional capital
contribution within three (3) days after
delivery of notice to such party(ies), then the
following shall occur (unless waived in writing
by the non-defaulting Members): if any Member
fails to so fund its additional capital
contribution, then the non-defaulting Member(s)
shall be permitted to fund such defaulting
Member's portion. Thereafter, if the non-
defaulting Member should fund the defaulting
Member's portion, all cash otherwise
distributable to the defaulting Member as
provided by Sections 9.5 or 10.4 shall instead
be distributed to the paying Member until the
paying Member has recouped a sum equal to 300%
of the defaulted-upon additional capital
contribution.
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(ii) In the event a Member proposes a Subsequent
Operation and the non-proposing Member declines
to participate therein, all costs of such
Subsequent Operation shall be funded by the
proposing Member. All cash, income, gain, loss,
expense, deduction or credit in respect of such
Subsequent Operation shall be allocated to the
proposing Member until it has recouped from
distributions of cash made in accordance with
Sections 9.5 or 10.4 directly attributable to
the Subsequent Operation that otherwise would
have been allocated to the non-participating
Member a sum equal to 300% of additional
Capital Contribution that would have been made
by the non- participating Member had it
participated in the Subsequent Operation. The
Company shall separately account and segregate
for all cash generated by such Subsequent
Operation for this proposal. Upon recoupment of
the additional capital contribution funded by
the proposing Member instead of the
non-participating Member necessary to fund such
Subsequent Operation as described above, all
items of cash, income, gain, loss, expense,
deduction or credit shall be allocated to the
Members in accordance with their Percentage
Interest.
8.2 Capital Accounts
(a) Separate Capital Accounts; Adjustments. A separate
Capital Account shall be maintained for each Member. Each Member's
Capital Account shall be increased by (i) the amount of money
contributed by that Member to the Company, (ii) the fair market value
(as determined in good faith by the Management Committee) of any
property contributed by that Member to the Company, (iii) the amount
of any Company liabilities that are assumed by that Member or that are
secured by any Company property distributed to that Member; and (iv)
the amount of Profits allocated to that Member, including a
disproportionate allocation in accordance with Section 8.1. Each
Member's Capital Account shall be decreased by (i) the amount of money
distributed to that Member by the Company, (ii) the fair market value
(as determined in good faith by the Management Committee) of any
property distributed to that Member by the Company, (iii) the amount
of any Member's liabilities that are assumed by the Company or that
are secured by any property contributed by that Member to the Company
and (iv) the amount of Losses allocated to that Member.
(b) Transfer of Capital Account. On a Transfer of Interests,
the Capital Account of the transferor shall become the Capital Account
of the transferee to the extent that it relates to the Transferred
Interest.
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(c) Compliance. The manner in which Capital Accounts are to
be maintained pursuant to this Section is intended to comply with the
requirements of Code Section 704(b) and the IRS Regulations
promulgated thereunder.
8.3 Withdrawal or Reduction of Members' Capital Contributions.
(a) Repayment of Capital Subordinated to Liabilities. Except
as may be otherwise specifically provided herein, no Member shall
receive from Company property any part of its Capital Contribution
until all liabilities of the Company, except the liabilities to
Members on account of their Capital Contributions, have been paid or
there remains property of the Company sufficient to pay those
liabilities.
(b) Withdrawals. No Member has the right to withdraw all or
any part of its Capital Contribution or to receive any return on any
portion of its Capital Contribution, except as may be otherwise
specifically provided herein. Under circumstances involving a return
of any Capital Contribution, no Member has the right to receive
property other than cash.
(c) No Priority Among Members. Except as may be otherwise
specifically provided in this Agreement, no Member shall have priority
over any other Member, either as to the return of Capital
Contributions or as to Profits, Losses or distributions, provided that
this subsection shall not apply to loans (as distinguished from
Capital Contributions) that a Member has made to the Company.
8.4 Liability of Members. No Member is liable for the debts,
liabilities or obligations of the Company beyond its required capital
contributions as described in Section 8.1.
ARTICLE 9
Allocations, Distributions, Elections and Reports
9.1 Allocations of Net Income and Net Loss.
(a) Net Income. For each Fiscal Year or part thereof, Net
Income shall be allocated to the Members Pro Rata; provided, however,
to the extent distributions are or are to be redirected pursuant to
Section 8.1(c) as a remedy for failure to fund additional capital
contributions, Net Income attributable thereto shall be redirected.
(b) Net Losses. For each Fiscal Year or part thereof, Net
Losses shall be allocated to the Members Pro Rata; provided, however,
to the extent distributions are or are to be redirected pursuant to
Section 8.1.(c) as a remedy
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for failure to fund additional capital contributions, Net Losses
attributable thereto shall be similarly redirected.
(c) Allocation of Items. Subject to any special allocation
provided in Section 8.1(c), to the extent possible, each Member shall
be allocated a share of each Company item allocated pursuant to this
Section 9.1 in proporation the Net Income or Net Losses allocable
pursuant to this Section 9.1.
9.2 Certain Book/Tax Differences.
(a) In accordance with Code Section 704(c) and the applicable
IRS Regulations thereunder, income, gain, loss, deduction and tax
depreciation with respect to any property which has a Book Basis
different from its adjusted tax basis (as determined for federal
income tax purposes) shall, solely for income tax purposes (and
without adjusting any Member's Capital Account therefor), be allocated
among the Members so as to take into account any variation between the
adjusted tax basis of such property to the Company and the Book Basis
of such property.
(b) If any portion of the principal amount of a loan to the
Company in respect of which the lender is a Member (or an affiliate of
a Member) is treated, for federal income tax purposes, as interest
expense, then, (i) solely for income tax purposes (and without
adjusting any Member's Capital Account therefor), the deduction for
such interest expense shall be specially allocated to the Member who
is the lender (or affiliate of the lender) and (ii) no portion of the
principal amount of such loan shall be treated as interest for
purposes of maintaining the Capital Accounts of the Members.
9.3 Compliance with Section 704(b). The following special allocations
shall, except as otherwise provided, be made in the following order:
(a) Qualified Income Offset. If any Member unexpectedly
receives an adjustment, allocation, or distribution described in IRS
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), then items of
income and gain shall be specially allocated to such Member in
accordance with the requirements of IRS Regulations Section
1.704-1(b)(2)(ii)(d). This Section 9.3(a) is intended to comply with
the "qualified income offset" provision of the IRS Regulation last
cited and shall be interpreted consistent therewith.
(b) Special Income Allocation. In the event any Member has a
deficit Capital Account balance at the end of any Fiscal Year or other
period that is in excess of the sum of (i) the amount such Member is
obligated to restore or is deemed obligated to restore as described in
IRS Regulations Section 1.704- 1(b)(2)(ii)(c) or (d) and (ii) the
amount such Member is deemed obligated to restore pursuant to the
penultimate sentences of IRS Regulations Sections 1.704-
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2(g)(1) and 1.704-2(i)(5), then such Member shall be specially
allocated items of Company income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to
this Section 9.3(b) shall be made only if and to the extent that such
Member would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Agreement have been
tentatively made as if this Section 9.3(b) were not in this Agreement.
9.4 Allocation of Income and Loss in Respect of Transferred Interests.
If any Interest in the Company is Transferred, or upon the admission or
withdrawal of a Member, in accordance with the provisions of this Agreement
during any calendar year, the income or loss attributable to such Interest for
such calendar year shall be divided and allocated ratably between the Members
on a daily basis; provided, however, that, to the extent permitted by the
applicable provisions of the Code and IRS Regulations, all Company items shall
be allocated solely to the parties owning Interests in the Company as of the
date such item is required to be taken into account by the Company for federal
income tax purposes.
9.5 Distributions of Cash. So long as the Company shall have cash on
hand of at least $200,000 and subject to the provisions of the Credit Facility,
no later than 15 days after the last day of each calendar month the Company
shall distribute to the Members Pro Rata (unless redirected pursuant to Section
8.1(c)) all cash on hand, unless otherwise determined by the Management
Committee.
9.6 Limitation on Distribution. No distribution shall be declared and
paid unless, after the distribution is made, the assets of the Company are in
excess of all liabilities of the Company (as determined in accordance with
generally accepted accounting principles applied on a consistent basis), except
liabilities to Members on account of their Capital Contributions.
9.7 Transferred Interests. Distributions of Company assets in respect
of an Interest in the Company shall be made only to the persons or entities
who, according to the books and records of the Company, are the holders of
record of the Interests in respect of which such distributions are made on the
actual date of distribution. The Company, the Members, the members of the
Management Committee and the Officers shall not incur any liability for making
distributions in accordance with the provisions of the preceding sentence,
whether or not the Company, the Members, the members of the Management
Committee or the Officers have knowledge or notice of any Transfer or purported
Transfer of ownership of any Interest in the Company.
9.8 Accounting Principles; Designated Independent Auditor. The Profits
and Losses of the Company shall be determined in accordance with generally
accepted accounting principles applied on a consistent basis. Until changed in
accordance with the terms of this Agreement by Supermajority Vote of the
Members, Ernst & Young, LLP shall be the Company's independent auditor.
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9.9 Records and Reports. At the expense of the Company (subject to the
Approved Budget), the appropriate Officers shall maintain records and accounts
of all operations and expenditures of the Company and submit monthly reports
regarding same to each of the Members. The Company shall use commercially
reasonable efforts to provide within 30 days of the end of each fiscal quarter
(other than the fourth quarter) to each member (i) unaudited financial
statements of the Company (including balance sheet, profit or loss statement,
and statement of cash flows) prepared in accordance with GAAP and (ii) a
projected budget for the ensuing fiscal quarter. The Company shall use
commercially reasonable efforts to provide within 60 days of the end of each
Fiscal Year audited financial statements of the Company prepared in accordance
with GAAP prepared by the Company's independent auditor. The Company shall
deliver such other financial reports reasonably requested by a Member. At a
minimum, the Company shall keep at its principal place of business the
following records:
(a) A current list that states:
(i) The name and mailing address of each Member, and
(ii) The number and classes of Units and the corresponding
Percentage Interest owned by each Member;
(b) Copies of the federal, state and local information or
income tax returns for each of the Company's six most recent tax years
(or such shorter period that the Company has been in existence):
(c) A copy of the Certificate and the Agreement, all
amendments or restatements, executed copies of any powers of attorney,
and copies of any document that creates, in the manner provided by the
Certificate or this Agreement, classes or groups of Members;
(d) Correct and complete books and records of account of the
Company; and
(e) Any other books, records or documents required by the Act
or other applicable law.
9.10 Returns and Other Elections. The appropriate Officers shall cause
the preparation and timely filing of all tax returns required to be filed by
the Company pursuant to the Code and all other tax returns deemed necessary and
required in each jurisdiction in which the Company does business. Copies of the
returns, or pertinent information therefrom, shall be furnished to the Members
within seventy-five (75) days after the end of each Fiscal Year of the Company.
Subject to Section 4.4(e), all elections permitted to be made by the Company
under federal or state laws shall be made by Approval of the Management
Committee.
25
<PAGE> 30
9.11 Tax Matters Partner. EXCO is hereby designated to be the "tax
matters partner" of the Company pursuant to Code Section 6231(a)(7). Any Member
who is designated "tax matters partner" shall take such action as may be
necessary to cause each other Member to become a "notice partner" within the
meaning of Code Section 6223. Any Member who is designated "tax matters
partner" shall inform each other Member of all significant matters that may
come to its attention in its capacity as "tax matters partner" by giving notice
thereof on or before the fifth Business Day after becoming aware thereof and,
within that time, shall forward to each other Member copies of all significant
written communications it may receive in that capacity. Any Member who is
designated "tax matters partner" may not take any action contemplated by Code
Sections 6222 through 6232 without Approval of the Management Committee, but
this sentence does not authorize the "tax matters partner" or the Management
Committee to take any action left to the determination of an individual Member
under Code Sections 6222 through 6232.
9.12 Bank Accounts. All funds of the Company shall be deposited in its
name in an account maintained in an insured, commercial financial institution,
as determined by the appropriate Officers. The funds of the Company shall not
be commingled with the funds of any other Person. Checks may be drawn on the
Company account or accounts only for the purposes of the Company and shall be
signed by an appropriate Officer.
ARTICLE 10
Dissolution and Termination
10.1 Dissolution. The Company shall be dissolved on the first to occur
of the following:
(a) The Company has not completed the purchase of the Apache
Properties by July 31, 1999;
(b) On the election to dissolve the Company by a
Supermajority Vote of the Members or, as provided in Section 6.9(c),
by Approval of the Management Committee;
(c) On the death, retirement, resignation, expulsion,
Bankruptcy, legal incapacity or dissolution of any Member, unless
there is at least one remaining Member and the business of the Company
is continued by the consent of the remaining Members given in writing
within 90 days;
(d) The entry of a decree of judicial dissolution under
Section 18.802 of the Act; or
26
<PAGE> 31
(e) The Act so requires and the requirement is not validly
varied by this Agreement.
Nothing contained in this Section 10.1 is intended to permit a Member
to dissolve the Company at will (by retirement, resignation, withdrawal or
otherwise), or to exonerate a Member from liability to the Company and the
remaining Members if it dissolves the Company at will. A purported dissolution
at will of the Company that is not permitted hereby is in contravention of this
Agreement for purposes of the Act.
10.2 Interim Manager. If the Company is dissolved as a result of an
event described in Section 10.1(b), then the Members who have not caused the
dissolution may appoint one or more interim managers of the Company, who shall
have and may exercise all the rights, powers and duties of the Management
Committee under this Agreement, until the Company is reconstituted.
10.3 Winding-up and Termination.
(a) On dissolution of the Company, the business and affairs
of the Company shall terminate and the assets of the Company shall be
liquidated under this Article 10.
(b) Dissolution of the Company is effective as of the day on
which the event giving rise to the dissolution occurs, but the Company
shall not terminate until there has been a winding up of the Company's
business and affairs and the Company's assets have been distributed as
provided in Section 10.4.
(c) On dissolution of the Company, the Members who have not
caused the dissolution may cause any part or all of the assets of the
Company to be sold in the manner Approved by the Members (excluding
Members who caused the dissolution), in an effort to obtain the best
prices for the assets; provided, however, that upon Approval of the
Management Committee, the Company may distribute assets of the Company
in kind to the Members to the extent practicable.
10.4 Distribution of Assets on Dissolution. In settling accounts after
dissolution, the assets of the Company shall be paid in the following order:
(a) First, to creditors in the order of priority as provided
by law;
(b) Second, amounts necessary to establish, for a period not
to exceed one year after the date of dissolution, cash reserves that
the Management Committee deems reasonably necessary for any
contingent, unliquidated or potential liabilities or obligations of
the Company (provided, however, that upon the earlier to occur of (i)
the first anniversary of the dissolution and (ii) the resolution of
any contingent or unforseen liabilities or obligations of the Company,
any remaining cash reserves shall be distributed to the Members
27
<PAGE> 32
pursuant to paragraph (c) of this Section as if such remaining cash
reserves had been included in the initial distributions made pursuant
to this Section);
(c) Third, to holders of Class A Units in an amount equal to
their remaining Capital Account (if a positive number); and
(d) Finally, any remainder shall be distributed to the
holders of Class A Units outstanding Pro Rata (less any deduction for
a negative Capital Account of any Member).
10.5 Distributions in Kind. Assets of the Company shall be distributed
to the Members entitled thereto as tenants-in-common in the same proportions as
the Members would have been entitled to cash distributions if the property had
been sold for cash at a price equal to its fair market value and the net
proceeds distributed to the Members.
10.6 Certificate of Cancellation. When all liabilities and obligations
of the Company have been paid or discharged, or adequate provision has been
made therefor, and all of the remaining property and assets of the Company have
been distributed to the Members according to their respective rights and
interests, a Certificate of Cancellation shall be executed on behalf of the
Company by an appropriate Officer and shall be filed with the Office of the
Secretary of State of the State of Delaware, and the Members and appropriate
Officers shall execute, acknowledge and file any and all other instruments
necessary or appropriate to reflect the dissolution and termination of the
Company.
ARTICLE 11
Miscellaneous Provisions
11.1 Notices.
(a) Any notice, notification, demand or request provided or
permitted to be given under this Agreement must be in writing and
shall have been deemed to have been properly given, unless explicitly
stated otherwise, if sent by (i) Federal Express or other comparable
overnight courier (next Business Day delivery requested), (ii)
registered or certified mail, postage prepaid, return receipt
requested, or (iii) telecopy during normal business hours to the place
of business of the recipient.
(b) For purposes of all notices, the addresses and telecopy
numbers of the Members are set forth on Exhibit A.
(c) All notices, notifications, demands or requests so given
shall be deemed properly given and received (i) if mailed, three
Business Days after being
28
<PAGE> 33
deposited in the mail; (ii) if sent via overnight courier (next
Business Day delivery requested), the next Business Day after being
deposited; or (iii) if telecopied on a Business Day during normal
business hours, that day, or if telecopied on a day that is not a
Business Day or telecopied after normal business hours, the next day
that is a Business Day.
(d) Any notice, notification, demand or request delivered by
hand delivery or messenger shall be deemed properly given and received
when the delivery receipt therefor is signed or initialed by a
business employee of any recipient or by an adult resident at the
residence of any recipient.
11.2 Application of Law; Venue. THIS AGREEMENT AND THE APPLICATION OR
INTERPRETATION HEREOF, SHALL BE GOVERNED EXCLUSIVELY BY THE LAWS OF THE STATE
OF TEXAS, OTHER THAN AS TO MATTERS OF GOVERNANCE ARISING UNDER THE ACT WHICH
SHALL BE GOVERNED BY THE ACT. EXCLUSIVE VENUE FOR ANY ACTION RELATING TO THIS
AGREEMENT SHALL BE MAINTAINED IN DALLAS COUNTY, TEXAS. EACH PARTY HEREBY
CONSENTS TO PERSONAL JURISDICTION AND SERVICE OF PROCESS IN THE STATE OF TEXAS
FOR MATTERS BETWEEN THE PARTIES HERETO THAT ARISE OUT OF THIS AGREEMENT.
To the extent permitted by applicable law, each Member hereby waives
and agrees not to assert, by way of motion, as a defense or otherwise in any
such action, any claim (i) that it is not subject to the jurisdiction of the
above-named courts, (ii) that the action is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or its
property, (iv) that the venue of the suit, action or proceeding is improper or
(v) that this Agreement, or the subject matter hereof, may not be enforced in
or by such courts.
11.3 No Action for Partition. No Member may maintain any action for
partition with respect to the property of the Company.
11.4 Headings and Sections. The headings in this Agreement are
inserted for convenience only and do not describe, interpret, define or limit
the scope, extent or intent of this Agreement or any provision hereof. Unless
the context requires otherwise, all references in this Agreement to Sections or
Articles shall be deemed to mean and refer to Sections or Articles of this
Agreement. The words "herein," "hereof," "hereto" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
11.5 Amendments. This Agreement may be amended, supplemented or
restated only by Approval of the Members; provided, however that any amendment
hereto necessary to effect any matter referred to in Section 6.9 shall require
a Supermajority Vote of the Members. The appropriate Officers shall cause
Certificates of Amendment
29
<PAGE> 34
in accordance with the Act to be prepared, and those Certificates of Amendment
shall be executed by the appropriate Officers and shall be filed in accordance
with the Act.
11.6 Number and Gender. Where the context so indicates, the masculine
includes the feminine and the neuter, the neuter includes the masculine and
feminine, and the singular includes the plural.
11.7 Binding Effect; No Third Party Beneficiaries. Except as herein
otherwise provided to the contrary, this Agreement shall be binding upon and
inure to the benefit of the Members, their distributees, heirs, legal
representatives, executors, administrators, successors and assigns. There shall
be no third party beneficiary of this Agreement.
11.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which is considered an original and shall be binding upon
the Member who executed the same, but all of such counterparts shall constitute
the same agreement.
11.9 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, the legality, validity, and enforceability of the remaining
provisions of this Agreement shall not be affected thereby, and in lieu of such
illegal, invalid, or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be legal, valid, and
enforceable.
11.10 Entire Agreement. The Certificate, this Agreement and the
Agreement Among the Members of the Company (i) constitute the entire agreement
between the parties relating to the subject matter hereof, and (ii) supersede
all previous contracts and agreements between the parties hereto, both oral and
written.
11.11 Insurance. The Company may purchase and maintain insurance on
behalf of any person who is or was a member of the Management Committee,
Officer, employee or agent of the Company or who is or was serving at the
request of the Company as a manager, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary or another foreign or domestic
limited liability company, corporation, partnership, joint venture, sole
proprietorship trust, other enterprise or employee benefit plan, against any
liability.
* * * * *
30
<PAGE> 35
IN WITNESS WHEREOF, the undersigned, being the initial members of the
Management Committee of the Company, have caused this Agreement to be duly
adopted by the Company as of the 30th day of June, 1999.
THE COMPANY:
/s/ DOUGLAS H. MILLER
----------------------------------------------
Douglas H. Miller
/s/ T.W. EUBANK
----------------------------------------------
T.W. Eubank
/s/ EUGENE L. AMES, JR.
----------------------------------------------
Eugene L. Ames, Jr.
/s/ JOHN Y. AMES
----------------------------------------------
John Y. Ames
31
<PAGE> 36
The undersigned, being all of the initial Members of the Company, do
hereby ratify, confirm and approve the adoption of this Agreement as the
limited liability company agreement of the Company, and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, do
hereby assume and agree to be bound by and to perform all of the terms and
provisions set forth in this Agreement.
MEMBERS:
VENUS EXPLORATION, INC.
By: /s/ JOHN Y. AMES
---------------------------------------
Name: John Y. Ames
Title: President
EXCO RESOURCES, INC.
By: /s/ T.W. EUBANK
---------------------------------------
Name: T.W. Eubank
Title: President
32
<PAGE> 37
EXHIBIT A
COMPANY AND MEMBER INFORMATION
1. Name of Company: EXUS Energy, LLC
2. Address, Telephone Number c/o EXCO Resources, Inc.
and Telecopy Number of 5735 Pineland Drive
Principal Office: Suite 235
Dallas, Texas 75231
Telephone: (214) 368-2084
Facsimile: (214) 368-2087
3. Registered Agent and Office: The Corporation Trust Company
1201 Orange Street
Wilmington, Delaware 19801
A - 1
<PAGE> 38
4. Members:
a. Name: Venus Exploration, Inc.
Mailing Address 1520 N.E. Loop 410
and Telecopy Number: Suite 1000
San Antonio, Texas 78209
Attention: President
Telephone: (210) 930-4900
Facsimile: (210) 828-6016
Initial
Percentage Interest: 50%, represented by 100 Class A Units
Initial Cash
Capital Contribution: $7,000,000
Date Became Member: June 28, 1999
b. Name: EXCO Resources, Inc.
Mailing Address 5735 Pineland Drive
and Telecopy Number: Suite 235
Dallas, Texas 75231
Attention: President
Telephone: (214) 368-2084
Facsimile: (214) 368-2087
Initial
Percentage Interest: 50%, represented by 100 Class A Units
Initial Cash
Capital Contribution: $7,000,000
Date Became Member: June 28, 1999
A - 2
<PAGE> 1
EXHIBIT 10.4
CONVERTIBLE PROMISSORY NOTE
$8,000,000.00 Dallas, Texas June 30, 1999
FOR VALUE RECEIVED, the undersigned, VENUS EXPLORATION, INC., a
Delaware corporation ("MAKER"), hereby unconditionally promises to pay to the
order of EXCO RESOURCES, INC., a Texas corporation ("PAYEE"), at 5735 Pineland
Dr., Suite 235, Dallas, Texas 75231, or such other address given to Maker by
Payee, the principal sum of EIGHT MILLION AND 00/100 DOLLARS ($8,000,000.00),
or so much thereof as may be advanced in accordance with the terms of this
Note, in lawful money of the United States of America, together with interest
(calculated on the basis of a 360-day year) on the unpaid principal balance
from day-to-day remaining, computed until maturity at the rate per annum which
shall from day-to-day be equal to the lesser of (a) the Applicable Rate
(defined below), and (b) the Maximum Rate (defined below).
1. DEFINITIONS. When used in this Note, the following terms shall have
the respective meanings specified herein or in the section referred to:
"ADJUSTMENT EVENT" is defined in SECTION 8(d)(i) hereof.
"AGREEMENT AMONG MEMBERS" means that certain Agreement Among Members
dated of even date hereof, between Payee and Maker, and all modifications,
amendments, substitutions, and replacements thereof.
"APPLICABLE RATE" means (a) for each day during the following periods
in which no Event of Default exists, the rate of interest set forth opposite
the applicable period below:
<TABLE>
<CAPTION>
PERIOD APPLICABLE RATE
------ ---------------
<S> <C>
Date hereof through June 30, 2000 10%
July 1, 2000 through June 30, 2001 11%
July 1, 2001 through June 30, 2002 12%
July 1, 2002 through June 30, 2003 13%
July 1, 2003 through June 30, 2004 14%
July 1, 2004 and thereafter 15%
</TABLE>
and (b) for each day in which an Event of Default exists, fifteen percent (15%).
"BUSINESS DAY" means any day other than a Saturday, Sunday, or other
day on which a bank is authorized to be closed under the laws of the State of
Texas.
"CHANGE OF CONTROL" means either of the following: (a) the
consummation of any transaction or series of any related transactions
(including without limitation, by way of merger) the result of which
CONVERTIBLE PROMISSORY NOTE
<PAGE> 2
is that any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
becomes the "beneficial owner" (as defined in Rule 13(d)(3) and 13(d)(5) under
the Exchange Act) of more than fifty percent (50%) of the voting power of the
Common Stock; or (b) either Eugene L. Ames, Jr. or John Y. Ames ceases to be a
member of the Board of Directors of Maker.
"COMMON STOCK" means the Common Stock, par value $0.01 per share, of
Maker, any successor class or classes of common equity (however designated) of
Maker into or for which such Common Stock may hereafter be converted,
exchanged, or reclassified and any class or classes of common equity (however
designated) of Maker which may be distributed or issued with respect to such
Common Stock or successor class or classes to holders thereof generally.
"COMPANIES" means Maker and its Subsidiaries, and "COMPANY" means any
one of the Companies.
"CONVERSION PRICE" means $1.50 per share as adjusted as provided in
SECTION 8(c) below and as may be reduced pursuant to SECTIONS 8(k) and (l)
below.
"CURRENT MARKET PRICE" means, when used with respect to any security
as of any date, the last sale price, regular way, or, in case no such sale
takes place on such date, the closing bid price, regular way, of such security
in either case as reported on the Nasdaq National Market, or, if such security
is not listed or admitted to trading on the Nasdaq National Market, as reported
on the Nasdaq SmallCap Market, or if such security is not listed or admitted to
trading on any national or international securities exchange or the Nasdaq
National Market or the Nasdaq SmallCap Market, the average of the high bid and
low asked prices of such security in the over-the-counter market as reported by
the National Association of Securities Dealers, Inc. Automated Quotations
System or such other system then in use or, if such security is not quoted by
any such organization, the average of the closing bid and asked prices of such
security furnished by an New York Stock Exchange member firm selected by Maker.
If such security is not quoted by any such organization and no such New York
Stock Exchange member firm is able to provide such prices, then the Current
Market Price of such security shall be the fair market value thereof as
determined in good faith by the Board of Directors of Maker.
"EQUITY ISSUANCE" means the issuance or sale by any Company of any
Common Stock or any other shares, options, warrants, or other ownership
interests (regardless of how designated) of or in any Company, or any other
security or instrument convertible into, or exchangeable for, Common Stock.
"EVENT OF DEFAULT" is defined in SECTION 4 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING CREDIT AGREEMENT" means the Credit Agreement dated June 5,
1997, executed by Maker and Wells Fargo Bank (Texas) N.A.
CONVERTIBLE PROMISSORY NOTE - 2 -
<PAGE> 3
"INTEREST CONVERSION PRICE" means, as of any date, (a) the sum of the
Current Market Price of the Common Stock for each of the twenty (20) Trading
Days immediately preceding such date, divided by (b) twenty (20).
"INTEREST PAYMENT DATE" means (a) each January 1 and July 1 of each
calendar year during the term of this Note, and (b) the Maturity Date.
"JOINT VENTURE" means EXUS Energy, LLC, a Delaware limited liability
company.
"LOAN DOCUMENTS" means this Note, the Pledge Agreement, and all other
loan and collateral documents evidencing or securing the Obligation.
"MATURITY DATE" means July 1, 2004.
"MAXIMUM RATE" means the highest non-usurious rate of interest (if
any) permitted from day to day by applicable law. Payee hereby notifies and
discloses to Maker that, for purposes of Tex. Rev. Civ. Stat. Ann. art.
5069-1D.001 (codified in the Texas Finance Code ss. 303.001), as it may from
time to time be amended, the "applicable ceiling" shall be the "weekly ceiling"
from time to time in effect as limited by article 5069-1D.009 (codified in the
Texas Finance Code ss. 303.305); provided, however, that to the extent
permitted by applicable law, Payee reserves the right to change the "applicable
ceiling" from time to time by further notice and disclosure to Maker.
"NET PROCEEDS" means, with respect to any Equity Issuance by any
Company, the amount of cash received by such Company in connection with such
transaction after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such transaction:
(a) reasonable brokerage commissions, attorneys' fees, finder's fees, financial
advisory fees, accounting fees, underwriting fees, investment banking fees, and
other similar commissions and fees and expenses and disbursements of any of the
foregoing, in each case to the extent paid or payable by such Company; (b)
printing and related expenses of filing and recording or registration fees or
charges or similar fees or charges paid by such Company; and (c) taxes paid or
payable by such Company to any governmental authority as a result of such
transaction.
"OBLIGATION" shall mean all indebtedness, liabilities, and
obligations, of Maker arising under this Note and the other Loan Documents.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof, or any other entity.
"PLEDGE AGREEMENT" means that certain Pledge Agreement dated of even
date hereof, executed by Maker in favor of Payee, and all modifications,
amendments, substitutions, and replacements thereof.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement dated of even date hereof, between Payee and Maker, and all
modifications, amendments, substitutions, and replacements thereof.
CONVERTIBLE PROMISSORY NOTE - 3 -
<PAGE> 4
"REQUIRED STOCKHOLDER CONSENT" is defined in SECTION 8(i) hereof.
"SEC" means the Securities and Exchange Commission and any successor
thereof.
"STOCK" means all shares, options, warrants, general or limited
partnership interests, membership interests, or other ownership interests
(regardless of how designated) of or in a corporation, partnership, limited
liability company, trust, or other entity, whether voting or nonvoting,
including common stock, preferred stock, or any other "equity security" (as
such term is defined in Rule 3a11-1 of the General Rules and Regulations
promulgated by the Securities and Exchange Commission under the Exchange Act).
"SUBSIDIARY" means any Person of which more than fifty percent (50%)
(in number of votes) of the issued and outstanding Stock having ordinary voting
power for the election of at least a majority of the directors is owned or
controlled, directly or indirectly, by Maker, any Subsidiary of Maker, or any
combination thereof.
"TRADING DAY" means each Monday, Tuesday, Wednesday, Thursday, and
Friday, other than any day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.
2. ADVANCES; PAYMENT.
(a) ADVANCES.
(i) On the date hereof, Payee shall lend to Payee, in a
single advance, the sum of $7,000,000.00 (the "INITIAL ADVANCE").
(ii) So long as no Event of Default has occurred and Maker
has obtained the Required Stockholder Consent, then at the request of
Maker after January 1, 2000 and before the Maturity Date, Payee shall
lend to Maker, in a multiple advances not to exceed in the aggregate
$1,000,000.00 (the "SUBSEQUENT ADVANCES"). Each Subsequent Advance
shall be in the amount of $100,000.00 or a greater integral multiple
of $50,000.00. Payee may indicate the Initial Advance and any
Subsequent Advances on a schedule attached hereto, or on a
continuation of such schedule, provided that the failure of Payee to
so indicate any advances shall not affect the obligation of Maker
hereunder.
(b) INTEREST AND PRINCIPAL PAYMENTS. The unpaid principal of, and
interest on, this Note shall be due and payable as follows:
(i) Interest, computed as aforesaid, shall be due and payable
semi-annually as it accrues on each Interest Payment Date, commencing
on January 1, 2000; and
(ii) the unpaid principal of, and interest on, this Note
shall be finally due and payable on the Maturity Date.
CONVERTIBLE PROMISSORY NOTE - 4 -
<PAGE> 5
(c) MAKER'S RIGHT TO CONVERT INTEREST PAYMENTS INTO COMMON STOCK. If
Maker obtains the Required Stockholder Consent, Maker may, at its election,
cause the accrued interest on this Note as of any date to be converted into the
number of shares of Common Stock obtained by dividing (i) such unpaid accrued
interest by (ii) the Interest Conversion Price; provided that (A) Maker shall
notify Payee in writing of its election to cause a conversion under this
SECTION 2(c) at least thirty (30) days prior to the date such interest is to be
converted into Common Stock, and (B) if any fractional share of the Common
Stock would be issuable upon the conversion of any portion of the accrued
interest on this Note, then Maker shall pay a cash adjustment therefor in
respect of such fractional share equal to the product of (x) the percentage
representing such fractional share, and (y) the Interest Conversion Price.
(d) VOLUNTARY PREPAYMENT. Maker reserves the right, upon thirty (30)
days' prior written notice to Payee, to prepay the outstanding principal
balance of this Note, in whole or in part, at any time and from time to time;
provided that: (i) if such prepayment occurs on or before July 1, 2000, then
such prepayment shall be accompanied by a prepayment penalty in an amount equal
to the product of (A) the principal amount prepaid, and (B) 3.5714286%; and
(ii) if such prepayment is after July 1, 2000, then Payee shall have the right
to convert the principal amount of this Note prepaid, together with accrued
unpaid interest thereon, into Common Stock pursuant to SECTION 8(a) below. All
prepayments shall be made together with payment of interest accrued on the
amount of principal being prepaid through the date of such prepayment.
(e) MANDATORY PREPAYMENTS.
(i) Contemporaneously with the receipt thereof by any
Company, Maker shall prepay the outstanding principal balance of, and
accrued unpaid interest on, this Note in an amount equal to fifty
percent (50%) of the Net Proceeds of each Equity Issuance by any
Company on or after the date hereof (excluding the first $5,000,000.00
of aggregate Net Proceeds of all Equity Issuances by all Companies on
or after the date hereof).
(ii) If Maker fails to obtain the Required Stockholder
Consent on or before December 31, 1999, then Maker shall immediately
prepay the unpaid principal of this Note in immediately available
funds an amount equal to $3,000,000.00 together with any accrued
unpaid interest on such amount; provided that Maker may, in lieu of
such prepayment, (A) transfer to Payee, pursuant to documents
reasonably acceptable to Payee, membership interests in the Joint
Venture constituting 21.4285714% of the issued and outstanding
membership interests in the Joint Venture, and (B) pay to Payee in
immediately available funds any accrued unpaid interest on
$3,000,000.00 of the principal of this Note. Upon the transfer of
membership interests in the Joint Venture, as provided in the
immediately preceding sentence, the unpaid principal of this Note
shall be reduced by the amount of $3,000,000.00.
(f) PAYMENTS GENERALLY. Except as otherwise provided herein, all
payments of principal of and interest on this Note shall be made by Maker to
Payee in federal or other immediately available funds. Should the principal of,
or any installment of the principal of or interest on, this Note become due and
payable on any day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day, and interest shall be payable
with respect to such extension. Payments made to Payee by Maker hereunder shall
be applied first to accrued interest and then to principal.
CONVERTIBLE PROMISSORY NOTE - 5 -
<PAGE> 6
3. WAIVER. Except as provided herein, Maker and each surety, endorser,
guarantor, and other party ever liable for payment of any sums of money payable
upon this Note, jointly and severally waive presentment, demand, protest,
notice of protest and non-payment, or other notice of default, notice of
acceleration and intention to accelerate, or other notice of any kind, and
agree that their liability under this Note shall not be affected by any renewal
or extension in the time of payment hereof, or in any indulgences, or by any
release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases, or changes,
regardless of the number of such renewals, extensions, indulgences, releases,
or changes.
4. EVENTS OF DEFAULT AND REMEDIES. An "EVENT OF DEFAULT" shall exist
hereunder if any one or more of the following events shall occur and be
continuing: (a) Maker shall fail to pay when due any principal of, or interest
upon, this Note or the Obligation and such failure shall continue for three (3)
days after such payment became due; or (b) Maker shall fail to perform any of
the covenants or agreements contained herein or in any other Loan Document and
such failure shall continue unremedied for thirty (30) days after written
notice thereof; or (c) any representation or warranty made by Maker to Payee
herein or in any other Loan Document shall prove to be untrue or inaccurate in
any material respect; or (d) any Company or the Joint Venture shall (1) apply
for or consent to the appointment of a receiver, trustee, intervener,
custodian, or liquidator of itself or of all or a substantial part of its
assets, (2) be adjudicated bankrupt or insolvent or file a voluntary petition
for bankruptcy or admit in writing that it is unable to pay its debts as they
become due, (3) make a general assignment for the benefit of creditors, (4)
file a petition or answer seeking reorganization or an arrangement with
creditors or to take advantage of any bankruptcy or insolvency laws, or (5)
file an answer admitting the material allegations of, or consent to, or default
in answering, a petition filed against it in any bankruptcy, reorganization, or
insolvency proceeding, or take corporate action for the purpose of effecting
any of the foregoing; or (e) an order, judgment, or decree shall be entered by
any court of competent jurisdiction or other competent authority approving a
petition seeking reorganization of any Company or the Joint Venture or
appointing a receiver, trustee, intervener, or liquidator of any Company or the
Joint Venture, or of all or substantially all of its assets, and such order,
judgment, or decree shall continue unstayed and in effect for a period of
thirty (30) days; or (f) the dissolution or liquidation of any Company or the
Joint Venture; or (g) a Change of Control; or (h) a default or event of default
shall occur under the Existing Credit Agreement (as such agreement shall be
modified, amended, renewed, extended, or restated from time to time) and such
default or event of default shall continue unremedied after the expiration of
any period of grace or notice, if any; or (i) any Company shall default in the
payment of any indebtedness of such Company in excess of $50,000.00
individually or in the aggregate or default shall occur in respect of any note
or credit agreement relating to any such indebtedness and such default shall
continue for more than the period of grace, if any, specified therein; or (j)
any final judgment(s) for the payment of money in excess of the sum of
$50,000.00 individually or in the aggregate shall be rendered against any
Company and such judgment(s) shall not be satisfied or discharged at least ten
(10) days prior to the date on which any of such Company's assets could be
lawfully sold to satisfy such judgment(s); or (k) Maker shall breach either the
Agreement Among Members or the Registration Rights Agreement.
Upon the occurrence of any Event of Default hereunder, then the holder
hereof may, at its option, (i) declare the entire unpaid principal balance and
accrued interest upon the Obligation to be immediately due and payable without
presentment or notice of any kind which Maker waives pursuant to SECTION 3
herein, and/or (ii) pursue and enforce any of Payee's rights and remedies
available pursuant
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<PAGE> 7
to any applicable law or agreement; provided, however, in the case of any Event
of Default specified in PARAGRAPH (d) or (e) of this SECTION 4 with respect to
any Company, without any notice to Maker or any other act by Payee, the
principal balance and interest accrued on this Note shall become immediately
due and payable without presentment, demand, protest, or other notice of any
kind, all of which are hereby waived by Maker.
5. REPRESENTATIONS AND COVENANTS.
(a) REPRESENTATIONS. Maker represents and warrants to Payee that:
(i) each Company is duly organized and in good standing under
the laws of the state of its incorporation, formation, or organization
and has the power to own its property and to carry on its business in
each jurisdiction in which such Company operates;
(ii) Maker has full power and authority to enter into this
Note and the other Loan Documents, to execute and deliver the Loan
Documents, and to incur the obligations provided for in the Loan
Documents, all of which has been duly authorized by all necessary
action;
(iii) the Loan Documents are the legal and binding
obligations of Maker, enforceable in accordance with their respective
terms;
(iv) neither the execution and delivery of this Note and the
other Loan Documents, nor consummation of any of the transactions
herein or therein contemplated, nor compliance with the terms and
provisions hereof or thereof, will contravene or conflict with any
provision of law, statute, or regulation to which any Company is
subject or any judgment, license, order, or permit applicable to any
Company or any indenture, mortgage, deed of trust, or other instrument
to which any Company may be subject; no consent, approval,
authorization, or order of any court, governmental authority, or third
party is required in connection with the execution, delivery, and
performance by Maker of this Note or any of the other Loan Documents
or to consummate the transactions contemplated herein or therein;
(v) all financial statements delivered by Maker to Payee
prior to the date hereof fairly present the financial condition of the
Companies, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and no material
adverse change has occurred in the financial condition or business of
the Companies since the date of the most-recent financial statements
which Maker has delivered to Payee;
(vi) no litigation, investigation, or governmental proceeding
is pending, or, to the knowledge of any of Maker's officers,
threatened against or affecting any Company, which may result in any
material adverse change in any Company's business, properties, or
operations;
(vii) there is no fact known to Maker that Maker has not
disclosed to Payee in writing which may result in any material adverse
change in any Company's business, properties, or operations;
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<PAGE> 8
(viii) the Companies own all of the assets reflected on the
Companies' most recent balance sheet free and clear of all liens,
security interests, or other encumbrances, except liens reflected on
SCHEDULE 2 attached hereto;
(ix) the principal office, chief executive office, and
principal place of business of each Company is in San Antonio, Bexar
County, Texas;
(x) all taxes required to be paid by each Company have in
fact been paid;
(xi) except as disclosed on SCHEDULE 3 attached hereto, no
Company is in violation of any law, ordinance, governmental rule, or
regulation to which it is subject, and is not in default under any
material agreement, contract, or understanding to which it is a party;
(xii) each Company and any properties or assets owned by such
Company are not in violation of, in any material respect, any
environmental laws, nor is there existing, pending, or threatened any
investigation or inquiry by any governmental authority pursuant to any
environmental laws, nor is there existing or pending any remedial
obligations under any environmental laws;
(xiii) Maker has filed all reports, schedules, forms,
statements, and other documents required to be filed by Maker with the
SEC pursuant to the reporting requirements of the Exchange Act (all of
the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS");
(xiv) as of their respective dates, the SEC Documents
complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents and none of the SEC
Documents, at the time they were filed with the SEC, contained any
untrue statement of material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading; and
(xv) all material agreements of the Companies or to which the
property or assets of any Company are subject have been filed as
exhibits to the SEC Documents as required.
(b) AFFIRMATIVE COVENANTS. Until payment in full of the Obligation,
Maker agrees and covenants that Maker shall and shall cause each of the other
Companies to:
(i) conduct its business in an orderly and efficient manner
consistent with good business practices and in accordance with all
valid regulations, laws, and orders of any governmental authority and
will act in accordance with customary industry standards in
maintaining and operating its assets, properties, and investments;
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<PAGE> 9
(ii) maintain complete and accurate books and records of its
transactions in accordance with generally accepted accounting
principles, and, if an Event of Default exists, will give Payee access
during business hours to all books, records and documents of the
Companies and permit Payee to make and take away copies thereof;
(iii) furnish to Payee as soon as available and in any event
within forty-five (45) days after the end of each quarterly fiscal
period (except the last) of each fiscal year of the Companies, copies
of the balance sheet of the Companies as of the end of such fiscal
period, statements of income and retained earnings, changes in cash
flow, and stockholder's equity of the Companies for such quarterly
fiscal period and for the portion of the fiscal year ending with such
period, and corresponding notes to such financial statements, all in
reasonable detail, and certified by the chief financial officer of
Maker as being true and correct and as having been prepared in
accordance with generally accepted accounting principles, consistently
applied, subject to year-end adjustments;
(iv) furnish to Payee as soon as available and in any event
within ninety (90) days after the close of each fiscal year of the
Companies, copies of the balance sheet of the Companies as of the
close of such fiscal year, statements of income and retained earnings,
changes in cash flow, and stockholder's equity of the Companies for
such fiscal year, and corresponding notes to such financial
statements, in each case setting forth in comparative form the figures
for the preceding fiscal year, all in reasonable detail and
accompanied by an opinion hereon of independent public accountants of
recognized national standings selected by Maker and satisfactory to
Payee, to the effect that (A) such financial statements have been
prepared in accordance with generally accepted accounting principles
(except for changes in which such accountants concur), (B) the
examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and, accordingly, includes such tests of the
accounting records and such other auditing procedures as were
considered necessary in the circumstances, and (C) in making their
audit, such accountants have not become aware of any condition or
event which would constitute a default or an Event of Default under
any of the terms or provisions of this Note or the other Loan
Documents (insofar as any such terms or provisions pertain to
accounting matters) and, if any such condition or event then exists,
specifying in the nature and period of existence thereof;
(v) furnish to Payee, immediately upon becoming aware of the
existence of any condition or event constituting an Event of Default
or event which, with the lapse of time and/or giving of notice would
constitute an Event of Default, written notice specifying the nature
and period of existence thereof and any action which Maker is taking
or proposes to take with respect thereto;
(vi) promptly notify Payee of: (A) any material adverse
change in its financial condition or business; (B) any default under
any material agreement, contract, or other instrument to which any
Company is a party (including, without limitation, the Existing Credit
Agreement) or by which any of its properties are bound, or any
acceleration of any maturity of any indebtedness owing by any Company
(including, without limitation, the Existing Credit Agreement); (C)
any material adverse claim against or affecting any Company or any of
its
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<PAGE> 10
properties; and (D) any litigation, or any claim or controversy which
might become the subject of litigation, against any Company or
affecting any Company's property, if such litigation or potential
litigation might, in the event of an unfavorable outcome, have a
material adverse effect on any Company's financial condition or
business or might cause an Event of Default;
(vii) promptly furnish to Payee, at Payee's reasonable
request, such additional financial or other information concerning
assets, liabilities, operations, and transactions of any Company as
Payee may from time to time reasonably request including audit
reports, registration statements, or other reports or notices provided
to stockholders of Maker or filed with the Securities and Exchange
Commission;
(viii) promptly pay all lawful claims, whether for labor,
materials, or otherwise, which might or could, if unpaid, become a
lien or charge on any property or assets of any Company, unless and to
the extent only that the same are being contested in good faith by
appropriate proceedings and reserves have been established therefor;
(ix) maintain on its properties insurance of responsible and
reputable companies in such amounts and covering such risks as is
prudent and is usually carried by companies engaged in businesses
similar to that of the Companies; Maker shall furnish Payee, on
request, with certified copies of insurance policies or other
appropriate evidence of compliance with the foregoing covenant;
(x) comply with all applicable legal requirements of any
governmental authority;
(xi) preserve and maintain all licenses, privileges,
franchises, certificates, and the like necessary for the operation of
its business;
(xii) pay and discharge all taxes, assessments, and
governmental charges or levies imposed upon it or upon its income or
profits, or upon any property belonging to it, before such amounts
become delinquent;
(xiii) comply with all terms, conditions, and agreements set
forth in the Existing Credit Agreement, as the Credit Agreement has
been modified and amended through the date hereof;
(xiv) use the Initial Advance solely to acquire to make the
initial capital contributions to the Joint Venture; and
(xv) use the proceeds of the Subsequent Advances solely to
fund capital contributions to the Joint Venture and/or to fund the
expenses of one (1) Equity Issuance
(c) NEGATIVE COVENANTS. Until payment in full of the Obligation, Maker
covenants that Maker shall not and shall not permit any other Company to:
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<PAGE> 11
(i) without the prior written consent of Payee (such consent
not to be unreasonably withheld), (A) sell all or substantially all
the Companies' assets, or (B) pay any dividends on any of its
outstanding capital stock (except by any Company to Maker), or
purchase, redeem, or repurchase any of its capital stock;
(ii) sell, transfer, mortgage, assign, encumber, hypothecate,
or grant a security interest in any of the collateral pledged pursuant
to the Pledge Agreement; or
(iii) permit John Y. Ames to cease to be the President of
Maker or Eugene Y. Ames to cease to be the Chairman of Maker.
6. NO WAIVER. No waiver by Payee of any of its rights or remedies
hereunder or under any other document evidencing or securing this Note or
otherwise, shall be considered a waiver of any other subsequent right or remedy
of Payee; no delay or omission in the exercise or enforcement by Payee of any
rights or remedies shall ever be construed as a waiver of any right or remedy
of Payee; and no exercise or enforcement of any such rights or remedies shall
ever be held to exhaust any right or remedy of Payee.
7. USURY LAWS. Regardless of any provision contained in this Note,
Payee shall never be deemed to have contracted for or be entitled to receive,
collect, or apply as interest on this Note (whether termed interest herein or
deemed to be interest by judicial determination or operation of law) any amount
in excess of the Maximum Rate, and, in the event that Payee ever receives,
collects, or applies as interest any such excess, such amount which would be
excessive interest shall be applied to the reduction of the unpaid principal
balance of this Note, and, if the principal balance of this Note is paid in
full, then any remaining excess shall forthwith be paid to Maker. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the highest Maximum Rate, Maker and Payee shall, to the
maximum extent permitted under applicable law, (a) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest, (b)
exclude voluntary prepayments and the effect thereof, and (c) spread the total
amount of interest throughout the entire contemplated term of this Note so that
the interest rate is uniform throughout such term; provided, that if this Note
is paid and performed in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence thereof
exceeds the Maximum Rate, if any, then Payee or any holder hereof shall refund
to Maker the amount of such excess, or credit the amount of such excess against
the aggregate unpaid principal balance of all advances made by the Payee or any
holder hereof under this Note at the time in question.
8. CONVERSION RIGHTS.
(a) CONVERSION PRIVILEGE. During the period of time commencing on July
1, 2000 and continuing until the payment in full of this Note, Payee, at its
option may convert all or any portion of outstanding principal balance of, and
all accrued interest on, this Note into the number of shares of Common Stock
obtained by dividing (i) the unpaid principal amount of, and interest through
the date of conversion on, this Note to be converted, by (ii) the Conversion
Price.
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<PAGE> 12
(b) CONVERSION PROCEDURE. To convert this Note pursuant to this
SECTION 8, Payee must (i) complete and sign the "Form of Election to Convert"
attached hereto as EXHIBIT A, (ii) pay any transfer or similar tax if required
by SECTION 8(f), and (iii) if the conversion is of the entire unpaid principal
of, and interest on, this Note, then surrender this Note to Maker. As promptly
as practicable after delivery of an Election to Convert in accordance with this
SECTION 8(b), Maker shall issue and deliver to Payee, a certificate or
certificates for the full number of whole shares of Common Stock issuable upon
the conversion of this Note in accordance with the provisions of this SECTION
8.
(c) CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares of Common Stock shall
be issued upon conversion of the principal of, or interest on, this Note. If
any fractional share of Common Stock would be issuable upon the conversion of
any portion of this Note, Maker shall pay a cash adjustment therefor in respect
of such fractional share equal to the product of (i) the percentage
representing such fractional share multiplied by (ii) the Conversion Price.
(d) ADJUSTMENT OF CONVERSION PRICE.
(i) If Maker shall (A) pay a dividend or other distribution,
in Common Stock, on any class of capital stock of Maker, (B) subdivide
the outstanding Common Stock into a greater number of shares by any
means or (C) combine the outstanding Common Stock into a smaller
number of shares by any means (including, without limitation, a
reverse stock split) (any such event being an "ADJUSTMENT EVENT"),
then in each such case the Conversion Price shall be decreased or
increased as follows: the adjusted Conversion Price shall be equal to
the Conversion Price in effect immediately prior to the effective date
of the Adjustment Event, multiplied by a fraction whose numerator is
the number of shares of Common Stock issued and outstanding
immediately prior to such effective date, and whose denominator is the
number of such shares outstanding immediately after such effective
date. An adjustment made pursuant to this SECTION 8(d)(i) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date of such
subdivision or combination, as the case may be;
(ii) The provisions of this SECTION 8(d) shall similarly
apply to all successive events of the type described in this SECTION
8(d). Notwithstanding anything contained herein to the contrary, no
adjustment in the Conversion Price shall be required unless cumulative
adjustments would require an increase or decrease of at least 1% in
the Conversion Price then in effect; provided, however, that any
adjustments which by reason of this SECTION 8(d) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this SECTION 8 shall be
made by Maker and shall be made to the nearest cent and Maker shall be
entitled to rely conclusively thereon. Notwithstanding anything
contained in this SECTION 8(d) to the contrary, Maker shall be
entitled to make such reductions in the Conversion Price, in addition
to those required by this SECTION 8(d), if the Board of Directors of
Maker has made a determination that such reduction would be in the
best interests of Maker, which determination shall be conclusive as it
in its discretion shall determine to be advisable in order that any
stock dividends, subdivision of shares, distribution of rights
CONVERTIBLE PROMISSORY NOTE - 12 -
<PAGE> 13
to purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock hereafter made by Maker to
its stockholders shall not be taxable. Except as provided in this
SECTION 8, no adjustment in the Conversion Price will be made for the
issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase Common
Stock or any securities so convertible or exchangeable. In addition,
no adjustment in the Conversion Price shall be made in the event of
the issuance of Common Stock upon the conversion or exercise of
options, preferred stock or warrants of Maker outstanding on the date
hereof, unless the conversion or exercise price thereof is changed
after the date hereof (other than solely by operation of the
anti-dilution provisions hereof); or pursuant to employee stock option
or stock ownership plans, duly adopted by Maker.
(iii) Whenever the Conversion Price is adjusted as provided
herein, Maker shall promptly provide Payee with written notice of such
adjustment setting forth the Conversion Price in effect after such
adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(e) EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE. In the
event of (i) any reclassification (including, without limitation, a
reclassification effected by means of an exchange or tender offer by Maker) but
excluding a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), (ii)
any consolidation, merger or combination of Maker with another corporation as a
result of which holders of Common Stock shall be entitled to receive securities
or other property (including cash) with respect to or in exchange for Common
Stock or (iii) any sale or conveyance of the property of Maker as, or
substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive securities or other
property (including cash) with respect to or in exchange for Common Stock, then
Maker or the successor or purchasing corporation, as the case may be, shall
enter into an Amended and Restated Note providing that this Note shall be
convertible into the kind and amount of securities or other property (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance which Maker of this Note would have received if
this Note had been converted immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance. Such Amended
and Restated Note shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
SECTION 8.
Whenever an Amended and Restated Note is entered into as provided
herein, Maker shall promptly provide Payee with an Officer's Certificate
setting forth a brief statement of the facts requiring such Amended and
Restated Note.
The provisions of this SECTION 8 shall similarly apply to all
successive events of the type described in this SECTION 8.
(f) TAXES ON SHARES ISSUED. The issuance of a certificate or
certificates on conversion of this Note shall be made without charge to the
Payee for any tax or charge with respect to the issuance thereof. Maker shall
not, however, be required to pay any tax or charge which may be payable with
respect to any transfer involved in the issuance and delivery of a certificate
or certificates in any name other than that of Payee, and Maker shall not be
required to issue or deliver any such certificate or
CONVERTIBLE PROMISSORY NOTE - 13 -
<PAGE> 14
certificates unless and until the Person or Persons requesting the issuance
thereof shall have paid to Maker the amount of such tax or charge or shall have
established to the satisfaction of Maker that such tax or charge has been paid.
(g) RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE WITH
GOVERNMENT REQUIREMENTS; LISTING OF COMMON STOCK. Maker shall reserve, out of
its authorized but unissued Common Stock or its Common Stock held in treasury,
sufficient shares of Common Stock to provide for the conversion of all of this
Note.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Common Stock issuable
upon conversion of this Note, Maker will take all corporate action which may,
in the opinion of its counsel, be necessary in order that Maker may validly and
legally issue Common Stock at such adjusted Conversion Price.
Maker covenants that all Common Stock which may be issued upon
conversion of this Note will, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance and delivery thereof.
Maker covenants that if any Common Stock issued or delivered upon
conversion of this Note hereunder requires registration with or approval of any
governmental authority under any applicable federal or state law (excluding
federal or state securities laws) before such Common Stock may be lawfully
issued, Maker will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be.
Maker shall exercises its reasonable best efforts to list 10,133,333
shares of Common Stock by July 31, 1999 and shall promptly secure the listing
of additional Registrable Securities not previously listed as such shares are
issued (as defined in the Registration Rights Agreement) on the Nasdaq SmallCap
Market and each other subsequent market on which the Common Stock is then
listed or traded and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Registrable Securities from time
to time issuable under the terms hereof. Maker shall maintain the Common
Stock's authorization for listing on the Nasdaq SmallCap Market. Maker shall
not take any action which may result in the delisting or suspension of the
Common Stock on the Nasdaq SmallCap Market (other than to switch listing from
the Nasdaq SmallCap Market to the Nasdaq National Market or a stock exchange).
(h) NOTICE TO PAYEE PRIOR TO CERTAIN ACTIONS. In the event that:
(i) Maker shall declare or authorize any event which could
result in an adjustment in the Conversion Price under SECTION 8(D) or
require the execution of an amended and restated Note; or
(ii) Maker shall authorize the combination, consolidation or
merger of Maker for which approval of any stockholders of Maker is
required, the sale or transfer of all or substantially all of the
assets of Maker or the voluntary or involuntary dissolution,
liquidation or winding-up of Maker in whole or in part;
CONVERTIBLE PROMISSORY NOTE - 14 -
<PAGE> 15
then, in each such case, Maker shall give or cause to be given to Payee, as
promptly as possible but in any event at least 15 days prior to the applicable
date hereinafter specified, a notice stating the date on which a record is to
be taken for the purpose of determining the holders of outstanding Common Stock
entitled to participate in such event, the date on which such event is expected
to become effective or occur and the date on which it is expected that holders
of outstanding Common Stock of record shall be entitled to surrender their
shares, or receive any items, in connection with such event. Failure to give
such notice, or any defect therein, shall not affect the legality or validity
of such event.
(i) PROXY STATEMENT. On or before November 1, 1999 (the "PROXY
STATEMENT TRIGGER DATE"), Maker shall provide each stockholder entitled to vote
at the next meeting of stockholders of Maker, which meeting shall not be later
than forty-five (45) days after the Proxy Statement Trigger Date (the
"STOCKHOLDER MEETING DEADLINE"), a proxy statement, which has been previously
submitted for review by Payee, soliciting each such stockholder's affirmative
vote (such affirmative vote being the "REQUIRED STOCKHOLDER CONSENT") at such
stockholder meeting for approval of Maker's issuance of all of the Common Stock
as described in this Note (including the approval of issuances at a discount to
market as may be required by the Rules of the Nasdaq Stock Market, Inc.), and
Maker shall use its best efforts to solicit its stockholders' approval of such
issuance of the Common Stock and cause the Board of Directors of Maker to
recommend to the stockholders that they approve such proposal. Such proxy
statement shall not seek approval of any matters other than the approval
described in the preceding sentence, the election of Directors, and approval of
the appointment of the independent auditor of Maker.
(j) LIMITATION ON NUMBER OF COMMON SHARES. Notwithstanding any other
provision herein, Maker shall not be obligated to issue any shares of Common
Stock upon the conversion of this Note, or any portion thereof, if the issuance
of such shares of Common Stock would exceed the number of shares of Common
Stock that Maker may issue upon conversion of this Note, or such portion
thereof, without breaching Maker's obligations under the rules or regulations
of The Nasdaq Stock Market, Inc., except that such limitation shall not apply
in the event that Maker (i) obtains the approval of its stockholders as
required by the rules and regulations of The Nasdaq Stock Market, Inc. for
issuances of Common Stock in excess of such amount, or (ii) obtains a written
opinion from outside counsel to Maker that such approval is not required, which
opinion shall be reasonably satisfactory to Payee.
(k) REDUCTION IN CONVERSION PRICE AS A RESULT OF EQUITY ISSUANCES. It
is expressly contemplated that after the date hereof and prior to payment in
full of the principal and interest due to Payee hereunder, Maker may, subject
to the limitations contained herein, if any, do one or more of the following:
(i) issue Common Stock at a price which is less than the
Conversion Price in effect on the date of issuance;
(ii) issue or incur indebtedness that is convertible into
Common Stock (either directly or indirectly) at a price which is less
than the Conversion Price in effect on the date such indebtedness is
issued or incurred;
CONVERTIBLE PROMISSORY NOTE - 15 -
<PAGE> 16
(iii) issue a class of capital stock of Maker that is
convertible into Common Stock (either directly or indirectly) at a
price which is less than the Conversion Price in effect on the date
such capital stock is issued; or
(iv) enter into an agreement or arrangement which could
result in the ultimate issuance of Common Stock at a price which is
less than the Conversion Price in effect on the date such agreement or
arrangement is entered into.
Each and every time that one or more of the events described in paragraphs (I)
through (IV) occurs, the Conversion Price in effect hereunder on and after the
date of occurrence of such event and until the occurrence of the next such
event shall change to the price at which: (A) such Common Stock is issued with
respect to paragraph (I) above; (B) the indebtedness incurred or issued is
convertible into the Common Stock with respect to paragraph (II) above; (C) the
class of capital stock of Maker is convertible into Common Stock with respect
to paragraph (III) above; or (D) such Common Stock of may ultimately be issued
with respect to paragraph (IV) above. In the event more than one of the events
described in paragraphs (I) through (IV) occur simultaneously, the Conversion
Price shall change to the lowest of the Conversion Prices determined for such
simultaneous events hereunder. The foregoing is subject to the limitation that
the amount of the principal payable hereunder to which a change in the
Conversion Price applies shall be limited to an amount equal to the total of
the amounts received by Maker in connection with each event described in
paragraphs (I) through (IV) above after the date hereof.
9. NOTICE. Whenever this Note requires or permits any notice,
approval, request, or demand from one party to another, the notice, approval,
request, or demand must be in writing and shall be deemed to have been given
when personally served or when deposited in the United States mails, registered
or certified, return receipt requested, addressed to the party to be notified
at the following address (or at such other address as may have been designated
by written notice):
Payee: EXCO Resources, Inc.
5735 Pineland Dr.
Suite 235
Dallas, Texas 75231
Attention: President
Telecopy No.: (214) 368-2087
Maker: Venus Exploration, Inc.
1250 N.E. Loop 410
Suite 1000
San Antonio, Texas 78209
Attention: President
Telecopy No.: (210) 828-6016
10. AMENDMENT. This Note may be amended or modified only by written
instrument duly executed by Maker and Payee.
CONVERTIBLE PROMISSORY NOTE - 16 -
<PAGE> 17
11. COSTS. If this Note is placed in the hands of an attorney for
collection, or if it is collected through any legal proceeding at law or in
equity, or in bankruptcy, receivership, or other court proceedings, then Maker
agrees to pay all costs of collection, including, but not limited to, court
costs and reasonable attorneys' fees, including all costs of appeal.
12. SUCCESSORS AND ASSIGNS. This Note shall inure to the benefit of
Payee and its successors and assigns; provided, however, Payee may not (without
the prior written consent of Maker, such consent not to be unreasonably
withheld or delayed and such consent not to be required if an Event of Default
exists) assign or negotiate this Note to any Person.
13. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED,
INTERPRETED, AND APPLIED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
14. LIMITATION OF LIABILITY. Anything in this Note to the contrary
notwithstanding, it is specifically provided that Maker shall not have any
personal or corporate liability for the payment of this Note or be liable for a
money judgment or otherwise in the event of an Event of Default, it being
understood that the holders of this Note may look only to the security provided
by the Pledge Agreement and the other Loan Documents to enforce the payment of
the Obligation, except for the interest of Maker in the collateral pledged by
the Pledge Agreement or any other property of Maker covered by a lien or
security interest securing payment of the Obligation; provided, however, that
the liability of Maker shall at all times be one hundred percent (100%)
liability for (a) any and all damages, costs, and expenses suffered or incurred
by Payee as a result of, in connection with or relating to any representation
or warranty made by Maker to Payee which shall prove to be untrue or inaccurate
in any material respects, and (b) the costs, expenses, and fees, including but
not limited to, court costs and reasonable attorneys' fees, arising in
connection with the collection of the Obligation.
15. FINAL AGREEMENT. THIS NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL AGREEMENTS
BETWEEN THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW]
CONVERTIBLE PROMISSORY NOTE - 17 -
<PAGE> 18
MAKER:
VENUS EXPLORATION, INC., a Delaware corporation
By: /s/ JOHN Y. AMES
-----------------------------------------
Name: John Y. Ames
------------------------------------
Title: President
-----------------------------------
CONVERTIBLE PROMISSORY NOTE - 18 -
<PAGE> 19
SCHEDULE 1
EXISTING DEBT
1. Wells Fargo Facility - balance due as of June 23, 1999 is $3,770,509.
2. Inter-Tel Leasing, Inc. - telephone equipment lease balance due as of
June 23, 1999 was $18,953.
3. Principal amount of an aggregate of $1,000,000 7.0% Convertible
Subordinated Notes, dated in 1999.
CONVERTIBLE PROMISSORY NOTE - 19 -
<PAGE> 20
SCHEDULE 2
EXISTING LIENS
1. Wells Fargo Facility - the bank has a lien on all of Venus' oil and
gas properties.
2. Inter-Tel Leasing, Inc. has a lien on Venus' telephone equipment. As
of June 23, 1999, the net book value of the telephone equipment was
$17,326.
CONVERTIBLE PROMISSORY NOTE - 20 -
<PAGE> 21
SCHEDULE 3
DISCLOSURES
Maker is not in compliance with two financial covenants of its Existing Credit
Agreement, the tangible net worth and current ratio requirements. Maker has not
been in compliance with these requirements throughout 1999 and has obtained
short-term waivers from the lender. The current waiver expires on August 31,
1999. Maker's Existing Credit Agreement as well as the noncompliance issue is
discussed in more detail in Maker's Form 10-Q for the first quarter 1999 and
Form 10-K for the year ended December 31, 1998.
CONVERTIBLE PROMISSORY NOTE - 21 -
<PAGE> 22
EXHIBIT A
FORM OF ELECTION TO CONVERT
TO VENUS EXPLORATION, INC.:
The undersigned owner of this Convertible Promissory Note hereby
irrevocably exercises the option to convert this Convertible Promissory Note,
or the portion below designated, into shares of Common Stock of Venus
Exploration, Inc. in accordance with the terms of this Convertible Promissory
Note, and directs that the shares issuable and deliverable upon conversion,
together with any check in payment for fractional shares, be issued in the name
of and delivered to the undersigned registered Holder hereof, unless a
different name has been indicated in the assignment below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Convertible
Promissory Note.
<TABLE>
<S> <C>
Dated:
-----------------
Portion of Security to be
converted ($1,000 or an
integral multiple thereof):
$ Your Signature:
---------------------- -----------------------------------------
(Sign exactly as your name appears on the
face of this Convertible Promissory Note)
If shares of Common Stock are to be issued and registered
otherwise than to the registered Holder named above, please
print or typewrite name and address, including zip code, and
social security or other taxpayer identification number.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Signature Guarantee:
------------------------------------------------------------------------------------
(Participant in recognized signature guarantee medallion program
or other assurance reasonably acceptable to the Company)
</TABLE>
CONVERTIBLE PROMISSORY NOTE - 22 -
<PAGE> 1
EXHIBIT 10.5
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "AGREEMENT") dated as of June 30, 1999, is
made by VENUS EXPLORATION, INC., a Delaware corporation ("PLEDGOR"), whose
address is 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209, for the
benefit of EXCO RESOURCES, INC., a Texas corporation ("SECURED PARTY"), whose
address is 5735 Pineland, Suite 235, Dallas, Texas 75231.
R E C I T A L S
1. Pursuant to that certain Convertible Promissory Note dated as of
June 30, 1999, executed by Pledgor and payable to the order of Secured Party in
the original principal amount of $8,000,000.00, (together with all
modifications, amendments, renewals, extensions, and restatements, if any, from
time to time thereafter thereto, the "NOTE"), Secured Party has made certain
loans to Pledgor.
2. As a condition precedent to the making of advances and other
extensions of credit under the Note, Pledgor is required to execute and deliver
this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Pledgor agrees, for the benefit of
Secured Party, as follows:
SECTION 1
DEFINITIONS
1.1 NOTE DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided in the Note.
1.2 CERTAIN TERMS. The following terms when used in this Agreement,
including its preamble and recitals, shall have the following meanings (such
definitions to be equally applicable to the singular and plural forms thereof):
"CODE" means the Uniform Commercial Code as in effect in the State of
Texas.
"COLLATERAL" is defined in SECTION 2.1.
"COMPANY" means EXUS Energy, LLC, a Delaware limited liability company,
as such limited liability company exists or may hereinafter be restated,
amended, or restructured, and any limited liability company, partnership, joint
venture, or corporation formed as a result of the restructure, reorganization,
or amendment of any of such limited liability company.
"EVENT OF DEFAULT" is defined in SECTION 5.1.
"LOAN DOCUMENTS" means the Note, this Agreement, and the other loan and
collateral documents now or hereafter evidencing or securing payment thereof or
executed in connection therewith, and all modifications, amendments, renewals,
extension, restatements, and supplements thereof.
PLEDGE AGREEMENT
<PAGE> 2
"LLC AGREEMENT" means (a) that certain Certificate of Formation of the
Company dated as of June 25, 1999, (b) that certain Limited Liability Company
Agreement of the Company dated as of June 30, 1999, and (c) all modifications,
amendments, restatements, or supplements thereof.
"PLEDGED INTERESTS" means all of Pledgor's membership interests in the
Company including, without limitation (a) all of Pledgor's right, title, and
interest now or hereafter accruing under the LLC Agreement with respect to any
interest now owned or hereafter acquired or owned by Pledgor in the Company, and
(b) all distributions, proceeds, fees, preferences, payments, or other benefits,
which Pledgor now is or may hereafter become entitled to receive with respect to
such interests in the Company and with respect to the repayment of all loans now
or hereafter made by Pledgor to the Company, and Pledgor's undivided percentage
interest in the assets of the Company.
"SECURED INDEBTEDNESS" is defined in SECTION 2.2.
"SECURITY INTERESTS" means the pledge and security interests securing
the Secured Indebtedness, including (a) the pledge and security interest in the
Pledged Interests granted in this Agreement, and (b) all other security
interests created or assigned as additional security for the Secured
Indebtedness pursuant to the provisions of this Agreement.
1.3 CODE DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms for which meanings are provided in the Code are used
in this Agreement, including its preamble and recitals, with such meanings.
SECTION 2
COLLATERAL AND OBLIGATIONS
2.1 GRANT OF SECURITY INTEREST.
(a) As collateral security for the Secured Indebtedness, Pledgor hereby
pledges and grants to Secured Party a first priority lien on and security
interest in and to, and agrees and acknowledges that Secured Party has and shall
continue to have, a security interest in and to, and assigns, transfers,
pledges, and conveys to Secured Party, all of Pledgor's right, title, and
interest in and to the following described collateral (the "COLLATERAL") now
owned or hereafter acquired, wherever located, howsoever arising or created, and
whether now existing or hereafter arising, existing, or created:
(i) the Pledged Interests and all rights of Pledgor with
respect thereto and all proceeds, income, and profits therefrom;
(ii) all of Pledgor's distribution rights, income rights,
liquidation interest, accounts, contract rights, general intangibles,
notes, instruments, drafts, and documents relating to the Pledged
Interests;
(iii) to the extent attributable to the Pledged Interests, all
promissory notes, notes receivable, accounts, accounts receivable, and
instruments owned or held by Pledgor or, in which Pledgor owns or holds
an interest, evidencing obligations of the Company;
PLEDGE AGREEMENT 2
<PAGE> 3
(iv) all Liens, security interests, collateral, property, and
assets securing any of the promissory notes, notes receivables,
instruments, accounts receivable, and other claims and interests
described in CLAUSE (III) above;
(v) all books, files, computer records, computer software,
electronic information, and other files, records, or information
relating to any or all of the foregoing; and
(vi) all substitutions, replacements, products, proceeds,
income, and profits arising from any of the foregoing, including,
without limitation, insurance proceeds.
(b) The Security Interests are granted as security only and shall not
subject Secured Party or any holder of the Secured Indebtedness to, or transfer
or in any way affect or modify, any obligation or liability of Pledgor with
respect to any of the Collateral.
2.2 SECURITY FOR THE OBLIGATION. The Collateral shall secure the
payment of the Obligation, including, without limitation, all obligations now or
hereafter existing under the Note, this Agreement, and each of the other Loan
Documents to which Pledgor is or may become a party, whether for principal,
interest, costs, fees, expenses, or otherwise (including all such amounts which
would become due but for the operation of the automatic stay under Section
362(a) of the United States Bankruptcy Code, 11 U.S.C. ss. 362(a), and the
operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11
U.S.C. ss.ss. 502(b) and 506(b)) (all of the foregoing, together with all
renewals, extensions and modifications of all or any part thereof, being the
"SECURED INDEBTEDNESS")
2.3 PLEDGOR REMAINS LIABLE. Notwithstanding anything to the contrary
contained herein, (a) Pledgor shall remain liable under the LLC Agreement to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise
by Secured Party of any of its rights hereunder shall not release Pledgor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) Secured Party shall not have any obligation or liability
under the LLC Agreement by reason of this Agreement, nor shall Secured Party be
obligated to perform any of the obligations or duties of Pledgor thereunder or
to take any action to collect or enforce any claim for payment assigned
hereunder.
2.4 CONSENT. To the extent the LLC Agreement requires the consent or
agreement of Pledgor to the transfer, conveyance, or encumbrance of all or any
portion of the Pledged Interests, Pledgor hereby irrevocably consents to (a) the
grant of the security interest described in SECTION 2.1 of this Agreement, and
(b) the transfer or conveyance of the Pledged Interests and other Collateral
pursuant to Secured Party's exercise of its rights and remedies under SECTION
5.4 of this Agreement or any of the other Loan Documents.
SECTION 3
REPRESENTATIONS AND WARRANTIES
Pledgor hereby represents and warrants to Secured Party as follows:
(a) Pledgor is the sole legal and beneficial owner of good and
indefeasible title to a fifty percent (50%) membership interest in the Company.
Pledgor has good and indefeasible title to the Pledged Interests and other
Collateral free and clear of any Lien except for the Security Interests created
by this Agreement and
PLEDGE AGREEMENT 3
<PAGE> 4
has all necessary authority to pledge, sell, transfer, and assign the Pledged
Interests and other Collateral as provided herein, and such assignment and
transfer, and any subsequent foreclosure or other realization upon the Pledged
Interests or other Collateral pursuant hereto (whether acquired by Secured Party
or a third party), are not contrary to or in conflict with the LLC Agreement or
any other agreement;
(b) No financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any recording office,
except such as may have been filed in favor of Secured Party relating to this
Agreement;
(c) This Agreement has been duly executed and delivered by Pledgor and
is the legal and binding obligation of Pledgor enforceable in accordance with
its terms;
(d) Upon execution of this Agreement and an appropriate financing
statement by Pledgor and the recording of the financing statement in the
appropriate office, Secured Party will have a valid, first, and prior perfected
security interest in the Collateral;
(e) Neither the execution and delivery of this Agreement, nor the
consummation of any of the transactions hereby contemplated, nor compliance with
the terms and provisions hereof, will contravene or materially conflict with (i)
any material provision of law, statute, or regulation to which Pledgor or the
Company is subject, or (ii) any judgment, license, order, or permit applicable
to Pledgor or the Company;
(f) No consent, approval, authorization, or order of any Governmental
Authority, partner, or third party is required that has not been received or
taken (i) for the grant by Pledgor of the Security Interests, (ii) for the
execution, delivery, or performance of this Agreement by Pledgor, (iii) for the
perfection of the Security Interests, or (iv) except for such notices as are
required by the Code, for the exercise by Secured Party of its rights and
remedies hereunder; and
(g) The chief executive office and principal place of business of
Pledgor is in Bexar County, Texas.
SECTION 4
PLEDGOR'S COVENANTS
Pledgor hereby covenants and agrees that until the Secured Indebtedness
is paid and performed in full:
(a) Pledgor will pay and discharge promptly when due all taxes,
assessments, forced contributions, governmental charges, fines, penalties, and
any other lawful claims, of every description, payable by Pledgor with respect
to (or which, if not paid, could result in an encumbrance upon) any of the
Collateral, except for taxes, assessments, forced contributions, governmental
charges, fines, penalties, and any other lawful claims that are being contested
in good faith by appropriate proceedings and for which reserves in accordance
with generally acceptable accounting principles have been established. In the
event that Pledgor should, for any reason, fail to pay and discharge promptly
any taxes, assessments, forced contributions, governmental charges, fines, or
penalties when due, then Secured Party shall be authorized, but shall not be
obligated, to pay the same, with full subrogation to all rights of any Person by
reason of such payment, and the amounts so paid, together with interest thereon
as provided herein, shall be secured by the Security Interests.
PLEDGE AGREEMENT 4
<PAGE> 5
(b) Pledgor will not sell, transfer, mortgage, or otherwise encumber
any Collateral in any manner without first obtaining the written consent of
Secured Party, which consent may be withheld in Secured Party's sole and
absolute discretion. Any written consent to any such sale, mortgage, transfer,
or encumbrance shall not be construed to be a waiver of this provision in
respect of any subsequent proposed sale, mortgage, transfer, or encumbrance.
(c) Pledgor will, at its expense and in such manner and form as Secured
Party may from time to time reasonably require, execute, deliver, file, and
record any financing statement, specific assignment, or other instruments,
certificates, or papers, and take any other action that may be necessary or
desirable, or that Secured Party may from time to time reasonably request, in
order to create, preserve, perfect, or validate any Security Interest, or to
enable Secured Party to exercise and enforce its rights hereunder with respect
to any of the Collateral. In the event, for any reason, that the law of any
jurisdiction other than the State of Texas becomes or is applicable to the
Collateral, or any part thereof, Pledgor agrees to execute and deliver all such
instruments and to do all such other things that may be necessary or appropriate
to preserve, protect, and enforce the Security Interests of Secured Party under
the law of such other jurisdiction, to at least the same extent that the
Security Interests would be protected under the Code. To the extent permitted by
applicable law, Pledgor hereby authorizes Secured Party to execute and file, in
the name of Pledgor or otherwise, financing statements that Secured Party in its
sole discretion may deem necessary or appropriate to further perfect the
Security Interests.
(d) If Pledgor receives, by virtue of being or having been an owner of
any of the Collateral, any notes, other instruments, options, cash
distributions, or any other distribution, then Pledgor shall receive the same in
trust for the benefit of Secured Party, shall immediately notify Secured Party
of such receipt, and shall immediately take all such actions and execute all
such documents as Secured Party deems necessary or appropriate to continue or
create as first and prior perfected Liens, in favor of Secured Party covering
such notes, other instruments, or options.
(e) Pledgor will notify Secured Party in writing prior to any change of
Pledgor's chief executive office or principal place of business.
(f) Pledgor shall cause to be obtained any and all waivers and consents
necessary to make effective the grant contained in and to perfect the security
interest granted to Secured Party pursuant to SECTION 2.1 hereof, including,
without limitation, all necessary waivers and consents from the other partners,
if any, of the Company.
(g) Pledgor shall perform fully all obligations imposed upon it by any
agreements or instruments concerning all or any part of the Collateral,
including, without limitation, the LLC Agreement, and shall maintain in full
force and effect all such agreements and instruments, and shall not amend or
modify, or consent to the amendment or modification of such agreements or
instruments, without the prior written consent of Secured Party.
(h) Pledgor shall promptly notify Secured Party of any material adverse
change in any material fact or material circumstance warranted or represented by
Pledgor in this Agreement or the Note or in any other writing furnished by
Pledgor to Secured Party in connection with the Collateral or the Secured
Indebtedness, and shall promptly notify Secured Party of any claim, action, or
proceeding affecting title to the Collateral, or any part thereof, or the
Security Interests herein, and, at the request of Secured Party, shall appear
and defend, at Pledgor's expense, any such action or proceeding.
PLEDGE AGREEMENT 5
<PAGE> 6
SECTION 5
GENERAL AUTHORITY AND POWERS AND REMEDIES
5.1 EVENTS OF DEFAULT. For purposes hereof, the term "EVENT OF DEFAULT"
means the occurrence of any of the following events or conditions:
(a) an Event of Default under the Note; or
(b) the failure of Pledgor to observe any of the terms,
conditions, or covenants contained in this Agreement or any other Loan
Document; or
(c) any legal or equitable interest in any of the Collateral
becomes vested in a person or entity other than Pledgor.
5.2 VOTING RIGHTS; DIVIDENDS, ETC., PRIOR TO EVENT OF DEFAULT.
(a) RIGHTS PRIOR TO EVENT OF DEFAULT. So long as no Event of Default
exists and Secured Party shall not have given written notice to Pledgor or the
Company of its intention to foreclose upon or otherwise dispose of all or any
part of the Collateral, or to exercise its voting rights pertaining to the
Pledged Interests, Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers relating or pertaining to the Pledged
Interests or any part thereof for any purpose not inconsistent with the terms of
this Agreement; provided, however, that Pledgor shall not exercise or refrain
from exercising any such right or power if such action would have a Material
Adverse Effect on the value of the Pledged Interests or any part thereof.
(b) TERMINATION OF RIGHTS. Upon (i) the occurrence of an Event of
Default and the expiration of any period of grace or notice, if any, and (ii)
the giving of written notice by Secured Party to Pledgor or the Company of its
intention to (A) foreclose upon or otherwise dispose of all or any part of the
Collateral or (B) exercise its voting rights pertaining to the Pledged
Interests, all rights of Pledgor to exercise the voting and/or consensual rights
and powers which it is entitled to exercise pursuant to SECTION 5.2(A) hereof
shall cease, at the option of Secured Party, and all such rights shall thereupon
become vested in Secured Party, who shall have the sole and exclusive right and
authority to exercise such voting and/or consensual rights.
(c) NO RIGHT TO RECEIVE DISTRIBUTIONS. If an Event of Default exists,
all payments and distributions made to Pledgor upon or with respect to the
Collateral shall be paid or delivered to Secured Party, and Pledgor agrees to
take all such action as Secured Party may reasonably deem necessary or
appropriate to cause all such payments and distributions to be made to Secured
Party. Further, Secured Party shall have the right, at any time after the
occurrence of an Event of Default, to notify and direct the Company to
thereafter make all payments, dividends, and any other distributions payable in
respect thereof directly to Secured Party. The Company shall be fully protected
in relying on the written statement of Secured Party that it then holds a
security interest which entitles it to receive such payments and distributions.
Any and all money and other property paid over to or received by Secured Party
pursuant to this SECTION 5.2 shall be retained by Secured Party as additional
collateral hereunder and may be applied (and upon Pledgor's written request all
cash shall promptly be applied) in accordance with SECTION 5.6 hereof.
PLEDGE AGREEMENT 6
<PAGE> 7
5.3 GENERAL AUTHORITY. Pledgor hereby irrevocably appoints Secured
Party, and its successors and assigns, the true and lawful attorney-in-fact of
Pledgor, with full power of substitution, in the name of Pledgor, for the sole
use and benefit of Secured Party, but at Pledgor's expense, to the extent
permitted by law to exercise, at any time and from time to time while an Event
of Default exists, all or any of the following powers with respect to all or any
of the Collateral:
(a) to ask, demand, sue for, collect, receive, and give acquittance and
receipts for any and all monies due or to become due upon or by virtue thereof;
(b) to receive, endorse, and collect any drafts or other instruments,
documents, and chattel paper, in connection with CLAUSE (A) preceding;
(c) to settle, compromise, compound, prosecute, or defend any action or
proceeding with respect thereto;
(d) subject to SECTION 5.4 hereof, to sell, transfer, assign, or
otherwise deal in or with the same or the proceeds thereof as fully and
effectually as if Secured Party were the absolute owner thereof; and
(e) to extend the time of payment of any or all thereof and to make any
allowance and other adjustments with reference thereto.
In addition, Secured Party, at any time after an Event of Default, shall, upon
reasonable advance notice, have the right, together with such accountants and
other agents or representatives as it may from time to time designate, to visit
and inspect the Company's properties, assets, books, records, and documents and
to discuss the Company's affairs, finances, and accounts with Pledgor's and the
Company's representatives, officers, or directors, during all business hours as
Secured Party may designate, and to make and take away copies of the Company's
records at Secured Party's expense. Pledgor shall furnish to Secured Party any
information reasonably requested by Secured Party in connection with the
Collateral. Pledgor will maintain complete and accurate books and records
regarding the Collateral.
5.4 REMEDIES UPON EVENT OF DEFAULT.
(a) If any Event of Default shall have occurred and is continuing, then
Secured Party, at its option, without demand, presentment, notice of
acceleration, intention to accelerate, or other notice (which are fully waived)
may:
(i) exercise all the rights of a secured party under the Code
(whether or not the Code is in effect in the jurisdiction where such
rights are exercised, unless prohibited by applicable law).
(ii) apply the cash, if any, then held by Secured Party as
Collateral as specified in SECTION 5.6.
(iii) sell all of the Collateral or any part thereof at public
or private sale or at any broker's board or on any securities exchange,
for cash, upon credit, or for future delivery, and at such price or
prices as Secured Party may reasonably deem satisfactory. Upon Secured
Party's demand, Pledgor will take all steps necessary to prepare the
Collateral for and otherwise assist in any proposed disposition of the
Collateral. Any holder of the Secured Indebtedness may be the purchaser
of any or
PLEDGE AGREEMENT 7
<PAGE> 8
all of the Collateral so sold at any public sale (or, if the Collateral
is of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price quotations or
if the subject Collateral is an interest or other Collateral that is
the subject of the immediately following paragraph, at any private
sale) and thereafter hold the same absolutely free from any right or
claim of whatsoever kind. Any holder of the Secured Indebtedness shall
have the right to offset the amount of its bid against an equal amount
of the Secured Indebtedness held by such holder. If a third party is
the purchaser at a foreclosure sale, neither Secured Party nor any of
its affiliates may directly or indirectly benefit from such foreclosure
sale, other than payment of the Secured Indebtedness from the proceeds
of such foreclosure sale.
(b) The sale of the Collateral is also subject to the following:
(i) Pledgor agrees that, because of the Securities Act of
1933, as amended, or any other laws or regulations, and for other
reasons, there may be legal and/or practical restrictions or
limitations affecting Secured Party in any attempts to dispose of
certain portions of the Collateral and for the enforcement of their
rights. For these reasons, Secured Party is hereby authorized by
Pledgor, but not obligated, upon the occurrence and during the
continuation of an Event of Default, to sell all or any part of the
Collateral at private sale, subject to investment letter or in any
other manner which will not require the Collateral, or any part
thereof, to be registered in accordance with the Securities Act of
1933, as amended, or the rules and regulations promulgated thereunder,
or any other laws, at a reasonable price at such private sale or other
distribution in the manner mentioned above. Pledgor understands that
Secured Party may in its discretion approach a limited number of
potential purchasers and that a sale under such circumstances may yield
a lower price for the Collateral, or any part thereof, than would
otherwise be obtainable if such Collateral were either afforded to a
larger number of potential purchasers or registered or sold in the open
market. Pledgor agrees that such private sale shall be deemed to have
been made in a commercially reasonable manner, and that Secured Party
has no obligation to delay the sale of any Collateral to permit the
issuer thereof to register it for public sale under any applicable
federal or state securities laws.
(ii) Secured Party is authorized in connection with any such
sale to (A) restrict the prospective bidders on or purchasers of any of
the Collateral to a limited number of sophisticated investors who will
represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or sale of any of
such Collateral, and (B) impose such other limitations or conditions in
connection with any such sale as Secured Party reasonably deems
necessary in order to comply with applicable law.
(c) Pledgor covenants and agrees that it will execute and deliver such
documents and take such other action as Secured Party reasonably deems necessary
in order that any such sale may be made in compliance with applicable law. Upon
any such sale Secured Party shall have the right to deliver, assign, and
transfer to the purchaser thereof the Collateral so sold. Each purchaser at any
such sale shall hold the Collateral so sold absolutely free from any claim or
right of Pledgor of whatsoever kind, including any equity or right of redemption
of Pledgor. Pledgor, to the extent permitted by applicable law, hereby
specifically waives all rights of redemption, stay, or appraisal which it has or
may have under any law now existing or hereafter enacted. In case of any sale of
all or any part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by Secured Party until the selling price is
paid by the purchaser thereof, but Secured Party shall not incur any liability
in case of the failure of such purchaser to take up and pay for the Collateral
so sold, and in case of any such failure, such Collateral may again be sold upon
like notice.
PLEDGE AGREEMENT 8
<PAGE> 9
Secured Party, instead of exercising the power of sale herein conferred upon it,
may proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(d) Pledgor agrees that ten (10) days' written notice from Secured
Party to Pledgor of Secured Party's intention to make any such public or private
sale or sale at a broker's board or on a securities exchange shall constitute
"reasonable notification" within the meaning of Section 9-504(c) of the Code.
Such notice shall (i) in case of a public sale, state the time and place fixed
for such sale, (ii) in case of sale at a broker's board or on a securities
exchange, state the board or exchange at which such a sale is to be made and the
day on which the Collateral, or the portion thereof so being sold, will first be
offered to sale at such board or exchange, and (iii) in the case of a private
sale, state the day after which such sale may be consummated. Any such public
sale shall be held at such time or times within ordinary business hours and at
such place or places as Secured Party may fix in the notice of such sale. At any
such sale, the Collateral may be sold in one lot as an entirety or in separate
parcels, as Secured Party may reasonably determine. Secured Party shall not be
obligated to make any such sale pursuant to any such notice. Secured Party may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned.
(e) Without limiting the foregoing or imposing upon Secured Party any
obligations or duties not required by applicable law, Pledgor acknowledges and
agrees that, in foreclosing upon any of the Collateral or exercising any other
rights or remedies provided Secured Party hereunder or under applicable law,
Secured Party may, but shall not be required to: (i) qualify or restrict
prospective purchasers of the Collateral by requiring evidence of sophistication
and/or creditworthiness, and requiring the execution and delivery of
confidentiality agreements or other documents and agreements as a condition to
such prospective purchasers' receipt of information regarding the Collateral or
participation in any public or private foreclosure sale process; (ii) provide to
prospective purchasers the LLC Agreement and business and financial information
regarding the Company available in the files of Secured Party at the time of
commencing the foreclosure process, without the requirement that Secured Party
obtain, or seek to obtain, any updated business or financial information or LLC
Agreement, or verify or certify to prospective purchasers the accuracy of any
such business or financial information or LLC Agreement; (iii) sell at
foreclosure all, or a portion but not all, of the rights, titles, and interests
of Pledgor in the Company; it being further specifically acknowledged by Pledgor
that limitations or potential limitations on the transfer of certain Collateral
under the LLC Agreement or other applicable agreements or law may limit Secured
Party's right or ability to foreclose upon or sell certain rights, titles, and
interests of Pledgor in the Company; or (iv) offer for sale, and sell,
membership interests either with, or without, first employing an appraiser,
investment banker, or broker with respect to the evaluation of Collateral, the
solicitation of purchasers for Collateral, or the manner of sale of Collateral.
(f) Secured Party shall have all rights, remedies, and recourse granted
in the Note and the other Loan Documents or existing at common law or equity
(including specifically those granted by the Code), and such rights and remedies
(i) shall be cumulative and concurrent, (ii) may be pursued separately,
successively, or concurrently against Pledgor and any party obligated to pay or
perform the Secured Indebtedness, any of the Collateral, or any other security
for any of the Secured Indebtedness, at the sole discretion of Secured Party,
and (iii) may be exercised as often as occasion therefor shall arise, it being
agreed by Pledgor that the exercise or failure to exercise any such rights or
remedies shall in no event be construed as a waiver or release thereof or of any
other right, remedy, or recourse.
PLEDGE AGREEMENT 9
<PAGE> 10
(g) Notwithstanding a foreclosure upon any of the Collateral or
exercise of any other remedy by Secured Party in connection with an Event of
Default, until the payment in full of all Secured Indebtedness, Pledgor shall
not be subrogated thereby to any rights of Secured Party against the Collateral
or any other security for any of the Secured Indebtedness. Pledgor shall not be
deemed based on any subrogation or other rights it may have to be the owner of
any interest in any of the Secured Indebtedness unless and until all of the
Secured Indebtedness has been indefeasibly paid to Secured Party and fully
performed and discharged.
(h) All recitals in any instrument of assignment or any other
instrument executed by Secured Party incident to the sale, transfer, assignment,
or other disposition or utilization of the Collateral or any part thereof
hereunder shall be presumptive evidence of the matters stated therein and all
prerequisites of such sale or other action contained in such recitals shall be
presumed to have been performed or to have occurred.
(i) Secured Party agrees that if (A) Secured Party elects to sell the
Collateral at a public sale, and (B) Secured Party purchases the Collateral at
such public sale, then the purchase price of the Collateral paid by Secured
Party shall not be less than an amount equal to the Applicable Percentage of the
difference between (i) the value of the Company's oil and gas properties at the
time of foreclosure determined by an independent engineering firm selected by
Secured Party recognized as an expert in reservoir engineering using the
parameters set forth on EXHIBIT A attached hereto, and (ii) all indebtedness,
obligations, and liabilities of the Company (including the amount of any liens,
security interests, or encumbrances affecting any of the assets or properties of
the Company) at the time of foreclosure; provided that nothing contained in this
SUBSECTION (I) shall be deemed to require that Secured Party conduct a public
sale of any of the Collateral or purchase any of the Collateral at any public
sale of the Collateral. "APPLICABLE PERCENTAGE" means the ratio that the
membership interests in the Company comprising the Collateral sold bears to the
entire membership interests in the Company.
5.5 WAIVERS BY PLEDGOR. Subject to SECTION 5.4 above, in case of any
Event of Default, neither Pledgor nor anyone claiming by, through, or under
Pledgor, to the extent Pledgor may lawfully so agree, shall or will set up,
claim, or seek to take advantage of any appraisement, valuation, stay,
extension, or redemption law now or hereafter in force under any applicable law,
in order to prevent or hinder the enforcement of this Agreement, or the absolute
sale of the Collateral, or the final and absolute putting into possession
thereof, immediately after such sale, of the purchaser thereof; and Pledgor in
Pledgor's own right and for all who may claim under Pledgor, hereby waives, to
the fullest extent that Pledgor may lawfully do so, the benefit of any and all
right to have the Collateral marshaled upon any enforcement of the Security
Interests herein granted, and Pledgor agrees that Secured Party or any court
having jurisdiction to enforce the Security Interests may sell the Collateral in
parts or as an entirety.
5.6 APPLICATION OF PROCEEDS. Upon the maturity of any instrument
evidencing the Secured Indebtedness or any part thereof, whether such maturity
be by such terms of such instruments or through the exercise of any power of
acceleration, Secured Party is authorized and empowered to apply any and all
funds realized from the sale of all or any part of the Collateral to the Secured
Indebtedness in such order and in such manner as Secured Party in its sole
discretion shall determine.
5.7 ENFORCEMENT OF SECURED INDEBTEDNESS. Nothing in this Agreement
shall affect or impair the unconditional and absolute right of Secured Party to
enforce the Secured Indebtedness as and when the same shall become due in
accordance with the terms of the Loan Documents whether by acceleration or
otherwise.
PLEDGE AGREEMENT 10
<PAGE> 11
SECTION 6
MISCELLANEOUS
6.1 TERMS COMMERCIALLY REASONABLE. The terms of this Agreement shall be
deemed commercially reasonable within the meaning of the Uniform Commercial Code
in effect and applicable hereto.
6.2 LOAN DOCUMENT. This Agreement is a Loan Document executed pursuant
to the Note and shall (unless otherwise expressly indicated herein) be
construed, administered, and applied in accordance with the terms and provisions
thereof.
6.3 AMENDMENTS. No change, amendment, modification, cancellation, or
discharge of any provision of this Agreement shall be valid unless consented to
in writing by the party or parties against whom enforcement thereof is sought.
6.4 NOTICES. Any notices or other communications required or permitted
to be given by this Agreement or any other documents and instruments referred to
herein must be given in accordance with the Note.
6.5 HEADINGS. The headings of sections herein are inserted only for
convenience and shall in no way define, describe, or limit the scope or intent
of any provision of this Agreement.
6.6 LIMITATION. Regardless of any provisions contained in this
Agreement, the Note, or other evidences of the Secured Indebtedness, or other
instruments executed or delivered in connection therewith, Secured Party shall
not be entitled to receive, collect, or apply, as interest on the Secured
Indebtedness, any amount in excess of the highest lawful rate and, in the event
that Secured Party ever receives, collects, or applies, as interest, any such
excess, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance of the Secured Indebtedness, and if
the principal balance of the Secured Indebtedness is paid in full, any remaining
excess shall be forthwith paid to Pledgor. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the highest
lawful rate, Pledgor, Secured Party shall, to the maximum extent permitted under
applicable law, (a) characterize any non-principal payment as an expense, fee,
or premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) "spread" the total amount of interest throughout the
entire term of the Note so that the interest rate is uniform throughout the
entire term of the Note.
6.7 ASSIGNMENT OF SECURED PARTY'S RIGHTS. Secured Party shall have the
right to assign all or any portion of its rights under this Agreement to any
subsequent holder or holders of the Secured Indebtedness.
6.8 PARTIES IN INTEREST. As and when used herein, the term "Pledgor"
shall mean and include Pledgor herein named and its successors and permitted
assigns, and the term "Secured Party" shall mean and include Secured Party
herein named and its successors and assigns, and all covenants and agreements
herein shall be binding upon and inure to the benefit of Pledgor and Secured
Party and their respective assigns, provided that Pledgor shall have no right to
assign his rights hereunder to any other Person.
PLEDGE AGREEMENT 11
<PAGE> 12
6.9 FINANCING STATEMENT. Secured Party shall be entitled at any time to
file a photographic or other reproduction of this Agreement as a financing
statement, but the failure of Secured Party to do so shall not impair the
validity or enforceability of this Agreement.
6.10 APPLICABLE LAWS. THIS AGREEMENT AND ALL ISSUES AND CLAIMS ARISING
IN CONNECTION WITH OR RELATING TO THE SECURED INDEBTEDNESS, INCLUDING BUT
WITHOUT LIMITATION, ALL CONTRACT, TORT, EQUITY, OR OTHER CLAIMS OR COUNTERCLAIMS
SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS (WITHOUT CONSIDERATION OF ITS CONFLICTS OF LAWS RULES) AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. If any provision of this Agreement is held
to be invalid or unenforceable, the validity and enforceability of the other
provisions of this Agreement shall remain unaffected.
6.11 ENTIRETY. THIS AGREEMENT AND THE NOTE EMBODY THE FINAL, ENTIRE
AGREEMENT AMONG PLEDGOR AND SECURED PARTY WITH RESPECT TO THE PLEDGE AND
ASSIGNMENT OF THE COLLATERAL AND THE OTHER MATTERS ADDRESSED HEREIN AND THEREIN,
AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND THEREOF, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
6.12 OBLIGATIONS ABSOLUTE. All rights and remedies of Secured Party
hereunder, and all obligations of Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of any of the Loan Documents
or any other agreement or instrument relating to any of the foregoing;
(b) any change in the time, manner, or place of payment of, or in any
other term of, all or any of the Secured Indebtedness, or any other amendment or
waiver of or any consent to any departure from any of the Loan Documents;
(c) any exchange, release, or non-perfection of any Collateral, or any
release or amendment or waiver of or consent to any departure from any
guarantee, for all or any of the Secured Indebtedness; or
(d) any other circumstance (other than payment in full of the Secured
Indebtedness) that might otherwise constitute a defense available to, or a
discharge of, Pledgor.
6.13 WAIVER OF NOTICE AND HEARING. PLEDGOR HEREBY WAIVES ANY AND ALL
RIGHTS IT MAY HAVE TO NOTICE OR HEARING PRIOR TO SEIZURE BY SECURED PARTY OF THE
COLLATERAL, WHETHER BY WRIT OF POSSESSION OR OTHERWISE.
6.14 LIMITATION OF LIABILITY. Anything herein or the Note to the
contrary notwithstanding, it is specifically provided that Pledgor shall not
have any personal or corporate liability for the payment of the Note or be
liable for a money judgment or otherwise in the event of an Event of Default, it
being understood that the holders of the Note may look only to the security
provided by this Agreement to enforce the payment of the
PLEDGE AGREEMENT 12
<PAGE> 13
Secured Indebtedness, except for the interest of Pledgor in the Collateral or
any other property of Pledgor covered by a lien or security interest securing
payment of the Note or other Secured Indebtedness; provided, however, that the
liability of Pledgor shall at all times be one hundred percent (100%) liability
for (a) any and all damages, costs, and expenses suffered or incurred by Secured
Party as a result of, in connection with or relating to any representation or
warranty made by Pledgor to Secured Party which shall prove to be untrue or
inaccurate in any material respects, and (b) the costs, expenses, and fees,
including but not limited to, court costs and reasonable attorneys' fees,
arising in connection with the collection of the Secured Indebtedness.
IN WITNESS WHEREOF, Pledgor has executed this Agreement as of the day
and year first above written.
PLEDGOR:
VENUS EXPLORATION, INC., a Delaware corporation
By:
-------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
PLEDGE AGREEMENT 13
<PAGE> 14
EXHIBIT A
APPRAISAL METHODOLOGY
1. The Company's proved producing properties shall be valued at one
hundred percent (100%) of their present value discounted at ten percent (10%)
per annum, using the NYMEX three (3) year strip (as adjusted for the difference
between NYMEX and actual prices received at the wellhead, in each case being the
average prices for the three (3) months preceding the appraisal date) and flat
pricing after three (3) years.
2. The Company's proved developed non-producing properties shall be
valued at seventy-five percent (75%) of their present value discounted at ten
percent (10%) per annum, using the NYMEX three (3) year strip (as adjusted for
the difference between NYMEX and actual prices received at the wellhead, in each
case being the average prices for the three (3) months preceding the appraisal
date) and flat pricing after three (3) years.
3. The Company's proved undeveloped non-producing properties shall be
valued at fifty percent (50%) of their present value discounted at ten percent
(10%) per annum, using the NYMEX three (3) year strip (as adjusted for the
difference between NYMEX and actual prices received at the wellhead, in each
case being the average prices for the three (3) months preceding the appraisal
date) and flat pricing after three (3) years.
<PAGE> 1
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of June 30, 1999, among Venus Exploration, a Delaware
corporation (the "Company"), and EXCO Resources, Inc., a Texas corporation
("EXCO").
This Agreement is made in conjunction with and in
consideration of that certain Convertible Promissory Note made by the Company
payable to EXCO dated an even date herewith (the "Convertible Note").
The Company and EXCO hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
meanings ascribed below:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section
3(o).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in
the state of Texas generally are authorized or required by law or other
government actions to close.
"Closing Date" shall mean June 30, 1999.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value
$.01 per share.
"Conversion Shares" means up to 5,333,333 shares of Common
Stock issuable upon conversion of the Convertible Notes plus any additional
shares of Common Stock issuable in respect of anti-dilution rights under the
terms of the Convertible Notes.
<PAGE> 2
"Convertible Note" shall have the meaning set forth in the
preamble.
"Effectiveness Date" shall have the meaning set forth in
Section 2(a).
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 90th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the
case may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PIK Shares" means the shares of Common Stock issuable under
the terms of the Convertible Note at the option of the Company in lieu of cash
interest due under the Convertible Note.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the
Registration Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Registrable Securities" means (i) the Conversion Shares and
(ii) the PIK Shares; provided, however in order to account for the fact that
the number of PIK Shares is determined in part upon the market price of the
Common Stock prior to the issuance of the PIK Shares, Registrable Securities
contemplated by clause (ii) above shall include (but not be limited to)
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<PAGE> 3
4,800,000 shares of Common Stock. The Registration Statement to be filed by the
Company on the Filing Date shall cover 10,133,333 shares of Common Stock. The
Company shall be required to file additional Registration Statements to the
extent the sum of (i) the Conversion Shares and (ii) the PIK Shares exceeds the
number of shares of Common Stock initially registered in accordance with the
immediately prior sentence. The Company shall have fifteen (15) days to file
such additional Registration Statements after notice of the requirement
thereof, which the Holder may give at such time when the number of shares
referenced in clauses (i) and (ii) above and actually issued in accordance with
the terms of the Convertible Note exceeds 85% of the number of shares of Common
Stock registered in a Registration Statement hereunder.
"Registration Statement" means the registration statement and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form S-3 (if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3 such registration shall be on another appropriate form in
accordance herewith). The Registration Statement shall state, to the extent
permitted by Rule 416 under the Securities Act, that it also covers such
indeterminate number of shares of Common Stock as may be required to prevent
dilution resulting from stock splits, stock dividends or similar events. The
Company may
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<PAGE> 4
elect to register the Registrable Securities on the Company's "Shelf"
Registration Statement on Form S-3 (no. 333-73457) currently under review by
the Commission. The Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event on or prior to
the 120th day following issuance of any shares of Common Stock pursuant to the
terms of the Convertible Note; provided, however, that if at the 120th day
Venus has (i) filed the Registration Statement required hereby by the Filing
Date, (ii) used its best reasonable efforts to cause the Commission to declare
the Registration Statement effective (including, but not limited to, promptly
responded to all comments and requests for additional or supplemental
information (including the prompt filing of pre-effective amendment(s) to the
Registration Statement)), and (iii) the Registration Statement has not yet been
declared effective by the Commission, then such 120 day period shall be
extended to 210 days from the date of the first issuance of Common Stock
pursuant to the terms of the Convertible Note (said 120th or 210th day being
the "Effectiveness Date"). The Company shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until
the date which is three years after the date that is the last date any
Registrable Securities are issued pursuant to the terms of the Convertible Note
or such earlier date when all Registrable Securities covered by such
Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent (the "Effectiveness Period"),
provided, however, that the Company shall not be deemed to have used its best
efforts to keep the Registration Statement effective during the Effectiveness
Period if it voluntarily takes any action that would result in the Holders not
being able to sell the Registrable Securities covered by such Registration
Statement during the Effectiveness Period, unless such action is pursuant to a
Blackout Period permitted hereunder, required under applicable law or the
Company has filed a post-effective amendment to the Registration Statement and
the Commission has not declared it effective.
(b) If the Holder so elects, an offering of Registrable
Securities pursuant to the Registration Statement may be effected in the form
of an Underwritten Offering once at any time prior to the fifth anniversary of
this Agreement and once thereafter. In such event, and, if the managing
underwriters advise the Company and such Holder in writing that in their
opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such
Underwritten Offering the amount of such Registrable Securities which in the
opinion of such managing underwriters can be sold.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holder. No Holder may participate in any
Underwritten Offering hereunder unless such Holder (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such arrangements and
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such arrangements.
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<PAGE> 5
(d) If (i) a Registration Statement covering all Registrable
Securities is not filed on or before the Filing Date, or (ii) the Company fails
to file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Securities Exchange Act within five (5) days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that a Registration Statement will not be "reviewed"
or is not subject to further review; or (iii) a Registration Statement covering
all Registrable Securities is not declared effective by the Commission on or
before the Effectiveness Date, or (iv) if, after the Registration Statement has
been declared effective by the Commission, the Registration Statement is either
not effective as to all Registrable Securities throughout the Effectiveness
Period or the Holders are not permitted for any reason to make sales thereunder
during such period, except that days that a Registration Statement is not
effective or unavailable as to all Registrable Securities (1) because of a
Blackout Period hereunder or (2) because of changes required by the Holders in
the Registration Statement with respect to information relating to the Holders,
including without limitation changes to the plan of distribution (any such
failure or breach being referred to as an "Event," and for purposes of clauses
(i) and (iii) the date on which such Event occurs, or for clause (ii) the date
on which such five (5) day period is exceeded, being referred to as "Event
Date"), then, in any such case, as partial relief for the damages suffered
therefrom by the Holders (which remedy shall not be exclusive of any other
remedies available at law or in equity), an event of default shall exist under
the Convertible Note and EXCO shall have all rights and remedies afforded
thereunder.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-3 (or if the Company is not
then eligible to register for resale the Registrable Securities on Form S-3
such registration shall be on another appropriate form in accordance herewith,
or, in connection with an Underwritten Offering hereunder, such other form
available to the Company and reasonably acceptable to the Holders or, if the
Company elects, a pre-effective amendment to the Company's Registration
Statement on Form S-3 currently in registration) which shall contain the "Plan
of Distribution" attached hereto as Annex A (except if otherwise directed by
the Holders), and cause the Registration Statement to become effective and
remain effective as provided herein; provided, however, that not less than five
(5) Business Days prior to the filing of the Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall, (i) furnish to the Holders and any managing
underwriters, copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Holders and such managing
underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to such Holders
and such underwriters, to conduct a reasonable investigation within the meaning
of the Securities Act. The Company
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<PAGE> 6
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant
to Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as reasonably possible to any
comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by
the Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold
and any managing underwriters as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is
proposed to be filed; (B) when the Commission notifies the Company whether
there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company
shall provide true and complete copies thereof and all written responses
thereto to each of the Holders); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information; (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that pur pose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true
and correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to the Registration Statement, Prospectus or
other documents so that, in the case of the Registration Statement or the
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<PAGE> 7
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(d) Use its reasonable best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders
of the Registrable Securities to be sold in connection with an Underwritten
Offering, (i) (subject to a permitted Blackout Period) promptly incorporate in
a Prospectus supplement or post-effective amendment to the Registration
Statement such information as such managing underwriters and such Holders
reasonably agree should be included therein, and (ii) make all required filings
of such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 3(e) that would, in the opinion of counsel for the
Company, violate applicable law or be materially detrimental to the business
prospects of the Company.
(f) Furnish to each Holder and any managing underwriters,
without charge, at least one conformed copy of each Registration Statement and
each amendment thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by reference, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.
(g) Promptly deliver to each Holder and any underwriters,
without charge, as many copies of the Prospectus or Prospectuses (including
each form of prospectus) and each amendment or supplement thereto as such
Persons may reasonably request; and the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders and any underwriters in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of
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<PAGE> 8
process in any such jurisdiction where it is not then so subject or subject the
Company to any taxation in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least two Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration Statement
nor such Prospectus will contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq SmallCap
Market ("NASDAQ") and any other subsequent market, if any, on which similar
securities issued by the Company are then listed as and when required pursuant
to the Convertible Note.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and is entered into, (i) make such representations and warranties
to such Holders and such underwriters as are customarily made by issuers to
underwriters in underwritten public offerings, and confirm the same if and when
requested; (ii) obtain and deliver copies thereof to each Holder and the
managing underwriters, if any, of opinions of counsel to the Company and
updates thereof addressed to each Holder and each such underwriter, in form,
scope and substance reasonably satisfactory to any such managing underwriters
and Special Counsel to the selling Holders covering the matters customarily
covered in opinions requested in Underwritten Offerings and such other matters
as may be reasonably requested by such Special Counsel and underwriters; (iii)
immediately prior to the effectiveness of the Registration Statement, and, in
the case of an Underwritten Offering, at the time of delivery of any
Registrable Securities sold pursuant thereto, use its best reasonable efforts
to obtain and deliver copies to the Holders and the managing underwriters, if
any, of "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data is, or is required to be,
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<PAGE> 9
included in the Registration Statement), addressed to the Company in form and
substance as are customary in connection with Underwritten Offerings; (iv) if
an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders and the underwriters, if any, than those set forth in Section 5 (or
such other provisions and procedures acceptable to the managing underwriters,
if any, and holders of a majority of Registrable Securities participating in
such Underwritten Offering); and (v) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, and any managing underwriters to evidence the continued
validity of the representations and warranties made pursuant to clause 3(l)(i)
above and to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant retained
by such selling Holders or underwriters, at the offices where normally kept,
during reasonable business hours, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and
cause the officers, directors, agents and employees of the Company and its
subsidiaries to supply all information in each case reasonably requested by any
such Holder, representative, underwriter, attorney or accountant in connection
with the Registration Statement; provided, however, that any information that
is determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential
by such Persons, unless (i) disclosure of such information is required by
court or administrative order or is necessary to respond to inquiries of
regulatory authorities; (ii) such information becomes generally available to
the public other than as a result of a disclosure or failure to safeguard by
such Person; or (iii) such information becomes available to such Person from a
source other than the Company and such source is not known by such Person to be
bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration, without any penalty otherwise
provided by this Agreement, the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal statute
then in force) the deletion of the reference to such Holder in any amendment or
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<PAGE> 10
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell
any Registrable Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(c) and (ii) it and its officers, directors or
Affiliates, if any, will comply with the prospectus delivery requirements of
the Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by Section 3(j), or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
If there is a significant business opportunity (including but
not limited to the acquisition or disposition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer or
other similar transaction) available to the Company which the Board reasonably
determines not to be in the Company's best interest to disclose, then the
Company may suspend the right of the Holders to sell Registrable Securities
under a Registration Statement for a period not to exceed 20 Business Days
during the Effectiveness Period (the "Blackout Period").
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not
pursuant to an Underwritten Offering and whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with the NASDAQ and any subsequent market on which the Common Stock is then
listed for trading, and (B) in compliance with state securities or Blue Sky
laws (including, without limitation, fees and disbursements of its counsel or,
if its counsel fails to timely make such determinations, counsel for the
Holders (which will not be subject to the restrictions set forth below) in
connection with Blue Sky qualifications or exemptions of the Registrable
Securities and determination of the eligibility of the Registrable Securities
for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders may designate)), (ii) printing expenses
(including,
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without limitation, expenses of printing certificates for Registrable
Securities and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriters, if any, or by the Holders included in
the Registration Statement), (iii) messenger, telephone and delivery expenses
of the Company, (iv) fees and disbursements of counsel for the Company, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. By way of illustration which is not
intended to diminish from the provisions of Section 4(a), the Holders shall not
be responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
(b) If the Holders require an Underwritten Offering pursuant
to the terms hereof, the Holders shall be responsible for all costs, fees and
expenses in connection therewith.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, costs of
preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in the Registration Statement,
any Prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in light of the circumstances under
which they were made) not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, or to the extent that such information
relates
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<PAGE> 12
to such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form
of Prospectus or in any amendment or supplement thereto. The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the Exchange
Act), and the directors, officers, agents or employees of such controlling
Persons, to the fullest extent permitted by applicable law, from and against
all Losses (as determined by a court of competent jurisdiction in a final
judgment not subject to appeal or review) arising solely out of or based solely
upon any untrue statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent, that
such untrue statement or omission is contained in any information so furnished
in writing by such Holder to the Company specifically for inclusion in the
Registration Statement, such Prospectus or such form of prospectus or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus, or in any amendment or
supplement thereto. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant
to this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably
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<PAGE> 13
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party; provided, however, that the Indemnifying Party shall be
responsible for the fees and expenses of one counsel for all such Indemnified
Parties unless an Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
all such Indemnified Parties, in which case such Indemnified Party shall be
permitted, at the expense of the Indemnifying Party, to employ separate
counsel). The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under
Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party
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<PAGE> 14
would have been indemnified for such fees or expenses if the indemnification
provided for in this Section was available to such party in accordance with its
terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the proceeds actually received by such Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not provide
adequate com pensation for any losses incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any
of its subsidiaries has, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Without limiting the generality of the foregoing, without
the written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right to
request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of the Holders set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement (so long as the
Company is in compliance with its registration obligations hereunder and the
restrictions relating to registration of securities set forth in the Purchaser
Agreement this sentence will not operate to restrict the Company).
(c) Piggy-Back Registrations. If at any time the Company
shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own
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<PAGE> 15
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within fifteen (15)
days after receipt of such notice, any such holder shall so request in writing,
the Company shall include in such registration statement all or any part of
such Registrable Securities such holder requests to be registered; provided,
however, that the Company shall not be required to register any Registrable
Securities pursuant to this Section 6(c) that are eligible for sale pursuant to
Rule 144(k) of the Commission. Any registration statement referred to in this
Section 6(c) may be withdrawn at any time by the Company.
(d) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the immediately preceding sentence.
(e) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:00 p.m. (Dallas time) on a Business
Day, (iii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:00 p.m. (Dallas time) on any date and
earlier than 11:59 p.m. (Dallas time) on such date; or (iv) upon receipt, when
delivered by a reputable overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company: Venus Exploration, Inc.
1250 N.E. Loop 410
Suite 1000
San Antonio, Texas 78209
Facsimile: 210-828-6018
Attention: Eugene R. Ames, Jr.
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<PAGE> 16
If to EXCO: EXCO Resources, Inc.
5735 Pineland Dr.
Suite 235
Dallas, Texas 75231
Facsimile: 214-368-2087
Attention: Douglas H. Miller
Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Holder may assign its rights hereunder in the manner and to the
Persons as permitted under this Agreement.
(g) Assignment of Registration Rights. The rights of Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer
or assignment, furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the
provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Convertible Note. The rights
to assignment shall apply to the Holders (and to subsequent) successors and
assigns.
(h) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(i) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Texas without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of Dallas, County of Dallas, State of Texas
for
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<PAGE> 17
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(j) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or
restriction of this Agree ment is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(l) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
VENUS EXPLORATION, INC.
By: /s/ JOHN Y. AMES
-------------------------------------
Name: John Y. Ames
Its: President
EXCO RESOURCES, INC.
By: /s/ T.W. EUBANK
-------------------------------------
Name: T.W. Eubank
Title: President
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<PAGE> 19
Annex A
PLAN OF DISTRIBUTION
The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder (the "Shares") in privately
negotiated transactions or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such market
prices or at negotiated prices. The Shares may be sold by the Selling
Stockholders by one or more of the following methods, without limitation: (a)
block trades in which the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this
Prospectus, (c) an exchange distribution in accordance with the rules of the
applicable exchange, (d) ordinary brokerage transactions and transactions in
which the broker solicits purchasers, (e) privately negotiated transactions,
(f) short sales, (g) a combination of any such methods of sale and (h) any
other method permitted pursuant to applicable law.
From time to time the Selling Stockholders may engage in short sales, short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the applicable conversion price may
be affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
(or, if any such broker-dealer acts as agent for the purchaser of such shares,
from such purchaser) in amounts to be negotiated which are not expected to
exceed those customary in the types of transactions involved. Broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
Shares at a stipulated price per share, and, to the extent such broker-dealer
is unable to do so acting as agent for a Selling Stockholder, to purchase as
principal any unsold Shares at the price required to fulfill the broker-dealer
commitment to the Selling Stockholders. Broker-dealers who acquire Shares as
principal may thereafter resell such Shares from time to time in transactions
(which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Shares commissions as described above. The
Selling Stockholders may also sell the Shares in accordance with Rule 144 under
the Securities Act, rather than pursuant to this Prospectus.
<PAGE> 20
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to
be underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
[such other disclosure as may be required
pursuant to applicable law]
<PAGE> 1
EXHIBIT 10.7
AGREEMENT AMONG MEMBERS
THIS AGREEMENT AMONG MEMBERS (this "Agreement") is entered into as of
June 30, 1999, by and among EXUS Energy, LLC, a Delaware limited liability
company (the "Company"), Venus Exploration, Inc., a Delaware corporation
("Venus"), and EXCO Resources, Inc., a Texas corporation ("EXCO", and together
with Venus and any person who becomes a party hereto by executing Exhibit A
hereto, the "Members").
R E C I T A L S
A. The Members have formed the Company pursuant to the terms of that
certain Limited Liability Company Agreement dated an even date herewith (the
"LLC Agreement").
B. Venus has acquired 100 units of Class A Voting Interests (the "Class
A Units") of the Company, representing 50% of the initial equity interest of the
Company (such equity interest being the "Venus Units"). EXCO has acquired 100
Class A Units of the Company, representing 50% of the initial equity interest in
the Company (such equity interest being the "EXCO Units").
C. The Members acknowledge that their respective continued equity
ownership of, and active participation in, the Company are crucial to the
execution of the business strategy of the Company.
D. The parties believe that it is in the best interests of the Company
to restrict the disposition of Class A Units and any other equity interest in
the Company, whether now owned or hereafter acquired.
E. The parties also believe that it is in the best interests of the
Company to permit either Member to participate in certain transactions involving
the other Member's equity interests in the Company, on the terms and conditions
set forth herein.
F. The parties acknowledge that in the course of the Company's affairs,
Venus and EXCO may disagree in good faith about the management of the Company
and that such disagreements may become irreconcilable. Accordingly, the parties
believe that it is in the best interests of the Company to provide for the sale
and purchase of the Class A Units owned by Venus and EXCO, whether now owned or
hereafter acquired, in the event of any irreconcilability differences.
<PAGE> 2
A G R E E M E N T
Based on the recitals set forth above and the mutual promises contained
herein, the parties agree as follows:
ARTICLE 1
Permitted Dispositions
1.1 Prohibitions on Dispositions of Venus Units. Prior to the EXCO
Repayment (defined below), Venus shall not sell, assign, transfer (whether or
not for consideration), register for transfer, gift, donate, subject to an
option to purchase, pledge (other than that pledge of Venus Units to EXCO to
secure the Convertible Note (defined below)), encumber, hypothecate, or in any
manner dispose of any Venus Units, or subject any Venus Units to an agreement to
do any of the foregoing (any of the foregoing actions being referred to herein
as a "Disposition", whether applicable to Venus Units or EXCO Units) without
EXCO's consent, which consent may not be unreasonably withheld.
After the EXCO Repayment has occurred, Venus shall not pledge, encumber
or hypothecate any Venus Units or subject any Venus Units to an agreement to do
any of the foregoing without the prior written consent of EXCO, which consent
may not be unreasonably withheld, and shall not make any other Disposition of
the Venus Units except in accordance with the other provisions of this
Agreement.
Any attempted Disposition of Venus Units, except in accordance
herewith, shall be void and ineffectual.
"Convertible Note" means that certain convertible note dated an even
date herewith made by Venus and payable to EXCO.
"EXCO Loan" means the aggregate amounts loaned by EXCO to Venus
pursuant to the Convertible Note plus all interest due thereon and other charges
owed by Venus to EXCO pursuant to the terms of the Convertible Note.
"EXCO Repayment" means the time at which Venus has either (a) paid in
full the EXCO Loan or (b) the Convertible Note have been converted in their
entirety to common stock of Venus and all interest and other charges due under
the Convertible Note have been paid in cash or common stock of Venus to the
extent permitted by the Convertible Note.
"Net Proceeds" from a Disposition means cash proceeds received
therefrom net of (a) all legal, title and recording expenses, commission and
other fees and expenses incurred, and all federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP as a consequence
of such Disposition.
1.2 Prohibitions on Dispositions of EXCO Units. EXCO shall not pledge,
encumber or hypothecate any EXCO Units or subject any EXCO Units to an agreement
to do any of the foregoing without the prior written consent of Venus, which
consent may not be unreasonably withheld, and
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<PAGE> 3
shall not make any other Disposition of the EXCO Units except in accordance with
the other provisions of this Agreement.
Any attempted Disposition of EXCO Units, except in accordance herewith,
shall be void and ineffectual.
1.3 Right of First Refusal on Voluntary Dispositions. Either Venus or
EXCO may sell, assign, transfer, register for transfer, gift, donate or subject
to an option to purchase any or all of their Class A Units (the disposing member
being the "Selling Member"), subject to the non-disposing member's (herein, the
"Optionee Member") right of first refusal (whether under this Section or under
Section 1.4; the "Right of First Refusal"); provided, that, subject to Section
1.1 Venus may not undertake any Disposition of Venus Units prior to EXCO
Repayment. If a Selling Member wishes to sell, assign, transfer, register for
transfer, gift, donate or subject to an option to purchase any of their Class A
Units as permitted in this Section 1.3, then the Selling Member shall enter into
a written agreement (the "Purchase Agreement") with a third party (the
"Offeror"), providing for the purchase by the Offeror of all or a portion of the
Selling Member's Class A Units. Whether or not stated in the Purchase Agreement,
the Offeror's right to purchase, and the Selling Member's right to sell, any or
all of the Selling Member's Class A Units shall be subject to the Optionee
Member's Right of First Refusal. Not later than the fifth day after the
execution by the Selling Member and the Offeror of the Purchase Agreement, the
Selling Member shall deliver a written notice (the "Notice") to the Optionee
Member, notifying the Optionee Member that the Selling Member wishes to sell the
Selling Member's Class A Units and setting forth the number of the Selling
Member's Class A Units to be so sold. The Selling Member shall attach to the
Notice a copy of the Purchase Agreement, together with all exhibits and other
attachments. If the Purchase Agreement is subject to a financing condition, then
(a) the Selling Member shall attach to the Notice a copy of a letter from a
recognized regional or national investment banking firm addressed to the Selling
Member to the effect that such firm believes that there is a substantial
likelihood that the Offeror will be able to obtain the financing necessary to
satisfy the financing condition and (b) the Offeror shall covenant in the
Purchase Agreement to use commercially reasonable efforts to obtain such
financing. The Notice also shall identify the Offeror and any "ultimate parent
entity" (or entities) (as that term is defined in the Hart-Scott-Rodino
Antitrust Improvements Act) of the Offeror, and all other terms, agreements or
understandings with respect to the transaction not otherwise disclosed in the
Notice or the Purchase Agreement (and the exhibits and attachments thereto).
On or before the thirtieth day after the Optionee Member's receipt of
the Notice, the Optionee Member shall notify the Selling Member in writing
whether the Optionee Member wishes to exercise its Right of First Refusal. If
the Selling Member exercises its Right of First Refusal pursuant to this Section
1.3, then the Optionee Member shall purchase all, and not less than all, of the
Selling Member's Class A Units that were the subject of the Purchase Agreement
on the same terms and conditions set forth in the Purchase Agreement; provided,
however, that if the Purchase Agreement provides for the delivery to the Selling
Member of securities of the Offeror, then the Optionee Member may in its sole
discretion deliver cash or substantially equivalent debt or equity securities of
the Optionee Member as payment for the Selling Member's Class A Units; provided,
further, that if the Selling Member and the Optionee Member are unable to agree
not later than 15 days prior to the closing date on the valuation of the
securities to be delivered by Optionee Member, the Members shall submit the
valuation to a mutually agreeable investment banker for determination. Such
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<PAGE> 4
valuation shall be accomplished within 10 days of submission to the investment
banker. The determination by the investment banker shall be final and binding
upon the Members. All costs and fees of the investment banker shall be borne
equally by the Members.
If the Optionee Member exercises the Right of First Refusal pursuant to
this Section 1.3, then the Optionee Member shall consummate the purchase of the
Selling Member Units not later than the sixtieth day after the date on which the
Optionee Member delivers notice to the Selling Member to the effect that the
Optionee Member will exercise its Right of First Refusal pursuant to this
Section 1.3.
If the Optionee Member does not timely notify the Selling Member that
the Optionee Member will exercise its Right of First Refusal pursuant to this
Section 1.3 or if the Optionee Member notifies the Selling Member that the
Optionee Member will not exercise its Right of First Refusal pursuant to this
Section 1.3, then the Selling Member may consummate the sale of the applicable
Selling Member's Class A Units to the Offeror; provided, however, that (a) the
Selling Member's Class A Units must be transferred at the same price and on
terms and conditions not more favorable to the Offeror than those contained in
the Purchase Agreement delivered to the Optionee Member pursuant to the Notice
and (b) such transaction must be consummated not later than a commercially
reasonable time after (i) the Optionee Member notifies the Selling Member that
the Optionee Member will not exercise its Right of First Refusal pursuant to
this Section 1.3 or (ii) the expiration of the thirty-day period during which
the Optionee member can give timely notice of its exercise of its Right of First
Refusal pursuant to this Section 1.3, without the timely delivery by the
Optionee Member of such notice. If the transaction with the Offeror is not
consummated in accordance with the immediately-preceding sentence, then no
Disposition may occur unless the Selling Member again offers the Selling
Member's Class A Units to the Optionee Member in accordance with the provisions
of this Section 1.3. From and after the consummation of the sale of the Selling
Member's Class A Units to the Offeror, neither the Offeror nor the Selling
Member Units transferred to such Offeror shall be bound by any obligation or
entitled to any right under this Agreement.
A transaction pursuant to Article 2 shall not constitute a Disposition
that is subject to the Optionee Member's Right of First Refusal under this
Section 1.3.
1.4 Right of First Refusal on Prohibited or Involuntary Dispositions.
If at any time a Selling Member:
(a) shall make or enter into a binding agreement to make a
Disposition of any Selling Member's Class A Units or any interest therein in
violation of Section 1.1, or Section 1.2 or Section 1.3 hereof;
(b) shall make an assignment for the benefit of creditors;
(c) shall file, or consent to the filing of, a petition under any
federal or state insolvency, bankruptcy, reorganization or similar law
(collectively "Bankruptcy Law") or petition for, or consent to, the taking of
possession by a trustee, receiver or similar official of any of the Selling
Member's assets;
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<PAGE> 5
(d) shall be adjudicated or declared as bankrupt or insolvent
under any Bankruptcy Law;
(e) shall suffer an attachment, sequestration, foreclosure,
turnover order, writ of execution or garnishment, or any other method of seizure
to be levied against any of Selling Member's Class A Units or any interest
therein, which attachment, sequestration, foreclosure, turnover order, writ of
execution or garnishment is not otherwise satisfied or terminated prior to the
time of the transfer of such Selling Member's Class A Units or any interest
therein; or
(f) shall have any Class A Units, or any interest therein,
subjected to a Disposition in any other way whatsoever (other than as permitted
in Section 1.1, Section 1.2 or Section 1.3 above);
(any of the foregoing being referred to as a "Transfer Event"); then the Selling
Member or its representative, as applicable, shall within five days of such
Transfer Event deliver a written notice (the "Transfer Event Notice") to the
Optionee Member, setting forth in reasonable detail the circumstances of such
Transfer Event. A transaction pursuant to Article 2 shall not constitute a
Transfer Event.
The Transfer Event Notice shall constitute an offer of the entire
record and beneficial interest in the Selling Member's Class A Units involved in
the Transfer Event (the "Offered Units") for sale to the Optionee Member at the
price and on the terms and conditions set forth in this Section. If the Transfer
Event Notice is not delivered to the Optionee Member, then upon being advised of
any such Transfer Event, the Optionee Member shall notify the Selling Member or
its representative, as applicable, that the Offered Units are deemed offered to
the Optionee Member. In such case, the Transfer Event Notice shall be deemed
received by the Optionee Member on the date the Optionee Member mails the
above-described notice to the Selling Member or its representative (as
applicable).
If the Optionee Member elects to purchase the Offered Units pursuant to
this Section 1.4, then the purchase price for such units shall be the fair
market value of such units as determined by the Independent Appraiser (defined
below), calculated based on the valuation methodology set forth in Section
5.4(i) of the Pledge Agreement, dated on or about June 30, 1999, between EXCO
and Venus ("the Pledge Agreement"). The Optionee Member may pay the purchase
price for the Offered Units by delivering to the Selling Member or its
representative (as applicable) a promissory note payable in five equal annual
installments and bearing interest at 7% per annum.
"Independent Appraiser" means Netherland Sewell & Associates, Inc. (or
any successor of any such firm).
Upon receipt (including in all cases a deemed receipt) of the Transfer
Event Notice, the Offered Units shall be deemed to be offered to the Optionee
Member, which shall have thirty days from the date the Selling Member receives
the Transfer Event Notice to determine whether the Optionee Member wishes to
purchase the Offered Units and to notify Selling Member or its representative,
(as applicable) of such decision. If the Optionee Member wishes to purchase the
Offered Units, then such purchase shall be consummated not later than the
sixtieth day after the later
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<PAGE> 6
of (i) the date on which the Independent Appraiser delivers its valuation report
or (ii) the date on which the Optionee Member notifies the Selling Member or its
representative (as applicable) of the Optionee Member's exercise of the Right of
First Refusal pursuant to this Section 1.4.
If the Optionee Member elects not to purchase the Offered Units
pursuant to this Section 1.4, then such Offered Units may be disposed of
pursuant to the description of the Transfer Event in the Transfer Event Notice;
provided, however, such transaction must be consummated within a commercially
reasonable time after (i) the Optionee Member notifies the Selling Member that
the Optionee Member will not exercise its Right of First Refusal pursuant to
this Section 1.4 or (ii) the expiration of the thirty-day period during which
the Optionee Member can give timely notice of its exercise of its Right of First
Refusal pursuant to this Section 1.4, without the timely delivery by the
Optionee Member of such notice; provided further, that the acquiror or recipient
of the Selling Member's Class A Units involved in the Disposition must first
execute and deliver an agreement in the form attached hereto as Exhibit A. The
Offered Units must be disposed of at the same price and on terms and conditions
no more favorable to the outside purchaser as those contained in the Transfer
Event Notice. If such price, terms or conditions are to vary or if the
Disposition is not consummated in accordance with the first sentence of this
paragraph, then no Disposition may occur unless the Selling Member or its
representative (as applicable) again offers the Offered Units to the Optionee
Member in accordance with the provisions of this Section 1.4.
1.5 Proxies. No member may grant a proxy to any person, other than a
revocable proxy not to exceed seven days in duration granted for the sole
purpose of voting for members of the Management Committee at the annual meeting
of the members of the Company.
ARTICLE 2
Buy-Sell Upon Irreconcilable Differences
2.1 Triggering Event. Neither EXCO nor Venus shall have any rights
under this Article 2 unless (a) the Members (as defined in the LLC Agreement)
are unable to resolve a disagreement regarding an action that cannot be taken
without a Supermajority Vote of the Members (as defined in the LLC Agreement)
(such a disagreement being referred to herein as a "Material Disagreement"), (b)
EXCO or Venus notifies the other Member in writing that the notifying Member
wishes to proceed to non-binding mediation in an effort to resolve the Material
Disagreement, (c) the Members mediate the Material Disagreement with an
independent mediator selected by agreement of the Members and (d) the Material
Disagreement is not resolved within thirty days after the completion of such
mediation. A Material Disagreement that satisfies each of the foregoing
requirements shall constitute an "Irreconcilable Difference."
2.2 Independent Appraisal. Upon the occurrence of an Irreconcilable
Difference, either EXCO or Venus may demand that the Management Committee of the
Company select an Independent Appraiser and that such Independent Appraiser be
engaged by the Company to determine the fair market value of the Company. The
Independent Appraiser promptly shall determine the fair market value of the
Company based on the valuation methodology set forth in Section 5.4(i) of the
Pledge Agreement.
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2.3 Offer. Either Venus or EXCO (the "Offering Party") may send a
written notice (the "Buy-Sell Notice") to the other party (the "Electing
Party"), provided that the Buy-Sell Notice must be delivered to the Electing
Party not later than the sixtieth day after the date of the Independent
Appraiser's report. If both Venus and EXCO deliver such a notice, then the
notice that is actually delivered first in time shall constitute the Buy-Sell
Notice and the second-delivered notice shall have no force and effect hereunder.
The Buy-Sell Notice must state that the Offering Party thereby offers to
purchase all, and not less than all, of the Electing Party's units in the
Company. If Venus is the Offering Party, then it shall offer to purchase EXCO's
Units based on the pro rata portion of the Company's fair market value that
EXCO's Units represent. If EXCO is the Offering Party, then EXCO shall offer to
purchase the Venus' Units based on the pro rata portion of the Company's fair
market value that the Venus Units represent.
2.4 Electing Party's Option. Not later than the tenth (10th) after the
Electing Party's receipt of the Buy-Sell Notice, the Electing Party shall
deliver to the Offering Party a written notice setting forth the Electing
Party's decision whether to accept the Offering Party's offer or instead to
purchase all of the Units of the Offering Party. If the Electing Party accepts
the Offering Party's offer, then the purchase price for the Electing Party's
Units shall be the amount set forth in the Buy-Sell Notice. If, however, the
Electing Party elects to purchase the Offering's Party's Units, then the
purchase price to be paid by the Electing Party shall be the price the Electing
Party would have offered to the Offering Party pursuant to Section 2.3 if the
Electing Party originally had been the Offering Party. If the Electing Party
does not deliver to the Offering Party a written notice setting forth the
Electing Party's decision on or before the tenth (10th) day after the Electing
Party's receipt of the Buy/Sell Notice, then the Electing Party shall be deemed
to have accepted the Offering Party's offer to purchase the Electing Party's
Units.
2.5 Buy-Sell Closing. A transaction pursuant to this Article 2 must be
consummated no later than the 90th day after the earlier of (a) the date on
which the Offering Party is notified whether the Electing Party will buy or sell
hereunder or (b) the expiration of the tenth (10th) day after the Electing Party
receives the Buy-Sell Notice, if the Electing Party has not delivered a notice
of its election hereunder. The purchase price under this Article 2 shall be paid
in cash.
2.6 Failure to Consummate Buy-Sell. If an Offering Party or an Electing
Party who has elected to purchase the Offering Party's Units (as applicable, the
"Defaulting Member") fails to consummate the purchase of all of the Units of the
other party (the "Non-Defaulting Member") pursuant to this Article 2, then the
Non-Defaulting Member shall have the right to acquire the Defaulting Member's
Units at a price equal to the product of (i) the Defaulted Member's pro rata
share of the Company's fair market value (as determined in accordance with
Section 2.2) represented by the Defaulted Member's Units multiplied by (ii) .90.
Such election shall be consummated within the time limits set forth in Sections
2.4 and 2.5.
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ARTICLE 3
Miscellaneous
3.1 Legend. The following legend shall be placed on all certificates
representing Class A Units:
"The units evidenced by this certificate are subject to an Agreement
Among Members dated as of June 30, 1999, containing certain rights and
limitations on transfer, including without limitation certain buy-sell
obligations and certain rights of co-sale. A copy of that agreement is
on file at the principal place of business or the registered office of
the Company, and a copy may be obtained without charge upon written
request to the Company at its principal place of business or its
registered office."
3.2 Termination. This Agreement shall automatically terminate upon the
occurrence of any of the following events:
(a) The filing by the Company, or the consent by the Company to the
filing of, a petition under any Bankruptcy Law or a petition for, or consent to,
the taking of possession by a trustee, receiver or similar official of all or
substantially all of the Company's assets;
(b) The adjudication or declaration of the Company as bankrupt or
insolvent under any Bankruptcy Law;
(c) The execution and delivery by the Company of, or the consent
to, an assignment for the benefit of the Company's creditors;
(d) The Disposition of all of the Venus Class A Units or all of the
EXCO Class A Units, but only as to such Member and such units;
(e) The consummation of the complete liquidation of the Company; or
(f) The termination of the LLC Agreement.
3.3 Binding Effect. This Agreement shall be binding upon the parties
hereto, their heirs, administrators, executors and successors. This Agreement is
not assignable by the parties hereto; provided, however, that such Member may
assign this Agreement and such Member's rights hereunder to any affiliate of
such Member. Except as expressly set forth herein, there shall be no third party
beneficiary of this Agreement.
3.4 Specific Performance. The parties acknowledge that remedies at law
will be inadequate remedies for breach hereof and consequently agree that this
Agreement shall be enforceable by specific performance, without posting a bond
or other security and without proof of actual damages. The remedy of specific
performance shall be in addition to all other rights and remedies at law or in
equity of the parties hereunder.
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3.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
3.6 Indulgences, Etc. Neither the failure nor any delay on the part of
any party to exercise any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of the
same or of any right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power, or privilege with respect to any occurrence be construed
as a waiver of such right, remedy, power or privilege with respect to any other
occurrence.
3.7 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by certified or
registered mail, postage prepaid, return receipt requested, or delivered by
hand, telecopier (with a hard copy via regular mail), messenger or overnight
courier, and shall be deemed given when received at the addresses set forth
below, or at such other address furnished in writing to the other parties
hereto.
If to Venus: Venus Exploration, Inc.
1250 N.E. Loop 410
Suite 1000
San Antonio, Texas 78209
Facsimile: (210) 828-6016
Attention: President
If to EXCO: EXCO Resources, Inc.
5735 Pineland Drive
Suite 235
Dallas, Texas 75231
Facsimile: (214) 368-2087
Attention: President
If to the Company: c/o EXCO Resources, Inc.
5735 Pineland Drive
Suite 235
Dallas, Texas 75231
Facsimile: (214) 368-2087
Attention: President
3.8 Provisions Separable. The provisions hereof are independent of and
separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
3.9 Entire Agreement. This Agreement and the Exhibits hereto contain
the entire understanding between the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements and
understandings, inducements or conditions, express or
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implied, oral or written, except as herein contained, which shall be deemed
terminated effective immediately. The express terms hereof control and supersede
any course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
3.10 Headings; Index. The headings of paragraphs and Sections herein
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions hereof. References to
"Sections" herein are references to sections hereof. The words "herein,"
"hereof," "hereto" and "hereunder" and other words of similar import refer
hereto as a whole and not to any particular Article, Section or other
subdivision.
3.11 Governing Law. This Agreement shall be governed by, construed,
interpreted and applied in accordance with the laws of the State of Texas,
without giving effect to any conflict of laws rules that would refer the matter
to the laws of another jurisdiction.
Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court for the Northern District of
Texas and, if such court does not have jurisdiction, of the courts of the State
of Texas sitting in Dallas County, for the purposes of any action arising out
hereof, or the subject matter hereof, brought by any other party.
To the extent permitted by applicable law, each Member hereby waives
and agrees not to assert, by way of motion, as a defense or otherwise in any
such action, any claim (i) that it is not subject to the jurisdiction of the
above-named courts, (ii) that the action is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or its
property, (iv) that the venue of the suit, action or proceeding is improper or
(v) that this Agreement, or the subject matter hereof, may not be enforced in or
by such courts.
3.12 Voluntary Agreement Each Member acknowledges that he has had
sufficient time and opportunity to read and understand this Agreement and to
consult with his legal counsel and other advisers regarding the terms and
conditions set forth herein.
* * * * *
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This Agreement has been executed and delivered as of the date first
written above.
Venus Exploration, Inc.
By: /s/ JOHN Y. AMES
------------------------------------
John Y. Ames
President
EXCO Resources, Inc.
By: /s/ T.W. EUBANK
------------------------------------
T.W. Eubank
President
EXUS ENERGY, LLC
By: /s/ T.W. EUBANK
------------------------------------
T.W. Eubank
President
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EXHIBIT A
FORM OF ADDENDUM AGREEMENT
This Addendum Agreement (this "Addendum Agreement") made this ____ day
of _____________, ___ among ______________ (the "New Member"), EXUS Energy, LLC,
a Delaware limited liability company (the "Company"), and such Members (the
"Members") of the Company who are parties to that certain Agreement Among
Members dated as of June 30, 1999 (the "Agreement"), among the Company and the
Members.
W I T N E S S E T H:
WHEREAS, the Company and the Members entered into the Agreement to
impose certain restrictions and obligations upon the Members and the units of
membership interest of the Company (the "Units") owned by such Members;
WHEREAS, the New Member is desirous of becoming a Member of the
Company; and
WHEREAS, the Company and the Members have required in the Agreement
that all persons being offered Units must enter into an Addendum Agreement
binding the New Member to the Agreement to the same extent as if it were an
original party thereto, so as to promote the mutual interests of the Company,
the Members and the New Members by imposing the same restrictions and
obligations on the New Member and the Units, as the case may be, to be acquired
by the New Member as were imposed upon the Members under the Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties,
and as a condition of the purchase of the Units, the New Member acknowledges
that the New Member has read the Agreement. The New Member shall be bound by,
and shall have the benefit of, all the terms and conditions set out in the
Agreement to the same extent as if the New Member were a "Member" as defined in
the Agreement. This Addendum Agreement shall be attached to and become a part of
the Agreement.
New Member
-----------------------------------------
Name:
------------------------------------
Address (including fax number) for
notices under the Agreement:
-------------------------------------
-------------------------------------
-------------------------------------
A-1
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Agreed to on behalf of the Members and the Company pursuant to the
Agreement.
EXUS Energy, LLC
By:
-------------------------------------
Name:
-----------------------------------
A-2
