UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITY EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITY EXCHANGE ACT OF 1934
For the transition period from ....................
to.....................
Commission File No. 1-8523
MSR Exploration Ltd.
(Exact name of Registrant as specified in its charter)
Delaware 75-2695071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Main Street, Suite 210, Fort Worth, Texas 76102
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (817) 877- 3151
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months and (2) has been subject to such filing requirement for
the past 90 days. Yes X No __
Common Shares outstanding at September 30, 1997: 13,777,014
Transitional Small Business Disclosure Format: Yes or No X
MSR Exploration Ltd. and Subsidiaries
Explanatory Note
This report is filed by MSR Exploration Ltd., formerly
known as Mercury Montana, Inc. (the "Company"). The Company
has succeeded to the reporting obligations of its predecessor,
also known as MSR Exploration Ltd. ("old MSR"), pursuant to
Rule 12g-3(a) under the Securities Exchange Act of 1934, and
files this report with the Securities and Exchange Commission,
and will continue filing reports with the Commission, using the
commission File No. (1-8523) of its predecessor, old MSR. The
merger that resulted in the Company becoming the successor to
old MSR became effective on October 31, 1997, subsequent to the
last day of the period covered by this report. Consequently,
the information in this report, unless indicated otherwise,
relates primarily to old MSR. See "Part I -- Item 1, Financial
Statements, Note 2" and "Part II -- Item 2, Changes in
Securities" of this report.
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
MSR Exploration Ltd. and Subsidiaries
Fort Worth, Texas
We have reviewed the accompanying consolidated balance sheet of MSR
Exploration Ltd. and subsidiaries (the Company) as of September 30,
1997, and the related consolidated statements of operations and
cash flows for the three-month and nine-month periods ended
September 30, 1996 and 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such consolidated financial statements for
them to be in conformity with generally accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of the Company
as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated March 26,
1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1996
is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
November 7, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
MSR Exploration Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
In thousands
September 30,December 31,
1997 1996
ASSETS (unaudited)
Cash and cash equivalents $120 $313
Accounts receivable 731 937
Inventories 191 195
Prepaid expenses 44 15
Total current assets 1,086 1,460
PROPERTIES, PLANT AND EQUIPMENT - NET
("full cost") 27,937 28,786
OTHER ASSETS 627 470
$29,650 $30,716
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $89 $707
Accounts payable 359 277
Accrued liabilities 522 613
Total current liabilities 970 1,597
LONG-TERM DEBT 5,984 5,930
DEFERRED INCOME TAXES 3,638 3,833
STOCKHOLDERS' EQUITY
Common stock, without par value
Authorized 20,000,000 shares, issued and
outstanding 13,777,014 in 1997 and 17,861 17,861
Less notes receivable arising from
the issuance of common stock 0 (95)
Foreign currency translation adjustmen (125) (109)
Retained earnings 1,322 1,699
19,058 19,356
$29,650 $30,716
See Condensed Notes to Consolidated Financial Statements
MSR Exploration Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In thousands, except for per share data
Three Months Ended
Ended September 30,
1997 1996
REVENUE
Oil sales $390 $599
Gas sales 514 483
Interest and other income 14 0
Total revenues 918 1,082
EXPENSES
Operating expenses 336 376
Production taxes 57 69
Depletion and depreciation 334 329
General and administrative 212 271
Interest 180 187
Total expenses 1,119 1,232
Loss before income taxes (201) (150)
Income tax benefit 68 51
Net (loss) ($133) ($99)
Per share net (loss) ($0.01) ($0.01)
The weighted average number of shares
outstanding for the periods 13,777 13,768
See Condensed Notes to Consolidated Financial Statements
MSR Exploration Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In thousands, except for per share data
Nine Months Ended
Ended September 30,
1997 1996
REVENUES
Oil sales $1,503 $1,755
Gas sales 1,482 1,349
Interest and other income 68 23
Total revenues 3,053 3,127
EXPENSES
Operating expenses 1,114 1,058
Production taxes 189 185
Depletion and depreciation 1,055 979
General and administrative 721 717
Interest 545 547
Total expenses 3,624 3,486
Loss before income taxes (571) (359)
Income tax benefit 194 122
Net (loss) ($377) ($237)
Per share net (loss) ($0.03) ($0.02)
The weighted average number of shares
outstanding for the periods 13,777 13,812
See Condensed Notes to Consolidated Financial Statements
MSR Exploration Ltd. and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Note 1. ACCOUNTING POLICIES AND DISCLOSURES
In the opinion of management of the Company, the Consolidated
Financial Statements of old MSR contain all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the financial position of the old MSR as of
September 30, 1997, and the results of its operations and its
cash flows for the nine months ended September 30, 1997 and 1996.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto of
old MSR included in the Form 10-KSB for the year ended December
31, 1996. The results of operations for the three and nine month
periods ended September 30, 1997 and 1996 are not necessarily
indicative of the operating results to be expected for the full
fiscal year.
Note 2. SUBSEQUENT EVENT - BUSINESS COMBINATION.
On March 26, 1997 old MSR, entered into an agreement with the
Company, then known as Mercury Montana, Inc. and its majority
shareholder at that time, Mercury Exploration Company, both of
Fort Worth, Texas, to combine all of the Company's oil and gas
assets in Montana with all the oil and gas assets of old MSR by
way of a merger of the Company and old MSR. The Company is the
Surviving Corporation in the merger and changed its name to MSR
Exploration Ltd. after the merger was effective. The merger will
be accounted for under the purchase method of accounting.
At a combined Annual General and Special Meeting of Shareholders
of the old MSR held on October 30, 1997, the shareholders elected
directors and approved the domestication or continuance, of old
MSR from Alberta, Canada to Delaware, USA. The domestication of
old MSR into Delaware was required for the merger to become
effective. The merger was subsequently approved on October 31,
1997, by written consent of the stockholders of old MSR.
As part of the merger, the Company issued to old MSR shareholders
one share of common stock of the Company for each of the
13,777,014 outstanding shares of old MSR common stock. Each of
the 12,000,000 shares of common stock of the Company outstanding
prior to the merger remained outstanding. The combined total
number of outstanding shares is 25,777,014. All such shares are
listed for trading on the American Stock Exchange. In addition,
the Company paid $4 million of Mercury Exploration Company bank
debt. Outstanding warrants to purchase 5.5 million shares of
common stock of the Company at $1.25 per share, and 5.5 million
shares at $2.00 per share also remained outstanding after the
merger, as did Company stock options to purchase an aggregate of
228,570 shares of Company common stock at $0.875 per share
granted in lieu of salaries. An outstanding warrant to purchase
280,000 shares of common stock of the old MSR at $3.375 per share
was converted to an equivalent right to acquire shares of the
Company.
Prior to the merger, the Company had over 75 producing wells with
proven reserves of more than 5 million barrels of oil, as well as
rights and obligations under an agreement with a utility company
in Montana related to 304,000 acres of largely undeveloped oil
and gas properties centered over the Cut Bank Field complex in
northwestern Montana. In the subject area, the Company held 100%
of the oil rights and also the rights to 30% of the revenue
interest pertaining to liquids produced from gas wells. Through
the end of this calendar year all the Montana oil and gas
properties the Company held prior to the merger, are subject to a
forward sale of production. Consequently, cash flow from those
properties will begin accruing to the Company on January 1, 1998.
The Company, as a result of the business combination effected by
the merger, has proved oil reserves and daily production rates
approximately twice the old MSR levels.
MSR Exploration Ltd. and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(continued)
Nine Months Ended September 30, 1997 and 1996
Three members of old MSR's Board of Directors, Otto J. Buis,
Patrick M. Montalban and Steven M. Morris, together with two
independent directors, D. Randall Kent and W. Yandell Rogers,
III, were elected to the Board of Directors of old MSR at the
October 30, 1997 meeting. With the completion of the merger,
Messrs. Buis, Montalban, Morris, Kent and Rogers have become
directors of the Company joined by Frank Darden, Thomas F. Darden
and Glenn M. Darden, the directors of the Company prior to the
merger and also directors of Mercury Exploration Company.
On October 31, 1997 the Company closed a five year $25,000,000
Revolving Credit Facility with a bank. (See Note 3.).
PRO FORMA CONDENSED BALANCE SHEET OF THE SURVIVING CORPORATION
The following pro forma condensed balance sheet at September 30,
1997 is presented as if the merger had been consummated on that
date. Pro forma statements of operations for the three and nine
months ended September 30, 1997 have been excluded because such
statements would not have been materially different from the
statements of operations presented for old MSR. Most of the
Company's revenue and expenses for 1997, that are not
attributable to revenue and expenses of old MSR, are subject to a
prior forward sale and would be excluded from the pro forma
statements of operations. Oil revenues and direct operating
expenses subject to the forward sale were approximately
$1,666,000 and $1,101,000 respectively, for the nine months ended
September 30, 1997. Revenues and expenses associated with the
forward sale will begin to accrue to the Company on January
1,1998.
MSR Exploration Ltd. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1997
(In thousands)
Mercury
Old MSR Montana, Company
ASSETS Historic Inc. Adjust. Pro Forma
CURRENT ASSETS $1,086 $128 $1,214
PROPERTIES, PLANT AND EQUIPMENT - NET 27,937 4,436 $(9,644) 22,729
("full cost")
OTHER ASSETS 627 50 (200) 477
$29,650 $4614 $(9,844) $24,420
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $970 $970
LONG-TERM DEBT 5,984 $4,180 $265 10,429
DEFERRED INCOME TAXES 3,638 (3,638) 0
STOCKHOLDERS' EQUITY 19,058 434 (6,471) 13,021
$29,650 $4,614 $(9,844) $24,420
Pro Forma Adjustments - The condensed balance sheet reflects
adjustments for the market value of the acquired company, old
MSR, including the elimination of the acquired company's equity
accounts.
MSR Exploration Ltd. and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(continued)
Nine Months Ended September 30, 1997 and 1996
Note 3. NOTE PAYABLE AND LONG-TERM DEBT.
September 30, December 31,
1997 1996
(Unaudited)
The notes payable and long-term debt consists of :
Prime rate plus 1.0% note payable to
Banque Paribas (9.5% at September 30, 1997)
$ 5,900,000 $ 6,400,000
Various pre-petition claims at interest rates ranging
from 6% to 10%, due in monthly, quarterly and annual
installments. 173,000 237,000
6,073,000 6,637,000
Less current maturities ( 89,000) (707,000)
$ 5,984,000 $5,930,000
During the first quarter of 1995, the old MSR entered into a
revolving credit/term loan agreement with a bank. The agreement
allowed old MSR to borrow up to $15,000,000 under a revolving
credit arrangement for a two year period. On August 15, 1996 the
loan limit was set at $6,500,000 and on January 1, 1997 the
commitment was to be reduced by monthly payments at a rate of
$60,000 for 1997, $65,000 for 1998, $75,000 for 1999, $70,000 for
2000 and $60,000 for 2001. The old MSR could designate the
interest rate on amounts outstanding at either the London
Interbank Offered Rate (LIBOR) + 2.5%, or bank prime plus 1%.
The collateral for this loan agreement consisted of substantially
all of the existing assets of old MSR and any future reserves
acquired. The loan agreement contained certain restrictive
covenants which, among other things, required the maintenance of
a minimum current ratio, net worth and debt service ratio. As of
September 30, 1997 the old MSR was in compliance with all such
requirements. This revolving credit facility was restructured on
October 31, 1997.
On October 31, 1997 the Company restructured the old MSR
revolving credit facility and entered in to a new credit
agreement with a bank. The closing of the loan was subject to
the successful completion of the Company's merger with old MSR.
The new agreement is for a $25,000,000 senior secured revolving
credit facility with an initial borrowing base of $12,000,000,
which matures in five years. The Company can designate the
interest rate on amounts outstanding as either the London
Interbank Offered Rate (LIBOR) + 1.75%, or bank prime plus 1%.
The collateral for this loan agreement consists of substantially
all of the existing assets of the Company and any future reserves
acquired. The loan agreement contains certain restrictive
covenants which, among other things, require the maintenance of a
minimum current ratio, net worth and debt service ratio.
Note 4. NEW ACCOUNTING STANDARDS.
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share ("EPS") which establishes
new standards for computing and presenting EPS. It replaces the
presentation of primary EPS with a presentation of basic EPS.
Basic EPS excludes
dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. The
provisions of the statement are effective for fiscal years ending
after December 15, 1997. If the provisions of SFAS No. 128 had
been effective the first nine months of 1997 and in 1996, basic
and diluted earnings per share would not have been materially
different from primary and fully diluted earnings per share,
respectively, as calculated in accordance with Accounting
Principles Board Opinion No. 15.
MSR Exploration Ltd. and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(continued)
Nine Months Ended September 30, 1997 and 1996
In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting
and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose
financial statements. It requires (a) classification of items of
other comprehensive income by their nature in a financial
statement and (b) display of the accumulated balance of other
comprehensive income separate from retained earnings and
additional paid-in capital in the equity section of the statement
of financial position. Foreign currency translation is the only
component which maybe effected by this pronouncement. The
Company plans to adopt SFAS No. 130 for the quarter ended March
31, 1998.
Also in June 1997, the FASB issued SFAS No. 131, Disclosures
about segments of an Enterprise and Related Information, which
establishes standards for reporting information about operating
segments in annual financial statements, and requires selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas
and major customers. The Company plans to adopt SFAS No. 131 for
the year ended December 31, 1998.
MSR Exploration Ltd. and Subsidiaries
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Three and Nine Months Ended September 30, 1997, compared to Three
and Nine Months Ended September 30, 1996.
Forward Looking Information. Certain information included in
this report contains, and other materials filed or to be filed by
the Company with the Securities and Exchange Commission (as well
as information included in statements made or to be made by the
Company) may contain or include, forward looking statements
within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, and Section 27A of the Securities Act of
1933, as amended. Such forward looking statements may be or may
concern, among other things, capital expenditures, drilling
activity, development activities, production efforts and volumes,
hydrocarbon prices and the results of changes thereof, and
regulatory matters. Such forward looking statements generally
are accompanied by words such as "estimate", "expect", "predict",
"anticipate", "goal", "should", "assume", "believe", or other
words that convey the uncertainty of future events or outcomes.
The following discussion relates only to the operations of old
MSR.
Revenue. The total revenue for old MSR's third quarter ended
September 30, 1997 was $918,000, a 15% decrease compared to
$1,082,000 reported for the third quarter of 1996. The total
revenue for the nine months ended September 30, 1997 was
$3,053,000, a 2% decrease compared to $3,127,000 for the first
nine months of 1996. The decreases in revenues were the result
of lower crude oil prices and a reduction in oil sales volumes
due to normal production declines.
Oil sales for the three and nine months ended September 30, 1997
were $390,000 and $1,503,000, respectively. This was a 35% and
14% decrease in oil sales compared to the same periods in 1996.
Total barrels of oil sold for the third quarter of 1997 was
23,400, a 24% decrease compared to the 30,800 barrels of oil sold
in the same period last year. Lower sales volumes was the result
of normal production declines and higher amounts of unsold crude
oil held in inventory. For the nine months ended September 30,
1997, oil sales volumes were 84,100 barrels, an 11% decrease
compared to 94,700 barrels reported in 1996. The average price
per barrel old MSR received for oil during the three months ended
September 30, 1997 decreased 14% to $16.70, compared to $19.47
for the same period last year. The average price per barrel old
MSR received for the first nine months of 1997 was $17.87, a
decrease of 4% compared to $18.53 per barrel in 1996.
Gas sales for the three months ended September 30, 1997 were
$514,000, a 6% increase compared to $483,000 for the same period
in 1996. Gas sales for the nine months ended September 30, 1997
were $1,482,000, an increase of 10% compared to the $1,349,000
reported in 1996. The average sale price old MSR received for
gas sold during its third quarter and first nine months of 1997
was $2.37 and $2.33 per Mcf, respectively. These were 9% and 11%
increases in average gas prices compared to 1996 average gas
prices of $2.18 and $2.09 per Mcf, respectively. Old MSR sold
214,000 Mcf and 637,000 Mcf of natural gas during the three and
nine months ended September 30, 1997. This was a 2% and 1%
decrease compared to 221,000 Mcf and 646,000 Mcf for the
respective periods in 1996.
Interest and other income for the three and nine months ended
September 30, 1997 was $14,000 and $68,000 respectively, and $0
and $23,000 during the same respective periods in 1996. In May
1997 old MSR sold its only drilling rig for $224,000, which
resulted in a gain from the sale of property, plant and equipment
of $24,000.
MSR Exploration Ltd. and Subsidiaries
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Three and Nine Months Ended September 30, 1997, compared to Three
and Nine Months Ended September 30, 1996.
Expenses. Total expenses for the three months and nine months
ended September 30, 1997 were $1,119,000 and $3,624,000, a
decrease of 9% and an increase of 4% compared to $1,232,000 and
$3,486,000 reported for the same periods last year. Operating
expenses were $336,000 for the third quarter and $1,114,000 for
the nine months ended September 30, 1997, a 10% decrease and a 5%
increase, respectively, compared to the 1996 periods. Production
taxes for the three and nine months ended September 30, 1997 were
$57,000 and $189,000 respectively, a decrease of 17% and an
increase of 2% compared to the 1996 periods. Depletion and
depreciation expenses increased 2% to $334,000 for the third
quarter of 1997 and 8% to $1,055,000 for the first nine months of
1997 compared to $329,000 and $979,000 respectively, reported
during the same periods in 1996. These increases were primarily
due to increases in estimated depletion rates. General and
administrative expenses for the third quarter of 1997 were
$212,000 a 22% decrease compared to $271,000 reported in 1996.
General and administrative expenses for the nine months ended
September 30, 1997 were $721,000, an increase of less than 1%
compared to $717,000 for the same period last year.
Interest expense for the three and nine months ended September
30, 1997 was $180,000 and $545,000 respectively, a 4% and a less
than 1% decrease when compared to the $187,000 and $547,000
reported for the same respective periods last year. The
decreases were due to a reduction in long-term debt.
Net Income (Loss). Old MSR operations for the quarter ended
September 30, 1997 resulted in a net loss of $133,000 ($0.01 per
share) as compared to a net loss of $99,000 ($0.01 per share) for
the same period in 1996. Operations for the nine months ended
September 30, 1997 resulted in a net loss of $377,000 ($0.03 per
share) as compared to a net loss of $237,000 ($0.02 per share)
reported in the 1996 period.
Liquidity and Capital Resources - September 30, 1997 vs. December
31, 1996. Old MSR's liquidity position at September 30, 1997
showed a current ratio of 1.12 to 1 with working capital of
approximately $116,000. This compares to a December 31, 1996
current ratio of 0.91 to 1 and working capital deficit of
approximately $214,000. To bolster the Company's liquidity
position it has restructured its long-term debt in conjunction
with the Company's merger with old MSR. The restructured
revolving credit facility should in the long-term provide a
positive impact on working capital.
Cash generated from operating activities for the first nine
months of 1997 was $658,000, a 27% increase compared to $519,000
from operating activities in the same period in 1996.
For investing activities, old MSR used $287,000 for the nine
months ended September 30, 1997 compared to $842,000 used in
1996. During the 1997 period old MSR incurred capital
expenditures of $606,000, of which $222,000 was for
reconditioning and overhauling the Gypsy Highview Gas Plant and
approximately $193,000 on merger costs. In May 1997 old MSR sold
its only drilling rig for $224,000. In the 1996 period old MSR
purchased an additional 21% working interest in the Cinco Ltd.#1
well in Southeast Texas, bringing its total interest to 74%. Old
MSR also ran an additional 6 miles of gathering line to six gas
wells and drilled and completed three gas wells in Montana.
Net cash used for financing activities was $564,000 for the first
nine months of 1997 compared to $315,000 from financing
activities for the same period in 1996. All funds used in the
1997 period was to reduce long term debt. The 1996 bank loan
proceeds of $400,000 were used to purchase property, plant and
equipment.
Noncash transaction - During 1996 old MSR issued 100,000 shares
of its common stock, valued at $1.00 per share, as part of the
purchase of the additional 21% working interest in the Cinco
Ltd.#1 well.
MSR Exploration Ltd. and Subsidiaries
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings: None
ITEM 2. Changes in Securities:
As a result of the merger of old MSR with and into the Company on
October 31, 1997 pursuant to the terms of the Agreement and Plan
of Merger, dated as of March 26, 1997, as amended (the "Merger
Agreement"), among old MSR, the Company and Mercury Exploration
Company, each outstanding share of common stock, no par value per
share, of old MSR ("MSR Common Stock") outstanding immediately
prior to the effective time of the Merger, was converted into the
right to receive one share of common stock, par value $0.01 per
share, of the Company. In accordance with Rule 12g-3(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Company has succeeded to the obligations of old MSR under the
Exchange Act and will continue to file reports with the
Securities and Exchange Commission using the Commission File
Number (No. 1-8523) utilized by its predecessor. In connection
with the Merger, the Company changed its name from Mercury
Montana, Inc. to MSR Exploration Ltd.
ITEM 3. Defaults Upon Senior Securities: None
ITEM 4. Submission of Matters to a Vote of Security Holders:
Old MSR held an Annual General and Special Shareholders Meeting
on October 30, 1997 at 10:00 a.m. local time. At the Meeting,
shareholders (1) elected five (5) directors and (2) approved the
continuance or domestication of the old MSR from Alberta, Canada
to Delaware, USA. After the continuance the shareholders
approved the Merger of old MSR with Mercury Montana, Inc. by
written proxy consent. Below are results of the voting.
Shares For Shares Against Abstentions
Director Otto J. Buis 11,149,748 125,882
Director Patrick M. Montalban 10,588,471 687,159
Director Steven M. Morris 11,149,478 126,152
Director D. Randall Kent 10,876,648 398,982
Director W. Yandell Rogers, III 10,875,348 400,282
Continuance to Delaware 8,368,804 132,130 17,518
Consent to Merge 9,193,286 212,917
ITEM 5. Other Information: None
MSR Exploration Ltd. and Subsidiaries
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit
Number Description
2.1* Agreement and Plan of Merger dated March 26, 1997 among
MSR Exploration Ltd.,
Mercury Montana, Inc. and Mercury Exploration Company
as amended by Amendment
No. 1 to Agreement and Plan of Merger dated as of June
17, 1997 and Amendment No. 2
to Agreement and Plan of Merger dated as of September
11, 1997.
2.2 Credit Agreement dated October 31, 1997 among MSR
Exploration Ltd. as Borrower, The Bank
Named therein and Banque Paribas, as Agent relating to
a $25,000,000 Revolving Credit Facility.
10.1* Form of Management Agreement entered into between
MSR Exploration Ltd and Mercury Exploration Company.
10.2* 1997 Stock Option Plan of Mercury Montana, Inc.
10.3* Employment Agreement between MSR Exploration Ltd.
and Patrick M. Montalban.
10.4* Wells Agreement
10.5* Purchase and Sale Agreement between Mercury
Exploration Company and Supply Development Group, Inc.
10.6* Production and Delivery Agreement between Mercury
Exploration Company and MCNIC Oil
and Gas f/k/a Supply Development Group, Inc.
10.7* Conveyance of Production Payment Agreement from
Mercury Exploration Company to MCNIC Oil
and Gas f/k/a Supply Development Group, Inc.
27. Financial Data Schedule
_____________
* Filed as an exhibit to the Registration Statement of old MSR
on Form S-4 (333-29769) and as an exhibit to Mercury Montana,
Inc.'s Registration Statement on Form S-4 (333-29783), and
incorporated herein by reference.
(b) Reports on Form 8-K:
On November 12, 1997 the Company filed a Form 8-K - Current
Report dated October 31, 1997 which announced the Continuance of
old MSR from Alberta, Canada to Delaware effective October 30,
1997 and the merger of old MSR with and into Mercury Montana,
Inc., the Surviving Corporation. Mercury Montana, Inc. changed
its name to MSR Exploration Ltd.
MSR Exploration Ltd. and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: November 13, 1997
MSR Exploration Ltd.
By: /s/ Otto J. Buis
Otto J. Buis, Chairman of the Board
President and Chief Executive Officer
By: /s/ Howard N. Boals
Howard N. Boals, Vice President of Finance
and Chief Accounting Officer
INDEX TO EXHIBITS
Exhibit
Number Description
2.1* Agreement and Plan of Merger dated March 26, 1997
among MSR Exploration Ltd.,
Mercury Montana, Inc. and Mercury Exploration Company
as amended by Amendment
No. 1 to Agreement and Plan of Merger dated as of June
17, 1997 and Amendment No. 2
to Agreement and Plan of Merger dated as of September
11, 1997.
2.2 Credit Agreement dated October 31, 1997 among MSR
Exploration Ltd. as Borrower, The Bank
Named therein and Banque Paribas, as Agent relating to
a $25,000,000 Revolving Credit Facility.
10.1* Form of Management Agreement entered into between
the Registrant and Mercury Exploration Company.
10.2* 1997 Stock Option Plan of Mercury Montana, Inc.
10.3* Employment Agreement between MSR Exploration Ltd
and Patrick M. Montalban.
10.4* Wells Agreement
10.5* Purchase and Sale Agreement between Mercury
Exploration Company and Supply Development Group, Inc.
10.6* Production and Delivery Agreement between Mercury
Exploration Company and MCNIC Oil
and Gas f/k/a Supply Development Group, Inc.
10.7* Conveyance of Production Payment Agreement from
Mercury Exploration Company to MCNIC Oil
and Gas f/k/a Supply Development Group, Inc.
27. Financial Data Schedule
_____________
* Filed as an exhibit to the Registration Statement of old MSR
on Form S-4 (333-29769) and as an exhibit to Mercury Montana,
Inc.'s Registration Statement on Form S-4 (333-29783), and
incorporated herein by reference.
CREDIT AGREEMENT
dated as of October 31, 1997
among
MSR EXPLORATION LTD.,
as Borrower,
THE BANKS NAMED HEREIN,
and
BANQUE PARIBAS,
as Agent
relating to a
$25,000,000 Revolving Credit Facility
TABLE OF CONTENTS
Page 1
ARTICLE 1 - Definitions 1
Section 1.1 Definitions 1
Section 1.2 Other Definitional Provisions 20
Section 1.3 Accounting Terms and Determinations 20
ARTICLE 2 - Loans; Letters of Credit 20
Section 2.1 Revolving Credit Loans 20
Section 2.2 Revolving Credit Notes 21
Section 2.3 Repayment of Loans 21
Section 2.4 Interest 21
Section 2.5 Borrowing Procedure 22
Section 2.6 Prepayments, Conversions, and Continuations of
Loans 22
Section 2.7 Minimum Amounts 22
Section 2.8 Certain Notices 23
Section 2.9 Use of Proceeds 23
Section 2.10 Letters of Credit 24
Section 2.11 Procedure for Issuing Letters of Credit 24
Section 2.12 Participation by Banks 24
Section 2.13 Payments Constitute Advances 24
Section 2.14 Letter of Credit Fee 25
Section 2.15 Agent's Responsibilities 25
Section 2.16 Letter of Credit Documents 25
Section 2.17 Fees 25
Section 2.18 Computations 26
Section 2.19 Borrowing Base 26
Section 2.20 Mandatory Prepayments-Availability 29
ARTICLE 3 - Payments 30
Section 3.1 Method of Payment 30
Section 3.2 Pro Rata Treatment 30
Section 3.3 Sharing of Payments 30
Section 3.4 Non-Receipt of Funds by the Agent 31
Section 3.5 Withholding Taxes 31
Section 3.6 Withholding Tax Exemption 31
ARTICLE 4 - Yield Protection and Illegality 32
Section 4.1 Additional Costs. 32
Section 4.2 Limitation on Types of Loans 33
Section 4.3 Illegality 34
Section 4.4 Treatment of Affected Loans 34
Section 4.5 Compensation 35
Section 4.6 Capital Adequacy 35
Section 4.7 Additional Costs in Respect of Letters of
Credit 36
Section 4.8 Notice 36
ARTICLE 5 - Security 36
Section 5.1 Collateral 36
Section 5.2 Title Information 37
Section 5.3 Security Documents 37
Section 5.4 Release of Collateral 37
Section 5.5 Setoff 38
Section 5.6 Letters in Lieu of Transfer Orders 38
ARTICLE 6 - Conditions Precedent and Subsequent 38
Section 6.1 Initial Extension of Credit 38
Section 6.2 All Extensions of Credit 41
ARTICLE 7 - Representations and Warranties 42
Section 7.1 Corporate Existence 42
Section 7.2 Financial Statements 42
Section 7.3 Corporate Action; No Breach 42
Section 7.4 Operation of Business 43
Section 7.5 Litigation and Judgments 43
Section 7.6 Rights in Properties; Liens 43
Section 7.7 Enforceability 43
Section 7.8 Approvals 43
Section 7.9 Debt 43
Section 7.10 Taxes 43
Section 7.11 Margin Securities 43
Section 7.12 ERISA 44
Section 7.13 Disclosure 44
Section 7.14 Agreements 44
Section 7.15 Compliance with Laws 45
Section 7.16 Investment Company Act 45
Section 7.17 Public Utility Holding Company Act 45
Section 7.18 Environmental Matters 45
Section 7.19 Capitalization 46
Section 7.20 Advance Payment Contracts 46
Section 7.21 Value of Mortgaged Properties 46
Section 7.22 Outstanding Securities 46
Section 7.23 Insurance 47
Section 7.24 Labor Disputes and Acts of God 47
ARTICLE 8 - Positive Covenants 47
Section 8.1 Reporting Requirements 47
Section 8.2 Maintenance of Existence; Conduct of Business 50
Section 8.3 Maintenance of Properties 50
Section 8.4 Taxes and Claims 50
Section 8.5 Insurance 50
Section 8.6 Inspection Rights 51
Section 8.7 Keeping Books and Records 51
Section 8.8 Compliance with Laws 51
Section 8.9 Compliance with Agreements 51
Section 8.10 Further Assurances 51
Section 8.11 ERISA 51
Section 8.13 Hydrocarbon Hedges 51
Section 8.14 Taxes, Overhead and General and Administrative
Costs and Expenses 52
Section 8.15 Assignment of Hedging Contracts 52
ARTICLE 9 - Negative Covenants 52
Section 9.1 Debt 52
Section 9.2 Limitation on Liens 53
Section 9.3 Mergers, Etc 53
Section 9.4 Restricted Payments 53
Section 9.5 Investments 53
Section 9.6 Transactions With Affiliates 54
Section 9.7 Disposition of Assets 54
Section 9.8 Modification of Other Agreements 55
Section 9.9 Issuance of Capital Stock 55
Section 9.10 Lines of Business 55
Section 9.11 Environmental Protection 55
Section 9.12 Management Agreements 55
Section 9.13 Advance Payment Contracts 56
Section 9.14 Sale and Leaseback 56
Section 9.15 Prepayment of Debt 56
ARTICLE 10 - Financial Covenants 56
Section 10.1 Consolidated Current Ratio 56
Section 10.2 Interest Coverage Ratio 56
Section 10.3 Consolidated Tangible Net Worth 56
ARTICLE 11 - Default 57
Section 11.1 Events of Default 57
Section 11.2 Remedies 59
Section 11.3 Cash Collateral 60
Section 11.4 Performance by the Agent 60
ARTICLE 12 - The Agent 61
Section 12.1 Appointment, Powers and Immunities 61
Section 12.2 Exculpatory Provisions 61
Section 12.3 Rights of Agent as a Bank 62
Section 12.4 Defaults 62
Section 12.5 Indemnification 62
Section 12.6 Independent Credit Decisions 63
Section 12.7 Several Commitments 63
Section 12.8 Successor Agent 63
ARTICLE 13 - Miscellaneous 64
Section 13.1 Expenses 64
Section 13.2 Indemnification 64
Section 13.3 LIMITATION OF LIABILITY 65
Section 13.4 No Duty 65
Section 13.5 No Fiduciary Relationship 65
Section 13.6 Equitable Relief 65
Section 13.7 No Waiver; Cumulative Remedies 66
Section 13.8 Successors and Assigns 66
Section 13.9 Survival 68
Section 13.10 ENTIRE AGREEMENT 68
Section 13.11 Amendments 69
Section 13.12 Maximum Interest Rate 69
Section 13.13 Notices 70
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS 70
Section 13.15 Counterparts 71
Section 13.16 Severability 71
Section 13.17 Headings 71
Section 13.18 Non-Application of Chapter 346 of Texas
Finance Code 71
Section 13.19 Construction 71
Section 13.20 Confidentiality 71
Section 13.21 Independence of Covenants 72
Section 13.22 WAIVER OF JURY TRIAL 72
EXHIBITS AND SCHEDULES
Exhibit Description of Exhibit Section
"A" Form of Note 2.2
"B" Form of Notice of Borrowing, 2.8
Conversion,
Continuation or Prepayment
"C" Letter of Credit Request Form 2.11
"D" Form of Assignment and Acceptance 13.8
"E" Form of Mortgage (Texas and 1.1, 5.1
Montana)
"F" Form of Letters in Lieu of 6.1(m)
Transfer Orders
"G" Form of Pledge and Security 1.1
Agreement
"H" Form of Guaranty Agreement 1.1
"I" Form of Contribution Agreement 6.1(y)
Schedule Description of Schedule
1.1 Existing Liens
7.5 Existing Litigation
7.9 Existing Debt
7.19 List of Subsidiaries and Capitalization of
Subsidiaries
7.23 List of Insurance
9.13 List of Management Agreements
9.14 List of Advance Payment Contracts
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of
October 31, 1997, is among MSR EXPLORATION LTD., a Delaware
corporation ("Borrower"), each of the banks or other lending
institutions which is identified on the signature pages to this
Agreement pursuant hereto (individually, a "Bank" and,
collectively, the "Banks"), and BANQUE PARIBAS, a bank organized
under the laws of the Republic of France acting through its
Houston Agency, as Agent for itself and the other Banks and as
issuer of Letters of Credit hereunder (in such capacity, together
with its successors in such capacity, the "Agent").
R E C I T A L S
WHEREAS, the Borrower has requested that the Banks provide a
revolving credit facility to the Borrower in the aggregate
maximum amount of up to $25,000,000, including a $2,000,000
sub-facility for the issuance of letters of credit;
WHEREAS, the Banks are willing to provide such facility on
the terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto hereby
agree as follows:
1 Definitions
1.1 Definitions. As used in this Agreement, the following
terms have the following meanings:
"Additional Costs" has the meaning specified in
Section 4.1.
"Adjusted Eurodollar Rate" means, for any Eurodollar
Loan for any Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%)
determined by the Agent to be equal to (a) the Eurodollar
Rate for such Eurodollar Loan for such Interest Period
divided by (b) one minus the Reserve Requirement for such
Eurodollar Loan for such Interest Period.
"Advance Payment Contract" means any contract whereby a
Person either (a) receives or becomes entitled to receive
(either directly or indirectly through a third party for
such Person's account or benefit) any payment (an "Advance
Payment") to be applied toward the payment of the purchase
price of Hydrocarbons produced or to be produced from any
Lease 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 to the purchaser an option or right of refusal 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 shall be, applied as
payment for the purchase price thereof or of a percentage or
a share of such production; provided, however, that the
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, nor shall
any Gas Balancing Agreement, in and of itself, constitute
such Gas Balancing Agreement as an Advance Payment Contract
for the purposes hereof.
"Affiliate" means, as to any Person, any other Person
(a) that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under
common control with, such Person; (b) that directly or
indirectly beneficially owns or holds 10% or more of any
class of voting stock or other equity interests of such
Person; or (c) 10% or more of the voting stock or other
equity interests of which is directly or indirectly
beneficially owned or held by the Person in question. The
term "control" means the possession, directly or indirectly,
of the power to direct or cause direction of the management
and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise; provided,
however, in no event shall the Agent or any Bank be deemed
an Affiliate of the Borrower or any of its Subsidiaries or
Affiliates by virtue of the contractual relationships
evidenced by the Loan Documents.
"Agent" means as defined in the introductory paragraph
to this Agreement.
"Applicable Lending Office" means, for each Bank and
each Type of Loan, the Lending Office of such Bank (or of an
Affiliate of such Bank) designated for such Type of Loan
below its name on the signature pages hereof or such other
office of such Bank (or of an Affiliate of such Bank) as
such Bank may from time to time specify to the Borrower and
the Agent as the office by which its Loans of such Type are
to be made and maintained.
"Applicable Margin" means (a) during the period that a
Loan is a Base Rate Loan, the applicable Base Margin
specified below, and (b) during the period that a Loan is a
Eurodollar Loan, the applicable Eurodollar Margin specified
below, in each case being the Base Margin or Eurodollar
Margin, as the case may be, that is applicable during all
times when the Outstanding Credit is the percentage of the
Availability indicated below:
Eurodollar
Outstanding Credit Margin Base Margin
Less than 25% of Availability 1.000% 0.000%
Greater than or equal to 25%, 1.250% 0.000%
but less than 50% of
Availability
Greater than or equal to 50%, 1.500% 0.000%
but less than 75% of
Availability
Greater than or equal to 75% of 1.750% 0.125%
Availability
"Assigning Bank" is defined in Section 13.8(b) of this
Agreement.
"Assignment and Acceptance" means an assignment and
acceptance entered into by a Bank and its assignee and
accepted by the Agent pursuant to Section 13.8 hereof, in
substantially the form of Exhibit "D" hereto.
"Availability" means at any time the lesser of (a) the
aggregate amount of the Commitments or (b) the Borrowing
Base as determined by the Required Banks from time to time
in accordance with Section 2.19 and then in effect.
"Bank" and "Banks" means as defined in the introductory
paragraph of this Agreement.
"Base Rate" means as of any date of determination, a
rate per annum (rounded upwards, if necessary, to the
nearest 1/16th of 1%) equal to the greater of (a) the Prime
Rate in effect on such day, or (b) the sum of the Federal
Funds Rate in effect on such day plus one-half of one
percent. If for any reason the Agent shall have determined
(which determination shall be prima facie correct) that it
is unable to ascertain the Federal Funds Rate for any
reason, including the inability or failure after diligent
effort of the Agent to obtain sufficient quotations in
accordance with the definition of Federal Funds Rate, the
Base Rate shall be determined without regard to clause
(b) of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Base Rate due
to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in
the Prime Rate or the Federal Funds Rate, respectively,
without notice to the Borrower.
"Base Rate Loans" means Loans that bear interest at
rates based upon the Base Rate.
"Basle Accord" means the proposals for risk-based
capital described by the Basle Committee on Banking
Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and
Capital Standards" dated July 1988, as amended, supplemented
and otherwise modified and in effect from time to time, or
any replacement thereof.
"Borrower" means as defined in the introductory
paragraph of this Agreement.
"Borrower's Notice" is defined in Section 2.20.
"Borrowing Base" means, at any particular time, the
Dollar amount determined in accordance with Section 2.19
with respect to Proven Reserves attributable to Oil and Gas
Properties described in the most recent Engineering Report
delivered to the Agent pursuant to Section 2.19 in which the
Bank has perfected, first priority Liens (except for
Permitted Liens, if any, expressly approved by the Agent as
having priority pursuant to the Mortgage) pursuant to the
Security Documents. The initial Borrowing Base as of the
Closing Date shall be $12,000,000.
"Business Day" means (a) any calendar day on which
commercial banks are not authorized or required to close in
Houston, Texas or New York, New York, and (b) with respect
to all borrowings, payments, Conversions, Continuations,
Interest Periods and notices in connection with Eurodollar
Loans, any calendar day which is a Business Day described in
clause (a) above and which is also a calendar day on which
dealings in Dollar deposits are carried out in the London
interbank market.
"Capital Expenditures" means any expenditure by a
Person in respect to the cost of any fixed asset, equipment,
real property or improvements, or a similar type of asset
the expenditure for which would be capitalized in accordance
with GAAP (or replacement, substitution or addition thereto)
which has a useful life of more than one year.
"Capital Lease Obligations" means, as to any Person,
the obligations of such Person to pay rent or other amounts
under a lease of (or other agreement conveying the right to
use) real and/or personal Property, which obligations are
required to be classified and accounted for as a capital
lease on a balance sheet of such Person under GAAP. For
purposes of this Agreement, the amount of such Capital Lease
Obligations shall be the capitalized amount thereof,
determined in accordance with GAAP.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however
designated) evidencing equity interests in an issuing
entity.
"Change of Control" means that a majority of the board
of directors of Borrower at any time shall cease to be made
up of Qualified Directors. For purposes hereof, a Qualified
Director of Borrower is: (i) a director of Borrower as of
the date hereof; or (ii) any director (A) nominated for
election as a director by a vote of directors, or
(B) elected to the board of directors by a vote of the
directors to fill a vacancy, and at the time of such
nomination or election at least a majority of the directors
were Qualified Directors.
"Closing Date" means the date on which all of the
conditions precedent in Section 6.1 shall be satisfied.
"Code" means the Internal Revenue Code of 1986, as
amended, and the regulations promulgated and rulings issued
thereunder.
"Collateral" means Property upon which a Lien is
created or purported to be created by any Security Document.
"Commitments" means all of the Revolving Credit
Commitments of all of the Banks, the aggregate of which
equals $25,000,000 as of the date hereof.
"Commitment Percentage" means, as to any Bank, the
percentage equivalent of a fraction the numerator of which
is the amount of the Revolving Credit Commitment of such
Bank and the denominator of which is the aggregate amount of
the Commitments of all of the Banks.
"Company" and "Companies" means the Borrower and the
Subsidiaries.
"Consolidated Current Assets" means (a) those assets of
the Companies that would in accordance with GAAP be
classified as current assets plus (b) Availability less
Outstanding Credit.
"Consolidated Current Liabilities" means those
liabilities of the Companies that would in accordance with
GAAP be classified as current liabilities, excluding the
current portion of long-term Debt.
"Consolidated Current Ratio" means the ratio of the
Consolidated Current Assets of the Companies to its
Consolidated Current Liabilities.
"Consolidated Tangible Net Worth" means, at any
particular time, all amounts which, in conformity with GAAP,
would be included as stockholders' or owners' equity on a
consolidated balance sheet of the Companies; provided,
however, there shall be excluded therefrom: (a) any amount
at which shares of capital stock of any Person appear as an
asset on the balance sheet of such Person, (b) goodwill,
including any amounts, however designated, that represent
the excess of the purchase price paid for assets or stock
over the value assigned thereto, (c) patents, trademarks,
trade names, and copyrights, (d) deferred expenses,
(e) loans and advances to any stockholder, director,
officer, partner, or employee of the Borrower, any
Subsidiary, or any Affiliate of the Borrower or any
Subsidiary and (f) all other assets which are properly
classified as intangible assets.
"Continue", "Continuation" and "Continued" shall refer
to the continuation pursuant to Section 2.6 of a Eurodollar
Loan as a Loan of the same Type from one Interest Period to
the next Interest Period.
"Contribution Agreement" means the contribution and
indemnity agreement, substantially in the form of Exhibit
"I", to be executed and delivered by the Companies, as the
same may be amended, modified, supplemented and in effect
from time to time.
"Convert", "Conversion" and "Converted" shall refer to
a conversion pursuant to Section 2.6 or Article 4 of one
Type of Loan into another Type of Loan.
"Date of Sale" is defined in Section 2.19(c).
"Debt" means, as to any Person at any time (without
duplication): (a) all indebtedness, liabilities and
obligations of such Person for borrowed money, (b) all
indebtedness, liabilities and obligations of such Person
evidenced by bonds, notes, debentures or other similar
instruments, (c) all indebtedness, liabilities and
obligations of such Person to pay the deferred purchase
price of Property or services, except trade accounts payable
of such Person arising in the ordinary course of business
that are not past due by more than 90 calendar days, (d) all
Capital Lease Obligations of such Person, (e) all
indebtedness, liabilities and obligations of others
Guaranteed by such Person, (f) all indebtedness, liabilities
and obligations secured by a Lien existing on Property owned
by such Person, whether or not the indebtedness, liabilities
or obligations secured thereby have been assumed by such
Person or are non-recourse to the credit of such Person,
(g) all reimbursement obligations of such Person (whether
contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar
instruments, (h) all accrued indebtedness, liabilities and
obligations of such Person to redeem or retire shares of
Capital Stock of such Person, (i) all indebtedness,
liabilities and obligations of such Person in connection
with any Financial Hedge or Hydrocarbon Hedge, and (j) all
indebtedness, liabilities and obligations of such Person in
respect of unfunded vested benefits under any Plan.
"Default" means an Event of Default or the occurrence
of an event or condition which with notice or lapse of time
or both would become an Event of Default.
"Default Rate" means, in respect of any principal of
any Loan or any other amount payable by the Borrower under
this Agreement or any other Loan Document which is not paid
when due (whether at stated maturity, by acceleration, or
otherwise), a rate per annum during the period commencing on
the due date until such amount is paid in full equal to the
sum of the Base Rate plus the Applicable Margin for Base
Rate Loans plus two percent (provided that, if such amount
in default is principal of a Eurodollar Loan and the due
date is a calendar day other than the last calendar day of
an Interest Period therefor, the "Default Rate" for such
principal shall be, for the period from and including the
due date and to but excluding the last calendar day of the
Interest Period therefor, two percent plus the interest rate
for such Loan for such Interest Period as provided in
Section 2.4(a) hereof, and, thereafter, the rate provided
for above in this definition).
"Dollars" and "$" mean lawful money of the United
States of America.
"EBITDA" means, for any Person for any period, the Net
Income (Loss) of such Person for such period taken as a
single accounting period (excluding the effect of cumulative
changes in GAAP and discontinued operations), plus (a) the
sum of the following amounts of such Person and its
Subsidiaries for such period determined on a consolidated
basis in conformity with GAAP to the extent included in the
determination of such Net Income (Loss): (i) depreciation
expense, (ii) amortization expense, (iii) Interest Expense,
(iv) income tax expense and (v) extraordinary losses (and
other losses on asset sales not otherwise included in
extraordinary losses determined on a consolidated basis in
conformity with GAAP); less (b) the sum of the following
amounts of such Person and its Subsidiaries determined on a
consolidated basis in conformity with GAAP to the extent
included in the determination of such Net Income (Loss):
(i) extraordinary gains and other gains on asset sales not
otherwise included in extraordinary gains determined on a
consolidated basis in conformity with GAAP, (ii) the Net
Income (Loss) of any other Person that is accounted for by
the equity method of accounting except to the extent of the
amount of dividends or distributions paid to such Person,
and (iii) the Net Income (Loss) of any other Person acquired
by such Person or a Subsidiary of such Person in a
transaction accounted for as a pooling of interests for any
period prior to the date of such acquisition.
"Eligible Assignee" means any commercial bank, savings
and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other
financial institution (whether a corporation, partnership or
other entity) reasonably acceptable to both the Agent and
the Borrower having total assets in excess of
$10,000,000,000.
"Engineering Report" means a report, in form and
substance reasonably satisfactory to the Agent, prepared by
an Independent Engineer, addressed to the Borrower with a
copy to the Agent or prepared by the Borrower, as may be
required pursuant to Section 2.19, with respect to the Oil
and Gas Properties owned by the Companies which are or are
to be Mortgaged Properties included in the Borrowing Base,
which report shall (a) specify the location, quantity and
type of the estimated Proven Reserves attributable to such
Oil and Gas Properties, (b) contain a projection of the rate
of production of such Oil and Gas Properties, (c) contain an
estimate of the net operating revenues to be derived from
the production and sale of Hydrocarbons from such Proven
Reserves, (d) set forth in detail the Capital Expenditures
contemplated to be made by the Borrower in the initial two
calendar quarters specified in such Engineering Report in
order to effectuate the Tie-In substantially in accordance
with the presently contemplated schedule for completion
thereof and obtain the rate of production and net operating
revenues described in clauses (b) and (c)) above
respectively ("Scheduled Capital Expenditures"), and
(e) contain such other information as is customarily
obtained from and provided in such reports or is otherwise
reasonably requested by the Agent.
"Environmental Laws" means any and all federal, state
and local laws, regulations and requirements regulating,
pertaining to or imposing liability or standards of conduct
concerning any Hazardous Material or environmental
protection, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. 9601 et seq., the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. 6901 et seq., the
Superfund Amendment and Reauthorization Act of 1986, 99-499,
100 Stat. 1613, the Clean Air Act, 42 U.S.C. 7401 et seq.,
the Clean Water Act, 33 U.S.C. 1251 et seq., and the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq., as such
laws, regulations and requirements may be amended or
supplemented from time to time.
"Environmental Liabilities" means, as to any Person,
all liabilities, obligations, responsibilities, Remedial
Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and
expenses of counsel, expert and consulting fees and costs of
investigation and feasibility studies), fines, penalties,
sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort,
implied or express warranty, strict liability, criminal or
civil statute, including any Environmental Law, permit,
order or agreement with any Governmental Authority or other
Person, arising from environmental, health or safety
conditions or the Release or threatened Release of a
Hazardous Material into the environment.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the
regulations and published interpretations thereunder.
"ERISA Affiliate" means any corporation or trade or
business which is a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the
Code) as any Company or is under common control (within the
meaning of Section 414(c) of the Code) with any Company.
"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 1/16 of 1%) quoted by
the Reference Bank at approximately 11:00 a.m. London time
(or as soon thereafter as practicable) two Business Days
prior to the first calendar day of such Interest Period for
the offering by the Reference Bank to leading banks in the
London interbank market of Dollar deposits in immediately
available funds having a term comparable to such Interest
Period and in an amount comparable to the principal amount
of the Eurodollar Loan made by the Reference Bank to which
such Interest Period relates. If the Reference Bank is not
participating in any Eurodollar Loans during any Interest
Period therefor (pursuant to Section 4.4 or for any other
reason), the Adjusted Eurodollar Rate for such Loans for
such Interest Period shall be determined by reference to the
amount of the Loans which the Reference Bank would have made
had it been participating in such Loans.
"Event of Default" has the meaning specified in
Section 11.1.
"Excess Amount" has the meaning specified in
Section 2.20.
"Existing Burdens" means royalty interests, overriding
royalty interests, net profits interests, production
payments or other payments out of or with respect to the
production of Hydrocarbons, and which are (a) in existence
on the Closing Date and have been taken into account in the
ownership interests of the Companies in and to the Mortgaged
Properties as set forth in Exhibit "A" to the Mortgages,
(b) reserved by the grantor in an assignment of a Lease to
any Company after the date hereof or reserved by a lessor in
any Lease entered into with any Company after the date
hereof, (c) assigned or transferred by any Company in the
ordinary course of business after the Closing Date with
respect to Oil and Gas Properties that are not Mortgaged
Properties, or (d) permitted by the Required Banks in
writing after the Closing Date.
"Federal Funds Rate" means, for any calendar day, the
rate per annum (rounded upwards, if necessary, to the
nearest 1/16 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 calendar day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding
such calendar day; provided that (a) if the calendar day for
which such rates is to be determined is not a Business Day,
the Federal Funds Rate for such calendar day shall be such
rate on such transactions on the next preceding Business Day
as so published on the next succeeding Business Day, and
(b) if such rate is not so published on such next succeeding
Business Day, the Federal Funds Rate for any calendar day
shall be the average rate charged to the Reference Bank on
such calendar day on such transactions as determined by the
Agent.
"Fee Letter" means the letter, dated the date of this
Agreement, from the Borrower to the Agent relating to
certain fees, including an annual agency fee, that are
solely for the Agent's benefit.
"Financial Hedge" means a swap, collar, floor, cap,
option, corridor or other contract which is intended to
reduce or eliminate the risk of fluctuations in interest
rates, as such term is referred to in the capital markets.
"GAAP" means generally accepted accounting principles,
applied on a consistent basis, as set forth in Opinions of
the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in Statements of the
Financial Accounting Standards Board and/or their respective
successors and which are applicable in the circumstances as
of the date in question. Accounting principles are applied
on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material
respects to those accounting principles applied in a
preceding period.
"Gas" means natural gas, coal seam gas, gas well gas
and casinghead gas, and the residue therefrom.
"Gas Balancing Agreement" means any agreement or
arrangement whereby the Borrower or any other Person having
an interest in any Hydrocarbons to be produced from the
Leases has a right to take either more or less than its
proportionate share of production therefrom.
"Governmental Authority" means any nation or
government, any state or political subdivision thereof and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
"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 (except with
respect to pipeline operations for periods of less than one
year), or to maintain financial statement conditions 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 the obligee
against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has
a corresponding meaning.
"Guarantor" means each Subsidiary existing on the
Closing Date and each Subsidiary which at any time executes
and delivers a Guaranty.
"Guaranty" means a guaranty and subordination
agreement, substantially in the form of Exhibit "H" hereto,
to be executed and delivered by each Guarantor to the Agent,
as the same may be amended, modified, supplemented and in
effect from time to time.
"Hazardous Material" means any substance, product,
waste, pollutant, material, chemical, contaminant,
constituent or other material which is or becomes listed,
regulated or addressed under any Environmental Law.
"Hydrocarbon Hedge" means a swap, collar, floor, cap,
option, corridor or other contract (including sales
contracts with known prices) which is intended to reduce or
eliminate the risk of fluctuations in the price of
Hydrocarbons, as such terms are referred to in the capital
markets.
"Hydrocarbons" means oil, Gas, drip gasoline, natural
gasoline, condensate, distillate and all other liquid and
gaseous hydrocarbons produced or to be produced in
conjunction therewith from a well bore and all products,
by-products and other substances derived therefrom or from
the processing thereof, and all other minerals and
substances produced in conjunction with such substances,
including, but not limited to, sulfur, geothermal steam,
water, carbon dioxide, helium and any and all minerals, ores
or substances of value and the products and proceeds
therefrom.
"Independent Engineer" means any independent
engineering firm selected by the Borrower and approved by
the Agent in its reasonable judgment.
"Initial Engineering Report" means the Engineering
Report prepared by Citadel Engineering, Ltd. dated
January 1, 1997.
"Initial Redetermination Date" means the effective date
of the initial redetermination of the Borrowing Base
pursuant to clause (a)(i) of Section 2.19.
"Intercompany Payables" means any and all indebtedness
of any Company owed or owing to another Company or an
Affiliate of any Company, including, without limitation, the
Permitted Advances that any Guarantor may owe to the
Borrower.
"Intercompany Receivables" means any and all
indebtedness owed or owing to any Company by another Company
or an Affiliate of any Company, including, without
limitation, the Permitted Advances by the Borrower to the
Guarantors.
"Interest Coverage Ratio" means, for any period, the
ratio of (a) EBITDA to (b) Interest Expense.
"Interest Expense" means, for any Person for any
period, gross interest expense (including the interest
component of Capital Lease Obligations) of such Person and
its Subsidiaries for such period determined on a
consolidated basis in conformity with GAAP.
"Interest Period" means, with respect to any Eurodollar
Loans, each period commencing on the date such Loans are
made or Converted from Base Rate Loans or (if Continued) the
last calendar day of the next preceding Interest Period with
respect to such Loans, and ending on the numerically
corresponding calendar day in the first, second, third, or
sixth calendar month thereafter, as the Borrower may select
as provided in Section 2.8 hereof, except that each such
Interest Period which commences on the last Business Day of
a calendar month (or on any calendar day for which there is
no numerically corresponding calendar day in the appropriate
subsequent calendar month) shall end on the last Business
Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period
which would otherwise end on a calendar day which is not a
Business Day shall end on the next succeeding Business Day
(or, in the case of an Interest Period for Eurodollar Loans
if such succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); (b) any
Interest Period which would otherwise extend beyond the
Termination Date shall end on the Termination Date; (c) no
more than three Interest Periods for Eurodollar Loans shall
be in effect at the same time; (d) no Interest Period for
any Eurodollar Loans shall have a duration of less than one
month and, if the Interest Period for any Eurodollar Loans
would otherwise be a shorter period, such Loans shall not be
available hereunder; and (e) no Interest Period may extend
beyond a principal repayment date unless, after giving
effect thereto, the aggregate principal amount of the
Eurodollar Loans having Interest Periods that end after such
principal payment date shall be equal to or less than the
Loans scheduled to be outstanding hereunder after such
principal repayment date.
"L/C Application" is defined in Section 2.10.
"L/C Documents" is defined in Section 2.10.
"Leases" means all oil and gas leases, oil, gas and
mineral leases, oil, gas and casinghead gas leases or any
other instruments, agreements or conveyances under and
pursuant to which the Companies have or obtain the right to
enter upon lands and explore for, drill and develop such
lands for the production of Hydrocarbons.
"Letter of Credit" means any letter of credit issued by
the Agent pursuant to Article 2.
"Letter of Credit Liabilities" means, at any time, the
aggregate face amounts of all outstanding Letters of Credit.
"Letter of Credit Request Form" means a certificate, in
substantially the form of Exhibit C hereto, properly
completed and signed by the Borrower requesting issuance of
a Letter of Credit.
"Letters in Lieu of Transfer Orders" means each letter
in lieu of transfer and division orders, substantially in
form of Exhibit "F" hereto, executed by the respective
Companies and the Agent, directing each purchaser of
Hydrocarbons attributable to Mortgaged Properties to make
payment directly to the Agent upon the occurrence and during
the continuance of an Event of Default in accordance with
Section 11.2(e).
"Lien" means any lien, mortgage, security interest, tax
lien, financing statement, pledge, charge, hypothecation,
assignment, preference, priority or other encumbrance of any
kind or nature whatsoever (including, without limitation,
any conditional sale or title retention agreement), whether
arising by contract, operation of law or otherwise.
"Loan" means an advance of funds by the Banks or any of
them to the Borrower pursuant to Article II.
"Loan Documents" means this Agreement, the Notes, the
Guaranty, the Security Documents, the Letters of Credit, the
L/C Documents, the Letters in Lieu of Transfer Orders, the
documentation evidencing any Financial Hedge or Hydrocarbon
Hedge pursuant hereto, and all other agreements, documents
and instruments executed and/or delivered pursuant to or in
connection with this Agreement, as such agreements,
documents and instruments may be amended, modified, renewed,
extended or supplemented from time to time.
"Majority Banks" means, at any time while no Loans are
outstanding, Banks having at least 66-2/3% of the aggregate
amount of the Commitments and, at any time while any Loans
are outstanding, Banks holding at least 66-2/3% of the
outstanding aggregate principal amount of the Loans.
"Material Adverse Effect" means a material adverse
effect on (a) the Property, business, operations, financial
condition, cash flow, liabilities or capitalization of the
Companies taken as a whole, (b) the ability of the Borrower
or any Material Subsidiary to pay and perform its
obligations under the Loan Documents, (c) the validity or
enforceability of any of the Loan Documents or the rights
and remedies of the Bank thereunder or (d) the value of the
Collateral (exclusive of any decline in the value of the
Collateral resulting from (i) depletion caused by production
from the Oil and Gas Properties constituting such Collateral
in the ordinary course of business or (ii) a decrease in the
market prices for oil and gas).
"Material Contract" (a) means, as to any Person, any
supply, purchase, service, employment, tax, indemnity,
operating, pooling order, unitization, partnership, joint
venture or other agreement or order of such Person or any of
its Subsidiaries or by which such Person or any of its
Subsidiaries or any of their respective Properties are
otherwise bound, which is material to the business,
operations or Properties of such Person, as the same shall
be amended, modified and supplemented and in effect from
time to time and (b) as to the Borrower, includes, without
limitation, any material agreement or contract relating to
the Tie-In.
"Material Subsidiaries" means those Subsidiaries of
Borrower, whether direct or indirect and whether now owned
or hereafter acquired, that the Agent at any time determines
to be material, such determination to be made by the Agent
in its sole discretion.
"Maximum Rate" means, at any time and with respect to
any Bank, the maximum rate of nonusurious interest under
applicable law that such Bank may charge the Borrower. The
Maximum Rate shall be calculated in a manner that takes into
account any and all fees, payments and other charges in
respect of the Loan Documents that constitute interest under
applicable law. Each change in any interest rate provided
for herein based upon the Maximum Rate resulting from a
change in the Maximum Rate shall take effect without notice
to the Borrower at the time of such change in the Maximum
Rate. For purposes of determining the Maximum Rate under
Texas law, the applicable rate ceiling shall be the
applicable rate ceiling described in, and computed in
accordance with, Article 5069-1D.001 et seq., Vernon's Texas
Civil Statutes.
"Mortgages" means each Deed of Trust, Mortgage, Pledge
Agreement, Assignment of Production and Financing Statement,
substantially in the form of Exhibits "E" hereto, to be
executed and delivered by the respective Companies to the
Agent for the benefit of the Banks, as the same may be
amended, modified, supplemented and in effect from time to
time (which Mortgages shall relate to the Oil and Gas
Properties in the States of Texas and Montana, respectively,
and the personal property of the Companies, including,
without limitation, the Intercompany Receivables).
"Mortgaged Property" means the Mortgaged Property
(which term includes, without limitation, the Subject
Leases) as such term is defined in the Mortgages.
"Multiemployer Plan" means a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions
have been made by any Company or any ERISA Affiliate and
which is covered by Title IV of ERISA.
"Net Income (Loss)" means, for any Person for any
period, the aggregate of net income (or loss) from
continuing operations of such Person and its Subsidiaries
for such period, determined on a consolidated basis in
conformity with GAAP.
"Net Proceeds" from any issuance, sale or other
disposition of any shares of equity securities (or any
securities convertible or exchangeable for any such shares,
or any rights, warrants, or options to subscribe for or
purchase any such shares) means the amount equal to (a) the
aggregate gross proceeds of such issuance, sale or other
disposition, less (b) the following: (i) placement agent
fees, (ii) underwriting discounts and commissions,
(iii) bank and other lender fees, and (iv) legal fees and
other expenses payable by the issuer in connection with such
issuance, sale or other disposition.
"Notes" means the Revolving Credit Notes and all
extensions, renewals and modifications thereof.
"Notice of Borrowing, Conversion, Continuation or
Prepayment" means a notice of borrowing, conversion,
continuation or prepayment substantially in the form of
Exhibit "B" hereto, properly completed and signed by
Borrower pursuant to Section 2.11 hereof.
"Notice of Sale" is defined in Section 2.19(c).
"Obligations" means (a) all present and future
indebtedness, liabilities and obligations of the Borrower to
the Agent and/or the Banks, whether arising pursuant to any
of the Loan Documents or otherwise, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several,
including, without limitation, the obligation of the
Borrower to repay the Loans, interest on the Loans, the
Borrower's contingent reimbursement obligations in respect
of Letters of Credit and all fees, indemnities, costs and
expenses (including attorneys' fees) provided for in the
Loan Documents, and (b) all present and future indebtedness,
liabilities and obligations of the Borrower to any Bank
under any Financial Hedge or Hydrocarbon Hedge.
"Oil and Gas Properties" means any and all right, title
and interest of the Borrower in and into all fee mineral
interests, Leases, subleases, farm-outs, royalties,
overriding royalties, net profit interests, production
payments and similar mineral interests, and all unsevered
and unextracted Hydrocarbons in, under or attributable to
such oil and/or gas Properties and/or interests.
"Operating Lease" means any lease of Property (other
than a Capital Lease Obligation).
"Outstanding Credit" means, at any particular time, the
sum of the aggregate outstanding principal amount of the
Loans plus the Letter of Credit Liabilities at such time.
"Participant" means a bank or other institution to whom
a Bank has sold a participation interest in all or a portion
of its rights and obligations under this Agreement and the
other Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation
or any entity succeeding to all or any of its functions
under ERISA.
"Permitted Liens" means:
(a) Certain existing Liens disclosed on Schedule 1.1
hereto;
(b) Liens in favor of the Agent pursuant to the Loan
Documents;
(c) Encumbrances consisting of easements, zoning
restrictions or other restrictions on the use of real Property
that do not (individually or in the aggregate) have a Material
Adverse Effect, including without limitation, the easements
described on Schedule 1.1c hereto;
(d) Liens referred to in clauses (i), (ii) and (iii) below
if and only if the indebtedness or obligation secured thereby is
not due and payable or, if any indebtedness or obligation secured
thereby is due and payable (x) such Liens are being contested in
good faith by appropriate proceedings being diligently pursued,
(y) the aggregate amount due and payable under all such Liens
shall not at any time exceed $250,000, and (z) levy, execution or
foreclosure proceedings in respect of any such Lien shall not
have been commenced or shall have been stayed:
(i) Liens (other than Liens relating to Environmental
Liabilities or ERISA) for taxes, assessments or other
governmental charges;
(ii) Liens of mechanics, materialmen, warehousemen,
carriers or other similar statutory Liens; and
(iii) Landlord's Liens;
(e) Liens resulting from good faith deposits to secure
payments of workmen's compensation or other social security
programs or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, contracts (other than
for payment of Debt) or leases made in the ordinary course of
business;
(f) Existing Burdens;
(g) Purchase-money Liens on any equipment hereafter
acquired or the assumption of any Lien on equipment existing at
the time of such acquisition (and not created in contemplation of
such acquisition), or a Lien on any equipment incurred in
connection with any conditional sale or other title retention
agreement or a Capital Lease Obligation; provided that:
(i) any equipment subject to the foregoing is acquired
in the ordinary course of business and the Lien on the equipment
attaches concurrently or within 60 calendar days after the
acquisition thereof;
(ii) the obligation secured by any Lien so created,
assumed or existing shall not exceed the lesser of the cost or
fair market value at the time of acquisition of the equipment
covered thereby, together with all accrued interest thereon and
any fees, expenses or charges relating thereto;
(iii) each such Lien shall attach only to the equipment
so acquired and any products or proceeds thereof;
(iv) the Debt secured by all such Liens shall not
exceed $250,000 at any time outstanding in the aggregate; and
(v) the Debt secured by such Liens is permitted by the
provisions of Section 9.1 and the related expenditure is
permitted under this Agreement;
(h) In respect of the Oil and Gas Properties, minor defects
in title which do not affect the marketability thereof or
restrict the full use and other benefits of ownership by the
Companies or the ability of the Companies to receive a share of
production from, allocated to, or attributable to such Oil and
Gas Properties equal to the net revenue interest of the Companies
therein as represented herein or in the other Loan Documents, and
which are customarily waived by reasonable and prudent operators;
(i) Liens under operating agreements, pooling orders and
unitization agreements; and
(j) Any extension or renewal of any of the foregoing,
provided that Liens permitted hereunder shall not be spread to
cover any additional indebtedness or Property;
provided, however, that none of the Permitted Liens
identified in clauses (a), (e) or (g) above may attach or
relate to any Oil and Gas Properties.
"Person" means any individual, corporation, business
trust, association, company, partnership, joint venture,
Governmental Authority or other entity.
"Plan" means any employee benefit or other plan
established or maintained by any Company or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"Pledge Agreement" means a pledge and security
agreement, substantially in form of Exhibit "G" hereto, to
be executed and delivered by certain of the Companies to the
Agent for the benefit of the Banks, as the same may be
amended, modified, supplemented and in effect from time to
time (which pledge and security agreement shall relate to
the Capital Stock of all of the Material Subsidiaries).
"Prime Rate" means, at any time, the rate of interest
per annum then most recently established by Citibank, N.A.
as its general reference rate of interest, which rate may
not be the lowest rate of interest charged by Citibank, N.A.
to its borrowers; provided, however, that, in lieu of
Citibank, N.A. or any successor bank to Citibank, N.A. for
purposes of establishing the Prime Rate, the Agent may, at
any time upon five Business Days prior written notice to the
Borrower, designate (a) The Bank of New York, New York, New
York (at its head office) or (b) any other bank as may be
reasonably acceptable to the Borrower as the reference bank.
Each change in any interest rate provided for herein based
upon the Prime Rate resulting from a change in the Prime
Rate shall take effect without notice to the Borrower at the
time of such change in the Prime Rate.
"Principal Office" means the principal office of the
Agent, presently located at Houston, Texas.
"Prohibited Transaction" means any transaction set
forth in Section 406 of ERISA or Section 4975 of the Code.
"Property" means property of all kinds, real, personal
or mixed, tangible or intangible (including, without
limitation, all rights relating thereto), whether owned or
acquired on or after the date of this Agreement.
"Proven Reserves" means, at any particular time, the
estimated quantities of Hydrocarbons which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs
attributable to Oil and Gas Properties included or to be
included in the Borrowing Base under existing economic and
operating conditions (i.e., prices and costs as of the date
the estimate is made). The prices used may include
consideration of changes in existing prices provided only by
contractual arrangements, but not on escalations based upon
future conditions.
"Quarterly Payment Date" means the last day of each
March, June, September and December of each year, the first
of which shall be December 31, 1997.
"Reference Bank" means Banque Paribas.
"Register" is defined in Section 13.8(d).
"Regulation D" means Regulation D of the Board of
Governors of the Federal Reserve System as the same may be
amended or supplemented from time to time.
"Regulatory Change" means, with respect to any Bank,
any change after the date of this Agreement in United States
federal, state or foreign laws or regulations (including
Regulation D) or the adoption or making after such date of
any interpretations, directives or requests applying to a
class of banks (including such Bank) of or under any United
States federal or state, or any foreign, laws or regulations
(whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration
thereof.
"Release" means, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal,
disbursement, leaching or migration of Hazardous Materials
into the indoor or outdoor environment or into or out of
Property owned by such Person, including, without
limitation, the movement of Hazardous Materials through or
in the air, soil, surface water, ground water or Property.
"Remedial Action" means all actions required to
(a) cleanup, remove, treat or otherwise address Hazardous
Materials in the indoor or outdoor environment, (b) prevent
the Release or threat of Release or minimize the further
Release of Hazardous Materials so that they do not migrate
or endanger or threaten to endanger public health or welfare
or the indoor or outdoor environment, or (c) perform
pre-remedial studies and investigations and post-remedial
monitoring and care for incidents involving actual or
threatened Releases of Hazardous Materials or actual or
potential violations of Environmental Laws.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"Requesting Banks" means, at any time while no Loans
are outstanding, Banks having more than 50% of the aggregate
amount of the Commitments and, at any time while any Loans
are outstanding, Banks holding more than 50% of the
outstanding aggregate principal amount of the Loans.
"Required Banks" means, at any time while no Loans are
outstanding, Banks having 100% of the aggregate amount of
the Commitments and, at any time while any Loans are
outstanding, Banks holding 100% of the outstanding aggregate
principal amount of the Loans.
"Reserve Requirement" means, for any Eurodollar Loan
for any Interest Period therefor, the average maximum rate
at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during
such Interest Period under Regulation D by the Reference
Bank 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 the Reference Bank by
reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which
the Adjusted Eurodollar Rate is to be determined, or (b) any
category of extensions of credit or other assets which
include Eurodollar Loans.
"Revolving Credit Commitment" means, as to any Bank,
the obligation of such Bank to make Loans and issue or
participate in Letters of Credit hereunder in an aggregate
principal amount at any one time outstanding up to but not
exceeding the amount set forth opposite the name of such
Bank on the signature pages hereto under the heading
"Initial Commitment" (or, in the case of a Person that
becomes a Bank pursuant to Section 13.8, the amount
specified in the relevant Assignment and Acceptance), as
such Commitment may be reduced or terminated pursuant to
Sections 2.19, 11.2 or 13.8.
"Revolving Credit Note" means the promissory note of
the Borrower payable to the order of each Bank substantially
in the form of Exhibit "A" hereto and provided for by
Section 2.2 hereof, and all extensions, renewals and
modifications thereof and all substitutions therefor.
"Scheduled Capital Expenditures" has the meaning
specified in the definition of the term "Engineering
Report."
"SEC" means the Securities and Exchange Commission (or
any Governmental Authority substituted therefor).
"Security Documents" means the Mortgages, the Guaranty,
the Pledge Agreements, and all other mortgages, deeds of
trust, assignments, security agreements, pledge agreements,
financing statements and other documents and agreements
executed and delivered by the respective Companies or any
other Person to the Agent that grant or perfect Liens on any
Property to secure the Obligations or any part thereof, as
the same may be amended, modified, supplemented and in
effect from time to time.
"Subsidiary" means any corporation or other entity of
which at least a majority of the outstanding shares of stock
or other ownership interests having by the terms thereof
ordinary voting power to elect a majority of the board of
directors (or Persons performing similar functions) of such
corporation or entity (irrespective of whether or not at the
time stock of any other class or classes of such corporation
shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower or one or
more of its Subsidiaries.
"Termination Date" means 11:00 a.m. Houston, Texas time
on October 31, 2002, or such earlier date on which the
Commitments terminate as provided in this Agreement.
"Type" means any type of Loan (i.e., Base Rate Loan or
Eurodollar Loan).
"UCC" means the Uniform Commercial Code as in effect in
the State of Texas and/or each other jurisdiction whose laws
are applicable to the creation of a security interest in any
Property securing all or any portion of the Obligations.
1.2 Other Definitional Provisions. All definitions
contained in this Agreement are equally applicable to the
singular and plural forms of the terms defined. The words
"hereof", "herein" and "hereunder" and words of similar import
referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless
otherwise specified, all Article and Section references pertain
to this Agreement. Terms used herein that are defined in the
UCC, unless otherwise defined herein, shall have the meanings
specified in the UCC.
1.3 Accounting Terms and Determinations. Except as
otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be
delivered to the Agent or the Banks hereunder shall be prepared,
in accordance with GAAP, on a basis consistent with those used in
the preparation of the financial statements referred to in
Section 7.2 hereof. All calculations made for the purposes of
determining compliance with the provisions of this Agreement
shall be made by application of GAAP, on a basis consistent with
those used in the preparation of the financial statements
referred to in Section 7.2 hereof. To enable the ready and
consistent determination of compliance by the Borrower with its
obligations under this Agreement, (a) the Borrower will not
change the last calendar day of its fiscal year from December 31,
or the last calendar days of the first three fiscal quarters of
the Borrower in each of its fiscal years from March 31, June 30
and September 30, respectively; and (b) the Borrower will not
permit any Subsidiary to change its fiscal year except to
coincide with that of the Borrower without the prior written
consent of the Agent.
2 Loans; Letters of Credit
2.1 Revolving Credit Loans. Subject to the terms and
conditions of this Agreement, and provided that no Default exists
and is continuing, each Bank agrees to make one or more loans to
the Borrower from time to time from and including the date hereof
to but excluding the Termination Date in an aggregate principal
amount at any time outstanding up to but not exceeding (a) the
Availability multiplied by such Bank's Commitment Percentage as
then in effect, minus (b) such Bank's Commitment Percentage of
the Letter of Credit Liabilities. Subject to the foregoing
limitations and the other terms and conditions of this Agreement,
the Borrower may borrow, repay and reborrow the amount of the
Commitments by means of Eurodollar Loans and Base Rate Loans
until the Termination Date and, until the Termination Date, the
Borrower may Continue Eurodollar Loans or Convert Loans of one
Type into Loans of the other Type. Loans of each Type made by
each Bank shall be made and maintained at such Bank's Applicable
Lending Office for Loans of such Type.
2.2 Revolving Credit Notes. The Loans made by each Bank
shall be evidenced by a single promissory note of the Borrower in
substantially the form of Exhibit "A" hereto, dated the date
hereof, payable to the order of each such Bank in a maximum
principal amount equal to its Commitment as initially in effect
and otherwise duty completed.
2.3 Repayment of Loans. Subject to Section 2.20, the
Borrower shall pay to the Agent for the account of the Banks the
outstanding principal amount of all of the Loans as follows:
(a) in connection with each determination or
redetermination of the Borrowing Base, the Borrower shall make a
payment of principal of the Loans in an amount equal to the
amount (if any) required to be paid pursuant to Section 2.20 on
or before the date therefor specified in Section 2.20; and
(b) all outstanding principal of the Loans shall be due and
payable on the Termination Date.
2.4 Interest.
(a) Interest Rate. The Borrower shall pay to the Agent for
the account of each Bank interest on the unpaid principal amount
of each Loan made by such Bank for the period commencing on the
date of such Loan to but excluding the date such Loan shall be
paid in full, at the following rates per annum:
(i) if such Loan is a Base Rate Loan, the Base Rate plus
the Applicable Margin; and
(ii) if such Loan is a Eurodollar Loan, the Adjusted
Eurodollar Rate plus the Applicable Margin.
(b) Payment Dates. Accrued interest on the Loans shall be
due and payable as follows:
(i) in the case of Base Rate Loans, on each Quarterly
Payment Date;
(ii) in the case of each Eurodollar Loan, on the last
calendar day of the Interest Period with respect thereto and, in
the case of an Interest Period greater than three months, at
three-month intervals after the first day of such Interest
Period;
(iii) upon the payment or prepayment of any Loan or the
Conversion of any Loan to a Loan of another Type (but only on the
principal amount so paid, prepaid or Converted); and
(iv) on the Termination Date.
(c) Default Interest. Notwithstanding the foregoing, the
Borrower shall pay to the Agent for the account of each Bank
interest at the applicable Default Rate on any principal of any
Loan made by such Bank and (to the fullest extent permitted by
law) any other amount payable by the Borrower under this
Agreement or any other Loan Document to or for the account of
such Bank, that is not paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period from and
including the due date thereof to but excluding the date the same
is paid in full. Interest payable at the Default Rate shall be
payable from time to time on demand.
2.5 Borrowing Procedure. The Borrower shall give the Agent
notice of each borrowing hereunder in accordance with
Section 2.8. Not later than 11:00 a.m. Houston, Texas time on
the date specified for each borrowing hereunder, each Bank shall
make available the amount of the Loan to be made by it on such
date to the Agent, at the Principal Office, in immediately
available funds, for the account of the Borrower. As soon as
reasonably practicable on such date, the amount so received by
the Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Borrower by depositing or
wire transferring the same, in immediately available funds, in or
to an account of the Borrower (designated by the Borrower).
2.6 Prepayments, Conversions, and Continuations of Loans.
Subject to Section 2.7, the Borrower shall have the right from
time to time to prepay the Loans, or to Convert all or part of a
Loan of one Type into a Loan of another Type or to Continue
Eurodollar Loans, provided that: (a) the Borrower shall give the
Agent notice of each such prepayment, Conversion or Continuation
as provided in Section 2.8; (b) Eurodollar Loans may only be
Converted on the last calendar day of the Interest Period, and
(c) except for Conversions into Base Rate Loans, no Conversions
or Continuations shall be made while a Default has occurred and
is continuing.
2.7 Minimum Amounts. Except for Conversions and
prepayments pursuant to Article 4, each borrowing, each
Conversion and each prepayment of principal of the Loans shall be
in an amount at least equal to $250,000 or an integral multiple
of $50,000 in excess thereof (borrowings, prepayments or
Conversions of or into Loans of different Types or, in the case
of Eurodollar Loans having different Interest Periods at the same
time hereunder, to be deemed separate borrowings, Conversions and
prepayments for purposes of the foregoing, one for each Type or
Interest Period). Anything in this Agreement to the contrary
notwithstanding, the aggregate principal amount of Eurodollar
Loans having the same Interest Period shall be at least equal to
$1,000,000 or in integral multiples of $250,000 in excess
thereof.
2.8 Certain Notices. Notices by the Borrower to the Agent
of terminations or reductions of Commitments, of borrowings,
Conversions, Continuations and prepayments of Loans and of the
duration of Interest Periods shall be irrevocable and shall be
effective only if received by the Agent not later than 11:00 a.m.
Houston, Texas, time on the date that is at least the number of
Business Days prior to the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first
Business Day of such Interest Period, specified below:
Minimum Number of Business
Notice Days Prior Notice
Termination or reduction 3
of
Commitments
Borrowing or prepayment 1
of, or Conversions
into, Base Rate Loans
Borrowing or prepayment 3
of, Conversions
into, Continuations as,
or duration
of Interest Period for,
Eurodollar Loans
Each such notice of termination or reduction shall specify the
amount of the Commitments to be terminated or reduced. Each such
Notice of Borrowing, Conversion, Continuation or Prepayment shall
be in the form of Exhibit "B" attached hereto and shall specify
the Loans to be borrowed, Converted, Continued or prepaid and the
amount (subject to Section 2.7 hereof) and Type of the Loans to
be borrowed, Converted, Continued or prepaid (and, in the case of
a Conversion, the Type of Loans to result from such Conversion)
and the date of borrowing, Conversion, Continuation or prepayment
(which shall be a Business Day). Each such notice of the
duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. The Agent shall promptly
notify the Banks of the contents of each such notice. In the
event the Borrower fails to select the Type of Loan, or the
duration of any Interest Period for any Eurodollar Loan, within
the time period and otherwise as provided in this Section 2.8,
such Loan (if outstanding as a Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last
Business Day of the Interest Period for such Loan or (if
outstanding as a Base Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Base Rate Loan. The Borrower may
not borrow any Eurodollar Loans, Convert any Loans into
Eurodollar Loans or Continue any Loans as Eurodollar Loans if the
interest rate for such Eurodollar Loan would exceed the Maximum
Rate.
2.9 Use of Proceeds. The proceeds of Loans shall be used
by the Borrower to repay existing Debt of the Borrower and the
Guarantors, to support working capital, for general corporate
purposes, and to finance property development, all in the
ordinary course of business,
2.10 Letters of Credit. Subject to the terms and conditions
of this Agreement, the Agent agrees to issue one or more Letters
of Credit for the account of the Borrower from time to time from
and including the date hereof to but excluding the Termination
Date; provided, however, that the outstanding Letter of Credit
Liabilities shall not at any time exceed, and the Agent shall not
be obligated to issue any Letter of Credit which would cause the
outstanding Letter of Credit Liabilities to exceed, the lesser of
(a) $2,000,000 or (b) an amount equal to (i) the Availability,
minus (ii) the outstanding Loans. Each Letter of Credit may be
issued for the account of or used by any Company, but the
Borrower shall have full liability for each Letter of Credit.
Each Letter of Credit shall have an expiration date not to exceed
one year, shall not have an expiration date beyond the
Termination Date, shall be payable in Dollars, shall have a
minimum face amount of $50,000, must support a transaction that
is entered into in the ordinary course of the Companies'
business, must be satisfactory in form and substance to the
Agent, and shall be issued pursuant to such documents and
instruments (including, without limitation, the Agent's standard
application for issuance of standby letters of credit as then in
effect ["L/C Application"]) as the Agent may require
(collectively, the "L/C Documents").
2.11 Procedure for Issuing Letters of Credit. Each Letter
of Credit shall be issued on at least four Business Days prior
notice from the Borrower to the Agent by means of a Letter of
Credit Request Form describing the transaction proposed to be
supported thereby and specifying (a) the requested date of
issuance (which shall be a Business Day), (b) the face amount of
the Letter of Credit, (c) the expiration date of the Letter of
Credit, (d) the name and address of the beneficiary, and (e) the
name and address of the account party (which shall be a Company),
(f) the purpose for which such Letter of Credit will be used, and
(g) the form of the draft and any other documents required to be
presented at the time of any drawing (such notice to set forth
the exact wording of such documents or to attach copies thereof).
The Agent shall notify each Bank of the contents of each such
notice on the day such notice is received by Agent if received by
11:00 a.m. Houston, Texas time on a Business Day and otherwise on
the next succeeding Business Day.
2.12 Participation by Banks. Immediately upon the Agent's
issuance of any Letter of Credit, the Agent shall be deemed to
have sold and transferred to each other Bank and each other Bank
shall be deemed irrevocably and unconditionally to have purchased
and received from the Agent, without recourse or warranty, an
undivided interest and participation (to the extent of such
Bank's Commitment Percentage) in such Letter of Credit and all
applicable rights of the Agent in such Letter of Credit. The
Agent shall provide to each other Bank a copy of each Letter of
Credit issued on or after the date hereof, promptly after
issuance.
2.13 Payments Constitute Advances. Each payment by the
Agent pursuant to a drawing under a Letter of Credit shall
constitute and be deemed a Base Rate Loan by each Bank to the
Borrower under such Bank's Note and this Agreement as of the day
and time such payment is made by the Agent and in the amount of
such Bank's Commitment Percentage of such payment. Promptly on
the date of each payment by the Agent pursuant to a drawing under
a Letter of Credit and after receipt of notice from the Agent as
to the amount of such payment, each Bank will make available to
the Agent at the Principal Office in immediately available funds,
such Bank's Commitment Percentage of such payment.
2.14 Letter of Credit Fee. The Borrower shall pay to the
Agent for the account of the Banks a nonrefundable letter of
credit fee on the date each such Letter of Credit is issued in an
amount equal to 1.0% per annum of the face amount of such Letter
of Credit, for the period during which such Letter of Credit will
remain outstanding. The letter of credit fee is based on a 360
day year and the actual number of days in the stated term of such
Letter of Credit. The Borrower shall pay to the Agent, solely
for its own account, a nonrefundable issuance and fronting fee
for each Letter of Credit in an amount equal to 1/8 of 1% per
annum of the face amount of such Letter of Credit, calculated on
the basis of a year of 360 days and payable on the date each such
Letter of Credit is issued.
2.15 Agent's Responsibilities. Agent agrees with each Bank
that it will exercise and give the same care and attention to
each Letter of Credit as it gives to its other letters of credit.
Each Bank and the Borrower agree that, in paying any draft or
draw under any Letter of Credit, the Agent has no responsibility
to obtain any document or to ascertain or inquire as to any
document's validity, enforceability, sufficiency, accuracy or
genuineness or the authority of any Person delivering it.
Neither the Agent nor any of its representatives, directors,
officers, employees, attorneys or agents shall be liable to any
Bank or any Company for any Letter of Credit's use or for any
beneficiary's acts or omissions. The Agent shall have no
liability to any Company or any Bank for any action, inaction,
error, delay or omission taken or suffered by the Agent or any of
its representatives, directors, officers, employees, attorneys or
agents in connection with any Letter of Credit, applicable draws,
drafts or documents, or the transmission, dispatch or delivery of
any related message or advice, if done, taken or made in
accordance with the L/C Documents.
2.16 Letter of Credit Documents. Certain additional
provisions regarding the obligations, liabilities, rights,
remedies and agreements of the Borrower and the Agent relative to
the Letters of Credit shall be set forth in the L/C Documents.
The terms of this Agreement shall control any express conflict
between the terms of this Agreement and the terms of any L/C
Application.
2.17 Fees.
(a) For the period from and including the date of this
Agreement to and including the Termination Date, the Borrower
agrees to pay to the Agent on behalf of the Banks a commitment
fee equal to the sum of: 0.125% per annum of the daily average
unused amount of the aggregate Availability. Such fee shall be
payable in arrears on each Quarterly Payment Date and on the
Termination Date based upon the daily average unused amount of
the aggregate Availability during the calendar quarter in which
such payment date falls and during the portion of the immediately
preceding calendar quarter each inclusive of and subsequent to
the immediately preceding payment date for such commitment fee.
For the purpose of calculating the commitment fee hereunder, the
Availability shall be deemed utilized by the amount of all
outstanding Loans and all Letter of Credit Liabilities.
(b) Upon acceptance by the Borrower of any increase in the
Availability from time to time hereafter, the Borrower agrees to
pay the Agent on behalf of the Banks a facility fee in an amount
equal to 0.25% of any such increase in the Availability in excess
of the highest Availability previously accepted by the Borrower
hereunder.
(c) The Borrower shall comply with the Fee Letter.
2.18 Computations. Interest and fees payable by the
Borrower hereunder and under the other Loan Documents shall be
computed on the basis of a year of (a) 360 calendar days in the
case of Eurodollar Loans and in the case of Base Rate Loans when
the Base Rate is based on the Federal Funds Rate and (b) 365 or
366 calendar days, as the case may be, in all other cases, and
the actual number of calendar days elapsed (including the first
calendar day but excluding the last calendar day) occurring in
the period for which payable unless, with respect to Loans
specified in clause (a) of this Section 2.18, such calculation
would result in a usurious rate, in which case interest shall be
calculated on the basis of a year of 365 or 366 calendar days, as
the case may be.
2.19 Borrowing Base.
(a) Semi-Annual Redeterminations.
(i) (A) On or before each September 1, commencing
September 1, 1998, the Borrower shall deliver to the Agent, at
the Borrower's expense, an Engineering Report, certified by an
officer of the Borrower reasonably acceptable to the Agent, dated
as of the immediately preceding July 1, together with the report
required to be delivered by the Borrower pursuant to clause (ii)
of Section 8.1(1) setting forth the aggregate amount of the
Borrower's liabilities under any Gas Balancing Agreements; (B) on
or before each March 1, commencing March 1, 1998, the Borrower
shall deliver, or cause to be delivered, to the Agent, at the
Borrower's expense, an Engineering Report prepared and certified
by an Independent Engineer as of the immediately preceding
January 1, together with the report required to be delivered by
Borrower pursuant to clause (ii) of Section 8.1(1) setting forth
the aggregate amount of Borrower's liabilities under any Gas
Balancing Agreements; and (C) provided, however, that the Agent
may, upon the giving of notice to the Borrower at any time and at
the Borrower's expense, require that an Engineering Report be
prepared and certified by an Independent Engineer, but in no
event shall more than one additional Engineering Report be
required to be prepared and certified by an Independent Engineer
annually so long as no Default has occurred and is continuing.
Within 30 calendar days after the Agent's receipt of each such
Engineering Report, the Agent with the consent of the Required
Banks shall redetermine the Borrowing Base in accordance with
this Section 2.19 and the Agent shall promptly notify the
Borrower of the amount of the Borrowing Base as so redetermined.
(ii) In the event that the Borrower does not furnish to the
Agent the Engineering Report by the date specified therein, the
Agent with the consent of the Required Banks may nonetheless
redetermine the Borrowing Base and redesignate the Borrowing Base
from time to time thereafter at their discretion until the Agent
receives the relevant Engineering Report whereupon the Agent with
the consent of the Required Banks shall redetermine the Borrowing
Base as otherwise specified in this Section 2.19.
(iii) Each delivery of an Engineering Report by the
Borrower to the Agent shall constitute a representation and
warranty by the Borrower to the Agent and the Banks that, unless
otherwise disclosed to the Agent in writing on or prior to the
date of such delivery, (A) a Company owns the oil and gas
interests described in the Engineering Report free and clear of
any Liens (except Permitted Liens) and (B) each of the oil and
gas interests described in the Engineering Report constitute Oil
and Gas Properties which are a part of the Mortgaged Properties.
(b) Interim Redeterminations by Banks. The Agent with the
consent of the Required Banks may redetermine the Borrowing Base
at any time and from time to time in their sole discretion and
based on such information as they may deem relevant but in
accordance with Section 2.19. In addition, the Agent agrees to
redetermine, with the consent of the Required Banks, the
Borrowing Base upon the request of the Borrower or the Requesting
Banks (but not more frequently than one time by the Borrower and
one time by the Requesting Banks during any calendar year) in
accordance with Section 2.19. In connection with any
redetermination of the Borrowing Base under this Section 2.19(b),
the Borrower shall provide the Agent with such information
regarding the Borrower's businesses (including the Oil and Gas
Properties and the Proven Reserves and production relating
thereto) as the Agent may reasonably request. The Agent shall
promptly notify the Borrower of the redetermination of the
Borrowing Base pursuant to this Section 2.19(b) and the amount of
the Borrowing Base as so redetermined.
(c) Asset Sales. The Companies may from time to time sell
in one transaction or a series of transactions Oil and Gas
Properties included in the Borrowing Base, provided that (i) no
Default shall have occurred and be continuing either prior
thereto or after giving effect thereto, and (ii) each sale shall
be an arms-length transaction pursuant to which the respective
Companies receive full and fair consideration for the Oil and Gas
Properties sold. If the Companies sell or intend to sell Oil and
Gas Properties included in the Borrowing Base in one or more
transactions having a fair market value in the aggregate greater
than $500,000 (the "Threshold Amount") during the period from the
date of any Borrowing Base determination until the next Borrowing
Base determination, then the Borrower shall give the Agent at
least 10 Business Days prior written notice of each such sale (a
"Notice of Sale"). Each Notice of Sale shall specify the date of
the sale (the "Date of Sale"), the Oil and Gas Properties that
will remain in the Borrowing Base after giving effect to such
sale, and the terms of such sale. The Required Banks may, at
their discretion, redetermine the Borrowing Base after giving
effect to the sale or sales in question in accordance with the
standards specified in this Section 2.19. The Borrower shall
provide the Agent with such information as may be reasonably
requested by the Required Banks to redetermine the Borrowing
Base. The Agent shall notify the Borrower of the amount of the
Borrowing Base as redetermined pursuant to this Section 2.19(c)
within 30 Business Days after the Agent's receipt of a Notice of
Sale and any information required by the Required Banks to make
the redetermination. If on any Date of Sale the Outstanding
Credit will, after giving effect to such sale, exceed the
Availability, the Borrower shall on the Date of Sale either
(a) prepay the Loans in the amount by which the Outstanding
Credit, after giving effect to such sale, exceeds the
Availability, by application of the proceeds of such sale or
otherwise; or (b) grant or cause to be granted to the Agent a
perfected, first priority Lien (subject to Permitted Liens) on
additional Oil and Gas Properties containing Proven Reserves
having a value satisfactory to the Required Banks in their sole
discretion such that the Borrowing Base will be increased by an
amount equal to the amount by which the Outstanding Credit, after
giving effect to such sale, exceeds the Availability. If a sale
of Oil and Gas Properties occurs at any time when the Outstanding
Credit exceeds the Availability, up to 100% of the net proceeds
of such sale will be applied as necessary to pay the Excess
Amount.
(d) Standards for Redetermination. Each redetermination of
the Borrowing Base by the Agent with the consent of the Required
Banks pursuant to this Section 2.19 shall be made (i) in the sole
discretion of the Required Banks, (ii) generally in accordance
with the Required Banks' customary internal standards and
practices for valuing and redetermining the value of oil and gas
properties in connection with reserve based oil and gas loan
transactions, (iii) in conjunction with the most recent
Engineering Report or other information received by the Agent
relating to the Proven Reserves of the Companies, and (iv) based
upon the estimated value of the Proven Reserves owned by the
Companies as determined by the Required Banks; provided, however,
no Proven Reserves shall be included or considered for inclusion
in the Borrowing Base unless (A) on the Closing Date at least 80%
of the value of such Proven Reserves are Collateral and
thereafter at least 75% of the value of such Proven Reserves are
(or will become simultaneously with a Loan hereunder) Collateral,
provided that if at any time less than 75% of the value of such
Proven Reserves are Collateral the Borrower shall grant or cause
to be granted to the Agent Liens pursuant to additional mortgages
so that at least 80% of the value of such Proven Reserves are
Collateral, and (B) the Agent shall have received, at the
Borrower's expense, evidence of title reasonably satisfactory in
form and substance to the Agent that the Agent has a perfected,
first priority Lien (except for Permitted Liens) on at least 80%
of the Proven Reserves attributable to the Oil and Gas Properties
relating thereto pursuant to the Security Documents. The
Majority Banks may at any time require the Borrower to provide
Mortgages on the Companies' Oil and Gas Properties that are not
then mortgaged hereunder, whereupon the Borrower shall provide
such Mortgages and related title opinions, all in form and
substance satisfactory to the Agent. At all times after the
Agent has given the Borrower notification of a redetermination of
the Borrowing Base under this Section 2.19, the Borrowing Base
shall be equal to the redetermined amount until the Borrowing
Base is subsequently redetermined in accordance with this on
Section 2.19.
(e) Procedure for Redetermination. Within 45 days of its
receipt of Engineering Reports pursuant to Section 2.19(a) or a
request under Section 2.19(b), the Agent shall propose a
redetermined Borrowing Base and provide it in writing to the
Banks. Within 10 days after their receipt of such information,
the Banks shall give the Agent written notice of whether the
Banks approve the Agent's proposed Borrowing Base. If, for any
reason, the Required Banks do not approve of the proposed
Borrowing Base, the Agent and the Banks shall consult with one
another to enable the Agent to determine a Borrowing Base to
which that the Required Banks will consent.
2.20 Mandatory Prepayments-Availability. If the Outstanding
Credit at any time exceeds the Availability (such excess being
hereafter referred to as the "Excess Amount"), the Borrower
shall, within three Business Days after the Agent gives notice of
such fact to the Borrower, give the Agent written notice (the
"Borrower's Notice") that the Borrower will either:
(a) prepay the outstanding principal of the Loans by an
amount at least equal to the Excess Amount or, if no Loans are
outstanding, pledge to the Agent cash or cash equivalent
investments in an amount at least equal to the Excess Amount,
which payment or pledge shall be made within 30 calendar days of
the Agent's receipt of the Borrower's Notice;
(b) make mandatory prepayments of the Loans in equal
monthly installments on the first calendar day of each calendar
month commencing on the first such calendar day immediately
following the date that the Agent received the Borrower's Notice,
such installments to be sufficient to pay the Excess Amount over
a term not to exceed six months (it being agreed that the
Borrower will dedicate the net proceeds of production from Oil
and Gas Properties constituting Collateral in an amount
sufficient to make such mandatory prepayments);
(c) grant or cause to be granted (at any time during the
applicable six month period if the alternative in clause (b)
preceding is also chosen by the Borrower) to the Agent a
perfected, first priority Lien (except for Permitted Liens) on
additional Oil and Gas Properties containing Proven Reserves
having a value satisfactory to the Required Banks in their sole
discretion, such that the Borrowing Base will be increased by an
amount at least equal to the Excess Amount;
(d) any combination of clauses (a), (b), and (c) above that
is satisfactory to the Required Banks; and
(e) the Borrower shall be obligated to perform strictly in
accordance with the Borrower's Notice.
In addition to the foregoing prepayment requirements, in the
event the Borrower raises capital by the issuance of any
security, including without limitation common stock, preferred
stock, subordinated debt or senior unsecured debt, the Net
Proceeds of such issuance shall be applied to reduce or eliminate
the Excess Amount, if any, by prepaying Loans (or pledging cash
or cash equivalent investments, if no Loans are outstanding) in
an amount at least equal to the lesser of such Net Proceeds or
the Excess Amount. Each prepayment of principal under this
Section 2.20 shall be accompanied by accrued and unpaid interest
on the principal so prepaid.
3 Payments
3.1 Method of Payment. Except as otherwise expressly
provided herein, any payments of principal, interest and other
amounts to be made by the Borrower under this Agreement and the
other Loan Documents shall be made to the Agent at the Principal
Office for the account of each Bank's Applicable Lending Office
in Dollars and in immediately available funds, without setoff,
deduction or counterclaim, not later than 11:00 a.m., Houston,
Texas time on the date on which such payment shall become due
(each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).
The Agent may apply such payment to the Obligations in such order
and manner as it may elect in its sole discretion, subject to
Section 3.2 hereof. Each payment received by the Agent under
this Agreement or any other Loan Document for the account of a
Bank shall be paid promptly to such Bank, in immediately
available funds, for the account of such Bank's Applicable
Lending Office. Whenever any payment under this Agreement or any
other Loan Document shall be stated to be due on a calendar day
that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such
case be included in the computation of the payment of interest
and commitment fee, as the case may be.
3.2 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks under
Section 2.1 or deemed made by the Banks under Section 2.13, each
payment of commitment fees, facility fees and letter of credit
fees, shall be made to the Agent for the account of the Banks,
and each Letter of Credit shall be deemed participated in by the
Banks, pro rata according to their respective Commitment
Percentages; (b) the making, Conversion and Continuation of Loans
of a particular Type (other than Conversions provided for by
Section 4.4) shall be made pro rata among the Banks holding Loans
of such Type according to their respective Commitment
Percentages; (c) each payment and prepayment of principal of or
interest on Loans by the Borrower of a particular Type shall be
made to the Agent for the account of the Banks holding Loans of
such Type pro rata in accordance with the respective unpaid
principal amounts of such Loans held by such Banks; and (d)
Interest Periods for Loans of a particular Type shall be
allocated among the Banks holding Loans of such Type pro rata
according to the respective principal amounts held by such Banks.
3.3 Sharing of Payments. If a Bank shall obtain payment of
any principal of or interest on any of the Obligations due to
such Bank hereunder through the exercise of any right of set-off,
banker's lien, counterclaim or similar right, or otherwise, it
shall promptly purchase from the other Banks participations in
the Obligations held by the other Banks in such amounts, and make
such other adjustments from time to time, as shall be equitable
to the end that all the Banks shall share the benefit of such
payment pro rata in accordance with the unpaid principal of and
interest on the Obligations then due to each of them. To such
end, all of the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if
all or any portion of such excess payment is thereafter rescinded
or must otherwise be restored. The Borrower agrees, to the
fullest extent it may effectively do so under applicable law,
that any Bank so purchasing a participation in the Obligations
held by the other Banks may exercise all rights of set-off,
banker's lien, counterclaim or similar rights with respect to
such participation as fully as if such Bank were a direct holder
of Obligations in the amount of such participation. Nothing
contained herein shall require any Bank to exercise any such
right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to
any other indebtedness or obligation of the Borrower.
3.4 Non-Receipt of Funds by the Agent. Unless the Agent
shall have been notified by a Bank or the Borrower (the "Payor")
prior to the date on which such Bank is to make payment to the
Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Agent for the account of one
or more of the Banks, as the case may be (such payment being
herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the
Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if
the Payor has not in fact made the Required Payment to the Agent,
the recipient of such payment shall, on demand, pay to the Agent
the amount made available to it together with interest thereon in
respect of the period commencing on the date such amount was so
made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to the Federal Funds Rate
for such period.
3.5 Withholding Taxes. All payments by the Borrower of
principal of and interest on the Loans, and of all fees and other
amounts payable under any Loan Document, shall be payable without
deduction for or on account of any present or future taxes,
duties or other charges levied or imposed by the United States of
America or by the government of any jurisdiction outside the
United States of America or by any political subdivision or
taxing authority of or in any of the foregoing through
withholding or deduction with respect to any such payments. If
any such taxes, duties or other charges are so levied or imposed,
the Borrower shall make additional payments in such amounts so
that every net payment of principal of and interest on the Loans
and of all other amounts payable by it under any Loan Document,
after withholding or deduction for or on account of any such
present or future taxes, duties or other charges, will not be
less than the amount provided for herein or therein. The
Borrower shall furnish promptly to the Agent for distribution to
each affected Bank, as the case may be, official receipts
evidencing any such withholding or reduction.
3.6 Withholding Tax Exemption. Each Bank that is not
incorporated under the laws of the United States of America or a
state thereof agrees that it will deliver to the Borrower and the
Agent two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224, certifying in either case that such
Bank is entitled to receive payments from the Borrower under any
Loan Document without deduction or withholding of any United
States federal income taxes. Each Bank which so delivers a Form
1001 or 4224 further undertakes to deliver to the Borrower and
the Agent two additional copies of such form (or a successor
form) on or before the date such form expires or becomes obsolete
or after the occurrence of any event requiring a change in the
most recent form so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested
by the Borrower or the Agent, in each case certifying that such
Bank is entitled to receive payments from the Borrower under any
Loan Document without deduction or withholding of any United
States federal income taxes, unless an event (including without
limitation any change in treaty, law or regulation) has occurred
prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such
form with respect to it and such Bank advises the Borrower and
the Agent that it is not capable of receiving such payments
without any deduction or withholding of United States federal
income tax.
4 Yield Protection and Illegality
4.1 Additional Costs.
(a) The Borrower shall pay directly to each Bank from time
to time such amounts as such Bank may determine to be necessary
to compensate it for any costs incurred by such Bank which such
Bank determines are attributable to the making or maintaining of
any Eurodollar Loans hereunder or its obligation to make any
Eurodollar Loans hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any such Loans or
such obligation (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Bank under this Agreement or its Note in respect of any of
such Loans (other than taxes imposed on the overall net income of
such Bank or its Applicable Lending Office for any of such Loans
by the jurisdiction in which such Bank has its principal office
or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio or similar requirement relating to
any extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such Bank (including any
of such Loans or any deposits referred to in the definition of
"Eurodollar Rate" in Section 1.1 hereof); or
(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.
Each Bank will notify the Borrower of any event occurring
after the date of this Agreement which will entitle such
Bank to compensation pursuant to this Section 4.1(a) as
promptly as practicable after it obtains knowledge thereof
and determines to request such compensation, and will
designate a different Applicable Lending Office for the
Loans affected by such event if such designation will avoid
the need for, or reduce the amount of, such compensation and
will not, in the sole opinion of such Bank, violate any law,
rule or regulation or be in any way disadvantageous to such
Bank, provided that such Bank shall have no obligation to so
designate an Applicable Lending Office located in the United
States of America. If any Bank requests compensation from
the Borrower under this Section 4.1(a), the Borrower may, by
notice to such Bank (with a copy to the Agent) suspend the
obligation of such Bank to make or Continue or Convert Loans
into, Eurodollar Loans until the Regulatory Change giving
rise to such request ceases to be in effect (in which case
the provisions of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions
of this Section 4.1, in the event that, by reason of any
Regulatory Change, any Bank either (i) incurs Additional Costs
based on or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of such
Bank which includes deposits by reference to which the interest
rate on Eurodollar Loans is determined as provided in this
Agreement or a category of extensions of credit or other assets
of such Bank which includes Eurodollar Loans or (ii) becomes
subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so
elects, the obligation of such Bank to make or Continue or
Convert Loans into, Eurodollar Loans hereunder shall be suspended
until such Regulatory Change ceases to be in effect (in which
case the provisions of Section 4.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for purposes
of this Section 4.1 of the effect of any Regulatory Change on its
costs of maintaining its obligation to make Loans or of making or
maintaining Loans or on amounts receivable by it in respect of
Loans, and of the additional amounts required to compensate such
Bank in respect of any Additional Costs, shall be conclusive,
provided that such determinations and allocations are made in
good faith on a reasonable basis generally consistent with such
Bank's standard practices.
4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans
for any Interest Period therefor:
(a) The Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest
rates for the relevant deposits referred to in the definition of
"Eurodollar Rate" in Section 1.1 hereof are not being provided in
the relative amounts or for the relative maturities for purposes
of determining the rate of interest for such Loans as provided in
this Agreement; or
(b) The Required Banks determine (which determination shall
be conclusive absent manifest error) and notify the Agent that
the relevant rates of interest referred to in the definition of
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of
which the rate of interest for such Loans for such Interest
Period is to be determined do not accurately reflect the cost to
such Banks of making or maintaining such Loans for such Interest
Period;
then, for so long as such condition remains in effect, the Banks
shall be under no obligation to make or Continue Eurodollar Loans
or to Convert Base Rate Loans into Eurodollar Loans and the
Borrower shall, on the last calendar 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 Base Rate Loans in accordance with the terms of this
Agreement.
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 (a) honor its obligation
to make Eurodollar Loans hereunder or (b) maintain Eurodollar
Loans hereunder, then such Bank's obligation to make or maintain
Eurodollar Loans and to Convert Base Rate Loans into Eurodollar
Loans hereunder shall be suspended until such time as such Bank
may again make and maintain Eurodollar Loans (in which case the
provisions of Section 4.4 hereof shall be applicable).
4.4 Treatment of Affected Loans. If the obligation of any
Bank to make or Continue, or to Convert Base Rate Loans into,
Eurodollar Loans is suspended pursuant to Section 4.1 or
Section 4.3 hereof, such Bank's Eurodollar Loans shall be
automatically Converted into Base Rate Loans on the last calendar
day(s) of the then current Interest Period(s) for Eurodollar
Loans (or, in the case of a Conversion required by Section 4.1(b)
or Section 4.3 hereof, on such earlier date as such Bank may
determine) and, unless and until such Bank determines as provided
below that the circumstances specified in Section 4.1 or
Section 4.3 hereof which 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
which would otherwise be applied to such Bank's Loans shall be
applied instead to its Base Rate Loans; and
(b) All Loans which would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made as or Converted into
Base Rate Loans and all Loans of such Bank which would otherwise
be Converted into Eurodollar Loans shall be Converted instead
into (or shall remain as) Base Rate Loans.
If such Bank determines that the circumstances specified in
Section 4.1 or Section 4.3 hereof which gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this
Section 4.4 no longer exist at a time when Eurodollar Loans made
by other Banks are outstanding, such Bank's Base Rate Loans shall
be automatically Converted, on the first calendar day(s) of the
next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving
effect thereto, all Loans held by the Banks holding Eurodollar
Loans and by such Bank are held pro rata (as to principal
amounts, Types and Interest Periods) in accordance with their
respective Commitments.
4.5 Compensation. The Borrower shall pay to the Agent for
the account of each Bank, upon the request of such Bank through
the Agent, such amount or amounts as shall be sufficient to
reasonably 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 outstanding Loans pursuant to Section 11.2)
on a date other than the last calendar day of an Interest Period
for such Loan; or
(b) Any failure by the Borrower for any reason (including,
without limitation, the failure of any conditions precedent
specified in Article 6 to be satisfied) to borrow, Convert or
prepay a Eurodollar Loan on the date for such borrowing,
Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
Without limiting the effect of the preceding sentence, such
compensation shall include an amount equal to the excess, if any,
of (i) the amount of interest which otherwise would have accrued
on the principal amount so paid or Converted or not borrowed for
the period from the date of such payment, Conversion or failure
to borrow to the last calendar day of the Interest Period for
such Loan (or, in the case of a failure to borrow, the Interest
Period for such Loan which would have commenced on the date
specified for such borrowing) at the applicable rate of interest
for such Loan provided for herein over (ii) the interest
component of the amount such Bank would have bid in the London
interbank market (if such Loan is a Eurodollar Loan) for Dollar
deposits of leading banks and amounts comparable to such
principal amount and with maturities comparable to such period.
4.6 Capital Adequacy. If after the date hereof, any Bank
shall have determined that the adoption or implementation of any
applicable law, rule or regulation regarding capital adequacy
(including, without limitation, any law, rule, or regulation
implementing the Basle Accord), or any change therein, or any
change in the interpretation or administration thereof by any
central bank or other Governmental Authority charged with the
interpretation or administration thereof, or compliance by such
Bank (or its parent) with any guideline, request, or directive
regarding capital adequacy (whether or not having the force of
law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other
requirement implementing the Basle Accord), has or would have the
effect of reducing the rate of return on such Bank's (or its
parent's) capital as a consequence of its obligations hereunder
or the transactions contemplated hereby to a level below that
which such Bank (or its parent) could have achieved but for such
adoption, implementation, change or compliance (taking into
consideration such Bank's policies with respect to capital
adequacy) by an amount deemed by such Bank to be material, then
from time to time, within 10 Business Days after demand by such
Bank (with a copy to the Agent), the Borrower shall pay to such
Bank such additional amount or amounts as will reasonably
compensate such Bank (or its parent) for such reduction. In
determining such amount or amounts, such Bank may use any
reasonable averaging and attribution methods. As of the date
hereof, none of the Banks has actual knowledge of any existing
event or circumstance that would entitle it to compensation
pursuant to this Section 4.6.
4.7 Additional Costs in Respect of Letters of Credit. If
as a result of any Regulatory Change there shall be imposed,
modified, or deemed applicable any tax, reserve, special deposit,
or similar requirement against or with respect to or measured by
reference to Letters of Credit issued or to be issued hereunder
or the Commitments to issue or participate in Letters of Credit
hereunder, and the result shall be to increase the cost to the
Agent or any Bank of issuing, maintaining or participating in any
Letter of Credit or its Commitment to issue or participate in
Letters of Credit hereunder or reduce any amount receivable by
the Agent or any Bank hereunder in respect of any Letter of
Credit (which increase in cost, or reduction in amount
receivable, shall be the result of the Agent's or such Bank's
reasonable allocation of the aggregate of such increases or
reductions resulting from such event), then, upon demand by the
Agent or such Bank, the Borrower agrees to pay the Agent or such
Bank, as the case may be, from time to time as specified by the
Agent or such Bank, as the case may be, such additional amounts
as shall be sufficient to compensate the Agent or such Bank for
such increased costs or reductions in amount. Each Bank will
furnish to the Borrower a certificate of such Bank claiming
compensation under this Section and setting forth the basis and
the additional amount or amounts to be paid to it hereunder.
Each such certificate shall be conclusive, provided that the
determination of such amount or amounts is made on a reasonable
basis.
4.8 Notice. The Borrower and the Banks shall use
reasonable efforts to avoid or to minimize the Additional Costs
payable by the Borrower pursuant to this Article 4, and the
Borrower shall, as promptly as practical, notify the Agent, and
each Bank shall, as promptly as practicable, notify the Borrower
and the Agent, of the existence of any event or circumstance of
which it is aware which will require the payment by the Borrower
of any such Additional Costs; provided, however, that the failure
to give any such prompt notification shall not result in any
liability to such Bank and shall not affect the rights of the
Banks or the obligations of the Borrower hereunder.
5 Security
5.1 Collateral. To secure the full and complete payment
and performance of the Obligations, the Borrower shall grant or
cause to be granted to the Agent for the benefit of the Agent and
the Banks, a first priority Lien upon the following, whether now
owned or hereafter acquired, pursuant to the Security Documents:
(a) the Mortgaged Properties;
(b) all accounts (including, without limitation,
Intercompany Receivables), inventory, equipment (including,
without limitation, the pipeline, gas gathering system, and gas
processing plant owned by Gypsy-Highview Gathering System
(G-HGS), Inc.), general intangibles, documents, instruments and
chattel paper of the Companies;
(c) the Capital Stock of each Material Subsidiary and the
Intercompany Payables;
(d) all Property purchased or developed with proceeds of
the Loans; and
(e) any and all products and proceeds (including insurance
proceeds) of any of the foregoing.
In addition, the Borrower shall grant or cause to be granted to
the Agent, for the benefit of the Agent and the Banks, a first
priority Lien upon all Oil and Gas Properties (i) now owned or
hereafter acquired by any of the Companies, (ii) now owned or
hereafter acquired by any Company and constituting a part of the
Borrowing Base and/or (iii) now owned or hereafter acquired,
purchased or developed with proceeds of the Loans, which Liens
shall be granted pursuant to any amendment and/or supplement to
the Mortgages, or pursuant to additional deeds of trust, as the
Agent may request from time to time, all of which shall be in
form and substance reasonably satisfactory to the Agent.
5.2 Title Information. At any time and from time to time
at the request of Agent, at the Borrower's expense, the Borrower
shall furnish to the Agent such information as the Agent may
reasonably request (including without limitation title opinions
in form and substance and issued by counsel satisfactory to the
Agent) with respect to the status of the Companies' title to the
Mortgaged Properties, the perfection and priority of the Liens
created by the Security Documents, and such other matters as the
Agent may reasonably request.
5.3 Security Documents. The Borrower shall promptly
execute and cause to be executed such further documents,
schedules and instruments, including without limitation, Uniform
Commercial Code financing statements, as the Agent, in its sole
discretion, deems necessary or proper to create, evidence,
maintain, continue and perfect its Liens on the Collateral. If
any of the Companies acquire any Property after the Closing Date
that constitutes Collateral or is required to be included in the
Collateral pursuant to the terms of this Agreement, the Borrower
shall or shall cause such Company to execute and deliver to the
Agent such Security Documents as may be required to create and
perfect the Agent's Liens in such Property.
5.4 Release of Collateral. Upon any sale, transfer or
disposition of Collateral that is expressly permitted under
Section 9.8 (or is otherwise authorized in writing by all of the
Banks) and upon five Business Days prior written request by the
Borrower, the Agent shall execute at the Borrower's expense such
documents as may be necessary to evidence the release by the
Agent of its Liens on such Collateral; provided, however, that
(a) the Agent shall not be required to release any Lien on any
Collateral if a Default shall have occurred and be continuing
either prior thereto or after giving effect thereto, (b) the
Agent shall not be required to execute any such document on terms
which, in the Agent's opinion, would expose the Agent to
liability or create any obligation or entail any consequences
other than the release of such Lien without recourse or warranty,
and (c) such release shall not in any manner discharge, affect or
impair any of the Obligations or any of the Agent's Liens on any
Collateral retained by the Companies, including, without
limitation, its Liens on the proceeds of any such sale, transfer
or other disposition.
5.5 Setoff. If an Event of Default shall have occurred and
be continuing, each Bank is hereby authorized at any time and
from time to time, without notice to the Borrower (any such
notice being hereby expressly waived by the Borrower), 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 to or for the credit
or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this
Agreement or any other Loan Document, irrespective of whether or
not the Agent or such Bank shall have made any demand under this
Agreement or such other Loan Document and although such
obligations may be unmatured. The rights and remedies of each
Bank hereunder are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which
such Bank may have.
5.6 Letters in Lieu of Transfer Orders. The Letters in
Lieu of Transfer Orders delivered by the Borrower to the Agent
pursuant to Section 6.1(m) may be completed and sent by the Agent
to the purchasers of Hydrocarbons attributable to the Mortgaged
Property only upon the occurrence and during the continuation of
an Event of Default in accordance with Section 11.2(e). Upon the
request of the Agent, contemporaneously with the delivery to the
Agent of each Engineering Report pursuant to Section 2.19 and at
any time if an Event of Default shall exist, the Borrower will
provide the Agent with the names and addresses of all purchasers
of Hydrocarbons attributable to the Mortgaged Property and such
other information with respect to such purchasers as the Agent
may reasonably request. Subject to the terms and conditions of
this Section 5.6, the Borrower shall from time to time provide
the Agent with such additional Letters in Lieu of Transfer Orders
executed in blank by the Borrower as the Agent may reasonably
request. If the Agent receives payments from the purchasers of
Hydrocarbons under the Letters in Lieu of Transfer Orders, the
Agent shall cooperate with the Borrower to pay royalty owners
entitled to payment therefrom; provided, however, the Borrower
shall be liable for and pay the Agent with respect to any
out-of-pocket costs and expenses of the Agent associated with
determining, verifying or making any such payments to royalty
owners.
6 Conditions Precedent and Subsequent
6.1 Initial Extension of Credit. The obligation of each
Bank to make its initial Loan and the obligation of the Agent to
issue the initial Letter of Credit hereunder is subject to the
condition precedent that the Agent shall have received on or
before the calendar day of such Loan or Letter of Credit all of
the following, each dated (unless otherwise indicated) the date
hereof, in form and substance satisfactory to the Agent:
(a) Resolutions. Resolutions of the Board of Directors of
each Company certified by its Secretary or Assistant Secretary
which authorize the execution, delivery and performance by such
Company of the Loan Documents to which such Company is or is to
be a party;
(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or Assistant Secretary of each Company
certifying the name of each officer of such Company (i) who is
authorized to sign the Loan Documents to which such Company is or
is to be a party (including the certificates contemplated herein)
together with specimen signatures of each such officer and (ii)
who will, until replaced by other officers duly authorized for
that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in
connection with this Agreement and the transactions contemplated
hereby;
(c) Articles of Incorporation. The articles or certificate
of incorporation of each Company certified by its Secretary or
Assistant Secretary;
(d) Bylaws. The bylaws of each Company certified by its
Secretary or Assistant Secretary;
(e) Revolving Credit Notes. The Revolving Credit Notes
executed by the Borrower;
(f) Security Documents. The Security Documents executed by
the appropriate Companies;
(g) Capital Stock. The stock certificates representing all
of the issued and outstanding Capital Stock of each Material
Subsidiary, together with stock powers signed in blank by the
owners of such Capital Stock;
(h) L/C Documents. With respect to issuance of any Letter
of Credit, all applicable L/C Documents, if any, as required by
Section 2.10;
(i) Satisfactory Title. Copies of all title opinions
relating to the Mortgagee Properties obtained by or in the
possession of the Companies;
(j) Letters in Lieu of Transfer Orders. Letters in Lieu of
Transfer Orders for the Mortgaged Properties executed by the
applicable Company;
(k) Contribution Agreement. The Contribution Agreement
executed by the Companies;
(l) Initial Engineering Report. A copy of the Initial
Engineering Report, as certified by a duly authorized officer of
the Borrower;
(m) Insurance Policies. A copy of all insurance policies,
or certificates of insurance for policies that are unavailable,
relating to insurance required by this Agreement and the other
Loan Documents as certified by a duly authorized officer of the
Companies, together with loss payable endorsements naming the
Agent as loss payee and additional insured under such policies;
(n) Material Contracts. A copy of each Material Contract
pertaining to the Mortgaged Property which either (i) affects the
title to the Mortgaged Property owned by the Companies or
otherwise affects the value, use or operation of the Mortgaged
Property in any material respect or (ii) creates or evidences a
material obligation or liability on the part of any Company,
including, without limitation, a copy of a contract or agreement,
in form and substance satisfactory to the Agent, relating to the
Tie-In;
(o) Lien Searches. The results of Uniform Commercial Code
and other Lien searches showing all financing statements and
other Lien instruments filed against the Companies or their
Property in such public offices as may be identified by the
Agent, such searches to be as of a date no more than 30 calendar
days prior to the Closing Date;
(p) Environmental Information. A copy of all environmental
reports, assessments, studies or other information in the
possession or under the control of the Companies, or any of them,
with respect to the environmental condition of the Companies or
any of their Properties or any remediation with respect to the
Companies or any of their Properties that is requested by the
Agent, as certified by a duly authorized officer of the
Companies, which reports, etc. shall either be addressed to the
Agent or to the Companies, in which case, such reports shall be
accompanied by a reliance letter in form and substance
satisfactory to the Agent addressed to the Agent;
(q) Fees. All fees payable on the Closing Date pursuant to
this Agreement and the Fee Letter;
(r) Opinion of Counsel. An opinion of legal counsel to the
Companies in form and substance satisfactory to the Agent;
(s) Compliance Certificate. A certificate of the chief
financial officer of the Companies stating that (i) all of the
representations and warranties contained in this Agreement and in
the other Loan Documents are true and correct on and as of the
Closing Date, (ii) no Default has occurred or is continuing on
and as of the Closing Date, and (iii) the Borrower is in
compliance with all of its obligations under this Agreement and
the other Loan Documents, including the covenants set forth in
Article 10, and demonstrating such compliance in such detail as
may be satisfactory to the Agent;
(t) Environmental and P&A Bonding Requirements. Evidence
of environmental and P&A bonding requirements satisfactory to the
Agent;
(u) Merger. Evidence that the transactions described in
the MSR Exploration Ltd./Mercury Montana, Inc. Proxy
Statement/Joint Prospectus dated October 1, 1997 have been
completed;
(v) Matters Satisfactory. All proceedings taken in
connection with the transactions contemplated by the Loan
Documents shall be reasonably satisfactory to the Agent and the
Banks, all Loan Documents shall be in form and substance
reasonably satisfactory to the Agent and the Banks and all legal
matters incident to this Agreement and the other Loan Documents
and the transactions contemplated by the Loan Documents shall be
reasonably satisfactory to the Agent and the Banks.
6.2 All Extensions of Credit. The obligation of each Bank
to make any Loan or issue any Letter of Credit (including the
initial Loan and the initial Letter of Credit) is subject to the
following additional conditions precedent:
(a) Request for Borrowing or Letter of Credit. The Agent
shall have received in accordance with Section 2.5 or 2.11, as
the case may be, a Notice of Borrowing or Letter of Credit
Request Form dated the date of such Loan or Letter of Credit and
executed by an authorized officer of the Borrower;
(b) L/C Documents. With respect to any Letter of Credit,
Agent shall have received all applicable L/C Documents as
required by Section 2.10;
(c) No Default. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit;
(d) Representations and Warranties. All of the
representations and warranties contained in this Agreement and in
the other Loan Documents shall be true and correct on and as of
the date of such Loan or Letter of Credit with the same force and
effect as if such representations and warranties had been made on
and as of such date;
(e) No Legal Violation. The making of the Loan or the
issuance of the Letter of Credit will not violate any law, rule
or regulation or any order of any Governmental Authority
applicable to any Bank; and
(f) Additional Documentation. The Agent shall have
received such additional approvals, opinions or documents as the
Agent or its legal counsel, Winstead Sechrest & Minick P.C., may
reasonably request.
Each notice of borrowing by the Borrower hereunder shall
constitute a representation and warranty by the Borrower that the
conditions precedent set forth in Sections 6.2(c) and (d) have
been satisfied (both as of the date of such notice and, unless
the Borrower otherwise notifies the Agent prior to the date of
such borrowing, as of the date of such borrowing).
7 Representations and Warranties
To induce the Agent and the Banks to enter into this
Agreement, the Borrower represents and warrants to the Agent and
the Banks that:
7.1 Corporate Existence. Each Company (a) is a corporation
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or is a partnership
duly organized and validly existing under the laws of the
jurisdiction of its formation, (b) has all requisite corporate or
partnership power and authority to own its assets and carry on
its business as now being or as proposed to be conducted, and
(c) is qualified to do business in all jurisdictions in which the
nature of its business makes such qualification necessary and
where failure to so qualify would have a Material Adverse Effect.
7.2 Financial Statements. The Companies have delivered to
the Agent and the Banks audited consolidated financial statements
of the Persons that have merged to become the Borrower as at and
for the fiscal year ended December 31, 1996, and unaudited
consolidated financial statements of such Persons for the
six-month period ended June 30, 1997. Such financial statements
of the Companies are complete and correct, have been prepared in
accordance with GAAP, and fairly and accurately present the
financial condition of the Companies as of the respective dates
indicated therein and the results of operations for the
respective periods indicated therein. None of the Companies has
any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments except as
referred to or reflected in such financial statements. There has
been no change in the business, condition (financial or
otherwise), operations, prospects or Properties of any of the
Companies since June 30, 1997 that would have a Material Adverse
Effect.
7.3 Corporate Action; No Breach. The execution, delivery
and performance by each Company of the Loan Documents to which
such Company is or may become a party and compliance with the
terms and provisions hereof and thereof have been duly authorized
by all requisite corporate action on the part of such Company and
do not and will not (a) violate or conflict with, or result in a
breach of, or require any consent under (i) the certificate or
articles of incorporation, bylaws or partnership agreement of
such Company, (ii) any applicable law, rule or regulation or any
order, writ, injunction or decree of any Governmental Authority
or arbitrator (with respect to binding arbitration), or (iii) any
loan agreement, credit agreement, indenture, mortgage or other
material agreement to which such Company is a party or by which
it or any of its Property is bound or subject, or (b) constitute
a default under any agreement or instrument, or result in the
creation or imposition of any Lien (except in favor of the Agent)
upon any of the revenues or Property of any of the Companies, the
result of any of which would have a Material Adverse Effect.
7.4 Operation of Business. The Companies possess all
licenses, permits, franchises, patents, copyrights, trademarks
and trade names, or rights thereto, reasonably necessary to
conduct their respective businesses substantially as now
conducted and as presently proposed to be conducted, the failure
to have which would have a Material Adverse Effect, and the
Companies are not in violation of any valid rights of others with
respect to any of the forgoing, which violation would have a
Material Adverse Effect.
7.5 Litigation and Judgments. Except as disclosed on
Schedule 7.5 hereto, there is no action, suit, investigation or
proceeding before or by any Governmental Authority or arbitrator
pending, or to the knowledge of any Company, threatened against
or affecting any Company, that would, if adversely determined,
have a Material Adverse Effect.
7.6 Rights in Properties; Liens. The Companies have good
and marketable title to or valid leasehold interests in their
respective Properties, including the Properties reflected in the
financial statements described in Section 7.2, and none of the
Properties of any Company is subject to any Lien, option or
assessment, except Permitted Liens.
7.7 Enforceability. This Agreement constitutes, and the
other Loan Documents to which each Company is party, when
delivered, shall constitute the legal, valid and binding
obligations of such Company, enforceable against such Company in
accordance with their respective terms, except as limited by
bankruptcy, insolvency or other laws of general application
relating to the enforcement of creditors' rights and by general
principles of equity.
7.8 Approvals. No authorization, approval or consent of,
and no filing or registration with or notice to, any Governmental
Authority or third party is or will be necessary for the
execution, delivery or performance by the Companies of the Loan
Documents to which each Company is or may become a party or for
the validity or enforceability thereof, except for filings and
recordings required to perfect the Liens created by the Security
Documents.
7.9 Debt. The Companies have no Debt, except as disclosed
in the financial statements referred to in Section 7.2 or on
Schedule 7.9 hereto.
7.10 Taxes. Each Company has filed all tax returns
(federal, state and local) required to be filed, including all
income, franchise, employment, Property and sales tax returns,
and have paid all of their respective material liabilities for
taxes, assessments, governmental charges and other levies that
are due and payable in accordance with their terms. No Company
knows of any pending investigation of a material nature of any
Company by any taxing authority or of any pending but unassessed
tax liability of any Company.
7.11 Margin Securities. No Company is engaged principally,
or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System), and no part of
the proceeds of any Loan will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of
purchasing or carrying margin stock.
7.12 ERISA.
(a) Each Company is in compliance in all material respects
with all applicable provisions of ERISA.
(b) Neither a Reportable Event nor a Prohibited Transaction
has occurred and is continuing with respect to any Plan.
(c) No notice of intent to terminate a Plan has been filed,
nor has any Plan been terminated.
(d) No circumstances exist which constitute grounds
entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC
instituted any such proceedings.
(e) No Company or any ERISA Affiliate has completely or
partially withdrawn from a Multiemployer Plan.
(f) Each Company and each ERISA Affiliate have met their
minimum funding requirements under ERISA with respect to all of
their Plans, and the present value of all vested benefits under
each Plan do not exceed the fair market value of all Plan assets
allocable to such benefits, as determined on the most recent
valuation date of the Plan and in accordance with ERISA. No
Company or any ERISA Affiliate has incurred any liability to the
PBGC under ERISA.
7.13 Disclosure. To the knowledge of the Company, no
statement, information, report, representation or warranty made
by any Company in this Agreement or in any other Loan Document or
furnished to the Agent or any Bank in connection with this
Agreement or any transaction contemplated hereby contains any
untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein
not misleading. There is no fact, event or condition known to
any Company which has had a Material Adverse Effect, or which
could reasonably be expected to have a Material Adverse Effect,
that has not been disclosed in writing to the Agent.
7.14 Agreements. None of the Companies is a party to any
indenture, loan or credit agreement, or to any lease or other
agreement or instrument, or subject to any charter or corporate
restriction that could reasonably be expected to have a Material
Adverse Effect. None of the Companies is in default in any
material respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any
agreement or instrument material to its business to which it is a
party.
7.15 Compliance with Laws. None of the Companies is in
violation of any law, rule, regulation, order or decree of any
Governmental Authority or arbitrator (in binding arbitration) the
violation of which would have a Material Adverse Effect.
7.16 Investment Company Act. None of the Companies is an
"investment company" within the meaning of the Investment Company
Act of 1940, as amended.
7.17 Public Utility Holding Company Act. None of the
Companies is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a
"public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
7.18 Environmental Matters.
(a) Except as disclosed in the Consolidated Financial
Statements:
(i) Each Company and all of their respective Properties and
operations are in compliance with all Environmental Laws, the
violation of which would have a Material Adverse Effect. No
Company is aware of, or has received notice of, any past, present
or future conditions, events, activities, practices or incidents
which may interfere with or prevent the compliance or continued
compliance of any Company with all Environmental Laws, the
violation of which would have a Material Adverse Effect;
(ii) Each Company has obtained all permits, licenses and
authorizations that are required under applicable Environmental
Laws, and all such permits, licenses and authorizations are in
full force and effect and each Company is in compliance with all
of the terms and conditions of such permits, licenses and
authorizations, the violation of which would have a Material
Adverse Effect;
(iii) No Hazardous Materials exist on, about or within
or have been used, generated, stored, transported, disposed of on
or Released from any of the Properties of any Company, except in
compliance with applicable Environmental Laws, the violation of
which would have a Material Adverse Effect. The use which the
Companies make and intend to make of their respective Properties
will not result in the use, generation, storage, transportation,
accumulation, disposal or Release of any Hazardous Material on,
in or from any of their Properties, except in compliance with
applicable Environmental Laws, the violation of which would have
a Material Adverse Effect;
(iv) No Company nor any of their respective currently or
previously owned or leased Properties or operations is subject to
any outstanding or threatened order from or agreement with any
Governmental Authority or other Person or subject to any judicial
or administrative proceeding with respect to or has received
notice of (A) failure to comply with Environmental Laws,
(B) Remedial Action, or (C) any Environmental Liabilities arising
from a Release or threatened Release, which order, agreement or
proceeding could have a Material Adverse Effect;
(v) There are no conditions or circumstances associated
with the currently or previously owned or leased Properties or
operations of any Company that could reasonably be expected to
give rise to any Environmental Liabilities that could have a
Material Adverse Effect on the part of such Company; and
(vi) No Company has filed or failed to file any notice
required under applicable Environmental Law reporting a Release.
(b) No Lien arising under any Environmental Law has
attached to any Property or revenues of any Company.
7.19 Capitalization.
(a) As of the Closing Date, the authorized Capital Stock of
the Borrower consists of 50,000,000 shares of common stock, no
par value, of which 25,777,014 shares are issued and outstanding,
and 10,000,000 shares of preferred stock, $0.01 par value, of
which no shares are issued and outstanding.
(b) The Borrower has no Subsidiaries other than those
listed on Schedule 7.19, which Schedule also sets forth the
authorized Capital Stock of each corporate Subsidiary, the issued
and outstanding Capital Stock of each corporate Subsidiary, the
number of shares of such Capital Stock owned by the Borrower or
its Subsidiaries, and the ownership interest of the Borrower or
its Subsidiary in any other Subsidiary that is a joint venture or
partnership.
(c) All of the outstanding Capital Stock of the Companies
has been validly issued, is fully paid and is nonassessable.
Except as disclosed on Schedule 7.19, there are no outstanding
subscriptions, options, warrants, calls or rights (including
preemptive rights) to acquire, and no outstanding securities or
instruments convertible into, Capital Stock of the Companies.
7.20 Advance Payment Contracts. Except as disclosed on
Schedule 9.13, the Companies are not a party to, and none of the
Oil and Gas Properties included in the Borrowing Base is the
subject of, any Advance Payment Contract.
7.21 Value of Mortgaged Properties. The Proven Reserves
attributable to the Mortgaged Properties constitute at least 80%
of the value of all Proven Reserves attributable to Oil and Gas
Properties included in the Borrowing Base.
7.22 Outstanding Securities. All outstanding securities (as
defined in the Securities Act of 1933, as amended, or any
successor thereto, and the rules and regulations of the SEC
thereunder) of the Companies have been offered, issued, sold and
delivered in compliance in all material respects with, or in
accordance with valid exemptions under, all applicable Federal
and state securities laws.
7.23 Insurance. The workmen's compensation insurance,
Property insurance, liability insurance, blow-out insurance and
all other insurance maintained by the Companies, together with
the coverage and deductibles thereunder, the limits of such
insurance, and the issuers of such insurance, are summarized on
Schedule 7.23 hereto.
7.24 Labor Disputes and Acts of God. Neither the business
nor the Properties of the Companies or any Subsidiary are
affected by any fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or
not covered by insurance) that could have a Material Adverse
Effect.
8 Positive Covenants
The Borrower covenants and agrees that, as long as the
Obligations or any part thereof are outstanding or any Bank has
any Commitment hereunder, it will perform and observe the
following positive covenants:
8.1 Reporting Requirements. The Borrower will furnish to
the Agent (with sufficient copies for each Bank):
(a) Annual Financial Statements. As soon as available, and
in any event within 90 calendar days after the end of each fiscal
year of the Borrower, beginning with the fiscal year ending
December 31, 1997, (i) a copy of the annual audited financial
statements of the Borrower and its Subsidiaries for such fiscal
year containing, on a consolidated basis, balance sheets as of
the year end and statements of income, retained earnings and cash
flows for the 12-month period then ended, in each case setting
forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and audited and certified by
independent certified public accountants of recognized standing
selected by the Borrower and acceptable to the Agent, to the
effect that such financial statements have been prepared in
accordance with GAAP; and (ii) a copy of the unaudited financial
statements of each Subsidiary for such fiscal year containing
balance sheets as of the year end and statements of income,
retained earnings and cash flows for the 12-month period then
ended, all in reasonable detail and as included in the Borrower's
consolidating financial statements;
(b) Quarterly and Monthly Financial Statements. As soon as
available, and in any event within 45 calendar days after the end
of each of the first three quarters of each fiscal year of the
Borrower, commencing with the quarter ending March 31, 1998,
(i) a copy of unaudited financial statements of the Borrower and
its Subsidiaries containing, on a consolidated basis, balance
sheets as of the end of such quarter and statements of income,
retained earnings and cash flow for the portion of the fiscal
year then ended, in each case setting forth in comparative form
the figures for the corresponding period of the preceding fiscal
year, all in reasonable detail certified by the chief financial
officer, vice president, treasurer or controller of the Borrower
to have been prepared in accordance with GAAP and to fairly and
accurately present (subject to year-end audit adjustments) the
financial condition and results of operations of the Borrower and
its Subsidiaries, on a consolidated basis, at the date and for
the periods indicated therein; and (ii) a copy of unaudited
financial statements of each Subsidiary containing balance sheets
as of the end of such quarter and statements of income, retained
earnings and cash flows for the portion of the fiscal year then
ended, all in reasonable detail certified by the chief financial
officer, vice president-treasurer or controller of such
Subsidiary to have been prepared in accordance with GAAP or in
form and substance acceptable to the Agent and to fairly and
accurately present (subject to year-end adjustments) the
financial condition and results of operations of such Subsidiary,
on a consolidating basis, at the date and for the periods
indicated therein as included in the Borrower's consolidating
financial statements.
(c) Product Report. As soon as possible and in any event
within 30 calendar days of the end of the immediately preceding
month, a report certified by a duly authorized officer of the
Borrower, setting forth the production of Hydrocarbons by Company
by Oil and Gas Property for such month.
(d) Certificate of No Default. Concurrently with the
delivery of each of the financial statements referred to in
Sections 8.1(a) and 8.1(b), a certificate of the chief financial
officer, vice president-treasurer or controller of the Companies
(i) stating that to the best of such officer's knowledge, no
Default has occurred and is continuing, or if a Default has
occurred and is continuing, a statement as to the nature thereof
and the action that is proposed to be taken with respect thereto,
and (ii) showing in reasonable detail the calculations
demonstrating compliance with Article 10;
(e) Management Letters. Promptly upon the receipt thereof,
a copy of any management letter submitted to any Company by
independent certified public accountants with respect to the
business, condition (financial or otherwise), operations,
prospects or Properties of any of the Companies;
(f) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits and proceedings before any
Governmental Authority or arbitrator affecting any of the
Companies which, if determined adversely to such Company, could
have a Material Adverse Effect;
(g) Notice of Default. As soon as possible and in any
event within five calendar days after becoming aware of the
occurrence of each Default, a written notice setting forth the
details of such Default and the action that the Companies have
taken and
propose to take with respect thereto;
(h) ERISA Reports. Promptly after the filing or receipt
thereof, copies of all reports, if any, including annual reports,
and notices which any Company files with or receives from the
PBGC or the U.S. Department of Labor under ERISA; and as soon as
possible and in any event within five calendar days after such
Company knows or has reason to know that any Reportable Event or
Prohibited Transaction has occurred with respect to any Plan or
that the PBGC or such Company has instituted or will institute
proceedings under Title IV of ERISA to terminate any Plan, a
certificate of the chief financial officer, vice
president-treasurer or controller of such Company setting forth
the details as to such Reportable Event or Prohibited Transaction
or Plan termination and the action that such Company proposes to
take with respect thereto;
(i) Reports to Other Creditors. Promptly after the
furnishing thereof, copies of any periodic statement or report
furnished by any Company to any other party pursuant to the terms
of any indenture, loan or credit agreement and not otherwise
required to be furnished to the Agent pursuant to any other
clause of this Section 8.1;
(j) Notice of Material Adverse Change. As soon as possible
and in any event within five calendar days after the occurrence
thereof, written notice of any matter that could reasonably be
expected to have a Material Adverse Effect;
(k) Proxy Statements, Etc. As soon as available, one copy
of each financial statement, report, notice or proxy statement
sent by any Company to its stockholders or partners (as
applicable) generally and one copy of each regular, periodic or
special report, registration statement or prospectus filed by any
Company with any securities exchange or the SEC;
(l) Financial Hedge, Hydrocarbon Hedge and Balancing
Reports. Concurrently with the delivery of each of the financial
statements referred to in Sections 8.1(a) and 8.1(b), a report to
the Agent describing, in detail satisfactory to the Agent (i) the
Financial Hedges and Hydrocarbon Hedges of any Company in effect
during the fiscal quarter then most recently ended or during any
period thereafter; and (ii) the Gas Balancing Agreements to which
any Company is a party and in effect during the fiscal quarter
then most recently ended or during any period thereafter,
together with the quantity of Hydrocarbons subject to such Gas
Balancing Agreements and the aggregate amount of such Company's
liabilities under such Gas Balancing Agreements. Furthermore, if
at any time such Company becomes aware that the aggregate amount
of its liabilities under Gas Balancing Agreements exceeds
[$200,000], such Company shall promptly so notify the Agent in
writing.
(m) Annual Budget and Development Plan. As soon as
available, and in any event no later than March 31, 1998 for the
fiscal year 1998, and as soon as available and in any event no
later than 60 calendar days after the beginning of each fiscal
year of the Borrower thereafter, a copy of the annual budget for
the Borrower and its Subsidiaries and the annual development plan
for the Companies' Oil and Gas Properties for the then current
fiscal year, all in reasonable detail and certified by the
controller of the Companies; and
(n) General Information. Promptly, such other information
concerning any Company as the Agent or any Bank may from time to
time reasonably request.
8.2 Maintenance of Existence; Conduct of Business. The
Borrower will, and will cause each of its Subsidiaries to,
preserve and maintain its legal existence (except as otherwise
expressly permitted by Section 9.3) and all of its leases,
privileges, licenses, permits, franchises, qualifications and
rights that are reasonably necessary in the ordinary conduct of
its business. The Borrower will, and will cause each of its
Subsidiaries to, conduct its business in an orderly and efficient
manner in accordance with good business practices.
8.3 Maintenance of Properties. The Borrower will, and will
cause each of its Subsidiaries to, maintain, keep and preserve
all of its material Properties (tangible and intangible)
necessary or useful in the proper conduct of its business in good
repair, working order and condition and make all reasonably
necessary repairs, renewals, replacements, betterments and
improvements thereof.
8.4 Taxes and Claims. The Borrower will, and will cause
each of its Subsidiaries to, pay or discharge at or before
maturity or before becoming delinquent (a) all taxes, levies,
assessments and governmental charges imposed on it or its income
or profits or any of its Property, and (b) all lawful claims
under operating agreements, pooling orders and unitization
agreements, and for labor, material and supplies, which, if
unpaid, might become a Lien upon any of its Property; provided,
however, that no Company shall be required to pay or discharge
any tax, levy, assessment, governmental charge or claim for
labor, material or supplies that is being contested in good faith
by appropriate proceedings being diligently pursued and for which
adequate reserves have been established provided, further,
however, that all such taxes, levies, assessments, governmental
charges and claims shall be paid immediately upon the
commencement of any proceedings to foreclose any Lien which may
have been attached as security therefor unless such proceedings
are stayed.
8.5 Insurance. The Borrower will, and will cause each of
its Subsidiaries to, maintain insurance with financially sound
and reputable insurance companies in such amounts, with such
deductibles, and covering such risks as is usually carried by
corporations engaged in similar businesses and owning similar
Properties in the same general areas in which each Company
operates, provided that in any event the Borrower will maintain,
and cause each Subsidiary to maintain, workers' compensation
insurance (or self insurance with respect to workers'
compensation insurance where permitted), Property insurance,
comprehensive general liability insurance and blow-out insurance
reasonably satisfactory to the Required Banks. Each insurance
policy covering Collateral shall name the Agent as loss payee and
shall provide that such policy will not be canceled, reduced or
modified without 30 calendar days prior written notice to the
Agent. Each liability insurance policy shall name the Agent as
an additional insured and shall waive the underwriter's right of
subrogation.
8.6 Inspection Rights. At any reasonable time and from
time to time during normal business hours, the Borrower will, and
will cause each of its Subsidiaries to, permit representatives of
the Agent and each Bank (at their own risk and expense) to
examine, copy and make extracts from its books and records, to
visit and inspect its Properties, and to discuss its business,
operations and financial condition with its officers, employees
and independent certified public accountants; provided, however,
that if a Default shall have occurred and be continuing, the
Borrower shall reimburse the Agent and the Banks for all
out-of-pocket expenses incurred by them in connection with any of
the foregoing.
8.7 Keeping Books and Records. The Borrower will, and will
cause each of its Subsidiaries to, maintain proper books of
record and account in which full, true and correct entries in
conformity with GAAP shall be made of all dealings and
transactions in relation to their business and activities.
8.8 Compliance with Laws. The Borrower will, and will
cause each of its Subsidiaries to, comply in all material
respects with all applicable laws, rules, regulations, orders and
decrees of any Governmental Authority or arbitrator (in binding
arbitration), except for orders and decrees that are being
contested or appealed in good faith by appropriate proceedings
being diligently pursued and where the enforcement of such order
or decree has been stayed pending appeal.
8.9 Compliance with Agreements. The Borrower will, and
will cause each of its Subsidiaries to, comply in all material
respects with all material agreements, contracts and instruments
binding on them or affecting their Properties or business.
8.10 Further Assurances. The Borrower will, and will cause
each of its Subsidiaries to, execute and deliver such further
agreements and instruments and take such further action as may be
reasonably requested by the Agent to carry out the provisions and
purposes of this Agreement and the other Loan Documents and to
create, preserve, maintain, continue and perfect the Liens of the
Agent in the Mortgaged Properties and all other Collateral.
8.11 ERISA. The Borrower will, and will cause each of its
Subsidiaries to, comply with all minimum funding requirements, if
any, and all other material requirements of ERISA, if
applicable, so as not to give rise to any liability thereunder.
8.12 Ownership and Control of Certain Subsidiaries. The
Borrower shall at all times continue to, directly or indirectly,
own 100% of all issued and outstanding Capital Stock of each
Company other than the Borrower.
8.13 Hydrocarbon Hedges. The Borrower may enter into
Hydrocarbon Hedges covering no more than 75% of the annual
Hydrocarbon production from the Mortgaged Properties held as of
the Closing Date by the Companies pursuant to contracts having
maturities which shall not exceed three years from the date of
such respective Contracts. Any Hydrocarbon Hedges (a) shall be
pursuant to terms and conditions acceptable to the Agent, and
(b) if entered into with a counterparty other than a Bank, shall
be unsecured. Prior to entering into any Hydrocarbon Hedge with
a counterparty other than a Bank, the Borrower shall first offer
to enter into such Hydrocarbon Hedge, on the same terms and
conditions as are offered to such counterparty, with the Agent,
and the Borrower may enter into such Hydrocarbon Hedge with such
counterparty only if the Agent refuses to enter into such
Hydrocarbon Hedge with the Borrower. Notwithstanding anything to
the contrary contained in this Agreement, there shall be excluded
or deducted from the Borrowing Base (as appropriate) an amount
equal to the aggregate amount of any and all premiums associated
with any Hydrocarbon Hedge.
8.14 Taxes, Overhead and General and Administrative Costs
and Expenses. The Borrower will, and will cause each Subsidiary
to, pay in full, on a timely basis before the same become past
due, any and all indebtedness, liabilities and obligations of
such Company (whether direct or indirect) relating to (a) income
taxes and other taxes (other than ad valorem, production and
severance taxes) and (b) overhead and general and administrative
costs and expenses; provided, however, that no Company shall be
required to pay any such contractual liability or obligation
(other than indebtedness) that is being contested in good faith
by appropriate proceedings diligently pursued.
8.15 Assignment of Hedging Contracts. In the event any of
the Companies enters into any Financial Hedge or Hydrocarbon
Hedge with any party other than the Banks, such Financial Hedge
or Hydrocarbon Hedge shall by its terms be assignable to the
Agent for the benefit of the Banks and the Borrower shall cause
such Company to assign promptly all of its rights thereunder (but
not its obligations or liabilities) to the Agent for the benefit
of the Banks as additional collateral for the Obligations
hereunder, such assignment to be acceptable to the Agent and the
Banks.
9 Negative Covenants
The Borrower covenants and agrees that, as long as the
Obligations or any part thereof are outstanding or any Bank has
any Commitment hereunder, it will perform and observe the
following negative covenants:
9.1 Debt. The Borrower will not, and will not permit any
of its Subsidiaries to, incur, create, assume or permit to exist
any Debt, except:
(a) the Obligations;
(b) existing Debt described on Schedule 7.9 hereto and any
extension, renewal or refinancing thereof without any increase in
the principal amount thereof, provided, however, that the other
terms and conditions of any such extension, renewal or
refinancing are not materially more onerous than the existing
terms and conditions of such Debt;
(c) purchase-money Debt, which, if secured, would be
permitted by clause (g) of the definition of Permitted Liens in
Section 1.1;
(d) Financial Hedges and Hydrocarbon Hedges required or
permitted pursuant to Section 8.13;
(e) Debt, secured by Permitted Liens; and
(f) Debt among the Companies.
9.2 Limitation on Liens. The Borrower will not, and will
not permit any of its Subsidiaries to, incur, create, assume or
permit to exist any Lien upon any of its Property (including,
without limitation, any of its Oil and Gas Properties,
specifically including the Oil and Gas Properties of the Borrower
located in Canada) or revenues, whether now owned or hereafter
acquired, except Permitted Liens.
9.3 Mergers, Etc. The Borrower will not, and will not
permit any of its Subsidiaries to, become a party to a merger or
consolidation, or purchase or otherwise acquire all or a
substantial part of the business or Property of any Person or any
shares or other evidence of beneficial ownership of any Person,
or wind-up, dissolve or liquidate itself; provided, however,
that:
(a) any Subsidiary may merge into the Borrower or another
Subsidiary so long as the surviving corporation is the Borrower
or a wholly-owned Subsidiary; and
(b) any Company may purchase oil and gas properties or the
equity interests of any entity whose primary assets are oil and
gas properties so long as such entity will be a wholly-owned
Subsidiary of such Company.
9.4 Restricted Payments. Without the prior written consent
of the Required Banks, the Borrower will not, and will not permit
any Subsidiary to, declare or pay any dividends or make any other
payment or distribution (whether in cash, Property or
obligations) on account of its Capital Stock, or redeem,
purchase, retire or otherwise acquire any of its Capital Stock,
or permit any of its Subsidiaries to purchase or otherwise
acquire any Capital Stock of any Company, or set apart any money
for a sinking or other analogous fund for any dividend or other
distribution on its Capital Stock or for any redemption,
purchase, retirement or other acquisition of any of Capital Stock
of any Company; provided, however, the Subsidiaries may declare
and pay dividends to the Borrower.
9.5 Investments. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to remain
outstanding any advance, loan, extension of credit or capital
contribution to or investment in any Person, or purchase or own
any stock, bonds, notes, debentures or other securities of any
Person, or be or become a joint venturer with or partner of any
Person (other than investments made in the ordinary course of the
Borrower's business and consistent with industry practice in
joint ventures or partnerships engaged in the exploration and
production or transportation of natural gas), except:
(a) readily marketable direct obligations of the United
States of America or any agency thereof with maturities of one
year or less from the date of acquisition;
(b) fully insured certificates of deposit and eurodollar
time deposits with maturities of one year or less from the date
of acquisition issued by any Bank or by a commercial bank
operating in the United States of America having capital and
surplus in excess of $500,000,000;
(c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest rating
categories of Standard and Poor's Rating Service, a division of
McGraw/Hill, Inc. or Moody's Investors Service, Inc.;
(d) presently existing loans and capital contributions to
and investments in any Company;
(e) those presently existing and reflected in the financial
statements delivered pursuant to Section 7.2;
(f) extensions of trade credit in the ordinary course of
business; and
(g) advances made by any Company to an Affiliate in the
form of loans constituting Intercompany Receivables.
9.6 Transactions With Affiliates. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into any
transaction, including, without limitation, the purchase, sale or
exchange of Property or the rendering of any service, with any
Affiliate of any Company, except in the ordinary course of and
pursuant to the reasonable requirements of such Company's
business and upon fair and reasonable terms no less favorable to
such Company than would be obtained in a comparable arms-length
transaction with a Person not an Affiliate of such Company if,
with respect to a transaction or series of related transactions
that has a fair market value in excess of $200,000, the
transaction or series of related transactions is approved by a
majority of the Board of Directors of such Company involved or to
be involved therein, which approval is set forth in a resolution
certifying that, in the good faith judgment of such Board of
Directors, such transaction or series of transactions complies
with the preceding requirement of this Section 9.6.
9.7 Disposition of Assets. The Borrower will not, and will
not permit any of its Subsidiaries to, sell, lease, assign,
transfer or otherwise dispose of any of its Property, except:
(a) dispositions of inventory (including Hydrocarbon
production) in the ordinary course of business;
(b) the sale or other disposition of Property no longer
used or useful in the conduct of its business;
(c) any sale, exchange or other disposition of Oil and Gas
Properties permitted pursuant to Section 2.19(c); and
(d) sales, exchanges or other dispositions of oil and gas
prospects (including Leases relating thereto), geological or
geophysical data, and other similar assets (exclusive of
Collateral) by any Company in the ordinary course of business.
9.8 Modification of Other Agreements. The Borrower will
not, and will not permit any Subsidiary to, enter into or become
subject to any operating agreement, pooling order or unitization
agreement except in the ordinary course of its business upon
terms that are fair and reasonable to it. The Borrower will not,
and will not permit any of its Subsidiaries to, request or
consent to or implement any termination, amendment, modification,
supplement or waiver of (a) any of its Material Contracts if the
same would have a Material Adverse Effect, or (b) its certificate
or articles of incorporation or bylaws (or any analogous
organizational documents) if the same would have a Material
Adverse Effect.
9.9 Issuance of Capital Stock. The Borrower will not
permit any of its Subsidiaries to at any time issue, sell,
assign, or otherwise dispose of (a) any shares of any class of
its Capital Stock, (b) any securities exchangeable for or
convertible into or carrying any rights to acquire any shares of
any class of its Capital Stock, or (c) any options, warrants or
any other rights to acquire any shares of any class of its
Capital Stock.
9.10 Lines of Business. The Borrower will not, and will not
permit any of its Subsidiaries to, engage in any line or lines of
business activity other than (a) the acquisition, exploration,
development or production of oil and gas properties or the
processing, marketing, refining, storing and transporting of
Hydrocarbons or (b) such other business activities in which it is
currently engaged on the date hereof.
9.11 Environmental Protection. The Borrower will not, and
will not permit any of its Subsidiaries to, (a) use (or permit
any tenant to use) any of its Properties for the handling,
processing, storage, transportation or disposal of any Hazardous
Material, except in compliance in all material respects with
applicable Environmental laws, (b) generate any Hazardous
Material, except in compliance in all material respects with
applicable Environmental Laws, (c) conduct any activity that is
likely to cause a Release or threatened Release of any Hazardous
Material, except in compliance in all material respects with
applicable Environmental Laws, or (d) otherwise conduct any
activity or use any of its Properties in any manner that is
likely to violate any Environmental Law or create any
Environmental Liabilities for which any Company would be
responsible, except for circumstances or events described in
clauses (a) through (d) of this Section 9.12 that would not have,
individually or in the aggregate, a Material Adverse Effect.
9.12 Management Agreements. Except as described on Schedule
9.12, the Borrower will not, and will not permit any of its
Subsidiaries to, enter into or be or become a party to any
management agreement pertaining to the management of its business
or substantially all of its Property by any third party.
9.13 Advance Payment Contracts. Except as described on
Schedule 9.13, the Borrower will not, and will not permit any of
its Subsidiaries to, enter into or be a party to any Advance
Payment Contract with respect to any Oil and Gas Properties
included in the Borrowing Base.
9.14 Sale and Leaseback. The Borrower will not, and will
not permit any Subsidiary to, enter into any arrangement with any
Person pursuant to which it leases from such Person real or
personal property that has been or is to be sold or transferred,
directly or indirectly, by it to such Person.
9.15 Prepayment of Debt. The Borrower will not, and will
not permit any Subsidiary to, prepay any Debt, except the
Obligations, Debt between and among the Companies, and as
otherwise expressly permitted by Section 9.6.
10 Financial Covenants
The Borrower covenants and agrees that, as long as the
Obligations or any part thereof are outstanding or the Bank has
any Commitment hereunder, it will perform and observe the
following covenants:
10.1 Consolidated Current Ratio. It will not permit the
Consolidated Current Ratio for the Companies to be less than 1.00
to 1.00.
10.2 Interest Coverage Ratio. It will not permit the
Interest Coverage Ratio for the Companies, to be less than
(a) 2.0 to 1.0 from January 1, 1998 through December 31, 1998 and
(b) 2.25 to 1.0 thereafter, calculated as at the end of each
calendar quarter using a building four-quarter basis through 1998
and a rolling four-quarter basis thereafter.
10.3 Consolidated Tangible Net Worth. It will not permit
Consolidated Tangible Net Worth for the Companies to be less than
the sum of (a) $12,000,000, plus (b) 80% of Consolidated Net
Income (without any deduction for losses), for each fiscal
quarter of the Borrower ended through the date of determination
beginning with the fiscal quarter ending December 31, 1997, plus
(c) 90% of the Net Proceeds received by the Borrower from any
issuance, sale or other disposition of any shares of capital
stock or other equity securities of the Borrower of any class (or
any securities convertible or exchangeable for any such shares,
or any rights, warrants, or options to subscribe for or purchase
any such shares), less reductions in the carrying value of Oil
and Gas Properties.
11 Default
11.1 Events of Default. Each of the following shall be
deemed an "Event of Default":
(a) (i) The Borrower shall fail to pay when due any
principal of or interest on the Notes, or any part thereof; or
(ii) the Borrower shall fail to pay when due any Obligation,
other than principal or interest on the Notes, or any part
thereof; provided, however, that with respect to the failure
described in clause (ii), such failure shall not be an Event of
Default with respect to the first such failure, if any, in any
twelve month period, unless and until such failure continues for
a period of five Business Days.
(b) Any representation or warranty made or deemed made by
any Company (or any of such Company's respective officers) in any
Loan Document or in any certificate, report, notice or financial
statement furnished at any time in connection with this Agreement
shall be false, misleading or erroneous in any material respect
when made or deemed to have been made.
(c) (i) The Borrower shall fail to perform, observe or
comply with any covenant or agreement contained in Section 8.1
(other than Sections 8.1 (a), (b), (c), (l), (m) or (n)) of this
Agreement and such failure shall continue for a period of five
Business Days, or (ii) the Borrower shall fail to perform,
observe or comply with any covenant or agreement contained in
Sections 8.1 (a), (b), (c), (1), (m) or (n) of this Agreement and
such failure shall continue for a period of five Business Days
after notice of such failure is given by the Agent to such
Company.
(d) (i) The Borrower shall fail to perform, observe or
comply with any covenant or agreement contained in Article 9 or
Article 10 of this Agreement; or (ii) any Company shall fail to
perform, observe or comply with any other covenant, agreement or
term contained in this Agreement or any other Loan Document
(other than covenants to pay the Obligations and covenants
contained in Sections 8.1, Article 9 or Article 10 of this
Agreement) and such failure described in clause (i) or (ii) shall
continue for a period of 30 calendar days.
(e) An authorized officer of any Company shall admit in
writing of such Company's inability to pay its debts as such
debts become due, or any Company shall be generally unable to pay
its debts as they become due.
(f) Any Company shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner, liquidator or the like of itself or
of all or a substantial part of its Property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a
voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect, the "Bankruptcy Code"), (iv) institute any
proceeding or file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, winding-up or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy
Code, or (iv) take any corporate action for the purpose of
effecting any of the foregoing.
(g) A proceeding or case shall be commenced, without the
application, approval or consent of any Company in any court of
competent jurisdiction, seeking (i) its reorganization,
liquidation, dissolution, arrangement or winding-up or the
composition or readjustment of its debts, (ii) appointment of a
receiver, custodian, trustee, examiner, liquidator or the like of
the such Company or of all or any substantial part of its
property, or (iii) similar relief in respect of such Company or
under any law relating to bankruptcy, insolvency, reorganization,
winding-up or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing
shall be entered and continue unstayed and in effect, for a
period of 60 or more calendar days; or an order for relief
against any Company shall be entered in an involuntary case under
the Bankruptcy Code.
(h) Any of the Companies shall fail to discharge within a
period of 30 calendar days after the commencement thereof any
attachment, sequestration, forfeiture, divestiture or similar
proceeding or proceedings involving an aggregate amount in excess
of $250,000 against any of their Properties, other than those
being contested in good faith for which adequate reserves have
been provided.
(i) A final judgment or judgments (not adequately covered
by insurance as to which the insurer has acknowledged coverage)
for the payment of money in excess of $250,000 in the aggregate
shall be rendered by a court or courts against any of the
Companies and the same shall not be vacated, bonded or discharged
(or provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within 30 calendar days
from the date of entry thereof and such Company or Companies
shall not, within said period of 30 calendar days, or such longer
period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed
during such appeal.
(j) Any Company shall fail to pay when due any principal of
or interest on any Debt (other than the Obligations) having an
outstanding principal amount in excess of $250,000, or the
maturity of any such Debt shall have been accelerated, or any
such Debt shall have been required to be prepaid or redeemed
prior to the stated maturity thereof, or any event shall have
occurred that results in the acceleration of any such Debt or
permits (after any applicable grace period) any holder or holders
of such Debt or any Person acting on behalf of such holder or
holders to accelerate the maturity thereof or require any such
prepayment or redemption.
(k) This Agreement or any other Loan Document shall cease
to be in full force and effect or shall be declared null and void
or the validity or enforceability thereof shall be contested or
challenged by any Company or any of its shareholders, or any
Company shall deny that it has any further liability or
obligation under any of the Loan Documents, or any Lien created
by the Security Documents shall for any reason cease to be a
valid, first priority perfected Lien (except for Permitted Liens)
upon any of the Collateral purported to be covered thereby.
(l) Any of the following events shall occur or exist with
respect to any Company or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with
respect to any Plan; (iii) the filing under Section 4041 of ERISA
of a notice of intent to terminate any Plan or the termination of
any Plan; (iv) any event or circumstance that might constitute
grounds entitling the PBGC to institute proceedings under
Section 4042 of ERISA for the termination of, or for the
appointment of a trustee to administer, any Plan, or the
institution by the PBGC of any such proceedings; or (v) complete
or partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency or
termination of any Multiemployer Plan; and in each case above,
such event or condition, together with all other events or
conditions, if any, have subjected or could in the reasonable
opinion of the Required Banks subject such Company to any tax,
penalty or other liability to a Plan, a Multiemployer Plan, the
PBGC or otherwise (or any combination thereof) which in the
aggregate exceed or could reasonably be expected to exceed
$250,000.
(m) The occurrence of any Change of Control.
(n) The occurrence of an event of default under any
Security Document.
(o) Any Company shall conceal or remove, or permit to be
concealed or removed, any part of its Property with the intent to
hinder, delay or defraud one or more of its creditors.
(p) The occurrence of a Material Adverse Effect that
remains in existence or continues 30 calendar days after notice
of such Material Adverse Effect is given by the Agent to the
Borrower (or any Company).
11.2 Remedies. If any Event of Default shall occur and be
continuing, the Agent may (and if directed by the Majority Banks,
shall) do any one or more of the following:
(a) Acceleration. Upon the Agent's giving written notice
to the Borrower of such acceleration, immediately declare all
outstanding principal of and accrued and unpaid interest on the
Notes and all other amounts payable by the Borrower under the
Loan Documents immediately due and payable, and the same shall
thereupon become immediately due and payable, without further
notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest or other
formalities of any kind, all of which are hereby expressly waived
by the Borrower.
(b) Termination of Commitments. Terminate the Commitments
without notice to the Borrower.
(c) Judgment. Reduce any claim to judgment.
(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to the Agent to secure payment and performance of the
Obligations in accordance with the terms of the Loan Documents.
(e) Letters in Lieu of Transfer Orders. Complete and
deliver any and all Letters in Lieu of Transfer Orders delivered
by the Borrower to the Agent pursuant to Section 6.1(m) or
otherwise to the purchasers of Hydrocarbons attributable to the
Mortgaged Property.
(f) Rights. Exercise any and all rights and remedies
afforded by the laws of the State of Texas or any other
jurisdiction, by any of the Loan Documents, by equity or
otherwise.
provided, however, that upon the occurrence of an Event of
Default under Section 11.1(f) or (g), the Commitments of all of
the Banks shall automatically terminate, and the outstanding
principal of and accrued and unpaid interest on the Notes and all
other amounts payable by the Borrower under the Loan Documents
shall thereupon become immediately due and payable without
notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest or other
formalities of any kind, all of which are hereby expressly waived
by the Companies.
11.3 Cash Collateral. If any Event of Default shall occur
and be continuing, the Borrower agrees to, if requested by the
Agent or the Majority Banks, immediately deposit with and pledge
to the Agent cash or cash equivalent investments satisfactory to
the Agent in its sole and absolute discretion in an amount equal
to the outstanding Letter of Credit Liabilities as security for
the Obligations, and the Agent may retain, as additional
Collateral for the payment of the Obligations with respect to the
Letters of Credit, any amounts received upon foreclosure, or in
lieu of foreclosure, through offset, as proceeds of any
Collateral or otherwise.
11.4 Performance by the Agent. If any Company shall fail to
perform in any material respect in accordance with the terms of
the Loan Documents, the Agent may, at the direction of the
Majority Banks, perform or attempt to perform such covenant or
agreement on behalf of such Company. In such event, the Borrower
shall, at the request of the Agent, promptly pay any amount
expended by the Agent or the Banks in connection with such
performance or attempted performance to the Agent at the
Principal Office, together with interest thereon at the Default
Rate from and including the date of such expenditure to but
excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that
neither the Agent nor any Bank shall have any liability or
responsibility for the performance of any obligation of any
Company under this Agreement or any of the other Loan Documents.
12 The Agent
12.1 Appointment, Powers and Immunities. Each Bank hereby
irrevocably designates and appoints Banque Paribas as the Agent
of such Bank under this Agreement and the other Loan Documents,
and each such Bank irrevocably authorizes Banque Paribas, as the
Agent for such Bank, to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to
exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement, the Agent
shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with
any Bank and no implied covenants, functions, responsibilities,
duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against
the Agent in such respective capacities.
12.2 Exculpatory Provisions. Neither the Agent nor any of
its respective Affiliates, officers, directors, employees,
attorneys or agents shall be liable for any action taken or
omitted to be taken by any of them hereunder or otherwise in
connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the preceding
sentence, the Agent (a) may treat the payee of any Note as the
holder thereof until the Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent; (b) shall have no duties or
responsibilities except those expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason
of this Agreement or any other Loan Document be a trustee or
fiduciary for any Bank; (c) shall not be required to initiate any
litigation or collection proceedings hereunder or under any other
Loan Document except to the extent requested by the Majority
Banks; (d) shall not be responsible to the Banks for any
recitals, statements, representations or warranties contained in
this Agreement or any other Loan Document, or any certificate or
other document referred to or provided for in, or received by any
of them under, this Agreement or any other Loan Document, or for
the value, validity, effectiveness, enforceability or sufficiency
of this Agreement or any other Loan Document or any other
document referred to or provided for herein or therein or for any
failure by any Person to perform any of its obligations hereunder
or thereunder; (e) may consult with legal counsel (including
counsel for the Companies, or any of them), independent public
accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith
by it in accordance with the advice of such counsel, accountants
or experts; and (f) shall incur no liability under or in respect
of any Loan Document by acting upon any notice, consent,
certificate or other instrument or writing believed by it to be
genuine and signed or sent by the proper party or parties. As to
any matters not expressly provided for by this Agreement, the
Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions
signed by the Majority Banks, and such instructions of the
Majority Banks and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks; provided, however,
the Agent shall not be required to take any action which exposes
it to personal liability or which is contrary to this Agreement
or any other Loan Document or applicable law.
12.3 Rights of Agent as a Bank. With respect to its
Commitment, the Loans made by it and the Note issued to it,
Banque Paribas (and any successor acting as the 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 the Agent and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include
the Agent in their individual capacities. The Agent and its
respective Affiliates may (without having to account therefor to
any Bank) accept deposits from, lend money to, act as trustee
under indentures of, provide merchant banking services to and
generally engage in any kind of banking, trust or other business
with the Companies, any of their Affiliates and any other Person
who may do business with or own securities of the Companies or
any of their Affiliates, all as if it were not acting as the
Agent and without any duty to account therefor to the Banks.
12.4 Defaults. The Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default unless it has
received notice from a Bank or the Borrower specifying such
Default and stating that such notice is a "Notice of Default".
In the event that the Agent receives such a notice of the
occurrence of a Default, the Agent shall give prompt notice
thereof to the Banks. The Agent shall take such action with
respect to such Default as shall be directed by the Majority
Banks, provided that unless and until the Agent shall have
received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such
action, with respect to such Default as it shall seem advisable
and in the best interest of the Banks.
12.5 Indemnification. The Banks hereby agree to indemnify
the Agent from and hold the Agent harmless against (to the extent
not reimbursed under Sections 13.1 and 13.2, but without limiting
the obligations of the Borrower under Sections 13.1 and 13.2),
ratably in accordance with their respective Commitment
Percentages, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, deficiencies, suits,
costs, expenses (including attorneys' fees) and disbursements of
any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Agent in any way relating to or
arising out of any of the Loan Documents or any action taken or
omitted to be taken by the Agent under or in respect of any of
the Loan Documents; provided, however, that no Bank shall be
liable to the Agent for any portion of the foregoing to the
extent caused by the Agent's gross negligence or willful
misconduct. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE
EXPRESS INTENTION OF THE BANKS THAT THE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING
ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY
OR INDIRECTLY ARISING OUT OF OR RESULTING FROM ITS SOLE OR
CONTRIBUTORY NEGLIGENCE. Without limiting any other provision of
this Section 12.5, each Bank agrees to reimburse the Agent
promptly upon demand for its pro rata share (calculated on the
basis of its Commitment Percentage) of any and all out-of-pocket
expenses (including attorneys' fees) incurred by the Agent in
connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings, or otherwise) of, or
legal advice in respect of rights or responsibilities under, the
Loan Documents, to the extent that the Agent is not reimbursed
for such expenses by the Borrower.
12.6 Independent Credit Decisions. Each Bank agrees that it
has independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Borrower
and decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other
Bank, and based upon 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 this Agreement
or any of the other Loan Documents. The Agent shall not be
required to keep itself informed as to the performance or
observance by the Borrower of this Agreement or any other Loan
Document or to inspect the Properties or books of the Borrower.
Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent
hereunder or under the other Loan Documents, the Agent shall not
have any duty or responsibility to provide any Bank with any
credit or other financial information concerning the affairs,
financial condition or business of the Borrower (or any of its
Affiliates) which may come into the possession of the Agent or
any of its Affiliates.
12.7 Several Commitments. The Commitments and other
obligations of the Banks under this Agreement are several. The
default by any Bank in making a Loan in accordance with its
Commitment shall not relieve the other Banks of their obligations
under this Agreement. In the event of any default by any Bank in
making any Loan, each nondefaulting Bank shall be obligated to
make its Loan but shall not be obligated to advance the amount
which the defaulting Bank was required to advance hereunder. In
no event shall any Bank be required to advance an amount or
amounts which shall in the aggregate exceed such Bank's
Commitment. No Bank shall be responsible for any act or omission
of any other Bank.
12.8 Successor Agent. Subject to the appointment and
acceptance of a successor Agent, as provided below, the Agent may
resign at any time by giving notice thereof to the Banks and the
Borrower, and the Agent may be removed at any time with or
without cause by the Majority Banks. Upon any such resignation
or removal, the Majority Banks will have the right to appoint a
successor Agent, subject to the approval of the Borrower which
shall not be unreasonably withheld. If no successor Agent shall
have been so appointed by the Majority Banks and shall have
accepted such appointment within 30 calendar days after the
retiring Agent's giving of notice of resignation or the Majority
Banks' removal of the retiring Agent, then the retiring Agent
may, on behalf of the Banks, appoint a successor Agent which
shall be a commercial bank organized under the laws of the United
States of America or any State thereof and having combined
capital and surplus of at least $100,000,000, subject to the
approval of the Borrower which shall not be unreasonably withheld
(provided that Borrower's approval shall not be required if a
Default has occurred and is continuing). Upon the acceptance of
its appointment as successor Agent, such successor Agent shall
thereupon succeed to and become vested with all rights, powers,
privileges, immunities and duties of the resigning or removed
Agent, and the resigning or removed Agent shall be discharged
from its duties and obligations under this Agreement and the
other Loan Documents. After any Agent's resignation or removal
as Agent, the provisions of this Article 12 shall continue in
effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was the Agent.
13 Miscellaneous
13.1 Expenses. The Borrower hereby agrees to pay on demand:
(a) all reasonable costs and expenses (including attorneys' fees)
of the Agent in connection with the preparation, negotiation,
execution and delivery of this Agreement and the other Loan
Documents and any and all amendments, modifications, renewals,
extensions and supplements thereof and thereto; (b) all
reasonable costs and expenses (including attorneys' fees) of the
Agent and the Banks in connection with any Default and the
enforcement of this Agreement or any other Loan Document; (c) all
transfer, stamp, documentary or other similar taxes, assessments
or charges levied by any Governmental Authority in respect of
this Agreement or any of the other Loan Documents; (d) all
reasonable costs, expenses, assessments, filing fees, recording
fees and other charges incurred in connection with any filing,
re-filing, registration, recording, re-recording or perfection of
any Lien contemplated by this Agreement or any other Loan
Document; and (e) all other reasonable costs and expenses
incurred by the Agent and the Banks in connection with this
Agreement or any other Loan Document, including, without
limitation, all reasonable costs, expenses and other charges
incurred in connection with obtaining any engineering report,
title opinion, title examination, audit, environmental audit or
appraisal in respect of the Collateral.
13.2 Indemnification. The Borrower shall indemnify the
Agent and each Bank and each Affiliate thereof and their
respective officers, directors, employees, attorneys and agents
from, and hold each of them harmless against, any and all losses,
liabilities, claims, damages, penalties, judgments,
disbursements, costs and expenses (including reasonable
attorneys' fees) to which any of them may become subject which
directly or indirectly arise from or relate to (a) the
negotiation, execution, delivery, performance, administration or
enforcement of any of the Loan Documents, (b) any of the
transactions contemplated by the Loan Documents, (c) any breach
by any Company of any representation, warranty, covenant or other
agreement contained in any of the Loan Documents, (d) the
presence, Release, threatened Release, disposal, removal or
cleanup of any Hazardous Material located on, about, within or
affecting any of the Properties of any Company, (e) the use or
proposed use of any Letter of Credit, (f) any and all taxes,
levies, deductions, and charges imposed on the Agent or any Bank
or any of their respective correspondents in respect of any
Letter of Credit, or (g) any investigation, litigation or other
proceeding, including, without limitation, any threatened
investigation, litigation or other proceeding relating to any of
the foregoing; but excluding any of the foregoing incurred by
reason of the gross negligence or willful misconduct of the
Person to be indemnified. WITHOUT LIMITING ANY PROVISION OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE
INDEMNIFIED UNDER THIS SECTION 13.2 SHALL BE INDEMNIFIED FROM AND
HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH
PERSON.
13.3 LIMITATION OF LIABILITY. NONE OF THE AGENT, ANY BANK
OR ANY AFFILIATE, OFFICER, DIRECTOR, EMPLOYEE, ATTORNEY OR AGENT
THEREOF SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND THE
BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE OR PERMIT
ANY SUBSIDIARY TO SUE ANY OF THEM UPON, ANY CLAIM FOR ANY
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES SUFFERED
OR INCURRED BY ANY COMPANY IN CONNECTION WITH, ARISING OUT OF, OR
IN ANY WAY RELATED TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. THE BORROWER
HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE OR PERMIT ANY
SUBSIDIARY TO SUE THE AGENT OR ANY BANK OR ANY OF THEIR
RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS
OR AGENTS FOR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS. NEITHER THE AGENT NOR THE BANKS SHALL HAVE ANY
LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY DIMINUTION IN OR
LOSS OF VALUE OF ANY COLLATERAL.
13.4 No Duty. All attorneys, accountants, appraisers and
other professional Persons and consultants retained by the Agent
and the Banks shall have the right to act exclusively in the
interest of the Agent and the Banks and shall have no duty of
disclosure, duty of loyalty, duty of care or other duty or
obligation of any type or nature whatsoever to any Company or
such Company's shareholders or any other Person.
13.5 No Fiduciary Relationship. Neither the Agent nor any
Bank has any fiduciary relationship with or duty to any Company
arising out of or in connection with this Agreement or any of the
other Loan Documents, and the relationship among the Agent and
the Banks, on the one hand, and such Company, on the other hand,
in connection herewith or therewith is solely that of creditor
and debtor. No joint venture is created hereby or by the other
Loan Documents or otherwise exists by virtue of the transactions
contemplated hereby among any of the Companies and the Banks.
13.6 Equitable Relief. The Borrower recognizes that in the
event the Borrower fails to pay, perform, observe or discharge
any or all of the Obligations, any remedy at law may prove to be
inadequate relief to the Agent and the Banks. The Borrower
therefore agrees that if the Agent or any of the Banks so
requests, the Agent and the Banks shall be entitled to temporary
and permanent injunctive relief in any such case without the
necessity of proving actual damages.
13.7 No Waiver; Cumulative Remedies. No failure on the part
of the Agent or any Bank to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or
privilege under this Agreement or any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement or
any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
The rights and remedies provided for in this Agreement and the
other Loan Documents are cumulative and not exclusive of any
rights and remedies provided by law.
13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. The Borrower may not assign or transfer any of its
rights or obligations hereunder without the prior written consent
of the Agent and all of the Banks. Any Bank may sell
participations to one or more banks or other institutions in or
to all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including, without
limitation, all or a portion of its Commitment, the Loans owing
to it and the Letter of Credit Liabilities); provided, however,
that (i) such Bank's obligations under this Agreement and the
other Loan Documents (including, without limitation, its
Commitment) shall remain unchanged, (ii) such Bank shall remain
solely responsible to the Borrower for the performance of such
obligations, (iii) such Bank shall remain the holder of its Note
for all purposes of this Agreement, (iv) the Borrower shall
continue to deal solely and directly with such Bank in connection
with such Bank's rights and obligations under this Agreement and
the other Loan Documents, and (v) such Bank shall not sell a
participation that conveys to the participant the right to vote
or give or withhold consents under this Agreement or any other
Loan Document, other than the right to vote upon or consent to
(A) any increase of such Bank's Commitment, (B) any reduction of
the principal amount of, or interest to be paid on, the Loans of
such Bank, (C) any reduction of any commitment fee or other
amount payable to such Bank under any Loan Document, or (D) any
postponement of any date for the payment of any amount payable in
respect of the Loans of such Bank.
(b) The Borrower and each of the Banks agree that any Bank
(the "Assigning Bank") may at any time assign to one or more
Eligible Assignees all, or a proportionate part of all, of its
rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitment, Loans
and Letter of Credit Liabilities) (each an "Assignee"); provided,
however, that (i) the Borrower shall have given its prior written
consent to such assignment, such consent not to be unreasonably
withheld, provided that after the occurrence and during the
continuance of a Default no consent of the Borrower shall be
required for any such assignment, (ii) each such assignment shall
be of a consistent, and not a varying, percentage of all of the
assigning Bank's rights and obligations under this Agreement and
the other Loan Documents, (iii) except in the case of an
assignment of all of a Bank's rights and obligations under this
Agreement and the other Loan Documents, the amount of the
Commitment of the assigning Bank being assigned pursuant to each
assignment (determined as of the date of the Assignment
Acceptance with respect to such assignment) shall in no event be
less than $5,000,000, and (iv) the parties to each such
assignment shall execute and deliver to the Agent for its
acceptance and recording in the Register (as described below), an
Assignment and Acceptance, together with the Note subject to such
assignment, and a processing and recordation fee of $2,500 (which
shall be paid by the Assignee). Upon such execution, delivery,
acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof,
or, if so specified in such Assignment and Acceptance, the date
of acceptance thereof by the Agent, (A) the assignee thereunder
shall be a party hereto as a "Bank" and, to the extent that
rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder and under the Loan Documents and
(B) the Bank that is an assignor thereunder shall, to the extent
that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement and the
other Loan Documents (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of a Bank's
rights and obligations under the Loan Documents, such Bank shall
cease to be a party thereto).
(c) By executing and delivering an Assignment and
Acceptance, the Bank that is an assignor thereunder and the
assignee thereunder conform to and agree with each other and the
other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such Assigning Bank makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in
or in connection with the Loan Documents or the execution,
legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Documents or any other instrument or document
furnished pursuant thereto; (ii) such Assigning Bank makes no
representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or the
performance or observance by the Borrower of its obligations
under the Loan Documents; (iii) such Assignee confirms that it
has received a copy of the other Loan Documents, together with
copies of the financial statements referred to in Section 7.2 and
such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such Assignee will, independently
and without reliance upon the Agent or such assignor and based on
such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan
Documents; (v) such Assignee confirms that it is an Eligible
Assignee; (vi) such Assignee appoints and authorizes the Agent to
take such action as agent on its behalf and exercise such powers
under the Loan Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably
incidental thereto; and (vii) such Assignee agrees that it will
perform in accordance with their terms all of the obligations
which by the terms of the Loan Documents are required to be
performed by it as a Bank.
(d) The Agent shall maintain at the Principal Office a copy
of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of
the Banks and the Commitment of, and principal amount of the
Loans owing to each Bank from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agent and
the Banks may treat each Person whose name is recorded in the
Register as a Bank hereunder for all purposes under the Loan
Documents. The Register shall be available for inspection by the
Borrower or any Bank at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by an Assigning Bank and Assignee representing that it
is an Eligible Assignee, together with any Note subject to such
assignment, the Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of
Exhibit "A" hereto, (i) accept such Assignment and Acceptance,
(ii) record the information contained therein in the Register,
and (iii) give prompt written notice thereof to the Borrower.
Within five Business Days after its receipt of such notice the
Borrower, at the expense of the Borrower, shall execute and
deliver to the Agent in exchange for the surrendered Note a new
Note to the order of such Eligible Assignee in an amount equal to
the Commitment assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Bank has retained a Commitment,
a new Note to the order of the assigning Bank in an amount equal
to the Commitment retained by it hereunder (each such promissory
note shall constitute a "Note" for purposes of the Loan
Documents). Such new Notes shall be in an aggregate principal
amount of the surrendered Note, shall be dated the effective date
of such Assignment and Acceptance, and shall otherwise be in
substantially the form of Exhibit "A" hereto.
(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to
this Section 13.8, disclose to the assignee or participant, or
proposed assignee or participant, any information relating to the
Companies furnished to such Bank by or on behalf of the
Companies.
13.9 Survival. All representations and warranties made in
this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this
Agreement shall survive the execution and delivery of this
Agreement and the other Loan Documents, and no investigation by
the Agent or any Bank or any closing shall affect the
representations and warranties or the right of the Agent or any
Bank to rely upon them. Without prejudice to the survival of any
other obligation of the Borrower hereunder, the obligations of
the Borrower under Article 4 and Section 13.1, and Section 13.2
shall survive repayment of the Notes and termination of the
Commitments and the Letters of Credit.
13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND
THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND
ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT
MATTER HEREOF 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 UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES THERETO.
13.11 Amendments. No amendment or waiver of any
provision of this Agreement, the Notes or any other Loan Document
to which any Company is a party, nor any consent to any departure
by any Company therefrom, shall in any event be effective unless
the same shall be agreed or consented to by the Majority Banks,
and the Companies who are parties thereto, and each such waiver
or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided that no
amendment, waiver or consent shall, unless in writing and signed
by all of the Banks and such Companies who are parties to such
Loan Document, do any of the following: (a) increase any
Commitment of any Bank or subject any Bank to any additional
obligations; (b) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder;
(c) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable
hereunder; (d) waive any of the conditions specified in
Article 6; (e) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes or the number of
Banks which shall be required for the Banks or any of them to
take any action under this Agreement; (f) change any provision
contained in Section 2.19 or this Section 13.11; (g) except as
permitted by Section 5.4, release any Collateral from the Liens
created by the Security Documents, or (h) release any Company
from liability under any of the Loan Documents. Notwithstanding
anything to the contrary contained in this Section 13.11, no
amendment, waiver or consent shall be made with respect to
Article 12 hereof without the prior written consent of the Agent.
13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any
other Loan Document shall at any time exceed the Maximum Rate.
If at any time the interest rate (the "Contract Rate") for any
Obligation shall exceed the Maximum Rate, thereby causing the
interest accruing on such Obligation to be limited to the Maximum
Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such
Obligation below the Maximum Rate until the aggregate amount of
interest accrued on such Obligation equals the aggregate amount
of interest which would have accrued on such Obligation if the
Contract Rate for such Obligation had at all times been in
effect.
(b) No provision of this Agreement or of any other Loan
Document shall require the payment or the collection of interest
in excess of the maximum amount permitted by applicable law. If
any excess of interest in such respect is hereby provided for, or
shall be adjudicated to be so provided, in any Loan Document or
otherwise in connection with this loan transaction, the
provisions of this Section 13.12 shall govern and prevail and
neither the Borrower nor its sureties, guarantors, successors or
assigns shall be obligated to pay the excess amount of such
interest or any other excess sum paid for the use, forbearance or
detention of sums loaned pursuant hereto. In the event any Bank
ever receives, collects or applies as interest any such sum, such
amount which would be in excess of the maximum amount permitted
by applicable law shall be applied as a payment and reduction of
the principal of the Obligations; and, if the principal of the
Obligations has been paid in full, any remaining excess shall
forthwith be paid to the Borrower. In determining whether or not
the interest paid or payable exceeds the Maximum Rate, the
Borrower and each Bank shall, to the extent permitted by
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) amortize,
prorate, allocate and spread in equal or unequal parts the total
amount of interest throughout the entire term of the Obligations
so that interest for the entire term does not exceed the Maximum
Rate.
13.13 Notices. All notices and other communications
provided for in this Agreement and the other Loan Documents to
which any Company is a party shall be given or made by telex,
telegraph, telecopy, cable or in writing and telexed, telecopied,
telegraphed, cabled, mailed by certified mail return receipt
requested or delivered to the intended recipient at the "Address
for Notices" specified below its name on the signature pages
hereof; or, as to any party at such other address as shall be
designated by such party in a notice to each other party given in
accordance with this Section 13.13. Except as otherwise provided
in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by telex or telecopy,
subject to telephone confirmation of receipt, or delivered to the
telegraph or cable office, subject to telephone confirmation of
receipt, or when personally delivered or, in the case of a mailed
notice, on the third Business Day after deposit in the mail, in
each case given or addressed as aforesaid; provided, however,
notices to the Agent pursuant to Section 2.5 shall not be
effective until received by the Agent.
13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE
OF PROCESS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. THE BORROWER HEREBY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS AND OF ANY
TEXAS STATE COURT SITTING IN HARRIS COUNTY, TEXAS, FOR THE
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. THE BORROWER IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH
PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE
BORROWER AT ITS ADDRESS SET FORTH UNDERNEATH ITS SIGNATURE
HERETO. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
13.15 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
13.16 Severability. Any provision of this Agreement
held by a court of competent jurisdiction to be invalid or
unenforceable shall not impair or invalidate the remainder of
this Agreement and the effect thereof shall be confined to the
provision held to be invalid or illegal.
13.17 Headings. The headings, captions and arrangements
used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.
13.18 Non-Application of Chapter 346 of Texas Finance
Code. The provisions of Chapter 346 of the Texas Finance Code
(Vernon's Texas Civil Statutes) are specifically declared by the
parties hereto not to be applicable to this Agreement or any of
the other Loan Documents or to the transactions contemplated
hereby.
13.19 Construction. The Borrower, the Agent and each
Bank acknowledges that each of them has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to
review this Agreement and the other Loan Documents with its legal
counsel and that this Agreement and the other Loan Documents
shall be construed as if jointly drafted by the parties hereto.
13.20 Confidentiality. Each Bank agrees to hold all
non-public information (which has been clearly identified as such
by the Borrower) obtained from the Borrower pursuant to the
requirements of this Agreement in accordance with its customary
procedures for handling confidential information and in
accordance with safe and sound banking practices and in any event
may make disclosure (i) to any other Bank, (ii) to any of its
officers, directors, employees, examiners, Affiliates, outside
auditors, counsel and other professional advisors in connection
with this Agreement, (iii) to any actual or proposed Assignee or
Participant, (iv) as required or requested by any Governmental
Authority, (v) pursuant to legal process, (vi) to the extent
reasonably required in connection with the exercise of any right
or remedy under any of the Loan Documents, and (vii) in
connection with any litigation to which the Agent any Bank or any
of their respective Affiliates may be a party; provided, however,
that:
(a) unless specifically prohibited by applicable law or
court order, each Bank shall notify the Borrower of any request
by any Governmental Authority (other than any such request in
connection with an examination of the financial condition of such
Bank by such Governmental Authority) for disclosure of any such
non-public information prior to disclosure of such information;
and
(b) prior to any such disclosure pursuant to clause (iii)
above, each Bank shall require any such actual or proposed
Assignee or Participant receiving a disclosure of non-public
information to agree in writing (1) to be bound by this
Section 13.20, and (2) to require such Person to require any
other Person to whom such Person discloses such non-public
information to be similarly bound by this Section 13.20.
13.21 Independence of Covenants. All covenants
hereunder shall be given independent effect so that, if a
particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action is
taken or such condition exists.
13.22 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY IRREVOCABLY AND
EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY
OR THE ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION,
ADMINISTRATION OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the calendar day and year first above
written.
BORROWER:
MSR EXPLORATION LTD.
By:
Otto J. Buis
Chairman
Address for Notices:
MSR Exploration Ltd.
1619 Pennsylvania Avenue
Ft. Worth, Texas 76104
Telecopy No.: 817-877-3829
Telephone No.: 817-332-9133
Attention: Chief Financial
Officer
AGENT:
BANQUE PARIBAS,
as Agent for the Banks
By:
Name:
Title:
-and-
By:
Michael H. Fiuzat
Vice President
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy No.: 713-659-6915
Telephone No.: 713-659-4811
BANKS:
BANQUE PARIBAS
Commitment: By:
Michael H. Fiuzat
Vice President
-and-
$25,000,000 By:
Name:
Title:
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy No.: 713-659-6915
Telephone No.: 713-659-4811
Lending Office for Base Rate Loans:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Lending Office for Eurodollar
Loans:
1200 Smith Street, Suite 3100
Houston, Texas 77002
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