UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
MARK ONE
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-8921
HALLWOOD ENERGY PARTNERS, L. P.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0987088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4582 SOUTH ULSTER STREET PARKWAY
SUITE 1700
DENVER, COLORADO 80237
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 850-7373
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The registrant is a limited partnership and issues Units (representing ownership
of limited partner interests).
Number of Units outstanding as of May 11, 1995 8,818,558
Number of Class B Subordinated Units outstanding as of May 11 1995 143,773
<TABLE>
<CAPTION>
HALLWOOD ENERGY PARTNERS, L. P.
CONSOLIDATED BALANCE SHEETS
(In thousands except Units)
March 31, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 9,330 $ 2,409
Accounts receivable:
Oil and gas sales 5,071 6,220
Trade 3,780 3,042
Due from affiliates 1,647
Net working capital of affiliate 640
Prepaid expenses and other current assets 1,355 1,352
------- -------
Total 20,176 14,670
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost
Oil and gas properties (full cost method):
Proved mineral interests 591,672 588,758
Unproved mineral interests - domestic 489 380
Unproved mineral interests - foreign 2,399
Furniture, fixtures and other 2,990 2,980
------- -------
Total 595,151 594,517
Less accumulated depreciation, depletion,
amortization and property impairment (491,126) (487,103)
------- -------
Net Property, Plant and Equipment 104,025 107,414
------- -------
OTHER ASSETS
Investment in common stock of HCRC 12,917 13,764
Deferred expenses and other assets 383 433
------ -------
Total 13,300 14,197
------ -------
TOTAL ASSETS $137,501 $136,281
======= =======
<CAPTION>
HALLWOOD ENERGY PARTNERS, L. P.
CONSOLIDATED BALANCE SHEETS
(In thousands except Units)
(Continued)
March 31, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 18,414 $ 19,181
Due to affiliates 1,003
Net working capital deficit of affiliate 103
Current portion of contract settlement 1,452 1,425
Current portion of long-term debt 95 4,125
------- -------
Total 20,964 24,834
------- -------
NONCURRENT LIABILITIES
Long-term debt 36,906 25,898
Contract settlement 2,388 2,666
Deferred liability 1,059 1,157
Long-term debt of affiliate 1,509
------- -------
Total 41,862 29,721
------- -------
Total Liabilities 62,826 54,555
------- -------
MINORITY INTEREST IN SUBSIDIARIES 2,895 2,923
------- -------
PARTNERS' CAPITAL
Units - 8,818,558 Units issued, 8,500,808
outstanding 70,785 77,342
Class B Subordinated Units - 143,773 Units
outstanding 1,240 1,350
General Partner 3,695 4,051
Treasury Units - 317,750 Units (3,940) (3,940)
------- -------
Total Partners' Capital 71,780 78,803
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $137,501 $136,281
======= =======
<CAPTION>
HALLWOOD ENERGY PARTNERS, L. P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except Units)
For the Three Months
Ended March 31,
1995 1994
<S> <C> <C>
REVENUES:
Oil revenue $ 3,943 $ 3,443
Gas revenue 5,560 7,679
Pipeline, facilities and other 520 485
Interest 86 106
------- -------
10,109 11,713
------- -------
EXPENSES:
Production operating 2,687 2,752
Facilities operating 223 184
General and administrative 1,491 1,265
Depreciation, depletion and amortization 3,972 4,713
Impairment of oil and gas properties 4,051
Interest 993 1,034
------- -------
13,417 9,948
------- -------
OTHER EXPENSES:
Equity in loss of HCRC 847 149
Minority interest in net income of subsidiaries 287 700
Litigation settlement 110
------- -------
1,244 849
------- -------
NET INCOME (LOSS) $ (4,552) $ 916
====== ======
ALLOCATION OF NET INCOME (LOSS):
General partner $ 201 $ 588
====== ======
Limited partners $ (4,753) $ 328
====== ======
Per Unit and Class B Unit $ (.55) $ .04
====== ======
Weighted average Units and Class B
Units outstanding 8,644 8,649
====== ======
<CAPTION>
HALLWOOD ENERGY PARTNERS, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months
Ended March 31,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES: $ (4,552) $ 916
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flow
provided by operating activities: 8,023 4,713
Depreciation, depletion, amortization and impairment 51 87
Depreciation charged to affiliates
Amortization of deferred loan costs 50 65
and other assets 82 106
Noncash interest expense 847 149
Equity in loss of HCRC 287 700
Minority interest in net income (66) 58
Undistributed (earnings) loss of affiliates (40) (112)
Recoupment of take-or-pay liability ------- ------
Cash provided by operations before working
capital changes 4,682 6,682
Changes in operating assets and liabilities provided
(used) cash net of noncash activity:
Oil and gas sales receivable 1,149 1,936
Trade receivable (738) 983
Due from affiliates 1,647 (45)
Prepaid expenses and other current assets (3) 1,226
Accounts payable and accrued liabilities (767) (6,118)
Due to affiliates 1,003
------ ------
Net cash provided by operating activities 6,973 4,664
------ ------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (573) (1,001)
Exploration and development costs incurred (3,460) (1,513)
Proceeds from sales of property, plant and equipment 181 9
Other investing activities (70)
------- -------
Net cash used in investing activities (3,852) (2,575)
------ -------
FINANCING ACTIVITIES:
Payments of long-term debt (3,022) (22)
Proceeds from long-term debt 10,000
Distributions paid (2,448) (2,432)
Distributions paid by consolidated subsidiaries
to minority shareholders (315) (824)
Payments of contract settlement (333) (233)
Syndication costs and capital contributions (23) (22)
Other financing activities (59)
------ ------
Net cash provided by (used in) financing activities 3,800 (3,533)
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,921 (1,444)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 2,409 13,139
------ ------
END OF PERIOD $ 9,330 $ 11,695
======= =======
<F1>
The accompanying notes are an integral part
of the financial statements.
</TABLE>
HALLWOOD ENERGY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
Hallwood Energy Partners, L. P. ("HEP") is a publicly traded Delaware limited
partnership engaged in the development, production, sale and transportation of
oil and gas and in the acquisition, exploration, development and operation of
oil and gas properties. The principal objectives of HEP are to maintain and to
expand its reserve base and to provide cash distributions to holders of its
units representing limited partner interests ("Units"). The general partner of
HEP is Hallwood Energy Corporation ("HEC") which has been engaged in oil and gas
exploration and development since its incorporation in 1968.
The activities of HEP are conducted through HEP Operating Partners, L. P.
("HEPO") and EDP Operating, Ltd. ("EDPO"). HEP is the sole limited partner and
HEC is the sole general partner of HEPO. Hallwood G. P., Inc. ("HGPI"), a
wholly-owned subsidiary of HEC, is the sole general partner, and HEP is the sole
limited partner of EDPO. Solely for purposes of simplicity herein, unless
otherwise indicated, all references to HEP in connection with the ownership,
exploration, development or production of oil and gas properties include HEPO
and EDPO.
The interim financial data are unaudited; however, in the opinion of the general
partner, the interim data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. These financial statements should be read in conjunction with
the financial statements and accompanying footnotes included in HEP's December
31, 1994 Annual Report on Form 10-K.
ACCOUNTING POLICIES
CONSOLIDATION
HEP fully consolidates majority owned entities and reflects a minority interest
in the consolidated financial statements. HEP accounts for its interest in 50%
or less owned affiliated oil and gas partnerships and limited liability
companies using the proportionate consolidation method of accounting. HEP's
investment in approximately 40% of the common stock of its affiliate, Hallwood
Consolidated Resources Corporation ("HCRC"), is accounted for under the equity
method.
The accompanying financial statements include the activities of HEP, its
subsidiaries Hallwood Petroleum, Inc. ("HPI") and Hallwood Oil and Gas, Inc.
("Hallwood Oil") and majority owned affiliates, the May Limited Partnerships
1983-1, 1983-2, 1983-3, 1984-1, 1984-2, 1984-3 ("Mays").
TREASURY STOCK
HEP owns approximately 40% of the outstanding common stock of HCRC, which owns
approximately 9% of HEP's Units; consequently, HEP has an interest in 317,750 of
its own Units. These Units are treated as treasury units in the accompanying
financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's amounts to
conform to the classifications used in the current period.
NOTE 2 - DEBT
During the first quarter, HEP and its lenders amended and restated HEP's Amended
and Restated Credit Agreement ("Credit Agreement") to extend the term date of
its line of credit to May 31, 1997. Under the Credit Agreement and an Amended
and Restated Note Purchase Agreement ("Note Purchase Agreement") (collectively
referred to as the "Credit Facilities") HEP has a borrowing base of $42,000,000.
HEP has amounts outstanding at March 31, 1995 of $19,700,000 under the Credit
Agreement and $17,143,000 under the Note Purchase Agreement. HEP's borrowing
base is further reduced by the outstanding contract settlement debt of
$3,840,000 and capital lease obligations of $158,000. On April 28, 1995, HEP
borrowed an additional $2,000,000 under the Credit Agreement and paid down
borrowings under the Note Purchase Agreement by $4,286,000; therefore, its
unused borrowing base, totaled $3,445,000, at May 11, 1995.
Borrowings under the Note Purchase Agreement bear interest at an annual rate of
11.85%, which is payable quarterly. Annual principal payments of $4,286,000
began April 30, 1992, and the debt is required to be paid in full on April 30,
1998. HEP funded the payment due in April 1995 through additional borrowings
under the Credit Agreement; thus, no portion of HEP's Note Purchase Agreement is
classified as current as of March 31, 1995.
Borrowings against the Credit Agreement bear interest at the lower of the
Certificate of Deposit rate plus 1.875%, prime plus 1/2% or the Euro-Dollar rate
plus 1.75% (7.87% at March 31, 1995). Interest is payable monthly, and
quarterly principal payments of $1,356,000, as adjusted for the borrowings
during April 1995, commence May 31, 1997.
The borrowing base for the Credit Facilities is redetermined semiannually in
March and September of each year. The Credit Facilities are secured by a first
lien on approximately 80% in value of HEP's oil and gas properties.
Additionally, aggregate distributions paid by HEP in any 12 month period are
limited to 50% of cash flow from operations before working capital changes and
distributions received from affiliates.
The current portion of long-term debt represents a current capital lease
obligation of $95,000.
NOTE 3 - STATEMENT OF CASH FLOWS
Cash paid for interest during the three months ended March 31, 1995 and 1994 was
$825,000 and $863,000, respectively.
NOTE 4 - LEGAL PROCEEDINGS
On April 21, 1995, the United States District Court for the Southern District of
New York entered an order provisionally certifying the class and preliminarily
approving the settlement of In Re: Hallwood Energy Partners, L. P. Securities
Litigation, 90 Civ. 1555. The class is composed of all persons and entities who
beneficially owned or held units of Energy Development Partners, Ltd. ("EDP") on
May 9, 1990 and who exchanged, or were eligible to exchange, their EDP units for
HEP Units pursuant to the merger of EDP into HEP (the "Transaction"). The order
directs plaintiffs' counsel to mail to class members notice of the settlement.
The final hearing approving the settlement will be held on August 10, 1995.
Under the terms of the settlement, HEP will make a cash payment of approximately
$2,870,000, which was recorded as an expense in HEP's 1994 financial statements
as the estimated cost associated with the litigation. In addition, in
connection with plaintiffs' allegation that they did not receive adequate
compensation for their EDP Units at the time of the Transaction, HEP will issue
Units having a market value of $5,330,000. When issued, these Units, which are
presently estimated to total approximately 970,000, will be treated, for
financial statement purposes only, as additional Units issued in connection with
the Transaction, which was accounted for as a reorganization of entities under
common control, in a manner similar to a pooling of interests, and will be
reflected as outstanding Units since May 9, 1990, the date of the Transaction.
As a result, after the Units are issued, the number of Units outstanding and the
net income (loss) per Unit will be retroactively restated for all periods
subsequent to the Transaction. An affiliate of the Hallwood defendants may
choose to purchase all of the Units for $5,330,000. The net proceeds of the
settlement will be distributed to the class after all time periods for an appeal
of the settlement order have expired. HEP anticipates that the distribution
will occur in late September or October 1995.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
HEP generated $6,973,000 of cash flow from operating activities during the first
three months of 1995.
The other primary cash inflows were:
. $10,000,000 in proceeds from long-term debt
. $181,000 in proceeds from the sale of property
Cash was used primarily for:
. Payments of long-term debt of $3,022,000
. Additions to property and development costs incurred of $4,033,000
. Distributions to Unitholders of $2,448,000
. Payments of contract settlement of $333,000
When combined with miscellaneous other cash activity during the period, the
result was an increase of $6,921,000 in HEP's cash from $2,409,000 at December
31, 1994 to $9,330,000 at March 31, 1995.
DEVELOPMENT PROJECTS AND ACQUISITIONS
Through March 31, 1995, HEP has incurred approximately $4,033,000 directly and
$1,081,000 indirectly through its investment in Hallwood Spraberry Drilling
Company, L.L.C. ("HSD") for exploration, development and acquisition costs
toward the 1995 capital budget of $15,800,000 of which $11,600,000 is for direct
expenditures and the remainder for HSD expenditures. The direct expenditures
were comprised of approximately $1,782,000 for HEP's Indonesian project as
further discussed below, approximately $1,678,000 for domestic exploration and
development expenditures and approximately $573,000 for property acquisitions
and land. The indirect expenditures were comprised of drilling costs. A
description of significant exploration and development projects to date in 1995
follows.
Through HEP's investment in HSD, approximately $1,081,000, net to HEP's
interest, has been incurred through March 31, 1995 for five drilled wells and
nine recompletions on the Rocker "b" Ranch in Reagan County, Texas. HSD has its
own line of credit of $4,000,000 net to HEP's interest, provided by a third
party lender. The line of credit is secured only by certain leases on the
Rocker "b" Ranch and is otherwise nonrecourse to HEP. HSD plans to drill up to
32 wells and to recomplete the same number of wells through July 1996. Based on
the initial success of the drilling and recompletions, HEP acquired substantial
additional acreage in the Rocker "b" Ranch during the second quarter and HSD
plans to expand its project area to include this acreage. HSD has two drilling
rigs under contract in the area and plans to place a third under contract in the
second quarter of 1995. Discussions are underway with other operators in the
area regarding development of new acreage.
Significant exploration and development expenditures through March 31, 1995
include approximately $390,000 on four successful drilling wells and three
successful recompletions in the West Texas Kermit area and approximately
$300,000 on one development well in Reagan County, Texas. Gross production on
these properties has increased by 535 barrels of oil per day and 780 mcf per
day. HEP intends to participate in several more workovers and drilling wells in
this area in 1995. Future projects include secondary recovery in the San Andres
and Holt Formations. HEP has 25% to 35% working interests in the Kermit area
wells and to 90% working interest in the Reagan County well.
In April of 1995, a workover was performed on the G.S. Boudreaux in Lafayette
Parish, Louisiana, whereby gross production rates were increased from 17,500 mcf
per day and 370 barrels of condensate per day to 24,600 mcf per day and 550
barrels of condensate per day during the second quarter of 1995. Present
production is limited by surface facilities, and additional planned facility
work is anticipated to further increase production. HEP has a 30% working
interest in the well. The increased production rate on the G.S. Boudreaux will
significantly increase the state administered production allowable for the A.L.
Boudreaux in the same area, resulting in production increases from that well.
In Richland County, Montana, the Lewis #1, was recompleted to the Interlake
Formation for a gross flowing rate of 450 barrels of oil per day and 250 mcf per
day initial potential. A development well to further exploit this deposit is
planned for 1995. HEP has a 22% working interest in the area.
Through March 31, 1995, HEP has spent approximately $230,000 to date on a
program started in late 1994 in Lea County, New Mexico. The program included
five successful non-operated development wells and one successful recompletion
having gross combined initial flowing rates of 2,389 barrels of oil per day and
3,023 mcf per day. HEP has a 5% working interest in the field.
HEP is currently completing an exploratory well in Wyoming for which $85,000 has
been incurred during the first quarter of 1995. A gross flowing potential of
750 barrels of oil per day and 150 mcf per day has been recorded, and a
delineation well is planned for the summer of 1995. HEP has a 17% working
interest in the field.
During the first quarter of 1995, HEP also acquired acreage in Texas, Louisiana,
Michigan, Wyoming and Montana for approximately $90,000, as well as working
interests in the San Juan Basin of New Mexico and Reagan County, Texas for
approximately $120,000. Numerous other projects are also underway in Montana,
Colorado, Utah and Kansas.
During the first quarter of 1995, Hallwood Petroleum Indonesia, Inc. ("Hallwood
Indonesia") completed and evaluated its first well, PTH-01, in the Telaga Said
Field in North Sumatra, Indonesia. A 39 barrel per day oil test was obtained,
but insufficient reserves were indicated to justify field development costs.
Consequently, Hallwood Indonesia has decided to relinquish its interest in the
contract area and is in the process of closing down its operations there. HEP
has recorded $4,051,000 of impairment expense in the first quarter of 1995,
which represents the write-off of its entire investment in Hallwood Indonesia.
DISTRIBUTIONS
HEP paid a $.20 per Unit distribution on February 15, 1995 and has declared a
$.20 per Unit distribution payable on May 15, 1995 to Unitholders of record on
March 31, 1995. HEP will continue to evaluate its cash flow from operations on
a quarterly basis and will determine each quarter's distribution accordingly.
FINANCING
During the first quarter, HEP and its lenders amended and restated HEP's Amended
and Restated Credit Agreement (the "Credit Agreement") to extend the term date
of its line of credit to May 31, 1997. Under the Credit Agreement and an
Amended and Restated Note Purchase Agreement ("Note Purchase Agreement")
(collectively referred to as the "Credit Facilities") HEP has a borrowing base
of $42,000,000. HEP has amounts outstanding at March 31, 1995 of $19,700,000
under the Credit Agreement and $17,143,000 under the Note Purchase Agreement.
HEP's borrowing base is further reduced by the outstanding contract settlement
debt of $3,840,000 and capital lease obligations of $158,000. On April 28,
1995, HEP borrowed an additional $2,000,000 under the Credit Agreement and paid
down borrowings under the Note Purchase Agreement by $4,286,000; therefore, its
unused borrowing base totaled $3,445,000, at May 11, 1995.
Borrowings under the Note Purchase Agreement bear interest at an annual rate of
11.85%, which is payable quarterly. Annual principal payments of $4,286,000
began April 30, 1992, and the debt is required to be paid in full on April 30,
1998. HEP funded the payment due in April 1995 through additional borrowings
under the Credit Agreement; thus, no portion of HEP's Note Purchase Agreement is
classified as current as of March 31, 1995.
Borrowings against the Credit Agreement bear interest at the lower of the
Certificate of Deposit rate plus 1.875%, prime plus 1/2% or the Euro-Dollar rate
plus 1.75% (7.87% at March 31, 1995). Interest is payable monthly, and
quarterly principal payments of $1,356,000 as adjusted for the borrowings during
April 1995, commence March 31, 1997.
The borrowing base for the Credit Facilities is redetermined semiannually in
March and September of each year. The Credit Facilities are secured by a first
lien on approximately 80% in value of HEP's oil and gas properties.
Additionally, aggregate distributions paid by HEP in any 12 month period are
limited to 50% of cash flow from operations before working capital changes and
distributions received from affiliates.
The current portion of long-term debt represents a current capital lease
obligation of $95,000.
INFLATION AND CHANGING PRICES
PRICES
Prices obtained for oil and gas production depend upon numerous factors that are
beyond the control of HEP, including the extent of domestic and foreign
production, imports of foreign oil, market demand, domestic and worldwide
economic and political conditions, and government regulations and tax laws.
Prices for both oil and gas fluctuated significantly throughout 1994 and through
the first quarter of 1995. The following table presents the average prices
received each quarter by HEP and the effects of the hedging transactions
discussed below.
<TABLE>
<CAPTION>
Oil Oil Gas Gas
(excluding the (including the (excluding the (including the
effects of effects of effects of effects of
hedging hedging hedging hedging
transactions) transactions) transactions) transactions)
(bbl) (bbl) (mcf) (mcf)
<S> <C> <C> <C> <C>
First quarter - 1994 $12.82 $14.59 $ 2.22 $ 2.13
Second quarter - 1994 16.03 16.84 1.90 1.94
Third quarter - 1994 17.08 17.58 1.81 1.95
Fourth quarter - 1994 16.05 16.89 1.65 1.84
First quarter - 1995 16.79 17.22 1.51 1.81
</TABLE>
HEP has entered into numerous financial contracts to hedge the price of its oil
and natural gas. The purpose of the hedges is to provide protection against
price drops and to provide a measure of stability in the volatile environment of
oil and natural gas spot pricing. In general, it is HEP's goal to hedge 50% of
its oil and gas production for each of the next two years and 30% for each of
the three years thereafter. The revenue associated with these contracts is
recognized as oil or gas revenue at the time the hedged volumes are sold.
The following table provides a summary of HEP's outstanding financial contracts:
<TABLE>
<CAPTION>
Oil
Percent of Production Contract
Period Hedged Floor Price
(per bbl)
<S> <C> <C>
Last nine months of 1995 47% $16.94
1996 25% $15.00
1997 20% $14.83
1998 15% $14.89
1999 3% $15.13
</TABLE>
Between 20% and 100% of the oil volumes hedged in each year are subject to a
participating hedge whereby HEP will receive the contract price if the posted
futures price is lower than the contract price, and will receive the contract
price plus between 25% and 75% of the difference between the contract price and
the posted futures price if the posted futures price is greater than the
contract price. Between 25% and 100% of the volumes hedged in each year are
subject to a collar agreement whereby HEP will receive the contract price if the
spot price is lower than the contract price, the cap price if the spot price is
higher than the cap price, and the spot price if that price is between the
contract price and the cap price. The cap prices range from $16.25 to $18.60.
<TABLE>
<CAPTION>
Gas
Percent of Production Contract
Period Hedged Floor Price
(per mcf)
<S> <C> <C>
Last nine months of 1995 58% $2.04
1996 29% 2.05
1997 32% 1.95
1998 32% 2.00
1999 4% 1.49
</TABLE>
Between 28% and 68% of the gas volumes hedged in each year are subject to a
collar agreement whereby HEP will receive the contract price if the spot price
is lower than the contract price, the cap price if the spot price is higher than
the cap price, and the spot price if that price is between the contract price
and the cap price. The cap prices range from $2.50 to $2.81.
During the second quarter through May 11, 1995, the oil price (for barrels not
hedged) averaged between $17.50 and $18.25 per barrel. The weighted average
price of natural gas (for mcf not hedged) was between $1.45 and $1.70 per mcf.
INFLATION
Inflation did not have a material impact on HEP in 1994 and is not anticipated
to have a material impact in 1995.
RESULTS OF OPERATIONS
The following table is presented to contrast HEP's average oil and gas prices
and production. Significant fluctuations are discussed in the accompanying
narrative.
<TABLE>
<CAPTION>
OIL AND GAS PRICES AND PRODUCTION
(In thousands except for price)
For the Three Months Ended March 31,
1995 1994
Oil Gas Oil Gas
(bbl) (mcf) (bbl) (mcf)
<S> <C> <C> <C> <C>
Average price $17.22 $1.81 $14.59 $2.13
Production 229 3,072 236 3,600
</TABLE>
FIRST QUARTER 1995 COMPARED TO FIRST QUARTER 1994
OIL REVENUE
Oil revenue increased by $500,000, or 15%, during the first quarter of 1995 as
compared with the first quarter of 1994. The increase is the result of an
increase in the average oil price from $14.59 per barrel in 1994 to $17.22 per
barrel in 1995 partially offset by a decrease in oil production from 236,000
barrels in 1994 to 229,000 barrels in 1995. The decrease in oil production is
due to normal production declines which were partially offset by increased
production from developmental drilling projects in West Texas.
The effect of HEP's hedging transactions, as described under "Inflation and
Changing Prices," was to increase HEP's average oil price from $16.79 per barrel
to $17.22 per barrel, representing $98,000 in additional revenue from hedging
transactions.
GAS REVENUE
Gas revenue decreased by $2,119,000 during the first quarter of 1995 as compared
with the first quarter of 1994. The decrease is the result of a decrease in
production from 3,600,000 mcf in 1994 to 3,072,000 mcf in 1995, combined with a
15% decrease in price from $2.13 per mcf in 1994 to $1.81 per mcf in 1995. The
decrease in production is due to allowable production limits and normal
production declines.
The effect of HEP's hedging transactions was to increase HEP's average gas price
from $1.51 per mcf to $1.81 per mcf, representing $922,000 in additional revenue
from hedging transactions.
PIPELINE, FACILITIES AND OTHER
Pipeline, facilities and other revenue consists primarily of facilities income
from two gathering systems located in New Mexico, revenues derived from salt
water disposal, and incentive payments related to the sale of a term working
interest in certain wells in San Juan County. Pipeline, facilities and other
income increased by $35,000 during the first quarter of 1995 as compared with
the first quarter of 1994, primarily as a result of incentive payments received
during the first quarter of 1995.
INTEREST INCOME
The decrease in interest income of $20,000 during the first quarter of 1995 as
compared with the first quarter of 1994 resulted from a lower average cash
balance during the first quarter of 1995 as compared with the same period during
1994.
PRODUCTION OPERATING EXPENSE
Production operating expense decreased $65,000 during the first quarter of 1995
as compared with the first quarter of 1994, primarily as a result of property
sales.
FACILITIES OPERATING EXPENSE
Facilities operating expense represents the costs of operating and maintaining
two gathering systems located in New Mexico. Costs increased by $39,000 during
1995 as compared with 1994 due to the connection of additional wells to the
gathering systems.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense includes costs incurred for direct
administrative services such as legal, audit and reserve reports, as well as
allocated internal overhead incurred by the operating company on behalf of HEP.
These expenses increased $226,000 during the first quarter of 1995 as compared
with the first quarter of 1994. This increase is primarily the result of bank
fees associated with the extension of HEP's line of credit during the first
quarter of 1995.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
Depreciation, depletion and amortization expense decreased $741,000 during the
first quarter of 1995 as compared with the first quarter of 1994. The decrease
is primarily the result of lower capitalized costs in 1995 as compared with 1994
due to the property impairment recorded during the fourth quarter of 1994.
IMPAIRMENT OF OIL AND GAS PROPERTIES
Impairment of oil and gas properties represents the write-off of HEP's
Indonesian operations.
INTEREST EXPENSE
Interest expense decreased by $41,000 during the first quarter of 1995 as
compared with the first quarter of 1994, primarily as the result of a lower
average debt balance in the first quarter of 1995 as compared with the first
quarter of 1994, partially offset by higher interest rates.
EQUITY IN LOSS OF HCRC
Equity in loss of affiliate represents HEP's share of its equity investment in
HCRC. HEP's equity in loss increased $698,000 during the first quarter of 1995
as compared with the first quarter of 1994. The increase is primarily due to
HCRC's impairment expense resulting from the write-off of its Indonesian
operations.
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES
Minority interest in net income of subsidiaries represents unaffiliated
partners' interest in the net income of the May Partnerships. The decrease is
due to a decline in the net income of the May Partnerships resulting from
decreased production on their properties.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Item 8 - Note 14 of Form 10-K for the year ended
December 31, 1994 and Item 1 - Note 4 of Form 10-Q for the quarter
ended March 31, 1995.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - REPORTS ON FORM 8-K
None.
ITEM 7 - EXHIBITS
10.3 Second Amended and Restated Credit Agreement dated as of March 31,
1995.
10.9 Domestic Incentive Plan between the Company and Hallwood
Petroleum, Inc. dated
January 14, 1993 (corrected version).
10.11
1995 Unit Option Plan Loan Program.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HALLWOOD ENERGY PARTNERS, L. P.
BY: HALLWOOD ENERGY CORPORATION
GENERAL PARTNER
Date: May 11, 1995 By:/S/Robert S. Pfeiffer
Robert S. Pfeiffer, Vice President
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarter ended March 31, 1995 for Hallwood Energy Partners, L.P. and is
qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 9,330
<SECURITIES> 0
<RECEIVABLES> 8,851
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,176
<PP&E> 595,151
<DEPRECIATION> (491,126)
<TOTAL-ASSETS> 137,501
<CURRENT-LIABILITIES> 20,964
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 71,780
<TOTAL-LIABILITY-AND-EQUITY> 137,501
<SALES> 10,023
<TOTAL-REVENUES> 10,109
<CGS> 0
<TOTAL-COSTS> 12,424
<OTHER-EXPENSES> 1,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 993
<INCOME-PRETAX> (4,552)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,552)
<DISCONTINUED> 0
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<EPS-DILUTED> 0
</TABLE>
(CONFORMED COPY)
$45,000,000
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of
March 31, 1995
among
HALLWOOD ENERGY PARTNERS, L.P.,
HEP OPERATING PARTNERS, L.P.,
EDP OPERATING, LTD.,
EM NOMINEE PARTNERSHIP COMPANY,
CONCISE OIL AND GAS PARTNERSHIP,
MAY ENERGY PARTNERS OPERATING PARTNERSHIP LTD.,
THE BANKS LISTED HEREIN
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent
and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Collateral Agent
TABLE OF CONTENTS1
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Uniform Definitions . . . . . . . . . . . . . . . . . . . 8
ARTICLE 2
AMOUNT AND TERMS OF LOAN
SECTION 2.01. The Loans and Commitment . . . . . . . . . . . . . . . . . 8
SECTION 2.02. Principal Repayments . . . . . . . . . . . . . . . . . . . 8
SECTION 2.03. Borrowing Alternatives . . . . . . . . . . . . . . . . . . 9
SECTION 2.04. Interest Rate . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.05. Computation of Interest . . . . . . . . . . . . . . . . . 12
SECTION 2.06. Borrowing Procedure . . . . . . . . . . . . . . . . . . . 12
SECTION 2.07. Continuation Options . . . . . . . . . . . . . . . . . . . 14
SECTION 2.08. Conversion Options . . . . . . . . . . . . . . . . . . . . 14
1 The Table of Contents is not a part of this Agreement.
SECTION 2.09. Optional Prepayments, Termination or Reduction of Commitments
15
SECTION 2.10. Mandatory Prepayments . . . . . . . . . . . . . . . . . . 16
SECTION 2.11. Payments . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.12. Interest . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.13. Reimbursement of Certain Funding Losses . . . . . . . . . 18
SECTION 2.14. Increased Costs . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.15. Basis for Determining Fixed Rates Inadequate . . . . . . . 20
SECTION 2.16. Illegality . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.17. Foreign Taxes . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.18. Substitution of Banks . . . . . . . . . . . . . . . . . . 24
SECTION 2.19. Participants' Expenses . . . . . . . . . . . . . . . . . . 24
SECTION 2.20. Commitment Fees . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.21. Engineering Fee . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.22. Agents' Fees . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.23. Participation Fee . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Existence . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.02. Power and Authorization . . . . . . . . . . . . . . . . . 26
SECTION 3.03. Binding Obligations . . . . . . . . . . . . . . . . . . . 27
SECTION 3.04. No Legal Bar or Resultant Lien . . . . . . . . . . . . . . 27
SECTION 3.05. No Consent . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.06. Financial Condition . . . . . . . . . . . . . . . . . . . 27
SECTION 3.07. Investments and Guaranties . . . . . . . . . . . . . . . . 28
SECTION 3.08. Liabilities; Litigation . . . . . . . . . . . . . . . . . 28
SECTION 3.09. Taxes; Governmental Charges . . . . . . . . . . . . . . . 28
SECTION 3.10. Titles, etc . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.11. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.12. Casualties; Taking of Properties . . . . . . . . . . . . . 29
SECTION 3.13. Use of Proceeds; Margin Stock . . . . . . . . . . . . . . 29
SECTION 3.14. Compliance with the Law . . . . . . . . . . . . . . . . . 30
SECTION 3.15. Compliance with ERISA . . . . . . . . . . . . . . . . . . 30
SECTION 3.16. No Material Misstatements . . . . . . . . . . . . . . . . 30
SECTION 3.17. Investment Company Act . . . . . . . . . . . . . . . . . . 30
SECTION 3.18. Public Utility Holding Company Act . . . . . . . . . . . . 30
SECTION 3.19. Partnership Agreements . . . . . . . . . . . . . . . . . . 31
SECTION 3.20. Location of the Borrower . . . . . . . . . . . . . . . . . 31
SECTION 3.21. Gas Imbalances . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.22. General Partners . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.23. Other Financing Documents . . . . . . . . . . . . . . . . 31
SECTION 3.24. Subsidiaries of Borrowers . . . . . . . . . . . . . . . . 32
SECTION 3.25. Environmental Matters . . . . . . . . . . . . . . . . . . 32
ARTICLE 4
COVENANTS
SECTION 4.01. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 5
DEFAULTS
SECTION 5.01. Events of Default . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.02. Notice of Default . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 6
CONDITIONS
SECTION 6.01. Effectiveness . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.03. All Loans . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 7
THE AGENT
SECTION 7.01. Appointment and Authorization . . . . . . . . . . . . . . 37
SECTION 7.02. Agent and Affiliates . . . . . . . . . . . . . . . . . . . 37
SECTION 7.03. Action by Agent . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.04. Consultation with Experts . . . . . . . . . . . . . . . . 37
SECTION 7.05. Liability of Agent . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.06. Indemnification . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.07. Credit Decision . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.08. Successor Agent . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.02. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.03. Expenses; Documentary Taxes . . . . . . . . . . . . . . . 40
SECTION 8.04. Sharing of Set-Offs . . . . . . . . . . . . . . . . . . . 40
SECTION 8.05. Amendments and Waivers . . . . . . . . . . . . . . . . . . 40
SECTION 8.06. Successors and Assigns . . . . . . . . . . . . . . . . . . 41
SECTION 8.07. New York Law . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.08. Counterparts; Integration . . . . . . . . . . . . . . . . 43
SECTION 8.09. Joint and Several Obligations . . . . . . . . . . . . . . 43
Schedule A -- Uniform Definitions
Schedule A-1 -- Affiliated Partnerships
Schedule B -- Uniform Covenants
Schedule B-1 -- Compliance Certificate
Schedule B-2 -- Disclosures
Schedule C -- Uniform Events of Default
Schedule D -- Collateral
Exhibit A -- Note
Exhibit B -- Opinion of Counsel for the Borrowers
Exhibit C -- Opinion of Special Counsel for the Agent
Exhibit D -- Assignment and Assumption Agreement
Exhibit E -- Prudential Amendment
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AGREEMENT dated as of March 31, 1995 among HALLWOOD ENERGY PARTNERS,
L.P., HEP OPERATING PARTNERS, L.P., EDP OPERATING, LTD., EM NOMINEE PARTNERSHIP
COMPANY, CONCISE OIL AND GAS PARTNERSHIP, MAY ENERGY PARTNERS OPERATING
PARTNERSHIP LTD., the BANKS listed on the signature pages hereof and MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Agent and FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Collateral Agent.
WHEREAS, Hallwood Energy Partners, L.P., a Delaware Limited
Partnership ("HEP"), HEP Operating Partners, L.P., a Delaware limited
partnership ("HEP Operating"), EDP Operating, Ltd., a Colorado limited
partnership ("Operating"), EM Nominee Partnership Company, a Colorado general
partnership ("Nominee"), Concise Oil and Gas Partnership, a Colorado general
partnership ("Concise"), May Energy Partners Operating Partnership LTD., a Texas
limited partnership ("MEPO") (singularly the "Borrower" and collectively the
"Borrowers"), the banks listed on the signature pages thereof and Morgan
Guaranty Trust Company of New York, as Agent and First Union National Bank of
North Carolina, as Collateral Agent, are parties to an Amended and Restated
Credit Agreement dated as of May 7, 1990 (as amended prior to the Effective Date
(as defined below), the "Original Agreement"); and
WHEREAS, the Borrowers have asked the Banks, and the Banks have
agreed, on the terms and conditions set forth below, to amend the definition of
Drawdown Termination Date contained in the Original Agreement and to amend
certain other provisions of the Original Agreement;
NOW, THEREFORE, the parties hereto hereby agree that, on and as of the
Effective Date, the Original Agreement is hereby amended and restated in its
entirety as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms as used herein, have
the following meanings:
"Adjusted CD Rate" has the meaning set forth in Section 2.04.
"Adjusted Euro-Dollar Rate" has the meaning set forth in Section 2.04.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrowers) duly completed by such Bank.
"Advance Notice" means written, telegraphic or telecopier notice
(which in each case shall be irrevocable except as otherwise provided in Section
2.15) from the Borrowers to be received by the Agent before 11:00 a.m., New York
time, by the number of Domestic Business Days or Euro-Dollar Business Days in
advance of any borrowing, conversion, continuation or prepayment of any Loan
pursuant to this Agreement as respectively indicated below:
(i) CD Loans - 2 Domestic Business Days;
(ii) Euro-Dollar Loans - 3 Euro-Dollar Business
Days; and
(iii) Base Rate Loans - Same Day Notice
For the purpose of determining the respectively applicable Loan in the case of
the conversion from one type of Loan into another, the Loan with respect to
which the longer notice period applies shall control.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks hereunder, and its successors in such capacity.
"Agreement" means the Original Agreement, as amended and restated by
this Amended Agreement on the Effective Date and as the same may be further
amended or restated from time to time in accordance with the terms hereof.
"Amended Agreement" means this Second Amended and Restated Credit
Agreement dated as of March 31, 1995 among the Borrowers, the Banks listed
herein and Morgan Guaranty Trust Company of New York, as Agent.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office and (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.04.
"Assignee" has the meaning set forth in Section 8.06(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 8.06(c) and their respective
successors and assigns.
"Bank Obligations" means obligations of the Borrowers under this
Agreement and the Notes, including, without limitation, the obligations of the
Borrowers to pay the principal of and interest on the Loans and all other
amounts payable by the Borrowers hereunder.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the sum of 1/2 of 1% plus the Prime Rate for such day and (ii) the sum of
1/2 of 1% plus the Federal Funds Rate for such day.
"Base Rate Loan" means a Loan made by a Bank under this Agreement at
such time as it is made or maintained at an interest rate based on the Base
Rate.
"Borrowing" means a borrowing hereunder consisting of Loans made to
the Borrowers at the same time by the Banks pursuant to Article II or continued
or converted pursuant to Section 2.07 or 2.08, respectively. A Borrowing is a
"Domestic Borrowing" if such Loans are Domestic Loans or a "Euro-Dollar
Borrowing" if such Loans are Euro-Dollar Loans. A Domestic Borrowing is a "CD
Borrowing" if such Domestic Loans are CD Loans or a "Base Rate Borrowing" if
such Domestic Loans are Base Rate Loans.
"CD Loan" means a Loan made by a Bank under this Agreement at such
time as it is made or maintained at an interest rate based on the Adjusted CD
Rate.
"CD Rate" has the meaning set forth in Section 2.04.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section
2.04.
"Drawdown Termination Date" means the earlier to occur of May 31, 1997
or the date on which the Borrowers elect to commence the Term Period.
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrowers and the Agent; provided that any Bank may so designate
separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and
its CD Loans, on the other hand, in which case all references herein to the
Domestic Lending Office of such Bank shall be deemed to refer to either or both
or such offices, as the context may require.
"Effective Date" means the date this Amended Agreement becomes
effective in accordance with Section 6.01.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrowers and the Agent.
"Euro-Dollar Loan" means a loan made by a Bank under this Agreement at
such time as it is made or maintained at an interest rate based on the Adjusted
Euro-Dollar Rate.
"Euro-Dollar Rate" has the meaning set forth in Section 2.04.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.04.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"Fixed Rate Borrowing" means a CD Borrowing or a Euro-Dollar
Borrowing.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or both.
"Foreign Taxes" has the meaning assigned in Section 2.17.
"Hallwood G.P." means Hallwood G.P. Inc., a Delaware corporation.
"HEC" means Hallwood Energy Corporation, a Texas corporation, which is
the sole general partner of Hallwood and HEP Operating.
"Highest Lawful Rate" means, with respect to any Bank, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Note of such Bank
under laws applicable to such Bank which are presently in effect or, to the
extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"Increased Costs" has the meaning assigned in Section 2.14.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending 1, 2,
3 or 6 months thereafter, as the Borrowers may elect in the applicable Advance
Notice; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) if any Interest Period includes a date on which a payment of
principal of the Loans is required to be made under Section 2.02 but does
not end on such date, then (i) the principal amount (if any) of each
Euro-Dollar Loan required to be repaid on such date shall have an Interest
Period ending on such date and (ii) the remainder (if any) of each such
Euro-Dollar Loan shall have an Interest Period determined as set forth
above.
(2) with respect to each CD Borrowing, the period commencing on the date of
such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrowers
may elect in the applicable Advance Notice; provided that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b)(i) below) which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) if any Interest Period includes a date on which a payment of
principal of the Loans is required to be made under Section 2.02 but does
not end on such date, then (i) the principal amount (if any) of each CD
Loan required to be repaid on such date shall have an Interest Period
ending on such date and (ii) the remainder (if any) of each such CD Loan
shall have an Interest Period determined as set forth above.
"Loan" means a Domestic Loan or a Euro-Dollar Loan and "Loans" means
Domestic Loans or Euro-Dollar Loans or both.
"Note" means a promissory note of the Borrowers substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrowers to repay
the Loans, together with any and all renewals, extensions for any period,
increases or rearrangements thereof.
"Note Purchase Agreement" means the Amended and Restated Note Purchase
Agreement dated as of May 7, 1990 between Prudential and the Borrowers, as
amended from time to time.
"Original Agreement" has the meaning set forth in the first WHEREAS
clause to this Agreement.
"Original Notes" and "Original Note" mean, respectively, (i) the
promissory notes of the Borrowers issued pursuant to the Original Agreement to
evidence loans made by the Banks thereunder and (ii) a single Original Note.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 8.06(b).
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Principal Repayment" means the repayment of principal on the Notes
required in Section 2.02.
"Principal Repayment Dates" means the dates on which the principal of
the Loans is required to be repaid pursuant to Section 2.02.
"Regulation U" means Regulation U 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 any change after the date of this Amended
Agreement in United States federal, state or foreign laws, rules or regulations
or the adoption or making after such date of any interpretations, directives or
requests of or under any United States federal, state or foreign laws, rules or
regulations (whether or not having the force of law) by any court or
governmental authority or reserve bank or comparable agency charged with the
interpretation or administration thereof.
"Revolving Credit Period" means the period from the Effective Date to
and including the Drawdown Termination Date.
"Term Date" means the earlier to occur of May 31, 1997 or the last day
of May, August, November or February which first occurs after the date on which
the Borrowers elect to commence the Term Period.
"Term Period" means the period commencing immediately after the
Drawdown Termination Date during which principal repayments are made pursuant to
Section 2.02.
SECTION 1.02. Uniform Definitions. Terms used herein which are
defined in Schedule A and not otherwise defined herein are used herein with the
meanings therein specified. Terms used in Schedules A, B, C, D and E shall have
the meanings specified in Schedule A.
ARTICLE 2
AMOUNT AND TERMS OF LOAN
SECTION 2.01. The Loans and Commitment. Subject to the terms and
conditions and relying on the representations and warranties contained in this
Agreement, the Banks severally agree to make during the Revolving Credit Period
revolving credit Loans to the Borrowers from time to time in such amounts as the
Borrowers may request up to the maximum amount hereinafter stated and the
Borrowers may make borrowings and prepayments (as permitted or required in
Sections 2.09 and 2.10 hereof) and reborrowings in respect thereof. Each
Borrowing under this Section shall be made from the several Banks ratably in
proportion to their respective Commitments.
To evidence the Loans made by each Bank pursuant to this Section, the
Borrowers will issue, execute and deliver to each Bank a Note in the principal
amount of the Commitment of such Bank and dated as of the date of issuance of
the Note and payable in installments as provided in Section 2.02.
SECTION 2.02. Principal Repayments. Pursuant to Section 2.11, the
Borrowers will repay the principal amount outstanding on each Note in sixteen
(16) equal quarterly installments, commencing on the Term Date and thereafter on
the last day of each consecutive 3 month period. Any optional prepayments of
principal made during the Term Period shall be applied ratably to reduce the
remaining quarterly Principal Repayments. Any mandatory prepayments of
principal made during the Term Period as required by Section 2.10 hereof shall
be applied to reduce the remaining quarterly Principal Repayments in the inverse
order of their maturity.
SECTION 2.03. Borrowing Alternatives.
(a) During the Revolving Credit Period, Loans may be either (i) CD
Loans, (ii) Euro-Dollar Loans, (iii) Base Rate Loans or (iv) a combination
thereof, as elected by the Borrowers or otherwise applicable in accordance with
Sections 2.06, 2.07, or 2.08 or subsection 2.04(e).
(b) During the Term Period, the Borrowers may have outstanding at any
time either (i) CD Loans, (ii) Euro-Dollar Loans, (iii) Base Rate Loans or (iv)
a combination thereof as elected by the Borrowers or otherwise applicable in
accordance with Sections 2.06, 2.07 or 2.08 or subsection 2.04(e), but no more
than four (4) Borrowings outstanding at any one time.
SECTION 2.04. Interest Rate.
(a) Each Bank's CD Loans shall bear interest on the unpaid principal
amount thereof until payment in full thereof at a rate per annum equal to the
sum of (i) the Adjusted CD Rate for each Interest Period applicable thereto plus
(ii) 1.8750% per annum, but in no event to exceed the Highest Lawful Rate of
such Bank; provided that if any CD Loan or any portion thereof shall, as a
result of clause (2) (b) (i) of the definition of Interest Period, have an
Interest Period of less than 30 days, such CD Loan or portion thereof shall bear
interest during such Interest Period at the rate applicable to Base Rate Loans
during such period.
The "Adjusted CD Rate" applicable to any Interest Period means a rate
per annum (rounded upwards, if necessary, to the next higher 1/100 of 1%)
determined according to the following formula:
( CDR )
ACDR = ( ---------- ) + AR
( 1.00 - DRP )
ACDR = Adjusted CD Rate
CDR = CD Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
The "CD Rate" applicable to any Interest Period is the rate of
interest determined by the Agent to be the prevailing rate per annum bid at
10:00 AM (New York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period by two or more New York certificate of deposit
dealers of recognized standing for the purchase of face value from Morgan
Guaranty Trust Company of New York of its certificates of deposit in an amount
comparable to the unpaid principal amount of the CD Loan of such Bank to which
such Interest Period applies and having a maturity comparable to such Interest
Period.
"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. section 327.3(e) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the United
States. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Assessment Rate.
(b) Each Bank's Euro-Dollar Loans shall bear interest on the unpaid
principal amount thereof until payment in full thereof at a rate per annum equal
to the sum of (i) the Adjusted Euro-Dollar Rate for each Interest Period
applicable thereto plus (ii) 1.750% per annum, but in no event to exceed the
Highest Lawful Rate of such Bank.
The "Adjusted Euro-Dollar Rate" applicable to any Interest Period
means a rate per annum (rounded upwards, if necessary, to the next higher 1/100
of 1%) determined according to the following formula:
AEDR = Euro-Dollar Rate
(1.00 - Euro-Dollar Reserve Percentage)
AEDR = Adjusted Euro-Dollar Rate
The "Euro-Dollar Rate" applicable to any Interest Period means the
rate per annum at which deposits in dollars are offered to Morgan Guaranty Trust
Company of New York in the London interbank market at approximately 11:00 AM
(London time) two Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of such Bank to which such Interest Period is to apply for a
period of time comparable to such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents). The Adjusted Euro-Dollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.
(c) Each Bank's Base Rate Loans shall bear interest on the unpaid
principal amount thereof until payment in full thereof at a varying rate per
annum at all times equal to the Base Rate, but in no event to exceed the Highest
Lawful Rate of such Bank.
(d) Interest shall be payable (i) as to any Base Rate Loan on the
last day of each May, August, November and February, commencing on the first of
such days to occur after such Loan is made, and on the maturity of each Bank's
Note and (ii) as to any Fixed Rate Loan, on the last day of each Interest Period
applicable thereto; provided that if any Interest Period of more than three
months is selected for any Fixed Rate Loan (if permitted by other terms of this
Agreement), interest shall also be payable with respect to such Loan on the
quarterly interest payment dates for the Base Rate Loans to the extent that such
quarterly payment date may be prior to the end of such Interest Period.
(e) If all or any portion of the principal amount of any Loan of any
Bank or interest thereon shall not be paid when due, such past due principal
amount and past due interest shall bear interest for each day until paid in full
at a rate per annum equal to the sum of 2% plus the Base Rate for such day, but
in no event to exceed the Highest Lawful Rate of such Bank.
(f) The rate of interest applicable to any Loan for any day shall
increase by 1/4 of 1% over the otherwise applicable rate if the Debt Ratio
exceeds 80%; provided that the rate of interest applicable to any Loan of any
Bank shall in no event exceed the Highest Lawful Rate of such Bank. For
purposes of calculations under this subsection (f), the "Debt Ratio" for any day
shall be the percentage equivalent of a fraction (x) the numerator of which is
the daily average aggregate unpaid principal amount of Debt of the Borrowers for
the period of 30 consecutive days ending on such day, whether beginning before
or after the date of this Agreement, and (y) the denominator of which is the
daily average Debt Limit for such period. The Borrowers shall notify the Agent
timely of any change in the Debt Ratio which would result in a change in the
rate of interest applicable to any Loan.
(g) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrowers and each
Bank of each rate of interest so determined, and its determination thereof shall
be conclusive in the absence of manifest error. In the absence of notice from
any Bank to the effect that the rate of interest otherwise payable for its
account hereunder (computed as provided herein) exceeds the Highest Lawful Rate
applicable to such Bank, which notice shall specify such Highest Lawful Rate and
the basis of computation thereof, the Agent may conclusively assume that the
rate of interest provided for herein does not exceed such Highest Lawful Rate
and shall incur no liability to any party by virtue thereof.
SECTION 2.05. Computation of Interest. Commitment fees and interest
on all Loans and other Indebtedness shall be computed on the basis of a 360 day
year and paid for the actual number of days elapsed (including the first day but
excluding the last day), unless such computation would result in a usurious rate
for any Bank, in which case interest for the account of such Bank shall be
computed on the basis of a year of 365 or 366 days, as the case may be. The
Agent shall promptly notify the Borrowers of each determination of an Adjusted
CD Rate or an Adjusted Euro-Dollar Rate.
SECTION 2.06. Borrowing Procedure.
(a) The Borrowers shall give Advance Notice to the Agent prior to the
proposed borrowing date. Such notice shall specify (i) the amount to be
borrowed; (ii) the borrowing date (which shall be a Euro-Dollar Business Day, in
the case of Euro-Dollar Loans, or a Domestic Business Day, in the case of CD
Rate Loans or Base Rate Loans); (iii) whether the Loans comprising such
Borrowing are to be Euro-Dollar Loans, Base Rate Loans, CD Loans or a
combination thereof (in which case the portions shall be specified in such
notice); and (iv) in the case of a Fixed Rate Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the definition of
Interest Period. Each Borrowing shall be in the principal amount of $1,000,000
($3,000,000 in the case of the first Borrowing under this Amended Agreement) or
any whole multiple of $1,000,000 in excess thereof or the amount of the total
remaining Commitment available for borrowing.
(b) Upon receipt of an Advance Notice, the Agent shall promptly
notify each Bank of the contents thereof and of such Bank's ratable share of
such Borrowing and such Advance Notice shall not thereafter be revocable by the
Borrowers.
(c) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank shall (except as provided in subsection (d) of this
Section) make available its ratable share of such Borrowing, in Federal or other
funds immediately available in New York City, to the Agent at its address
specified in or pursuant to Section 8.01. Unless the Agent determines that any
applicable condition specified in Article 6 has not been satisfied, the Agent
will make the funds so received from the Banks available to the Borrowers at the
Agent's aforesaid address.
(d) If any Bank makes a new Loan hereunder on a day on which the
Borrowers are to repay all or any part of an outstanding Loan from such Bank,
such Bank shall apply the proceeds of its new Loan to make such repayment and
only an amount equal to the difference (if any) between the amount being
borrowed and the amount being repaid shall be made available by such Bank to the
Agent as provided in subsection (c) of this Section, or remitted by the
Borrowers to the Agent as provided in Section 2.11, as the case may be.
(e) Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsections (c) and (d) of this Section 2.06 and the Agent may,
in reliance upon such assumption, make available to the Borrowers on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Agent, such Bank and the Borrowers severally
agree to repay to the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrowers until the date such amount is repaid to the Agent, at
(i) in the case of the Borrowers, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to Section
2.04 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank
shall repay to the Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement. The failure of any Bank to make such share available to the Agent on
the date specified therefor shall not relieve any other Bank of its obligation
to make its share available to the Agent on such date, but neither any Bank nor
the Agent shall be responsible for the failure of any other Bank to make such
share available to the Agent.
SECTION 2.07. Continuation Options.
(a) The Borrowers may elect to continue all or any part of any CD
Borrowing beyond the expiration of the then current Interest Period relating
thereto by giving Advance Notice to the Agent of such election, specifying the
CD Borrowing or portion thereof to be continued and the Interest Period
therefor. In the absence of such a timely and proper election, the Borrowers
shall be deemed to have elected to convert such CD Borrowing to a Base Rate
Borrowing pursuant to Subsection 2.08(a).
(b) The Borrowers may elect to continue all or any part of any
Euro-Dollar Borrowing beyond the expiration of the then current Interest Period
relating thereto by giving Advance Notice to the Agent of such election,
specifying the Euro-Dollar Borrowing or portion thereof to be continued. In the
absence of such a timely and proper election, the Borrowers shall be deemed to
have elected to convert such Euro-Dollar Borrowing to a Base Rate Borrowing
pursuant to Subsection 2.08(b).
(c) All or any part of any Fixed Rate Borrowing may be continued as
provided herein, provided that (i) any continuation of any such Borrowing shall
be (as to each Borrowing as continued for an applicable Interest Period) in the
principal amount of $1,000,000 or any whole multiple of $1,000,000 in excess
thereof and (ii) no Default shall have occurred and be continuing. If a Default
shall have occurred and be continuing, each Fixed Rate Borrowing shall be
converted to a Base Rate Borrowing on the last day of the Interest Period
applicable thereto.
SECTION 2.08. Conversion Options. (a) The Borrowers may elect to
convert any CD Borrowing on the last day of the then current Interest Period
relating thereto to a Euro-Dollar Borrowing or Base Rate Borrowing, or a
combination thereof, by giving Advance Notice to the Agent of such election,
specifying, if electing one or more Euro-Dollar Borrowings, each Interest Period
therefor.
(b) The Borrowers may elect to convert any Euro-Dollar Borrowing on
the last day of the then current Interest Period relating thereto to a CD
Borrowing or Base Rate Borrowing, or a combination thereof, by giving Advance
Notice to the Agent of such election.
(c) The Borrowers may elect to convert a Base Rate Borrowing at any
time or from time to time to a CD Borrowing or Euro-Dollar Borrowing or a
combination thereof by giving Advance Notice to the Agent of such election,
specifying each Interest Period therefor.
(d) All or any part of any outstanding Borrowing may be converted as
provided herein, provided that any conversion of any such Borrowing into a Fixed
Rate Borrowing shall be (as to each such Borrowing into which there is a
conversion for an applicable Interest Period) in the principal amount of
$1,000,000 or any whole multiple of $1,000,000 in excess thereof. If no Default
shall have occurred and be continuing, each Borrowing may be converted as
provided in this Section. If a Default shall have occurred and be continuing,
no Borrowing may be converted into a Fixed Rate Borrowing.
SECTION 2.09. Optional Prepayments, Termination or Reduction of
Commitments. (a) The Borrowers may, at their option, as to any Base Rate
Borrowing at any time and from time to time and as to any Fixed Rate Borrowing
only on the last day of the Interest Period applicable thereto, prepay any
Borrowing, in whole or in part, without premium or penalty, upon giving Advance
Notice to the Agent. Such notice shall specify the date and amount of
prepayment and the Borrowing to which such prepayment is to be applicable.
Upon receipt of a notice of prepayment pursuant to this Section, the
Agent shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such prepayment and such notice shall not thereafter be
revocable by the Borrowers. The payment amount specified in such notice shall
be due and payable on the date specified. Each prepayment shall be, in the case
of any Borrowing, in the principal amount of $1,000,000 or any whole multiple of
$1,000,000 in excess thereof or the balance outstanding of such Borrowing. Each
such optional prepayment shall be applied to prepay ratably the Loans of the
several Banks included in such Borrowing.
(b) During the Revolving Credit Period, the Borrowers may, upon at
least three Domestic Business Days' notice to the Agent, terminate at any time,
or proportionately reduce from time to time by an aggregate amount of $1,000,000
or any whole multiple of $1,000,000, in excess thereof, the unused portions of
the Commitments. If the Commitments are terminated in their entirety, all
accrued commitment fees shall be payable on the effective date of such
termination.
SECTION 2.10. Mandatory Prepayments. (a) In the event that the
aggregate unpaid principal amount of Debt of the Borrowers at any time exceeds
the Debt Limit then most recently determined, the Borrowers shall, on or before
thirty (30) days from the earlier of the Agent's notification to the Borrowers
of such excess or the Borrowers' otherwise becoming aware of such excess either
(i) cause additional Property to be added to the Hydrocarbon Borrowing Base such
that the Debt Limit as redetermined by the Majority Lenders after giving effect
thereto will be increased by the amount of such excess, and the Borrowers will
deliver to the Agent within said period such title opinions and other title
information that the Borrowers have access to showing that the Borrowers have
good and indefeasible title to such Property; or (ii) prepay the Notes in an
aggregate principal amount which is at least equal to the Sharing Percentage of
such excess; or (iii) eliminate such excess by a combination of the actions
contemplated by clauses (i) and (ii).
(b) In the event that any mandatory prepayment is required under the
Note Purchase Agreement, other than regularly scheduled installments of
principal, under circumstances when subsection (a) of this Section 2.10 is not
applicable, the Borrowers shall simultaneously with such prepayment prepay a
ratably equivalent principal amount of the Notes.
SECTION 2.11. Payments. (a) All payments (including prepayments) to
be made by the Borrowers on account of principal, interest and fees under a Note
or Commitment or any other Bank Obligation shall be made without setoff or
counterclaim not later than 12:00 Noon (New York City time) on the date when
due, in Federal or other funds immediately available in New York City, to the
Agent at its address specified in Section 8.01. The Agent will promptly
distribute to each Bank its ratable share of each such payment received by the
Agent for the account of the Banks. All prepayments shall be applied first to
fees and expenses, next to interest due and owing and then to principal on the
Notes. If any payment under a Note (other than any payment on a Euro-Dollar
Loan) becomes due and payable on a day other than a Domestic Business Day, the
maturity thereof shall be extended to the next succeeding Domestic Business Day
and with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension. If any payment on a Euro-Dollar
Loan becomes due and payable on a day other than a Euro-Dollar Business Day, the
maturity thereof is extended to the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls on another calendar month, in which
case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day, and pursuant to the terms of this Agreement, interest on the
principal outstanding thereon shall be payable at the then applicable rate
during such extension.
(b) Unless the Agent shall have received notice from the Borrowers
prior to the date on which any payment is due to the Banks hereunder that the
Borrowers will not make such payment in full, the Agent may assume that the
Borrowers have made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Borrowers shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.12. Interest. It is the intention of the parties hereto
that each Bank shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to a
Bank under laws applicable to it (including the laws of the United States of
America or any other jurisdiction whose laws may be mandatorily applicable
notwithstanding the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in a Note, this Agreement or in any
Collateral Document or other agreement entered into in connection with or as
security for a Note, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to a Bank that is
contracted for, taken, reserved, charged or received by such Bank under a Note,
this Agreement or under any of the other aforesaid Collateral Document or other
agreements or otherwise in connection with a Note shall under no circumstances
exceed the maximum amount allowed by such applicable law, and any excess shall
be credited by such Bank on the principal amount of its Bank Obligations as
selected by such Bank (or, if the principal amount of its Bank Obligations shall
have been paid in full, refunded by such Bank to the Borrowers); and (ii) in the
event that the maturity of a Note is accelerated by reason of an election of the
holder or holders thereof resulting from any Event of Default under this
Agreement or otherwise, or in the event of any required or permitted prepayment,
then such consideration that constitutes interest under law applicable to such
Bank may never include more than the maximum amount allowed by such applicable
law, and excess interest, if any, provided for in this Agreement or otherwise
shall be canceled automatically by such Bank as of the date of such acceleration
or prepayment and if theretofore paid, shall be credited by such Bank on the
principal amount of its Bank Obligations as selected by such Bank (or, if the
principal amount of its Bank Obligations shall have been paid in full, refunded
by such Bank to the Borrowers). To the extent that any Bank located in Texas
may be subject to Texas law limiting the amount of interest payable for its
account, such Bank shall utilize the indicated (weekly) rate ceiling from time
to time in effect as provided in Article 5069-1.04 of the Revised Civil Statutes
of Texas, as amended. In no event shall the provisions of Article 5069, Chapter
15 of the Revised Civil Statutes of Texas (which regulates certain revolving
credit loan accounts and revolving tri-party accounts) apply to any Loan made
hereunder.
SECTION 2.13. Reimbursement of Certain Funding Losses. Without
prejudice to any other provision of this Agreement, in the event that a Bank
shall incur any loss or expense after making reasonable efforts to minimize any
such loss or expense (including, without limitation, any loss or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by a Bank to fund or maintain all or any portion of the outstanding
principal amount of any Fixed Rate Loan, but excluding loss of margin) as a
result of
(a) payment, prepayment or conversion of such principal amount of
such Fixed Rate Loan on a date other than the last day of any Interest
Period applicable thereto, whether pursuant to Section 2.08, 2.09 or 2.10
or otherwise, or
(b) any failure by the Borrowers to borrow, continue or convert into,
such Fixed Rate Loan on the date or in the amount specified in an Advance
Notice given pursuant to this Agreement,
then the Borrowers shall pay to the Agent, on demand, such amount as will
reimburse such Bank for such loss or expense. A certificate setting forth in
reasonable detail any additional amounts payable pursuant to the foregoing
submitted by such Bank shall be prima facie evidence of such amounts, absent
manifest error.
SECTION 2.14. Increased Costs. (a) If, as the result of any
Regulatory Change:
(i) a Bank (or its Applicable Lending Office) shall be subjected to
any tax of any kind whatsoever with respect to the Agreement, a Note or any
Fixed Rate Loan made by it, or the basis of taxation of payments to the Bank of
principal, interest, fees or any other amount payable under this Agreement or a
Note shall be changed (except for changes in the rate of tax on the overall net
income of such Bank or such Applicable Lending Office imposed by the
jurisdiction in which such Bank's principal office or such Applicable Lending
Office is located); or
(ii) any reserve, special deposit, compulsory loan, insurance
assessment or similar requirement is imposed, modified or deemed applicable
against assets held by, or deposits or other liabilities in or for the account
of, advances or loans by, or other credit extended by, or any other acquisition
of funds by, any office of a Bank (in excess, and without duplication, of those
taken into account in computing the Domestic Reserve Percentage, Euro-Dollar
Reserve Percentage and Assessment Rate); or
(iii) any other condition affecting this Agreement, a Note or any of
its Fixed Rate Loans is imposed on a Bank;
and the result of any of the foregoing is to increase the cost to such Bank of
making, maintaining or funding any of its Fixed Rate Loans or to reduce any
amount receivable in respect of such Fixed Rate Loans (such increases in cost
and reductions in amounts receivable being hereinafter called "Increased
Costs"), then, in any such case, the Borrowers shall promptly pay to such Bank,
within ten Domestic Business Days of its demand, such additional amount which
will compensate such Bank for such Increased Cost as determined by such Bank.
Upon receiving demand from a Bank pursuant to subsection (a) of this Section and
at any time thereafter (unless and until such Bank has rescinded such demand) at
the option of the Borrowers and upon giving Advance Notice to the Agent, the
Borrowers may (i) in any case where such Increased Costs are applicable to
Euro-Dollar Loans, convert to Base Rate Loans or CD Loans all outstanding
Euro-Dollar Loans made by such Bank or (ii) in any case where such Increased
Costs are applicable to CD Loans, convert to Base Rate Loans or Euro-Dollar
Loans all outstanding CD Rate Loans made by such Bank. Upon any such conversion
of the Fixed Rate Loans of any Bank, the Borrowers shall pay to such Bank, in
accordance with Section 2.13, such amounts as may be necessary to compensate
such Bank for any loss or expense sustained or incurred by such Bank in respect
of such Fixed Rate Loans as a result of such conversion.
It is understood that in compensating a Bank for taxes pursuant to the
preceding paragraph, the amount of compensation shall include such additional
amounts as may be necessary so that every net payment of principal, interest,
fees or other amount payable under this Agreement, after taxes (including taxes
levied on any additional interest paid pursuant to this subsection), will not be
less than the corresponding amount provided for in this Agreement.
(b) If any Bank shall have determined that any Regulatory Change has
or would have the effect of reducing the rate of return on capital of such Bank
(or its Parent) as a consequence of such Bank's obligations hereunder to a level
below that which it could have achieved but for such Regulatory Change (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days after
demand by such Bank (with a copy to the Agent), the Borrowers shall pay to such
Bank such additional amount or amounts as will compensate such Bank (or its
Parent) for such reduction.
(c) A Bank will designate a different Applicable Lending Office if
such designation will avoid the need for, or reduce the amount of, compensation
pursuant to subsection (a) of this Section and will not be otherwise
disadvantageous to such Bank.
(d) Determinations by a Bank for purposes of this Section of the
effect of any Regulatory Change on its costs of making, maintaining or funding
Fixed Rate Loans or on amounts receivable by it in respect of Fixed Rate Loans
or on its rate of return on capital, and of the additional amounts required to
compensate such Bank in respect of any Increased Cost or reduced return, shall
be based upon such Bank's certification in reasonable detail as to the amount
thereof, which certificate shall be prima facie evidence thereof, absent
manifest error.
(e) If a Bank receives a refund or credit in respect of such
Increased Costs from a Person other than the Borrowers, such Bank shall
reimburse the Borrowers for the amount of such refund or credit not to exceed
the amount actually paid by the Borrowers to such Bank in respect of such
Increased Costs.
SECTION 2.15. Basis for Determining Fixed Rates Inadequate. In the
event that:
(a) the Agent shall have determined in good faith that by reason
of circumstances affecting the domestic market for certificates of
deposit generally, adequate and reasonable means do not exist for
ascertaining the Adjusted CD Rate applicable pursuant to subsection
2.04(a) for any Interest Period elected by the Borrowers with respect
to (1) a proposed Borrowing that the Borrowers have requested be made
as a CD Borrowing, (2) a CD Borrowing that will result from the
requested conversion of a Base Rate or Euro-Dollar Borrowing into a CD
Borrowing, or (3) the continuation of an outstanding CD Borrowing
beyond the expiration of the then current Interest Period applicable
thereto, or the Agent shall have determined in good faith that the
Adjusted CD Rate will not adequately and fairly reflect the cost to
the Banks of making, maintaining or funding a proposed Borrowing that
the Borrowers have requested be made or continued as or converted into
a CD Borrowing, then the Agent shall promptly give notice of such
determination to the Borrowers on the borrowing date for such CD
Borrowing, the conversion date of such Base Rate Borrowing or
Euro-Dollar Borrowing or the last day of such Interest Period. If
such notice is given, and subject to the Borrowers' right (if the
required Advance Notice can then be given) pursuant to Section 2.06,
2.07 or 2.08 to request a Euro-Dollar Borrowing in lieu of a requested
CD Borrowing or to convert to or to continue a Euro-Dollar Borrowing
in lieu of converting to a CD Borrowing (for which limited purpose the
Advance Notice pertaining to such CD Borrowing shall be revocable),
(i) any requested CD Borrowing shall be made as a Base Rate Borrowing;
(ii) any Base Rate Borrowing that was to have been converted to a CD
Borrowing shall be continued as a Base Rate Borrowing; (iii) any
Euro-Dollar Borrowing that was to have been converted to a CD
Borrowing shall be converted to a Base Rate Borrowing and (iv) any
outstanding CD Borrowing shall be converted, on the last day of the
then current Interest Period applicable thereto, to a Base Rate
Borrowing. Until such notice has been withdrawn by the Agent, no
further CD Loans shall be made nor shall the Borrowers have the right
to convert Base Rate Loans or Euro-Dollar Loans to CD Loans;
(b) the Agent shall have determined in good faith that by reason
of circumstances affecting the interbank Euro-Dollar market generally
adequate and reasonable means do not exist for ascertaining the
Adjusted Euro-Dollar Rate applicable pursuant to subsection 2.04(b)
for any Interest Period elected by the Borrowers with respect to (1) a
proposed Borrowing that the Borrowers have requested be made as a
Euro-Dollar Borrowing, (2) a Euro-Dollar Borrowing that will result
from the requested conversion of a Base Rate Borrowing or a CD
Borrowing into a Euro-Dollar Borrowing or (3) the continuation of an
outstanding Euro-Dollar Borrowing beyond the expiration of the then
current Interest Period applicable thereto, or the Agent shall have
determined in good faith that the Adjusted Euro-Dollar Rate will not
adequately and fairly reflect the cost to the Banks of making,
maintaining or funding a proposed Borrowing that the Borrowers have
requested be made or continued as or converted into a Euro-Dollar
Borrowing, then the Agent shall promptly give notice of such
determination to the Borrowers at least one Euro-Dollar Business Day
prior to, as the case may be, the borrowing date for such Euro-Dollar
Borrowing, the conversion date of such Base Rate Borrowing or CD
Borrowing or the last day of such Interest Period. If such notice is
given, and subject to the Borrower's right (if the required Advance
Notice can then be given) pursuant to Section 2.06, 2.07 or 2.08 to
request a CD Borrowing in lieu of a requested Euro-Dollar Borrowing or
to convert to or to continue a CD Borrowing in lieu of converting to a
Euro-Dollar Borrowing (for which limited purpose the Advance Notice
pertaining to such Euro-Dollar Borrowing shall be revocable), (i) any
requested Euro-Dollar Borrowing shall be made as a Base Rate
Borrowing, (ii) any Base Rate Borrowing that was to have been
converted to a Euro-Dollar Borrowing shall be continued as a Base Rate
Borrowing, (iii) any CD Borrowing that was to have been converted to a
Euro-Dollar Borrowing shall be converted to a Base Rate Borrowing and
(iv) any outstanding Euro-Dollar Borrowing shall be converted on the
last day of the then current Interest Period applicable thereto to a
Base Rate Borrowing. Until such notice has been withdrawn by the
Agent, no further Euro-Dollar Loans shall be made nor shall the
Borrowers have the right to convert Base Rate Loans or CD Rate Loans
to Euro-Dollar Loans.
SECTION 2.16. Illegality. Notwithstanding any other provision in
this Agreement, if, as a result of any Regulatory Change, it shall be unlawful
or impossible for a Bank (or its Applicable Lending Office) to make, maintain or
fund any Fixed Rate Loans as contemplated by this Agreement, such Bank's
obligation hereunder to make the affected Fixed Rate Loans shall forthwith be
canceled provided that such Bank shall designate a different Applicable Lending
Office if such designation will avoid the need for such cancellation and will
not be otherwise disadvantageous to such Bank. Immediately upon any such
cancellation, if it shall be unlawful or impossible to maintain any Fixed Rate
Loans then outstanding, all such Fixed Rate Loans of such Bank then outstanding
shall be converted automatically to Base Rate Loans. Such Bank shall promptly
give written notice to the Borrowers and the Agent of any such conversion. If
any such conversion of a Fixed Rate Loan is made prior to the last day of the
then current Interest Period therefor, the Borrowers shall pay to such Bank in
accordance with Section 2.13, such amount or amounts as may be necessary to
compensate such Bank for any loss or expense sustained or incurred by such Bank
in respect of such Fixed Rate Loan as a result of such conversion. A
certificate setting forth in reasonable detail any additional amounts payable
pursuant to the foregoing sentence submitted by such Bank to the Borrowers shall
be prima facie evidence of such amounts, absent manifest error.
SECTION 2.17. Foreign Taxes. (a) All payments made by the Borrowers
for the account of any Bank under its Note or this Agreement shall be made free
and clear of, and without reduction for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, restrictions or conditions of any nature whatsoever
now or hereafter imposed, levied, collected, withheld or assessed by any country
including the United States of America (or by any political subdivision or
taxing authority thereof or therein), excluding net income and franchise taxes
now or hereafter imposed by the United States of America, by any state of the
United States of America or by any political subdivision or taxing authority
thereof or therein, or by the country in which such Bank's Euro-Dollar Lending
Office is located or any political subdivision or taxing authority thereof or
therein (such non-excluded taxes being hereinafter called "Foreign Taxes"). If
any Foreign Taxes are required to be withheld from any amounts payable to such
Bank under its Note or this Agreement, the amounts so payable to such Bank shall
be increased to the extent necessary to yield to such Bank (after payment of all
Foreign Taxes) interest or any such other amounts payable thereunder or
hereunder at the rates or in the amounts specified in its Note or this
Agreement. Whenever any Foreign Tax is payable by the Borrowers, as promptly as
possible thereafter, the Borrowers shall send the Agent an original official
receipt showing payment thereof. If a Bank receives a refund or credit in
respect of such Foreign Taxes from a Person other than the Borrowers, such Bank
shall reimburse the Borrowers for the amount of such refund or credit not to
exceed the amount actually paid by the Borrowers to or for the account of such
Bank in respect of such Foreign Taxes.
(b) At least five Domestic Business Days prior to the first date on
which interest or fees are payable hereunder for the account of any Bank, 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 each of the Borrowers and the
Agent two duly completed copies of United States Internal Revenue Service Form
1001 or 4224, certifying in either case that such Bank is entitled to receive
payments under this Agreement and the Notes 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 each of the Borrowers and the Agent two
additional copies of such form (or a successor form) on or before the date that
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 Borrowers or the Agent, in each case certifying that such Bank
is entitled to receive payments under this Agreement and the Notes 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 Borrowers and the Agent that it is not capable of
receiving payments without any deduction or withholding of United States federal
income tax.
SECTION 2.18. Substitution of Banks. If (i) the obligation of any
Bank to make Euro-Dollar Loans has been canceled pursuant to Section 2.16 or
(ii) any Bank has demanded compensation under Section 2.14 or 2.17, the
Borrowers shall have the right, with the assistance of the Agent, to seek a
mutually satisfactory substitute bank or banks (which may be one or more of the
Banks) to purchase the Note and assume the Commitment of such Bank.
SECTION 2.19. Participants' Expenses. All costs, losses, expenses,
or liabilities of a Bank reimbursable pursuant to this Article 2 by the
Borrowers shall also include all costs, losses, expenses, or liabilities of any
lenders participating through such Bank in this Agreement, a Note, or any Fixed
Rate Loan. A certificate setting forth in reasonable detail any additional
amounts payable pursuant to the foregoing sentence submitted by such Bank to the
Borrowers shall be prima facie evidence of such amounts, absent manifest error.
SECTION 2.20. Commitment Fees. During the Revolving Credit Period,
the Borrowers shall pay to the Agent for the account of each Bank (which payment
shall be distributed to each Bank ratably in accordance with each Bank's
Commitment) a commitment fee at the rate of 1/2 of 1% per annum on the daily
average amount by which the aggregate amount of the Commitments exceeds the
aggregate outstanding principal amount of the Loans. Subject to Section 2.09(b)
hereof, such commitment fees shall accrue from and including the Effective Date
to but excluding the last day of the Revolving Credit Period and shall be
payable quarterly on each March 31, June 30, September 30 and December 31 during
the Revolving Credit Period and on the last day of the Revolving Credit Period.
SECTION 2.21. Engineering Fee. The Borrowers agree to pay to the
Agent and to each of the Banks other than Morgan Guaranty Trust Company of New
York a non-refundable fee of $5,000 and $3,750, respectively, per annum on each
anniversary of the date hereof to reimburse them for certain engineering and
other costs. If the Petroleum Property changes substantially after the date
hereof, the Agent shall have the right, in its reasonable discretion, to modify
such fee to reflect increased engineering and other costs.
SECTION 2.22. Agents' Fees. In addition to the origination fee
payable to the Agent for its own account as heretofore agreed with the
Borrowers, the Borrowers agree to pay the Agent and the Collateral Agent $7,500
and $7,500, respectively, on the Effective Date and on each anniversary thereof
to reimburse the Agent and the Collateral Agent for certain administrative costs
in connection with this Agreement and the Collateral Documents.
SECTION 2.23. Participation Fee. The Borrowers shall pay on the
Effective Date to the Agent for the account of the Banks ratably a participation
fee equal to 1/8 of 1% of the Commitments.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Amended Agreement, the
Borrowers represent and warrant to the Banks (which representations and
warranties will survive the delivery of the Notes and the making of the Loans
thereunder) that:
SECTION 3.01. Existence. HEP and HEP Operating are each a limited
partnership duly formed pursuant to the Uniform Limited Partnership Act of the
State of Delaware. MEPO is a limited partnership duly formed pursuant to the
Uniform Limited Partnership Act of the State of Texas. Nominee and Concise are
each a general partnership duly formed pursuant to the Uniform Partnership Act
of the State of Colorado. Operating is a limited partnership duly formed
pursuant to the Uniform Limited Partnership Act of the State of Colorado. HEC
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Texas. Hallwood G.P. is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Each Borrower and each General Partner have full power and
authority pursuant to the laws under which such Borrower or General Partner was
formed to conduct its business. Each Borrower and each General Partner is duly
authorized to do business as a foreign partnership or corporation, as the case
may be, wherever the nature of its Properties or of its activities requires such
authorization, except where the failure to so qualify would not have a
materially adverse effect on its business and operations.
SECTION 3.02. Power and Authorization. Each Borrower has full power
and authority under its respective Partnership Agreement and the Uniform Limited
Partnership Act or Uniform Partnership Act of the States of Delaware, Colorado
and Texas, as the case may be, to create and issue the Notes; each Borrower has
full power and authority under its respective Partnership Agreement and the
Uniform Limited Partnership Act or Uniform Partnership Act of the States of
Delaware, Colorado and Texas, as the case may be, to execute, deliver and
perform the Financing Documents, including this Agreement, to which it is a
party; and all necessary action on the part of each Borrower requisite for the
due creation and issuance of the Notes and for the due execution, delivery and
performance of the Financing Documents, including this Agreement, to which each
Borrower is a party has been duly and effectively taken (except for such actions
that the Financing Documents contemplate will be taken after the date hereof)
and all necessary action on the part of each General Partner of the Borrowers
requisite for the execution, delivery and performance on behalf of each Borrower
of the Notes and the Financing Documents, including this Agreement, to which
each Borrower is a party has been duly and effectively taken (except for such
actions that the Financing Documents contemplate will be taken after the date
hereof). No action or consent is required of the limited partners, if any, of
any Borrower in connection with the due creation and issuance of the Notes and
for the due execution, delivery and performance of the Financing Documents,
including this Agreement.
SECTION 3.03. Binding Obligations. This Agreement and other
Financing Documents do, and the Notes to which any Borrower is a party upon
their creation, issuance, execution and delivery in accordance with this
Agreement will, constitute valid and binding obligations of such Borrower,
enforceable in accordance with their terms except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability.
SECTION 3.04. No Legal Bar or Resultant Lien. The Notes and the
Financing Documents, including this Agreement, to which each Borrower is a party
and the compliance with and performance by each Borrower of the terms thereof do
not and will not violate any provisions of its respective Partnership Agreement
or any material contract, agreement, instrument or Governmental Requirement
presently in effect to which such Borrower is subject, or result in the creation
or imposition of any Lien upon Properties of such Borrower, other than those
permitted by the Financing Documents.
SECTION 3.05. No Consent. Each Borrower's execution, delivery and
performance of the Notes and the Financing Documents, including this Agreement,
to which such Borrower is a party do not require the consent or approval of any
Person which has not been obtained, including, without limitation, any
regulatory authority or governmental body of the United States of America or any
state thereof or any political subdivision of the United States of America or
any state thereof, except for approvals or consents required for the transfer of
interests in oil and gas leases by certain governmental bodies under the terms
of the oil and gas leases issued by such governmental bodies.
SECTION 3.06. Financial Condition. The Financial Statements, which
have been delivered to the Banks, have been prepared in accordance with
generally accepted accounting principles, consistently applied, and present
fairly the financial condition and cash flows of the Borrowers as at the date or
dates and for the period or periods stated (subject only to normal year-end
audit adjustments with respect to such unaudited interim statements). No
change, either individually or in the aggregate, has since occurred in the
condition, financial or otherwise, of the Borrowers which would have a Material
Adverse Effect, except as disclosed on Schedule B-2.
SECTION 3.07. Investments and Guaranties. At the date of this
Amended Agreement, none of the Borrowers has made investments in, advances to or
guaranties of the obligations of any Person, except as reflected in the
Financial Statements or disclosed to the Banks in Schedule B-2 hereto.
SECTION 3.08. Liabilities; Litigation. Except for liabilities
incurred in the normal course of business, none of the Borrowers has at the date
of this Amended Agreement any material (individually or in the aggregate)
liabilities, direct or contingent, except as disclosed or referred to in the
Financial Statements or disclosed to the Banks in Schedule B-2 hereto. Except
as disclosed in the Financial Statements or disclosed to the Banks in Schedule
B-2 hereto, at the date of this Amended Agreement there is no litigation, legal,
administrative or arbitral proceeding, investigation or other action of any
nature pending or, to the knowledge of the Borrowers, threatened against or
affecting any Borrower which involves the reasonable possibility of any judgment
or liability not fully covered by insurance, and which would have a Material
Adverse Effect. No unusual or unduly burdensome restriction, restraint, or
hazard exists by contract, law or governmental regulation or otherwise relative
to the business or Properties of the Borrowers, except as disclosed to the Banks
in the Financial Statements or disclosed in Schedule B-2 hereto.
SECTION 3.09. Taxes; Governmental Charges. Each Borrower has filed
all Federal and, to the best of its knowledge, all material state and local tax
returns and reports required to be filed and has paid all taxes, assessments,
fees and other governmental charges levied upon it or upon its Properties or
income which are due and payable, including interest and penalties, except for
any taxes, assessments, fees and other governmental charges with respect to
which the Borrowers have set aside on their books any reserve required by
generally accepted accounting principles.
SECTION 3.10. Titles, etc. Except as disclosed on Schedule B-2
hereto, each Borrower has good title to its material (individually or in the
aggregate) Properties (including record title to all of the oil and gas
Properties which such Borrower has identified to the Banks for use in
determining the Debt Limit (as defined in Schedule B)), free and clear of all
Liens except (i) Liens referred to in the Financial Statements, (ii) Liens
disclosed to the Banks in Schedule B-2 hereto, (iii) Excepted Liens, or (iv)
Liens otherwise permitted by this Agreement or the other Financing Documents.
Each Borrower has delivered to the Collateral Agent copies of the most recent
title opinions with respect to the Properties it has commissioned for Properties
having a fair market value in excess of $100,000; provided that the Collateral
Agent shall not have any duty to review such title opinions or determine the
ownership of any such Petroleum Property.
SECTION 3.11. Defaults. None of the Borrowers is in default nor has
any event or circumstance occurred which, but for the passage of time or the
giving of notice, or both, would constitute a default (in any respect which
would have a Material Adverse Effect) under any loan or credit agreement,
indenture, mortgage, deed of trust, security agreement or other agreement or
instrument evidencing or pertaining to any Debt of such Borrower, or under any
material agreement or instrument to which such Borrower is a party or by which
it is bound, except as disclosed to the Banks in Schedule B-2 hereto. No
Default hereunder has occurred and is continuing.
SECTION 3.12. Casualties; Taking of Properties. Since the date of
the Financial Statements, neither the business nor the Properties of the
Borrowers have been affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of Property of the Borrowers or cancellation of contracts,
permits or concessions by any domestic or foreign government or any agency
thereof, riot, activities of armed forces or acts of God or of any public enemy,
the occurrence of which would have a Material Adverse Effect.
SECTION 3.13. Use of Proceeds; Margin Stock. The proceeds of the
Loans shall be used for working capital purposes and to refinance the Borrowers'
Debt. Except as permitted by Section 19(n) of Schedule B, no proceeds of any
Loan will be used, directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of buying or carrying any "margin stock" within the
meaning of Regulation U. None of the Borrowers is engaged principally, or as
one of the Borrower's important activities, in the business of extending credit
for the purpose of purchasing or carrying margin stocks. None of the Borrowers
nor any Person acting on behalf of the Borrowers has taken or will take any
action which might cause the Notes or any of the Financing Documents, including
this Agreement, to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect.
SECTION 3.14. Compliance with the Law. None of the Borrowers:
(a) is in violation of any Governmental Requirement; and
(b) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of its
Properties or the conduct of its business;
which violation or failure would have (in the event such violation or failure
were asserted by any Person through appropriate action) a Material Adverse
Effect.
SECTION 3.15. Compliance with ERISA. Each member of the Controlled
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Plan. No member of the Controlled Group has (i) sought a waiver
of the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which in either case has resulted
or could result in the imposition of a Lien or the posting of a bond or other
security under ERISA or the Code or (iii) incurred any liability under Title IV
of ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA.
SECTION 3.16. No Material Misstatements. No information, exhibit or
report furnished to the Banks by the Borrowers in connection with the
negotiation of this Agreement contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statements
contained therein not misleading.
SECTION 3.17. Investment Company Act. None of the Borrowers is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
SECTION 3.18. Public Utility Holding Company Act. None of the
Borrowers is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 3.19. Partnership Agreements. The Borrowers have delivered
to the Banks true and correct copies of the Partnership Agreements and the
certificate of limited partnership of each Borrower which is a limited
partnership. Such documents have not been modified or terminated except for
non-material changes to the names and addresses of the limited partners, if any;
and the Partnership Agreements and the certificate of limited partnership of
each Borrower which is a limited partnership are in full force and effect as of
the date hereof. None of the Borrowers nor any General Partner nor, to the best
knowledge of the Borrowers, any other Person is in default under any Partnership
Agreement or any certificate of limited partnership of any Borrower which is a
limited partnership, except as disclosed to the Banks in Schedule B-2 hereto.
SECTION 3.20. Location of the Borrower. Each Borrower's principal
place of business is either Denver, Colorado or Dallas, Texas and the chief
executive office is located at 3710 Rawlins, Suite 1500, Dallas, Texas 75219.
SECTION 3.21. Gas Imbalances. Except as set forth on Schedule B-2 or
specifically disclosed in the Borrowers' financial statements or a Reserve
Report, there are no gas imbalances, take or pay or other prepayments with
respect to any Borrower's oil and gas Properties which would require the
Borrowers to deliver hydrocarbons produced from any of the Borrowers' oil and
gas Properties at some future time without then or thereafter receiving full
payment therefor which would exceed $200,000 in the aggregate.
SECTION 3.22. General Partners. HEC is the sole general partner of
HEP and HEP Operating. Hallwood G.P. is the sole general partner of Operating
and MEPO. Hallwood G.P. and Operating are the only general partners of Nominee
and Concise. HEC and Hallwood G.P. are each a corporation duly organized and
legally existing and in good standing under the laws of its state of
incorporation, and each is duly qualified as a foreign corporation in all
jurisdictions where the Mortgaged Property is located.
SECTION 3.23. Other Financing Documents. The representations and
warranties contained in the other Financing Documents are true and correct as of
the date of this Amended Agreement.
SECTION 3.24. Subsidiaries of Borrowers. Each corporate Subsidiary,
if any, of the Borrowers is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction in which it is formed, and has all
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted. Each of the
Affiliated Partnerships is a partnership duly formed pursuant to the laws of its
jurisdiction of formation. The business which each of the Affiliated
Partnerships carries on and which it proposes to carry on may lawfully be
carried on by it and its partners in partnership form. Each of the Affiliated
Partnerships is duly authorized to do business as a partnership in all
jurisdictions wherein the property owned or business transacted by it makes such
qualification necessary and where such qualification is provided for, except
where the failure to be so qualified would not have a material adverse effect on
its business, assets, property or condition (financial or otherwise).
SECTION 3.25. Environmental Matters. In the ordinary course of its
business, each Borrower conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of such Borrower
and its Subsidiaries, if any, in the course of which it identifies and evaluates
associated liabilities and costs (including, without limitation, any capital or
operating expenditures required for clean-up or closure of properties presently
or previously owned, any capital or operating expenditures required to achieve
or maintain compliance with environmental protection standards imposed by law or
as a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat and any actual or potential liabilities to third parties,
including employees, and any related costs and expenses). On the basis of this
review, each Borrower has reasonably concluded that Environmental Laws are
unlikely to have a material adverse effect on the business (as it is being
conducted on the date such representation is being made), financial condition,
results of operations or prospects of such Borrower and its Subsidiaries,
considered as a whole.
ARTICLE 4
COVENANTS
SECTION 4.01. The Borrowers agree that, so long as any Bank has any
Commitment hereunder or any amount payable under any Note remains unpaid, each
will perform and comply with each of the "Uniform Covenants" set forth in
Schedule B hereto, unless such compliance and performance shall have been
specifically waived in writing by the Majority Lenders.
ARTICLE 5
DEFAULTS
SECTION 5.01. Events of Default. If any Event of Default not
specifically waived in writing by the Majority Lenders shall have occurred,
then, and in every such event, the Agent shall (i) if requested by the Required
Banks, by notice to the Borrowers terminate the Commitments and they shall
thereupon terminate, and (ii) if requested by the Required Banks, by notice to
the Borrowers declare the Notes (together with accrued interest thereon) to be,
and the Notes shall thereupon become, immediately due and payable without
presentment, demand, protest, notice of intent to accelerate or other notice of
any kind, all of which are hereby waived by the Borrowers; provided that in the
case of any of the Events of Default specified in Sections (g) or (h) of
Schedule C with respect to any Borrower, without any notice to any Borrower or
any other act by the Agent or the Banks, the Commitments shall thereupon
terminate and the Notes (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other notice of any kind, all of
which are hereby waived by the Borrowers.
SECTION 5.02. Notice of Default. The Agent shall give notice to the
Borrowers of a Default under Schedule C promptly upon being requested to do so
by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 6
CONDITIONS
SECTION 6.01. Effectiveness. This Amended Agreement shall become
effective on the date that each of the following conditions shall have been
satisfied (or waived in accordance with Section 8.05):
(a) Agreement - the Agent shall have received counterparts of this
Amended Agreement signed by each of the parties hereto (or, in the case of
any party as to which an executed counterpart shall not have been received,
telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party);
(b) Note - the Agent shall have received for the account of each Bank
an executed Note, duly and validly issued, dated on or before the Effective
Date;
(c) Certificates - the Agent shall have received a signed copy of a
certificate of the Secretary or an Assistant Secretary or other appropriate
officer of each of the Borrowers (or if such Borrower is a partnership, a
General Partner of such Borrower) certifying (i) the names and true
signatures of the Authorized Persons authorized to sign the Notes, and the
Collateral Documents to which the Borrowers or the General Partners are or
will be a party and the other documents or certificates to be delivered
pursuant thereto, (ii) the resolutions of the Board of Directors (or
equivalent body) of the Borrowers and of each General Partner authorizing
the transactions contemplated hereby to which the Borrowers or such General
Partner are/is or will be a party, together with all documents evidencing
other necessary partnership or corporate action with respect to any
thereof, (iii) no amendments to the true copies of the Partnership
Agreements delivered to the Agent prior to the Effective Date; (iv) no
amendments to the true copy of the Articles of Incorporation and By-Laws of
HEC and Hallwood G.P. delivered to the Agent prior to the Effective Date;
(d) Opinion of Borrowers' Counsel - the Agent shall have received
from Andrews & Kurth, counsel for the Borrowers, an opinion substantially
to the effect of Exhibit B hereto and covering such additional matters as
the Majority Lenders may reasonably request;
(e) Opinion of Agent's Counsel - the Agent shall have received from
Davis Polk & Wardwell, special counsel for the Agent, an opinion in
substantially the form of Exhibit C hereto;
(f) the Collateral Agent shall have received duly executed
counterparts of the documents numbered (C)(1)(g), (C)(2)(d),
C(3)(c),(D)(4)(g), (D)(5)(c), (D)(5)(c), (D)(6)(c), (D)(7)(b),(E)(2)(d),
(E)(5)(d) listed on Schedule D;
(g) Prudential - the Agent shall have received duly executed
counterparts of an amendment substantially in the form of Exhibit E; and
(h) Other - the Agent shall have received such other documents as it
may reasonably have requested;
Provided that this Amended Agreement shall not become effective or be binding on
any party hereto nor shall any representation or warranty contained in Article 3
hereof be deemed to be made unless and until all of the foregoing conditions are
satisfied not later than April 10, 1995. The Agent shall promptly notify the
Borrowers and the Banks of the Effective Date, and such notice shall be
conclusive and binding on all parties hereto. On the Effective Date the Original
Agreement will be automatically amended and restated in its entirety to read as
set forth herein. On and after the Effective Date the rights and obligations of
the parties hereto shall be governed by this Amended Agreement; provided that
(x) any breach of any representation or warranty contained in the Original
Agreement, the Note or any other Financing Document (as such terms are defined
in the Original Agreement), which breach occurred prior to the Effective Date,
shall survive and be actionable following the Effective Date and (y) rights and
obligations of the parties hereto with respect to the period prior to the
Effective Date shall continue to be governed by the provisions of the Original
Agreement; except that to the extent any provision of this Amended Agreement
constitutes a waiver of an obligation of Borrowers under the Original Agreement,
such waiver shall be effective with respect to the Original Agreement. No
failure of a Bank so to cancel and return its Original Note shall affect the
validity of its new Note. The Agent shall promptly notify the Borrowers and the
Banks of the effectiveness of this Amended Agreement, and such notice shall be
conclusive and binding on all parties hereto.
SECTION 6.02. Transitional Provisions. On the Effective Date but
subject to the conditions set forth in Section 6.01 hereof, the Euro-Dollar
Loans and Domestic Loans, as such terms are defined under the Original
Agreement, outstanding to each Bank thereunder shall be deemed to be the initial
Euro-Dollar Loans or Domestic Loans, as the case may be, made by such Bank under
this Amended Agreement, it being the intention of the parties hereto that (i)
all indebtedness evidenced by the Original Notes shall, on and after the
Effective Date, be solely evidenced by the Notes, (ii) the Loans outstanding
under the Original Agreement on the Effective Date shall continue to be
outstanding on such date as Domestic Loans or Euro-Dollar Loans, as appropriate,
having Interest Periods identical to the corresponding interest periods under
the Original Agreement and bearing interest as provided with respect to Loans in
Article II hereof the same as if such Loans were originally requested and made
under this Amended Agreement instead of the Original Agreement and (iii) the
liens created by the Collateral Documents on the properties and assets described
therein shall be carried forward and continue in full force and effect for the
purpose of securing the Notes. Upon receipt of its Note, each Bank will mark
its Original Note "Replaced" and in due course return its Original Note to HEP.
SECTION 6.03. All Loans. The obligation of each Bank to make its
Loan on the occasion of each Borrowing pursuant to this Agreement is subject to
the following conditions precedent:
(a) Advance Notice - the Agent shall have received Advance Notice in
accordance with Section 2.06 which shall be true and correct and shall be
duly and properly executed and completed by the Borrowers;
(b) No Default - immediately before and after such Loan, no Default
shall have occurred and be continuing;
(c) Representations and Warranties - the representations and
warranties of the Borrowers contained in this Agreement are true and
correct in all material respects on and as of the date of such Loan (other
than those representations and warranties contained in Sections 3.07 and
3.08 which are and correct on and as of the date of this Amended
Agreement);
(d) No Material Adverse Change - there shall have occurred no event
or condition having, in the sole opinion of the Required Banks, a Material
Adverse Effect; and
(e) Opinions of Counsel - solely if such Borrowing is the first
Borrowing under this Amended Agreement, the Collateral Agent shall have
received on or prior to the date of such Borrowing all the opinions of
counsel referred to in Section 36 of Schedule B.
Each borrowing hereunder shall be deemed to be a representation and warranty by
the Borrowers on the date of such borrowing as to the facts specified in
subsections (b) and (c) of this Section.
ARTICLE 7
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the Notes as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of
New York shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrowers or any Subsidiary or affiliate of the Borrowers as
if it were not the Agent hereunder.
SECTION 7.03. Action by Agent. The obligations of the Agent
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agent shall not be required to take any action
with respect to any Default, except as expressly provided in Article 5.
SECTION 7.04. Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrowers), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents, or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent
nor any of its affiliates nor any of their respective directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of the Borrowers; (iii) the
satisfaction of any condition specified in Article 6, except receipt of items
required to be delivered to the Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex, facsimile or similar writing) believed
by it to be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent, its affiliates and their
respective officers, employees or agents (to the extent not reimbursed by the
Borrowers) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that the Agent may suffer
or incur in connection with this Agreement or any action taken or omitted by
such indemnitees hereunder, including the indemnitee's ordinary negligence.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Banks and the Borrowers. Upon any such
resignation, the Required Banks shall have the right to appoint a successor
Agent with the consent of the Borrowers, which consent shall not be unreasonably
withheld. If no successor Agent shall have been so appointed, and shall have
accepted such appointment, within 30 days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $100,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Notices. (a) All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of Borrowers or the Agent, at its address or telex or
facsimile number set forth on the signature pages hereof, (y) in the case of any
Bank, at its address or telex or facsimile number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other address
or telex or facsimile number as such party may hereafter specify for the purpose
by notice to the Agent and the Borrowers. Each such notice, request or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at the address
specified in this Section; provided that notices to the Agent under Article 2
shall not be effective until received.
(b) Each Borrower hereby authorizes any other Borrower to act on its
behalf in giving or receiving notices or making elections or determinations
pursuant to Article 2 and authorizes the Agent to rely conclusively on any
notice given by, or election or determination made by, any Borrower pursuant to
Article 2, and to give notices to which are required to be given to such
Borrower to any other Borrower on behalf of such Borrower. In case of any
conflict between notices given, or elections or determinations made, by any
Borrower and ones given or made by all the Borrowers, those given or made by HEP
shall prevail.
SECTION 8.02. No Waivers. No failure or delay by the Agent or any
Bank in exercising any right, power or privilege under any Financing Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies therein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 8.03. Expenses; Documentary Taxes. The Borrowers shall pay
(i) all out-of-pocket expenses of the Agent and the Collateral Agent, including
fees and disbursements of special counsel for the Agent and special counsel for
the Collateral Agent, in connection with the preparation of the Financing
Documents, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (ii) if an Event of Default occurs, all
out-of-pocket expenses incurred by the Agent or any Bank, including fees and
disbursements of counsel, in connection with such Event of Default and
collection and other enforcement proceedings resulting therefrom. The Borrowers
shall indemnify each Bank against any transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery of any Financing Document.
SECTION 8.04. Sharing of Set-Offs. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks pro rata; provided that nothing in this Section shall impair the right of
any Bank to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such exercise to the payment of obligations of the
Borrowers other than obligations under the Notes. Each of the Borrowers agrees,
to the fullest extent it may effectively do so under applicable law, that any
holder of a participation in a Note, whether or not acquired pursuant to the
foregoing arrangements, may exercise rights of set-off or counterclaim and other
rights with respect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrowers in the amount of such
participation.
SECTION 8.05. Amendments and Waivers. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrowers and the Required Banks
(and, if the rights or duties of the Agent are affected thereby, by the Agent);
provided that, any amendment of the provisions of Schedule A, B, C, or D shall
require the written consent of the Majority Lenders; and provided further that
no such amendment or waiver shall, unless signed by all the Banks, (i) increase
or decrease the Commitment of any Bank or subject any Bank to any additional
obligation, but subject to the determination of the Debt Limit pursuant to
Section 17 of Schedule B hereto, (ii) reduce the principal of or rate of
interest on any Loan or any fees hereunder, (iii) postpone the date fixed for
any payment of principal of or interest on any Loan or any fees hereunder or
(iv) 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 Section or any other
provision of this Agreement.
SECTION 8.06. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that no Borrower may assign or otherwise transfer any of its
rights under this Agreement without the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrowers and the Agent, such Bank shall remain responsible for the performance
of is obligations hereunder, and the Borrowers and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement. Any agreement pursuant to which any Bank
may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrowers hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clause (i),
(ii), (iii) or (iv) of Section 8.05 without the consent of the Participant. An
assignment or other transfer which is not permitted by subsection (c) or (d)
below shall be given effect for purposes of this Agreement only to the extent of
a participating interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions, (each an "Assignee") all, or a proportionate part of all, which
must be in amounts of at least $5,000,000, of its rights and obligations under
this Agreement and the Notes, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption Agreement in substantially
the form of Exhibit D hereto executed by such Assignee and such transferor Bank,
with (and subject to) the subscribed consent of the Borrowers and the Agent;
provided that if an Assignee is an affiliate of such transferor Bank, no such
consent shall be required; provided further that the consent of the Collateral
Agent shall also be required, which consent shall not be unreasonably withheld,
if such transferor Bank is assigning its rights and obligations under the
Sharing Agreement. Upon execution and delivery of such instrument and payment
by such Assignee to such transferor Bank of an amount equal to the purchase
price agreed between such transferor Bank and such Assignee, such Assignee shall
be a Bank party to this Agreement and shall have all the rights and obligations
of a Bank with a Commitment as set forth in such instrument of assumption, and
the transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Agent and the Borrowers shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee. In
connection with any such assignment, the transferor Bank shall pay to the Agent
an administrative fee for processing such assignment in the amount of $2,000.
If the Assignee is not incorporated under the laws of the United States of
America or a state thereof, it shall, prior to the first date on which interest
or fees are payable hereunder for its account, deliver to the Borrower and the
Agent certification as to exemption from deduction or withholding of any United
States federal income taxes in accordance with Section 2.15.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligation hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 2.14 than such
Bank would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrowers' prior written consent or by
reason of the provisions of Section 2.14 requiring such Bank to designate a
different Applicable Lending Office under certain circumstances or at a time
when the circumstances giving rise to such greater payment did not exist.
SECTION 8.07. New York Law. THIS AGREEMENT AND EACH NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
Each Borrower hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
State court sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby. Each Borrower irrevocably waives, to the fullest extent permitted by
law, any objection which such Borrower 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.
SECTION 8.08. Counterparts; Integration. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement and the other Financing Documents constitute the
entire agreement and understanding among the parties hereto and supersede any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof.
SECTION 8.09. Joint and Several Obligations. The obligations of the
Borrowers under the Financing Documents shall be joint and several. The
obligations of each Borrower under the Financing Documents shall be
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of any other Borrower under any
Financing Document, by operation of law or otherwise;
(ii) any release, impairment, non-perfection or invalidity of any
direct or indirect security for any obligation of any Borrower under
any Financing Document;
(iii) any change in the existence, structure or ownership of any
Borrower;
(iv) any insolvency, bankruptcy, reorganization or other similar
proceeding affecting any other Borrower or its assets or any resulting
release or discharge of any obligation of any other Borrower under any
Financing Document;
(v) any invalidity or unenforceability relating to or against
any other Borrower for any reason of any Financing Document, or any
provision of applicable law or regulation purporting to prohibit the
payment by any other Borrower of the principal of or interest on any
Note or any other amount payable by any other Borrower under any
Financing Document; or
(vi) any other act or omission to act or delay of any kind by any
other Borrower or any other corporation or person or any other
circumstance whatsoever which might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of the Borrowers'
obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
HALLWOOD ENERGY PARTNERS, L.P.
HEP OPERATING PARTNERS, L.P.
By: Hallwood Energy Corporation
By /s/ Cathleen M. Osborn
Title: Vice President
The General Partner of Hallwood
Energy Partners, L.P. and HEP
Operating Partners, L.P.
Hallwood Energy Corporation
4582 South Ulster Street Parkway
Suite 1700
Denver, Colorado 80237
MAY ENERGY PARTNERS OPERATING
PARTNERSHIP LTD.,
EDP OPERATING, LTD.
individually and as a
general partner of
EM NOMINEE PARTNERSHIP COMPANY and
CONCISE OIL AND GAS PARTNERSHIP
EM NOMINEE PARTNERSHIP COMPANY
CONCISE OIL AND GAS PARTNERSHIP
By: HALLWOOD G.P., INC.,
formerly known as
QUINOCO ENERGY, INC.
By /s/ Cathleen M. Osborn
Title: Vice President
The General Partner of May Energy
Partners Operating Partnership Ltd.
and EDP Operating, Ltd. and EM Nominee
Partnership Company and Concise Oil
and Gas Partnership
Commitments BANKS:
$15,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ John Kowalczuk
Title: Vice President
$15,000,000 FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: FIRST UNION CORPORATION OF
NORTH CAROLINA, its Agent
By /s/ Jay M. Chernosky
Title: Vice President
$15,000,000 NATIONSBANK OF TEXAS, N.A.
By /s/ Malcolm C. Turner
Title: Senior Vice President
_________________
Total Commitments
$45,000,000
===========
AGENT:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ John Kowalczuk
Title: Vice President
60 Wall Street
New York, New York 10260
Attention: John Kowalczuk
Telex number: 177615
COLLATERAL AGENT:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as Collateral Agent
for the Lenders
By: First Union Corporation
of North Carolina,
as its Agent
By /s/ Jay M. Chernosky
Title: Vice President
SCHEDULE A
Uniform Definitions
Unless otherwise specified herein, all accounting terms used in this
Agreement shall be interpreted, all accounting determinations hereunder shall be
made and all financial statements required to be delivered hereunder shall be
prepared in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis consistent (except for changes
concurred in by the Borrowers' independent public accountants) with the most
recent audited consolidated financial statements of the Borrowers delivered to
the Banks.
"Affiliate" means each Person, other than a Borrower, who controls, is
controlled by or is under common control with any Borrower. For purposes of
this definition, the term "control" means possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Affiliated Partnership" means the entities described on Schedule A-1
hereto, and such other entities as the Borrowers and the Majority Lenders may
hereafter designate in writing as Affiliated Partnerships for purposes hereof.
"Affiliated Partnership Borrowing Base" has the meaning set forth in
Section 17(b) of Schedule B.
"ARKLA Recoupment Liability" means the obligation of Nominee to pay to
Arkla Energy Resources an amount disclosed in the Financial Statements or the
equivalent in gas when produced pursuant to that certain take-or-pay settlement
agreement effective March 1, 1989 between Arkla Energy Resources and Nominee,
Quinoco Consolidated Partners, L.P. and Quinoco Petroleum, Inc.
"Authorized Person" means (i) for a corporation, the chief executive
officer, chief financial officer, chief accounting officer, controller, general
counsel or executive vice president of such corporation, and (ii) for a
partnership, the chief executive officer, chief financial officer, chief
accounting officer, controller, general counsel or executive vice president of
each general partner of such partnership; provided that for the purposes of
certificates delivered pursuant to Schedule B hereof, Authorized Person means
(i) for a corporation, the chief executive officer, chief financial officer or
chief accounting officer of such corporation, and (ii) for a partnership, the
chief executive officer, chief financial officer or chief accounting officer of
each general partner of such partnership.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the Controlled Group.
"CFADS" or "Cash Flow Available for Debt Service" means, for any
period, gross cash operating revenues properly allocable to Petroleum Properties
for such period less the following cash items: royalties, operating costs,
severance, windfall profits and other wellhead taxes, general and administrative
expenses and current income and other taxes properly allocable to such period
and cash capital expenditures made during such period and properly allocable to
Petroleum Properties. CFADS shall be determined based on the most recent
Reserve Report and financial statements (and supplemental information), as the
case may be, furnished to the Lenders and prepared on the same basis as those
provided under Section 4.01, subject to approval of such Reserve Report (and
supplemental information) by the Majority Lenders. For purposes of Section 27
of Schedule B, "general and administrative expenses" shall mean for each fiscal
year the higher of (i) $3,000,000 or (ii) the product of (a) CFADS for such year
without deduction for the general and administrative expenses allocable to that
fiscal year multiplied by (b) the previous fiscal year's general and
administrative expenses and then divided by (c) the previous year's CFADS
without deduction for the general and administrative expenses allocable to that
fiscal year.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Collateral" has the meaning set forth in Schedule D.
"Collateral Agent" means First Union National Bank of North Carolina,
in its capacity as collateral agent under the Financing Documents, and its
successors in such capacity.
"Collateral Documents" means the documents set forth in Schedule D,
and all supplementary assignments, security agreements, pledge agreements,
acknowledgements or other documents delivered or to be delivered pursuant to the
Financing Documents.
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages of the Credit Agreement,
as such amount may be reduced from time to time pursuant to Section 2.09 of the
Credit Agreement.
"Consolidated Current Assets" means at any date the consolidated
current assets of the Borrowers and their Consolidated Subsidiaries determined
as of such date.
"Consolidated Current Liabilities" means at any date (i) the
consolidated current liabilities of the Borrowers and their Consolidated
Subsidiaries, less (x) the current portion of Indebtedness and (y) the current
portion of the ARKLA Recoupment Liability plus (ii) the current liabilities of
any Person (other than Borrowers or a Consolidated Subsidiary) which are
guaranteed by the Borrowers or a Consolidated Subsidiary, all determined as of
such date.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrowers
in their consolidated financial statements if such statements were prepared as
of such date.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with any General Partner or any Borrower, are
treated as a single employer under Section 414 of the Code.
"Credit" means any extension of credit under any Credit Facility,
whether by way of loan or purchase of notes or other securities or otherwise.
"Credit Agreement" means the Second Amended and Restated Credit
Agreement dated as of March 31, 1995 among the Borrowers, the banks listed
therein and Morgan Guaranty Trust Company of New York, as Agent, as amended from
time to time.
"Credit Facilities" means the Credit Agreement and the Note Purchase
Agreement (including all notes or other evidences of indebtedness issued
pursuant thereto) and "Credit Facility" means any one of them.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee under capital leases,
(v) all Reimbursement Obligations, except to the extent (measured by collateral
value) such Reimbursement Obligations are (a) secured by cash, United States
Treasury Obligations or time deposits or certificates of deposit issued by any
Bank or any other bank or savings and loan association rated "AA" or its
equivalent by Standard & Poor's Ratings Group and Moody's Investors Service,
Inc. and (b) payable to a Bank, (vi) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person, and
(vii) all Debt of others directly or indirectly guaranteed by such Person or in
respect of which such Person is otherwise liable, contingently or otherwise;
provided that Debt of the Borrowers shall include the ARKLA Recoupment
Liability.
"Debt Limit" has the meaning set forth in Section 17(b) of Schedule B.
"Default" means the occurrence of any of the events or conditions
specified in Schedule C, whether or not any requirement for notice or lapse of
time or other condition precedent has been satisfied.
"Derivative Obligations" means all obligations of any Person with
respect to any Hedging Transaction to which such Person is a party.
"Discount Rate" means, for purposes of determining the Debt Limit at
any date, a rate per annum equal to the weighted average applicable rate of
interest payable by the Borrowers on Debt outstanding under the Financing
Documents during the most then recently ended fiscal quarter of the Borrowers.
"Dollars" and the sign "$" means lawful currency of the United States
of America.
"Enron Agreement" means the Loan Agreement dated as of December 29,
1994 between HSDC and Joint Energy Development Investments Limited Partnership,
as amended from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"Event of Default" means any of the events specified in Schedule C.
"Excepted Liens" means: (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action; (ii) Liens in connection with workmen's
compensation, unemployment insurance or other social security, old age pension
or public liability obligations; (iii) legal or equitable encumbrances deemed to
exist by reason of negative pledge covenants (such as those made in Section 18
of Schedule B hereof); (iv) legal or equitable encumbrances deemed to exist by
reason of the existence of any litigation or other legal proceeding or arising
out of a judgment or award with respect to which an appeal is being prosecuted,
but only so long as execution of such judgment and enforcement of such Lien is
effectively stayed and the amount thereof (in excess of applicable insurance
coverage) does not exceed, individually or in the aggregate, $2,000,000; (v)
vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's,
materialmen's, construction or other like Liens arising by operation of law in
the ordinary course of business incident to obligations which are not yet due or
which are being contested in good faith by appropriate proceedings by or on
behalf of the Borrowers; (vi) Liens arising in the ordinary course of business
under gas sales contracts, operating agreements, unitization and pooling
agreements, and such other documents as are customarily found in connection with
comparable drilling and producing operations; (vii) minor irregularities in
title which do not materially interfere with the occupation, use and enjoyment
by a Borrower of its respective Properties in the normal course of business as
presently conducted or materially impair the value thereof for such business;
(viii) Liens arising or existing by reason of that certain settlement agreement
described in the definition of the "ARKLA Recoupment Liability;" (ix) Liens on
cash, United States Treasury Obligations or time deposits or certificates of
deposit issued by any Bank or any other bank or savings and loan association
rated "AA" or its equivalent by Standard & Poor's Ratings Group or Moody's
Investor Service, Inc. in an aggregate face amount at any one time subject to
such Liens not in excess of $5,000,000 to secure Reimbursement Obligations and
obligations incurred pursuant to interest rate or commodities swap, or similar
hedging, transactions; and (x) Liens on the Collateral securing Derivative
Obligations of any Borrower in respect of any Hedging Transaction between such
Borrower and any Bank.
"Financial Statements" means the audited consolidated financial
statements of HEP for the fiscal year ended December 31, 1994.
"Financing Documents" means the Credit Facilities, the Revolving
Credit Notes, the Senior Secured Notes, the Sharing Agreement and the Collateral
Documents.
"General Partner" means (i) Hallwood Energy Corporation, the sole
general partner of HEP and HEP Operating, (ii) Hallwood G.P., the sole general
partner of Operating and MEPO and one of two general partners of Nominee and
Concise and (iii) Operating, the other general partner of Nominee and Concise,
together with any additional and successor general partners that may be admitted
as a general partner of any of the Borrowers.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement
(including, without limitation, any of the foregoing which relate to
environmental standards or controls, energy regulations and occupational, safety
and health standards or controls) of any (domestic or foreign) federal, state,
county, municipal or other government, department, commission, board, court,
agency or any other instrumentality of any of them, which exercises jurisdiction
over the Borrowers or any of their Property.
"HCP" means Hallwood Consolidated Partners, L.P., a Colorado limited
partnership.
"Hallwood Oil and Gas" means Hallwood Oil and Gas Inc., a California
corporation.
"Hallwood G.P." means Hallwood G.P., Inc., a Delaware corporation and
the sole general partner of Operating and MEPO and, with Operating, the
co-general partner of Nominee and Concise.
"Hedging Transaction" means any rate swap transaction, basis swap,
forward rate transaction, commodity swap, commodity option, equity or equity
index swap, equity or equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor transaction, collar
transaction, currency swap transaction, cross-currency rate swap transaction,
currency option or any other similar transaction (including any option with
respect to any of the foregoing transactions) or any combination of the
foregoing transactions including, without limitation, any Swap Transaction (as
defined in the Master Exchange Agreement dated as of April 14, 1992 between HEP
and Morgan Guaranty Trust Company of New York, as amended from time to time).
"HGI" means The Hallwood Group Incorporated, a Delaware corporation.
"HSDC" means Hallwood Spraberry Drilling Company, L.L.C., a Colorado
limited liability company, and its successors.
"Hydrocarbon Borrowing Base" has the meaning set forth in Section
17(b) of Schedule B.
"Indebtedness" means any and all amounts owing or to be owing by the
Borrowers to the Lenders under the Credit Facilities and all other liabilities
of the Borrowers to the Lenders from time to time existing under the Financing
Documents (including without limitation Derivative Obligations of any Borrower
in respect of any Hedging Transaction between such Borrower and any Bank) and
all renewals, extensions, rearrangements, amendments or supplements to such
documents.
"Lenders" means Prudential and each of the banks listed on the
signature pages of the Credit Agreement as having a Commitment (as such terms
are defined in the Credit Agreement) and the respective successors and assigns
of each of the foregoing which become Lenders in accordance with the provisions
of the Credit Agreement or the Note Purchase Agreement, as the case may be, and
the Sharing Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including without limitation any production payment, advance payment or similar
arrangement with respect to minerals in place) or any other arrangement the
economic effect of which is to give a creditor preferential access to such asset
to satisfy its claim, whether or not filed, recorded or otherwise perfected
under applicable law. For the purpose of the Financing Documents, the Borrowers
or any Subsidiary shall be deemed to own subject to a Lien (i) any asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset or any capitalized lease obligation or (ii) any account
receivable transferred by it with recourse (including any such transfer subject
to a holdback or similar arrangement which effectively imposes the risk of
collectibility upon the transferor).
"Majority Lenders" means the Required Holders and the Required Banks.
"Material Adverse Effect" means any material and adverse effect on the
properties, business or financial condition of the Borrowers, determined at any
time by reference to the information disclosed to the Lenders at the time of the
then next preceding determination of the Debt Limit.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $2,000,000.
"Mortgaged Property" means the Property owned by or in which the
Borrowers own an undivided interest and which is subject to the Liens,
privileges, priorities and security interests existing under the terms of the
Collateral Documents.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the
Controlled Group during such five year period.
"Note Purchase Agreement" means the Amended and Restated Note Purchase
Agreement dated as of May 7, 1990 among the Borrowers and Prudential, as amended
from time to time.
"Partners" means the General Partners and limited partners, if any, of
the Borrowers.
"Partnership Agreement" means for any Borrower its governing
partnership agreement among its Partners, as such agreement may be amended or
supplemented from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, estate, unincorporated
organization, government or any agency or political subdivision thereof, or any
other form of entity.
"Petroleum Property" means any interest in oil and gas reserves
(including, without limitation, any production payment with respect to any such
reserves) which is, or is to be, taken into account in the determination of the
Debt Limit pursuant to Section 17(b)(i).
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the Controlled Group for
employees of any member of the Controlled Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the Controlled Group for employees of any Person
which was at such time a member of the Controlled Group.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Proved Developed Producing Reserves" has the meaning assigned to that
term by the Society of Petroleum Engineers, as such meaning may be amended from
time to time, but generally shall mean the subcategory of "Proved Developed
Reserves" (as defined by the Society of Petroleum Engineers) which are
recoverable by natural reservoir energies from the completion intervals
currently open and producing to market. Additional oil and gas expected to be
obtained through the application of fluid injection or other improved recovery
techniques for supplementing the natural forces and mechanisms of primary
recovery will be included as "Proved Developed Producing Reserves" only after
testing by a pilot project or after the operation of an installed program has
confirmed through production response through existing completions producing to
market that increased recovery will be achieved. Proved Developed Producing
Reserves shall not include any Proved Developed Non-Producing Reserves.
"Proved Developed Non-Producing Reserves" has the meaning assigned to
that term by the Society of Petroleum Engineers, as such meaning may be amended
from time to time, but generally shall mean the subcategory of "Proved Developed
Reserves" (as defined by the Society of Petroleum Engineers) which will become
"Proved Developed Producing Reserves" upon minor capital expenditures being made
with respect to existing wells which will cause formerly non-producing
completions or intervals to become open and producing to market.
"Proved Reserves" means and includes Proved Developed Producing
Reserves, Proved Developed Non-Producing Reserves and Proved Undeveloped
Reserves.
"Proved Undeveloped Reserves" has the meaning assigned to that term by
the Society of Petroleum Engineers, as such meaning may be amended from time to
time, but generally shall mean those reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Proved Undeveloped Reserves on
undrilled acreage shall be limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled. Proved
Undeveloped Reserves for other undrilled units can be claimed only where it can
be demonstrated with certainty that there is continuity of production from the
existing productive formation. Under no circumstances should estimates for
Proved Undeveloped Reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
"Prudential" means The Prudential Insurance Company of America, a New
Jersey mutual insurance corporation.
"Reimbursement Obligations" of any Person means all obligations of
such Person (whether fixed or contingent) to reimburse any bank or other Person
in respect of amounts paid or payable under a letter of credit or similar
instrument.
"Required Banks" means at any time Banks having at least 65% of the
aggregate amount of Commitments or, if the Commitments shall have been
terminated, holding Revolving Credit Notes evidencing at least 65% of the
aggregate unpaid amount of the Loans.
"Required Holders" means the holders of 70% of the aggregate principal
amount of the Senior Secured Notes at the time outstanding.
"Reserve Report" means a report delivered by the Borrowers pursuant to
subsection (a), (b) or (c) of Section 16 of Schedule B.
"Restricted Subsidiary" means any Subsidiary (other than a Borrower or
an Affiliated Partnership) which owns, directly or indirectly, any partnership
or other equity interest in any Borrower or Affiliated Partnership.
"Revolving Credit Notes" means the promissory notes issued by the
Borrowers under the Credit Agreement.
"Senior Secured Notes" means the promissory notes issued by the
Borrowers under the Note Purchase Agreement.
"Sharing Agreement" means the Amended and Restated Sharing Agreement
dated as of May 7, 1990 among The Prudential Insurance Company of America,
Morgan Guaranty Trust Company of New York, First City, Texas - Houston, N.A.,
The Chase Manhattan Bank (National Association) and First City, Texas - Houston,
N.A., as Collateral Agent, substantially in the form of Schedule E to the
Original Agreement and as the same may be further amended or restated from time
to time in accordance with the terms thereof.
"Sharing Percentage" means, for purposes of determining the portion of
any payment of principal allocable to either Credit Facility at any date, the
percentage equivalent of a fraction the numerator of which is the aggregate
principal amount of Credits outstanding under such Credit Facility at such date
and the denominator of which is the aggregate principal amount of all Credits at
the time outstanding; provided that if the Required Holders elect in accordance
with the terms of the Note Purchase Agreement not to participate in any such
prepayment, the Sharing Percentage for the Credit Agreement shall be 100%.
"SODP" means SODP, Inc., a Texas corporation.
"Subsidiary" means any corporation or other entity (other than an
Affiliated Partnership) of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions are at the time directly or indirectly
owned by any one or more of the Borrowers.
"Support Agreement" means the Support Agreement dated as of May 7,
1990 among HEC and HGI, substantially in the form of Schedule F to the Original
Agreement.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the actuarial present value of all the benefit
liabilities (as determined for purposes of Title IV of ERISA) under such Plan
exceeds (ii) the fair market value of all Plan assets (excluding any accrued but
unpaid contributions) allocable to such benefit liabilities (computed on a plan
termination basis in accordance with Title IV of ERISA) all determined as of the
then most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the Controlled Group to
the PBGC or any other Person under Title IV of ERISA.
SCHEDULE A-1
Affiliated Partnerships
May Programs
May Drilling Partnership 1983-1 May Limited Partnership 1983-1 May Drilling
Partnership 1983-2 May Limited Partnership 1983-2 May Drilling Partnership
1983-3 May Limited Partnership 1983-3 May Drilling Partnership 1984-1 May
Limited Partnership 1984-1 May Drilling Partnership 1984-2 May Limited
Partnership 1984-2 May Drilling Partnership 1984-3 May Limited Partnership
1984-3
SCHEDULE B
Uniform Covenants
Section 1. Financial Statements and Reports. The Borrowers will
promptly furnish to each of the Lenders from time to time upon request such
information regarding the business and affairs and financial condition of the
Borrowers as any Lender may reasonably request, and will furnish to each Lender:
(a) Annual Financial Statements - as soon as available and in any
event within one hundred five (105) days after the close of each fiscal
year of each of the Borrowers and within one hundred twenty (120) days
after the close of each fiscal year of each of the Affiliated Partnerships
two (2) copies of the audited balance sheet of each such Person as of the
end of such fiscal year and two (2) copies of the audited statements of
operations, of cash flows and changes in shareholders' equity or partners'
capital of each such Person for such fiscal year, which fairly presents the
information included therein (showing any material change in the
consistency of the application of accounting principles from the prior
period) accompanied by an opinion without material qualification of
independent certified public accountants of national repute;
(b) Quarterly Statements - as soon as available and in any event
within sixty (60) days after the close of each fiscal quarter of each of
the Borrowers and each Affiliated Partnership, two (2) copies of the
balance sheet of each such Person as at the close of such three (3) month
period, and two (2) copies of the statements of operations and of changes
in financial position or cash flows of each such Person for such fiscal
quarter, all in such detail as the Majority Lenders may reasonably request
and certified by the Authorized Person of each such Person as complete and
correct and that the quarterly financial statements were prepared on the
same accounting basis as the annual financial statements;
(c) Audit Reports - promptly upon receipt thereof, one copy of each
other report submitted to the Borrowers and each Affiliated Partnership by
independent accountants in connection with any annual, interim or special
audit made by them of the books of each such Person, including, without
limitation, any comment letter submitted by such accountants to management
in connection with such audit; and
(d) SEC and Other Reports - promptly upon their becoming available,
one copy of each financial statement and proxy statement sent or made
available by any Affiliated Partnership, HEC or any of the Borrowers to
their security holders, of each regular or periodic report and any
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by each such Person with any
securities exchange or the Securities and Exchange Commission or any
successor agency, and of all press releases and other statements made
available generally by any of the Borrowers, HEC or any Affiliated
Partnership to the public concerning material developments in the business
of such Borrower or any Affiliated Partnership or HEC.
Section 2. Annual Certificates of Compliance. Concurrently with the
furnishing of the annual financial statements pursuant to Subsection 1(a)
hereof, each of the Borrowers will furnish or cause to be furnished to each of
the Lenders certificates of compliance, as follows:
(a) a certificate signed by an Authorized Person of such Borrower (i)
in the form of Schedule B-1 hereto; and (ii) containing or accompanied by
such financial or other details, information, calculations and material as
the Majority Lenders may reasonably request to evidence such compliance;
and
(b) a certificate from the independent public accountants stating
that their audit has not disclosed the existence of any condition which
constitutes a Default, or if their audit has disclosed the existence of any
such condition, specifying the nature, period of existence and status
thereof.
Section 3. Quarterly Certificates of Compliance. Concurrently with
the furnishing of the quarterly financial statements pursuant to Subsection 1(b)
hereof, each of the Borrowers will furnish or cause to be furnished to each of
the Lenders a certificate signed by an Authorized Person of such Borrower in the
same form as the certificate required by Subsection 2(a) hereof.
Section 4. Taxes and Other Liens. Each of the Borrowers will pay and
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or upon any of its Property as well as all
claims of any kind (including claims for labor, materials, supplies and rent)
which, if unpaid, might become a material Lien upon any or all of its Property;
provided, however, none of the Borrowers shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability
or validity thereof shall currently be contested in good faith by appropriate
proceedings diligently conducted by or on behalf of such Borrower and if such
Borrower shall have set up reserves therefor adequate under generally accepted
accounting principles.
Section 5. Maintenance; Abandonment. Each Borrower will, and, except
as permitted by Section 22 of Schedule B hereof, will cause each Subsidiary and
each Affiliated Partnership (to the extent it is within such Borrower's control)
to, (i) maintain its partnership or corporate, as applicable, existence, rights
and franchises; (ii) qualify to do business as a partnership or a foreign
corporation, as the case may be, in each jurisdiction where the failure to do so
would have a Material Adverse Effect; (iii) observe and comply (to the extent
necessary so that any failure would not have a Material Adverse Effect) with all
Governmental Requirements, and (iv) to the extent it is within such Borrower's
direct control, maintain its Properties (and any Properties leased by or
consigned to it or held by it under title retention or conditional sales
contracts) in good and workable condition at all times and make all repairs,
replacements, additions, betterments and improvements to its Properties as are
necessary so that the business carried on in connection therewith may be
conducted at all times in accordance with industry standards. None of the
Borrowers shall abandon or permit any Petroleum Property to become abandoned,
unless such Petroleum Property is incapable of producing hydrocarbons such that
the marginal revenue associated with the production of each additional unit of
such hydrocarbon is greater than the marginal direct costs of such production,
including royalties and taxes and excluding non-cash charges.
Section 6. Further Assurances. Each Borrower will promptly cure any
defects in the execution and delivery of the Financing Documents. Each Borrower
at its expense will promptly execute and deliver to each of the Lenders upon
request of the Majority Lenders all such other and further documents, agreements
and instruments in compliance with or accomplishment of the covenants and
agreements of such Borrower in the Financing Documents, or to further evidence
and more fully describe the collateral intended as security for the
Indebtedness, or to correct any omissions in the Collateral Documents, or more
fully to state the security obligations set out herein or in any of the
Collateral Documents, or to perfect, protect or preserve any Liens created
pursuant to any of the Collateral Documents, or to make any recordings, to file
any notices, or obtain any consents, all as may be necessary or appropriate in
connection therewith.
Section 7. Performance of Obligations. The Borrowers will do and
perform every act and discharge all of the obligations provided to be performed
and discharged by the Borrowers under the Financing Documents at the time or
times and in the manner specified.
Section 8. Reimbursement of Expenses. The Borrowers will, upon
request, promptly reimburse each of the Lenders for all reasonable amounts
expended, advanced or incurred by any Lender to satisfy any obligation of the
Borrowers under the Financing Documents, or to enforce the rights of any Lender
under the Financing Documents, which amounts will include all court costs,
reasonable attorneys' fees (including, without limitation, for trial, appeal or
other proceedings), fees of auditors and accountants, and investigation expenses
reasonably incurred by any Lender in connection with any such matters. The
Borrowers agree to pay, indemnify and hold each of the Lenders and their
respective affiliates and the respective directors, officers, employees and
agents of the foregoing ("Indemnitees") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (collectively
a "Claim") caused by any act or omission of the Borrowers or any Indemnitee
relating to the Financing Documents, except for a Claim caused by the gross
negligence or willful misconduct of the Indemnitee, but expressly including any
Claim based on ordinary negligence.
Section 9. Insurance. Each Borrower, Subsidiary and Affiliated
Partnership now maintains and each Borrower will cause to be maintained with
financially sound and reputable insurers, insurance with respect to the
Properties and business of the Borrowers and the Subsidiaries and, to the extent
it is within such Borrower's control, the Properties and business of the
Affiliated Partnerships, against such liabilities, casualties, risks and
contingencies and in such types and amounts as is customary in the case of
Persons engaged in the same or similar businesses and similarly situated. Upon
request of any Lender, such Borrower will furnish or cause to be furnished to
such Lender from time to time a summary of such insurance in form and substance
satisfactory to the Majority Lenders. In the case of any fire, accident or
other casualty causing loss or damage to any Properties of any Borrower or
Subsidiary, the proceeds of such policies shall be used (i) to repair or replace
the damaged Property, or (ii) to prepay the Indebtedness, which prepayment shall
be made among all of the Lenders in proportion to their respective Sharing
Percentages.
Section 10. Right of Inspection. Each Borrower will permit any
officer, employee or agent of any Lender to visit and inspect any of the
Properties of Borrower and its Subsidiaries, examine such Borrower's books of
record and accounts, take copies and extracts therefrom, and discuss the
affairs, finances and accounts of such Borrower and its Subsidiaries with such
Borrower's officers and with such Borrower's independent public accountants and
auditors in the presence of such Borrower's officers, all at such reasonable
times and as often as such Lender may reasonably desire.
Section 11. Notice of Certain Events. The Borrowers shall promptly
notify each of the Lenders in writing if any Borrower learns of the occurrence
of (i) any event which constitutes a Default, together with a detailed statement
by an Authorized Person of one of the Borrowers of the steps being taken to cure
the effect of such Default; or (ii) the receipt of any notice from or the taking
of any other action by, the holder of any promissory note, debenture or other
evidence of Debt of any of the Borrowers, including the Credits, or of any
security (as defined in the Securities Act of 1933, as amended) of any of the
Borrowers with respect to a claimed default, together with a detailed statement
by an Authorized Person of one of the Borrowers specifying the notice given or
other action taken by such holder and the nature of the claimed default and what
action the Borrowers are taking or propose to take with respect thereto; or
(iii) any legal, judicial or regulatory proceedings affecting any of the
Borrowers or any of their Properties in which the amount involved exceeds
$500,000 (individually or in the aggregate) or which, if adversely determined,
would have a Material Adverse Effect; or (iv) any dispute between any of the
Borrowers and any governmental or regulatory body or any other Person which, if
adversely determined, would have a Material Adverse Effect; or (v) any dispute
between any Borrower and any of its stockholders (if applicable) or any
Subsidiary or Affiliated Partnership; or (vi) any material default or
noncompliance of any party to any of the Partnership Agreements with any of the
terms and conditions of any Partnership Agreement, or any notice of termination
or other material proceedings or actions which might adversely affect any of the
Partnership Agreements; or (vii) any amendment (whether or not material and
whether or not permitted by the Credit Facilities or by any consent of the
respective Lenders to a deviation from the terms of the Credit Facilities) of
the Partnership Agreements or the Articles or Certificate of Incorporation or
Bylaws of HEC, Hallwood G.P., SODP or Hallwood Oil and Gas, together with a copy
of such amendment except for amendments which only change the names and
addresses of the limited partners of the Borrowers that are limited
partnerships; or (viii) any event or condition having a Material Adverse Effect.
Section 12. ERISA Information and Compliance. Each Borrower will
promptly furnish to each of the Lenders a certificate or written notice signed
by an Authorized Person of each of the Borrowers setting forth details as to
such occurrence and action, if any, which any Borrower or applicable member of
the Controlled Group is required or proposes to take if and when any member of
the Controlled Group (i) gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with respect to any
Plan which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or notice that
any Multiemployer Plan is in reorganization, is insolvent or has been
terminated; (iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate, impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or appoint a trustee to administer any Plan; (iv)
applies for a waiver of the minimum funding standard under Section 412 of the
Code; (v) gives notice of intent to terminate any Plan under Section 4041(c) of
ERISA; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of
ERISA; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which in either case has resulted
or could result in the imposition of a Lien or the posting of a bond or other
security.
Section 13. Collateral Security. The Borrowers will at all times
cause (i) Petroleum Properties representing not less than 80% of the value of
Petroleum Properties included in the calculation of the Hydrocarbon Borrowing
Base, (ii) the outstanding capital stock of SODP and Hallwood Oil and Gas, (iii)
the partnership interests in the Borrowers (other than partnership interests in
HEP Operating and Operating) and any Affiliated Partnership (or, in the case of
any general partner interest which is not assignable under the terms of the
applicable partnership agreement, the economic interest represented thereby)
owned by any Borrower or any Subsidiary and (iv) all of the capital stock (or
other ownership interests) issued by any Restricted Subsidiary, to be subject to
valid first-priority Liens in favor of the Lenders pursuant to the Collateral
Documents. In the event that the daily average aggregate unpaid principal
amount of Debt of the Borrowers exceeds 95% of the Debt Limit for a period of
ninety (90) days, the Majority Lenders may deliver to the Borrowers a written
demand for additional collateral security pursuant to this Section. Upon
receipt of such demand, the Borrowers will grant to the Lenders, within sixty
(60) days of receipt of such demand, as security for the Indebtedness, a
first-priority Lien on additional Petroleum Properties such that Petroleum
Properties representing not less than 85% of the Hydrocarbon Borrowing Base
shall thereafter be subject to such Liens. The Liens will be created and
perfected by and in accordance with the provisions of security agreements and
financing statements, deeds of trust or other Collateral Documents, all in form
and substance satisfactory to the Majority Lenders in sufficient executed (and
acknowledged where necessary or appropriate) counterparts for recording
purposes. The Borrowers will furnish to each of the Lenders in connection
therewith opinions satisfactory in form and substance to the Majority Lenders
from counsel satisfactory to the Majority Lenders as to such Collateral
Documents and the validity and perfection of the Liens created thereby. Each of
the Borrowers shall also furnish or cause to be furnished to each of the Lenders
a certificate, within 30 days of any Reserve Report prepared pursuant to Section
16, signed by an Authorized Person of such Borrower, confirming compliance with
the above collateral security requirement and stating the percent of Petroleum
Properties subject to valid first-priority Liens in favor of the Lenders
pursuant to the Collateral Documents.
Section 14. Performance of Partnership Agreement. Each Borrower will
perform and observe in all material respects the provisions of its Partnership
Agreement on its part to be performed or observed prior to the termination
thereof, unless and to the extent only that the same shall be contested in good
faith by appropriate action by or on behalf of such Borrower.
Section 15. Notice to Purchasers of Oil and Gas. Each Borrower will,
upon request of the Majority Lenders, join with the Lenders in notifying the
purchaser or purchasers of oil and gas of the existence of the Collateral
Documents, such notification to be in writing and accompanied (if necessary) by
certified copies of the Collateral Documents.
Section 16. Engineering Reports.
(a) By April 1 and August 1 of each year commencing August 1, 1990,
the Borrowers shall furnish to each of the Lenders a report in form and
substance reasonably satisfactory to the Majority Lenders which may be
prepared by or under the supervision of a petroleum engineer who may be an
employee of an Affiliate, which shall evaluate each Petroleum Property as
of the preceding December 31 or June 30, respectively, and which shall,
together with any other information reasonably requested by any Lender, set
forth the information necessary to determine the Hydrocarbon Borrowing Base
and the Affiliated Partnership Borrowing Base as of such date.
(b) Together with the Reserve Report furnished pursuant to subsection
(a) as of December 31 of any year, the Borrowers shall furnish to each of
the Lenders an audit report by April 1 of each year thereon in form and
substance reasonably satisfactory to the Majority Lenders by Williamson
Petroleum Consultants, Inc. or other independent petroleum engineers
acceptable to the Majority Lenders. Such audit report shall provide that
such independent petroleum engineers have reviewed at least 50% of the
Petroleum Properties each year in detail to confirm the Borrowers' reserve
figures and have conducted a general review of the remaining properties.
Each year the detailed review of 50% of the Petroleum Properties contained
in such audit report shall cover a different area so that 100% of the
Petroleum Properties will be covered over a 4-year period; provided that
each such review will always include the two Petroleum Properties greatest
in value at the time of such review. The reviews contained in each audit
report shall separately cover Proved Developed Producing Reserves, Proved
Developed Non-Producing Reserves and Proved Undeveloped Reserves.
(c) At any time and upon request by the Majority Lenders, the
Borrowers shall furnish to each of the Lenders, within 30 days of such
written request, a report which shall evaluate each Petroleum Property as
of the date of the most recent Reserve Report, or as of such other date as
the Majority Lenders specify, in form and substance reasonably satisfactory
to the Majority Lenders (a "Special Engineering Report"), together with any
other information reasonably requested by any Lender. The Special
Engineering Report shall use production and cost profiles from the most
recent Reserve Report, unless otherwise requested by the Majority Lenders,
with such other information as supplied by the Majority Lenders. No more
than two (2) Special Engineering Reports may be requested by the Majority
Lenders during the term of the Financing Documents.
(d) The reports contemplated by this Section shall be prepared on the
basis of price and other economic assumptions specified by the Majority
Lenders to the Borrowers in accordance with their customary oil and gas
lending practices not less than thirty (30) days prior to the date the
related report is due.
Section 17. Debt. (a) The Borrowers will not individually or
collectively incur, create, assume or suffer to exist, or permit any Subsidiary
to incur, create, assume or suffer to exist, any Debt, except:
(i) the Indebtedness;
(ii) Debt existing on December 31, 1994 which is reflected in the
Financial Statements or is disclosed to the Lenders in Schedule B-2 hereto,
but not any renewals, extensions or increases thereof;
(iii) Debt in an aggregate principal amount at any time
outstanding not to exceed $2,000,000 owing to one or more Affiliates,
provided that such Debt is subordinated in right of payment to the
Indebtedness pursuant to subordination provisions in form and substance
satisfactory to the Majority Lenders;
(iv) Debt in an aggregate principal amount at any time
outstanding not to exceed $1,000,000 secured by a Lien permitted under
clause (d) or (e) of Section 18;
(v) Debt of any Borrower owing to any Restricted Subsidiary;
(vi) contingent obligations of a Restricted Subsidiary as a
general partner of an Affiliated Partnership in respect of Debt of such
Affiliated Partnership reflected in the Affiliated Partnership Borrowing
Base; and
(vii) Reimbursement Obligations constituting Debt.
provided that, the aggregate amount of Debt (other than Debt permitted by
clauses (v) or (vi) of Subsection (a) of this Section 17) of the Borrowers and
the Subsidiaries shall not exceed the Debt Limit (as defined below).
(b) "Debt Limit" means the sum of:
(i) an amount which shall be determined by the Majority Lenders in
accordance with their customary oil and gas lending practices, provided
that in making such determination, the Majority Lenders shall consider only
those Petroleum Properties that are owned directly by the Borrowers (the
"Hydrocarbon Borrowing Base"); and
(ii) an amount equal to the product of (A) multiplied by (B)
(such amount being called the "Affiliated Partnership Borrowing Base"),
where:
"(A)" represents the percentage equivalent of the net equity
participation of the Borrowers in Affiliated Partnerships, pledged to
the Lenders pursuant to the Collateral Documents; and
"(B)" means the excess of (x) the loan value of the Proved
Reserves of the Affiliated Partnerships determined on the basis
specified in paragraph (i) above with respect to the Borrowers over
(y) the aggregate outstanding principal amount of Debt of the
Affiliated Partnership at the date of determination;
provided that, the aggregate amount of the Affiliated Partnership Borrowing Base
shall not exceed 35% of the Debt Limit; provided further that no portion of the
Affiliated Partnership Borrowing Base shall be attributable to indirectly owned
partnership interests and provided further that, in the event of incurrence of
Debt by an Affiliated Partnership, the Majority Lenders may, if in their
judgment the circumstances warrant, require an additional reduction in the
Affiliated Partnership Borrowing Base in respect thereof beyond that provided in
Section 17(b)(ii)(B)(y) above.
(c) The Debt Limit will be determined and adjusted periodically as
follows:
(i) Prior to a determination pursuant to subparagraph (ii) below
on the basis of the initial Reserve Report delivered subsequent to the
Effective Date, and subject to adjustment in accordance with subparagraphs
(iii), (iv), (v) or (vi) below, the Debt Limit shall be $42,000,000.
(ii) Within thirty days of delivery of each Reserve Report
pursuant to Section 16, and within 20 days after any of the Borrowers has
notified the Agent that it has sold any Petroleum Properties having an
aggregate fair market value of $3,500,000 or more since the date of the
most recent reserve report, the Lenders shall consult with one another with
a view to agreement on the Debt Limit to be determined on the basis of such
Reserve Report or such sale. The Debt Limit so determined by the Majority
Lenders shall be promptly notified to the Borrowers, and upon such
notification shall be binding on all parties; provided that, the Debt Limit
shall not increase, unless all the Lenders so agree.
(iii) Upon any sale by any Borrower of any Petroleum Properties
(other than any such sale as a result of which the provisions of
subparagraph (ii) are applicable), the Hydrocarbon Borrowing Base shall be
reduced, effective on the date of consummation of such sale, by an amount
equal to 56% of the net proceeds to such Borrower of such sale; provided
that all such sales are subject to the provisions of Section 26.
(iv) In the event of any transaction which would cause a material
change in the Affiliated Partnership Borrowing Base, the Lenders shall
consult with the Borrowers and with each other with a view to determining
appropriate adjustments to the Debt Limit, and the Debt Limit as determined
by the Majority Lenders at such time shall be promptly notified to the
Borrowers and thereupon shall be binding on all parties; provided that, no
such adjustment shall increase the Debt Limit, unless all the Lenders so
agree.
(v) In the event that any Affiliated Partnership suffers to
exist as to itself any of the events or conditions referred to in Sections
(i), (j) or (l) of Schedule C hereof, the Affiliated Partnership Borrowing
Base shall be reduced, effective on the date of such event, by an amount
equal to the aggregate amount of the Affiliated Partnership Borrowing Base
attributable to such Affiliated Partnership; provided that the Affiliated
Partnership Borrowing Base shall not be so reduced if the Majority Lenders
so agree.
(vi) If the Debt Limit shall have been reduced pursuant to
subparagraph (iii), (iv) or (v) above, then prior to the next
redetermination of the Debt Limit pursuant to subparagraph (ii) above, the
Lenders shall, if so requested by the Borrowers, consult with the Borrowers
and with each other with a view to determining appropriate adjustments to
the Debt Limit, in consideration of Proved Developed Producing Properties
owned directly by the Borrowers and not reflected in the most recent
Reserve Report, and such Debt limit may be increased by the consent of all
the Lenders up to but not in excess of the amount thereof prior to such
reduction.
(vii) The Borrowers shall notify each Lender at the earliest
practicable time in advance of any transactions which entail a reasonable
likelihood of an adjustment to the Debt Limit pursuant to subparagraph
(ii), (iii), (iv), (v) or (vi) above, and shall furnish each Lender with
such information with respect thereto as any Lender may reasonably request.
Section 18. Liens. No Borrower will create, incur, assume or suffer
to exist, or permit any Subsidiary to incur, assume or suffer to exist, any Lien
on any of its Properties (now owned or hereafter acquired), except:
(a) Liens created by the Collateral Documents;
(b) Excepted Liens;
(c) Liens existing on Property owned by the Borrowers on May 7, 1990
which are disclosed to the Lenders in Schedule B-2 hereto, but not any
renewals and extensions thereof;
(d) subject to Section 17(a)(iv), a Lien existing on any asset prior
to the acquisition thereof by such Borrower or Subsidiary, but not created
in contemplation of such acquisition; and
(e) subject to Section 17(a)(iv), a Lien on any asset securing Debt
incurred or assumed for the purpose of financing or any part of the cost of
acquiring such asset, provided that such Lien attaches to such asset
concurrently with or within 90 days after the acquisition thereof.
Section 19. Investments, Loans and Advances. No Borrower will make
or permit to remain outstanding, or permit any Subsidiary to make or permit to
remain outstanding, any loans or advances to or acquire or hold any capital
stock, partnership interest or other security of or in any Person, except that
the foregoing restriction shall not apply to:
(a) investments, loans or advances the material details of which have
been set forth in the Financial Statements or are disclosed to the Lenders
in Schedule B-2 hereto;
(b) investments in direct obligations of the United States of America
or any agency thereof;
(c) investments in certificates of deposit of maturities less than
one year, issued by commercial banks in the United States of America having
capital and surplus (net of loan loss reserves) in excess of $250,000,000;
(d) investments in Euro-Dollar obligations of maturities less than
one year, issued by (and supported by the full faith and credit, and
representing direct obligations of) commercial banks in the United States
of America having capital and surplus (net of loan loss reserves) in excess
of $250,000,000;
(e) investments in commercial paper of maturities of ninety days or
less if at the time of purchase such paper is rated in either of the two
highest rating categories of Standard & Poor's Ratings Group, Moody's
Investors Service, Inc., or any other rating agency selected by the
Borrowers and satisfactory to the Majority Lenders, or investments in
commercial paper of any Lender or of a holding company controlling any
Lender;
(f) notes received from purchasers of Properties sold in the ordinary
course of business and not considered to represent a material portion of
the Borrowers' Properties; provided that in no event shall the principal
amount of such notes at any time outstanding exceed $2,500,000 in the
aggregate;
(g) investments in farm-out agreements to the extent such farm-out
agreements are deemed to be investments, are provided for in the
Partnership Agreements of the Borrowers that are limited partnerships, and
do not result in a Material Adverse Effect;
(h) investments (other than investments pursuant to subparagraph (i),
(k), (l) or (n) below) in common stock of publicly traded companies or in
partnership interests and which companies or partnerships are primarily
engaged in the oil and gas business; provided that the historical costs of
such investments at any one time held shall not exceed $2,500,000 in the
aggregate, unless the Majority Lenders otherwise agree in writing in
advance;
(i) investments in common stock or partnership interests which
provide the Borrowers direct and demonstrable access to and an undivided
interest in the oil and gas assets of such company or partnership;
(j) direct ownership in oil and gas properties and related assets;
(k) investments by HEP in HSDC in the form of capital contributions or
loans to, or acquisitions of limited liability company interests in, HSDC,
made on or prior to the date of effectiveness of the Enron Agreement in the
amount of approximately $125,600, in connection with the formation of HSDC;
(l) investments by HEP in the form of loans or capital contributions
to HSDC made after the date of effectiveness of the Enron Agreement;
provided that the aggregate amount of loans or capital contributions to
HSDC permitted by this clause (l) and Section 4.19 of the Second Amended
and Restated Credit Agreement dated as of March 31, 1995 among Hallwood
Consolidated Resources Corporation, Hallwood Consolidated Partners, L.P.,
the banks listed therein, First Union National Bank of North Carolina,as
Collateral Agent and Morgan Guaranty Trust Company of New York, as Agent,
as amended from time to time, shall not exceed $250,000;
(m) a one-time investment by HEP in the form of a loan to HSDC the
proceeds of which are used by HSDC solely to repay the aggregate principal
amount of Debt outstanding under the Enron Agreement; provided that, (x)
prior to or concurrently with the making of such loan pursuant to this
clause (m), all commitments under the Enron Agreement are terminated and
(y) within 30 days after the making of such loan, the Collateral Agent
shall have been granted a perfected first priority lien on the collateral
described in the Enron Agreement to the Collateral Agent for the benefit of
the Lenders and shall have received such security agreements, mortgages and
other documents (including without limitation opinions of local counsel and
opinions of title to properties) as the Collateral Agent shall have
requested, to grant and perfect such Lien, all in form and substance
satisfactory to the Collateral Agent;
(n) purchases by HEP of units of HEP or shares of common stock of
Hallwood Consolidated Resources Corporation, in an aggregate amount not to
exceed $1,000,000; and
(o) other investments, loans or advances approved of, in writing in
advance, by the Majority Lenders.
Section 20. Distributions, Etc. No Borrower will make, pay or
declare any dividend or distribution on any class of its stock or any
distribution of profits or purchase, redeem or otherwise acquire for value any
shares of any class of its stock or any of the partnership interests in any
Borrower now or hereafter outstanding, return any capital to its Partners, or
make any distribution of its assets to its Partners as such ("Distributions")
(a) if an Event of Default has occurred and is continuing and the Majority
Lenders have notified the Borrowers in writing not to make such Distributions;
(b) if the aggregate Debt of the Borrowers exceeds, or would immediately after
such Distribution exceed, 100% of the Debt Limit; or (c) for any fiscal quarter
of HEP, to the extent that such Distribution exceeds, or upon aggregating all
such Distributions in the preceding 12 months would exceed, 50% of an amount
equal to (A) the sum of the amounts which would be set forth opposite the
captions "Cash provided by operations before working capital changes" and
"Distributions received from affiliates" on consolidated statements of cash
flows of HEP for the preceding 12 months prepared in accordance with generally
accepted accounting principles consistent with those utilized in preparing the
consolidated statements of cash flows of HEP as filed in HEP's annual report on
Form 10-K for the fiscal year ended December 31, 1994 with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 minus (B)
the aggregate amount of payments made by HEP in the preceding 12 months to make
purchases permitted by Section 19(n) plus (C) the aggregate amount of cash
payments made by HEP to the plaintiffs in the preceding 12 months to settle In
re Hallwood Energy Partners Securities Litigation in U.S. Federal Court for the
Southern District of New York, 90 Civ. 1955, up to $2,900,000; provided,
however, that the provisions of subparagraphs (b) and (c) of this Section 20
shall not prevent the payment of any Distribution within 60 days of the
declaration thereof, if at said date of declaration such payment would have
complied with the provisions hereof; and provided, further, that for purposes of
this Section 20 no Distribution from any Borrower directly or indirectly to
another Borrower shall be deemed to be a Distribution hereunder.
Section 21. Nature of Business. No Borrower will permit any material
change to be made in the character of its business as authorized by its
Partnership Agreement in effect on the date hereof.
Section 22. Mergers, Etc. No Borrower will, or permit any Subsidiary
to, merge or consolidate with, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its Properties (whether now owned or hereafter acquired), other than
inventory in the ordinary course of business, to, any Person (except that a
Subsidiary that is not a Restricted Subsidiary may merge or consolidate with any
Restricted Subsidiary or with any Borrower if such Restricted Subsidiary or
Borrower, as the case may be, shall be the survivor or sell all or any material
portion of its Properties to any other Subsidiary or any Borrower), nor shall it
undertake the process of winding up its business or affairs as described in the
Uniform Limited Partnership Act, Uniform Partnership Act or the other laws of
general application of the State of Delaware, Colorado or Texas, as the case may
be, or, if applicable, its Partnership Agreement.
Section 23. ERISA Compliance. No Borrower will at any time:
(a) Engage in, or permit any other member of the Controlled Group to
engage in, any transaction in connection with which a Borrower or any other
member of the Controlled Group could be subjected to either a civil penalty
assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or
a tax imposed by section 4975 of the Code;
(b) Terminate, or permit any other member of the Controlled Group to
terminate, any Plan in a manner, or take any other action with respect to
any Plan, which could result in any liability of a Borrower or any other
member of the Controlled Group to the PBGC;
(c) Fail to make, or permit any other member of the Controlled Group
to fail to make, full payment when due of all amounts which, under the
provisions of any Plan, agreement relating thereto or applicable law, a
Borrower or any other member of the Controlled Group is required to pay as
contributions thereto;
(d) Permit to exist, or allow any other member of the Controlled
Group to permit to exist, any accumulated funding deficiency within the
meaning of section 302 of ERISA or section 412 of the Code, whether or not
waived, with respect to any Plan;
(e) Fail to pay or cause to be paid, or permit any other member of
the Controlled Group to fail to pay or cause to be paid, to the PBGC in a
timely manner, without incurring any late payment or underpayment charge or
penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA;
(f) Acquire, or permit any other member of the Controlled Group to
acquire, an interest in any Person that causes such Person to become a
member of the Controlled Group with respect to a Borrower or a General
Partner if such Person sponsors, maintains or contributes to, or at any
time in the six-year period preceding such acquisition has sponsored,
maintained or contributed to, (1) any Multiemployer Plan, or (2) any Plan
that is subject to Title IV of ERISA under which the actuarial present
value of the benefit liabilities under such Plan exceeds the current value
of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit liabilities;
(g) Contribute to or assume an obligation to contribute to, or permit
any other member of the Controlled Group to contribute to or assume an
obligation to contribute to, any employee welfare benefit plan, as defined
in Section 3(1) of ERISA including, without limitation, any such plan
maintained to provide benefits to former employees of such entities, that
may not be terminated by such entities in their sole discretion at any time
without any material liability; or
(h) Permit, or allow any other member of the Controlled Group to
permit the aggregate potential withdrawal liability with respect to all
Multiemployer Plans to exceed $500,000 in the event that the Borrowers and
the other members of the Controlled Group, as the case may be, were to
completely withdraw from such Multiemployer Plans.
Section 24. Sale or Discount of Receivables. No Borrower will, or
permit any Subsidiary to, discount or sell with recourse, or sell for less than
the greater of the face or market value thereof, any of its notes receivable or
accounts receivable, except, in any particular case, for a discount or sale
which such Borrower or such Subsidiary determines in good faith will maximize
the amount realized by such Borrower or such Subsidiary on such note receivable
or account receivable.
Section 25. Transactions with Affiliates. No Borrower will, or permit
any Subsidiary to, directly or indirectly, pay any funds to or for the account
of, make any investment (whether by acquisition of stock or indebtedness, by
loan, advance, transfer of property, guarantee or other agreement to pay,
purchase or service, directly or indirectly, any Debt, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate; provided, however,
that the foregoing provisions of this Section shall not prohibit (a) a Borrower
or Subsidiary from making sales to or purchases from any Affiliates and, in
connection therewith, extending credit or making payments, or from making
payments for services rendered by any Affiliate, if such sales or purchases are
made or such services are rendered in the ordinary course of business (as
determined by reference to the ordinary course of business in the oil and gas
industry) and on terms and conditions at least as favorable to such Borrower or
Subsidiary as the terms and conditions which would apply in a similar
transaction with a Person not an Affiliate (or, in the case of financial or
consulting services, which are in all respects fair to the Borrowers), (b) a
Borrower or Subsidiary from making payments of principal, interest and premium
on any Debt of such Borrower or Subsidiary held by an Affiliate if the terms of
such Debt are substantially as favorable to such Borrower or Subsidiary as the
terms which could have been obtained at the time of the creation of such Debt
from a lender which was not an Affiliate and are otherwise in accordance with
Section 17, (c) a Borrower or Subsidiary from participating in, or effecting any
transaction in connection with, any joint enterprise or other joint arrangement
with any Affiliate if such Borrower or Subsidiary participates or effects any
such transaction in the ordinary course of its business and on a basis no less
advantageous than the basis on which such Affiliate participates; (d) a Borrower
or Subsidiary from investing in an Affiliated Partnership to the extent
permitted under Section 19, (e) HEP from taking any action expressly permitted
under Section 19 (k), (l), (m) or (n), and (f) a Borrower from making, paying or
declaring any distribution otherwise permitted under this Agreement.
Section 26. Sale of Assets. No Borrower will, or permit any
Subsidiary to, sell, transfer or otherwise dispose of any of its Property;
provided, that (a) HEP and Hallwood Oil and Gas shall not be restricted from
selling an interest in any other Person which is not a Borrower, a Subsidiary or
an Affiliated Partnership, (b) any Borrower or Subsidiary may sell oil, gas and
other hydrocarbons after severance in the ordinary course of business; and (c)
any Borrower or Subsidiary may sell Property not constituting, individually or
in the aggregate, all or substantially all of its Property for consideration not
less than the fair market value of such Property so long as the aggregate net
proceeds of all such sales by all Borrowers and Subsidiaries do not exceed
$3,500,000 for any calendar year. The provisions of this Section 27 apply to
all sales of Petroleum Property and are not affected by any reduction in the
Debt Limit pursuant to Section 17. The Borrowers shall promptly notify the
Agent of any sale of Property pursuant to clause (c) above.
Section 27. Annual Coverage Ratio. The annual projected CFADS from
Petroleum Properties, determined on the basis of each Reserve Report delivered
pursuant to Section 16, will not be less than 120% of scheduled interest and
principal payments on all Debt of the Borrowers and the Subsidiaries during each
of (i) the calendar year during which the related Reserve Report is delivered
and (ii) the two succeeding calendar years. The Borrowers shall provide a
certificate, signed by an Authorized Person of each Borrower, 45 days after each
Reserve Report is delivered, certifying the coverage ratio and the method used
to calculate such ratio. For purposes of such calculation, Debt remaining at
the beginning of any calendar year may not be assumed to be reduced by more than
30% of the excess cash flow after debt service and distributions from the
immediately preceding calendar years. If the Borrowers discover that they will
fail to meet the annual coverage ratio as described above, the Borrowers shall,
or shall cause the Subsidiaries to, within 45 days of learning of such fact,
reduce its Debt maturities in the affected years or add Petroleum Properties
acceptable to the Lenders so that the above ratio will be met.
Section 28. Additional Information. The Borrowers will furnish to
each of the Lenders, with reasonable promptness, such other information and data
with respect to any of the Borrowers, any Subsidiary and any Affiliated
Partnership as from time to time may be reasonably requested by any Lender.
Section 29. Information Meetings. Any authorized representatives
designated by any Lender shall be entitled to attend meetings ("Information
Meetings") called in accordance with this Section 29 and held on such date or
dates as shall be acceptable to each Lender, at which the principal executive,
financial and operating officers of any of the Borrowers or any of the General
Partners of such Borrowers will present a review of and will discuss, in
reasonable detail, with those in attendance (which may include other Persons
employed by any Lender) the general affairs, management, financial condition,
results of operations, business prospects (including, in the case of the
Information Meeting referred to in the third sentence of this Section 29, a
forecast of assets, liabilities and results of operations for the next 12 months
if requested reasonably in advance of such meeting) and employee and customer
relations of the Borrowers, the Subsidiaries and the Affiliated Partnerships.
The Borrowers will give written notice of each Information Meeting to each
Lender at least 30 days (or such lesser number of days specified below in the
case of additional Information Meetings) prior to the date of such Information
Meeting. The Borrowers will hold (unless waived in writing by each Lender) at
least one Information Meeting during each calendar year. The Borrowers shall
hold additional Information Meetings at any time and from time to time within 15
days after the receipt of a written request from the Majority Lenders requesting
such an additional Information Meeting; and the Borrowers will give written
notice of each such additional Information Meeting to each Lender at least 10
days prior to the date of such additional Information Meeting. At the request
of any Lender, representatives of the independent public accountants which
rendered the opinion with respect to the financial statements of the Borrowers
or any Affiliated Partnership most recently delivered to the Lenders shall be
available at any Information Meeting to discuss such matters as any Lender may
reasonably request.
Section 30. Compliance with Laws, Etc. Each Borrower will, and will
cause each Subsidiary and, to the extent it is within such Borrower's control,
each Affiliated Partnership to, exercise all due diligence in order to assure
that it complies with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance with which
would result in a Material Adverse Effect.
Section 31. Covenant to Secure Indebtedness Equally. If any Borrower
shall create or assume any Lien upon any of its Property, whether now owned or
hereafter acquired, other than Liens permitted by the provisions of Section 18
of this Schedule B, such Borrower shall make effective provision whereby the
Indebtedness will be concurrently secured by such Lien equally and ratably with
any and all other Debt thereby secured as long as any such other Debt shall be
so secured; provided that compliance with this Section 31 shall not prevent a
default from occurring under Section 18 of this Schedule B. The remedy provided
in this Section 31 shall not be exclusive and shall have no effect on the
availability or exercise of any other remedy that may be available to any Lender
under the Financing Documents.
Section 32. Inconsistent Provisions. In the event of any
inconsistency between the representations, warranties, covenants and
undertakings of the Borrowers in the Collateral Documents, on the one hand, and
those set out in the Credit Agreement or the Note Purchase Agreement, as
applicable, and the respective Schedules thereto, on the other hand, the
relevant provisions of the latter documents shall control.
Section 33. Working Capital. Consolidated Current Assets will at no
time be less than 100% of Consolidated Current Liabilities.
Section 34. Interest Coverage Ratio. At the end of each fiscal
quarter of the Borrowers, the Historical CFADS from Petroleum Properties for the
period of four consecutive quarters then ending, determined on the basis of the
financial statements and reports furnished pursuant to Section 1, will not be
less than 200% of the interest expense of the Borrowers and the Subsidiaries for
such period. The Borrowers shall provide a certificate, signed by an Authorized
Person of each Borrower, within 60 days after the end of each such quarter,
certifying the ratio of Historical CFADS from Petroleum Properties to the
Borrower's and the Subsidiaries' interest expense for such period as set forth
above and the method used to calculate such ratio. For purposes of this Section
34, "Historical CFADS" means, for any quarter, gross cash operating revenues
properly allocable to Petroleum Property for such quarter less the following
cash items: royalties, operating costs, severance, windfall profits and other
wellhead taxes, general and administrative expenses and current income and other
taxes properly allocable to such quarter and cash capital expenditures made
during such quarter and properly allocable to a Petroleum Property owned as of
the date of the most recent Reserve Report.
Section 35. Hedging Transactions. No Borrower will at any time
become a party to a Hedging Transaction for any purpose except for bona fide
hedging purposes. Without limiting the generality of the foregoing, at any time
during any calendar year, no Borrower will enter into any Hedging Transaction
with respect to natural gas and crude oil if, immediately after giving effect to
such Transaction, the reference quantity of hydrocarbons with respect to all
Hedging Transactions with respect to natural gas or crude oil which such
Borrower shall have entered into during such year exceeds 65% of the aggregate
natural gas and crude oil production of such Borrower for such year (calculated
on the basis of actual natural gas and crude oil production for such year to
date and a good faith estimate of the aggregate amount of such production for
the remainder of such year).
Section 36. Opinions of Local Counsel - On or prior to 30 days after
March 31, 1995, the Borrowers shall deliver to the Collateral Agent from counsel
satisfactory to it in Colorado, Montana, New Mexico, North Dakota, Oklahoma,
Texas and Louisiana a favorable written opinion as to the validity and binding
effect of the Collateral Documents under the law of such jurisdiction and as to
such other matters incident to the transactions herein contemplated as the
Majority Lenders may reasonably request.
SCHEDULE B-1
FORM OF
COMPLIANCE CERTIFICATE
The undersigned, (NAME), hereby certifies that he is (i) the (title)
of Hallwood Energy Corporation, a Texas corporation, the sole general partner of
Hallwood Energy Partners, L.P. and HEP Operating Partners, L.P., each a limited
partnership formed pursuant to the Uniform Limited Partnership Act of the State
of Delaware and (ii) the (title) of Hallwood G.P., Inc., a Delaware corporation
("Hallwood G.P."), the sole general partner of EDP Operating, Ltd., a limited
partnership formed pursuant to the Uniform Limited Partnership Act of the State
of Colorado ("Operating") and of May Energy Partners Operating Partnership Ltd.,
a limited partnership formed pursuant to the Uniform Limited Partnership Act of
the State of Texas ("MEPO") and co-general partner of EM Nominee Partnership
Company and Concise Oil and Gas Partnership, each a general partnership formed
pursuant to the Uniform Partnership Act of the State of Colorado (such entities
being collectively referred to as the "Borrowers") and that as such he is
authorized to execute this certificate on behalf of the Borrowers. With
reference to the Second Amended and Restated Credit Agreement dated as of March
31, 1995 among the Borrowers, the Banks listed therein and Morgan Guaranty Trust
Company of New York as Agent, and the Amended and Restated Note Purchase
Agreement dated as of May 7, 1990 between The Prudential Insurance Company of
America and the Borrowers, the undersigned further certifies, represents and
warrants as follows based on a review of the activities of the Borrowers made
under his supervision with a view to determining whether the Borrowers have
fulfilled all of their obligations under the Financing Documents (each
capitalized term used herein having the same meaning given to it in Schedule A
of the Credit Agreement and the Note Purchase Agreement unless otherwise
specified):
(a) Each Borrower has performed and complied with all agreements and
conditions contained in the Financing Documents required to be performed or
complied with by it prior to or at the time of delivery hereof.
(b) No Borrower has incurred any material liabilities, direct or
contingent, other than the Indebtedness since (insert date of most recent
compliance certificate) except as set forth in the schedule attached
hereto.
(c) Since (insert date of most recent compliance certificate) no
change has occurred, either in any case or in the aggregate, in the
condition, financial or otherwise, of any Borrower which would have a
Material Adverse Effect, except as disclosed in the schedule attached
hereto.
(d) There exists no Default under any of the Financing Documents.
(e) No Borrower has sold, transferred or otherwise disposed of any of
its Property since (insert date of most recent compliance certificate),
except as disclosed on the schedule attached hereto.
EXECUTED AND DELIVERED this __th day of __________ 19__.
HALLWOOD ENERGY PARTNERS, L.P.
HEP OPERATING PARTNERS, L.P.
By: HALLWOOD ENERGY CORPORATION
By:____________________________
Title:
The General Partner of
Hallwood Energy Partners, L.P.
and HEP Operating Partners, L.P.
MAY ENERGY PARTNERS OPERATING
PARTNERSHIP LTD.
EDP OPERATING, LTD.
individually and as a
general partner of
EM NOMINEE PARTNERSHIP COMPANY and
CONCISE OIL AND GAS PARTNERSHIP
EM NOMINEE PARTNERSHIP COMPANY
CONCISE OIL AND GAS PARTNERSHIP
By: HALLWOOD G.P., INC.
By
Title:
General Partner of May Energy
Partners Operating Partnership Ltd.
and EDP Operating, Ltd. and EM
Nominee Partnership Company and
Concise Oil and Gas Partnership
SCHEDULE B-2
DISCLOSURES
The following constitute all disclosures required to be made by the Borrowers in
accordance with the Amended Credit Agreement for events or transactions which
have occurred since December 31, 1994 and which are not otherwise contained in
the Financial Statements of that date:
1. Section 3.06 Material Adverse Changes
None
2. Section 3.07 Investments, Advances and Guaranties
HEP is the beneficial owner of
(i) 4,451,913 shares of Common Stock of Hallwood Consolidated Resources
Corporation
(ii) 50% of the outstanding stock of Sunburst Exploration, Inc.
(iii) 55% of the interest in Hallwood San Juan, L.L.C.
(iv) 40% of the Interest in Hallwood Spraberry Drilling Company, L.L.C.
(v) 50% of the outstanding stock of Hallwood Petroleum Indonesia, Inc.
With respect to Hallwood Spraberry, HEP has guaranteed certain obligations of
Operating which have been previously disclosed to the Lenders.
3. Section 3.08 Material Liabilities and Litigation or Other Actions
A. Material Liabilities
None
B. Material Litigation
Please refer to description of In re Hallwood Energy Partners, L.P.
Securities Litigation in Note 13 to the Financial Statements. The parties have
executed a memorandum of understanding regarding the settlement of this
litigation and are requesting preliminary court approval at an upcoming hearing.
Please refer to description of Stutes v. Hallwood Petroleum, Inc. et al.
in Note 14 to the Financial Statements
4. Section 3.10 Titles
Please refer to the description of Lamson Petroleum Corporation v.
Hallwood Petroleum, Inc. et al. in Note 14 to the Financial Statements
5. Section 3.11 Defaults under the Financing Documents or other instruments
which would have a Material Adverse Effect
None
6. Section 3.19 Defaults under Partnership Agreements
None
7. Section 3.21 Gas Imbalances
Please refer to the Financial Statements
8. Uniform Covenants, Section 17(a)(2) Debt not reflected in the Financial
Statements
None
9. Uniform Covenants, Section 18(c) Liens
None
10. Uniform Covenants, Section 19(a) Investments, Loan or Advances
Please refer to item 2 above
SCHEDULE C
Uniform Events of Default
(a) any Borrower shall fail to pay when due any principal of or premium on
any Credit or shall fail to pay within five (5) days of the due date thereof any
interest, fees or other amount payable under the Financing Documents;
(b) any Borrower shall fail to observe or perform any covenant contained
in Sections 13, 18 to 26, inclusive, of Schedule B;
(c) any Borrower shall fail to observe or perform any of its covenants or
agreements contained in any of the Financing Documents (other than those covered
by clause (a) or (b) above or Section 36 of Schedule B) for 30 days after it
shall have become aware of such failure;
(d) any representation, warranty, certification or statement made by any
Borrower in any of the Financing Documents or in any certificate, financial
statement or other document delivered pursuant to any of the Financing Documents
shall prove to have been incorrect in any material respect when made (or deemed
made);
(e) any Borrower or any Subsidiary shall fail to make any payment or
payments in an aggregate amount exceeding $100,000 in respect of any Debt (other
than the Credits) or Derivative Obligations when due or within any applicable
grace period;
(f) any event or condition shall occur which results in the acceleration
of the maturity of any Debt in an aggregate principal amount exceeding $100,000
(other than the Credits) of any Borrower or any Subsidiary or enables (or, with
the giving of notice or lapse of time or both, would enable) the holder of such
Debt or any Person acting on such holder's behalf to accelerate the maturity
thereof;
(g) any Borrower or any Subsidiary shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced against any
Borrower or any Subsidiary seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against such Borrower or any Subsidiary under the
federal bankruptcy laws as now or hereafter in effect;
(i) the PBGC shall institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or to cause a trustee to be appointed to administer any
Material Plan; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated;
(j) a judgment or order for the payment of money in excess of $500,000
shall be rendered against any Borrower or any Subsidiary and such judgment or
order shall continue unsatisfied and unstayed for a period of 30 days;
(k) any of the Collateral Documents after delivery thereof shall for any
reason cease to be in full force and effect and valid, binding and enforceable
(except as enforceability may be subject to any applicable bankruptcy,
insolvency or similar laws or equitable principles generally affecting the
enforcement of creditors' rights) in accordance with its terms, or cease to
create a valid and perfected first-priority Lien on any of the Collateral
purported to be covered thereby, or any Borrower (or any other Person who may
have granted or purported to grant such Lien) shall so state in writing;
(l) any Borrower which is a partnership shall be taxed as a corporation or
as an association taxable as a corporation under the Code;
(m) any General Partner or Affiliated Partnership takes, suffers or
permits to exist as to itself any of the events or conditions referred to in
Sections (e), (f), (g), (h), (j) (only with respect to a General Partner), (n)
or (o) hereof or any General Partner resigns or is removed as General Partner of
any Borrower or any Borrower suffers to exist, directly or indirectly, any
material change in its ownership or control;
(n) any of the Borrowers shall begin winding up its business or affairs
as described in the Uniform Limited Partnership Act, Uniform Partnership Act or
other applicable laws of its state of organization;
(o) any order, judgment or decree is entered against any Borrower
decreeing the dissolution of such Borrower; or
(p) any representation or warranty made by HEC or HGI in the Support
Agreement shall be incorrect in any material respect when made, or either of HEC
or HGI shall fail to perform any covenant or other undertaking in the Support
Agreement.
SCHEDULE D
Collateral
Terms used herein which are defined in Schedule A and not otherwise defined
herein are used herein with the meanings therein specified.
"Collateral" means the Property of the Borrowers, Restricted Subsidiaries
and Affiliated Partnerships from time to time subject to the Lien of the
Collateral Documents.
"Collateral Documents" means all, and "Collateral Document" means any one
of the following:
A. Prior Energy Development Partners, Ltd. Collateral Mortgage
Documents (except Louisiana):
1. Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement dated as of August 30,
1988, executed by Energy Development Partners, Ltd.
(predecessor-in-interest to Hallwood Energy Partners, L.P.),
EDP Operating Ltd., EM Nominee Partnership Company, Concise
Oil and Gas Partnership and May Energy Partners Operating
Partnership Ltd. (collectively, the "Original EDP
Borrowers") and recorded and filed of record as set forth on
Annex I to this Schedule D.
a. Non-standard Financing Statement, pertaining to 1 above
with respect to central Uniform Commercial Code filings
executed by the Original EDP Borrowers and filed of
record as set forth on Annex II to this Schedule D.
b. Non-standard Financing Statement, pertaining to 1 above
with respect to local Uniform Commercial Code filings
executed by the Original EDP Borrowers and filed of
record as set forth on Annex II to this Schedule D.
2. Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement dated as of November 27,
1989, executed by the Original EDP Borrowers and recorded
and filed of record as set forth on Annex I to this Schedule
D.
a. Non-standard Financing Statement, pertaining to 2 above
with respect to central Uniform Commercial Code filings
executed by the Original EDP Borrowers and filed of
record as set forth on Annex II to this Schedule D.
b. Non-standard Financing Statement, pertaining to 2 above
with respect to local Uniform Commercial Code filings
executed by the Original EDP Borrowers and filed of
record as set forth on Annex II to this Schedule D.
3. Assignment of Notes and Liens dated as of May 7, 1990,
executed by Morgan Guaranty Trust Company of New York
("Morgan"), First City, Texas-Houston, N.A. ("First City"),
and First Bank National Association ("First Bank") in favor
of the noteholders and recorded and filed of record as set
forth on Annex I to this Schedule D.
a. Non-standard Financing Statement Change, pertaining to
3 above with respect to central and local Uniform
Commercial Code filings made in each State covered by 3
above and filed of record as set forth on Annex II to
this Schedule D.
B. Prior HEP Operating Partners, L.P. Collateral Mortgage Documents
1. Restated Deed of Trust, Mortgage, Assignment of Production,
Security Agreement and Financing Statement (Texas) dated as
of November 13, 1989, executed by HEP Operating Partners,
L.P. and recorded and filed of record as set forth on Annex
I to this Schedule D.
a. UCC-1 Financing Statement, pertaining to 1 above with
respect to central Uniform Commercial Code filings
filed of record as set forth on Annex II to this
Schedule D.
b. Non-standard Financing Statement, pertaining to 1 above
with respect to local Uniform Commercial Code filings
filed of record as set forth on Annex II to this
Schedule D.
2. Restated Mortgage, Assignment of Production, Security
Agreement and Financing Statement (Montana) dated as of
November 13, 1989, executed by HEP Operating Partners, L.P.
and recorded and filed of record as set forth on Annex I to
this Schedule D.
a. UCC-1 Financing Statement, pertaining to 2 above with
respect to central Uniform Commercial Code filings
filed of record as set forth on Annex II to this
Schedule D.
b. Non-standard Financing Statement, pertaining to 2 above
with respect to local Uniform Commercial Code filings
filed of record as set forth on Annex II to this
Schedule D.
3. Restated Mortgage, Assignment of Production, Security
Agreement and Financing Statement (North Dakota) dated as of
November 13, 1989, executed by HEP Operating Partners, L.P.
and recorded and filed of record as set forth on Annex I to
this Schedule D.
a. UCC-1 Financing Statements, pertaining to 3 above with
respect to central Uniform Commercial Code filings
filed of record as set forth on Annex II to this
Schedule D.
b. UCC-1 Financing Statements, pertaining to 3 above with
respect to local Uniform Commercial Code filings filed
of record as set forth on Annex II to this Schedule D.
4. Assignment of Notes and Liens dated as of May 7, 1990 by the
First National Bank of Boston to the Banks.
a. Non-standard Financing Statement Change, pertaining to
4 above with respect to central and local Uniform
Commercial Code filings made in each State covered by 4
above and filed of record as set forth on Annex II to
this Schedule D.
C. 1990 Consolidated Collateral Mortgage Documents (except
Louisiana):
1. Consolidated, Amended and Restated Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing
Statement dated as of May 7, 1990, executed by Hallwood
Energy Partners, L.P. (successor by merger with Energy
Development Partners, Ltd.), HEP Operating Partners, L.P.,
EDP Operating, Ltd., EM Nominee Partnership Company, Concise
Oil and Gas Partnership and May Energy Partners Operating
Partnership Ltd. (collectively the "Borrowers") in favor of
the Collateral Agent and recorded and filed of record as set
forth on Annex I to this Schedule D.
a. Non-standard Financing Statement, pertaining to 1 above
with respect to central Uniform Commercial Code filings
filed of record as set forth on Annex II to this
Schedule D.
b. Non-standard Financing Statement, pertaining to 1 above
with respect to local Uniform Commercial Code filings
filed of record as set forth on Annex II to this
Schedule D.
c. Modification to Consolidated, Amended and Restated
Mortgage, Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement dated as of
March 31,1992, executed by Hallwood Energy Partners,
L.P. (successor by merger with Energy Development
Partners, Ltd.), HEP Operating Partners, L.P., EDP
Operating, Ltd., EM Nominee Partnership Company,
Concise Oil and Gas Partnership and May Energy Partners
Operating Partnership Ltd. (collectively the
"Borrowers") in favor of the Collateral Agent and
recorded and filed of record as set forth on Annex I to
this Schedule D.
d. Supplement to Consolidated, Amended and Restated
Mortgage, Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement dated as of
May 28, 1992, executed by Hallwood Energy Partners,
L.P. (successor by merger with Energy Development
Partners, Ltd.), HEP Operating Partners, L.P., EDP
Operating, Ltd., EM Nominee Partnership Company,
Concise Oil and Gas Partnership and May Energy Partners
Operating Partnership Ltd. in favor of the Collateral
Agent and recorded and filed of record as set forth on
Annex I to this Schedule D.
e. Modification of Mortgages and Assignment of Notes and
Liens dated as of May 6, 1993, executed by Hallwood
Energy Partners, L.P. (successor by merger with Energy
Development Partners, Ltd.), HEP Operating Partners,
L.P., EDP Operating, Ltd., EM Nominee Partnership
Company, Concise Oil and Gas Partnership and May Energy
Partners Operating Partnership Ltd. in favor of the
Collateral Agent and recorded and filed of record as
set forth on Annex I to this Schedule D.
f. Modification of Mortgages dated as of June 30, 1994,
executed by Hallwood Energy Partners, L.P. (successor
by merger with Energy Development Partners, Ltd.), HEP
Operating Partners, L.P., EDP Operating, Ltd., EM
Nominee Partnership Company, Concise Oil and Gas
Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent and
recorded and filed of record as set forth on Annex I to
this Schedule D.
g. Modification of Mortgages dated as of March ___, 1995,
to be executed by Hallwood Energy Partners, L.P.
(successor by merger with Energy Development Partners,
Ltd.), HEP Operating Partners, L.P., EDP Operating,
Ltd., EM Nominee Partnership Company, Concise Oil and
Gas Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent.
2. Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement dated as of May 28, 1992,
executed by Hallwood Energy Partners, L.P. (successor by
merger with Energy Development Partners, Ltd.), HEP
Operating Partners, L.P., EDP Operating, Ltd., EM Nominee
Partnership Company, Concise Oil and Gas Partnership and May
Energy Partners Operating Partnership Ltd. in favor of the
Collateral Agent and recorded and filed of record as set
forth on Annex I to this Schedule D.
a. Non-standard Financing Statement, pertaining to 2 above
with respect to local Uniform Commercial Code filings
filed of record as set forth on Annex IV to this
Schedule D.
b. Non-standard Financing Statement, pertaining to 2 above
with respect to central Uniform Commercial Code filings
filed of record as set forth on Annex IV to this
Schedule D.
c. Modification of Mortgages dated as of June 30, 1994,
executed by Hallwood Energy Partners, L.P. (successor
by merger with Energy Development Partners, Ltd.), HEP
Operating Partners, L.P., EDP Operating, Ltd., EM
Nominee Partnership Company, Concise Oil and Gas
Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent and
recorded and filed of record as set forth on Annex I to
this Schedule D.
d. Modification of Mortgages dated as of March ___, 1995,
to be executed by Hallwood Energy Partners, L.P.
(successor by merger with Energy Development Partners,
Ltd.), HEP Operating Partners, L.P., EDP Operating,
Ltd., EM Nominee Partnership Company, Concise Oil and
Gas Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent.
3. Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement for San Juan County, New
Mexico (Section 29 Production Payment) executed among
Hallwood Energy Partners, L.P. and EM Nominee Partnership
Company and the Collateral Agent and recorded and filed of
record as set forth on Annex I to this Schedule D.
a. Non-standard Financing Statement, pertaining to 3 above
with respect to local Uniform Commercial Code filings
filed of record as set forth on Annex IV to this
Schedule D.
b. Non-standard Financing Statement, pertaining to 3 above
with respect to central Uniform Commercial Code filings
filed of record as set forth on Annex IV to this
Schedule D.
c. Modification of Mortgages dated as of March ___, 1995,
to be executed by Hallwood Energy Partners, L.P.
(successor by merger with Energy Development Partners,
Ltd.), HEP Operating Partners, L.P., EDP Operating,
Ltd., EM Nominee Partnership Company, Concise Oil and
Gas Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent.
D. Collateral Security Agreements (Personal Property) (except
Louisiana);
1. Amended and Restated Security Agreement dated as of November
13, 1989 from Hallwood Energy Partners, L.P., HEP Operating
Partners, L.P., Hallwood AIC, Inc., Cliffwood Energy
Company, and Quinoco Oil and Gas, Inc. (the "Original
Quinoco Borrowers") and Hallwood Energy Corporation.
2. Amended and Restated Stock Pledge Agreement dated as of
November 13, 1989 from HEP Operating Partners, L.P.,
Hallwood Energy Corporation, Quinoco Oil and Gas, Inc. and
SODP, Inc.
3. Security Agreement (Partnership Interests) dated August 30,
1988, executed by the Original EDP Borrowers in favor of the
Collateral Agent.
a. Non-standard Financing Statement, pertaining to 3 above
with respect to local Uniform Commercial Code filings
executed by the Original EDP Borrowers and filed of
record as set forth on Annex IV to this Schedule D.
4. Amended and Restated Security Agreement (Partnership
Interests) dated as of May 7, 1990, executed by Hallwood
Energy Partners, L.P. (successor by merger with Energy
Development Partners, Ltd.), EDP Operating, Ltd., EM Nominee
Partnership Company, Concise Oil and Gas Partnership, May
Energy Partners Operating Partnership Ltd., Cliffwood Energy
Company, ENEX Acquisition Corp., EAC Energy Corporation,
Quinoco Energy, Inc. and Quinoco Oil and Gas in favor of the
Collateral Agent (restated 1, 2 & 3 above).
a. Release and Registration Instructions to issuers of
uncertificated securities executed in connection with 4
above.
b. Confirmations of Release executed in connection with 4
above.
c. Non-standard Financing Statement, pertaining to 4 above
with respect to local Uniform Commercial Code filings
filed of record as set forth on Annex IV to this
Schedule D.
d. Non-standard Financing Statement, pertaining to 4 above
with respect to central Uniform Commercial Code filings
filed of record as set forth on Annex IV to this
Schedule D.
e. Amendment to Security Agreement dated as of March 31,
1992, executed by Hallwood Energy Partners, L.P.
(successor by merger with Energy Development Partners,
Ltd.), EDP Operating, Ltd., EM Nominee Partnership
Company, Concise Oil and Gas Partnership, May Energy
Partners Operating Partnership Ltd., EAC Energy
Corporation, Hallwood G.P., Inc. (formerly known as
Quinoco Energy, Inc.) and Hallwood Oil and Gas, Inc.
(formerly known as Quinoco Oil and Gas, Inc.) in favor
of the Collateral Agent. (ENEX Acquisition Corp. and
Cliffwood Energy Company had been previously released
from this Security Agreement)
f. Second Amendment of Security Agreement (Partnership
Interests) dated May 6, 1993 but effective as of May
17, 1993, executed by Hallwood Energy Partners, L.P.
(successor by merger with Energy Development Partners,
Ltd.), EDP Operating, Ltd., EM Nominee Partnership
Company, Concise Oil and Gas Partnership, May Energy
Partners Operating Partnership Ltd., Hallwood G.P.,
Inc. (formerly known as Quinoco Energy, Inc.) and
Hallwood Oil and Gas, Inc. (formerly known as Quinoco
Oil and Gas, Inc.) in favor of the Collateral Agent
(EAC Energy had been previously released from this
Security Agreement).
g. Third Amendment of Security Agreement (Partnership
Interests) dated as of March ___, 1995, to be executed
by Hallwood Energy Partners, L.P. (successor by merger
with Energy Development Partners, Ltd.), EDP Operating,
Ltd., EM Nominee Partnership Company, Concise Oil and
Gas Partnership, May Energy Partners Operating
Partnership Ltd., Hallwood G.P., Inc. (formerly known
as Quinoco Energy, Inc.) and Hallwood Oil and Gas, Inc.
(formerly known as Quinoco Oil and Gas, Inc.) in favor
of the Collateral Agent.
5. Security Agreement dated as of May 7, 1990 between HEP
Operating Partners, L.P. and the Collateral Agent (pledging
to the Lenders the 1000 shares of the capital stock of SODP,
Inc.)
a. Amendment of Security Agreement dated as of March 31,
1992 between HEP Operating Partners, Ltd. and the
Collateral Agent
b. Second Amendment of Security Agreement dated May 6,
1993 but effective as of May 17, 1993 between HEP
Operating Partners, Ltd. and the Collateral Agent
c. Third Amendment of Security Agreement dated as of March
___, 1995, to be executed between HEP Operating
Partners, Ltd. and the Collateral Agent.
6. Security Agreement dated as of May 7, 1990 between SODP,
Inc. and the Collateral Agent (pledging to the Lenders the
96,000 shares of the capital stock of Quinoco Oil and Gas,
Inc. (now known as Hallwood Oil and Gas, Inc.)
a. Amendment to Security Agreement dated as of March 31,
1992 between SODP, Inc. and the Collateral Agent
b. Second Amendment to Security Agreement dated as of May
6, 1993 but effective as of May 17, 1993, between SODP,
Inc. and the Collateral Agent
c. Third Amendment to Security Agreement dated as of March
___, 1995,to be executed between SODP, Inc. and the
Collateral Agent
7. Security Agreement dated as of June 30, 1994, among Hallwood
Energy Partners, L.P. and EM Nominee Partnership Company and
the Collateral Agent.
a. Non-standard Financing Statement, pertaining to 7 above
with respect to central Uniform Commercial Code filings
filed of record as set forth on Annex IV to this
Schedule D.
b. First Amendment to Security Agreement dated as of March
___, 1995, to be executed between among Hallwood Energy
Partners, L.P. and EM Nominee Partnership Company and
the Collateral Agent
E. Collateral Mortgage Documents - Louisiana
1. $120,000,000 Collateral Mortgage Note dated August 30, 1988
executed by the Original EDP Borrowers payable to the order
of bearer.
2. Act of Pledge of Collateral Mortgage Note dated August 30,
1988 executed by the Original EDP Borrowers in favor of the
Collateral Agent.
a. Amended Act of Pledge and Security Agreement With
Respect To Collateral Mortgage Note dated May 8, 1990
executed by EDP Operating, Ltd., EM Nominee Partnership
Company, Concise Oil and Gas Partnership and May Energy
Partners Operating Partnership Ltd. in favor of the
Collateral Agent.
b. Second Amendment to Act of Pledge of Collateral
Mortgage Note and Confirmation of Pledge dated as March
31, 1992 executed by EDP Operating, Ltd., EM Nominee
Partnership Company, Concise Oil and Gas Partnership
and May Energy Partners Operating Partnership Ltd. in
favor of the Collateral Agent.
c. Third Amendment to Act of Pledge of Collateral
Mortgage Note and Confirmation of Pledge dated as May
6, 1993 executed by EDP Operating, Ltd., EM Nominee
Partnership Company, Concise Oil and Gas Partnership
and May Energy Partners Operating Partnership Ltd. in
favor of the Collateral Agent.
d. Fourth Amendment to Act of Pledge of Collateral
Mortgage Note and Confirmation of Pledge dated as March
___, 1995, to be executed by EDP Operating, Ltd., EM
Nominee Partnership Company, Concise Oil and Gas
Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent.
3. Act of Collateral Chattel Mortgage and Collateral Mortgage,
Pledge and Assignment dated August 30, 1988 executed by the
Original EDP Borrowers and filed of record and recorded as
set forth on Annex III to this Schedule D.
a. Non-standard Financing Statement, pertaining to 3
above with respect to central Uniform Commercial Code
filings executed by EDP Operating, Ltd., EM Nominee
Partnership Company, Concise Oil and Gas Partnership
and May Energy Partners Operating Partnership Ltd. and
filed of record as set forth on Annex II to this
Schedule D.
b. Non-standard Financing Statement, pertaining to 3 above
with respect to local Uniform Commercial Code filings
executed by EDP Operating, Ltd., EM Nominee Partnership
Company, Concise Oil and Gas Partnership and May Energy
Partners Operating Partnership Ltd. and filed of record
as set forth on Annex II to this Schedule D.
4. $125,000,000 Collateral Mortgage Note dated May 8, 1990,
executed by EDP Operating, Ltd., EM Nominee Partnership
Company, Concise Oil and Gas Partnership and May Energy
Partners Operating Partnership Ltd. payable to the order of
bearer.
5. Collateral Pledge, Assignment and Security Agreement
(Collateral Mortgage Note, Equipment, Inventory, Accounts,
General Intangibles and Fixtures) dated as of May 7, 1990
executed by EDP Operating, Ltd., EM Nominee Partnership
Company, Concise Oil and Gas Partnership and May Energy
Partners Operating Partnership Ltd. in favor of the
Collateral Agent.
a. Amendment No. 1 to Collateral Pledge, Assignment and
Security Agreement dated as of February 12, 1991,
executed by EDP Operating, Ltd., EM Nominee Partnership
Company, Concise Oil and Gas Partnership and May Energy
Partners Operating Partnership Ltd. in favor of the
Collateral Agent.
b. Amendment No. 2 to Collateral Pledge, Assignment and
Security Agreement (Collateral Mortgage Note,
Equipment, Inventory, Accounts, General Intangibles and
Fixtures) dated as of March 31, 1992 executed by EDP
Operating, Ltd., EM Nominee Partnership Company,
Concise Oil and Gas Partnership and May Energy Partners
Operating Partnership Ltd. in favor of the Collateral
Agent.
c. Amendment No. 3 to Collateral Pledge, Assignment and
Security Agreement and Confirmation of Pledge dated as
of May 6, 1993 executed by EDP Operating, Ltd., EM
Nominee Partnership Company, Concise Oil and Gas
Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent.
d. Amendment No. 4 to Collateral Pledge, Assignment and
Security Agreement and Confirmation of Pledge dated as
of March ___, 1995 to be executed by EDP Operating,
Ltd., EM Nominee Partnership Company, Concise Oil and
Gas Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent.
6. Act of Collateral Mortgage, Pledge, Assignment and Security
Agreement dated May 8, 1990 executed by EDP Operating, Ltd.,
EM Nominee Partnership Company, Concise Oil and Gas
Partnership and May Energy Partners Operating Partnership
Ltd. and filed of record and recorded as set forth on Annex
III to this Schedule D.
a. Act of Supplement to Collateral Mortgage, Pledge,
Assignment and Security Agreement with an effective
date of February 13, 1991, executed by EDP Operating,
Ltd., EM Nominee Partnership Company, Concise Oil and
Gas Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent and
filed of record and recorded as set forth on Annex III
to this Schedule D.
b. Act of Supplement No. 2 to Collateral Mortgage, Pledge,
Assignment and Security Agreement with an effective
date of July 17, 1991 executed by EDP Operating, Ltd.,
EM Nominee Partnership Company, Concise Oil and Gas
Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent and
filed of record and recorded as set forth on Annex III
to this Schedule D.
c. Act of Supplement No. 3 to Collateral Mortgage, Pledge,
Assignment and Security Agreement with an effective
date of May 28, 1992, executed by EDP Operating, Ltd.,
EM Nominee Partnership Company, Concise Oil and Gas
Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent and
filed of record and recorded as set forth on Annex III
to this Schedule D.
d. Act of Supplement No. 4 to Collateral Mortgage, Pledge,
Assignment and Security Agreement with an effective
date of May 17, 1993 executed by EDP Operating, Ltd.,
EM Nominee Partnership Company, Concise Oil and Gas
Partnership and May Energy Partners Operating
Partnership Ltd. in favor of the Collateral Agent and
filed of record and recorded as set forth on Annex III
to this Schedule D.
7. Act of Collateral Mortgage, Pledge, Assignment and Security
Agreement with an effective date of May 28, 1992, executed
by EDP Operating, Ltd., EM Nominee Partnership Company,
Concise Oil and Gas Partnership and May Energy Partners
Operating Partnership Ltd. and filed of record and recorded
as set forth on Annex III to this Schedule D.
EXHIBIT A
FORM OF NOTE
$ New York, New York
, 19
For value received, HALLWOOD ENERGY PARTNERS, L.P., a Delaware limited
partnership, HEP OPERATING PARTNERS, L.P., a Delaware limited Partnership, EDP
OPERATING, LTD., a Colorado partnership, EM NOMINEE PARTNERSHIP COMPANY, a
Colorado general partnership, CONCISE OIL AND GAS PARTNERSHIP, a Colorado
general partnership, MAY ENERGY PARTNERS OPERATING PARTNERSHIP LTD., a Texas
limited partnership (hereinafter called the "Borrowers"), jointly and severally
promise and agree to pay in installments as provided in the Credit Agreement
described below and in any event not later than May 31, 2001 to the order of
(NAME) (hereinafter called the "Bank") at the office of Morgan Guaranty Trust
Company of New York, 60 Wall Street, New York, New York, in coin or currency of
the United States of America which at the time of payment is legal tender for
the payment of public and private debts, the principal sum of ( ) MILLION AND
NO/100 DOLLARS ($( ),000,000.00), or so much as is advanced pursuant to the
Credit Agreement described below.
All capitalized terms which are used but not defined in this Note
("Note") shall have the same meanings as in the Second Amended and Restated
Credit Agreement dated as of March 31, 1995, among the Borrowers, the banks
listed on the signature pages thereof and Morgan Guaranty Trust Company of New
York, as Agent (such Amended and Restated Credit Agreement, together with all
amendments or supplements thereto, being the "Credit Agreement").
The Borrowers further agree to pay interest at the Bank's office, in
like money, on the unpaid principal amount owing hereunder from time to time
from the date hereof at the rates specified in Section 2.04 of the Credit
Agreement. Such interest shall be payable on the dates specified in such
Section 2.04. All Loans made by the Bank, the respective types thereof and all
repayments of the principal thereof shall be recorded by the Bank and, if the
Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrowers hereunder or under
the Credit Agreement.
The Borrowers and any and each co-maker, guarantor, accommodation
party, endorser or other Person liable for the payment or collection of this
Note expressly waive demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of intention to
accelerate the maturity, notice of acceleration of the maturity, bringing of
suit, and diligence in taking any action to collect amounts called for hereunder
and in the handling of Property at any time existing as security in connection
herewith, and shall be directly and primarily liable for the payment of all sums
owing and to be owing hereon, regardless of and without any notice, diligence,
act or omission as or with respect to the collection of any amount called for
hereunder or in connection with any Lien at any time had or existing as security
for any amount called for hereunder.
This Note (i) has been issued in exchange for, and in renewal,
extension and replacement of the note dated May 7, 1990 issued by the Borrowers
payable to the order of the Bank pursuant to the Original Agreement for the
purpose of renewing and extending the indebtedness evidenced by said note, it
being acknowledged and agreed that said indebtedness constitutes the same
indebtedness evidenced by this Note and (ii) is one of the Notes referred to in
the Credit Agreement and is issued pursuant to and is entitled to the benefits
of the Credit Agreement and the Collateral Documents. Reference is made to the
Credit Agreement for provisions for the acceleration of the maturity hereof on
the occurrence of certain events specified therein, for interest rate
computations, for the repayment schedule, for the mandatory and optional
prepayment provisions, for the reimbursement of attorneys' fees or other costs
of collection or enforcement, and for all other pertinent purposes.
This Note and the Credit Agreement shall be governed by the laws of
the State of New York.
HALLWOOD ENERGY PARTNERS, L.P.
HEP OPERATING PARTNERS, L.P.
By: HALLWOOD ENERGY CORPORATION
By: ___________________________
Title:
The General Partner of
Hallwood Energy Partners, L.P.
and HEP Operating Partners, L.P.
EDP OPERATING, LTD.
individually and as a
general partner of
EM NOMINEE PARTNERSHIP COMPANY
CONCISE OIL AND GAS PARTNERSHIP
EM NOMINEE PARTNERSHIP COMPANY
CONCISE OIL AND GAS PARTNERSHIP
MAY ENERGY PARTNERS OPERATING
PARTNERSHIP LTD.
By: HALLWOOD G.P., INC.
By _________________________
Title:
The General Partner of May Energy Partners Operating
Partnership Ltd. and EDP Operating, Ltd. and EM Nominee
Partnership Company and Concise Oil and Gas Partnership
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
____________________________________________________________
Amount Amount of
of Principal Notation
Date Loan Repaid Made By
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
___________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
EXHIBIT B
OPINION OF ANDREWS & KURTH, COUNSEL FOR THE BORROWER
March 31, 1995
The Prudential Insurance Company
of America ("Prudential")
and
The Banks listed in the Second Amended
and Restated Credit Agreement (as amended,
the "Second Restatement") dated as of
March 31, 1995, as amended, among the
Borrowers (as defined below), said Banks,
Morgan Guaranty Trust Company of
New York as Agent and First Union National Bank
of North Carolina, as Collateral Agent
Re: Hallwood Energy Partners, L.P. HEP Operating Partners, L.P., EDP
Operating, Ltd., EM Nominee Partnership Company, Concise Oil and
Gas Partnership and May Energy Partners Operating Partnership Ltd.
(the "Borrowers")
Gentlemen:
This opinion is delivered to you pursuant to Section 6.01(d) of the
Second Restatement. Capitalized terms used herein that are defined in the
Second Restatement shall have the meanings assigned to them therein unless
otherwise specified.
We have acted as counsel to Hallwood Energy Partners, L.P., a Delaware
limited partnership ("Hallwood"), HEP Operating Partners, L.P., a Delaware
limited partnership ("HEPO"), EDP Operating, Ltd., a Colorado limited
partnership ("EDPO"), EM Nominee Partnership Company, a Colorado general
partnership ("Nominee"), Concise Oil and Gas Partnership, a Colorado general
partnership ("Concise"), and May Energy Partners Operating Partnership Ltd., a
Texas limited partnership ("MEPO"), Hallwood Energy Corporation, a Texas
corporation ("HEC") and Hallwood G.P., Inc., a Delaware corporation ("G.P.") in
connection with the preparation, execution and delivery of the Second
Restatement. HEC and GP are referred to herein as the General Partners.
In connection with the opinions expressed below, we have examined the
following:
i) an executed copy of the Second Restatement, including the
Exhibits thereto;
ii) executed copies of the Notes executed and delivered by the
Borrowers pursuant to Section 6.01(b) of the Amendment;
iii) an executed copy of Amendment No. 8 to the Amended and
Restated Note Purchase Agreement between Prudential and the Borrowers
("Amendment No. 8");
iv) a certificate dated March 31, 1995 of the Assistant Secretary
of HEC stating that, (A) since August 17, 1989, neither Hallwood nor
HEPO has amended its Certificate of Limited Partnership, (B) since May
9, 1990, the Third Amended and Restated Agreement of Limited
Partnership of Hallwood dated as of May 9, 1990 (the "Hallwood
Partnership Agreement") has not been amended, and (C) since May 9,
1990, the Third Amended and Restated Agreement of Limited Partnership
of HEPO dated as of May 9, 1990 (the "HEPO Partnership Agreement") has
not been amended;
v) a certificate dated March 31, 1995 of the Assistant Secretary
of G.P., stating that, since (A) since May 9, 1990, the Second Amended
and Restated Agreement of Limited Partnership of EDPO dated as of
October 14, 1986 (the "EDPO" Partnership Agreement") has not been
amended, (B) since December 19, 1990, the Amended and Restated
Partnership Agreement of Nominee has not been amended, (C) since
October 1, 1986, the Partnership Agreement of Concise dated October 1,
1986 has not been amended, (D) since March 31, 1987 the Amended and
Restated Limited Partnership Agreement of MEPO effective March 31, 1987
has not been amended, (E) since December 20, 1990 the Second Amended
and Restated Certificate of Limited Partnership of EDPO has not been
amended, and (F) since March 18, 1988 the Certificate of Limited
Partnership of MEPO has not been amended;
vi) a certificate dated March 31, 1995 of the Assistant Secretary
of G.P. stating that, since May 24, 1990, the Articles of Incorporation
of G.P. have not been amended, and a certificate dated March 31, 1995
of the Assistant Secretary of HEC, stating that, since October 26,
1990, the Articles of Incorporation of HEC have not been amended;
vii) a certificate dated March 31, 1995 the Assistant Secretary
of G.P. stating that, since December 16, 1987, the by-laws of G.P. have
not been amended, and a certificate, dated March 31, 1995 by the
Secretary of HEC stating that, since March 17, 1989, the by-laws of HEC
have not been amended;
viii) a copy of certain resolutions adopted by the Board of
Directors of G.P., certified as of March 31, 1995 by the Assistant
Secretary of G.P. to be a true copy, and a copy of certain resolutions
adopted by the Board of Directors of HEC, certified as of March 31,
1995 by the Assistant Secretary of HEC to be a true copy;
ix) a certificate, dated March 31, 1995 of the Assistant Secretary
of G.P. as to the current existence of Nominee and Concise in the
jurisdictions specified therein; and
x) good standing and qualification certificates in various
jurisdictions for the Borrowers (other than Nominee and Concise).
We have examined originals or copies of such records, documents,
certificates and other instruments and have made such other investigations as in
our judgment are necessary or appropriate to enable us to render the opinions
expressed below. We have also obtained from officers of the Borrowers and the
General Partners and from public officials certificates and affidavits as to
factual matters. We have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that:
1. Organization, Existence.
(a) Each of Hallwood and HEPO is a limited partnership duly formed
pursuant to the Delaware Revised Uniform Limited Partnership Act, as amended,
and validly existing and in good standing under the laws of the State of
Delaware. EDPO is a limited partnership duly formed pursuant to the Colorado
Uniform Limited Partnership Act of 1981, as amended, and validly existing and in
good standing under the laws of the State of Colorado. MEPO is a limited
partnership duly formed pursuant to the Texas Uniform Limited Partnership Act
and validly existing under the laws of the State of Texas. Nominee and Concise
are each a general partnership duly formed pursuant to the Uniform Partnership
Law of the State of Colorado.
(b) Each of the Borrowers has all requisite partnership power and
authority, pursuant to the laws under which such Borrower was formed to conduct
its business as currently conducted.
(c) G.P. is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. HEC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas. Each of G.P., and HEC has all requisite corporate power and
authority pursuant to the laws under which it was formed to conduct its business
as currently conducted.
(d) Except as indicated on Schedule 1 annexed hereto, each of the
Borrowers is duly qualified to do business in the States of Delaware, Colorado
and Texas, and, to the best of our knowledge, in each jurisdiction in which
Mortgaged Property is located or in which the failure to so qualify would have a
materially adverse effect on the business, condition or operations of the
Borrowers.
(e) G.P. is duly qualified and in good standing as a foreign
corporation authorized to do business in the State of Texas and each of HEC and
G.P. is duly qualified and in good standing as a foreign corporation authorized
to do business in the State of Colorado and, to the best of our knowledge, in
each jurisdiction in which Mortgaged Property is located or in which the failure
to so qualify would have a materially adverse effect on the its business,
condition or operations or on that of the Borrowers.
(f) G.P. is the sole general partner of each of EDPO and MEPO.
G.P. and EDPO are the only general partners of each of Nominee and Concise. HEC
is the sole general partner of each of Hallwood and HEPO.
2. Power and Authority. Each of the Borrowers has all requisite
partnership power and authority, to execute, deliver and perform its obligations
under the Second Restatement, the documents listed in Section 6.01(f) of the
Second Restatement (collectively, the "Collateral Documents"), Amendment No. 8
and the Notes and to borrow in the manner and for the purpose contemplated by
the Second Restatement.
3. Binding Obligation. The execution, delivery and performance by
each of the Borrowers of the Second Restatement, the Collateral Documents,
Amendment No. 8 and the Notes have been duly authorized by all necessary
corporate or partnership action, as the case may be, and each of the Borrowers
has executed and delivered the Second Restatement, Amendment No. 8, the
Collateral Documents and the Notes. Under Texas law each of the Second
Restatement, Amendment No. 8 and the Notes constitutes the legal, valid and
binding obligation of each of the Borrowers, enforceable in accordance with its
terms.
4. Actions Pending. There is, to the best of our knowledge, no
action, suit or proceeding pending or threatened which questions the validity or
legality of, or seeks damages in connection with the Second Restatement and the
Notes or any actions contemplated thereby. There is, to the best of our
knowledge, no action, suit or proceeding pending or threatened which may
reasonably be expected to result in an adverse decision that could have a
materially adverse effect on the business or financial condition of the
Borrowers, taken as a whole.
5. No Conflicts. The execution, delivery and performance by each of
the Borrowers of the Second Restatement, Amendment No. 8 and the Notes and the
borrowings to be made under the Second Restatement do not and will not conflict
with or violate the partnership agreement of any Borrower, the Certificate of
Incorporation or bylaws of G.P., the Articles of Incorporation or bylaws of HEC
or any law, statute, or published rule or regulation, or to the best of our
knowledge, any writ, order or decision of any court or governmental
instrumentality binding on any Borrower or General Partner, or, to the best of
our knowledge, any indenture, mortgage, contract, instrument or agreement to
which any Borrower or General Partner is a party or by which it or its assets is
bound.
6. No Approvals. Neither the execution, delivery or performance by
each of the Borrowers or General Partners of the Second Restatement, Amendment
No. 8 or the Notes nor the borrowings to be made under the Second Restatement
require the consent or approval of any governmental authority.
7. Investment Company Act. None of the Borrowers is an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
8. Public Utility Holding Company Act. None of the Borrowers is a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" or a "holding company," as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
The opinions expressed herein as to the enforceability of the Second
Restatement, Amendment No. 8 and the Notes are qualified to the extent that the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally. Additionally,
in rendering such opinions we have assumed the due authorization, execution and
delivery of Second Restatement, Amendment No. 8 and the Notes by all parties
other than the Borrowers and the General Partners. Moreover, we express no
opinion herein as to (a) the availability of equitable remedies (regardless of
whether such remedy is sought in a proceeding at law or in equity) or the power
of courts to award damages in lieu of granting equitable remedies (including the
equitable remedy of specific performance), and (b) the enforceability of any
provision in the Second Restatement and the Notes that purports to grant
indemnification to any person for its own negligence or misconduct.
We express no opinion herein as to (a) whether the provisions of the
Second Restatement which permit the Agent, the Required Banks or any Bank to
take action or make determinations may be subject to a requirement that such
action be taken or such determination be made in good faith; (b) whether the
holder of a Note may, under certain circumstances, be called upon to prove the
outstanding principal amount of the loans evidenced thereby; (c) the effect of
the law of any jurisdiction (other than Texas) wherein any Bank may be located
which limits rates of interest which may be charged or collected by such Bank;
and (d) the enforceability of (i) provisions relating to delay or omission of
enforcement of rights or remedies, (ii) any agreement to agree, (iii) provisions
relating to severability, and (iv) provisions purporting to waive rights to a
trial by jury.
Whenever this opinion states the existence or absence of any fact to
the best of our knowledge, such statement is intended to convey that, during the
course of our representation of the Borrowers with respect to matters addressed
herein, no information has come to our attention which has given us actual
knowledge of facts contrary to the statements so expressed herein.
To the extent our opinions expressed in numbered paragraph 3 above pass
upon the enforceability under Texas law of any "governing law" provision
contained in the Second Restatement, Amendment No. 8 or the Notes, such opinion
is based upon and limited to our determination that, subject to the
considerations set forth in Appendix A to this opinion, if all material facts
and issues of law are presented and properly argued, a Texas court or a federal
court sitting in Texas and applying Texas law should give effect to such
"governing law" provision, to the extent that such courts generally give effect
to such provisions (e.g., the law of the forum may be applied to procedural
matters including remedies).
We are expressing no opinion herein as to the enforceability of any
waiver of or submission to venue contained in the Second Restatement or the
Notes.
This opinion is limited in all respects to the laws of the States of
Texas and Colorado, the Delaware Revised Uniform Limited Partnership Act, as
amended, and the Federal law of the United States. Without limiting the
generality of the foregoing, we express no opinion herein as to (a) the effect
of the law (other than the laws specifically set forth in the first sentence of
this paragraph) of any jurisdiction other than the State of Texas wherein any
Lender may be located, or wherein enforcement of the Second Restatement,
Amendment No. 8 and the Notes may be sought and (b) the applicability of the
"legal investment laws" of any jurisdiction to the Lenders or the transactions
contemplated by the Second Restatement, Amendment No. 8 and the Notes. Insofar
as our opinions herein relate to the laws of the State of Colorado we have
relied exclusively upon the opinion of Cathleen M. Osborn, Esq., General Counsel
of Hallwood, a copy of which is attached, and we believe such reliance to be
proper. Our opinion is furnished to you solely for the benefit of you and your
counsel and for the benefit of any subsequent holder of the Notes in connection
with the transactions contemplated by the Second Restatement and the Notes and
may not be used or distributed for any other purpose without our prior written
consent. This opinion speaks as of its date, and we undertake no, and hereby
expressly disclaim any, duty to advise you or your counsel as to any changes of
fact or law coming to our attention after the date hereof.
Very truly yours,
SCHEDULE 1 TO OPINION OF
ANDREWS & KURTH
EDPO is not currently qualified to do business in the State of
Delaware.
APPENDIX A TO OPINION OF
ANDREWS & KURTH
For purposes of rendering our opinion, we have relied upon or assumed
the following:
(a) the principal office of Morgan Guaranty Trust Company of New York,
the Agent under the Second Restatement, is located in, and such agent is a
corporation organized under the laws of, the State of New York;
(b) the principal office of Prudential is located in, and Prudential is
a mutual insurance corporation organized under the laws of, the State of New
Jersey;
(c) the chief executive office of the Borrowers is located in Texas;
(d) the Borrowers conduct significant business operations in the State
of Colorado and the State of Texas;
(e) the terms of the Financing Documents and the Security Documents
have been subject to final approval by the principal offices of the Agent, the
other Banks and Prudential, as applicable;
(f) the Borrowers are required to make payments under the Second
Restatement, the Amended and Restated Note Purchase Agreement dated as of May 7,
1990 between Prudential and Borrowers (as amended by Amendment Nos. 1 through 8
and the Notes to the Agent in the State of New York; and
(g) under New York law, each of the Second Restatement, Amendment No. 8
and the Notes constitutes the legal valid and binding obligation of the
Borrowers, enforceable in accordance with its terms.
Effective as of September 1, 1993, the Texas legislature amended the
Texas Business and Commerce Code to add Sections 35.51 and 35.52 to the Code.
Subsection (b) of Section 35.51 states that, except as provided by Subsection
(e) of (f) of Section 35.51 or Section 35.52, if the parties to a "qualified
transaction" agree in writing that a particular law governs the validity or
enforceability of an agreement relating to the transaction, and the transaction
bears a reasonable relationship to that jurisdiction, then the law (other than
the conflict of law rules) of that chosen jurisdiction governs the issue
involved "regardless of whether the application of that law is contrary to a
fundamental or public policy of (Texas) or any other jurisdiction."
Subsection (d) of Section 35.51 sets forth the criteria for determining
when a transaction bears a reasonable relationship to a particular
jurisdiction. The criteria set forth in this Subsection include the
following: (a) a party to the transaction is a resident of the jurisdiction
whose law is chosen; (b) a party to the transaction has its place of business
or, if that party has more than one place of business, its chief executive
office or an office from which it conducts a substantial part of the
negotiations relating to the transaction, in that jurisdiction; (c) a party to
the transaction is required to perform a substantial part of its obligations
relating to the transaction, such as delivering payments, in that jurisdiction;
or (d) a substantial part of the negotiations relating to the transaction, and
the signing of an agreement relating to the transaction by a party to the
transaction, occurred in that jurisdiction.
The exceptions to Section 35.51(b) are set forth in Sections 35.51(e),
35.51(f) and 35.52. Section 35.52 applies to contracts that are principally for
the construction or repair of improvements to real property located in Texas.
Section 35.51(f) states that Subsections (b) through (e) of Section 35.51 do not
apply to the determination of the law that governs (1) certain transactions and
issues related to real property, (2) matters relating to marriage, adoption,
marital property rights and probate, and (e) an issue that another statute of
Texas, or a statute of the United States provides, is governed by the law of a
particular jurisdiction.
Section 35.51 (e) states that, except as provided by Sections 35.51(f)
and 35.52, if: "(1) the parties to a qualified transaction agree in writing
that the law of a particular jurisdiction governs the validity or enforceability
of an agreement relating to the transaction or a provision of the agreement; (2)
the transaction bears a reasonable relation to that jurisdiction; and (3) a term
of the agreement or of that provision is invalid or unenforceable under the law,
other than conflict of laws rules, of that jurisdiction but is valid or
enforceable under the law, other than conflict of laws rules, of the
jurisdiction that has the most significant relation to the transaction, the
subject matter of the transaction, and the parties, then: (A) the law, other
than conflict of laws rules, of the jurisdiction that has the most significant
relation to the transaction, the subject matter of the transaction, and the
parties governs the validity or enforceability of that term; and (B) the law,
other than conflict of laws rules, of the jurisdiction that the parties agree
would govern the validity or enforceability of that agreement or of that
provision governs the validity or enforceability of the other terms of that
agreement or provision."
We note, however, that Section 35.51 is a new statutory provision that
has never been interpreted by the Texas courts. Further, Section 35.51 does not
state whether it applies to contracts in existence prior to its effective date
of September 1, 1993, and therefore it is not clear whether the Second
Restatement, which amends and restates a contract that existed prior to
September 1, 1993, would be entitled to the benefits of Section 35.51. To the
extent Section 35.51 does not apply, the discussion below will be relevant.
In DeSantis v. Wackenhut, 31 Tex. S. Ct. J. 616 (July 13, 1988), the
Supreme Court of Texas purported to adopt section187 of the Restatement (Second)
Conflict of Laws (1971) (the "Restatement") as the choice of law rule in
contracts that are not governed by the Uniform Commercial Code. Subsection (2)
of section187 provides in effect that "(t)he law of the state chosen by the
parties to govern their contractual rights and duties will be applied . . .
unless either (a) the chosen state has no substantial relationship to the
parties or the transaction and there is no other reasonable basis for the
parties' choice, or (b) application of the law of the chosen state would be
contrary to a fundamental policy of a state which has a materially greater
interest than the chosen state in the determination of the particular issue and
which, under the rule of section188 (of the Restatement), would be the state of
the applicable law in the absence of an effective choice by the parties."
In DeSantis v. Wackenhut, the court applied section187 of the
Restatement to determine whether Texas law or Florida law applied to a
non-competition agreement that provided that it would be governed by the laws of
the State of Florida. The court equated the requirement of clause (a) of
Subsection (2) of section187 that there be a "substantial relationship" between
the state whose law was chosen and the parties or the transaction with the
requirement of prior Texas choice of law rules that there be a "reasonable
relationship" between the parties and that state. On the basis that the
employer's corporate headquarters were located in Florida and the employee was
interviewed and hired in that state, the court held that a "reasonable
relationship" existed between the parties and the State of Florida. In our
view, the contacts between the State of New York and the parties to the
Financing Documents support a conclusion that there is a "reasonable
relationship" between those parties and the State of New York. In our view the
contacts between the State of Texas and the parties to the Security Documents
support a conclusion that there is a "reasonable relationship" between those
parties and the State of Texas.
Clause (b) of Subsection (2) of section187 of the Restatement provides
in effect that the fact that the application of the law chosen by the parties
would be contrary to a fundamental policy of another state will not invalidate
the parties' choice of law unless (i) the other state has a "materially greater
interest" in the issue than the state whose law was chosen and (ii) under
section188 of the Restatement, the other state's law would apply to the contract
in the absence of the parties' choice of law. However, in DeSantis v.
Wackenhut, the court interpreted section187 of the Restatement to mean that "the
law of the chosen state must not be contrary to a fundamental policy" of the
State of Texas. It is unclear whether the court intended this interpretation to
apply even if the State of Texas does not have a materially greater interest in
the issue than the state whose law was chosen and even if the local law of the
State of Texas would not be the applicable law in the absence of an effective
choice of law.
Subsection (1) of section188 of the Restatement is the rule of the
Restatement for determining the law that will govern an issue in contract when
the parties do not effectively contract for the application of a particular
state's local law. That subsection states that "(t)he rights and duties of the
parties with respect to an issue in contract are determined by the local law of
the state which, with respect to that issue, has the most significant
relationship (rather than only a "substantial relationship") to the transaction
and the parties under the principles stated in section6" of the Restatement.
Under Subsection (2) of section188 of the Restatement, the contacts to be taken
into account in applying the principles of section6 of the Restatement include
"(a) the place of contracting, (b) the place of negotiation of the contract, (c)
the place of performance, (d) the location of the subject matter of the
contract, and (e) the domicile, residence, nationality, place of incorporation
and place of business of the parties." In our view, it is unclear whether the
contacts between the State of Texas and the transaction evidenced by, and the
parties to, the Security Documents would support a conclusion that the State of
Texas has the "most significant relationship" to the transaction and the
parties, such that in the absence of a "governing law" provision, Texas law
would apply under Subsection (1) of section188 of the Restatement. Therefore,
under Subsection (2) of section187 of the Restatement, the parties' choice of
Texas law to govern their respective rights and duties under the Security
Documents may not be effective if the application of Texas law to that issue
would be contrary to a fundamental policy of another state and such other state
was found to have a materially greater interest than the State of Texas in the
determination of that issue.
In addition, in our view, it is unclear whether the contacts between
the State of New York and the transaction evidenced by, and the parties to, the
Financing Documents would support a conclusion that the State of New York has
the "most significant relationship" to the transaction and the parties, such
that in the absence of a "governing law" provision, New York law would apply
under Subsection (1) of section188 of the Restatement. Therefore, under
Subsection (2) of section187 of the Restatement, the parties' choice of New York
law to govern their respective rights and duties under the Financing Documents
may not be effective if the application of New York law to that issue would be
contrary to a fundamental policy of the State of Texas and the State of Texas
was found to have a materially greater interest than the State of New York in
the determination of that issue.
In Uniwest Mortgage Co. v. Dadecor Condominiums, Inc., 877 F.2d 431
(5th Cir. 1989), the United States Court of Appeals for the Fifth Circuit
recognized the Texas Supreme Court's adoption of section187 of the Restatement
and applied that section to determine whether the usury laws of Texas or of
Colorado governed the rights and duties of the parties to a contract that
provided that it would be governed by the laws of the State of Colorado.
Although clause (b) of Subsection (2) of section187 of the Restatement calls for
a determination whether the state whose law would apply in the absence of an
effective choice of law has a "materially greater interest" than the chosen
state "in the determination of the particular issue," the court stated that
Colorado law would apply unless the interest of the State of Texas "in the
contract" was materially greater than that of the State of Colorado. In making
that determination, the court examined the relationship of each state to the
transaction in light of the contacts set forth in Subsection (2) of section188
of the Restatement. The court concluded that the facts of the case did not
support a characterization of the State of Colorado or the State of Texas as
"the place of contracting" or "the place of negotiation of the contract."
However, on the basis that the borrower was a Texas corporation with its
principal place of business in Colorado, and the performance of the contract
occurred in Colorado, the court concluded "as a matter of law that Texas'
interest in the contract is not materially greater than Colorado's interest in
the contract." In our view, the contacts between the State of Texas and the
Security Documents support a conclusion that another state does not have a
"materially greater interest" in that contract that the State of Texas. In
addition in our view, the contacts between the State of New York and the
Financing Documents support a conclusion that the State of Texas does not have a
"materially greater interest" in that contract than the State of New York.
Therefore, applying the rationale of Uniwest Mortgage Co. v. Dadecor
Condominiums, Inc., under Subsection (2) of section187 of the Restatement, the
parties' choice of New York law to govern their respective rights and duties
under the Financing Documents would appear to be effective even if the
application of New York law to that issue would be contrary to a fundamental
policy of the State of Texas and Texas law would be applicable to the Financing
Documents in the absence of the parties' choice of law.
Because in DeSantis v. Wackenhut, the court interpreted section 187 of
the Restatement to mean that "the law of the chosen state must not be contrary
to a fundamental policy" of the State of Texas, and because the court applied
that interpretation to invalidate the parties' choice of Florida law, whether
the courts of the State of Texas would give effect to your and the Borrowers'
choice of New York law may depend on whether the usury statutes of the State of
Texas constitutes a "fundamental policy". We are not aware of any reported
decision by the courts of the State of Texas that has addressed whether the
usury statutes of the State of Texas constitute a "fundamental policy". However
in Woods-Tucker Leasing Corp. v. Hutchinson-Ingram, 642 F.2d 744 (5th Cir.
1981), the United States Court of Appeals for the Fifth Circuit stated that
upholding a contractual choice of law that requires the application of the usury
laws of another state does not offend fundamental public policy of the State of
Texas. This statement is consistent with the result in Securities Investment
Company of St. Louis v. Finance Acceptance Corporation, 474 S.W.2d 261 (Tex.
Civ. App. 1971, writ ref'd n.r.e.), in which a Texas court, without requiring
that the application of another state's usury statutes not be contrary to a
fundamental policy of the State of Texas, applied prior Texas choice of law
rules to enforce a contractual choice of Missouri law that denied corporations
the defense of usury. We call to your attention Article 5060-1.02 of the Texas
Revised Civil Statutes Annotated, which provides that "all contracts for usury
are contrary to public policy . . . ." This statute was in effect at the time
Woods-Tucker Leasing Corp. v. Hutchinson-Ingram was decided.
In rendering the opinion expressed herein, we are not passing upon the
right of any party to institute or maintain any action in any court or upon
matters respecting the jurisdiction of any court.
OPINION OF CATHLEEN M. OSBORN
HALLWOOD ENERGY CORPORATION
March 31, 1995
Andrews & Kurth L.L.P.
425 Lexington Avenue
New York, NY 10017
Re: Hallwood Energy Partners, L.P., HEP Operating Partners, L.P., EDP
Operating, Ltd., EM Nominee Partnership Company, Concise Oil and
Gas Partnership and May Energy Partners Operating Partnership Ltd.
(the "Borrowers")
Ladies and Gentlemen:
I am General Counsel to Hallwood Energy Corporation, a Texas
corporation ("HEC"), which is the general partner of Hallwood Energy Partners,
L.P. ("HEP") and of HEP Operating Partners, L.P. ("HEPO"), and to Hallwood G.P.,
Inc., a Delaware corporation ("HGP"), which is the general partner of EDP
Operating, Ltd., a Colorado limited partnership ("EDPO"). EDPO is a general
partner of EM Nominee Partnership Company, a Colorado general partnership
("Nominee"), Concise Oil and Gas Partnership, a Colorado general partnership
("Concise") and May Energy Partners Operating Partnership Ltd., a Texas limited
partnership ("MEPO").
You have requested my opinion in connection with the delivery of your
opinion pursuant to Section 6.01(d) of the Second Amended and Restated Credit
Agreement, dated as of March 31, 1995, among the Borrowers and Banks and Morgan
Guaranty Trust Company of New York as Agent (the "Credit Agreement").
Capitalized terms used herein shall have the meanings assigned to them in the
Credit Agreement.
In connection with the opinions expressed below, I have examined such
instruments, documents and records as I deem necessary to express the opinions
hereinafter set forth.
For purposes of this opinion, I have assumed the genuineness of all
signatures appearing on the documents examined by me, the authenticity of all
documents submitted to me as originals and the conformity with the original
documents of all documents submitted to me as copies.
Based on the foregoing and subject to the qualifications and
limitations set forth below, I am of the opinion that:
1. Each of the Borrowers has all requisite power and authority
pursuant to the laws under which such Borrower was formed to conduct its
business as currently conducted.
2. Each of the Borrowers has all requisite power and authority to
execute, deliver and perform its obligations under the Credit Agreement, the
documents listed in Section 6.01(f) of the Credit Agreement (collectively, the
"Collateral Documents"), Amendment No. 8 and the Notes and to borrow in the
manner and for the purposes contemplated by the Credit Agreement.
3. The execution, delivery and performance by each of the Borrowers,
and the general partners of EDPO, Nominee, Concise and MEPO of the Credit
Agreement, Collateral Documents, Amendment No. 8 and the Notes, and the
borrowings to be made under the Credit Agreement do not and will not conflict
with or violate the partnership agreements of Nominee, Concise or MEPO, the
Partnership Certificate of EDPO, the certificate of incorporation or bylaws of
HEC or HGP, or any law, statute or published rule or regulation or, to the best
of my knowledge, any writ, order or decision of any court or governmental
instrumentality binding on any Borrower, or a general partner of EDPO, Nominee,
Concise or MEPO or, to the best of my knowledge, any indenture, mortgage,
contract, instrument or agreement to which any Borrower, or a general partner of
EDPO, Nominee, Concise or MEPO is a party or by which it or its assets is bound.
I am expressing no opinion herein as to the title of the Borrowers to
their properties, the descriptions of properties contained in the Financing
Documents, the rank of the liens and perfection of the security interest created
by the Financing Documents or any other related documents.
I have assumed that all consideration to be received with respect to
the indebtedness evidenced by the Notes, as amended, is reflected in the Credit
Agreement and the Notes.
This opinion is limited in all respects to the laws of the State of
Colorado, the corporate and the limited partnership laws of the State of
Delaware and the Federal law of the United States. Without limiting the
generality of the foregoing, I express no opinion herein as to (a) the effect of
the law of any jurisdiction other than the State of Colorado wherein any Lender
may be located, or where enforcement of the Credit Agreement or the Financing
Documents may be sought, (b) the applicability of the "legal investment laws" of
any jurisdiction to the Lenders or the transactions contemplated by the Credit
Agreement or the Financing Documents and (c) any matters involving Regulations
G, U or X of the Board of Governors of the Federal Reserve System.
This opinion is furnished to you solely for your use in connection with
your opinion of even date herewith and may be relied upon only by you.
Very truly yours,
Cathleen M. Osborn
EXHIBIT C
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
(Effective Date)
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Second Amended and
Restated Credit Agreement (the "Credit Agreement") dated as of March 31, 1995
among Hallwood Energy Partners, L.P., a Delaware limited partnership, HEP
Operating Partners, L.P., a Delaware limited partnership, EDP Operating, Ltd., a
Colorado limited partnership, EM Nominee Partnership Company, a Colorado general
partnership, Concise Oil and Gas Partnership, a Colorado general partnership,
May Energy Partners Operating Partnership, Ltd., a Texas limited partnership
(the "Borrowers"), the banks listed on the signature pages thereof (the "Banks")
and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have
acted as special counsel for the Agent for the purpose of rendering this opinion
pursuant to Section 6.01(e) of the Credit Agreement. Terms defined in the
Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, records, certificates of
public officials and other instruments as we have deemed necessary or advisable
for purposes of this opinion.
We have assumed that the execution, delivery and performance by the
Borrowers of the Credit Agreement and the Notes are within their respective
powers and have been duly authorized by all necessary action.
Upon the basis of the foregoing, we are of the opinion that the
Credit Agreement constitutes a valid and binding agreement of each Borrower and
the Notes constitute valid and binding obligations of each Borrower, in each
case enforceable in accordance with their respective terms, except (i) as such
validity, binding effect and enforceability may be subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting creditors' rights generally and (ii) as
such enforceability may be subject to the effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
We are qualified to practice law in the State of New York. We do
not express any opinion herein concerning any laws of any jurisdiction other
than the State of New York or as to the effect (if any) of any law of any
jurisdiction (except the State of New York) in which any Bank is located which
limits the rate of interest that such Bank may charge or collect.
Very truly yours,
EXHIBIT D
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of ______, 19__ among (ASSIGNOR) (the
"Assignor"), (ASSIGNEE) (the "Assignee"), HALLWOOD ENERGY PARTNERS, L.P., a
Delaware limited partnership, HEP OPERATING PARTNERS, L.P., a Delaware limited
partnership, EDP OPERATING, LTD., a Colorado limited partnership, EM NOMINEE
PARTNERSHIP COMPANY, a Colorado general partnership, CONCISE OIL AND GAS
PARTNERSHIP, a Colorado general partnership, MAY ENERGY PARTNERS OPERATING
PARTNERSHIP LTD., a Texas limited partnership, (collectively the "Borrowers"),
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent") and FIRST
UNION NATIONAL BANK OF NORTH CAROLINA, as Collateral Agent (the "Collateral
Agent").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the Second Amended and Restated Credit Agreement dated as of March
31, 1995 among the Borrowers, the Assignor and the other Banks party thereto, as
Banks, and the Agent (the "Credit Agreement") and to the Amended and Restated
Sharing Agreement dated as of March 31, 1995 among the Borrowers, the Assignor
and the other Banks party thereto, The Prudential Insurance Company of America
and the Collateral Agent (the "Sharing Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrowers in an aggregate principal amount at
any time outstanding not to exceed $__________;
WHEREAS, Loans made to the Borrower by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"),
together with a corresponding portion of its outstanding Loans, and the Assignee
proposes to accept assignment of such rights and assume the corresponding
obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise
defined herein shall have the respective meanings set forth in the Credit
Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to
the Assignee all of the rights of the Assignor under the Sharing Agreement and
the Credit Agreement to the extent of the Assigned Amount, and the Assignee
hereby accepts such assignment from the Assignor and assumes all of the
obligations of the Assignor under the Sharing Agreement and the Credit Agreement
to the extent of the Assigned Amount, including the purchase from the Assignor
of the corresponding portion of the principal amount of the Committed Loans made
by the Assignor outstanding at the date hereof. Upon the execution and delivery
hereof by the Assignor, the Assignee, the Borrowers and the Agent and the
payment of the amounts specified in Section 3 required to be paid on the date
hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and
be obligated to perform the obligations of a Bank under the Sharing Agreement
and the Credit Agreement with a Commitment in an amount equal to the Assigned
Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be
reduced by a like amount and the Assignor released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee. The assignment provided for herein shall be without recourse to the
Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds an amount equal to $_________*. 2 It is understood
that commitment and/or facility fees accrued to the date hereof are for the
account of the Assignor and such fees accruing from and including the date
hereof are for the account of the Assignee. Each of the Assignor and the
Assignee hereby agrees that if it receives any amount under the Credit Agreement
which is for the account of the other party hereto, it shall receive the same
for the account of such other party to the extent of such other party's interest
therein and shall promptly pay the same to such other party.
SECTION 4. Consent. This Agreement is conditioned upon the
consent of the Borrowers, the Agent and the Collateral Agent pursuant to Section
8.06(c) of the Credit Agreement. The execution of this Agreement by the
Borrowers, the Agent and the Collateral Agent is evidence of this consent.
Pursuant to Section 8.06(c) the Borrowers agree to execute and deliver a Note
payable to the order of the Assignee to evidence the assignment and assumption
provided for herein.
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrowers, or the validity and enforceability of the obligations of the
Borrowers in respect of the Credit Agreement or any Note. The Assignee
acknowledges that it has, independently and without reliance on the Assignor,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement and will
continue to be responsible for making its own independent appraisal of the
business, affairs and financial condition of the Borrowers.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
(ASSIGNOR)
By_________________________
Title:
(ASSIGNEE)
By__________________________
Title:
2 * Amount should combine principal together with accrued
interest and breakage compensation, if any, to be paid by the
Assignee, net of any portion of any upfront fee to be paid by
the Assignor to the Assignee. It may be preferable in an
appropriate case to specify these amounts generically or by
formula rather than as a fixed sum.
HALLWOOD ENERGY PARTNERS, L.P.
HEP OPERATING PARTNERS, L.P.
By: HALLWOOD ENERGY
CORPORATION
By____________________________
Title:
The General Partner of
Hallwood Energy Partners,
L.P. and HEP Operating
Partners, L.P.
EDP OPERATING, LTD.
individually and as
a general partner of
EM NOMINEE PARTNERSHIP COMPANY
and CONCISE OIL AND GAS
PARTNERSHIP
EM NOMINEE PARTNERSHIP COMPANY
CONCISE OIL AND GAS PARTNERSHIP
MAY ENERGY PARTNERS OPERATING
PARTNERSHIP LTD.
By: HALLWOOD G.P., INC.,
formerly known as QUINOCO
ENERGY, INC.
By
Title:
The General Partner of May
Energy Partners Operating
Partnership Ltd. and EDP
Operating Ltd. and EM Nominee
Partnership Company and
Concise Oil and Gas
Partnership
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By____________________________
Title:
FIRST UNION NATIONAL
BANK OF NORTH CAROLINA,
as Collateral Agent for the
Banks
By: FIRST UNION CORPORATION
OF NORTH CAROLINA its Agent
By___________________________
Title:
EXHIBIT E
AMENDMENT NO. 8
TO AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
AMENDMENT dated as of March , 1995 between THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA ("Prudential") and HALLWOOD ENERGY PARTNERS, L.P.,
a Delaware limited partnership ("Hallwood"), HEP OPERATING PARTNERS, L.P., a
Delaware limited partnership, EDP OPERATING, LTD., a Colorado limited
partnership, EM NOMINEE PARTNERSHIP COMPANY, a Colorado general partnership,
CONCISE OIL AND GAS PARTNERSHIP, a Colorado general partnership and MAY ENERGY
PARTNERS OPERATING PARTNERSHIP LTD., a Texas limited partnership.
W I T N E S S E T H :
WHEREAS, the parties hereto have entered into an Amended and
Restated Note Purchase Agreement dated as of May 7, 1990 (as amended by
Amendment Nos. 1 through 7 thereto, the "Note Purchase Agreement"); and
WHEREAS, the parties hereto wish to amend certain provisions of the
Note Purchase Agreement as set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Note Purchase
Agreement (including any Schedule thereto), shall have the meaning assigned to
such term in the Note Purchase Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Note Purchase Agreement" and each other similar reference
contained in the Note Purchase Agreement shall, from and after the date hereof,
refer to the Note Purchase Agreement as amended hereby.
SECTION 2. Amendment of Certain Schedules to the Note Purchase
Agreement. Schedules A, A-1, B, B-2 and C to the Note Purchase Agreement are
amended to read in their entirety as set forth on Schedule A, A-1, B, B-2 and C
hereto, respectively.
SECTION 3. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 4. Counterparts; Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective on the later of (i) the date
the Agent shall have received duly executed counterparts hereof signed by each
of the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, the Agent shall have received
telegraphic, telex or other written confirmation from such party of execution of
a counterpart hereof by such party) and (b) the date the Second Amended and
Restated Credit Agreement dated as of March 31, 1995 among the Borrowers, the
banks listed therein and Morgan Guaranty Trust Company of New York, as Agent
becomes effective in accordance with Section 6.01 thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first above written.
BORROWERS:
HALLWOOD ENERGY PARTNERS, L.P.
HEP OPERATING PARTNERS, L.P.
By: HALLWOOD ENERGY
CORPORATION
By
Title:
The General Partner of
Hallwood Energy Partners, L.P.
and HEP Operating Partners, L.P.
MAY ENERGY PARTNERS OPERATING
PARTNERSHIP LTD.,
EDP OPERATING, LTD.
individually and as
a general partner of
EM NOMINEE PARTNERSHIP
COMPANY
and CONCISE OIL AND GAS
PARTNERSHIP
EM NOMINEE PARTNERSHIP COMPANY
CONCISE OIL AND GAS
PARTNERSHIP
By: HALLWOOD G.P., INC.,
formerly known as QUINOCO
ENERGY, INC.
By
Title:
The General Partner of May Energy Partners
Operating Partnership Ltd. and EDP Operating,
Ltd. and EM Nominee Partnership Company and
Concise Oil and Gas Partnership
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By
Title:
DOMESTIC INCENTIVE PLAN
OF
HALLWOOD PETROLEUM, INC.
Hallwood Petroleum, Inc., a Delaware corporation (the "Company"), hereby
establishes the following Domestic Incentive Plan, which is intended to provide
greater incentive and motivation to the Company's key personnel to increase the
domestic oil and gas reserves of the affiliates of the Company for which the
Company provides management and operational services and to enhance the
Company's ability to attract, motivate and retain key employees upon whom, in
large measure, the success of the Company and its Affiliates depends.
ARTICLE I
DEFINITIONS
The following words and phrases shall have the meaning set forth below
unless the context clearly indicates otherwise:
"Affiliates" means the affiliates of the Company for which the Company
provides management and operational services, including, but not limited to,
Hallwood Energy Partners, L.P., Hallwood Consolidated Resources Corporation,
Hallwood Energy Corporation and Hallwood San Juan #1, L.L.C.
"Beneficiary" means a Beneficiary designated pursuant to Section 6.6.
"Board" means the Board of Directors of the Company or any committee of the
Board of Directors to which the Board may delegate its authority to act in
connection with this Plan from time to time. The Board shall, with regard to
other than procedural matters related to this Plan, act after consultation and
recommendation from the boards of directors of the Affiliates of the Company.
"Buy-Out Value" shall mean that percentage of the net present value of the
then remaining proven reserves of an Eligible Well, as determined by the Board
at the time any award is made under the Plan. The net present value of the then
remaining proven reserves of an Eligible Well shall be determined based on the
Reserve Report.If the net present value of the proven reserves of an Eligible
Well is less than zero, the Buy-Out Value shall be zero.
"Cash Flow" from an Eligible Well means, with regard to the period in
question, (i) all revenues received by the Company or its Affiliates from the
sale of production from the Eligible Well plus (ii) all proceeds received from
the sale of an interest in the Eligible Well to other than an Affiliate, less in
each case (A) all operating expenses paid by the Company or its Affiliates and
normally attributable to a working interest in the Eligible Well; (B) all
amounts paid by the Company or its Affiliates to improve, recomplete or maintain
the production from an Eligible Well (other than amounts spent in connection
with the initial spudding, drilling and first Completion of the Eligible Well or
recompletion of a Marginal Well); and (C) all severance, production or other
production related taxes paid by the Company and its Affiliates and applicable
to the Eligible Well.
"Company" means Hallwood Petroleum, Inc. and any successor thereto.
"Completion" of an Eligible Well or a "Completed" Eligible Well means (i)
with regard to an initial drilling, the date such well is spud; (ii) with regard
to the recompletion of a Marginal Well, the date when a completion, workover or
drilling rig is moved in and rigged up in preparation of imminent work
initiation or (iii) with regard to secondary or tertiary recovery operations,
the date of first injection of any fluids used for secondary or tertiary
recovery.
"Effective Date" means January 1, 1992.
"Eligible Well" means any domestic well Completed within the Plan Year, any
recompleted Marginal Well (in which case the value to be assigned to such
recompleted Marginal Well shall be the incremental value attributable to the
recompletion), or any secondary or tertiary recovery operation (in which case
the value to be assigned to such secondary or tertiary recovery wells not
already included in a Plan, shall be calculated by holding constant the proven
developed producing reserve rate at the time of first injection, and only
considering the production above that rate as added value).
"Key Employee" means an employee or consultant of the Company who the
Board, in its sole discretion, determines has or may substantially benefit the
Company.
"Marginal Well" means any well having a net present value, on the Reserve
Report, of less than or equal to $25,000.
"Participant" means a Key Employee who is selected by the Board to
participate in the Plan for any Plan Year.
"Participation Point" means one percent of the Plan Cash Flow for any Plan
Year; 100 Participation Points shall be awarded to Participants in any Plan Year
during which any awards are made.
"Plan" means this Domestic Incentive Plan of Hallwood Petroleum, Inc.
"Plan Cash Flow" means the aggregate percentage of the Affiliates'
collective interest in the Cash Flow of the Eligible Wells that the Board
determines for any Plan Year to allocate to the Plan, and which is to be divided
among the Participants based on Participation Points.
"Plan Distributions" attributable to any Participant's Participation Points
means (i) the Plan Cash Flow attributable to the Participation Points and (ii)
the Buy-Out Value of the Participation Points upon buy-out pursuant to Section
3.4.
"Plan Year" means the twelve-month calendar year.
"Reserve Report" means the most recent regularly prepared reserve report
which applies the rules and regulations of the Securities and Exchange
Commission, except that average, twelve month prices, rather than year-end
prices, shall be used.
"Termination for Cause" means termination which is initiated by the Company
for either misconduct or poor performance.
ARTICLE II
PARTICIPATION IN THE PLAN
2.1 Eligibility. Any Key Employee of the Company shall be eligible to
be selected as a Participant in the Plan. A Key Employee shall become a
Participant upon receiving an award of Participation Points by the Board, which
shall act upon the recommendation of the boards of directors of its Affiliates,
which in turn may take into consideration, among other factors, the
recommendation of the Company's and the Affiliates' executive officers, the Key
Employee's position, salary, and individual contribution to the performance of
the Company's Affiliates. Only Key Employees who are employed by or engaged as
consultants to the Company on the date of the award by the Board shall be
eligible to be awarded Participation Points.
2.2 Enrollment Procedure. Each Participant shall complete, sign, and
return to the Company's Human Resources department an enrollment form supplied
by the Company. The enrollment form shall state, among other information, the
Participant's address and date of birth and a designation of the names and
addresses of the Participant's beneficiaries. The Participant will not be
mo\domincpln.cmo 2
entitled to receive any payments with respect to the Plan until the Participant
has properly returned the enrollment form.
ARTICLE III
ALLOCATION AND DISTRIBUTION OF NET INCOME
3.1 Determination of Participants and Awards. The Board may, based upon
the recommendation of the boards of directors of its Affiliates, determine
annually the Key Employees who are to be Participants in the Plan with respect
to the Plan Year, the percentage of the total Plan Cash Flow to be allocated to
awards for the Plan Year, the Plan Buy-Out Value, and the Participation Points
to be awarded to each Participant. The Board may make these determinations in
its sole discretion, is not required to allocate any Plan Cash Flow for a Plan
Year and may award all Participation Points for a Plan Year to one Participant.
It is anticipated that determinations of the Plan Cash Flow allocated for a Plan
Year, the Participants, the Plan Buy-Out Value and the Participation Points for
a Plan Year will be made concurrently with the first regular meeting of the
Board held each year. The first such determinations shall be made in 1993 with
respect to the 1992 Plan Year, and shall be effective from January 1, 1992. All
allocations shall be made on a well-by-well basis or in such other manner as the
Board may determine.
3.2 Effect of Award. Subject to Section 3.5, a Participant who is
awarded Participation Points shall receive the Plan Cash Flow attributable to
those Participation Points for a total of five calendar years, beginning with
the Plan Year for which the Participation Points were awarded, as provided in
Section 3.3, and in the sixth calendar year shall receive the Buy-Out Value, as
provided in Section 3.4.
3.3 Distribution of Plan Cash Flow. On all outstanding awards, the
Company shall distribute to each Participant the portion of the Plan Cash Flow
attributable to the Participation Points then held by the Participant for each
Plan Year. The distributions shall be made quarterly to each Participant or his
Beneficiary in the amount of such person's allocable share of the Plan Cash Flow
for the preceding quarter, less any applicable withholding of income taxes or
other amounts. Distributions shall be made within thirty days of the end of a
quarter.
3.4 Buy-out of Plan's Interest. As of January 1 of the sixth year that
Cash Flow from an Eligible Well has been allocated under the Plan, the Buy-Out
Value, if any, of an Eligible Well shall be paid to the Participants with
respect to that Eligible Well and thereafter no further Cash Flow from such
Eligible Well shall be paid to the Participants. All payments under this section
shall be made on or before the end of the first quarter of the sixth year.
3.5 Vesting.
(a) If a Participant's employment with the Company is terminated by
the Participant or by the Company as a Termination for Cause, the Participant
shall cease to be a Participant in this Plan and all Participation Points of the
Participant under this Plan shall be canceled without payment of any
compensation and the former Participant shall not thereafter receive any Plan
Distributions. Any Participation Points cancelled hereunder and the related Plan
Cash Flow shall revert to the Affiliates, and shall not be available to any
other Participant.
(b) If a Participant's employment with the Company is terminated by
the Company as other than a Termination for Cause, the Participant shall, at the
option of the Company, (a) continue to receive Plan Distributions in the same
manner as though such Participant were still employed by the Company, or (b)
receive a cash lump sum payment equal to the present value of such Participant's
interest in the estimated remaining Plan Distributions, including the Buy-Out
Value, based on the most recent Reserve Report, each of (a) and (b) being based
on the Participation Points held by the Participant at the date of termination
of employment.
(c) If a Participant dies or is permanently and totally disabled, the
Participant (or the Participant's Beneficiary) shall, at the option of the
Company, (a) continue to receive Plan Distributions in the same manner as though
such Participant were still employed by the Company, or (b) receive a cash lump
sum payment equal to the present value of such Participant's interest in the
estimated remaining Plan Distributions, including the Buy-Out Value, based on
the most recent Reserve Report, each of (a) and (b) being based on the
Participation Points held by the Participant at the date of death or
disablement.
(d) If the Company determines under subsection (b) or (c) to exercise
the option of making a cash lump sum payment, then it shall notify the
terminated or disabled Participant, or a deceased Participant's Beneficiary, of
such option within 45 days of the termination of such Participant's employment
or consultancy with the Company. Payment for any interest so purchased shall be
made by the Company, by check, within 60 days after such termination.
ARTICLE IV
ALLOCATION OF ADMINISTRATIVE RESPONSIBILITIES
4.1 The Company. The Company shall be responsible for keeping accurate
books and accounts with respect to all Eligible Wells, Plan Cash Flow and Plan
Distributions and making the payments to Plan Participants provided by the Plan.
4.2 The Board. The Board shall administer the Plan and shall have all
powers necessary for that purpose, including, but not limited to, the power to
interpret the Plan, to determine the eligibility, status and rights of all
persons under the Plan, to make all determinations required to be made under the
Plan.
4.3 Others. The Board of the Company may designate one or more persons
who may, but need not be, employees of the Company or Participants, to assist it
in the ministerial tasks required in administering the Plan. The Company hereby
indemnifies each person so designated by the Board against any and all claims,
loss, damages, expense and liability arising from any action or failure to act
with respect to the Plan, except when the same is judicially determined to be
due to the fraud, gross negligence or willful misconduct of such person.
ARTICLE V
TERMINATION AND AMENDMENT
5.1 Termination of Plan and Discontinuance of Contributions. The
Company presently intends to continue the Plan indefinitely, but the continuance
of the Plan is not assumed as a contractual obligation and the Company may
terminate the Plan at any time by delivering written notice of termination to
each Participant and Beneficiary then entitled to receive distributions pursuant
to the Plan. In addition, the sale or exchange of all or substantially all of
the assets of an Affiliate of the Company (to other than an Affiliate of the
Company), the merger of the Company or an Affiliate (if the Company or an
Affiliate is not the surviving entity) or any material change in the direct or
indirect ownership or control of the Company or an Affiliate (if the new owner
is not an Affiliate) or the liquidation of the Company or an Affiliate, shall
automatically terminate the Company's obligations under the Plan (as such
obligations relate to such Affiliates' Eligible Wells, other than the
obligations under Section 5.2).
5.2 Procedure Upon Termination. Upon termination of the Plan, the
Company shall, at its option, (i) distribute to each Participant or Beneficiary
then participating in the Plan, in one lump sum or in three equal annual
installments with interest at the base rate required in order to avoid the
imputation of interest under section 483 of the Internal Revenue Code, or any
successor provision, an amount equal to the present value of such Participant's
or Beneficiary's interest in the estimated remaining Plan Distributions,
including the Buy-Out Value, based on the most recent Reserve Report, or (ii)
continue to make Plan Distributions in accordance with the provisions of the
Plan existing at the time of termination, or (iii) transfer and assign to each
Participant and Beneficiary who then holds Participation Points, in proportion
to each such person's Participation Points, actual working interests in the
Eligible Wells used to determine Plan Distributions, all as the Board in its
sole discretion may determine.
5.3 Amendment by the Company. The Company may at any time amend the
Plan in any respect by action of its Board, but no amendment shall be made that
would have the effect of materially and adversely affecting the economic
interest of any person under the Plan with respect to previously awarded
Participation Points.
ARTICLE VI
MISCELLANEOUS
6.1 Right to Dismiss Employees and Consultants. The Company may
terminate the employment of any employee or consultant at any time as freely as
if this Plan were not in existence.
6.2 Source of Benefits. The obligations hereunder are undertaken by the
Company and the Affiliates, and all benefits payable under the Plan shall be
paid solely from the general assets of the Company and or its Affiliates, and no
allocation of interests or income on the books of the Company or the Affiliates
shall be deemed to create a separate fund or any ownership interest on the part
of any Participant in any Eligible Wells being used to measure Plan
Distributions or in any production from properties.
6.3 No Ownership of Properties; Other Rights. Nothing contained in this
Plan shall in any way restrict the right of the Company or the Affiliates in
their discretion to operate, abandon, sell, transfer, mortgage, encumber or
otherwise deal with the Eligible Wells giving rise to the revenues used to
measure Plan Distributions. Any rights accruing to a Participant or other
person under the Plan are solely those of an unsecured general creditor of the
Company. Nothing contained in the Plan and no action taken pursuant to the
provisions of the Plan will create or be construed to create a trust of any
kind, or a pledge, or an economic interest in the Eligible Wells, or a fiduciary
relationship between the Company, an Affiliate, and a Participant or any other
person. Nothing in the Plan will be construed to require that any fund be
maintained or any amount be segregated for a Participant's benefit.
6.4 Sale of Eligible Wells. If an Eligible Well is sold or in any way
transferred to other than an Affiliate during the time that the Eligible Well is
subject to the Plan, the value of the consideration received in connection with
the transfer will be considered to be Cash Flow from such Eligible Well and will
be distributed as Plan Cash Flow at the time and in the manner required by
Section 3.3.
6.5 Deductibility under Internal Revenue Code. If the Company believes
in good faith that a Participant may receive total compensation from the Company
in one calendar year in excess of the amount which may be deducted by the
Company under Internal Revenue Code section 162 (m), then the Company may defer
such excess payments until the first year when they would be deductible.
6.6 Beneficiaries. Each Participant shall file with the Company a
designation of the Beneficiaries and contingent Beneficiaries to whom income
attributable to the Participant's interest under the Plan shall be paid in the
event of the Participant's death. Such designation may be changed by the
Participant at any time and without the consent of any previously designated
Beneficiary. In the absence of an effective Beneficiary designation as to any
portion of a Participant's interest under the Plan, Plan Distributions
attributable to such interest shall be paid to the Participant's personal
representative, but if the Company believes that none had been appointed within
six months after the Participant's death, the Company may elect not to pay such
income until a personal representative has been appointed or may pay such income
to the Participant's surviving spouse, or if none, to his surviving children and
issue of deceased children by right of representation, or if there be none, to
his surviving parents.
6.7 Non-Transferability of Benefits. No Participant or other person
shall have any right to assign, alienate, transfer, hypothecate, encumber or
anticipate any interest in any benefits under this Plan, nor shall such benefits
be subject to any legal process to levy upon or attach the same for payment of
any claim against any such Participant or other person through any process
whatsoever, and any attempt to cause such rights to be so subjected will not be
recognized except to such extent as may be required by law.
6.8 Payment Due Minor or Incapacitated Persons. If any person entitled
to a payment under the Plan is a minor, or if the Company determines that any
such person is incapacitated by reason of physical or mental disability, whether
or not legally adjudicated as such, the Company shall have the power to cause
the payments becoming due to such person to be made to his personal
representative or to another for his benefit, without responsibility of the
Company to see to the application of such payments. The Company shall have no
responsibility to investigate the physical or mental condition of a Participant
and any determination of disability made by the Company shall be binding on the
Participant and all other persons. Payments made pursuant to such power shall
operate as a complete discharge of the Plan and the Company.
6.9 Disposition of Unclaimed Payments. Each Participant must file with
the Company from time to time in writing his address and the address of each of
his Beneficiaries and each change of address. Any communication, statement or
notice addressed to a Participant or Beneficiary at his last post office address
filed with the Company, or if no address is filed with the Company then at his
last post office address as shown on the Company's records, will be binding on
the Participant and his Beneficiaries for all purposes of the Plan. The Company
shall not be required to search for or locate a Participant or Beneficiary. If
the Company notifies a Participant or Beneficiary that he is entitled to a
distribution and also notifies him of the provisions of this section, and the
Participant or Beneficiary fails to make his address known to the Company within
three calendar years after the notification, the Participation Points of the
Participant Beneficiary will be forfeited and canceled as of the end of the Plan
Year following the expiration of such three year period.
6.10 Governing Law. The construction and interpretation of this Plan
shall be governed by the laws of the State of Colorado.
6.11 Pronouns; Gender and Number. Unless the context clearly indicates
otherwise, words in any gender shall include the other genders and the singular
shall include the plural and vice versa.
As of January 14, 1993.
HALLWOOD PETROLEUM INC., as agent for Hallwood
Energy Partners, L.P., Hallwood Consolidated
Resources Corporation, Hallwood Energy Corporation
and Hallwood San Juan #1
L.L.C.
_________________________________
William L. Guzzetti
President
1995 UNIT OPTION PLAN LOAN PROGRAM
FOR
HALLWOOD ENERGY PARTNERS, L.P.
SECTION 1. PURPOSE. This 1995 Unit Option Plan Loan Program for
Hallwood Energy Partners, L.P. (this "Loan Program") has been established in
connection with the adoption of the 1995 Unit Option Plan for Hallwood Energy
Partners, L.P. (the "Option Plan"). This Loan Program provides for the making
of loans by Hallwood Energy Partners, L.P. (the "Partnership"), upon the terms
and conditions hereinafter set forth, to the recipients of options to purchase
units representing limited partnership interests in the Partnership granted
pursuant to the Option Plan. The purpose of this Loan Program is to provide
such optionees with funds to pay the exercise price of such options and any
additional amounts to be paid to the Partnership in order to comply with
applicable federal or state income tax withholding requirements.
SECTION 2. DEFINITIONS. As used herein, the following terms shall have
the meanings indicated:
(A) "ACCELERATED OPTION" shall mean any Option the exercisability of
which has been accelerated pursuant to Section 7 of the Option Plan.
(B) "FAIR MARKET VALUE" shall mean:
(i) with respect to any Traded Securities on any date of
reference, the Closing Price on the business day immediately preceding
such date, unless the Committee in its sole discretion shall determine
otherwise in a fair and uniform manner. For this purpose, the closing
price of the Traded Securities on any business day shall be: (A) if
the Traded Securities are listed or admitted for trading on any United
States national or international securities exchange or included in
the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the last reported sale
price of the Traded Securities on such exchange or system, as reported
in any newspaper of general circulation; (B) if the Traded Securities
are quoted on NASDAQ, or any similar system of automated dissemination
of quotations of securities prices in common use, the mean between the
closing high bid and low asked quotations for such day of the Traded
Securities on such system; (C) if neither clause (A) nor (B) is
applicable, the mean between the high bid and low asked quotations for
the Traded Securities as reported by the National Quotation Bureau,
Incorporated if at least two securities dealers have inserted both bid
and asked quotations for the Traded Securities on at least five of the
ten preceding days; or, (D) in lieu of the above, if actual
transactions in the Traded Securities are reported on a consolidated
transaction reporting system, the last sale price of the Traded
Securities for such day and on such system;
(ii) with respect to any U.S. Government Obligations on any date
of reference, the mean between the bid and asked quotations for such
U.S. Government Obligations for the business day immediately preceding
such date as set forth in any newspaper of general circulation; and
(iii) with respect to any foreign or domestic real or personal
property other than Traded Securities or U.S. Government Obligations,
the fair market value of such property as determined by an appraiser
of recognized standing duly qualified in the jurisdiction in which
such appraiser practices.
(C) "FULLY SECURED" shall mean that the Optionee shall have created
in favor of the Partnership a perfected security interest in (i) the Units
acquired upon exercise of the Related Option as security for such portion
of the Loan equal to the Margin Loan Amount and (ii) Other Collateral that
has a Fair Market Value equal to the amount of the remaining portion of the
Loan (including any portion attributable to Tax Payments).
(D) "LOAN" shall mean any loan extended to an Optionee pursuant to
this Loan Program.
(E) "LOAN DATE" shall mean, with respect to any Loan, the date on
which such Loan is made by the Partnership.
(F) "MARGIN LOAN AMOUNT" shall mean, with respect to any Loan, an
amount equal to fifty percent (50%) of the Fair Market Value as of the Loan
Date of the Units acquired upon exercise of the Related Option.
(G) "OTHER COLLATERAL" shall mean any property of an Optionee other
than Units acquired upon exercise of a Related Option that is pledged to
secure any portion of a Loan.
(H) "PARTNERSHIP INTEREST RATE" shall mean the rate of interest
payable by the Partnership with respect to its revolving line of credit
with its primary lender.
(I) "RELATED OPTION" shall mean the Option with respect to which the
proceeds of a particular Loan shall be used for payment of the exercise
price thereunder.
(J) "REQUIRED LOAN DOCUMENTS" shall mean (i) the Optionee Loan
Application Form, in substantially the form of EXHIBIT A attached hereto,
(ii) the Promissory Note, in substantially the form of EXHIBIT B attached
hereto, (iii) in the case of a Loan pursuant to Section 3(a) hereof, the
Pledge Agreement, in substantially the form of EXHIBIT C attached hereto,
covering the Units acquired upon the exercise of a Related Option and any
Traded Securities or U.S. Government Obligations included as Other
Collateral, (iv) in the case of a Loan pursuant to Section 3(a) hereof,
Federal Reserve Form FR G-3, (v) in the case of a Loan pursuant to Section
3(a) that is secured by Other Collateral consisting of real or personal
property located in a foreign jurisdiction, the Standard Form All-Monies
Legal Charge, in substantially the form of EXHIBIT D attached hereto, and
(vi) in the case of a Loan pursuant to Section 3(a) that is secured by
Other Collateral consisting of real or personal property located within the
United States, any other documentation required by the Committee, in its
sole discretion, to create in favor of the Partnership a perfected security
interest in such property.
(K) "TAX PAYMENTS" shall mean payments to the Partnership in
compliance with applicable federal or state income tax withholding
requirements.
(L) "TRADED SECURITIES" shall mean any securities that are listed or
admitted for trading on any United States national or international
securities exchange or included in the National Market System of the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any similar system of automated dissemination of quotations
of securities prices in common use.
(M) "U.S. GOVERNMENT OBLIGATIONS" shall mean securities that are (i)
direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (ii) the obligations of an entity
controlled or supervised by and acting as an agency or instrumentality of
the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and creditobligation of the United States of
America.
All capitalized terms not otherwise defined herein shall have the meanings
assigned to them in the Option Plan.
SECTION 3. LOANS.
(A) The Partnership, upon the receipt of each of the Required Loan
Documents, properly completed and signed by an Optionee, shall extend to such
Optionee a Loan in the amount indicated on such form (subject to the terms of
this Section 3). The Required Loan Documents must be provided to the
Partnership prior to or concurrently with such Optionee's written notice of
exercise of the Related Option. Subject to Section 3(b) below, the Loan shall
be made on the following terms and conditions:
(i) the amount of the Loan may not exceed the aggregate exercise
price for the Related Option plus the amount of any Tax Payments;
(ii) the amount of the Loan must be Fully Secured;
(iii) the principal balance of the Loan shall become due and
payable on the fifth anniversary of the Loan Date;
(iv) the principal balance of the Loan shall accrue interest at a
rate equal to the Partnership Interest Rate in effect as of
the Loan Date; and
(v) accrued interest shall be payable on the last day of each of the
Partnership's fiscal quarters during which the Loan remains
outstanding.
(B) In the event that (i) any portion of the Related Option is an
Accelerated Option and (ii) the Optionee was not a member of the Board at the
time the Related Option was granted, then the Loan may be made, at the
discretion of the Optionee, on the following terms and conditions:
(i) the amount of the Loan may not exceed the aggregate exercise
price for the Related Option plus the amount of any Tax
Payments;
(ii) the Loan may be unsecured;
(iii) the principal balance of the Loan shall become due and
payable on the first anniversary of the Loan Date;
(iv) the principal balance of the Loan shall accrue interest at a
rate equal to the Partnership Interest Rate in effect as of
the Loan Date plus two percent (2%); and
(v) accrued interest shall be payable on the last day of each of
the Partnership's fiscal quarters during which the Loan
remains outstanding.
(C) The proceeds of the Loan may be used by the Optionee solely for (i)
the payment, whether full or partial, of the aggregate exercise price of the
Related Option and (ii) the payment of any funds by the Optionee to the
Partnership in order to comply with applicable federal or state income tax
withholding requirements.
(D) The principal balance of the Loan may be repaid by the Optionee either
in cash or by the surrender of Units having a Fair Market Value as of the date
of such repayment equal to such principal balance.
(E) The Partnership shall not be obligated to make any Loan if the amount
of such Loan is less than $25,000.
(F) In no event shall the Partnership be required to make a Loan if, as
reflected on the Partnership's latest regularly prepared books and records, the
Partnership does not have available sufficient cash or the availability of
additional borrowings under its revolving line of credit in a sufficient amount
to make the Loan after taking into account all of the Partnership's commitments
for cash expenditures and budgeted receipts for at least a one year period after
the Loan Date.
SECTION 4. COMPLIANCE WITH APPLICABLE LAWS. It is the intent of the
Partnership that this Loan Program and the Loans made hereunder comply with all
applicable laws, including without limitation Regulation G issued by the Board
of Governors of the Federal Reserve System. Accordingly, the Partnership shall
register on Federal Reserve Form FR G-1 within 30 days after the end of any
calendar quarter during which (i) the aggregate amount of the Loans extended
during such quarter equals $200,000 or more or (ii) the aggregate amount of the
Loans outstanding at any time during that calendar quarter equals $500,000 or
more. Furthermore, if the Partnership has registered on Form FR G-1, then the
Partnership shall, within 30 days following June 30 of every year, file Federal
Reserve Form FR G-4.
SECTION 5. ADMINISTRATION OF LOAN PROGRAM; AMENDMENTS.
(A) This Loan Program may be administered by the Compensation Committee of
the Board or other committee thereof as appointed by the Board (the
"Committee"); or, if the Board so determines, by the Board and in such case all
references to the Committee shall be deemed to be references to the Board. The
Committee may from time to time amend this Loan Program; provided, however, that
no such amendment shall apply to any Loans outstanding prior to the adoption of
such amendment.
(B) The Committee, from time to time, may adopt rules and regulations for
carrying out the purposes of this Loan Program. The determinations and the
interpretation and construction of any provision of this Loan Program by the
Committee shall be final and conclusive.
(C) Any and all decisions or determinations of the Committee shall be made
either (i) by a majority vote of the members of the Committee at a meeting or
(ii) without a meeting by the written approval of a majority of the members of
the Committee.
SECTION 6. MISCELLANEOUS.
(a) The provision of a Loan shall be in addition to any other compensation
paid to the Optionee or other employee benefit plans of the Partnership or other
benefits with respect to Optionee's position with the Partnership or its
Subsidiaries. The provision of a Loan shall not confer upon the Optionee the
right to continue as an Employee, or interfere in any way with the rights of the
Partnership to terminate his or her status as an Employee.
(b) Neither the members of the Board nor any member of the Committee shall
be liable for any act, omission, or determination taken or made in good faith
with respect to this Loan Program or any Loan, and members of the Board and the
Committee shall, in addition to all other rights of indemnification and
reimbursement, be entitled to indemnification and reimbursement by the
Partnership in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Partnership, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising from such claim, loss, damage, or expense to the full extent
permitted by law and under any directors' and officers' liability or similar
insurance coverage that may from time to time be in effect.
(c) The provision of a Loan to an Optionee in accordance with the
provisions of this Loan Program shall, to the extent thereof, be in full
satisfaction of all claims of such Optionee under this Loan Program. The
Committee may require any Optionee, legal representative, heir, legatee,
distributee or assignee as a condition precedent to the provision of such Loan,
to execute a release and receipt for such Loan in such form as it shall
determine.
(d) All expenses incident to the administration, termination, or
protection of this Loan Program, including, but not limited to, legal and
accounting fees, shall be paid by the Partnership; provided, however, the
Partnership may recover any and all damages, fees, expenses and costs arising
out of any actions taken by the Partnership to enforce its rights under this
Loan Program or any Required Loan Document.
(e) Records of the Partnership shall be conclusive for all purposes under
this Loan Program or any Loan, unless determined by the Committee to be
incorrect.
(f) The Partnership shall, upon request or as may be specifically required
under this Loan Program or any Required Loan Document, furnish or cause to be
furnished all of the information or documentation that is necessary or required
by the Committee to perform its duties and functions under this Loan Program or
any Required Loan Document.
(g) The Partnership assumes no liability to any Optionee or his legal
representatives, heirs, legatees or distributees for any act of, or failure to
act on the part of, the Committee.
(h) If any provision of this Loan Program or any Required Loan Document is
held to be illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining provisions of this Loan Program or such Required Loan
Document, but such provision shall be fully severable, and the Loan Program or
Required Loan Document, as applicable, shall be construed and enforced as if the
illegal or invalid provision had never been included in the Loan Program or
Required Loan Document, as applicable.
(i) Whenever any notice is required or permitted under this Loan Program,
such notice must be in writing and personally delivered or sent by mail or
delivery by a nationally recognized courier service. Any notice required or
permitted to be delivered under any Required Loan Document shall be deemed to be
delivered on the date on which it is personally delivered, or, if mailed,
whether actually received or not, on the third Business Day after it is
deposited in the United States mail, certified or registered, postage prepaid,
addressed to the person who is to receive it at the address that such person has
previously specified by written notice delivered in accordance with this SECTION
6(I) or, if by courier, seventy-two (72) hours after it is sent, addressed as
described in this SECTION 6(I). The Partnership or the Optionee may change, at
any time and from time to time, by written notice to the other, the address that
it or he had previously specified for receiving notices. Until changed in
accordance with this Loan Program, the Partnership and the Optionee shall
specify as its and his address for receiving notices the address set forth in
this Loan Program or any Required Loan Document to which such notice relates.
(j) Any person entitled to notice under this Loan Program or any Required
Loan Document may waive such notice.
(k) This Loan Program shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees upon the Partnership, its
successors, and assigns, and upon the Board, the Committee and its successors.
(l) The titles and headings of Sections are included for convenience of
reference only and are not to be considered in construction of this Loan
Program's provisions.
EFFECTIVE DATE: JANUARY 31, 1995
EXHIBIT A
OPTIONEE LOAN APPLICATION FORM
1. Name of Optionee: .
2. Number of Units Subject to Option: .
3. Number of Units being acquired
pursuant to exercise of such Option: .
4. Exercise price per Unit for such Option:
.
5. Amount of Loan requested: .
6. Is the above-referenced Option an
Accelerated Option? Yes No
7. If the above-referenced Option is
an Accelerated Option, then the Loan
shall be made pursuant to which section
of the Loan Program (designate one): Section 3(a)
Section 3(b)
OPTIONEE:
Date:
Print Name:
EXHIBIT B
PROMISSORY NOTE
$_________ _____________, 199__
____________________________________ ("Maker"), for value received,
promises and agrees to pay, as herein provided, to the order of Hallwood Energy
Partners, L.P., a Delaware limited partnership ("Payee"), at such address or to
such bank account as Payee may direct, in lawful money of the United States of
America, the principal sum of _______________________________________ Dollars
($_________). This note ("Note") is issued under the terms of that certain 1995
Unit Option Plan Loan Program for Hallwood Energy Partners, L.P. as in effect on
the date hereof (the "Loan Program").
1. PAYMENT OF PRINCIPAL AND INTEREST. (a) The principal balance of this
Note and all accrued and unpaid interest thereon shall be due and payable on
______________, _____ (the "Maturity Date"); provided, however, that if such day
is not a day on which banks are open for business in the State of ___________ (a
"Business Day"), then such payment shall be due on the Business Day next
succeeding the Principal Payment Date. The principal balance of this Note may
be repaid either in cash or by the surrender of certificates representing units
of limited partnership interests in Payee having a fair market value equal to
such principal balance (as determined in accordance with the Loan Program).
(b) The principal balance outstanding from time to time under this Note
(after giving effect to all adjustments thereto made pursuant to the terms of
this Note) shall bear interest at a rate of __________ percent (____%) per
annum. In no event shall the interest rate payable hereunder exceed the maximum
rate of nonusurious interest allowed from time to time by applicable law (the
"Highest Lawful Rate"). Maker shall pay to Payee, commencing on
_________________ and on the last day of each succeeding three-month period
until the Maturity Date, all accrued and unpaid interest on the outstanding
principal balance as of such date, unless such day is not a Business Day in
which case such payment shall be due on the Business Day next succeeding such
day.
2. MAXIMUM INTEREST RATE. (a) It is the intention of Maker and Payee to
conform strictly to applicable usury laws. Accordingly, if the interest payable
on this Note would be usurious under applicable law, in that event,
notwithstanding anything to the contrary herein, it is agreed as follows:
(i) the aggregate of all consideration which constitutes interest under
applicable law that is taken, reserved, contracted for, charged or received
under this Note shall under no circumstances exceed the maximum amount of
interest allowed by applicable law, and any excess shall be canceled
automatically and, if theretofore paid, shall be credited on this Note by the
holder hereof (or, to the extent that this Note shall have been or would thereby
be paid in full, refunded to Maker); and (ii) in the event that maturity of this
Note is accelerated for any reason, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the maximum amount allowed by applicable law, and excess interest, if
any, provided for in this Note or otherwise shall be canceled automatically as
of the date of such acceleration or prepayment and, if theretofore paid, shall
be credited on this Note (or, to the extent that this Note shall have been or
would thereby be paid in full, refunded to Maker). All sums paid or agreed to
be paid to the holder hereof for the use, forbearance or detention of sums
included in the amounts owing to such holder by Maker shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of this Note until payment in full so that the rate or
amount of interest on account of indebtedness does not exceed the applicable
usury ceiling, if any. As used in this Note, the term "applicable law" shall
mean the law of the State of __________.
(b) If at maturity or final payment of this Note the total amount of
interest paid or accrued under the foregoing provisions is less than the total
amount of interest which would have accrued if an interest rate per annum equal
to the Interest Rate had at all times been in effect, then Maker agrees to pay
to Payee, to the extent allowed by applicable law, an amount equal to the
difference between (a) the lesser of (i) the amount of interest which would have
accrued on this Note if the Highest Lawful Rate had at all times been in effect
or (ii) the amount of interest which would have accrued if an interest rate per
annum equal to the Interest Rate had at all times been in effect, and (b) the
amount of interest accrued in accordance with the other provisions of this Note.
3. WAIVER. Maker expressly waives demand and presentment for payment,
notice of nonpayment, protest, notice of protest, notice of dishonor, notice of
intent to accelerate the maturity hereof, notice of the acceleration of the
maturity hereof, bringing of suit and diligence in taking any action to collect
amounts called for hereunder and in the handling of securities at any time
existing in connection herewith.
4. AMENDMENTS. Any term or provision of this Note and any obligation of
Maker hereunder or with respect hereto, may be changed or modified, partially or
completely, or noncompliance may be consented to or authorized, by written
agreement between Maker and Payee.
5. EVENTS OF DEFAULT. The occurrence and continuance of any of the
following events shall be considered an "Event of Default" for purposes of this
Note: (a) if Maker uses the proceeds of this Note for any purpose other than in
accordance with the terms of the Loan Program; (b) default is made (and not
cured within 10 calendar days) in the payment of principal or interest hereon,
(c) any involuntary case or other proceeding shall be commenced against Maker
that seeks liquidation, reorganization or other relief with respect to it or its
debts or other liabilities under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator or custodian unless dismissed or stayed within 90 days after the
institution thereof (provided that upon ineffectiveness of any stays, an Event
of Default shall exist); and (d) Maker shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts or other liabilities under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official with respect
to the Maker, or shall consent to any such relief or to the appointment of, or
taking possession by, any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors or shall fail generally or shall admit in writing its
inability to pay its debts generally as they become due or shall take any
corporate action to authorize or effect any of the foregoing.
6. REMEDY. Upon the occurrence of any Event of Default, the entire
principal amount of the Note then outstanding together with interest accrued
thereon shall become immediately due and payable, all without written notice and
without presentment, demand, protest, notice of protest or dishonor or any other
notice of default of any kind, all of which are hereby expressly waived by the
Maker.
7. COSTS AND ATTORNEYS' FEES. If default is made in the payment of this
Note at maturity (regardless of how its maturity may be brought about) and the
same is placed in the hands of an attorney for collection, or suit is filed
hereon, or proceedings are had in bankruptcy, probate, receivership,
reorganization, arrangement, or other judicial proceedings for the establishment
or collection of any amount called for hereunder, or any amount payable or to be
payable hereunder is collected through any such proceedings, Maker agrees to pay
to the owner and holder of this Note reasonable attorneys' fees and costs,
including the fees and costs incurred in any appeals, and any collection fees
incurred in collection of this Note.
8. SECURITY. The payment and performance of this Note is secured by the
security interest described by that certain Unit Pledge Agreement by and between
Maker and Payee.
9. GOVERNING LAW. THIS NOTE AND THE RIGHTS AND OBLIGATIONS HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ___________.
(Name of Maker)
EXHIBIT C
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "Agreement"), dated as of _______________,
19___, is entered into by and between ______________________________ ("Pledgor")
and Hallwood Energy Partners, L.P., a Delaware limited partnership (the
"Partnership"), in order to secure the payment of the indebtedness hereinafter
referred to of Pledgor to the Partnership.
R E C I T A L S
As a condition to the Partnership providing a loan to Pledgor in the amount
of $_________, which loan is evidenced by a Promissory Note dated of even date
herewith, Pledgor has agreed to pledge to the Partnership all of the securities
that are described on EXHIBIT A hereto (the "Pledged Securities").
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein shall have the
meaning specified herein.
SECTION 2. PLEDGE. Pledgor hereby pledges, assigns, transfers and
delivers to the Partnership, and hereby grants a security interest (the
"Security Interest") in, the following (the "Collateral"): the Pledged
Securities, the certificates representing such Pledged Securities and all
dividends, cash, securities, instruments and other property from time to time
paid, payable or otherwise distributed in respect of or in exchange for any or
all of such Pledged Securities.
SECTION 3. SECURED OBLIGATIONS. The Security Interest shall secure, under
the circumstances set forth herein, the Secured Obligations. For purposes of
this Agreement, the term "Secured Obligations" shall mean the following (i) the
due and punctual payment and performance of the Promissory Note, dated as of
_______________, made by Pledgor and payable to the order of the Partnership in
the principal amount of $_______________ (the "Note") and (ii) the reimbursement
of all costs incurred by the Partnership to obtain, preserve and enforce this
Agreement, collect the Secured Obligations and maintain and preserve the
Collateral, including without limitation the Partnership's reasonable attorneys'
fees, disbursements and legal expenses.
SECTION 4. DELIVERY OF COLLATERAL. Upon the execution hereof, Pledgor
shall deliver to the Partnership the certificates representing or evidencing the
Collateral, in suitable form for transfer by delivery, or accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to the Partnership. Upon the occurrence and
during the continuance of an Event of Default, the Partnership shall have the
right, at any time in its discretion and without notice to Pledgor, to transfer
to or to register in the name of the Partnership any or all of the Collateral.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
Pledgor represents and warrants as follows:
(i) The Security Interest constitutes a valid and, upon delivery
of the certificates evidencing the Pledged Securities, first perfected
security interest in all of the Collateral for payment and performance of
the Secured Obligations.
(ii) The Collateral is owned by Pledgor free and clear of any
lien, claim or encumbrance except for the Security Interest.
All representations and warranties of Pledgor contained herein shall survive the
execution, delivery and performance of this Agreement until termination of this
Agreement under SECTION 16.
SECTION 6. FURTHER ASSURANCES. Pledgor agrees that at any time and from
time to time, at Pledgor's expense, Pledgor will promptly execute and deliver
all further instruments and documents, and take all further action that the
Partnership may reasonably request, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable the Partnership
to exercise and enforce the rights and remedies hereunder with respect to any
Collateral.
SECTION 7. RELEASES OF COLLATERAL. Pledgor shall not sell or otherwise
dispose of the Collateral, or any part thereof or any interest therein. If the
Collateral, or any part thereof, is sold or otherwise disposed of in violation
of these provisions, the Security Interest of the Partnership shall continue in
such Collateral or any part thereof notwithstanding such sale or other
disposition, and Pledgor will deliver any proceeds thereof to the Partnership to
be held as Collateral hereunder.
SECTION 8. PARTNERSHIP APPOINTED ATTORNEY-IN-FACT. Pledgor hereby
irrevocably appoints the Partnership as Pledgor's attorney-in-fact, with full
authority in the place and stead of Pledgor and in its name or otherwise, from
time to time in the Partnership's discretion, to take any action and to execute
any instrument that the Partnership may deem reasonably necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation, to
receive, endorse and collect all instruments made payable to Pledgor
representing any dividend, interest payment or other distribution in respect of
the Collateral or any part thereof and to give full discharge for the same, when
and to the extent permitted by this Agreement.
SECTION 9. PARTNERSHIP MAY PERFORM. Upon the occurrence and during the
continuance of an Event of Default (including an Event of Default resulting from
a failure to perform any agreement contained herein), if Pledgor fails to
perform any agreement contained herein, the Partnership may itself perform, or
cause performance of, such agreement, and the expenses of the Partnership
incurred in connection therewith shall be payable by Pledgor under SECTION 12.
SECTION 10. REASONABLE CARE. The Partnership shall have an obligation to
exercise reasonable care with respect to Collateral in its possession; provided,
however, that the Partnership shall be deemed to have exercised reasonable care
if the Collateral is accorded treatment substantially comparable to that which
the Partnership accords its own property or treatment substantially in
accordance with actions requested by Pledgor in writing (although the
Partnership shall not be obligated to comply with any such requests and no
failure to do so shall be deemed to be a failure to exercise reasonable care).
SECTION 11. EVENTS OF DEFAULT: REMEDIES UPON DEFAULT. An "Event of
Default" hereunder occurs if Pledgor fails to pay any amount when due under the
Note and the Partnership accelerates the payment of the principal and interest
thereunder such that such Secured Obligations shall become immediately due and
payable (herein called an "Event of Default").
If upon or after the occurrence of any Event of Default, the Partnership
elects to exercise remedies under this Agreement (the occurrence of any such
event shall be referred to as an "Acceleration"), then upon thirty (30) days'
advance notice to the Pledgor:
(a) The Partnership may exercise (in compliance with all applicable
securities laws) in respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party after default under the Uniform Commercial Code in
effect in the State of ____________ at that time, and the Partnership may also,
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange, over
the counter or at the Partnership's offices or elsewhere, for cash, on credit or
for future delivery, and at such price or prices and upon such other terms as
the Partnership may deem commercially reasonable or otherwise in such manner as
necessary to comply with applicable federal and state securities laws. Upon
consummation of any such sale, the Partnership shall have the right to assign,
transfer and deliver to the purchaser or purchasers at any such sale and such
purchasers shall hold the property sold absolutely, free from any claim or right
on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay or appraisal that it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted.
Pledgor agrees that the Partnership shall not be required to register or
qualify any of the Collateral under applicable state or federal securities laws
in connection with any such sale if the sale is effected in a manner that
complies with all applicable federal and state securities laws or exemptions
therefrom. The Partnership shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to persons
who will represent and agree that they are purchasing the Collateral for their
own account for investment and not with a view to the distribution or sale
thereof. In the event that any such Collateral is sold at private sale, Pledgor
agrees that if such Collateral is sold for a price that the Partnership in good
faith believes to be reasonable under the circumstances then existing, then
(a) the sale shall be deemed to be commercially reasonable in all respects, (b)
Pledgor shall not be entitled to a credit against the Secured Obligations in an
amount in excess of the purchase price, and (c) the Partnership shall not incur
any liability or responsibility to Pledgor in connection therewith,
notwithstanding the possibility that a substantially higher price might have
been realized at a public sale. Pledgor hereby waives any claims against the
Partnership arising by reason of the fact that the price at that the Collateral
may have been sold at such private sale was less than the price which might have
been obtained at a public sale or was less than the Secured Obligations, even if
the Partnership accepts the first offer received and does not offer the
Collateral to more than one offeree (other than the Partnership or an affiliate
of the Partnership), unless such sale was not commercially reasonable under the
circumstances.
To the extent notice of sale shall be required by law, the Partnership
shall give Pledgor at least ten (10) days' (or such longer period as shall be
specified by applicable laws) notice of the time and place of any public sale or
the time after which any private sale is to be made, which Pledgor agrees shall
constitute commercially reasonable notification. At any such sale, the
Partnership, to the extent permitted by law, may bid (which bid may be, in
whole or in part, in the form of cancellation of Secured Obligations) for and
purchase for the account of the Partnership the whole or any part of the
Collateral. The Partnership shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Partnership may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. If sale of all or any part of
the Collateral is made on credit or for future delivery, the Collateral so sold
may be retained by the Partnership until the sale price is paid by the purchaser
or purchasers thereof, but the Partnership shall not incur any liability in case
any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may be sold
again upon like notice. Pledgor agrees that any sale of the Collateral
conducted by the Partnership in accordance with the foregoing provisions of this
SECTION 11(A) shall be deemed to be a commercially reasonable sale under the
Uniform Commercial Code as in effect in the State of ____________ from time to
time.
As an alternative to exercising the power of sale herein conferred upon it,
the Partnership may proceed by a suit or suits at law or in equity to foreclose
the security interest granted under this Agreement and to sell the Collateral,
or any portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction.
(b) Any cash held by the Partnership as Collateral and all cash
proceeds received by the Partnership in respect of any sale of, collection from,
or other realization upon all or any part of the Collateral (i) prior to the
occurrence of an Acceleration shall be held by the Partnership as collateral for
the Note, and (ii) following the occurrence of an Acceleration may be held by
the Partnership as Collateral and/or then or at any time thereafter applied as
follows: (x) first, to the payment to the Partnership of the costs and expenses
of retaking, holding and preparing for sale of the Collateral and any other
fees, expenses, claims, demands, losses, judgments, damages and liabilities
arising out of or related to any loan document which are payable to the
Partnership pursuant to SECTION 12, and (y) second, to the Partnership for
application against or on account of all or any part of the Notes.
(c) Any surplus of such cash or cash proceeds held by the Partnership
and remaining after payment in full of all the Notes shall be reassigned and
redelivered as provided in SECTION 16 hereof.
SECTION 12. EXPENSES. The Partnership shall be entitled to receive from
any proceeds of the Collateral, the amount of any and all reasonable expenses,
including the fees and expenses of its counsel and of any experts and agents
which the Partnership may incur in connection with (i) the administration of
this Agreement, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Partnership hereunder, or (iv) the
failure by Pledgor to perform or observe any of the provisions hereof.
SECTION 13. SECURITY INTEREST ABSOLUTE. All rights of the Partnership
hereunder, the interest, and all obligations of Pledgor hereunder, shall be
absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note or the
Secured Obligations or any other agreement or instrument relating to the
Note or the Secured Obligations;
(ii) any change in the time, manner or place of payment of, or in
any other term of, the Note or the Secured Obligations, or any renewal or
extension of the Note or the Secured Obligations or any other amendment or
waiver of or any consent to any departure from this Agreement or any other
agreement or instrument;
(iii) any sale, exchange, release or nonperfection of any other
collateral, or any release of any guarantor or any person liable in any
manner for the collection of the Note or the Secured Obligations, or any
amendment or waiver of or consent to or departure from any guaranty, for
the Note or the Secured Obligations; or
(iv) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, Pledgor in respect of the Note or
the Secured Obligations or in respect of this Agreement.
SECTION 14. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement nor consent to any departure by Pledgor herefrom
shall in any event be effective unless the same shall be in writing and signed
by the Partnership and Pledgor, and then such waiver or consent shall be
effective only for the specific purpose for which given.
SECTION 15. TIME IS OF THE ESSENCE; NO WAIVER: CUMULATIVE REMEDIES. Time
and exactitude of each of the terms, obligations, covenants and conditions of
this Agreement are hereby declared to be of the essence. No failure on the part
of the Partnership to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy by the Partnership preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. All remedies hereunder are cumulative and are not exclusive of any
other remedies provided by law.
SECTION 16. TERMINATION. This Agreement shall terminate upon the payment
in full of the Secured Obligations. Upon such termination, the Partnership
shall reassign and redeliver (or cause to be reassigned and redelivered) to
Pledgor, or to such person or persons as Pledgor shall designate or to whomever
may be lawfully entitled to receive such surplus, against receipt, such of the
Collateral (if any) as shall not have been sold or otherwise applied by the
Partnership pursuant to the terms hereof and shall still be held by it
hereunder, together with appropriate instruments of reassignment and release.
Any such reassignment shall be without recourse upon or warranty by the
Partnership and at the expense of Pledgor.
SECTION 17. ADDRESSES FOR NOTICES. Any notice or communication to be
given or made hereunder shall be in writing (including facsimile communication)
and may be given or made personally or by first class letter, telecopy, courier
telex or tested telex, telegram or cable (confirmed, in the case of a telecopy,
telex, telegram or cable, by a letter delivered personally within, or dispatched
by first class mall within, twenty-four hours of the dispatch of such telecopy,
telex, telegram or cable) and shall be effective when actually received. For
the purposes hereof, the address of the Pledgor shall be address maintained in
the records of the Partnership (until notice of a change thereof is given as
provided in this SECTION 17), and the address of the Partnership (until notice
of a change thereof is given as provided in this SECTION 17) shall be as
follows:
SECTION 18. CONTINUING SECURITY INTEREST; ASSIGNMENTS. This Agreement
shall create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until termination as provided in SECTION 16,
(ii) be binding upon Pledgor, the Partnership and their respective successors
and assigns, and (iii) inure, together with the rights, powers and remedies of
Pledgor and the Partnership hereunder, to the benefit of Pledgor, the
Partnership and their respective successors, transferees and assigns, as the
case may be.
SECTION 19. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF __________.
SECTION 20. SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective. If any
provisions of this Agreement or any lien, security interest or other right of
the Partnership hereunder shall be held to be invalid, illegal or unenforceable
under applicable law, such invalidity, illegality or unenforceability shall not
affect any other provision herein or any lien, security interest or other right
granted hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the date first above written.
PARTNERSHIP:
HALLWOOD ENERGY PARTNERS, L.P.
By: Hallwood Energy Corporation
By:
Name:
Title:
PLEDGOR:
Print Name:
EXHIBIT A
PLEDGED SECURITIES
Record Owner Number of
Title of Securities and Address Shares or Units Certificate No.
EXHIBIT D
This form is applicable to FREEHOLDS and LEASEHOLDS whether the title is
registered or unregistered and whether given by one or more than one Mortgagor.
This Legal Charge
made the day of 19
Between (1) (Insert full name(s) and address(es) of the Mortgagor(s))
(hereinafter called "the Mortgagor") and (2)
(hereinafter called "the
Bank")
Witnesses and it is agreed and declared as follows:--
1. The Mortgagor hereby covenants with the Bank that the Mortgagor will on
demand in writing made to the Mortgagor pay or discharge to the Bank all moneys
and liabilities which shall for the time being (and whether on or at any time
after such demand) be due owing or incurred to the Bank by the Mortgagor whether
actually or contingently and whether solely or jointly with any other person and
whether as principal or surety including interest discount commission or other
lawful charges and expenses which the Bank may in the course of its business
charge in respect of any of the matters aforesaid or for keeping the Mortgagor's
account and so that interest shall be computed and compounded according to the
usual mode of the Bank as well after as before any demand made or judgment
obtained hereunder and will on such demand also retire all bills or notes which
may for the time being be under discount with the Bank and to which the
Mortgagor is a party whether as drawer acceptor maker or indorser without any
deduction whatsoever.
2. The Mortgagor as Beneficial Owner hereby charges by way of legal mortgage
ALL THAT the property referred to in the schedule hereto (hereinafter called
"the Mortgaged Property") with the payment or discharge of all moneys and
liabilities hereby covenanted to be paid or discharged by the Mortgagor.
3. A demand for payment or any other demand or notice under this security may
be made or given by any manager or officer of the Bank or of any branch thereof
by letter addressed to the Mortgagor and sent by post to or left at the last
known place of business or abode of the Mortgagor or at the option of the Bank
if the Mortgagor is a company its registered office and if sent by post shall be
deemed to have been made or given at noon on the day following the day the
letter was posted.
4. During the continuance of this security no statutory or other power of
granting or agreeing to grant or of accepting or agreeing to accept surrenders
of leases or tenancies of the Mortgaged Property or any part thereof shall be
capable of being exercised by the Mortgagor without the previous consent in
writing of the Bank nor shall section 93 of the Law of Property Act 1925 dealing
with the consolidation of mortgages apply to this security.
5. Section 103 of the said Act shall not apply to this security but the
statutory power of sale shall as between the Bank and a purchaser from the Bank
arise on and be exercisable at any time after the execution of this security
provided that the Bank shall not exercise the said power of sale until payment
of the moneys hereby secured has been demanded but this proviso shall not affect
a purchaser or put him upon inquiry whether such demand has been made.
6. (a) At any time after the Bank shall have demanded payment of any moneys
hereby secured or if requested by the Mortgagor the Bank may appoint by
writing any person or persons (whether an officer of the Bank or not)
to be receiver and manager or receivers and managers (hereinafter
called the "Receiver" which expression shall where the context so
admits include the plural and any substituted receiver and manager or
receivers and managers) of all or any part of the Mortgaged Property.
(b) The Bank may from time to time determine the remuneration of the
Receiver and may remove the Receiver and appoint another in his place.
(c) The Receiver shall (so far as the law permits) be the agent of the
Mortgagor (who shall alone be personally liable for his acts defaults
and remuneration) and shall have and be entitled to exercise all powers
conferred by the Law of Property Act 1925 in the same way as if the
Receiver had been duly appointed thereunder and in particular by way of
addition to but without hereby limiting any general powers hereinbefore
referred to (and without prejudice to any of the Bank's powers) the
Receiver shall have power in the name of the Mortgagor or otherwise to
do the following things namely:--
(i) to take possession of collect and get in all or any part
of the Mortgaged Property and for that purpose to take any
proceedings as he shall think fit;
(ii) to commence and/or complete any building operations on the
Mortgaged Property or any part thereof and to apply for
and obtain any planning permissions building regulation
approvals and any other permissions consents or licences
in each case as he may in his absolute discretion think
fit;
(iii) to raise money from the Bank or others on the security of
the Mortgaged Property or otherwise;
(iv) to provide such facilities and services for tenants and
generally to manage the Mortgaged Property in such manner
as he shall think fit;
(v) if the Mortgaged Property is leasehold to vary the terms
of or surrender any lease and/or to take a new lease
thereof or of any part thereof on such terms as he shall
think fit and so that any such new lease shall ipso facto
become charged to the Bank on the terms hereof so far as
applicable and to execute a formal legal charge over any
such new lease in favour of the Bank in such form as it
may require;
(vi) to sell let or lease or concur in selling letting or
leasing and to vary the terms of terminate or accept
surrenders of leases or tenancies of the Mortgaged
Property or any part thereof in such manner and for such
term with or without a premium with such rights relating
to other parts thereof and containing such covenants on
the part of the Mortgagor and generally on such terms and
conditions (including the payment of money to a lessee or
tenant on a surrender) as in his absolute discretion he
shall think fit;
(vii) to make any arrangement or compromise which the Bank or he
shall think fit;
(viii) to make and effect all repairs improvements and
insurances;
(ix) to appoint managers officers contractors and agents for
the aforesaid purposes upon such terms as to remuneration
or otherwise as he may determine;
(x) to do all such other acts and things as may be considered
to be incidental or conducive to any of the matters or
powers aforesaid and which he lawfully may or can do;
PROVIDE NEVERTHELESS THAT the Receiver shall not be authorised to exercise any
of the aforesaid powers if and insofar and so long as the bank shall in writing
exclude the same whether in or at the time of his appointment or subsequently.
(d) The statutory powers of sale leasing and accepting surrenders
exercisable by the Bank hereunder are hereby extended so as to
authorise the Bank whether in its own name or in that of the Mortgagor
to grant a lease or leases of the whole or any part or parts of the
Mortgaged Property with such rights relating to other parts thereof and
containing such covenants on the part of the Mortgagor and generally on
such terms and conditions (including the payment of money to a lessee
or tenant on a surrender) and whether or not at a premium as the Bank
in its absolute discretion shall think fit.
(e) In no circumstances shall the Bank be liable to account to the
Mortgagor as a mortgagee in possession or otherwise for any moneys not
actually received by the Bank.
(f) The Mortgagor hereby irrevocably appoints the Bank and the Receiver
jointly and also severally the Attorney and Attorneys of the Mortgagor
for the Mortgagor and in his name and on his behalf and as his act and
deed or otherwise to sign seal deliver and otherwise perfect any deed
assurance agreement instrument or act which may be required or may be
deemed proper for any of the purposes aforesaid.
(g) All powers of the Receiver hereunder may be exercised by the Bank
whether as attorney of the Mortgagor or otherwise.
7. The Mortgagor hereby covenants with the Bank that the Mortgagor during the
continuance of this security will keep all buildings now or for the time being
subject to this security insured against loss or damage by fire and such other
risks as the Bank may from time to time require to the full replacement value
thereof with an insurance office or underwriters approved by the Bank in writing
from time to time and if so required by the Bank in the joint names of the
Mortgagor and the Bank and will duly pay all premiums and other moneys necessary
for effecting and keeping up such insurance within one week of the same becoming
due and will on demand produce to the Bank the policies of such insurance and
the receipts for such payments And will keep all buildings now or for the time
being subject to this security in good repair And will duly and with reasonable
expedition complete any building operations commenced at any time by the
Mortgagor on the Mortgaged Property And at any time after payment of the moneys
hereby secured has been demanded or if default shall be made by the mortgagor in
performing any of the above obligations the Bank may as the case may be insure
and keep insured the said buildings in any sum which the Bank may think
expedient or may repair and keep in repair the said buildings or may complete
any such building operations (with power to enter upon the Mortgaged Property
for any of those purposes without thereby becoming a mortgagee in possession)
And all moneys expended by the Bank under this provision shall be deemed to be
properly paid by the Bank.
8. All moneys received on any insurance whatsoever in respect of loss or
damage by fire or otherwise to the said buildings or any part of thereof
(whether effected or maintained by the Mortgagor in pursuance of his obligation
under the covenant in that behalf contained in clause 7 hereof or independently
of or otherwise than in pursuance of such obligation) shall as the Bank requires
either be applied in making good the loss or damage in respect of which the
moneys are received or be paid to the Bank in or towards payment of the moneys
for the time being hereby secured.
9. All costs charges and expenses incurred hereunder by the Bank and all other
moneys paid by the Bank or the Receiver in perfecting or otherwise in connection
with this security or in respect of the Mortgaged Property including (without
prejudice to the generality of the foregoing) all moneys expended by the Bank
under clause 7 hereof and all costs of the Bank or the Receiver of all
proceedings for enforcement of the security hereby constituted or for obtaining
payment of the moneys hereby secured or arising out of or in connection with the
acts authorised by clause 6 hereof (and so that any taxation of the Banks costs
charges and expenses shall be on the basis of solicitor and own client) shall be
recoverable from the Mortgagor as a debt and may be debited to any account of
the Mortgagor and shall bear interest accordingly and shall be charged on the
Mortgaged Property and the charge hereby conferred shall be in addition and
without prejudice to any and every other remedy lien or security which the Bank
may have or but for the said charge would have for the moneys hereby secured or
any part thereof.
10. The Bank shall be at liberty from time to time to give time for payment of
any bills of exchange promissory notes or other securities which may have been
discounted for or received on account from the Mortgagor by the Bank or on which
the Mortgagor shall or may be liable as drawer acceptor maker indorser or
otherwise to any parties liable thereon or thereto as the Bank in its absolute
discretion shall think fit without releasing the Mortgagor or affecting the
Mortgagor's liability under these presents or the security thereby created.
11. This security shall be a continuing security to the Bank notwithstanding
any settlement of account or other matter or thing whatsoever and shall not
prejudice or affect any security which may have been created by any deposit of
title deeds or other documents which may have been made with the Bank prior to
the execution hereof relating to the Mortgaged Property or to any other property
or any other security which the Bank may now or at any time hereafter hold in
respect of the moneys hereby secured or any of them or any part thereof
respectively.
12. The Bank shall on receiving notice that the Mortgagor has incumbered or
disposed of the Mortgaged Property or any part thereof be entitled to close the
Mortgagor's then current account or accounts and to open a new account or
accounts with the Mortgagor and (without prejudice to any right of the Bank to
combine accounts) no money paid in or carried to the Mortgagor's credit in any
such new account shall be appropriated towards or have the effect of discharging
any part of the amount due to the Bank on any such closed account. If the Bank
does not open a new account or accounts immediately on receipt of such notice it
shall nevertheless be treated as if it had done so at the time when it received
such notice and as from that time all payments made by the Mortgagor to the Bank
shall be credited or be treated as having been credited to such new account or
accounts and shall not operate to reduce the amount due from the Mortgagor to
the Bank at the time when it received such notice.
13. At any time after payment of the moneys hereby secured has been demanded
and any part thereof remains unpaid the Bank may as agent of the Mortgagor
remove and sell any chattels on the Mortgaged Property and the new proceeds of
sale thereof shall be paid to the Mortgagor on demand and the Bank shall not
have the right to retain or set off such proceeds of sale against any
indebtedness of the Mortgagor.
14. The Mortgagor hereby covenants with the Bank to pay any sums which may
become payable by the Mortgagor under the Agricultural Holdings Act 1986 for
compensation costs or otherwise to a tenant of the Mortgaged Property or any
part thereof failing which the Bank may pay the said sum or discharge and charge
created in pursuance of the said Act for securing the same and any moneys paid
by the Bank under this clause shall be deemed to be expenses properly incurred
by the Bank hereunder.
15. The Mortgagor hereby covenants with the Bank that:
(a) if and so long as the title to the Mortgaged Property or any part
thereof is not registered under the Land Registration Acts 1925 to 1971
no person shall during the continuance of this security be registered
under the said Acts as proprietor of the Mortgaged Property or any part
thereof without the consent in writing of the Bank.
(b) upon any such registration the Mortgagor will forthwith deliver to the
Bank all Land Certificates relating to the Mortgaged Property unless
such certificates are deposited with the Land Registry.
16. Any party hereto which is a company certifies that this charge does not
contravene any of the provisions of its Memorandum and Articles of Association.
17. In these presents where the context so admits the expression "the
Mortgagor" shall include persons deriving title under the Mortgagor or entitled
to redeem this security and the expression "the Bank" shall include persons
deriving title under the Bank and any reference herein to any statute or section
of any statute shall be deemed to include reference to any statutory
modification or re-enactment thereof for the time being in force.
18. If there are two or more parties hereto of the first part the expression
"the Mortgagor" shall throughout mean and include such two or more parties and
each of them or (as the case may require) such two or more parties or any of
them and shall so far as the context admits be construed as well in the plural
as in the singular and all covenants charges agreements and undertakings herein
expressed or implied on the part of the Mortgagor shall be deemed to be joint
and several covenants charges agreements and undertakings by such parties And in
particular this security and the covenant in clause 1 hereof and the remaining
covenants charges agreements and undertakings herein contained shall extend and
apply to any moneys owing or liabilities incurred by any of such parties to the
Bank whether solely or jointly with each other or with any other person and
references to the Mortgagor in relation to the retirement of bills and in
clauses 3, 9, 10 and 12 shall mean and include any one or more of such parties
as well as such parties jointly.
In Witness whereof the Mortgagor has executed these presents as a deed the day
and year first above written.
The Schedule above referred to
The property known as or being
comprised in the document(s) particulars of which are set out below:--
Description (Conveyance, Lease, Assignment,
Date Mortgage, Assent, Etc.) Parties
Last Certificate(s) Title No.(s) County/London Borough
Signed sealed and delivered by the above named
- - - - - - - --------------------------------------------------------------------------------
in the presence of
SIGNATURE OF WITNESS---------------------------------------------------
NAME OF WITNESS----------------------------------------------------------SEAL
ADDRESS-------------------------------------------------------------------------
- - - - - - - --------------------------------------------------------------------------------
OCCUPATION--------------------------------------------------------------------
Signed sealed and delivered by the above named
- - - - - - - --------------------------------------------------------------------------------
in the presence of
SIGNATURE OF WITNESS---------------------------------------------------
NAME OF WITNESS----------------------------------------------------------SEAL
ADDRESS-------------------------------------------------------------------------
- - - - - - - --------------------------------------------------------------------------------
OCCUPATION--------------------------------------------------------------------
EXECUTED AND DELIVERED AS A DEED BY
- - - - - - - -------------------------------------------------------------------------
DIRECTOR
- - - - - - - -----------------------------------------------------------------------SECRETARY
Company's registered number---------------------------------------------------
The address of the Bank for service (if title is
registered) is:
