United States
Securities and Exchange Commission
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended June 30, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period from .......... to ..........
Commission File Number..........1-12508
MAGNUM HUNTER RESOURCES, INC.
Exact name of registrant as specified in its charter
Nevada 87-0462881
State or other jurisdiction of IRS employer identification No.
incorporation or organization
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039
Address of principal executive offices
(972) 401-0752
Registrant's telephone number, including area code
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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of July 1, 1998: 21,220,036
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements of Magnum Hunter Resources, Inc.
("Magnum Hunter"or the "Company") follow "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operation".
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion and analysis should be read in conjunction with Magnum
Hunter's consolidated financial statements and the notes associated with them
contained in its Form 10-KSB for the year ended December 31, 1997. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment by management of Magnum
Hunter.
In January 1997, the Company purchased a fifty percent (50%) interest in a
natural gas liquids processing plant, the McLean Gas Plant, which is connected
to the Panoma gas gathering system, for $2.5 million. The related operating
agreement allows the Company to recoup its investment out of one hundred percent
(100%) of the net profits of the plant before reverting to a fifty percent (50%)
interest after payout.
On April 30, 1997, the Company purchased from Burlington Resources Inc. certain
oil and gas properties located in the Permian Basin (hereinafter referred to as
the "Permian Basin Properties") for a net price of approximately $133.8 million,
including, but not limited to, certain adjustments for a January 1, 1997
effective date. The acquisition consisted of 1,852 producing oil and natural gas
wells and associated acreage located in 25 field areas of West Texas and in 22
field areas of Southeast New Mexico.
On April 29, 1997, Bankers Trust Company, as Agent, provided the Company with a
$130 million revolving line of credit with a term of five years and a $60
million one year senior subordinated bridge facility. The new credit facilities
were used to fund the Permian Basin Properties acquisition and to replace the
previously existing $100 million revolving credit facility with a different bank
group. The revolving line of credit allows the Company to choose either "LIBOR"
or "Prime" based interest rate options.
On May 29, 1997, the Company placed, through a Rule 144A private placement
offering, $140 million in Senior Notes due 2007. The Notes have a 10% coupon,
with interest payable on June 1 and December 1, commencing on December 1, 1997.
There is no restriction on the ability of any consolidated or unconsolidated
subsidiary to transfer funds to the Company in the form of cash dividends, loans
or advances. Net proceeds from the sale of the Senior Notes were used to
completely repay the Company's $60 million senior subordinated term loan
facility with the remaining proceeds used to repay a substantial portion of the
Company's outstanding revolving credit facility. At that time, the maximum
commitment under the revolving credit facility was reduced from $130 million to
$75 million, with a borrowing base of $60 million. The credit facility was
amended as of September 30, 1997, to increase the maximum commitment from $75
million to $125 million, increase the borrowing base by $5 million to $65
million, and modify the interest expense coverage ratio test. As of June 1,
1998, the Company's credit line was enhanced by the addition of two new banks to
the group, the extension of the term of the facility from four to five years,
reaffirmation of the borrowing base of $65 million, improving the credit ratios
and loan covenants, and lowering the interest rate spreads by 1/4 percent.
On December 18, 1997, the Company acquired a thirty percent (30%) membership
interest in NGTS, LLC, ("NGTS") a newly formed wholly owned subsidiary of
Natural Gas Transmission Services, Inc., a natural gas marketing and trading
company based in Dallas, Texas. NGTS assumed all of the parent company's
operations as of December 1, 1997. The Company dedicated substantially all of
its natural gas production to NGTS for marketing. The Company's $4.35 million
acquisition was completed with a combination of cash ($2.35 million) and
promissory notes ($2.0 million) that have equity "put" features. The Company
may, at any time, retire the promissory notes due December 1, 1998, with common
stock or cash.
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On January 28, 1998, the Company commenced a cash purchase offer for Units of
TEL Offshore Trust ("Tel"). Previous to the offer, the Company owned 161,500
Units representing 3.4% of the Units outstanding. As amended, the offer was to
purchase between forty percent (40%) and sixty percent (60%) of the Trust's
outstanding Units at $5.50 per Unit. On March 27, 1998, the Company purchased
1,745,353 Units pursuant to the tender offer and, together with the Units it
previously owned, represented 40.1% of the total number of Units outstanding.
The Company uses the full cost method of accounting for its investment in oil
and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
into a "full cost pool" as incurred, and properties in the pool are depleted and
charged to operations using the unit-of-production method based on the ratio of
current production to total proved oil and gas reserves. To the extent that such
capitalized costs (net of accumulated depreciation, depletion and amortization)
less deferred taxes exceed the sum of (i) the discounted estimated future net
cash flow from proved oil and gas reserves (SEC PV-10) and (ii) the lower of
cost or fair value of unproved properties after income tax effects, such excess
costs are charged to operations. Once incurred, a write-down of oil and gas
properties is not reversible at a later date even if oil or gas prices increase.
The Company's capitalized costs exceeded the above described limitation
utilizing prices in effect at June 30, 1998. However, as allowed by SEC rules,
no write-down for impairment of oil and properties was required as a result of
the increase in oil and gas prices subsequent to June 30, 1998. While the
Company has never been required to write-down its asset base, significant
downward revisions of quantity estimates or further declines in oil and gas
prices, which are not offset by other factors, such as new oil and gas reserve
additions, could possibly result in the write-down of the Company's oil and gas
properties as currently valued on the balance sheet.
Results of Operations for the Six Month Periods in 1998 and 1997
As discussed above, the Company acquired the Permian Basin Properties in April
1997, and its interest in Tel in March 1998. Unless otherwise stated, the
increases in the 1998 interim period over the 1997 interim period were a result
of these acquisitions.
Oil and natural gas sales were $22,064,000 in 1998, a 95% increase over 1997.
The Company sold 543,656 barrels of oil, a 127% increase, and 6,756,877 Mcf of
gas, a 103% increase, in 1998 as compared to 1997. The price received for oil
was $13.80 per barrel and for gas was $2.07 per Mcf in 1998, representing a 25%
decrease in oil price and a less than 1% decrease in gas price compared to 1997.
Oil and gas sales for the 1998 period also included $541,000 resulting from the
settlement of gas imbalances with another producer on several of the Company's
gas wells. Oil and natural gas production lifting costs increased 163% to
$6,701,000 while production taxes and other costs increased 94% to $3,350,000 in
1998 over 1997. The gross operating margin from oil and natural gas production
was $12,013,000 in 1998, a 70% increase over 1997. On an equivalent unit basis,
the gross margin was $1.15 per Mcfe in 1998, a 22% decrease. The sales price
declined 9% to $2.15 per Mcfe while production lifting costs increased 26% to
$0.67 per Mcfe from 1997 to 1998. Production taxes and other costs including
overhead, were $0.33 per Mcfe in 1998, an 8% decrease from 1997. The overall
increase in the gross operating margin from 1997 to 1998 was principally due to
a 110% increase in Mcfe sold, from 4,770,861 Mcfe to 10,018,813 Mcfe.
Gas gathering, marketing, and processing revenues were $3,496,000 in the 1998
period, a 34% decrease from 1997, principally due to lower prices received for
natural gas and natural gas liquids. Costs from these activities were $2,852,000
in 1998, a 28% decrease principally due to lower gas prices. Gross operating
margin was $644,000 in 1998, a 52% decrease. The decrease in gross operating
margin was due to lower marketing profits and less favorable processing
economics. Gathering system throughput increased 4% to 20,824 Mcf per day in
1998. Natural gas plant processing throughput increased 10% to 15,310 Mcf per
day in 1998. Gross operating margin from gathering and marketing operations was
$0.10 per Mcf of throughput in 1998, a 66% decline. The gross operating margin
from natural gas processing was $0.10 per Mcf in 1998, a 54% decline.
Revenues from oil field services and international sales were $454,000 in
1998 versus $3,606,000 in 1997, principally due to a decrease in sales by Hunter
Butcher International, L.L.C. ("Hunter Butcher"). Operating costs decreased to
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$240,000 in 1998 from $3,424,000 in 1997, also principally due to Hunter
Butcher. The gross operating margin from these activities increased by $32,000
to $214,000 in 1998 versus $182,000 in the 1997 period.
Depreciation and depletion expense, which increased 98% to $8,816,000 in 1998
primarily due to the increase in production as a result of acquisitions. General
and administrative expense was $1,500,000 in 1998, a 130% increase over 1997,
due to increased staffing to manage the significantly larger number of
properties owned by the Company and other costs associated with the increase in
production.
Operating profit decreased 26% to $2,555,000 in 1998 from 1997. Equity in loss
of affiliate was $45,000 in 1998 versus none in 1997, due to the acquisition of
an interest in NGTS in December 1997. Other income increased 147% to $383,000 in
1998 versus $155,000 in 1997. Interest expense increased 84% to $8,751,000 in
1998 due to increased levels of borrowing under the Company's revolving credit
lines with banks and the 10% Senior Notes outstanding. The Company incurred a
net loss before income tax and minority interest of $5,858,000 in 1998, versus a
$1,136,000 loss in 1997, principally due to lower oil prices, interest expense
on the acquisitions exceeding operating income and a higher charge for
depreciation and depletion. The Company provided for a deferred income tax
benefit of $2,209,000 on this loss in 1998 versus $432,000 in 1997. The Company
reported a net loss before extraordinary item of $3,662,000, or $0.19 per common
share, in 1998 versus a $724,000 loss or $0.09 per common share, in 1997.
The Company realized an extraordinary loss of $1,384,000 ($0.10 per common
share) in the 1997 period as required under Accounting Principles Board ("APB")
Statement No. 26 and Statement of Financial Standards ("SFAS") No. 4, from the
early extinguishment of bank debt. The early extinguishment was a result of the
10% Senior Notes financing and amended revolving credit agreements with banks
arranged to facilitate the acquisition of the Permian Basin Properties. The net
loss, after the extraordinary charge, applicable to common shareholders was
$4,100,000 ($0.19 per share) in 1998 compared to a net loss of $2,546,000 ($0.19
per share) in 1997. The Company accrued $438,000 in dividends on its preferred
stock in both years 1998 and 1997.
Results of Operations for the Three Month Periods in 1998 and 1997
As discussed above, the Company acquired the Permian Basin Properties in April
1997, and its interest in Tel in March 1998. Unless otherwise stated, the
increases in the 1998 interim period over the 1997 interim period were
substantially the result of these acquisitions.
Oil and natural gas sales were $11,509,000 in 1998, a 38% increase over 1997.
The Company sold 281,228 barrels of oil, a 45% increase, and 3,495,660 Mcf of
gas, a 48% increase, in 1998. The price received for oil was $13.21 per barrel
and for natural gas was $2.08 per Mcf in 1998, representing a 26% decrease in
the oil price and no change in the gas price compared to 1997. Oil and gas sales
for the 1998 period also included $541,000 resulting from the settlement of gas
imbalances with another producer on several of the Company's gas wells. Oil and
natural gas production lifting costs increased 57% to $3,012,000 while
production taxes and other costs increased 80% to $1,864,000 in 1998 compared to
1997. The gross operating margin from oil and natural gas production was
$6,633,000 in 1998, a 23% increase over 1997. On an equivalent unit basis, the
gross margin was $1.18 per Mcfe in 1998, a 23% decrease. The sales price
declined 11% to $2.12 per Mcfe while production lifting costs were $0.58 per
Mcfe in 1998, a 5% increase over 1997. Production taxes and other costs,
including overhead, were $0.36 per Mcfe in 1998, a 24% increase from 1997. The
overall increase in the gross operating margin from 1997 to 1998 was principally
due to a 47% increase in Mcfe sold, from 3,522,379 Mcfe to 5,183,028 Mcfe.
Gas gathering, marketing, and processing revenues overall were $1,491,000 in the
1998 period, a 7% increase from 1997 (although processing revenues declined 6%
in 1998 compared to 1997). Costs from these activities were $1,293,000 in 1998,
a 32% increase from 1997. Gross operating margin was $198,000 in 1998, a 52%
decrease due to lower gas marketing profits and less favorable processing
economics. Gathering system throughput increased 9% to 20,750 Mcf per day in
1998 compared to 1997. Natural gas plant processing throughput was 14,813 Mcf
per day in 1998, a 17% increase. Gross operating margin from gathering and
marketing operations was $0.08 per Mcf of
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throughput in 1998, a 37% decline. The gross operating margin from natural gas
processing was $0.03 per Mcf of throughput in 1998, an 84% decline.
Revenues from oil field services and international sales were $261,000 in 1998,
a 93% increase. Operating costs were $141,000 in 1998, a 64% increase. The gross
operating margin was $120,000 in 1998, a 145% increase. Depreciation and
depletion expense increased 46% to $4,941,000 in 1998 primarily due to the
increase in production as a result of the acquisitions. General and
administrative expense was $750,000 in 1998, a 75% increase over 1997, due to
increased staffing associated with the acquisition of the Permian Basin
Properties and other costs. Operating profit decreased 38% to $1,260,000 in 1998
from 1997. Other income was $182,000 in 1998, an increase of 119% over the 1997
income of $83,000. Interest expense increased 22% to $4,518,000 in 1998 from
1997, due primarily to borrowing under the Company's 10% Senior Notes used to
fund the Permian Basin acquisition. The Company provided for a deferred income
tax benefit of $1,169,000 on this loss in 1998 versus $596,000 in 1997. The
Company reported a net loss before extraordinary item of $1,915,000, or $0.10
per common share, in 1998 versus a net loss of $974,000, or $0.09 per common
share in 1997. The Company realized an extraordinary loss of $1,384,000 ($0.10
per common share) in the 1997 period as required under Accounting Principles
Board ("APB") Statement No. 26 and Statement of Financial Standards ("SFAS") No.
4, from the early extinguishment of bank debt. The early extinguishment was a
result of the placement of the 10% Senior Notes financing and amended revolving
credit agreements with banks arranged to facilitate the $133 million purchase of
the Permian Basin Properties from Burlington Resources, Inc. The net loss, after
the extraordinary charge, applicable to common shareholders was $2,134,000
($0.10 per share) in 1998 compared to a loss of $2,577,000 ($0.19 per share) in
1997. The Company accrued $219,000 in dividends on its preferred stock in both
years 1998 and 1997.
Liquidity and Capital Resources
The Company has three principal operating sources of cash: (i) sales of oil and
gas, (ii) revenues from gas gathering, processing, and marketing, and (iii)
revenues from petroleum management and consulting services. The Company's cash
flow is highly dependent upon oil and gas prices. Decreases in the market price
of oil and gas could result in reductions of both cash flow and the borrowing
base under the Company's Credit Facility, which would result in decreased funds
available, including funds for future capital expenditures.
On April 30, 1997, the Company closed the acquisition of the Permian Basin
Properties for a net purchase price of approximately $133.8 million. At the same
time, the Company's previously existing $100.0 million credit facility was
replaced by two new credit facilities; (i) a $130.0 million Credit Facility and
(ii) a $60.0 million Term Loan Facility for a combined aggregate amount of
$190.0 million. The initial advances under these new facilities totaled $179.5
million, including funds to complete the Permian Basin Properties acquisition,
to pay principal and accrued interest remaining on the Company's previous credit
facility, and to provide cash for working capital purposes.
On May 29, 1997, the Company sold, through a Rule 144A private placement
offering, $140.0 million aggregate principal amount of Senior Notes. Net
proceeds from the sale of the Senior Notes were used to completely repay the
Company's Term Loan Facility in the principal amount of $60.0 million and to
repay a substantial portion of the indebtedness outstanding under the Credit
Facility. The Senior Notes are unsecured and bear interest at 10% per annum,
with interest payable on June 1 and December 1 commencing on December 1, 1997.
After paydown, the maximum commitment under the Credit Facility was reduced from
$130.0 million to $75.0 million, with a borrowing base of $60.0 million. The
Credit Facility was subsequently amended effective September 30, 1997 to
increase the maximum commitment from $75.0 million to $125.0 million, increase
the borrowing base by $5.0 million to $65.0 million and modify the interest
coverage ratio. As of June 1, 1998, the Company's credit line was enhanced by
the addition of two new banks to the group, the extension of the term of the
facility from four to five years, reaffirmation of the current borrowing base of
$65 million, improving the credit ratios and loan covenants, and lowering the
interest rate spreads by 1/4 percent. With these adjustments, total long-term
debt under the Credit Facility at June 30, 1998 was $43.5 million, leaving $21.5
million available to draw. At June 30, 1998, the Company had $3.2 million in
cash and cash equivalents in addition to the funds available under the Credit
Facility.
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For the six months ended June 30, 1998, the Company had a net increase in cash
of $163,000. The Company's operating activities provided net cash of $7.6
million, principally from operating income before depreciation, depletion, and
deferred taxes, and a decrease in accounts receivable. The Company used $28.6
million in investing activities, principally for additions to property and
equipment of $26.4 million. Financing activities provided $21.2 million of cash,
principally from the issuance of long-term debt of $25.5 million, less principal
payments on such debt in the amount of $3.8 million. The Company also paid
$438,000 in dividends on preferred stock.
Capital Requirements
For fiscal 1998 the Company has budgeted approximately $36 million for
development and exploration activities, including $30 million budgeted for
development projects on the Permian Basin and Panoma Properties and $6.0 million
budgeted for exploration projects. In addition, with respect to the Permian
Basin Properties acquisition, the Company anticipates that it may spend in
excess of $25 million on a development program to enhance an existing waterflood
project in the Westbrook Field located in Mitchell County, Texas. The Company is
not contractually obligated to proceed with any of its budgeted capital
expenditures. The amount and allocation of future capital expenditures will
depend on a number of factors that are not entirely within the Company's control
or ability to forecast, including drilling results and changes in oil and gas
prices. Due to the recent decline in oil prices, the Company has redirected a
significant portion of its budgeted funds from oil projects to natural gas and
has additionally deferred certain other capital projects until a later date. As
a result, actual capital expenditures may vary significantly from current
expectations.
In connection with the acquisition of a 30% interest in NGTS, the Company is
obligated to pay a $2.0 million note to current and former shareholders of NGTS.
This loan is due December 1, 1998 and may be repaid at any time by the Company
with cash or shares of its common stock.
Based upon the Company's anticipated level of operations, the Company believes
that cash flow from operations together with the availability under the Credit
Facility (approximately $21.5 million as of June 30, 1998) will be adequate to
meet its anticipated requirements for working capital, capital expenditures and
scheduled interest payments for the foreseeable future.
In the normal course of business, the Company reviews opportunities for the
possible acquisition of oil and gas reserves and activities related thereto.
When potential acquisition opportunities are deemed consistent with the
Company's growth strategy, bids or offers in amounts and with terms acceptable
to the Company may be submitted. It is uncertain whether any such bids or offers
which may be submitted by the Company from time to time will be acceptable to
the sellers. In the event of a future significant acquisition, the Company may
require additional financing in connection therewith.
Inflation and Changes in Prices
During the past several years, the Company experienced some inflation in oil and
gas prices with moderate increases in property acquisition and development
costs. During 1997, the Company received significantly lower (13%) oil prices
and slightly lower (1%) gas prices for the natural resources produced from its
properties. For the three months ended June 30, 1998 compared to the same period
in 1997, oil prices were significantly lower (26%) while gas prices were
unchanged. The results of operations and cash flow of the Company have been, and
will continue to be, affected by the volatility in oil and gas prices. Should
the Company experience a significant increase in oil and gas prices that is
sustained over a prolonged period, it also expects that there would be a
corresponding increase in oil and gas finding costs, lease acquisition costs,
and operating expenses. Periodically the Company enters into futures, options,
and swap contracts to reduce the effects of significant fluctuations in crude
oil and gas prices. It is policy of the Company not to enter into any such
arrangements which exceed 75% of the Company's anticipated oil and gas
production.
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The Company markets oil and gas for its own account, which exposes the Company
to the attendant commodities risk. Substantially all of the Company's gas
production is currently sold to NGTS or end users either ( i) on the spot market
on a month-to-month basis at prevailing spot market prices or (ii) under
long-term contracts based on current spot market prices. The Company normally
sells its crude oil under month-to-month contracts with a number of different
purchasers.
Hedging Activity
Periodically, the Company enters into futures, options, and swap contracts to
reduce the effects of fluctuations in crude oil and natural gas prices. As of
June 30, 1998, the Company had none of its oil production and approximately 60%
of its gas production hedged through September, 1998. Effective June 1998, the
Company closed out its previous oil price collar position ($18.50 floor and
$23.25 ceiling price) on 30,000 Bbls of oil per month, resulting in a gain of
$573,000 which will be recognized over the periods June through December of
1998. At June 30, 1998, the Company had fixed price swaps covering 250,000 MMBtu
of gas per month at $2.09 per MMBtu through September 1998, 250,000 MMBtu of gas
per month at $2.11 per MMBtu through September 1998, gas price collars covering
100,000 MMBtu per month (with floor and cap prices of $2.25 and $2.65,
respectively) through September 1998, and gas price collars covering 200,000
MMBtu per month (with floor and cap prices of $2.25 and $2.65, respectively) for
the period of May 1998 through October, 1998. In addition, a call was sold on
200,000 MMBtu per month at $2.65 from May 1998 through October, 1998. The
Company also entered into fixed price swaps on 200,000 MMBtu of gas per month at
$2.06 per MMBtu for the period of April 1999 through October 1999. The average
Btu content of gas produced by the Company exceeds 1,100 Btu per Mcf of gas.
Therefore, each of the above gas prices should be increased by 10% to reflect
the actual gas price per Mcf received by the Company. All of the existing hedges
use the El Paso Permian Basin Index and are settled monthly. The gains and
losses on the Company's hedging transactions are determined by taking the
difference between the contract price and a reference price. The resulting
transaction gains and losses are determined monthly and are included in the
period the hedged production or inventory is sold. Net gains related to
derivatives for the three and six month periods ended June 30, 1998 were
$517,000 and $1,241,000, respectively.
Year 2000 Modification
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company has identified no significant applications that will require
modifications to ensure Year 2000 Compliance. In addition, the Company plans to
communicate with others with whom it does significant business to determine
their Year 2000 Compliance readiness and the extent to which the Company is
vulnerable to any third party Year 2000 issues.However,there can be no guarantee
that the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has not
been and is not anticipated to be material to its financial position or results
of operations in any given year. However, there can be no guarantee that these
estimates will be achieved and actual results could differ from those plans.
Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," became effective as of the first quarter of 1998. This
statement requires companies to report and display comprehensive income and its
components (revenues, expenses, gains and losses). Comprehensive income includes
all changes in equity during a period except those resulting from investments by
owners and distributions to owners. For the Company, comprehensive income is the
same as net income reported in the statement of consolidated operations for the
three month and six month periods ended June 30, 1998, since there are no other
items of comprehensive income for that
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period. For the three and six month periods ended June 30, 1997, the Company
recognized a gain from investments of $83,000 and $79,000 respectively. These
gains adjusted the Company's net loss for such periods, resulting in
comprehensive losses of $2,494,000 and $2,467,000 respectively.
Changes in Accounting Standards
SFAS 131, "Disclosures About Segments of an Enterprise and Related Information,"
will become effective in 1998. This statement establishes standards for defining
and reporting business segments. The Company is currently determining its
reportable segments. The adoption of SFAS 131 will not affect the Company's
consolidated financial position, results of operations or cash flows.
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MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
(in thousands) 1998 1997
---------------------------
ASSETS
Current Assets
Cash and cash equivalents.............................................. $ 3,193 $ 3,030
Accounts receivable
Trade, net of allowance of $166................................... 7,822 12,850
Due from affiliates............................................... 59 58
Notes receivable from affiliate........................................ 381 355
Current portion of long-term note receivable........................... 370 357
Prepaid and other...................................................... 1,205 1,299
---------------------------
Total Current Assets............................................. 13,030 17,949
---------------------------
Property, Plant, and Equipment
Oil and gas properties, full cost method
Unproved......................................................... 1,061 517
Proved........................................................... 254,037 227,389
Pipelines.............................................................. 9,195 9,166
Other property......................................................... 926 776
---------------------------
Total Property, Plant and Equipment.................................... 265,219 237,848
Accumulated depreciation, depletion, and impairment............... (24,817) (16,589)
---------------------------
Net Property, Plant and Equipment...................................... 240,402 221,259
---------------------------
Other Assets
Deposits and other assets........................................... 8,017 5,863
Investment in unconsolidated affiliate.............................. 4,350 4,372
Deferred tax asset.................................................. 956 -
Long-term notes receivable, net of imputed interest................. - 1,626
----------------------------
Total Assets $ 266,755 $ 251,069
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade payables and accrued liabilities.............................. $ 8,753 $ 9,235
Dividends payable................................................... 219 219
Suspended revenue payable........................................... 954 1,162
Current maturities of long-term debt................................ 19 24
Notes payable....................................................... 4,449 4,699
----------------------------
Total Current Liabilities.................................... 14,394 15,339
----------------------------
Long-Term Liabilities
Long-term debt, less current maturities............................. 183,513 161,519
Production payment liability........................................ 668 743
Deferred income taxes............................................... - 1,289
----------------------------
Total Liabilities........................... 198,575 178,890
----------------------------
Minority interest...................................................... 61 39
Stockholders' Equity
Preferred stock - $.001 par value; 10,000,000 shares authorized 216,000
designated as Series A; 80,000 issued and outstanding,
liquidation amount $0........................................... - -
1,000,000 designated as 1996 Series A Convertible; 1,000,000
issued and outstanding, liquidation amount $10,000,000.......... 1 1
Common Stock-$.002 par value; 50,000,000 shares authorized,
21,738,320 shares issued........................................ 43 43
Additional paid-in capital............................................. 80,372 80,731
Accumulated deficit.................................................... (12,296) (8,634)
-----------------------------
68,120 72,141
Treasury stock(518,284 and 538,633 shares of common stock,respectively) (1) (1)
-----------------------------
Total Stockholders' Equity............................................. 68,119 72,140
-----------------------------
Total Liabilities and Stockholders' Equity............................. $ 266,755 $ 251,069
=============================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
8
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------------
Operating Revenues:
Oil and gas sales......................................... $ 11,509 $ 8,346 $ 22,064 $ 11,322
Gas gathering, marketing and processing................... 1,491 1,391 3,496 5,283
Oil field services and international sales................ 261 135 454 3,606
--------------------------------------------------------------
Total Operating Revenues............................ 13,261 9,872 26,014 20,211
--------------------------------------------------------------
Operating Costs and Expenses:
Oil and gas production lifting costs...................... 3,012 1,924 6,701 2,545
Production taxes and other costs.......................... 1,864 1,037 3,350 1,726
Gas gathering, marketing and processing................... 1,293 978 2,852 3,938
Oil field services and international sales................ 141 86 240 3,424
Depreciation and depletion................................ 4,941 3,379 8,816 4,460
General and administrative................................ 750 429 1,500 651
-------------------------------------------------------------
Total Operating Costs and Expenses.................. 12,001 7,833 23,459 16,744
-------------------------------------------------------------
Operating Profit ............................................ 1,260 2,039 2,555 3,467
Equity (loss) in earnings of affiliate, net of income tax. 4 - (45) -
Other income.............................................. 182 83 383 155
Interest expense.......................................... (4,518) (3,690) (8,751) (4,758)
-------------------------------------------------------------
Net Loss before income tax and minority interest............. (3,072) (1,568) (5,858) (1,136)
Benefit for deferred income tax........................... 1,169 596 2,209 432
-------------------------------------------------------------
Net Loss before minority interest............................ (1,903) (972) (3,649) (704)
Minority interest in subsidiary earnings.................. (12) (2) (13) (20)
-------------------------------------------------------------
Net Loss Before Extraordinary Loss........................... (1,915) (974) (3,662) (724)
Extraordinary Loss From Early Extinguishment of Debt... - (1,384) - (1,384)
-------------------------------------------------------------
Net Loss..................................................... (1,915) (2,358) (3,662) (2,108)
Dividends Applicable to Preferred Stock................... (219) (219) (438) (438)
-------------------------------------------------------------
Loss Applicable to Common Shares............................. $ (2,134) $ (2,577) $(4,100) $ (2,546)
-------------------------------------------------------------
Loss per Common Share-Basic
Loss Before Extraordinary Loss............................ $ (0.10) $ (0.09) $ (0.19) $ (0.09)
Extraordinary Loss........................................ $ - $ (0.10) $ - $ (0.10)
-------------------------------------------------------------
Loss After Extraordinary Loss............................. $ (0.10) $ (0.19) $ (0.19) $ (0.19)
-------------------------------------------------------------
Loss per Common Share-Diluted
Loss Before Extraordinary Loss............................ $ (0.10) $ (0.09) $ (0.19) $ (0.09)
Extraordinary Loss........................................ $ - $ (0.10) $ - $ (0.10)
-------------------------------------------------------------
Loss After Extraordinary Loss............................. $ (0.10) $ (0.19) $ (0.19) $ (0.19)
-------------------------------------------------------------
Common Shares Used in Per Share Calculation
Basic..................................................... 21,214,239 13,602,940 21,209,339 13,644,884
-------------------------------------------------------------
Diluted................................................... 21,214,239 13,602,940 21,209,339 13,644,884
-------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
9
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 1998
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additional
Preferred Stock Common Stock Treasury Stock Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
-----------------------------------------------------------------------------------
Balance at December 31, 1997.................... 1,080,000 $ 1 21,738,320 $ 43 (538,633) $ (1) $ 80,731 $ (8,634)
-----------------------------------------------------------------------------------
Shares issued to 401(k) plan................. 12,813 - 66
Issuance from exercise of employee's options. 7,536 - 13
Dividends declared on preferred stock........ (438)
Net Income (Loss)............................ (3,662)
-----------------------------------------------------------------------------------
Balance at June 30, 1998........................ 1,080,000 $ 1 21,738,320 $ 43 (518,284) $ (1) $ 80,372 $(12,296)
-----------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
10
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
For the Six Months Ended
June 30,
-----------------------------
1998 1997
-----------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss..................................................................... $ (3,662) $ (2,108)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities:
Extraordinary loss....................................................... - 1,384
Depreciation and depletion............................................... 8,816 4,460
Amortization of financing fees........................................... 357 153
Deferred income taxes.................................................... (2,209) (432)
Equity in unconsolidated affiliate....................................... 45 -
Minority interest........................................................ 13 20
Other.................................................................... 2 52
Changes in certain assets and liabilities
Accounts and notes receivable.......................................... 4,722 (6,029)
Other current assets................................................... 94 (332)
Accounts payable and accrued liabilities............................... (624) 1,634
-----------------------------
Net Cash Provided By Operating Activities....................................... $ 7,554 $ (1,198)
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets................................................. 318 463
Additions to property and equipment.......................................... (26,374) (141,667)
Increase in deposits and other assets........................................ (2,511) -
Loan made for promissory note receivable..................................... (40) (145)
Payments received on promissory note receivable.............................. 28 164
Investment in unconsolidated affiliate....................................... (50) -
-----------------------------
Net Cash Used In Investing Activities........................................ (28,629) (141,185)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt and production payment.......... 25,500 335,000
Fees paid related to financing activities.................................... - (7,881)
Proceeds from short-term notes payable....................................... - 2,699
Payments of principal on long-term and production payment.................... (3,836) (186,817)
Payment of fees on issuance of preferred stock............................... - (505)
Proceeds from issuance of common and preferred stock, net of offering costs.. 12 12
Dividends paid............................................................... (438) (241)
-----------------------------
Net Cash Provided By Financing Activities.................................... 21,238 142,267
-----------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 163 (116)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 3,030 1,687
-----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 3,193 $ 1,571
=============================
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
11
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE 1 - MANAGEMENT'S REPRESENTATION
The consolidated balance sheet as of June 30, 1998, the consolidated statements
of operations for the three and six month periods ended June 30, 1998 and 1997,
the consolidated statement of stockholder's equity for the period ended June 30,
1998 and the consolidated statements of cash flows for the six month periods
ended June 30, 1998 and 1997 are unaudited. In the opinion of management, all
necessary adjustments (which include only normal recurring adjustments) have
been made to present fairly the financial position, results of operations,
changes in stockholder's equity and changes in cash flows for the three and six
month periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the December 31, 1997 annual report on Form 10-KSB for the
Company. The results of operations for the three and six month periods ended
June 30, 1998, are not necessarily indicative of the operating results for the
full year.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Certain items have been
reclassified to conform with the current presentation.
The Company is a holding company with no significant assets or operations other
than its investments in its subsidiaries. The wholly-owned subsidiaries of the
Company are direct guarantors of the Company's Senior Notes and have fully and
unconditionally guaranteed the Senior Notes on a joint and several basis. The
guarantors comprise all of the direct and indirect subsidiaries of the Company
(other than inconsequential subsidiaries), and the Company has not presented
separate financial statements and other disclosures concerning each guarantor
because management has determined that such information is not material to
investors. There is no restriction on the ability of consolidated or
unconsolidated subsidiaries to transfer funds to the Company in the form of cash
dividends, loans or advances.
NOTE 2 - RECENT EVENTS
On January 9, 1998, the Company adopted a Shareholder Rights Plan, pursuant to
which Rights would be distributed as a dividend to its common stockholders at a
rate of one Right for each share of common stock held of record on January 20,
1998. Under the Rights Plan, the Rights will initially represent the right to
purchase one one-hundreth of a share of 1998 Series A Junior Participating
Preferred Stock for $35.00 per one one-hundreth of a share. The Rights will
become exercisable only if a person or a group acquires or commences a tender
offer for 15% or more of the Company's common stock. Until they become
exercisable, the Rights attached to and trade with the Company's common stock.
The Rights will expire January 20, 2008. The Rights may be redeemed by the
continuing members of the Company's Board of Directors at $.01 per Right prior
to the tenth day after a person or group has accumulated 15% or more of the
Company's common stock. The Rights will not be taxable to the Company's
shareholders. In the event that a person or group acquires 15% or more of the
Company's common stock, the Rights would then be modified to represent the right
to receive for the exercise price, Magnum Hunter common stock having a value
worth twice the exercise price. In the event that the Company is involved in a
merger or other business combination at any time after a person or group has
acquired 15% or more of Magnum Hunter's common stock, the Rights will be
modified so as to entitle a holder to buy a number of shares of common stock of
the acquiring entity having a market value of twice the exercise price of each
Right.
On January 28, 1998, the Company commenced a cash purchase offer for Units of
Tel. Previous to the offer, the Company owned 161,500 Units representing 3.4% of
the Units outstanding. As amended, the offer was to purchase between forty
percent (40%) and sixty percent (60%) of the Trust's outstanding Units at $5.50
per Unit. On March 27,
12
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
(Unaudited)
1998, the Company purchased 1,745,353 Units pursuant to the tender offer and,
together with the Units it previously owned, represented 40.1% of the total
number of Units outstanding.
NOTE 3 - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," became effective as of the first quarter of 1998. This
statement requires companies to report and display comprehensive income and its
components (revenues, expenses, gains and losses). Comprehensive income includes
all changes in equity during a period except those resulting from investments by
owners and distributions to owners. For the Company, comprehensive income is the
same as net income reported in the statement of consolidated operations for the
three month and six month periods ended June 30, 1998, since there are no other
items of comprehensive income for that period. For the three and six month
periods ended June 30, 1997, the Company recognized a gain from investments of
$83,000 and $79,000 respectively. These gains adjusted the Company's net loss
for such periods, resulting in comprehensive losses of $2,494,000 and $2,467,000
respectively.
13
<PAGE>
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of the stockholders of the Company was held on the May 28,
1998. The results of the voting for (i) the election of directors and (ii) the
proposal to ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors was as follows:
(1) For each director:
Gary C. Evans: 15,033,680 shares voted in favor of the nominee, 9,534
shares voted against the nominee and 1,137,384 shares abstained from voting.
Matthew C. Lutz: 15,033,681 shares voted in favor of the nominee, 9,533
shares voted against the nominee and 1,137,384 shares abstained from voting.
Gerald W. Bolfing: 15,039,765 shares voted in favor of the nominee, 3,433
shares voted against the nominee and 1,137,400 shares abstained from voting.
Oscar C. Lindemann: 15,030,754 shares voted in favor of the nominee, 12,460
shares voted against the nominee and 1,137,384 shares abstained from voting.
John H. Trescot, Jr.: 15,036,838 shares voted in favor of the nominee,
6,360 shares voted against the nominee and 1,137,400 shares abstained from
voting.
James E. Upfield: 15,036,844 shares voted in favor of the nominee, 6,354
shares voted against the nominee and 1,137,400 shares abstained from voting.
(2) For the ratification of the appointment of Deloitte & Touche LLP as the
Corporation's independent auditors: 16,140,988 shares voted in favor of the
above-described proposal, 28,650 shares voted against the above-described
proposal and 10,960 shares abstained from voting.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description of Exhibit
3.1 & 4.1 Articles of Incorporation (Incorporated by reference to
Registration Statement on Form S-18, File No. 33-30298-D)
3.2 & 4.2 Articles of Amendment to Articles of Incorporation (Incorporated by
reference to Form 10-K for the year ended December 31, 1990)
3.3 & 4.3 Articles of Amendment to Articles of Incorporation (Incorporated by
reference to Registration Statement on Form SB-2,File No. 33-66190)
3.4 & 4.4 Articles of Amendment to Articles of Incorporation (Incorporated by
reference to Registration Statement on Form S-3,File No. 333-30453)
3.5 & 4.5 By-Laws, as Amended (Incorporated by reference to Registration
Statement on Form SB-2, File No. 33-66190)
3.6 & 4.6 Certificate of Designation of 1996 Series A Preferred Stock
(Incorporated by reference to Form 8-K dated December 26, 1996,
filed January 3, 1997)
3.7 & 4.7 Amendment to Certificate of Designations for 1996 Series A
Convertible Preferred Stock (Incorporated by reference to
Registration Statement on Form S-3, File No. 333-30453)
4.8 Indenture dated May 29, 1997 between Magnum Hunter Resources, the
subsidiary guarantors named therein and First Union National Bank
of North Carolina, as Trustee (Incorporated by reference to
Registration Statement on Form S-4, File No. 333-2290)
4.9 Form of 10% Senior Note due 2007 (Incorporated by reference to
Registration Statement on Form S-4, File No. 333-2290)
10.1 Second Amended and Restated Credit Agreement, dated June 1, 1998,
between Magnum Hunter Resources,Inc.and Bankers Trust Company,etal.
10.2 Employment Agreement for Gary C. Evans (Incorporated by reference
to Registration Statement on Form S-4, File No. 333-2290)
10.3 Employment Agreement for Matthew C. Lutz (Incorporated by reference
to Registration Statement on Form S-4, File No.333-2290)
10.4 Stock Purchase Agreement among Magnum Hunter Resources, Inc. and
Trust Company of the West and TCW Asset Management Company, in the
capacities described herein, TCW Debt and Royalty Fund IVB and TCW
Debt and Royalty Fund IVC, dated as of December 6, 1996
(Incorporated by reference to Form 8-K dated December 26, 1996,
filed January 3, 1997)
10.5 Registration Rights Agreement, dated May 29, 1997, between Magnum
Hunter Resources, Inc. and Bankers Trust Company, et al.
(Incorporated by reference to Registration Statement on Form S-4,
File No. 333-2290)
10.6 Purchase and Sale Agreement, dated May 17, 1996 between Meridian
Oil, Inc. and ConMag Energy Corporation (Incorporated by reference
to Form 8-K, dated June 28, 1996, filed July 12, 1996)
10.7 Purchase and Sale Agreement, dated February 27, 1997 among
Burlington Resources Oil and Gas Company, Glacier Park Company and
Magnum Hunter Production, Inc. (Incorporated by reference to Form
8-K, dated April 30, 1997, filed May 12, 1997)
10.8 Purchase and Sale Agreement between Magnum Hunter Resources, Inc.,
NGTS, et al., dated December 17, 1997 (Incorporated by reference to
Form 8-K, dated December 17, 1997, filed December 29, 1997)
27 Financial Data Schedule
(B) Reports on Form 8-K. None
15
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNUM HUNTER RESOURCES, INC.
By: /s/ Gary C. Evans August 13, 1998
--------------------------------
Gary C. Evans
President and Chief Executive Officer
By: /s/ Chris Tong August 13, 1998
-------------------------------
Chris Tong
Sr. Vice President and
Chief Financial Officer
By: /s/ David S. Krueger August 13, 1998
-------------------------------
David S. Krueger
Vice President and
Chief Accounting Officer
By: /s/ Morgan F. Johnston August 13, 1998
-------------------------------
Morgan F. Johnston
Vice President, General Counsel and
Secretary
16
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement"),
dated as of June 1, 1998, is among MAGNUM HUNTER RESOURCES, INC., a Nevada
corporation (the "Borrower"), each Bank (as defined herein), BANKERS TRUST
COMPANY, (in its individual capacity, "Bankers Trust"), as administrative agent
(in such capacity, together with its successors in such capacity, the
"Administrative Agent"), and as an issuing bank (in such capacity, together with
its successors in such capacity, an "Issuing Bank"), CIBC INC., a Delaware
corporation (in its individual capacity, "CIBC") as syndication agent (in such
capacity, together with its successors in such capacity, the "Syndication
Agent"), and PARIBAS, a French bank acting through its Houston Agency (in its
individual capacity, "Paribas"), as collateral agent (in such capacity, together
with its successors in such capacity, the "Collateral Agent") and as
documentation agent (in such capacity, together with its successors in such
capacity, the "Documentation Agent").
R E C I T A L S:
WHEREAS, the Borrower, each Bank then a party, the Administrative
Agent, the Documentation Agent, and First Union National Bank of North Carolina
("First Union"), as collateral agent and syndication agent, entered into that
certain Amended and Restated Credit Agreement dated as of April 30, 1997 (the
"Original Credit Agreement") pursuant to which the Banks agreed to make
revolving credit loans available to the Borrower under the terms and provisions
stated therein; and
WHEREAS, the parties to the Original Credit Agreement entered into a
First Amendment to Amended and Restated Credit Agreement, Resignation of
Collateral Agent and Appointment of Substitute Collateral Agent dated as of May
29, 1997 (the "First Amendment"); and
WHEREAS, the parties to the Original Credit Agreement and CIBC entered
into a Second Amendment to Amended and Restated Credit Agreement dated as of
September 30, 1997 (the "Second Amendment"); and
WHEREAS, as of October 1, 1997, CIBC became a Bank under the Original
Credit Agreement as amended by the First Amendment; and
WHEREAS, Bank of America National Trust and Savings Association ("BOA")
became a Bank under the Original Credit Agreement as amended by the First
Amendment and the Second Amendment; and
WHEREAS, the parties to the Original Credit Agreement, as amended to
the date hereof, entered into a Third Amendment to Amended and Restated Credit
Agreement dated as of December 15, 1997 and a Fourth Amendment to Amended and
Restated Credit Agreement dated
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 1
<PAGE>
as of March 30, 1998 (together with the First Amendment, the Second Amendment,
and the Original Credit Agreement, the "Credit Agreement");
WHEREAS, the Borrower and the Banks are willing to consolidate, amend
and restate the Credit Agreement in its entirety upon and subject to the terms,
conditions and provisions of this Agreement; and
WHEREAS, pursuant to this Agreement, Wells Fargo Bank (Texas), National
Association and Toronto Dominion (Texas), Inc. shall each become a Bank
hereunder and BOA will no longer be a Bank or a party to this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and promises herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows, intending to be legally bound:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 2
<PAGE>
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
have the following meanings:
"Adjusted Eurodollar Rate" means, with respect to each
Eurodollar Loan for any Interest Period, a rate per annum (rounded
upwards, if necessary to the nearest integral multiple of the number of
decimal points displayed on Telerate Page 3750, or any successor or
similar service, or if neither such Telerate Page 3750 nor any
successor or similar service is available and such rate is determined
using the Reference Bank, one one-hundredth of one percent (1/100%),
equal to (i) the average of the offered quotations appearing on
Telerate Page 3750 (or if such Telerate Page shall not be available,
any successor or similar service as may be selected by the
Administrative Agent and the Borrower) as of 11:00 a.m., London time
(or as soon thereafter as practicable), two Eurodollar Business Days
prior to the beginning of such Interest Period, and (ii) if neither
such Telerate Page 3750 nor any successor or similar service is
available, then the quotient of (x) the arithmetic average of the
quotation by the Reference Bank (notified to the Administrative Agent
by the Reference Bank) of the rate of interest per annum at which
deposits in Dollars in immediately available funds are offered to the
Reference Bank and two Eurodollar Business Days prior to the beginning
of such Eurodollar Interest Period by prime banks in the interbank
Eurodollar market as at or about 9:00 a.m., Houston time, for delivery
on the first day of such Interest Period, in each case for a period
equal to such Interest Period and in an amount equal to the proposed
Eurodollar Loan of the Reference Bank to which such Eurodollar Interest
Period relates, divided by (y) the remainder of one minus the decimal
equivalent of the applicable Reserve Requirement.
"Affiliate" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, such Person; (b)
that directly or indirectly beneficially owns or holds 10% or more of
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 3
<PAGE>
any class of voting stock of such Person; or (c) 10% or more of the
voting stock of which is directly or indirectly beneficially owned or
held by the Person in question. The term "control" means the
possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise;
provided, however, in no event shall any Agent, the Issuing Bank or any
Bank be deemed an Affiliate of the Borrower or any of its Subsidiaries.
"Agent" means any of the Administrative Agent, the
Documentation Agent, the Collateral Agent and the Syndication Agent;
and "Agents" shall mean all of them.
"Agent Letter" means the letter agreement dated as of June 1,
1998, among Bankers Trust and the Borrower.
"Amendment Letter" means the letter agreement dated as of June
1, 1998, among Bankers Trust, CIBC, Paribas and the Borrower.
"Applicable Margin" means the margin set forth in the
following grid and determined to be the applicable percentage pursuant
to the Borrowing Percentage, which Applicable Margin shall change as
and when the Borrowing Percentage changes:
<TABLE>
<CAPTION>
<S> <C> <C>
Borrowing Percentage Applicable Applicable
Margin for Margin for Base
Eurodollar Loans Rate Loans
Greater than 75% 1.50% 0.25%
Greater than 50% but less than or equal to 1.25% 0%
75%
Greater than or equal to 25% but less than or 1.00% 0%
equal to 50%
Less than 25% .75% 0%
======================================================== ========================== =======================
</TABLE>
"Applicable Lending Office" means for each Bank and each Type
of Loan, the Lending Office of such Bank (or of an Affiliate of such
Bank) designated for such Type of Loan below its name on the signature
pages hereof or such other office of such Bank (or of an Affiliate of
such Bank) as such Bank may from time to time specify to the Borrower
and the Administrative Agent as the office by which its Loans of such
Type are to be made and maintained.
"Applicable Rate" means: (a) during the period that a Loan is
a Base Rate Loan, the Base Rate plus the Applicable Margin; and (b)
during the period that a Loan is a Eurodollar Loan, the Adjusted
Eurodollar Rate plus the Applicable Margin.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 4
<PAGE>
"Assignee" has the meaning assigned to it in Section 14.7(b).
"Assigning Bank" has the meaning assigned to it in Section 14.
7(b).
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Bank and its assignee and accepted by the
Administrative Agent pursuant to Section 14.7, in substantially the
form of Exhibit "G" hereto, or such other form as to which all of the
parties hereto shall consent in writing.
"Bank" means each bank or other lending institution that is or
that may from time to time become a signatory hereto, any successor or
assignee thereof.
"Base Rate" means, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/100 of 1%) equal to the greater
of (a) the Prime Rate in effect on such day, or (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective on the effective day of such change
in the Prime Rate or the Federal Funds Effective Rate, respectively.
If for any reason the Administrative Agent determines (which
determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate, for any reason,
including the inability or failure of the Agent to obtain sufficient
quotations in accordance with the terms hereof, the Base Rate shall be
determined without regard to clause (b) of the first sentence of this
definition, as appropriate, until the circumstances giving rise to
such inability no longer exist.
"Base Rate Loans" means Loans the interest rates on which are
determined on the basis of the rates referred to in the definition of
"Base Rate" in this Section 1.1.
"Beneficial Owner" shall be determined in accordance with
Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended and
as it may be amended from time to time, or any successor provision
thereto, except that a Person shall be deemed to have "beneficial
ownership" of all shares that such Person has the right to acquire,
whether such right is exercisable immediately or only after the
passage of time.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 5
<PAGE>
"Borrower Pledge Agreement" means the Second Amended and
Restated Pledge Agreement of the Borrower in favor of the Collateral
Agent for the benefit of itself, the other Agents, the Banks and the
Issuing Banks, in substantially the form of Exhibit "D" hereto, as the
same may be amended, supplemented, or modified.
"Borrowing Base" means an amount of indebtedness which can be
adequately supported by the value of oil and gas reserves and assets,
contracts and throughput attributable to the Mortgaged Properties
owned by Borrower and its Restricted Subsidiaries in which the
Collateral Agent holds a perfected, first priority Lien, the values of
which shall be determined and redetermined by the Majority Banks, in
the exercise of their sole discretion, in accordance with the terms
hereof and their customary practices and standards for the valuation
of similar property. The initial Borrowing Base shall be $65,000,000.
"Borrowing Base Deficiency" means as of any date, that the
aggregate outstanding Loans plus the Letter of Credit Liabilities
exceed the Borrowing Base as determined pursuant to Section 2.8 and as
reduced from time to time pursuant to Section 4.5(b).
"Borrowing Base Deficiency Rate" means, the lesser of (a) the
Maximum Rate, or (b) the Applicable Rate in effect from day to day,
plus two percent.
"Borrowing Percentage" shall mean, for the purpose of
determining the Applicable Margin for Eurodollar and Base Rate Loans,
the aggregate unpaid principal balance of the Loans then outstanding
as a percentage of the Borrowing Base then in effect.
"Business Day" means (a) a day other than Saturday, Sunday or
a day on which commercial banks in New York and Dallas, Texas are not
authorized to be open or are required to close, and, (b) with respect
to all borrowings, payments, Conversions, Continuations, Interest
Periods, and notices in connection with Eurodollar Loans, any day
which is a Business Day described in clause (a) above and which is
also a day on which dealings in Dollar deposits are carried out in the
London interbank market.
"Capital Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease
of (or other agreement conveying the right to use) real and/or
personal property, which obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person
under GAAP. For purposes of this Agreement, the amount of such Capital
Lease Obligations shall be the capitalized amount thereof, determined
in accordance with GAAP.
"Change in Control" shall mean an occurrence of one or more of
the following events: (a) any Person, or any Persons acting together
in a manner which would constitute a "group" (a "Group") for purposes
of Section 13(d) of the Securities Exchange Act of 1934, as amended
and as it may be amended from time to time, or any successor provision
thereto, together with any Affiliates thereof, become the Beneficial
Owners of capital stock of the
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 6
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Borrower through a purchase, merger or other acquisition transaction
(in one transaction or a series of related transactions), entitling
such Person or Persons and its or their Affiliates to exercise more
than 50% of the total voting power of all classes of the Borrower's
capital stock entitled to vote generally in the election of directors,
(b) a plan is adopted relating to the liquidation or dissolution of
the Borrower, (c) the Borrower shall consolidate with or merge into
any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person other than a
Restricted Subsidiary, or any other Person shall consolidate with or
merge into the Borrower (other than, in the case of this clause (c),
pursuant to any consolidation or merger where Persons who are
Beneficial Owners of the Borrower's capital stock entitled to vote
generally in the election of directors immediately prior thereto
become the Beneficial Owners of shares of capital stock of the
surviving corporation entitling such Persons to exercise more than 50%
of the total voting power of all classes of such surviving
corporation's capital stock entitled to vote generally in the election
of directors or persons holding similar positions), or (d) during any
calendar year period, individuals who at the beginning of such period
constituted the board of directors of the Borrower (together with any
new directors whose election to such board of directors, or whose
nomination for election by the stockholders of the Borrower, was
approved by a vote of 66-2/3% of the directors then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the board of directors of
the Borrower then in office.
"Closing Date" means the date on which the closing of the loan
transactions contemplated by this Agreement occurs.
"Code" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated and rulings issued thereunder.
"Collateral" has the meaning specified in Section 6.1.
"Compliance Certificate" means a certificate of the chief
financial officer or chief accounting officer of the Borrower required
under Section 9.1(c) hereof.
"Commitment" means, as to each Bank, the obligation of such
Bank to make Loans and purchase participations in Letters of Credit
pursuant to Section 3.1 in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount set forth opposite
the name of such Bank on the signature pages hereof under the heading
"Commitment," or in the Assignment and Acceptance pursuant to which
such Bank assumed its Commitment, as applicable as the same may be (a)
reduced pursuant to Section 2.7 or terminated pursuant to Section 2.7
or 12.2 and (b) reduced or increased from time to time pursuant to
assignments by or to such Bank pursuant to Section 14.7.
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<PAGE>
"Consolidated Current Assets" means, at any particular time,
all amounts which in conformity with GAAP, would be included as
current assets on a consolidated balance sheet of the Borrower and the
Restricted Subsidiaries plus Unused Availability.
"Consolidated Current Liabilities" means, at any particular
time, all amounts which, in conformity with GAAP, would be included as
current liabilities on a consolidated balance sheet of the Borrower
and the Restricted Subsidiaries; provided, however, that the current
portion of long-term Debt under this Agreement and the other Loan
Documents shall be excluded from the calculation of current
liabilities.
"Consolidated EBITDA" means, for the Borrower and the
Restricted Subsidiaries on a consolidated basis, with respect to any
period for which a determination is to be made, the sum of (i) gross
profit (revenues less cost of sales), minus (ii) operating expenses,
minus (iii) general and administrative expenses, plus (iv) cash equity
earnings of any unconsolidated Subsidiary of the Borrower or any
partnership, joint venture or entity in which the Borrower or any of
its Subsidiaries has an equity interest, plus (v) gains on the sale or
other dispositions of assets, plus (vi) interest, dividends or other
income, all of (i) through (vi) as determined in accordance with GAAP.
"Consolidated Interest Coverage Ratio" means, at any
particular time, the ratio of (a) Consolidated EBITDA to (b) Interest
Expense.
"Consolidated Net Worth" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as
stockholders' equity on a consolidated balance sheet of the Borrower
and the Restricted Subsidiaries, plus, if applicable, the amount of
any cumulative full-cost ceiling test write-downs.
"Contingent Liabilities" means, as applied to any Person,
those direct or indirect liabilities of that Person with respect to
any Debt, lease, dividend, letter of credit or other monetary or
financial obligation (the "primary obligations") of another Person
(the "primary obligor"), including, without limitation, any obligation
of such Person, whether or not contingent, (a) to purchase, repurchase
or otherwise acquire such primary obligations or any property
constituting direct or indirect security therefor, or (b) to advance
or provide funds (i) for the payment or discharge of any such primary
obligation, or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency
or any balance sheet item, level of income or financial condition of
the primary obligation, or (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in
respect thereof. The amount of any Contingent Liabilities shall be
deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Contingent Liabilities
are made
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 8
<PAGE>
or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by the Borrower in good
faith.
"Continue," "Continuation," and "Continued" shall refer to the
continuation pursuant to Section 4.2 of a Eurodollar Loan as a
Eurodollar Loan from one Interest Period to the next Interest Period.
"Convert," "Conversion," and "Converted" shall refer to a
conversion pursuant to Section 4.2 or Article V of one Type of Loan
into another Type of Loan.
"Current Ratio" means, at any particular time, the ratio of
Consolidated Current Assets to Consolidated Current Liabilities.
"Debt" means as to any Person at any time (without
duplication): (a) all Funded Debt and (b) all liabilities of such
Person in respect of unfunded vested benefits under any Plan.
"Debt to Capitalization Ratio" means, at any particular time,
the ratio of (i) Funded Debt to (ii) the sum of Funded Debt, plus
Consolidated Net Worth.
"Default" means the occurrence of an event or condition which
with notice or lapse of time or both would become an Event of Default.
"Default Rate" means the lesser of (i) the Maximum Rate, or
(ii) the sum of the Applicable Rate in effect from day to day, plus
two percent.
"Determination Date" means each April 1 and October 1 of each
year, commencing October 1, 1998.
"Dissenting Bank" has the meaning assigned to it in Section 2.
8(b) hereof.
"Dollars" and "$" mean lawful money of the United States of
America.
"Eligible Assignee" means any commercial bank, savings and
loan association, savings bank, finance company, insurance company,
pension fund, mutual fund, or other financial institution (whether a
corporation, partnership, or other entity) approved by the
Administrative Agent, which approval shall not be unreasonably
withheld or delayed, and unless an Event of Default has occurred and
is continuing, approved by Borrower which approval shall not be
unreasonably withheld or delayed.
"Engineering Reports" shall have the meaning specified in
subsection 2.8(a).
"Environmental Laws" means any and all federal, state, and
local laws, regulations, and requirements pertaining to health,
safety, or the environment, including, without
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 9
<PAGE>
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. ss. 6901 et seq., the
Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq., the
Clean Air Act, 42 U.S.C. ss. 7401 et seq., the Clean Water Act, 33
U.S.C. ss. 1251 et seq., and the Toxic Substances Control Act, 15
U.S.C. ss. 2601 et seq., as such laws, regulations, and requirements
may be amended or supplemented from time to time.
"Environmental Liabilities" means, as to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses,
damages, punitive damages, consequential damages, treble damages,
costs, and expenses (including, without limitation, all reasonable
fees, disbursements and expenses of counsel, expert and consulting
fees and costs of investigation and feasibility studies), fines,
penalties, sanctions, and interest incurred as a result of any claim
or demand, by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute,
including any Environmental Law, permit, order or agreement with any
Governmental Authority or other Person, arising from environmental,
health or safety conditions or the Release or threatened Release of a
Hazardous Material into the environment, resulting from the past,
present, or future operations of such Person or its Affiliates.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereunder, in each case as in effect from time to
time.
"ERISA Affiliate" means any corporation or trade or business
which is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Code) as the Borrower or is under
common control (within the meaning of Section 414(c) of the Code) with
the Borrower.
"Eurodollar Loans" means Loans the interest rates on which are
determined on the basis of the rates referred to in the definition of
"Adjusted Eurodollar Rate" in this Section 1.1.
"Eurodollar Rate" shall mean, with respect to each Eurodollar
Loan for any Eurodollar Interest Period, a rate per annum (rounded
upwards, if necessary, to the nearest integral multiple of the number
of decimal points displayed on Telerate Page 3750, or any successor or
similar service, or if neither such Telerate Page 3750 nor any
successor or similar service is available and such rate is determined
using the Reference Bank, one one-hundredth of one percent (1/100%)),
equal to (i) the average of the offered quotations appearing on
Telerate Page 3750 (or if such Telerate Page shall not be available,
any successor or similar service as may be selected by the
Administrative Agent and the Borrower) as of 11:00 a.m., London time
(or as soon thereafter as practicable), two Eurodollar Business Days
prior to the beginning of such Eurodollar Interest Period, and (ii) if
neither such Telerate Page 3750 nor any successor or similar service
is available, then the
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 10
<PAGE>
quotient of (x) the arithmetic average of the quotation by the
Reference Bank (notified to the Administrative Agent by the Reference
Bank) of the rate of interest per annum at which deposits in Dollars
in immediately available funds are offered to the Reference Bank two
Eurodollar Business Days prior to the beginning of such Eurodollar
Interest Period by prime banks in the interbank Eurodollar market as
at or about 9:00 a.m., Houston time, for delivery on the first day of
such Eurodollar Interest Period, in each case for a period equal to
such Eurodollar Interest Period and in an amount equal to the proposed
Eurodollar Loan of such Reference Bank to which such Eurodollar
Interest Period relates, divided by (y) the remainder of one (1) minus
the decimal equivalent of the applicable Reserve Requirement.
"Event of Default" has the meaning specified in Section 12.1.
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected by it.
"Funded Debt" means, on a consolidated basis for the Borrower
and the Restricted Subsidiaries, as of any date of determination
(without duplication): (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, notes, debentures, or other similar
instruments, (c) all obligations to pay the deferred purchase price of
property or services, except trade accounts payable of such Person
arising in the ordinary course of business, (d) all Capital Lease
Obligations, (e) all obligations secured by a Lien existing on
property owned by the Borrower and the Restricted Subsidiaries,
whether or not the obligations secured thereby have been assumed by
the Borrower or are non-recourse to the credit of such Person, (f) all
Contingent Liabilities, (g) all reimbursement obligations (whether
contingent or otherwise) in respect of letters of credit, bankers'
acceptances, surety or other bonds and similar instruments and (h) all
Swap Obligations to the extent secured by cash deposited as a result
of margin calls. Funded Debt shall not include any obligations (other
than those described in subsection (h) above) incurred in connection
with Swap Obligations.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards
Board and/or their respective successors and which are applicable in
the circumstances as of the date in question. Accounting principles
are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to
those accounting principles applied in a preceding period. In the
event any change in GAAP after the date hereof would materially affect
the calculation of the financial covenants contained in Article XI,
the Borrower and the Required Banks agree to enter into good faith
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 11
<PAGE>
negotiations for an agreement to revise such financial covenants or
the definitions of terms used therein to take into account such
changes in GAAP; provided, however, that until the Borrower and the
Required Banks have entered into such an agreement, such financial
calculations shall continue to be made in accordance with GAAP as in
effect immediately prior to such change.
"Gas Gathering Systems" means the gas plant and those certain
gas gathering systems consisting of all equipment, assets,
rights-of-way, surface leases, contracts and related assets more
particularly described on Schedule 1.1 attached hereto.
"Governmental Authority" means any nation or government, any
state or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory, or administrative
functions of or pertaining to government.
"Guarantor" means each present and future Restricted
Subsidiary of Borrower.
"Hazardous Material" means any substance, product, waste,
pollutant, material, chemical, contaminant, constituent, or other
material which is or becomes listed, regulated, or addressed as a
hazardous substance under any Environmental Law, including, without
limitation, asbestos, petroleum, and polychlorinated biphenyls.
"Hedge Agreements" shall have the meaning assigned to such
term in Section 10.14.
"Hydrocarbons" means all oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, carbon dioxide,
liquid hydrocarbons, gaseous hydrocarbons, and all other minerals, and
all products obtained, refined or processed therefrom.
"Indenture" means that certain Indenture dated as of May 29,
1997, executed by and among the Borrower, the Guarantors and First
Union National Bank of North Carolina, as trustee, as amended,
modified or supplemented from time to time.
"Interest Expense" means, for any period, all interest on Debt
(including the interest portion of payments under Capital Lease
Obligations and any capitalized interest but excluding the non-cash
accretion of the discount and amortization of the Agents' and the
Banks' fees hereunder) of Borrower and its Restricted Subsidiaries
(determined on a consolidated basis) paid or accrued during such
period, provided that there shall be added to "Interest Expense" any
fees or commissions payable in connection with any letters of credit
during such period.
"Interest Period" means, with respect to any Eurodollar Loan,
each period commencing on the date such Loan is made or Converted from
a Base Rate Loan or, in the case of each subsequent, successive
Interest Period applicable to a Eurodollar Loan, the last day of the
next preceding Interest Period with respect to such Loan, and ending
on the
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 12
<PAGE>
numerically corresponding day in the first, second, third, or, if
available from all of the Banks, the sixth or twelfth calendar month
thereafter, as the Borrower may select as provided in Section 4.1 or
4.2 hereof, except that each such Interest Period which commences on
the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which
would otherwise end on a day which is not a Business Day shall
end on the next succeeding Business Day (or, if such
succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Termination
Date shall end on the Termination Date; (c) no more than six
Interest Periods for Eurodollar Loans shall be in effect at
the same time; and (d) no Interest Period may extend beyond a
principal repayment date unless, after giving effect thereto,
the aggregate principal amount of the Eurodollar Loans having
Interest Periods that end after such principal payment date
shall be equal to or less than the Loans to be outstanding
hereunder after such principal payment date.
"Issuing Bank" means, with respect to any Letter of Credit,
Bankers Trust or any of its Affiliates or, with the approval of the
Administrative Agent, any other Bank which chooses to be an Issuing
Bank hereunder, in its capacity as issuer of each Letter of Credit,
and any successor Issuing Bank appointed pursuant to the terms of
Section 3.9.
"Knowledge" means either (a) actual knowledge of a responsible
officer of the Borrower or a Restricted Subsidiary of the Borrower or
employee of the Borrower or a Restricted Subsidiary charged with
responsibility for the matter at issue or in question or (b) knowledge
that a prudent responsible officer of the Borrower or a Restricted
Subsidiary of the Borrower or employee of the Borrower or a Restricted
Subsidiary charged with responsibility for the matter at issue or in
question could be expected to discover or otherwise become aware of in
the course of conducting the Borrower's or such Restricted
Subsidiary's business.
"L/C Documents" has the meaning specified in Section 3.1.
"LC Participation" means, with respect to any Bank at any
time, the amount of the participating interest held by such Bank in
respect of a Letter of Credit.
"Letter of Credit" means any standby letter of credit issued
by an Issuing Bank for the account of the Borrower or any Restricted
Subsidiary pursuant to Article III.
"Letter of Credit Liabilities" means, at any time, the
aggregate face amounts of all outstanding Letters of Credit.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 13
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"Letter of Credit Request Form" means a certificate, in
substantially the form of Exhibit "C" hereto, properly completed and
signed by the Borrower requesting issuance of a Letter of Credit.
"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment,
preference, priority, or other encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or
title retention agreement), whether arising by contract, operation of
law, or otherwise; provided, however, that a negative pledge is not a
Lien for purposes of this Agreement or the other Loan Documents.
"Loan" means, as to each Bank, the revolving credit loans to
be made by such Bank pursuant to Section 2.1.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, pledge agreements, intercreditor and/or
subordination agreements, deeds of trust, mortgages, fee letters,
assignments, guaranties, letters of credit, letter of credit
applications and other instruments, documents, and agreements executed
and delivered pursuant to or in connection with this Agreement, as
such instruments, documents, and agreements may be amended, modified,
renewed, extended, or supplemented from time to time.
"Loan Request Form" means a certificate, in substantially the
form of Exhibit "B" hereto, properly completed and signed by the
Borrower requesting a Loan.
"Majority Banks" means at any time while no Loans or Letter of
Credit Liabilities are outstanding, Banks having commitments totaling
at least 75% of the amount of the Borrowing Base and, at any time
while Loans or Letter of Credit Liabilities are outstanding, Banks
holding Loans and LC Participations totaling at least 75% of the
amount of the Borrowing Base.
"Marketing Debt" means Debt of the Borrower in an amount not
to exceed $4,000,000, which Debt consists of the Borrower's guaranty
of Marketing LLC's credit facility. Marketing Debt shall be
characterized as Debt of the Borrower solely for purposes of
calculating the Borrower's Debt to Capitalization Ratio under Section
11.3 hereof.
"Marketing LLC" means the limited liability company formed by
the Borrower or one of its Subsidiaries and NGTS that assumed all of
NGTS's natural gas marketing operations.
"Marketing Note" means, collectively, one or more promissory
notes in the amount of $2,000,000 issued by the Borrower and payable
to NGTS, which promissory notes shall be payable in cash or common
stock of the Borrower, at the sole option of Borrower. The
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 14
<PAGE>
amount of the Marketing Note shall not be characterized as Debt,
including for purposes of computing the Borrower's Debt to
Capitalization Ratio under Section 11.3 hereof, so long as the
Marketing Note is payable, at the sole option of the Borrower, in
common stock of the Borrower.
"Maximum Rate" means, at any time and with respect to any
Bank, the maximum rate of interest under applicable law that such Bank
may charge the Borrower. The Maximum Rate shall be calculated in a
manner that takes into account any and all fees, payments, and other
charges in respect of the Loan Documents that constitute interest
under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the
Maximum Rate shall take effect without notice to the Borrower at the
time of such change in the Maximum Rate.
"Mortgaged Properties" means all right, title and interest of
Borrower and its Restricted Subsidiaries in and to (i) the Oil and Gas
Properties identified on Schedule 1.1(a) hereof and such other Oil and
Gas Properties as may from time to time become subject to the Lien of
any Security Document; and (ii) the Gas Gathering Systems and such
other assets and properties as may from time to time become subject to
the Lien of any Security Document.
"Multi-employer Plan" means a Multi-employer plan defined as
such in Section 3(37) of ERISA to which contributions have been made
by the Borrower or any ERISA Affiliate and which is covered by Title
IV of ERISA.
"NGTS" means Natural Gas Transmission Services, Inc.
"Net Cash Proceeds" means in connection with (a) any issuance
by the Borrower or any of its Restricted Subsidiaries of any Debt,
equity or debt securities or instruments, (b) the incurrence of other
loans other than as permitted by Section 10.1 or (c) the disposition
of any assets permitted by Section 10.8, the cash proceeds received
from such issuance or sale, as applicable, net of all reasonable
investment banking fees, legal fees, accountants' fees, underwriting
discounts and commissions and other customary fees and expenses,
actually incurred and satisfactorily documented in connection
therewith.
"New Properties" shall have the meaning specified in
subsection 4.5(d) hereof.
"1996 Series A Preferred Stock" means the one million shares
of the Borrower's 1996 Series A Convertible Preferred Stock, $.001 par
value per share and a $10.00 stated value per share with a quarterly
rate of $.21875 per share.
"Note" means a promissory note of the Borrower payable to the
order of a Bank, in substantially the form of Exhibit "A" hereto, and
all extensions, renewals, and modifications thereof and all
substitutions therefor.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 15
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"Obligated Party" means any Person who is or becomes party to
any agreement that guarantees or secures payment and performance of
the Obligations or any part thereof.
"Obligations" means all (a) Swap Obligations, and (b)
obligations, indebtedness, and liabilities of the Borrower to the
Agents, the Issuing Banks and the Banks, or any of them, arising
pursuant to any of the Loan Documents, now existing or hereafter
arising, whether direct, indirect, related, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several,
including, without limitation, the obligations, indebtedness, and
liabilities of the Borrower under this Agreement and the other Loan
Documents (including, without limitation, all of Borrower's contingent
reimbursement obligations in respect of Letters of Credit but limited
as provided in the preceding parenthetical clause), and all interest
accruing thereon and all attorneys' fees and other expenses incurred
in the enforcement or collection thereof.
"Oil and Gas Properties" means and includes, collectively, (a)
all Hydrocarbons prior to severance, and all leases, licenses and
other contracts or arrangements granting interests in Hydrocarbons or
proceeds of Hydrocarbons prior to severance, including without
limitation all fee mineral interests, oil, gas and other minerals,
leases, subleases, farmouts, royalties, overriding royalties, net
profits interests, production payments and similar mineral interests,
and all unsevered oil, gas, and other minerals in, under or
attributable to any of the foregoing properties and interests, (b) all
leases, licenses and other contracts or arrangements granting rights
to explore for Hydrocarbons on or under partially or completely
undeveloped acreage, and (c) all oil wells, gas wells, injection wells
and other wells and all production therefrom.
"Operating Lease" means any lease (other than a lease
constituting a Capital Lease Obligation) of real or personal property.
"Original Closing Date" means the date on which the closing of
the loan transactions contemplated by the Original Credit Agreement
occurred.
"Original Credit Agreement" is defined in the recitals hereto.
"Payment Notice" means a request for payment given pursuant to
Section 4.5 hereof.
"Payor" has the meaning assigned to it in Section 4.8.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
"Permitted Debt" has the meaning specified in Section 10.1.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 16
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"Permitted Investment in Marketing LLC" means an investment by
the Borrower in Marketing LLC, in an amount not to exceed $4,500,000,
which investment consists of (a) approximately $2,500,000 in cash and
(b) the Marketing Note.
"Permitted Liens" has the meaning specified in Section 10.2.
"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, Governmental
Authority, or other entity.
"Plan" means any employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and which is covered
by Title IV of ERISA.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Administrative Agent as
its prime rate in effect at its Principal Office which may or not be
the lowest or best rate offered by the Administrative Agent to its
customers.
"Principal Office" means the principal office of the
Administrative Agent, presently located at One Bankers Trust Plaza,
130 Liberty Street, New York, New York 10006.
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.
"Property" means all real estate and other tangible and
intangible property.
"Quarterly Payment Date" means the last day of each March,
June, September and December of each year, the first of which shall be
June 30, 1998.
"Reference Bank" means Bankers Trust.
"Register" has the meaning assigned to it in Section 14.7(d).
"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System as the same may be amended or supplemented
from time to time.
"Regulatory Change" means, with respect to any Bank, any
change after the date of this Agreement in United States federal,
state, or foreign laws or regulations (including Regulation D) or the
adoption or making after such date of any interpretations, directives,
or requests applying to a class of banks including such Bank of or
under any United States federal or state, or any foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
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"Release" means, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal,
disbursement, leaching, or migration of Hazardous Materials into the
indoor or outdoor environment or into or out of property owned by such
Person, including, without limitation, the movement of Hazardous
Materials through or in the air, soil, surface water, ground water, or
property.
"Remedial Action" means all actions required to (a) clean up,
remove, treat, or otherwise address Hazardous Materials in the indoor
or outdoor environment, (b) prevent the Release or threat of Release
or minimize the further Release of Hazardous Materials so that they do
not migrate or endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment, or (c) perform
pre-remedial studies and investigations and post-remedial monitoring
and care.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"Required Banks" means at any time while no Loans or Letter of
Credit Liabilities are outstanding, Banks having at least 66-2/3% of
the aggregate amount of the Commitments and, at any time while Loans
or Letter of Credit Liabilities are outstanding, Banks holding at
least 66-2/3% of the outstanding aggregate principal amount of the
Loans and LC Participations.
"Required Payment" has the meaning assigned to it in Section
4.8.
"Reserve Requirement" means, for any Eurodollar Loan for any
Interest Period therefor, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation
D by member banks of the Federal Reserve System in New York City with
deposits exceeding $1,000,000,000 against "Eurocurrency Liabilities"
as such term is used in Regulation D. Without limiting the effect of
the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by such member banks by reason of
any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the Adjusted Eurodollar Rate
is to be determined, or (ii) any category of extensions of credit or
other assets which include Eurodollar Loans.
"Restricted Subsidiary" means each Subsidiary other than the
Unrestricted Subsidiaries.
"RICO" means the Racketeer Influenced and Corrupt Organization
Act of 1970, as amended from time to time.
"Security Documents" means all mortgages, deeds of trust,
security agreements, guaranties, assignments of production and
financing statements or such other instruments
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securing or ensuring payment and performance of the Obligations or any
part thereof, as the same may be amended, supplemented, or modified
from time to time.
"Senior Unsecured Debt" means up to $140,000,000 of senior
unsecured Debt issued by the Borrower pursuant to the terms of the
Indenture upon the terms and conditions set forth therein.
"Subsidiary" means any corporation, partnership, joint
venture, business trust or other legal entity in which the Borrower,
either directly or indirectly through one or more intermediaries, owns
or holds beneficial or record ownership of a majority of the
outstanding voting securities or equity interests therein.
"Subsidiary Guaranty Agreement" means the Second Amended and
Restated Guaranty Agreement of the Restricted Subsidiaries in favor of
the Collateral Agent for the benefit of itself, the other Agents, the
Banks and the Issuing Banks, in substantially the form of Exhibit "F"
hereto, as the same may be amended, supplemented, or modified.
"Subsidiary Pledge Agreement" means the Second Amended and
Restated Pledge Agreement of the Restricted Subsidiaries in favor of
the Collateral Agent for the benefit of itself, the other Agents, the
Banks and the Issuing Banks, in substantially the form of Exhibit "E"
hereto, as the same may be amended, supplemented, or modified.
"Swap Obligations" shall mean, with respect to any Person, (a)
all liabilities of such Person under interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and
all other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or currency exchange rates, and
(b) all liabilities of such Person under commodity hedge, commodity
swap, exchange, forward, future, collar or cap agreements, fixed price
agreements and all other agreements or arrangements designed to
protect such Person against fluctuations in commodity prices.
"Termination Date" means 12:00 P.M. New York, New York time on
April 30, 2003, or such earlier date and time on which the Commitments
terminate as provided in this Agreement.
"Trade Guarantees" means Contingent Liabilities in lieu of
letters of credit issued on behalf of the Marketing LLC and for which
the Borrower or one of its Subsidiaries are severally, or jointly and
severally with one or more other Persons, or both, liable, which Trade
Guarantees shall not exceed an aggregate of $25,000,000. Joint and
several Trade Guarantees shall be subject to written indemnification
agreements, in form and substance and from Persons satisfactory to the
Agents, in their sole discretion, the effect of which shall be to
reduce the liability of the Borrower to not more than a percentage of
the joint and several guarantee equal to the Borrower's then current
ownership interest in Marketing LLC. Trade Guarantees will be treated
as Debt solely for the purpose of computing the Borrower's
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Debt to Capitalization Ratio only to the extent such Trade Guarantees
exceed $15,000,000, and solely for purposes of computing the
Borrower's Debt to Capitalization Ratio under Section 11.3 hereof, the
amount of joint and several Trade Guarantees that are characterized as
Debt in calculating such ratio shall be reduced by giving effect to
the aforementioned written indemnification agreements. Notwithstanding
the foregoing, the Majority Banks shall at all times reserve the right
to include the entire amount of joint and several Trade Guarantees, or
any portion thereof, as Debt in computing the ratio, based on such
factors as the Majority Banks may from time to time deem material, in
their discretion; provided, however, that an Agent on behalf of the
Majority Banks must give the Borrower written notice at least 90 days
prior to the end of a fiscal quarter in order for any amount of joint
and several Trade Guarantees in excess of the Borrower's and its
Subsidiaries' ratable share of such joint and several Trade Guarantees
to be included as Debt in computing the Borrower's Debt to
Capitalization Ratio for such fiscal quarter.
"Type" means any type of Loan (i.e., Base Rate Loan or
Eurodollar Loan).
"UCC" means the Uniform Commercial Code as in effect in the
State of New York.
"Unrestricted Subsidiaries" means (a) Hunter Butcher
International Limited Liability Company and (b) any future Subsidiary
formed or acquired by the Borrower that is designated by the board of
directors of the Borrower as an Unrestricted Subsidiary; provided,
however, that no Subsidiary shall be designated as an Unrestricted
Subsidiary if (i) a Default or Event of Default has occurred and is
continuing, (ii) such Subsidiary's assets are pledged to the Agent and
the Banks under this Agreement or any other Loan Document, (iii) such
Subsidiary's Oil and Gas Properties are included in the calculation of
the Borrowing Base, (iv) the creation or formation of such Subsidiary
would not otherwise be permitted under Section 10.3 or 10.5 hereof, or
(v) the creation, existence, or formation of such Subsidiary would not
be permitted under any other material contract or agreement to which
the Borrower is a party.
"Unused Availability" means an amount equal to the difference
between the Borrowing Base and (a) outstanding Loans, plus (b)
outstanding Letter of Credit Liabilities.
Section 1.2 Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof," "herein," and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP. Terms used herein that are defined in the UCC, unless
otherwise defined herein, shall have the meanings specified in the UCC.
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ARTICLE II
Loans
Section 2.1 Commitments. Subject to the terms and conditions of this
Agreement, each Bank severally agrees to make one or more Loans to the Borrower
from time to time from the date hereof to and including the Termination Date in
an aggregate principal amount at any time outstanding up to but not exceeding
the amount of such Bank's Commitment as then in effect, provided that the
aggregate amount of all Loans at any time outstanding shall not exceed the
lesser of (i) the aggregate amount of the Commitments minus the outstanding
Letter of Credit Liabilities or (ii) the Borrowing Base (as reduced from time to
time pursuant to the terms of this Agreement) minus the outstanding Letter of
Credit Liabilities. Subject to the foregoing limitations, and the other terms
and provisions of this Agreement, the Borrower may borrow, repay, and reborrow
hereunder the amount of the Commitments by means of Base Rate Loans and
Eurodollar Loans and, until the Termination Date, the Borrower may Convert Loans
of one Type into Loans of another Type. Loans of each Type made by each Bank
shall be made and maintained at such Bank's Applicable Lending Office for Loans
of such Type.
Section 2.2 Notes. The obligation of the Borrower to repay each Bank
for Loans made by such Bank and interest thereon shall be evidenced by a Note
executed by the Borrower, payable to the order of such Bank, in the principal
amount of such Bank's Commitment, and dated the date hereof or such later date
as may be required with respect to transactions contemplated by Section 14.8.
Section 2.3 Repayment of Loans. The Borrower shall repay the unpaid
principal amount of all Loans on the Termination Date.
Section 2.4 Interest. The unpaid principal amount of the Loans shall
bear interest at a varying rate per annum equal from day to day to the lesser of
(a) the Maximum Rate, or (b) the Applicable Rate. If at any time the Applicable
Rate for any Loan shall exceed the Maximum Rate, thereby causing the interest
accruing on such Loan to be limited to the Maximum Rate, then any subsequent
reduction in the Applicable Rate for such Loan shall not reduce the rate of
interest on such Loan below the Maximum Rate until the aggregate amount of
interest accrued on such Loan equals the aggregate amount of interest which
would have accrued on such Loan if the Applicable Rate had at all times been in
effect. Accrued and unpaid interest on the Loans shall be due and payable as
follows:
(i) in the case of Base Rate Loans, on each Quarterly Payment
Date and on the Termination Date;
(ii) in the case of each Eurodollar Loan, on the last day of
the Interest Period with respect thereto or in the case of any
Interest Period that exceeds three months, on the last day of each
third month during such Interest Period;
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(iii) upon the payment or prepayment of any Loan or the
Conversion of any Loan to a Loan of another Type (but only on the
principal amount so paid, prepaid, or Converted); and
(iv) on the Termination Date.
Notwithstanding the foregoing, any outstanding principal of any Loan and (to the
fullest extent permitted by law) any other amount payable by the Borrower under
this Agreement or any other Loan Document that is not paid in full when due
(whether at stated maturity, by acceleration, or otherwise) shall bear interest
at the Default Rate for the period from and including the due date thereof to
but excluding the date the same is paid in full. Interest payable at the Default
Rate shall be payable from time to time on demand.
Section 2.5 Use of Proceeds. The proceeds of Loans shall be used by
the Borrower to develop property, to support working capital and for general
corporate purposes.
Section 2.6 Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Bank a commitment fee equal to the
actual daily unused portion of the amount available under such Bank's
Commitment, multiplied by the percentage set forth in the following grid and
determined to be the applicable percentage pursuant to the Borrowing Percentage
(which percentage shall change as and when the Borrowing Percentage changes) for
the period from and including the date of this Agreement to and including the
Termination Date:
Borrowing Percentage Applicable Commitment Fee Percentage
Greater than or equal to 50% .375%
Less than 50% .250%
The commitment fee shall be calculated based on a 360 day year and the actual
number of days elapsed. The accrued commitment fee shall be payable in arrears
on each Quarterly Payment Date and on the Termination Date.
Section 2.7 Reduction or Termination of Commitments. The Borrower
shall have the right to terminate in whole or reduce in part the available
Borrowing Base or the unused portion of the Commitments upon at least three
Business Days' prior notice (which notice shall be irrevocable) to the
Administrative Agent specifying the effective date thereof, whether a
termination or reduction is being made, and the amount of any partial reduction,
provided, however, the Commitment shall never be reduced below an amount equal
to the outstanding Letter of Credit Liabilities. Each partial reduction shall be
in the amount of $1,000,000 and in integral multiples of $500,000 and the
Borrower shall simultaneously prepay the amount by which the unpaid principal
amount of the Loans plus the outstanding Letter of Credit Liabilities exceeds
the lesser of (i) an amount equal to the Borrowing Base, or (ii) the Commitments
(after giving effect to such notice). Accrued and
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unpaid interest on the principal amount so prepaid will be due concurrently with
any such prepayment. The Borrowing Base and/or the Commitments may not be
reinstated after they have been terminated or reduced.
Section 2.8 Borrowing Base.
(a) The Borrowing Base shall be cumulative of all other
limitations contained in this Agreement and the other Loan Documents.
The initial Borrowing Base shall be $65,000,000 and shall be
redetermined from time to time as provided herein. In addition, the
Borrowing Base shall be redetermined semiannually as provided below.
Upon delivery of the engineering reserve evaluation reports required
by subsection 9.1(j) (collectively, the "Engineering Reports") and
such other reports, data and supplemental information as may, from
time to time, be reasonably requested by the Administrative Agent and
the Banks, together with a certificate from the chief financial
officer or chief accounting officer of Borrower that, to the best of
such officer's Knowledge, (A) the factual information upon which such
Engineering Reports are based is true and correct, (B) the certificate
identifies the Properties covered by the Engineering Reports that have
not been previously included in any prior Engineering Report, and (c)
no Mortgaged Properties have been sold since the last Determination
Date, on each Determination Date or on such other date as otherwise
permitted hereunder, the Administrative Agent shall redetermine the
Borrowing Base in accordance with its customary practices and
standards for loans secured by similar types of property. Within 30
days of its receipt of the Engineering Reports, the Administrative
Agent shall provide such redetermined Borrowing Base in writing to the
Banks. Within ten days after their receipt of such information, the
Banks shall give the Administrative Agent written notice of whether
the Banks approve of the Administrative Agent's proposed Borrowing
Base. For any redetermination of the Borrowing Base that results in an
increase of the Borrowing Base, approval of all of the Banks shall be
required. For any other redeterminations of the Borrowing Base,
approval of the Majority Banks shall be required. The Borrowing Base
established pursuant to this subsection 2.8(a) shall be effective as
of the date the Borrower is notified in writing by the Administrative
Agent of the requisite Bank approval. In the event that any Bank does
not approve a proposed redetermination of the Borrowing Base, but the
Required Banks do (each non-approving Bank in such case is hereinafter
referred to as a "Dissenting Bank"), the Banks agree to maintain the
Borrowing Base in effect immediately prior to the delivery of the most
recent Engineering Reports until the earlier of: (a) the date on which
the Borrower shall notify the Administrative Agent in writing of its
willingness to accept the Borrowing Base as determined by the
Dissenting Bank(s), if applicable, (b) the date on which Eligible
Assignee or Assignees shall become party to this Agreement pursuant to
Section 2.8(c) or (c) in cases of proposed decreases but not increases
of the Borrowing Base, 75 days after the Borrower has been notified in
writing of Dissenting Bank(s) and neither of (a) or (b) above shall
have occurred. The new Borrowing Base shall be effective concurrently
with the earlier to occur of (a), (b) or, if applicable, (c) above and
shall remain in effect until it is subsequently redetermined pursuant
to this subsection 2.8(a) or subsection 2.8(b).
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(b) In addition to the determinations of the Borrowing Base
required pursuant to subsection 2.8(a), special determinations thereof
may be made for any reason (but not more than once between
Determination Dates) at the option of either (i) the Borrower or (ii)
Majority Banks. To request a special determination of the Borrowing
Base, the Person requesting such determination shall provide the Agent
and the Borrower with a written request of such determination. Any
such special determination of the Borrowing Base shall be made by the
Banks in consultation with one another using their customary standards
for oil and gas lending and shall be based upon the most recent
Engineering Reports delivered to the Banks by the Borrower and such
other reports and data as the Banks may reasonably request. The Agent
shall notify the Borrower of the redetermined Borrowing Base within 45
days of the Agent's receipt of the special determination request and
the redetermined Borrowing Base shall be effective upon such
notification. If the redetermination results in a decrease in the
Borrowing Base, the Borrower shall repay the Loans within six months
of such redetermination in six equal monthly installments, each in an
amount equal 1/6 of the Borrowing Base Deficiency.
(c) The Administrative Agent or the Borrower may, but shall
not be required to, replace any Dissenting Bank(s) with an Eligible
Assignee or Eligible Assignees within 75 days of the Borrower being
notified by the Administrative Agent of the Dissenting Bank(s). Upon
payment to the Dissenting Bank(s) of all of (its) (their) Loans and
execution and delivery by the Eligible Assignee or Assignees of an
Assignment and Acceptance, the Dissenting Bank(s) shall no longer be a
Bank hereunder or have any Commitment or obligations to the Borrower.
ARTICLE III
Letters of Credit
Section 3.1 Letters of Credit. Subject to the terms and conditions of
this Agreement, each Issuing Bank agrees to issue one or more Letters of Credit
for the account of the Borrower from time to time from the date hereof to and
including the date that is 30 days prior to the Termination Date; provided,
however, that the outstanding Letter of Credit Liabilities shall not at any time
exceed the lesser of (1) $20,000,000, (2) an amount equal to the aggregate
amount of the Commitments minus the sum of the outstanding Loans, or (3) the
Borrowing Base (as reduced from time to time) minus the sum of the outstanding
Loans. Each Letter of Credit may be issued for the account of or used by the
Borrower or any Restricted Subsidiary, shall have an expiration date not beyond
10 days prior to the Termination Date, shall be payable in Dollars, must be
satisfactory in form and substance to the applicable Issuing Bank, and shall be
issued pursuant to such documents and instruments as such Issuing Bank may
require (collectively, the "L/C Documents").
Section 3.2 Participation by Banks. By the issuance of any Letter of
Credit and without any further action on the part of the applicable Issuing Bank
or any of the Banks in respect thereof,
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each Issuing Bank hereby grants to each Bank and each Bank hereby irrevocably
agrees to acquire from each Issuing Bank a participation in each such Letter of
Credit and the related Letter of Credit Liabilities, effective upon the issuance
thereof without recourse or warranty, equal to such Bank's pro rata part (based
on the aggregate Commitments) of such Letter of Credit and Letter of Credit
Liabilities. Each Issuing Bank shall provide a copy of each Letter of Credit to
each other Bank promptly after issuance. This agreement to grant and acquire
participations is an agreement between each Issuing Bank and the Banks, and
neither Borrower nor any beneficiary of a Letter of Credit shall be entitled to
rely thereon. Borrower agrees that each Bank purchasing a participation from any
Issuing Bank pursuant to this Section 3.2 may exercise all its rights to payment
against Borrower including the right of setoff, with respect to such
participation as fully as if such Bank were the direct creditor of Borrower in
the amount of such participation.
Section 3.3 Procedure for Issuing Letters of Credit. Each Letter of
Credit shall be issued on at least three Business Days prior notice from the
Borrower to the applicable Issuing Bank (with a copy to the Agent) by means of a
Letter of Credit Request Form in the form of Exhibit C hereto describing the
transaction proposed to be supported thereby and specifying (a) the requested
date of issuance (which shall be a Business Day), (b) the face amount of the
Letter of Credit, (c) the expiration date of the Letter of Credit, (d) the name
and address of the beneficiary and the account party, and (e) the form of the
draft and any other documents required to be presented at the time of any
drawing (such notice to set forth the exact wording of such documents or to
attach copies thereof). Upon fulfillment of the applicable conditions precedent
contained in Article VII, such Issuing Bank shall make the applicable Letter of
Credit available to Borrower or, if so requested by Borrower, to the beneficiary
of the Letter of Credit.
Section 3.4 Reimbursements; Payments Constitute Loans. Each payment by
an Issuing Bank pursuant to a drawing under a Letter of Credit shall constitute
and be deemed a Base Rate Loan by each Bank to the Borrower under such Bank's
Note and this Agreement as of the day and time such payment is made by such
Issuing Bank and in the amount of such Bank's pro rata share of such payment;
provided, however, if the applicable conditions precedent contained in Section
7.2 are not satisfied on the date such payment is made, the Borrower shall pay
to the Administrative Agent for the account of the Issuing Bank, prior to 12:00
Noon, New York, New York time on the Business Day immediately following the date
such payment is made by the Issuing Bank, the amount of such payment, together
with interest thereon at the Base Rate plus the Applicable Margin from the date
such payment is made by the Issuing Bank. If the Borrower fails to reimburse the
Issuing Bank for such drawing prior to 12:00 Noon, New York, New York time on
the Business Day following the date such payment is made by the Issuing Bank,
such amount shall bear interest at the Default Rate for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Promptly on the Business Day immediately following the date each payment
is made by an Issuing Bank pursuant to a drawing under a Letter of Credit and
after receipt of notice from the Issuing Bank of the Borrower's failure to
reimburse the Issuing Bank for such payment and the amount of such payment, each
Bank will make available to the Administrative Agent for the account of the
Issuing Bank at the Principal Office in immediately available funds, such Bank's
pro rata share of such payment. Each Bank hereby agrees that its obligation to
participate in each Letter of Credit,
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and to pay or to reimburse the Issuing Bank for its participating share of the
drafts drawn or amounts otherwise paid thereunder, is absolute, irrevocable and
unconditional and shall not be affected by any circumstances whatsoever
(including, without limitation, the occurrence or continuance of any Default or
Event of Default), and that each such payment shall be made without offset,
abatement, withholding or other reduction whatsoever.
Section 3.5 Letter of Credit Fees. The Borrower shall pay to the
Administrative Agent for the account of the Banks (to be shared ratably) a
nonrefundable Letter of Credit fee, payable quarterly in arrears on each
Quarterly Payment Date, in an amount equal to the greater of (i) 1% per annum of
the face amount of such Letter of Credit, for the period during which such
Letter of Credit remains outstanding, based on a 360 day year, as applicable,
and the actual number of days elapsed, or (ii) $350. The Borrower shall pay to
the Issuing Bank for its own account a nonrefundable Letter of Credit fee,
payable quarterly in arrears, in an amount equal to the lesser of (i) $500 or
(ii) 0.05% per annum of the face amount of such Letter of Credit, for the period
during which such Letter of Credit remains outstanding, based on a 360 day year,
as applicable, and the actual number of days elapsed. In addition to the
foregoing fees, the Borrower shall pay or reimburse the applicable Issuing Bank
for such normal and customary costs and expenses as are incurred by such Issuing
Bank in issuing, effecting payment under, transferring, amending or otherwise
administering any Letter of Credit.
Section 3.6 Obligations Absolute. The obligations of the Borrower
under this Agreement and the other Loan Documents (including without limitation
the obligation of the Borrower to reimburse the Issuing Bank for draws under any
Letter of Credit) shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement and the
other Loan Documents under all circumstances whatsoever, including without
limitation the following circumstances:
(a) Any lack of validity or enforceability of any Letter of
Credit or any other Loan Document;
(b) Any amendment or waiver of or any consent to departure
from any Loan Document;
(c) The existence of any claim, set-off, counterclaim, defense
or other rights which the Borrower, any Obligated Party, or any other
Person may have at any time against any beneficiary of any Letter of
Credit, the Issuing Bank, or any other Person, whether in connection
with this Agreement or any other Loan Document or any unrelated
transaction;
(d) Any statement, draft, or other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
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(e) Payment by the Issuing Bank under any Letter of Credit
against presentation of a draft or other document which does not
substantially comply with the terms of such Letter of Credit; or
(f) Any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Notwithstanding anything to the contrary in this Agreement, the
Borrower shall not be obligated to reimburse the Issuing Bank for any wrongful
payment or disbursement made by the Issuing Bank under the Letter of Credit as a
result of acts or omissions constituting gross negligence or willful misconduct,
as determined by a court of competent jurisdiction, on the part of the Issuing
Bank or any of its officers, directors, employees or agents.
Section 3.7 Limitation of Liability. The Borrower assumes all risks of
the acts or omissions of any beneficiary of any Letter of Credit with respect to
its use of such Letter of Credit. Neither the Issuing Bank, any Agent, any Bank
nor any of their officers or directors shall have any responsibility or
liability to the Borrower or any other Person for: (a) the failure of any draft
to bear any reference or adequate reference to any Letter of Credit, or the
failure of any documents to accompany any draft, or the failure of any Person to
surrender or to take up any Letter of Credit or to send documents apart from
drafts as required by the terms of any Letter of Credit, or the failure of any
Person to note the amount of any instrument on any Letter of Credit, each of
which requirements, if contained in any Letter of Credit itself, it is agreed
may be waived by the Issuing Bank, (b) errors, omissions, interruptions, or
delays in transmission or delivery of any messages, (c) the validity,
sufficiency, or genuineness of any draft or other document, or any
endorsement(s) thereon, even if any such draft, document or endorsement should
in fact prove to be in any and all respects invalid, insufficient, fraudulent,
or forged or any statement therein is untrue or inaccurate in any respect, (d)
the payment by the Issuing Bank to the beneficiary of any Letter of Credit
against presentation of any draft or other document that does not comply with
the terms of the Letter of Credit, or (e) any other circumstance whatsoever in
making or failing to make any payment under a Letter of Credit. The Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 3.8 Letter of Credit Documents. Certain additional provisions
regarding the obligations, liabilities, rights, remedies and agreements of the
Borrower and the Issuing Bank relative to the Letters of Credit shall be set
forth in the L/C Documents.
Section 3.9 Replacement of the Issuing Bank. Borrower may, with the
approval of Required Banks, appoint a successor Issuing Bank hereunder upon the
condition precedent that such successor Issuing Bank shall become a party to
this Agreement and expressly agree to be bound by the terms and conditions
contained in this Agreement pertaining to the Issuing Bank. Upon the appointment
of a successor Issuing Bank, the Issuing Bank replaced by such successor Issuing
Bank shall cease to issue Letters of Credit but shall continue to carry out its
obligations hereunder and
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shall continue to have the benefit of this Agreement and the other Loan
Documents with respect to the outstanding Letters of Credit issued by it until
all such Letters of Credit have expired and any drawings thereunder have been
reimbursed in full.
ARTICLE IV
Borrowing Procedure; Payments
Section 4.1 Borrowing Procedure. The Borrower shall give the
Administrative Agent notice by means of a Loan Request Form of each requested
Loan at least one Business Day before the requested date of each Base Rate Loan
and at least three Business Days before the requested date of each Eurodollar
Loan, specifying: (a) the requested date of such Loan (which shall be a Business
Day), (b) the amount of such Loan, (c) the Type of the Loan, and (d) in the case
of a Eurodollar Loan, the duration of the Interest Period for such Loan. The
Administrative Agent at its option may accept telephonic requests for Loans,
provided that such acceptance shall not constitute a waiver of the
Administrative Agent's right to delivery of a Loan Request Form in connection
with subsequent Loans. Any telephonic request for a Loan by the Borrower shall
be promptly confirmed by submission of a properly completed Loan Request Form to
the Agent. Each Loan shall be in a minimum principal amount of the lesser of (i)
the unused amount of the Commitment or (ii) $500,000 and in integral multiples
of $100,000. The aggregate principal amount of Eurodollar Loans having the same
Interest Period shall be at least equal to $500,000. The Administrative Agent
shall notify each Bank of the contents of each such notice. Not later than 12:00
Noon, New York, New York time on the date specified for each Loan hereunder,
each Bank will make available to the Administrative Agent at the Principal
Office in immediately available funds, for the account of the Borrower, its pro
rata share of each Loan. After the Administrative Agent's receipt of such funds
and subject to the other terms and conditions of this Agreement, the
Administrative Agent will make each Loan available to the Borrower by either
depositing the same, in immediately available funds, in an account of the
Borrower (designated by the Borrower) maintained with the Administrative Agent
at the Principal Office or wiring the funds to an account as designated by the
Borrower in writing. All notices under this Section shall be irrevocable and
shall be given not later than 12:00 Noon, New York, New York, time on the day
which is not less than the number of Business Days specified above for such
notice.
Section 4.2 Conversions and Continuations. The Borrower shall have the
right from time to time to Convert all or part of a Loan of one Type into a Loan
of another Type or to Continue Eurodollar Loans as Eurodollar Loans by giving
the Administrative Agent written notice at least three Business Days before
Conversion into a Base Rate Loan and at least three Business Days before
Conversion into or Continuation of a Eurodollar Loan, specifying: (a) the
Conversion or Continuation date, (b) the amount of the Loan to be Converted or
Continued, (c) in the case of Conversions, the Type of Loan to be Converted
into, and (d) in the case of a Continuation of or Conversion into a Eurodollar
Loan, the duration of the Interest Period applicable thereto; provided that (i)
Eurodollar Loans may only be Converted on the last day of the Interest
Period,(ii) except for Conversions into Base Rate Loans, no Conversions for
interest periods in excess of three months
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shall be made while a Default has occurred and is continuing, and (iii) except
for Conversions into Base Rate Loans, no Conversions shall be made while an
Event of Default has occurred and is continuing. The Administrative Agent shall
promptly notify each Bank of the contents of each such notice. All notices under
this Section shall be irrevocable and shall be given not later than 12:00 P.M.
New York, New York time on the day which is not less than the number of Business
Days specified above for such notice. If the Borrower shall fail to give the
Administrative Agent the notice as specified above for Continuation or
Conversion of a Eurodollar Loan prior to the end of the Interest Period with
respect thereto, such Eurodollar Loan shall be Converted automatically into a
one-month Eurodollar Loan, on the last day of the then current Interest Period
for such Eurodollar Loan.
Section 4.3 Method of Payment. All payments of principal, interest,
and other amounts to be made by the Borrower under this Agreement and the other
Loan Documents shall be made to the Administrative Agent at the Principal Office
for the account of each Bank's Applicable Lending Office in Dollars and in
immediately available funds, without setoff, deduction, or counterclaim, not
later than 12:00 Noon, New York, New York time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). The Borrower
shall, at the time of making each such payment, specify to the Administrative
Agent the sums payable by the Borrower under this Agreement and the other Loan
Documents to which such payment is to be applied (and in the event that the
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Administrative Agent may apply such payment to the Obligations
in such order and manner as it may elect in its sole discretion, subject to
Section 4.6 hereof). Each payment received by the Administrative Agent under
this Agreement or any other Loan Document for the account of a Bank shall be
paid promptly to such Bank, in immediately available funds, for the account of
such Bank's Applicable Lending Office. Whenever any payment under this Agreement
or any other Loan Document shall be stated to be due on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of the
payment of interest and commitment fee, as the case may be.
Section 4.4 Voluntary Prepayment. The Borrower may, upon at least one
Business Day's prior notice to the Administrative Agent in the case of Base Rate
Loans and Eurodollar Loans, prepay the Loans in whole at any time or from time
to time in part without premium or penalty (except as set forth in Section 5.5)
but with accrued interest to the date of prepayment on the amount so prepaid,
provided that (a) the Borrower shall be liable for any compensation due under
Section 5.5 with respect to Eurodollar Loans which are not prepaid on the last
day of the Interest Period applicable to such Loans and (b) each partial
prepayment shall be in the principal amount of $500,000 and in integral
multiples of $100,000. All notices under this Section 4.4 shall be irrevocable
and shall be given not later than 12:00 Noon, New York, New York, time on the
day which is not less than one Business Day prior to such prepayment.
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Section 4.5 Mandatory Prepayment or Addition of Collateral.
(a) If at any time a Borrowing Base Deficiency exists, the
Administrative Agent shall send the Borrower a Payment Notice and the
Borrower shall immediately (except in the case of a redetermination of
the Borrowing Base pursuant to Section 2.8(b)) prepay the outstanding
Loans by the amount of the Borrowing Base Deficiency, plus accrued and
unpaid interest on the amount so prepaid in accordance with this
Section 4.5 unless Borrower exercises the option to increase the
Collateral as provided by Section 4.6. If within 30 days of the date
Borrower receives a Payment Notice the Borrower has not prepaid the
Loans by the amount of the Borrowing Base Deficiency or complied with
Section 4.6 hereof, the amount of the Borrowing Base Deficiency shall
be due and payable in six monthly installments, each in the amount of
one-sixth of the principal amount of the Borrowing Base Deficiency,
plus accrued and unpaid interest thereon, with the first such
installment being due and payable immediately (and in any event,
within 33 days after Borrower received the Payment Notice). During any
period of time in which a Borrowing Base Deficiency has occurred and
is continuing, the Obligations shall bear interest at the Borrowing
Base Deficiency Rate.
(b) After a Borrowing Base has been determined, upon the sale
by the Borrower of any Mortgaged Property (other than the sale of
Hydrocarbons after severance in the ordinary course of business), the
Borrowing Base shall be reduced, effective on the date of consummation
of such sale, by an amount which the Borrower certifies in writing to
the Banks is the Borrowing Base value last assigned to such Mortgaged
Property according to the most recent Engineering Reports delivered to
the Banks; provided, however, that if the Majority Banks, for any
reason, disagree with the proposed Borrowing Base value certified by
the Borrower, then the Majority Banks shall determine, which
determination shall be conclusive absent manifest error, the Borrowing
Base value last assigned to such Mortgaged Property according to the
most recent Engineering Reports delivered to the Banks; provided,
further, that no such reduction to the Borrowing Base shall be
required if the aggregate net sales proceeds of all sales of Mortgaged
Property occurring since the last Determination Date do not exceed
$2,000,000, and provided further, that all such sales shall be subject
to the provisions of Section 10.8. The net proceeds received from the
sale of such Mortgaged Property shall on the first Business Day after
receipt, be applied, to the extent that the sale of any such Mortgaged
Property causes a Borrowing Base Deficiency to exist, to the
outstanding Loans in an amount required to eliminate the Borrowing
Base Deficiency. So long as no Event of Default has occurred and is
continuing, any remaining proceeds may be retained by the Borrower.
(c) If the Borrower shall make any disposition of assets
(other than dispositions of Hydrocarbons in the ordinary course of
business) permitted by Section 10.8, then 100% of the Net Cash
Proceeds received from such disposition shall on the first Business
Day after receipt, be applied to the outstanding Loans; provided,
however, that if no Borrowing Base
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Deficiency shall exist as a result of such disposition and no Event of
Default has occurred and is continuing, the Borrower may retain such
funds.
(d) Within ten days after Borrower has received a Payment
Notice, Borrower shall make a prepayment of principal on the Notes
equal to the amount by which the outstanding principal balance of the
Loans exceeds the Borrowing Base as of such date; provided, however,
that if the Payment Notice and demand for payment is made in
connection with a semi-annual redetermination of the Borrowing Base,
no payment of the amount specified above shall be due if Borrower has
notified Administrative Agent in writing (within three days after
Borrower has received the Payment Notice) of Borrower's election to
comply with Section 4.6 hereof and has provided the Administrative
Agent with complete descriptions of the Oil and Gas Properties or
other properties or interests ("New Properties") which Borrower shall
add or cause to be added to the Collateral and subject to Liens in
favor of the Administrative Agent for purposes of Section 4.6 hereof.
(e) If the Senior Unsecured Debt shall at any time become due
and payable prior to its stated maturity as a result of a Change in
Control, then, at the option of the Required Banks, the Commitments
shall be canceled and the Borrower shall immediately prepay the
outstanding Loans in full, together with accrued interest to the date
of such prepayment.
Section 4.6 Borrower's Option to Increase Collateral. Within ten days
after the date on which the Administrative Agent receives notice of Borrower's
election to comply with this Section 4.6 in order to avoid a prepayment of
amounts required pursuant to Section 4.5 hereof, Borrower shall grant to the
Collateral Agent for the benefit of itself, the Agents, the Issuing Banks and
the Banks, valid, enforceable, perfected, first priority liens in the New
Properties, subject to Security Documents and accompanied by title opinions
and/or other evidence of title, each of which shall be in form and substance
satisfactory to the Collateral Agent and the Banks. In addition, Borrower shall
deliver to the Collateral Agent upon request, such other information, data, and
reports describing the New Properties and the reserves and production related
thereto, as the Collateral Agent and the Banks shall reasonably request. Within
a reasonable period of time after the date on which the Administrative Agent
receives notice of Borrower's election hereunder, the Banks shall redetermine
(as of the immediately preceding Determination Date) and notify Borrower of the
Borrowing Base determined as if the New Properties were part of the Collateral
as of such Determination Date. Within ten Business Days after receipt of such
notice, Borrower shall make a prepayment of principal on the Loans equal to the
amount (if any) by which the outstanding principal balance of the Loans, as of
such Determination Date, exceeds the Borrowing Base as of such Determination
Date as determined by the Banks pursuant to this Section 4.6. No redetermination
to increase the Borrowing Base shall be effective until the Collateral Agent has
valid, perfected, enforceable first priority Liens on the New Properties that
are to be part of the Collateral.
Section 4.7 Pro Rata Treatment.Except to the extent otherwise provided
herein: (a) each Loan shall be made by the Banks under Section 2.1 or deemed
made by the Banks under Section 3.4,
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each payment of commitment fee under Section 2.6 and letter of credit fees under
Section 3.5 (other than the issuance fee payable to the Issuing Bank for its own
account) shall be made for the account of the Banks, and each termination or
reduction of the Commitments under Section 2.7 shall be applied to the
Commitments of the Banks, pro rata according to the respective unused
Commitments and each Letter of Credit shall be deemed participated in by the
Banks, pro rata according to the amounts of their respective Commitments; (b)
the making, Conversion, and Continuation of Loans of a particular Type (other
than Conversions provided for by Section 5.4) shall be made pro rata among the
Banks holding Loans of such Type according to the amounts of their respective
Commitments; (c) each payment and prepayment of principal of or interest on
Loans by the Borrower of a particular Type shall be made to the Administrative
Agent for the account of the Banks holding Loans of such Type pro rata in
accordance with the respective unpaid principal amounts of such Loans held by
such Banks; and (d) Interest Periods for Loans of a particular Type shall be
allocated among the Banks holding Loans of such Type pro rata according to the
respective principal amounts held by such Banks.
Section 4.8 Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Bank or the Borrower (the
"Payor") prior to the date on which such Bank is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent for the account of one
or more of the Banks, as the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Administrative Agent,
the Administrative Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient on such date and, if the
Payor has not in fact made the Required Payment to the Administrative Agent, the
recipient of such payment shall, on demand, pay to the Agent the amount made
available to it together with interest thereon in respect of the period
commencing on the date such amount was so made available by the Administrative
Agent until the date the Administrative Agent recovers such amount at a rate per
annum equal to the Federal Funds Rate for such period.
Section 4.9 Withholding Tax Exemption. Each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrower and the Administrative Agent two
duly completed copies of Form 1001 or 4224, certifying in either case that such
Bank is entitled to receive payments from the Borrower under any Loan Document
without deduction or withholding of any United States federal income taxes. Each
Bank which so delivers a Form 1001 or 4224 further undertakes to deliver to
Borrower and the Administrative Agent two additional copies of such form (or a
successor form) on or before the date such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the Administrative Agent, in
each case certifying that such Bank is entitled to receive payments from the
Borrower under any Loan Document without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 32
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would otherwise be required which renders all such forms inapplicable or which
would prevent such Bank from duly completing and delivering any such form with
respect to it and such Bank advises the Borrower and the Administrative Agent
that it is not capable of receiving such payments without any deduction or
withholding of United States federal income tax.
Section 4.10 Computation of Interest. Interest on the Eurodollar Loans
and letter of credit fees shall be computed on the basis of a year of 360 days
and the actual number of days elapsed (including the first day but excluding the
last day) unless such calculation would result in a usurious rate, in which case
interest shall be calculated on the basis of a year of 365 or 366 days, as the
case may be. Interest on Base Rate Loans and all other amounts payable by the
Borrower hereunder shall be computed on the basis of a year of 365 or 366 days,
as applicable, and the actual number of days elapsed (including the first day
but excluding the last day).
ARTICLE V
Yield Protection and Illegality
Section 5.1 Additional Costs.
(a) The Borrower shall pay directly to each Bank from time to
time such amounts as such Bank may determine to be necessary to
compensate it for any costs incurred by such Bank which such Bank
determines are attributable to its making or maintaining of any
Eurodollar Loans hereunder or its obligation to make any of such Loans
hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein
called "Additional Costs"), resulting from any Regulatory Change
which:
(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in
respect of any of such Loans (other than taxes imposed on the
overall net income of such Bank or its Applicable Lending
Office for any Eurodollar Loans by the jurisdiction in which
such Bank has its principal office or such Applicable Lending
Office);
(ii) imposes or modifies any reserve, special
deposit, minimum capital, capital ratio, or similar
requirement relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or
commitments of, such Bank (including any Eurodollar Loans or
any deposits referred to in the definition of "Eurodollar
Rate" in Section 1.1 hereof); or
(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.
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Each Bank will notify the Borrower of any event occurring after the
date of this Agreement which will entitle such Bank to compensation
pursuant to this Section 5.1(a) as promptly as practicable and in any
event, within 180 days, after it obtains knowledge thereof and
determines to request such compensation, and will designate a
different Applicable Lending Office for the Loans affected by such
event if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such
Bank, violate any law, rule, or regulation or be in any way
disadvantageous to such Bank, provided that such Bank shall have no
obligation to so designate an Applicable Lending Office located
outside the United States of America. Borrower shall not be obligated
to pay for any such amounts if such Bank does not notify the Borrower
that such additional amounts are owing within 180 days of the date
such Bank obtains knowledge thereof. Each Bank will furnish the
Borrower with a certificate setting forth the basis and the amount of
each request of such Bank for compensation under this Section 5.1(a).
If any Bank requests compensation from the Borrower under this Section
5.1(a), the Borrower may, by notice to such Bank (with a copy to the
Administrative Agent) suspend the obligation of such Bank to make or
Continue making, or Convert Loans into, Loans of the Type with respect
to which such compensation is requested until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the
provisions of Section 5.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of
this Section 5.1, in the event that, by reason of any Regulatory
Change that becomes effective after date hereof, any Bank either (i)
incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other
liabilities of such Bank which includes deposits by reference to which
the interest rate on Eurodollar Loans is determined as provided in
this Agreement or a category of extensions of credit or other assets
of such Bank which includes Eurodollar Loans or (ii) becomes subject
to restrictions on the amount of such a category of liabilities or
assets which it may hold, then, if such Bank so elects by notice to
the Borrower (with a copy to the Administrative Agent), the obligation
of such Bank to make or Continue making, or Convert Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory
Change ceases to be in effect (in which case the provisions of Section
5.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for purposes of
this Section 5.1 of the effect of any Regulatory Change on its costs
of maintaining its obligations to make Eurodollar Loans or of making
or maintaining Eurodollar Loans or on amounts receivable by it in
respect of Eurodollar Loans, and of the additional amounts required to
compensate such Bank in respect of any Additional Costs, shall be
conclusive, provided that such determinations and allocations are made
on a reasonable basis.
Section 5.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
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(a) The Administrative Agent determines (which determination
shall be conclusive) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate"
in Section 1.1 hereof cannot be provided in the relative amounts or
for the relative maturities for purposes of determining the rate of
interest for Eurodollar Loans as provided in this Agreement; or
(b) Required Banks determine (which determination shall be
conclusive) and notify the Administrative Agent that the relevant
rates of interest referred to in the definition of "Eurodollar Rate"
in Section 1.1 hereof on the basis of which the rate of interest for
such Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Banks of making or maintaining
Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof
specifying the relevant amounts or periods, and so long as such condition
remains in effect, the Banks shall be under no obligation to make additional
Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans and the
Borrower shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Eurodollar Loans, either prepay such Eurodollar Loans or Convert
such Eurodollar Loans into Base Rate Loans in accordance with the terms of this
Agreement. Once such limitations are no longer relevant, the Banks agree,
subject to the terms and conditions of this Agreement, to promptly make
Eurodollar Loans available to the Borrower.
Section 5.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to (a) honor its obligation to make Eurodollar Loans hereunder or
(b) maintain Eurodollar Loans hereunder, then such Bank shall promptly notify
the Borrower (with a copy to the Administrative Agent) thereof and such Bank's
obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such Bank
may again make and maintain Eurodollar Loans (in which case the provisions of
Section 5.4 hereof shall be applicable).
Section 5.4 Treatment of Eurodollar Loans. If the Eurodollar Loans of
any Bank are to be Converted pursuant to Section 5.1 or 5.3 hereof, such Bank's
Eurodollar Loans shall be automatically Converted into Base Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or,
in the case of a Conversion required by Section 5.1(b) or 6.3 hereof, on such
earlier date as such Bank may specify to the Borrower with a copy to the Agent)
and, unless and until such Bank gives notice as provided below that the
circumstances specified in Section 5.1 or 5.3 hereof which gave rise to such
Conversion no longer exist:
(a) To the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal which would
otherwise be applied to such Bank's Eurodollar Loans shall be applied
instead to its Base Rate Loans;
(b) All Loans which would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made as or Converted into Base
Rate Loans and all Loans of such
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Bank which would otherwise be Converted into Eurodollar Loans shall be
Converted instead into (or shall remain as) Base Rate Loans; and
If such Bank gives notice to the Borrower (with a copy to the Administrative
Agent) that the circumstances specified in Section 5.1 or 5.3 hereof which gave
rise to the Conversion of such Bank's Eurodollar Loans pursuant to this Section
5.4 no longer exist (which such Bank agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans are outstanding,
such Bank's Base Rate Loans shall be automatically Converted, on the first
day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar
Loans to the extent necessary so that, after giving effect thereto, all Loans
held by the Banks holding Eurodollar Loans and by such Bank are held pro rata
(as to principal amounts, Types, and Interest Periods) in accordance with their
respective Commitments.
Section 5.5 Compensation. The Borrower shall pay to the Administrative
Agent for the account of each Bank, upon the request of such Bank through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost, or expense
incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan
for any reason (including, without limitation, the acceleration of the
outstanding Loans pursuant to Section 12.2) on a date other than the
last day of an Interest Period for such Loan; or
(b) Any failure by the Borrower for any reason (including,
without limitation, the failure of any conditions precedent specified
in Article VII to be satisfied) to borrow, Convert, or prepay a
Eurodollar Loan on the date for such borrowing, Conversion, or
prepayment, specified in the relevant notice of borrowing, prepayment,
or Conversion under this Agreement.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date specified for such borrowing) at the applicable rate
of interest for such Loan provided for herein over (ii) the interest component
of the amount such Bank would have bid in the London interbank market for Dollar
deposits of leading banks and amounts comparable to such principal amount and
with maturities comparable to such period.
Section 5.6 Capital Adequacy. If after the date hereof, any Bank shall
have determined that the adoption or implementation of any applicable law, rule,
or regulation regarding capital adequacy, or any change therein, or any change
in the interpretation or administration thereof by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or compliance by such Bank (or its parent) with any guideline, request,
or directive
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 36
<PAGE>
regarding capital adequacy (whether or not having the force of law) of any
central bank or other Governmental Authority, has or would have the effect of
reducing the rate of return on such Bank's (or its parent's) capital as a
consequence of its obligations hereunder or the transactions contemplated hereby
to a level below that which such Bank (or its parent) could have achieved but
for such adoption, implementation, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within ten
Business Days after demand by such Bank (with a copy to the Agent), the Borrower
shall pay to such Bank such additional amount or amounts as will compensate such
Bank (or its parent) for such reduction; provided, however, Borrower shall not
be liable for any such amounts unless the Bank to which such amounts are due
gives Borrower notice thereof within 180 days of the date that such Bank obtains
knowledge that such additional compensation is owing. A certificate of such Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive, provided that the
determination thereof is made on a reasonable basis. In determining such amount
or amounts, such Bank may use any reasonable averaging and attribution methods.
Section 5.7 Additional Costs in Respect of Letters of Credit. If as a
result of any Regulatory Change there shall be imposed, modified, or deemed
applicable any tax, reserve, special deposit, or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder or the commitments to issue or participate in Letters of Credit
hereunder, and the result shall be to increase the cost to the Issuing Banks or
any Bank of issuing, maintaining or participating in any Letter of Credit or its
commitment to issue or participate in Letters of Credit hereunder or reduce any
amount receivable by any Issuing Bank or any Bank hereunder in respect of any
Letter of Credit (which increase in cost, or reduction in amount receivable,
shall be the result of such Issuing Bank's or such Bank's reasonable allocation
of the aggregate of such increases or reductions resulting from such event),
then, upon demand by such Issuing Bank or such Bank, the Borrower agrees to pay
such Issuing Bank or such Bank, from time to time as specified by such Issuing
Bank or such Bank, such additional amounts as shall be sufficient to compensate
such Issuing Bank or such Bank for such increased costs or reductions in amount.
A statement as to such increased costs or reductions in amount incurred by such
Issuing Bank or such Bank, submitted by such Issuing Bank or such Bank to the
Borrower, shall be conclusive as to the amount thereof, provided that the
determination thereof is made on a reasonable basis.
Section 5.8 Replacement of Bank on Account of Taxes, Increased Costs,
Eurodollar Lending Unlawful, Reserve Requirements, Certain Dissents, Etc. If (i)
the obligation of any Bank to make Eurodollar Loans has been suspended pursuant
to the terms hereof, or (ii) any Bank has demanded compensation under Section
4.9 or Article V hereof, then the Borrower shall have the right, with the
assistance of the Administrative Agent, to seek and substitute one or more banks
which is an Eligible Assignee to assume all of the rights and obligations of
such Bank under the Loan Documents; provided that any such assumption shall be
made pursuant to the terms and conditions of Section 14.7 hereof.
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ARTICLE VI
Security
Section 6.1 Collateral. To secure full and complete payment and
performance of the Obligations, the Borrower has executed and delivered or shall
execute and deliver or cause to be executed and has granted or caused to be
granted or shall grant or cause to be granted to the Collateral Agent for the
benefit of itself, the other Agents, the Issuing Banks and the Banks, a
perfected first priority Lien on substantially all of the Property of the
Borrower and its Restricted Subsidiaries whether now owned or hereafter acquired
(which, together with any other property and collateral which may now or
hereafter secure the Obligations or any part thereof, is sometimes herein called
the "Collateral"), including the following:
(a) The Mortgaged Properties, which shall consist of
properties constituting at least 80% of the present value of the
Borrower's and the Restricted Subsidiaries proved reserves (whether
developed or undeveloped).
(b) All Hydrocarbons which are derived from or attributable to
the Mortgaged Properties or which are purchased, exchanged or
transported in connection with the operation of the Gas Gathering
Systems.
(c) All accounts (including accounts in the form of joint
interest billings), contract rights and general intangibles, relating
to the sale, purchase, exchange, transportation or processing of
Hydrocarbons in connection with operation of the Gas Gathering Systems
or produced or to be produced from the Mortgaged Properties, including
without limitation all operating agreements and oil or gas purchase,
sale and transportation contracts, together with all accounts and
proceeds attributable to the sale of Hydrocarbons produced from the
Mortgaged Properties or any portion thereof or sold or transported in
connection with the operation of the Gas Gathering Systems.
(d) All personal property and fixtures pertaining, affixed or
incidental to, situated upon or used or useful in connection with all
or any part of the Mortgaged Properties and the operating, working or
developing thereof, including without limitation all surface or
subsurface machinery, equipment, facilities or other Property of
whatever kind or nature which are useful for the production,
treatment, storage or transportation of any Hydrocarbons, including,
but not by way of limitation, all oil wells, gas wells, water wells,
injection wells, other wells, casing, tubing, rods, pumps, pumping
units and engines, Christmas trees, derricks, separators, gun barrels,
flow lines, tanks, gas systems (for gathering, treating and
compression), water systems (for treating, disposal and injection),
power plants, poles, lines, transformers, starters and controllers,
machine shops, tools, storage yards and equipment stored therein,
buildings and camps, structures, field separators, liquid extraction
plants, plant compressors, field gathering systems, pipelines, tanks
and tank batteries, fixtures, valves, fittings, parts, engines,
boilers, meters, apparatus, appliances,
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tools, implements, cables, wires, towers, telegraph, telephone and
other communication systems, roads, loading racks and shipping
facilities.
(e) All logs, drilling reports, geophysical or geological
data, division orders, transfer orders, operating agreements,
abstracts, title opinions, files, records, memoranda and other written
information in the possession or control of the Borrower or the
Restricted Subsidiaries not subject to specific confidentiality
agreements binding upon Borrower or its Subsidiaries relating to any
wells included in the Mortgaged Properties.
(f) All accounts, accounts receivable, investment property,
chattel paper, documents, instruments, and general intangibles of the
Borrower and its Restricted Subsidiaries, whether now owned or
hereafter acquired, and all products and proceeds thereof.
(g) All of the outstanding capital stock of the Restricted
Subsidiaries, whether now owned or hereafter acquired, and all
products and proceeds thereof. The Collateral Agent shall retain
possession of the certificates evidencing the capital stock of the
Restricted Subsidiaries, together with stock powers duly executed in
blank.
(h) All products and proceeds of any and all of the foregoing
and all additions, substitutions, replacements, accessions and
attachments to any and all of the foregoing.
Section 6.2 Security Documents. Borrower and each Restricted
Subsidiary shall execute and cause to be executed such deeds of trust,
mortgages, security agreements and other documents and instruments including
without limitation Uniform Commercial Code financing statements, as the
Collateral Agent and the Banks, in their sole discretion, deem necessary or
desirable to create, evidence and perfect the Collateral Agent's Liens in the
Collateral. Borrower, the Collateral Agent and the Banks agree that Schedules
1.1 and 1.1(b) shall be amended and additional Security Documents executed from
time to time to reflect the addition of New Properties to the Collateral, such
amendment to be made upon the granting by Borrower or any Restricted Subsidiary,
as the case may be, to the Collateral Agent of valid, enforceable, perfected
first priority Liens on the New Properties pursuant to Section 4.6 hereof.
Section 6.3 Evidence of Title; Legal Opinions. After the Original
Closing Date, Borrower obtained and delivered, or caused to be obtained and
delivered, to the Collateral Agent (a) at the Collateral Agent's option, landman
title reviews, title opinions, reports and/or run sheets dated a current date,
addressed to the Agents, the Issuing Banks and the Banks and issued by landmen
and/or attorneys acceptable to the Administrative Agent competent in the
examination of land title, relating to those Mortgaged Properties identified by
the Administrative Agent, and showing that (i) Borrower had good and defensible
title to such Mortgaged Properties including all production of Hydrocarbons
therefrom, and (ii) the Security Documents created in favor of the Collateral
Agent a perfected, first priority Lien on such Mortgaged Properties including
all production of Hydrocarbons therefrom; and (b) an opinion of New Mexico and
Oklahoma legal counsel addressed to the Agents, the Issuing
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Banks and the Banks as to the enforceability and form of the mortgages filed in
the States of New Mexico and Oklahoma.
Section 6.4 Subsidiary Guaranty Agreement. Each Restricted Subsidiary
of Borrower, whether now owned or hereafter acquired, shall guarantee the prompt
payment and performance of the Obligations pursuant to the Subsidiary Guaranty
Agreement and shall execute a counterpart of the Subsidiary Pledge Agreement.
Section 6.5 Setoff. If an Event of Default shall have occurred and is
continuing, each Agent, each Issuing Bank and each Bank are hereby authorized at
any time and from time to time, without notice to the Borrower (any such notice
being hereby expressly waived by the Borrower), to set off and apply any and all
deposits (general, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by each Agent, each Issuing Bank or such
Bank to or for the credit or the account of the Borrower against any and all of
the obligations of the Borrower now or hereafter existing under this Agreement,
the Notes, or any other Loan Document, irrespective of whether or not such
Agent, such Issuing Bank or such Bank shall have made any demand under this
Agreement, the Notes or any other Loan Document and although such obligations
may be unmatured. Each Agent, each Issuing Bank and each Bank agree promptly to
notify the Borrower (with a copy to the Administrative Agent) after any such
setoff and application, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights and remedies of
each Agent, each Issuing Bank and each Bank hereunder are in addition to other
rights and remedies (including, without limitation, other rights of setoff)
which each Agent, each Issuing Bank and each such Bank may have.
ARTICLE VII
Conditions Precedent
Section 7.1 Initial Loans. The obligation of each Bank to make its
initial Loan under the Original Credit Agreement and of any Issuing Bank to
issue the initial Letter of Credit under the Original Credit Agreement was
subject, among other things, to the condition precedent that the Administrative
Agent received on or before the day of such Loan or issuance of such Letter of
Credit all of the following, in form and substance satisfactory to the
Administrative Agent:
(a) Financing Statements. Uniform Commercial Code financing
statements executed by the Borrower and each Guarantor covering the
Collateral;
(b) Stock Certificates. The original certificates evidencing
the stock pledged by Borrower pursuant to the Borrower Pledge
Agreement and by Magnum Hunter Production, Inc. pursuant to the
Subsidiary Pledge Agreement, together with stock powers duly executed
in blank by such Persons;
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(c) Mortgages and Security Agreements. Mortgages, deeds of
trust and security agreements in form and substance satisfactory to
the Agent and the Banks covering the Mortgaged Properties;
(d) Insurance Policies. Copies of all insurance policies
required by Section 9.5, and a satisfactory review of such insurance
policies by insurance brokers or consultants acceptable to the
Administrative Agent;
(e) UCC Searches. The results of a Uniform Commercial Code
search showing all financing statements and other documents or
instruments on file against the Borrower and the Guarantors;
(f) Form U-1 Purpose Statement. A Form U-1 Purpose Statement
duly completed and executed by the Borrower;
(g) Title. Evidence satisfactory in form and substance to the
Administrative Agent and the Banks that the Borrower and its
Restricted Subsidiaries have good and marketable title, subject to no
other Liens, to Mortgaged Properties representing at least 80% of the
discounted (at 10%) present value of the initial Borrowing Base;
(h) Hedge Agreements. Copies of any and all financial interest
swap agreements or similar contractual arrangements intended to hedge
market price fluctuations and interest rates applicable to this
Agreement or crude oil, natural gas or other Hydrocarbons,
satisfactory to the Banks, in their sole discretion;
(i) Environmental Due Diligence. The completion of a
satisfactory due diligence review of all environmental matters by the
Banks;
(j) Engineering Reports. Engineering Reports for all existing
reserves owned by the Borrower and for the reserve(s) to be acquired
by the Borrower prepared by Ryder Scott Company Petroleum Engineers,
Gaffney, Cline & Associates, Inc., Glenn Harrison Petroleum
Consultants, Inc., or another independent engineering firm acceptable
to the Administrative Agent; and
(k) Due Diligence. The completion of a satisfactory due
diligence review of the Borrower, including without limitation, its
corporate legal structure.
Section 7.2 All Loans. The obligation of each Bank to make any Loan or
issue any Letter of Credit (including the initial Loan or issuance) is subject
to the following additional conditions precedent:
(a) Request for Loan or Letter of Credit. The Administrative
Agent or the Issuing Bank shall have received, in accordance with
Section 4.1 or 3.3, as the case may be, a Loan
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Request Form or Letter of Credit Request Form, dated the date of such
Loan or Letter of Credit, executed by an authorized officer of the
Borrower;
(b) No Default. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit, as the
case may be;
(c) Representations and Warranties. All of the representations
and warranties contained in Article VIII hereof and in the other Loan
Documents shall not be false or misleading in any material respect on
and as of the date of such Loan with the same force and effect as if
such representations and warranties had been made on and as of such
date; and
(d) Additional Documentation. The Administrative Agent shall
have received such additional approvals, opinions, or documents as the
Administrative Agent or its legal counsel, Winstead Sechrest & Minick
P.C., may reasonably request.
Section 7.3 Additional Conditions. The obligation of each Bank to make
the initial Loan under this Agreement or of any Issuing Bank to issue a Letter
of Credit under this Agreement is subject to the additional condition precedent
that the Administrative Agent shall have received each of the following, each
dated (unless otherwise indicated) the date hereof, if form and substance
satisfactory to the Administrative Agent:
(a) Resolutions. Resolutions of the Board of Directors of the
Borrower and each Obligated Party certified by its Secretary or an
Assistant Secretary which authorize the execution, delivery, and
performance by such Person of the Loan Documents to which such Person
is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of the Borrower
and each Obligated Party certifying the names of the officers of such
Person authorized to sign this Agreement and each of the other Loan
Documents to which such Person is or is to be a party (including the
certificates contemplated herein) together with specimen signatures of
such officers;
(c) Governmental Certificates. Certificates of the appropriate
government officials of the state of incorporation of the Borrower and
each Obligated Party as to the existence and good standing of such
Person, each dated within 10 days prior to the date of the initial
Loan or issuance of a Letter of Credit under this Agreement;
(d) Notes. The Notes executed by the Borrower;
(e) Borrower Pledge Agreement. The Borrower Pledge Agreement
executed by the Borrower;
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(f) Subsidiary Pledge Agreement. The Subsidiary Pledge
Agreement executed by each Guarantor;
(g) Subsidiary Guaranty Agreement. The Subsidiary Guaranty
Agreement executed by each Guarantor;
(h)Fee Letters. The Agents Letter and the Amendment Letter
executed by Borrower and evidence that all fees due and payable
thereunder or under Section 14.1, to the extent incurred, have been
paid in full;
(i) Material Adverse Change. No material adverse change shall
have occurred since the date of the most recent financial statements
delivered by Borrower to the Administrative Agent, in the financial
condition, business, operations, or prospects of the Borrower and its
Restricted Subsidiaries taken as a whole or in its consolidated
assets, liabilities and properties and there shall be no material
threatened or pending litigation adversely affecting its consolidated
property and no material adverse change shall have occurred in the
consolidated financial condition, business, operations, or prospects
of the Borrower and its Restricted Subsidiaries;
(j) Lien Releases. Executed UCC-3 Termination Statements and
other Lien releases that release or assign to the Collateral Agent all
Liens held by holders of Debt not constituting Permitted Debt and all
other Liens that do not constitute Permitted Liens;
(k) Additional Documentation. Such additional approvals,
opinions, or documents as the Administrative Agent or its legal
counsel, Winstead Sechrest & Minick P.C., may reasonably request.
Section 7.4 Continued Effectiveness of Prior Credit Agreement. The
Prior Credit Agreement shall remain effective until the date that all of the
conditions precedent set forth in Section 7.2 and Section 7.3 have been
satisfied, which date is anticipated to be June 29, 1998.
ARTICLE VIII
Representations and Warranties
To induce the Agents, the Issuing Banks and the Banks to enter into
this Agreement, the Borrower represents and warrants to the Agents, the Issuing
Banks and the Banks that:
Section 8.1 Corporate Existence. The Borrower and each Restricted
Subsidiary (a) is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation; (b) has all
requisite corporate power and authority to own its assets and carry on its
business as now being or as proposed to be conducted; and (c) is qualified to do
business in all jurisdictions in which the nature of its business makes such
qualification necessary and where
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failure to so qualify would have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties of the
Borrower and the Restricted Subsidiaries taken as a whole. The Borrower has the
corporate power and authority to execute, deliver, and perform its obligations
under this Agreement and the other Loan Documents to which it is or may become a
party.
Section 8.2 Financial Statements. The Borrower has delivered to the
Administrative Agent audited consolidated financial statements of the Borrower
and its Subsidiaries as at and for the fiscal year ended December 31, 1997. Such
financial statements have been prepared in accordance with GAAP, and fairly and
accurately present, on a consolidated basis, the financial condition of the
Borrower and its Subsidiaries as of the respective dates indicated therein and
the results of operations for the respective periods indicated therein. To the
Borrower's Knowledge, neither the Borrower nor any of its Subsidiaries has any
material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments, or unrealized or anticipated losses from any unfavorable
commitments except as scheduled or referred to or reflected in such financial
statements. To the Borrower's Knowledge, there has been no material adverse
change in the business, condition (financial or otherwise), operations,
prospects, or properties of the Borrower and its Subsidiaries taken as a whole
since the effective date of the most recent audited financial statements
delivered to the Agent and the Banks.
Section 8.3 Corporate Action; No Breach. The execution, delivery, and
performance by the Borrower and each Guarantor of the Loan Documents to which
the Borrower or such Guarantor is or may become a party and compliance with the
terms and provisions hereof and thereof have been duly authorized by all
requisite corporate action on the part of such Person and do not and will not
(a) violate or conflict with, or result in a breach of, or require any consent
under (i) the articles of incorporation or bylaws of such Person, (ii) any
applicable law, rule, or regulation or any order, writ, injunction, or decree of
any Governmental Authority or arbitrator, or (iii) any material agreement or
instrument to which such Person is a party or by which any of them or any of
their property is bound or subject, or (b) constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
(except as provided in Article VI) upon any of the revenues or assets of any
such Person.
Section 8.4 Operation of Business. The Borrower and each of its
Restricted Subsidiaries possess all licenses, permits, franchises, patents,
copyrights, trademarks, and trade names, or rights thereto, necessary to conduct
their respective businesses substantially as now conducted and as presently
proposed to be conducted, and none of the Borrower or the Restricted
Subsidiaries are in violation of any material valid rights of others with
respect to any of the foregoing.
Section 8.5 Litigation and Judgments. Except as disclosed on Schedule
8.5 hereto, to the Borrower's Knowledge, there is no action, suit,
investigation, or proceeding before or by any Governmental Authority or
arbitrator pending, threatened against or affecting the Borrower or any
Subsidiary, that would, if adversely determined, have a material adverse effect
on the business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower and its
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Subsidiaries (taken as a whole) or the ability of the Borrower to pay and
perform the Obligations. To the Borrower's Knowledge, there are no outstanding
judgments against the Borrower or any Subsidiary.
Section 8.6 Rights in Properties; Liens. The Borrower and each
Restricted Subsidiary have good and indefeasible title to or valid leasehold
interests in their respective properties and assets, real and personal,
including the properties, assets, and leasehold interests reflected in the
financial statements described in Section 8.2 other than imperfections or
burdens that do not in the aggregate materially detract from the value thereof,
and none of the properties, assets, or leasehold interests of the Borrower or
any Restricted Subsidiary is subject to any Lien, except the Permitted Liens.
Section 8.7 Enforceability. This Agreement constitutes, and the other
Loan Documents, when delivered, shall constitute the legal, valid, and binding
obligations of the Borrower and each Guarantor, enforceable against such
Persons, respectively, in accordance with their respective terms, except as
limited by bankruptcy, insolvency, or other laws of general application relating
to the enforcement of creditors' rights.
Section 8.8 Approvals. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or third party is or
will be necessary for the execution, delivery, or performance by the Borrower or
any Guarantor of this Agreement and the other Loan Documents to which the
Borrower or such Guarantor, respectively, is or may become a party or for the
validity or enforceability thereof except where the failure to obtain such
authorization, approval or consent would not have a material adverse effect on
the Borrower and its Subsidiaries taken as a whole.
Section 8.9 Debt. The Borrower and its Restricted Subsidiaries have no
Debt, except (i) Permitted Debt provided for in Section 10.1 hereof, and (ii) as
disclosed on Schedule 8.9 hereto.
Section 8.10 Taxes. The Borrower and each Subsidiary have filed all
tax returns (federal, state, and local) required to be filed, including all
income, franchise, employment, property, and sales tax returns, and have paid
all of their respective liabilities for taxes, assessments, governmental
charges, and other levies that are due and payable, except such taxes or charges
which are being contested in good faith by appropriate proceedings and for which
adequate reserves have been set aside in accordance with GAAP. The Borrower
knows of no pending investigation of the Borrower or any Subsidiary by any
taxing authority or of any pending but unassessed tax liability of the Borrower
or any Subsidiary.
Section 8.11 Use of Proceeds; Margin Securities. Neither the Borrower
nor any Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations G, T, U, or X of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of any
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 45
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Loan will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying margin stock.
Section 8.12 ERISA. The Borrower and each Subsidiary are in compliance
in all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. To the Borrower's Knowledge, no
circumstances exist which constitute grounds entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings. Neither the Borrower nor any ERISA
Affiliate has completely or partially withdrawn from a Multiemployer Plan. The
Borrower and each ERISA Affiliate have met their minimum funding requirements
under ERISA with respect to all of their Plans, and the present value of all
vested benefits under each Plan do not exceed the fair market value of all Plan
assets allocable to such benefits, as determined on the most recent valuation
date of the Plan and in accordance with ERISA. To the Borrower's Knowledge,
neither the Borrower nor any ERISA Affiliate has incurred any liability to the
PBGC under ERISA.
Section 8.13 Disclosure. To the Borrower's Knowledge, no statement,
information, report, representation, or warranty made by the Borrower or any
Guarantor in this Agreement or in any other Loan Document or furnished to the
Administrative Agent, the Issuing Bank or any Bank in connection with this
Agreement or any transaction contemplated hereby is false or misleading in any
material respect or omits to state any material fact necessary to make the
statements herein or therein not misleading in any material respect. There is no
fact known to the Borrower or any Guarantor which has a material adverse effect,
or which could reasonably be expected to have a material adverse effect, on the
business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower and its Subsidiaries taken as a whole that has not
been disclosed in writing to the Administrative Agent, the Issuing Bank and the
Banks.
Section 8.14 Subsidiaries. The Borrower has no Subsidiaries other than
those listed on Schedule 8.14 hereto, and Schedule 8.14 sets forth the
jurisdiction of incorporation of each Subsidiary, the percentage of the
Borrower's ownership of the outstanding voting stock of each Subsidiary and
designates each Unrestricted Subsidiary. All of the outstanding capital stock of
each Restricted Subsidiary has been validly issued, is fully paid, and is
nonassessable.
Section 8.15 Agreements. Neither the Borrower nor any Subsidiary is a
party to any indenture, loan, or credit agreement, or to any lease or other
material agreement or instrument, or subject to any charter or corporate
restriction which could have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties of the
Borrower and its Subsidiaries (taken as a whole), or the ability of the Borrower
or any Guarantor to pay and perform its obligations under the Loan Documents to
which it is a party. Neither the Borrower nor any Restricted Subsidiary is in
default in any respect in the performance, observance, or fulfillment of any of
the obligations, covenants, or conditions contained in any material agreement or
instrument material to its business to which it is a party.
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Section 8.16 Compliance with Laws. Neither the Borrower nor any
Subsidiary is in violation in any material respect of any law, rule, regulation,
order, or decree of any Governmental Authority or arbitrator.
Section 8.17 Inventory. All inventory of the Borrower has been
produced in substantial compliance with all applicable laws, rules, regulations,
and governmental standards, including, without limitation, the minimum wage and
overtime provisions of the Fair Labor Standards Act, as amended (29 U.S.C.
ss.ss. 201-219), and the regulations promulgated thereunder.
Section 8.18 Investment Company Act. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 8.19 Public Utility Holding Company Act. Neither the Borrower
nor any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 8.20 Environmental Matters. Except as disclosed on Schedule
8.20 hereto:
(a) To the Borrower's Knowledge, except where the failure to
obtain or comply could not reasonably be expected to have a material
adverse effect on the consolidated business condition of the Borrower
and its Subsidiaries taken as a whole, the Borrower, each Subsidiary,
and all of their respective Properties, assets, and operations are in
compliance in all material respects with all Environmental Laws. The
Borrower is not aware of, nor has the Borrower received notice of, any
past, present, or future conditions, events, activities, practices, or
incidents which may interfere with or prevent the compliance or
continued compliance of the Borrower and the Subsidiaries with all
Environmental Laws;
(b) To the Borrower's Knowledge, except where the failure to
obtain or comply could not reasonably be expected to have a material
adverse effect on the consolidated business condition of the Borrower
and its Subsidiaries taken as a whole, the Borrower and each
Subsidiary have obtained all permits, licenses, and authorizations
that are required under applicable Environmental Laws, and have
received no notice that all such permits are not in good standing, or
that the Borrower and its Subsidiaries are not in compliance with all
of the terms and conditions of such permits;
(c) To the Borrower's Knowledge, except where the failure to
obtain or comply could not reasonably be expected to have a material
adverse effect on the consolidated business condition of the Borrower
and its Subsidiaries taken as a whole, no Hazardous Materials exist
on, about, or within or have been used, generated, stored,
transported, disposed of on, or Released from any of the properties or
assets of the Borrower or any Subsidiary except in amounts that would
not violate applicable law. The use which the Borrower and the
Subsidiaries make and intend to make of their respective properties
and
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assets will not result in the use, generation, storage,
transportation, accumulation, disposal, or Release of any Hazardous
Material on, in, or from any of their properties or assets except in
amounts that would not violate applicable law;
(d) To the Borrower's Knowledge, neither the Borrower nor any
of its Subsidiaries nor any of their respective currently or
previously owned or leased properties or operations is subject to any
outstanding or, to the best of its knowledge, threatened order from or
agreement with any Governmental Authority or other Person or subject
to any judicial or docketed administrative proceeding with respect to
(i) failure to comply with Environmental Laws, (ii) Remedial Action,
or (iii) any Environmental Liabilities arising from a Release or
threatened Release;
(e) To the Borrower's Knowledge, except where the failure to
obtain or comply could not reasonably be expected to have a material
adverse effect on the consolidated business condition of the Borrower
and its Subsidiaries taken as a whole, there are no conditions or
circumstances associated with the currently or previously owned or
leased properties or operations of the Borrower or any of its
Subsidiaries that could reasonably be expected to give rise to any
Environmental Liabilities;
(f) Neither the Borrower nor any of its Subsidiaries is a
treatment, storage, or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
regulations thereunder or any comparable provision of state law. To
the Borrower's Knowledge, the Borrower and its Subsidiaries are in
substantial compliance with all applicable financial responsibility
requirements of all Environmental Laws;
(g) Neither the Borrower nor any of its Subsidiaries has filed
or to the best of Borrower's knowledge, failed to file any notice
required under applicable Environmental Law reporting a Release; and
(h) The Borrower has received no notice that a Lien arising
under any Environmental Law has attached to any property or revenues
of the Borrower or its Subsidiaries.
Section 8.21 Y2K Matters. To the Borrower's Knowledge, any
reprogramming required to permit the proper functioning, in and following the
year 2000, of (i) the Borrower's computer systems and (ii) equipment containing
embedded microchips (including systems and equipment supplied by others or with
which Borrower's systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be completed by January 1, 1999. The cost to
the Borrower of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrower (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) will not
result in a Default or have any material adverse effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Borrower and its Subsidiaries
are and, with ordinary
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course upgrading and maintenance, will continue to be, sufficient to permit the
Borrower to conduct its business without material adverse effect.
ARTICLE IX
Positive Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder or any
Issuing Bank has any obligation to issue Letters of Credit hereunder, the
Borrower will perform and observe the following positive covenants:
Section 9.1 Reporting Requirements. The Borrower will furnish to the
Administrative Agent for distribution to each Issuing Bank and each Bank:
(a) Annual Financial Statements. As soon as available, and in
any event within 105 days after the end of each fiscal year of the
Borrower, beginning with the fiscal year ending December 31, 1998, a
copy of the annual audit report of the Borrower and the Subsidiaries
for such fiscal year containing, on a consolidated basis, balance
sheets and statements of income, retained earnings, and cash flow as
at the end of such fiscal year and for the 12-month period then ended,
in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and audited and
certified by independent certified public accountants of nationally
recognized standing selected by the Borrower, to the effect that such
report has been prepared in accordance with GAAP;
(b) Quarterly Financial Statements. As soon as available, and
in any event within 50 days after the end of each of the quarters of
each fiscal year of the Borrower, beginning with the fiscal quarter
ending June 30, 1998, a copy of an unaudited financial report of the
Borrower and the Subsidiaries as of the end of such fiscal quarter and
for the portion of the fiscal year then ended, containing, on a
consolidated basis, balance sheets and statements of income, retained
earnings, and cash flow, in each case setting forth in comparative
form the figures for the corresponding period of the preceding fiscal
year, all in reasonable detail certified by the chief financial
officer or chief accounting officer of the Borrower to have been
prepared in accordance with GAAP and to fairly and accurately present
(subject to year-end audit adjustments) the financial condition and
results of operations of the Borrower and the Subsidiaries, on a
consolidated basis, at the date and for the periods indicated therein;
(c) Compliance Certificate. Within 15 days after the delivery
of the financial statements referred to in subsection 9.1(a) and
subsection 9.1(b), a certificate of the chief accounting officer or
chief financial officer of the Borrower (i) stating that to the best
of such officer's Knowledge, no Default has occurred and is
continuing, or if a Default has occurred and is continuing, a
statement as to the nature thereof and the action that is proposed to
be
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 49
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taken with respect thereto, and (ii) showing in reasonable detail the
calculations demonstrating compliance with Article XI;
(d) Notice of Litigation. Promptly upon learning of the
occurrence of any commencement thereof, notice of actions, suits, and
proceedings before any Governmental Authority or arbitrator affecting
the Borrower or any Subsidiary which, in the opinion of the Borrower,
if determined adversely to the Borrower or such Subsidiary, could
reasonably be expected to have a material adverse effect on the
business, condition (financial or otherwise), operations, prospects,
or properties of the Borrower and its Subsidiaries taken as a whole;
(e) Notice of Default. Promptly upon the Borrower obtaining
Knowledge of the occurrence of any Default, a written notice setting
forth the details of such Default and the action that the Borrower has
taken and proposes to take with respect thereto;
(f) ERISA Reports. Promptly after the filing or promptly after
the Borrower obtaining Knowledge of the receipt thereof, copies of all
reports, including annual reports, and notices which the Borrower or
any Subsidiary files with or receives from the PBGC or the U.S.
Department of Labor under ERISA; and as soon as possible and in any
event within 10 days after the Borrower or any Subsidiary knows or has
reason to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or that the PBGC or the Borrower or
any Subsidiary has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, a certificate of the chief
financial officer or the chief accounting officer of the Borrower
setting forth the details as to such Reportable Event or Prohibited
Transaction or Plan termination and the action that the Borrower
proposes to take with respect thereto;
(g) Notice of Material Adverse Change. As soon as possible and
in any event within 10 days after the occurrence thereof, written
notice of any matter that, in the good faith opinion of the Borrower's
management after exercising reasonable business judgment , could
reasonably be expected to have a material adverse effect on the
business, condition (financial or otherwise), operations, prospects,
or properties of the Borrower and its Subsidiaries taken as a whole;
(h) Proxy Statements, Etc. As soon as available and in any
event within ten days of sending or filing with the Securities and
Exchange Commission or successor agency, one copy of each financial
statement, report, notice or proxy statement sent by the Borrower or
any Subsidiary to its stockholders generally and one copy of each
regular, periodic or special report, form (including, without
limitation, all 10-K and 10-Q filings), registration statement, or
prospectus filed by the Borrower or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor
agency;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 50
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(i) General Information. Promptly, such other information
concerning the Borrower or any Subsidiary as the Administrative Agent
or any Bank may from time to time reasonably request;
(j) Reserve Reports.
(i) On or before April 1 of each calendar year at
Borrower's expense, an annual report in form and substance
satisfactory to the Administrative Agent and the Banks
prepared by an independent third party engineering firm
acceptable to the Administrative Agent and the Banks dated as
of December 31 of the preceding year, reflecting the quantity
of existing proven and producing oil and gas reserves
attributable to the Mortgaged Properties and any New
Properties added since the last such annual report submitted
to the Administrative Agent and the Banks, a projection of the
rate of production and net operating income with respect
thereto as of such date, and such other information as is
customarily obtained from and provided in such reports; and
(ii) On or before October 1 of each calendar year at
Borrower's expense, a report in form and substance
satisfactory to the Administrative Agent and the Banks
prepared by Borrower dated as of June 30 of such year,
reflecting the quantity of existing proven and producing oil
and gas reserves attributable to the Mortgaged Properties and
any New Properties submitted to the Administrative Agent and
the Banks for the first six months of such year, a projection
of the rate of production and net operating income with
respect thereto as of such date, and such other information as
is customarily obtained from and provided in such reports;
(k) Quarterly Production and Lease Operating Statement.
Concurrently with the delivery of the Compliance Certificate pursuant
to Section 9.1(c), a production statement which identifies the most
recent information available relating to the gross volumes of
Hydrocarbons produced in the aggregate from the Oil and Gas Properties
of the Borrower and the Restricted Subsidiaries and a statement of
revenues and expenses attributable to the Oil and Gas Properties of
the Borrower and the Restricted Subsidiaries for such calendar quarter
then ended, such production report and statement of revenues and
expenses to be in a form and substance reasonably satisfactory to the
Administrative Agent and the Banks; and
(l) Quarterly Gas Gathering System Operating Report.
Concurrently with the delivery of the Compliance Certificate pursuant
to Section 9.1(c), an operating report which identifies the most
recent information available relating to the aggregate Hydrocarbons
throughput of the Gas Gathering Systems, revenues and expenses
attributable to the Gas Gathering Systems for such calendar quarter
then ended and such other information as the Administrative Agent and
the Banks may request all in a form and substance reasonably
satisfactory to the Administrative Agent and the Banks.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 51
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Section 9.2 Maintenance of Existence; Conduct of Business. Subject to
the provisions of Section 10.3, the Borrower will preserve and maintain, and
will cause each Restricted Subsidiary to preserve and maintain, its corporate
existence and all of its leases, privileges, licenses, permits, franchises,
qualifications, and rights that are necessary or desirable in the Borrower's
reasonable business judgment, and in the ordinary conduct of its business. The
Borrower will conduct, and will cause each Restricted Subsidiary to conduct, its
business in an orderly and efficient manner in accordance with good business
practices.
Section 9.3 Maintenance of Properties. The Borrower will maintain,
keep, and preserve, and cause each Restricted Subsidiary to maintain, keep, and
preserve, all of its properties (tangible and intangible) necessary or useful in
the proper conduct of its business in good working order and condition.
Section 9.4 Taxes and Claims. The Borrower will pay or discharge, and
will cause each Restricted Subsidiary to pay or discharge, at or before maturity
or before becoming delinquent (a) all taxes, levies, assessments, and
governmental charges imposed on it or its income or profits or any of its
property, and (b) all lawful claims for labor, material, and supplies, which, if
unpaid, might become a Lien upon any of its property; provided, however, that
neither the Borrower nor any Restricted Subsidiary shall be required to pay or
discharge any tax, levy, assessment, claim, or governmental charge which is
being contested in good faith by appropriate proceedings diligently pursued, and
for which adequate reserves have been established.
Section 9.5 Insurance. The Borrower will maintain, and will directly
or indirectly cause each of the Restricted Subsidiaries to maintain, insurance
with financially sound and reputable insurance companies in such amounts and
covering such risks as is usually carried by businesses of similar size to the
Borrower or such Restricted Subsidiary engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower and the
Restricted Subsidiaries operate, provided that in any event the Borrower will
maintain and cause each Restricted Subsidiary to maintain workmen's compensation
insurance, property insurance, comprehensive general liability insurance, and
products liability insurance. Each insurance policy covering Collateral shall
provide that such policy will not be canceled or reduced without 30 days' prior
written notice to the Administrative Agent. In the event an Event of Default
occurs and continues for a period of 90 days, Borrower will cause, within five
days, each insurance policy covering Collateral to name the Collateral Agent as
additional insured and loss payee for the benefit of itself, the other Agents,
the Banks and the Issuing Banks.
Section 9.6 Inspection Rights. Upon reasonable prior notice, oral or
written, and during ordinary business hours, the Borrower will permit, and will
cause each Restricted Subsidiary to permit, representatives of each Agent, the
Issuing Banks and each Bank to examine, copy, and make extracts from its books
and records, to visit and inspect its properties, and to discuss its business,
operations, and financial condition with its officers, employees, and
independent certified public accountants. Notwithstanding the foregoing,
following the occurrence of a Default, the foregoing restrictions relating to
notice and normal business hours shall not apply.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 52
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Section 9.7 Keeping Books and Records. The Borrower will maintain, and
will cause each Restricted Subsidiary to maintain, proper books of record and
account in which full, true, and correct entries in conformity with GAAP shall
be made of all dealings and transactions in relation to its business and
activities.
Section 9.8 Compliance with Laws. The Borrower will comply, and will
cause each Restricted Subsidiary to comply, in all material respects with all
applicable laws, rules, regulations, orders, and decrees of any Governmental
Authority or arbitrator.
Section 9.9 Compliance with Agreements. The Borrower will comply, and
will cause each Restricted Subsidiary to comply, in all material respects with
all agreements, contracts, and instruments binding on it or affecting its
properties or business.
Section 9.10 Further Assurances. The Borrower will, and will cause
each Restricted Subsidiary to, execute and deliver such further agreements and
instruments and take such further action as may be requested by the
Administrative Agent to carry out the provisions and purposes of this Agreement
and the other Loan Documents and, subject to Section 6.1, to create, preserve,
and perfect the Liens of the Collateral Agent for the benefit of itself, the
other Agents, the Issuing Banks and the Banks in the Collateral.
Section 9.11 ERISA. The Borrower will comply, and will cause each
Restricted Subsidiary to comply, with all minimum funding requirements, and all
other material requirements, of ERISA, if applicable, so as not to give rise to
any liability thereunder.
Section 9.12 Subsidiary Security Agreement; Subsidiary Guaranty. The
Borrower shall cause each Person that becomes a Restricted Subsidiary after the
date hereof to execute and deliver to the Collateral Agent a counterpart of each
of the Subsidiary Security Agreement and Subsidiary Guaranty within 15 days
after such Person becomes a Restricted Subsidiary. Contemporaneously with the
execution and delivery of any such counterpart of the Subsidiary Security
Agreement, Borrower shall deliver to the Collateral Agent the original
certificates evidencing all outstanding capital stock of such Restricted
Subsidiary, together with stock powers relating thereto duly executed in blank
and such other documents as the Collateral Agent may reasonably request.
Section 9.13 Collateral Maintenance; Additional Mortgages. As of each
Determination Date, the Borrower shall execute or cause to be executed
additional mortgages or deeds of trust to the extent necessary to provide the
Collateral Agent with first priority perfected liens on at least 80% of the
present value of the Borrower's and the Restricted Subsidiaries' proved reserves
(whether developed or undeveloped). In the event that the Mortgaged Properties
in which the Collateral Agent has a first priority perfected Lien shall at any
time constitute less than 80% of the present value of the Borrower's and the
Restricted Subsidiaries' proved reserves (whether developed or undeveloped), the
Borrower shall upon request from the Collateral Agent, promptly execute or cause
to be executed additional mortgages and deeds of trust to the extent required to
increase such percentage to at least 80%. Such mortgages and deeds of trust
shall be accompanied by title
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 53
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opinions and/or other evidence of title satisfactory in form and substance to
the Collateral Agent and the Banks. In addition, Borrower shall deliver to the
Collateral Agent upon request, such other information, data and reports relating
to the property subject to the new mortgages and deeds of trust and the reserves
and production related thereto, as the Agent and the Banks shall reasonably
request.
ARTICLE X
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder or any
Issuing Bank has any obligation to issue Letters of Credit hereunder, the
Borrower will perform and observe the following negative covenants:
Section 10.1 Debt. The Borrower will not incur, create, assume, or
permit to exist, and will not permit any Restricted Subsidiary to incur, create,
assume, or permit to exist, any Debt, except the following (herein referred to
as "Permitted Debt"):
(a) Debt to the Agents, the Banks and the Issuing Banks
pursuant to or in connection with the Loan Documents;
(b) Existing Debt described on Schedule 8.9 hereto;
(c) The Senior Unsecured Debt, the Marketing Debt, the Trade
Guarantees, and the Marketing Note;
(d) Debt owed by the Borrower to an Affiliate; provided that
such Debt is fully subordinated to the Obligations pursuant to a
subordination agreement satisfactory in form and substance to the
Administrative Agent;
(e) Debt consisting of current liabilities for taxes and other
assessments incurred in the ordinary course of business that are not
delinquent or are being contested in good faith and by appropriate
proceedings, provided, that, adequate reserves have been set aside in
accordance with GAAP;
(f) Debt owed by the Borrower in connection with its guaranty
of the obligations of Hunter Butcher International, LLC to Wells Fargo
HSBC Trade Bank N.A. provided that the amount guaranteed by the
Borrower does not exceed $3,000,000;
(g) Debt owed by the Borrower and the Restricted Subsidiaries
in connection with Capital Lease Obligations entered into in the
ordinary course of business up to an aggregate amount of $7,500,000;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 54
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(h) Debt owed by a Restricted Subsidiary of the Borrower to
the Borrower or to another Restricted Subsidiary of the Borrower
provided that any Debt owing to the Borrower must be assigned to the
Collateral Agent for the benefit of the Banks;
(i) Debt owed by the Borrower to any Restricted Subsidiary
provided the Restricted Subsidiary has assigned its rights under such
Debt to the Collateral Agent for the benefit of the Banks;
(j) Debt payable in cash or common stock of the Borrower or
such Restricted Subsidiary, at the sole option of such Person;
provided that (i) such Debt shall not exceed $5,000,000 in the
aggregate at any time, and (ii) such Debt shall be subordinate to the
Obligations on terms reasonably satisfactory to the Administrative
Agent; and
(k) Debt not otherwise permitted pursuant to (a) through (j)
above in an aggregate amount not to exceed $2,500,000 at any time
outstanding (excluding, without limitation, existing Debt described on
Schedule 8.9 hereto and Debt owed in connection with Capital Lease
Obligations).
Section 10.2 Limitation on Liens. The Borrower will not incur, create,
assume, or permit to exist, and will not permit any Restricted Subsidiary to
incur, create, assume, or permit to exist, any Lien upon any of its property,
assets, or revenues, whether now owned or hereafter acquired, except the
following (herein referred to as "Permitted Liens"):
(a) Liens on the property described on Schedule 10.2 hereto to
secure Permitted Debt;
(b) Liens in favor of the Collateral Agent for the benefit of
itself, the Documentation Agent, the Agent, the Banks and the Issuing
Banks;
(c) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that
do not (individually or in the aggregate) materially affect the value
of the assets encumbered thereby or materially impair the ability of
the Borrower or the Restricted Subsidiaries to use such assets in
their respective businesses, and none of which is violated in any
material respect by existing or proposed structures or land use;
(d) Liens for taxes, assessments, or other governmental
charges which are not delinquent or which are being contested in good
faith and for which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords, or other similar statutory Liens securing obligations that
are not yet due and are incurred in the ordinary course of business;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 55
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(f) Liens resulting from good faith deposits to secure
payments of workmen's compensation, unemployment insurance or other
social security programs or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, abandonment bonds,
bids, contracts (other than for payment of Debt or relating to Swap
Obligations), or leases made in the ordinary course of business;
(g) Liens on required margin collateral in accounts which
secure Swap Obligations; provided, that the obligations secured by
such Liens shall not exceed $2,500,000 in the aggregate;
(h) Liens on property of the Borrower or the Restricted
Subsidiaries in connection with Capital Lease Obligations permitted
under Section 10.1(g);
(i) Liens created in connection with (i) a $300,000 production
payment made by Borrower to American Founders Life Insurance
Company,(ii) a $750,000 production payment made by Borrower to
American Founders Life Insurance Company, and (iii) similar
arrangements with the prior written consent of the Required Banks;
(j) Liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained
with a creditor depository institution; provided, that (i) such
deposit account is not a dedicated cash collateral account and is not
subject to restrictions against access by the Borrower in excess of
those set forth by regulations promulgated by the Federal Reserve
Board, and (ii) such deposit account is not intended by the Borrower
or any Subsidiary to provide collateral to the depository institution;
(k) Liens customarily granted pursuant to joint venture
agreements, joint operating agreements and pooling or unitization
agreements; and
(l) Inchoate Liens arising under ERISA.
Section 10.3 Mergers, Etc. The Borrower will not, and will not permit
any Restricted Subsidiary to, become a party to a merger or consolidation, or
purchase or otherwise acquire all or substantially all of the business or assets
of any Person or all or substantially all of the shares or other evidence of
beneficial ownership of any Person, or wind-up, dissolve, or liquidate;
provided, however, that:
(a) the Borrower or any Restricted Subsidiary shall be
permitted to become a party to a merger or consolidation or acquire
all or substantially all of the assets of any Person or all or
substantially all of the shares or other beneficial ownership of any
Person, so long as (i) no Default is existing or would result
therefrom, (ii) the Borrower has given the Administrative Agent at
least 10 days prior notice of such merger, consolidation or
acquisition, (iii) the Borrower has provided to the Administrative
Agent calculations
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 56
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demonstrating the pro forma compliance with all financial and other
covenants contained herein, after giving effect to such merger,
consolidation or acquisition, based on the most recently delivered
financial statements, (iv) the total cash consideration paid and Debt
assumed or incurred by the Borrower or any Restricted Subsidiary in
connection with all such mergers, consolidations or acquisitions,
shall not exceed $5,000,000, plus the Permitted Investment in
Marketing LLC in any six-month period, and (v) the Borrower or such
Restricted Subsidiary, as the case may be, is the surviving
corporation in such merger or consolidation; and
(b) any Restricted Subsidiary may be dissolved, liquidated or
merged into the Borrower or another Restricted Subsidiary, so long as
such dissolution, liquidation or merger results in all assets of such
Restricted Subsidiary being owned by the Borrower or another
Restricted Subsidiary.
Section 10.4 Restricted Payments. The Borrower will not declare or pay
any dividends (other than dividends in the form of stock) or make any other
payment or distribution (whether in cash, property, or obligations) on account
of its capital stock, or redeem, purchase, retire, or otherwise acquire any of
its capital stock, or permit any of its Restricted Subsidiaries to purchase or
otherwise acquire any capital stock of the Borrower or another Restricted
Subsidiary, or set apart any money for a sinking or other analogous fund for any
dividend or other distribution on its capital stock or for any redemption,
purchase, retirement, or other acquisition of any of its capital stock, except
so long as no Default is continuing (i) dividends approved in writing by
Required Banks as of each Determination Date, and (ii) dividends payable on the
1996 Series A Preferred Stock.
Section 10.5 Investments. The Borrower will not, and will not permit
any Restricted Subsidiary to make, any advance, loan, extension of credit, or
capital contribution to or investment in, or purchase or own any stock, bonds,
notes, debentures, or other securities of, any Person (other than of the
Borrower or any Restricted Subsidiary) in excess of $5,000,000 in the aggregate
per each six-month period ending on March 31 and September 30 of each year,
except the following:
(a) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of one year or less
from the date of acquisition;
(b) fully insured certificates of deposit with maturities of
one year or less from the date of acquisition issued by any commercial
bank operating in the United States of America having capital and
surplus in excess of $250,000,000;
(c) commercial paper or notes or bonds of a domestic issuer if
at the time of purchase such paper is rated in one of the three
highest rating categories of Standard and Poor's, a division of
McGraw-Hill, Moody's Investor Service, Inc. or the equivalent by
Moody's Investor Service, Inc.;
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(d) (i) investments in stock or other equity or ownership
interest in any Restricted Subsidiary; and (ii) loans and advances by
the Borrower to or in the Restricted Subsidiaries provided the
Borrower's rights under such loans are pledged to the Collateral
Agent, for the benefit of the Banks;
(e) investments, loans, or advances made by any Restricted
Subsidiary in or to the Borrower or another Restricted Subsidiary;
(f) purchases permitted under Section 10.3 hereof;
(g) the purchase of up to 60% of the ownership interest of Tel
Offshore Trust; and
(h) investments made solely with common stock of the Borrower
or a Restricted Subsidiary so long as no Change in Control would
result therefrom.
Section 10.6 Limitation on Issuance of Subsidiaries' Capital Stock.
The Borrower will not permit any of its Restricted Subsidiaries to, at any time
issue, sell, assign, or otherwise dispose of (a) any of such Restricted
Subsidiary's capital stock, (b) any securities exchangeable for or convertible
into or carrying any rights to acquire any of such Restricted Subsidiary's
capital stock, or (c) any option, warrant, or other right to acquire any of such
Restricted Subsidiary's capital stock; provided, however, nothing in this
Agreement of any of the Loan Documents shall restrict the Borrower or any of its
Restricted Subsidiaries from issuing stock of the Borrower or stock in a
Restricted Subsidiary which is convertible into stock of the Borrower in
connection with any purchase or investment in any Person that is otherwise
permitted under this Agreement.
Section 10.7 Transactions With Affiliates. The Borrower will not enter
into, and will not permit any Restricted Subsidiary to enter into, any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate of the Borrower or
such Restricted Subsidiary, except in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's or such Restricted Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower or
such Restricted Subsidiary than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate of the Borrower or such Restricted
Subsidiary.
Section 10.8 Disposition of Assets. The Borrower will not sell, lease,
assign, transfer, or otherwise dispose of any of its assets having a fair market
value in excess of $25,000, or permit any Restricted Subsidiary to do so with
any of its assets, except (a) dispositions of Hydrocarbons and other inventory
in the ordinary course of business, (b) dispositions of obsolete, damaged, or
worn out equipment, (c) sales or transfers of assets from a Restricted
Subsidiary or the Borrower to another Restricted Subsidiary or the Borrower,(d)
sales of Mortgaged Properties having an aggregate fair market value of 10% or
less of the then current Borrowing Base during any fiscal year, (e) sales of
other assets having a fair market value of not more than $1,000,000 during any
fiscal year, or (f) the assignment or termination of any Swap Obligation.
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Section 10.9 Sale and Leaseback. The Borrower will not enter into, and
will not permit any Restricted Subsidiary to enter into, any arrangement with
any Person pursuant to which it leases from such Person real or personal
property that has been or is to be sold or transferred, directly or indirectly,
by it to such Person, except for any such arrangements which do not exceed the
aggregate amount of $1,000,000 for the Borrower and its Restricted Subsidiaries
during any fiscal year.
Section 10.10 Prepayment of Debt. The Borrower will not prepay, and
will not permit any Restricted Subsidiary to prepay, any Debt, except (a) the
Obligations, (b) the Marketing Note, (c) Debt to Affiliates that are Guarantors,
(d) Debt owed by the Borrower in connection with Hunter Butcher International
LLC to Wells Fargo Trade Bank N.A., and (e) the Senior Unsecured Debt.
Section 10.11 Nature of Business. The Borrower will not, and will not
permit any Restricted Subsidiary to, engage in any business other than the oil
and gas exploration and production, gas gathering, pipeline and processing,
marketing of Hydrocarbons and petroleum property management and consulting
businesses or activities related thereto in which they are engaged on the date
hereof.
Section 10.12 Environmental Protection. The Borrower will not, and
will not permit any of its Restricted Subsidiaries to, (a) use (or permit any
tenant to use) any of their respective properties or assets for the handling,
processing, storage, transportation, or disposal of any Hazardous Material
except in amounts that will not violate applicable law, (b) conduct any activity
that is likely to cause a Release or threatened Release of any Hazardous
Material, or (c) otherwise conduct any activity or use any of their respective
properties or assets in any manner that is likely in any material respect to
violate any Environmental Law or create any Environmental Liabilities for which
the Borrower or any of its Subsidiaries would be responsible.
Section 10.13 Accounting. The Borrower will not, and will not permit
any of its Restricted Subsidiaries to, change its fiscal year or make any change
(a) in accounting treatment or material reporting practices, except as required
by GAAP and disclosed to the Administrative Agent, or (b) in tax reporting
treatment, except as required by law and disclosed to the Administrative Agent.
Section 10.14 Hedge Agreements. The Borrower has not entered and shall
not enter into Swap Obligations as described under part (b) of the definition of
Swap Obligations herein ("Hedge Agreements"), provided that the Borrower and its
Subsidiaries may enter into (a) Hedge Agreements which provide for a floor, but
not a cap in an amount not to exceed 100% of the Borrower's and the Restricted
Subsidiaries' total projected production from Oil and Gas Properties, and (b)
Hedge Agreements which provide for a cap, provided such Hedge Agreements shall
not cover more than 85% of the Borrower's and the Restricted Subsidiaries' total
projected production from Oil and Gas Properties.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 59
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ARTICLE XI
Financial Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder or the
Issuing Bank has any obligation to issue Letters of Credit hereunder, the
Borrower will perform and observe the following financial covenants:
Section 11.1 Consolidated Interest Coverage Ratio. The Borrower will
not permit its Consolidated Interest Coverage Ratio, measured as of last day of
any calendar quarter for the 12 month period then ended, to be less than (a) 1.5
to 1.0 for the calendar quarters ending March 31, 1998 through December 31,
1998, (b) 1.75 to 1.0 for the calendar quarters ending March 31, 1999 through
December 31, 1999, and (c) 2.00 to 1.0 for the calendar quarter ending March 31,
2000 and thereafter.
Section 11.2 Current Ratio. Borrower will not permit its Current Ratio
to be less than 1.0 to 1.0, calculated quarterly as of the last day of each
March, June, September and December.
Section 11.3 Debt to Capitalization Ratio. The Borrower will not
permit its Debt to Capitalization Ratio, measured as of the last day of any
calendar quarter, to be more than 0.80 to 1.0 from and after the date hereof
through the Termination Date.
ARTICLE XII
Default
Section 12.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) The Borrower shall fail to pay any principal, any interest
or other part of the Obligations within three days after the date due.
(b) Any representation or warranty made or deemed made by the
Borrower or any Obligated Party (or any of their respective officers)
in any Loan Document or in any certificate, report, notice, or
financial statement furnished at any time in connection with this
Agreement shall be false, misleading, or erroneous in any material
respect when made or deemed to have been made.
(c) The Borrower shall fail to perform, observe, or comply
with any covenant, agreement, or term contained in Section 9.1(e), (f)
or (i), 9.6, Section 10.1, 10.3, 10.4, 10.5, 10.6, 10.8, 10.9, 10.10,
10.12, 10.14, or Article XI of this Agreement (for which there shall
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be no grace); or the Borrower or any Obligated Party shall fail to
perform, observe, or comply with any other covenant, agreement, or
term contained in this Agreement or any other Loan Document (other
than those set forth in Section 9.1(e), (f) or (i), 9.6, Section 10.1,
10.3, 10.4, 10.5, 10.6, 10.8, 10.9, 10.10, 10.12, 10.14, or XI or the
covenants to pay the Obligations) and such failure shall continue for
a period of ten days after notice thereof to the Borrower from the
Administrative Agent.
(d) The Borrower, any Restricted Subsidiary, or any Obligated
Party shall commence a voluntary 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 a
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
generally fail to pay its debts as they become due or shall take any
corporate action to authorize any of the foregoing.
(e) An involuntary proceeding shall be commenced against the
Borrower, any Restricted Subsidiary, or any Obligated Party seeking
liquidation, reorganization, or other relief with respect to it or its
debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for it or a
substantial part of its property, and such involuntary proceeding
shall remain undismissed and unstayed for a period of sixty days.
(f) The Borrower, any Restricted Subsidiary, or any Obligated
Party shall fail to discharge within a period of 30 days after the
commencement thereof any attachment, sequestration, or similar
proceeding or proceedings involving an aggregate amount in excess of
$500,000 against any of its assets or properties unless the Borrower
is in good faith contesting such action and taking affirmative steps
to discharge the same, and adequate reserves have been set aside in
accordance with GAAP.
(g) A final judgment or judgments for the payment of money in
excess of $1,000,000 in the aggregate shall be rendered by a court or
courts against the Borrower, any of its Restricted Subsidiaries, or
any Obligated Party and the same shall not be discharged (or provision
shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within 30 days from the date of entry thereof
and the Borrower or the relevant Restricted Subsidiary or Obligated
Party shall not, within said period of 30 days, or such longer period
during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such
appeal.
(h) The Borrower, any Restricted Subsidiary, or any Obligated
Party shall fail to pay when due (subject to any applicable grace
periods) any principal of or interest on any Debt (other than the
Obligations) the amount of which individually or in the aggregate
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exceeds $500,000, or the maturity of any such Debt shall have been
accelerated, or any such Debt shall have been required to be prepaid
prior to the stated maturity thereof, or any event shall have occurred
that permits (or, with the giving of notice or lapse of time or both,
would permit) any holder or holders of such Debt or any Person acting
on behalf of such holder or holders to accelerate the maturity thereof
or require any such prepayment.
(i) This Agreement or any other Loan Document shall cease to
be in full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested or challenged by
the Borrower, any Subsidiary, any Obligated Party, or the Borrower or
any Obligated Party shall deny that it has any further liability or
obligation under any of the Loan Documents, or any lien or security
interest created by the Loan Documents shall for any reason cease to
be a valid, first priority perfected security interest in and lien
upon any of the Collateral purported to be covered thereby.
(j) With respect to any Plan, (i) there shall be a deficiency
of more than $500,000 in the aggregate in the Plan assets available to
satisfy the benefit liabilities under such plan on account of which
the Borrower or any of its Subsidiaries could incur a liability to the
Plan, the PBGC, or otherwise which exceeds or could reasonably be
expected to exceed $500,000 in the aggregate, and (ii) proceedings are
or have been undertaken to terminate such Plan or such Plan is
terminated under Section 4041 or 4042 of ERISA or the Borrower or any
of its Subsidiaries withdraws from or institutes steps to withdraw
from such Plan under Section 4201 or 4204 of ERISA.
(k) The Borrower or any of its Restricted Subsidiaries, or any
of their properties, revenues, or assets aggregating $500,000 or
greater, shall become the subject of an order of forfeiture, seizure,
or divestiture (whether under RICO or otherwise) and the same shall
not have been discharged (or provisions shall not be made for such
discharge) within 30 days from the date of entry thereof.
(l) A Change in Control shall occur.
(m) The holders of the Senior Unsecured Debt shall require the
Borrower to purchase all or a portion of the notes issued under the
Indenture pursuant to a Change of Control Offer (as defined in the
Indenture).
Section 12.2 Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent may (and if directed by Required Banks,
shall) do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and
accrued and unpaid interest on the Notes and all other obligations of
the Borrower under the Loan Documents immediately due and payable, and
the same shall thereupon become immediately due and payable, without
notice, demand, presentment, notice of dishonor, notice of
acceleration,
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notice of intent to accelerate, protest, or other formalities of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Termination of Commitments. Terminate the Commitments and
the obligation of the Issuing Banks to issue Letters of Credit
hereunder without notice to the Borrower.
(c) Judgment. Reduce any claim of any Agent, any Issuing Bank
or any Bank to judgment.
(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to the Collateral Agent for the benefit of itself, the other
Agents, the Banks and the Issuing Banks to secure payment and
performance of the Obligations in accordance with the terms of the
Loan Documents.
(e) Rights. Exercise any and all rights and remedies afforded
by the laws of the State of New York or any other jurisdiction, by any
of the Loan Documents, by equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under
subsection (d) or (e) of Section 12.1, the Commitments of all of the Banks and
the obligation of the Issuing Banks to issue Letters of Credit shall
automatically terminate, and the outstanding principal of and accrued and unpaid
interest on the Notes and all other obligations of the Borrower under the Loan
Documents shall thereupon become immediately due and payable without notice,
demand, presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, protest, or other formalities of any kind, all of which
are hereby expressly waived by the Borrower.
Section 12.3 Letters of Credit. If any Event of Default shall occur
and be continuing, Borrower shall, if requested by the Administrative Agent for
the Required Banks, immediately deposit with and pledge to the Administrative
Agent cash or cash equivalent investments in an amount equal to the outstanding
Letter of Credit Liabilities as security for the Obligations.
Section 12.4 Performance by the Administrative Agent. If the Borrower
shall fail to perform any covenant or agreement in accordance with the terms of
the Loan Documents, the Administrative Agent may, at the direction of Required
Banks, perform or attempt to perform such covenant or agreement on behalf of the
Borrower. In such event, the Borrower shall, at the request of the
Administrative Agent, promptly pay any amount expended by the Administrative
Agent or the Banks in connection with such performance or attempted performance
to the Administrative Agent at the Principal Office, together with interest
thereon at the Default Rate from and including the date of such expenditure to
but excluding the date such expenditure is paid in full. Notwithstanding the
foregoing, it is expressly agreed that neither the Administrative Agent, the
Issuing Bank nor any Bank shall have any liability or responsibility for the
performance of any obligation of the Borrower under this Agreement or any of the
other Loan Documents.
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ARTICLE XIII
Agency Provisions
Section 13.1 Appointment and Powers of the Administrative Agent. In
order to expedite the various transactions contemplated by this Agreement, the
other Agents, the Banks and the Issuing Banks hereby irrevocably appoint and
authorize Bankers Trust to act as their Administrative Agent hereunder and under
each of the other Loan Documents. Bankers Trust consents to such appointment and
agrees to perform the duties of the Administrative Agent as specified herein.
The other Agents, the Banks and the Issuing Banks authorize and direct the Agent
to take such action in their name and on their behalf under the terms and
provisions of the Loan Documents and to exercise such rights and powers
thereunder as are specifically delegated to or required of the Administrative
Agent for the other Agents, the Banks and the Issuing Banks, together with such
rights and powers as are reasonably incidental thereto. The Administrative Agent
is hereby expressly authorized to act as follows as the Administrative Agent on
behalf of itself, the other Agents, the other Banks and the Issuing Banks:
(a) To receive on behalf of each Agent, the Banks and the
Issuing Banks any payment of principal, interest, fees or other
amounts paid pursuant to this Agreement and the Notes and to
distribute to each Agent, each Bank and/or each Issuing Bank its share
of all payments so received as provided in this Agreement;
(b) To receive all documents and items to be furnished under
the Loan Documents;
(c) To act as nominee for and on behalf of the Agents, the
Banks and the Issuing Banks in and under the Loan Documents;
(d) To arrange for the means whereby the funds of the Banks
are to be made available to the Borrower;
(e) To distribute to the Agents, the Banks and the Issuing
Banks information, requests, notices, payments, prepayments, documents
and other items received from the Borrower, the other Obligated
Parties, and other Persons;
(f) To execute and deliver to the Borrower, the other
Obligated Parties, and other Persons, all requests, demands,
approvals, notices, and consents received from the Agents, the Banks
and the Issuing Banks;
(g) To the extent permitted by the Loan Documents, to exercise
on behalf of each Agent, each Bank and each Issuing Bank all rights
and remedies of such Persons upon the occurrence of any Event of
Default; and
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(h) To take such other actions as may be requested by Required
Banks.
Section 13.2 Appointment and Powers of the Collateral Agent. In order
to expedite the various transactions contemplated by this agreement, the other
Agents, the Banks and the Issuing Banks hereby irrevocably appoint and authorize
Paribas to act as the Collateral Agent hereunder and under each of the other
Loan Documents. Paribas consents to such appointment and agrees to perform the
duties of the Collateral Agent as specified herein. The other Agents, the Banks
and the Issuing Banks authorize and direct the Collateral Agent to take such
action in their name and on their behalf under the terms and provisions of the
Loan Documents and to exercise such rights and powers thereunder as are
specifically delegated to or required of the Collateral Agent for the other
Agents, the Banks and the Issuing Banks, together with such rights and powers as
are reasonably incidental thereto. The Collateral Agent is hereby expressly
authorized to act as follows as the Collateral Agent on behalf of itself, the
other Agents, the other Banks and the Issuing Banks:
(a) To receive all documents and items relating to the
Collateral to be furnished under the Loan Documents;
(b) To distribute to the Agents, the Banks and the Issuing
Banks information, requests, notices, payments, prepayments, documents
and other items received from the Borrower, the other Obligated
Parties, and other Persons;
(c) To the extent permitted by the Loan Documents and subject
to Section 13.3 below, to exercise on behalf of each Agent, each Bank
and each Issuing Bank all rights and remedies of such Persons upon the
occurrence of any Event of Default;
(d) To accept, execute, and deliver the Borrower Pledge
Agreement, the Subsidiary Pledge Agreement, the Subsidiary Guaranty
and the other Security Documents as the secured party, including,
without limitation all UCC financing statements; and
(e) To take such other actions as may be requested by Required
Banks.
Section 13.3 Immunity. Neither the Agents, nor any of their
Affiliates, officers, directors, employees, attorneys, or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Agents, (i) may treat the
payee of any Note as the holder thereof until the Administrative Agent receives
written notice of the assignment or transfer thereof signed by such payee and in
form satisfactory to the Administrative Agent; (ii) shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents, and shall not by reason of this Agreement or any other
Loan Document be a trustee or fiduciary for any Bank or Issuing Bank; (iii)
shall not be required to initiate any litigation or collection proceedings
hereunder or under any other Loan Document except to the extent requested by
Required Banks; (iv) shall not be responsible to the Banks or the Issuing Banks
for any recitals,
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statements, representations or warranties contained in this Agreement or any
other Loan Document, or any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or any other
Loan Document, or for the value, validity, effectiveness, enforceability, or
sufficiency of this Agreement or any other Loan Document or any other document
referred to or provided for herein or therein or for any failure by any Person
to perform any of its obligations hereunder or thereunder; (v) may consult with
legal counsel (including counsel for the Borrower), independent public
accountants, and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants, or experts; and (vi) shall incur no
liability under or in respect of any Loan Document by acting upon any notice,
consent, certificate, or other instrument or writing believed by it to be
genuine and signed or sent by the proper party or parties. As to any matters not
expressly provided for by this Agreement, the Agents, shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in accordance
with instructions signed by Required Banks, and such instructions of Required
Banks and any action taken or failure to act pursuant thereto shall be binding
on all of the Banks; provided, however, that no Agent shall be required to take
any action which exposes such Agent to personal liability or which is contrary
to this Agreement or any other Loan Document or applicable law.
Section 13.4 Rights of Each Agent as a Bank. With respect to its
Commitment, the Loans made by it and the Notes issued to it, Paribas, Bankers
Trust and CIBC in their capacity as a Bank hereunder shall have the same rights
and powers hereunder as any other Bank and may exercise the same as though it
were not acting as an agent or an Issuing Bank, and the term "Bank" or "Banks"
shall, unless the context otherwise indicates, include such agent in its
individual capacity. The Agents and their Affiliates may (without having to
account therefor to any Bank or any Issuing Bank) accept deposits from, lend
money to, act as trustee under indentures of, provide merchant banking services
to, and generally engage in any kind of business with the Borrower, any of its
Subsidiaries, any other Obligated Party, and any other Person who may do
business with or own securities of the Borrower, any Subsidiary, or any other
Obligated Party, all as if it were not acting as an agent hereunder and without
any duty to account therefor to the other agents, the Banks or the Issuing
Banks.
Section 13.5 Sharing of Payments, Etc. If any Bank shall obtain any
payment of any principal of or interest on any Loan made by it under this
Agreement or payment of any other obligation under the Loan Documents then owed
by the Borrower or any other Obligated Party to such Bank, whether voluntary,
involuntary, through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, in excess of its pro rata share,
such Bank shall promptly purchase from the other Banks participations in the
Loans held by them hereunder in such amounts, and make such other adjustments
from time to time as shall be necessary to cause such purchasing Bank to share
the excess payment ratably with each of the other Banks in accordance with its
pro rata portion thereof. To such end, all of the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if all or any portion of such excess payment is thereafter rescinded or must
otherwise be restored. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any Bank so purchasing a
participation in
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the Loans made by the other Banks may exercise all rights of setoff, banker's
lien, counterclaim, or similar rights with respect to such participation as
fully as if such Bank were a direct holder of Loans to the Borrower in the
amount of such participation. Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Borrower.
Section 13.6 INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY THE
AGENTS, FROM AND HOLD THE AGENTS, AND THE ISSUING BANKS HARMLESS AGAINST (TO THE
EXTENT NOT REIMBURSED UNDER SECTIONS 14.1 AND 14.2, BUT WITHOUT LIMITING THE
OBLIGATIONS OF THE BORROWER UNDER SECTIONS 14.1 AND 14.2), RATABLY IN ACCORDANCE
WITH THEIR RESPECTIVE COMMITMENTS, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER
WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENTS, OR ANY
ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE AGENTS, OR ANY ISSUING BANK
UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO
BANK SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY
SUCH AGENT'S, OR SUCH ISSUING BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE BANKS
THAT THE AGENTS, AND THE ISSUING BANKS SHALL BE INDEMNIFIED HEREUNDER FROM AND
HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING
ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH
AGENT, OR SUCH ISSUING BANK. WITHOUT LIMITING ANY OTHER PROVISION OF THIS
SECTION, EACH BANK AGREES TO REIMBURSE EACH AGENT, AND EACH ISSUING BANK
PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE
COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES)
INCURRED BY SUCH AGENT, OR SUCH ISSUING BANK IN CONNECTION WITH THE PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO
THE EXTENT THAT SUCH AGENT, OR SUCH ISSUING BANK IS NOT REIMBURSED FOR SUCH
EXPENSES BY THE BORROWER.
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Section 13.7 Independent Credit Decisions. Each Bank agrees that it
has independently and without reliance on any Agent, any Issuing Bank or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and decision to enter
into this Agreement and that it will, independently and without reliance upon
any Agent, any Issuing Bank or any other Bank, and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. No Agent shall be required to keep itself
informed as to the performance or observance by the Borrower or any Obligated
Party of this Agreement or any other Loan Document or to inspect the properties
or books of the Borrower or any Obligated Party. Except for notices, reports and
other documents and information expressly required to be furnished to the Banks
by the Agents, hereunder or under the other Loan Documents, no Agent shall have
any duty or responsibility to provide the Issuing Banks or any Bank with any
credit, financial or other information concerning the affairs, financial
condition or business of the Borrower or any Obligated Party (or any of their
Affiliates) which may come into the possession of the Agents, or any of their
Affiliates.
Section 13.8 Several Commitments. The Commitments and other
obligations of the Banks under this Agreement are several. The default by any
Bank in making a Loan in accordance with its Commitment shall not relieve the
other Banks of their obligations under this Agreement. In the event of any
default by any Bank in making any Loan, each nondefaulting Bank shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Bank was required to advance hereunder. In no event shall
any Bank be required to advance an amount or amounts which shall in the
aggregate exceed such Bank's Commitment. No Bank shall be responsible for any
act or omission of any other Bank.
Section 13.9 Successor Agent. Subject to the appointment and
acceptance of a successor Agent, as provided below, any of the Agents may resign
at any time by giving at least a 30 day prior written notice thereof to the
other agents, the Banks, the Issuing Banks and the Borrower and any Agent may be
removed at any time with or without cause by Required Banks. Upon any such
resignation or removal, the Borrower with the consent of the remaining Agents
shall as promptly as practicable appoint a successor. If no such successor Agent
shall have been so appointed by the Borrower and the remaining Agents within 30
days after the retiring Agent's giving of notice of resignation or the Required
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or any State thereof and having
combined capital and surplus of at least $100,000,000. In the event the
successor Agent is not at the time of its appointment, a Bank hereunder, the
Borrower shall have the right to consent to the successor Agent, which consent
shall not be unreasonably withheld or delayed. Upon the acceptance of its
appointment as successor Agent, such successor Agent shall thereupon succeed to
and become vested with all rights, powers, privileges, immunities, and duties of
the resigning or removed Agent, and the resigning or removed Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After any Agent's resignation or removal as Agent, the
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provisions of this Article XIII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Agent.
ARTICLE XIV
Miscellaneous
Section 14.1 Expenses. The Borrower hereby agrees to pay on demand:
(a) all reasonable out-of-pocket costs and expenses of the Administrative Agent,
in connection with the preparation, negotiation, execution, and delivery of this
Agreement and the other Loan Documents and any and all amendments,
modifications, renewals, extensions, and supplements thereof and thereto,
including, without limitation, the reasonable fees and expenses of legal counsel
for the Administrative Agent, (b) all out-of-pocket costs and expenses of the
Agents, and the Issuing Banks in connection with any Default and the enforcement
of this Agreement or any other Loan Document, including, without limitation, the
reasonable fees and expenses of legal counsel for the Agents, and the Issuing
Banks, (c) all transfer, stamp, documentary, or other similar taxes,
assessments, or charges levied by any Governmental Authority in respect of this
Agreement or any of the other Loan Documents, (d) all out-of-pocket costs,
expenses, assessments, and other charges incurred in connection with any filing,
registration, recording, or perfection of any security interest or Lien
contemplated by this Agreement or any other Loan Document, and (e) all other
reasonable costs and out-of-pocket expenses incurred by the Administrative
Agent, in connection with this Agreement or any other Loan Document, including,
without limitation, all reasonable costs, expenses, and other charges incurred
following the occurrence and during the continuance of a Default in connection
with obtaining any audit or appraisal in respect of the Collateral. All such
requests for payment shall be accompanied by invoices containing reasonable
details.
Section 14.2 INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENTS,
THE ISSUING BANKS AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF
THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS'
FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE
FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE,
ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE
TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (c) ANY BREACH BY THE BORROWER
OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY
OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR
AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR ANY SUBSIDIARY, OR
(E)
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ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING
RELATING TO ANY OF THE FOREGOING. WITHOUT LIMITING ANY PROVISION OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES,
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES
(INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. THE BORROWER'S INDEMNITY SHALL EXCLUDE
ANY LOSSES, LIABILITIES, CLAIMS, DAMAGES OR EXPENSES TO THE EXTENT THEY RESULTED
FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY OR
RESULTED FROM SUCH INDEMNIFIED PARTY'S OWN UNEXCUSED BREACH OF ANY MATERIAL
PROVISION OF ANY LOAN DOCUMENT, PROVIDED THAT IT IS THE INTENTION OF THE PARTIES
HERETO THAT THE INDEMNIFIED PARTIES BE INDEMNIFIED IN THE CASE OF THEIR OWN
NEGLIGENCE. THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT, THE COLLATERAL
AGENT, THE SYNDICATION AGENT, THE ISSUING BANK AND EACH BANK AGREE TO THE EXTENT
FEASIBLE, AND TO THE EXTENT A CONFLICT OF INTEREST DOES NOT EXIST IN THE
REASONABLE OPINION OF ANY OF THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT,
THE COLLATERAL AGENT, THE SYNDICATION AGENT, THE ISSUING BANK AND ANY BANK OR
THEIR COUNSEL, TO USE THE SAME SINGLE COUNSEL (I.E. ONE LAW FIRM) IN CONNECTION
WITH ANY SUCH INVESTIGATION, LITIGATION OR OTHER PROCEEDING.
Section 14.3 LIMITATION OF LIABILITY. NO AGENT, ANY ISSUING BANK, ANY
BANK, OR ANY AFFILIATE, OFFICER, DIRECTOR, EMPLOYEE, ATTORNEY, OR AGENT THEREOF
SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND THE BORROWER HEREBY WAIVES AND
RELEASES, ANY CLAIM FOR ANY SPECIAL OR PUNITIVE DAMAGES SUFFERED OR INCURRED BY
THE BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. THE BORROWER
HEREBY WAIVES AND RELEASES ANY ISSUING BANK, OR ANY BANK OR ANY OF THEIR
RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, OR AGENTS FOR
PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM IN CONNECTION WITH, ARISING OUT OF, OR
IN ANY WAY RELATED TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 70
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Section 14.4 No Duty. All attorneys, accountants, appraisers, and
other professional Persons and consultants retained by the Agents, the Issuing
Banks and the Banks shall have the right to act exclusively in the interest of
the Agent, the Documentation Agent, the Collateral Agent, the Issuing Banks and
the Banks and shall have no duty of disclosure, duty of loyalty, duty of care,
or other duty or obligation of any type or nature whatsoever to the Borrower or
any of the Borrower's shareholders or any other Person.
Section 14.5 No Fiduciary Relationship. The relationship between the
Borrower and each Bank is solely that of debtor and creditor, and neither any
Agent, any Issuing Bank nor any Bank has any fiduciary or other special
relationship with the Borrower, and no term or condition of any of the Loan
Documents shall be construed so as to deem the relationship between the
Borrower, any Agent, any Issuing Bank or any Bank to be other than that of
debtor and creditor.
Section 14.6 No Waiver; Cumulative Remedies. No failure on the part of
any Agent, any Issuing Bank or any Bank to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power, or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power, or privilege under this Agreement preclude
any other or further exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies provided for in this Agreement and the
other Loan Documents are cumulative and not exclusive of any rights and remedies
provided by law.
Section 14.7 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. The Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the
Administrative Agent and all of the Banks; provided, however, that for
purposes of this Section 14.7 if the survivor of a merger is obligated
in respect of all obligations of the Borrower hereunder and under all
other Loan Documents, a merger permitted pursuant to Section 10.3
hereof shall not be an assignment or transfer of the Borrower's rights
or obligations hereunder. Any Bank may sell participations to one or
more banks or other financial institutions in or to all or a portion
of its rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, all or a portion of its
Commitments and the Loans owing to it); provided, however, that (i)
such Bank's obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitments) shall
remain unchanged, (ii) such Bank shall remain solely responsible to
the Borrower for the performance of such obligations, (iii) such Bank
shall remain the holder of its Notes for all purposes of this
Agreement, (iv) the Borrower shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under this Agreement and the other Loan Documents, and (v)
such Bank shall not sell a participation that conveys to the
participant the right to vote or give or withhold consents under this
Agreement or any other Loan Document, other than the right to vote
upon or consent to (A) any increase of such Bank's Commitments, (B)
any reduction
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 71
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of the principal amount of, or interest to be paid on, the Loans of
such Bank, (c) any reduction of any commitment fee or other amount
payable to such Bank under any Loan Document, (D) any postponement of
any date for the payment of any amount payable in respect of the Loans
of such Bank or (E) the release of all or substantially all of the
Collateral or Obligated Party, except as otherwise provided for in any
Loan Document.
(b) The Borrower and each of the Banks agree that any Bank
(the "Assigning Bank") may, with the Administrative Agent's consent
and unless an Event of Default has occurred, the Borrower's consent,
which consent of the Borrower shall not be unreasonably withheld or
delayed, at any time assign to one or more Eligible Assignees all, or
a proportionate part of all, of its rights and obligations under this
Agreement and the other Loan Documents (including, without limitation,
its Commitments and Loans) (each an "Assignee"); provided, however,
that (i) each such assignment shall be of a consistent, and not a
varying, percentage of all of the assigning Bank's Commitments, rights
and obligations under this Agreement and the other Loan Documents,
(ii) except in the case of an assignment of all of a Bank's rights and
obligations under this Agreement and the other Loan Documents, the
amount of the Commitments of the assigning Bank being assigned
pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no
event be less than $5,000,000, and (iii) the parties to each such
assignment shall execute and deliver to the Administrative Agent for
its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with the Notes subject to such
assignment, and a processing and recordation fee of $2,500, to be paid
by the Assignee. Upon such execution, delivery, acceptance, and
recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof, or, if so specified in such
Assignment and Acceptance, the date of acceptance thereof by the
Administrative Agent, (x) the assignee thereunder shall be a party
hereto as a "Bank" and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank hereunder and
under the Loan Documents and (y) the Bank that is an assignor
thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this
Agreement and the other Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of a
Bank's rights and obligations under the Loan Documents, such Bank
shall cease to be a party thereto).
(c) Any Bank may at any time pledge or assign all or any
portion of its rights under this Agreement and the other Loan
Documents to any federal reserve bank without notice to or consent of
the Borrower. No such pledge or assignment shall release the
transferor lender from its obligations hereunder.
(d) By executing and delivering an Assignment and Acceptance,
the Bank that is an assignor thereunder and the assignee thereunder
confirm to and agree with each other
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 72
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and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect
to any statements, warranties, or representations made in or in
connection with the Loan Documents or the execution, legality,
validity, and enforceability, genuineness, sufficiency, or value of
the Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any Obligated Party or the performance or
observance by the Borrower or any Obligated Party of its obligations
under the Loan Documents; (iii) such assignee confirms that it has
received a copy of the other Loan Documents, together with copies of
the financial statements referred to in Section 8.2 and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent or such assignor and based on
such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under this Agreement and the other Loan Documents; (v)
such assignee confirms that it is an Eligible Assignee; (vi) such
assignee appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and exercise such powers under the Loan
Documents as are delegated to the Administrative Agent by the terms
thereof, together with such powers as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Bank.
(e) The Administrative Agent shall maintain at its Principal
Office a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Banks and the Commitments of, and principal amount of
the Loans owing to, each Bank from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Administrative
Agent, the Issuing Bank and the Banks may treat each Person whose name
is recorded in the Register as a Bank hereunder for all purposes under
the Loan Documents. The Register shall be available for inspection by
the Borrower, the Issuing Bank or any Bank at any reasonable time and
from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and assignee representing that it is an Eligible
Assignee, together with any Note subject to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit "G" hereto, (i)
accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register, and (iii) give prompt written
notice thereof to the Borrower. Within five Business Days after its
receipt of such notice, the Borrower, at its expense, shall execute
and deliver to the Administrative Agent in exchange for the
surrendered Notes new Notes to the order
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 73
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of such Eligible Assignee in an amount equal to the Commitments
assumed by it pursuant to such Assignment and Acceptance and, if the
assigning Bank has retained a portion of its Commitments, new Notes to
the order of the assigning Bank in an amount equal to the Commitments
retained by it hereunder (each such promissory note shall constitute a
"Note" for purposes of the Loan Documents). Such new Notes shall be in
an aggregate principal amount of the surrendered Notes, shall be dated
the effective date of such Assignment and Acceptance, and shall
otherwise be in substantially the form of Exhibit "A" hereto.
(g) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrower or its
Subsidiaries furnished to such Bank by or on behalf of the Borrower or
its Subsidiaries, subject, however, to the provisions of Section
14.18.
Section 14.8 Survival. All representations and warranties made in this
Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by any Agents, any Issuing Bank or any Bank or any closing shall
affect the representations and warranties or the right of the Agents, any
Issuing Bank or any Bank to rely upon them. Without prejudice to the survival of
any other obligation of the Borrower hereunder, the obligations of the Borrower
under Article V and Sections 14.1 and 14.2 shall survive repayment of the Notes
and termination of the Commitments.
Section 14.9 Amendments, Etc. No amendment or waiver of any provision
of this Agreement, the Notes, or any other Loan Document to which the Borrower
is a party, nor any consent to any departure by the Borrower therefrom, shall in
any event be effective unless the same shall be agreed or consented to by Banks
having commitments totaling at least 51% of the amount of the Borrowing Base
(or, at any time while Loans or Letter of Credit Liabilities are outstanding,
Banks holding Loans and LC Participations totaling at least 51% of the amount of
the Borrowing Base) and the Borrower, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, that no amendment, waiver, or consent shall, unless in writing
and signed by all of the Banks and the Borrower, do any of the following: (a)
increase the Commitments of the Banks or subject the Banks to any additional
obligations; (b) reduce the principal of, or interest on, the Notes or any fees
or other amounts payable to the Banks hereunder; (c) postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable to the Banks hereunder; (d) waive any of the conditions
specified in Article VII; (e) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes or the percentage of Banks which
shall be required for the Banks or any of them to take any action under this
Agreement; (f) change any provision contained in this Section 14.9; or (g)
release any Collateral or Obligated Party. Notwithstanding anything to the
contrary contained in this Section, no amendment, waiver, or consent shall be
made with respect to Article XIII hereof without the prior written consent of
the Agent and no amendment,
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 74
<PAGE>
waiver, or consent shall be made with respect to Article III hereof without the
prior written consent of the Issuing Banks.
Section 14.10 Maximum Interest Rate. No provision of this Agreement or
of any other Loan Document shall require the payment or the collection of
interest in excess of the maximum amount permitted by applicable law. If any
excess of interest in such respect is hereby provided for, or shall be
adjudicated to be so provided, in any Loan Document or otherwise in connection
with this loan transaction, the provisions of this Section shall govern and
prevail and neither the Borrower nor the sureties, guarantors, successors, or
assigns of the Borrower shall be obligated to pay the excess amount of such
interest or any other excess sum paid for the use, forbearance, or detention of
sums loaned pursuant hereto. In the event any Bank ever receives, collects, or
applies as interest any such sum, such amount which would be in excess of the
maximum amount permitted by applicable law shall be applied as a payment and
reduction of the principal of the indebtedness evidenced by the Notes; and, if
the principal of the Notes has been paid in full, any remaining excess shall
forthwith be paid to the Borrower. In determining whether or not the interest
paid or payable exceeds the Maximum Rate, the Borrower and each Bank shall, to
the extent permitted by applicable law, but only if the interest cannot be
reduced and then recaptured pursuant to Section 2.4 hereof, and solely to the
extent necessary so that the interest paid does not exceed the Maximum Rate, (a)
characterize any non-principal payment as an expense, fee, or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) amortize, prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of the indebtedness
evidenced by the Notes so that interest for the entire term does not exceed the
Maximum Rate.
Section 14.11 Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents to which the Borrower is a
party shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested, or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof; or, as to any party at such other address as shall be designated by such
party in a notice to each other party given in accordance with this Section.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopy, subject to
telephone confirmation of receipt, or when personally delivered or, in the case
of a mailed notice, when duly deposited in the mails, in each case given or
addressed as aforesaid; provided, however, notices to the Administrative Agent
pursuant to Article II and III shall not be effective until received by the
Administrative Agent.
Section 14.12 GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT
HAS BEEN ENTERED INTO IN NEW YORK COUNTY, NEW YORK, AND IT SHALL BE PERFORMABLE
FOR ALL PURPOSES IN NEW YORK COUNTY, NEW YORK. ANY ACTION OR PROCEEDING AGAINST
THE BORROWER UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS MAY
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 75
<PAGE>
BE BROUGHT IN ANY STATE OR FEDERAL COURT IN NEW YORK COUNTY, NEW YORK. THE
BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH
COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY
SUCH COURT IS AN INCONVENIENT FORUM. THE BORROWER AGREES THAT SERVICE OF PROCESS
UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 14.11. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT
THE RIGHT OF THE AGENTS, THE ISSUING BANK OR ANY BANK TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENTS, ANY
ISSUING BANK OR ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER
OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS. ANY
ACTION OR PROCEEDING BY THE BORROWER AGAINST THE AGENTS, ANY ISSUING BANK OR ANY
BANK SHALL BE BROUGHT ONLY IN A COURT LOCATED IN NEW YORK COUNTY, NEW YORK.
Section 14.13 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 14.14 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 14.15 Headings. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 14.16 Construction. The Borrower, the Agents, the Issuing
Banks and each Bank acknowledge that each of them has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to review this
Agreement and the other Loan Documents with its legal counsel and that this
Agreement and the other Loan Documents shall be construed as if jointly drafted
by the parties hereto.
Section 14.17 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 14.18 Treatment of Certain Information; Confidentiality. Each
Bank, each Agent, and each Issuing Bank agree (on behalf of itself and each of
its affiliates, directors, officers,
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 76
<PAGE>
employees and representatives) to keep confidential any non-public information
supplied to it by Borrower pursuant to this Agreement that Borrower identifies
to such Bank, such Agent, each Issuing Bank (as the case may be) as confidential
at the time Borrower so supplies such information, provided, that nothing herein
shall limit the disclosure of any such information (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to counsel for any of the
Banks, each Issuing Bank or each Agent, (iii) to bank examiners, auditors or
accountants, (iv) to the Agents, any Issuing Bank or any other Bank, (v) in
connection with any summons or subpoena to which any one or more of the Banks,
any Agent, or any Issuing Bank is a party, (vi) to a subsidiary or affiliate of
such Person, or (vii) to any assignee or participant (or prospective assignee or
participant) so long as such subsidiary, affiliate, assignee or participant (or
prospective assignee or participant), as the case may be, first executes and
delivers to the Borrower, an agreement containing provisions substantially
identical to those contained in this Section 14.18; and provided, further, that
in no event shall any Bank, any Issuing Bank, or any Agent be obligated or
required to return any materials furnished to it by the Borrower, unless in
violation of this Section 14.18, each Bank agrees that it will use its
reasonable efforts to advise the Borrower as soon as practicable, of any
disclosure of information in connection with (v) above.
Section 14.19 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENTS, THE
ISSUING BANK AND EACH BANK EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
Section 14.20 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTES,
THE OTHER LOAN DOCUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
[Remainder of this page intentionally left blank.]
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 77
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
MAGNUM HUNTER RESOURCES, INC.
By:
Chris Tong
Senior Vice President and Chief Financial Officer
Address for Notices:
600 East Las Colinas Boulevard, Suite 1200
Irving, Texas 75039
Fax No.: (972) 401-3110
Telephone No.: (972) 401-0752
Attention: Chris Tong
ADMINISTRATIVE AGENT:
BANKERS TRUST COMPANY
By
Name:
Title:
Addresses for Notices:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Fax No.: (212) 250-6029 or 7351
Telephone No.: (212) 250-7343
Attention: James Cullen
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 78
<PAGE>
and
Bankers Trust Company
Two Houston Center
909 Fannin Street, Suite 3000
Houston, Texas 77010
Attention: Richard Doleshek
SYNDICATION AGENT:
CIBC INC.
By:
Name:
Title:
Address for Notices:
CIBC, Inc.
Two Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, Georgia 30339
Fax No.: (770) 319-4950
Telephone No.: (770) 319-4814
Attention: Pluria Howell
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 79
<PAGE>
DOCUMENTATION AGENT AND COLLATERAL
AGENT:
PARIBAS
By:
Barton D. Schouest
Group Vice President
- and -
By:
Michael H. Fiuzat
Assistant Vice President
Address for Notices:
Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Fax No.: (713) 659-5305
Telephone No.: (713) 659-4811
Attention: Leah Evans-Hughes
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 80
<PAGE>
ISSUING BANK:
BANKERS TRUST COMPANY
By
Name:
Title:
Addresses for Notices:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Fax No.: (212) 250-5817
Telephone No.:(212) 250-2428
Attention: Joyce Shiu
and
Bankers Trust Company
Two Houston Center
909 Fannin Street, Suite 3000
Houston, Texas 77010
Attention: Richard Doleshek
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 81
<PAGE>
BANKS:
PARIBAS
Commitment: By:
$28,846,153.85 Barton D. Schouest
Group Vice President
- and -
By:
Michael H. Fiuzat
Assistant Vice President
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Fax No.: (713) 659-5305
Telephone No.: (713) 659-4811
Attention: Leah Evans-Hughes
Lending Office for Base Rate Loans:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Fax No.: (713) 659-5305
Telephone No.: (713) 659-4811
Attention: Leah Evans-Hughes
Lending Office for Eurodollar Loans:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Fax No.: (713) 659-5305
Telephone No.: (713) 659-4811
Attention: Leah Evans-Hughes
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 82
<PAGE>
BANKERS TRUST COMPANY
Commitment:
$28,846,153.85
By:
Name:
Title:
Address for Notices:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Fax No.: (212) 250-7351
Telephone No.: (212) 250-7343
Attention: James Cullen
Lending Office for Base Rate Loans:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Lending Office for Eurodollar Loans:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 83
<PAGE>
CIBC INC.
Commitment:
$28,846,153.85
By:
Name:
Title:
Address for Notices:
CIBC, Inc.
Two Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, Georgia 30339
Fax No.: (770) 319-4950
Telephone No.: (770) 319-4814
Attention: Pluria Howell
Lending Office for Base Rate Loans:
CIBC, Inc.
Two Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, Georgia 30339
Fax No.: (770) 319-4950
Telephone No.: (770) 319-4814
Lending Office for Eurodollar Loans:
CIBC, Inc.
Two Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, Georgia 30339
Fax No.: (770) 319-4950
Telephone No.: (770) 319-4814
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 84
<PAGE>
TORONTO DOMINION (TEXAS), INC.
Commitment:
$19,230,769.23
By:
Name:
Title:
Address for Notices:
The Toronto-Dominion Bank
909 Fannin Street, 17th Floor
Houston, Texas 77010
Fax No.: (713) 951-9921
Telephone No.: (713) 653-8281
Attention: Azar Azarpour
Lending Office for Base Rate Loans:
Toronto Dominion (Texas), Inc.
909 Fannin Street, 17th Floor
Houston, Texas 77010
Fax No.: (713) 951-9921
Telephone No.: (713) 653-8281
Lending Office for Eurodollar Loans:
Toronto Dominion (Texas), Inc.
909 Fannin Street, 17th Floor
Houston, Texas 77010
Fax No.: (713) 951-9921
Telephone No.: (713) 653-8281
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 85
<PAGE>
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
Commitment:
$19,230,769.22
By:
Name:
Title:
Address for Notices:
Wells Fargo Bank (Texas), National Association
1445 Ross Avenue, Suite 400
Dallas, Texas 75202-2812
Fax No.: (214) 777-4044
Telephone No.: (214) 777-4026
Attention: Charles D. Kirkham
Lending Office for Base Rate Loans:
Wells Fargo Bank (Texas), National Association
1445 Ross Avenue, Suite 400
Dallas, Texas 75202-2812
Fax No.: (214) 777-4044
Telephone No.: (214) 777-4026
Lending Office for Eurodollar Loans:
Wells Fargo Bank (Texas), National Association
1445 Ross Avenue, Suite 400
Dallas, Texas 75202-2812
Fax No.: (214) 777-4044
Telephone No.: (214) 777-4026
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 86
<PAGE>
INDEX TO EXHIBITS
Exhibit Description of Exhibit Section
"A" Form of Revolving Credit Note 2.2
"B" Loan Request Form 4.1
"C" Letter of Credit Request Form 3.3
"D" Borrower Pledge Agreement 6.1(f)
"E" Subsidiary Pledge Agreement 6.1(f)
"F" Subsidiary Guaranty Agreement 6.4
"G" Assignment and Acceptance 14.8
INDEX TO SCHEDULES
Schedule Description of Schedule Section
8.5 Existing Litigation 8.5
8.9 Existing Debt 8.9
8.14 List of Subsidiaries 8.14
8.20 Environmental Matters 8.20
10.2 Existing Liens 10.2
1.1 Gas Gathering Systems 1.1
1.1(a) Mortgaged Properties 1.1
<PAGE>
SCHEDULE 1.1
Gas Gathering Systems
1. Panoma Gas Gathering System located in the Texas Panhandle and Western
Oklahoma.
2. North Appleby Gathering System located in Nacogdoches and Rusk Counties,
Texas.
3. Longwood Gas Gathering System located in Caddo Parrish, Louisiana
4. McLean Gas Gathering Plant located in Shamrock, Texas.
<PAGE>
SCHEDULE 1.1(a)
Mortgaged Properties
1. Appended hereto is a list of Oil and Gas Properties being acquired in the
Acquisition; and
2. The Mortgaged Properties also include the Oil and Gas Properties and
other Collateral described in Security Documents existing on the date
hereof, including Collateral described in amendments to mortgages and
deeds of trust of even date, which mortgages and deeds of trust are
Security Documents and which were originally for the benefit of the
lenders under the Prior Credit Agreement.
<PAGE>
SCHEDULE 8.5
Existing Litigation
Hillin-Simon Oil & Gas v. Hunter Resources, Inc., David H. Arrington Oil &
Gas, Inc., et al. In 1995, Hunter Resources, Inc. acquired the capital stock of
David H. Arrington Texas and New Mexico, Inc. and therefore assumed operations
of certain properties partially owned by David H. Arrington Texas & New Mexico,
Inc. Hillin-Simon, a working interest owner in certain of the properties
acquired from Arrington has sued the defendants maintaining that the transfer
gives rise to a vote for a new operator of these properties. The case is now in
discovery.
<PAGE>
SCHEDULE 8.9
Existing Debt
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Notes
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
Date of Note Borrower Payee Original Principal Outstanding at
Balance June 28, 1998
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
8/30/97 Magnum Hunter Resources, Bankers Trust N/A $53,700,000.00
Inc.
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
2/28/96 Magnum Hunter Resources, Wells Fargo Bank $32,607.00 $13,578.08
Inc.
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
9/30/93 Gruy Petroleum Law Firm of Shafer Davis $80,673.79 $23,673.79
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
Production payments
- ------------------------------------------------ ------------------------------ ------------------- --------------------------
Date of Grantor Grantee Original Principal Outstanding at
Agreement Balance June 28, 1998
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
7/1/95 Magnum Hunter Resources, American Founders $300,000.00 $101,440.25
Inc.
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
11/1/96 Magnum Hunter Resources, American Founders $750,000.00 $567,050.57
Inc.
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
Capital leases
- ----------------- ------------------------------ ------------------------------ ------------------- --------------------------
Rental obligation Annual lease payments
- ------------------------------------------------ --------------------------------------------------- --------------------------
Office and office machine rentals $265,896
- ----------------------------------------------- --------------------------------------------------- --------------------------
Truck rentals - estimate $187,000
- ----------------------------------------------- --------------------------------------------------- --------------------------
Compressors - CSI, Ouachita & others $1,300,000
- ------------------------------------------------ --------------------------------------------------- --------------------------
</TABLE>
<PAGE>
SCHEDULE 8.14
List of Subsidiaries
Percentage of
Name of Jurisdiction of Voting Stock owned
Subsidiary Incorporation by the Borrower
Gruy Petroleum Management Co. Texas 100%
Magnum Hunter Production, Inc. Texas 100%
Hunter Gas Gathering, Inc. Texas 100%
ConMag Energy Corporation Texas 100%
Rampart Petroleum, Inc. Texas 100%
Hunter Butcher International Wyoming 51%
Limited Liability Company *
======================================= ======================================
* An Unrestricted Subsidiary.
<PAGE>
SCHEDULE 8.20
Environmental Matters
<PAGE>
SCHEDULE 10.2
Existing Liens
1. That certain Conveyance of Production Payment from Hunter Resources,
Inc., a Pennsylvania corporation ("Grantor") to American Founders Life
Insurance Company, a Texas corporation ("Grantee") effective July 1,
1995, in the original amount of Three Hundred Thousand Dollars
($300,000) payable out of 50% of the net revenue interest owned by
Grantor in and under the oil, gas and mineral leases and the lands
covered thereby as described in Exhibit A thereto.
2. That certain Conveyance of Production Payment from Magnum Petroleum,
Inc., a Nevada corporation ("Grantor") to American Founders Life
Insurance Company, a Texas corporation ("Grantee") effective November
1, 1996, in the original amount of Seven Hundred Fifty Thousand Dollars
($750,000) payable out of 50% of the net revenue interest owned by
Grantor in and under the oil, gas and mineral leases and the lands
covered thereby as described in Exhibit A thereto.
3. That certain lien in favor of Wells Fargo Bank, N.A. on that certain
1996 GMC Suburban.
<PAGE>
******************************************************************************
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
among
BANKERS TRUST COMPANY,
AS ADMINISTRATIVE AGENT AND AS ISSUING BANK
CIBC INC.,
AS SYNDICATION AGENT,
PARIBAS,
AS DOCUMENTATION AGENT AND AS COLLATERAL AGENT,
THE SEVERAL FINANCIAL INSTITUTIONS
FROM TIME TO TIME PARTY HERETO
and
MAGNUM HUNTER RESOURCES, INC.
Dated as of June 1, 1998
******************************************************************************
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions...................................................................2
Section 1.1 Definitions........................................2
Section 1.2 Other Definitional Provisions.....................19
ARTICLE II
Loans................................................................20
Section 2.1 Commitments......................................20
Section 2.2 Notes............................................20
Section 2.3 Repayment of Loans...............................20
Section 2.4 Interest.........................................20
Section 2.5 Use of Proceeds..................................21
Section 2.6 Commitment Fee...................................21
Section 2.7 Reduction or Termination of Commitments..........21
Section 2.8 Borrowing Base...................................22
ARTICLE III
Letters of Credit....................................................23
Section 3.1 Letters of Credit................................23
Section 3.2 Participation by Banks...........................23
Section 3.3 Procedure for Issuing Letters of Credit..........24
Section 3.4 Reimbursements; Payments Constitute Loans........24
Section 3.5 Letter of Credit Fees............................25
Section 3.6 Obligations Absolute.............................25
Section 3.7 Limitation of Liability..........................26
Section 3.8 Letter of Credit Documents.......................26
Section 3.9 Replacement of the Issuing Bank..................26
ARTICLE IV
Borrowing Procedure; Payments........................................27
Section 4.1 Borrowing Procedure..............................27
Section 4.2 Conversions and Continuations....................27
Section 4.3 Method of Payment................................28
Section 4.4 Voluntary Prepayment.............................28
Section 4.5 Mandatory Prepayment or ddition of Collateral....29
Section 4.6 Borrower's Option to Increase Collateral.........30
Section 4.7 Pro Rata Treatment...............................30
Section 4.8 Non-Receipt of Funds by the Administrative Agent.31
Section 4.9 Withholding Tax Exemption........................31
Section 4.10 Computation of Interest..........................32
ARTICLE V
Yield Protection and Illegality......................................32
Section 5.1 Additional Costs.................................32
Section 5.2 Limitation on Types of Loans.....................33
Section 5.3 Illegality.......................................34
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
Section 5.4 Treatment of Eurodollar Loans....................34
Section 5.5 Compensation.....................................35
Section 5.6 Capital Adequacy.................................35
Section 5.7 Additional Costs in Respect of Letters of Credit.36
Section 5.8 Replacement of Bank on Account of Taxes,
Increased Costs, Eurodollar Lending
Unlawful, Reserve Requirements, Certain
Dissents, Etc....................................36
ARTICLE VI
Security.............................................................37
Section 6.1 Collateral.......................................37
Section 6.2 Security Documents...............................38
Section 6.3 Evidence of Title; Legal Opinions................38
Section 6.4 Subsidiary Guaranty Agreement....................39
Section 6.5 Setoff...........................................39
ARTICLE VII
Conditions Precedent.................................................39
Section 7.1 Initial Loans....................................39
Section 7.2 All Loans........................................40
Section 7.3 Additional Conditions............................41
ARTICLE VIII
Representations and Warranties.......................................42
Section 8.1 Corporate Existence..............................42
Section 8.2 Financial Statements.............................43
Section 8.3 Corporate Action; No Breach......................43
Section 8.4 Operation of Business............................43
Section 8.5 Litigation and Judgments.........................43
Section 8.6 Rights in Properties; Liens......................44
Section 8.7 Enforceability...................................44
Section 8.8 Approvals........................................44
Section 8.9 Debt.............................................44
Section 8.10 Taxes............................................44
Section 8.11 Use of Proceeds; Margin Securities...............44
Section 8.12 ERISA............................................44
Section 8.13 Disclosure.......................................45
Section 8.14 Subsidiaries.....................................45
Section 8.15 Agreements.......................................45
Section 8.16 Compliance with Laws.............................45
Section 8.17 Inventory........................................46
Section 8.18 Investment Company Act...........................46
Section 8.19 Public Utility Holding Company Act...............46
Section 8.20 Environmental Matters............................46
Section 8.21 Y2K Matters......................................47
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
ARTICLE IX
Positive Covenants...................................................48
Section 9.1 Reporting Requirements...........................48
Section 9.2 Maintenance of Existence; Conduct of Business....50
Section 9.3 Maintenance of Properties........................51
Section 9.4 Taxes and Claims.................................51
Section 9.5 Insurance........................................51
Section 9.6 Inspection Rights................................51
Section 9.7 Keeping Books and Records........................51
Section 9.8 Compliance with Laws.............................52
Section 9.9 Compliance with Agreements.......................52
Section 9.10 Further Assurances...............................52
Section 9.11 ERISA............................................52
Section 9.12 Subsidiary Security Agreement; Subsidiary
Guaranty.........................................52
Section 9.13 Collateral Maintenance; Additional Mortgages.....52
ARTICLE X
Negative Covenants...................................................53
Section 10.1 Debt.............................................53
Section 10.2 Limitation on Liens..............................54
Section 10.3 Mergers, Etc.....................................55
Section 10.4 Restricted Payments..............................56
Section 10.5 Investments......................................56
Section 10.6 Limitation on Issuance of Subsidiaries'
Capital Stock....................................57
Section 10.7 Transactions With Affiliates.....................57
Section 10.8 Disposition of Assets............................57
Section 10.9 Sale and Leaseback...............................58
Section 10.10 Prepayment of Debt...............................58
Section 10.11 Nature of Business...............................58
Section 10.12 Environmental Protection.........................58
Section 10.13 Accounting.......................................58
ARTICLE XI
Financial Covenants..................................................59
Section 11.1 Consolidated Interest Coverage Ratio.............59
Section 11.2 Current Ratio....................................59
Section 11.3 Debt to Capitalization Ratio.......................59
ARTICLE XII
Default..............................................................59
Section 12.1 Events of Default................................59
Section 12.2 Remedies.........................................61
Section 12.3 Letters of Credit................................62
Section 12.4 Performance by the Administrative Agent..........62
-iii-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
ARTICLE XIII
Agency Provisions....................................................63
Section 13.1 Appointment and Powers of the
Administrative Agent.............................63
Section 13.2 Appointment and Powers of the Collateral Agent...64
Section 13.3 Immunity.........................................64
Section 13.4 Rights of Each Agent as a Bank...................65
Section 13.5 Sharing of Payments, Etc.........................65
Section 13.6 INDEMNIFICATION..................................66
Section 13.7 Independent Credit Decisions.....................67
Section 13.8 Several Commitments..............................67
Section 13.9 Successor Agent..................................67
ARTICLE XIV
Miscellaneous........................................................68
Section 14.1 Expenses.........................................68
Section 14.2 INDEMNIFICATION..................................68
Section 14.3 LIMITATION OF LIABILITY..........................69
Section 14.4 No Duty..........................................70
Section 14.5 No Fiduciary Relationship........................70
Section 14.6 No Waiver; Cumulative Remedies...................70
Section 14.7 Successors and Assigns...........................70
Section 14.8 Survival.........................................73
Section 14.9 Amendments, Etc..................................73
Section 14.10 Maximum Interest Rate............................74
Section 14.11 Notices..........................................74
Section 14.12 GOVERNING LAW; VENUE; SERVICE OF PROCESS.........74
Section 14.13 Counterparts.....................................75
Section 14.14 Severability.....................................75
Section 14.15 Headings.........................................75
Section 14.16 Construction.....................................75
Section 14.17 Independence of Covenants........................75
Section 14.18 Treatment of Certain Information;Confidentiality.75
Section 14.19 WAIVER OF JURY TRIAL.............................76
Section 14.20 NO ORAL AGREEMENTS...............................76
-iv-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 3,193
<SECURITIES> 0
<RECEIVABLES> 8,047
<ALLOWANCES> (166)
<INVENTORY> 0
<CURRENT-ASSETS> 13,030
<PP&E> 265,219
<DEPRECIATION> (24,817)
<TOTAL-ASSETS> 266,755
<CURRENT-LIABILITIES> 14,394
<BONDS> 184,181
0
1
<COMMON> 43
<OTHER-SE> 68,075
<TOTAL-LIABILITY-AND-EQUITY>266,755
<SALES> 25,560
<TOTAL-REVENUES> 26,014
<CGS> 12,903
<TOTAL-COSTS> 23,459
<OTHER-EXPENSES> (338)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,751
<INCOME-PRETAX> (5,858)
<INCOME-TAX> (2,209)
<INCOME-CONTINUING> (3,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,662)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
