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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 15, 1999
CROSS TIMBERS OIL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-10662 75-2347769
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
810 Houston Street, Suite 2000, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
(817) 870-2800
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets.
On September 15, 1999, Cross Timbers Oil Company ("Cross Timbers") and
Lehman Brothers Holdings, Inc. ("Lehman Brothers") completed the previously
announced acquisition of Arkoma Basin oil and gas properties from Ocean Energy,
Inc. ("Ocean") for $231 million. Lehman Brothers is Cross Timbers' financial
partner in the transaction. The purchase was made pursuant to a Purchase and
Sale Agreement dated July 30, 1999. The original purchase price of $235.3
million was reduced by estimated net revenue received between the July 1, 1999
effective date and the closing date.
Cross Timbers and Lehman Brothers each own 50% of a company formed to
acquire the Arkoma Basin properties. Lehman Brothers contributed $100 million in
cash to this company and Cross Timbers contributed $100 million in securities,
including its common stock. Cross Timbers' shares held in this subsidiary will
not be included in outstanding shares on Cross Timbers' consolidated balance
sheet. The purchase price was funded with $100 million from the jointly owned
company and $131 million financed through a revolving credit agreement with
commercial banks. Debt under this credit facility is secured by the properties
and is non-recourse to Cross Timbers and Lehman Brothers. The subsidiary's
financial results will be consolidated in Cross Timbers' financial statements,
with recognition of Lehman's 50% interest as a minority interest.
Cross Timbers will have the option to acquire Lehman Brothers' 50% interest
at any time within a year. If Cross Timbers does not exercise its option, on the
anniversary date of closing, Lehman Brothers will have the option to sell its
50% interest to Cross Timbers. The option exercise price is $100 million plus a
specified return.
Internal engineers of Cross Timbers estimate proved reserves as of July 1,
1999 to be 220 billion cubic feet of gas equivalent, of which more than 99% is
natural gas. Current net daily production is estimated to be 55 million cubic
feet of natural gas from more than 1,140 wells with a reserve-to-production
index of 11 years.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Statements of revenues and direct operating expenses for the properties
acquired from Ocean for the year ended December 31, 1998 (audited) and for the
nine months ended September 30, 1999 and 1998 (unaudited) are impracticable to
file as of the date of this report. Such financial statements will be filed by
amendment as soon as practicable, but no later than November 29, 1999.
(b) Pro forma financial information.
Pro forma consolidated statements of operations for Cross Timbers for the
year ended December 31, 1998 and the nine months ended September 30, 1999, which
reflect the impact of the properties acquired from Ocean, are impracticable to
file as of the date of this report. Such pro forma financial statements will be
filed by amendment as soon as practicable, but no later than November 29, 1999.
Because Cross Timbers' consolidated balance sheet at September 30, 1999 will
include the effect of this acquisition, a pro forma balance sheet will not be
filed.
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(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Page
and Description Number
- --------------- ------
<S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
2.1 Purchase and Sale Agreement by and between Ocean Energy, Inc. and
Cross Timbers Oil Company, dated July 30, 1999
(99) Additional Exhibits
99.1 Revolving Credit Agreement, dated September 15, 1999, among Summer
Acquisition Company and certain commercial banks named therein
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CROSS TIMBERS OIL COMPANY
Date: September 30, 1999 By: BENNIE G. KNIFFEN
-----------------------------
Bennie G. Kniffen
Senior Vice President
and Controller
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EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") dated July 30, 1999 is
by and between Seagull Energy E&P Inc., a Delaware corporation ("Seller") and
Cross Timbers Oil Company, a Delaware corporation ("Buyer").
WITNESSETH:
WHEREAS, Seller owns all of the issued and outstanding shares of Arkoma
Holding Corporation, a Delaware corporation (the "Company"); and
WHEREAS, Seller currently owns certain oil and gas properties and related
assets in Arkansas and Oklahoma (the "Seagull Assets") that are included in the
Assets (as hereinafter defined) and Seller's affiliate, Ocean Energy Resources,
Inc. ("OERI"), currently owns certain oil and gas properties and related assets
in Arkansas (the "OERI Assets") that are included in the Assets; and
WHEREAS, Seller intends to convey the Seagull Assets to Company and OERI
intends to convey the OERI Assets to Company, in each case, prior to the Closing
(as hereinafter defined); and
WHEREAS, Fidelity Oil Holdings, Inc. and JMI Energy, Inc. (collectively,
the "Joint Owners") each own certain undivided interests in the Assets, which
undivided interests Company intends to acquire prior to the Closing (such
acquisition by Company, together with its acquisition of the Seagull Assets and
the OERI Assets, are hereinafter referred to as the "Pre-Closing Transactions"):
WHEREAS, Seller is willing to sell to Buyer and Buyer is willing to buy
from Seller all of the issued and outstanding shares of Company ("Shares") on
the terms and conditions herein set forth.
NOW THEREFORE, for and in consideration of the mutual benefits derived and
to be derived from this Agreement by each party hereto, as well as other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
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ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 Agreement to Purchase and Sell Shares and Assets. On and subject to
the terms and conditions of this Agreement, Buyer agrees to buy from Seller, and
Seller agrees to sell, transfer, assign and convey to Buyer, all of the Shares.
1.2 Assets. Subject to Section 1.3, the term "Assets" shall mean (i)
prior to the consummation of the Pre-Closing Transactions, all of each of
Seller's and OERI's (collectively, the "Current Owners") right, title and
interest in and to, and (ii) following the consummation of the Pre-Closing
Transactions, all of Company's right, title and interest in and to:
(a) the wells described on Exhibit "A" attached hereto and all other
water, disposal, injector and other wells (the "Wells") located on the
Properties (as hereinafter defined) and the oil, gas and mineral leases,
and the leasehold estates created thereby, the mineral servitudes, mineral
interests, royalty and overriding royalty interests and any other real
property interests covering, related to or associated with such Wells,
including the leases, mineral interests and other real property interests
described on Exhibit "A-1" signed by Seller and Buyer for identification
herewith (collectively, the "Properties", or singularly, a "Property");
(b) all rights incident to the Wells or the Properties including,
without limitation, (i) all rights with respect to use and occupation of
the surface thereof and subsurface depths thereunder, (ii) all rights with
respect to any pooled, communitized or unitized acreage by virtue of any
Property being a part thereof, including all production from such pool or
unit allocated to such Property, and (iii) all tenements, hereditaments and
appurtenances pertaining to such Wells and Properties;
(c) all easements, rights-of way, servitudes, permits, licenses and
other estates or similar rights or privileges related to or used in
connection with the Wells or the Properties (the "Easements");
(d) all personal property, pipelines, equipment, machinery, fixtures
and improvements located on or used in connection with the Wells, the
Properties and the Easements and all rolling stock used primarily in
connection with the ownership or operation of the Wells, Properties or
Easements;
(e) the surface property described in Exhibit A-2 attached hereto and
all improvements located thereon, together with all office equipment,
computers and other personal property located upon such surface property
and primarily used in connection with the ownership or operation of the
Wells or Properties;
(f) all contracts, agreements, leases and other arrangements related
to or used in connection with (but only to the extent that such contracts,
agreements, leases and other arrangements relate to) the Wells, the
Properties and the Easements including (without making any representation
or warranty as to whether there are any or whether if
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there are, they are effective or terminated) all the Current Owners' and
Company's rights under and by virtue of all covenants and warranties
pertaining to the Assets, express or implied, (such as, without limitation,
title warranties and manufacturers', suppliers' and contractors'
warranties), that have been heretofore been made by the Current Owners' or
Company's predecessors in title or by any third party manufacturers,
suppliers and contractors, such that the transaction contemplated hereunder
shall be made with full substitution and subrogation of Buyer, its
successors and assigns, in and to and under and by virtue of the covenants
and warranties described in this subsection (e) and with full subrogation
to all rights accruing under the statutes of limitation and repose in
relation to the Assets and all causes of action, rights of action or
warranties of the Current Owners or Company against all former owners of
the Assets, except predecessors in title who are subsidiaries or affiliates
of Seller (but such former owners shall include OERI and Seller);
(g) all oil, gas distillate, condensate, casinghead gas and other
liquid or gaseous hydrocarbons and other minerals (collectively,
"Hydrocarbons") produced from or attributable to the Wells or the
Properties, and proceeds attributable thereto, to the extent attributable
to the period of time on and after the Effective Time;
(h) all suspense accounts held by the Current Owners or Company
relating to the Properties;
(i) all books, records, files, muniments of title, reports and similar
documents and materials that relate to the foregoing interests that are not
to be held confidential with other non-affiliated third parties; and
(j) all geological, engineering, exploration, production, geophysical
and seismic data and information related to the Wells or the Properties
that the Current Owners or Company own or are able to transfer or assign
under any currently effective agreement relating to any such data and
information. Buyer is responsible for all fees (including any such fees
arising in connection with the Pre-Closing Transactions or the sale of the
Shares) related to transferring or assigning such data unless Buyer
notifies Seller prior to the Closing that it declines to accept a transfer
or assignment thereof.
1.3 Excluded Assets. Notwithstanding the foregoing, the Assets shall not
include, and there is excepted, reserved and excluded from the purchase and sale
contemplated hereby (collectively, the "Excluded Assets");
(a) all geological, engineering, exploration, production, geophysical
and seismic data and information that by currently effective agreement any
Current Owner is prohibited or unable to sell, transfer or assign to
Company or Buyer (including prohibitions due to a sale of the Shares)
(provided that Seller will use all reasonable efforts to obtain necessary
consents to transfer or assign such data and information to Buyer);
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(b) any refund of taxes or other costs or expenses borne by the
Current Owners or Company or their predecessors in title attributable to
the period of time prior to the Effective Time; and
(c) any and all proceeds from the settlements or final adjudication of
contract or audit disputes that any Current Owner or Company or their
predecessors in title receive from co-owners or operators of the Wells or
the Properties or with purchasers, gatherers, processors or transporters of
Hydrocarbons from or attributable to the Wells or the Properties including,
without limitation, settlement of royalty, take-or-pay, pricing or volume
adjustment disputes, insofar as said proceeds are attributable to periods
of time prior to the Effective Time.
1.4 Effective Time. The term "Effective Time" as used herein shall
mean 7:00 a.m. local time in Houston, Texas on July 1, 1999.
ARTICLE 2
PURCHASE PRICE
--------------
2.1 Purchase Price. Buyer agrees to pay to Seller at the Closing the
amount of $235,300,000 (the "Purchase Price"), as adjusted in accordance with
the provisions of Section 9.2, by means of a completed wire transfer of
immediately available funds to an account designated by Seller.
2.2 Allocated Values. The parties agree to allocate the Purchase Price
among the Wells and Properties for all purposes (including financial accounting
and tax purposes) in accordance with the allocation schedule attached hereto as
Schedule 2.2 (the "Allocated Values"). Seller and Buyer each agree that they
will not (and they shall cause their affiliates not to) take any position
inconsistent with such allocation in preparing all tax returns and tax reports
to governmental authorities ("Tax Returns") or otherwise.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
SELLER
------
Subject to Sections 11.4, 14.7 and 14.8, Seller represents and warrants to
Buyer that:
3.1 Ownership of Shares; Organization and Good Standing. Company and the
Current Owners are corporations duly organized, validly existing and in good
standing under the laws of the state of their incorporation with full corporate
power, right and authority to own and lease the properties and assets they
currently own and lease and to carry on their business as such businesses are
currently being conducted. The Current Owners are, and as of the Closing,
Company will be, duly licensed or qualified under the laws of, and each is in
good standing in, each jurisdiction where, because of the nature of its
activities or properties, such licensing or qualification is required, except
where the failure to be so licensed or qualified would not,
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individually or in the aggregate, have a Material Adverse Effect. Seller is the
owner of the Shares, free and clear of any lien, charge or encumbrance and has
full right and authority to transfer the Shares to Buyer. The authorized capital
stock of Company consists of 1,000 shares of common stock, par value $0.01 per
share, all of which are issued and outstanding and constitute the Shares. There
are no existing subscriptions, agreements, options, warrants, rights, calls or
commitments of any character providing for the issuance of any additional shares
of Company (or any other interest in the ownership or earnings of Company), the
sale of treasury shares, or for the purchase or redemption of shares of
Company's capital stock and there are no outstanding securities or other
instruments convertible into or exchangeable for shares of such capital stock
and no commitment to issue such security or instruments. For purposes of this
Agreement, an occurrence or condition shall have a "Material Adverse Effect" if
it has a material adverse effect on the use, ownership or operation of the
Assets, taken as a whole, or materially hinders or impedes the consummation of
the transactions contemplated by this Agreement.
3.2 Authorization of Agreement; No Violation; No Consents. This Agreement
has been duly executed and delivered by Seller. Seller has the full corporate
power and authority to enter into this Agreement, to make the representations,
warranties, covenants and agreements made herein and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all requisite corporate action on the part
of Seller. Neither the execution and delivery of this Agreement by Seller nor
the consummation of the transactions contemplated hereby (a) will conflict with
or result in a breach, default or violation of (i) the terms, provisions or
conditions of the Certificate or Articles of Incorporation or Bylaws of the
Current Owners or Company or (ii) any judgment, decree or order or any
governmental permit, certificate, license, Law (as hereinafter defined) or any
judgment, decree or order to which the Current Owners or Company is a party or
is subject, or to which any of the Assets are subject, except for (A) consents
and approvals from Governmental Entities (as hereinafter defined) that are
customarily obtained after closing in connection with a sale of assets such as
the Shares or the transfer of properties such as the Assets (as is contemplated
in connection with the Pre-Closing Transactions) (the "Customary Post-Closing
Consents") or (b) will result in the creation of any lien, charge or other
encumbrance on any of the Assets or Shares.
3.3 Governmental Consents. No consent, action, approval or authorization
of, or registration, declaration or filing with, any domestic or foreign court,
government, governmental agency, authority, entity or instrumentality
("Governmental Entity") is required to authorize, or is otherwise required in
connection with, the execution and delivery of this Agreement by Seller,
Seller's performance of the terms of this Agreement, the consummation of the
Pre-Closing Transactions, or the validity or enforceability hereof against
Seller, except for Customary Post-Closing Consents.
3.4 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar Laws affecting creditors' rights generally and general
principles of equity.
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3.5 Brokers. Other than Banc of America Securities LLC, no broker or
finder has acted for or on behalf of Seller or any affiliate of Seller in
connection with this Agreement or the transactions contemplated by this
Agreement. No broker or finder is entitled to any brokerage or finder's fee, or
to any commission, based in any way on agreements, arrangements or
understandings made by or on behalf of Seller or any affiliate of Seller for
which Buyer has or will have any liabilities or obligations (contingent or
otherwise).
3.6 Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or, to the knowledge of Seller,
threatened against the Current Owners, Company or any affiliate of Seller.
3.7 Suits. Other than the matters set forth on Schedule 3.7, there is no
suit, action, claim, investigation or inquiry by any person or entity or by any
Governmental Entity and no legal, administrative or arbitration proceeding
pending or, to the knowledge of Seller, threatened relating to the Shares or
Assets and to which the Current Owners or Company or any affiliate thereof is a
party.
3.8 Public Utility Holding Company Act. Neither the Current Owners or
Company nor any subsidiary of Seller is subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, and the rules and regulations
thereunder (the "1935 Act").
3.9 Investment Company Act. None of the Current Owners or Company is an
"investment company" or a company "controlled" by an "investment company", in
each case within the meaning of the Investment Company Act of 1940, as amended.
3.10 No Adverse Changes. Except as permitted or disclosed in this
Agreement or any Exhibits or Schedules hereto, since the Effective Time, there
have been no events that would have, individually or in the aggregate, a
Material Adverse Effect on the Assets, other than events affecting the U.S.
economy or the oil and gas industry in general and, except as is contemplated by
the Pre-Closing Transactions, since the Effective Time, neither the Current
Owners or Company have made any sale, transfer or other disposition of the
Assets (other than sales of Hydrocarbons in the ordinary course of business) and
Seller has made no sale, transfer or other disposition of the Shares.
3.11 Compliance With Laws. To the knowledge of Seller, none of the
Current Owners is and, as of the Closing, Company is not, in default or
violation of any domestic or foreign statute, law, ordinance, rule, regulation
or common or civil law obligation ("Law") of any Governmental Entity applicable
to it and related to the Assets or Shares, or by which the Assets or Shares are
bound.
3.12 Governmental Licenses, Permits and Certificates. To the knowledge of
Seller, prior to the consummation of the Pre-Closing Transactions, the Current
Owners possess, and following consummation of the Pre-Closing Transactions,
Company possesses all governmental licenses, permits, exemptions, approvals and
certificates necessary for the ownership and operation of the Assets, except for
those licenses, permits, exemptions, approvals or certificates
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that are customarily obtained after the transfer of properties similar to the
Assets (as is contemplated in connection with the Pre-Closing Transactions).
3.13 Wells. To the knowledge of Seller, (a) all of the wells in which,
prior to the consummation of the Pre-Closing Transactions, any of the Current
Owners and, following the consummation of the Pre-Closing Transactions, Company
has an interest by virtue of its ownership of the Properties have been drilled
and completed within the boundaries of such Property or within the limits
otherwise permitted by contract, pooling or unitization agreement, or by Law,
(b) all drilling and completion of such wells and all operations with respect
thereto have been conducted in compliance with all applicable Laws and (c) all
such wells have been produced in compliance with allowables allocated thereto by
the applicable Governmental Entity.
3.14 Gas Prepayment Arrangements; Take-or-Pay. Except for gas imbalances
between the Current Owners or Company and any third party working interest
owners or gatherers or transporters relative to the Properties which are set
forth on Schedule 3.14 (such imbalances, excluding the imbalance relating to the
Johnson "O" Well in the Ross Field, Pope County, Arkansas, are referred to
herein as the "Gas Imbalances"), to the knowledge of Seller, none of Company or
the Current Owners is not obligated by any gas prepayment arrangement or by any
"take-or-pay" requirement or by any other financial penalty or payback
obligation to deliver any gas at a future time without then or thereafter
receiving payment therefor.
3.15 Condition of Equipment. To the knowledge of Seller, all personal
property, equipment, machinery, fixtures and improvements currently in use and
material to the ownership and operation of the Assets is in use and is in
reasonable repair, ordinary wear and tear excepted.
3.16 Foreign Person. Seller is not a foreign person as contemplated by
Section 1445 of the Internal Revenue Code.
3.17 Title to Property. As of the date hereof, the Current Owners have,
and as of the Closing, Company will have, Defensible Title (as hereinafter
defined) to the Properties, free and clear of all liens, charges and
encumbrances, except liens for taxes not yet due and payable and such minor
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present ownership, operation, or use of the Property
affected thereby or which, individually or in the aggregate, would not have a
Material Adverse Effect on any of the Properties.
3.18 Environmental Matters. As used herein, "Environmental Laws" means
applicable federal, state, and local laws, including statutes, regulations and
orders, ordinances, and common law, relating to protection of the public health,
welfare, and the environment, including without limitation, those laws relating
to storage, handling and use of chemicals and other hazardous materials, those
relating to the generation, processing, treatment, storage, transport, disposal,
or other management of waste materials of any kind, and those relating to the
protection of environmentally sensitive areas; "Violation of Environmental Laws"
means the violation of or the failure to meet the specific objective
requirements or standards that are clearly applicable to an Asset under
applicable Environmental Laws; "Release" means depositing, spilling, leaking,
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pumping, pouring, emitting, emptying, discharging, injecting, escaping, leasing,
dumping, or disposing; "Hazardous Material" means "hazardous substance",
"pollutant or contaminant", and "petroleum and natural gas liquids", as those
terms are defined or used in Section 101 of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"); and
"Conditions" means Release or the presence of Hazardous Materials.
To the knowledge of Seller and unless otherwise disclosed on Schedule 3.18:
(a) With respect to its use, ownership and operation of the
Properties, prior to the consummation of the Pre-Closing Transactions, the
Current Owners are and, following the consummation of the Pre-Closing
Transactions, Company is, in compliance with all applicable Environmental
Laws.
(b) There has been no Release and there is no current threat of
Release of any Hazardous Materials on, onto, or from the Properties that
has resulted in or could result in (i) a material violation of any
Environmental Laws or the creation of any material liability or
obligations, including without limitation, notification, deed recordation,
or remediation, under any Environmental Laws, or (ii) a material diminution
in value of any Property. The Properties have not contained and currently
contain no underground or aboveground storage tanks, no "PCBs" or "PCB
items" (as those terms are defined in the U.S. Code of Federal
Regulations), and no asbestos.
(c) With regard to activities and conditions on the Properties, none
of the Current Owners or Company has given, or was required to give, and
none of the Current Owners or Company has received, any notice that: (i)
such entity has violated, or is about to violate, any Environmental Laws
with respect to the Properties; (ii) there has been a Release, or there is
a threat of Release, of Hazardous Materials from the Properties; (iii) such
entity may be or is liable, in whole or in part, for the costs of cleaning
up, remediating, removing or responding to a Release of Hazardous Materials
with respect to the Properties ; (iv) the Properties are subject to a lien
in favor of any Governmental Entity for any liability, cost or damages,
under any Environmental Laws arising from or costs incurred by such
governmental entity in response to a Release of Hazardous Materials. No
conditions currently exist, or are reasonably foreseeable, that would give
rise to such a notice.
(d) Prior to the consummation of the Pre-Closing Transactions, the
Current Owners have, and following the consummation of the Pre-Closing
Transactions, Company has all permits, licenses, certificates, approvals,
registrations, and applications (hereinafter "Environmental Permits"),
necessary to comply with all Environmental Laws applicable to the
Properties, except, with respect to Company, for those Environment Permits
customarily obtained after the transfer of properties similar to the Assets
(as is contemplated in the Pre-Closing Transactions). In connection with
the Pre-Closing Transactions, the Current Owners and Company shall
cooperate in obtaining the transfers of all Environmental Permits and agree
to satisfy all notice and approval requirements for such transfers.
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3.19 Status of Leases. With respect to the oil, gas and/or mineral leases
relating to the Properties, to the knowledge of Seller: (i) such leases have
been maintained according to their terms, in compliance with the agreements to
which such leases are subject; (ii) such leases are presently in full force and
effect; (iii) all royalties (other than royalties held in suspense), delay
rentals and other payments due under such leases have been properly and timely
paid and all conditions necessary to keep such leases in force have been fully
performed; and (iv) none of the Current Owners or Company nor, to the knowledge
of Seller, any other party to any such lease has received notice of any claim or
action seeking to terminate, cancel, rescind or procure a judicial reformation
of any such lease or any provisions thereof or seeking the release of any such
lease (or portion thereof) comprising any part of the Properties or the drilling
of any additional wells on such lease (or portion thereof).
3.20 Operations and Expenditures. With respect to any joint, unit or
other operating agreements affecting the Properties, there are no outstanding
calls or payments under authorities for expenditures concerning any single
expenditure to be made by any of the Current Owners or Company in excess of
Fifty Thousand Dollars ($50,000) which are due or which such entity has
committed to make and which have not been made.
3.21 Plugged/Nonproducing Wells. To the knowledge of Seller, (i) plugged
wells located on the Properties have been properly plugged and there are no
abandoned unplugged well bores located on the Properties which good oil field
practice would require plugging and (ii) none of the wells on the Properties are
currently required to be plugged and abandoned under the Law of any Governmental
Entity.
3.22 Removal of Equipment. From the date hereof to the Closing, none of
the Current Owners or Company will remove, exchange, suffer loss or destruction
(casualty or otherwise) of any personal property, equipment, machinery, fixtures
or improvements, material to the use, ownership, or operation of the Properties
without replacement thereof with personal property, pipelines, equipment,
machinery, fixtures or improvements of equal or better value and specifications.
3.23 Preferential Rights. To the knowledge of Seller, Schedule 10.2(b)
identifies all Wells that may be subject to any preferential rights of purchase
or comparable rights.
3.24 Disclosure. To the knowledge of Seller, no statement contained in
any document, certificate, or other writing furnished or to be furnished by
Seller or its affiliates to Buyer in this Agreement or any Exhibit or Schedule
hereto contains or shall contain any untrue statement of a material fact or
omits or shall omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller that:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation with full corporate power, right and authority to own and
lease the properties and assets it currently owns and leases and to carry on its
business as such business is currently being conducted. Buyer is duly licensed
or qualified under the laws of, and is in good standing in, each jurisdiction
where, because of the nature of its activities or properties, such licensing or
qualification is required, except where the failure to be so licensed or
qualified would not, individually or in the aggregate, have a Material Adverse
Effect.
4.2 Authorization of Agreement; No Violation; No Consents. This Agreement
has been duly executed and delivered by Buyer. Buyer has the full corporate
power and authority to enter into this Agreement, to make the representations,
warranties, covenants and agreements made herein and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all requisite corporate action on the part
of Buyer. Neither the execution and delivery of this Agreement by Buyer nor the
consummation by Buyer of the transactions contemplated hereby (a) will conflict
with or result in a breach, default or violation of (i) the terms, provisions or
conditions of the Certificate or Articles of Incorporation or Bylaws of Buyer or
(ii) any judgment, decree or order or any governmental permit, certificate,
license, law, statute, rule or regulation or any judgment, decree or order to
which Buyer is a party or is subject, or to which the business, assets or
operations of Buyer are subject, except for (A) Customary Post-Closing Consents
and (B) any conflict, breach, default or violation that would not have,
individually or in the aggregate, a Material Adverse Effect or (b) will result
in the creation of any lien, charge or other encumbrance on any property or
assets of Buyer. Buyer is now, and after Closing shall continue to be,
qualified with all applicable governmental entities to own and operate the
Assets.
4.3 Governmental Consents. No consent, action, approval or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required to authorize, or is otherwise required in connection with, the
execution and delivery of this Agreement by Buyer or Buyer's performance of the
terms of this Agreement or the validity or enforceability hereof against Buyer,
except for Customary Post-Closing Consents.
4.4 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting creditors' rights generally and general
principles of equity.
4.5 Brokers. No broker or finder has acted for or on behalf of Buyer or
any affiliate of Buyer in connection with this Agreement or the transactions
contemplated by this Agreement. No broker or finder is entitled to any
brokerage or finder's fee, or to any commission, based in
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any way on agreements, arrangements or understandings made by or on behalf of
Buyer or any affiliate of Buyer for which Seller or any of its affiliates has or
will have any liabilities or obligations (contingent or otherwise).
4.6 Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or, to the knowledge of Buyer,
threatened against Buyer or any affiliate of Buyer.
4.7 Suits. There is no suit, action, claim, investigation or inquiry by
any person or entity or by any Governmental Entity and no legal, administrative
or arbitration proceeding pending or, to the knowledge of Buyer, threatened (a)
to which Buyer or any affiliate thereof is a party and (b) that would have a
Material Adverse Effect.
4.8 Public Utility Holding Company Act. Neither Buyer nor any subsidiary
of Buyer is subject to regulation under the 1935 Act.
4.9 Investment Company Act. Buyer is not an "investment company" or a
company "controlled" by an "investment company", in each case within the meaning
of the Investment Company Act of 1940, as amended.
4.10 Investment. Buyer is an experienced and knowledgeable investor in
the oil and gas business. Prior to entering into this Agreement, Buyer was
advised by and has relied solely on its own legal, tax and other professional
counsel concerning this Agreement, the Assets, the Shares and the value thereof.
Buyer is acquiring the Shares and the Assets for its own account and not for
distribution or resale in any manner that would violate any state or federal
securities law, rule, regulation or order.
4.11 Financing. Buyer has currently available (including funds that can
be drawn under existing lines of credit) all funds necessary to pay the Adjusted
Purchase Price (as hereinafter defined) and any other amounts contemplated by
this Agreement. Buyer's ability to consummate the transactions contemplated
hereby is not contingent on its ability to obtain financing from any lender or
to complete any public or private placement of securities prior to or upon the
Closing.
4.12 Foreign Person. Buyer is not a foreign person as contemplated by
Section 1445 of the Internal Revenue Code.
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ARTICLE 5
COVENANTS OF SELLER
-------------------
Seller covenants and agrees, except as otherwise contemplated by this
Agreement, that:
5.1 General. Seller will, and Seller shall cause its affiliates to, use
their reasonable efforts in good faith to take all actions and to do all things
necessary or advisable in order to consummate and make effective the
transactions contemplated by this Agreement, including the Pre-Closing
Transactions.
5.2 Operation of the Assets.
(a) Subject to the provisions of applicable operating and other
agreements and the Pre-Closing Transactions, from the Effective Time to the
Closing, Seller shall (and Seller shall cause its affiliates, including
Company to), operate and administer the Assets in a good and workmanlike
manner consistent with Seller and its affiliates' past practices, and
(subject to the consummation of the Pre-Closing Transactions) shall carry
on the business with respect to the Assets in substantially the same manner
as before execution of this Agreement. Seller shall use its (and shall
cause its affiliates to use their) reasonable efforts to preserve in full
force and effect the Properties, Easements and the contracts included in
the Assets.
(b) From and after the date hereof until the Closing, Seller shall
(and shall cause its affiliates to), except for emergency action taken in
the face of risk to life, property or the environment, (i) submit to Buyer
for prior written approval, all requests for operating or capital
expenditures that involve individual commitments of more than Fifty
Thousand Dollars and No/100 ($50,000) net to Company and the Current
Owners, and all material proposed contracts and agreements relating to the
Assets, (ii) consult with, inform and advise Buyer regarding all material
matters concerning the operation, management and administration of the
Assets and (iii) obtain Buyer's written approval prior to voting for any
material matter under any operating, joint venture, partnership or similar
agreement covering the Properties including, without limitation, any vote
relating to reworking, recompleting or plugging an existing well.
(c) Buyer acknowledges that, prior to the consummation of the Pre-
Closing Transactions, the Current Owners own, and upon consummation of the
Pre-Closing Transactions Company will own, an undivided interest in certain
of the Properties, and Buyer agrees that the acts or omissions of the other
working interests owners, joint venturers or partners who are not
affiliated with any of Company or the Current Owners shall not constitute a
violation of the provisions of this Article 5, nor shall any action
required by a vote of working interest owners, joint venturers or partners
constitute such a violation so long as such party has voted its interest in
a manner that complies with the provisions of this Article 5. To the
extent that none of Company or Current Owners is the operator or managing
venturer or partner of any of the Properties, the obligations of such
parties in this Article 5 shall be construed to require that such party use
reasonable efforts (without being obligated to incur any expense or
institute any cause of action) to
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cause the operator or managing venturer or partner of such Properties to
take such actions or render such performance within the constraints of the
applicable operating agreements and other applicable agreements.
5.3 Access. Buyer and its representatives, employees, consultants,
independent contractors, attorneys and other advisors (the "Buyer Parties") have
been and shall be given, until such books and records of Seller and its
affiliates are physically transferred to Buyer, full access to the Properties
(after executing a mutually agreeable confidentiality agreement) and to the
books and records of Seller and its affiliates that are included in the Assets
for the purpose of conducting an investigation of the Assets; provided, however,
that such investigation shall be conducted during Seller's and its affiliates'
normal business hours and in a manner that does not interfere with normal
operations of such entities. Such books and records will be physically
transferred to Buyer at Buyer's cost on or before the Closing. Seller and its
affiliates will cause their employees, counsel, accountants and other
representatives to be available to the Buyer Parties at all reasonable times for
purposes of such investigations.
5.4 Pre-Closing Transactions. Prior to the Closing, Seller shall transfer
the Seagull Assets to Company pursuant to a form of assignment substantially in
the form attached hereto as Exhibit "B" (the "Assignment"). Prior to the
Closing, Seller shall cause its affiliate, OERI, to transfer the OERI Assets to
Company pursuant to a form of the assignment substantially in the form of the
Assignment. Immediately, prior to the Closing, the Company shall acquire from
the Joint Owners their respective interests in the Assets pursuant to a form of
assignment mutually acceptable to Seller and Buyer.
5.5 Section 338(h)(10) Election. With respect to Seller's sale and
Buyer's purchase of the Shares of Company, Seller and Buyer jointly shall make a
timely election under Section 338(h)(10) of the Internal Revenue Code, and under
any provision of any state law for which the same or a comparable election is
permissible with respect to the foregoing transaction, so as to have the gain
from the deemed sale of the assets of Company and each other member of the
Company group recognized in Seller's consolidated federal income tax return and
any state income tax return for which the same or a comparable election is
permissible (collectively, the "Election"). Seller and its affiliates agree to
report the sale and purchase of the Shares in a manner that is consistent with
the Election and shall take no position contrary thereto unless required to do
so by law or pursuant to a determination by the Internal Revenue Service or any
applicable state or local taxing authority.
ARTICLE 6
COVENANTS OF BUYER
------------------
Buyer covenants and agrees, except as otherwise contemplated by this
Agreement, that:
6.1 Further Assurances. Buyer hereby gives Seller further assurance that
it will use its reasonable efforts in good faith to take all actions and to do
all things necessary or advisable in order to consummate and make effective the
transactions contemplated by this Agreement.
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6.2 Employee Matters. Buyer may offer employment, to be effective upon
the Closing, to those employees of Seller and/or its affiliates that are
primarily involved in the operations of the Assets and that are listed on
Schedule 6.2 hereto (the "Employees"). Prior to Closing, Buyer shall provide to
Seller, in writing, a list of those Employees to whom Buyer has made offers of
employment. Except as hereinafter provided, Buyer shall have full discretion
in determining the terms, conditions and benefits relating to such employment.
Buyer shall provide severance benefits to each Employee employed by Buyer or its
affiliates (i) who is a Covered Employee (as such term is defined in the
Management Stability Plan previously provided to Buyer by Seller, such plan
being hereinafter referred to as the "MSP") as of Closing and (ii) whose
employment is subject to an Involuntary Termination (as such term is defined in
the MSP) prior to April 1, 2001 equal to the severance benefits such Employee
would have received under the MSP (as in effect as of Closing); provided,
however, that in the event an Employee's employment is subject to an Involuntary
Termination within six months following Closing, Seller shall reimburse Buyer
for the cost of any severance benefits provided to such Employee.
6.3 Election Filings. Buyer shall prepare the filings required in
connection with the Election and provide drafts of the same to Seller on or
before February 1, 2000, for Seller's review and approval.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLER
-----------------------------------
The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject, at the option of Seller, to the following
conditions:
7.1 Delivery. Buyer has delivered to Seller at Closing:
(a) the Estimated Adjusted Purchase Price (as hereinafter defined);
(b) an opinion of Buyer's general counsel in the form of Exhibit "C"
attached hereto; and
(c) any other agreements, documents, certificates, approvals, consents
or other instruments reasonably necessary to consummate the transactions
contemplated by this Agreement.
7.2 Representations. The representations and warranties of Buyer
contained herein shall be true and correct in all material respects on the date
of Closing as though made on and as of that date.
7.3 Performance. Buyer shall have performed in all material respects the
obligations, covenants and agreements hereunder to be performed by it at or
prior to the Closing.
7.4 Pending Matters. No suit, action or other proceeding by a third party
or a governmental authority shall be pending or threatened which seeks
substantial damages from
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Seller or the Company in connection with, or seeks to restrain, enjoin or
otherwise prohibit the consummation of all the transactions contemplated by this
Agreement. The Closing shall not violate any order or decree of any court or
governmental body having competent jurisdiction.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
----------------------------------
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject, at the option of Buyer, to the following conditions:
8.1 Delivery. Seller has delivered to Buyer at Closing:
(a) a copy of the certificate of incorporation of Company certified
as of a recent date by the Secretary of State of the State of Delaware;
(b) a certificate of good standing of Company issued as of a recent
date by the Secretary of State of the State of Delaware;
(c) a certificate of the secretary or an assistant secretary of
Company, dated the Closing, in form and substance reasonably satisfactory
to Buyer, as to no amendments to the certificate of incorporation or Bylaws
of Company;
(d) a signed resignation by each of the directors and officers of
Company and terminations of all powers of attorney granted by Company;
(e) the organizational documents of Company and the books of minutes
of meetings of the boards of directors, committees thereof, shareholders,
managers, management committees and other similar records of Company
certified as true and correct by the secretary or assistant secretary of
Company;
(f) certificates representing the Shares duly endorsed for transfer
to Buyer or with duly executed stock powers attached;
(g) copies of duly executed, acknowledged and recorded Assignments
from each of the Current Owners to Company covering such entity's rights,
titles and interests in the Assets and copies of duly executed,
acknowledged and recorded assignments from each of the Joint Owners to
Company covering such entity's rights, titles and interests in the Assets;
(h) duly executed letters-in-lieu of transfer orders directing all
purchasers of production from or attributable to the Properties after the
Effective Time to make payment to Company at Buyer's address of proceeds
attributable to such production on and after the Effective Time;
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(i) an opinion of Seller's general counsel in the form of Exhibit "D"
attached hereto; and
(j) any other agreements, documents, certificates, approvals,
consents or other instruments reasonably necessary to consummate the
transactions contemplated by this Agreement.
8.2 Representations. The representations and warranties of Seller
contained herein shall be true and correct in all material respects on the date
of Closing as though made on and as of that date.
8.3 Performance. Seller shall have performed in all material respects the
obligations, covenants and agreements hereunder to be performed by it at or
prior to the Closing.
8.4 Pending Matters. No suit, action or other proceeding by a third party
or a governmental authority shall be pending or threatened which seeks
substantial damages from Buyer in connection with, or seeks to restrain, enjoin
or otherwise prohibit the consummation of all the transactions contemplated by
this Agreement. The Closing shall not violate any order or decree of any court
or governmental body having competent jurisdiction.
ARTICLE 9
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
--------------------------------------
9.1 Time and Place of Closing. The transactions contemplated by this
Agreement are to be closed on September 15, 1999 (or such later date as Seller
may designate as is hereafter provided) at 10:00 a.m. local time in Houston,
Texas ("Closing") at the offices of Seller, 1600 First City Tower, 1001 Fannin,
Houston, Texas 77002; provided that Seller may, by written notice to Buyer,
extend the date of the Closing to a date no later than September 30 for purposes
of curing Title Defects or Violations of Environmental Laws or Conditions.
9.2 Adjustments to the Purchase Price. Seller shall prepare and deliver to
Buyer at least three business days prior to the date of the Closing, Seller's
estimate of the Adjusted Purchase Price (as hereinafter defined), together with
the statement setting forth Seller's estimate of the amount of each adjustment
and such backup or supporting information relating thereto as may be necessary
to permit Buyer to understand how Seller determined such estimates. The parties
shall negotiate in good faith and attempt to agree on such estimated adjustments
amounts prior to Closing. If any estimated adjustment amounts are not agreed
upon prior to the Closing, the estimate of the Adjusted Purchase Price for
purposes of Closing shall be calculated upon Seller's and Buyer's agreed upon
estimated adjustments amounts and Seller's good faith estimation of any disputed
amounts. At Closing, Buyer shall pay to Seller the estimated Adjusted Purchase
Price determined as set forth in this Section 9.2 (such estimated Adjusted
Purchase Price being hereinafter referred to as the "Estimated Adjusted Purchase
Price").
(a) The Purchase Price shall be increased by the following amounts:
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(i) the amount as of the Effective Time of all prepaid ad
valorem, property or similar taxes and assessments based upon or
measured by ownership of the Assets, insofar as such prepaid taxes
relate to periods of time after the Effective Time;
(ii) all costs and expenses (including but not limited to
rentals, royalties, production and severance taxes, capital
expenditures, lease operating expenses and overhead) paid that are
attributable to the Assets and attributable to the period of time from
and after the Effective Time;
(iii) the amount of all accounts receivable attributable to
Hydrocarbons that at the Effective Time are owned by Company or any of
the Current Owners or Joint Owners and are above the pipeline
connection, in tanks, in storage or in processing plants; such
accounts shall be valued and calculated at the price actually
received, if received, by Buyer for such Hydrocarbons, less applicable
royalties, burdens and taxes;
(iv) an amount equal to the interest on the Purchase Price (as
such Purchase Price may be adjusted for Title Defects, Title Benefits,
Violations of Environmental Laws or Conditions or pursuant to Section
10.5, in each case, in accordance with the terms of this Agreement)
from September 1, 1999 to the date of the Closing at the rate of 6%
per annum; provided that if Closing does not occur on or before
September 15, 1999 because (A) Seller extends the date of the Closing
as provided in Section 9.1, or (B) Seller is unable to close by such
date on account of unresolved Title Defects or Violations of
Environmental Laws or Conditions (provided that such matters are not
unresolved on account of the breach of this Agreement by Buyer), then
no such interest will be computed with respect to the days by which
the Closing is extended on account of such reasons;
(v) any other amount provided for in this Agreement or agreed
upon by Buyer and Seller (including amounts for Title Benefits as
provided herein).
(b) The Purchase Price shall be decreased by the following amounts:
(i) an amount equal to all unpaid ad valorem, property,
production, severance and similar taxes and assessments based upon or measured
by the ownership of the Assets that are attributable to periods of time prior to
the Effective Time, which amounts shall, to the extent not actually assessed, be
computed based on such taxes and assessments for the preceding tax year (such
amount to be prorated for the period of Company's, any of the Current Owners' or
Joint Owners' ownership before and Buyer's ownership after the Effective Time);
(ii) an amount equal to all revenues (gross) collected or
reasonably estimated by Seller to be collected by Company or any of the Current
Owners or Joint Owners with respect to the Assets and attributable to the period
of time after the Effective Time;
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(iii) the amount of all accounts payable including suspense
accounts attributable to the period of time prior to the Effective Time,
to the extent not theretofore paid by Company or any of the Current
Owners or Joint Owners;
(iv) the Allocated Value of any Property sold to the holder of a
Preferential Right (as hereinafter defined) pursuant to Section 10.5;
(v) any other amount provided for in this Agreement or agreed
upon by Buyer and Seller (including amounts for Title Defects and
Violations of Environmental Laws or Conditions as provided herein).
(c) For the net Gas Imbalance, or over or under production relative to
the Properties as of the Effective Time, the Purchase Price shall be
increased or decreased, as appropriate, by the product of (i) the amount
(measured in Thousand Cubic Feet ["Mcf"]) of net Gas Imbalances or over
or under production, and (ii) One Dollar and No/100 ($1.00) per Mcf.
(d) The Purchase Price, as adjusted by adjustments described in
Section 9.2(a), (b) and (c) is hereinafter referred to as the "Adjusted
Purchase Price".
9.3 Post-Closing Statement and Procedures. Not later than ninety (90)
days after the date of the Closing, Seller shall prepare and deliver to Buyer a
final statement of the Adjusted Purchase Price and the adjustment amounts
relating thereto (the "Statement").
(a) To the extent reasonably required by Seller, Buyer shall assist
in the preparation of the Statement. Seller shall provide Buyer such data
and information as Buyer may reasonably request supporting the amounts
reflected on the Statement in order to permit Buyer to perform or cause to
be performed an audit. The Statement shall become final and binding upon
the parties on the 60th day following receipt thereof by Buyer (the "Final
Settlement Date") unless Buyer gives written notice of its disagreement (a
"Notice of Disagreement") to Seller prior to such date. Time is of the
essence with respect to the Notice of Disagreement. Any Notice of
Disagreement shall specify in detail the dollar amount, nature and basis of
any disagreement so asserted. If a Notice of Disagreement is received by
Seller in a timely manner, then the Statement (as revised in accordance
with clause (i) or (ii) below) shall become final and binding on the
parties and the Final Settlement Date shall be the earlier of (i) the date
Seller and Buyer agree in writing with respect to all matters specified in
the Notice of Disagreement or (ii) the date on which the Final Statement
(as hereinafter defined) is issued by the Arbitrator (as hereinafter
defined).
(b) During the thirty (30) days following the date of receipt by
Seller of the Notice of Disagreement, Seller and Buyer shall attempt to
resolve in writing any differences that they may have with respect to all
matters specified in the Notice of Disagreement. If, at the end of such 30
day period, Buyer and Seller have not reached agreement on such matters,
the matters that remain in dispute shall be submitted to an
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arbitrator (the "Arbitrator") for review and resolution. The Arbitrator
shall be Price Waterhouse, or if such firm is unable or unwilling to act,
such other nationally recognized independent public accounting firm as
shall be agreed upon by Buyer and Seller in writing. The Arbitrator shall
render a decision resolving the matters in dispute within sixty (60) days
following their submission to the Arbitrator. The cost of any arbitration
(including the fees and expenses of the Arbitrator) pursuant to this
Section 9.3 shall be borne equally by Buyer and Seller. The fees and
disbursements of Seller's independent auditors incurred in connection with
the procedures performed with respect to the Statement, as requested by
Seller, and the fees and disbursements of Buyer's independent auditors
incurred in connection with their preparation of the Notice of Disagreement
shall be borne by the party that incurs them. As used in this Agreement the
term "Final Statement" shall mean the revised Statement described in
Section 9.3(a), as prepared by Seller and as may be subsequently adjusted
to reflect any subsequent written agreement between the parties with
respect thereto, or if submitted to the Arbitrator, the revised Statement
issued by the Arbitrator.
(c) Within five business days after final determination of the
Adjusted Purchase Price in accordance with this Section 9.3, Buyer shall
pay to Seller or Seller shall pay to Buyer, as the case may be, the amount
by which such final Adjusted Purchase Price is greater than or less than,
respectively, the Estimated Adjusted Purchase Price. Any post-Closing
payment made pursuant to this Section 9.3(c) shall be made by means of a
wire transfer of immediately available funds and shall bear interest at a
rate equal to six percent (6%) from the date of the Closing to and
including the date of payment.
ARTICLE 10
TITLE AND OTHER MATTERS
-----------------------
10.1 Examination Period. From and after the date of execution hereof
until 12:00 p.m. local time in Houston, Texas, on September 3, 1999 (the
"Examination Period"), (a) Buyer may notify Seller in writing of any alleged
Title Defects affecting any of the Wells or Properties and discovered by Buyer
or agent of Buyer, setting forth in such notice a reasonably detailed
description of each Title Defect and the value attributed by Buyer to each Title
Defect, (b) Buyer shall notify Seller in writing of any Title Benefits
discovered by Buyer or agent of Buyer, setting forth in such notice a reasonably
detailed description of each Title Benefit and (c) Buyer may notify Seller of
any Violation of Environmental Laws or Conditions affecting a Property. Any
matters that may otherwise constitute Title Defects or Violation of
Environmental Laws or Conditions but that are not specifically raised in writing
by Buyer prior to the expiration of the Examination Period shall be deemed to
have been waived; provided that Buyer shall not be deemed to have waived (i) any
Title Defects arising on account of the breach of the covenants set forth in
Section 5.4 hereof or (ii) the Company's rights under any special warranty of
title set forth in the Assignments or assignments delivered, in connection with
the Pre-Closing Transactions, to Company by Seller, OERI and/or the Joint
Owners, with respect to the Title Defects not known to or discovered by Buyer
during the Examination Period (the "Special Warranty Rights"). Upon receipt of
such notice from Buyer, Seller shall have the right, but not
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the obligation, to attempt to cure such Title Defects or Violation of
Environmental Laws or Conditions prior to 12:00 p.m. local time in Houston,
Texas on September 15, 1999 ("Title Cure Date"). From time to time during the
Examination Period and prior to the written notice that Buyer is required to
deliver as set forth above in this Section 10.1, if Buyer discovers any Title
Defects or Violations of Environmental Laws or Conditions and Buyer desires to
assert such Title Defects or Violations of Environmental Laws or Conditions,
Buyer shall use its reasonable efforts to notify Seller of such Title Defects or
Violations of Environmental Laws or Conditions promptly after its discovery
thereof in order to provide Seller with as much time as is possible to cure such
Title Defects or Violations of Environmental Laws or Conditions if Seller
desires to do so.
10.2 Definitions of Title Defects, Defensible Title, Permitted
Encumbrances and Title Benefits.
(a) Any (i) default by Company, a Current Owner or a Joint Owner under
some material provision of an oil, gas or mineral lease, or (ii) unobtained
consent to assignment, lien, charge, obligation, encumbrance, defect or
irregularity of title or any other circumstance or condition that causes or
could reasonably be expected to cause, prior to the consummation of the
Pre-Closing Transactions, the title of a Current Owner or a Joint Owner and
after the consummation of the Pre-Closing Transactions, the title of
Company, in any of the Properties to be less than Defensible Title (as
hereinafter defined) and for which in the case of either (i) or (ii) notice
is given by Buyer to Seller pursuant to Section 10.1, shall be a title
defect (a "Title Defect").
(b) For purposes of this Agreement, the term "Defensible Title" to the
Properties shall mean, subject to and except for the Permitted Encumbrances
(as hereinafter defined), (i) prior to the consummation of the Pre-Closing
Transactions, the title of the Current Owners and Joint Owners and after
the consummation of the Pre-Closing Transactions, the title of Company, in
the Properties is free and clear of all liens, encumbrances and defects of
any kind whatsoever, and (ii) as to those Wells included in the Properties
for which a "Working Interest or WI" and a "Net Revenue Interest or NRI"
are set forth on Schedule 10.2(b), prior to the consummation of the Pre-
Closing Transactions, the Current Owners and Joint Owners (in the
aggregate) and after the consummation of the Pre-Closing Transactions,
Company, is entitled to receive the percentage of all Hydrocarbons
produced, saved and marketed from such Wells in an amount not less than the
Net Revenue Interest or NRI set forth on Schedule 10.2(b), without
reduction, suspension or termination throughout the duration of the
productive life of such Wells (except as such interests may be affected in
connection with Gas Imbalances, operations for which any such entity is a
non-consenting co-owner, as permitted by the contracts included in the
Assets and as set forth on Schedule 10.2(b)), and prior to the consummation
of the Pre-Closing Transactions, the Current Owners and Joint Owners (in
the aggregate) and after the consummation of the Pre-Closing Transactions,
Company, is obligated to bear the percentage of costs and expenses related
to the maintenance, development and operation of such Wells in an amount
not greater than the Working Interest or WI set forth on Schedule 10.2(b),
without increase throughout the productive life of such Wells, except
increases that also result in a
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proportionate increase in the Net Revenue Interest or NRI set forth on
Schedule 10.2(b) and increases that result from contribution requirements
with respect to defaulting co-owners, as permitted by the contracts
included in the Assets and as set forth on Schedule 10.2(b).
(c) For purposes of this Agreement, the term "Permitted Encumbrances"
shall mean any of the following:
(i) any liens for taxes and assessments not yet delinquent or,
if delinquent, that are being contested in good faith in the ordinary
course of business (liability for which will be retained by the
Current Owners or Joint Owners, as applicable);
(ii) any obligations or duties (other than the payment of fees)
to any municipality or public authority with respect to any franchise,
grant, certificate, license or permit, and all applicable Law;
(iii) any easements, rights-of-way, servitudes, permits and other
rights in respect of surface operations, pipelines or the like, and
easements for pipelines, power lines and other similar rights-of-way,
and encroachments, on, over or in respect of any property or lands of
the Current Owners, Joint Owners or Company, or over which the Current
Owners, Joint Owners or Company owns rights-of-way, easements, permits
or licenses, that do not unreasonably or materially interfere with the
operation of any property or lands of the Current Owners, Joint Owners
or Company for exploration and production of Hydrocarbons or related
operations;
(iv) all royalties, overriding royalties, net profits interests,
production payments, carried interests, reversionary interests, calls
on production and other burdens on or deductions from the proceeds of
production that do not operate to (A) reduce the Net Revenue Interest
or NRI below that set forth on Schedule 10.2(b) or (B) increase the
Working Interest or WI above that set forth on Schedule 10.2(b)
without a proportionate increase in the Net Revenue Interest or NRI
set forth on such schedule;
(v) the terms and conditions of all contracts included in the
Assets and Easements including but not limited to all leases,
servitudes, production sales contracts, division orders, contracts for
sale, purchase, exchange, refining or processing of Hydrocarbons,
unitization and pooling designations, declarations, orders and
agreements, operating agreements, agreements of development, area of
mutual interest agreements, farmout agreements, gas balancing or
deferred production agreements, processing agreements, plant
agreements, pipeline, gathering and transportation agreements,
injection, repressuring and recycling agreements, carbon dioxide
purchase or sale agreements, salt water or other disposal agreements,
seismic or geophysical permits or agreements, and other agreements to
the extent that such contracts and agreements do not (A) reduce the
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Net Revenue Interest or NRI below that set forth on Schedule 10.2(b)
or (B) increase the Working Interest or WI above that set forth on
Schedule 10.2(b) without a proportionate increase in the Net Revenue
Interest or NRI set forth on such schedule;
(vi) Customary Post-Closing Consents;
(vii) preferential purchase rights, rights of first refusal and
similar rights to acquire any of the Properties (collectively,
"Preferential Rights", or singularly, a "Preferential Right") (which
shall be subject to the provisions of Section 10.5);
(viii) conventional rights of reassignment prior to abandonment;
(ix) any other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects or irregularities of any
kind whatsoever affecting the Assets that individually or in the
aggregate are not such as to interfere materially with the ownership,
operation, value or use of any of the Assets, do not materially
prevent the Current Owners and Joint Owners (prior to the consummation
of the Pre-Closing Transactions) or Company (following the
consummation of the Pre-Closing Transactions) from receiving the
proceeds of production and that do not operate to (A) reduce the Net
Revenue Interest or NRI below that set forth on Schedule 10.2(b) or
(B) increase the Working Interest or WI above that set forth on
Schedule 10.2(b) without a proportionate increase in the Net Revenue
Interest or NRI set forth on such schedule.
(d) For purposes of this Agreement, the term "Title Benefit" shall
mean (i) any matter that causes an increase in the Current Owners', Joint
Owners' or, Company's Net Revenue Interest or NRI (in the aggregate) above
that set forth on Schedule 10.2(b) or (ii) any matter that decreases the
Current Owners', Joint Owners' or Company's Working Interest or WI (in the
aggregate) below that set forth on Schedule 10.2(b), without a
proportionate decrease in the Net Revenue Interest or NRI set forth on such
schedule.
10.3 Remedies for Title Defects and Violations of Environmental Laws or
Conditions Found During the Examination Period.
(a) In the event that (i) any Title Defect on a Property is not
waived by Buyer or cured on or before the Title Cure Date or (ii) there is
a Violation of Environmental Laws or Condition affecting a Property which
has not been waived by Buyer or cured on or before the Title Cure Date,
then Seller and Buyer shall mutually agree upon one or more of the
following remedies, or any combination thereof;
(i) reduce the Purchase Price by an amount agreed upon in
writing by Buyer and Seller as being the value of such Title Defect or
the cost to cure such Violation of Environmental Law or Condition,
taking into consideration the Allocated Value of the Property subject
to such Title Defect or Violation of Environmental Law or Condition,
the portion of the Property subject to such Title
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Defect or Violation of Environmental Law or Condition, and the legal
effect of such Title Defect or Violation of Environmental Law or
Condition on the Property affected thereby; provided, however, that if
any such Title Defect is the result of a discovery by Buyer that a Net
Revenue Interest in a Property that is less than the Net Revenue
Interest set forth on Schedule 10.2(b), then Buyer and Seller agree
that the proportion of reduction to the Purchase Price shall be equal
to the product of the Allocated Value of such Property and the
percentage reduction in such Net Revenue Interest as a result of such
Title Defect; or
(ii) elect to have such Property retained by the Current Owners
or Joint Owners, as applicable, and not conveyed to Company pursuant
to the Pre-Closing Transactions and the Purchase Price be reduced by
the Allocated Value of such Property so retained; or
(iii) indemnify Buyer against all liability, loss, cost and
expense resulting from such Title Defect or Violation of Environmental
Law or Condition pursuant to an indemnity agreement mutually
acceptable to the parties.
(b) Notwithstanding Section 10.3(a) or anything else to the contrary,
(i) in no event shall there be any reduction in the Purchase Price or other
remedies provided by Seller for Title Defects unless and until the amount
of all Title Defects properly asserted by Buyer for all of the Properties
(not including any Title Defects cured by Seller) exceed an amount equal to
$1,000,000.00; and (ii) in no event shall there be any adjustments to the
Purchase Price or other remedies provided by Seller for Violations of
Environmental Laws or Conditions unless the aggregate amount of all
Violations of Environmental Laws or Conditions properly asserted by Buyer
for all of the Properties (not including any violations of Environmental
Laws or Conditions cured by Seller) exceed an amount equal to
$1,000,000.00, in each case, above which point Buyer shall be entitled to
reductions of the Purchase Price with respect to Title Defects or
Violations of Environmental Laws or Conditions in excess of such amounts
with respect to the Properties affected thereby; provided that any lien
filed of record will be adjusted to its full extent, irrespective of the
amount of such lien or the amount of all Title Defects or Violations of
Environmental Laws or Conditions.
(c) Notwithstanding anything herein to the contrary, no Property or
Well shall be included in the Assets, and the Current Owners or Joint
Owners shall retain any such Property or Well, where the agreed upon
reductions to the Purchase Price on account of Title Defects and/or
Violations of Environmental Laws or Conditions affecting such Property or
Well exceed the Allocated Value of such Property or Well.
10.4 Remedies for Title Benefits.
(a) Seller shall be entitled to an addition to the Purchase Price with
respect to all Title Benefits, in an amount to be mutually agreed upon by
the parties; provided, however, that if a Title Benefit is the result of a
discovery that the Current Owners, Joint Owners or Company owned, as of the
Effective Time, a Net Revenue Interest in a
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Property that is greater than the Net Revenue Interest set forth on
Schedule 10.2(b), then Buyer and Seller agree that the proportion of
increase to the Purchase Price shall be equal to the product of the
Allocated Value of such Property and the percentage increase in such Net
Revenue Interest as a result of such Title Benefit.
(b) Notwithstanding Section 10.4(a) or anything else to the contrary,
in no event shall there be any additions to the Purchase Price for Title
Benefits unless and until the aggregate amount of such Title Benefits for
all of the Properties exceeds an amount equal to $1,000,000.00, after which
point Seller shall be entitled to additions to the Purchase Price only with
respect to Title Benefits in excess of such amount.
10.5 Preferential Rights to Purchase. Seller shall use its (and shall
cause its affiliates and the Joint Owners to use their respective) reasonable
efforts to comply with all Preferential Right provisions relative to any
Property prior to the Title Cure Date. Seller shall promptly notify Buyer if
any Preferential Rights are exercised or waived or if the requisite period has
elapsed without said rights having been exercised or waived. If the holder of
any Preferential Right validly elects to purchase a Property that is subject to
a Preferential Right, the Property will be conveyed to such holder prior to the
Closing and a reduction of the Purchase Price shall be made equal to the
Allocated Value of such Property.
10.6 Arbitration Concerning Title Defects and/or Violations of
Environmental Laws or Conditions. Any controversy, claim or dispute arising out
of or relating to whether or not there is a Title Defect and/or a Violation of
Environmental Laws or Conditions or whether or not the operations performed or
caused to be performed by Seller to cure a Title Defect and/or a Violation of
Environmental Laws or Conditions shall be submitted for binding determination
through arbitration by a panel of three (3) arbitrators acting pursuant to
American Arbitration Association rules, policies and procedures. The fees and
expenses of counsel, witnesses and employees of the parties hereto and all other
costs and expenses incurred exclusively for the benefit of the party incurring
the same shall be borne by the party incurring such fees and expenses. All
other fees and expenses, including but without limitation, compensation for the
arbitrators, shall be divided equally between the parties hereto. The parties,
upon any dispute over the decision rendered according to this Section 10.6,
hereby submit to the jurisdiction of the state and federal courts in the State
of Texas and for venue in Houston, Harris County, Texas and waive any right to
which they may be entitled to submit a dispute under the laws or courts of
another jurisdiction.
10.7 Exceptions to Seller's Representations in Sections 3.17 and 3.18.
Any Title Defect and/or Violations of Environmental Laws or Conditions
discovered by Buyer during the Examination Period shall be deemed to be
exceptions to the representations of Seller set forth in Sections 3.17 and 3.18
and exceptions to the special warranties of title made by Seller, OERI and/or
Joint Owners in the Assignments or assignments (as applicable) delivered to the
Company in connection with the Pre-Closing Transactions.
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ARTICLE 11
ENVIRONMENTAL MATTERS
---------------------
11.1 Audit. Buyer may, at its option, cause an environmental audit (the
"Audit") of all or any portion of the Properties to be conducted by a reputable
industry recognized environmental consulting or engineering firm ("auditors").
The Audit shall be conducted at the sole risk, cost and expense of Buyer, and
Buyer and such firm shall indemnify and defend the Seller Indemnitees (as
hereinafter defined) from and against any and all Losses arising (as hereinafter
defined) from the actions of the auditors, and not information discovered by
them, in conducting the Audit.
11.2 Notice of Violations of Environmental Laws or Conditions. Buyer may
notify Seller in writing on or before September 3, 1999 of any environmental
matters disclosed by the Audit that Buyer reasonably believes in good faith may
constitute a Violation of Environmental Laws or Conditions on a Property,
including with such notice a reasonably detailed description of the specific
matter(s) that is an alleged Violation of Environmental Laws or Conditions and
its estimated cost and expense to cure such alleged Violation of Environmental
Laws or Conditions.
11.3 Remedies for Violations of Environmental Laws or Conditions. If
Seller confirms to its reasonable satisfaction that any matter described in a
notice delivered pursuant to Section 11.2 constitutes a Violation of
Environmental Laws or Conditions, then the remedies for such matter shall be as
set forth in Section 10.3 hereof.
11.4 Limitations. Notwithstanding anything to the contrary, this Article
11, Section 10.3 and the Special Warranty Rights are intended to be the sole and
exclusive remedy that Buyer (or any other Buyer Indemnitees (as hereinafter
defined)) shall have against Seller (or any other Seller Indemnitees (as
hereinafter defined)) with respect to any matter or circumstance relating to
Title Defects and/or Violations of Environmental Laws or Conditions. EXCEPT TO
THE LIMITED EXTENT NECESSARY TO ENFORCE THE TERMS OF THIS ARTICLE 11 AND EXCEPT
AS PROVIDED IN SECTION 10.3 OR WITH RESPECT TO THE SPECIAL WARRANTY RIGHTS,
BUYER (ON BEHALF OF ITSELF AND EACH OF THE OTHER BUYER INDEMNITEES) HEREBY
RELEASES AND DISCHARGES ANY AND ALL CLAIMS AT LAW OR IN EQUITY, KNOWN OR
UNKNOWN, WHETHER NOW EXISTING OR ARISING IN THE FUTURE, CONTINGENT OR OTHERWISE,
AGAINST ANY OF THE SELLER INDEMNITEES WITH RESPECT TO ANY MATTER OR CIRCUMSTANCE
RELATING TO TITLE OR ENVIRONMENTAL LAWS OR CONDITIONS AND BUYER AT CLOSING WILL
AGREE TO INDEMNIFY AND HOLD HARMLESS SELLER, THE SELLER INDEMNITEES FROM ALL
LOSSES THEREFROM.
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ARTICLE 12
TAXES
-----
12.1 Allocation of Taxes.
(a) Buyer shall be liable for all sales, use, documentary, recording,
stamp, transfer or similar taxes, assessments or fees arising from the
transactions contemplated by this Agreement, including such taxes,
assessments or fees incurred in connection with the Pre-Closing
Transactions.
(b) All ad valorem, property and similar taxes on the Assets shall be
prorated pursuant to Sections 9.2(a)(i) and 9.2(b)(i), and Buyer assumes
the obligation to pay all such taxes to the appropriate Governmental Entity
on or before the applicable due date.
(c) Except as set forth in Sections 12.1(a) and (b), Seller shall be
responsible for all taxes imposed on or with respect to the Assets that are
attributable to any taxable period before the Effective Time. Buyer shall
be responsible for all taxes imposed on or with respect to the Assets on or
after the Effective Time.
(d) Subject to Buyer's obligations set forth in Section 6.3, Seller
shall be responsible for any tax liability resulting from its failure to
timely make the Section 338(h)(10) election in accordance with Section 5.5.
(e) Seller shall be responsible for the preparation and filing of any
Tax Returns related to the Assets or Company that are required to be filed
for taxable periods ending before the Effective Time. Buyer shall be
responsible for the preparation and filing of all other Tax Returns related
to the Assets or Company.
12.2 Indemnity for Taxes.
(a) BUYER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER, OERI, THE
JOINT OWNERS AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
REPRESENTATIVES, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS
(COLLECTIVELY, THE "SELLER INDEMNITEES") FROM AND AGAINST ANY AND ALL
LIABILITY FOR TAXES IMPOSED OR ASSESSED BY ANY TAXING AUTHORITY THAT ARE
THE RESPONSIBILITY OF BUYER PURSUANT TO THIS ARTICLE 12.
(b) SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, AFFILIATES,
SUBSIDIARIES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "BUYER
INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITY FOR TAXES IMPOSED OR
ASSESSED BY ANY TAXING AUTHORITY THAT ARE THE RESPONSIBILITY OF SELLER
PURSUANT TO THIS ARTICLE 12.
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ARTICLE 13
TERMINATION
-----------
13.1 Termination At or Prior to Closing. This Agreement may be terminated
on or prior to the Closing as follows:
(a) by mutual written consent of the parties;
(b) by Seller on the Closing if the conditions set forth in Article 7
have not been satisfied in all material respects;
(c) by Buyer on the Closing if the conditions set forth in Article 8
have not been satisfied in all material respects;
(d) by Seller if the Closing shall not have occurred on or before
September 30, 1999; provided, however, that such party cannot so terminate
this Agreement if such party is at such time in material breach of any
provision of this Agreement;
(e) by Seller or Buyer if the Closing shall not have occurred on or
before November 30, 1999; provided, however, that no such party can so
terminate this Agreement if such party is at such time in material breach
of any provision of this Agreement;
(f) by Seller or Buyer if any Governmental Entity shall have issued an
order, judgment or decree or taken any other action challenging, delaying,
restraining, enjoining, prohibiting or invalidating the consummation of any
of the transactions contemplated herein; or
(g) by Seller or Buyer if (i) the aggregate amount of all Title
Defects (net of any Title Benefits) asserted by Buyer pursuant to Section
10.1 or the aggregate amount of all Purchase Price reductions related to
Title Defects pursuant to Section 10.3(a) plus (ii) the estimated aggregate
amount of the cost of curing all Violations of Environmental Laws asserted
by Buyer pursuant to Sections 10.1 and/or 11.2 or the aggregate amount of
all Purchase Price reductions related to Violations of Environmental Laws
pursuant to Section 10.3(a), exceeds an amount equal to ten percent (10%)
of the Purchase Price.
13.2 Effect of Termination. In the event that Closing does not occur as a
result of any party exercising its right to terminate pursuant to Section 13.1,
then this Agreement shall be null and void and no party shall have any rights or
obligations under this Agreement, except that nothing herein shall relieve any
party from any liability for any breach hereof.
13.3 Remedies for Termination. If Seller terminates this Agreement
pursuant to Section 13.1(b) then Seller at its election shall be entitled to (a)
specific performance of this Agreement and may petition a court for an
injunction ordering same or (b) damages equal to the difference between the
Purchase Price provided for herein and the purchase price ultimately received by
Seller and the other Current Owners and the Joint Owners for the sale of the
Assets
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or the Shares. If Buyer terminates this Agreement pursuant to Section 13.1(c)
then Buyer at its election shall be entitled to (a) specific performance of this
Agreement and may petition a court for an injunction ordering same or (b)
damages equal to Buyer's cost incurred in due diligence and in preparation for
the transactions contemplated hereby.
ARTICLE 14
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
14.1 Assumption. At the Closing, subject to Seller's obligations set
forth in Sections 10.3(a), 12.2(b) and 14.2(b), Buyer shall assume all
liabilities, duties and obligations of every kind whatsoever of the Current
Owners, the Joint Owners and Company relative to the ownership or operation of
the Assets, including, without limitation, (a) all Gas Imbalances, (b) all
obligation to pay all trade and other accounts payable relative to the Assets
incurred subsequent to the Effective Time, and (c) all suspense accounts of the
Current Owners, the Joint Owners and Company relating to the Properties;
provided, however, that Buyer shall not assume and shall have no liability
whatsoever (contingent or otherwise) with respect to the Excluded Assets.
14.2 Indemnification.
(a) SUBJECT TO SECTIONS 10.3(a), 12.2(b) AND 14.2(c), BUYER SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS THE SELLER INDEMNITEES FROM AND AGAINST
ANY AND ALL CLAIMS, LIABILITIES, LOSSES, CAUSES OF ACTIONS, COSTS AND
EXPENSES (INCLUDING, WITHOUT LIMITATION, INVOLVING THEORIES OF NEGLIGENCE
OR STRICT LIABILITY OR INVOLVING DAMAGE TO PROPERTY OR INJURY OR DEATH TO
PERSONS AND INCLUDING COURT COSTS, THIRD-PARTY COSTS AND EXPENSES IN
PREPARATION FOR COURT OR ARBITRATION AND ATTORNEYS' FEES) ("LOSSES")
ASSERTED AGAINST, RESULTING FROM, IMPOSED UPON OR INCURRED BY ANY OF THE
SELLER INDEMNITEES AS A RESULT OF, OR ARISING OUT OF, THE BREACH OF ANY OF
THE REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS OF BUYER CONTAINED
IN THIS AGREEMENT, OR AS A RESULT OF, OR ARISING OUT OF, THE OWNERSHIP OR
OPERATION OF THE ASSETS OR THE SHARES INCLUDING, BUT NOT LIMITED TO, THE
OBLIGATION TO PROPERLY PLUG AND ABANDON ALL WELLS NOW OR HEREAFTER LOCATED
ON ANY OF THE ASSETS, OR AS A RESULT OF, OR ARISING OUT OF, ANY MATTER OR
CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS OR CONDITIONS (EXCEPT TO THE
EXTENT OF SELLER'S RESPONSIBILITY FOR CERTAIN VIOLATIONS OF ENVIRONMENTAL
LAWS OR CONDITIONS PURSUANT TO SECTION 10.3(a)), REGARDLESS IN EACH CASE
WHETHER KNOWN OR UNKNOWN, WHETHER ATTRIBUTABLE TO PERIODS OF TIME BEFORE OR
AFTER THE EFFECTIVE TIME OR CLOSING, AND WHETHER ANY OF THE SELLER
INDEMNITEES WERE WHOLLY OR PARTIALLY NEGLIGENT OR OTHERWISE AT FAULT;
PROVIDED, HOWEVER, THAT BUYER SHALL HAVE
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NO OBLIGATION TO INDEMNIFY ANY OF THE SELLER INDEMNITEES WITH RESPECT TO
ANY MATTER TO THE EXTENT SELLER IS INDEMNIFYING BUYER FOR SUCH MATTER
PURSUANT TO SECTIONS 10.3(a), 12.2(b) AND 14.2(b).
(b) SUBJECT TO SECTIONS 14.2(d) AND 14.2(e), SELLER SHALL INDEMNIFY,
DEFEND AND HOLD HARMLESS THE BUYER INDEMNITEES FROM AND AGAINST ANY AND ALL
LOSSES CAUSED BY, ARISING FROM OR ATTRIBUTABLE TO (i) ANY MATERIAL
MISREPRESENTATION OF SELLER HEREUNDER, (ii) ANY BREACH OF WARRANTY OF THE
SELLER IN OR UNDER THIS AGREEMENT, OR (iii) ANY BREACH OF ANY COVENANT MADE
BY SELLER HEREUNDER. THE OBLIGATION OF SELLER TO PROVIDE INDEMNIFICATION
TO BUYER FOR ANY MISREPRESENTATION OR BREACH OF WARRANTY OR COVENANT OF
SELLER (EXCLUDING ANY BREACH OF ANY OF SELLER'S COVENANTS UNDER SECTIONS
12.1(d) AND 14.2(g) HEREOF) SHALL BE LIMITED TO (A) CLAIMS SUBMITTED IN
WRITING BY BUYER TO SELLER ON OR BEFORE DECEMBER 31, 2000 AND (B) CLAIM(S)
EXCEEDING AN AMOUNT OF ONE MILLION DOLLARS ($1,000,000) IN THE AGGREGATE
BUT (X) WITH RESPECT TO SELLER'S OBLIGATION TO PROVIDE INDEMNIFICATION TO
BUYER FOR ANY MISREPRESENTATION OR BREACH OF WARRANTY, SELLER SHALL NOT BE
OBLIGATED TO INDEMNIFY ANY BUYER INDEMNITEE FOR ANY AMOUNTS IN EXCESS OF
FOUR MILLION DOLLARS ($4,000,000.00) IN THE AGGREGATE, AND (y) WITH RESPECT
TO SELLER'S OBLIGATION TO PROVIDE INDEMNIFICATION TO BUYER FOR ANY BREACH
OF ANY COVENANT (EXCLUDING ANY BREACH OF ANY OF SELLER'S COVENANTS UNDER
SECTIONS 12.1(d) AND 14.2(g) HEREOF), SELLER SHALL NOT BE OBLIGATED TO
INDEMNIFY ANY BUYER INDEMNITEE FOR ANY AMOUNTS IN EXCESS OF FOUR MILLION
DOLLARS ($4,000,000.00) IN THE AGGREGATE.
(c) Notwithstanding anything to the contrary in this Agreement, in no
event shall Buyer be liable to the Seller Indemnitees for any exemplary,
punitive, special, indirect, consequential, remote or speculative damages;
provided, however, that if the Seller Indemnitees are held liable to a
third party for any of such damages and Buyer is obligated to indemnify the
Seller Indemnitees hereunder for the matter that gave rise to such damages,
then Buyer shall be liable for, and obligated to reimburse the Seller
Indemnitees for, such damages.
(d) Notwithstanding anything to the contrary in this Agreement, in no
event shall Seller be liable to the Buyer Indemnitees for any exemplary,
punitive, special, indirect, consequential, remote or speculative damages;
provided, however, that if the Buyer Indemnitees are held liable to a third
party for any of such damages and Seller is obligated to indemnify the
Buyer Indemnitees hereunder for the matter that gave rise to such damages,
then Seller shall be liable for, and obligated to reimburse the Buyer
Indemnitees for, such damages.
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(e) All claims for indemnification under Sections 12.2, 14.2(a),
14.2(b) or 14.2(g) shall be asserted and resolved pursuant to this Section
14.2(e). Any person claiming indemnification hereunder is hereinafter
referred to as the "Indemnified Party" and any person against whom such
claims are asserted hereunder is hereinafter referred to as the
"Indemnifying Party". In the event that any Losses are asserted against or
sought to be collected from an Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness provide to the
Indemnifying Party a Claim Notice. The Indemnifying Party shall not be
obligated to indemnify the Indemnified Party with respect to any such
Losses if the Indemnified Party fails to notify the Indemnifying Party
thereof in accordance with the provisions of this Agreement in reasonably
sufficient time so that the Indemnifying Party's ability to defend against
the Losses is not prejudiced. The Indemnifying Party shall have thirty
(30) days from the personal delivery or receipt of the Claim Notice (the
"Notice Period") to notify the Indemnified Party (i) whether or not it
disputes the liability of the Indemnifying Party to the Indemnified Party
hereunder with respect to such Losses and/or (ii) whether or not it
desires, at the sole cost and expense of the Indemnifying Party, to defend
the Indemnified Party against such Losses; provided, however, that any
Indemnified Party is hereby authorized prior to and during the Notice
Period to file any motion, answer or other pleading that it shall deem
necessary or appropriate to protect its interests or those of the
Indemnifying Party (and of which it shall have given prior notice and
opportunity to comment to the Indemnifying Party) and not prejudicial to
the Indemnifying Party. In the event that the Indemnifying Party notifies
the Indemnified Party within the Notice Period that it desires to defend
the Indemnified Party against such Losses, the Indemnifying Party shall
have the right to defend all appropriate proceedings with counsel of its
own choosing, which proceedings shall be promptly settled or prosecuted by
them to a final conclusion. If the Indemnified Party desires to
participate in, but not control, any such defense or settlement it may do
so at its sole cost and expense. If requested by the Indemnifying Party,
the Indemnified Party agrees to cooperate with the Indemnifying Party and
its counsel in contesting any Losses that the Indemnifying Party elects to
contest or, if appropriate and related to the claim in question, in making
any counterclaim against the person asserting the third party Losses, or
any cross-complaint against any person. No claim may be settled or
otherwise compromised without the prior written consent of the Indemnifying
Party.
(f) The representations, warranties and covenants made by Seller
pursuant to this Agreement (other than the representations and warranties
set forth in Sections 3.17 and 3.18 which shall expire upon the occurrence
of Closing) shall survive the Closing for the following periods after the
Closing Date: (i) the covenants set forth in Section 12.1(d) shall survive
until one day after the expiration of the applicable statute of limitations
(including all extensions); (ii) the covenants set forth in Section 14.2(g)
shall survive without limitation; and (iii) all other representations and
warranties and covenants of Seller shall survive until December 31, 2000.
Representations, warranties and covenants of Seller under this Agreement
shall be of no further force or effect after the applicable expiration date
specified above; provided, however, that there shall be no such termination
of any representation, warranty or covenant with respect to a bona fide
claim asserted with respect thereto prior to such date in accordance with
the terms of Section
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14.2(e). All representations, warranties and covenants of Buyer shall
survive the Closing without any limitation as to time.
(g) SUBJECT TO SECTIONS 14.2(d) AND 14.2(e), SELLER SHALL INDEMNIFY,
DEFEND AND HOLD HARMLESS THE BUYER'S INDEMNITEES FROM AND AGAINST ANY AND
ALL LOSSES CAUSED BY, ARISING FROM OR ATTRIBUTABLE TO THE SUITS SET FORTH
ON SCHEDULE 3.7 HEREOF.
14.3 Records: Access and Retention.
(a) On or before the Closing, Seller will deliver to Buyer at Buyer's
cost and expense all the books, records and files applicable to the Assets
in Seller's or its affiliates' possession.
(b) After the Closing, Buyer shall give Seller and its authorized
representatives such access, during normal business hours, to the books,
records and files being conveyed, assigned and transferred to Buyer
hereunder, as may be reasonably required by Seller, provided that such
access does not unreasonably interfere with the ongoing operations of
Buyer. Seller shall be entitled to keep or obtain extracts and copies of
such books, records and files.
(c) For a period of seven (7) years after the Closing, Buyer shall use
its reasonable efforts to preserve and retain all books, records and files
being conveyed, assigned and transferred to Buyer hereunder; provided,
however, that in the event that Buyer transfers all or a portion of the
Assets or the Shares to any third party during such period, Buyer may
transfer to such third party all or a portion of the books, records and
files related thereto, provided such third party transferee expressly
assumes in writing the obligations of Buyer under this Section 14.3 and
Buyer first offers to Seller the opportunity, at Seller's expense, to copy
the books, records and files to be transferred.
14.4 Names. As soon as reasonably possible after Closing, but in no event
later than forty-five (45) days after Closing, Buyer shall remove the names of
OERI, Seller and/or Seagull Energy E&P Inc., and all variations thereof, from
all of the Assets and make the requisite filings with, and provide the requisite
notices to, the appropriate federal, state or local agencies and all other
parties to the oil and gas leases, Easements and contracts included in the
Assets to place the title or other indicia of ownership, including operation of
the Assets, in a name other than OERI, Seller or Seagull Energy E&P Inc., or any
variations thereof.
14.5 Expenses. Each party shall be solely responsible for all expenses,
including due diligence expenses, incurred by it in connection with this
transaction, and neither party shall be entitled to any reimbursement for such
expenses from the other party hereto, except as provided in Articles 13 and 14.
14.6 Independent Investigation. Buyer represents and acknowledges that it
is knowledgeable of the oil and gas business and of the usual and customary
practices of producers such as Seller and its affiliates and that it has had
access to the Assets, the officers and
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employees of Seller and its affiliates, and the books, records and files of
Seller relating to the Assets and that, in making the decision to enter into
this Agreement and consummate the transactions contemplated hereby, Buyer has
relied solely on the basis of its own independent due diligence investigation of
the Assets and Shares and upon the representations and warranties made in
Article 3. Accordingly, Buyer acknowledges that none of Seller, its affiliates
or any Joint Owner has made, and Seller (on behalf of itself, its affiliates and
all Joint Owners) hereby expressly disclaim and negate any representation or
warranty (other than those express representations and warranties made in
Article 3), express, implied, at common law, by statute or otherwise, relating
to the Assets.
14.7 Disclaimer Regarding Assets. Except as otherwise expressly provided
in Article 3 above and except with respect to the Special Warranty Rights, BUYER
ACKNOWLEDGES THAT NONE OF SELLER, ITS AFFILIATES OR ANY JOINT OWNER HAS MADE,
AND SELLER (ON BEHALF OF ITSELF, ITS AFFILIATES AND THE JOINT OWNERS) HEREBY
EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, RELATING TO THE CONDITION OF ANY REAL PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY, FIXTURES AND PERSONAL PROPERTY CONSTITUTING PART OF THE ASSETS
(INCLUDING, WITHOUT LIMITATION, (a) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES
OF MATERIALS, (d) ANY RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (e) ANY IMPLIED OR
EXPRESS WARRANTY OF FREEDOM FROM REDHIBITORY VICES OR DEFECTS OR OTHER VICES OR
DEFECTS, WHETHER KNOWN OR UNKNOWN, (f) ANY IMPLIED OR EXPRESS WARRANTY OF
FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, (g) ANY AND ALL IMPLIED
WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, AND (h) ANY
IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE RELEASE OF
MATERIALS INTO THE ENVIRONMENT OR THE PRESENCE OF MATERIALS IN, ON OR UNDER THE
ASSETS OR PROTECTION OF THE ENVIRONMENT OR HEALTH), IT BEING THE EXPRESS
INTENTION OF BUYER AND SELLER THAT (EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN
ARTICLE 3 AND WITH RESPECT TO THE SPECIAL WARRANTY RIGHTS) THE REAL PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL PROPERTY ARE AS IS AND IN
THEIR PRESENT CONDITION AND STATE OF REPAIR AND BUYER REPRESENTS TO SELLER AND
ALL SELLER INDEMNITEES THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS
WITH RESPECT TO THE REAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND
PERSONAL PROPERTY AS BUYER DEEMS APPROPRIATE AND BUYER WILL ACCEPT THE REAL
PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL PROPERTY AS IS,
IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
14.8 Disclaimer Regarding Information and Year 2000 Compliance. Seller (on
behalf of itself, its affiliates and the Joint Owners) hereby expressly negates
and disclaims, and Buyer
32
<PAGE>
hereby waives and acknowledges that none of such parties or their
representatives made, any representation or warranty, express or implied,
relating to (a) the accuracy, completeness or materiality of any information,
data or other materials (written or oral) now, heretofore, or hereafter
furnished to Buyer by or on behalf of such parties or (b) production rates,
recompletion opportunities, decline rates, geological or geophysical data or
interpretations, the quality, quantity, recoverability or cost of recovery of
any Hydrocarbon reserves, any product pricing assumptions, or the ability to
sell or market any Hydrocarbons after Closing, or (c) that any of the Assets are
Year 2000 or "Y2K" compliant.
14.9 Waiver of Trade Practices Acts.
(a) It is the intention of the parties that Buyer's rights and
remedies with respect to this transaction and with respect to all acts or
practices of the Seller Indemnitees, past, present or future, in connection
with this transaction shall be governed by legal principles other than the
Texas Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. & Com.
Code Ann. (S) 17.41 et seq. (the "DTPA"). As such, Buyer hereby waives the
applicability of the DTPA to this transaction and any and all duties,
rights or remedies that might be imposed by the DTPA, whether such duties,
rights and remedies are applied directly by the DTPA itself or indirectly
in connection with other statutes; provided, however, Buyer does not waive
(S) 17.555 of the DTPA. Buyer acknowledges, represents and warrants that
it is purchasing the goods and/or services covered by this Agreement for
commercial or business use; that it has assets of $5 million or more
according to its most recent financial statement prepared in accordance
with generally accepted accounting principles; that it has knowledge and
experience in financial and business matters that enable it to evaluate the
merits and risks of a transaction such as this; and that it is not in a
significantly disparate bargaining position with Seller.
(b) To the maximum extent permitted by law, Buyer hereby waives all
provisions of consumer protection acts, deceptive trade practice acts and
other acts similar to the DTPA in all jurisdictions in which any of the
Assets are located (such acts, together with the DTPA, are hereinafter
collectively referred to as the "Trade Practices Acts").
(c) Buyer expressly recognizes that the price for which Seller has
agreed to perform its obligations under this Agreement has been predicated
upon the inapplicability of the Trade Practices Acts and this waiver of the
Trade Practices Acts. Buyer further recognizes that Seller, in determining
to proceed with the entering into of this Agreement, has expressly relied
on this waiver and the inapplicability of the Trade Practices Acts.
33
<PAGE>
ARTICLE 15
MISCELLANEOUS
-------------
15.1 Applicable Law; Alternative Dispute Resolution.
(a) This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Texas without giving effect to any
choice or conflict of law provision or rule (whether of the State of Texas
or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of Texas.
(b) Except as expressly provided in Sections 9.3 and 10.6, any dispute
arising under this Agreement shall be resolved pursuant to this Section
15.1(b):
(i) Any party has the right to request the other to meet to
discuss a dispute. The party requesting the meeting will give at least
five (5) business days prior notice in writing of the subject it
wishes to discuss, provide a written statement of the dispute, and
designate an officer of the company with complete power to resolve the
dispute to attend the meeting. Within three (3) business days after
receipt to such request, the party receiving the request will provide
a responsive written statement and will designate an officer of the
company who will attend the meeting with complete power to resolve the
dispute.
(ii) If the meeting fails to resolve the dispute by a signed
agreement among the officers, the dispute shall be submitted for
nonappealable, binding arbitration as described in this Section 15.1.
(iii) The parties agree to make discovery and disclosure of all
matters relevant to the dispute to the extent and in the manner
provided by the Federal Rules of Civil Procedure. The arbitration
panel will rule on all requests for discovery and disclosure and
discovery shall be completed within ninety (90) days of the date of
the first notice pursuant to Section 15.1(b)(i). The arbitrators may
consider any matter relevant to the subject to the dispute and shall
follow the statutes and decisions of the substantive law of Texas
relevant to the subject. The arbitrators shall not have the authority
or power to alter, amend or modify any of the terms and conditions of
the agreement of the parties. The arbitrators shall issue a final
ruling within 180 days of the date of the first notice pursuant to
Section 15.1(b)(i).
(iv) The ruling of the arbitrators shall be in writing and signed
and shall be final and binding upon the parties. The fees and expenses
of counsel, witnesses and employees of the parties and all other costs
and expenses incurred exclusively for the benefit of the party
incurring the same shall be borne by the party incurring such fees and
expenses. All other fees and expenses including, without limitation,
compensation for the arbitrators, shall be divided equally
34
<PAGE>
between the parties. All meetings held pursuant to this Section 15.1
shall take place in Houston, Texas.
15.2 No Third Party Beneficiaries. Nothing in this Agreement shall
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the parties
that this Agreement shall not be construed as a third party beneficiary
contract; provided, however, that the indemnification provisions in Article 12
and in Section 14.2 shall inure to the benefit of the Buyer Indemnitees and the
Seller Indemnitees as provided therein.
15.3 Waiver. Except as expressly provided in this Agreement, neither the
failure nor any delay on the part of any party hereto in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, or of any other
right, power or remedy; nor shall any single or partial exercise of any right,
power or remedy preclude any further or other exercise thereof, or the exercise
of any other right, power or remedy. Except as expressly provided herein, no
waiver of any of the provisions of this Agreement shall be valid unless it is in
writing and signed by the party against whom it is sought to be enforced.
15.4 Entire Agreement; Amendment. This Agreement, the Schedules and
Exhibits hereto, each of which is deemed to be a part hereof, and any
agreements, instruments or documents executed and delivered by the parties
pursuant to this Agreement, constitute the entire agreement and understanding
between the parties hereto, and it is understood and agreed that all previous
undertakings, negotiations and agreements between the parties regarding the
subject matter hereof are merged herein; provided, however, that this Agreement
does not supersede the confidentiality agreement previously executed by and
between Seller and Buyer, which shall not terminate (except in accordance with
its terms) unless and until the Closing occurs, and following the Closing, only
to the extent it relates to the Assets or Shares. This Agreement may not be
modified orally, but only by an agreement in writing signed by Buyer and Seller.
15.5 Notices. Any and all notices or other communications required or
permitted under this Agreement shall be given in writing and delivered in
person or sent by United States certified or registered mail, postage prepaid,
return receipt requested, or by overnight express mail, or by telex, facsimile
or telecopy to the address of such party set forth below. Any such notice shall
be effective upon receipt or three (3) days after placed in the mail, whichever
is earlier.
35
<PAGE>
If to Seller or any other Seller's Indemnitee:
Ocean Energy, Inc.
1001 Fannin Street, Suite 1600
Houston, Texas 77002-6794
Attention: Stephen A. Thorington
Telecopy Number: 713-265-8024
With a copy to:
Ocean Energy, Inc.
1001 Fannin Street, Suite 1600
Houston, Texas 77002-6794
Attention: Robert R. Reeves
Telecopy Number: 713-265-8840
If to Buyer or any other Buyer's Indemnitee:
Cross Timbers Oil Company
810 Houston Street, Suite 2000
Fort Worth, Texas 76102-6298
Attention: Vaughn O. Vennerberg, II
Telecopy Number: 817-882-7224
With a copy to:
Cross Timbers Oil Company
810 Houston Street, Suite 2000
Fort Worth, Texas 76102-6298
Attention: E.E. Storm III
Telecopy Number: 817-870-7278
Any party may, by notice so delivered, change its address for notice purposes
hereunder.
15.6 Assignment. No party shall assign (by operation of law or otherwise)
all or any part of this Agreement, nor shall any party assign or delegate any of
its rights or duties hereunder, without the prior written consent of the other
party and any assignment or delegation made without such consent shall be void;
provided, however, that prior to Closing Buyer may assign this Agreement to an
affiliate of Buyer. Following any such an assignment, (i) Buyer shall remain
jointly liable with such affiliate for duties, liabilities and obligations of
the buyer hereunder, (ii) Buyer shall be deemed, as of the Closing, to have made
the representations set forth in Sections 4.1 though 4.9 hereof with respect to
such affiliate and shall indemnify the Seller Indemnitees for a breach of any
such representations, and (iii) Buyer shall be deemed, as
36
<PAGE>
of the Closing, to have remade the representations set forth in Article 4 at to
it.. The term "affiliate" as used in this Section means any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, Buyer. The term "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as applied to any person, means the possession, directly or indirectly,
of 50% or more of the voting power (or in the case of a person which is not a
corporation, 50% or more of the ownership interest, beneficial or otherwise) of
such person or the power otherwise to direct or cause the direction of the
management and policies of that person, whether through voting, by contract or
otherwise. Subject to the foregoing, this Agreement shall be binding on and
inure to the benefit of the parties hereto and their permitted successors and
assigns.
15.7 Severability. If any provision of this Agreement is invalid, illegal
or unenforceable, the balance of this Agreement shall remain in full force and
effect and this Agreement shall be construed in all respects as if such invalid,
illegal or unenforceable provision were omitted. If any provision is
inapplicable to any person or circumstance, it shall, nevertheless, remain
applicable to all other persons and circumstances.
15.8 Publicity. Seller and Buyer shall consult with each other with
regard to all publicity and other releases concerning this Agreement and the
transactions contemplated hereby and, except as required by applicable law or
the applicable rules or regulations of any Governmental Entity or stock
exchange, no party shall issue any such publicity or other release without the
prior written consent of the other party.
15.9 Construction. Any section headings in this Agreement are for
convenience of reference only, and shall be given no effect in the construction
or interpretation of this Agreement or any provisions thereof. No provision of
this Agreement will be interpreted in favor of, or against, any party by reason
of the extent to which any such party or its counsel participated in the
drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
15.10 No Merger. The delivery and/or recordation of the assignments to be
delivered pursuant to this Agreement shall not cause, under the doctrine of
merger or otherwise, the extinguishment of any representations, warranties or
agreements contained in this Agreement. In the event of any conflict between
the terms of this Agreement and the terms of such assignments, the terms of this
Agreement shall govern and control.
15.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and which together
shall constitute but one and the same instrument.
37
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement on the date first written above.
SELLER
SEAGULL ENERGY E&P INC.
By: /s/ William L. Transier
------------------------------
Name: William L. Transier
Title: Executive Vice President and
Chief Financial Officer
BUYER
CROSS TIMBERS OIL COMPANY
By: /s/ Vaughn O. Vennerberg, II
-----------------------------
Name: Vaughn O. Vennerberg, II
Title: Senior Vice President-Land
38
<PAGE>
Exhibits and Schedules
- ----------------------
<TABLE>
<CAPTION>
<S> <C>
Exhibit A -- Wells
Exhibit A-1 -- Real property interests related to or associated with Wells
Exhibit A-2 -- Real Estate
Exhibit B -- Assignment
Exhibit C -- Opinion of Buyer's general counsel
Exhibit D -- Opinion of Seller's general counsel
Schedule 2.2 -- Allocated Values
Schedule 3.7 -- Litigation
Schedule 3.14 -- Gas Imbalances
Schedule 3.18 -- Environmental Matters
Schedule 6.2 -- Employees
Schedule 10.2(b) -- Title Matters
</TABLE>
<PAGE>
EXHIBIT 99.1
$140,000,000
REVOLVING CREDIT AGREEMENT
among
SUMMER ACQUISITION COMPANY,
as Borrower
The Several Banks
from Time to Time Parties Hereto,
LEHMAN BROTHERS INC.,
as Arranger
LEHMAN COMMERCIAL PAPER INC.
as Administrative Agent
CHASE BANK OF TEXAS, N.A.,
as Syndication Agent
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Documentation Agent
and
BANK OF AMERICA, WELLS FARGO BANK (TEXAS), N.A.,
PARIBAS and THE BANK OF NOVA SCOTIA,
as Co-Agents
Dated as of September 15, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
---------
DEFINITION OF TERMS
-------------------
ARTICLE 2
---------
THE REVOLVING CREDIT LOANS
--------------------------
<TABLE>
<S> <C> <C>
2.01. Revolving Loan Commitments....................................... 17
--------------------------
2.02. Manner of Borrowing.............................................. 18
-------------------
2.03. Interest Rate.................................................... 20
-------------
2.04. Borrowing Base Increase Fee...................................... 21
---------------------------
2.05. Up-Front Fees.................................................... 21
-------------
2.06. Maximum Number of Eurodollar Borrowings.......................... 21
---------------------------------------
</TABLE>
ARTICLE 3
---------
SECURITY
--------
<TABLE>
<S> <C> <C>
3.01. Liens and Security Interests..................................... 21
----------------------------
3.02 Assignment of Production; Letters in Lieu; and Power of Attorney. 22
----------------------------------------------------------------
3.03 Agreement to Deliver Additional Collateral Documents............. 23
----------------------------------------------------
3.04 Guaranties....................................................... 24
----------
3.05 Local Legal Opinions............................................. 24
--------------------
3.06 Title Opinions................................................... 24
--------------
3.07 Benefits of Collateral........................................... 24
----------------------
</TABLE>
<PAGE>
ARTICLE 4
---------
EVIDENCE OF INDEBTEDNESS AND PAYMENTS
-------------------------------------
<TABLE>
<S> <C> <C>
4.01. Evidence of Indebtedness......................................... 24
------------------------
4.02. Prepayments...................................................... 25
-----------
4.03. Payment of Interest on the Notes................................. 26
--------------------------------
4.04. Calculation of Interest Rates.................................... 27
-----------------------------
4.05. Manner and Application of Payments............................... 27
----------------------------------
4.06. Pro Rata Treatment............................................... 27
------------------
4.07. Lending Office................................................... 28
--------------
4.08. Taxes............................................................ 28
-----
4.09. Sharing of Payments, etc. ....................................... 29
-------------------------
</TABLE>
ARTICLE 5
---------
BORROWING BASE
--------------
<TABLE>
<S> <C> <C>
5.01 Components for Determination of Borrowing Base................... 30
----------------------------------------------
5.02 Mandatory Redetermination of Borrowing Base...................... 30
-------------------------------------------
5.03 Special Determinations of Borrowing Base......................... 31
----------------------------------------
5.04. Interim Sales of Mineral Properties.............................. 32
-----------------------------------
5.05. Reduction of Commitment.......................................... 32
-----------------------
5.06 Borrowing Base Deficiency........................................ 32
-------------------------
5.07. Reserve Report Matters........................................... 33
----------------------
</TABLE>
ii
<PAGE>
ARTICLE 6
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
<TABLE>
<S> <C> <C>
6.01. Organization and Good Standing................................... 34
------------------------------
6.02. Authorization and Power.......................................... 34
-----------------------
6.03. No Conflicts or Consents......................................... 35
------------------------
6.04. Enforceable Obligations.......................................... 35
-----------------------
6.05. No Liens......................................................... 35
--------
6.06. Financial Condition.............................................. 35
-------------------
6.07. Full Disclosure.................................................. 35
---------------
6.08. No Default....................................................... 35
----------
6.09. Material Agreements.............................................. 36
-------------------
6.10. No Litigation.................................................... 36
-------------
6.11. Burdensome Contracts............................................. 36
--------------------
6.12. Estimated Oil and Gas Reserves................................... 36
------------------------------
6.13. Use of Proceeds; Margin Stock.................................... 36
-----------------------------
6.14. Taxes............................................................ 36
-----
6.15. Principal Office, Etc. .......................................... 37
----------------------
6.16. ERISA............................................................ 37
-----
6.17. Compliance with Law.............................................. 37
-------------------
6.18. Government Regulation............................................ 37
---------------------
6.19. Insider.......................................................... 37
-------
6.20. No Subsidiaries.................................................. 37
---------------
6.21. Environmental Matters............................................ 37
---------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
6.22. Title to Properties.............................................. 38
-------------------
6.23. Year 2000........................................................ 39
---------
6.24. Representations and Warranties................................... 39
------------------------------
6.25. Survival of Representations, Etc. ............................... 39
---------------------------------
</TABLE>
ARTICLE 7
---------
CONDITIONS PRECEDENT
--------------------
<TABLE>
<S> <C> <C>
7.01. Commitment....................................................... 40
----------
7.02. All Advances..................................................... 42
------------
</TABLE>
ARTICLE 8
---------
AFFIRMATIVE COVENANTS
---------------------
<TABLE>
<S> <C> <C>
8.01. Financial Statements, Reports and Documents...................... 43
-------------------------------------------
8.02. Payment of Taxes and Other Indebtedness.......................... 44
---------------------------------------
8.03. Maintenance of Existence and Rights; Conduct of Business......... 45
--------------------------------------------------------
8.04. Notice of Default................................................ 45
-----------------
8.05. Other Notices.................................................... 45
-------------
8.06. Compliance with Loan Papers...................................... 45
---------------------------
8.07. Compliance with Material Agreements.............................. 45
-----------------------------------
8.08. Operations and Properties........................................ 45
-------------------------
8.09. Books and Records; Access........................................ 46
-------------------------
8.10. Compliance with Law.............................................. 46
-------------------
8.11. Leases........................................................... 46
------
8.12. Development and Maintenance...................................... 46
---------------------------
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
8.13. Insurance........................................................ 46
---------
8.14. Authorization and Approvals...................................... 47
---------------------------
8.15. Experienced Management........................................... 47
----------------------
8.16. ERISA Compliance................................................. 47
----------------
8.17. Further Assurances............................................... 47
------------------
8.18. Environmental.................................................... 47
-------------
8.19. Maintenance and Granting of Liens, Mortgages and
------------------------------------------------
Security Interests............................................... 48
------------------
8.20. Mortgaged Properties............................................. 48
--------------------
</TABLE>
ARTICLE 9
---------
NEGATIVE COVENANTS
------------------
<TABLE>
<S> <C> <C>
9.01. Limitation on Indebtedness....................................... 49
--------------------------
9.02. Negative Pledge.................................................. 49
---------------
9.03. Dividends and Distributions...................................... 49
---------------------------
9.04. Limitation on Investments........................................ 49
-------------------------
9.05. Alteration of Material Agreements................................ 49
---------------------------------
9.06. Certain Transactions............................................. 49
--------------------
9.07. Limitation on Sale of Properties................................. 50
--------------------------------
9.08. Name, Fiscal Year and Accounting Method.......................... 50
---------------------------------------
9.09. Current Ratio.................................................... 50
-------------
9.10 Consolidated Net Worth........................................... 50
----------------------
9.11 EBITDA to Consolidated Interest Expense.......................... 50
---------------------------------------
9.12 Limitation on G&A Expenses....................................... 50
--------------------------
</TABLE>
v
<PAGE>
<TABLE>
<S> <C> <C>
9.13. Liquidation, Mergers, Consolidations and Dispositions of
--------------------------------------------------------
Substantial Assets............................................... 51
------------------
9.14. Lines of Business................................................ 51
-----------------
9.15. No Amendments.................................................... 51
-------------
9.16. Purchase of Substantial Assets................................... 51
------------------------------
9.17. Guaranties....................................................... 51
----------
9.18. Leases; Sale and Leaseback....................................... 51
--------------------------
9.19. Restriction on Loans............................................. 52
--------------------
9.20 Speculative Trading.............................................. 52
-------------------
9.21 Hedging Agreements............................................... 52
------------------
9.22. Strict Compliance................................................ 52
-----------------
</TABLE>
ARTICLE 10
----------
EVENTS OF DEFAULT
-----------------
<TABLE>
<S> <C> <C>
10.01. Events of Default................................................ 52
-----------------
10.02. Remedies Upon Event of Default................................... 54
------------------------------
10.03. Performance by Banks............................................. 55
--------------------
</TABLE>
ARTICLE 11
----------
AGENCY PROVISIONS
-----------------
<TABLE>
<S> <C> <C>
11.01. Appointment...................................................... 55
-----------
11.02. Delegation of Duties............................................. 55
--------------------
11.03. Exculpatory Provisions........................................... 55
----------------------
11.04. Reliance by Agents............................................... 56
------------------
11.05. Notice of Default................................................ 56
-----------------
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C> <C>
11.06. Non-Reliance on Agents and other Banks........................... 57
--------------------------------------
11.07. Indemnification.................................................. 57
---------------
11.08. Agent in Its Individual Capacity................................. 58
--------------------------------
11.09. Successor Agents................................................. 58
----------------
11.10 Authorization to Release Liens................................... 58
------------------------------
11.11. The Arranger..................................................... 59
------------
11.12 Benefit of Article 11............................................ 59
---------------------
</TABLE>
ARTICLE 12
----------
SPECIAL PROVISIONS FOR EURODOLLAR AND CD LOANS; YIELD PROTECTION
----------------------------------------------------------------
<TABLE>
<S> <C> <C>
12.01. Inadequacy of Pricing............................................ 59
---------------------
12.02. Illegality....................................................... 59
----------
12.03. Increased Costs for Loans........................................ 60
-------------------------
12.04. Effect on Other Loans............................................ 60
---------------------
12.05. Payments Not At End of Interest Period........................... 61
--------------------------------------
12.06. Capital Adequacy................................................. 61
----------------
</TABLE>
ARTICLE 13
----------
MISCELLANEOUS
-------------
<TABLE>
<S> <C> <C>
13.01. Amendments, Modifications and Waivers............................ 61
-------------------------------------
13.02. Accounting Terms and Reports..................................... 63
----------------------------
13.03. Waiver........................................................... 63
------
13.04. Payment of Expenses; Documentary Taxes; Indemnification.......... 63
-------------------------------------------------------
13.05. Notices.......................................................... 64
-------
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C> <C>
13.06. Governing Law.................................................... 65
-------------
13.07. Choice of Forum; Consent to Service of Process and Jurisdiction;
----------------------------------------------------------------
Waiver of Rights to Jury Trial................................... 65
------------------------------
13.08. Invalid Provisions............................................... 66
------------------
13.09. Maximum Interest Rate............................................ 66
---------------------
13.10. Offset........................................................... 67
------
13.11. Chapter 346...................................................... 67
-----------
13.12. Entirety......................................................... 67
--------
13.13. Headings......................................................... 67
--------
13.14. Survival......................................................... 67
--------
13.15. Successors and Assigns........................................... 67
----------------------
13.16. Foreign Banks, Participants, and Assignees....................... 69
------------------------------------------
13.17. No Third Party Beneficiary....................................... 70
--------------------------
13.18. Acknowledgements................................................. 70
----------------
13.19. Confidentiality.................................................. 70
---------------
13.20. Release of Collateral and Guaranty Obligations................... 71
----------------------------------------------
13.21. Multiple Counterparts............................................ 71
---------------------
13.22. Notices and Acknowledgment of No Oral Agreements................. 71
------------------------------------------------
</TABLE>
viii
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
This REVOLVING CREDIT AGREEMENT (the "Loan Agreement") is entered into as
of this 15th day of September, 1999 by and among SUMMER ACQUISITION COMPANY, a
Texas corporation (herein called "Company"), each Bank which from time to time
becomes a party hereto, LEHMAN BROTHERS INC., as Arranger (herein the
"Arranger"), LEHMAN COMMERCIAL PAPER INC., as Administrative Agent for Banks
(herein the "Administrative Agent"), CHASE BANK OF TEXAS, N.A. as Syndication
Agent for Banks (herein the "Syndication Agent"), MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Documentation Agent for Banks (herein the "Documentation Agent")
and BANK OF AMERICA, WELLS FARGO BANK (TEXAS), N.A., PARIBAS and THE BANK OF
NOVA SCOTIA, as Co-Agents for the Banks (herein the "Co-Agents").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Company has requested that Agents and Banks make available to
Company a $140,000,000 principal amount senior secured revolving credit facility
(as more particularly described herein, the "Facility") to finance, in part,
Company's acquisition of the outstanding Capital Stock of Arkoma Holding
Corporation, a Delaware Corporation ("Arkoma") pursuant to the Ocean PSA
(defined herein) and to develop oil and gas reserves owned by Arkoma;
WHEREAS, Agents and Banks are willing to make the Facility available on the
terms and conditions contained herein;
WHEREAS, Company has agreed to secure its obligations to Agents and Banks
hereunder with, inter alia, a first priority perfected lien and security
interest in all tangible and intangible assets of Arkoma and Company, including
the oil and gas assets of Arkoma, and Company shall cause Arkoma to execute a
guaranty in favor of Agents and Banks on terms acceptable to Agents; and
WHEREAS, Lehman Brothers Inc. has acted in the capacity of a sole Arranger
for Company and Banks in connection with the facility and consummation of the
transactions contemplated by this Loan Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other valuable consideration, the parties hereto do hereby agree as
follows:
ARTICLE 1
---------
DEFINITION OF TERMS
-------------------
For the purposes of this Loan Agreement, unless the context otherwise
requires, the following terms shall have the respective meanings assigned to
them in this Article 1 or in the section or recital referred to below:
1
<PAGE>
"Additional Properties": Section 5.03(b).
---------------------
"Adjusted CD Rate" shall mean on any day thereof the quotient of (a) the CD
----------------
Quoted Rate divided by (b) the remainder of 1.00 minus the CD Reserve
---------- -----
Requirement in effect on such day.
"Adjusted InterBank Rate" shall, with respect to each Interest Period, mean
-----------------------
on any day thereof the quotient of (a) the InterBank Offered Rate with respect
to such Interest Period, divided by (b) the remainder of 1.00 minus the
---------- -----
Eurodollar Reserve Requirement in effect on such day.
"Administrative Agent": The preamble, and as otherwise provided in
--------------------
Article 11.
"Advance": Section 2.01.
-------
"Affiliate" of any Person shall mean any Person which, directly or
---------
indirectly, controls, is controlled by, or is under common control with, such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the beneficial or record ownership
of a majority of the outstanding voting securities or equity interests or by
contract or otherwise.
"Agent" or "Agents": Administrative Agent, Syndication Agent and
----- ------
Documentation Agent, and as otherwise provided in Article 11, but not including
any Co-Agents.
"Applicable Margin" shall mean, (i) with respect to a Floating Base
-----------------
Borrowing, one and one-half percent (1.50%) and (ii) with respect to a
Eurodollar Borrowing, two and one-half percent (2.50%)
"Arkoma" shall mean Arkoma Holding Corporation, a Delaware corporation, all
------
issued and outstanding Capital Stock of which shall be owned by Company upon
consummation of the Ocean PSA.
"Arranger": Lehman Brothers Inc. in its capacity as Advisor, Sole Lead
--------
Arranger and Sole Book Manager.
"Assignee": Section 13.15.
--------
"Bank" or "Banks": The Banks identified on the signature pages hereof, and
---- -----
each Assignee which becomes a Bank pursuant to Section 13.15 and their
respective successors.
"Beneficial Owner" shall be determined in accordance with Rules 13d-3 and
----------------
13d-5 promulgated by the Security and Exchange Commission under the Securities
Exchange Act of 1934 as it may be amended from time to time, or any successor
provision thereto, except that a
2
<PAGE>
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.
"Borrowing": Section 2.01.
---------
"Borrowing Base": Section 5.01.
--------------
"Borrowing Base Deficiency": Section 5.06.
-------------------------
"Business Day" shall mean any day except a Saturday, Sunday or other day on
------------
which commercial banks in New York City or Fort Worth, Texas are authorized by
law to close.
"Capital Lease" shall mean, as of any date, any lease of property, real or
-------------
personal, which would be capitalized on a balance sheet of the lessee prepared
as of such date, in accordance with Generally Accepted Accounting Principles,
together with any other lease by such lessee which is in substance a financing
lease, including without limitation, any lease under which (i) such lessee has
or will have an option to purchase the property subject thereto at a nominal
amount or an amount less than a reasonable estimate of the fair market value of
such property as of the date such lease is entered into or (ii) the term of the
lease approximates or exceeds the expected useful life of the property leased
thereunder.
"Capital Stock" shall mean any and all shares, interests, participations,
-------------
or equivalents (however designated) of capital stock of a corporation and any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"CD Quoted Rate" shall mean, the rate of interest determined by
--------------
Administrative Agent to be the arithmetic average (rounded upward, if necessary,
to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00
A.M. (New York City time) (or as soon thereafter as practicable) by two or more
New York certificate of deposit dealers of recognized standing for the purchase
at face value from Reference Bank of its certificates of deposit in an amount
comparable to the then Total Outstandings and having a maturity of three months.
"CD Reserve Requirement" shall, on any day, mean that percentage (expressed
----------------------
as a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System in New York City with deposits exceeding five billion dollars in respect
of new non-personal time deposits in dollars in New York City having a maturity
of three months and in an amount of $100,000 or more. The Adjusted CD Rate
shall be adjusted automatically on and as of the effective date of any changes
in the CD Reserve Requirement.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation,
------
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, as amended.
3
<PAGE>
"Change in Control" shall mean an occurrence where (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 it may
be amended from time to time, or any successor provision thereto, together with
any Affiliates thereof, (i) become the Beneficial Owners of Capital Stock of any
of the Credit Parties through a purchase, merger or other acquisition
transaction, entitling such Person or Persons and its or their Affiliates to
exercise more than 50% of the total voting power of all classes of any of the
Credit Parties' Capital Stock entitled to vote generally in the election of
directors or managers or (ii) shall succeed in having sufficient of its or their
nominees who are not supported by a majority of the then current board of
directors or managers of any of the Credit Parties elected to the board of
directors or managers of any of the Credit Parties such that such nominees, when
added to any existing directors or managers remaining on the board of directors
or managers of any of the Credit Parties after such election who are Affiliates
of or acting in concert with any such Persons, shall constitute a majority of
the board of directors or managers of any of the Credit Parties, (b) a plan is
adopted relating to the liquidation or dissolution of any of the Credit Parties,
(c) any of the Credit Parties 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 Subsidiary, or any other Person shall
consolidate with or merge into any of the Credit Parties (other than, in the
case of this clause (c), pursuant to any consolidation or merger where Persons
who are Beneficial Owners of any of the Credit Parties' Capital Stock entitled
to vote generally in the election of directors or managers 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), (d) LB I Group Inc. or an Affiliate of Lehman Brothers Inc. shall
cease to be the Beneficial Owner of at least 50% of the Capital Stock of Company
or Parent other than pursuant to a sale, assignment or other disposition of such
Capital Stock of Company or Parent to Cross Timbers Trading Company, Cross
Timbers Oil Company or an Affiliate thereof or (e) Cross Timbers Trading
Company, Cross Timbers Oil Company or an Affiliate thereof shall cease to be the
Beneficial Owner of at least 50% of the Capital Stock of Company or Parent.
"Closing Date" shall mean the date of this Loan Agreement as set forth in
------------
the preamble hereof.
"Co-Agents": The preamble and as otherwise provided herein.
---------
"Collateral Documents": Section 3.01(e).
--------------------
"Commitment" shall mean at any time Banks' commitment to make the Loan and
----------
any Borrowing thereunder available to Company in an aggregate amount at any time
not to exceed the lesser of (i) the Borrowing Base then in effect or (ii) the
Facility Amount. With respect to each Bank, its Commitment shall never exceed
its Percentage of the lesser of (i) the Borrowing Base then in effect or (ii)
the Facility Amount. The amount of each Bank's Commitment may be terminated or
reduced from time to time in accordance with the provisions hereof. The initial
Commitment is $140,000,000.
4
<PAGE>
"Company": The preamble.
-------
"Consequential Loss" shall, with respect to Company's payment of all or any
------------------
portion of the then-outstanding principal amount of a Bank's Eurodollar Advance
on a day other than the last day of the Interest Period related thereto, mean
any loss, cost or expense incurred by such Bank as a result of the timing of
such payment or in redepositing such principal amount, including the sum of (i)
the interest which, but for such payment, such Bank would have earned in respect
of such principal amount so paid, for the remainder of the Interest Period
applicable to such sum, reduced, if such Bank is able to redeposit such
principal amount so paid for the balance of such Interest Period, by the
interest earned by such Bank as a result of so redepositing such principal
amount plus (ii) any expense or penalty incurred by such Bank on redepositing
----
such principal amount.
"Consolidated Current Assets" shall mean, as of any date, the current
---------------------------
assets which would be reflected on a consolidated balance sheet of Company and
the Subsidiaries prepared as of such date in accordance with Generally Accepted
Accounting Principles, but excluding (i) all accounts receivable in respect of
products, goods and/or services which were delivered or performed by Company or
any Subsidiary at least 90 days prior to such date (or, with respect to
receivables attributable to proceeds of production from the Mineral Properties,
periods longer than 90 days if such receivables are otherwise payable in the
ordinary course of business at periods longer than 90 days) and any notes
receivable due from any Subsidiary, (ii) Intangible Assets, and (iii) assets
held primarily for resale other than hydrocarbons severed from the Mineral
Properties in the ordinary course of business and gas and other hydrocarbons
(including by-products thereof) that are held by Company or Arkoma for resale;
provided, further, Company's Consolidated Current Assets shall include an amount
equal to the difference, if any, between the Borrowing Base then in effect and
the Total Outstandings.
"Consolidated Current Liabilities" shall mean, as of any date, the current
--------------------------------
liabilities which would be reflected on a consolidated balance sheet of Company
and the Subsidiaries prepared as of such date in accordance with Generally
Accepted Accounting Principles, but excluding current maturities of funded
Indebtedness of Company and Subsidiaries.
"Consolidated Interest Expense" shall mean with respect to Company and
-----------------------------
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense (including all cash and accrued interest expense) of Company
and Subsidiaries for that period on a consolidated basis, including (i) the
amortization of debt discounts, (ii) the amortization of all fees (including
fees with respect to Interest Swap Agreements and Hedge Agreements) payable in
connection with the occurrence of Indebtedness to the extent included in
interest expense and (iii) the portion of any payments or accruals with respect
to Capital Leases allocable to interest expense, but excluding all interest
expense (including all cash and accrued interest expense) of Company and
Subsidiaries paid or payable to Parent or any Affiliate of Parent for that
period, and (b) capitalized interest of Company and Subsidiaries on a
consolidated basis, in each case determined according to Generally Accepted
Accounting Principles.
5
<PAGE>
"Consolidated Net Income" shall mean, with respect to any period, the
-----------------------
consolidated net earnings (after income taxes) of Company and the Subsidiaries
for such period, determined in accordance with Generally Accepted Accounting
Principles.
"Consolidated Net Worth" shall mean, as of any date, the excess of all
----------------------
assets of Company and the Subsidiaries, exclusive of Intangible Assets, over the
aggregate of the Indebtedness of Company and the Subsidiaries.
"Controlled Group" shall mean (i) the controlled group of corporations as
----------------
defined in Section 1563 of the United States Internal Revenue Code of 1954, as
amended, or (ii) the group of trades or businesses under common control as
defined in Section 414(c) of the United States Internal Revenue Code of 1986, as
amended, of which Company is a part or may become a part.
"Conversion Date": Section 2.02(c).
---------------
"Credit Parties" shall mean, collectively, Company, Arkoma and Parent.
--------------
"Determination Date" shall mean each April 15 and October 15 (but excluding
------------------
October 15, 1999).
"Dividends", in respective of any corporation, shall mean:
---------
(1) Cash distributions or any other distributions on, or in respect
of, any class of capital stock of such corporation, except for
distributions made solely in shares of stock of the same class;
and
(2) Any and all funds, cash or other payments in respect of the
redemption, repurchase or acquisition of such stock, unless such
stock shall be redeemed or acquired through the exchange of such
stock with stock of the same class.
"Documentation Agent": The preamble, and as otherwise provided in
-------------------
Article 11.
"Dollars" and the sign "$" shall mean lawful currency of the United States
------- -
of America.
"EBITDA" shall mean, for any period, Consolidated Net Income for that
------
period, plus, without duplication and to the extent deducted from revenues in
----
determining Consolidated Net Income for that period, (a) the aggregate amount of
Consolidated Interest Expense for that period, (b) the aggregate amount of
income tax expense (either paid or deferred) for that period, (c) all amounts
attributable to depreciation, depletion and amortization for that period and (d)
all non-cash, extraordinary expenses during that period and minus, without
-----
duplication and to the extent added to revenues in determining Consolidated Net
Income for that period, all non-cash, extraordinary income during that period,
in each case determined according to Generally Accepted Accounting Principles.
6
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended, together with all regulations issued pursuant thereto.
"Environmental Laws" shall mean CERCLA, RCRA and any other applicable laws,
------------------
statutes, regulations, judicial interpretations, ordinances, rules, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
government restriction of the United States or any state where the Mineral
Properties are located or any other Governmental Authority having jurisdiction
over Company or the Subsidiaries or any of their respective properties or
assets, pertaining to health or the environment, as they now exist or are
hereafter enacted and/or amended, including, without limitation, those matters
relating to the emissions, discharges or releases of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or hazardous
substances or wastes into the environment including, without limitation, ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes or
the clean-up or other remediation thereof.
"Eurodollar Advance" shall mean any principal amount under a Note with
------------------
respect to which the interest rate is calculated by reference to the Adjusted
Interbank Rate for a particular Interest Period.
"Eurodollar Borrowing" shall mean any Borrowing composed of Eurodollar
--------------------
Advances.
"Eurodollar Business Day" shall mean a Business Day on which dealings in
-----------------------
Dollars are carried out in the London interbank market.
"Eurodollar Reserve Percentage" shall mean, for any day, that percentage
-----------------------------
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Advances is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents).
"Event of Default": Article 10.
----------------
"Excess Interest Amount": Section 4.03(b).
----------------------
"Facility Amount" shall mean, on any date, $140,000,000.
---------------
"FDIC Percentage" shall mean for any Interest Period the net annual
---------------
assessment rate (rounded upwards, if necessary, to the next higher 1/100 of 1%)
actually incurred by Morgan Guaranty Trust Company of New York to the Federal
Deposit Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of Morgan Guaranty Trust Company
of New York in the United States during the most recent
7
<PAGE>
period for which such rate has been determined prior to the commencement of such
Interest Period.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if such day is not a Business Day, the
--------
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day
and (ii) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to Morgan
Guaranty Trust Company of New York on such day on such transactions as
determined by Administrative Agent.
"Floating Base Advance" shall mean any principal amount under a Note with
---------------------
respect to which the interest rate is calculated by reference to the Floating
Base Rate.
"Floating Base Borrowing" shall mean any Borrowing composed of Floating
-----------------------
Base Advances.
"Floating Base Rate" shall mean, for any day, a rate per annum equal to the
------------------
higher of (i) the Prime Rate for such day, (ii) the sum of (a) the Adjusted CD
Rate in effect for such day plus (b) the FDIC Percentage in effect on such day
plus (c) one-percent (1.0%) or (iii) the sum of 1/2 of one percent (0.5%) plus
the Federal Funds Rate for such day.
"G&A Expenses" shall mean, for any period, all costs and expenses incurred
------------
by Company, Arkoma or any Subsidiary during such period that are considered or
determined to be "general and administrative" expenses according to Generally
Accepted Accounting Principles, including without limitation (i) bookkeeping,
entertainment, office rent and other office expenses, salaries and other
compensation expenses of employees, officers and directors and other
administrative and similar expenses, secretarial, telephone, travel, utilities,
but only to the extent that any of such items of expense are typically not
included in a Reserve Report as "Direct Charges" under the Accounting Procedure
Recommended by the Council of Petroleum Accountant Societies applicable to any
of the Mineral Properties and (ii) management fees and reimbursements of costs
and expenses that are paid to Cross Timbers Oil Company or its Affiliate
pursuant to the management agreement referred to in Section 9.06.
"Generally Accepted Accounting Principles" shall mean those generally
----------------------------------------
accepted accounting principles and practices which are recognized as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently applied for
all periods after the date hereof so as to properly reflect the financial
condition, and the results of operations and changes in financial position, of
Company and the Subsidiaries, except that any accounting principle or practice
required to be changed by the said Accounting Principles Board or Financial
Accounting Standards Board (or other
8
<PAGE>
appropriate board or committee of the said Boards) in order to continue as a
generally accepted accounting principle or practice may so be changed on or as
of the date such change is adopted.
"Governmental Authority" shall mean any government (or any political
----------------------
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Company or any Subsidiary or any
of its or their business, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or
--------
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "Primary Obligor")
in any manner, whether directly or indirectly, including without limitation
agreements:
(1) to purchase such Indebtedness or any property constituting security
therefor;
(2) to advance or supply funds (a) for the purchase or payment of such
Indebtedness, or (b) to maintain working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the purchase or
payment of such Indebtedness;
(3) to purchase property, securities or services primarily for the purpose
of assuring the holder of such Indebtedness of the ability of the Primary
Obligor to make payment of the Indebtedness; or
(4) otherwise to assure the holder of the Indebtedness of the Primary
Obligor against loss in respect thereof; except that "Guaranty" shall not
------ ----
include the endorsement by Company or a Subsidiary in the ordinary course of
business of negotiable instruments or documents for deposit or collection.
"Hedge Agreement" shall mean any commodity pricing agreement, forward sale,
---------------
"price swap" agreement or commodity rate-shifting agreement or similar agreement
or contractual relationship between Company or any Subsidiary and any Person
(including any Bank) pursuant to which Company, with the intent to reduce or
eliminate the risk of fluctuations in the price of crude oil, natural gas or
other hydrocarbons, holds a position in the price of any quantity of crude oil,
natural gas or other hydrocarbons to be produced from the Mineral Properties
such that the price derived from the first sale of any quantity of oil, gas or
other hydrocarbons produced from the Mineral Properties is established prior to
the actual production of such oil, gas or other hydrocarbons; provided, however,
that a Hedge Agreement shall not include any monthly spot sales of Company's gas
production from the Mineral Properties that occur in the ordinary course of its
business. A Hedge Agreement shall also include the option of Company or any
Subsidiary to buy or sell a Hedge Agreement.
"Indebtedness" with respect to any Person shall mean as of any date, all
------------
liabilities and contingent liabilities which would be reflected on a balance
sheet and related notes thereto of such Person prepared as of such date in
accordance with Generally Accepted Accounting Principles, including without
limitation: (i) all obligations for money borrowed; (ii) all obligations under
conditional sale or other title retention agreements and all obligations issued
or assumed as full or partial payment for property, whether or not any such
obligations represent
9
<PAGE>
obligations for borrowed money; (iii) all indebtedness secured by a lien
existing on property owned or acquired by such Person subject to any such lien,
whether or not the obligations secured thereby shall have been assumed; (iv) all
obligations, direct or indirect, to any joint venture, partnership or other
entity of which such Person is a member; (v) all obligations under any Guaranty,
note purchase agreement and other document having similar effect; (vi) all
obligations for accounts payable or trade credit; (vii) indebtedness of any
joint venture, partnership or other Person for which such Person is directly or
indirectly liable; (viii) all obligations under any Capital Lease, operating
lease or any other leases only to the extent such leases would be treated as
indebtedness in accordance with Generally Accepted Accounting Principles;
(ix) all obligations under an Interest Swap Agreement; and (x) all obligations
under a Hedge Agreement.
"Intangible Assets" of any Person shall mean those assets of such Person
-----------------
which are (i) deferred assets, other than prepaid insurance and prepaid taxes;
(ii) patents, copyrights, trademarks, trade names, franchises, goodwill,
experimental expenses and other similar assets which would be classified as
intangible assets on a balance sheet of such Person, prepared in accordance with
Generally Accepted Accounting Principles; (iii) unamortized debt discount and
expense; and (iv) assets located, and notes and receivables due from obligors
domiciled, outside of the United States of America.
"Interbank Offered Rate" shall mean, with respect to each Interest Period,
----------------------
the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which deposits in dollars are offered to the
Reference Bank in the London interbank market at approximately 11:00 A.M.
(London time) two Business Days before the first day of such Interest Period in
an amount approximately equal to the principal amount of the Eurodollar Advance
of the Reference Bank to which such Interest Period is to apply and for a period
of time comparable to such Interest Period.
"Interest Period" shall mean, with respect to a Eurodollar Advance, a
---------------
period commencing:
(i) on the borrowing date of such Eurodollar Advance made pursuant
to Section 2.01 of this Loan Agreement; or
(ii) on the Conversion Date pertaining to such Eurodollar Advance, if
such Eurodollar Advance is made pursuant to a conversion as described in Section
2.02(c) hereof; or
(iii) on the date of borrowing specified in the Request for Borrowing
in the case of a rollover to a successive Interest Period,
and ending one, two, three or six months thereafter (in the case of a Eurodollar
Advance) as Company shall elect in accordance with Section 2.02(c) of this Loan
Agreement; provided, that:
(A) any Interest Period which would otherwise end on a day which is
not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day
10
<PAGE>
unless such Eurodollar Business Day falls in another calendar month in which
- ------
case such Interest Period shall end on the next preceding Eurodollar Business
Day;
(B) any Interest Period which begins on the last Eurodollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month or at the end of such Interest Period)
shall, subject to clause (A) above, end on the last Eurodollar Business Day of a
calendar month;
(C) if the Interest Period for any Eurodollar Advance would
otherwise end after the Maturity Date, such Interest Period shall end on the
Maturity Date; and
"Interest Swap Agreement" shall mean an agreement between Company and any
-----------------------
Person (including any Bank) pursuant to which, with the intent to protect
against fluctuations in interest rates or the exchange of notional interest
obligations, either generally or under certain circumstances, such Persons agree
to exchange a series of cash flows or revenues measured by different interest
rates, and includes agreements providing for the exchange of a fixed rate of
interest for a floating rate of interest and vice versa, one floating rate of
interest for another floating rate of interest or fixed rate of interest in one
currency for a floating rate of interest in another currency.
"Investment" in any Person shall mean any investment, whether by means of
----------
share purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the Guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person.
"Letters-in-Lieu": Section 3.02.
---------------
"Lien" shall mean any lien, mortgage, security interest, tax lien, pledge,
----
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness, whether
arising by agreement or under any statute or law, or otherwise.
"Loan" and "Loans": Section 2.01(a).
---- -----
"Loan Agreement": The preamble.
--------------
"Loan Papers" shall mean this Loan Agreement, the Notes (including any
-----------
renewals, extensions and refundings thereof), the Guaranty of Arkoma, the
Collateral Documents, that certain Commitment Letter dated August 12, 1999 among
Arranger, Agents, Lehman Brothers Inc., Cross Timbers Oil Company and Redwine
Holdings LLC and that certain Fee Letter dated August 12, 1999 among Arranger,
Agents, Lehman Brothers Inc., Cross Timbers Oil Company and Redwine Holdings LLC
and any agreements, certificates or documents (and with respect to this Loan
Agreement, and such other agreements and documents, any amendments or
supplements thereto or modifications thereof) executed or delivered pursuant to
the terms of this Loan Agreement.
11
<PAGE>
"Majority Banks" shall mean, at any time, Banks holding Notes representing
--------------
at least sixty-six and two-thirds percent (66-2/3%) of the aggregate unpaid
principal amount of the Loan, or if no Loans are at the time outstanding, Banks
having at least sixty-six and two-thirds percent (66-2/3%) of the Commitment.
"Material Adverse Effect" means any circumstance, development or event
-----------------------
which (i) could reasonably be expected to have or has had any adverse effect
whatsoever upon the validity or enforceability of any Loan Papers or the rights
or remedies of Administrative Agent, any Agent or Banks hereunder, (ii) is or
could reasonably be expected to be material and adverse to the financial
condition or business operations of any of the Credit Parties, taken as a whole,
(iii) has impaired or could reasonably be expected to impair the ability of any
of the Credit Parties to perform any of its material obligations or
substantially all of its obligations under the Loan Papers, (iv) causes an Event
of Default or any event which, with notice or lapse of time or both, would
become an Event of Default or (v) has or could reasonably be expected to have a
material adverse affect on the transaction contemplated by or to be consummated
under the Ocean PSA.
"Maturity Date: shall mean September 15, 2001.
-------------
"Maximum Rate" shall mean, on any day, the highest nonusurious rate of
------------
interest (if any) permitted by applicable law on such day. Banks hereby notify
Company that, and disclose to Company that, for purposes of Chapter 303 of the
Texas Finance Code, as supplemented by Texas Credit Title, as it may from time
to time be amended, the applicable ceiling shall be the "weekly ceiling" from
time to time in effect as specified in such Chapter 303; provided, however, that
to the extent permitted by applicable law, Banks reserve the right to change the
applicable ceiling from time to time by further notice and disclosure to
Company; and, provided further, that the "highest nonusurious rate of interest
permitted by applicable law" for purposes of this Loan Agreement and the Notes
shall not be limited to the applicable ceiling under the Texas Finance Code, as
supplemented by Texas Credit Title, if federal laws or other state laws now or
hereafter in effect and applicable to this Loan Agreement, and the Notes (and
the interest contracted for, charged and collected hereunder or thereunder)
shall permit a higher rate of interest.
"Mineral Properties" shall mean, as of any date, Company's and Arkoma's
------------------
interest in and to (i) oil, gas and/or mineral leases, royalty and overriding
royalty interests, production payments, net profits interests and mineral fee
interests, (ii) unitization, communitization and pooling arrangements (and all
properties covered and units created thereby), whether arising by contract or
operation of law, which include all or any part of the foregoing, (iii) lands
subject to any of the foregoing, (iv) equipment, fixtures, rights-of-way,
easements, goods, chattels, accounts, accounts receivable, contract rights,
chattel paper, general intangibles, and other items of personal property related
to, located on or used in connection with the foregoing; and (v) processing
facilities, pipelines, salt water disposal wells and facilities, transportation
rights and facilities, and other equipment, machinery, rights or facilities
related to or used in connection with the marketing, transporting, producing,
processing, or gathering of oil, gas or hydrocarbons.
"Mortgaged Properties" shall mean the Mineral Properties now or hereafter
--------------------
mortgaged by Arkoma under the Collateral Documents, as such oil and gas
properties and mineral interests are
12
<PAGE>
described in the Collateral Documents and in any instruments and documents
amending and supplementing Collateral Documents and in the respective exhibits
to each thereof.
"New Collateral Properties": Section 5.06.
-------------------------
"Notes" shall mean the Notes executed by Company and delivered to Banks
-----
pursuant to the terms of this Loan Agreement, together with any renewals,
extensions or modifications thereof. "Note" shall mean any of the Notes.
"Obligation" shall mean all present and future indebtedness, obligations,
----------
and liabilities of Company to Banks or any of them, and all renewals and
extensions thereof, or any part thereof, arising pursuant to this Loan Agreement
or represented by the Notes, and all interest accruing thereon, and attorneys'
fees incurred in the enforcement or collection thereof, regardless of whether
such indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several; together with all indebtedness,
obligations and liabilities of Company evidenced or arising pursuant to any of
the other Loan Papers, and all renewals and extensions thereof, or part thereof
or any Interest Swap Agreement between Company and any Bank or Banks that
involves the swap or exchange of interest rates under this Loan Agreement or any
Hedge Agreement between Company and any Bank or Banks.
"Ocean PSA" shall mean that certain Purchase and Sale Agreement dated
---------
July 30, 1999, by and between Seagull Energy E&P, Inc., as Seller, and Cross
Timbers Oil Company, as Buyer, and all schedules, exhibits, annexes and
amendments thereto and all side letters and agreements affecting the terms
thereof or entered into in connection therewith, in each case, as amended,
supplemented or otherwise modified from time to time, pursuant to which, among
other things, (i) certain Mineral Properties will be conveyed and transferred to
Arkoma and (ii) Company shall acquire all of the issued and outstanding Capital
Stock of Arkoma.
"Other Taxes": Section 4.08.
-----------
"Parent" shall mean Whitewine Holding Company, a Texas corporation formed
------
pursuant to the Parent Ownership Documents (the Capital Stock in which will be
owned 50% by LB I Group Inc. and 50% by Cross Timbers Trading Company), and
which is the owner and holder of 100% of the Capital Stock of Company.
"Parent Ownership Documents" shall mean collectively, (i) that certain
--------------------------
Shareholders Agreement among Parent, LB I Group Inc. and Cross Timbers Trading
Company (pursuant to which, among other things, Cross Timbers Trading Company
and LB I Group Inc. shall have each acquired a 50% equity interest in Parent and
LB I Group Inc. will fund as its initial capital contribution at least
$100,000,000 and Cross Timbers Trading Company will fund as its initial capital
contribution Capital Stock of Cross Timbers Oil Company and Capital Stock of
publicly traded energy companies collectively having a fair market value
determined in accordance with the Parent Ownership Documents of at least
$100,000,000), (ii) the Put and Call Agreement between Cross Timbers Oil Company
and LB I Group Inc. pursuant to which Cross Timbers Oil Company has the option
to require LB I Group Inc. to sell to Cross Timbers Oil Company LB I Group
Inc.'s Capital Stock in Parent and LB I Group Inc. has the option to require
Cross Timbers
13
<PAGE>
Oil Company to purchase from LB I Group Inc. LB I Group Inc.'s Capital Stock in
Parent, (iii) that certain Assignment of Rights Under Purchase and Sale
Agreement to Summer Acquisition Company pursuant to which Cross Timbers Oil
Company has transferred its rights in, to and under the Ocean PSA to Company,
and (iv) any other agreements between or among Cross Timbers Oil Company and
Lehman Brothers Inc and any Affiliates thereof concerning the ownership,
formation, capitalization and/or shareholders' investment in Parent.
"Participant": Section 13.15.
-----------
"PBGC" shall mean the Pension Benefit Guaranty Corporation, and any
----
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Percentage" shall mean, with respect to any Bank, such Bank's
----------
proportionate share of the Commitment in effect from time to time, as set forth
in Schedule I hereto.
"Permitted Liens" shall mean, as of any date: (i) pledges or deposits made
---------------
to secure payment of worker's compensation (or to participate in any fund in
connection with worker's compensation), unemployment insurance, pensions or
social security programs; (ii) contractual liens for the benefit of operators of
the Mineral Properties, but only to the extent that such operators are not
asserting a claim or right to exercise their rights under such contractual
liens, except for such claims and rights of operators which Company contests in
good faith and for which adequate reserves are maintained according to Generally
Accepted Accounting Principles; (iii) liens imposed by mandatory provisions of
law such as for materialmen's, mechanic's, warehousemen's and other like liens
arising in the ordinary course of business; (iv) liens for taxes, assessments
and governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable or if the
same are being contested in good faith and as to which adequate reserves have
been provided; (v) good faith deposits in connection with tenders, leases, real
estate bids or contracts (other than contracts involving the borrowing of
money), pledges or deposits to secure public or statutory obligations, deposits
to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, customs duties as other similar
charges; (vi) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, provided that such do not impair
the use of real property for the uses intended, and none of which is violated in
any material respect by existing or proposed structures or land use; (vii) the
terms and provisions of the leases, assignments, unit agreements and other
instruments of conveyance or transfer applicable to or affecting the Mineral
Properties; (viii) the terms and provisions of the assignments and other title
transfer documents under which Arkoma or Company acquired the Mineral Properties
including any right retained by a predecessor in title of Arkoma or Company to
purchase hydrocarbons produced therefrom; (ix) any inconsequential,
insignificant or immaterial liens or encumbrances against any Mineral Property
which does not interfere with or impair Arkoma's or Company's ownership of, or
right or ability to receive proceeds of production from, such property, and
which, singularly or collectively with other inconsequential, insignificant or
immaterial liens or encumbrances, do not result in a Material Adverse Effect on
Arkoma, Company or any Subsidiary, (x) Liens on gas compressors that (a) are
granted under gas compressor leases in effect as of the Closing Date in which
Company,
14
<PAGE>
Arkoma or a Subsidiary is a lessee and any substitutions of or replacements to
such compressor leases and (b) are granted under such additional gas compressor
leases in which Company, Arkoma or a Subsidiary is a lessee in which the total
funding amount thereunder does not exceed $5,000,000 per calendar year (with the
term "funding amount" meaning the lessor's cost of the gas compressors that are
subject to the applicable lease agreement as set forth in such agreement);
provided, however, that the lease and rental payments respecting the compressor
lease agreements permitted under this sub-clause (x) shall be included in the
operating expenses reflected in the Reserve Reports, (xi) the Collateral
Documents, and (xii) any other liens or encumbrances to which Majority Banks
agree in writing.
"Person" shall include an individual, a corporation, a joint venture, a
------
partnership, a trust, an unincorporated organization or a government or any
agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan maintained by
----
Company for employees of Company and/or its Subsidiaries and covered by Title IV
of ERISA, or subject to the minimum funding standards under Section 412 of the
Internal Revenue Code of 1954, as amended.
"Prime Rate" means the rate of interest publicly announced by Morgan
----------
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Period" shall mean each three-month period(s) commencing on the
----------------
first day of January, April, July and October, and ending on the last day of
each March, June, September and December, respectively.
"RCRA" shall mean the Resource Conservation and Recovery Act of 1976, as
----
amended by the Used Oil Recycling Act of 1980, the Hazardous and Solid Waste
Disposal Act Amendments of 1984 and the Hazardous and Solid Waste Amendments of
1984.
"Reference Bank" shall mean Morgan Guaranty Trust Company of New York and
--------------
with respect to a Eurodollar Borrowing, Reference Bank shall refer to the
principal London office, if any, of the Reference Bank or its Affiliates.
"Register": Section 4.01(b).
--------
"Regulation D" shall mean Regulation D of the Board of Governors of the
------------
Federal Reserve System from time to time in effect and shall include any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Regulation U" shall mean Regulation U promulgated by the Board of
------------
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any other
regulation hereafter promulgated by said Board to replace the prior Regulation U
and having substantially the same function.
15
<PAGE>
"Regulation X" shall mean Regulation X promulgated by the Board of
------------
Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any other
regulation hereafter promulgated by said Board to replace the prior Regulation X
and having substantially the same function.
"Reportable Event" shall have the meaning assigned to that term in Title IV
----------------
of ERISA.
"Request for Borrowing": Section 2.02(a).
---------------------
"Reserve Report" means an engineering analysis of the Mineral Properties
--------------
delivered by Company pursuant to Section 5.02, Section 5.03, Section 5.06 or
Section 8.01(c), in each case prepared in accordance with customary practices of
the petroleum engineering industry and as otherwise provided in Section 5.07.
"Rollover Notice": Section 2.02(c).
---------------
"Speculative Trading" shall mean the holding by Arkoma, Company or any
-------------------
Subsidiary of a position in, or forward sale respecting, any derivative or
commodity transaction, excluding any transaction respecting the physical sale,
storage, transportation or marketing of oil, gas or other hydrocarbons produced
from the Mineral Properties, the hedging of Arkoma's or Company's position in
oil, gas or other hydrocarbons produced from the Mineral Properties or any
portion thereof pursuant to a Hedge Agreement, but only to the extent that such
Hedge Agreement is permitted under Section 9.18 hereof. Speculative Trading
shall also include any Interest Swap Agreement that is entered into for
speculative purposes and not for the purpose of protecting against fluctuations
in interest rates or the exchange of notional obligations, either generally or
under specific circumstances.
"Subsidiary" or "Subsidiaries" shall mean Arkoma and any and all other
---------- ------------
corporations, partnerships, joint ventures, business trusts or other legal
entities in which Company, 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.
"Syndication Agent": The preamble, and as otherwise provided in
-----------------
Article 11.
"Taxes": Section 4.08.
-----
"Temporary Cash Investment" shall mean any Investment in (i) direct
-------------------------
obligations of the United States of America or any agency thereof, or
obligations fully guaranteed by the United States of America or any agency
thereof, provided that such obligations mature within 360 days of the date of
acquisition thereof, (ii) commercial paper rated in the highest grade by two or
more national credit rating agencies and maturing not more than 270 days from
the date of creation thereof, and (iii) time deposits with, and certificates of
deposit and banker's acceptances issued by, any United States bank having
capital surplus and undivided profits aggregating at least $1,000,000,000.
"Total Outstandings" shall mean, at any date, the aggregate of the
------------------
principal amount of, and accrued interest which is overdue and unpaid in respect
of, the Loan.
16
<PAGE>
Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Loan Agreement shall have the above-
defined meanings when used in the Notes or any Loan Papers, certificate, report
or other document made or delivered pursuant to this Loan Agreement, unless the
context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural
and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms when
used in this Loan Agreement shall refer to this Loan Agreement as a whole and
not to any particular provision of this Loan Agreement.
ARTICLE 2
---------
THE REVOLVING CREDIT LOANS
--------------------------
2.01. Revolving Loan Commitments.
--------------------------
(a) Revolving Loan Commitments. Subject to the terms and conditions
--------------------------
of this Loan Agreement, each Bank severally agrees to extend to Company, from
the date hereof through the term of this Loan Agreement, a revolving line of
credit which shall not exceed at any one time outstanding such Bank's Percentage
of the lesser of: (i) the Borrowing Base in effect and as redetermined from time
to time, or (ii) the Facility Amount. No Bank shall be obligated to make any
Loan if, after giving effect thereto, the Total Outstandings exceed the lesser
of (i) the Borrowing Base then in effect or (ii) the Facility Amount.
The Commitment shall never exceed the Borrowing Base then in effect.
Provided, however, if, upon the redetermination of the Borrowing Base, the
Borrowing Base exceeds the Commitment then in effect, the Commitment may be
increased to an amount (that shall not exceed the Borrowing Base as
redetermined) which all Banks shall, in their sole discretion, approve in
writing, following a request from Company for such increase, but the Commitment
shall never exceed the Facility Amount. Banks shall have no obligation to
increase the Commitment. The initial Commitment is $140,000,000 until
redetermined according to Section 5.02, 5.03 or 5.04 hereof. The Loan may from
time to time be (i) Floating Base Borrowings or (ii) Eurodollar Borrowings as
selected by Company and notified to Administrative Agent according to Section
2.02 hereof.
Within the limits of this Section 2.01, Company may borrow, prepay pursuant
to Section 4.02 hereof and reborrow under this Section 2.01. Each Borrowing
pursuant to this Section 2.01 shall be funded ratably by Banks in proportion to
their respective Percentages. Each Advance made by a Bank hereunder is herein
called an "Advance"; all Advances made by a Bank hereunder are herein
collectively called a "Loan;" the aggregate unpaid principal balance of all
Advances made by Banks hereunder are herein collectively called the "Loans;" and
the
17
<PAGE>
combined Advances made by Banks on any given day are herein collectively called
a "Borrowing."
(b) Reduction of Commitment. Company shall have the right, upon
-----------------------
three (3) Business Days' prior written notice to Administrative Agent, to
terminate or to permanently reduce the unborrowed portion of the Commitment, in
whole or in part (provided any partial reduction shall be in the minimum amount
of $10,000,000 or any integral multiple of $1,000,000), effective on the first
day of any Quarterly Period hereafter. Each partial reduction of the Commitment
shall ratably reduce each Bank's Commitment. There shall be no termination or
permanent reduction to any borrowed portion of the Commitment unless such
termination or reduction is accompanied by a mandatory prepayment on the Loan in
an amount that will cause the Total Outstandings to not exceed the Commitment as
reduced.
(c) Commitment Fee. In addition to the payments provided for in
--------------
Article 4 hereof, Company shall pay to Administrative Agent for the account of
each Bank, on the first day of each Quarterly Period, a revolving credit loan
commitment fee at the rate of one-half percent (0.5%) per annum on the average
daily amount of such Bank's Commitment which was unused during the immediately
preceding Quarterly Period. The commitment fees payable hereunder shall be
calculated on the basis of the actual days elapsed in a year consisting of 360
days.
(d) Use of Proceeds. The proceeds of the Loan shall be used (i) to
---------------
finance, in part, Company's acquisition of the Capital Stock of Arkoma pursuant
to the terms of the Ocean PSA, provided, however, that the Loan proceeds used
for such purpose shall not exceed $136,000,000 plus such other increases to the
purchase price on account of closing or post-closing adjustments according to
the Ocean PSA that are reasonably satisfactory to Agents, (ii) for the payment
of capital expenditures, drilling costs and other expenses incurred by Arkoma in
the further development of the Mineral Properties, (iii) to purchase additional
Mineral Properties and (iv) for working capital and general corporate purposes
of Company, Arkoma and its Subsidiaries, but only to the extent that the use of
proceeds for such purposes would be permitted under the terms of this Loan
Agreement.
2.02. Manner of Borrowing.
-------------------
(a) Request for Borrowing. Each request by Company to
---------------------
Administrative Agent for a Borrowing under Section 2.01 hereof (a "Request for
Borrowing") shall specify the aggregate amount of such requested Borrowing, the
requested date of such Borrowing, and, when the request for Borrowing specifies
a Eurodollar Borrowing, the Interest Period which shall be applicable thereto.
Company shall furnish to Administrative Agent the Request for Borrowing at least
three (3) Eurodollar Business Days prior to the requested Eurodollar Borrowing
date (which must be a Eurodollar Business Day). A Floating Base Borrowing may be
made the same date on which a Request for Borrowing is received by
Administrative Agent. Any such Request for Borrowing shall: (i) in the case of a
Floating Base Borrowing, be in the form attached hereto as Exhibit "B", and (ii)
in the case of a Eurodollar Borrowing, be in the form attached hereto as Exhibit
"C". Each Borrowing shall be in an aggregate principal amount of $5,000,000 or
any integral multiple of $1,000,000. Any Request for Borrowing received by
18
<PAGE>
Administrative Agent after 12:00 noon (New York City time) on any Business Day
shall be deemed to have been received on the next succeeding Business Day.
Prior to making a Request for Borrowing, Company may (without
specifying whether the anticipated Borrowing shall be a Floating Base Borrowing
or Eurodollar Borrowing) request that Administrative Agent provide Company with
the most recent InterBank Offered Rate available to Reference Bank.
Administrative Agent shall provide such quoted rates to Company on the date of
such request.
Each Request for Borrowing shall be irrevocable and binding on Company
and, in respect of the Borrowing specified in such Request for Borrowing,
Company shall indemnify each Bank against any cost, loss or expense incurred by
such Bank as a result of any failure to fulfill, on or before the date specified
for such Borrowing, the conditions to such Borrowing set forth herein, including
without limitation, any cost, loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by any Bank to
fund the Advance to be made by such Bank as part of such Borrowing when such
Advance, as a result of such failure, is not made on such date.
After receiving a Request for Borrowing in the manner provided herein,
Administrative Agent shall promptly notify each Bank by telephone (confirmed
immediately by telex, telecopy or cable), telecopy, telex or cable of the amount
of the Borrowing and such Bank's pro rata share of such Borrowing, the date on
which the Borrowing is to be made, the interest option selected and, if
applicable, the Interest Period selected.
(b) Funding. Each Bank shall, before 1:00 P.M. (New York City time)
-------
on the date of such Borrowing specified in the notice received from
Administrative Agent pursuant to Section 2.02(a), deposit such Bank's ratable
portion of such Borrowing in immediately available funds to an account
maintained by Administrative Agent as designated by Administrative Agent. Upon
fulfillment of all applicable conditions set forth herein and after receipt by
Administrative Agent of such funds, Administrative Agent shall pay or deliver
such proceeds to or upon the order of Company at the principal office of
Administrative Agent in immediately available funds. The failure of any Bank to
make any Advance required to be made by it hereunder shall not relieve any other
Bank of its obligation to make its Advance hereunder. If any Bank shall fail to
provide its ratable portion of such funds and if all conditions to such
Borrowing shall have apparently been satisfied, Administrative Agent will make
available such funds as shall have been received by it from the other Banks, in
accordance with this Section 2.02(b). Neither Administrative Agent nor any Bank
shall be responsible for the performance by any other Bank of its obligations
hereunder. In the event of any failure by a Bank to make an Advance required
hereunder, the other Banks may (but shall not be required to) purchase (on a pro
rata basis, according to their respective Percentages) such Bank's Note. Upon
the failure of a Bank to make an Advance required to be made by it hereunder,
Administrative Agent may, in its sole discretion, attempt to obtain one or more
banks, acceptable to Banks, to replace such Bank, but neither Administrative
Agent nor any other Bank shall have any liability or obligation whatsoever as a
result of the failure to obtain a replacement for such Bank.
19
<PAGE>
Unless Administrative Agent shall have received notice from a Bank
prior to the date of any Borrowing that such Bank will not make available to
Administrative Agent such Bank's ratable portion of such Borrowing,
Administrative Agent may assume that such Bank has made such portion available
to Administrative Agent on the date of such Borrowing in accordance with Section
2.02(b) and Administrative Agent may, in reliance upon such assumption, make
available to or on behalf of Company on such date a corresponding amount. If
and to the extent such Bank shall not have so made such ratable portion
available to Administrative Agent, such Bank and Company severally agree to
repay to Administrative Agent forthwith on demand such corresponding amount
together with interest at the Federal Funds Rate, for each day from the date
such amount is made available to or on behalf of Company until the date such
amount is repaid to Administrative Agent, at the rate per annum equal to the
rate applicable to the Borrowing in question. If such Bank shall repay to
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Advance as part of such Borrowing for purposes of this
Loan Agreement.
(c) Selection of Interest Option. Upon making a Request for Borrowing
----------------------------
under Section 2.02(a) hereof, Company shall advise Administrative Agent as to
whether the Borrowing shall be (i) a Eurodollar Borrowing, in which case Company
shall specify the applicable Interest Period therefor, or (ii) a Floating Base
Borrowing. At least two (2) Eurodollar Business Days (which notice shall be
delivered to Administrative Agent not later than 12:00 noon, New York City time)
prior to the termination of each Interest Period with respect to a Eurodollar
Borrowing (whether such termination occurs before or after the Maturity Date)
Company shall give Administrative Agent written notice (the "Rollover Notice")
of the interest option which shall be applicable to such Borrowing upon the
expiration of such Interest Period. If Company shall specify that such
Borrowing shall be a Eurodollar Borrowing, such Rollover Notice shall also
specify the length of the succeeding Interest Period selected by Company with
respect to such Advance. Each Rollover Notice shall be irrevocable and
effective upon notification thereof to Administrative Agent. If the required
Rollover Notice shall not have been timely received by Administrative Agent
prior to the expiration of the then-relevant Interest Period, then Company
shall be deemed to have elected to have such Borrowing be a Floating Base
Borrowing. With respect to any Floating Base Borrowing, Company shall have the
right, on any Business Day or Eurodollar Business Day as the case may be (a
"Conversion Date") to convert such Floating Base Borrowing to a Eurodollar
Borrowing by giving Administrative Agent a Rollover Notice of such selection at
least two (2) Business Days or Eurodollar Business Days (which notice shall be
delivered to Administrative Agent not later than 12:00 noon, New York City
time), as the case may be, prior to such Conversion Date.
Notwithstanding anything to the contrary contained herein, Company
shall have no right to request a Eurodollar Borrowing if the interest rate
applicable thereto under Section 2.03 hereof would exceed the Maximum Rate in
effect on the first day of the Interest Period applicable to such Eurodollar
Borrowing.
2.03. Interest Rate.
-------------
(a) Floating Base Advance. The unpaid principal of each Floating
---------------------
Base Advance shall bear interest from the date of advance until paid at a rate
per annum which shall from day to day be equal to the lesser of (a) the Maximum
Rate or (b) the sum of the Floating Base Rate in effect from day to day plus the
Applicable Margin.
20
<PAGE>
(b) Eurodollar Advance. The unpaid principal of each Eurodollar
------------------
Advance (inclusive of any rollover of or conversion to a Eurodollar Borrowing)
shall bear interest from the date of advance until paid at a rate per annum
which shall from day to day be equal to the lesser of (i) the Maximum Rate or
(ii) the sum of the Adjusted InterBank Rate for the Interest Period in effect
plus the Applicable Margin.
(c) Default Rate. Any overdue principal of and, to the extent
------------
permitted by law, overdue interest on any Borrowing (after giving effect to all
grace periods) shall bear interest payable on demand, for each day until paid at
a rate per annum equal to the lesser of (i) the sum of the Floating Base Rate
plus the Applicable Margin plus 2% or (ii) the Maximum Rate.
2.04. Borrowing Base Increase Fee. Company shall pay to Administrative
---------------------------
Agent, for the account of all Banks, an additional fee upon each subsequent
increase to the Borrowing Base that is agreed to by Banks according to Section
2.01(a) and Article 5 hereof in an amount that is agreed to between Company and
Banks as a condition precedent to the increase to the Borrowing Base by Banks.
2.05 Up-Front Fees. At the Closing Date, Company shall pay to
-------------
Administrative Agent the fee that is required to be paid by Company to Agents
pursuant to that certain fee letter agreement dated August 12, 1999 among
Company, Agents and Arranger.
2.06 Maximum Number of Eurodollar Borrowings. All Eurodollar Borrowings,
---------------------------------------
including rollovers of Eurodollar Borrowings and conversions to Eurodollar
Borrowings, shall be made in such manner that, after giving effect thereto,
there are no more than six (6) Interest Periods applicable to outstanding
Eurodollar Borrowings in effect at any time; provided, however, that more than
-------- -------
six (6) such Interest Periods applicable to outstanding Eurodollar Borrowings
may be permitted to be in effect with the prior approval of Administrative
Agent.
ARTICLE 3
---------
SECURITY
--------
3.01. Liens and Security Interests.
----------------------------
(a) Mineral Properties. To secure performance by Company of the
------------------
payment of the Notes and the Obligation, Company shall cause Arkoma to grant to
Administrative Agent (for the benefit of Banks) a first priority security
interest in and only Lien (except for Permitted Liens) on such Mineral
Properties of Arkoma that consist of not less than eighty percent (80%) of the
Borrowing Base value assigned to all Mineral Properties of Arkoma and the oil,
gas and mineral production therefrom or attributable thereto, and in all
operating agreements and oil or gas purchase contracts (now existing or
hereafter arising) relating to such Mineral Properties and in related personal
properties, fixtures and other properties (such Mineral Properties that are
pledged to secure the Obligation as provided in this Section 3.01(a) (and in
Sections 3.03, 5.03,
21
<PAGE>
5.06 and 8.20 herein) are sometimes referred to herein collectively as the
"Mortgaged Properties.").
(b) Other Properties. To secure performance by Company of the
----------------
payment of the Notes and the Obligation, Company shall, and Company shall cause
Arkoma to, grant to Administrative Agent (for the benefit of Banks) a first
priority security interest and only Lien (except for Permitted Liens) on all
other tangible and intangible assets and properties of Company and Arkoma
(including without limitation, intellectual property, real property (other than
Mineral Properties) and accounts receivable).
(c) Pledge of Capital Stock of Arkoma. As additional security for
---------------------------------
the performance by Company of the payment of the Notes and the Obligation,
Company shall grant to Administrative Agent (for the benefit of Banks) a first
priority security interest in and only Lien (other than Permitted Liens) in all
of the issued and outstanding Capital Stock of Arkoma, such pledge to include
the delivery to Administrative Agent (for the benefit of Banks) the certificates
representing the shares of Capital Stock of Arkoma pledged pursuant to the
pledge agreement, together with an undated stock power for each such certificate
executed in blank by Company.
(d) Pledge of Capital Stock of Company. As additional security for
----------------------------------
the performance by Company of the payment of the Notes and the Obligation,
Company shall cause Parent to grant to Administrative Agent (for the benefit of
Banks) a first priority security interest in and only Lien (other than Permitted
Liens) in all of the issued and outstanding Capital Stock of Company, such
pledge to include the delivery to Administrative Agent (for the benefit of
Banks) the certificates representing the shares of Capital Stock of Company
pledged pursuant to the pledge agreement, together with an undated stock power
for each such certificate executed in blank by Parent.
(e) Collateral Documents. All Liens on the Mortgaged Properties,
--------------------
the other assets and properties of Company and Arkoma and the Capital Stock of
Arkoma and Company shall be granted pursuant to, and more fully described in,
mortgages, deeds of trust, pledge agreements, deeds of trust, assignments of
production, security agreements, financing statements, pledge agreement,
collateral assignments, and other documents in form and substance acceptable to
Administrative Agent (all of the forgoing, together with the Letters in Lieu, is
herein collectively called the "Collateral Documents").
3.02. Assignment of Production; Letters in Lieu; and Power of Attorney. To
----------------------------------------------------------------
further secure the performance by Company of the payment of the Notes and
Obligation, Arkoma shall execute certain forms, authorizations, documents and
instruments (herein collectively referred to as "Letters in Lieu"), instructing
that pipeline companies, operators and other purchasing (or acting as agents
for, or making payments on behalf of, those purchasing) the oil, gas and other
minerals produced or to be produced from, or relating to, the Mortgaged
Properties, to deliver to a post office box number specified by Administrative
Agent (for the benefit of Banks) all royalties, production payments, checks,
cash, proceeds and monies now or hereafter payable on account of oil, gas or
other minerals produced from or relating to such Mortgaged Properties or
otherwise with respect to such Mortgaged Properties. Administrative Agent
agrees to retain in
22
<PAGE>
its possession and not to submit same to any pipeline companies, operators or
other purchasers of or distributors of production from the Mortgaged Properties
unless and until there is an Event of Default hereunder.
Upon an Event of Default hereunder, Administrative Agent is hereby
authorized to submit the Letters in Lieu to the appropriate parties and to
otherwise notify any or all parties obligated to Company with respect to the
Mortgaged Properties to make all payments due or to become due thereon directly
to Administrative Agent, or such other person or officer as Administrative Agent
may require, whereupon the power and authority of Arkoma or Company to collect
the same in the ordinary course of business shall be deemed to be immediately
revoked and terminated. Upon an Event of Default hereunder, with or without the
Letters in Lieu or such general notification, Administrative Agent may take or
bring in Arkoma's or Company's name or that of Administrative Agent all steps,
actions, suits or proceedings deemed by Administrative Agent necessary or
desirable to effect possession or collection of payments, may complete any
contract or agreement of Arkoma or Company in any way related to any of the
Mortgaged Properties, may make allowances or adjustments related to the
Mortgaged Properties, may compromise any claims related to the Mortgaged
Properties, or may issue credit in its own name or the name of Arkoma or
Company. Regardless of any provision hereof, Administrative Agent shall never
be liable to Arkoma or Company for its failure to collect or for its failure to
exercise diligence in the collection, possession, or any transaction concerning,
all or part of the Mortgaged Properties or sums due or paid thereon, nor shall
it be under any obligation whatsoever to anyone by virtue of its security
interests and liens relating to, in the proceeds of production from, or its
interest in, the Mortgaged Properties.
Issuance by Administrative Agent of a receipt to any Person obligated to
pay any amounts to Company or any Subsidiary shall be a full and complete
release, discharge and acquittance to such Person to the extent of any amount so
paid to Administrative Agent. Administrative Agent is hereby authorized and
empowered on behalf of Arkoma or Company to endorse the name of Arkoma or
Company upon any check, draft, instrument, receipt, instruction or other
document or items, including, but not limited to, all items evidencing payment
upon any indebtedness of any Person to Arkoma or Company coming into
Administrative Agent's possession, and to receive and apply the proceeds
therefrom in accordance with the terms hereof. Administrative Agent is hereby
granted an irrevocable Power of Attorney, which is coupled with an interest, to
execute all checks, drafts, receipts, instruments, instructions or other
documents, agreements or items on behalf of Arkoma or Company, either before or
after demand of payment on the Notes, as shall be deemed by Administrative Agent
to be necessary or advisable, in the sole discretion of Administrative Agent, to
protect its security interests and liens in the Mortgaged Properties or the
repayment of the Obligation, and Administrative Agent shall not incur any
liability in connection with or arising from its exercise of such Power of
Attorney. The application by Administrative Agent of such funds shall, unless
Banks shall agree otherwise in writing, be in the same manner as set forth in
Section 4.05 hereof.
3.03. Agreement to Deliver Additional Collateral Documents. Company
----------------------------------------------------
shall, and shall cause Arkoma to, deliver such deeds of trust, mortgages,
security agreements, financing statements, assignments, amendments and other
collateral documents (including title opinions and other title assurances) (all
of which shall be deemed part of the "Collateral Documents"), in
23
<PAGE>
form and substance satisfactory to Administrative Agent, as Administrative Agent
may reasonably request from time to time for the purpose of granting to, or
maintaining or perfecting in favor of Administrative Agent for the benefit of
Banks, Liens on any of the Mortgaged Properties, together with other assurances
of the enforceability and priority of such Liens and assurances of due recording
and documentation of the Collateral Documents, as Administrative Agent may
reasonably require to avoid material impairment of the Liens and security
interests granted or purported to be granted pursuant to this Loan Agreement.
3.04 Guaranties. The Obligation shall be unconditionally guaranteed by
----------
Arkoma pursuant to the Guaranty Agreement in the form of Exhibit "D."
3.05 Local Legal Opinions. Administrative Agent will be permitted, at
--------------------
Company's expense, to obtain opinions of counsel in each jurisdiction in which
Mortgaged Properties are located, with respect to the validity, enforceability,
and actions necessary to perfect the Liens and security interests created by the
Collateral Documents covering the Mortgaged Properties and as to the other
matters as Administrative Agent shall deem necessary with respect to the
Collateral Documents.
3.06 Title Opinions. Company shall deliver to Administrative Agent title
--------------
opinions or other title information acceptable to Administrative Agent covering
Mineral Properties which are, or are to become, Mortgaged Properties and other
information regarding title to such properties and the relative priority of the
Liens in favor of Administrative Agent as Administrative Agent shall reasonably
request, all in form and substance and from attorneys acceptable to
Administrative Agent.
3.07 Benefits of Collateral. Administrative Agent shall hold the
----------------------
Mortgaged Properties and other collateral required to be pledged and deposited
by the Loan Parties to Administrative Agent, along with all payments and
proceeds arising therefrom, for the ratable benefit of Banks as security for the
payment of the Notes and Obligations. Except as otherwise expressly provided for
in this Article 3, Administrative Agent, in its own name or in the name of
Arkoma or Company, may enforce any of the Collateral Documents or the security
therefor by and mode provided under the Loan Documents or by the law of the
state in which the Mortgaged Property or in which any real property subject to
any of the Collateral Documents is located, and may collect and receive proceeds
receivable on account of ownership of the Mortgaged Property.
ARTICLE 4
---------
EVIDENCE OF INDEBTEDNESS AND PAYMENT
------------------------------------
4.01. Evidence of Indebtedness.
------------------------
(a) Notes. The Advances made under Section 2.01(a) hereof by a Bank
-----
shall be evidenced by the Revolving Promissory Notes executed by Company and
delivered to each Bank pursuant to the terms of this Loan Agreement (each a
"Note" and collectively, the "Notes") which Notes shall (i) be dated the date
hereof, (ii) be in the amount of such Bank's Percentage of the Facility Amount,
(iii) be payable to the order of such Bank at the office of Administrative
24
<PAGE>
Agent, (iv) bear interest in accordance with Section 2.03 hereof, and (v) be in
the form of Exhibit "A" attached hereto with blanks appropriately completed in
conformity herewith. Each Note shall mature on the Maturity Date, at which time
all Obligations under such Note shall become immediately due and payable.
Notwithstanding the principal amount of any Bank's Note as stated on the face
thereof, (a) such Bank's Commitment shall never exceed its Percentage of the
Commitment then in effect, and (b) the amount of principal actually owing on
such Note at any given time shall be the aggregate of all Advances theretofore
made to Company hereunder, less all payments of principal theretofore actually
received hereunder, by such Bank. Each Bank is authorized, but is not required,
to endorse on the schedule attached to its Note appropriate notations evidencing
the date and amount of each Advance as well as the amount of each payment made
by Company hereunder.
(b) Register. The Administrative Agent, on behalf of Company and
--------
Banks, shall maintain, at its address referred to in Section 13.05, a register
(the "Register") for the recordation of the names and addresses of each Bank and
its Percentage of the Commitment, and a subaccount therein for each Bank, in
which shall be recorded (i) the amount of each Advance made by such Bank
hereunder, the nature of each Borrowing as a Floating Base Borrowing or a
Eurodollar Borrowing and each Interest Period applicable thereto, (ii) the
amount of any principal or interest due and payable or to become due and payable
from Company to each Bank hereunder and (iii) both the amount of any sum
received by the Administrative Agent hereunder from Company and each Bank's
share thereof. The entries made in the Register and the accounts of each Bank
maintained pursuant to this Section 4.01(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of Company therein recorded; provided, however, that the failure of
-------- -------
any Bank or Administrative Agent to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of Company
to repay (with applicable interest) that part of the Loan made to Company by
such Bank in accordance with the terms of this Loan Agreement.
4.02. Prepayments.
-----------
(a) Optional Prepayments. Company may, without premium or penalty,
--------------------
upon one (1) Business Day's prior written notice to Administrative Agent (which
notice shall be delivered to Administrative Agent not later than 12:00 noon, New
York City time), prepay the principal of the Notes then outstanding, in whole or
in part, at any time or from time to time; provided, however, that (i) each
prepayment of less than the full outstanding principal balance of any Note shall
be in an amount equal to $5,000,000 or an integral multiple of $1,000,000, (ii)
if Company shall prepay the principal of any Eurodollar Borrowing on any date
other than the last day of the Interest Period applicable thereto, Company shall
also pay to Administrative Agent, for the account of Banks, the amounts
specified in Section 12.05 (with respect to a Eurodollar Borrowing), and (iii)
Company shall at all times maintain a sufficient portion of the Loans as a
Floating Base Borrowing to allow Company to make regularly scheduled payments of
principal without paying a Eurodollar Borrowing prior to the end of the
applicable Interest Period. Upon receipt of such notice of intention to prepay,
Administrative Agent shall promptly notify each Bank of the receipt of such
notice and of the date and amount of the proposed prepayment.
(b) Mandatory Prepayments.
---------------------
25
<PAGE>
(i) Total Outstandings Exceed Commitment. If, at any time
------------------------------------
prior to the Maturity Date and to the extent not as a result of a Borrowing Base
Deficiency, the Total Outstandings exceed the Commitment then in effect, then
Company shall immediately repay, without premium or penalty, an amount of
Advances equal to such excess, along with accrued unpaid interest on the amount
so repaid to the date of such repayment, together with any Consequential Loss.
(ii) Borrowing Base Deficiency. Unless Company or Arkoma
-------------------------
executes and delivers Collateral Documents covering New Collateral Properties as
more particularly set forth in Section 5.04 hereof, Company shall make a
mandatory prepayment of the Notes in an amount equal to any Borrowing Base
Deficiency within thirty (30) days following Administrative Agent's notice of
such Borrowing Base Deficiency.
(iii) Sale or Loss of Mineral Properties. Company shall make
----------------------------------
mandatory prepayments of the Notes as required under Section 8.13 and Section
9.07 hereof.
(iv) Public Offerings and Debt Issuance. If Company makes a
----------------------------------
public offering of any of its Capital Stock or makes an issuance of Indebtedness
(to the extent the incurrence of such Indebtedness is approved by Majority
Banks, but excluding the incurrence of the Indebtedness permitted under Section
9.01 hereof), Company shall make a mandatory prepayment of the Notes in an
amount equal to the net proceeds received by Company upon the closing of each
such public offering or issuance of Indebtedness.
(c) Maturity Date. On the Maturity Date, the Commitment shall
-------------
reduce to zero ($0.00) and Company shall pay the Obligation, including all
amounts due under the Advances then outstanding, together with all interest,
fees and other amounts due hereunder.
(d) General Prepayment Provisions. Any prepayment of a Note
-----------------------------
hereunder shall be (i) made together with interest accrued (through the date of
such prepayment) on the principal amount prepaid, and (ii) applied first to
accrued interest and then to principal.
4.03. Payment of Interest on the Notes.
--------------------------------
(a) Notes. Interest on the unpaid principal amount of each
-----
Floating Base Advance under the Notes shall be payable quarterly as it accrues
on the last Business Day of each Quarterly Period, commencing September 30,
1999, and at the Maturity Date. Interest on the unpaid principal amount of each
Eurodollar Advance under the Notes shall be payable on the last day of each
Interest Period applicable to such Advance or, if such Interest Period is longer
than three months for any Eurodollar Advance, at intervals of three months after
the first day thereof.
(b) Recapture Rate. If, on any interest payment date,
--------------
Administrative Agent does not receive (for the account of any Bank) interest on
such Bank's Note computed (as if no Maximum Rate limitations were applicable) at
the applicable contract rate described herein, because the applicable contract
rate exceeds or has exceeded the Maximum Rate, then Company
26
<PAGE>
shall, upon the written demand of Administrative Agent or such Bank, pay to such
Bank, in addition to interest otherwise required hereunder, on each interest
payment date thereafter, the Excess Interest Amount (hereinafter defined)
calculated as of such later interest payment date; provided, however, that in no
event shall Company be required to pay, for any appropriate computation period,
interest at a rate exceeding the Maximum Rate effective during such period. The
term "Excess Interest Amount" shall mean, on any date, with respect to the Note
of any Bank, the amount by which (a) the amount of all interest which would have
accrued prior to such date on the principal of such Note (had the applicable
contract rate(s) described herein at all times been in effect, without
limitation by the Maximum Rate) exceeds (b) the aggregate amount of interest
-------
actually paid to such Bank on such Note on or prior to such date.
4.04. Calculation of Interest Rates. Interest on the unpaid principal of
-----------------------------
each Eurodollar Borrowing shall be calculated on the basis of the actual days
elapsed in a year consisting of 360 days. Interest on the unpaid principal of
each Floating Base Borrowing shall be calculated on the basis of the actual days
elapsed in a year consisting of 365 or 366 days, as appropriate.
4.05. Manner and Application of Payments. All payments of principal of,
----------------------------------
and interest on, any Note to or for the account of any Bank shall be made by
Company to Administrative Agent before 2:00 p.m. (New York City time), in
Federal or other immediately available funds at Administrative Agent's principal
banking office in New York City. Should the principal of, or any installment of
the principal or interest on, any Note, or any commitment fee, become due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day. Each payment received by
Administrative Agent hereunder for the account of a Bank shall be promptly
distributed by Administrative Agent to such Bank. All payments made on any Note
shall be credited, to the extent to the amount thereof, in the following manner:
(i) first to fees, costs and expenses which Company has agreed to pay under the
Loan Papers for which Company has received an invoice no later than five (5)
days prior to such payment, (ii) second, against the amount of interest accrued
and unpaid on such Note as of the date of such payment; (iii) third, against all
principal (if any) due and owing on such Note as of the date of such payment;
(iv) fourth, as a prepayment of outstanding Floating Base Advances under such
Note; (v) fifth, as a prepayment of outstanding Eurodollar Advances under such
Note; and (vi) sixth, as a prepayment of any remaining Obligation. Subject to
the foregoing, payments and prepayments of principal of the Notes shall be
applied to such outstanding Floating Base Borrowings and Eurodollar Borrowings
under such Notes as Company shall select; provided, however, that Company shall
select Floating Base Borrowings and Eurodollar Borrowings to be repaid in a
manner designated to minimize the Consequential Loss, if any, resulting from
such payments; and provided further that, if Company shall fail to select the
Floating Base Borrowings and Eurodollar Borrowings to which such payments are to
be applied, or if an Event of Default has occurred and is continuing at the time
of such payment, then Administrative Agent shall be entitled to apply the
payment to such Floating Base Borrowings and Eurodollar Borrowings in the manner
it shall deem appropriate.
4.06. Pro Rata Treatment. Each payment received by Administrative Agent
------------------
hereunder for account of Banks or any of them on the Notes shall be distributed
to each Bank entitled to share in such payment, pro rata in proportion to the
--- ----
then-unpaid principal balance of the Note of each Bank. Unless Administrative
Agent shall have received notice from Company prior to the
27
<PAGE>
date on which any payment is due to Banks hereunder that Company will not make
such payment in full, Administrative Agent may assume that Company has made such
payment in full to Administrative Agent on such date and Administrative Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent Company shall not have so made such payment in full to Administrative
Agent, each Bank shall repay to Administrative Agent forthwith on demand such
amount distributed to such Bank together with interest at the Federal Funds
Rate, for each day from the date such amount is distributed to such Bank until
the date such Bank repays such amount to Administrative Agent, at the rate
applicable to such portion of the Loan on its due date.
4.07. Lending Office. Each Bank may (a) designate its principal office or
--------------
a foreign branch, subsidiary or affiliate of such Bank as its lending office
(and the office to whose accounts payments are to be credited) for any
Eurodollar Advance, (b) designate its principal office or a domestic branch,
subsidiary or affiliate as its lending office (and the office to whose accounts
payments are to be credited) for any Floating Base Advance and (c) change its
lending offices from time to time by notice to Administrative Agent and Company.
In such event, such Bank shall continue to hold the Note evidencing its loans
for the benefit and account of such foreign branch, subsidiary or affiliate.
Each Bank shall be entitled to fund all or any portion of its Loan in any manner
that it deems appropriate, but for the purposes of this Loan Agreement such Bank
shall, regardless of such Bank's actual means of funding, be deemed to have
funded its Loan in accordance with the interest option from time to time
selected by Company for such Borrowing.
4.08. Taxes.
-----
(a) Any and all payments by Company hereunder or under the Notes
shall be made, in accordance with Section 4.05, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto (hereinafter
referred to as "Taxes"), excluding, in the case of each Bank and Administrative
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or Administrative Agent (as the
case may be) is organized or is or should be qualified to do business or any
political subdivision thereof and, in the case of each Bank, taxes imposed on
its income, and franchise taxes imposed on it by the jurisdiction of such Bank's
lending office or any political subdivision thereof. If Company shall be
required by law to deduct any taxes (i.e., such taxes, liens, imposts,
----
deductions, charges, withholdings and liabilities for which Company is
responsible under the preceding sentence) from or in respect of any sum payable
hereunder or under any Note to any Bank or Administrative Agent, (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 4.08) such Bank or Administrative Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Company shall make such deductions and (iii) Company
shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
28
<PAGE>
(b) In addition, Company agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Loan Papers or
from the execution, delivery or registration of, or otherwise with respect to,
this Loan Agreement or the other Loan Papers (hereinafter referred to as "Other
Taxes").
(c) Company will indemnify each Bank and Administrative Agent for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 4.08) paid by such Bank or Administrative Agent (as the case may be) or
any liability (including penalties and interest) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date such Bank or Administrative Agent (as the case may be) makes written demand
therefor, which demand shall contain an invoice itemizing the Taxes, Other Taxes
or related liability which is subject to Company's indemnification according to
this Section 4.08.
(d) Within 30 days after the date of any payment of Taxes, Company
will furnish to Administrative Agent, at its address referred to in Section
13.05, the original or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of
Company hereunder, the agreements and obligations of Company contained in this
Section 4.08 shall survive the payment in full of principal and interest
hereunder and under the other Loan Papers for the applicable period of
limitations respecting any Taxes, Other Taxes or related liability of Company
under this Section 4.08.
(f) Each Bank agrees to use good faith efforts to carry out its
obligations under this Loan Agreement in such a way as to reduce the amount of
Taxes attributable to the Loan, including the use of a different lending office,
as long as in the good faith opinion of such Bank such actions would not
adversely affect it.
4.09. Sharing of Payments, etc. If any Bank shall obtain any payment
-------------------------
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Advances made by it in excess of its ratable
share of payments on account of the Advances obtained by all Banks, such Bank
shall forthwith purchase from the other Banks such participations in the
Advances made by them as shall be necessary to cause such purchasing Bank to
share the excess payment ratably with each of them, provided, however, that if
-------- -------
all or any portion of such excess payment is thereafter recovered from such
purchasing Bank, such purchase from each Bank shall be rescinded and such Bank
shall repay to the purchasing Bank the purchase price to the extent of such
recovery together with an amount equal to such Bank's ratable share (according
to the proportion of (i) the amount of such Bank's required repayment, to (ii)
the total amount so recovered from the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total amount
recovered. Company agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section 4.09 may, to the fullest extent permitted
by law, exercise all of its rights of payment (including the right of set-off)
with respect to such participation as fully as if such Bank were the
29
<PAGE>
direct creditor of Company in the amount of such participation. The foregoing
provisions shall also apply to any payments received by any Bank from Arkoma
respecting a payment under the Guaranty of such Person.
ARTICLE 5
---------
BORROWING BASE
--------------
5.01. Components for Determination of Borrowing Base. The term "Borrowing
----------------------------------------------
Base" shall mean the designated loan value established by Agents and approved by
either Banks or Majority Banks (as provided below) in their sole discretion and
assigned to the Mineral Properties, as redetermined from time to time pursuant
to the terms hereof, and in each case based upon pertinent economic variables
and parameters selected according to Section 5.07. Subject to the provisions of
Sections, 5.02, 5.03 and 5.04 (concerning the manner in which the Borrowing Base
is redetermined from time to time by approval of all Banks or Majority Banks),
in each case of determining the Borrowing Base, each Bank shall use such
combination of proved reserves attributable to the Mineral Properties as it
deems proper at its sole discretion, and further using such methodology,
assumptions and discount rates as such Bank then customarily uses in assigning
collateral value to oil and gas properties for loans similar to the lending
transactions set forth in this Loan Agreement and such other credit factors
consistently applied (including, without limitation, the assets, liabilities,
cash flow, business, properties, prospects, management and ownership of Arkoma,
Company and Parent) as such Bank then customarily considers in evaluating oil
and gas credits similar to the lending transactions set forth in this Loan
Agreement. To the extent that any Permitted Lien affects any of the Mineral
Properties, each Bank, in its sole discretion, may take into account such
Permitted Lien for the purpose of determining the Borrowing Base value of the
affected Mineral Property. The Borrowing Base as of the Closing Date is
$140,000,000.
5.02. Mandatory Redeterminations of Borrowing Base. Company's Borrowing
--------------------------------------------
Base shall be redetermined as of each Determination Date during the term of this
Loan Agreement (beginning April 15, 2000). On or before each Determination
Date, Company shall provide to each Bank the Reserve Report required to be
delivered to Banks according to Section 5.07, together with a certificate
setting forth Company's recommended Borrowing Base to be in effect as of the
ensuing Determination Date. Not later than fifteen (15) Business Days after
receipt of each such Reserve Report, (i) Agents shall agree among themselves
with respect to the Borrowing Base that Agents recommend to be effective
commencing as of such Determination Date, provided, however, that in no event
shall the Borrowing Base recommended by Agents exceed the Borrowing Base
recommended by Company, and (ii) Administrative Agent shall notify each Bank of
the amount of such recommended Borrowing Base. The Borrowing Base recommended
by Agents shall become effective (i) upon approval of all Banks for the
Borrowing Base to be effective as of April 15, 2000 and each Borrowing Base that
represents an increase to the Borrowing Base then in effect or (ii) upon
approval of Majority Banks for all Borrowing Base redeterminations after April
15, 2000 that represent a decrease to or reaffirmation of the Borrowing Base
then in effect. If all Banks (with respect to each Borrowing Base
30
<PAGE>
determination that requires approval of all Banks) or Majority Banks (with
respect to each Borrowing Base determination that requires approval of Majority
Banks), as the case may be, fail to approve the Borrowing Base recommended by
Agents within ten (10) Business Days following receipt of Agents'
recommendation, Agents shall propose one or more alternative Borrowing Bases and
shall consult with Banks regarding the proposed Borrowing Base until such time
as the Borrowing Base is approved by all Banks or Majority Banks, as the case
may be. If at the end of such ten (10) Business Day period following receipt of
Agents' recommendation of the Borrowing Base, a Bank has not communicated to
Administrative Agent its approval or disapproval of the Borrowing Base
recommended by Agents, such silence shall be deemed an approval by such Bank of
the Borrowing Base recommended by Agents. Promptly upon approval by all Banks
(in the case of each Borrowing Base that requires approval by all Banks) or
Majority Banks (in the case of each Borrowing Base that requires approval by
Majority Banks) of the Borrowing Base to become effective on the Determination
Date, Administrative Agent shall provide written notice of the amount of such
Borrowing Base which shall become effective on the date specified in such notice
(which shall be no sooner than the date such notice is sent). The Borrowing Base
then in effect shall remain in effect until the redetermined Borrowing Base is
approved by all Banks or Majority Banks, as the case may be, according to this
Section 5.02.
5.03. Special Determinations of Borrowing Base.
----------------------------------------
(a) By Company. In addition to the mandatory determinations of the
----------
Borrowing Base required pursuant to Section 5.02 hereof, special determinations
thereof may be made for any reason not more than twice during any twelve month
period during the term of this Loan Agreement at the option of Company. With
each request for a special redetermination of the Borrowing Base requested by
Company, Company shall deliver to Banks a Reserve Report prepared within sixty
(60) days prior to the date of such request. If Company proposes to include in
the Borrowing Base as redetermined additional Mineral Properties not included in
the Borrowing Base then in effect (such additional Mineral Properties being
"Additional Properties"), Company shall also provide to Administrative Agent
title opinions, title reports and other title information satisfactory to
Administrative Agent indicating that Arkoma, Company or the applicable
Subsidiary has good and defensible title to the Additional Properties, subject
only to the Permitted Liens. The redetermined Borrowing Base shall be requested
by Company, agreed to by Agents and approved by Banks or Majority Banks, as the
case may be, in the same manner as provided in Section 5.02. Administrative
Bank shall use every reasonable effort to notify Company within thirty (30)
Business Days after the receipt of the applicable Reserve Report (and title
information relating to Additional Properties, if applicable) the Borrowing Base
as redetermined according to this Section 5.03, and if such redetermination
results in an increase to the Borrowing Base, whether Banks will increase the
Commitment, and if so, the amount of the Commitment as increased. If the
Commitment is increased, the Borrowing Base shall be redetermined to the amount
equal to the Commitment, as increased. Banks are under no obligation to
increase the Commitment unless Banks elect to do so, and any increase shall be
at the sole and absolute discretion of Banks. If Banks elect to increase the
Commitment, the increase to the Commitment shall be effective as of the date
upon which Arkoma, Company or the applicable Subsidiary executes and delivers to
Administrative Agent appropriate documents reflecting an appropriate amendment
to this Loan Agreement and Collateral Documents which
31
<PAGE>
will grant to Banks a valid, enforceable and first priority Lien (subject to
Permitted Liens) against the Additional Properties as security for the Notes and
Obligation.
(b) By Banks. In addition to the determinations of the Borrowing
--------
Base required pursuant to Section 5.02 and 5.03(a) hereof, special
determinations thereof may be made for any reason not more than once during any
twelve month period during the Loan at the option of (i) either Agent or (ii)
Majority Banks. In order to request a special determination of the Borrowing
Base, the Person requesting such determination shall provide Agents and Company
with a written request of such determination. Prior to any special determination
of the Borrowing Base under this Section 5.03(b), if requested by Administrative
Agent, Company shall submit to Banks (a) a current Reserve Report which shall
(i) evaluate the Mineral Properties subject to such redetermination and (ii) be
dated within sixty (60) days of such requested redetermination, and (b) title
opinions or other title information, acceptable to Administrative Agent to
evidence that Arkoma or Company holds indefeasible title to those Mineral
Properties which are to be considered within the Borrowing Base. The
redetermined Borrowing Base shall be recommended by Agents and approved by all
Banks or Majority Banks, as the case may be, in the same manner as provided in
Section 5.02.
5.04. Interim Sales of Mineral Properties. After a Borrowing Base has
-----------------------------------
been determined, upon the sale of any Mineral Properties (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 Agents recommend and (i) all Banks approve for sales of Mineral
Properties occurring on or prior to April 15, 2000, or (ii) Majority Banks
approve for sales of Mineral Properties occurring after April 15, 2000, is the
Borrowing Base value last assigned to such Mineral Properties according to the
most recent Reserve Report delivered to Banks; provided, however, that no such
reduction to the Borrowing Base shall be required with respect to aggregate net
sales proceeds of up to $3,000,000 during any calendar year during the term of
the Loan, and provided further, that all such sales shall be subject to the
provisions of Section 4.02(b)(iii) and Section 9.07.
5.05. Reduction of Commitment. If, as of any Determination Date, or after
-----------------------
a special redetermination of the Borrowing Base according to Section 5.03, after
redetermination upon the sale of any Mineral Properties according to Section
5.04, the Borrowing Base (as redetermined) is less than the Commitment then in
effect, then the Commitment then in effect shall be reduced to an amount equal
to the redetermined Borrowing Base.
5.06. Borrowing Base Deficiency. If, as of any Determination Date (or as
-------------------------
soon thereafter as there has been a redetermination of the Borrowing Base as
provided in Section 5.02), or after a special redetermination of the Borrowing
Base according to Section 5.03, the Borrowing Base (as redetermined) is less
than the Total Outstandings as of the date of such Borrowing Base
redetermination (the amount by which the Total Outstandings exceed the
redetermined Borrowing Base is herein called a "Borrowing Base Deficiency"),
then Administrative Agent shall provide Company with written notice of such
Borrowing Base Deficiency, which notice shall set forth the amount of the
Borrowing Base Deficiency. Within thirty (30) days following Company's receipt
of such notice, Company shall remedy the Borrowing Base Deficiency by either (i)
paying to Administrative Agent (for the account of all
32
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Banks) as a mandatory prepayment on the Notes under Section 4.02(b) hereof an
amount equal to the Borrowing Base Deficiency, or (ii) executing and delivering
to Administrative Agent such Collateral Documents which will grant to Banks a
valid, enforceable and first priority Lien (subject to Permitted Liens) in such
additional Mineral Properties (not then included in the Borrowing Base) of
Arkoma, Company or any Subsidiary (herein called "New Collateral Properties")
which have a present value of proved reserves attributable to such New
Collateral Properties (as determined by Agents and approved by Majority Banks in
their sole discretion) which is not less than 1.75 times the amount of the
Borrowing Base Deficiency, (iii) providing combination of subclauses (i) and
(ii) above which in their aggregate equal the Borrowing Base Deficiency, or (iv)
taking such other action as Agents and Majority Banks shall deem appropriate in
their sole discretion to eliminate such Borrowing Base Deficiency. In the event
that Company elects (in whole or in part) to remedy the Borrowing Base
Deficiency by providing Administrative Agent with Collateral Documents granting
a Lien against the New Collateral Properties, Company shall also deliver along
with such Collateral Documents (i) a Reserve Report covering the New Collateral
Properties reflecting that the present value of the proved reserves attributable
to such New Collateral Properties is not less than 1.75 times the Borrowing Base
Deficiency (less the amount of principal payment made, if any, on account of
such Borrowing Base Deficiency), (ii) title opinions, title reports and other
title information satisfactory to Bank indicating that Arkoma, Company or the
applicable Subsidiary has good and defensible title to the New Collateral
Properties, subject to Permitted Liens, and (iii) if required by Agents, a Phase
I environmental assessment of the New Collateral Properties prepared by a firm
of independent environmental consultants acceptable to Banks. An Event of
Default shall exist if Company fails to remedy the Borrowing Base Deficiency
within thirty (30) days of its receipt of notice thereof in such manner as
provided above.
5.07. Reserve Report Matters. Each Reserve Report required to be
----------------------
delivered by Company to Banks pursuant to Sections 5.02 and 5.03 shall utilize
in its calculation of the proved reserves attributable to the Mineral Properties
the economic variables (including, without limitation, the prevailing price for
oil, gas and other hydrocarbons produced from the mineral properties and the
projected adjustments of such prices) assumptions, computations and other
parameters respecting the evaluation of the Mineral Properties agreed to by
Company and Agents, or if Company and Agents cannot agree to such economic
variables by the dates specified below, then such economic variables shall be
designated by Agents, based upon Agents' determination of the economic variables
and parameters then being utilized by Agents to evaluate proved reserves
attributable to oil and gas properties for lending transactions similar to the
Loan. As to each Reserve Report required under Section 5.02, Company shall
provide Agents its proposed economic variables for the Reserve Report (i) on or
before February 15 of each year for the Reserve Report to be delivered on April
15 of such year and (ii) on or before September 15 of each year for the Reserve
Report to be delivered on October 15 of each year. If Agents agree with such
proposed economic variables and parameters, such economic variables and
parameters shall be utilized in preparing the Reserve Report. If Agents do not
agree with such proposed economic variables and parameters, Agents shall consult
with Company in an effort to agree to the proposed economic variables and
parameters; provided, however, if Agents and Company cannot agree to such
proposed economic variables and parameters, such proposed economic variables and
parameters shall be determined by Agents in their sole discretion. As to the
Reserve Reports required under Section 5.03, Company and Agents shall agree to
such
33
<PAGE>
economic variables and parameters within ten (10) Business Days following the
delivery to Company of the notice of the special determination of the Borrowing
Base under Section 5.03; provided, however, if Company and Agents cannot agree
to such economic variables and parameters within such 10-day period, such
variables and parameters shall be determined by Agents in their sole discretion.
If the ultimate price received by Company or Arkoma for the sale of any oil, gas
or other hydrocarbons produced from the Mineral Properties is established or
determined by or subject to a Hedge Agreement, then Banks, in their sole
discretion, may take into account such Hedge Agreements and the affect thereof
on the price utilized for the affected Mineral Properties as set forth in the
Reserve Report for the purpose of determining the Borrowing Base value to be
assigned to the affected Mineral Properties. The Reserve Report required to be
delivered on April 15 of each year shall evaluate the Mineral Properties
included in the Borrowing Base as of December 31 of the preceding year and the
Reserve Report required to be delivered on October 15 of each year shall
evaluate the Mineral Properties included in the Borrowing Base as of the
previous June 30 of such year. The Reserve Report required to be delivered on
April 15 of each year shall be prepared by Miller and Lents or such other firm
or firms of independent petroleum engineers acceptable to Agents, and all other
Reserve Reports required to be delivered to Banks hereunder shall be prepared,
at Company's option, by Company's in-house petroleum engineers or a firm of
independent petroleum engineers.
ARTICLE 6
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Banks to make the Loan hereunder, Company represents and warrants
to Banks that:
6.01. Organization and Good Standing. Each Credit Party is a corporation
------------------------------
duly organized and validly existing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority required to own its
properties and assets, and to transact the business in which it is engaged and
that which it proposes to conduct. Each Credit Party is qualified or licensed
to do business in those states wherein it owns or leases property or in which
the conduct of its business requires it so to qualify.
6.02. Authorization and Power. Company has the corporate power and
-----------------------
requisite authority to execute, deliver and perform this Loan Agreement, the
Notes and the other Loan Papers to be executed by Company; Company is duly
authorized to, and has taken all corporate action necessary to authorize Company
to, execute, deliver and perform this Loan Agreement, the Notes and such other
Loan Papers and will continue to be duly authorized to perform this Loan
Agreement, the Notes and such other Loan Papers. Arkoma and Parent have the
corporate power and requisite authority to execute, deliver and perform the
Collateral Documents, the Guaranty and the other Loan Papers to be executed by
Arkoma and Parent; Arkoma and Parent are duly authorized to, and have taken all
corporate action necessary to authorize Arkoma and Parent to, execute, deliver
and perform the Collateral Documents, the Guaranty and such other Loan Papers
and will continue to be duly authorized to perform the Collateral Documents, the
Guaranty and such other Loan Papers executed by Arkoma and Parent.
34
<PAGE>
6.03. No Conflicts or Consents. Neither the execution and delivery of
------------------------
this Loan Agreement, the Notes or the other Loan Papers, nor the consummation of
any of the transactions herein or therein contemplated, nor compliance with the
terms and provisions hereof or with the terms and provisions thereof, will
contravene or materially conflict with any provision of law, statute or
regulation to which any of the Credit Parties is subject or any judgment,
license, order or permit applicable to any of the Credit Parties, or any
indenture, loan agreement, mortgage, deed of trust, or other agreement or
instrument to which any of the Credit Parties is a party or by which any of the
Credit Parties may be bound, or to which any of the Credit Parties may be
subject, or violate any provision of the charter or bylaws of any of the Credit
Parties. No consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by any of the Credit Parties of the Loan Papers or to
consummate the transactions contemplated hereby or thereby.
6.04. Enforceable Obligations. This Loan Agreement, the Notes and the
-----------------------
other Loan Papers are the legal and binding obligations of Company, enforceable
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. The Collateral Documents, the Guaranty and the other Loan
Papers executed by Arkoma and Parent are the legal and binding obligations of
Arkoma and Parent, enforceable 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.
6.05. No Liens. Except for Permitted Liens, all of the properties and
--------
assets of the Credit Parties are free and clear of all mortgages, liens,
encumbrances and other adverse claims of any nature.
6.06. Organizational Structure. From and after the Closing Date, Cross
------------------------
Timbers Trading Company and LB I Group Inc. or an Affiliate thereof (or Cross
Timbers Trading Company, Cross Timbers Oil Company or an Affiliate thereof as
the assignee of LB I Group Inc. or its Affiliate) shall be the record owners and
Beneficial Owners of 100% of the Capital Stock of Parent, Parent shall be the
record owner and Beneficial Owner of 100% of the Capital Stock of Company and
Company shall be the record owner and Beneficial Owner of 100% of the Capital
Stock of Arkoma.
6.07. Full Disclosure. There is no material fact that Company has not
---------------
disclosed to Banks which could have a Material Adverse Effect on the properties,
business, prospects or condition (financial or otherwise) of any of the Credit
Parties. Neither the financial statements referred in Section 7.01(p) hereof,
nor any certificate or statement delivered herewith or heretofore by Company to
Administrative Agent or any Bank in connection with negotiations of this Loan
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary to keep the statements contained herein or therein
from being misleading.
6.08. No Default. No event has occurred and is continuing which
----------
constitutes an Event of Default or which, with the lapse of time or giving of
notice or both, would constitute an Event of Default.
35
<PAGE>
6.09. Material Agreements. Neither of the Credit Parties is in default in
-------------------
any material respect of any loan agreement, indenture, mortgage, security
agreement or other material agreement or obligation to which it is a party or by
which any of its properties is bound.
6.10. No Litigation. There are no actions, suits or legal, equitable,
-------------
arbitration or administrative proceedings pending, or to the knowledge of
Company threatened, against any of the Credit Parties that would, if adversely
determined, have a Material Adverse Effect.
6.11. Burdensome Contracts. Neither of the Credit Parties is a party to,
--------------------
or bound by, any contract which is a burdensome contract having a Material
Adverse Effect on the business, operations or financial condition of such Credit
Party.
6.12. Estimated Oil and Gas Reserves. Company has heretofore delivered to
------------------------------
Banks copies of all reports requested by Banks (prepared by independent
consulting engineers), which have been obtained by Company and concern the
estimated proved reserves and future net revenues attributable to the Mineral
Properties. The statements of fact contained in said reports with respect to
the character and ownership of the Mineral Properties (including, without
limitation, the respective revenue interest and working interest of Arkoma in
the Mineral Properties as stated therein) and the other factual data furnished
by Company as a basis for the estimates set forth therein are true and correct
in all material respects and do not omit any material fact necessary to make
said statements not misleading.
6.13. Use of Proceeds; Margin Stock. The proceeds of the Loan will be
-----------------------------
used by Company solely for the purposes specified in the Section 2.01(d) hereof.
None of such proceeds will be used for the purpose of purchasing or carrying any
"margin stock" as defined in Regulation U or Regulation G of the Board of
Governors of the Federal Reserve System (12 C.F.R. Part 221 and 207), or for the
purpose of reducing or retiring any indebtedness which was originally incurred
to purchase or carry a margin stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of such
Regulation U or Regulation G, if, as a result of purchasing or carrying any
"margin stock", the proceeds of the Loan would be used, directly or indirectly,
for a purpose, whether immediate, incidental or ultimate, which violates or
which would be inconsistent with Regulation U or Regulation G or would cause the
Loan to be a credit regulated or governed by Regulation U or Regulation G.
Company is not engaged in the business of extending credit for the purpose of
purchasing or carrying margin stocks. Neither Company, any Subsidiary nor any
Person acting on behalf of Company has taken or will take any action which might
cause the Notes or any of the other Loan Papers, including this Loan Agreement,
to violate Regulations U or Regulation G or any other regulations of the Board
of Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect.
6.14. Taxes. All tax returns required to be filed by the Credit Parties
-----
in any jurisdiction have been filed, except for such tax returns for which the
failure to timely file will not result in a Material Adverse Effect, and all
taxes (including mortgage recording taxes), assessments, fees and other
governmental charges upon the Credit Parties or upon any of its or their
properties, income or franchises have been paid prior to the time that such
taxes could give rise to a lien
36
<PAGE>
thereon, except for such taxes, for which the failure to timely pay will not
result in a Material Adverse Effect. There is no proposed tax assessment against
any of the Credit Parties and there is no basis for such assessment.
6.15. Principal Office, Etc. The principal office, chief executive office
---------------------
and principal place of business of the Credit Parties is at 810 Houston Street,
Suite 200, Fort Worth, Texas 76102. The Credit Parties maintain their principal
records and books at such address.
6.16. ERISA. (a) No Reportable Event has occurred and is continuing with
-----
respect to any Plan; (b) PBGC has not instituted proceedings to terminate any
Plan; (c) neither Credit Party nor any member of the Controlled Group, nor any
duly-appointed administrator of a Plan (i) has incurred any liability to PBGC
with respect to any Plan other than for premiums not yet due or payable or (ii)
has instituted or intends to institute proceedings to terminate any Plan under
Section 4041 or 4041A of ERISA or withdraw from any Multi-Employer Pension Plan
(as that term is defined in Section 3(37) of ERISA); and (d) each Plan of each
Credit Party has been maintained and funded in all material respects in
accordance with its terms and with all provisions of ERISA applicable thereto.
6.17. Compliance with Law. The Credit Parties are in compliance with all
-------------------
laws, rules, regulations, orders and decrees which are applicable to the Credit
Parties, or its or their properties for which the failure to comply would have a
Material Adverse Effect.
6.18. Government Regulation. Neither of the Credit Parties is subject to
---------------------
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as
any of the preceding acts have been amended), or any other law (other than
Regulation X) which regulates the incurring by the Credit Parties of
indebtedness, including but not limited to laws relating to common contract
carriers or the sale of electricity, gas, steam, water, or other public utility
services.
6.19. Insider. Neither Credit Party is, and no Person having "control"
-------
(as that term is defined in 12 U.S.C. (S)375(b)(5) or in regulations promulgated
pursuant thereto) of a Credit Party is, an "executive officer", "director", or
"person who directly or indirectly or in concert with one or more persons owns,
controls, or has the power to vote more than 10% of any class of voting
securities" (as those terms are defined in 12 U.S.C. (S)375(b) or in regulations
promulgated pursuant thereto) of any Bank, of a bank holding company of which
any Bank is a subsidiary, or of any subsidiary of a bank holding company of
which any Bank is a subsidiary, or, to the best of Company's knowledge, of any
bank at which Bank maintains a correspondent account, or of any bank which
maintains a correspondent account with any Bank.
6.20. No Subsidiaries. Except for Arkoma, Company has not formed or
---------------
acquired any Subsidiary.
6.21. Environmental Matters. Company and Arkoma, and any properties or
---------------------
assets owned by Company or Arkoma or predecessors of Company or Arkoma are not
in violation of, in any material respect, any Environmental Laws, nor is there
existing, pending or, to the best of Company's knowledge, threatened any
investigation or inquiry (other than those the outcome of
37
<PAGE>
which would not involve substantial fees, penalties, or liability to Company or
Arkoma, or any predecessors thereto) by any Governmental Authority pursuant to
any Environmental Laws, nor is there existing or pending any remedial
obligations under any Environmental Laws (other than remedial obligations that
may be customary with respect to the operations or business of Company, Arkoma
or any predecessor thereto, or that do not involve substantial fines, penalties
or liability on the part of Company, Arkoma or any predecessor thereto), and
this representation will continue to be true and correct following disclosure to
the applicable Governmental Authorities of all relevant facts, conditions and
circumstances, if any, pertaining to all assets of Company, Arkoma and
predecessors thereto. In the ordinary course of its business, Company conducts
an ongoing review of the effect of Environmental Laws on the business,
operations and properties of Company and Arkoma, in the course of which it
identifies and evaluates associated liabilities and costs (including, without
limitation, any capital or operating expenditures required for clean-up or
closure of properties presently or previously owned, any capital or operating
expenditures required to achieve or maintain compliance with environmental
protection standards imposed by law or as a condition of any license, permit or
contract, any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat and any actual or potential
liabilities to third parties, including employees, and any related costs and
expenses). On the basis of this review, Company has reasonably concluded that
Environmental Laws are unlikely to have a Material Adverse Effect on Company and
Arkoma considered as a whole. Company's breach of any representation or warranty
set forth in this Section 6.21 shall not automatically cause an Event of Default
under Section 10.01(b) hereof. Instead, upon becoming aware that Company has
breached any representation or warranty set forth in this Section 6.21, Agents
or Majority Banks may cause to be made a special determination of the Borrowing
Base according to Section 5.03(b) hereof (which determination shall be in
addition to any other determinations of the Borrowing Base permitted by Section
5.03(b)), in which case that portion of the Mineral Properties as to which the
representation and warranties of this Section 6.21 have been breached shall be
excluded from the Mineral Properties evaluated for the special determination of
the Borrowing Base; provided, however, an Event of Default shall occur if, upon
redetermination of the Borrowing Base, the Borrowing Base as so redetermined has
been reduced by more than ten percent (10%) from the Borrowing Base in effect
immediately prior to such redetermination.
6.22. Title to Properties. Subject only to the Permitted Liens: (a) each
-------------------
of Company and Arkoma has good and indefeasible title to the Mineral Properties
and has marketable title to all of its other assets and properties; (b) all
material oil, gas and mineral leases which constitute a portion of the Mineral
Properties are in full force and effect, and (c) each of Company and Arkoma has
not defaulted on any of its obligations thereunder so as to materially impair
the value of such leases in the aggregate. Company's breach of any
representation or warranty set forth in this Section 6.22 shall not
automatically cause an Event of Default under Section 10.01(b) hereof. Instead,
upon becoming aware that Company has breached any representation or warranty set
forth in this Section 6.22, Agents or Majority Banks may cause to be made a
special determination of the Borrowing Base according to Section 5.03(b) hereof
(which determination shall be in addition to any other determinations of the
Borrowing Base permitted by Section 5.03(b)), in which case that portion of the
Mineral Properties as to which the representation and warranties of this Section
6.22 have been breached shall be excluded from the
38
<PAGE>
Mineral Properties evaluated for the special determination of the Borrowing
Base; provided, however, an Event of Default shall occur if, upon
redetermination of the Borrowing Base, the Borrowing Base as so redetermined has
been reduced by more than ten percent (10%) from the Borrowing Base in effect
immediately prior to such redetermination.
6.23 Year 2000. Company acknowledges its awareness of the issues and
---------
problems facing Company in connection with the effect of the year 2000 on
computer hardware, software and other automated systems, and makes the following
representations, warranties and covenants:
(a) Each hardware, software or firmware product presently in use by
Company and Arkoma, or contemplated to be used by Company and Arkoma
in the future is presently, or shall be before the occurrence of the
year 2000, able to accurately process date/time data (including, but
not limited to, calculating, comparing and sequencing) from, into,
and between the 20th and 21st centuries, and the years 1999 and 2000
and leap year calculations.
(b) Prior to year 2000, each of Company and Arkoma will have
reviewed potential year 2000 problem areas with its suppliers and
customers and such suppliers and customers have performed the
necessary due diligence that will allow each of Company and Arkoma
to continue to maintain these relationships through the turn of the
century without interruption.
(c) Prior to year 2000, each of Company and Arkoma shall have
established a budget for the year 2000 compliance effort and such
budget shall be sufficient to manage all financial needs in
connection with the year 2000 issues.
(d) Prior to year 2000, each of Company and Arkoma shall have
contingency plans in place for (i) the occurrence of a failure or
partial failure of a critical system, or (ii) the inability of
Company and Arkoma to complete a year 2000 testing and compliance
program.
6.24. Representations and Warranties. Each Request for Borrowing
------------------------------
shall constitute, without the necessity of specifically containing a written
statement, a representation and warranty by Company that no Event of Default
exists and that all representations and warranties contained in this Article 6
or in any other Loan Paper are true and correct at and as of the date the
Borrowing is to be made.
6.25. Survival of Representations, Etc. All representations and
--------------------------------
warranties by Company herein shall survive delivery of the Notes and the making
of the Loan, and any investigation at any time made by or on behalf of Banks
shall not diminish Banks' right to rely thereon.
ARTICLE 7
---------
CONDITIONS PRECEDENT
--------------------
39
<PAGE>
7.01. Commitment. The obligation of each Bank to make its Advances under
----------
its Commitment is subject to the condition precedent that, on or before the
Closing Date, Administrative Agent shall have received for each Bank the
following, each dated as of the date of such Advance, in form and substance
satisfactory to Administrative Agent and such Bank:
(a) Notes. A duly executed Note of each Bank, in the form of
-----
Exhibit "A" attached hereto with appropriate insertions.
(b) Guaranty. The unconditional Guaranty of the Loan executed by
--------
Arkoma.
(c) Opinion of Company's Counsel. A favorable opinion of Messrs.
----------------------------
Kelly, Hart & Hallman, P.C. counsel for the Credit Parties, as to the matters
covered in Exhibit "E" hereto.
(d) Officers' Certificate. A certificate signed by a duly
---------------------
authorized officer of Company stating that (to the best knowledge and belief of
such officer, after reasonable and due investigation and review of matters
pertinent to the subject matter of such certificate): (i) all of the
representations and warranties contained in Article 6 hereof, and the other Loan
Papers are true and correct as of the Closing Date; (ii) no event has occurred
and is continuing which constitutes an Event of Default or which, with the lapse
of time or the giving of notice or both, would constitute an Event of Default,
and (iii) all conditions set forth in this Section 7.01 and 7.02 have been
satisfied.
(e) Corporate General Certificates. Corporate General Certificates
------------------------------
for the Credit Parties, each in the form attached hereto as Exhibits "F-1", "F-
2" and "F-3" hereto with the appropriate blanks completed, each dated as of the
Closing Date.
(f) Consummation of Ocean PSA. Company shall provide satisfactory
-------------------------
evidence that the transactions contemplated by the Ocean PSA have been
consummated, including (i) evidence that title to the Mineral Properties have
been conveyed to and are held by Arkoma, (ii) Company has acquired 100% of the
issued and outstanding Capital Stock of Arkoma and (iii) the aggregate purchase
price to consummate the Ocean PSA does not exceed $236,000,000, or $240,000,000
if the increase in the purchase price from $236,000,000 to $240,000,000 is
financed by capital contributions by the shareholders of Parent or their
Affiliates, plus such other increases to the purchase price on account of
closing or post-closing adjustments according to the Ocean PSA that are
reasonably satisfactory to Banks.
(g) Capital Contribution. Company shall provide satisfactory
--------------------
evidence that LB I Group Inc. or its Affiliate has contributed at least
$100,000,000 cash and Cross Timbers Trading Company or its Affiliate has
contributed Capital Stock of Cross Timbers Oil Company and other publicly traded
energy companies collectively having a fair market value as determined according
to the Partner Ownership Documents of at least $100,000,000 as capital
contributions to Parent for the issuance of 100% of the Capital Stock of Company
to Parent.
40
<PAGE>
(h) Collateral Documents. The Collateral Documents, duly executed
--------------------
by Company, Arkoma and Parent (as the case may be).
(i) Parent Ownership Documents and Management Agreement. A true,
---------------------------------------------------
correct and complete copy of the fully executed (i) Parent Ownership Documents
and Agents shall be satisfied that the Parent Ownership Documents evidence that
all of the Capital Stock of Parent is owned and held by Cross Timbers Trading
Company and LB I Group Inc. and (ii) the management agreement between Company
and Cross Timbers Oil Company or its Affiliate.
(j) Title and Due Diligence. The legal opinions and title opinions
-----------------------
required under Sections 3.05 and 3.06 and such other information satisfactory to
Agents under which Agents shall be satisfied with the scope of all results of
their due diligence with respect to the Credit Parties, including the capital
structure of the Credit Parties.
(k) Lien Searches. Agents shall have received the results of a
-------------
recent lien search in each of the jurisdictions where the Mineral Properties to
be acquired under the Ocean PSA are located, and such search shall reveal no
Liens on such Mineral Properties except for Permitted Liens.
(l) Letters-in Lieu. The Letters-in-Lieu.
---------------
(m) Environmental Assessment. A Phase I environmental assessment
------------------------
prepared by an independent environmental consultant approved by Agents covering
the Mineral Properties to be acquired by Arkoma under the Ocean PSA, evidencing
that there are no violations of any Environmental Laws respecting such Mineral
Properties that are likely to have a Material Adverse Effect on Company or
Arkoma considered as a whole.
(n) Reserve Report. A Reserve Report prepared by Miller and Lents
--------------
dated within 90 days prior to the Closing Date and evaluating the Mineral
Properties to be acquired by Arkoma under the Ocean PSA.
(o) Environmental Certificate. A certificate signed by a duly
-------------------------
authorized officer of Company, stating that Company has reviewed the effect of
Environmental Laws on the Mineral Properties, and associated liabilities and
costs, and on the basis of such review, neither Company nor Arkoma is, in any
material respect, in violation of any Environmental Laws, and Company reasonably
believes that Environmental Laws then in effect are unlikely to have a Material
Adverse Effect on Company or Arkoma considered as a whole.
(p) Financial Statements. Pro-forma financial statements and
--------------------
information of the Credit Parties in form and substance satisfactory to Banks
dated as of the Closing Date and giving effect to the consummation of the Ocean
PSA and the initial Advance hereunder, accompanied by a certificate executed by
the authorized officer of Company, certifying that the attached financial
statements fairly present the financial condition of the Credit Parties as of
such date.
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(q) Insurance. Certificates of insurance or other evidence
---------
satisfactory to Agents that Company maintains the insurance covering required by
Section 8.13 hereof.
(r) Up-Front Fees and Closing Costs. Company shall have paid to
-------------------------------
Administrative Agent the fees required to be paid by Company pursuant to that
certain fee letter agreement dated August 12, 1999 among Company, Agents and
Arranger, and if then invoiced, all costs and expenses due and payable pursuant
to Section 13.04.
(s) Regulatory Approvals. The Credit Parties shall have obtained
--------------------
all authorizations and approvals and taken all other actions required by, and
notices to, each governmental authority, regulatory body or other Person
required, and all waiting periods, if any, shall have expired for the execution,
delivery and performance of this Loan Agreement and the consummation of the
Ocean PSA.
(t) Additional Information. Such other information and documents
----------------------
as may reasonably be required by Administrative Agent, either Agent, Banks or
their counsel.
7.02. All Advances. The obligation of each Bank to make any Advance under
------------
this Loan Agreement (including the initial Advance) shall be subject to the
following conditions precedent:
(a) No Defaults or Borrowing Base Deficiency. As of the date of
----------------------------------------
the making of such Advance, (i) there exists no Event of Default or event which
with notice or lapse of time or both would constitute an Event of Default and/or
(ii) there exists no Borrowing Base Deficiency.
(b) Compliance with Loan Agreement. Company shall have performed
------------------------------
and complied with all agreements and conditions contained herein which are
required to be performed or complied with by Company before or at the date of
such Advance.
(c) No Material Adverse Change. As of the date of making such
--------------------------
Advance, no change has occurred in the business or financial condition of any of
the Credit Parties that has caused a Material Adverse Effect.
(d) Borrowing Base Availability. The making of such Advance shall
---------------------------
not cause the Total Outstandings to exceed the Borrowing Base then in effect.
(e) Request for Borrowing. In the case of any Borrowing,
---------------------
Administrative Agent shall have received from Company a Request for Borrowing in
the form of either Exhibit "B" or "C" attached hereto, dated as of the date of
such Borrowing and signed by an authorized officer of Company, all of the
statements of which shall be true and correct, certifying that, as of the date
thereof, (i) all of the representations and warranties of Company contained in
this Loan Agreement and each of the Loan Papers executed by Company are true and
correct, (ii) no event has occurred and is continuing, or would result from the
Borrowing, which constitutes an Event of Default or which, with the lapse of
time or giving of notice or both, would constitute an Event of Default, and
(iii) such other facts as any Bank may reasonably request.
42
<PAGE>
(f) Representations and Warranties. The representations and
------------------------------
warranties contained in Article 6 hereof shall be true in all respects on the
date of making of such Advance, with the same force and effect as though made on
and as of that date.
(g) Bankruptcy Proceedings. No proceeding or case under the United
----------------------
States Bankruptcy Code shall have been commenced by or against any of the Credit
Parties.
ARTICLE 8
---------
AFFIRMATIVE COVENANTS
---------------------
So long as Banks have any commitment to make Advances hereunder, and until
payment in full of the Notes and the performance of the Obligation, Company
agrees that (unless Majority Banks shall otherwise consent in writing):
8.01. Financial Statements, Reports and Documents. Company shall deliver
-------------------------------------------
to Banks each of the following:
(a) Quarterly Statements. As soon as available, and in any event
--------------------
within sixty (60) days after the end of each Quarterly Period (except the
Quarterly Period ending September 30, 1999 and the last Quarterly Period of each
fiscal year) copies of the consolidated and consolidating balance sheet of each
of the Credit Parties as of the end of such Quarterly Period, and statements of
income and retained earnings and changes in cash flow of each of the Credit
Parties for that Quarterly Period and for the portion of the fiscal year ending
with such period, in each case setting forth in comparative form the figures for
the corresponding period of the preceding fiscal year, all in reasonable detail,
and certified by the chief financial officer of Company as being true and
correct and as having been prepared in accordance with Generally Accepted
Accounting Principles, subject to year-end audit and adjustments;
(b) Annual Statements. As soon as available and in any event
-----------------
within 105 days after the close of each fiscal year of Company, copies of the
consolidated and consolidating balance sheet of each of the Credit Parties as of
the close of such fiscal year and statements of income and retained earnings and
changes in cash flow of each of the Credit Parties for such fiscal year, in each
case setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an opinion thereon (which
shall not be qualified) of a firm of independent public accountants of
recognized national standing selected by Company and satisfactory to Majority
Banks, to the effect that such financial statements have been prepared in
accordance with Generally Accepted Accounting Principles consistently maintained
and applied (except for changes in which such accountants concur) and that the
examination of such accounts in connection with such financial statements has
been made in accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances;
43
<PAGE>
(c) Reserve Reports. Each Reserve Report required to be delivered
---------------
by Company to Banks pursuant to Sections 5.02 and 5.03, and within the time
period prescribed in Section 5.07 (as the case may be) for the delivery of each
such Reserve Report, and, in the case of the Reserve Report to be delivered on
April 15 of each year, prepared by the petroleum engineering firm of Miller and
Lents or such other firm of independent petroleum engineers approved by Agents,
evaluating the Mineral Properties and, in each case, prepared in accordance with
the customary standards and procedures of the petroleum industry;
(d) Audit Reports. Promptly upon receipt thereof, one copy of each
-------------
written report submitted to Company, Arkoma or Parent by independent accountants
in any annual, quarterly or special audit made, it being understood and agreed
that all audit reports which are furnished to Banks pursuant to this Article
shall be treated as confidential, but nothing herein contained shall limit or
impair Banks right to disclose such reports to any appropriate Governmental
Authority or to use such information to the extent pertinent to an evaluation of
the Obligation or to enforce compliance with the terms and conditions of this
Loan Agreement, or to take any lawful action which Banks deem necessary to
protect their interests under this Loan Agreement;
(e) Other Reports. Promptly upon their becoming available, one
-------------
copy of each financial statement, report, notice or proxy statement sent by
Company or Parent to its shareholders generally and of each regular or periodic
report;
(f) Quarterly Hedging Reports. Within sixty (60) days after the
-------------------------
end of each Quarterly Period (except the Quarterly Period ending September 31,
1999), a statement prepared by Company and certified as being true and correct
by the chief financial officer of Company, setting forth in reasonable detail
all Hedge Agreements to which any production of oil, gas or other hydrocarbons
from the Mineral Properties is then subject, together with a statement of
Company's position with respect to each such Hedge Agreement, provided, however,
if the price of any of the oil, gas or other hydrocarbons produced from the
Mineral Properties is subject to a Hedge Agreement, then Company shall promptly
notify Banks if such Hedge Agreement is terminated, modified, amended or altered
prior to the end of its contractual term, or if there is an amendment,
adjustment or modification of the price of any of the oil, gas or other
hydrocarbons produced from the Mineral Properties that is subject to or
established by a Hedge Agreement.
(g) Schedule of Purchasers of Production. Within thirty (30) days
------------------------------------
after the Closing Date and thereafter within ninety (90) days after the end of
each calendar year, a schedule of all purchasers of production from the
Mortgaged Properties, separately identified for each Mortgaged Property.
(h) Other Information. All information concerning the business,
-----------------
properties or financial condition of any of the Credit Parties, as
Administrative Agent or any Bank shall reasonably request.
8.02. Payment of Taxes and Other Indebtedness. Company will, and will
---------------------------------------
cause Arkoma to, pay and discharge (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
property belonging to it, before
44
<PAGE>
delinquent, (ii) all lawful claims (including claims for labor, materials and
supplies), which, if unpaid, might become a Lien upon any of its property and
(iii) all of its other Indebtedness, except as prohibited hereunder; provided,
however, that Company and Arkoma shall not be required to pay any such tax,
assessment, charge, levy or claims for labor, materials and supplies if and so
long as the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and appropriate accruals and
reserves therefor have been established in accordance with Generally Accepted
Accounting Principles.
8.03. Maintenance of Existence and Rights; Conduct of Business. Company
--------------------------------------------------------
will, and will cause Arkoma and Parent to, preserve and maintain its corporate
existence and all of its rights, privileges and franchises necessary or
desirable in the normal conduct of its business, and conduct its business in an
orderly and efficient manner consistent with good business practices and in
accordance with all valid regulations and orders of any Governmental Authority.
8.04. Notice of Default. Company will furnish to Banks, immediately upon
-----------------
becoming aware of the existence of any condition or event which constitutes an
Event of Default or which, with the lapse of time or giving of notice, or both,
would become an Event of Default, a written notice specifying the nature and
period of existence thereof and the action which Company is taking or proposes
to take with respect thereto.
8.05. Other Notices. Company will, and will cause the other Credit
-------------
Parties to, promptly notify Banks of (a) any material adverse change in its
financial condition or its business which is unique to any of the Credit Parties
specifically, but not the oil and gas industry generally (unless such change,
though not unique to any of the Credit Parties, has a Material Adverse Effect on
any of the Credit Parties), (b) any default under any other material agreement,
contract or other instrument to which it is a party or by which any of its
properties are bound, or any acceleration of the maturity of any other
Indebtedness owing by any of the Credit Parties in an amount in excess of
$100,000, (c) any material adverse claim against or affecting any of the Credit
Parties or any of its or their properties in an amount in excess of $500,000,
and (d) the commencement of, and any material determination in, any litigation
with any third party or any proceeding before any Governmental Authority
affecting any of the Credit Parties which, if determined in a manner contrary or
adverse to any of such Persons, would have a Material Adverse Effect on any of
such Persons.
8.06. Compliance with Loan Papers. Company will promptly comply with any
---------------------------
and all covenants and provisions of this Loan Agreement, the Notes and all other
of the Loan Papers, and will cause Arkoma and Parent to promptly comply with any
and all covenants and provisions of the Collateral Documents, the Guaranty and
all other Loan Papers executed by Arkoma and Parent.
8.07. Compliance with Material Agreements. Company will, and will cause
-----------------------------------
Arkoma and Parent to, comply in all material respects with all material
agreements, indentures, mortgages or documents binding on it or affecting its
properties or business.
8.08. Operations and Properties. Company will, and will cause Arkoma and
-------------------------
Parent to, act prudently and in accordance with customary industry standards in
managing or operating its
45
<PAGE>
assets, properties, business and investments; Company will and will cause Arkoma
and Parent to, keep in good working order and condition, ordinary wear and tear
excepted, all of its assets and properties which are necessary to the conduct of
its business; provided Company shall never be deemed obligated to rework,
recomplete, redrill or otherwise maintain any well or production facility when,
in Company's judgment, it would be imprudent or uneconomic to do so.
8.09. Books and Records; Access. Company will, upon request by any Agent,
-------------------------
give any representative of each Bank access during all business hours to, and
permit such representative to examine, copy or make excerpts from, any and all
books, records and documents in the possession of any of the Credit Parties and
relating to its affairs, and to inspect any of the properties of the Credit
Parties. Company will, and will cause the other Credit Parties to, maintain
complete and accurate books and records of its transactions in accordance with
good accounting practices.
8.10. Compliance with Law. Company will, and will cause Arkoma and Parent
-------------------
to, comply with all applicable laws, rules, regulations, and all orders of any
Governmental Authority applicable to it or any of its property, business
operations or transactions, a breach of which could have a Material Adverse
Effect on Company, Arkoma or Parent.
8.11. Leases. Company will, and will cause Arkoma, to the extent failure
------
to do any of the matters set forth below would have a Material Adverse Effect:
pay and discharge promptly, or cause to be paid and discharged promptly, all
rentals, delay rentals, royalties, overriding royalties, payments out of
production and other indebtedness or obligations accruing under, and perform or
cause to be performed each and every act, matter or thing required by each and
all of, the oil and gas leases and all other agreements and contracts
constituting or affecting the Mineral Properties, and do all other things
necessary to keep unimpaired its rights thereunder and prevent any forfeiture
thereof or default thereunder, and operate or cause to be operated such
properties in a diligent, careful and efficient manner and in compliance with
all applicable proration and conservation laws and all applicable rules and
regulations of every Governmental Authority, whether state, federal, municipal
or other jurisdiction, from time to time constituted to regulate the development
and operations of oil and gas properties and the production and sale of oil, gas
and other hydrocarbons therefrom.
8.12. Development and Maintenance. Company will maintain, and will cause
---------------------------
Arkoma to maintain, the oil and gas leases, wells, units and acreage to which
the Mineral Properties pertain in a prudent manner consistent with good oilfield
practices.
8.13. Insurance. Company will, and will cause Arkoma to, maintain
---------
workmen's compensation insurance (but only to the extent any of such Persons has
any employees), liability insurance and insurance on its properties, assets and
business, now owned or hereafter acquired, against such casualties, risks and
contingencies, and in such types and amounts, as are consistent with customary
practices and standards of companies engaged in similar business. In case of
any fire, accident or other casualty causing loss or damage to any properties of
Company or Arkoma, the proceeds of any such insurance policies that are not
utilized by Company or Arkoma to repair or replace damaged or destroyed
properties or assets which in the aggregate exceed $1,000,000 in any calendar
year shall be paid to Administrative Agent, for the account of Banks, and
applied
46
<PAGE>
as a mandatory prepayment on the Loan, as the case may be, and, if such loss or
damage relates to any Mineral Property, the Borrowing Base shall be reduced by
an amount that Agents and Majority Banks determine is the Borrowing Base value
last assigned to such property according to the most recent Reserve Report, of
the proposed value assigned to such properties by Company.
8.14. Authorization and Approvals. Company will, and will cause Arkoma
---------------------------
and Parent to, promptly obtain, from time to time at its own expense, all such
governmental licenses, authorizations, consents, permits and approvals as may be
required to enable it to comply with its obligations hereunder and under the
other Loan Papers.
8.15. Experienced Management. Company will, and will cause Arkoma and
----------------------
Parent to, at all times retain management and supervisory personnel adequate for
the proper management, supervision and conduct of its properties, business and
operation.
8.16. ERISA Compliance. Company shall and will cause Arkoma and Parent to
----------------
(a) at all times, make prompt payment of all contributions required under all
Plans and required to meet the minimum funding standard set forth in ERISA with
respect to its Plans; (b) notify Administrative Agent immediately of any fact,
including, but not limited to, any Reportable Event arising in connection with
any of its Plans, which might constitute grounds for termination thereof by the
PBGC or for the appointment by the appropriate United States District Court of a
trustee to administer such Plan, together with a statement, if requested by
Administrative Agent, as to the reason therefor and the action, if any, proposed
to be taken with respect thereto; and (c) furnish to Administrative Agent, upon
its request, such additional information concerning any of its Plans as may be
reasonably requested.
8.17. Further Assurances. Company will, and will cause the other Credit
------------------
Parties to, make, execute or endorse, and acknowledge and deliver or file or
cause the same to be done, all such vouchers, invoices, notices, certifications,
additional agreements, undertakings, or other assurances, and take any and all
such other action, as Majority Banks may, from time to time, deem reasonably
necessary or proper in connection with the Loan Agreement or any of the other
Loan Papers, or the obligations of any of the Credit Parties hereunder or
thereunder.
8.18. Environmental. Company will provide to Agents copies of all notices
-------------
received from or required to be made to (when sent) any Governmental Authority
(other than notices routinely received or submitted in the ordinary course of
business) relating to the release or threatened release of Hazardous Substances
by Company or Arkoma in connection with any of the assets or properties of
Company or Arkoma that is reportable under CERCLA or any other Environmental Law
now or hereafter in effect (other than those reportable releases that do not and
will not involve substantial fines, penalties on part of Company, any Subsidiary
or any predecessors thereto). COMPANY AGREES TO INDEMNIFY AND HOLD BANKS
HARMLESS, FROM AND AGAINST ANY AND ALL FINES, PENALTIES, CLEANUP COSTS AND
ASSESSMENTS LEVIED BY ANY GOVERNMENTAL AUTHORITY, TOGETHER WITH ALL CLAIMS,
LIABILITIES, CAUSES OF ACTION, DAMAGES, COSTS AND EXPENSES (INCLUDING ATTORNEYS'
FEES AND COURT COSTS BUT EXCLUDING CLAIMS, LIABILITIES, ETC. ARISING OUT OF THE
GROSS
47
<PAGE>
NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY BANK), NOW EXISTING OR HEREAFTER
ARISING, ASSERTED AGAINST OR INCURRED BY BANKS ARISING OUT OF OR IN CONNECTION
WITH THE PRESENCE, STORAGE, DISCHARGE, USE, DISPOSAL, TRANSPORTATION OR
REMEDIATION OF ANY HAZARDOUS SUBSTANCES (AS DEFINED IN CERCLA) ON OR ABOUT ANY
OF THE ASSETS OR PROPERTIES OF COMPANY AND THE SUBSIDIARIES IN VIOLATION OF ANY
ENVIRONMENTAL LAWS AFFECTING ANY OF THE ASSETS OR PROPERTIES OF COMPANY OR THE
SUBSIDIARIES. THIS INDEMNITY SHALL SURVIVE THE PAYMENT IN FULL OF THE
OBLIGATION. Prior to acquiring any property or asset (including the purchase of
any assets permitted under Section 9.07 hereof), Company shall review the effect
of Environmental Laws on the property or asset to be acquired, and based upon
such review, Company shall not acquire such property or asset if Company would
become liable for any then existing breach or violation, in any material
respect, of any Environmental Laws affecting such property or asset.
8.19 Maintenance and Granting of Liens, Mortgages and Security Interests.
-------------------------------------------------------------------
Company will, and will cause Arkoma and Parent to, execute and deliver to
Administrative Agent for the benefit of the Bank, all security agreements,
pledge agreements, assignments, financing statements, documents and instruments,
and do such other things as are required by Article 3, Article 5 or Section
8.20, or as Administrative Agent shall reasonable request in order to maintain
(subject, in the case of the Collateral Documents, to Permitted Liens) as valid,
enforceable, perfected and first priority Liens, all Liens granted to
Administrative Agent for the benefit of Banks pursuant to the Loan Documents.
8.20. Mortgaged Properties. The Borrowing Base value that is allocated to
--------------------
the Mortgaged Properties shall at all times comprise at least eighty percent
(80%) of the Borrowing Base value that is allocable to all of the Mineral
Properties. If Administrative Agent determines that the Borrowing Base value
that is allocated to the Mortgaged Properties comprises less than eighty percent
(80%) of the Borrowing Base value that is allocable to all of the Mineral
Properties, then within thirty (30) days after receipt of notice from
Administrative Agent, Company shall (or shall cause Arkoma to) execute and
deliver to Administrative Agent Collateral Documents in form satisfactory to
Administrative Agent that cover such unencumbered Mineral Properties (upon which
such Mineral Properties shall be deemed to be Mortgaged Properties) that will
cause the Borrowing Base value that is allocated to the Mortgaged Properties to
comprise at least eighty percent (80%) of the Borrowing Base value that is
allocable to all of the Mineral Properties.
ARTICLE 9
---------
NEGATIVE COVENANTS
------------------
So long as Banks have any commitment to make Advances hereunder, and until
payment in full of the Notes and the performance of the Obligation, Company
agrees that (unless Majority Banks shall otherwise consent in writing):
48
<PAGE>
9.01. Limitation on Indebtedness. Company will not, and will not permit
--------------------------
Arkoma or Parent to, incur, create, contract, assume, have outstanding,
guarantee or otherwise be or become, directly or indirectly, liable in respect
of, any Indebtedness, except (i) Indebtedness arising out of this Loan
Agreement, (ii) Indebtedness secured by the Permitted Liens, (iii) current
liabilities for taxes and assessments incurred in the ordinary course of
business and other liabilities incurred in the ordinary course of business which
are currently being contested in good faith and adequate reserves therefor are
being maintained according to Generally Accepted Accounting Principles, (iv)
current amounts payable or accrued of other claims (other than for borrowed
funds or purchase money obligations) incurred in the ordinary course of business
provided that all such liabilities, accounts and claims shall be promptly paid
- --------
and discharged when due or in conformity with customary trade terms, unless such
liabilities are currently being contested in good faith and adequate reserves
therefor are being maintained according to Generally Accepted Accounting
Principles, (v) Indebtedness of Company to Arkoma and Indebtedness of Arkoma to
Company, (vi) Indebtedness under any Hedge Agreements that are permitted
according to Section 9.21 hereof, (vii) Indebtedness evidenced by any Interest
Swap Agreement, provided such agreement is entered into for business purposes
respecting any then existing Indebtedness of Company, and (viii) such other
Indebtedness of Company and Arkoma (in the aggregate) not exceeding $1,000,000
at any one time outstanding.
9.02. Negative Pledge. Company will not, and will not permit Arkoma or
---------------
Parent to, create or suffer to exist any mortgage, pledge, security interest,
conditional sale or other title retention agreement, charge, encumbrance or
other Lien (whether such interest is based on common law, statute, other law or
contract) upon any of its property or assets, now owned or hereafter acquired,
except for Permitted Liens.
9.03. Dividends and Distributions. Company will not directly or
---------------------------
indirectly declare of make, or incur any liability to make, any Dividend or
other distribution to any of its or their shareholders.
9.04. Limitation on Investments. Company will not, and will not permit
-------------------------
Arkoma to, make or have outstanding any Investments in any Person, except for
(i) Company's Capital Stock in Arkoma, (ii) Temporary Cash Investments, and
(iii) such other "cash equivalent" investments as Majority Banks may from time
to time approve; provided, further, that Company will not, and will not permit
Arkoma to, make any Investments if (i) an Event of Default exists hereunder or,
with the lapse of time and the giving of notice or both, an Event of Default
would exist hereunder, (ii) the making of such Investment would cause an Event
of Default hereunder, or (iii) a Borrowing Base Deficiency exists hereunder.
9.05. Alteration of Material Agreements. Company will not, and will not
---------------------------------
permit any of the other Credit Parties to, consent to or permit any alterations,
amendments, modifications, releases, waivers or terminations of any material
agreement to which it is a party which would result in a Material Adverse Effect
on any of the Credit Parties.
9.06. Certain Transactions. Company will not, and will not permit Arkoma
--------------------
or Parent to, enter into any transaction with, or pay any management fees to,
any Affiliate; provided, however, that subject to Section 9.12 hereof, (i)
Company and Arkoma may enter into a
49
<PAGE>
management agreement with Cross Timbers Oil Company or its Affiliate and pay to
Cross Timbers Oil Company or such Affiliate such management fees and
reimbursements provided for therein and (ii) Company and Arkoma may enter into
transactions with Affiliates upon terms not less favorable to Company or Arkoma
than would be obtainable at the time in comparable transactions of Company or
Arkoma in arms-length dealings with Persons other than Affiliates.
9.07. Limitation on Sale of Properties. Company will not, and will not
--------------------------------
permit Arkoma to, (a) sell, assign, convey, exchange, lease or otherwise dispose
of any of its properties, rights, or assets, whether now owned or hereafter
acquired, except for sales of severed hydrocarbons or used, obsolete or worn-out
equipment which are made in the ordinary course of its business and for a fair
consideration; provided, however, that Company or any Subsidiary may, for fair
-------- -------
consideration, sell, assign, convey, exchange, lease or otherwise dispose of (i)
properties, rights, assets or business which are not included for purpose of
determining the Borrowing Base, and (ii) provided no Event of Default exists
hereunder or no event exists that with the lapse of time, the giving of notice
or both could constitute an Event of Default hereunder or no Borrowing Base
Deficiency exists hereunder, Mineral Properties which are included for the
purpose of determining the Borrowing Base if the net aggregate proceeds (cash or
otherwise) received by Company and its Subsidiaries from all such sale or sales
of such Mineral Properties do not exceed $5,000,000 during any calendar year or
(b) sell, assign or discount, except for fair consideration, any accounts
receivable. As to such permitted sales of Mineral Properties, the Borrowing
Base shall be reduced by excluding the Mineral Properties that are subject to
such sales according to Section 5.04 and Company shall pay to Banks as a
mandatory principal payment on the Loan the net proceeds received by Company
upon the sale of such Mineral Properties.
9.08. Name, Fiscal Year and Accounting Method. From and after the Closing
---------------------------------------
Date, Company will not, and will not permit Arkoma or Parent to, change its
name, fiscal year or method of accounting.
9.09. Current Ratio. Company will not permit the ratio of its
-------------
Consolidated Current Assets to its Consolidated Current Liabilities, as of any
date, to be less than 1.00 to 1.00.
9.10 Consolidated Net Worth. At the end of any period, Company shall not
----------------------
permit its Consolidated Net Worth to be less than the sum of (i) $85,000,000,
plus (ii) the aggregate amount of all capital contributions made by the
- ----
shareholders of Company (or their Affiliates) to fund that portion of the
purchase price payable under the Ocean PSA that is in excess of $236,000,000 and
plus (iii) fifty percent (50%) of the Consolidated Net Income earned by Company
- ----
since the Closing Date (without deduction for losses since such date).
9.11 EBITDA to Consolidated Interest Expense. For any Quarterly Period,
---------------------------------------
Company shall not permit the ratio of its EBITDA to Consolidated Interest
Expense for such applicable Quarterly Period to be less than (i) 2.25 to 1.0 for
any Quarterly Period ending on or before March 31, 2000 and (ii) 2.50 to 1.0 for
any Quarterly Period thereafter.
9.12. Limitation on G&A Expenses. Company will not permit cash
--------------------------
expenditures for the aggregate of all G&A Expenses of Company and Arkoma during
any calendar year to exceed
50
<PAGE>
(i) the sum of $1,000,000 plus the aggregate amount of revenue received by
Company, Arkoma and any Subsidiary during such calendar year on account of
"Overhead" charges received under the Accounting Procedure recommended by the
Council of Petroleum Accountant Societies that is applicable to the Mineral
Properties operated by Company, Arkoma or a Subsidiary or (ii) if an Event of
Default exists hereunder or, with the lapse of time, the giving of notice or
both, an Event of Default would exist hereunder, or a Borrowing Base Deficiency
exists hereunder, the lesser of (a) $2,000,000 or (b) the sum of $1,000,000 plus
the aggregate amount of revenue received by Company, Arkoma and any Subsidiary
during such calendar year on account of "Overhead" charges received under the
Accounting Procedure recommended by the Council of Petroleum Accountant
Societies that is applicable to the Mineral Properties operated by Company,
Arkoma or a Subsidiary.
9.13. Liquidation, Mergers, Consolidations and Dispositions of Substantial
--------------------------------------------------------------------
Assets. Company will not, and will not permit Arkoma or Parent to, dissolve or
- ------
liquidate, or become a party to any merger or consolidation if Company is not
the surviving corporate entity, or sell, transfer, lease or otherwise dispose
of all or any substantial part of its property or assets or business, provided,
however, that the foregoing shall not operate to prevent the merger or
consolidation of Arkoma or Parent into Company or a sale, transfer or lease of
assets by Arkoma or Parent to Company or the dissolution of Arkoma or Parent if
the assets of Arkoma are transferred to Company or another wholly-owned
Subsidiary.
9.14. Lines of Business. Company will not, and will not permit Arkoma to,
-----------------
directly or indirectly, engage in any business other than the acquisition,
exploration, development, operation, management or resale of oil and gas
properties and the processing, marketing and transportation of production
therefrom.
9.15. No Amendments. Company will not, and will not permit any of the
-------------
other Credit Parties to, amend its articles of incorporation or, in the case of
Parent, amend any of the Parent Ownership Documents, if such amendment would
result in a Material Adverse Effect on any of the Credit Parties.
9.16. Purchase of Substantial Assets. Company will not, and will not
------------------------------
permit Arkoma or Parent to, purchase, lease or otherwise acquire all or
substantially all of the assets of any other Person.
9.17. Guaranties. Company will not, and will not permit Arkoma or Parent
----------
to, become or be liable in respect of any Guaranty, except for (i) the Guaranty
of Arkoma of the Obligation of Company under this Loan Agreement; (ii) the
Guaranty by Company of the trade payables of Arkoma which are incurred in the
ordinary course of Arkoma's business, provided however, that such Guaranty shall
not exceed $1,000,000 in the aggregate at any one time outstanding, (iii) the
Guaranty of Company of letters of credit of Arkoma and its Subsidiaries up to an
aggregate face amount of $1,000,000 for all such letters of credit and (iv) the
Guaranty of Company of gas compressor lease agreements in which Arkoma or a
Subsidiary is the lessee.
9.18. Leases; Sale and Leaseback. Company will not, and will not permit
--------------------------
Arkoma to, enter into any arrangement with any Person (including, without
limitation, any insurance
51
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company, bank or trustee) pursuant to which it will lease, as lessee, any
property which it owned as of the date hereof and which it sold, transferred or
otherwise disposed of to such other Person.
9.19. Restriction on Loans. Without the prior written consent of Majority
--------------------
Banks, which consent shall not be unreasonably withheld, neither Company nor
Arkoma shall make any loans or advances to any Person, including any Subsidiary
or Affiliate of any of the Credit Parties, which are not in the ordinary course
of Company's business.
9.20. Speculative Trading. Company shall not, and will not permit Arkoma
-------------------
or Parent to, enter into or become bound by any transaction respecting
Speculative Trading or make any payment on account of any Speculative Trading.
9.21. Hedging Agreements. Company shall not, and will not permit Arkoma
------------------
or Parent to, enter into or become bound by any Hedge Agreement that covers (i)
more than 80% of the projected production from the proved developed producing
gas reserves attributable to the Mineral Properties during the 18-month period
ensuing after the date such Hedge Agreement is entered into or (ii) more than
80% of the projected production from the proved developed producing oil reserves
attributable to the Mineral Properties during the 18-month period ensuing after
the date such Hedge Agreement is entered into.
9.22. Strict Compliance. If any action or failure to act by Company
-----------------
violates any covenant or obligation of Company contained herein, then such
violation shall not be excused by the fact that such action or failure to act
would otherwise be required or permitted by any covenant (or exception to any
covenant) other than the covenant violated.
ARTICLE 10
----------
EVENTS OF DEFAULT
-----------------
10.01. Events of Default. An "Event of Default" shall exist if any one
-----------------
or more of the following events (herein collectively called "Events of Default")
shall occur and be continuing:
(a) Company shall fail to pay when due any principal of any Note
and such failure to pay principal shall continue for a period of one (1) day or
Company shall fail to pay when due any interest on any Note or any fee, expense
or other payment required hereunder and such failure to pay such interest, fee,
expense or other payment (excluding principal on any Note) shall continue for a
period of five (5) days;
(b) any representation or warranty made under this Loan Agreement
(except Section 6.21 or 6.22), or any of the other Loan Papers, or in any
certificate or statement furnished or made to Banks pursuant hereto or in
connection herewith or with the Loans hereunder, shall prove to be untrue or
inaccurate in any material respect as of the date on which such representation
or warranty is made;
(c) (i) default shall occur in the performance of any of the
covenants or agreements of Company, Arkoma or Parent contained herein or in any
of the other Loan Papers
52
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and such default shall continue unremedied for a period of thirty (30) days or,
if such default relates to any of the covenants set forth in Section 9.09, 9.10,
9.11 or 9.12 hereof, for a period of ten (10) days following Company's actual
knowledge of the existence of such default or Company's receipt of a financial
statement which evidences that such default exists, whichever is the first to
occur;
(d) default shall occur in the payment of any Indebtedness of any of
the Credit Parties in excess of $1,000,000 in the aggregate or default shall
occur in respect of any material obligation under any note, loan agreement or
credit agreement relating to any such Indebtedness and such default shall
continue for more than the period of grace, if any, specified therein; or any
such Indebtedness shall become due before its stated maturity by acceleration of
the maturity thereof or shall become due by its terms and shall not be promptly
paid or extended; or any event or occurrence shall exist which may cause such
Indebtedness to become due prior to its stated maturity date even if such
maturity date is not accelerated by the holder of such Indebtedness;
(e) any of the Loan Papers shall cease to be legal, valid, binding
agreements enforceable against Company in accordance with the respective terms
thereof or shall in any way be terminated or become or be declared ineffective
or inoperative or shall in any way whatsoever cease to give or provide the
respective liens, security interest, rights, titles, interest, remedies, powers
or privileges, if any, intended to be created thereby;
(f) Any of the Credit Parties shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor or liquidator of
itself or of all or a substantial part of any of such Person's assets, (ii) file
a voluntary petition in bankruptcy or admit in writing that any of such Persons
is unable to pay its debts as they become due, (iii) make a general assignment
for the benefit of creditors, (iv) file a petition or answer seeking
reorganization of an arrangement with creditors or to take advantage of any
bankruptcy or insolvency laws, (v) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed against
any of such Persons in any bankruptcy, reorganization or insolvency proceeding,
or (vi) take corporate or partnership action for the purpose of effecting any of
the foregoing;
(g) an involuntary petition or complaint shall be filed against any
of the Credit Parties seeking bankruptcy or reorganization of any of the Credit
Parties or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of any of the Credit Parties, or all or substantially all of any of
such Person's assets, and such petition or complaint shall not have been
dismissed within 60 days of the filing thereof; or an order, order for relief,
judgment or decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition or complaint seeking
reorganization of any of the Credit Parties or appointing a receiver, custodian,
trustee, intervenor or liquidator of any of the Credit Parties, or of all or
substantially all of any of such Person's assets, and such order, judgment or
decree shall continue unstayed and in effect for a period of thirty (30) days;
(h) any final judgment(s) for the payment of money in excess of the
sum of $1,000,000 in the aggregate shall be rendered against any of the Credit
Parties and such judgment or judgments shall not be satisfied or discharged at
least ten (10) days prior to the date on which any of its assets could be
lawfully sold to satisfy such judgment;
53
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(i) both the following events shall occur: (i) either (x)
proceedings shall have been instituted to terminate, or a notice of termination
shall have been filed with respect to, any Plans (other than a Multi-Employer
Pension Plan as that term is defined in Section 3(37) of ERISA) by Company, any
Subsidiary, any member of the Controlled Group, PBGC or any representative of
any thereof, or any such Plan shall be terminated, in each case under Section
4041 or 4042 of ERISA, or (y) a Reportable Event, the occurrence of which would
cause the imposition of a lien under Section 4062 of ERISA, shall have occurred
with respect to any Plan (other than a Multi-Employer Pension Plan as that term
is defined in Section 3(37) of ERISA) and be continuing for a period of sixty
(60) days; and (ii) the sum of the estimated liability to PBGC under Section
4062 of ERISA and the currently payable obligations of Company or any Subsidiary
to fund liabilities (in excess of amounts required to be paid to satisfy the
minimum funding standard of Section 412 of the Code) under the Plan or Plans
subject to such event shall exceed ten percent (10%) of Consolidated Tangible
Net Worth at such time;
(j) any or all of the following events shall occur with respect to
any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of
ERISA) to which any of the Credit Parties contributes or contributed on behalf
of its employees: (i) any of the Credit Parties incurs a withdrawal liability
under Section 4201 of ERISA; or (ii) any such plan is "in reorganization" as
that term is defined in Section 4241 of ERISA; or (iii) any such Plan is
terminated under Section 4041A of ERISA, and Majority Banks determine in good
faith that the aggregate liability likely to be incurred by any of the Credit
Parties, as a result of all or any of the events specified in Subsections (i),
(ii) and (iii) above occurring, shall have a Material Adverse Effect;
(k) a Borrowing Base Deficiency has occurred and Company has failed
to remedy it within thirty (30) days of its receipt of notice as specified in
Section 5.06 hereof, or
(l) a Change of Control shall occur; or
(m) any Event of Default specified in Section 6.21 or 6.22 shall
occur.
10.02. Remedies Upon Event of Default. If an Event of Default shall
------------------------------
have occurred and be continuing, then Administrative Agent shall, at the request
of Majority Banks, and may, with the consent of Majority Banks, exercise any one
or more of the following rights and remedies, and any other remedies provided in
any of the Loan Papers, as Majority Banks in their sole discretion, may deem
necessary or appropriate: (i) terminate Banks' Commitment to lend hereunder,
whereupon the same shall immediately terminate, (ii) declare the principal of,
and all interest then accrued on, the Notes and any other liabilities hereunder
to be forthwith due and payable, whereupon the same shall forthwith become due
and payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind all of
which Company hereby expressly waives, anything contained herein or in the Notes
to the contrary notwithstanding, (iii) reduce any claim to judgment, and/or (iv)
without notice of default or demand, pursue and enforce any of Banks' rights and
remedies under the Loan Papers, or otherwise provided under or pursuant to any
applicable law or agreement; provided, however, that if any Event of Default
specified in Sections 10.01(f) and (g) shall occur,
54
<PAGE>
the principal of, and all interest on, the Notes and other liabilities hereunder
shall thereupon become due and payable concurrently therewith, and Banks'
obligations to lend shall immediately terminate hereunder, without any further
action by Administrative Agent or any Bank and without presentment, demand,
protest, notice of default, notice of acceleration or of intention to accelerate
or other notice of any kind, all of which Company hereby expressly waives.
10.03. Performance by Banks. Should Company fail to perform any
--------------------
covenant, duty or agreement contained herein or in any of the Loan Papers,
Administrative Agent, either Agent or Banks may, at their option, perform or
attempt to perform such covenant, duty or agreement on behalf of Company. In
such event, Company shall, at the request of Administrative Agent or Banks,
promptly pay any amount expended by Administrative Agent or Banks in such
performance or attempted performance to Administrative Agent at its principal
office in New York, New York, together with interest thereon at the highest
lawful rate from the date of such expenditure until paid. Notwithstanding the
foregoing, it is expressly understood that neither Banks nor Administrative
Agent assume any liability or responsibility for the performance of any duties
of Company hereunder or under any of the Loan Papers or other control over the
management and affairs of Company.
ARTICLE 11
----------
AGENCY PROVISIONS
-----------------
11.01 Appointment. Each Bank hereby irrevocably designates and appoints
-----------
Agents as the agents of such Bank under this Loan Agreement and the other Loan
Papers, and each such Bank irrevocably authorizes each Agent, in such capacity,
to take such action on its behalf under the provisions of this Loan Agreement
and the other Loan Papers and to exercise such powers and perform such duties as
are expressly delegated to the such Agent by the terms of this Loan Agreement
and the other Loan Papers, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Loan Agreement, no Agent shall have any duties or responsibilities, except
those expressly set forth herein, or any fiduciary relationship with any Bank,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Loan Agreement or any other Loan Papers or
otherwise exist against any Agent. Notwithstanding anything set forth herein to
the contrary, Co-Agents shall have no rights powers, obligations, liabilities,
responsibilities, or duties under this Loan Agreement or the other Loan Papers
other than those applicable to all Banks as such.
11.02 Delegation of Duties. Each Agent may execute any of its duties
--------------------
under this Loan Agreement and the other Loan Papers by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
11.03 Exculpatory Provisions. Neither any Agent nor any of their
----------------------
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action
55
<PAGE>
lawfully taken or omitted to be taken by it or such Person under or in
connection with this Loan Agreement or any other Loan Papers (except to the
extent that any of the foregoing are found by a final and nonappealable decision
of a court of competent jurisdiction to have resulted from its or such Person's
own gross negligence or willful misconduct) or (ii) responsible in any manner to
any of Banks for any recitals, statements, representations or warranties made by
Company or any officer thereof contained in this Loan Agreement or any other
Loan Papers or in any certificate, report, statement or other document referred
to or provided for in, or received by Agents under or in connection with, this
Loan Agreement or any other Loan Papers or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Loan Agreement
or any other Loan Papers or for any failure of any of the Credit Parties to
perform its obligations hereunder or thereunder. Agents shall not be under any
obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this Loan
Agreement or any other Loan Papers, or to inspect the properties, books or
records of any of the Credit Parties.
11.04 Reliance by Agents. Each Agent shall be entitled to rely, and shall
------------------
be fully protected in relying, upon any instrument, writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any Agent or any of the Credit Parties), independent
accountants and other experts selected by such Agent. Agents may deem and treat
the payee of any Note as the owner thereof for all purposes unless a written
notice of assignment, negotiation or transfer thereof shall have been filed with
Administrative Agent. Each Agent shall be fully justified in failing or
refusing to take any action under this Loan Agreement or any other Loan Papers
unless it shall first receive such advice or concurrence of the Majority Banks
(or, if so specified by this Loan Agreement, all Banks) as it deems appropriate
or it shall first be indemnified to its satisfaction by Banks against any and
all liability and expense that may be incurred by it by reason of taking or
continuing to take any such action. Each Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Loan Agreement and
the other Loan Papers in accordance with a request of the Majority Banks (or, if
so specified by this Loan Agreement, all Banks), and such request and any action
taken or failure to act pursuant thereto shall be binding upon all Banks and all
future holders of the Loan.
11.05 Notice of Default. No Agent shall be deemed to have knowledge or
-----------------
notice of the occurrence of any Event of Default hereunder or any event with the
lapse of time, giving of notice or both, an Event of Default could exist
hereunder unless such Agent has received notice from a Bank or Company referring
to this Loan Agreement, describing such Event of Default or event which with
notice or lapse of time or both could constitute an Event of Default and stating
that such notice is a "notice of default". In the event that Administrative
Agent receives such a notice, Administrative Agent shall give notice thereof to
Banks. Administrative Agent shall take such action with respect to such
Event of Default or event which with notice or lapse of time or both could
constitute an Event of Default as shall be reasonably directed by the Majority
Banks (or, if so specified by this Loan Agreement, all Banks); provided that
--------
unless and until Administrative Agent shall have received such directions,
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such
56
<PAGE>
Event of Default or event which with notice or lapse of time or both could
constitute an Event of Default as it shall deem advisable in the best interests
of Banks.
11.06 Non-Reliance on Agents and Other Banks. Each Bank expressly
--------------------------------------
acknowledges that neither Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of any of the Credit Parties or any
Affiliate thereof, shall be deemed to constitute any representation or warranty
by any Agent to any Bank. Each Bank represents to Agents that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of each Credit Party and
their Affiliates and made its own decision to make its loans hereunder and enter
into this Loan Agreement. Each Bank also represents that it will, independently
and without reliance upon any Agent or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Loan Agreement and the other Loan Papers, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of each
Credit Party and their Affiliates. Except for notices, reports and other
documents expressly required to be furnished to Banks by Administrative Agent
hereunder, no Agent shall have any duty or responsibility to provide any Bank
with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
any of the Credit Parties or any Affiliate thereof that may come into the
possession of such Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
11.07 INDEMNIFICATION. BANKS AGREE TO INDEMNIFY EACH AGENT AND CO-AGENT
---------------
IN ITS CAPACITY AS SUCH (TO THE EXTENT NOT REIMBURSED BY ANY OF THE CREDIT
PARTIES AND WITHOUT LIMITING THE OBLIGATION OF ANY OF THE CREDIT PARTIES TO DO
SO), RATABLY ACCORDING TO THEIR RESPECTIVE PERCENTAGE IN EFFECT ON THE DATE ON
WHICH INDEMNIFICATION IS SOUGHT UNDER THIS SECTION (OR, IF INDEMNIFICATION IS
SOUGHT AFTER THE DATE UPON WHICH THE COMMITMENT SHALL HAVE TERMINATED AND THE
LOANS SHALL HAVE BEEN PAID IN FULL, RATABLY IN ACCORDANCE WITH SUCH PERCENTAGE
IMMEDIATELY PRIOR TO SUCH DATE), FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS OF ANY KIND WHATSOEVER THAT MAY AT ANY TIME
(INCLUDING, WITHOUT LIMITATION, AT ANY TIME FOLLOWING THE PAYMENT OF THE LOAN)
BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST SUCH AGENT OR CO-AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF, THE COMMITMENT, THIS LOAN AGREEMENT, ANY OF THE
OTHER LOAN PAPERS OR ANY DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR
THEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY ACTION TAKEN
OR OMITTED BY SUCH AGENT OR CO-AGENT UNDER OR IN
57
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CONNECTION WITH ANY OF THE FOREGOING; PROVIDED THAT NO BANK SHALL BE LIABLE FOR
--------
THE PAYMENT OF ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS THAT ARE
FOUND BY A FINAL AND NONAPPEALABLE DECISION OF A COURT OF COMPETENT JURISDICTION
TO HAVE RESULTED FROM SUCH AGENT'S OR CO-AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. THE AGREEMENTS IN THIS SECTION 11.07 SHALL SURVIVE THE PAYMENT OF
THE LOANS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER.
11.08 Agent in Its Individual Capacity. Each Agent and its
--------------------------------
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with any of the Credit Parties as though such Agent was not an
Agent. With respect to its Percentage of the Loan made or renewed by it, each
Agent shall have the same rights and powers under this Loan Agreement and the
other Loan Papers as any Bank and may exercise the same as though it were not an
Agent, and the terms "Bank" and "Banks" shall include each Agent in its
individual capacity.
11.09 Successor Agents. Administrative Agent may resign as Administrative
----------------
Agent upon 10 days' notice to Banks and Company. If Administrative Agent shall
resign as Administrative Agent under this Loan Agreement and the other Loan
Papers, then Majority Banks shall appoint from among Banks a successor agent for
Banks, which successor agent shall (unless an Event of Default under Section
10.01(a), Section 10.01(f) or Section 10.01(g) shall have occurred and be
continuing) be subject to approval by Company (which approval shall not be
unreasonably withheld or delayed), whereupon such successor agent shall succeed
to the rights, powers and duties of Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Loan Agreement or any holders of the Loan. If no successor
agent has accepted appointment as Administrative Agent by the date that is 10
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective, and Banks shall assume and perform all of the duties of
Administrative Agent hereunder until such time, if any, as Majority Banks
appoint a successor agent as provided for above. Each of the Syndication Agent
and Documentation Agent may, at any time, by notice to Banks and Administrative
Agent, resign as Syndication Agent or Documentation Agent (as the case may be)
hereunder, whereupon the duties, rights, obligations and responsibilities of the
Syndication Agent or Documentation Agent (as the case may be) hereunder shall
automatically be assumed by, and inure to the benefit of, Administrative Agent,
without any further act by the Syndication Agent or Documentation Agent (as the
case may be), Administrative Agent or any Bank. After any retiring Agent's
resignation as Agent, the provisions of this Article 11 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Loan Agreement and the other Loan Papers.
11.10 Authorization to Release Liens. Administrative Agent is hereby
------------------------------
irrevocably authorized by each of Banks to release any Lien covering any
property of Company, Arkoma or
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any of its Subsidiaries which is permitted by this Loan Agreement or which has
been consented to in accordance with Section 13.01.
11.11 The Arranger. The Arranger, in its capacity as such, shall have no
------------
duties or responsibilities, and shall incur no liability, under this Loan
Agreement and the other Loan Papers.
11.12 Benefit of Article 11. The agreements contained in this Article 11
---------------------
are solely for the benefit of Agents, Banks and Arranger and are not for the
benefit of, or to be relied upon by, Company, or any third party.
ARTICLE 12
----------
SPECIAL PROVISIONS FOR EURODOLLAR LOANS; YIELD PROTECTION
---------------------------------------------------------
12.01. Inadequacy of Pricing. If
---------------------
(A) with respect to an Interest Period for any Eurodollar Borrowing:
(i) Administrative Agent determines that, by reason of circumstances
affecting the interbank eurodollar market generally, deposits in Dollars (in the
applicable amounts) are not being offered to Reference Bank in the interbank
eurodollar market for such Interest Period, or
(ii) Majority Banks advise Administrative Agent that the InterBank
Offered Rate as determined by Administrative Agent will not adequately and
fairly reflect the cost to such Banks of maintaining or funding the Eurodollar
Borrowing for such Interest Period; or then Administrative Agent shall forthwith
give notice thereof to Company and Banks, whereupon until Administrative Agent
notifies Company that the circumstances giving rise to such suspension no longer
exist, (a) the obligation of Banks to make the Eurodollar Borrowings shall be
suspended and (b) Company shall either (i) repay in full the then-outstanding
principal amount of the Eurodollar Borrowings, together with accrued interest
thereon on the last day of the then-current Interest Period applicable to such
Eurodollar Borrowings, or (ii) convert such Eurodollar Borrowings to Floating
Base Borrowings or any other Borrowing that is not an Affected Borrowing in
accordance with Section 2.02(c) of this Loan Agreement on the last day of the
then-current Interest Period applicable to each such Affected Borrowing.
12.02. Illegality. If, after the date of this Loan Agreement, the
----------
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank to make,
maintain or fund its Eurodollar Advances, and such Bank shall so notify
Administrative Agent, Administrative Agent shall forthwith give notice thereof
to Banks and Company. Before giving
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any notice pursuant to this Section 12.02 that affects Eurodollar Advances, such
Bank shall designate a different Eurodollar lending office if such designation
will avoid the need for giving such notice and will not be otherwise
disadvantageous to any non-trivial extent to such Bank (as determined in good
faith by such Bank). Upon receipt of such notice, Company shall either (i) repay
in full the then outstanding principal amount of the Eurodollar Borrowings of
such Bank, together with accrued interest thereon, or (ii) convert such
Eurodollar Borrowings to or any other Borrowing that is not an Affected
Borrowing, on either (a) the last day of the then current Interest Period
applicable to such Eurodollar Borrowings if such Bank may lawfully continue to
maintain and fund such Eurodollar Borrowings to such day or (b) immediately if
such Bank may not lawfully continue to fund and maintain such Eurodollar
Borrowings to such day.
12.03. Increased Costs for Loans. If any Governmental Authority,
-------------------------
central bank or other comparable authority, shall at any time impose, modify or
deem applicable any reserve (including, without limitation, any imposed by the
Board of Governors of the Federal Reserve System but excluding any reserve
requirement included in the Eurodollar Reserve Requirement of such Bank),
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Bank, or shall impose on any Bank (or
its Eurodollar lending office) or the interbank eurodollar market any other
condition affecting its Eurodollar Advances, the Note or its obligation to make
Eurodollar Advances; and the result of any of the foregoing is to increase the
cost to such Bank of making or maintaining its Eurodollar Advances, or to reduce
the amount of any sum received or receivable by such Bank under this Loan
Agreement, or under the Note, by an amount deemed by such Bank to be material,
then, within five (5) days after demand by such Bank (with a copy to
Administrative Agent) Company shall pay to Administrative Agent, for the account
of such Bank, such additional amount or amounts as will compensate such Bank for
such increased cost or reduction. Each Bank will promptly notify Company and
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section. A certificate of any Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. If any Bank demands
compensation under this Section, then Company may at any time, upon at least
five (5) Business Days' prior notice to such Bank through Administrative Agent,
either (i) repay in full the then outstanding Eurodollar Borrowings of such
Bank, together with accrued interest thereon to the date of prepayment or (ii)
convert such Eurodollar Borrowings to or any other Borrowing that is not an
Affected Borrowing in accordance with the provisions of this Loan Agreement;
provided, however, that Company shall be liable for any Consequential Loss
arising pursuant to such actions.
12.04. Effect on Other Loans. If notice has been given pursuant to
---------------------
Section 5.02 or Section 5.03 requiring the Eurodollar Borrowings of any Bank to
be repaid or converted, then unless and until such Bank notifies Company that
the circumstances giving rise to such repayment no longer apply, all Advances or
any other Borrowing that are not Eurodollar Borrowings shall be Advances. If
such Bank notifies Company that the circumstances giving rise to such repayment
no longer apply, Company may thereafter select Advances to be Borrowings that
were formerly Eurodollar Borrowings in accordance with Section 2.02(c) of this
Loan Agreement.
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12.05. Payments Not At End of Interest Period. If Company makes any
--------------------------------------
payment of principal with respect to any Eurodollar Borrowing on any day other
than the last day of an Interest Period applicable to such Eurodollar Borrowing,
then Company shall reimburse each Bank on demand the Consequential Loss incurred
by it as a result of the timing of such payment. A certificate of each Bank
setting forth the basis for the determination of the amount of Consequential
Loss shall be delivered to Company through Administrative Agent and shall, in
the absence of manifest error, be conclusive and binding. Any conversion of a
Eurodollar Borrowing to Floating Base Borrowing on any day other than the last
day of the Interest Period for such Eurodollar Borrowing shall be deemed a
payment for purposes of this Section.
12.06. Capital Adequacy. If, after the date hereof, any Bank shall
----------------
determine that either (i) the adoption of any applicable law, rule, regulation
or guideline regarding capital adequacy and applicable to commercial banks or
financial institutions generally or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or (ii) compliance by such Bank (or any lending office of such Bank)
with any request or directive applicable to commercial banks or financial
institutions generally regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency has or
would have the effect of reducing the rate of return on such Bank's capital or
the capital of such Bank's holding company as a consequence of its obligations
hereunder to a level below that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration such Bank's policies
with respect to capital adequacy) by an amount reasonably deemed by such Bank to
be material, then from time to time, within fifteen (15) days after demand by
such Bank (with a copy to Administrative Agent), Company shall pay to such Bank
such additional amount or amounts as will adequately compensate such Bank for
such reduction. Each Bank will promptly notify Company and Administrative Agent
of any event of which it has actual knowledge, occurring after the date thereof,
which will entitle such Bank to compensation pursuant to this Section 12.06. A
certificate of such Bank claiming compensation under this Section 12.06 and
setting forth the additional amount of amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error.
ARTICLE 13
----------
MISCELLANEOUS
-------------
13.01. Amendments, Modifications and Waivers. Neither this Loan
-------------------------------------
Agreement or any other Loan Papers, nor any terms hereof or thereof may be
amended, supplemented or modified except in accordance with the provisions of
this Section 13.01. Majority Banks and each of Credit Party that is party to
the relevant Loan Papers may, or (with the written consent of the Majority
Banks) Agents and each Credit Party that is party to the relevant Loan Papers
may, from time to time, (a) enter into written amendments, supplements or
modifications hereto and to the other Loan Papers (including amendments and
restatements hereof or thereof) for the purpose of adding any provisions to this
Loan Agreement or the other Loan Papers or changing in any manner the rights of
Banks or any of the Credit Parties hereunder or thereunder or (b) waive, on such
terms and conditions as may be specified in the instrument of waiver, any of the
requirements of this Loan Agreement or the other Loan Papers or any Event of
Default (or event
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with the lapse of time, giving of notice or both could constitute an Event of
Default) and its consequences; provided, however, that no such waiver and no
-------- -------
such amendment, supplement or modification shall (i) forgive the principal
amount or extend the final scheduled date of maturity of any Borrowing or extend
the Maturity Date, reduce the stated rate of any interest or fee payable
hereunder or extend the scheduled date of any payment thereof, or increase the
amount or extend the expiration date of any Commitment of any Bank, or amend,
modify or waive Company's obligation to make a mandatory prepayment of principal
as provided in Sections 4.02(b)(i) and (ii) hereunder, in each case without the
consent of each Bank directly affected thereby; (ii) amend, modify or waive any
provision of this Section 13.01 or reduce any percentage specified in the
definition of Majority Banks, consent to the assignment or transfer by Company
of any of its rights and obligations under this Loan Agreement and the other
Loan Papers, release all or substantially all of the collateral or release
Arkoma from its Guaranty of the Loan and Obligation, in each case without the
consent of all Banks; (iii) amend, modify or waive any condition precedent to
any extension of credit set forth in Section 7.01 or Section 7.02 (including,
without limitation, the waiver of an existing Event of Default required to be
waived in order for such extension of credit to be made) without the consent of
Majority Banks, (iv) increase the amount of the Borrowing Base then in effect
without the written consent of all Banks; (v) amend, modify or waive any
provision of Article 9 without the consent of any Agent directly affected
thereby; or (vi) amend, modify or waive any provision of Section 2.02(b),
Section 4.06 and Section 4.09 without the consent of each Bank directly affected
thereby. Any such waiver and any such amendment, supplement or modification
shall apply equally to each Bank and shall be binding upon each Credit Party,
Banks, Administrative Agent and all future holders of the Loan. In the case of
any waiver, each Credit Party, Banks and Administrative Agent shall be restored
to their former position and rights hereunder and under the other Loan Papers,
and any Event of Default or event that with the lapse of time, giving of notice
or both could constitute an Event of Default waived shall be deemed to be cured
and not continuing; but no such waiver shall extend to any subsequent or other
Event of Default or event that with the lapse of time, giving of notice or both
could constitute an Event of Default, or impair any right consequent thereon.
Any such waiver, amendment, supplement or modification shall be effected by a
written instrument signed by the parties required to sign pursuant to the
foregoing provisions of this Section 13.01; provided, that delivery of an
--------
executed signature page of any such instrument by facsimile transmission shall
be effective as delivery of a manually executed counterpart thereof. For the
avoidance of doubt, this Loan Agreement may be amended (or amended and restated)
with the written consent of Majority Banks, Administrative Agent and each Credit
Party that is a party to each of the relevant Loan Papers (x) to add one or more
additional credit facilities to this Loan Agreement and to permit the extensions
of credit from time to time outstanding thereunder and the accrued interest and
fees in respect thereof (collectively, the "Additional Extensions of Credit") to
share ratably in the benefits of this Loan Agreement and the other Loan Papers
and the accrued interest and fees in respect thereof and (y) to include
appropriately Banks holding such credit facilities in any determination of the
Majority Banks; provided, however, that no such amendment shall permit the
-------- -------
Additional Extensions of Credit to share ratably with or with preference to the
Loan in the application of mandatory prepayments without the consent of the
Majority Banks or otherwise to share ratably with or with preference to the
Loans without the consent of Majority Banks.
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13.02. Accounting Terms and Reports. All accounting terms not
----------------------------
specifically defined in this Loan Agreement shall be construed in accordance
with Generally Accepted Accounting Principles consistently applied on the basis
used by Company in prior years. All financial reports furnished by Company to
Banks pursuant to this Loan Agreement shall be prepared in such form and such
detail as shall be satisfactory to Banks, shall be prepared on the same basis as
those prepared by Company in prior years and shall be the same financial reports
as those furnished to Company's officers and directors. All financial
projections furnished by Company to Banks pursuant to this Loan Agreement shall
be prepared in such form and such detail as shall be satisfactory to Banks and
shall be prepared on the same basis as the financial reports furnished by
Company to Banks.
13.03. Waiver. No failure to exercise, and no delay in exercising, on
------
the part of any Bank, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other further exercise
thereof or the exercise of any other right. The rights of Banks hereunder and
under the Loan Papers shall be in addition to all other rights provided by law.
No modification or waiver of any provision of this Loan Agreement, the Notes or
any Loan papers, nor consent to departure therefrom, shall be effective unless
in writing and no such consent or waiver shall extend beyond the particular case
and purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other instances
without such notice or demand.
13.04. Payment of Expenses; Documentary Taxes; Indemnification.
-------------------------------------------------------
(a) Company agrees to pay (i) all out-of-pocket costs and expenses
of Administrative Agent and each Agent (including without limitation the
reasonable fees, expenses and disbursements of legal counsel retained by Agents)
in connection with the syndication of the Loan (other than fees payable to
syndicate members) and the negotiation, preparation, execution and delivery of
this Loan Agreement and the other Loan Papers, (ii) all out-of-pocket costs and
expenses incurred by Administrative Agent and each Agent (including without
limitation the reasonable fees, expenses and disbursements of legal counsel
retained by Agents), in connection with the administration of this Loan
Agreement, the Notes, the other Loan Papers and any and all amendments,
modifications and supplements thereof or thereto and the preservation and
enforcement of Banks' rights under this Loan Agreement, the Notes and/or the
other Loan Papers, (iii) if an Event of Default occurs and is continuing, all
out-of-pocket costs and expenses incurred by Administrative Agent, each Agent
and Co-Agent and each Bank (including without limitation the reasonable fees,
expenses and disbursements of legal counsel for Administrative Agent, each Agent
and each Bank) in connection with such Event of Default and any collection,
bankruptcy, insolvency and other enforcement proceedings resulting therefrom.
Company shall pay, indemnify, and hold each Bank, Agent and Co-Agent harmless
from, any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment supplement or modification
of, or any waiver or consent under or in respect of, this Loan Agreement, the
other Loan Papers and any such other documents.
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(b) COMPANY AGREES TO INDEMNIFY EACH BANK AND HOLD EACH BANK HARMLESS
FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, COSTS AND EXPENSES OF
ANY KIND, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS
OF COUNSEL, WHICH MAY BE INCURRED BY ANY BANK (OR BY ADMINISTRATIVE AGENT OR ANY
AGENT OR CO-AGENT IN CONNECTION WITH THEIR ACTIONS AS ADMINISTRATIVE AGENT OR AN
AGENT OR CO-AGENT HEREUNDER) IN CONNECTION WITH ANY INVESTIGATIVE,
ADMINISTRATIVE OR JUDICIAL PROCEEDING (WHETHER OR NOT SUCH BANK SHALL BE
DESIGNATED A PARTY THERETO) RELATING TO OR ARISING OUT OF THIS LOAN AGREEMENT OR
ANY ACTUAL OR PROPOSED USE OF PROCEEDS OF LOANS HEREUNDER; PROVIDED THAT NO BANK
--------
SHALL HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR ITS OWN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT AS DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED,
--------
FURTHER, THAT COMPANY'S INDEMNIFICATION OF ADMINISTRATIVE AGENT, EACH AGENT AND
- -------
EACH BANK SHALL INCLUDE ANY AND ALL LIABILITIES, LOSSES, DAMAGES, COSTS AND
EXPENSES ARISING OUT OF OR CONNECTED WITH ANY CLAIM ASSERTED BY OR CAUSE OF
ACTION BROUGHT BY ANY SHAREHOLDER OF COMPANY OR ANY OTHER PERSON WHICH ALLEGES
OR ASSERTS THAT THE TRANSACTIONS CONTEMPLATED BY OR CONSUMMATED UNDER OR
PURSUANT TO THE INDENTURE OR REGISTRATION STATEMENT OR THE ISSUANCE OF THE
SUBORDINATED INDEBTEDNESS VIOLATE OR CONTRAVENE ANY STATE OR FEDERAL SECURITIES
LAW, RULE OR REGULATION.
13.05. Notices. Except for telephonic notices permitted herein, any
-------
notices or other communications required or permitted to be given by this Loan
Agreement or any other documents and instruments referred to herein must be (i)
given in writing and personally delivered or mailed by prepaid certified or
registered mail, or (ii) made by telecopy or facsimile delivered or transmitted,
to the party to whom such notice or communication is directed and if between any
Bank or Administrative Agent or any Agent and Company, confirmed by a hard copy
sent by overnight delivery service for delivery the following day, to the
address of such party as follows:
(a) Company: (b) Any Agent or any Bank
Summer Acquisition Company At its address shown below
810 Houston Street, Suite 200 its name on the signature
Fort Worth, Texas 76102 pages hereof.
(Attention: John O'Rear)
Telecopy No. (817) 882-7268
With copy to:
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Cross Timbers Oil Company
810 Houston Street, Suite 2000
Fort Worth, Texas 76102
(Attention: General Counsel)
Telecopy No. (817) 882-7278
Any notice to be personally delivered may be delivered to the principal offices
(determined as of the date of such delivery) of the party to whom such notice is
directed. Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is personally delivered
as aforesaid or, if mailed, on the third day after it is mailed as aforesaid;
or, if transmitted by telecopy, on the day that such notice is transmitted as
aforesaid; provided, however, that any telephonic or other notice received by
Administrative Agent or any Agent or any Bank after 12:00 noon New York time on
any day from Company pursuant to Section 2.02 (with respect to a Request for
Borrowing) shall be deemed for the purposes of such Section to have been given
by Company on the next succeeding Business Day. Any party may change its
address for purposes of this Loan Agreement by giving notice of such change to
the other parties pursuant to this Section 13.05.
13.06. GOVERNING LAW. THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING
-------------
EXECUTED AND DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE
UNITED STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT
AND INTERPRETATION OF THIS LOAN AGREEMENT AND ALL OF THE OTHER LOAN PAPERS,
UNLESS OTHERWISE SPECIFIED THEREIN OR UNLESS THE LAWS GOVERNING NATIONAL BANKS
SHALL HAVE APPLICATION. NOTHING IN THIS SECTION 13.06 OR ANY OTHER PROVISION OF
THIS LOAN AGREEMENT OR ANY NOTE IS INTENDED TO SUBJECT TO A LIMITATION IMPOSED
BY TEXAS LAW THE MAXIMUM NON-USURIOUS RATE OF INTEREST OTHERWISE PERMITTED TO BE
CHARGED BY ANY BANK UNDER THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA AND
THE LAWS OF THE STATE IN WHICH SUCH BANK IS LOCATED.
13.07. Choice of Forum; Consent to Service of Process and Jurisdiction;
----------------------------------------------------------------
Waiver of Rights to Jury Trial. Any suit, action or proceeding against Company
- ------------------------------
with respect to this Loan Agreement, the Notes or any judgment entered by any
court in respect thereof, may be brought in the courts of the State of New York,
or in the United States courts located in the State of New York as Majority
Banks in their sole discretion may elect and Company hereby submits to the non-
exclusive jurisdiction of such courts for the purpose of any such suit, action
or proceeding. Company hereby agrees that service of all writs, process and
summonses in any such suit, action or proceeding brought in the State of New
York may be brought upon any president, vice president or chief financial
officer of Company as process agent, and Company hereby irrevocably appoints
such officer of Company as its process agent, as its true and lawful attorney-
in-fact in the name, place and stead of Company to accept such service of any
and all such writs, process and summonses, and agrees that the failure of such
process agent to give any notice of such service of process to it shall not
impair or affect the validity of such service or of
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any judgment based thereon. Company hereby further irrevocably consents to the
service of process in any suit, action or proceeding in said court by the
mailing thereof by Administrative Agent by registered or certified mail, postage
prepaid, to its address set forth in Section 13.05 hereof. Company hereby
irrevocably waives any objections which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Loan Agreement or any Note brought in the courts located in the State of
New York, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in any
inconvenient forum. COMPANY AND EACH BANK HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION THAT RELATES
TO OR ARISES OUT OF ANY OF THIS LOAN AGREEMENT OR ANY OTHER LOAN PAPERS OR THE
ACTS OR OMISSIONS OF BANKS IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS
OF THIS LOAN AGREEMENT OR ANY OTHER LOAN PAPERS OR OTHERWISE WITH RESPECT
THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR BANKS
ENTERING INTO THIS LOAN AGREEMENT.
13.08. Invalid Provisions. If any provision of any Loan Paper is held
------------------
to be illegal, invalid or unenforceable under present or future laws during the
term of this Loan Agreement, such provision shall be fully severable; such Loan
Paper shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of such Loan Paper; and the
remaining provisions of such Loan Paper shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance from such Loan Paper. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision shall be added as part of such Loan
Paper a provision mutually agreeable to Company, Administrative Agent and
Majority Banks as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable. In the event
Company, Administrative Agent, and Majority Banks are unable to agree upon a
provision to be added to the Loan Paper within a period of ten (10) Business
Days after a provision of the Loan Paper is held to be illegal, invalid or
unenforceable, then a provision acceptable to Administrative Agent and Majority
Banks as similar in terms to the illegal, invalid or unenforceable provision as
is possible and be legal, valid and enforceable shall be added automatically to
such Loan Paper. In either case, the effective date of the added provision
shall be the date upon which the prior provision was held to be illegal, invalid
or unenforceable.
13.09. Maximum Interest Rate. Regardless of any provision contained in
---------------------
any of the Loan Papers, Banks shall never be entitled to receive, collect or
apply as interest on the Notes any amount in excess of the Maximum Rate, and, in
the event that any Bank ever receives, collects or applies as interest any such
excess, the amount which would be excessive interest shall be deemed to be a
partial prepayment of principal and treated hereunder as such; and, if the
principal amount of the Obligations is paid in full, any remaining excess shall
forthwith be paid to Company. In determining whether or not the interest paid
or payable under any specific contingency exceeds the Maximum Rate, Company and
Banks shall, to the maximum extent permitted under applicable law, (i)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest; (ii) exclude voluntary prepayments and the effects thereof; and
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(iii) amortize, prorate, allocate and spread, in equal parts, the total amount
of interest throughout the entire contemplated term of the Notes so that the
interest rate is uniform throughout the entire term; provided that, if the Notes
are paid and performed in full prior to the end of the full contemplated term
thereof, and if the interest received for the actual period of existence thereof
exceeds the Maximum Rate, Banks shall refund to Company the amount of such
excess or credit the amount of such excess against the principal amount of the
Notes and, in such event, Banks shall not be subject to any penalties provided
by any laws for contracting for, charging, taking, reserving or receiving
interest in excess of the Maximum Rate.
13.10. Offset. Company hereby grants to Administrative Agent and each
------
Bank the right of offset, to secure repayment of the Notes, upon any and all
moneys, securities or other property of Company and the proceeds therefrom, now
or hereafter held or received by or in transit to Administrative Agent or Banks,
or any of them, or any of their agents, from or for the account of Company,
whether for safe keeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special) and credits
of Company, and any and all claims of Company against Administrative Agent or
Banks (or any of them) at any time existing.
13.11. Chapter 346. Company, Administrative Agent and Banks hereby
-----------
agree that the provisions of Chapter 346 of the Texas Finance Code (regulating
certain revolving credit loans and revolving tri-party accounts) shall not apply
to the Loan Papers.
13.12. Entirety. The Loan Papers embody the entire agreement between
--------
the parties and supersede all prior agreements and understandings, if any,
relating to the subject matter hereof and thereof.
13.13. Headings. Section headings are for convenience of reference only
--------
and shall in no way affect the interpretation of this Loan Agreement.
13.14. Survival. All representations and warranties made by Company
--------
herein shall survive delivery of the Notes and the making of the Loans.
13.15. Successors and Assigns.
----------------------
(a) The provisions of this Loan Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that Company may not assign or otherwise transfer any of its
rights under this Loan Agreement without the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to Company,
Administrative Agent and Agents, such Bank shall remain responsible for the
performance of its obligations hereunder, and Company, Administrative Agent and
Agents shall continue to deal solely and directly with such Bank in connection
with such Bank's rights and obligations under this Loan Agreement. The rights
and entitlements of any Bank under Article 12 shall be determined for purposes
of this Loan Agreement on the basis of what such
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Bank would be entitled to receive under this Loan Agreement had it not granted
any participating interest to any Participant, whether or not such Bank has in
fact done so, and any election, determination or approval to be made by Majority
Banks pursuant to Section 12.06 shall be made solely and exclusively by Banks
who are signatories hereto which constitute Majority Banks, with no recognition
being given to any Participant of any such Bank. Any agreement pursuant to which
any Bank may grant such a participating interest shall provide that such Bank
shall retain the sole right and responsibility to enforce the obligations of
Company hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Loan Agreement;
provided that such participation agreement may provide that such Bank will not
- --------
agree to any modification, amendment or waiver of any provision of this Loan
Agreement which has the effect of (i) adjusting the Participant's or any Bank's
Commitment, (ii) reducing or increasing the amount of principal or accrued
interest otherwise due on any Note or any fee payable by Company hereunder,
(iii) postponing, extending, forbearing or waiving the date on which any payment
of principal, interest or fee is due hereunder or extending the Maturity Date,
(iv) increasing the amount of the Borrowing Base then in effect, or (v)
modifying the definition of Majority Banks hereof without the consent of the
Participant and may contain any other provisions, or such participation may take
place on such other terms, as such Bank deems appropriate. An assignment or
other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Loan Agreement only to the extent of a
participating interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all or a portion of its rights and obligations
under this Loan Agreement and the Loan Papers, and such Assignee shall assume
such rights and obligations, pursuant to an instrument executed by such Assignee
and such transferor Bank, with (and subject to) notice to, and the consent of,
Company (which consent shall not be unreasonably withheld), Administrative Agent
and Agents; provided that if an Assignee is an affiliate of such transferor
--------
Bank, such notice shall be given but no such consent shall be required; and
provided, further, that no assignment representing less than $5,000,000 in
- -------- -------
Commitments shall be permitted without the prior consent of Administrative
Agent, Agents and Company, which consent may be withheld for any reason. Upon
execution and delivery of such an instrument any payment by such Assignee to
such transferor Bank of an amount equal to the purchase price agreed between
such transferor Bank and such Assignee, such Assignee shall be a Bank party to
this Loan Agreement and shall have all the rights and obligations of a Bank with
Commitment(s) as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the transferor
Bank, Administrative Agent and Company shall make appropriate arrangements so
that, if required, new Notes are issued to the Assignee. In connection with any
such assignment, the transferor Bank shall pay to Administrative Agent an
administrative fee for processing such assignment in the amount of $3,500. If
the Assignee is not incorporated under the laws of the United States of America
or a state thereof, it shall, prior to the first date on which interest or fees
are payable hereunder for its account, deliver to Company and Administrative
Agent certification as to exemption from deduction or withholding of any United
States federal income taxes on such form of certificate which is satisfactory to
Administrative Agent. Any Bank may at any time assign all or any portion of its
rights under this Loan Agreement and its Note to a
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Federal Reserve Bank, provided that no such assignment shall release the
transferor Bank from its obligations hereunder.
(d) The Administrative Agent shall, on behalf of Company, maintain at
its address referred to in Section 13.05 a copy of each instrument transferring
a participation interest to a Participant and assigning an interest to an
Assignee delivered to it and shall record each such transfer and assignment in
the Register, including a recordation of the names and addresses of each
Participant and Assignee and its Percentage of the Commitment, and principal
amount of the Loan owing to each Participant and Assignee (and the other Banks)
from time to time (and together with all such other information to be recorded
in the Register according to Section 4.01(b)). The entries in the Register
shall be conclusive, in the absence of manifest error, and Company,
Administrative Agent and Banks shall treat each Person whose name is recorded in
the Register as the owner of its respective Percentage of the Loan and any Notes
evidencing such Percentage of the Loan recorded therein for all purposes of this
Loan Agreement. Any assignment of any portion of the Loan, whether or not
evidenced by a Note, shall be effective only upon appropriate entries with
respect thereto being made in the Register (and each Note shall expressly so
provide). Any assignment or transfer of all or part of the Loan evidenced by a
Note shall be registered on the Register only upon surrender for registration of
assignment or transfer of the Note evidencing such part of the Loan, accompanied
by a duly executed instrument evidencing such assignment or transfer; thereupon
one or more new Notes in the same aggregate principal amount shall be issued to
the designated Participant or Assignee, and the old Notes shall be returned by
Administrative Agent to Company marked "canceled". The Register shall be
available for inspection by the Company or any Bank (with respect to any entry
relating to such Bank's part of the Loan and its Percentage of the Commitment)
at any reasonable time and from time to time upon reasonable prior notice.
(e) No Assignee or other transferee of any Bank's rights shall be
entitled to receive any greater payment under Article 12 than such Bank would
have been entitled to receive with respect to the rights transferred, unless
such transfer is made with Company's prior written consent or by reason of the
provisions of Article 12 requiring such Bank to designate a different lending
office under certain circumstances or at a time when the circumstances giving
rise to such greater payment did not exist.
13.16 Foreign Banks, Participants, and Assignees. Each Bank, Participant
------------------------------------------
(by accepting a participation interest under this Loan Agreement), and Assignee
(by executing an assignment and assumption agreement in a form acceptable to
Agents) that is not organized under the laws of the United States of America or
one of its states (a) represents to Administrative Agent and Company that (i) no
Taxes assessed by any Governmental Authority in the United States are required
to be withheld by Administrative Agent or Company with respect to any payments
to be made to it in respect of the Obligations and (ii) it has furnished to
Administrative Agent and Company two duly completed copies of either U.S.
Internal Revenue Service Form 4224, Form 1006, Form W-8, or other form
acceptable to Administrative Agent that entitles it to exemption from U.S.
federal withholding Tax on all interest payments under the Loan Papers, and (b)
covenants to (i) provide Administrative Agent and Company a new Form 4224, Form
1001, Form W-8, or other form acceptable to Administrative Agent upon the
expiration or obsolescence of any previously delivered form according to
applicable laws and regulations,
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duly executed and completed by it, and (ii) comply from time to time with all
applicable laws and regulations with regard to the withholding tax exemption. If
any of the foregoing is not true or the applicable forms are not provided, then
Company and Administrative Agent (without duplication) may deduct and withhold
from interest payments under the Loan Papers any United States federal income
tax at the minimum rate under the Internal Revenue Code of 1986, as amended,
without reimbursement pursuant to Section 4.08.
13.17. No Third Party Beneficiary. The parties do not intend the benefits
--------------------------
of this Loan Agreement to inure to any third party, nor shall this Loan
Agreement be construed to make or render Administrative Agent, any Agent or Co-
Agent or Banks liable to any materialmen, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Company, or for debts or claims
accruing to any such persons against Company. Notwithstanding anything contained
herein or in the Notes, or in any other Loan Paper, or any conduct or course of
conduct by any or all of the parties hereto, before or after signing this Loan
Agreement or any of the other Loan Papers, neither this Loan Agreement nor any
other Loan Paper shall be construed as creating any right, claim or cause of
action against Administrative Agent, any Agent or Co-Agent or Banks, or any of
their officers, directors, agents or employees, in favor of any materialmen,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Company, nor to any other person or entity other than Company.
13.18 Acknowledgements. Company hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Loan Agreement and the other Loan Papers;
(b) neither Administrative Agent, any Agent or Co-Agent nor any Bank
has any fiduciary relationship with or duty to Company arising out of or in
connection with this Loan Agreement or any of the other Loan Papers, and the
relationship between Administrative Agent, any Agent or Co-Agent and Banks, on
one hand, and Company, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Papers
or otherwise exists by virtue of the transactions contemplated hereby among
Banks or among Company and Banks.
13.19 Confidentiality. Each Agent and Banks agrees to keep confidential
---------------
all non-public information provided to it by a Credit Party or Parent pursuant
to this Loan Agreement that is designated by such Person as confidential;
provided that nothing herein shall prevent any Agent or Co-Agent or any Bank
from disclosing any such information (a) to Arranger, any Agent or Co-Agent, any
other Bank or any Affiliate of any thereof (b) to any Participant or Assignee
(each, a "Transferee") or prospective Transferee that agrees to comply with the
provisions of this Section 13.19, (c) to any of its Affiliates employees,
officers, directors, agents, attorneys, accountants and other professional
advisors, (d) to any financial institution that is a direct or indirect
contractual counterparty in Hedge Agreement or Interest Swap Agreement or such
contractual counterparty's professional advisor (so long as such contractual
counterparty or professional advisor to such contractual counterparty agrees to
be bound by the provisions of this
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Section 13.19), (e) upon the request or demand of any Governmental Authority
having jurisdiction over it, (f) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
applicable law, (g) if requested or required to do so in connection with any
litigation or similar proceeding, (h) that has been publicly disclosed other
than in breach of this Section 13.19, (i) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Bank's investment
portfolio in connection with ratings issued with respect to such Bank or (j) in
connection with the exercise of any remedy hereunder or under any other Loan
Papers.
13.20 Release of Collateral and Guaranty Obligations.
----------------------------------------------
(a) Notwithstanding anything to the contrary contained herein or in
any other Loan Papers, upon request of Company in connection with any sale or
transfer of Company's or Arkoma's Mineral Properties or other assets or
properties as permitted by Section 9.07 hereof, Administrative Agent shall
(without notice to or vote or consent of any Bank) take such actions as shall be
required to release its security interest in any Mineral Properties or other
assets or properties being transferred or sold.
(b) Notwithstanding anything to the contrary contained herein or any
other Loan Papers, when the Obligation has been paid in full, the Commitment has
terminated or expired, upon request of Company, Administrative Agent shall
(without notice to or vote or consent of any Bank) take such actions as shall be
required to release its security interest in all Mineral Properties and other
assets or properties that serve as collateral for the Loan, and to release the
Guaranty of Arkoma.
13.21. Multiple Counterparts. This Loan Agreement may be executed in
---------------------
any number of counterparts, all of which taken together shall constitute one and
the same agreement, and any of the parties hereto may execute this Loan
Agreement by signing any such counterpart.
13.22. Notice and Acknowledgment of No Oral Agreements. In consideration
-----------------------------------------------
of the making of the Loan, and for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by Company and Banks, Company
and Banks (i) agree that Company and Banks' execution of this Loan Agreement
constitutes acknowledgment that each Bank and Company have read and understand
this Loan Agreement; and (ii) acknowledge receipt of the following Notice:
NOTICE: THIS LOAN AGREEMENT AND ALL OTHER LOAN PAPERS RELATING TO THIS
------
LOAN CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENT THE FINAL AGREEMENT
BETWEEN COMPANY AND BANKS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF COMPANY AND BANKS.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN COMPANY AND BANKS RELATING
TO THIS LOAN.
71
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement as of
the day and year first above written.
COMPANY:
-------
SUMMER ACQUISITION COMPANY,
a Texas corporation
By: /s/ JOHN O'REAR
---------------
John O'Rear, Treasurer
72
<PAGE>
ARRANGER:
---------
LEHMAN BROTHERS INC.
By: /s/ WILLIAM H. GATES
--------------------
Name: William H. Gates
----------------
Title: Managing Director
-----------------
Address for Notice:
------------------
Lehman Commercial Paper Inc.
3 World Financial Center
New York, NY 10285
Telecopy: (212) 526-9236
73
<PAGE>
ADMINISTRATIVE AGENT:
---------------------
LEHMAN COMMERCIAL PAPER INC.
By: /s/ WILLIAM J. GALLAGHER
------------------------
Name: William J. Gallagher
--------------------
Title: Authorized Signatory
--------------------
Address for Notice:
------------------
Lehman Commercial Paper, Inc.
3 World Financial Center
New York, NY 10285
Telecopy: (212) 526-9236
74
<PAGE>
SYNDICATION AGENT:
-----------------
CHASE BANK OF TEXAS, N.A.
By: /s/ DALE S. HURD
----------------
Name: Dale S. Hurd
------------
Title: Managing Director
-----------------
Address for Notice:
------------------
Chase Bank of Texas, N.A.
Global Oil and Gas
2200 Ross Avenue
Dallas, Texas 75201
Telecopy: (214) 965-2389
75
<PAGE>
DOCUMENTATION AGENT:
--------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ JOHN KOWALCZUK
------------------
Name: John Kowalczuk
--------------
Title: Vice President
--------------
Address for Notice:
------------------
Morgan Guaranty Trust Company
of New York
60 Wall Street
New York, NY 10260
Telecopy: (212) 648-5416
76
<PAGE>
BANKS:
-----
LEHMAN COMMERCIAL PAPER INC.
By: /s/ WILLIAM J. GALLAGHER
------------------------
Name: William J. Gallagher
--------------------
Title: Authorized Signatory
--------------------
Address for Notice:
------------------
Lehman Commercial Paper, Inc.
3 World Financial Center
New York, NY 10285
Attn: Michael O'Brien
Telecopy: (212) 526-9236
77
<PAGE>
CHASE BANK OF TEXAS, N.A.
By: /s/ DALE S. HURD
----------------
Name: Dale S. Hurd
------------
Title: Managing Director
-----------------
Address for Notice:
------------------
Chase Bank of Texas, N.A.
Global Oil and Gas
2200 Ross Avenue
Dallas, Texas 75201
Telecopy: (214) 965-2389
78
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ JOHN KOWALCZUK
------------------
Name: John Kowalczuk
--------------
Title: Vice President
--------------
Address for Notice:
------------------
Morgan Guaranty Trust Company
of New York
60 Wall Street
New York, NY 10260
Telecopy: (212) 648-5416
79
<PAGE>
BANK OF AMERICA, N.A.
By: /s/ J. SCOTT FOWLER
-------------------
J. Scott Fowler, Managing Director
Address for Notice:
------------------
Bank of America, N.A.
901 Main Street, The Plaza, 64th Floor
Dallas, Texas 75202
Attention: Energy Finance Division
Telecopy Number: (214) 209-1285
80
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
----------------
Name: F.C. H. Ashby
-------------
Title: Senior Manager Loan Operations
------------------------------
Address for Notice:
------------------
The Bank of Nova Scotia
1100 Louisiana, Suite 3000
Houston, Texas 77002
Attention: Mark Ammerman
Telecopy Number: (713)752-2425
and
The Bank of Nova Scotia
600 Peachtree St. N.E., Suite 2700
Atlanta, Georgia 30308
Attention: Mr. F. C. H. Ashby
Telecopy Number: (404)888-8998
81
<PAGE>
PARIBAS
By: /s/ MARIAN LIVINGSTON
---------------------
Name: Marian Livingston
-----------------
Title: Vice President
--------------
By: /s/ BETSY JOCHER
----------------
Name: Betsy Jocher
------------
Title: Vice President
--------------
Address for Notice:
------------------
Paribas
1200 Smith, Suite 3100
Houston, Texas 77002
Attention: A. David Dodd
Telecopy Number: (713) 659-6915
82
<PAGE>
WELLS FARGO BANK (TEXAS), N.A.
By: /s/ CHARLES D. KIRKHAM
----------------------
Charles D. Kirkham, Vice President
Address for Notice:
------------------
Wells Fargo Bank (Texas), N.A.
1445 Ross Avenue, Suite 400
Dallas, Texas 75202-2812
Telecopy Number: (214) 303-1839
83
<PAGE>
ABN-AMRO BANK N.V., HOUSTON AGENCY
By: /s/ JAMIE A. CONN
-----------------
Name: Jamie A. Conn
-------------
Title: Vice President
--------------
By: /s/ STUART MURRAY
-----------------
Name: Stuart Murray
-------------
Title: Vice President
--------------
Address for Notice:
------------------
ABN-AMRO Bank N.V., Houston Agency
Three Riverway, Suite 1700
Houston, Texas 77056
Telecopy Number: (713) 629-7533
84
<PAGE>
THE BANK OF NEW YORK
By: /s/ IAN K. STEWART
------------------
Name: Ian K. Stewart
--------------
Title: Senior Vice President
---------------------
Address for Notice:
------------------
Bank of New York
One Wall Street, 19th Floor
New York, NY 10286
Telecopy Number: (212) 635-7923
85
<PAGE>
BANK OF SCOTLAND
By: /s/ ANNIE GLYNN
---------------
Name: Annie Glynn
-----------
Title: Senior Vice President
---------------------
Address for Credit Notice:
-------------------------
Bank of Scotland
1750 Two Allen Center
1200 Smith Street
Houston, Texas 77002-4312
Attention: Richard C. Butler
Telecopy Number: (713) 651-9714
Address for Administrative Notice:
Bank of Scotland
545 Fifth Avenue
New York, New York 10017
Attn: Karen Workman
Telecopy Number: (212) 687-4412
86
<PAGE>
BANKBOSTON, N.A.
By: /s/ TIMOTHY J. NORTON
---------------------
Name: Timothy J. Norton
-----------------
Title: Director
--------
Address for Notice:
------------------
BankBoston, N.A.
100 Federal Street, M/S 0108-04
Boston, Massachusetts 02110
Telecopy Number: (617) 434-3652
87
<PAGE>
COMERICA BANK-TEXAS
By: /s/ DAVID L. MONTGOMERY
-----------------------
David L. Montgomery, Vice President
Address for Notice:
------------------
1601 Elm St., 2nd Floor
Dallas, Texas 75201
Attention: David L. Montgomery
Telecopy Number: (214) 969-6561
88
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ DAVID HUMPHREYS
-------------------
Name: David Humphreys
---------------
Title: Vice President
--------------
Address for Notice:
------------------
1001 Fannin Street
Suite 2255
Houston, Texas 77002-6709
Attention: Paul Riddle
Telecopy Number: (713) 650-6354
89
<PAGE>
THE FROST NATIONAL BANK
By: /s/ W. H. ADAMS
----------------------
W.H. (Bill) Adams, III,
Senior Vice President
Address for Notice:
------------------
The Frost National Bank
Continental Plaza, Suite 100
777 Main Street
Fort Worth, Texas 76102-5304
Telecopy Number: (817) 336-5615
90
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ PAUL E. CORNELL
-------------------
Name: Paul E. Cornell
---------------
Title: Managing Director
-----------------
Address for Notice:
------------------
Societe Generale, Southwest Agency
1111 Bagby Street
Houston, Texas 77002
Attention: Paul Cornell
Telecopy Number: (713) 650-0824
91
<PAGE>
NATEXIS Banque, BFCE
By: /s/ TIMOTHY L. POLVADO
----------------------
Timothy L. Polvado,
Vice President & Group Manager
By: /s/ ERIC DITGES
-----------------------
Eric Ditges, Vice President
Address for Notice:
------------------
333 Clay St., Suite 4340
Houston, Texas 77002
Attention: Timothy L. Polvado
Telecopy Number: (713) 759-9908
92
<PAGE>
EXHIBITS
TO
REVOLVING CREDIT AGREEMENT
"A" - Form of Revolving Promissory Note
"B" - Request for Floating Base Borrowing
"C" - Request for Eurodollar Borrowing
"D" - Form of Guaranty
"E" - Opinion of Counsel for the Credit Parties
"F-1" - Form of Corporate General Certificate of Company
"F-2" - Form of Corporate General Certificate of Arkoma
"F-3" - Form of Corporate General Certificate of Parent
SCHEDULES
TO
REVOLVING CREDIT LOAN AGREEMENT
"Schedule I" List of Banks and Each Bank's Percentage and Share of the Initial
Commitment
<PAGE>
EXHIBIT "A"
REVOLVING PROMISSORY NOTE
New York, New York
$___________ September 15, 1999
1. FOR VALUE RECEIVED, SUMMER ACQUISITION COMPANY, a Texas
corporation ("Maker"), hereby unconditionally promises to pay to the order of
______________________ ("Payee") at the principal office of Lehman Commercial
Paper Inc. in New York, New York the sum of _______________________________
($______________) (or, if less, so much thereof as may be advanced by Payee to
Maker pursuant to Section 2.01 of the Loan Agreement), in lawful money of the
United States of America. Capitalized terms not defined herein shall have the
meaning assigned to such terms in the Loan Agreement.
2. The unpaid principal amount of, an accrued unpaid interest on, this
Note shall be payable in accordance with the Loan Agreement but not later than
the Maturity Date.
3. The unpaid principal amount of all Advances shall bear interest from
the date of advance until maturity at a rate per annum which is provided in the
Loan Agreement and which is selected by Maker pursuant to the Loan Agreement.
The interest rate specified in this section shall be subject to adjustment under
the circumstances described in the Loan Agreement. Interest shall be computed
in the manner provided in the Loan Agreement.
4. As more fully described in and subject to the qualifications expressed
in the definition of "Maximum Rate" contained in the Loan Agreement, Payee
hereby notifies Maker that, and discloses to Maker that, for purposes of Chapter
303 of the Texas Finance Code, as supplemented by Texas Credit Title, the
applicable ceiling hereunder shall be the "weekly ceiling"; provided that, if
any applicable law permits greater interest, the law permitting the greater
interest shall apply.
5. Regardless of any provision contained in this Note or any other
document executed or delivered in connection herewith, Payee shall never be
deemed to have contracted for or be entitled to receive, collect, or apply as
interest on this Note, any amount in excess of the maximum rate of interest
permitted to be charged by applicable law, and, in the event that Payee ever
receives, collects, or applies as interest any such excess, such amount which
would be excessive interest shall be applied to the reduction of the unpaid
principal balance of this Note, and, if the principal balance of this Note is
paid in full, any remaining excess shall forthwith be paid to Maker. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the highest lawful rate, Maker and Payee shall, to the
maximum extent permitted under applicable law, (i) characterize any non-
principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest, (ii)
exclude voluntary prepayments and the effect thereof, and (iii) spread the total
amount of interest throughout the entire contemplated term of this Note so that
the interest rate is uniform throughout such term.
6. This Note has been executed and delivered pursuant to that certain
Revolving Credit Agreement (as same may be hereafter amended or modified, the
"Loan Agreement") dated
<PAGE>
the date hereof, by and among Maker, Lehman Commercial Paper Inc., as
Administrative Agent, Payee and other Banks that are lenders thereunder, and is
one of the "Notes" referred to therein. As used in this Note, the term "Loan
Agreement" means the Loan Agreement as same may be hereafter amended. The holder
of this Note shall be entitled to the benefits provided in the Loan Agreement.
This Note is secured by certain Collateral Documents. Reference is hereby made
to the Loan Agreement for a statement of (i) the prepayment rights and
obligations of Maker and (ii) the events upon which the maturity of this Note
may be accelerated.
7. Under the Loan Agreement, Maker may request advances and make payments
hereunder from time to time, provided that it is understood and agreed that the
Total Outstandings (as defined in the Loan Agreement) shall not at any time
exceed the Borrowing Base established from time to time according to the Loan
Agreement. The unpaid balance of this Note shall increase and decrease with
each new advance or payment hereunder, as the case may be. This Note shall not
be deemed terminated or canceled prior to the Revolving Loan Maturity Date,
although the entire principal balance hereof may from time to time be paid in
full. Maker may borrow, repay and reborrow hereunder according to the terms of
the Loan Agreement. All regularly scheduled payments of the indebtedness
evidenced by this Note and by any of the other Loan Documents and all non-
regularly scheduled payments made by Maker shall be applied to such indebtedness
in such order and manner as provided in the Loan Agreement. All payments and
prepayments of principal of or interest on this Note shall be made in lawful
money of the United States of America in immediately available funds at the
address of Lehman Commercial Paper Inc., as indicated in the Loan Agreement, or
such other place as the holder of this Note shall designate in writing to Maker.
8. Should the principal of, or any installment of interest on, this Note
become due and payable on a day other than a Business Day, then the maturity
thereof shall be extended to the next succeeding Business Day. If this Note, or
any installment or payment due hereunder is not paid when due, whether at
maturity or by acceleration, or if it is collected through a bankruptcy, probate
or other court, whether before or after maturity, Maker agrees to pay all costs
of collection, including, but not limited to, attorneys' fees incurred by the
holder hereof. All past due principal of, and interest on, this Note shall bear
interest until paid at the lesser of (a) the Floating Base Rate from time to
time in effect, plus two percent (2%), or (b) the Maximum Rate.
9. Except for any notice to be given under the Loan Agreement, Maker and
all sureties, endorsers, guarantors and other parties ever liable for payment of
any sums payable pursuant to the terms of this Note, jointly and severally,
waive demand, presentment for payment, protest, notice of protest, notice of
acceleration, notice of intent to accelerate, diligence in collection, the
bringing of any suit against any party and any notice of or defense on account
of any extensions, renewals, partial payment or changes in any manner of or in
this Note or in any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
10. All Advances made by Payee, the respective type of Borrowing thereof
and Interest Periods thereof, and all repayments of the principal thereof shall
be recorded by Payee,
- 2 -
<PAGE>
provided that the failure of Payee to make any such recordation or endorsement
- --------
shall not affect the Obligations of Maker hereunder or under the Loan Agreement.
Each such recordation or endorsement shall constitute prima facie evidence of
the information recorded or endorsed.
11. THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
MAKER:
-----
SUMMER ACQUISITION COMPANY,
a Texas corporation
By:
---------------------------
John O'Rear, Treasurer
- 3 -
<PAGE>
EXHIBIT "B"
REQUEST FOR FLOATING BASE BORROWING
-----------------------------------
1. This Request for Floating Base Borrowing is executed and delivered
by Summer Acquisition Company, a Texas corporation ("Borrower"), to Lehman
Commercial Paper Inc., as "Administrative Agent", pursuant to Section 2.02 of
that certain Revolving Credit Agreement dated as of September 15, 1999, among
Borrower, Banks, Agents therein named and the Administrative Agent (the
"Agreement"). Any terms used herein and not defined herein shall have the
meaning assigned to them in the Agreement.
2. Borrower hereby requests that Banks make a Floating Base Borrowing
to Borrower pursuant to the Agreement as follows:
(a) Amount of Floating Base Borrowing: $ _______________.
(b) Date of Floating Base Borrowing: _________________, 199__.
(c) Nature of Floating Base Borrowing (check one box only):
|_| Advance (new money).
|_| Conversion from prior Eurodollar Borrowing.
3. Borrower hereby represents, warrants, and certifies to Banks that
as of the date of the Floating Base Borrowing requested herein:
(a) There exists no Event of Default or event which with notice or
lapse of time or both could constitute an Event of Default.
(b) Borrower has performed and complied with all agreement and
conditions contained in the Agreement which are required to be performed or
complied with by Borrower.
(c) The representations and warranties contained in the Section 6 of
the Agreement are true in all respects, with the same force and effect as though
made on and as of the date of this Floating Base Borrowing.
<PAGE>
4. This Request for Floating Base Borrowing is executed on
_______________, 19__, by an authorized officer of Summer Acquisition Company.
The undersigned, in such capacity, hereby certifies each and every matter
contained herein to be true and correct.
SUMMER ACQUISITION COMPANY,
a __________________
By: ____________________
Name: ____________________
Title: ____________________
- 2 -
<PAGE>
EXHIBIT "C"
REQUEST FOR EURODOLLAR BORROWING
--------------------------------
1. This Request for Eurodollar Borrowing is
executed and delivered by Summer Acquisition Company, a Texas corporation
("Borrower"), to Lehman Commercial Paper Inc., as "Administrative Agent",
pursuant to Section 2.02 of that certain Revolving Credit Agreement dated as of
September 15, 1999, among Borrower, Banks and Agents therein named and the
Administrative Agent (the "Agreement"). Any terms used herein and not defined
herein shall have the meaning assigned to them in the Agreement.
2. Borrower hereby requests that Banks make a
Eurodollar Borrowing to Borrower pursuant to the Agreement as follows:
(a) Amount of Eurodollar Borrowing: $ _______________.
(b) Date of Eurodollar Borrowing: _________________, 199__.
(c) Eurodollar Interest Period: _________________-day.
(d) Nature of Eurodollar Borrowing (check one box only):
|_| Advance (new money).
|_| Rollover of prior Eurodollar Borrowing.
|_| Conversion from prior Floating Base Borrowing.
3. Borrower hereby represents, warrants, and certifies to Banks that
as of the date of the Eurodollar Borrowing requested herein:
(a) There exists no Event of Default or event which with notice or
lapse of time or both could constitute an Event of Default.
(b) Borrower has performed and complied with all agreement and
conditions contained in the Agreement which are required to be performed or
complied with by Borrower.
(c) The representations and warranties contained in the Section 6 of
the Agreement are true in all respects, with the same force and effect as though
made on and as of the date of this Eurodollar Borrowing.
<PAGE>
4. This Request for Eurodollar Borrowing is executed on
_______________, 19__, by an authorized officer of Summer Acquisition Company.
The undersigned, in such capacity, hereby certifies each and every matter
contained herein to be true and correct.
SUMMER ACQUISITION COMPANY,
a Texascorporation
By: _____________________
Name: _____________________
Title: _____________________
- 2 -
<PAGE>
EXHIBIT "D"
UNCONDITIONAL GUARANTY AGREEMENT
THIS UNCONDITIONAL GUARANTY AGREEMENT is executed as of September 15,
1999, by ARKOMA HOLDING CORPORATION, a Delaware corporation ("Guarantor"), for
the benefit of LEHMAN COMMERCIAL PAPER INC., as administrative agent (in such
capacity, the "Administrative Agent") for the banks and other financial
institutions, including Administrative Agent (individually a "Lender" and
collectively, the "Lenders"), from time to time parties to the Loan Agreement
(defined below).
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to a Revolving Credit Agreement of even date (as
amended, restated, supplemented, or otherwise modified from time to time, the
"Loan Agreement"), among Summer Acquisition Company, a Texas corporation
("Borrower"), Lenders and Administrative Agent, Lenders have severally agreed to
make extensions of credit to Borrower upon the terms and subject to the
conditions set forth therein;
WHEREAS, Subsidiary is a wholly-owned subsidiary of Borrower;
WHEREAS, the proceeds of the extensions of credit from the Loan
Agreement will be used in part to enable Borrower to make valuable transfers to
Subsidiary in connection with the operation of its business;
WHEREAS, Borrower and Subsidiary are engaged in related businesses,
and Subsidiary will derive substantial direct and indirect benefit from the
making of the extensions of credit under the Loan Agreement; and
WHEREAS, it is a condition precedent to the obligation of Lenders to
make their respective extensions of credit to Borrower under the Loan Agreement
that Guarantor execute and deliver this Agreement to Administrative Agent for
the ratable benefit of each Lender.
NOW, THEREFORE, as an inducement to Lenders to enter into the Loan
Agreement and to make loans to Borrower thereunder, and to extend such credit to
Borrower as Lenders may from time to time agree to extend, and for other good
and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, Guarantor hereby unconditionally and irrevocably guarantees
to Administrative Agent, for the ratable benefit of Lenders, and their
respective successors, endorsees, transferees, and assigns, the prompt and
complete payment of the Guaranteed Debt (hereinafter defined) as more
specifically described hereinbelow in Section 1.03 and hereby agrees as follows:
<PAGE>
ARTICLE I
---------
NATURE AND SCOPE OF GUARANTY
----------------------------
Section 1.01. Definition of Guaranteed Debt. As used herein, the term
------------ -----------------------------
"Guaranteed Debt" means:
(a) All principal, interest, attorneys' fees, commitment fees,
liabilities for costs and expenses and other indebtedness, obligations and
liabilities of Borrower to Administrative Agent or any Lender at any time
created or arising in connection with the Loan Agreement, or any amendment
thereto or substitution therefor, including but not limited to the
Obligation (as defined in the Loan Agreement), all indebtedness,
obligations and liabilities arising under the Notes (as defined in the Loan
Agreement), and under any renewals, modifications, increases and extensions
of the Notes (collectively, the "Guaranteed Notes"), and under the Loan
Papers (as defined in the Loan Agreement); and
(b) All costs, expenses and fees, including but not limited to
court costs and attorneys' fees, arising in connection with the collection
of any or all amounts, indebtedness, obligations and liabilities of
Borrower to Administrative Agent or any Lender described in item (a) of
---
this Section 1.01.
------------
Section 1.02. Guaranteed Debt Not Reduced by Offset. The Guaranteed
------------ -------------------------------------
Notes, indebtedness, liabilities, obligations and other Guaranteed Debt
guaranteed hereby, and the liabilities and obligations of Guarantor to
Administrative Agent and each Lender hereunder, shall not be reduced, discharged
or released because or by reason of any existing or future offset, claim or
defense of Borrower, or any other party, against Administrative Agent or any
Lender or against payment of the Guaranteed Debt, whether such offset, claim or
defense arises in connection with the Guaranteed Debt (or the transactions
creating the Guaranteed Debt) or otherwise. Without limiting the foregoing or
Guarantor's liability hereunder, to the extent that Administrative Agent or any
Lender advances funds or extends credit to Borrower, and does not receive
payments or benefits thereon in the amounts and at the times required or
provided by applicable agreements or laws, Guarantor is absolutely liable to
make such payments to (and confer such benefits on) Administrative Agent or any
Lender, on a timely basis.
Section 1.03. Guaranty of Obligation. Guarantor hereby irrevocably
------------ ----------------------
and unconditionally guarantees to Administrative Agent and each Lender and their
respective successors and assigns (i) the due and punctual payment of the
Guaranteed Debt, and (ii) the timely performance of all other obligations now or
hereafter owed by Borrower to Administrative Agent and each Lender under the
Loan Agreement. Guarantor jointly and severally and hereby irrevocably and
unconditionally covenants and agrees that it is liable for the Guaranteed Debt
as primary obligor.
Section 1.04. Nature of Guaranty. This Guaranty Agreement is intended
------------ ------------------
to be an irrevocable, absolute, continuing guaranty of payment and is not a
guaranty of collection. The fact that at any time or from time to time the
Guaranteed Debt may be increased, reduced or paid in full shall not release,
discharge or reduce the obligation of Guarantor with respect to
- 2 -
<PAGE>
indebtedness or obligations of Borrower to Administrative Agent and each Lender
thereafter incurred (or other Guaranteed Debt thereafter arising) under the
Guaranteed Notes or otherwise. This Guaranty Agreement may be enforced by
Administrative Agent and each Lender and any subsequent holder of the Guaranteed
Debt and shall not be discharged by the assignment or negotiation of all or part
of the Guaranteed Debt.
Section 1.05. Payment by Guarantor. If all or any part of the
------------ --------------------
Guaranteed Debt shall not be punctually paid when due, whether at maturity or
earlier by acceleration or otherwise, Guarantor shall, within one (1) day of
demand by Administrative Agent, and without presentment, protest, notice of
protest, notice of nonpayment, notice of intention to accelerate or acceleration
or any other notice whatsoever, pay in lawful money of the United States of
America, the amount due on the Guaranteed Debt to Administrative Agent (for the
account of all Lenders). Such demand(s) may be made at any time coincident
with or after the time for payment of all or part of the Guaranteed Debt, and
may be made from time to time with respect to the same or different items of
Guaranteed Debt. Such demand shall be deemed made, given and received in
accordance with Section 4.02 hereof.
------------
Section 1.06. Payment of Expenses. In the event that Guarantor should
------------ -------------------
breach or fail to timely perform any provisions of this Guaranty Agreement,
Guarantor shall, immediately upon demand by Administrative Agent, pay
Administrative Agent all costs and expenses (including court costs and
reasonable attorneys' fees) incurred by Administrative Agent and any Lender in
the enforcement hereof or the preservation of Administrative Agent's and each
Lender's rights hereunder. The covenant contained in this Section 1.06 shall
------------
survive the payment of the Guaranteed Debt.
Section 1.07. No Duty to Pursue Others. It shall not be necessary for
------------ ------------------------
Administrative Agent or any Lender (and Guarantor hereby waives any rights which
Guarantor may have to require Administrative Agent or any Lender), in order to
enforce such payment by Guarantor, first to (i) institute suit or exhaust its
remedies against Borrower or others liable on the Guaranteed Debt or any other
person, (ii) enforce Administrative Agent's or Lenders' rights against any
security which shall ever have been given to secure the Guaranteed Debt, (iii)
enforce Lender's rights against any other Guarantor of the Guaranteed Debt, (iv)
join Borrower or any others liable on the Guaranteed Debt in any action seeking
to enforce this Guaranty Agreement, (v) exhaust any remedies available to
Administrative Agent or Lenders against any security which shall ever have been
given to secure the Guaranteed Debt, or (vi) resort to any other means of
obtaining payment of the Guaranteed Debt. Lenders shall not be required to
mitigate damages or take any other action to reduce, collect or enforce the
Guaranteed Debt. Further, Guarantor expressly waives each and every right to
which it may be entitled by virtue of the suretyship law of the state of Texas,
including without limitation, any rights pursuant to Rule 31 of the Texas Rules
of Civil Procedure and Chapter 34 of the Texas Business and Commerce Code.
Section 1.08. Waiver of Notices, etc. Guarantor agrees to the
------------ ----------------------
provisions of the Guaranteed Notes and the Loan Agreement, and hereby waives
notice of (i) any loans or advances made by Administrative Agent or any Lender
to Borrower, (ii) acceptance of this Guaranty Agreement, (iii) any amendment or
extension of the Guaranteed Notes or the Loan Agreement or of any other
instrument or document pertaining to all or any part of the Guaranteed
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<PAGE>
Debt, (iv) the execution and delivery by Borrower and Administrative Agent or
any Lender of any other loan or credit agreement or of Borrower's execution and
delivery of any promissory notes or other documents in connection therewith, (v)
the occurrence of any breach by Borrower or Event of Default (as defined in the
Loan Agreement), (vi) any Lender's transfer or disposition of the Guaranteed
Debt, or any part thereof, (vii) sale or foreclosure (or posting or advertising
for sale or foreclosure) of any collateral for the Guaranteed Debt, (viii)
protest, proof of nonpayment or default by Borrower, or (ix) any other action at
any time taken or omitted by Administrative Agent or any Lender, and, generally,
all demands and notices of every kind in connection with this Guaranty
Agreement, the Loan Agreement, and any documents or agreements evidencing,
securing or relating to any of the Guaranteed Debt and the obligations hereby
guaranteed.
Section 1.09. Effect of Bankruptcy, Other Matters. In the event that,
------------ -----------------------------------
pursuant to any insolvency, bankruptcy, reorganization, receivership or other
debtor relief law, or any judgment, order or decision thereunder, or for any
other reason, (i) Administrative Agent or any Lender must rescind or restore any
payment, or any part thereof, received by Administrative Agent or any Lender in
satisfaction of the Guaranteed Debt, as set forth herein, any prior release or
discharge from the terms of this Guaranty Agreement given to Guarantor by
Administrative Agent or any Lender shall be without effect, and this Guaranty
Agreement shall remain in full force and effect, or (ii) Borrower shall cease to
be liable to Administrative Agent or any Lender for any of the Guaranteed Debt
(other than by reason of the indefeasible payment in full thereof by Borrower),
the obligations of Guarantor under this Guaranty Agreement shall remain in full
force and effect. It is the intention of Lenders and Guarantor that Guarantor's
obligations hereunder shall not be discharged except by Guarantor's performance
of such obligations and then only to the extent of such performance. Without
limiting the generality of the foregoing, it is the intention of Administrative
Agent, Lenders and Guarantor that the filing of any bankruptcy or similar
proceeding by or against Borrower or any other person or party obligated on any
portion of the Guaranteed Debt shall not affect the obligations of Guarantor
under this Guaranty Agreement or the rights of Administrative Agent and Lenders
under this Guaranty Agreement, including, without limitation, the right or
ability of Administrative Agent and Lenders to pursue or institute suit against
Guarantor for the entire Guaranteed Debt.
Section 1.10. Limit of Liability. The obligations of Guarantor
------------ ------------------
hereunder shall be limited to the largest amount that would not render its
obligations hereunder subject to avoidance under Section 548 of the Bankruptcy
Code of 1978, as amended, or any comparable provisions of applicable state law
relating to the insolvency of debtors.
ARTICLE II
----------
ADDITIONAL EVENTS AND CIRCUMSTANCES NOT REDUCING
------------------------------------------------
OR DISCHARGING GUARANTOR'S OBLIGATIONS
--------------------------------------
Guarantor hereby consents and agrees to each of the following, and
agrees that Guarantor's obligations under this Guaranty Agreement shall not be
released, diminished, impaired, reduced or adversely affected by any of the
following, and waives any common law,
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<PAGE>
equitable, statutory or other rights (including without limitation rights to
notice) which Guarantor or any of them might otherwise have as a result of or in
connection with any of the following:
Section 2.01. Modifications, etc. Any renewal, extension, increase,
------------ ------------------
modification, alteration or rearrangement of all or any part of the Guaranteed
Debt, or of the Guaranteed Notes, or any loan agreement, security agreement,
collateral document or other document, instrument, contract or understanding
between Borrower and Administrative Agent or any Lender, or any other parties,
pertaining to the Guaranteed Debt;
Section 2.02. Adjustment, etc. Any adjustment, indulgence,
------------ ---------------
forbearance or compromise that might be granted or given by Administrative Agent
or any Lender to Borrower or Guarantor;
Section 2.03. Condition, Composition or Structure of Borrower or
------------ --------------------------------------------------
Guarantor. The insolvency, bankruptcy, arrangement, adjustment, composition,
- ---------
structure, liquidation, disability, dissolution or lack of power of Borrower or
any other party at any time liable for the payment of all or part of the
Guaranteed Debt; or any dissolution of Borrower or Guarantor, or any sale, lease
or transfer of any or all of the assets of Borrower or Guarantor, or any changes
in name, business, location, composition, structure or changes in the
shareholders, partners or members (whether by accession, secession, cessation,
death, dissolution, transfer of assets or other matter) of Borrower or
Guarantor; or any reorganization of Borrower or Guarantor;
Section 2.04. Invalidity of Guaranteed Debt. The invalidity,
------------ -----------------------------
illegality or unenforceability of all or any part of the Guaranteed Debt, or any
document or agreement executed in connection with the Guaranteed Debt, for any
reason whatsoever, including without limitation the fact that (i) the Guaranteed
Debt, or any part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Debt or any part thereof is ultra vires, (iii) the
-----------
officers or representatives executing the Guaranteed Notes or other documents or
otherwise creating the Guaranteed Debt acted in excess of their authority, (iv)
the Guaranteed Debt violates applicable usury laws, (v) the Borrower has valid
defenses, claims or offsets (whether at law, in equity or by agreement) which
render the Guaranteed Debt wholly or partially uncollectible from Borrower, (vi)
the creation, performance or repayment of the Guaranteed Debt (or the execution,
delivery and performance of any document or instrument representing part of the
Guaranteed Debt or executed in connection with the Guaranteed Debt, or given to
secure the repayment of the Guaranteed Debt) is illegal, uncollectible or
unenforceable, or (vii) the Guaranteed Notes, Loan Agreement or other documents
or instruments pertaining to the Guaranteed Debt have been forged or otherwise
are irregular or not genuine or authentic.
Section 2.05. Release of Obligors. Any full or partial release of the
------------ -------------------
liability of Borrower on the Guaranteed Debt or any part thereof, or of
Guarantor, or any other person or entity now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to pay,
perform, guarantee or assure the payment of the Guaranteed Debt or any part
thereof, it being recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Guaranteed Debt in full without assistance
or support of any other party, and Guarantor has not been induced to enter into
this Guaranty Agreement on the basis of a contemplation, belief, understanding
or agreement that other parties will be liable to perform the Guaranteed Debt,
or that Administrative Agent or Lenders will look to other parties to perform
the Guaranteed Debt;
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<PAGE>
notwithstanding the foregoing, Guarantor does not hereby waive or release
(expressly or impliedly) any rights of subrogation, reimbursement or
contribution which it may have, after payment in full of the Guaranteed Debt,
against others liable on the Guaranteed Debt; Guarantor's rights of subrogation
and reimbursement are, however, subordinate to the rights and claims of
Administrative Agent and Lenders;
Section 2.06. Other Security. The taking or accepting of any other
------------ --------------
security, collateral or guaranty, or other assurance of payment, for all or any
part of the Guaranteed Debt;
Section 2.07. Release of Collateral, etc. Any release, surrender,
------------ --------------------------
exchange, subordination, deterioration, waste, loss or impairment (including
without limitation negligent, willful, unreasonable or unjustifiable impairment)
of any collateral, property or security, at any time existing in connection
with, or assuring or securing payment of, all or any part of the Guaranteed
Debt;
Section 2.08. Care and Diligence. The failure of Administrative Agent
------------ ------------------
or Lenders or any other party to exercise diligence or reasonable care or act,
fail to act or comply with any duty in the administration, preservation,
protection, enforcement, sale application, disposal or other handling or
treatment of all or any part of Guaranteed Debt or any collateral, property or
security at any time securing any portion thereof, including, without limiting
the generality of the foregoing, the failure to conduct any foreclosure or other
remedy fairly or in such a way so as to obtain the best possible price or a
favorable price or otherwise act or fail to act;
Section 2.09. Status of Liens. The fact that any collateral,
------------ ---------------
security, security interest or lien contemplated or intended to be given,
created or granted as security for the repayment of the Guaranteed Debt shall
not be properly perfected or created, or shall prove to be unenforceable or
subordinate to any other security interest or lien, it being recognized and
agreed by Guarantor that Guarantor is not entering into this Guaranty Agreement
in reliance on, or in contemplation of the benefits of, the validity,
enforceability, collectibility or value of any of the collateral (if any) for
the Guaranteed Debt; notwithstanding the foregoing, Guarantor does not hereby
waive or release (expressly or impliedly) any right to be subrogated to the
rights of Administrative Agent and Lenders in any collateral or security for the
Guaranteed Debt after payment in full of the Guaranteed Debt; Guarantor's rights
of subrogation are, however, subordinate to the rights, claims, liens and
security interests of Administrative Agent and Lenders;
Section 2.10. Offset. The Guaranteed Notes and other Guaranteed Debt
------------ ------
guaranteed hereby, and the liabilities and obligations of Guarantor to
Administrative Agent and Lenders hereunder, shall not be reduced, discharged or
released because of or by reason of any existing or future right of offset,
claim or defense of Borrower against Administrative Agent or any Lender, or any
other party, or against payment of the Guaranteed Debt, whether such right of
offset, claim or defense arises in connection with the Guaranteed Debt (or the
transactions creating the Guaranteed Debt) or otherwise;
Section 2.11. Merger. The reorganization, merger or consolidation of
------------ ------
Borrower or Guarantor into or with any other corporation or entity;
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<PAGE>
Section 2.12. Preference. Any payment by Borrower to Administrative
------------ ----------
Agent or any Lender is held to constitute a preference under bankruptcy laws, or
for any reason Administrative Agent or any Lender is required to refund such
payment or pay such amount to Borrower or someone else; or
Section 2.13. Other Actions Taken or Omitted. Any other action taken
------------ ------------------------------
or omitted to be taken with respect to the Loan Agreement, the Guaranteed Debt,
or the security and collateral therefor, whether or not such action or omission
prejudices Guarantor or increases the likelihood or risk that Guarantor will be
required to pay the Guaranteed Debt pursuant to the terms hereof; it is the
unambiguous and unequivocal intention of Guarantor that Guarantor shall be
obligated to pay the Guaranteed Debt when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not otherwise or particularly described herein,
except for the full and final payment and satisfaction of the Guaranteed Debt.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Lender to enter into the Loan Agreement and extend credit to
Borrower, Guarantor represents and warrants to Administrative Agent and each
Lender that:
Section 3.01. Benefit. Guarantor has received, or will receive,
------------ -------
direct or indirect benefit from the making of this Guaranty Agreement and the
Guaranteed Debt;
Section 3.02. Familiarity and Reliance. Guarantor is familiar with,
------------ ------------------------
and has independently reviewed books and records regarding, the financial
condition of Borrower and is familiar with the value of any and all collateral
intended to be created as security for the payment of the Guaranteed Debt;
however, Guarantor is not relying on such financial condition or the collateral
as an inducement to enter into this Guaranty Agreement;
Section 3.03. No Representation by Lender. Neither Administrative
------------ ---------------------------
Agent, any Lender nor any other party has made any representation, warranty or
statement to Guarantor in order to induce Guarantor to execute this Guaranty
Agreement;
Section 3.04. Guarantor's Financial Condition. As of the date hereof,
------------ -------------------------------
and after giving effect to this Guaranty Agreement and the contingent obligation
evidenced hereby, Guarantor is, and will be, solvent, and has and will have
assets which, fairly valued, exceed its obligations, liabilities and debts;
Section 3.05. Legality. The execution, delivery and performance by
------------ --------
Guarantor of this Guaranty Agreement and the consummation of the transactions
contemplated hereunder do not, and will not, contravene or conflict with any
law, statute or regulation whatsoever to which Guarantor is subject or
constitute a default (or an event which with notice or lapse of time or both
would constitute a default) under, or result in the breach of, any indenture,
mortgage, deed of trust, charge, lien, or any contract, agreement or other
instrument to which Guarantor is a party or
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<PAGE>
which may be applicable to Guarantor or any of its assets; this Guaranty
Agreement is a legal and binding obligation of Guarantor and is enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to the enforcement of creditors' rights.
Section 3.06. Survival. All representations and warranties made by
------------ --------
Guarantor herein shall survive the execution hereof.
ARTICLE IV
----------
MISCELLANEOUS
-------------
Section 4.01. Waiver. No failure to exercise, and no delay in
------------ ------
exercising, on the part of Administrative Agent or Lenders, any right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right. The rights of Administrative Agent and Lenders hereunder shall be
in addition to all other rights provided by law. No modification or waiver of
any provision of this Guaranty Agreement, nor consent to departure therefrom,
shall be effective unless in writing and no such consent or waiver shall extend
beyond the particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other action in the
same, similar or other instances without such notice or demand.
Section 4.02. Notices. Any notices or other communications required
------------ -------
or permitted to be given by this Guaranty Agreement must be (i) given in writing
and personally delivered or mailed by prepaid certified or registered mail,
return receipt requested, or (ii) made by telecopy or facsimile (and confirmed
by a hard copy sent by overnight delivery service for delivery the following
day) delivered or transmitted, to the party to whom such notice or communication
is directed, to the address of such party as follows:
Guarantor:
----------
Arkoma Holding Company
810 Houston Street, Suite 200
Fort Worth, Texas 76102
Attention: John O'Rear
Telecopy No. (817) 882-7268
Administrative Agent:
--------------------
Lehman Commercial Paper Inc.
3 World Financial Center
200 Vesey Street
New York, New York 10285
Attention: Michael O'Brien
Telecopy No. (212) 526-7691
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<PAGE>
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered as
aforesaid or, if mailed, on the third day after it is mailed as aforesaid, or,
if transmitted by telecopy, on the day that such notice is transmitted as
aforesaid. Any party may change its address for purposes of this Guaranty
Agreement by giving notice of such change to the other party pursuant to this
Section 4.02.
- ------------
SECTION 4.03. GOVERNING LAW. THIS GUARANTY AGREEMENT HAS BEEN
------------ -------------
PREPARED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE
SUBSTANTIVE LAWS OF SUCH STATE SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS GUARANTY AGREEMENT. FOR PURPOSES OF THIS
GUARANTY AGREEMENT AND THE RESOLUTION OF DISPUTES HEREUNDER, GUARANTOR HEREBY
IRREVOCABLY SUBMITS AND CONSENTS TO, AND WAIVES ANY OBJECTION TO, THE NON-
EXCLUSIVE JURISDICTION OF THE COURTS OF THE OF TEXAS LOCATED IN TARRANT COUNTY,
TEXAS AND OF THE FEDERAL COURTS LOCATED IN THE NORTHERN JUDICIAL DISTRICT OF
TEXAS.
Section 4.04. Invalid Provisions. If any provision of this Guaranty
------------ ------------------
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Guaranty Agreement, such provision
shall be fully severable and this Guaranty Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Guaranty Agreement, and the remaining provisions of
this Guaranty Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
from this Guaranty Agreement, unless such continued effectiveness of this
Guaranty Agreement, as modified, would be contrary to the basic understandings
and intentions of the parties as expressed herein.
Section 4.05. Entirety and Amendments. This Guaranty Agreement
------------ -----------------------
embodies the entire agreement between the parties and supersedes all prior
agreements and understandings, if any, relating to the subject matter hereof,
and this Guaranty Agreement may be amended only by an instrument in writing
executed by an authorized officer of the party against whom such amendment is
sought to be enforced.
Section 4.06. Parties Bound; Assignment. This Guaranty Agreement
------------ -------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns and legal representatives; provided, however,
that no Guarantor may, without the prior written consent of Lenders, assign any
of its rights, powers, duties or obligations hereunder.
Section 4.07. Headings. Section headings are for convenience of
------------ --------
reference only and shall in no way affect the interpretation of this Guaranty
Agreement.
Section 4.08. Multiple Counterparts. This Guaranty Agreement may be
------------ ---------------------
executed in any number of counterparts, all of which taken together shall
constitute one and the same agreement, and any of the parties hereto may execute
this Guaranty Agreement by signing any such counterpart.
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<PAGE>
Section 4.09. Rights and Remedies. If Guarantor becomes liable for
------------ --------------------
any indebtedness owing by Borrower to Administrative Agent or any Lender, by
endorsement or otherwise, other than under this Guaranty Agreement, such
liability shall not be in any manner impaired or affected hereby and the rights
of Administrative Agent or any Lender hereunder shall be cumulative of any and
all other rights that Administrative Agent or any Lender may ever have against
Guarantor. The exercise by Administrative Agent or any Lender of any right or
remedy hereunder or under any other instrument, or at law or in equity, shall
not preclude the concurrent or subsequent exercise of any other right or remedy.
SECTION 4.10. WAIVER OF JURY TRAIL. GUARANTOR HEREBY KNOWINGLY,
------------ --------------------
VOLUNTARILY, INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION
THAT RELATES TO OR ARISES OUT OF ANY OF THIS GUARANTY AGREEMENT, THE LOAN
AGREEMENT OR ANY OTHER LOAN DOCUMENTS OR THE ACTS OR OMISSIONS OF ADMINISTRATIVE
AGENT OR ANY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS
GUARANTY AGREEMENT, THE LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENTS OR OTHERWISE
WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT
FOR LENDERS ENTERING INTO THE LOAN AGREEMENT AND EXTENDING CREDIT THEREUNDER.
Section 4.11. Notice and Acknowledgment of No Oral Agreements. In
------------ -----------------------------------------------
consideration of the making of the loans under the Loan Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are
acknowledged by Guarantor, Guarantor, (i) agree that Guarantor's execution of
this Guaranty Agreement constitutes acknowledgment that Guarantor has read and
understand this Guaranty Agreement; and (ii) acknowledge receipt of the
following Notice:
NOTICE: THIS GUARANTY AGREEMENT CONSTITUTES A WRITTEN AGREEMENT WHICH
------
REPRESENTS THE FINAL AGREEMENT BETWEEN GUARANTOR, ADMINISTRATIVE AGENT AND
LENDERS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF GUARANTOR, ADMINISTRATIVE AGENT AND/OR LENDERS.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN GUARANTOR,
ADMINISTRATIVE AGENT AND/OR LENDERS RELATING TO THIS GUARANTY AGREEMENT.
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<PAGE>
EXECUTED as of the day and year first above written.
GUARANTOR:
---------
ARKOMA HOLDING CORPORATION,
a Texas corporation
By: ___________________________
John O'Rear, Treasurer
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