- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-26662
PANACO, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
1100 Louisiana Street, Suite 5100
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 970-3100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ___X___ No _______ .
23,985,927 shares of the registrant's $.01 par value Common Stock were
outstanding on September 30, 1999.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PANACO, Inc.
Consolidated Condensed Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
As of As of
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,692,000 $ 3,452,000
Accounts receivable 9,321,000 8,332,000
Accounts receivable-employee 14,000 18,000
Prepaid and other 495,000 268,000
------------- --------------
Total current assets 15,522,000 12,070,000
------------- --------------
OIL AND GAS PROPERTIES, AS DETERMINED BY THE
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
Oil and gas properties, proved 254,450,000 238,377,000
Oil and gas properties, unproved 15,598,000 15,128,000
Less accumulated depletion, depreciation,
and amortization (174,460,000) (152,782,000)
------------ -------------
Net oil and gas properties 95,588,000 100,723,000
------------ -------------
PIPELINES AND EQUIPMENT
Pipelines and equipment 26,300,000 26,252,000
Less accumulated depreciation (5,402,000) (3,415,000)
------------ -------------
Net pipelines and equipment 20,898,000 22,837,000
------------ -------------
OTHER ASSETS
Deferred debt costs, net 4,623,000 3,359,000
Employee note receivable 300,000 300,000
Restricted deposits and other 5,122,000 4,083,000
------------ -------------
Total other assets 10,045,000 7,742,000
------------ -------------
TOTAL ASSETS $ 142,053,000 $ 143,372,000
============ =============
</TABLE>
The accompanying notes are in integral part of this statement.
2
<PAGE>
<TABLE>
<CAPTION>
PANACO, Inc.
Consolidated Condensed Balance Sheets
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
As of As of
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 23,309,000 $ 16,976,000
Interest payable - 2,745,000
Revolving credit facility - 13,500,000
-------------- -------------
Total current liabilities 23,309,000 33,221,000
-------------- --------------
LONG-TERM DEBT 131,329,000 102,249,000
STOCKHOLDERS' EQUITY
Preferred Shares, $.01 par value,
5,000,000 shares authorized; no
shares issued and outstanding - -
Common Shares, $.01 par value,
100,000,000 shares authorized;
23,985,927 and 23,704,955 shares
issued and outstanding, respectively 243,000 240,000
Additional paid-in capital 69,444,000 69,197,000
Treasury stock, held at cost (592,000) (592,000)
Accumulated deficit (81,680,000) (60,943,000)
------------- --------------
Total stockholders' equity (deficit) (12,585,000) 7,902,000
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 142,053,000 $ 143,372,000
============== ==============
COMMITMENTS AND CONTINGENCIES
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
PANACO, Inc.
Consolidated Statements of Income (Operations)
For the Nine Months Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
REVENUES
Oil and natural gas sales $ 29,950,000 $ 38,456,000
COSTS AND EXPENSES
Lease operating expense 12,382,000 13,287,000
Depletion, depreciation & amortization 18,492,000 24,936,000
General and administrative expense 2,759,000 3,040,000
Office consolidation and severance expense - 987,000
Production and ad valorem taxes 654,000 866,000
Exploratory dry hole expense 942,000 5,798,000
Impairment of oil and gas properties 5,693,000 1,621,000
Geological and geophysical expense 963,000 1,296,000
-------------- --------------
Total 41,885,000 51,831,000
-------------- --------------
OPERATING LOSS (11,935,000) (13,375,000)
-------------- --------------
OTHER INCOME (EXPENSE)
Interest income 78,000 790,000
Interest expense (8,748,000) (7,614,000)
-------------- --------------
Total (8,670,000) (6,824,000)
-------------- --------------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (20,605,000) (20,199,000)
INCOME TAX (BENEFIT) - (3,100,000)
-------------- --------------
LOSS BEFORE EXTRAORDINARY ITEM (20,605,000) (17,099,000)
EXTRAORDINARY ITEM-Loss on early retirement of debt (132,000) -
-------------- --------------
NET LOSS $ (20,737,000) $ (17,099,000)
============== ==============
Loss per share before extraordinary item $ (0.86) $ (0.71)
Extraordinary item (0.01) -
-------------- -------------
Net loss per share $ (0.87) $ (0.71)
============== =============
Basic Shares Outstanding 23,925,204 23,942,161
============== =============
Diluted Shares Outstanding 23,925,204 23,942,161
============== =============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
PANACO, Inc.
Consolidated Statements of Income (Operations)
For the Three Months Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
REVENUES
Oil and natural gas sales $ 10,178,000 $ 14,128,000
COSTS AND EXPENSES
Lease operating expense 3,978,000 4,639,000
Depletion, depreciation & amortization 6,152,000 8,988,000
General and administrative expense 1,019,000 977,000
Office consolidation and severance expense - 987,000
Production and ad valorem taxes 283,000 470,000
Exploratory dry hole expense 98,000 876,000
Impairment of oil and gas properties 5,693,000 558,000
Geological and geophysical expense 398,000 502,000
----------- -----------
Total 17,621,000 17,997,000
----------- -----------
OPERATING LOSS (7,443,000) (3,869,000)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 43,000 39,000
Interest expense (3,331,000) (2,655,000)
----------- ----------
Total (3,288,000) (2,616,000)
----------- ----------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (10,731,000) (6,485,000)
INCOME TAX (BENEFIT) - 398,000
----------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (10,731,000) (6,883,000)
EXTRAORDINARY ITEM-Loss on early retirement of debt (132,000) -
----------- ----------
NET LOSS $ (10,863,000) $ (6,883,000)
=========== ==========
Loss per share before extraordinary item $ (0.44) $ (0.29)
Extraordinary item (0.01) -
----------- ----------
Net loss per share $ (0.45) $ (0.29)
=========== ==========
Basic Shares Outstanding 23,985,927 23,947,367
=========== ==========
Diluted Shares Outstanding 23,985,927 23,947,367
=========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
PANACO, Inc.
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(20,737,000) $(17,099,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depletion, depreciation and amortization 18,492,000 24,936,000
Impairment of oil and gas properties 5,693,000 1,621,000
Exploratory dry hole expense 942,000 5,798,000
Deferred income tax benefit - (3,100,000)
Office consolidation and severance expense - 987,000
Extraordinary item-loss on early retirement of debt 132,000 -
Other, net 36,000 (1,331,000)
Changes in liabilities:
Accounts receivable (989,000) (1,296,000)
Prepaid and other (227,000) 266,000
Accounts payable 6,333,000 (5,002,000)
Interest payable (2,745,000) 2,964,000
---------- -----------
Net cash provided by operating activities 6,930,000 8,744,000
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of oil and gas properties 378,000 23,000
Capital expenditures and acquisitions (17,911,000) (54,830,000)
Increase in restricted deposits (1,250,000) (1,178,000)
---------- ----------
Net cash used by investing activities (18,783,000) (55,985,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares 250,000 -
Short-term borrowings 39,580,000 36,549,000
Repayment of long-term debt (24,000,000) (23,000,000)
Additional deferred financing costs (1,737,000) -
---------- ----------
Net cash provided by financing activities 14,093,000 13,549,000
---------- ----------
NET INCREASE (DECREASE) IN CASH 2,240,000 (33,692,000)
CASH AT BEGINNING OF YEAR 3,452,000 36,909,000
---------- ----------
CASH AT SEPTEMBER 30 $ 5,692,000 $ 3,217,000
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
PANACO, Inc.
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Amount ($)
-----------------------------------------------------------------------------
Number of Additional
Common Common Paid-in Treasury Accumulated
Shares Stock Capital Stock Deficit
-------- ------ --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1998 23,704,955 $ 240,000 $ 69,197,000 $ (592,000) $(60,943,000)
Net Loss - - - - (20,737,000)
Common shares issued to the ESOP 280,972 3,000 247,000 - -
---------- --------- ----------- -------- -----------
Balances, September 30, 1999 23,985,927 $ 243,000 $ 69,444,000 $ (592,000) $(81,680,000)
========== ========= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
PANACO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position as of September 30, 1999 and December 31, 1998 and
the results of operations and cash flows for the periods ended September 30,
1999 and 1998. Most adjustments made to the financial statements are of a
normal, recurring nature. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures, including significant accounting policies, normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). A more
complete description of the accounting policies followed by the Company are set
forth in Note 1 to the Company's financial statements in Form 10-K for the year
ended December 31, 1998. These financial statements should be read in
conjunction with the financial statements and notes included in the Form 10-K.
Results for the nine months and three months ended September 30, 1998 have been
restated to reflect the proper timing of adjustments made during the fourth
quarter of 1998 that related to prior quarters in that year.
Note 2 - OIL AND GAS PROPERTIES AND PIPELINES AND EQUIPMENT
The Company utilizes the successful efforts method of accounting for its
oil and gas properties. Under the successful efforts method, lease acquisition
costs are capitalized. Exploratory drilling costs are also capitalized pending
determination of proved reserves. If proved reserves are not discovered, the
exploratory costs are expensed. All development costs are capitalized.
Non-drilling exploratory costs including geological and geophysical costs and
rentals are expensed. Unproved leaseholds with significant acquisition costs are
assessed periodically, on a property-by-property basis, and a loss is recognized
to the extent, if any, that the cost of the property has been impaired. Unproved
leaseholds whose acquisition costs are not individually significant are
aggregated, and the portion of such costs estimated to ultimately prove
nonproductive, based on experience, are amortized over an average holding
period. As unproved leaseholds are determined to be productive, the related
costs are transferred to proved leaseholds. Provision for depreciation and
depletion is determined on a depletable unit basis using the unit-of-production
method. Estimated future abandonment costs are recorded by charges to
depreciation and depletion expense over the lives of the proved reserves of the
properties.
The Company performs a review for impairment of proved oil and gas
properties on a depletable unit basis when circumstances suggest there is a need
for such a review. For each depletable unit determined to be impaired, an
impairment loss equal to the difference between the carrying value and the fair
value of the depletable unit will be recognized. Fair value, on a depletable
unit basis, is estimated to be the present value of expected future cash flows
computed by applying estimated future oil and gas prices, as determined by
management, to estimated future production of oil and gas reserves over the
economic lives of the reserves. Future cash flows are based upon the Company's
estimate of proved reserves. In addition, other factors such as probable and
possible reserves are taken into consideration when justified by economic
conditions and actual or planned drilling. The Company recorded an asset
impairment for the year ended December 31, 1998 of $20.4 million, primarily due
to lower oil and natural gas prices. An additional impairment was recorded
during the third quarter of 1999 on the Company's unproved properties. The
impairment totaled $5.7 million and was recorded to reflect the lack of planned
drilling activity on those properties with associated unproved costs. The
8
<PAGE>
Company has an extensive drilling program planned through the end of 2000;
however, the projects identified to begin over the next 15 months do not include
those properties upon which an impairment was recorded.
Pipelines and other equipment are carried at cost. Oil and natural gas
pipelines and equipment are depreciated on the straight-line method over their
estimated lives, primarily fifteen years. Other property is also depreciated on
the straight-line method over their estimated lives, ranging from three to ten
years. Fees for processing oil and natural gas for others are treated as a
reduction of lease operating expense related to the facilities and
infrastructure.
Note 3 - CASH FLOW INFORMATION
For purposes of the consolidated statement of cash flows, the Company
considers all cash investments purchased with original maturities of three
months or less to be cash equivalents. Cash payments for interest totaled
$11,963,000 and $9,920,000 during the first nine months of 1999 and 1998,
respectively. Cash payments for income taxes totaled $0 during the first nine
months of 1999 and 1998, respectively.
Note 4 - PER SHARE AMOUNTS
The Company currently has 1,150,000 stock options outstanding at September
30, 1999 that are excluded from per share calculations in 1999 and 1998, as they
are anti-dilutive. The options were issued in 1997 to officers and directors at
an exercise price of $4.45 per share and expire June 2000.
Note 5 - RESTRICTED DEPOSITS
Pursuant to existing agreements the Company is required to deposit funds in
bank trust and escrow accounts to provide a reserve against satisfaction of its
eventual responsibility to plug and abandon wells and remove structures when
certain fields no longer produce oil and gas. Through November 30, 1997 the
Company funded $900,000 into an escrow account with respect to the West Delta
Fields. At that time, the Company completed its obligation for the funding under
the West Delta agreement. The Company has entered into an escrow agreement with
Amoco Production Company under which the Company deposits, for the life of the
fields, in a bank escrow account ten percent (10%) of the net cash flow, as
defined in the agreement, from the Amoco properties. The Company has established
the "PANACO East Breaks 110 Platform Trust" in favor of the Minerals Management
Service of the U.S. Department of the Interior. This trust required an initial
funding of $846,720 in December 1996, and remaining deposits of $244,320 due at
the end of each quarter in 1999 and $144,000 due at the end of each quarter in
2000 for a total of $2.4 million. In connection with its BP Acquisition, the
Company deposited $1.0 million into an escrow account on July 1, 1998. On the
first day of each quarter thereafter, the Company deposits $250,000 into the
escrow account until the balance in the escrow account reaches $6.5 million.
Note 6 - COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of business. In the opinion of management, the amount of
liability, if any, with the respect to these actions would not materially affect
the financial position of the Company or its results of operation.
An action was filed against the Company, Exxon Pipeline Company ("Exxon"),
National Energy Group, Inc. ("NEG"), Mendoza Marine, Inc., Shell Western
Exploration & Production, Inc. ("Shell") and the Louisiana Department of
Transportation and Development. The petition was filed in August 1998, and
alleges that, in 1997 and perhaps earlier, leaks from a buried crude oil
pipeline contaminated the plaintiff's property.
9
Pursuant to the purchase and sale agreement between the Company and NEG,
NEG is required to indemnify the Company from any damages attributable to NEG's
operations on the property after the sale. However, NEG is in Chapter 11
bankruptcy proceedings, and so any action by the Company to assert its indemnity
rights against NEG is currently stayed. Counsel for the Company have prepared
and may file a motion to lift the stay so that the Company may assert its
indemnification rights against NEG. But even if the Company is successful in
proving its right to indemnity, NEG's judgementworthiness is questionable
because of the bankruptcy.
Pursuant to another purchase and sale agreement, the Company may owe
indemnity to Shell and Exxon, from which it had acquired the property prior to
selling same to NEG. The Company may have insurance coverage for the claims
asserted in the petition, and has notified or is in the process of notifying all
insurance carriers that might provide coverage under their policies. Some
discovery has occurred in the case, but discovery is not yet complete.
Therefore, at this point it is not possible to evaluate the likelihood of an
unfavorable outcome, or to estimate the amount or range of potential loss.
Note 7 - LONG-TERM DEBT
The Company's source of short-term borrowings for working capital and
general corporate purposes is its revolving credit facility (the "Bank
Facility"). The Bank Facility has a first mortgage on substantially all of its
oil and gas assets and has a borrowing base determined by the future estimated
discounted cash flows from those assets. Through September 30, 1999 this
facility was provided by First Union National Bank ("First Union"), as Agent and
Paribas. The First Union Bank Facility was based primarily on the proved
developed producing value only of the Company's reserves and had a borrowing
base at September 30, 1999 of $21 million, subject to a review of its reserves
as of July 1, 1999. The First Union Bank Facility contained restrictive
covenants that management believed the Company would violate during the
succeeding year. With the probability that the covenants would be violated and
the inability to immediately repay the balance of the Bank Facility were the
banks to require it, the Company classified the amounts outstanding under the
previous Bank Facility as current. The borrowing base under the First Union Bank
Facility also prohibited the Company from developing its properties, thereby
increasing its production and reserves.
Effective September 30, 1999 the Company replaced the First Union Bank
Facility with a new $60 million Bank Facility, provided by Foothill Capital
Corporation, as Agent for the lenders. This new Bank Facility provides a larger
borrowing base by including more of the proved non-producing and proved
undeveloped reserve categories in the borrowing base. The new borrowing base at
September 30 was $49 million, with availability of $20 million. The covenants
are also less restrictive in the new Bank Facility under which the Company
believes it will maintain compliance with throughout the term of the facility.
The principal amount of the loan is due September 30, 2001, with an option
to extend the term for two additional six-month periods. At no time may the
Company have outstanding borrowings in excess of its borrowing base. Interest on
the loan is computed at the bank's prime rate up to the prime rate plus 0.5 to
3.0% (depending upon the percentage of the facility being used). The Bank
Facility provides for the establishment of a cash collateral account, as
described in the agreement, with the Agent. The cash collateral account provides
for reductions of the line as cash is received in the account from the Company's
deposits under certain conditions provided in the agreement.
The Bank Facility contains certain covenants including a requirement to
maintain a positive indebtedness to cash flow ratio, a positive working capital
ratio, capital expenditure limitations and certain minimum and maximum levels of
10
<PAGE>
hedging activity. The agreement also provides certain limitations on future
debt, guarantees, liens, dividends, mergers, and sale of assets. The Company has
classified this debt as long term as it is currently in compliance with the
terms of the Bank Facility and it is probable that it will remain in compliance
with all of the covenants throughout the term of the facility. The failure to
satisfy these covenants, or any of the other covenants in the Bank Facility
would constitute an event of default thereunder and may permit the lenders to
accelerate the indebtedness outstanding under the Bank Facility and demand
immediate payment thereof. In such event, the Company could be required to sell
certain oil and gas assets, sell equity securities or obtain additional bank
financing. No assurance can be given that such transactions can be consummated
on terms acceptable to the Company or its lenders, whose approval may be
required. In this situation, if the Company is unable to raise the necessary
funds, the Company could become in default on the full amount of its
indebtedness, which includes the Senior Notes. The holders of the Senior Notes
have acceleration rights, subject to certain grace periods, if the Company is in
default under the Bank Facility. Due to the restrictive covenants and borrowing
base limitations imposed by the Bank Facility the Company is evaluating several
alternative sources of funding to improve its current liquidity and to provide
resources for continued reserve growth.
Note 8 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCTING ACTIVITIES
The reserve information presented in the following table was prepared by
the Company based upon reports of independent petroleum engineers and are
estimates only and should not be construed as being exact amounts. All reserves
presented are proved reserves that are defined as estimated quantities which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions.
Proved developed and undeveloped reserves Oil Gas
- ----------------------------------------- (Bbls) (Mcf)
------ -----
December 31, 1998 7,454,000 81,249,000
Extensions and discoveries 1,768,000 10,176,000
Production (863,000) (8,383,000)
--------- ----------
Estimated reserves at September 30, 1999 8,359,000 83,042,000
========= ==========
No major discovery or other favorable or adverse event has caused a
significant change in the estimated proved reserves since September 30, 1999.
The Company does not have proved reserves applicable to long-term supply
agreements with governments or authorities. All proved reserves are located in
the United States.
11
<PAGE>
PART I
Item 2.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-looking Statements
Forward-looking statements in this Form 10-Q, future filings by the Company
with the Securities and Exchange Commission, the Company's press releases and
oral statements by authorized officers of the Company are intended to be subject
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that all forward-looking statements involve risks
and uncertainty, including without limitation, the risk of a significant natural
disaster, the inability of the Company to insure against certain risks, the
adequacy of its loss reserves, fluctuations in commodity prices, the inherent
limitations in the ability to estimate oil and gas reserves, changing government
regulations, as well as general market conditions, competition and pricing. The
Company believes that forward-looking statements made by it are based upon
reasonable expectations. However, no assurances can be given that actual results
will not differ materially from those contained in such forward-looking
statements. The words "estimate," "anticipate," "expect," "predict," "believe"
and similar expressions are intended to identify forward-looking statements.
General
The oil and gas industry has experienced significant volatility in recent
years because of the fluctuating relationship of the supply of most fossil fuels
relative to the demand for such products and other uncertainties in the world
energy markets. These industry conditions should be considered when this
analysis of the Company's operations is read.
In September 1999 the Company received notification that shares of its
common stock would no longer be listed on the NASDAQ market due to its inability
to meet continued listing requirements. This may reduce the Company's visibility
and volume of its stock that is traded, however, since notification the
Company's common stock has continued to be actively traded on the OTC Bulletin
Board.
Liquidity and Capital Resources
The Company's board of directors approved a $35 million capital budget for
1999 subject to regular review by management and the board. The Company
estimates that it will spend $25 million, excluding acquisitions, in 1999
primarily on the development of its oil and gas properties. A limited amount of
its capital budget will be spent on exploratory projects. The capital budget
will be funded by cash flows from operations and borrowings under its new line
of credit, see "Bank Facility." The Company estimates that its capital budget
for 2000, excluding acquisitions will be $25 million, the majority of which will
be funded from cash flows from operations.
The Company's working capital improved approximately $1.5 million from June
30, 1999 primarily due to improved product prices and reduced capital
expenditures during the third quarter of 1999. The Company expects it to
continue to improve during the remainder of 1999. The Company's new Bank
12
<PAGE>
Facility provides an availability of $20 million at September 30, 1999, allowing
it to keep a minimum amount of cash on hand. The Company maintains a policy of
keeping a limited amount of cash on hand in order to reduce its interest costs.
Bank Facility
The Company's source of short-term borrowings for working capital and
general corporate purposes is its Bank Facility. The Bank Facility has a first
mortgage on substantially all of its oil and gas assets and has a borrowing base
determined by the future estimated discounted cash flows from those assets.
Through September 30, 1999 this facility was provided by First Union National
Bank ("First Union"), as Agent and Paribas. The First Union Bank Facility was
based primarily on the proved developed producing value only of the Company's
reserves and had a borrowing base at September 30, 1999 of $21 million, subject
to a review of its reserves as of July 1, 1999. The First Union Bank Facility
contained restrictive covenants that management believed the Company would
violate during the succeeding year. With the probability that the covenants
would be violated and the inability to immediately repay the balance of the Bank
Facility were the banks to require it, the Company classified the amounts
outstanding under the previous Bank Facility as current. The borrowing base
under the First Union Bank Facility also prohibited the Company from developing
its properties, thereby increasing its production and reserves. This lack of
development is represented by the production decreases for the nine months and
three months ended September 30, 1999.
Effective September 30, 1999 the Company replaced the First Union Bank
Facility with a new $60 million Bank Facility, provided by Foothill Capital
Corporation, as Agent for the lenders. This new Bank Facility provides a larger
borrowing base by including more of the proved non-producing and proved
undeveloped reserve categories in the borrowing base. The new borrowing base at
September 30 was $49 million, with availability of $20 million. The covenants
are also less restrictive in the new Bank Facility under which the Company
believes it will maintain compliance with throughout the term of the facility.
The principal amount of the loan is due September 30, 2001, with an option
to extend the term for two additional six-month periods. At no time may the
Company have outstanding borrowings in excess of its borrowing base. Interest on
the loan is computed at the bank's prime rate up to the prime rate plus 0.5 to
3.0% (depending upon the percentage of the facility being used). The Bank
Facility provides for the establishment of a cash collateral account, as
described in the agreement, with the Agent. The cash collateral account provides
for reductions of the line as cash is received in the account from the Company's
deposits under certain conditions provided in the agreement.
The Bank Facility contains certain covenants including a requirement to
maintain a positive indebtedness to cash flow ratio, a positive working capital
ratio, capital expenditure limitations and certain minimum and maximum levels of
hedging activity. The agreement also provides certain limitations on future
debt, guarantees, liens, dividends, mergers, and sale of assets. The Company has
classified this debt as long term as it is currently in compliance with the
terms of the Bank Facility and it is probable that it will remain in compliance
with all of the covenants throughout the term of the facility. The failure to
satisfy these covenants, or any of the other covenants in the Bank Facility
would constitute an event of default thereunder and may permit the lenders to
accelerate the indebtedness outstanding under the Bank Facility and demand
immediate payment thereof. In such event, the Company could be required to sell
certain oil and gas assets, sell equity securities or obtain additional bank
financing. No assurance can be given that such transactions can be consummated
on terms acceptable to the Company or its lenders, whose approval may be
required. In this situation, if the Company is unable to raise the necessary
funds, the Company could become in default on the full amount of its
indebtedness, which includes the Senior Notes. The holders of the Senior Notes
have acceleration rights, subject to certain grace periods, if the Company is in
default under the Bank Facility. Due to the restrictive covenants and borrowing
base limitations imposed by the Bank Facility the Company is evaluating several
alternative sources of funding to improve its current liquidity and to provide
resources for continued reserve growth.
13
<PAGE>
Property Acquisition
On May 14, 1998 the Company entered into a definitive agreement with BP
Exploration and Oil, Inc. (the "BP Acquisition") to acquire BP's 100% working
interest in East Breaks Blocks 165 and 209 and 75% working interest in High
Island Block 587. The acquisition was accounted for using the purchase method
and closed on May 26, 1998. PANACO became the operator of all three blocks
effective June 1, 1998. The Company acquired the properties for $19.6 million in
cash. Included in the acquisition is the production platform, located in 863
feet of water in East Breaks Block 165. The Company also acquired 31.72 miles of
12" pipeline, with capacity of over 20,000 barrels of oil per day, which ties
the production platform to the High Island Pipeline System, the major oil
transportation system in the area. It also acquired 9.3 miles of 12 3/4"
pipeline, which ties the production platform to the High Island Offshore System,
the major gas transportation system in the area.
Senior Note offering
On October 9, 1997, the Company issued $100.0 million principal amount of
10 5/8% Senior Notes due October 1, 2004. Interest on the Notes is payable
semi-annually in arrears on each April 1 and October 1, commencing April 1,
1998. Of the $96.2 million net proceeds, $55.5 million was used to repay
substantially all of the Company's outstanding indebtedness with the remaining
$40.7 million used for capital expenditures and the BP Acquisition.
Commodity price hedges
In 1999 the Company's natural gas hedge transactions are based upon
published gas pipeline index prices. The Company has natural gas hedged in
quantities ranging from 7,300 to 37,300 MMbtu per day in each month in 1999 for
a total of 8,770,000 MMbtu, at pipeline prices averaging approximately $1.99 per
MMbtu, for a NYMEX equivalent of approximately $2.14 per MMbtu. The Company has
hedged 218 MMbtu for each day in 2000 at an average pipeline index swap price of
$1.87.
The Company has hedged a total of 540,000 bbls of oil in 1999 at an average
NYMEX West Texas Intermediate equivalent floor price of $15.34 per bbl. The
number of hedged bbls per day ranges from 232 to 2,232. Of the oil hedged, 1,000
bbls per day have a floor price of $15.00 per bbl and a cap price of $19.12 per
bbl and another 1,000 bbls per day have a floor price of $15.00 per bbl and a
cap price of $17.50 per bbl. If the NYMEX equivalent prices exceed the cap price
for the period in which the Company has a cap price in effect, the Company must
pay the difference to the company that effected the swap for the total number of
bbls hedged. The Company has hedged 232 Bbls of oil for each day in 2000 at an
average price of $17.35 per Bbl.
On December 31, 1998 the Company's open hedge positions had fair values, or
estimated future gains, of $1.8 million, to be realized over the periods hedged.
Due to increases in NYMEX future commodity prices since the inception date of
the respective hedge agreements, as of September 30, 1999, the fair value of
these agreements is a $2.1 million loss. A 10% increase in oil and natural gas
prices would increase this loss to $3.1 million.
The Company produces and sells natural gas, oil and natural gas liquids. As
a result, its financial results can be significantly affected by changes in
these commodity prices. The Company uses derivative financial instruments to
hedge its exposure to changes in the market price of natural gas and oil. While
commodity financial instruments are intended to reduce the Company's exposure to
declines in these market prices, the commodity financial instruments may also
limit the Company's gains from increases in the market price of natural gas and
oil. As a result, gains and losses on commodity financial instruments are
generally offset by similar changes in the realized prices of natural gas and
14
<PAGE>
oil. Gains or losses on these transactions are recognized in the production
month to which a hedge contract relates.
Restricted deposits
Pursuant to existing agreements the Company is required to deposit funds in
bank trust and escrow accounts to provide a reserve against satisfaction of its
eventual responsibility to plug and abandon wells and remove structures when
certain fields no longer produce oil and gas. The Company has entered into an
escrow agreement with Amoco Production Company under which the Company deposits,
for the life of the fields, in a bank escrow account ten percent (10%) of the
net cash flow, as defined in the agreement, from the Amoco properties. The
Company has established the "PANACO East Breaks 110 Platform Trust" in favor of
the Minerals Management Service of the U.S. Department of the Interior. This
trust required an initial funding of $846,720 in December 1996, and remaining
deposits of $244,320 due at the end of each quarter in 1999 and $144,000 due at
the end of each quarter in 2000 for a total of $2.4 million. In connection with
the BP Acquisition, the Company deposited $1.0 million into an escrow account on
July 1, 1998. On the first day of each quarter thereafter, the Company deposits
$250,000 into the escrow account until the balance in the escrow account reaches
$6.5 million. In addition, the Company has $9.3 million in surety bonds to
secure its plugging and abandonment operations.
Capital expenditures
Capital expenditures totaled $17.9 million for the first nine months of
1999, which represents a 67% decrease from the $54.8 million of capital
expenditures incurred in the comparable period of 1998. The capital expenditures
incurred in 1999 were primarily for the development of the East Breaks 165
Field, which was acquired in May 1998, and property acquisition and well costs
incurred in the Price Lake Field (Stallion prospect) and North Cowards Gully
Field. These expenditures were funded with cash flows from operations and
borrowings under the Bank Facility, accounting for the $29.1 million increase in
debt outstanding at September 30, 1999. The decrease in capital expenditures is
primarily due to the decrease in availability of capital resources from lower
commodity prices. The Company's total capital budget for 1999 is $25.0 million,
the majority of which has already been expended or committed to spend.
Property sales
The Company began a program in 1999 to sell its non-core properties to fund
capital expenditures and allow it to concentrate its resources on those
properties upon which management believes will provide better returns and add
more value to its shareholders. These properties are primarily onshore,
non-operated properties in which the Company has small ownership percentages.
During the third quarter of 1999 the Company received sales proceeds totaling
$378,000 and estimates that it will receive an additional $375,000 to $700,000
during the remainder of 1999.
Results of Operations
For the nine months ended September 30, 1999 and 1998:
"Oil and natural gas sales" decreased 22% for the first nine months of 1999
primarily due to a 24% decrease in total production. Natural gas production
decreased 42% in 1999 while oil production increased 44%.
15
<PAGE>
Production. Natural gas production decreased 42%, to 8.4 billion cubic feet
("Bcf") in 1999, from 14.3 Bcf in 1998. The West Delta Fields, the High Island
309 Fields and the Umbrella Point Field accounted for the majority of the
decrease. West Delta production decreased 1.6 Bcf due to shut-ins earlier in
1999 while the pipeline owned by Tennessee Gas Pipeline was repaired along with
the natural production decline of the wells. High Island 309 production
decreased 3.5 Bcf from 1998 also due to natural production declines, which was
further complicated by compressor problems on both the High Island 309 and 310
platforms. Also, production from the Umbrella Point Field was accelerated in
1998 with the successful completion of the SL 74#10 well in January 1998. This
well produced as much as 27 MMcf per day in 1998 and has reduced since then. The
change in production from 1998 was a reduction of 1.2 Bcf. These decreases were
somewhat offset by an addition of 1.2 Bcf for the first nine months of 1999 from
the East Breaks 165 Fields. The Fields were acquired in May 1998 and produced
for a full nine months in 1999.
Oil production increased 44% in 1999 to 863,000 barrels, from 601,000
barrels in 1998. The significant factor in the increased oil production was the
acquisition of the East Breaks 165 Field in May 1998, which is primarily an oil
field.
Prices. Average natural gas prices, including the impacts of hedging
transactions, decreased 7% in 1999, from $2.05 per Mcf in 1998 to $1.90 in 1999.
The Company recognized $2.0 million in natural gas hedge losses in 1999 which
had the effect of decreasing the natural gas price realized by $0.24 per Mcf.
During 1998, a gain of $0.5 million was recognized, which increased the average
price received by $0.03. The Company has natural gas hedged in quantities
ranging from 7,300 to 37,300 MMbtu per day in each month in 1999 for a total of
8,770,000 MMbtu, at pipeline prices averaging approximately $1.99 per MMbtu, for
a NYMEX equivalent of approximately $2.14 per MMbtu.
Average oil prices, including the impacts of hedging transactions,
increased 8%, to $16.27 per barrel, from $15.05 per barrel in 1998. Oil hedge
losses of $0.5 million in 1999 had the effect of decreasing the average net oil
price realized by $0.63 per barrel, while the average price per barrel was
increased by $2.26 in 1998 with hedge gains of $1.4 million. The Company has
hedged a total of 540,000 bbls of oil in 1999 at an average NYMEX West Texas
Intermediate equivalent floor price of $15.34 per bbl. The number of hedged bbls
per day ranges from 232 to 2,232. Of the oil hedged, 1,000 bbls per day have a
floor price of $15.00 per bbl and a cap price of $19.12 per bbl and another
1,000 bbls per day have a floor price of $15.00 per bbl and a cap price of
$17.50 per bbl. If the NYMEX equivalent prices exceed the cap price for the
period in which the Company has a cap price in effect, the Company must pay the
difference to the company that effected the swap for the total number of bbls
hedged.
"Lease operating expense" decreased $0.9 million or 7% in 1999. Due to
lower production, these expenses increased to 41% of oil and natural gas sales,
from 35% in 1998. On an Mcf equivalent ("Mcfe") basis, lease operating expenses
also increased from $0.74 in 1998 to $0.91 in 1999.
"Depletion, depreciation and amortization" decreased $6.4 million in part
due to a lower unit of production cost in 1999, in conjunction with a decrease
in production. The amount per Mcfe decreased from $1.39 in 1998 to $1.36 in
1999.
"General and administrative expense" decreased $281,000 in 1999 primarily
due to a provision for bad debts incurred in 1998 and cost savings from a
consolidation of offices, offset somewhat by an increase in outside legal fees
incurred in connection with various corporate legal matters during the first
quarter of 1999. The Company resolved several of these matters during the second
quarter and anticipates a reduction in these fees for the remainder of 1999.
16
<PAGE>
"Exploratory dry hole expense" decreased $4.9 million in 1999 as a result
of the Company's decreased exploratory well participation in 1999. While the
Company believes that its continued participation in a modest amount of
exploratory activities is an important factor in increasing shareholder value,
the amount budgeted for 1999 is significantly less than that incurred during
1998.
"Impairment of oil and gas properties" is a result of the Company's regular
review of the recoverability of the property costs incurred from the estimated
future net cash flows related to those assets. The impairment incurred in 1999
is a result of the decision by the Company to not develop the unproved reserves
on those properties that had been allocated unproved property values in
connection with acquisitions made in 1996 and 1997.
"Geological and geophysical expense" decreased in 1999 as a result of
reduced seismic acquisition costs and lower salaries and contract labor
expenses.
"Interest income" decreased primarily due to a decrease in cash on hand in
1999 versus the comparable period of 1998. The interest income earned in 1998
related to the excess proceeds from the Company's Senior Note offering completed
in October 1997. These excess proceeds were utilized in May 1998 for the BP
Acquisition.
"Interest expense" increased due to higher average borrowings outstanding
under the Bank Facility primarily for capital expenditures.
"Extraordinary Item-Loss on early retirement of debt" reflects the
replacement of the Company's revolving credit facility prior to its maturity and
the resulting write-off of the remaining associated deferred costs.
"Income tax benefit" decreased in 1999 due to the complete elimination of a
deferred income tax liability recorded in connection with an acquisition in
1997. The Company has not recorded a deferred income tax asset to date based on
uncertainty regarding its future utilization of over $40.2 million in net
operating loss carryforwards.
For the three months ended September 30, 1999 and 1998:
"Oil and natural gas sales" decreased 28% for the third quarter of 1999 due
to a 41% decrease in total production. Natural gas production decreased 59% in
1999 while oil production increased 12%.
Production. Natural gas production decreased 59%, to 2.1 Bcf in 1999, from
5.0 Bcf in 1998. Production declines as discussed above in the Umbrella Point
Field (1.4 Bcf); the High Island 309 Fields (1.1 Bcf) and the West Delta Fields
(0.5 Bcf) accounted for the majority of the decrease. Successful development of
the East Breaks 165 Fields increased natural gas production by 0.3 Bcf during
the third quarter of 1999. In addition, production from the West Cameron 172
Field and Ship Shoal 111 Field, two successful exploratory discoveries in late
1998, added 0.3 Bcf of new natural gas production in 1999 versus the same period
in 1998.
Oil production increased 12% in 1999 to 312,000 barrels, from 280,000
barrels in 1998. The primary factor in the increased oil production was also the
successful development of the East Breaks 165 Fields.
Prices. Average natural gas prices, including the impacts of hedging
transactions, increased 2% in 1999, from $2.02 per Mcf in 1998 to $2.06 in 1999.
The Company recognized natural gas hedge losses of $1.8 million in 1999 that had
the effect of decreasing the natural gas price realized by $0.86 during the
17
<PAGE>
third quarter. Hedge gains of $0.6 million increased the price realized by $0.12
per Mcf during the third quarter of 1998. The Company has natural gas hedged in
quantities ranging from 7,300 to 37,300 MMbtu per day in each month in 1999 for
a total of 8,770,000 MMbtu, at pipeline prices averaging approximately $1.99 per
MMbtu, for a NYMEX equivalent of approximately $2.14 per MMbtu.
Average oil prices, including the impacts of hedging transactions,
increased 32%, to $18.91 per barrel, from $14.29 per barrel in 1998. The 1999
oil hedge program had the effect of decreasing the average net oil price
realized by $2.05 per barrel with total hedge losses of $0.6 million. Oil hedge
gains in 1998 increased the average realized price by $2.01 per barrel. The
Company hedged a total of 540,000 bbls of oil in 1999 at an average NYMEX West
Texas Intermediate equivalent floor price of $15.34 per bbl. The number of
hedged bbls per day ranges from 232 to 2,232. Of the oil hedged, 1,000 bbls per
day have a floor price of $15.00 per bbl and a cap price of $19.12 per bbl and
another 1,000 bbls per day have a floor price of $15.00 per bbl and a cap price
of $17.50 per bbl. If the NYMEX equivalent prices exceed the cap price for the
period in which the Company has a cap price in effect, the Company must pay the
difference to the company that effected the swap for the total number of bbls
hedged.
"Lease operating expense" decreased $0.7 million or 14% in 1999. Due to
lower production, however, lease operating expense increased to 39% of oil and
natural gas sales, from 33% in 1998. On an Mcfe basis, these expenses also
increased from $0.69 in 1998 to $1.01 in 1999.
"Depletion, depreciation and amortization" decreased $2.8 million
principally due to lower production in 1999. The cost per Mcfe increased
slightly, from $1.34 in 1998 to $1.56 in 1999.
"Exploratory dry hole expense" decreased $0.8 million in 1999 as a result
of the Company's decreased exploratory well participation in 1999. While the
Company believes that its continued participation in a modest amount of
exploratory activities is an important factor in increasing shareholder value,
the amount budgeted for 1999 is significantly less than that incurred during
1998.
"Impairment of oil and gas properties" is a result of the Company's regular
review of the recoverability of the property costs incurred from the estimated
future net cash flows related to those assets. The impairment incurred in 1999
is a result of the decision by the Company to not develop the unproved reserves
on those properties that had been allocated unproved property values in
connection with acquisitions made in 1996 and 1997.
"Geological and geophysical expense" decreased in 1999 as a result of
reduced seismic acquisition costs and lower salaries and contract labor
expenses.
"Interest income" decreased primarily due to a decrease in cash on hand in
1999 versus the comparable period of 1998. The interest income earned in 1998
related to the excess proceeds from the Company's Senior Note offering completed
in October 1997.
"Interest expense" increased due to higher average borrowings outstanding
under the Bank Facility primarily for capital expenditures.
"Extraordinary Item-Loss on early retirement of debt" reflects the
replacement of the Company's revolving credit facility prior to its maturity and
the resulting write-off of the remaining associated deferred costs.
18
<PAGE>
Year 2000 Issue
The various problems that may result from the use of date codes in software
and other machinery is referred to as the "Year 2000 Issue." The once common
practice of using a two-digit identifier for the year in a date may cause a
program or system to become faulty or inoperative on or prior to January 1,
2000. This document serves as an informational disclosure regarding the Y2K
assessment activities for the Company under the Year 2000 Information and
Readiness Disclosure Act of 1998.
The Company established a program during 1998 to ensure that, to the extent
reasonably possible, all systems are or will be Year 2000 ready prior to the end
of 1999. The Year 2000 Program ("Y2K Program"), designed with the assistance of
an outside consultant, consists of five phases: (a) Assessment -which includes
compiling an inventory of assets, including significant third-party supplier and
customer relationships, (b) Repair/Upgrade/Replace -including an analysis of the
assets to determine compliance or non-compliance and repairing, upgrading or
replacing those that are non-compliant, (c) Compliance Testing, (d) Contingency
Planning, and (e) Roll-over Planning.
A team consisting of the Company's managers of Information Technology,
Finance and Operations has been established as the Year 2000 Compliance Project
Team. With the assistance of its outside consultant, the Team has designed an
aggressive schedule to identify information technology ("IT") and non-IT assets
requiring readiness upgrades, and a timetable for performance and testing of the
affected systems. In addition, the Y2K Program calls for validation of
compliance by significant suppliers and customers.
Once identified, detailed remediation steps will be scheduled to ensure
that internal systems and significant external suppliers and customers meet Y2K
compatibility requirements, or that sufficient contingency plans are in place.
Current Status
As of November 1999, the Company's Year 2000 assessment is complete. An
inventory of computing, communications and facility systems has been prepared
and validated. Significant third-party suppliers and customers have also been
identified for validation.
The Company has completed the inventory for both its IT and non-IT systems.
The Y2K Program called for the completion of all phases for both IT and non-IT
systems by year-end 1999. It did not identify any mission critical systems that
were not Y2K compliant.
The Company has performed a review of significant third party suppliers,
customers and purchasers and, where available, is surveying the public Year 2000
statements issued by them. Additionally, it has sent questionnaires to certain
third party suppliers and customers requesting information regarding their
vulnerability to Year 2000 issues. The Company has received appropriate
responses to these inquiries and has evaluated the responses to determine if
alternate business actions will be necessary. Management believes that its
mission critical vendors are prepared for the Year 2000 issue.
Costs
The estimated total costs for Y2K readiness has been nominal. It is
anticipated that such costs for complete Y2K readiness will continue to be
nominal. In addition, there have been no material capital expenditures for Y2K
and there is not anticipated to be material capital expenditures, as it is
believed at this point that most major critical field operations do not have
date sensitive equipment. The Company does not separately track the internal
19
<PAGE>
costs incurred for the Y2K project as such costs are principally the related
payroll costs for its information systems group. Remediation and testing is
scheduled to be completed during the 4th quarter of 1999.
Contingency Plans
The Company has implemented contingency plans for what it believes to be
any potential problems that may arise including safety and platform operation
plans. The Company also maintains insurance for loss of revenues and potential
legal proceedings against the Company.
Risks
The failure to correct a Year 2000 problem could result in the interruption
or failure of certain normal business activities or operations. The Company
believes that the greatest risks lie in its (a) financial systems applications,
(b) embedded chips in field equipment, (c) and third parties. A significant Year
2000-related disruption in these systems could disrupt financial and accounting
functions, crude oil and natural gas production, transportation, and marketing
activities. This disruption could have a material adverse effect on the
Company's operating results and liquidity.
The Company is not presently aware of any Year 2000 issue that is likely to
result in any disruption. Although there is inherent uncertainty in the Year
2000 issue, the Company expects that its Y2K Program has reduced the level of
uncertainty about the impact of the Year 2000 issue.
Conclusion and Disclaimers
These estimates and conclusions contain forward-looking statements and are
based on management's best estimates of future events. PANACO's expectations
about risks, future costs, and the timely completion of its Year 2000
remediation are subject to uncertainties that could cause actual results to
differ materially from the statements made in this readiness disclosure.
The Company believes that its greatest risk from the Year 2000 Issue is a
failure by a third party supplier, pipeline, etc., to be Y2K compliant. Although
it has taken all of the steps it believes are necessary to insure against it,
these failures could materially disrupt its operations and financial condition.
There can be no assurances that the steps it has taken, including contingency
plans put in place, will prevent such a disruption.
Changes in Accounting Principles
Accounting for Derivatives Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and for Hedging
Activities," provides guidance for accounting for derivative instruments and
hedging activities. In July 1999, SFAS No. 137 "Deferring Statement 133's
Effective Date," was issued which delays the effective date for one year, to
fiscal years beginning after June 15, 2000. The Company has not yet completed an
evaluation of the impact of the provisions of SFAS No. 133.
20
<PAGE>
Other Contingencies
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of business. In the opinion of management, the amount of
liability, if any, with the respect to these actions would not materially affect
the financial position of the Company or its results of operation.
An action was filed against the Company, Exxon Pipeline Company ("Exxon"),
National Energy Group, Inc. ("NEG"), Mendoza Marine, Inc., Shell Western
Exploration & Production, Inc. ("Shell") and the Louisiana Department of
Transportation and Development. The petition was filed in August 1998, and
alleges that, in 1997 and perhaps earlier, leaks from a buried crude oil
pipeline contaminated the plaintiff's property.
Pursuant to the purchase and sale agreement between the Company and NEG,
NEG is required to indemnify the Company from any damages attributable to NEG's
operations on the property after the sale. However, NEG is in Chapter 11
bankruptcy proceedings, and so any action by the Company to assert its indemnity
rights against NEG is currently stayed. Counsel for the Company have prepared
and may file a motion to lift the stay so that the Company may assert its
indemnification rights against NEG. But even if the Company is successful in
proving its right to indemnity, NEG's judgementworthiness is questionable
because of the bankruptcy.
Pursuant to another purchase and sale agreement, the Company may owe
indemnity to Shell and Exxon, from which it had acquired the property prior to
selling same to NEG. The Company may have insurance coverage for the claims
asserted in the petition, and has notified or is in the process of notifying all
insurance carriers that might provide coverage under their policies. Some
discovery has occurred in the case, but discovery is not yet complete.
Therefore, at this point it is not possible to evaluate the likelihood of an
unfavorable outcome, or to estimate the amount or range of potential loss.
21
<PAGE>
PART II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.25 Amended and Restated Loan and Security
Agreement by and between PANACO, Inc. and PANACO
Production Company as Borrowers, and The Financial
Institutions Named Herein as the Lenders, and
Foothill Capital Corporation as Agent.
27 Financial Date Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PANACO, Inc.
Date: November 12, 1999 /s/ Todd R. Bart
------------------- ---------------------------------------
Todd R. Bart, Chief Financial Officer
<PAGE>
===============================================================================
Exhibit 10.25
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
by and between
PANACO, INC.
and
PANACO PRODUCTION COMPANY
as Borrowers,
and
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders,
and
FOOTHILL CAPITAL CORPORATION
as Agent
Dated as of September 30, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page(s)
1. DEFINITIONS AND CONSTRUCTION.............................................2
1.1 Definitions.......................................................2
1.2 Accounting Terms.................................................27
1.3 Code.............................................................27
1.4 Construction.....................................................27
1.5 Schedules and Exhibits...........................................27
1.6 The Term "Borrower" or "Borrowers"...............................27
2. LOAN AND TERMS OF PAYMENT...............................................28
2.1 Revolving Advances...............................................28
2.2 Letter of Credit Subfacility.....................................35
2.3 Hedging Arrangement Subfacility..................................39
2.4 Payments.........................................................43
2.5 Overadvances.....................................................44
2.6 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations.....................................................44
2.7 Collection of Accounts...........................................46
2.8 Crediting Payments; Application of Collections...................48
2.9 Designated Account...............................................49
2.10 Maintenance of Loan Account; Statements of Obligations...........49
2.11 Fees.............................................................49
2.12 Joint and Several Liability; Rights of Contribution..............50
3. CONDITIONS; TERM OF AGREEMENT...........................................51
3.1 Conditions Precedent to the Initial Advance, Letter of Credit
and Hedging Agreement Undertaking................................51
3.2 Conditions Precedent to all Advances, all Letters of Credit
and all Hedging Arrangements.....................................56
3.3 Condition Subsequent.............................................57
3.4 Term; Automatic Renewal..........................................57
3.5 Effect of Termination............................................58
3.6 Early Termination by Borrower....................................58
3.7 Termination Upon Event of Default................................59
4. CREATION OF SECURITY INTEREST...........................................59
4.1 Grant of Security Interest.......................................59
4.2 Negotiable Collateral............................................59
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral.......................................................59
4.4 Delivery of Additional Documentation Required....................60
4.5 Power of Attorney................................................60
4.6 Right to Inspect.................................................60
4.7 Control Agreements...............................................61
5. REPRESENTATIONS AND WARRANTIES..........................................61
5.1 No Encumbrances..................................................61
5.2 Eligible Proved Reserves; Ownership of Oil and Gas Properties....61
(i)
<PAGE>
5.3 Operations of Oil and Gas Properties.............................63
5.4 Equipment........................................................63
5.5 Location of Inventory and Equipment..............................63
5.6 Oil and Gas Property Collateral Records and Inventory Records....64
5.7 Location of Chief Executive Office; FEIN.........................64
5.8 Due Organization and Qualification; Subsidiaries.................64
5.9 Due Authorization; No Conflict...................................65
5.10 Claims, Disputes, and Litigation.................................66
5.11 No Material Adverse Change.......................................66
5.12 No Fraudulent Transfer...........................................66
5.13 Employee Benefits................................................67
5.14 Environmental Condition..........................................67
5.15 Compliance with the Law..........................................68
5.16 Insurance........................................................68
5.17 Hedging Agreement................................................69
5.18 Brokerage Fees...................................................69
5.19 Permits and other Intellectual Property..........................69
5.20 Year 2000 Compatibility..........................................70
5.21 Locations; Leases................................................70
5.22 Absence of Certain Changes.......................................70
5.23 Operating Costs..................................................71
5.24 Imbalances.......................................................71
5.25 No Default.......................................................71
5.26 Leases...........................................................71
5.27 Marketing Agreements.............................................72
5.28 Non-Consent Operations...........................................72
5.29 Condition of Equipment...........................................72
5.30 Wells............................................................72
6. AFFIRMATIVE COVENANTS...................................................72
6.1 Accounting System................................................72
6.2 Collateral Reporting.............................................73
6.3 Financial Statements, Reports, Certificates......................75
6.4 Tax Returns......................................................76
6.5 Guarantor Reports................................................76
6.6 [Intentionally Omitted]..........................................76
6.7 Title to Equipment...............................................76
6.8 Maintenance of Oil and Gas Property Collateral and Equipment;
Operation of Business............................................76
6.9 Taxes............................................................78
6.10 Insurance........................................................78
6.11 No Setoffs or Counterclaims......................................79
6.12 Location of Inventory and Equipment..............................80
6.13 Compliance with Laws.............................................80
6.14 Employee Benefits................................................80
6.15 Leases...........................................................81
(ii)
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6.16 Broker Commissions...............................................81
6.17. Oil and Gas Property Title Information...........................82
6.18 Additional Collateral............................................82
6.19 Hedging Agreements...............................................83
6.20 Further Assurances...............................................83
7. NEGATIVE COVENANTS......................................................83
7.1 Indebtedness.....................................................84
7.2 Liens............................................................85
7.3 Restrictions on Fundamental Changes..............................85
7.4 Disposal of Assets...............................................85
7.5 Change Name......................................................86
7.6 Guarantee........................................................86
7.7 Nature of Business...............................................86
7.8 Prepayments and Amendments.......................................86
7.9 Change of Control................................................86
7.10 Consignments.....................................................86
7.11 Distributions; Repurchases of Capital Stock......................87
7.12 Accounting Methods...............................................87
7.13 Investments......................................................87
7.14 Transactions with Affiliates.....................................87
7.15 Suspension.......................................................87
7.16 Compensation.....................................................87
7.17 Use of Proceeds..................................................88
7.18 Change in Location of Chief Executive Offices; Inventory and
Equipment........................................................88
7.19 No Prohibited Transactions Under ERISA...........................88
7.20 Financial Covenants..............................................89
7.21 Capital Expenditures.............................................89
7.22 Securities Accounts..............................................90
7.22 Securities Accounts..............................................90
7.24 Limited Business of with Atlantic and GAC........................90
8. EVENTS OF DEFAULT.......................................................90
9. THE LENDER GROUP'S RIGHTS AND REMEDIES..................................92
9.1 Rights and Remedies..............................................92
9.2 Remedies Cumulative..............................................94
10. TAXES AND EXPENSES......................................................94
11. WAIVERS; INDEMNIFICATION................................................95
11.1 Demand; Protest; etc.............................................95
11.2 The Lender Group's Liability for Collateral......................95
11.3 Indemnification..................................................95
12. NOTICES.................................................................95
13. Choice Of Law And Venue; Jury Trial Waiver..............................95
14. DESTRUCTION OF BORROWER'S DOCUMENTS.....................................95
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS..............................95
15.1 Assignments and Participations...................................95
15.2 Successors.......................................................95
(iii)
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16. AMENDMENTS; WAIVERS.....................................................95
16.1 Amendments and Waivers...........................................95
16.2 No Waivers; Cumulative Remedies..................................95
17. AGENT; THE LENDER GROUP.................................................95
17.1 Appointment and Authorization of Agent...........................95
17.2 Delegation of Duties.............................................95
17.3 Liability of Agent...............................................95
17.4 Reliance by Agent................................................95
17.5 Notice of Default or Event of Default............................95
17.6 Credit Decision..................................................95
17.7 Costs and Expenses; Indemnification..............................95
17.8 Agent in Individual Capacity.....................................95
17.9 Successor Agent..................................................95
17.10 Withholding Tax..................................................95
17.11 Collateral Matters...............................................95
17.12 Restrictions on Actions by Lenders; Sharing of Payments..........95
17.13 Agency for Perfection............................................95
17.14 Payments by Agent to the Lenders.................................95
17.15 Concerning the Collateral and Related Loan Documents.............95
17.16 Field Audits and Examination Reports; Confidentiality; Disclaimers
by Lenders; Other Reports and Information........................95
17.17 Several Obligations; No Liability................................95
18. GENERAL PROVISIONS......................................................95
18.1 Effectiveness....................................................95
18.2 Section Headings.................................................95
18.3 Interpretation...................................................95
18.4 Severability of Provisions.......................................95
18.5 Amendments in Writing............................................95
18.6 Counterparts; Telefacsimile Execution............................95
18.7 Revival and Reinstatement of Obligations.........................95
18.8 Integration......................................................95
18.9 Amendment and Restatement; Release...............................95
(iv)
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SCHEDULES AND EXHIBITS
Schedule A-1 Definition of Adjusted Consolidated Net Tangible Assets
Schedule C-1 Commitments
Schedule P-1 Permitted Liens
Schedule 2.7 Initial Collection Account Banks
Schedule 3.1(c)(iv) Oil and Gas Properties to be Covered by Oil and Gas
Property Mortgages at the Closing Date
Schedule 3.3(b) Properties to which Section 3.3(b) Conditions Subsequent
Apply
Schedule 3.3(c) Properties to which Section 3.3(c) Conditions Subsequent
Apply
Schedule 5.1(a) Certain Owned Oil and Gas Properties
Schedule 5.1(b) Net Revenue Interest
Schedule 5.1(c) Material Contract Rights & Obligations
Schedule 5.1(d) Non-Leasehold Asset Ownership
Schedule 5.2(e) Imbalances in Gas Production or "Take or Pay" Payments
Schedule 5.3 Operations of Mineral Interests
Schedule 5.8 Capital Stock/Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.16 Insurance
Schedule 5.17 Hedging Agreements
Schedule 5.19 Permits and Other Intellectual Property
Schedule 5.20 Y2K Compliance Timeline
Schedule 5.21 Certain Additional Locations of Collateral
Schedule 5.27 Certain Marketing Agreements
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Other Indebtedness
Schedule 7.4 Certain Oil and Gas Properties Borrower Intends to Sell
Exhibit A-1 Form of Agreement and Acceptance
Exhibit C-1 Form of Compliance Certificate
Exhibit P-1, 2 & 3 Forms of Prior Lenders Assignment Agreements
Exhibit T-1 Form of Transfer Order Letters
Exhibit 3.3 Mortgages, Opinions, Certificates and Certain Other
Required Items and Information
Exhibit 3.3(e) MMS/PANACO Correspondence (East Breaks 165)
Exhibit 6.2 Form of Borrowing Base Certificate
(v)
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement"),
is entered into as of September 30, 1999, among the financial institutions
listed on the signature pages hereof (such financial institutions, together with
their respective successors and assigns, are referred to hereinafter each
individually as a "Lender" and collectively as the "Lenders"), FOOTHILL CAPITAL
CORPORATION, a California corporation, as agent for the Lenders ("Agent"), with
a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los
Angeles, California 90025-3333; PANACO, INC., a Delaware corporation ("Panaco"),
with its chief executive office located at 1100 Louisiana, Suite 5100, Houston,
Texas 77002-5220; and PANACO PRODUCTION COMPANY, a Texas corporation ("PPC"),
with its chief executive office located at 1100 Louisiana, Suite 5100, Houston,
Texas 77002 (Panaco and PPC being hereinafter individually and collectively
referred to as "Borrower", as governed by Section 1.6).
RECITALS
A. Panaco, certain lenders (the "Prior Lenders"), First Union National
Bank, as Administrative Agent (the "Prior Administrative Agent"), and Paribas
(formerly known as Banque Paribas), as Documentation Agent (the "Prior
Documentation Agent"), are parties to that certain Amended and Restated Credit
Agreement dated as of October 9, 1997, as amended by that certain First
Amendment to Amended and Restated Credit Agreement, dated December 11, 1998,
that certain Second Amendment to Amended and Restated Credit Agreement, dated
March 31, 1999, and that certain Third Amendment to Amended and Restated Credit
Agreement, dated June 30, 1999 (such credit agreement, as amended, the "Prior
Credit Agreement").
B. Borrower has requested that (i) the Lenders assume the obligations of
the Prior Lenders under the Prior Credit Agreement, (ii) Agent assume the agency
responsibilities of the Prior Administrative Agent and the Prior Documentation
Agent under the Prior Credit Agreement, and (iii) Agent and the Lenders amend
and restate the Prior Credit Agreement and make credit available to Borrower on
the terms and conditions stated herein. It is Borrower's intention that, for
purposes of the Unsecured Notes Indenture (as defined below), this Agreement and
the other Loan Documents (as defined below) replace and succeed, but do not
constitute a novation of, the Prior Credit Agreement and thereby, solely as
among Panaco and the other parties to the Unsecured Notes Indenture, constitute
the Senior Credit Facility (as defined in the Unsecured Notes Indenture).
C. Contemporaneously with the above transactions, Agent is entering into
the Assignment and Acceptance Agreement wherein the assignment of the rights of
the Prior Lenders to the Agent, on behalf of the Lenders, is intended to be for
the ratable benefit of the Lenders.
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D. Agent and the Lenders, subject to the terms and conditions stated
herein, are willing to amend and restate the Prior Credit Agreement and to make
such credit facilities available.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 As used in this Agreement, the following terms shall have the following
definitions:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower or any of
its Subsidiaries arising out of the sale or lease of goods, Hydrocarbons or Oil
and Gas Properties or the rendition of services by Borrower or any of its
Subsidiaries, irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor.
"Adjusted Consolidated Net Tangible Assets" has the meaning given to such
term in Schedule A-1. "Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who directly
or indirectly controls, is controlled by, is under common control with or is a
director or officer of such Person. For purposes of this definition, "control"
means the possession, directly or indirectly, of the power to vote 5% or more of
the securities having ordinary voting power for the election of directors or the
direct or indirect power to direct the management and policies of a Person.
"Agent" means Foothill, solely in its capacity as agent for the Lenders,
and shall include any successor agent.
"Agent Account" means an account at a bank designated by Agent from time to
time as the account into which Borrower shall make all payments to Agent for the
benefit of the Lender Group, and into which the Lender Group shall make all
payments to Agent, under this Agreement and the other Loan Documents. Initially,
unless and until Agent notifies Borrower and the Lender Group to the contrary,
the Agent Account shall be that certain deposit account bearing account number
323-266193 and maintained by Agent with The Chase Manhattan Bank, N.A., 4 New
York Plaza, 15th Floor, New York, New York 10004, ABA #021-000-021.
"Agent Advances" has the meaning set forth in Section 2.1(g).
2
<PAGE>
"Agent's Liens" has the meaning set forth in Section 4.1.
"Agent-Related Persons" means Agent and any successor agent, together with
their respective Affiliates, and the officers, directors, employees, counsel,
agents, and attorneys-in-fact of such Persons and their Affiliates.
"Agreement" has the meaning set forth in the preamble hereto.
"Arranging Institution" has the meaning set forth in Section 2.3(a).
"Assignee" has the meaning set forth in Section 15.1.
"Assignment and Acceptance" has the meaning set forth in Section 15.1 and
shall be in the form of Exhibit A-1 attached hereto.
"Atlantic" means Atlantic Offshore Insurance, Ltd., a Barbados corporation.
"Authorized Person" means any officer or other employee of Borrower.
"Availability" means the amount that Borrower is entitled to borrow as
Advances under Section 2.1, such amount being the difference derived when (a)
the sum of the principal amount of Advances (including Agent Advances and
Foothill Loans) then outstanding (including any amounts that the Lender Group
may have paid for the account of Borrower pursuant to any of the Loan Documents
and that have not been reimbursed by Borrower) is subtracted from (b) the least
of (i) the Maximum Revolving Amount less the aggregate amount of all Letter of
Credit/Hedging Arrangement Usage, or (ii) the Borrowing Base less (A) the
aggregate amount of all Letter of Credit/Hedging Arrangement Usage, less (B) the
aggregate amount of the Reserves Against Availability or (iii) the Unsecured
Note Indebtedness Limitation.
If the Revolving Facility Usage is equal to or greater than the least of the
Borrowing Base, the Maximum Revolving Amount or the Unsecured Note Indebtedness
Limitation, then the Availability is zero (-0-).
"Average Unused Portion of Maximum Revolving Amount" means, as of any date
of determination, (a) the Maximum Revolving Amount, less (b) the sum of (i) the
average Daily Balance of Advances that were outstanding during the immediately
preceding month, plus (ii) the average Daily Balance of the Letter of
Credit/Hedging Arrangement Usage during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. 101 et
seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35)
of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.
3
<PAGE>
"Books" means all of Borrower's and its Subsidiaries' books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
and its Subsidiaries' properties or assets (including the Collateral) or
liabilities, including but not limited to well logs and seismographic reports;
all information relating to Borrower's and its Subsidiaries' business operations
or financial condition; and all computer programs, disk or tape files,
printouts, runs, or other computer prepared information.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrowing" means a borrowing hereunder consisting of Advances made on the
same day by the Lenders to a Borrower, or by Foothill in the case of a Foothill
Loan, or by Agent in the case of an Agent Advance.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Borrowing Request" has the meaning set forth in Section 2.1(c).
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time as (a) a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 30% of the total voting power of all classes of stock then
outstanding of Panaco entitled to vote in the election of directors or (b) a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than Panaco becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of any voting power of any class of stock then outstanding of GAC
or Atlantic entitled to vote in the election of directors or (c) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) other than Panaco or GAC becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of any voting power of any class of stock then outstanding of PPC
entitled to vote in the election of directors.
"Closing Date" means the date of the first to occur of the making of the
initial Advance or the issuance of the initial Letter of Credit. "Code" means
the New York Uniform Commercial Code.
"Collateral" means all of Borrower's right, title, and interest in and to
each of the following:
(a) the Accounts,
4
<PAGE>
(b) the Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Investment Property,
(g) the Negotiable Collateral,
(h) the Oil and Gas Properties,
(i) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of any member of the
Lender Group, and
(j) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, the Books, Equipment,
General Intangibles, Inventory, Investment Property, Negotiable Collateral, Oil
and Gas Properties, money, deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"Collateral Access Agreement" means a landlord waiver or consent, mortgagee
waiver or consent, bailee letter, or a similar acknowledgement agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Equipment, Inventory,
or Oil and Gas Properties, in each case, in form and substance satisfactory to
Agent.
"Collections" means all cash, checks, notes, instruments, and other items
of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Commitment" means, at any time with respect to a Lender, the principal
amount set forth beside such Lender's name under the heading "Commitment" on
Schedule C-1 attached hereto or on the signature page of the Assignment and
Acceptance pursuant to which such Lender became a Lender hereunder in accordance
with the provisions of Section 15.1, as such Commitment may be adjusted from
time to time in accordance with the provisions of Section 15.1, and
"Commitments" means, collectively, the aggregate amount of the commitments of
all of the Lenders.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit C-1 and delivered by the chief accounting officer of Panaco, on behalf
of Borrowers, to Agent.
5
<PAGE>
"Consolidated Current Assets" means, as of any date of determination, the
aggregate amount of all current assets of Borrower that would, in accordance
with GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of determination,
the aggregate amount of all current liabilities of Borrower that would, in
accordance with GAAP, be classified on a balance sheet as current liabilities.
For purposes of this definition, all Obligations outstanding under this
Agreement shall be deemed to be current liabilities without regard to whether
they would be deemed to be so under GAAP.
"Consolidated Net Income" shall mean with respect to Borrower and its
Subsidiaries, for any period, the aggregate of the net income (or loss) of
Borrower and its Subsidiaries after allowances for taxes for such period,
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded from such net income (to the extent otherwise included
therein) the following: (i) the net income of any Person in which Borrower or
any of its Subsidiaries has an interest (which interest does not cause the net
income of such other Person to be consolidated with the net income of Borrower
and its Subsidiaries in accordance with GAAP), except to the extent of the
amount of dividends or distributions actually paid in such period by such other
Person to Borrower or to any of its Subsidiaries, as the case may be; (ii) the
net income (but not loss) of any of Borrower's Subsidiaries to the extent that
the declaration or payment of dividends or similar distributions or transfers or
loans by that Subsidiary is not at the time permitted by operation of the terms
of its charter or any agreement, instrument or Legal Requirement applicable to
such Subsidiary, or is otherwise restricted or prohibited in each case
determined in accordance with GAAP; (iii) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to the date
of such transaction; (iv) any extraordinary gains, including gains attributable
to Property sales not in the ordinary course of business; (v) the cumulative
effect of a change in accounting principles and any gains or losses attributable
to writeups or writedowns of assets; and (vi) any writedowns of non-current
assets, provided however, that any ceiling limitation writedowns under SEC
guidelines shall be treated as capitalized costs, as if such writedowns had not
occurred.
"Control Agreement" means a control agreement, in form and substance
reasonably satisfactory to Agent, between Borrower, Agent, and the applicable
securities intermediary with respect to the applicable Securities Account and
related Investment Property.
"Daily Balance" means the amount of an Obligation owed at the end of a
given day.
"Deems itself insecure" means that the Person deems itself insecure in
accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
6
<PAGE>
"Defaulting Lender" means any Lender that fails to make any Advance that it
is required to make hereunder on any Funding Date and that has not cured such
failure by making such Advance within one (1) Business Day after written demand
upon it by Agent to do so.
"Defaulting Lenders Rate" means the Reference Rate for the first three (3)
days from and after the date the relevant payment is due and, thereafter, at the
interest rate then applicable to Advances.
"Default Margin" means, as of any date of determination, four (4)
percentage points above the then applicable Margin, as the applicable Margin may
change from time to time.
"Designated Account" means account number 335185 of Panaco maintained with
Borrower's Designated Account Bank, or such other deposit account of Panaco
(located within the United States) which has been designated, in writing and
from time to time, by Borrower to Agent.
"Designated Account Bank" means Southwest Bank of Texas, National
Association, whose office is located at 5 Post Oak Park, 4400 Post Oak Parkway,
Houston, Texas 77027, and whose ABA number is 113011258.
"Designated Affiliate" means, as applied to any Person, any other Person
who directly or indirectly controls, is controlled by, is under common control
with or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 20% or more of the Stock having ordinary voting power for the election
of directors or the director or indirect power to direct the management and
policies of a Person.
"Disbursement Letter" means an instructional letter executed and delivered
by Borrower to Agent regarding the extensions of credit to be made on the
Closing Date, the form and substance of which shall be satisfactory to Agent.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in Section 3.6.
"East Breaks 165 Interest" means that certain Federal Outer Continental
Shelf Mineral Interest lease known as East Breaks 165 OCS-G 6280, dated
October 1, 1983, between the United States of America, as Lessor, and Sohio
Petroleum Company, as Lessee, which lease is the subject of that certain
Assignment of Record of Title, dated effective June 1, 1998, between BP
Exploration & Oil, Inc., successor in interest to Sohio Petroleum Company, as
assignor, and Panaco, as assignee.
"EBITDA" shall mean, for any period, the sum, determined (without
duplication) for Borrower and its Subsidiaries, of (i) Consolidated Net Income
7
<PAGE>
of Borrower and its Subsidiaries plus (ii) Interest Expense of Borrower and its
Subsidiaries for such period to the extent deducted in the determination of
Consolidated Net Income of Borrower and its Subsidiaries for such period plus
(iii) depreciation, amortization and other similar non-cash items (with the
exception of non-cash charges that require an accrual or reserve for cash
charges for any future period and normally recurring accruals) to the extent
deducted in the determination of Consolidated Net Income of Borrower and its
Subsidiaries for such period plus (iv) all taxes accrued for such period on or
measured by income to the extent deducted in the determination of Consolidated
Net Income of Borrower and its Subsidiaries for such period.
"Eligible Proved Developed Non-Producing Reserves" means Eligible Proved
Reserves of Borrower consisting of Proved Developed Non-Producing Reserves.
"Eligible Proved Developed Producing Reserves" means Eligible Proved
Reserves consisting of Proved Developed Producing Reserves.
"Eligible Proved Reserves" means the NYMEX Value of Proved Reserves
consisting of Mineral Interests of Borrower that: (i) are subject to a duly
executed and recorded Oil and Gas Property Mortgage that creates a first
priority perfected lien in such Mineral Interest; (ii) either are identified on
Schedule 5.1(a) or constitute Qualified Subsequent Oil and Gas Property; and
(iii) strictly comply with each and all of the representations and warranties
made by Borrower to Agent in the Loan Documents. In determining the amount to be
so included, Eligible Proved Reserves shall be valued based upon the NYMEX Value
of such Proved Reserves as of the date of determination of Eligible Proved
Reserves, with such adjustments as Agent may deem appropriate in its sole
discretion. An item of Proved Reserves shall not be included in Eligible Proved
Reserves if:
(a) it is not owned solely by Borrower or Borrower does not have good,
valid, and marketable title thereto, or the title information relating thereto
is not satisfactory to Agent (without limiting the foregoing, it is understood
and agreed by Borrower that no Mineral Interests of any Borrower located at or
about East Breaks 165 or other locations in the Federal Outer Continental Shelf
shall be included in Eligible Proved Reserves prior to the time that Panaco's
Mineral Interest therein and Panaco's acquisition thereof shall have been
approved in writing by the MMS and evidence of the same satisfactory to Agent
shall have been received by Agent);
(b) it is not subject to a valid and perfected first priority Lien and
security interest in favor of Agent for the benefit of the Lender Group created
by a duly recorded Oil and Gas Property Mortgage, except for Permitted Liens
with respect to which Agent has established a Reserve Against Availability in
the full amount (or such other amount as may be determined by Agent in its sole
discretion) that any holders of the Permitted Liens could assert from time to
time thereunder (whether upon the passage of time, the satisfaction of
conditions, or otherwise); or
(c) it is subject to a Lien in favor of any third Person or any order,
judgment, writ or decree, which either restricts or purports to restrict
8
<PAGE>
Borrower or any of its Subsidiaries' ability to grant Liens to other Persons on
or in respect of its respective assets or properties.
"Eligible Proved Undeveloped Reserves" means Eligible Proved Reserves
consisting of Proved Undeveloped Reserves.
"Eligible Transferee" means: (a) a commercial bank organized under the laws
of the United States, or any state thereof, and having total assets in excess of
$100,000,000; (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country, and having total
assets in excess of $100,000,000; provided that such bank is acting through a
branch or agency located in the United States; (c) a finance company, insurance
company or other financial institution or fund that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary course of
its business and having total assets in excess of $50,000,000; (d) any Affiliate
(other than individuals) of, or any fund, money market account, investment
account or other account managed by, a pre-existing Lender under this Agreement;
(e) so long as no Event of Default has occurred and is continuing, any other
Person approved by Agent and Borrower; and (f) during the continuation of an
Event of Default, any other Person approved by Agent.
"Environmental Laws" shall mean any and all Legal Requirements pertaining
to health or the environment in effect in any and all jurisdictions in which the
Borrower or any Subsidiary is conducting or at any time has conducted business,
or where any Property of the Borrower or any Subsidiary is located, including
without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as
amended, the Comprehensive Environmental, Response, Compensation, and Liability
Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe
Drinking Water Act, as amended, the Toxic Substances Control Act, as amended,
the Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, and other environmental
conservation or protection laws. The term "oil" shall have the meaning specified
in OPA, the term "release" (or "threatened release") has the meaning specified
in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the
meanings specified in RCRA; provided, however, that (i) in the event either OPA,
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of
such amendment, and (ii) to the extent the laws of the state in which any
Property of the Borrower or any Subsidiary is located establish a meaning for
"oil," "release," "solid waste" or "disposal" which is broader than that
specified in either OPA, CERCLA or RCRA, such broader meaning shall apply.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
drillsite equipment (including separators, dehydrators, meters, etc.),
compressors, gathering lines, pipelines, vehicles (including motor vehicles and
trailers), tools, parts, and other goods (other than consumer goods, farm
products, or Inventory), wherever located, including, (a) any interest of
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Borrower in any of the foregoing, and (b) all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any of
the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. 1000 et seq., amendments thereto, successor statutes, and regulations or
guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and
Section 412 of the IRC, any party subject to ERISA that is a party to an
arrangement with Borrower and whose employees are aggregated with the employees
of Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan
or Multiemployer Plan, (b) the withdrawal of Borrower, any of its Subsidiaries
or ERISA Affiliates from a Benefit Plan during a plan year in which it was a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the
providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan,
(e) any event or condition (i) that provides a basis under Section 4042(a)(1),
(2), or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any successor statute thereto.
"FEIN" means Federal Employer Identification Number.
"First Renewal Period" has the meaning set forth in Section 3.4(a)(ii).
"Foothill" means Foothill Capital Corporation, a California corporation.
"Foothill Loans" has the meaning set forth in Section 2.1(f).
"Funding Date" means the date on which a Borrowing occurs.
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"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"GAC" means Goldking Acquisition Corp., a Delaware corporation, with its
chief executive office located at 1100 Louisiana, Suite 5100, Houston, Texas
77002.
"General Intangibles" means all of Borrower's present and future general
intangibles and other personal property (including contract rights, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, Permits, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Goldking Entities" means Goldking Oil & Gas Corp., Goldking Companies,
Inc, Hill Transportation Company, Inc., Umbrella Point Gathering Co., L.L.C. and
Goldking Trinity Bay Corp.
"Governing Documents" means, with respect to any Person, the certificate or
articles of incorporation, by-laws, or other organizational or governing
documents of such Person.
"Governmental Authority" means any nation or government, any state,
province, or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
Stock or capital ownership or otherwise, by any of the foregoing.
"Guaranty Agreements" means, collectively, any and all of the guaranty
agreements with respect to the Obligations which are, or are to be, executed by
a Guarantor in favor of Agent for the benefit of the Lender Group, as required
from time to time by Agent, in form and substance satisfactory to Agent, in each
case as the same may be amended, modified, restated, supplemented, increased,
renewed, extended, substituted for or replaced from time to time.
"Guarantor" means GAC, each Subsidiary of Borrower not a signatory to this
Agreement, and each other Person who may hereafter guarantee payment or
performance of the whole or any part of the Obligations.
"Hazardous Materials" means (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity," (b) oil, petroleum, or petroleum derived substances, natural gas,
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natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Hedging Agreements" shall mean (i) any interest rate or currency swap,
rate cap, rate floor, rate collar, forward agreement or other exchange or rate
protection agreements or any option with respect to any such transaction and
(ii) any swap agreement, cap, floor, collar, exchange transaction, forward
agreement or other exchange or protection agreement relating to Hydrocarbons or
any option with respect to any such transaction.
"Hedging Agreement Undertaking" has the meaning set forth in Section 2.3.
"Hedging Arrangements Usage" means the sum of (a) the amount determined by
Agent from time to time as Agent's estimate of the aggregate liability
(contingent or otherwise) of the Lender Group with respect to Hedging Agreements
which are the subject of Hedging Agreement Undertakings, plus (b) the amounts of
unreimbursed payments made by the Lender Group with respect to Hedging Agreement
Undertakings.
"Hydrocarbons" shall mean oil, natural gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all constituents, elements or compounds thereof and products
refined or separated therefrom.
"Indebtedness" means: (a) all obligations of Borrower or any of its
Subsidiaries for borrowed money, (b) all obligations of Borrower or any of its
Subsidiaries evidenced by bonds, debentures, notes, or other similar instruments
and all reimbursement or other obligations of Borrower or any of its
Subsidiaries in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of Borrower or any of
its Subsidiaries under capital leases, (d) all obligations or liabilities of
others secured by a Lien on any property or asset of Borrower or any of its
Subsidiaries, irrespective of whether such obligation or liability is assumed,
(e) any obligation of Borrower or any of its Subsidiaries guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower or any of its Subsidiaries) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person, (f)
the net mark to market value of all obligations of Borrower or any of its
Subsidiaries under any Hedging Agreements and any Hedging Agreement Undertaking,
(g) all obligations of Borrower or any of its Subsidiaries to deliver goods or
services including Hydrocarbons in consideration of advance payments, and (h)
the undischarged balance of any production payment or net profits interest
created by Borrower or any of its Subsidiaries or for the creation of which
Borrower or any of its Subsidiaries directly or indirectly received payment.
"Indemnified Liabilities" has the meaning set forth in Section 11.3.
"Indemnified Person" has the meaning set forth in Section 11.3.
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"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other bankruptcy
or insolvency law, assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of the
book value of all of such Person's assets that would be treated as intangibles
under GAAP.
"Intellectual Property" has the meaning ascribed thereto in Section 5.19.
"Interest Expense" shall mean, for any period, the sum (determined without
duplication) of the aggregate amount of interest expense accruing during such
period on Indebtedness of Borrower and its Subsidiaries, including the interest
portion of payments under capitalized leases and any capitalized interest, but
excluding amortization of debt discount and expense.
"Inventory" means all present and future inventory in which Borrower or any
of its Subsidiaries has any interest, including goods and extracted Hydrocarbons
held for sale or lease or to be furnished under a contract of service and all of
Borrower's present and future raw materials, work in process, finished goods,
and packing and shipping materials, wherever located.
"Investment Property" means all of Borrower's present and hereafter
acquired "investment property" as that term is defined in Section 9-115 of the
Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Legal Requirements" means all applicable international, foreign, federal,
state, and local laws, judgments, decrees, orders, statutes, ordinances, rules,
regulations, or Permits, including, without limitation, all Environmental Laws.
"Lender" and "Lenders" have the respective meanings set forth in the
preamble to this Agreement, and shall include any other Person made a party to
this Agreement in accordance with the provisions of Section 15.1 hereof.
"Lender Group" means, individually and collectively, each of the individual
Lenders and Agent.
"Lender Group Expenses" means all: costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by the Lender Group; fees or charges paid or
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incurred by the Lender Group in connection with the Lender Group's transactions
with Borrower, including, fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches (including
tax lien, litigation, and UCC (or equivalent) searches and including searches
with the patent and trademark office, the copyright office, or the department of
motor vehicles), filing, recording, publication, appraisal (including periodic
Oil and Gas Property Collateral appraisals and engineer reports), Reserve
Reports and environmental audits; costs and expenses incurred by Agent in the
disbursement of funds to Borrower (by wire transfer or otherwise); charges paid
or incurred by Agent resulting from the dishonor of checks; costs and expenses
paid or incurred by the Lender Group to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated; costs and expenses paid or incurred by Agent in
examining the Books; costs and expenses of third party claims or any other suit
paid or incurred by the Lender Group in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or the Lender Group's relationship with Borrower (or any of its
Subsidiaries party to one or more Loan Documents); and the Lender Group's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower), defending, or
concerning the Loan Documents, irrespective of whether suit is brought.
"Lender Group Fee Split Letters" means those certain two letter agreements,
dated as of the date hereof, addressed to Foothill from Ableco Finance LLC and
from Foothill Partners III, L.P., regarding the allocation of certain fees
between Foothill and each of them, as amended from time to time.
"Lender Group Side Letters" means those certain two letter agreements,
dated as of the date hereof, addressed to Foothill from Ableco Finance LLC and
from Foothill Partners III, L.P., regarding the taking of certain actions by
Agent and/or the Lenders under this Agreement, as amended from time to time.
"Lender Group Triparty Agreement" means that certain letter agreement dated
as of the date hereof addressed to Foothill from Ableco Finance LLC and Foothill
Partners III, L.P., regarding certain agreements among them pertaining to
apportionment, application and reversal of payments under this Agreement.
"Lender-Related Persons" means, with respect to any Lender, such Lender,
together with such Lender's Affiliates, and the officers, directors, employees,
counsel, agents, and attorneys-in-fact of such Lender and such Lender's
Affiliates.
"Letter of Credit" means an L/C or an L/C Guaranty, as the context
requires.
"Letter of Credit/Hedging Arrangements Usage" means the sum of (a) Letter
of Credit Usage, plus (b) Hedging Arrangements Usage.
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"Letter of Credit Usage" means the sum of (a) the undrawn amount of
uncancelled Letters of Credit, plus (b) the amount of unreimbursed drawings
under Letters of Credit, minus (c) the aggregate amount of cash collateral
securing outstanding Letters of Credit pursuant to Section 2.2(e).
"Lien" means any interest in Property securing an obligation owed to, or a
claim by, any Person other than the owner of the Property, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including (a) the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Oil
and Gas Property or Real Property and (b) production payments and the like
payable out of Oil and Gas Property. For purposes of this Agreement, Borrower or
any of its Subsidiaries shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement, or leases under a
financing lease or other arrangement pursuant to which title to the Property has
been retained by or vested in some other Person in a transaction intended to
create financing.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement Letter, the Letters
of Credit, the Lockbox Agreements, the Oil and Gas Property Mortgages, the
Guaranty Agreements, the Security Agreements, the Prior Lender Assignment
Agreements, any note or notes executed by Borrower and payable to the Lender
Group, and any other agreement entered into, now or in the future, in connection
with this Agreement.
"Loan Party" means Borrower and each Guarantor.
"Lockbox Account" shall mean a depositary account established pursuant to
one of the Lockbox Agreements.
"Lockbox Agreements" means Lockbox Operating Procedural Agreements and
those certain Depository Account Agreements, in form and substance satisfactory
to Agent, each of which is among Borrower, Agent, and one of the Lockbox Banks.
"Lockbox Banks" means Southwest Bank of Texas or such other banks as may be
agreed to by Borrower and Foothill from time to time.
"Lockboxes" has the meaning set forth in Section 2.7.
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"Margin" means, as at any date of determination during any month with
respect to any and all Advances and other Obligations owed from Borrower which
are outstanding during such month, the rate of interest per annum specified
below as the "Margin" which corresponds to the Average Outstandings set forth
below as of such date:
Average Outstandings Margin
-------------------- ------
<$25,000,000 0.50%
or >$25,000,000
and <$31,000,000 1.00%
= or >$31,000,000
and <$37,000,000 1.50%
= or >$37,000,000
and <$43,000,000 2.25%
= or >$43,000,000 3.00%
"Average Outstandings" means, as of the last day of each month, the sum of
(i) the amount of the average Daily Balance of Advances (including Agent
Advances and Foothill Loans) that were outstanding (including any amounts that
the Lender Group may have paid for the account of Borrower pursuant to any of
the Loan Documents and that have not been reimbursed by Borrower) during such
month (the "Averaging Period"), plus (ii) the average Daily Balance of the
Letter of Credit/Hedging Arrangement Usage during such month; provided, however,
that with respect to any determinations of the Average Outstandings during the
period beginning on the Closing Date and ending on the last day of the month in
which the Closing Date occurs, the Averaging Period used for such purpose shall
instead be the period beginning with the Closing Date and ending on the last day
of such month.
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (b) a material adverse effect on
the ability of Borrower to carry out its business as at the Closing Date or as
proposed as of the Closing Date, (c) the material impairment of Borrower's
ability to perform its obligations under the Loan Documents to which it is a
party or of the Lender Group to enforce the Obligations or realize upon the
Collateral, (d) any event or circumstance that is reasonably likely to have a
material adverse effect on the value of the Collateral or the amount that the
Lender Group would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of the Collateral, or (e) a
material impairment of the priority of the Agent's Liens with respect to the
Collateral.
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"Material Contract" means, as to any Person, any supply, purchase, service,
employment, tax, indemnity, farmout, gas marketing, gas imbalance, operating,
unitization, communitization, partnership, joint venture or other agreement of
such Person or any of its Subsidiaries or by which such Person or any of its
Subsidiaries or any of their respective properties are otherwise bound, which is
material to the business, operations or properties of such Person, as the same
shall be amended, modified and supplemented and in effect from time to time.
"Maximum Revolving Amount" means $60,000,000.
"Mineral Interests" shall mean all right, title, interest and estates now
owned or hereafter acquired in and to oil and gas leases, oil, gas and mineral
leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests,
overriding royalty and royalty interests, net profit interests and production
payment interests, including any reserved interests, reversionary interests,
carried working interests, or residual interests of whatever nature.
"MMS" means the Minerals Management Service of the United States Department
of the Interior.
"Moody's" means Moody's Investors Service, Inc. and any successor thereto.
"Multiemployer Plan" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA
Affiliate has contributed, or was obligated to contribute, within the past six
years.
"Negotiable Collateral" means all of a Person's present and future letters
of credit, notes, drafts, instruments, Investment Property, documents, personal
property leases (wherein such Person is the lessor), chattel paper, and the
Books relating to any of the foregoing.
"NYMEX Price" means, as of the date of the determination thereof, the
average of the 24 succeeding monthly futures contract prices, commencing with
the month during which the determination is to be made, for each of the
appropriate crude oil or natural gas categories included in the most recent
Reserve Report provided by Borrower to Agent pursuant to Section 6.2, as
applicable, as quoted on the New York Mercantile Exchange ("NYMEX"), or, if the
NYMEX no longer provides futures contract price quotes for 24 month periods, the
longest period of quotes of less than 24 months shall be used, and, if the NYMEX
no longer provides such futures contract quotes or has ceased to operate, the
Agent shall designate another nationally recognized commodities exchange to
replace the NYMEX.
"NYMEX Value" means, at any date of determination thereof as to any Proved
Reserves of Borrower, the result of
(a) the discounted present value of future net revenues (i.e., after
deducting production and ad valorem taxes and less future capital costs and
operating expenses) from Proved Reserves of Borrower as of such date utilizing
the NYMEX Price for the appropriate category of oil or gas as quoted in a
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nationally recognized publication for such pricing as selected as of such date
by Agent and assuming that production costs thereafter remain constant, then
discounted at a rate of 10% per year to obtain the present value; minus
(b) to the extent not taken into account in subparagraph (a) above, the
discounted present value (discounted at a rate of 10% per year) of Borrower's
future plugging and abandonment expenses; minus
c) to the extent not taken into account in subparagraph (a) above, minority
interests and other interests of Persons other than Borrower and any natural gas
balancing liabilities of Borrower.
"Obligations" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations under any outstanding
Letters of Credit, premiums (including Early Termination Premiums), liabilities
(including all amounts charged to Borrower's Loan Account pursuant hereto),
obligations, fees, charges, costs, or Lender Group Expenses (including any fees
or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
the Lender Group of any kind and description (whether pursuant to or evidenced
by the Loan Documents or pursuant to any other agreement between the Lender
Group and Borrower, and irrespective of whether for the payment of money),
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including any debt, liability, or obligation
owing from Borrower to others that the Lender Group may have obtained by
assignment or otherwise, any debt, liability, or obligation owing to Agent or
any Lender arising from any Hedging Agreements under which Agent or any Lender
is a counterparty or any Hedging Agreement Undertaking, and further including
all interest not paid when due and all Lender Group Expenses that Borrower is
required to pay or reimburse by the Loan Documents, by law, or otherwise.
"Oil and Gas Properties" means all of the present and future right, title
and interest (real, personal, mixed, contractual or otherwise) of Borrower and
its Subsidiaries in, to and under or derived from the following:
(a) All presently existing and hereafter arising Mineral Interests and
surface interests;
(b) All presently existing and hereafter arising unitization,
communitization and pooling declarations, orders, and agreements (including all
units formed by voluntary agreement and those formed under the rules,
regulations, orders or other official acts of any governmental entity or tribal
authority having appropriate jurisdiction);
(c) All presently existing and arising oil sales contracts, casinghead gas
sales contracts, gas sales contracts, processing contracts, gathering contracts,
transportation contracts, easements, rights-of-way, servitudes, surface leases,
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subsurface leases, farm-out contracts, farm-in contracts, operating agreements,
areas of mutual interest and other contracts, agreements and instruments;
(d) All presently existing and hereafter arising personal property,
improvements, fixtures, wells (whether producing, plugged and abandoned,
shut-in, injection, disposal or water supply), tanks, boilers, buildings,
machinery, vehicles, Equipment, gathering lines, pipelines, utility lines, power
lines, telephone lines, water rights, roads, permits, licenses and other
appurtenances, to the extent the same are situated upon and used or held for use
by Borrower or any of its Subsidiaries in connection with the ownership,
operation, maintenance or repair of the Mineral Interests and/or surface
interests; and
(e) All reservoir, reserve, seismic, geologic or geophysical information
and data.
"Oil and Gas Property Collateral" means the Oil and Gas Properties which
are identified on Schedule 5.1(a) or Schedule 5.1(b), and any other Oil and Gas
Properties now owned or hereafter acquired by Borrower or any of its
Subsidiaries.
"Oil and Gas Property Mortgages" means one or more mortgages, deeds of
trust, or deeds to secure debt, executed by Borrower and each of its
Subsidiaries in favor of Agent, the form and substance of which shall be
satisfactory to Agent, that encumber the Oil and Gas Property Collateral and the
related improvements thereto (including the Prior Lender Assignment Agreements).
"Overadvance" has the meaning set forth in Section 2.5.
"Panaco" has the meaning set forth in the preamble hereto.
"Participant" has the meaning set forth in Section 15.1(e).
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to Agent, from Prior Lender respecting the amount necessary to
purchase in full all of the obligations of Borrower owing to Prior Lenders and
obtain an assignment, termination or release (as determined by Agent in its sole
discretion) of all of the Liens existing in favor of Prior Lenders in and to the
properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in Title
IV of ERISA, or any successor thereto.
"Permits" of a Person shall mean all rights, franchises, permits,
authorities, licenses, certificates of approval or authorizations, including
licenses and other authorizations issuable by a Governmental Authority, which
pursuant to applicable Legal Requirements are necessary to permit such Person
lawfully to conduct and operate its business as currently conducted and to own
and use its assets.
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"Permitted Liens" means (a) Liens held by Agent for the benefit of the
Lender Group, (b) Liens for unpaid taxes that either (i) are not yet due and
payable or (ii) are the subject of Permitted Protests, (c) Liens set forth on
Schedule P-1, (d) the interests of lessors under operating leases and purchase
money Liens of lessors under capital leases to the extent that the acquisition
or lease of the underlying asset is permitted under Section 7.21 and so long as
the Lien only attaches to the asset purchased or acquired and only secures the
purchase price of the asset, (e) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, or other like Liens arising by operation of law incidental to the
exploration, development, operation and maintenance of Oil and Gas Properties,
in each case incurred in the ordinary course of business of Borrower and not in
connection with the borrowing of money, and which Liens either (i) are for sums
not yet due and payable, or (ii) are the subject of Permitted Protests,
(f) Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens on deposits and escrowed
funds made to secure performance of bids, tenders and leases (to the extent
permitted under this Agreement) incurred in the ordinary course of business of
Borrower and not in connection with the borrowing of money, (h) Liens of or
resulting from any judgment or award that do not result in and reasonably could
not be expected to result in a Material Adverse Change and as to which the time
for the appeal or petition for rehearing of which has not yet expired, or in
respect of which Borrower is in good faith prosecuting an appeal or proceeding
for a review and in respect of which a stay of execution pending such appeal or
proceeding for review has been secured, (i) Liens with respect to the Oil and
Gas Property Collateral that are exceptions to the title opinions issued in
connection with the Oil and Gas Mortgages, as accepted by Agent, (j) with
respect to any Oil and Gas Property Collateral consisting of Mineral Interests
acquired by Borrower or any of its Subsidiaries after the date of this
Agreement, (i) minor defects in title which (A) do not affect the marketability
thereof or restrict the full use or other benefits of ownership by Borrower or
such Subsidiary, as the case may be, and (B) do not affect the ability of
Borrower or such Subsidiary, as the case may be, to receive a share of
production or proceeds from, allocated to, or attributable to such Mineral
Interests equal to the interest of Borrower or such Subsidiary, as the case may
be, therein as represented herein or in the other Loan Documents, and (C) do not
materially interfere with the ordinary conduct of the business of Borrower or
such Subsidiary, as the case may be, and (D) do not interfere with or impair the
value of Agent's Lien therein for the benefit of the Lender Group, and (E) are
customarily waived by reasonable and prudent operators, and (ii) Liens reserved
in leases or farmout agreements for rent or royalties and for compliance with
the terms of the farmout agreements or leases in the case of leasehold estates,
to the extent that any such Lien referred to in this clause does not materially
impair the use of the Mineral Interest covered by such Lien for the purposes for
which such Mineral Interest is held by the Borrower or any Subsidiary, does not
materially interfere with or impair the value of such Mineral Interest subject
thereto or Agent's Lien therein for the benefit of the Lender Group, is
customarily waived by reasonable and prudent operators, and is consented to in
writing by Agent, (k) farmout, carried working interests, joint operating,
unitization, royalty, overriding royalty, sales and similar agreements relating
to the exploration or development of, or production from, Oil and Gas Properties
or the sale of the hydrocarbons after they are produced which are existing at
the time of acquisition of such Oil and Gas Property, are usual and customary
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for the industry, and are disclosed to and approved by Agent in writing prior to
any Proved Reserves attributable to such Oil and Gas Property being included in
Eligible Proved Reserves.
"Permitted Protest" means the right of Borrower to protest any Lien other
than any such Lien that secures the Obligations, tax (other than payroll taxes
or taxes that are the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such obligation is
established on the books of Borrower in an amount that is reasonably
satisfactory to Agent, (b) any such protest is instituted and diligently
prosecuted by Borrower in good faith, and (c) Agent is satisfied that, while any
such protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of the Agent's Liens in and to the Collateral.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than the Oil and
Gas Property Collateral.
"Plan" means any employee benefit plan, program, or arrangement maintained
or contributed to by Borrower or with respect to which it may incur liability.
"PPC" has the meaning set forth in the preamble hereto.
"Prior Credit Agreement" has the meaning set forth in the recitals hereto.
"Prior Lender Assignment Agreements" means the assignment agreements in the
form and substance of Exhibits P-1, P-2 and P-3 attached hereto.
"Prior Lenders" has the meaning set forth in the recitals.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
"Pro Rata Share" means, with respect to a Lender, a fraction (expressed as
a percentage), the numerator of which is the amount of such Lender's Commitment
and the denominator of which is the aggregate amount of the Commitments.
"Proved Developed Non-Producing Reserves" means Proved Reserves of
Borrower, other than Proved Developed Producing Reserves and Proved Undeveloped
Reserves, that can be expected to be recovered through existing wells with
existing equipment and operating methods.
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"Proved Developed Producing Reserves" means Proved Reserves of Borrower,
other than Proved Developed Non-Producing Reserves and Proved Undeveloped
Reserves, that can be expected to be recovered from currently producing zones
under the continuation of present operating methods.
"Proved Reserves" means at any particular time, the estimated quantities of
Hydrocarbons which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs attributable
to Mineral Interests included or to be included in the Reserve Report under
existing economic and operating conditions.
"Proved Undeveloped Reserves" means Proved Reserves of Borrower, other than
Proved Developed Producing Reserves and Proved Developed Non-Producing Reserves,
that are expected to be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is required for
recompletion.
"PV-10 Value" means, at any date of determination thereof, as to any Proved
Reserves, the result of:
(a) the discounted present value of future net revenues (i.e., after
deducting production and ad valorem taxes and less future capital costs and
operating expenses) from such Proved Reserves as most recently estimated in a
Reserve Report utilizing the spot price for the appropriate category of oil or
gas as quoted in a nationally recognized publication selected by Agent for such
pricing as of the date of the determination of PV-10 Value and assuming that
production costs thereafter remain constant, then discounted at a rate of 10%
per year to obtain the present value; minus
(b) to the extent not taken into account in subparagraph (a) above, the
discounted present value of Borrower's future plugging and abandonment expenses;
minus
(c) to the extent not taken into account in subparagraph (a) above,
minority interests and other interests of Persons other than Borrower and any
natural gas balancing liabilities of Borrower.
"Qualified Subsequent Oil and Gas Property" means, as at any date of
determination thereof, Oil and Gas Properties acquired subsequent to the date of
this Agreement with respect to which all of the representations specified in
Section 5.2 are true and correct.
"Real Property" means any estates or interests in real property now owned
or hereafter acquired by Borrower or any Subsidiary of Borrower, excluding Oil
and Gas Properties.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Wells Fargo Bank, National Association, or any successor
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thereto, as its "prime rate," irrespective of whether such announced rate is the
best rate available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in Section 4043(c) of
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Required Lenders" means, at any time, Lenders whose Pro Rata Shares
aggregate 65% or more of the Commitments, or, if the Commitments have been
terminated irrevocably, 65% of the Obligations then outstanding.
"Reserve Report" means a report, in form and substance satisfactory to
Agent, prepared by Ryder Scott Company, Netherland, Sewell & Associates, Inc.,
W.D. Van Gonten & Co., or another firm of independent petroleum engineers
acceptable to Agent evaluating the oil and gas reserves attributable to the
Mineral Interests of Borrower and its Subsidiaries (as determined on an
unconsolidated basis) which shall, among other things, (a) identify the wells
covered thereby, (b) specify said third party's opinions with respect to the
total volume of Proved Reserves (specifying with such opinions the terms of
categories Proved Developed Producing Reserves, Proved Developed Non-Producing
Reserves and Proved Undeveloped Reserves) which Borrower has the right to
produce (or cause to be produced) for its own account, (c) set forth said firm's
opinions with respect to the PV-10 Value and the NYMEX Value of each of the
categories of the Proved Reserves as specified in subclause (b) above, (d) set
forth said firm's opinions with respect to the projected future rate of
production of the Proved Reserves, (e) contain such other information as
requested by Agent with respect to the projected rate of production, gross
revenues, operating expenses, net income, taxes, capital expenditures and other
capital costs, net revenues and present value of future net revenues
attributable to such reserves and production therefrom, and (f) contain a
statement of the price and escalation parameters, procedures and assumptions
upon which such determinations were based.
"Reserves Against Availability" means such reserves as Agent determines in
Agent's discretion as being appropriate to reflect impediments to Agent's
ability to realize upon the Collateral or impairments or reductions to the value
of the Collateral. Without limiting the generality of the foregoing, Reserves
Against Availability may include (but are not limited to) reserves based upon
the following:
(a) accounts payable which are more than 45 days past the original due date
thereof;
(b) past due or accrued taxes or other governmental charges, including ad
valorem, personal property, production, severance and other taxes which may have
priority over the Liens or security interests of Agent in the Collateral;
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(c) Liens in favor of third Persons (whether or not such Liens are
Permitted Liens);
(d) deposits which are due or scheduled to become due during the
immediately following 180 day period under deposit or escrow arrangement
concerning costs, expenses and liabilities relating to the plugging and
abandonment of Oil and Gas Properties;
(e) estimates of present and future costs, expenses, deposits and
liabilities related to the plugging and abandonment of the Oil and Gas
Properties net of the amount thereof which has been taken into account in the
most recent Reserve Report or is fully secured by an escrow arrangement
acceptable to Agent;
(f) sums which Borrower may be required to pay which are due or are
scheduled to become due during the immediately following 30 day period with
respect to rental, lease and other amounts payable under leases with respect to
which Borrower has not delivered to Agent a Collateral Access Agreement; and
(g) without duplication of the foregoing, amounts owing by Borrower to any
Person to the extent secured by a Lien (whether or not such Lien is a Permitted
Lien) on, or trust (constructive or otherwise) over, any of the Collateral
(including proceeds thereof or collections from the sale of Hydrocarbons or
Mineral Interests which may from time to time come into the possession of any of
the Lender Group or its agents), which Lien or trust, in the reasonable
determination of Agent (from the perspective of an asset-based lender), has a
reasonable possibility of having a priority superior to the Agent's Liens (such
as landlord liens, ad valorem taxes, production taxes, severance taxes, sales
taxes, Collections attributable to Mineral Interests of Persons other than
Borrower) in and to such item of Collateral, proceeds or collection.
"Retiree Health Plan" means an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Revolving Facility Usage" means, as of any date of determination, the sum
of (a) the aggregate amount of Advances outstanding, plus (b) the Letter of
Credit/Hedging Arrangement Usage.
"SEC" means the United States Securities and Exchange Commission and any
successor Federal agency having similar powers.
"Second Renewal Period" has the meaning set forth in Section 3.4(a)(ii).
"Securities Account" means a "securities account" as that term is defined
in Section 8-501 of the Code.
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"Security Agreements" means, collectively, any and all of the security
agreement, pledges, mortgages, deeds of trust, assignments, stock pledge
agreements and such other agreements, documents and instruments, in form and
substance satisfactory to Agent, which are, or are to be, executed by Borrower
and/or any one or more of its Subsidiaries in favor of Agent and/or the Lenders
as may be required from time to time by Agent to provide Agent for the benefit
of the Lender Group with Liens upon all of the assets and properties of Borrower
and its Subsidiaries as security for the payment and performance in full of the
Obligations, in each case as the same may be amended, modified, restated,
supplemented, increased, renewed, extended, substituted for or replaced from
time to time, together with the Prior Lender Assignment Agreements and the
security agreements, pledges, mortgages, deeds of trust, assignments, stock
pledge agreements and other agreements, documents and instruments covered
thereby.
"Seller" means any Person that sells Stock or other property to Borrower or
a Subsidiary of Borrower in a Permitted Acquisition.
"Settlement" has the meaning set forth in Section 2.1(h)(i).
"Settlement Date" has the meaning set forth in Section 2.1(h)(i).
"Solvent" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Standard & Poor's" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., and any successor thereto.
"Stock" means all shares, options, warrants, interests, participations, or
other equivalents (regardless of how designated) of or in a corporation or
equivalent entity, whether voting or nonvoting, including common stock,
preferred stock, or any other "equity security" (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).
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"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity.
"Title Opinion" has the meaning set forth in Section 3.1(m).
"Transfer Order Letters" means transfer order letters in the form of
Exhibit T-1 attached hereto containing the information as provided for therein.
"Triggering Event" has the meaning set forth in Section 2.7(a).
"Unsecured Notes" means those certain 10 5/8% unsecured notes in the
aggregate original principal amount of $100,000,000 dated as of October 9, 1997
and maturing on October 1, 2004 issued under the Unsecured Notes Indenture, as
amended, modified, renewed or restated from time to time.
"Unsecured Notes Defined Indebtedness" means all Indebtedness (as such term
is defined in the Unsecured Notes Indenture) of Borrower and its Subsidiaries.
"Unsecured Notes Estoppel Certificate" means a certificate, in form and
substance acceptable to Agent, executed by the trustee under the Unsecured Notes
Indenture, which certifies to the unpaid balance of the Unsecured Notes as of
the Closing Date, the absence of any known defaults thereunder by any party
thereto, and such other matters as may be requested by Agent.
"Unsecured Notes Indebtedness Limitation" means an amount equal to the
lesser of (a) the greater of (i) $40,000,000 or (ii) the sum of (A) $10,000,000
and (B) 20% of Adjusted Consolidated Net Tangible Assets of Borrower and its
Subsidiaries, or (b) an amount which, when added to all other Unsecured Notes
Defined Indebtedness of Borrower and its Subsidiaries, would result in the ratio
of the Adjusted Consolidated Net Tangible Assets of Borrower and its
Subsidiaries in the aggregate Unsecured Notes Defined Indebtedness of Borrower
and its Subsidiaries being equal to 1.25 to 1; provided, however, that in no
event shall the amount of the Unsecured Notes Indebtedness Limitation exceed any
amount which, when added to all other Unsecured Notes Defined Indebtedness,
would cause or result in a violation of the Unsecured Notes Indenture or cause
or result in any holders of the Unsecured Notes (or any trustee or agent for the
benefit thereof) having the right to demand repayment, repurchase, retirement or
redemption thereof or any similar right with respect thereto.
"Unsecured Notes Indenture" means that certain Indenture dated as of
October 9, 1997 among Borrower and UMB Bank, N.A., pursuant to which the
Unsecured Notes have been issued, as amended, modified, renewed or restated from
time to time.
"Voidable Transfer" has the meaning set forth in Section 15.8.
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"Year 2000 Compliant" means that Borrower's and each of its Subsidiaries'
computer software programs (whether used in Borrower's or its Subsidiaries'
business or licensed by or to Borrower or any of its Subsidiaries to or from
third parties) effectively processes data including data fields requiring
references to dates on and after January 1, 1000 and have been designed not to
experience or produce invalid or incorrect results or abnormal software
operation related to or as a result of the occurrence of such dates.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 CONSTRUCTION. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including" is
not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement or any
other Loan Document refer to this Agreement or any other Loan Documents, as the
case may be, as a whole and not to any particular provision of this Agreement or
such other Loan Document, as the case may be. An Event of Default shall
"continue" or be "continuing" until such Event of Default has been waived in
writing by Agent. Section, subsection, clause, schedule, and exhibit references
herein are to this Agreement unless otherwise specified. Any reference in this
Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements,
thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
1.6 THE TERM "BORROWER" OR "BORROWERS." Unless otherwise specifically
provided herein, all references to "Borrower" or "Borrowers" herein shall refer
to and include each Borrower separately and all representations contained herein
shall be deemed to be separately made by each of them; and each of the
covenants, agreements and obligations set forth herein shall be deemed to be the
joint and several covenants, agreements and obligations of them. Any notice,
request, consent, report or other information or agreement delivered to Agent
and/or any or the Lenders by any Borrower shall be deemed to be ratified by,
consented to and also delivered by each other Borrower. Each Borrower recognizes
and agrees that each covenant and agreement of "Borrower" or "Borrowers" under
this Agreement and the other Loan Documents shall create a joint and several
obligation of the Borrowers, which may be enforced against Borrowers, jointly or
against each Borrower separately. Without limiting the terms of this Agreement
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and the other Loan Documents, security interests, assets and collateral shall
extend to the properties, interests, assets and collateral of each Borrower.
Similarly, the term "Obligations" shall include, without limitation, all
obligations, liabilities and indebtedness of such corporations, or any one of
them, to Agent and/or any of the Lenders, whether such obligations, liabilities
and indebtedness shall be joint, several, joint and several or individual.
Unless otherwise specified in this Agreement, the parties hereto anticipate that
any notice, request, consent, report or other information or agreement to be
delivered in connection with this Agreement by Borrowers to Agent and/or any of
the Lenders will be executed by Panaco, on behalf of Borrowers, and that any
such notice, request, consent, report or other information or agreement
delivered to Agent and/or any of the Lenders and executed by Panaco shall be
deemed to be executed by Panaco on behalf of all the Borrowers, and each
Borrower hereby irrevocably authorizes and directs Panaco to do the same on its
behalf and irrevocably appoints Panaco as its attorney in fact for such purpose
and to do all other things, on behalf of Panaco and Borrowers, contemplated
under this Agreement and the other Loan Documents. In addition, unless otherwise
specified in this Agreement, the parties hereto anticipate that any advances
made hereunder by Agent and/or any of the Lenders to Borrowers shall be
disbursed directly to Panaco.
2. LOAN AND TERMS OF PAYMENT
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement and during the
term of this Agreement, each Lender agrees to make advances ("Advances") to
Borrower in an amount at any one time outstanding not to exceed such Lender's
Pro Rata Share of an amount equal to the least of (i) the Maximum Revolving
Amount less the Letter of Credit/Hedging Arrangement Usage, or (ii) the
Borrowing Base, less (A) the aggregate amount of all Letter of Credit/Hedging
Arrangement Usage, less (B) the aggregate amount of the Reserves Against
Availability, or (iii) the Unsecured Note Indebtedness Limitation. For purposes
of this Agreement, the "Borrowing Base," as of any date of determination (which,
in the absence of the occurrence and continuation of an Event of Default, shall
be determined no less frequently than monthly), shall mean the result of:
(w) 65% of Borrower's Eligible Proved Developed Producing
Reserves, plus
(x) 45% of Borrower's Eligible Proved Developed Non-
Producing Reserves, plus
(y) 40% of Borrower's Eligible Proved Undeveloped
Reserves, minus
(z) the sum of aggregate amount of reserves, if any,
established by Agent under Section 2.1(b).
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In determining the Borrowing Base as of any date of determination, (a) if such
date of determination is March 1st or September 1st, the Proved Reserves shall
be based upon the volumetric quantity and production forecasts and the related
lease operating expenses of Proved Reserves estimated in the Reserve Report for
the immediately preceding December 31st or June 30th, as applicable, minus the
amount of Proved Reserves that has been sold or produced since the date of the
Reserve Report, and (b) in the case of a Borrowing Base determined on the first
day of any other month, the Proved Reserves shall be based upon the volumetric
quantity and production forecasts and the related lease operating expenses of
Proved Reserves estimated in the most recently delivered Reserve Report minus
the amount of Proved Reserves that has been sold or produced since the date of
such Reserve Report.
The Lenders shall have no obligation to make further Advances hereunder to the
extent they would cause the outstanding Revolving Facility Usage to exceed the
Maximum Revolving Amount.
Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term
of this Agreement.
(b) Advance Rate Adjustments and Reserves; Proved Reserves Reappraisals.
(i) Anything to the contrary in this Section notwithstanding,
Agent shall have the right to establish reserves against the Borrowing Base in
such amounts as Foothill, in its reasonable judgment (from the perspective of an
asset-based lender) shall deem necessary or appropriate, including reserves on
account of (A) sums that Borrower is required to pay (such as taxes,
assessments, insurance premiums, or, in the case of leased assets, rents or
other amounts payable under such leases) and has failed to pay under any Section
of this Agreement or any other Loan Document, and (B) without duplication of the
foregoing, amounts owing by such Borrower to any Person to the extent secured by
a Lien on, or trust over, any of the Collateral, which Lien or trust, in the
reasonable determination of Foothill (from the perspective of an asset-based
lender), would be likely to have a priority superior to the Agent's Liens (such
as landlord liens, ad valorem taxes, or sales taxes where given priority under
applicable law) in and to such item of Collateral.
(ii) Agent shall have the right to require, from time to time,
Borrower to deliver updated Reserve Reports whereby the volumetric quantity and
production forecasts and related lease operating expenses of Proved Reserves are
redetermined from time to time by a qualified petroleum engineer approved by
Agent after the Closing Date for the purpose of recalculating the NYMEX Value of
the Proved Reserves located at the Oil and Gas Property Collateral. In the
absence of the occurrence and continuation of an Event of Default, such
redeterminations shall occur semi-annually on December 31st and June 30th of
each year, and such appraisals shall be delivered to Agent not later than 60
days after each such date.
(c) Procedure for Borrowing. Each Borrowing shall be made upon Borrower's
irrevocable request therefor (the "Borrowing Request") either delivered in
writing or made by telephone to Agent (which notice must be received by Agent
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(x) no later than 1:00 p.m. (New York time) on the Business Day immediately
preceding the requested Funding Date if the aggregate amount requested to be
borrowed on such day by Borrower exceeds $5,000,000, and (y) no later than 1:00
p.m. (New York time) on the same Business Day as the requested Funding Date if
the aggregate amount requested to be borrowed on such day by Borrower is less
than $5,000,000) specifying (i) the amount of the Borrowing, and (ii) the
requested Funding Date, which shall be a Business Day, and each such Borrowing
Request shall be accompanied by a Reserve Report with respect to any Oil and Gas
Properties which are to be acquired by Borrower. All Advances requested in any
Borrowing Request must be in an amount not less than $1,000,000 and integral
multiples of $500,000 in excess thereof.
(d) Agent's Election. Promptly after receipt of a request for a Borrowing
pursuant to Section 2.1(c), Agent shall elect, in its discretion, (i) to have
the terms of Section 2.1(e) apply to such requested Borrowing, or (ii) to
request Foothill to make a Foothill Loan pursuant to the terms of Section 2.1(f)
in the amount of the requested Borrowing; provided, however, that if Foothill
declines in its sole discretion to make a Foothill Loan pursuant to
Section 2.1(f), Agent shall elect to have the terms of Section 2.1(e) apply to
such requested Borrowing.
(e) Making of Advances.
(i) In the event that Agent shall elect to have the terms of
this Section 2.1(e) apply to a requested Borrowing as described in Section
2.1(d), then promptly after receipt of a request for a Borrowing pursuant to
Section 2.1(c), Agent shall notify the Lenders, not later than 4:00 p.m. (New
York time) on the Business Day immediately preceding the Funding Date applicable
thereto, by telecopy, telephone, or other similar form of transmission, of the
requested Borrowing. Each Lender shall make the amount of such Lender's Pro Rata
Share of the requested Borrowing available to Agent in immediately available
funds, to such account of Agent as Agent may designate, not later than 1:00 p.m.
(New York time) on the Funding Date applicable thereto. After Agent's receipt of
the proceeds of such Advances, upon satisfaction of the applicable conditions
precedent set forth in Section 3 hereof, Agent shall make the proceeds of such
Advances available to Borrower on the applicable Funding Date by transferring
same day funds equal to the proceeds of such Advances received by Agent to
Borrower's Designated Account; provided, however, that, subject to the
provisions of Section 2.1(k), Agent shall not request any Lender to make, and no
Lender shall have the obligation to make, any Advance if Agent shall have
received written notice from any Lender, or otherwise has actual knowledge, that
(1) one or more of the applicable conditions precedent set forth in Section 3
will not be satisfied on the requested Funding Date for the applicable Borrowing
unless such condition has been waived, or (2) the requested Borrowing would
exceed the Availability of the Borrower requesting the Advance on such Funding
Date.
(ii) Unless Agent receives notice from a Lender on or prior to
the Closing Date or, with respect to any Borrowing after the Closing Date, at
least one (1) Business Day prior to the date of such Borrowing, that such Lender
will not make available as and when required hereunder to Agent for the account
of Borrower the amount of that Lender's Pro Rata Share of the Borrowing, Agent
may assume that each Lender has made or will make such amount available to Agent
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in immediately available funds on the Funding Date and Agent may (but shall not
be so required), in reliance upon such assumption, make available to Borrower on
such date a corresponding amount. If and to the extent any Lender shall not have
made its full amount available to Agent in immediately available funds and Agent
in such circumstances has made available to Borrower such amount, that Lender
shall on the Business Day following such Funding Date make such amount available
to Agent, together with interest at the Defaulting Lenders Rate for each day
during such period. A notice submitted by Agent to any Lender with respect to
amounts owing under this subsection shall be conclusive, absent manifest error.
If such amount is so made available, such payment to Agent shall constitute such
Lender's Advance on the date of Borrowing for all purposes of this Agreement. If
such amount is not made available to Agent on the Business Day following the
Funding Date, Agent will notify Borrower of such failure to fund and, upon
demand by Agent, Borrower shall pay such amount to Agent for Agent's account,
together with interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate applicable at the time
to the Advances composing such Borrowing. The failure of any Lender to make any
Advance on any Funding Date shall not relieve any other Lender of any obligation
hereunder to make an Advance on such Funding Date, but no Lender shall be
responsible for the failure of any other Lender to make the Advance to be made
by such other Lender on any Funding Date.
(iii) Agent shall not be obligated to transfer to a Defaulting
Lender any payments made by Borrower to Agent for the Defaulting Lender's
benefit; nor shall a Defaulting Lender be entitled to the sharing of any
payments hereunder. Amounts payable to a Defaulting Lender shall instead be paid
to or retained by Agent. Agent may hold and, in its discretion, re-lend to
Borrower the amount of all such payments received or retained by it for the
account of such Defaulting Lender. Solely for the purposes of voting or
consenting to matters with respect to the Loan Documents and determining Pro
Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender" and
such Lender's Commitment shall be deemed to be zero (-0-). This section shall
remain effective with respect to such Lender until (x) the Obligations under
this Agreement shall have been declared or shall have become immediately due and
payable or (y) the requisite non-Defaulting Lenders and Agent shall have waived
such Lender's default in writing. The operation of this section shall not be
construed to increase or otherwise affect the Commitment of any Lender, or
relieve or excuse the performance by Borrower of its duties and obligations
hereunder.
(f) Making of Foothill Loans.
(i) In the event Agent shall elect, with the consent of
Foothill as a Lender, to have the terms of this Section 2.1(f) apply to a
requested Borrowing as described in Section 2.1(d), Foothill as a Lender shall
make an Advance in the amount of such Borrowing (any such Advance made solely by
Foothill as a Lender pursuant to this Section 2.1(f) being referred to as a
"Foothill Loan" and such Advances being referred to collectively as "Foothill
Loans") available to Borrower on the Funding Date applicable thereto by
transferring same day funds to Borrower's Designated Account. Each Foothill Loan
is an Advance hereunder and shall be subject to all the terms and conditions
applicable to other Advances, except that all payments thereon shall be payable
to Foothill as a Lender solely for its own account (and for the account of the
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holder of any participation interest with respect to such Advance). Subject to
the provisions of Section 2.1(k), Agent shall not request Foothill as a Lender
to make, and Foothill as a Lender shall not make, any Foothill Loan if Agent
shall have received written notice from any Lender, or otherwise has actual
knowledge, that (i) one or more of the applicable conditions precedent set forth
in Section 3 will not be satisfied on the requested Funding Date for the
applicable Borrowing unless such condition has been waived, or (ii) the
requested Borrowing would exceed the Availability of Borrower on such Funding
Date. Foothill as a Lender shall not otherwise be required to determine whether
the applicable conditions precedent set forth in Section 3 have been satisfied
on the Funding Date applicable thereto prior to making, in its sole discretion,
any Foothill Loan.
(ii) The Foothill Loans shall be secured by the Collateral and
shall constitute Advances and Obligations hereunder, and shall bear
interest at the rate applicable from time to time to Advances pursuant to
Section 2.6 hereof.
(g) Agent Advances.
(i) Subject to the limitations set forth in the proviso
contained in this Section 2.1(g), Agent hereby is authorized by Borrower and the
Lenders, from time to time in Agent's sole discretion, (1) after the occurrence
and during the continuance of a Default or an Event of Default, or (2) at any
time that any of the other applicable conditions precedent set forth in Section
3 have not been satisfied, to make Advances to either Borrower on behalf of the
Lenders that Agent, in its reasonable business judgment, deems necessary or
desirable (A) to preserve or protect the Collateral, or any portion thereof, (B)
to enhance the likelihood of repayment of the Obligations, or (C) to pay any
other amount chargeable to Borrower pursuant to the terms of this Agreement,
including Lender Group Expenses and the costs, fees, and expenses described in
Section 10 (any of the Advances described in this Section 2.1(g) being
hereinafter referred to as "Agent Advances"); provided, that the Required
Lenders may at any time revoke Agent's authorization contained in this Section
2.1(g) to make Agent Advances, any such revocation to be in writing and to
become effective upon Agent's receipt thereof.
(ii) Agent Advances shall be repayable on demand and secured by
the Collateral, shall constitute Advances and Obligations hereunder, and shall
bear interest at the rate applicable from time to time to the Advances pursuant
to Section 2.6 hereof.
(h) Settlement. It is agreed that each Lender's funded portion of the
Advances is intended by the Lenders to equal, at all times, such Lender's Pro
Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent,
Foothill, and the other Lenders agree (which agreement shall not be for the
benefit of or enforceable by Borrower) that in order to facilitate the
administration of this Agreement and the other Loan Documents, settlement among
them as to the Advances, the Foothill Loans, and the Agent Advances shall take
place on a periodic basis in accordance with the following provisions:
(i) Agent shall request settlement ("Settlement") with the
Lenders on a weekly basis, or on a more frequent basis if so determined by
Agent, (1) on behalf of Foothill, with respect to each outstanding Foothill
Loan, (2) for itself, with respect to each Agent Advance, and (3) with respect
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to Collections received, as to each by notifying the Lenders by telecopy,
telephone, or other similar form of transmission, of such requested Settlement,
no later than 5:00 p.m. (New York time) on the Business Day immediately prior to
the date of such requested Settlement (the date of such requested Settlement
being the "Settlement Date"). Such notice of a Settlement Date shall include a
summary statement of the amount of outstanding Advances, Foothill Loans, and
Agent Advances for the period since the prior Settlement Date, the amount of
repayments received in such period, and the amounts allocated to each Lender of
the interest, fees, and other charges for such period. Subject to the terms and
conditions contained herein (including Section 2.1(e)(iii)): (y) if a Lender's
balance of the Advances, Foothill Loans, and Agent Advances exceeds such
Lender's Pro Rata Share of the Advances, Foothill Loans, and Agent Advances as
of a Settlement Date, then Agent shall by no later than 3:00 p.m. (New York
time) on the Settlement Date transfer in immediately available funds to the
account of such Lender as such Lender may designate, an amount such that each
such Lender shall, upon receipt of such amount, have as of the Settlement Date,
its Pro Rata Share of the Advances, Foothill Loans, and Agent Advances; and (z)
if a Lender's balance of the Advances, Foothill Loans, and Agent Advances is
less than such Lender's Pro Rata Share of the Advances, Foothill Loans, and
Agent Advances as of a Settlement Date, such Lender shall no later than 3:00
p.m. (New York time) on the Settlement Date transfer in immediately available
funds to such account of Agent as Agent may designate, an amount such that each
such Lender shall, upon transfer of such amount, have as of the Settlement Date,
its Pro Rata Share of the Advances, Foothill Loans, and Agent Advances. Such
amounts made available to Agent under clause (z) of the immediately preceding
sentence shall be applied against the amounts of the applicable Foothill Loan or
Agent Advance and, together with the portion of such Foothill Loan or Agent
Advance representing Foothill's Pro Rata Share thereof, shall constitute
Advances of such Lenders. If any such amount is not made available to Agent by
any Lender on the Settlement Date applicable thereto to the extent required by
the terms hereof, Agent shall be entitled to recover for its account such amount
on demand from such Lender together with interest thereon at the Defaulting
Lenders Rate.
(ii) In determining whether a Lender's balance of the Advances,
Foothill Loans, and Agent Advances is less than, equal to, or greater than such
Lender's Pro Rata Share of the Advances, Foothill Loans, and Agent Advances as
of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to
such balance the portion of payments actually received in good funds by Agent or
Foothill with respect to principal, interest, fees payable by Borrower and
allocable to the Lenders hereunder, and proceeds of Collateral. To the extent
that a net amount is owed to any such Lender after such application, such net
amount shall be distributed by Agent or Foothill to that Lender as part of such
next Settlement.
(iii) Between Settlement Dates, Agent, to the extent no Agent
Advances or Foothill Loans are outstanding, may pay over to Foothill any
payments received by Agent, that in accordance with the terms of this Agreement
would be applied to the reduction of the Advances, for application to Foothill's
Pro Rata Share of the Advances. If, as of any Settlement Date, Collections
received since the then immediately preceding Settlement Date have been applied
to Foothill's Pro Rata Share of the Advances other than to Foothill Loans or
Agent Advances, as provided for in the previous sentence, Foothill shall pay to
Agent for the accounts of the Lenders, and Agent shall pay to the Lenders, to be
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applied to the outstanding Advances of such Lenders, an amount such that each
Lender shall, upon receipt of such amount, have, as of such Settlement Date, its
Pro Rata Share of the Advances. During the period between Settlement Dates,
Foothill with respect to Foothill Loans, Agent with respect to Agent Advances,
and each Lender with respect to the Advances other than Foothill Loans and Agent
Advances, shall be entitled to interest at the applicable rate or rates payable
under this Agreement on the daily amount of funds employed by Foothill, Agent,
or the Lenders, as applicable.
(i) Notation. Agent shall record on its books the principal amount of the
Advances owing to each Lender, including the Foothill Loans owing to Foothill,
and Agent Advances owing to Agent, and the interests therein of each Lender,
from time to time. In addition, each Lender is authorized, at such Lender's
option, to note the date and amount of each payment or prepayment of principal
of such Lender's Advances in its books and records, including computer records,
such books and records constituting rebuttably presumptive evidence, absent
manifest error, of the accuracy of the information contained therein.
(j) Lenders' Failure to Perform.All Advances (other than Foothill Loans and
Agent Advances) shall be made by the Lenders simultaneously and in accordance
with their Pro Rata Shares. It is understood that (i) no Lender shall be
responsible for any failure by any other Lender to perform its obligation to
make any Advances hereunder, nor shall any Commitment of any Lender be increased
or decreased as a result of any failure by any other Lender to perform its
obligation to make any Advances hereunder, and (ii) no failure by any Lender to
perform its obligation to make any Advances hereunder shall excuse any other
Lender from its obligation to make any Advances hereunder.
(k) Optional Overadvances. Any contrary provision of this Agreement
notwithstanding, if the condition for borrowing under Section 3.2(d) cannot be
fulfilled, the Lenders nonetheless hereby authorize Agent or Foothill, as
applicable, and Agent or Foothill, as applicable, may, but is not obligated to,
knowingly and intentionally continue to make Advances (including Foothill Loans)
to Borrower such failure of condition notwithstanding, so long as, at any time
(i) the outstanding Revolving Facility Usage does not exceed the Borrowing Base
by more than the lesser of (A) seven and one-half percent (7.5%) of the
Borrowing Base or (B) $1,500,000, and (ii) the outstanding Revolving Facility
Usage (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolving
Amount. The foregoing provisions are for the sole and exclusive benefit of
Agent, Foothill, and the Lenders and are not intended to benefit Borrower in any
way. The Advances and Foothill Loans, as applicable, that are made pursuant to
this Section 2.1(k) shall be subject to the same terms and conditions as any
other Advance or Foothill Loan, as applicable, except that the rate of interest
applicable thereto shall be the rates set forth in Section 2.6(b) hereof without
regard to the presence or absence of a Default or Event of Default; provided,
that the Required Lenders may, at any time during the continuance of an Event of
Default or if Borrower fails to satisfy any other material lending condition,
revoke Agent's authorization contained in this Section 2.1(k) to make
Overadvances (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses), any such revocation to be in writing
and to become effective upon Agent's receipt thereof.
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In the event Agent obtains actual knowledge that Revolving
Facility Usage exceeds the amount permitted by the preceding paragraph,
regardless of the amount of or reason for such excess, Agent shall notify
Lenders as soon as practicable (and prior to making any, or any further,
intentional Overadvances (except for and excluding amounts charged to the Loan
Account for interest, fees, or Lender Group Expenses)) unless Agent determines
that prior notice would result in imminent harm to the Collateral or its value),
and the Lenders thereupon shall, together with Agent, jointly determine the
terms of arrangements that shall be implemented with Borrower intended to
reduce, within a reasonable time, the outstanding principal amount of the
Advances to Borrower to an amount permitted by the preceding paragraph. In the
event any Lender disagrees over the terms of reduction and/or repayment of any
Overadvance, the terms of reduction and/or repayment thereof shall be
implemented according to the determination of the Required Lenders.
Each Lender shall be obligated to settle with Agent as provided
in Section 2.1(h) for the amount of such Lender's Pro Rata Share of any
unintentional Overadvances by Agent reported to such Lender, any intentional
Overadvances made as permitted under this Section 2.1(k), and any Overadvances
resulting from the charging to the Loan Account of interest, fees, or Lender
Group Expenses.
(l) Effect of Bankruptcy. If a case is commenced by or against
Borrower under the U.S. Bankruptcy Code, or other statute providing for debtor
relief, then, unless otherwise agreed by all Lenders, the Lender Group shall not
make additional loans or provide additional financial accommodations under the
Loan Documents to Borrower as debtor or debtor-in-possession, or to any trustee
for Borrower, nor consent to the use of cash collateral (provided that the Loan
Account shall continue to be charged, to the fullest extent permitted by law,
for accruing interest, fees, and Lender Group Expenses)
2.2 Letter of Credit Subfacility
(a) Agreement to Cause Issuance; Amounts; Outside Expiration Date. Subject
to the terms and conditions of this Agreement, Agent agrees to issue letters of
credit for the account of Borrower (each, an "L/C") or to issue guarantees of
payment, indemnities, participations and/or undertakings (each such guaranty,
indemnity, participation or undertaking an "L/C Guaranty") with respect to
letters of credit issued by an issuing bank for the account of Borrower. Agent
shall have no obligation to issue a Letter of Credit if any of the following
would result:
(i) the sum of 100% of the aggregate amount of all Letter of
Credit Usage would exceed the Borrowing Base less the amount of
outstanding Advances less the aggregate amount of the Hedging
Arrangement Usage, less the aggregate amount of Reserves Against
Availability and reserves established under Section 2.1(b); or
(ii) the aggregate amount of all Letter of Credit Usage would
exceed the least of: (x) the Maximum Revolving Amount less the
amount of outstanding Advances less the aggregate amount of the
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Hedging Arrangement Usage, less the aggregate amount of Reserves
Against Availability and reserves established under Section 2.1(b);
or (y) the Unsecured Note Indebtedness Limitation; or
(iii) the outstanding Obligations would exceed the Maximum
Revolving Amount; or
(iv) the aggregate amount of all Letter of Credit Usage would
exceed $4,000,000; or
(v) the aggregate amount of all Letter of Credit/Hedging
Agreement Usage would exceed $10,000,000.
Borrower expressly understands and agrees that Agent shall have no obligation to
arrange for the issuance by issuing banks of the letters of credit that are to
be the subject of L/C Guarantees. Borrower and the Lender Group acknowledge and
agree that certain of the letters of credit that are to be the subject of L/C
Guarantees may be outstanding on the Closing Date. Each Letter of Credit shall
have an expiry date no later than 60 days prior to the date on which this
Agreement is scheduled to terminate under Section 3.4 (without regard to any
potential renewal term) and all such Letters of Credit shall be in form and
substance acceptable to Agent in its sole discretion. If the Lender Group is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such amount to Agent and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed to be an
Advance hereunder and, thereafter, shall bear interest at the rate then
applicable to such Advances under Section 2.6.
(b) Indemnification. Borrower hereby agrees to indemnify, save, defend, and
hold the Lender Group harmless from any loss, cost, expense, or liability,
including payments made by the Lender Group, expenses, and reasonable attorneys
fees incurred by the Lender Group arising out of or in connection with any
Letter of Credit. Borrower agrees to be bound by the issuing bank's regulations
and interpretations of any Letters of Credit guarantied by the Lender Group and
opened to or for Borrower's account or by Agent's interpretations of any L/C
issued by the Lender Group to or for Borrower's account, even though this
interpretation may be different from Borrower's own, and Borrower understands
and agrees that the Lender Group shall not be liable for any error, negligence,
or mistake, whether of omission or commission, in following Borrower's
instructions or those contained in the Letter of Credit or any modifications,
amendments, or supplements thereto. Borrower understands that the L/C Guarantees
may require the Lender Group to indemnify the issuing bank for certain costs or
liabilities arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability incurred by the Lender Group under any L/C Guaranty as a
result of the Lender Group's indemnification of any such issuing bank.
(c) Supporting Materials. Borrower hereby authorizes and directs any bank
that issues a letter of credit guaranteed by the Lender Group to deliver to
Agent all instruments, documents, and other writings and property received by
the issuing bank pursuant to such letter of credit, and to accept and rely upon
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Agent's instructions and agreements with respect to all matters arising in
connection with such letter of credit and the related application. Borrower may
or may not be the "applicant" or "account party" with respect to such letter of
credit.
(d) Compensation for Letters of Credit. Any and all charges, commissions,
fees, and costs incurred by Agent relating to the letters of credit guaranteed
by the Lender Group shall be considered Lender Group Expenses for purposes of
this Agreement and immediately shall be reimbursable by Borrower to Agent.
(e) Cash Collateral. Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by Agent in an
amount equal to 110% of the maximum amount of the Lender Group's obligations
under outstanding Letters of Credit, or (ii) cause to be delivered to Agent
releases of all of the Lender Group's obligations under outstanding Letters of
Credit. At Agent's discretion, any proceeds of Collateral received by Agent
after the occurrence and during the continuation of an Event of Default may be
held as the cash collateral required by this Section 2.2(e).
(f) Increased Costs. If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by the issuing bank or Agent with any direction,
request, or requirement (irrespective of whether having the force of law) of any
governmental authority or monetary authority including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System as from
time to time in effect (and any successor thereto):
a. any reserve, deposit, or similar requirement is or shall
be imposed or modified in respect of any Letters of Credit issued hereunder, or
b. there shall be imposed on the issuing bank or any other
condition regarding any letter of credit, or Letter of Credit, as applicable,
issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or the Lender Group of issuing, making, guaranteeing, or
maintaining any letter of credit, or Letter of Credit, as applicable, or to
reduce the amount receivable in respect thereof by such issuing bank or the
Lender Group, then, and in any such case, the Lender Group may, at any time
within a reasonable period after the additional cost is incurred or the amount
received is reduced, notify Borrower, and Borrower shall pay on demand such
amounts as the issuing bank or Agent may specify to be necessary to compensate
the issuing bank or the Lender Group for such additional cost or reduced
receipt, together with interest on such amount from the date of such demand
until payment in full thereof at the rate set forth in Section 2.6(a)(i) or
(c)(i), as applicable. The determination by the issuing bank or Agent, as the
case may be, of any amount due pursuant to this Section 2.2(f), as set forth in
a certificate setting forth the calculation thereof in reasonable detail, shall,
in the absence of manifest or demonstrable error, be final and conclusive and
binding on all of the parties hereto.
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(g) Participations.
(1) Purchase of Participations. Immediately upon issuance of any Letter of
Credit in accordance with this Section 2.2, each Lender shall be deemed to have
irrevocably and unconditionally purchased and received without recourse or
warranty, an undivided interest and participation in the credit support or
enhancement provided through Agent to such issuer in connection with the
issuance of such Letter of Credit, equal to such Lender's Pro Rata Share of the
face amount of such Letter of Credit (including, without limitation, all
obligations of Borrower with respect thereto, and any security therefor or
guaranty pertaining thereto).
(2) Documentation. Upon the request of any Lender, Agent shall furnish to
such Lender copies of any Letter of Credit, reimbursement agreements executed in
connection therewith, application for any Letter of Credit and credit support or
enhancement provided through Agent in connection with the issuance of any Letter
of Credit, and such other documentation as may reasonably be requested by such
Lender.
(3) Obligations Irrevocable. The obligations of each Lender to make
payments to Agent with respect to any Letter of Credit or with respect to any
credit support or enhancement provided through Agent with respect to a Letter of
Credit, and the obligations of Borrower to make payments to Agent, for the
account of the Lenders, shall be irrevocable, not subject to any qualification
or exception whatsoever, including any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of the
other Loan Documents;
(ii) the existence of any claim, setoff, defense or other right which
Borrower may have at any time against a beneficiary named in a Letter of Credit
or any transferee of any Letter of Credit (or any Person for whom any such
transferee may be acting), any Lender, Agent, the issuer of such Letter of
Credit, or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transactions between Borrower or any
other Person and the beneficiary named in any Letter of Credit);
(iii) any draft, certificate or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance or
observance of any of the terms of any of the Loan Documents; or
(v) the occurrence of any Default or Event of Default.
(h) Recovery or Avoidance of Payments. In the event any payment by or on
behalf of Borrower received by Agent with respect to any Letter of Credit (or
any guaranty by Borrower or reimbursement obligation of Borrower relating
thereto) and distributed by the Agent to the Lenders on account of their
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respective participations therein, is thereafter set aside, avoided or recovered
from Agent in connection with any receivership, liquidation or bankruptcy
proceeding, the Lenders shall, upon demand by Agent, pay to Agent their
respective Pro Rata Shares of such amount set aside, avoided or recovered,
together with interest at the rate required to be paid by Agent upon the amount
required to be repaid by it.
2.3 Hedging Arrangement Subfacility
(a) Agreement to Cause Issuance; Amounts; Outside Expiration Date. Subject
to the terms and conditions of this Agreement, Agent agrees to issue guarantees
of payment, indemnities, participations and/or undertakings related to Hedging
Agreements (each such guaranty, indemnity, participation or other undertaking, a
"Hedging Agreement Undertaking") with respect to Hedging Agreements entered into
with, or arranged by or through, directly or indirectly, one or more financial
institutions acceptable to Agent (each, an "Arranging Institution") for the
account of Borrower. Agent shall have no obligation to issue a Hedging Agreement
Undertaking to Borrower if any of the following would result:
(i) the sum of 100% of the aggregate amount of all Hedging Arrangement
Usage, would exceed the Borrowing Base less the amount of outstanding Advances
less the aggregate amount of the Letter of Credit Usage, less the aggregate
amount of Reserves Against Availability and reserves established under
Section 2.1(b); or
(ii) the aggregate amount of all Hedging Arrangement Usage would exceed the
least of: (x) the Maximum Revolving Amount less the amount of outstanding
Advances less the aggregate amount of the Letter of Credit Usage, less the
aggregate amount of Reserves Against Availability and reserves established under
Section 2.1(b); or (y) the Unsecured Note Indebtedness Limitation; or
(iv) the aggregate amount of all Letter of Credit/Hedging Arrangement Usage
would exceed $10,000,000.
Borrower expressly understands and agrees that Agent shall have no obligation to
arrange for any Arranging Institution to enter into or arrange any Hedging
Agreement that is to be the subject of Hedging Agreement Undertakings. Borrower
and the Lender Group acknowledge and agree that certain of the Hedging
Agreements that are to be the subject of Hedging Agreement Undertakings may be
outstanding on the Closing Date. Each Hedging Agreement that is to be subject of
a Hedging Agreement Undertaking shall have an expiry date no later than the date
on which this Agreement is scheduled to terminate under Section 3.4 (without
regard to any potential renewal term until such time as the renewal term has
been exercised and became effective) and all such Hedging Agreements and Hedging
Agreement Undertakings shall be in form and substance acceptable to Agent in its
sole discretion. If the Lender Group is obligated to advance funds under a
Hedging Agreement Undertaking, Borrower immediately shall reimburse such amount
to Agent and, in the absence of such reimbursement, the amount so advanced
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immediately and automatically shall be deemed to be an Advance hereunder and,
thereafter, shall bear interest at the rate then applicable to such Advances
under Section 2.6.
(b) Indemnification. Borrower hereby agrees to indemnify, save, defend, and
hold the Lender Group harmless from any loss, cost, expense, or liability,
including payments made by the Lender Group, expenses, and reasonable attorneys
fees incurred by the Lender Group arising out of or in connection with any
Hedging Agreement Undertaking. Borrower agrees to be bound by the Arranging
Institution's regulations and interpretations of any Hedging Agreements
guarantied, indemnified, participated in or otherwise undertaken by the Lender
Group and opened to or for Borrower's account or by Agent's interpretations of
any Hedging Agreement Undertaking issued by the Lender Group to or for
Borrower's account, even though this interpretation may be different from
Borrower's own, and Borrower understands and agrees that the Lender Group shall
not be liable for any error, negligence, or mistake, whether of omission or
commission, in following Borrower's instructions or those contained in the
Hedging Agreements or any modifications, amendments, or supplements thereto.
Borrower understands that the Hedging Agreement Undertakings may require the
Lender Group to indemnify the Arranging Institution for certain costs or
liabilities arising out of claims by Borrower against any Arranging Institution.
Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability incurred by the Lender Group under any Hedging Agreement
Undertaking as a result of the Lender Group's indemnification of any Arranging
Institution.
(c) Supporting Materials. Borrower hereby authorizes and directs each
Arranging Institution to deliver to Agent all instruments, documents, and other
writings and property received by such Arranging Institution pursuant to any
Hedging Agreements, and, following Agent's notification to such Arranging
Institution that an Event of Default has occurred, to accept and rely upon
Agent's instructions and agreements with respect to all matters arising in
connection with such Hedging Agreement and the related application. Borrower may
or may not be the "applicant" or "account party" with respect to such letter of
credit.
(d) Compensation for Hedging Agreement Undertakings. Any and all charges,
commissions, fees, and costs incurred by Agent relating to the Hedging
Agreements guaranteed by the Lender Group and the Hedging Agreement Undertakings
shall be considered Lender Group Expenses for purposes of this Agreement and
immediately shall be reimbursable by Borrower to Agent.
(e) Cash Collateral. Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by Agent in an
amount equal to 110% of the maximum amount of the Lender Group's obligations
under outstanding Hedging Agreement Undertakings, or (ii) cause to be delivered
to Agent releases of all of the Lender Group's obligations under outstanding
Hedging Agreement Undertakings. At Agent's discretion, any proceeds of
Collateral received by Agent after the occurrence and during the continuation of
an Event of Default may be held as the cash collateral required by this Section
2.3(e).
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(f) Increased Costs. If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by any Arranging Institution or Agent with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
a. any reserve, deposit, or similar requirement is or shall be imposed or
modified in respect of any Hedging Agreement Undertaking or Hedging Agreements
guaranteed indemnified, participated in or with respect to which there is any
undertaking hereunder, or
b. there shall be imposed on any Arranging Institution or any other
condition regarding any Hedging Agreement or Hedging Agreement Undertaking;
and the result of the foregoing is to increase, directly or indirectly, the cost
to an Arranging Institution or the Lender Group of issuing, making,
guaranteeing, or maintaining any Hedging Agreement or Hedging Agreement
Undertaking, as applicable, or to reduce the amount receivable in respect
thereof by any Arranging Institution or the Lender Group, then, and in any such
case, the Lender Group may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as any Arranging Institution or
Agent may specify to be necessary to compensate the Arranging Institution or the
Lender Group for such additional cost or reduced receipt, together with interest
on such amount from the date of such demand until payment in full thereof at the
rate set forth in Section 2.6(a)(i) or (c)(i), as applicable. The determination
by any Arranging Institution or Agent, as the case may be, of any amount due
pursuant to this Section 2.3(f), as set forth in a certificate setting forth the
calculation thereof in reasonable detail, shall, in the absence of manifest or
demonstrable error, be final and conclusive and binding on all of the parties
hereto.
(g) Participations.
(1) Purchase of Participations. Immediately upon issuance of any Hedging
Agreement Undertaking in accordance with this Section 2.3, each Lender shall be
deemed to have irrevocably and unconditionally purchased and received without
recourse or warranty, an undivided interest and participation in the credit
support or enhancement provided through Agent to such issuer in connection with
the issuance of such Hedging Agreement Undertaking, equal to such Lender's Pro
Rata Share of the face amount of such Hedging Agreement Undertaking (including,
without limitation, all obligations of Borrower with respect thereto, and any
security therefor or Undertaking pertaining thereto).
(2) Documentation. Upon the request of any Lender, Agent shall furnish to
such Lender copies of any Hedging Agreement, reimbursement agreements executed
in connection therewith, application for any Hedging Agreement and credit
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support or enhancement provided through Agent in connection with the entering
into or arrangement of any Hedging Agreement guaranteed hereunder or the
issuance of any Hedging Agreement Undertaking, and such other documentation as
may reasonably be requested by such Lender.
(3) Obligations Irrevocable. The obligations of each Lender to make
payments to Agent with respect to any Hedging Agreement, Hedging Agreement
Undertaking or with respect to any credit support or enhancement provided
through Agent with respect to a any Hedging Agreement or Hedging Agreement
Undertaking, and the obligations of Borrower to make payments to Agent, for the
account of the Lenders, shall be irrevocable, not subject to any qualification
or exception whatsoever, including any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of the
other Loan Documents;
(ii) the existence of any claim, setoff, defense or other right which
Borrower may have at any time against a counterparty to any Hedging Agreement or
any transferee of any Hedging Agreement (or any Person for whom any such
transferee may be acting), any Lender, Agent, any Arranging Institution, or any
other Person, whether in connection with this Agreement, any Hedging Agreement,
any Hedging Agreement Undertaking, the transactions contemplated herein or any
unrelated transactions (including any underlying transactions between Borrower
or any other Person and the counterparty to the Hedging Agreement);
(iii) any draft, certificate or any other document presented under any
Hedging Agreement or Hedging Agreement Undertaking proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance or
observance of any of the terms of any of the Loan Documents;
or (v) the
occurrence of any Default or Event of Default.
(h) Recovery or Avoidance of Payments. In the event any payment by or on
behalf of Borrower received by Agent with respect to any Hedging Agreement
Undertaking (or any guaranty by Borrower or reimbursement obligation of Borrower
relating thereto) and distributed by the Agent to the Lenders on account of
their respective participations therein, is thereafter set aside, avoided or
recovered from Agent in connection with any receivership, liquidation or
bankruptcy proceeding, the Lenders shall, upon demand by Agent, pay to Agent
their respective Pro Rata Shares of such amount set aside, avoided or recovered,
together with interest at the rate required to be paid by Agent upon the amount
required to be repaid by it.
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2.4 Payments
(a) Payments by Borrower.
(i) All payments to be made by Borrower shall be made without set-off,
recoupment, deduction, or counterclaim, except as otherwise required by law.
Except as otherwise expressly provided herein, all payments by Borrower shall be
made to Agent for the account of the Lenders at Agent's address set forth in
Section 12, and shall be made in immediately available funds, no later than 2:00
p.m. (New York time) on the date specified herein. Any payment received by Agent
later than 2:00 p.m. (New York time), at the option of Agent, shall be deemed to
have been received on the following Business Day and any applicable interest or
fee shall continue to accrue until such following Business Day.
(ii) Whenever any payment is due on a day other than a Business Day, such
payment shall be made on the following Business Day, and such extension of time
shall in such case be included in the computation of interest or fees, as the
case may be.
(iii) Unless Agent receives notice from Borrower prior to the date on which
any payment is due to the Lenders that Borrower will not make such payment in
full as and when required, Agent may assume that Borrower has made such payment
in full to Agent on such date in immediately available funds and Agent may (but
shall not be so required), in reliance upon such assumption, distribute to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent Borrower has not made such payment in full to Agent, each
Lender shall repay to Agent on demand such amount distributed to such Lender,
together with interest thereon at the Reference Rate for each day from the date
such amount is distributed to such Lender until the date repaid.
(b) Apportionment, Application, and Reversal of Payments. Except as
otherwise provided with respect to Defaulting Lenders and except as may
otherwise be agreed among the Lenders, aggregate principal and interest payments
shall be apportioned ratably among the Lenders (according to the unpaid
principal balance of the Advances to which such payments relate held by each
Lender) and payments of the fees (other than fees designated for Agent's sole
and separate account) shall, as applicable, be apportioned ratably among the
Lenders. All payments shall be remitted to Agent and all such payments not
relating to principal or interest of specific Advances, or not constituting
payment of specific fees, and all proceeds of Accounts or other Collateral
received by Agent, shall be applied, first, to pay any fees, or expense
reimbursements then due to Agent from Borrower; second, to pay any fees or
expense reimbursements then due to the Lenders from Borrower; third, to pay
interest due in respect of all Advances (including Foothill Loans and Agent
Advances); fourth, to pay or prepay principal of Foothill Loans and Agent
Advances; fifth, ratably to pay principal of the Advances (other than Foothill
Loans and Agent Advances); sixth, to be held by Agent as cash collateral in
accordance with Section 2.2(e) hereof with respect to unreimbursed obligations
in respect of Letters of Credit; and seventh, ratably to pay any other
Obligations due to Agent or any Lender by Borrower.
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2.5 Overadvances. If, at any time or for any reason, the amount of
Obligations pursuant to Sections 2.1 and 2.2 is greater than either the Dollar
or percentage limitations set forth in Sections 2.1 or 2.2 (an "Overadvance"),
Borrower immediately shall pay to Agent, in cash, the amount of such excess,
which amount shall be used by Agent to reduce the Obligations in accordance with
the priority set forth in Section 2.4(b).
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations
(a) Interest Rate. Except as provided in clause (c) and clause (d) below,
all Obligations (except for amounts undrawn under Letters of Credit and Hedging
Arrangement Usage) shall bear interest on the Daily Balance at a per annum rate
equal to the sum of (i) the then applicable Margin as the applicable Margin may
change from time to time, plus (ii) the Reference Rate.
(b) Letter of Credit Fee; Hedging Agreement Undertaking Fee. Borrower shall
pay Agent, for the ratable benefit of the Lender Group, a fee (in addition to
the charges, commissions, fees, and costs set forth in Section 2.2(d)) equal to
1.5% per annum times the amount of the undrawn Letters of Credit. Borrower shall
pay Agent, for the ratable benefit of the Lender Group, a fee (in addition to
the charges, commissions, fees, and costs set forth in Section 2.3(d)) equal to
1.5% per annum times the amount of the Hedging Arrangements Usage.
(c) Default Rate. Upon the occurrence and during the continuation of an
Event of Default, (i) all Obligations (except amounts undrawn under Letters of
Credit and Hedging Arrangement Usage) shall bear interest at a per annum rate
equal to the sum of (A) the then applicable Default Margin as the applicable
Default Margin may change from time to time, plus (B) the Reference Rate, (ii)
the Letter of Credit fee provided in Section 2.6(b) shall be increased to 5.5%
per annum times the amount of the undrawn Letters of Credit that were
outstanding during the immediately preceding month, and (iii) the Hedging
Agreement Undertaking fee provided in Section 2.6(b) shall be increased to 5.5%
per annum times the amount of the Hedging Arrangement Usage that was outstanding
during the immediately preceding month.
(d) Minimum Interest. In no event shall the rate of interest chargeable
under Section 2.6(a) for any day be less than 8% per annum. To the extent that
interest accrued hereunder at the rate set forth in such section would be less
than the foregoing minimum daily rate, the interest rate chargeable hereunder
for such day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest and Letter of Credit fees payable hereunder shall be
due and payable, in arrears, on the first day of each month during the term
hereof. Borrower hereby authorizes Agent, at its option, without prior notice to
Borrower, to charge such interest and Letter of Credit fees, all Lender Group
Expenses (as and when incurred), the charges, commissions, fees, and costs
provided for in Section 2.2(d) (as and when accrued or incurred), the fees and
charges provided for in Section 2.11 (as and when accrued or incurred), and all
installments or other payments due under any Loan Document to Borrower's Loan
Account, which amounts thereafter shall accrue interest at the rate then
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applicable to Advances hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then applicable to
Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement is
8.25% per annum. In the event the Reference Rate is changed from time to time
hereafter, the rate of interest provided for in Section 2.6(a) and Section
2.6(c)(i) and (ii) automatically and immediately shall be increased or decreased
by an amount equal to such change in the Reference Rate. All interest and fees
chargeable under the Loan Documents shall be computed on the basis of a 360 day
year for the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. It is the intention of
the parties hereto that the Agent or each Lender shall conform strictly to usury
laws applicable to it. Accordingly, if the transactions contemplated hereby or
by any other Loan Document would be usurious as to the Agent or any Lender under
laws applicable to it (including the laws of the United States of America and
the State of New York or any other jurisdiction whose laws may be mandatorily
applicable to such Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as
security for the Indebtedness, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to Agent or any
Lender that is contracted for, taken, reserved, charged or received by Agent or
such Lender under any of the Loan Documents or agreements or otherwise in
connection with the Indebtedness shall under no circumstances exceed the maximum
amount allowed by such applicable law, and any excess shall be canceled
automatically and if theretofore paid shall be credited by the Agent or such
Lender on the principal amount of the Indebtedness (or, to the extent that the
principal amount of the Indebtedness shall have been or would thereby be paid in
full, refunded by the Agent or such Lender, as applicable, to the Borrower); and
(ii) in the event that the maturity of the Indebtedness is accelerated by reason
of an election of the holder thereof resulting from any Event of Default under
this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to Agent or any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by Agent or such
Lender, as applicable, as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by Agent or such Lender, as applicable, on
the principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by Agent or such Lender to the Borrower). All sums paid or agreed to be
paid to Agent or any Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by law applicable to Agent or such
Lender, be amortized, prorated, allocated and spread throughout the full term of
the Obligations until payment in full so that the rate or amount of interest on
account of any Obligations hereunder does not exceed the maximum amount allowed
by such applicable law. If at any time and from time to time (i) the amount of
interest payable to Agent or any Lender on any date shall be computed at the
Highest Lawful Rate (as defined below) applicable to Agent or such Lender
pursuant to this Section 2.6(g) and (ii) in respect of any subsequent interest
computation period the amount of interest otherwise payable to Agent or such
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Lender would be less than the amount of interest payable to Agent or such Lender
computed at the Highest Lawful Rate applicable to Agent or such Lender, then the
amount of interest payable to Agent or such Lender in respect of such subsequent
interest computation period shall continue to be computed at the Highest Lawful
Rate applicable to Agent or such Lender until the total amount of interest
payable to Agent or such Lender shall equal the total amount of interest which
would have been payable to Agent or such Lender if the total amount of interest
had been computed without giving effect to this Section 2.6(g). For purposes of
this Section 2.6(g), the term "applicable law" shall mean that law in effect
from time to time and applicable to the loan transaction between Borrower and
the Lender Group that lawfully permits the charging and collection of the
highest permissible, lawful non-usurious rate of interest on such loan
transaction and this Agreement, including laws of the State of New York and, to
the extent controlling, laws of the United States of America. It is intended
that, in the event that, notwithstanding the parties' express choice of other
law to be applicable to this Agreement, the laws of the State of Texas are
included in determining applicable law, Chapters 301 through 306 of the Texas
Finance Code, shall be included in any such determination, and that, for the
purpose of applying the Texas Finance Code to this Agreement, the maximum
interest rate shall be the "weekly ceiling" (as such term is used in Chapter 303
of the Texas Finance Code) from time to time in effect. Any Lender may, from
time to time, as to current and future balances, implement any other ceiling
under Chapter 303 of the Texas Finance Code by notice to Borrower, if and to the
extent permitted by Chapter 303 of the Texas Finance Code. The parties hereto
expressly agree that, except for Section 346.004 thereof, the provisions of
Chapter 346 of the Texas Finance Code shall not apply to this Agreement or to
any of the other Loan Documents or to any Obligations and that neither this
Agreement nor any Loan shall be governed by or subject to the provisions of
Chapter Fifteen in any manner whatsoever. For purposes of this Section 2.6(g),
"Highest Lawful Rate" means, with respect to Agent or any Lender, the maximum
non-usurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Obligations under
the laws applicable to Agent or such Lender which are currently in effect or, to
the extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum non-usurious interest rate than
applicable laws now allow.
2.7 Collection of Accounts.
(a) Borrower shall, as of the date of this Agreement establish and at all
times thereafter maintain one or more bank accounts in Borrower's name (each an
"Collection Account" and, collectively, the "Collection Accounts") at the bank
set forth on Schedule 2.7 or such other banks as are acceptable to Agent, which
Collection Accounts shall be covered by tri-party blocked account agreements
among such banks, Agent and Borrower, in form and substance acceptable to Agent.
Borrower shall deposit and shall cause each of its Subsidiaries to deposit or
cause to be deposited promptly, and in any event no later than the first
Business Day after the date of receipt thereof, all cash, checks, drafts or
other similar items of payment made in respect of any and all Collateral
(whether or not otherwise delivered to a Lockbox) into Collection Accounts at
banks set forth on Schedule 2.7. From time to time as requested by Agent,
Borrower shall, and shall cause each of its Subsidiaries to, execute and deliver
Transfer Orders to Agent, in form and substance satisfactory to Agent, with
respect to all present and future rights to payment relating to or arising from
the Oil and Gas Property Collateral. Borrower shall not establish any other bank
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accounts after the date of this Agreement except upon not less than 30 days
prior written notice to Agent and the delivery to Agent of a tri-party blocked
account agreement in form and substance acceptable to Agent among such bank,
Agent and Borrower. Each such blocked account agreement shall provide, among
other things, that (i) all items of payment deposited in such accounts and
proceeds thereof deposited in the applicable Collection Account are held by such
banks as agent or bailee-in-possession for Agent, (ii) the bank executing such
agreement has no rights of setoff or recoupment or any other claim against such
account, as the case may be, other than for payment of its service fee and other
charges directly related to the administration of such account and for returned
checks or other items of payment, and (iii) following Agent giving notice to
such bank to do so (which notice Agent agrees not to give to such bank prior to
the occurrence of a Triggering Event), such bank agrees to immediately forward
all amounts received in the applicable Collection Account to the Agent's
Account. From and after the occurrence of a Triggering Event, no Borrower shall,
or shall cause or permit any Subsidiary thereof to, accumulate or maintain cash
in disbursement or payroll accounts as of any date of determination in excess of
checks outstanding against such accounts as of that date and amounts necessary
to meet minimum balance requirements. As used in this Agreement, "Triggering
Event" means: (A) the occurrence or continued existence of an Event of Default
or (B) the occurrence or continued existence of the sum of Availability of
Borrower (as determined on a combined basis), plus Borrower's immediately
available unrestricted cash on hand, minus an amount determined by Agent in its
sole discretion that would be sufficient to maintain Borrower's and its
Subsidiaries' accounts payable and other current liabilities within reasonable
terms (as determined on a consolidated basis) is less than (I) $6,000,000 at any
time during the 30 day period immediately following the Closing Date, on (II)
$10,000,000 at any time from and after the 31st day following the Closing Date.
(b) Upon the occurrence of a Triggering Event, each Borrower, upon Agent's
written request, (i) shall establish and maintain lock boxes ("Lockboxes") at
one or more banks set forth on Schedule 2.7, (ii) shall request in writing and
otherwise take such reasonable steps to ensure that all Account Debtors forward
payment directly to such Lockboxes, (iii) shall and shall cause each of its
Subsidiaries to instruct all Account Debtors with respect to the Accounts,
General Intangibles, and Negotiable Collateral of such Borrower or such
Subsidiary, as the case may be, to remit all Collections in respect thereof to
such Lockbox Account, and (iv) shall, and shall cause each of its Subsidiaries
to, deposit all other Collections received by Borrower from any source
immediately upon receipt in to the Lockboxes. Borrower, each of Borrower's
Subsidiaries, Agent, and the Lockbox Banks shall enter into the Lockbox
Agreements, which among other things shall provide for the opening of a Lockbox
Account for the deposit of Collections at a Lockbox Bank. Borrower agrees that
upon the occurrence of a Triggering Event, all Collections and other amounts
received by Borrower or any of its Subsidiaries from any Account Debtor or any
other source immediately upon receipt shall be deposited into a Lockbox Account.
No Lockbox Agreement or arrangement contemplated thereby shall be modified by
Borrower or any of its Subsidiaries without the prior written consent of
Agent. Upon the terms and subject to the conditions set forth in the Lockbox
Agreements, all amounts received in each Lockbox Account shall be wired each
Business Day into the Agent's Account; provided, however, that Agent reserves
the right, in its sole discretion, to require that any amounts received in any
Lockbox Account which may represent amounts attributable to trust funds (i.e.,
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production taxes, severance taxes, or payroll taxes) or amounts attributable to
Mineral Interests of third Persons be segregated by the Lockbox Bank and held in
a separate account or otherwise as directed by Agent.
(c) The Lockboxes, Collection Accounts and Designated Account shall be cash
collateral accounts, with all cash, checks and similar items of payment in such
accounts securing payment of the Obligations and all other Indebtedness, and in
which each Loan Party shall have granted a Lien to Agent hereunder and pursuant
to the other Loan Documents
(d) Each Borrower shall and shall cause its Designated Affiliates,
officers, employees, agents, directors or other Persons acting for or in concert
with such Borrower (each a "Related Person") to (i) hold in trust for Agent all
checks, cash and other items of payment received by Borrower or any such Related
Person, and (ii) within one (1) Business day after receipt by such Borrower or
any Related Person of any checks, cash or other items of payment, deposit the
same into a Collection Account of such Borrower. Each Borrower and each Related
Person thereof acknowledges and agrees that all cash, checks or items of payment
constituting proceeds of Collateral are the property of Agent for the benefit of
the Lenders. All proceeds of the sale or other disposition of any Collateral,
shall be deposited directly into the applicable Borrower Collection Account.
2.8 Credit Payments; Application of Collections. The receipt of any
Collections by Agent (whether from transfers to Agent by the Lockbox Banks
pursuant to the Lockbox Agreements or otherwise) immediately shall be applied
provisionally to reduce the Obligations outstanding under Section 2.1, but shall
not be considered a payment on account unless such Collection item is a wire
transfer of immediately available federal funds and is made to the Agent Account
or unless and until such Collection item is honored when presented for payment;
provided, however, that Agent reserves the right, in its sole discretion, to
exclude from such provisional reduction and payment the amount of any such
Collections that Agent determines may constitute trust funds (e.g., production
taxes, severance taxes, or payroll taxes) or amounts attributable to Mineral
Interests of third Persons. From and after the Closing Date, Agent shall be
entitled to charge Borrower for 1 Business Day of 'clearance' or 'float' at the
rate set forth in Section 2.6(a) or Section 2.6(c)(i), as applicable, on all
Collections that are received by the Lockbox Banks or Agent (regardless of
whether forwarded by the Lockbox Banks to Agent, whether provisionally applied
to reduce the Obligations under Section 2.1, or otherwise). This
across-the-board 1 Business Day clearance or float charge on all Collections is
acknowledged by the parties to constitute an integral aspect of the pricing of
the Lender Group's financing of Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or Agent, and whether
or not there are any outstanding Advances, the effect of such clearance or float
charge being the equivalent of charging 1 Business Day of interest on such
Collections. Should any Collection item not be honored when presented for
payment, then Borrower shall be deemed not to have made such payment, and
interest shall be recalculated accordingly. Anything to the contrary contained
herein notwithstanding, any Collection item shall be deemed received by Agent
only if it is received into the Agent Account on a Business Day on or before
2:00 p.m. New York time. If any Collection item is received into the Agent
Account on a non-Business Day or after 2:00 p.m. New York time on a Business
Day, it shall be deemed to have been received by Agent as of the opening of
business on the immediately following Business Day. Anything contained herein to
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the contrary notwithstanding, the economic benefit of the 1 Business Day
clearance or float charge provided for in this Section 2.8 is not for the
ratable benefit of the Lenders, but instead shall be for the sole and separate
account of Agent.
2.9 Designated Account. Agent, Foothill, and the Lenders are authorized to
make the Advances, and the Letters of Credit under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section 2.6(e).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Agent, Foothill or the Lenders
hereunder. Unless otherwise agreed by Agent and Borrower, any Advance requested
by Borrower and made hereunder shall be made to the Designated Account.
2.10 Maintenance of Loan Account; Statements of Obligations. Agent shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with all Advances made by Agent, Foothill, or the
Lenders to Borrower or for Borrower's account, including, accrued interest,
Lender Group Expenses, and any other payment Obligations of Borrower. In
accordance with Section 2.8, the Loan Account will be credited with all payments
received by Agent from Borrower or for Borrower's account, including all amounts
received in the Agent Account from any Lockbox Bank. Agent shall render
statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Lender Group Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and the Lender Group unless, within 30 days after
receipt thereof by Borrower, Borrower shall deliver to Agent written objection
thereto describing the error or errors contained in any such statements.
2.11 Fees. Borrower shall pay to Agent, for the benefit of the Lenders in
the percentages and amounts as set forth in the Lender Group Fee Split Letters
(except as otherwise indicated), the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of $1,200,000, which
amount shall be fully earned and nonrefundable as of the Closing Date.
(b) Unused Line Fee. On the first day of each month during the term of this
Agreement, an unused line fee in an amount equal to 0.50% per annum times the
Average Unused Portion of the Maximum Revolving Amount during the immediately
preceding month, payable in arrears.
(c) [Intentionally Omitted]
(d) Financial Examination, Documentation, and Appraisal Fees. For the sole
and separate account of Agent: Agent's customary fee of $750 per day per
examiner, plus Agent's out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel employed by Agent;
Agent's customary one-time electronic reporting setup fee of $3,000, plus
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Agent's out-of-pocket expenses relating thereto; Agent's customary appraisal fee
of $1,500 per day per appraiser, plus Agent's out-of-pocket expenses for each
appraisal of the Collateral performed by personnel employed by Agent; and, the
actual charges paid or incurred by Agent if it elects to employ the services of
one or more third Persons to perform such financial analyses and examinations
(i.e., audits) of Borrower or to appraise the Collateral.
(e) Loan Servicing Fee. For the sole and separate account of Agent, on the
first day of each month during the term of this Agreement, and thereafter so
long as any Obligations are outstanding, a loan servicing fee in an amount equal
to $10,000 per month, which amount shall be fully earned and nonrefundable in
advance on the first day of each month.
(f) Unsecured Notes Repurchase Fee. Concurrently with the repurchase or
retirement of any of the Unsecured Notes by Borrower or any of its Subsidiaries,
a fee in an amount equal to 1% of the face amount of the Unsecured Notes so
repurchased or retired.
2.12 Joint and Several Liability; Rights of Contribution.
(a) Each Borrower states and acknowledges that: (i) pursuant to this
Agreement, Borrowers desire to utilize their borrowing potential on a
consolidated basis to the same extent possible if they were merged into a single
corporate entity; (ii) it has determined that it will benefit specifically and
materially from the advances of credit contemplated by this Agreement; (iii) it
is both a condition precedent to the obligations of Agent and the Lenders and a
desire of the Borrowers that each Borrower execute and deliver to Agent and the
Lenders this Agreement; and (iv) Borrowers have requested and bargained for the
structure and terms of and security for the advances contemplated by this
Agreement.
(b) Each Borrower hereby irrevocably and unconditionally: (i) agrees that
it is jointly and severally liable to Agent and the Lenders for the full and
prompt payment of the Obligations and the performance by each Borrower of its
obligations hereunder in accordance with the terms hereof; (ii) agrees to fully
and promptly perform all of its obligations hereunder with respect to each
advance of credit hereunder as if such advance had been made directly to it; and
(iii) agrees as a primary obligation to indemnify Agent and each of the Lenders
on demand for and against any loss incurred by Agent and such Lender as a result
of any of the obligations of any Borrower being or becoming void, voidable,
unenforceable or ineffective for any reason whatsoever, whether or not known to
Agent, any of the Lenders or any Person, the amount of such loss being the
amount which Agent and/or such Lender, as the case may be, would otherwise have
been entitled to recover from Borrower.
(c) It is the intent of each Borrower that the indebtedness, obligations
and liability hereunder of no one of them be subject to challenge on any basis.
Accordingly, as of the date hereof, the liability of each Borrower under this
Section 2.12, together with all of its other liabilities to all Persons as of
the date hereof and as of any other date on which a transfer is deemed to occur
by virtue of this Agreement, calculated in amount sufficient to pay its probable
net liabilities on its existing Indebtedness as the same become absolute and
matured ("Dated Liabilities") is, and is to be, less than the amount of the
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aggregate of a fair valuation of its property as of such corresponding date
("Dated Assets"). To this end, each Borrower under this Section 2.12 (i) grants
to and recognizes in each other Borrower, ratably, rights of subrogation and
contribution in the amount, if any, by which the Dated Assets of such Borrower,
but for the aggregate of subrogation and contribution in its favor recognized
herein, would exceed the Dated Liabilities of such Borrower or, as the case may
be, (ii) acknowledges receipt of and recognizes its right to subrogation and
contribution ratably from each other Borrower in the amount, if any by which the
Dated Liabilities of such Borrower, but for the aggregate of subrogation and
contribution in its favor recognized herein, would exceed the Dated Assets of
such Borrower under this Section 2.12. In recognizing the value of the Dated
Assets and the Dated Liabilities, it is understood that Borrowers will
recognize, to at least the same extent of their aggregate recognition of
liabilities hereunder, their rights to subrogation and contribution hereunder.
It is a material objective of this Section 2.12 that each Borrower recognizes
rights to subrogation and contribution rather than be deemed to be insolvent (or
in contemplation thereof) by reason of any arbitrary interpretation of its joint
and several obligations hereunder.
2.13 Loan Under Prior Credit Agreement. On the Closing Date:
(a) Borrower shall pay all accrued and unpaid commitment fees outstanding
under the Prior Credit Agreement for the account of each Prior Lender under the
Prior Credit Agreement;
(b) each loan, advance or other extension of credit under the Prior Loan
Agreement shall be deemed to be an Advance under this Agreement; and
(c) the Prior Credit Agreement and the commitments thereunder shall be
superceded by this Agreement and such commitments shall terminate.
3. CONDITIONS; TERM OF AGREEMENT
3.1 Conditions Precedent to the Initial Advance, Letter of Credit and
Hedging Agreement. The obligation of the Lender Group (or any member thereof)
to make the initial Advance, to issue the initial Letter of Credit, or to enter
into the initial Hedging Undertaking is subject to the fulfillment, to the
satisfaction of Agent and its counsel, of each of the following conditions on or
before the Closing Date:
(a) the Closing Date shall occur on or before October 5, 1999;
(b) Agent shall have received all financing statements and fixture filings
required by Agent, duly executed by Borrower, and Agent shall have received
searches of all recording offices requested by Agent reflecting the filing of
all such financing statements and fixture filings, together with searches of
such other offices as Agent may require (including those of Borrower, Atlantic
and the Goldking Entities), each such search dated a date within 15 days of the
Closing Date;
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(c) Agent shall have received each of the following documents, in form and
substance satisfactory to Agent, duly executed (and acknowledged, as the case
may be) by all parties and formalities contemplated thereunder, and each such
document shall be in full force and effect:
i. the Lockbox Agreements;
ii. the Disbursement Letter;
iii. the Pay-Off Letter, together with the Prior Lender Assignment
Agreements, UCC assignment statements, UCC termination statements and other
documentation evidencing the assignment and/or termination (as determined by
Agent) by the Prior Lenders (and all other holders, if any, of the indebtedness,
liabilities and other obligations under or relating to the Prior Credit
Agreement) and each other holder of Liens against the properties or assets of
Borrower or any of its Subsidiaries (other than Permitted Liens), of its Liens
in and to the properties and assets of Borrower and its Subsidiaries;
iv. the Oil and Gas Property Mortgages, dated as of the Closing Date,
covering each of the Oil and Gas Properties described in Schedule 3.1(c)(iv);
v. the Lender Group Fee Split Letter, the Lender Group Side Letter and the
Lender Group Triparty Agreement, each in form and substance acceptable to Agent,
executed by each of the Lenders in the Lender Group as of the Closing Date;
vi. Guaranty Agreements, in form and substance acceptable to Agent,
executed by each of Borrower's Subsidiaries (other than Atlantic);
vii. Security Agreements, in form and substance acceptable to Agent,
executed by Borrower and each of Borrower's Subsidiaries, with respect to all of
the assets and properties of any and all of them;
viii. the governmental permits, approvals and orders for each well and each
unit pertaining to the Oil and Gas Properties described in the Oil and Gas
Property Mortgages, which shall be in form and substance satisfactory to Agent;
ix. the Transfer Order Letters for each well on the Oil and Gas Properties,
which shall be in form and substance satisfactory to Agent;
x. assignments in form and substance acceptable to Agent of each Material
Contract pertaining to the Oil and Gas Property Collateral which either
(i) affects Borrower s or any of its Subsidiaries', as the case may be, title to
the Oil and Gas Property Collateral or otherwise affects the value, use or
operation of the Oil and Gas Property Collateral in any material respect or
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(ii) creates or evidences a material obligation or liability on the part of
Borrower or any or its Subsidiaries, together with copies of each such Material
Contract attached thereto;
xi. a solvency certificate with respect to Borrower and each of its
Subsidiaries, in the form and substance acceptable to Agent, executed by an
executive officer of Borrower;
xii. the Unsecured Notes Estoppel Certificate; and
xiii. all original stock certificates evidencing the issued and outstanding
shares of capital stock of PPC and GAC, together with stock powers duly executed
in blank by the holders of all of the legal and beneficial ownership of such
shares.
(d) Agent shall have received a certificate from the Secretary of Borrower
attesting to the resolutions of Borrower's Board of Directors authorizing its
execution, delivery, and performance of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute the same;
(e) Agent shall have received copies of Borrower's Governing Documents, as
amended, modified, or supplemented by the Closing Date, certified by the
Secretary of Borrower;
(f) Agent shall have received a certificate of status with respect to
Borrower, dated within 10 days of the Closing Date, such certificate to be
issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(g) Agent shall have received certificates of status with respect to
Borrower, each dated within 15 days of the Closing Date, such certificates to be
issued by the appropriate officer of the jurisdictions in which its failure to
be duly qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that Borrower is in good standing in such
jurisdictions;
(h) Agent shall have received a certificate of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
which shall be satisfactory to Agent and its counsel; (i) [intentionally
omitted];
(j) Agent shall have received such Collateral Access Agreements from
lessors, warehousemen, bailees, and other third persons with respect to (i)
Borrower's leased premises at which its chief executive offices, (ii) all
location at which Borrower's Books are located from time to time, and (iii) each
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other location of Borrower except the Oil and Gas Properties and locations on
which Borrower has Inventory or Equipment having an aggregate value of less than
$250,000 at such location;
(k) Agent shall have received copies of all contracts set forth on Schedule
5.1(c), and such contracts shall be in form and substance satisfactory to Agent;
(l) Agent shall have received an opinion of Borrower's counsel in form and
substance satisfactory to Agent in its sole discretion, and opinions of
Borrower's and Guarantor's Texas and Louisiana counsel and counsel in such other
states and jurisdictions as may be requested by Agent in form and substance
satisfactory to Agent in its sole discretion;
(m) Agent shall have received (i) appraisals of the Oil and Gas Properties
in the form of Reserve Reports prepared by a third party petroleum engineering
firm (including, but not limited to, appraisals, verifications and liquidation
analyses of Borrower's and each of its Subsidiaries' Proved Reserves) covering
the Borrower's Mineral Interests listed on Schedule 5.1(a) in each case
satisfactory to Agent, and (ii) title opinions for the Oil and Gas Properties
covering Borrower's eight highest value Mineral Interests (based upon PV-10
Value) listed on Schedule 5.1(a) issued to Agent for the benefit of the Lender
Group by a legal counsel to Borrower that is experienced in the examination of
title to such Oil and Gas Properties and is satisfactory to Agent (each a "Title
Opinion" and, collectively, the "Title Opinions"), each of which Title Opinions
shall be in form and substance satisfactory to Agent and shall:
(A) be updated within 15 days of the date of the filing of the Oil and Gas
Property Mortgage to confirm the priority of the Lien created by the Oil and Gas
Property Mortgage,
(B) opine as to such matters incident to such Oil and Gas Properties as
Agent may reasonably request including the following with respect to the Mineral
Interests in the particular Oil and Gas Property Collateral being reviewed:
(I) Borrower or its Subsidiary, as the case may be, that is the grantor
under the Oil and Gas Property Mortgage covering the Oil and Gas Properties has
good and marketable title to such Oil and Gas Properties to the extent of the
Mineral Interests as specified therein, free and clear of all Liens and defects
except Permitted Liens.
(II) Borrower or its Subsidiary, as the case may be, that is the grantor
under the Oil and Gas Property Mortgage covering the Oil and Gas Properties is
entitled to receive, after giving effect to all royalties, overriding royalties
and other burdens payable out of production, a decimal share of all Hydrocarbons
produced and sold from such Oil and Gas Properties, before and after payout, not
less than set forth in the opinion.
(III) The operating interest in such Oil and Gas Properties of Borrower or
its Subsidiary, as the case may be, that is the grantor under the Oil and Gas
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Property Mortgage covering the Oil and Gas Properties, is not obligated to bear
a decimal share of all costs and expenses from the operation thereof in excess
of that set forth therein.
(IV) The Liens created by the Oil and Gas Property Mortgage are valid and
enforceable first priority mortgage Liens which are first in right and prior in
time and superior to all other Liens against such Mineral Interests and other
Oil and Gas Properties other than Permitted Liens.
(n) The Mineral Interests in the Oil and Gas Property Collateral shall not
be less than the Mineral Interests for such properties furnished by Borrower to
Agent in connection with Agent's credit evaluation in connection with this
Agreement;
(o) Borrower shall have delivered to Agent evidence satisfactory to Agent
confirming that each of the producing wells listed on Schedule 5.1(b) is located
on an Oil and Gas Property (i) covered by the title opinions and (ii) described
in the legal description contained in an Oil and Gas Property Mortgage which has
been duly executed and delivered to Agent;
(p) [intentionally omitted];
(q) Agent shall have received a phase-I environmental report with respect
to the Oil and Gas Property Collateral; the environmental consultants, the scope
of the reports or surveys, and the results thereof shall be acceptable to Agent
in its sole discretion;
(r) Agent shall have received satisfactory evidence that all tax returns
required to be filed by Borrower have been timely filed and all taxes upon
Borrower or its properties, assets, income, and franchises (including real
property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest; (s) Agent shall have
received satisfactory reference investigation reports of key
officers and employees;
(t) On the Closing Date, Borrower shall have not less than $12,500,000 of
Availability (on a combined basis) and unrestricted immediately available cash
on hand after making the payments described in Section 7.17(a)(i) and the
$1,200,000 due on the Closing Date pursuant to Section 2.11(a) and after
reserving as an additional deduction from Availability an amount determined by
Agent in its sole discretion that would be sufficient to maintain Borrowers' and
their Subsidiaries' accounts payable and other current liabilities within
reasonable terms;
(u) Agent shall reviewed Borrowers' and each of their Subsidiaries' Hedging
Agreements and other hedging arrangements (with respect to its present and
future Hydrocarbon production and otherwise), and all of such Hedging Agreements
and other hedging arrangements shall be acceptable to Agent;
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(v) Foothill shall have received commitments from one or more other Persons
acceptable to Agent to become Lenders under this Agreement to the extent of 50%
of the Commitments, on a repayment basis which is junior to Foothill and on
other terms and conditions which are acceptable to Foothill, all in a manner and
to an extent which is in form and substance acceptable to Foothill;
(w) Agent shall have received evidence satisfactory to Agent including,
without limitation, a certificate executed by the chief financial officer of
Borrower, to such effect, that no Material Adverse Change has occurred in the
business, assets, operations, prospects or financial or other condition of
Borrower or any of its Subsidiaries since December 31, 1998; and
(x) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Agent and its
counsel.
3.2 Conditions Precedent to all Advances, all Letters of Credit and all
Hedging Agreement Guarantees. The following shall be conditions precedent to all
Advances, all Letters of Credit and all Hedging Agreement Guarantees hereunder:
(a) the representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct in all respects on and as of the
date of such extension of credit, as though made on and as of such date (except
to the extent that such representations and warranties relate solely to an
earlier date);
(b) no Default or Event of Default shall have occurred and be continuing on
the date of such extension of credit, nor shall either result from the making
thereof;
(c) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any governmental authority against any
Borrower, Agent, the Lender Group, or any of their Designated Affiliates; and
(d) the amount of the Revolving Facility Usage, after giving effect to the
requested Advance, Letter of Credit or Hedging Arrangement, shall not exceed the
Availability.
The foregoing conditions precedent are not conditions to each Lender (i)
participating in or reimbursing Agent for such Lenders' Pro Rata Share of any
drawings under or any other amounts payable with respect to Letters of Credit
and Hedging Agreement Guarantees as provided herein, or (ii) participating in or
reimbursing Foothill or the Agent for such Lenders' Pro Rata Share of any
Foothill Loan or Agent Advance as provided herein.
3.3 Condition Subsequent. As conditions subsequent to initial closing
hereunder, Borrower shall perform or cause to be performed the following (the
failure by Borrower to so perform or cause to be performed constituting an Event
of Default):
(a) within 30 days of the Closing Date, deliver to Agent the certified
copies of the policies of insurance, together with the endorsements thereto, as
are required by Section 6.10, the form and substance of which shall be
satisfactory to Agent and its counsel;
(b) within 60 days of the Closing Date, deliver to Agent the Oil and Gas
Mortgages, opinions, certificates and other items and information described on
Exhibit 3.3 with respect to all Oil and Gas Properties of Borrower listed on
Schedule 3.3(b);
(c) within 60 days of the Closing Date, deliver to Agent Oil and Gas
Mortgages and legal opinions, each in form and substance satisfactory to Agent
with respect to all Oil and Gas Properties of Borrower listed on Schedule
3.3(c);
(d) on or before December 31, 1999, Panaco and PPC shall have merged with
PPC merging with and into Panaco, with Panaco being the sole surviving entity,
and such merger shall have become valid, binding and effective for all purposes
under all applicable laws on or before such date, and shall have delivered to
Agent such certificates and other evidence thereof, together with legal opinions
regarding the same, as are satisfactory to Agent;
(e) within 30 days of the Closing Date, Borrower shall deliver to Agent
evidence satisfactory to Agent that all general bonding, supplemental bonding
and other security required by the MMS pursuant to the correspondence from the
MMS to Panaco (copies of which are attached hereto as Exhibit 3.3(e)) in
connection with or relating to the purchase by and transfer to Panaco of the
East Breaks 165 Interest; and
(f) at all times after Closing Date, Borrower shall use its best efforts to
cause the MMS to approve the purchase by and transfer to Panaco of the East
Breaks 165 Interest, and all rights, title and interests thereto. . 3.4 Term;
Automatic Renewal
(a) This Agreement shall become effective upon the execution and delivery
hereof by Borrower and the Lender Group and shall continue in full force and
effect for a term ending on the date (the "Renewal Date") that is 2 years from
the Closing Date; provided, however, that as long as there has not occurred a
Default or Event of Default which is then continuing, Borrower shall be
permitted to renew this Agreement for (i) one 6 month period from the Renewal
Date (the "First Renewal Period") provided that Borrower shall have (A) given
Agent at least 30 days prior written notice of its intention to so renew this
Agreement for the First Renewal Period and (B) paid to Agent, for the benefit of
the Lenders in the percentages and fees as set forth in the Lender Group Fee
Split Letter, a renewal fee in an amount equal to 1% of the Maximum Revolving
Credit Amount with respect to the First Renewal Period (which renewal fee shall
be deemed fully earned and nonrefundable as of the date that Borrower gives
notice of such renewal to Agent), and (ii) one additional 6 month period from
the last day of the First Renewal Period (the "Second Renewal Period") provided
that Borrower shall have (A) given Agent at least 30 days prior written notice
of its intention to so renew this Agreement for the Second Renewal Period and
(B) paid to Agent, for the benefit of the Lenders in the percentages and fees as
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set forth in the Lender Group Fee Split Letter, a renewal fee in an amount equal
to 1% of the Maximum Revolving Credit Amount with respect to such Second Renewal
Period (which renewal fee shall be deemed fully earned and nonrefundable as of
the date that Borrower gives notice of such renewal to Agent), unless sooner
terminated pursuant to the terms hereof.
(b) Borrower may terminate this Agreement only on the Renewal Date, the
last day of the First Renewal Period or the last day of the Second Renewal
Period, except as otherwise provided in Section 3.6. The foregoing
notwithstanding, the Lender Group shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.5 Effect of Termination On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations of Borrower with
respect to any outstanding Letters of Credit) immediately shall become due and
payable without notice or demand. No termination of this Agreement, however,
shall relieve or discharge Borrower of Borrower's duties, Obligations, or
covenants hereunder or under the other Loan Documents, and Agent's continuing
security interests in the Collateral, for the benefit of the Lender Group, shall
remain in effect until all Obligations have been fully and finally discharged
and the Lender Group's obligations to provide additional credit hereunder have
been terminated.
3.6 Early Termination by Borrower. Borrower has the option, at any time
upon 90 days prior written notice to Agent, to terminate this Agreement by
paying to Agent, for the ratable benefit of the Lender Group, in cash, the
Obligations (including an amount equal to 110% of the undrawn amount of the
Letters of Credit and the Hedging Arrangement Usage), in full, together with a
premium (the "Early Termination Premium") equal to the greater of (a) the total
interest and Letter of Credit fees and Hedging Agreement Undertaking fees for
the immediately preceding 6 months, and (b) if the termination occurs (i) on or
before the first anniversary of the Closing Date, an amount equal to 2% of the
Maximum Revolving Amount, and (ii) if the termination occurs at any time after
the first anniversary of the Closing Date (other than the Renewal Date, the last
day of the First Renewal Period or the last day of the Second Renewal Period),
an amount equal to 1% of the Maximum Revolving Amount.
3.7 Termination Upon Event of Default. If the Lender Group terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of the Lender
Group's lost profits as a result thereof, Borrower shall pay to Agent, for the
ratable benefit of the Lender Group, upon the effective date of such
termination, a premium in an amount equal to the Early Termination Premium. The
Early Termination Premium shall be presumed to be the amount of damages
sustained by the Lender Group as the result of the early termination and
Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
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4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Agent, for the
benefit of the Lender Group, continuing Liens on all right, title, and interest
of Borrower in and to all currently existing and hereafter acquired or arising
Collateral in order to secure prompt repayment of any and all Obligations and in
order to secure prompt performance by Borrower of each of its covenants and
duties under the Loan Documents (the "Agent's Liens"). The Agent's Liens in and
to the Collateral shall attach to all Collateral without further act on the part
of the Lender Group or Borrower. Anything contained in this Agreement or any
other Loan Document to the contrary notwithstanding, except for the sale of
Inventory to buyers in the ordinary course of business and except as
specifically permitted under Section 7.4, Borrower has no authority, express or
implied, to dispose of any item or portion of the Collateral. Subject to Section
2.4(b), the secured claims of the Lender Group secured by the Collateral shall
be of equal priority, and ratable according to the respective Obligations due
each member of the Lender Group.
4.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower
promptly shall, and shall cause each of its Subsidiaries to, endorse and deliver
physical possession of such Negotiable Collateral to Agent.
4.3 Collection of Accounts, General Intangible, and Negotiable Collateral.
At any time, Agent or Agent's designee may (a) notify customers or Account
Debtors that the Accounts, General Intangibles, or Negotiable Collateral have
been assigned to Agent for the benefit of the Lender Group, or that Agent, for
the benefit of the Lender Group, has a security interest therein and (b) collect
the Accounts, General Intangibles, and Negotiable Collateral directly and charge
the collection costs and expenses to the Loan Account. Borrower agrees that it
will, and will cause each of its Subsidiaries to, hold in trust for the Lender
Group, as the Lender Group's trustee, any Collections that it receives and
immediately will deliver said Collections to Agent in their original form as
received by Borrower or any of its Subsidiaries, as the case may be.
4.4 Delivery of Additional Documentation Required. At any time upon the
request of Agent, Borrower shall, and shall cause each of its Subsidiaries to,
execute and deliver to Agent all financing statements, collateral assignments,
continuation financing statements, fixture filings, security agreements,
pledges, assignments, mortgages, leasehold mortgages, deeds of trust, leasehold
deeds of trust, endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters of authority, and
all other documents that Agent reasonably may request, in form satisfactory to
Agent, to perfect and continue perfected the Agent's Liens on the Collateral
(whether now owned or hereafter arising or acquired), and in order to consummate
fully all of the transactions contemplated hereby and under the other the Loan
Documents.
4.5 Power of Authority. Borrower hereby irrevocably makes, constitutes, and
appoints Agent (and any of Agent's officers, employees, or agents designated by
Agent) as Borrower's true and lawful attorney, with power to (a) if Borrower
refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the documents
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described in Section 4.4, (b) at any time that an Event of Default has occurred
and is continuing or Agent deems itself insecure, sign Borrower's name on any
invoice or bill of lading relating to any Account, drafts against Account
Debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to Account Debtors, (c) send requests for verification of Accounts, (d)
endorse Borrower's name on any Collection item that may come into the Lender
Group's possession, (e) at any time that an Event of Default has occurred and is
continuing or the Lender Group deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Agent, to receive and open all mail addressed to Borrower, and to
retain all mail relating to the Collateral and forward all other mail to
Borrower, (f) at any time that an Event of Default has occurred and is
continuing or Agent deems itself insecure, make, settle, and adjust all claims
under Borrower's policies of insurance and make all determinations and decisions
with respect to such policies of insurance, and (g) at any time that an Event of
Default has occurred and is continuing or Agent deems itself insecure, settle
and adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms that Agent determines to be reasonable, and
Agent may cause to be executed and delivered any documents and releases that
Agent determines to be necessary. The appointment of Agent as Borrower's
attorney, and each and every one of Agent's rights and powers, being coupled
with an interest, is irrevocable until all of the Obligations have been fully
and finally repaid and performed and the Lender Groups' obligations to extend
credit hereunder are terminated.
4.6 Right to Inspect. Agent (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter to inspect the Books
and to check, test, audit and appraise the Collateral in order to verify
Borrower's and its Subsidiaries' financial condition or the amount, quality,
value, condition of, or any other matter relating to, the Collateral (including
checks, tests and audits by a qualified engineer selected by Agent of Borrower's
and each of its Subsidiaries' onshore and offshore wells, rigs, pipeline
distribution systems and operations).
4.7 Control Agreements. Borrower agrees that it will not, and that it will
cause each of its Subsidiaries not to, transfer assets out of any Securities
Accounts other than as permitted under Section 7.22 and, if to another
securities intermediary, unless each of Borrower, such Subsidiary, Agent, and
the substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other investment property shall be modified by Borrower
or any of its Subsidiaries without the prior written consent of Agent. Upon the
occurrence and during the continuance of a Default or Event of Default, Agent
may notify any securities intermediary to liquidate or transfer the applicable
Securities Account or any related investment property maintained or held thereby
and remit the proceeds thereof to the Agent Account.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this Agreement, Borrower
makes the following representations and warranties to the Lender Group which
shall be true, correct, and complete in all respects as of the date hereof, and
shall be true, correct, and complete in all respects as of the Closing Date, and
at and as of the date of the making of each Advance or Letter of Credit made
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thereafter, as though made on and as of the date of the making of such Advance
or Letter of Credit (except to the extent that such representations and
warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1 No Encumbrances. Borrower has good, marketable and indefeasible title
to the Collateral, free and clear of all Liens (except for Permitted Liens),
including but not limited to:
(a) Ownership of the Oil and Gas Properties listed on Schedule 5.1(a);
(b) The amount of the Net Revenue Interest of the Oil and Gas Properties,
as set forth on Schedule 5.1(b);
(c) All rights under the Material Contracts listed on Schedule 5.1(c); and
(d) Ownership of the Real Property, to the extent stated on Schedule
5.1(d).
5.2 Eligible Proved Reserves; Ownership of Oil and Gas Properties.
(a) All Eligible Proved Reserves are Proved Reserves of which Borrower has
fee simple legal title to or valid leasehold interest in (in each case, good,
marketable and indefeasible, except for Permitted Liens), and of which Borrower
is the beneficial owner of, to the full extent of the quantity of interest
specified in the most recent Reserve Report delivered to Agent by Borrower, and
all of the information with respect thereto contained on Schedules 5.1(a),
5.1(b), 5.1(c), 5.2(e) and 5.3 (and with respect to all Proved Reserves other
than those listed on Schedule 5.1(a), the analogous supplemental Schedules
contemplated on Exhibit 3.3 with respect thereto) is true and correct. All
Mineral Interests of the Eligible Proved Reserves are a part are in full force
and effect and Borrower is in full compliance with its obligations thereunder.
All wells drilled and Hydrocarbons produced with respect to such Eligible Proved
Reserves were drilled and produced in compliance with all applicable
regulations. There are no outstanding authorities for expenditures with respect
to any Eligible Proved Reserves which are not reflected in the most recent
Reserve Report delivered by Borrower to Agent. Borrower has not elected to go
"nonconsent" on any operations with respect to any Eligible Proved Reserves. All
of such Eligible Proved Reserves are a part of the Oil and Gas Properties
described in Schedule 5.1(a), are covered by the engineering reports which
Borrower has previously delivered to and which have been relied upon by Agent in
connection with this Agreement, and are part of the Oil and Gas Property
Collateral covered by the Oil and Gas Property Mortgages. All bills (except for
those which are less than 45 days past original invoice date, are not past due
and do not give rise to a Lien other than a Permitted Lien) and taxes have been
paid with respect to all Eligible Proved Reserves.
(b) All Eligible Proved Developed Producing Reserves are Proved Developed
Producing Reserves of which Borrower has fee simple legal title to or valid
leasehold interest in (in each case, good, marketable and indefeasible, except
for Permitted Liens), and of which Borrower is the beneficial owner of, to the
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full extent of the quantity of interest specified in the most recent Reserve
Report delivered to Agent by Borrower, and all of the information with respect
thereto contained on Schedules 5.1(a), 5.1(b), 5.1(c), 5.2(e) and 5.3 (and with
respect to all Proved Reserves other than those listed on Schedule 5.1(a), the
analogous supplemental Schedules contemplated on Exhibit 3.3 with respect
thereto) is true and correct.
(c) All Eligible Proved Developed Non-Producing Reserves are Proved
Developed Non-Producing Reserves of which Borrower has fee simple legal title to
or valid leasehold interest in (in each case, good, marketable and indefeasible,
except for Permitted Liens), and of which Borrower is the beneficial owner of,
to the full extent of the quantity of interest specified in the most recent
Reserve Report delivered to Agent by Borrower, and all of the information with
respect thereto contained on Schedules 5.1(a), 5.1(b), 5.1(c), 5.2(e) and 5.3
(and with respect to all Proved Reserves other than those listed on Schedule
5.1(a), the analogous supplemental Schedules contemplated on Exhibit 3.3 with
respect thereto) attached hereto is true and correct.
(d) All Eligible Proved Undeveloped Reserves are Proved Undeveloped
Reserves of which Borrower has fee simple legal title to or valid leasehold
interest in (in each case, good, marketable and indefeasible, except for
Permitted Liens), and of which Borrower is the beneficial owner of, to the full
extent of the quantity of interest specified in the most recent Reserve Report
delivered to Agent by Borrower, and all of the information with respect thereto
contained on Schedules 5.1(a), 5.1(b), 5.1(c), 5.2(e) and 5.3 (and with respect
to all Proved Reserves other than those listed on Schedule 5.1(a), the analogous
supplemental Schedules contemplated on Exhibit 3.3 with respect thereto)
attached hereto is true and correct.
(e) All of Borrower's marketing arrangements with respect to its Proved
Reserves are valid, enforceable and in full force and effect. There do not exist
any cumulative imbalances in gas production or receipt of "take or pay" payments
except as disclosed (as to both existence and extent) on Schedule 5.2(e)
attached hereto.
(f) Without limiting the foregoing, after giving full effect to the
Permitted Liens, Borrower owns the net revenue interests in production
attributable to the Oil and Gas Properties covered by the Oil and Gas Property
Mortgages as is reflected in the most recently delivered Reserve Report and the
ownership of such Properties shall not in any material respect obligate Borrower
to bear the costs and expenses relating to the maintenance, development and
operations of each such Property in an amount in excess of the working interest
of each such Property set forth in the most recently delivered Reserve Report.
All information contained in the most recently delivered Reserve Report is true
and correct in all material respects as of the date thereof. (g) With respect to
all Eligible Proved Reserves, all of the statements on Exhibit
3.3 are true and correct.
(h) There has not been any Material Adverse Change in the Oil and Gas
Properties since the date of the most recent Reserve Report.
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5.3 Operations of Oil and Gas Properties. With respect to each Mineral
Interest which is a working interest, Borrower is the operator except as set
forth in Schedule 5.3 attached hereto.
5.4 Equipment. All of the Equipment is used or held for use in Borrower's
business and is fit for such purposes, subject to (a) normal wear and tear and
(b) dispositions permitted under Section 7.4.
5.5 Location of Inventory and Equipment. The Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party and are located only at
the locations identified on Schedule 6.12 or otherwise permitted by Section
6.12, except for Inventory and Equipment which
(a) are located on the Oil and Gas Property Collateral; (b) are in-transit
for delivery in the ordinary course of business to Borrower from
Borrower's suppliers;
(c) are located in Texas, Louisiana, Mississippi or Alabama (or in the
Federal Outer Continental Shelf and adjacent to any such state in-transit in the
ordinary course of business between Borrower's Oil and Gas Properties;
(d) consist of well pipe being coated in the ordinary course of business by
a processor for Borrower;
(e) or have a value of less than $50,000 for all such Inventory and
Equipment.
5.6 Oil and Gas Property Collateral Records and Inventory Records. Borrower
keeps correct and accurate records itemizing and describing the kind, type,
quality, and quantity of the Oil and Gas Property Collateral and the Inventory,
and Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive office of
Panaco is located at the address indicated in the preamble to this Agreement and
Panaco's FEIN is 43-1593374. The chief executive office of each of PPC and GAC
is located at the same location as Panaco's address indicated in the preamble to
this Agreement, PPC's FEIN is 76-0380056 and GAC's FEIN is 43-1796254.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Each Borrower is duly organized and existing and in good standing under
the laws of the jurisdiction of its incorporation and qualified and licensed to
do business in, and in good standing in, any state where the failure to be so
licensed or qualified reasonably could be expected to constitute a Material
Adverse Change. Each of Borrower's Subsidiaries is duly organized and existing
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and in good standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified reasonably could be expected to
constitute a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate description of
the authorized capital Stock of Borrower, by class, and, as of the Closing Date,
a description of the number of shares of each such class that are issued and
outstanding and the number of such shares that are held in Borrower's treasury.
All such outstanding shares have been validly issued and, as of the Closing
Date, are fully paid, nonassessable shares free of contractual preemptive
rights. The issuance and sale of all such shares have been in compliance with
all applicable federal and state securities laws. Other than as described on
Schedule 5.8, there are no subscriptions, options, warrants, or calls relating
to any shares of Borrower's capital Stock, including any right of conversion or
exchange under any outstanding security or other instrument. Neither Borrower
nor any of its Subsidiaries is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital Stock or any security convertible into or exchangeable for any of its
capital Stock.
(c) Set forth on Schedule 5.8, is a complete and accurate list of
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
Borrower has no interest in any partnerships (other than tax partnerships which
are not partnerships under applicable state law). GAC has no assets in excess of
$10,000 in the aggregate except for its ownership of 100% of the capital stock
of PPC. GAC has no liabilities in excess of $10,000 in the aggregate. Atlantic
has no assets in excess of $10,000 in the aggregate, has no liabilities in
excess of $10,000 in the aggregate is dormant and has not conducted any business
during the 12 month period immediately preceding the Closing Date.
(d) Except as set forth on Schedule 5.8, no capital Stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital Stock) of any direct or indirect Subsidiary of
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower of this Agreement
and the Loan Documents to which it is a party have been duly authorized by all
necessary corporate action.
(b) The execution, delivery, and performance by Borrower of this Agreement
and the Loan Documents to which it is a party do not and will not (i) violate
any provision of federal, state, or local law or regulation (including
Regulations U and X of the Federal Reserve Board) applicable to Borrower, the
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Governing Documents of Borrower, or any order, judgment, or decree of any court
or other Governmental Authority binding on Borrower, (ii) conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a
default under any Material Contract or other material contractual obligation or
material lease of Borrower, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets of
Borrower, other than Permitted Liens, or (iv) require any approval of
stockholders or any approval or consent of any Person under any Material
Contract or other material contractual obligation of Borrower.
(c) Other than the taking of any action expressly required under this
Agreement and the Loan Documents, the execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which Borrower is a party
do not and will not require any registration with, consent, or approval of, or
notice to, or other action with or by, any federal, state, foreign, or other
Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower is a party, and
all other documents contemplated hereby and thereby, when executed and delivered
by Borrower will be the legally valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.
(e) The Agent's Liens granted by Borrower to Agent, for the benefit of the
Lender Group, in and to its properties and assets pursuant to this Agreement and
the other Loan Documents are validly created, perfected, and first priority
Liens, subject only to Permitted Liens.
(f) Neither the Borrower nor any of its Subsidiaries has violated, and
neither the Borrower, nor any Subsidiary will be in violation of, any provisions
of the Natural Gas Act or the Natural Gas Policy Act of 1978 or any other
Federal or State law or any of the regulations thereunder (including those of
the respective Conservation Commissions and Land Offices of the various
jurisdictions having authority over its Oil and Gas Properties) with respect to
its Oil and Gas Properties which would create a Material Adverse Change, and the
Borrower and each Subsidiary have or will have made all necessary rate filings,
certificate applications, well category filings, interim collection filings and
notices, and any other filings or certifications, and has or will have received
all necessary regulatory authorizations (including without limitation necessary
authorizations, if any, with respect to any processing arrangements conducted by
it or others respecting its Oil and Gas Properties or production therefrom)
required under said laws and regulations with respect to all of its Oil and Gas
Properties or production therefrom so as not to create a Material Adverse
Change. To the best of the Borrower's knowledge, said material rate filings,
certificate applications, well category filings, interim collection filings and
notices, and other filings and certifications contain no untrue statements of
material facts nor do they omit any statements of material facts necessary in
said filings.
5.10 Claims, Disputes, and Litigation. There are no actions or proceedings
pending by or against Borrower before any court or administrative agency and
Borrower does not have knowledge or belief of any pending or threatened
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litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or any guarantor of the Obligations, except for:
(a) ongoing collection matters in which Borrower is the claimant, petitioner or
plaintiff; (b) matters disclosed on Schedule 5.10; and (c) matters arising after
the date hereof that, if decided adversely to Borrower, do not result in and
reasonably could not be expected to result in a Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating to
Borrower or any guarantor of the Obligations that have been delivered by
Borrower to the Lender Group have been prepared in accordance with GAAP (except,
in the case of unaudited financial statements, for the lack of footnotes and
being subject to year-end audit adjustments) and fairly present Borrower's (or
such guarantor's, as applicable) financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been a
Material Adverse Change with respect to Borrower (or such guarantor, as
applicable) since the date of the latest financial statements submitted to the
Lender Group on or before the Closing Date.
5.12 No Fraudulent Transfer.
(a) Borrower is Solvent.
(b) No transfer of property is being made by Borrower and no obligation is
being incurred by Borrower in connection with the transactions contemplated by
this Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Borrower.
5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or any
of their ERISA Affiliates maintains or contributes to any Benefit Plan, other
than those listed on Schedule 5.13. Borrower, each of its Subsidiaries and each
ERISA Affiliate have satisfied the minimum funding standards of ERISA and the
IRC with respect to each Benefit Plan to which it is obligated to contribute. No
ERISA Event has occurred nor has any other event occurred that may result in an
ERISA Event that reasonably could be expected to result in a Material Adverse
Change. None of Borrower or its Subsidiaries, any ERISA Affiliate, or any
fiduciary of any Plan is subject to any direct or indirect liability with
respect to any Plan under any applicable law, treaty, rule, regulation, or
agreement. None of Borrower or its Subsidiaries or any ERISA Affiliate is
required to provide security to any Plan under Section 401(a)(29) of the IRC.
5.14 Environmental Condition. None of the Oil and Gas Properties or the
Real Property has ever been designated or identified in any manner pursuant to
any Environmental Laws as a Hazardous Materials disposal site, or a candidate
for closure pursuant to any environmental protection statute. No Lien arising
under any Environmental Laws has attached to any revenues or to any real or
personal property owned or operated by Borrower. Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment. Borrower has taken all steps reasonably
necessary to determine and has determined that no Hazardous Materials, solid
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waste, or oil and gas exploration and production wastes, have been disposed of
or otherwise released and there has been no threatened release of any Hazardous
Materials on or to any Property of Borrower or any of its Subsidiaries except in
compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment. To the
extent applicable, all Property of Borrower and each of its Subsidiaries
currently satisfies all design, operation, and equipment requirements imposed by
the OPA or scheduled as of the Closing Date to be imposed by OPA during the term
of this Agreement, and Borrower does not have any reason to believe that such
Property, to the extent subject to OPA, will not be able to maintain compliance
with the OPA requirements during the term of this Agreement. Neither Borrower
nor any of its Subsidiaries has any known contingent liability in connection
with any release or threatened release of any oil, Hazardous Material or solid
waste into the environment, except with respect to the pending litigation
disclosed on Schedule 5.10. All Hazardous Materials, solid waste, and oil and
gas exploration and production wastes, if any, generated at any and all Property
of Borrower or any of its Subsidiaries have in the past been transported,
treated and disposed of in accordance with Environmental Laws and so as not to
pose an imminent and substantial endangerment to public health or welfare or the
environment, and, to the best knowledge of Borrower, all such transport carriers
and treatment and disposal facilities have been and are operating in compliance
with Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and are not the
subject of any existing, pending or threatened action, investigation or inquiry
by any Governmental Authority in connection with any Environmental Laws.
5.15 Compliance with the Law. Neither Borrower nor any of its Subsidiaries
has violated any requirement of a Governmental Authority or failed to obtain any
license, permit, franchise or other governmental authorization necessary for the
ownership of the Property or the conduct of its business, which violation or
failure could reasonably be expected to result in (in the event such violation
or failure were asserted by any Person through appropriate action) a Material
Adverse Change. Except for such acts or failures to act as do not result in and
could not reasonably be expected to result in a Material Adverse Change, the Oil
and Gas Properties have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all applicable laws and all rules,
regulations and orders of all duly constituted authorities having jurisdiction
and in conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Mineral Interests and other contracts and
agreements forming a part of the Oil and Gas Properties; specifically in this
connection, (i) after the Closing Date, no Oil and Gas Properties are subject to
having allowable production reduced below the full and regular allowable
(including the maximum permissible tolerance) because of any overproduction
(whether or not the same was permissible at the time) prior to the Closing Date
and (ii) none of the wells comprising a part of the Oil and Gas Properties are
deviated from the vertical more than the maximum permitted by applicable laws,
regulations, rules and orders, and such wells are, in fact, bottomed under and
are producing from the Oil and Gas Properties. Neither Borrower nor any of its
Subsidiaries has entered into, and the Oil and Gas Properties are not subject
to, any agreements, consent orders, administrative orders or similar obligations
based on a violation or alleged violation of Legal Requirements.
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5.16 Insurance. Schedule 5.16 attached hereto contains an accurate and
complete description of all material policies of insurance owned or held by
Borrower and each Subsidiary. Except as set forth on Schedule 5.16, all such
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the Closing Date have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy. Such policies are sufficient for compliance with all requirements of law
and of all agreements to which Borrower or any of its Subsidiaries is a party;
are valid, outstanding and enforceable policies; provide adequate insurance
coverage in at least such amounts and against at least such risks (but including
in any event public liability) as are usually insured against in the same
general area by companies engaged in the same or a similar business for the
assets and operations of Borrower and each of its Subsidiaries; will remain in
full force and effect through the respective dates set forth in Schedule 5.16
without the payment of additional premiums except as set forth on Schedule 5.16;
and will not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this agreement. Neither Borrower nor any of its
Subsidiaries has been refused any insurance with respect to its assets or
operations, nor has its coverage been limited below usual and customary policy
limits, by an insurance carrier to which it has applied for any such insurance
or with which it has carried insurance during the last three years.
5.17 Hedging Agreement. Schedule 5.17 sets forth, as of the Closing Date, a
true and complete list of all Hedging Agreements (including commodity price swap
agreements, forward agreements or contracts of sale which provide for prepayment
for deferred shipment or delivery of oil, gas or other commodities) of the
Borrower and each of its Subsidiaries, the material terms thereof (including the
type, term, effective date, termination date and notional amounts or volumes),
the net mark to market value thereof, all credit support agreements relating
thereto (including any margin required or supplied), and the counterparty to
each such agreement. Borrower has delivered true and correct copies of each of
the Hedging Agreements to Agent prior to the date of this Agreement.
5.18 Brokerage Fees. Except for a $150,000 brokerage fee payable by
Borrower to Farlow Financial Corporation ("Farlow") on the Closing Date for the
services rendered to Borrower by Farlow, no brokerage commission or finders fees
has or shall be incurred or payable in connection with or as a result of
Borrower's obtaining financing from the Lender Group under this Agreement, and
neither Borrower nor any of its Subsidiaries has utilized the services of any
broker or finder in connection with Borrower's obtaining financing from the
Lender Group under this Agreement, Borrower and Guarantor acknowledge that
neither Agent nor any Lender is in any way liable for such payment to Farlow.
5.19 Permits and other Intellectual Property. Except as set forth on
Schedule 5.19, Borrower owns or possesses adequate licenses or other rights to
use all Permits, patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names, copyrights,
trade secrets and know-how (collectively, the "Intellectual Property") that are
necessary for the operation of its business as currently conducted. No claim is
pending or threatened to the effect that Borrower infringes upon, or conflicts
with, the asserted rights of any other Person under any Intellectual Property,
and to the best of Borrower's knowledge there is no basis for any such claim
(whether pending or threatened). To the best of Borrower's knowledge, no claim
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is pending or threatened to the effect that any such Intellectual Property owned
or licensed by Borrower, or in which Borrower otherwise has the right to use is
invalid or unenforceable by Borrower, and to the best of Borrower's knowledge
there is no basis for any such claim (whether or not pending or threatened).
5.20 Year 2000 Compatibility.
(a) On the basis of a comprehensive inventory, review and assessment
currently being undertaken by Borrower of Borrower's and each of its
Subsidiaries' computer applications utilized by Borrower and any of its
Subsidiaries or contained in goods, products or services produced or sold by
Borrower or any of its Subsidiaries, and upon inquiry made of each of Borrower's
and each of its Subsidiaries' material suppliers and vendors, Borrower's
management is of the considered view that Borrower and each of its Subsidiaries,
and its respective goods, products and services and all such suppliers and
vendors will be Year 2000 Compliant before November 30, 1999.
(b) Borrower (i) has undertaken a detailed inventory, review and assessment
of all areas within its business and operations that could be adversely affected
by the failure of Borrower or any of its Subsidiaries or its respective goods,
products or services to be Year 2000 Compliant on a timely basis, (ii) has
developed the plan and timeline for becoming Year 2000 Compliant attached hereto
as Schedule 5.20; and (iii) to date, is implementing that plan in accordance
with that timetable in all material respects. Borrower reasonably anticipates
that it will be Year 2000 Compliant on a timely basis.
5.21 Locations; Leases.
(a) The primary accounting and business books, records and papers of
Borrower pertaining to the Collateral are kept and maintained solely at
Borrower's chief executive office set forth in the beginning of this Agreement.
In addition, the Collateral, and the books, records and papers of Borrower
pertaining thereto, are kept and maintained solely at Borrower's chief executive
office set forth in the beginning of this Agreement and at those locations which
are listed on Schedule 5.1(a) attached hereto, except that certain Oil and Gas
Property Collateral also is located at the locations specified on Schedule 5.21
attached hereto, which schedules include the names and addresses of each of
Borrower's landlords. Except (i) to accomplish sales of Inventory in the
ordinary course of business or (ii) to utilize such of the Collateral as is
removed in the ordinary course of business (such as motor vehicles), or (iii) to
dispose of Collateral to the extent prescribed under Section 7.4, Borrower shall
not remove any Collateral from said executive office or those locations listed
on Schedule 5.1(a) or Schedule 5.21, as the case may be.
(b) Except as Borrower shall have notified in writing prior thereto and
Borrower shall have delivered to Agent a Collateral Access Agreement in form and
substance satisfactory to Agent, no tangible personal property of Borrower or
any of its Subsidiaries shall be in the care or custody of any third party or
stored or entrusted with a bailee or other third party and none shall hereafter
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be placed under such care, custody, storage or entrustment, except for Inventory
and Equipment having a fair saleable value of less than $250,000 in the
aggregate for all such Inventory and Equipment.
5.22 Absence of Certain Changes. Since July 1, 1999, there has not been
without Agent's prior written consent:
(a) A waiver of any right relating to the Oil and Gas Properties;
(b) A sale, lease or other disposition of the Oil and Gas Properties;
(c) A mortgage, pledge or grant of a lien or security interest in any of
the Oil and Gas Properties;
(d) A contract for the sale of products produced from the Oil and Gas
Properties; (e) A contract between Borrower and any of its Subsidiaries; or
(f) A contract or commitment to do any of the foregoing.
5.23 Operating Costs. All costs and expenses incurred in connection with
the operation of the Properties have been fully paid and discharged by Borrower,
except (a) normal costs and expenses incurred in operating the Oil and Gas
Properties for which Borrower has not yet been billed, (b) with respect to the
period beginning on the Closing Date and ending on the tenth (10th) day
following the Closing Date, normal costs and expenses incurred in operating the
Oil and Gas Properties incurred during the one hundred twenty (120) day period
immediately preceding the date of determination thereof, and (c) from and after
the eleventh (11th) day following the Closing Date, normal expenses incurred in
operating the Oil and Gas Properties incurred during the sixty (60) day period
immediately preceding the date of determination thereof.
5.24 Imbalances. Except as set forth on Schedule 5.2(b) or on the most
recent Reserve Report delivered to Agent by Borrower pursuant to Section 6.2(g),
Borrower has not taken or received any amount of gas, oil, liquid hydrocarbons
(or products refined therefrom) so that any person or entity may thereafter be
entitled to receive any portion of the interests of Borrower to "balance" any
previous disproportionate allocation.
5.25 No Default. Schedule 5.1(c) sets forth all of the contracts associated
with the Oil and Gas Properties of Borrower having a Mineral Interest value
(based upon PV-10 Value) in excess of $500,000 on the Closing Date. The
contracts associated with such Oil and Gas Properties are in full force and
effect in accordance with their respective terms, and there exist no defaults in
the performance of any obligation thereunder. Additionally, Borrower is not
aware of any event that with notice or lapse of time, or both, would constitute
a default under any such contracts.
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5.26 Leases. The oil and gas leases associated with the Oil and Gas
Properties are in full force and effect in accordance with their respective
terms, and there exist no defaults in the performance of any obligation
thereunder. Additionally, Borrower is not aware of any event that with notice or
lapse of time, or both, would constitute a default under any such oil and gas
leases.
5.27 Marketing Agreements. Except as set forth in Schedule 5.27, the Oil
and Gas Properties (and the production therefrom) are not subject to any
purchase agreement, sale agreement or similar marketing arrangement not
cancelable on thirty (30) days notice, nor are any of the Properties subject to
any agreements with any companies affiliated with Borrower that cannot be
terminated immediately upon Closing without penalty, cost or liability to Agent.
5.28 Non-Consent Operations. Since the execution of this Agreement, there
have been no operations associated with the Oil and Gas Properties under an
operating agreement, unit agreement or governmental order with respect to which
Borrower has become a non-consenting party.
5.29 Condition of Equipment. All of the wells, facilities and equipment
associated with the Oil and Gas Properties are: (a) structurally sound with no
material defects known to Borrower, (b) in good operating condition, and
(c) have been and are maintained in accordance with prudent business standards.
5.30 Wells. Each oil or gas well located on the Oil and Gas Properties is:
(a) properly permitted, (b) in compliance with all applicable Laws, and
(c) within the production tolerances allocated by the governmental entity or
tribal authority having appropriate jurisdiction. All of the leaseholds in which
there are located Mineral Interests of Borrower having a PV-10 Value of $100,000
are producing Hydrocarbons in commercial quantities. Each of Borrower's
producing wells listed on Schedule 5.1(b) is located on an Oil and Gas Property
(i) covered by title opinions and (ii) described in the legal description
contained in an Oil and Gas Property Mortgage which has been duly executed and
delivered to Agent.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, each Borrower
shall, and shall cause each of its Subsidiaries to, do all of the following:
6.1 Accounting System. Maintain a standard and modern system of accounting
that enables Borrower to produce financial statements in accordance with GAAP on
a separate Borrower-by-Borrower basis, as well as on a consolidated basis, and
maintain records pertaining to the Collateral that contain information as from
time to time may be requested by Agent. Borrower also shall keep a modern joint
interest billing and remittance system with respect to each of the Oil and Gas
Properties on which it is the operator and a modern reporting system that shows,
among other things, the value, revenues and profits/losses of the Oil and Gas
Properties, volume of production and value of sales of Hydrocarbon production,
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the location and condition of the Equipment and Borrower's positions and
liability exposure under the Hedging Agreements on a separate
Borrower-by-Borrower basis, as well as on a consolidated basis. 6.2 Collateral
Reporting. Provide Agent with the following documents at the following times in
form satisfactory to Agent during the term of this Agreement on a separate
Borrower-by-Borrower basis, as well as on a consolidated basis:
(a) By no later than the last day of each month, a detailed update, for the
previous month, of the Borrowing Base on the form of the Borrowing Base
Certificate which is attached hereto as Exhibit 6.2 (or on such other form as
Agent in its sole discretion may require), including (i) a detailed calculation
of the NYMEX Value of each of the Oil and Gas Properties (categorized by Proved
Developed Producing Reserves, Proved Developed Non-Producing Reserves and Proved
Undeveloped Reserves, subcategories of Eligible Proved Developed Producing
Reserves, Eligible Proved Developed Non-Producing Reserves and Eligible Proved
Undeveloped Reserves, and "other"), (ii) historical production data of the oil
and gas reserves included in the Oil and Gas Property Collateral since the date
of the most recent Reserve Report, (iii) the Oil and Gas Property Collateral
prices received for production, lease operating expenses and such other
information as Agent may deem necessary or appropriate, in Agent's sole
discretion, (iv) any changes in the Oil and Gas Property Collateral since the
date of the most recent Reserve Report in Borrower's (or such Subsidiaries', as
the case may be) working interest or net revenue interest, (v) any changes since
the date of the most recent Reserve Report in the categorization of any or all
of the Oil and Gas Properties among Proved Developed Producing Reserves, Proved
Developed Non-Producing Reserves and Proved Undeveloped Reserves, subcategories
of Eligible Proved Developed Producing Reserves, Eligible Proved Developed
Non-Producing Reserves and Eligible Proved Undeveloped Reserves, and "other",
(vi) a reconciliation and explanation of the changes of categorization of any
Oil and Gas Properties among Proved Developed Producing Reserves, Proved
Developed Non-Producing Reserves and Proved Undeveloped Reserves, subcategories
of Eligible Proved Developed Producing Reserves, Eligible Proved Developed
Non-Producing Reserves and Eligible Proved Undeveloped Reserves, and "other",
since the date of the immediately preceding Borrowing Base Certificate, and
(vii) any changes in the Borrower's working interest or net revenue interest in
the Oil and Gas Property Collateral since the date of the previous month's
Borrowing Base Certificate;
(b) By no later than the last day of each month, a detailed statement of
sales and revenues derived from all products produced from the Oil and Gas
Properties, for the previous month, including purchasers, prices received, prior
period adjustments to such revenues and prices, and any Material Adverse Change
affecting the sales or marketing agreements or arrangements with the purchasers
of such products;
(c) By no later than the last day of each month, a written report to Agent,
in form and substance acceptable to Agent, detailing and aging Borrower's and
each of its Subsidiaries' unpaid lease operating expenses and unpaid other
liabilities, for the previous month, with respect to which a mineral lien,
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subcontractor's lien, mechanic's lien, materialmen's lien or other Lien against
any of the Collateral may arise which may have a priority superior to Agent's
Lien on such Collateral;
(d) By no later than the last day of each month, notice of all claims,
disputes, and litigation that have arisen since the date of the most recent
statement to Agent pursuant to this Section 6.2; except (i) ongoing collection
matters in which Borrower is the claimant or plaintiff; and (ii) matters that,
if decided adversely to Borrower, do not result in and reasonably could not be
expected to result in a Material Adverse Change;
(e) By no later than the last day of each month, (i) a written report to
Agent, in form and substance acceptable to Agent, detailing the costs incurred
and revenues received by Borrower under its Hedging Agreements for oil and gas
production, and (ii) a detailed calculation of Adjusted Consolidated Net
Tangible Assets as of the last day of the previous month in form and substance
acceptable to Agent;
(f) By the last day of the month following each calendar quarter (i.e., the
last day of April, July, October and January), a report: (i) listing the total
amount actually paid by Borrower during the preceding quarter for: (A) plugging
and abandonment costs for previous or ongoing plugging and abandonment
operations pertaining to the Oil and Gas Properties, and (B) general bond and
supplemental bond payments pertaining to plugging and abandonment costs; and
(ii) estimating the future payments for (A) and (B), above, for each of the
succeeding two quarters;
(g) Reserve Reports prepared by an independent petroleum engineering
consultant pertaining to the six-month period ending December 31st and June 30th
of each year (with such Reserve Reports to be delivered on or before the 60th
day following such six-month period). Each Reserve Report shall be in form and
substance satisfactory to Agent, and shall: (i) be accompanied by a
certification of Borrower to the effect that nothing has occurred since the date
of the last Reserve Report that could reasonably be expected to result in a
Material Adverse Change, except that which has previously been disclosed to
Agent in writing; and (ii) contain such other information as may be reasonably
requested by Agent.
Each delivery of a Reserve Report or a Borrowing Base Certificate by
Borrower to Agent shall constitute a representation and warranty by Borrower to
Agent that, unless otherwise disclosed to Agent in writing on or prior to the
date of such delivery, (w) Borrower (or its Subsidiary, as the case may be) owns
the Oil and Gas Properties described in the Reserve Report free and clear of any
Liens (except Permitted Liens) and (x) each of the Oil and Gas Properties
described in such Reserve Report constitute at least ninety-five (95%) of the
value of Borrower's Proved Reserves in the Oil and Gas Property Collateral;
(h) Upon request by Agent from time to time, copies of Borrower's lease
files, well files and contract files (including production reports on each well,
marketing contracts, and information regarding locations of and equipment
located on each well); and
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(i) Such other reports as to the Collateral or the business or financial
condition of Borrower as Agent may request from time to time.
6.3 Financial Statements, Reports, Certificates. Deliver to Agent, with
copies to each Lender: (a) as soon as available, but in any event within 30 days
after the end of each month during each of Borrower's fiscal years, a company
prepared balance sheet, income statement, and statement of cash flow covering
Borrower's operations during such period; and (b) as soon as available, but in
any event within 90 days after the end of each of Borrower's fiscal years,
financial statements of Borrower for each such fiscal year, audited by
independent certified public accountants reasonably acceptable to Agent and
certified, without any qualifications, by such accountants to have been prepared
in accordance with GAAP, together with a certificate of such accountants
addressed to Agent stating that such accountants do not have knowledge of the
existence of any Default or Event of Default. Such audited financial statements
shall include a balance sheet, profit and loss statement, and statement of cash
flow and, if prepared, such accountants' letter to management. If Borrower is a
parent company of one or more Subsidiaries, or Affiliates, or is a Subsidiary or
Designated Affiliate of another company, then, in addition to the financial
statements referred to above, Borrower agrees to deliver financial statements
prepared on a consolidating basis so as to present Borrower and each such
related entity separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to Agent, with copies
to each Lender, Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports, and Form 8-K Current Reports, and any other filings made by Borrower
with the SEC, if any, as soon as the same are filed, or any other information
that is provided by Borrower to its shareholders, and any other information
reasonably requested by the Lender Group relating to the financial condition of
Borrower.
Each month, together with the financial statements provided pursuant to
Section 6.3(a), Borrower shall deliver to Agent, with copies to each Lender, a
certificate signed by its chief financial officer to the effect that: (i) all
financial statements delivered or caused to be delivered to any one or more
members of the Lender Group hereunder have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
the financial condition of Borrower, (ii) the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date), (iii) for each
month that also is the date on which a financial covenant in Section 7.20 is to
be tested, a Compliance Certificate demonstrating in reasonable detail
compliance at the end of such period with the applicable financial covenants
contained in Section 7.20, and (iv) on the date of delivery of such certificate
to Agent there does not exist any condition or event that constitutes a Default
or Event of Default (or, in the case of clauses (i), (ii), or (iii), to the
extent of any non-compliance, describing such non-compliance as to which he or
she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
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As soon as available and in any event within forty-five (45) days after the
last day of each calendar quarter, a report, in form and substance satisfactory
to the Administrative Agent, setting forth as of the last Business day of such
calendar quarter, a true and complete list of all Hedging Agreements (including
commodity price swap agreements, forward agreements or contracts of sale which
provide for prepayment for deferred shipment or delivery of oil, gas or other
commodities) of the Borrower and each Subsidiary, the Material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market values therefor, any new credit support
agreements relating thereto, any margin required or supplied under any credit
support document, and the counterparty to each such agreement.
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Agent and to
release to Agent whatever financial information concerning Borrower that Agent
may request. Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Agent, at Borrower's expense,
copies of Borrower's financial statements, papers related thereto, and other
accounting records of any nature in their possession, and to disclose to Agent
any information they may have regarding Borrower's business affairs and
financial conditions.
6.4 Tax Returns. Deliver to Agent copies of each of Borrower's future
federal income tax returns, and any amendments thereto, within 30 days of the
filing thereof with the Internal Revenue Service.
6.5 Guarantor Reports. Cause any guarantor of any of the Obligations to
deliver its annual financial statements at the time when Borrower provides its
audited financial statements to Agent and copies of all federal income tax
returns as soon as the same are available and in any event no later than 30 days
after the same are required to be filed by law.
6.6 [Intentionally Omitted].
6.7 Title to Equipment. Upon Agent's request, Borrower promptly shall
deliver to Agent, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of Equipment.
6.8 Maintenance of Oil and Gas Property Collateral and Equipment; Operation
of Business.
(a) At its expense, do or cause to be done all things reasonably necessary
to preserve and keep in good repair, working order and efficiency (except for
normal wear and tear) all of its Oil and Gas Property Collateral and other
material Properties including, without limitation, all equipment, machinery and
facilities, and from time to time will make all the reasonably necessary
repairs, renewals and replacements so that at all times the state and condition
of its Oil and Gas Property Collateral and other material Property will be fully
preserved and maintained, allowing for depletion in the ordinary course of
business, except to the extent a portion of such Oil and Gas Property Collateral
is no longer capable of producing Hydrocarbons in commercial quantities (in
which case Borrower shall fully comply with all of its obligations and Legal
Requirements pertaining to plugging and abandoning its wells related to such
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portion). Borrower shall, and shall cause each of its Subsidiaries to, promptly:
(i) pay and discharge, or make reasonable and customary efforts to cause to be
paid and discharged, all delay rentals, royalties, expenses and indebtedness
accruing under the leases or other agreements affecting or pertaining to its Oil
and Gas Property Collateral; (ii) perform or make reasonable and customary
efforts to cause to be performed, in accordance with industry standards the
obligations required by each and all of the assignments, deeds, leases,
sub-leases, contracts and agreements affecting its interests in its Oil and Gas
Property Collateral and other material Properties; (iii) shall, and shall cause
each of its Subsidiaries to, do all other things necessary to keep unimpaired,
except for Permitted Liens, its rights with respect to each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements affecting its
interests in its Oil and Gas Property Collateral and other material Property and
prevent any forfeiture thereof or a default thereunder, except (A) to the extent
a portion of such Oil and Gas Property Collateral is no longer capable of
producing Hydrocarbons in economically reasonable amounts and (B) for
dispositions permitted by Section 7.4 hereof. Borrower shall, and shall cause
each of its Subsidiaries, to operate its Oil and Gas Property Collateral and
other material Property or cause or make reasonable and customary efforts to
cause such Oil and Gas Property Collateral and other material Properties to be
operated in a reasonably prudent manner in accordance with the practices of the
industry and in compliance in all material respects with all applicable
contracts and agreements and in compliance in all material respects with all
Legal Requirements.
(b) At its expense, maintain the Equipment in good operating condition and
repair (ordinary wear and tear excepted), and make all necessary replacements
thereto, except as permitted in Section 7.4(c), so that the value and operating
efficiency thereof shall at all times be maintained and preserved. Other than
those items of Equipment that constitute fixtures on the Closing Date, Borrower
shall not permit any item of Equipment to become a fixture to real estate or an
accession to other property, and such Equipment shall at all times remain
personal property.
(c) At its expense, (i) explore, develop and maintain the leases, wells,
units and acreage to which the Oil and Gas Property Collateral pertains in a
prudent and economical manner, (ii) act prudently and in accordance with
customary industry standards in managing or operating the Oil and Gas Property
Collateral, (iii) pay and promptly discharge all rentals, delay rentals,
royalties, overriding royalties, payments of production and other indebtedness
or obligations accruing under the leases comprising the Oil and Gas Property
Collateral, and perform every act required to keep such leases in full force and
effect, (iv) deliver all operating agreements, pooling or unitization
agreements, sales or processing contracts, drilling and/or development
agreements, pipeline transportation agreements and other material agreements
which pertain to the Oil and Gas Property Collateral, (v) deliver production
information on a monthly basis, (vi) deliver copies of all reports, forms and
other documents and data submitted by Borrower or any of its Subsidiaries to the
Federal Energy Regulatory Commission, the applicable state conservation agencies
and any other applicable Governmental Authorities, (vii) not mortgage, pledge or
otherwise encumber or sell the Oil and Gas Property Collateral except to the
limited extent permitted under this Agreement, (viii) not alter any Material
Contract relating to the Oil and Gas Property Collateral except to the limited
extent permitted under this Agreement, (ix) pay on or before the due date
thereof all of Borrower's and each of its Subsidiaries' lease operating expenses
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and other liabilities with respect to which a mineral lien, subcontractor's
lien, mechanic's lien, materialmen's lien or other Lien against any of the
Collateral may arise which may have a priority superior to Agent's Lien on such
Collateral, and (x) perform all acts and execute such documents as Agent may
require in order to maintain the existence, perfection and first priority of
Agent's Lien on the Oil and Gas Property Collateral and the other Collateral.
6.9 Taxes.
(a) Cause all assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against Borrower or any of
its property or assets to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax (other than production taxes, severance taxes, payroll
taxes or taxes that are the subject of a United States federal tax lien) shall
be the subject of a Permitted Protest.
(b) Make due and timely payment or deposit of all such federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Agent, on demand, appropriate certificates attesting to
the payment thereof or deposit with respect thereto.
(c) Make timely payment or deposit of all tax payments and withholding
taxes required of it by applicable laws, including those laws concerning
F.I.C.A., F.U.T.A., state disability, and local, state, and federal income
taxes, and will, upon request, furnish Agent with proof satisfactory to Agent
indicating that Borrower has made such payments or deposits.
6.10 Insurance.
(a) At its expense, maintain the insurance policies described in
Schedule 5.16 in full force and effect.
(b) At its expense, obtain and maintain (i) insurance of the type necessary
to insure the Collateral in such amounts and against such risks as Agent may
require, but in any event in amounts sufficient to prevent Borrower from
becoming a co-insurer under such policies.
(c) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Agent. All
insurance required herein shall be written by companies which have a Best's
rating of A for capital and X for financial stability. All hazard insurance and
such other insurance as Agent shall specify, shall contain a Form 438BFU
(NS) mortgagee endorsement, or an equivalent endorsement satisfactory to Agent,
showing Agent as sole loss payee thereof, and shall contain a waiver of
warranties. Every policy of insurance referred to in this Section 6.10 shall
contain an agreement by the insurer that it will not cancel such policy except
after 30 days prior written notice to Agent and that any loss payable thereunder
shall be payable notwithstanding any act or negligence of Borrower or the Lender
Group which might, absent such agreement, result in a forfeiture of all or a
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part of such insurance payment and notwithstanding (i) occupancy or use of the
Collateral for purposes more hazardous than permitted by the terms of such
policy, (ii) any foreclosure or other action or proceeding taken by the Lender
Group pursuant to the Oil and Gas Mortgages upon the happening of an Event of
Default, or (iii) any change in title or ownership of the Collateral. Borrower
shall deliver to Agent certified copies of such policies of insurance and
evidence of the payment of all premiums therefor.
(d) Original policies or certificates thereof satisfactory to Agent
evidencing such insurance shall be delivered to Agent at least 30 days prior to
the expiration of the existing or preceding policies. Borrower shall give Agent
prompt notice of any loss covered by such insurance, and Agent shall have the
right to adjust any loss. Agent shall have the exclusive right to adjust all
losses payable under any such insurance policies without any liability to
Borrower whatsoever in respect of such adjustments. Any monies received as
payment for any loss under any insurance policy including the insurance policies
mentioned above, shall be paid over to Agent to be applied at the option of the
Required Lenders either to the prepayment of the Obligations without premium, in
such order or manner as Agent may elect, or shall be disbursed to Borrower under
stage payment terms satisfactory to Agent for application to the cost of
repairs, replacements, or restorations. All repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction. Upon the occurrence of an Event of Default, the
Lender Group shall have the right to apply all prepaid premiums to the payment
of the Obligations in such order or form as Agent shall determine.
(e) Borrower shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 6.10, unless Agent is included thereon as named insured with the loss
payable to Agent under a standard 438BFU (NS) Mortgagee endorsement, or its
local equivalent. Borrower immediately shall notify Agent whenever such separate
insurance is taken out, specifying the insurer thereunder and full particulars
as to the policies evidencing the same, and originals of such policies
immediately shall be provided to Agent.
(f) Borrower shall, and shall cause each of its Subsidiaries to, use its
best efforts to cause the operator of each Oil and Gas Property Collateral in
which Borrower or any of its Subsidiaries owns a non-operating working interest
to maintain for the benefit of all working interest owners insurance of the
types and in the coverage amounts and with reasonable deductibles as is usual
and customary, including those specified in Section 6.10(b), to name the
non-operating working interest owners, including Borrower and its Subsidiaries,
as an additional insured on the liabilities, and to otherwise have the such
insurance comply with the requirements specified in Section 6.10(c). Borrower
shall, and shall cause each of its Subsidiaries to, use its best efforts to
obtain from its operators certificates of insurance evidencing coverage of the
Oil and Gas Property Collateral as set forth above as and when requested by
Agent.
6.11 No Setoffs or Counterclaims. Make payments hereunder and under the
other Loan Documents by or on behalf of Borrower without setoff or counterclaim
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and free and clear of, and without deduction or withholding for or on account
of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the Inventory and Equipment
only at the locations identified the Oil and Gas Mortgages in Schedule 6.12;
provided, however, that Borrower may amend Schedule 6.12 so long as such
amendment occurs by written notice to Agent not less than 30 days prior to the
date on which the Inventory or Equipment is moved to such new location, so long
as such new location is within the continental United States, and so long as, at
the time of such written notification, Borrower provides any financing
statements or fixture filings necessary or advisable to perfect and continue
perfected the Agent's Liens on such assets and also provides to Agent a
Collateral Access Agreement; provided, however, that this Section 6.12 shall not
apply to Inventory and Equipment having an aggregate value of less than $250,000
for all such Inventory and Equipment.
6.13 Compliance with Laws.
(a) Comply with the requirements of all applicable laws, rules,
regulations, and orders of any Governmental Authority, including all
Environmental Laws, the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not result in
and reasonably could not be expected to result in a Material Adverse Change.
(b) Establish and implement such procedures as may be reasonably necessary
to continuously determine and assure that any failure of the following would not
result in and reasonably could not be expected to result in a Material Adverse
Change: (i) all Property of the Borrower and its Subsidiaries and the operations
conducted thereon and other activities of the Borrower and its Subsidiaries are
in compliance with and do not violate the requirements of any Environmental
Laws, (ii) no oil, Hazardous Materials or solid wastes are disposed of or
otherwise released on or to any Property owned by any such party except in
compliance with Environmental Laws, (iii) no Hazardous Materials will be
released on or to any such Property in a quantity equal to or exceeding that
quantity which requires reporting pursuant to Section 103 of CERCLA, and (iv) no
oil, oil and gas exploration and production wastes, or Hazardous Materials is
released on or to any such Property so as to pose an imminent and substantial
endangerment to public health or welfare or the environment.
(c) Promptly notify Agent in writing of any threatened action,
investigation or inquiry by any Governmental Authority of which Borrower or any
of its Subsidiaries has knowledge in connection with any Environmental Laws,
excluding routine testing and minor corrective action.
(d) Provide environmental audits and tests in accordance with American
Society for Testing and Materials standards, as reasonably requested by Agent or
as otherwise required to be obtained by Agent or by any Governmental Authority
in connection with Borrower's existing and hereafter acquired Oil and Gas
Properties or other material Properties.
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6.14 Employee Benefits.
(a) Cause to be delivered to Agent: (i) promptly, and in any event within
10 Business Days after Borrower or any of its Subsidiaries knows or has reason
to know that an ERISA Event has occurred that has resulted in or reasonably
could be expected to result in a Material Adverse Change, a written statement of
the chief financial officer of Borrower describing such ERISA Event and any
action that is being taking with respect thereto by Borrower, any such
Subsidiary or ERISA Affiliate, and any action taken or threatened by the IRS,
Department of Labor, or PBGC. Borrower or such Subsidiary, as applicable, shall
be deemed to know all facts known by the administrator of any Benefit Plan of
which it is the plan sponsor, (ii) promptly, and in any event within 3 Business
Days after the filing thereof with the IRS, a copy of each funding waiver
request filed with respect to any Benefit Plan and all communications received
by Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate with respect to such request, and (iii) promptly, and in any event
within 3 Business Days after receipt by Borrower, any of its Subsidiaries or, to
the knowledge of Borrower, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a Benefit
Plan, copies of each such notice.
(b) Cause to be delivered to Agent, upon Agent's request, each of the
following: (i) a copy of each Plan (or, where any such plan is not in writing,
complete description thereof) (and if applicable, related trust agreements or
other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts payable under any
leases to which Borrower is a party or by which Borrower's properties and assets
are bound, unless such payments are the subject of a Permitted Protest. To the
extent that Borrower fails timely to make payment of such rents and other
amounts payable when due under its leases, Agent shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.16 Broker Commissions. Pay any and all brokerage commission or finders
fees incurred or payable in connection with or as a result of Borrower's
obtaining financing from the Lender Group under this Agreement.
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6.17. Oil and Gas Property Title Information.
(a) On or before the delivery to Agent of each Reserve Report required by
Section 2.1(b) or Section 6.2, Borrower will provide Agent with current title
opinions covering the Oil and Gas Property Collateral for which title opinions
have not previously been provided to Agent so that at all times the value of the
Eligible Proved Reserves for which title opinions are or have been provided to
Agent shall equal or exceed ninety-five percent (95%) of the NYMEX Value of all
of the Oil and Gas Property Collateral as set forth in the most recently
delivered Reserve Report of Proved Reserves.
(b) Borrower shall cure all title defects or exceptions which are not
Permitted Liens, or substitute acceptable Oil and Gas Property Collateral with
no title defects or exceptions except for Permitted Liens covering Oil and Gas
Property Collateral of an equivalent value, within 30 days after a request by
Agent to cure such defects or exceptions. If the Borrower is unable to cure any
title defect requested by Agent to be cured within the 30 day period, such
failure to cure shall not be a Default or an Event of Default, but instead such
Property shall remain excluded from the Borrowing Base as provided in Section
2.1 until such time as title is satisfactory to Agent. Upon the discovery of any
title defect or exception which is not a Permitted Lien, Agent shall have the
right to exercise the right to remedy such title defect or exception in its sole
discretion from time to time (and any failure to so exercise this remedy at any
time shall not be a waiver as to future exercise of the remedy by Agent).
6.18 Additional Collateral.
(a) Should Borrower or any of its Subsidiaries purchase, otherwise acquire
or own any Oil and Gas Property that is not already included in the Oil and Gas
Property Collateral and the subject of an Oil and Gas Property Mortgage in favor
of Agent other then Oil and Gas Properties owned on the date of this Agreement,
which have a NYMEX Value of $100,000 or less until such time as the NYMEX Value
thereof exceeds $100,000) for the benefit of the Lender Group, Borrower will
grant or cause to be granted to Agent as security for the Obligations a
first-priority Lien (subject only to Permitted Liens) on all of Borrower's or
such Subsidiary's, as the case may be, interest in such Oil and Gas Properties
not already subject to a Lien of such an Oil and Gas Property Mortgage
simultaneously with Borrower's or such Subsidiary's purchase, acquisition or
ownership of such Oil and Gas Property which Lien will be created and perfected
by and in accordance with the provisions of an Oil and Gas Property Mortgage and
other security agreements and financing statements, or other security
instruments, all in form and substance satisfactory to Agent in its sole
discretion and in sufficient executed (and acknowledged where necessary or
appropriate) counterparts for recording purposes.
(b) Concurrently with the granting of the Lien or other action referred to
in Section 6.18(a) above, Borrower will provide to Agent title information and a
title opinion in form and substance satisfactory to Agent in its sole discretion
with respect to Borrower's or such Subsidiary's, as the case may be, interests
in such Oil and Gas Properties.
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(c) Borrower shall cause all of its present and future Subsidiaries that
are 50% or more owned directly or indirectly by Borrower to execute a Guaranty
Agreement and Security Agreements, except for Atlantic Offshore Insurance, Ltd.;
provided that Atlantic Offshore Insurance, Ltd. shall at no time guarantee or
grant any Lien to secure the Unsecured Notes or any other Indebtedness of
Borrower.
6.19 Hedging Agreements. The Borrower shall maintain in effect one or more
Hedging Agreements with respect to its Hydrocarbon production with one or more
investment grade counterparties, rated Aa3 or better by Moody's, A+ or better
according to Standard & Poor's, or the equivalent by a rating agency acceptable
to Agent, the effective term of such Hedging Agreements to expire no earlier
than September 30, 2001, (and Hedging Agreements with terms extending until the
end of the First and Second Renewal Period, in the event that the Agreement is
renewed and extended for such periods) and the aggregate notional volumes of
Hydrocarbons the subject of such Hedging Agreements shall constitute, at all
times, from and after the 60th day following the Closing Date during the term
thereof, not less than 25% and not more than 75% of Borrower's forecasted
Hydrocarbon production for such period from Oil and Gas Properties classified as
Proved Developed Producing Reserves as of the date of the most recent Reserve
Report. Borrower shall use such Hedging Agreements solely as a part of its
normal business operations as a risk management strategy and/or hedge against
changes resulting from market conditions related to Borrower's and its
Subsidiaries' oil and gas operations and not as a means to speculate for
investment purposes on trends and shifts in financial or commodities markets.
Borrower shall notify Agent immediately upon becoming aware (in any event not
later than the close of business on the same Business Day) that its production
of Hydrocarbons could reasonably be expected to be insufficient to meet its
obligations under any Hedging Agreements.
6.20 Further Assurances. Cure promptly any defects in the creation or
issuance of the Obligations or the execution or delivery of the Obligations
and/or Loan Documents, including this Agreement. Borrower at its expense shall,
and shall cause each or its Subsidiaries to promptly execute and deliver to
Agent upon request all such other documents, agreements and instruments to
comply with or accomplish the covenants and agreements of Borrower or any of its
Subsidiaries in the Loan Documents, including this Agreement, or to further
evidence and more fully describe the collateral intended as security for the
Obligations, or to correct any omissions in the Loan Documents, or to state more
fully the security obligations set out herein or in any of the Loan Documents,
or to perfect, protect or preserve any Liens created pursuant to any of the Loan
Documents, or to make any recordings, to file any notices or obtain any
consents, all as may be reasonably necessary or appropriate in connection
therewith.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not, and will not permit any of its Subsidiaries to, do any of the following
without the Required Lenders' prior written consent:
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7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with Indebtedness to
issuers of letters of credit that are the subject of L/C Guarantees;
(b) Indebtedness set forth on Schedule 7.1;
(c) Indebtedness secured by Permitted Liens;
(d) the Unsecured Notes.
(e) accounts payable (for the deferred purchase price of Property or
services) from time to time incurred in the ordinary course of business which,
if greater than 90 days past the invoice or billing date, are being contested in
good faith by appropriate proceedings if reserves adequate under GAAP shall have
been established therefor;
(f) Indebtedness associated with bonds or surety obligations required by
Legal Requirements in connection with the operation of Borrower's and its
Subsidiaries' Oil and Gas Properties;
(g) Indebtedness under Hedging Agreements covering oil or gas with
Arranging Institutions, Agent or any Lender as a counterparty or with such other
Persons as approved by Agent entered into as a part of its normal business
operations as a risk management strategy and/or hedge against changes resulting
from market conditions related to Borrower's and its Subsidiaries' oil and gas
operations (but not as a means to speculate for investment purposes on trends
and shifts in financial or commodities markets) but only to the extent that the
total volumes hedged for any 12 month period do not exceed 75% of Borrower's
forecasted Hydrocarbon production for such period from Oil and Gas Properties
classified as Proved Developed Producing Reserves as indicated in the most
Recent Reserve Report:
(h) refinancings, renewals, or extensions of Indebtedness permitted under
clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) and under clause (d) of this Section 7.1,
in each such case so long as: (i) the terms and conditions of such refinancings,
renewals, or extensions do not materially impair the prospects of repayment of
the Obligations by Borrower, (ii) the net cash proceeds of such refinancings,
renewals, or extensions do not result in an increase in the aggregate principal
amount of the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to the Lender Group as those applicable to the refinanced
Indebtedness.
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7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(h) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes.
(a) Enter into any merger (other than the merger described in Section
3.3(d)), consolidation, reorganization, or recapitalization, or reclassify its
capital Stock.
(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution).
(c) Convey, sell, assign, lease, transfer, or otherwise dispose of, in one
transaction or a series of transactions, all or any substantial part of its
property or assets.
7.4 Disposal of Assets. Sell, lease, assign, farm-out, convey, transfer, or
otherwise dispose of any of any Borrower's or any of its Subsidiaries'
Properties or assets other than (a) sales of Inventory to buyers in the ordinary
course of such Borrower's business as currently conducted, (b) farmouts of
nonproven acreage or nonproven depths and assignments in connection with such
farmouts, (c) the sale or transfer of Equipment having a fair saleable value of
less than an aggregate amount of $500,000 for all Borrowers during the term of
this Agreement that is no longer necessary for the business of Borrower or such
Subsidiary or is replaced by Equipment of at least comparable value and use, and
(d) as long as no Default or Event of Default is existing or would result
therefrom and no Overadvance would result therefrom, during any fiscal year of
the Borrower, sales of the specific Oil and Gas Properties listed on Schedule
7.4 and other sales in the ordinary course of business of Oil and Gas Properties
having an aggregate NYMEX Value, as of the date of the most recent Reserve
Report delivered by Borrower to Agent, which does not exceed in the aggregate
$2,000,000 in the aggregate during the term of this Agreement; provided, that
the Borrowing Base shall be adjusted by an amount equal to the value, if any,
assigned to such Oil and Gas Properties in the most recently determined
Borrowing Base and that the Proceeds from such permitted disposals of Equipment
and Oil and Gas Properties shall be remitted to the Collection Accounts; and,
provided, further, at or prior to the closing date of any such sale, assignment,
farmout, conveyance or other transfer of any Oil and Gas Properties, and as a
condition of Borrower's authority to do so, Borrower shall deliver to Agent a
certificate executed by the chief executive officer or chief financial officer
of Panaco certifying (i) that no Default or Event of Default has occurred and is
continuing, (ii) to the valuation of the Oil and Gas Properties involved
utilizing the NYMEX Price for valuation purposes, (iii) that the dispositions
proposed will not violate any of the dollar limitation set forth in this Section
7.4, (iv) that the disposition will not result in an Overadvance, and (v) the
consideration and manner of the payment thereof to be received by Borrower for
the disposition of the Oil and Gas Properties involved.
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7.5 Change Name. Change any Borrower's or any of its Subsidiaries' name,
FEIN, corporate structure (within the meaning of Section 9402(7) of the Code),
or identity, or add any new fictitious name.
7.6 Gurantee. Guarantee or otherwise become in any way liable with respect
to the obligations of any third Person except by endorsement of instruments or
items of payment for deposit to the account of Borrower or which are transmitted
or turned over to Agent.
7.7 Nature of Business. Make any change in the principal nature of
Borrower's or any of its Subsidiaries' business as an independent oil and gas
exploration and production company.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section 7.1(d),
prepay, redeem, retire, defease, purchase, or otherwise acquire any Indebtedness
owing to any third Person (including, but not limited to, the Unsecured Notes),
other than the Obligations in accordance with this Agreement (provided, however,
that that Borrower shall be permitted to repurchase or retire up to $25,000,000
in the original face amount of the Unsecured Notes as long as, as a condition
precedent thereto, (i) no Default or Event of Default then exists or reasonably
could be expected to result therefrom, (ii) Borrower at such time, after giving
effect thereto, has at least an aggregate amount of $5,000,000 of Availability
and unrestricted immediately available cash on hand reserving as an additional
deduction from Availability an amount determined by Agent in its sole discretion
that would be sufficient to maintain Borrower's and its Subsidiaries' accounts
payable and other current liabilities within reasonable terms, and (iii)
Borrower has paid to Agent the fee described in Section 2.11(f) with respect
thereto), and
(b) Directly or indirectly, amend, modify, alter, increase, or change any
of the terms or conditions of any agreement, instrument, document, indenture
(including, but not limited to, the Unsecured Notes Indenture), or other writing
evidencing or concerning Indebtedness permitted under Sections 7.1(b), (c), or
(d).
7.9 Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10 Consignments. Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale.
7.11 Distribution; Repurchases of Capital Stock. Make any distribution or
declare or pay any dividends (in cash or other property, other than capital
Stock) on, or purchase, acquire, redeem, or retire any of Borrower's capital
Stock, of any class, whether now or hereafter outstanding.
7.12 Accounting Methods. Modify or change its method of accounting or enter
into, modify, or terminate any agreement currently existing, or at any time
hereafter entered into with any third party accounting firm or service bureau
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for the preparation or storage of Borrower's accounting records without said
accounting firm or service bureau agreeing to provide Agent information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Agent pursuant to or in accordance with this Agreement, and agrees that Agent
may contact directly any such accounting firm or service bureau in order to
obtain such information.
7.13 Investments. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person, (b) loans, advances, capital contributions, or transfers of
property to a Person, or (c) the acquisition of all or substantially all of the
properties or assets of a Person; provided that the foregoing restrictions shall
not apply to purchases by Panaco of Mineral Interests from Persons other than
Affiliates as long as: (i) there has not occurred an Event of Default and no
Default or Event of Default could reasonably be expected to result from the
making thereof, (ii) Panaco shall have complied with all of the requirements of
Section 6.18 with respect thereto, (iii) the aggregate consideration paid or
incurred in connection with any such individual purchase or series of related
purchases does not exceed $10,000,000, and (iv) after giving effect to such
purchases, the sum of Availability plus Borrower's immediately available
unrestricted cash on hand, minus an amount determined by Agent in its sole
discretion that would be sufficient to maintain Borrower's and its Subsidiaries'
accounts payable and other current liabilities within reasonable terms is at
least $5,000,000.
7.14 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction between any Borrower with another
Borrower or between any Borrower with any Affiliate of such Borrower except for
transactions that are in the ordinary course of such Borrower's business, upon
fair and reasonable terms, that are fully disclosed to Agent, and that are no
less favorable to such Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
7.16 Compensation. Increase the annual fee or per-meeting fees paid to
directors during any year by more than 15% over the prior year; pay or accrue
total cash compensation, during any year, to officers and senior management
employees in an aggregate amount in excess of 125% of that paid or accrued in
the prior year.
7.17 Use of Proceeds. Use the proceeds of the Advances made hereunder for
any purpose other than (a) on the Closing Date, (i) to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing to
Prior Lenders, and (ii) to pay transactional fees, costs, and expenses incurred
in connection with this Agreement, and (b) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted corporate purposes.
7.18 Change in Location of Chief Executive Offices; Inventory and
Equipment. Relocate its chief executive office to a new location without
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providing 30 days prior written notification thereof to Agent and so long as, at
the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected the
Agent's Liens and also provides to Agent a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Agent's prior written consent. Borrower will not, and will not permit its
Subsidiaries to store, warehouse or bail the Inventory and Equipment of Borrower
and its Subsidiaries at Real Property other than such Real Property listed on
Schedule 5.1(d), except for such Inventory and Equipment whose aggregate fair
saleable market value, for any fiscal year, does not exceed $250,000.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate, any
Benefit Plan where such event would result in any liability of Borrower, any of
its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make any
required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay any required
installment or any other payment required under Section 412 of the IRC on or
before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan resulting
in an increase in current liability for the plan year such that either of
Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw, from any
Multiemployer Plan where such withdrawal is reasonably likely to result in any
liability of any such entity under Title IV of ERISA;
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which, individually or inthe aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $250,000.
7.20 Financial Covenants. Fail to maintain:
(a) Current Ratio. As of the last day of each month, a ratio of
Consolidated Current Assets divided by Consolidated Current Liabilities of at
least 0.25:1.0;
(b) Consolidated Interest Coverage Ratio. Borrower's ratio, as of the last
day of each month set forth below, of (i) consolidated EBITDA for the 12
consecutive fiscal month period then ended, to (ii) consolidated Interest
Expense for the 12 consecutive fiscal month period then ended, shall not be less
than the ratio set forth below corresponding to such month:
------------------------------------------------------
Month Ratio
------------------------------------------------------
September 1999 1.0:1.0
October 1999 1.0:1.0
November 1999 1.0:1.0
December 1999 1.0:1.0
January 2000 and each month thereafter 1.5:1.0
------------------------------------------------------
7.21 Capital Expenditures. Make capital expenditures in any fiscal year in
excess of $30,000,000 in the aggregate.
7.22 Securities Accounts. Borrower shall not establish or maintain any
Securities Account unless Agent shall have received a Control Agreement, duly
executed and in full force and effect, in respect of such Securities Account.
Borrower agrees that it will not transfer assets out of any Securities Accounts;
provided, however, that, so long as no Event of Default has occurred and is
continuing or would result therefrom, Borrower may use such assets to the extent
permitted by this Agreement.
7.23 Gas Imbalances, Take-or-Pay or Other Prepayments. Borrower shall not,
and shall not permit any of its Subsidiaries to, enter into any contracts or
agreements which warrant production of Hydrocarbons (other than Hedging
Agreements otherwise permitted hereunder) and will not hereafter allow gas
imbalances, take-or-pay or other prepayments with respect to its Oil and Gas
Properties which would require such Person to deliver Hydrocarbons produced on
Oil and Gas Properties at some future time without then or thereafter receiving
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full payment therefor to exceed, during any monthly period, five percent (5%) of
the current aggregate monthly gas production for such monthly period from the
Oil and Gas Properties Collateral.
7.24 Limited Business of Atlantic and GAC. Borrower shall not permit GAC to
acquire any assets in the aggregate amount in excess of $10,000, incur any
indebtedness or other liabilities in the aggregate amount in excess of $10,000
to any Persons other than Agent and the Lender Group, or conduct any business
other than merely holding shares of stock of PPC. Borrower shall not permit
Atlantic to acquire any assets in the aggregate amount in excess of $10,000,
incur any indebtedness or other liabilities in the aggregate amount in excess of
$10,000 to any Persons other than Agent and the Lender Group, or conduct any
business. Borrower shall not, and shall not permit any of its Subsidiaries to,
conduct any transactions with or make any loans or advances to or investment in
Atlantic and/or GAC.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower or any other Loan Party fails to pay when due and payable
or when declared due and payable, any portion of the Obligations (whether of
principal, interest (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts), fees and charges due the
Lender Group, reimbursement of Lender Group Expenses, or other amounts
constituting Obligations);
8.2 If Borrower or any other Loan Party fails to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower or such Loan Party, as the case may be, and the
Lender Group;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's or any other Loan Party's
properties or assets is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower or any other Loan
Party;
8.6 If an Insolvency Proceeding is commenced against Borrower or any other
Loan Party and any of the following events occur: (a) Borrower or such Loan
Party, as the case may be, consents to the institution of the Insolvency
Proceeding against it; (b) the petition commencing the Insolvency Proceeding is
not timely controverted; (c) the petition commencing the Insolvency Proceeding
is not dismissed within 45 calendar days of the date of the filing thereof;
provided, however, that, during the pendency of such period, Agent, Foothill,
and any other member of the Lender Group shall be relieved of its obligation to
extend credit hereunder; (d) an interim trustee is appointed to take possession
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of all or a substantial portion of the properties or assets of, or to operate
all or any substantial portion of the business of, Borrower or such Loan Party,
as the case may be; or (e) an order for relief shall have been issued or entered
therein;
8.7 If Borrower or any other Loan Party is enjoined, restrained, or in any
way prevented by court order from continuing to conduct all or any material part
of its business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any other Loan Party's properties or assets by
the United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, or if any
taxes or debts owing at any time hereafter to any one or more of such entities
becomes a Lien, whether choate or otherwise, upon any of Borrower's or any other
Loan Party's properties or assets and the same is not paid on the payment date
thereof;
8.9 If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of Borrower's or any other Loan Party's properties or assets;
8.10 If there is (a) a default in any material agreement (including the
Unsecured Notes or the Unsecured Notes Indenture) to which Borrower or any other
Loan Party is a party with one or more third Persons and such default (i) occurs
at the final maturity of the obligations thereunder, or (ii) results in a right
by such third Person(s), irrespective of whether exercised, to accelerate the
maturity of Borrower's or any other Loan Party's obligations thereunder, to
terminate such agreement, or to refuse to renew such agreement pursuant to an
automatic renewal right therein, or (b) any payment default under the Unsecured
Notes or the Unsecured Notes Indenture;
8.11 If Borrower or any other Loan Party makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;
8.12 If any misstatement or misrepresentation exists now or hereafter in
any warranty, representation, statement, or report made to the Lender Group by
Borrower or any other Loan Party or any officer, employee, agent, or director of
Borrower or any other Loan Party, or if any such warranty or representation is
withdrawn; or
8.13 If the obligation of any guarantor under its guaranty or other third
Person under any Loan Document is limited or terminated by operation of law or
by the guarantor or other third Person thereunder, or any such guarantor or
other third Person becomes the subject of an Insolvency Proceeding.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default, the Required Lenders (at their election but without
notice of their election and without demand) may, except to the extent otherwise
expressly provided or required below, authorize and instruct Agent to do any one
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or more of the following on behalf of the Lender Group (and Agent, acting upon
the instructions of the Required Lenders, shall do the same on behalf of the
Lender Group), all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrower and the Lender Group;
(c) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of the Lender Group, but without affecting
Agent's rights and security interests, for the benefit of the Lender Group, in
the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which Agent considers advisable, and in such cases, Agent
will credit Borrower's Loan Account with only the net amounts received by Agent
in payment of such disputed Accounts after deducting all Lender Group Expenses
incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for the Lender
Group, segregate all returned Inventory from all other property of Borrower or
in Borrower's possession and conspicuously label said returned Inventory as the
property of the Lender Group;
(f) Without notice to or demand upon Borrower or any guarantor, make such
payments and do such acts as Agent considers necessary or reasonable to protect
its security interests in the Collateral. Borrower agrees to assemble the
Collateral if Agent so requires, and to make the Collateral available to Agent
as Agent may designate. Borrower authorizes Agent to enter the premises where
the Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Agent's determination appears to conflict with the
Agent's Liens and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned or leased premises, Borrower hereby grants
Agent a license to enter into possession of such premises and to occupy the
same, without charge, for up to 120 days in order to exercise any of the Lender
Group's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly waived), and
without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by the
Lender Group (including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by the Lender Group;
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(h) Hold, as cash collateral, any and all balances and deposits of Borrower
held by the Lender Group, and any amounts received in the Lockbox Accounts, to
secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Borrower hereby grants to Agent a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to the Lender Group's benefit;
(j) Sell the Personal Property Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Agent determines is commercially reasonable. It is not necessary that the
Personal Property Collateral be present at any such sale;
(k) Agent shall give notice of the disposition of the Personal Property
Collateral as follows:
(1) Agent shall give Borrower and each holder of a security interest in the
Personal Property Collateral who has filed with Agent a written request for
notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Personal Property Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage prepaid, to
Borrower as provided in Section 12, at least 5 days before the date fixed for
the sale, or at least 5 days before the date on or after which the private sale
or other disposition is to be made; no notice needs to be given prior to the
disposition of any portion of the Personal Property Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Personal Property Collateral shall be sent to such
addresses as they have furnished to Agent;
(3) If the sale is to be a public sale, Agent also shall give notice of the
time and place by publishing a notice one time at least 5 days before the date
of the sale in a newspaper of general circulation in the county in which the
sale is to be held;
(l) The Lender Group may credit bid and purchase at any public sale;
(m) The Lender Group shall have all other rights and remedies available to
it at law or in equity pursuant to any other Loan Documents; and
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(n) Any deficiency that exists after disposition of the Personal Property
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Agent to Borrower.
9.2 Remedies Cumulative. The rights and remedies of the Lender Group under
this Agreement, the other Loan Documents, and all other agreements shall be
cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it. Nothing in this Agreement in any way limits,
impairs or reduces any rights of the Lender Group under the Oil and Gas Property
Mortgages or any of the other Loan Documents.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Agent determines that such
failure by Borrower could result in a Material Adverse Change, in its discretion
and without prior notice to Borrower, Agent may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves in
Borrower's Loan Account as Agent deems necessary to protect the Lender Group
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type described in Section 6.10, and take any action with respect
to such policies as Agent deems prudent. Any such amounts paid by Agent shall
constitute Lender Group Expenses. Any such payments made by Agent shall not
constitute an agreement by the Lender Group to make similar payments in the
future or a waiver by the Lender Group of any Event of Default under this
Agreement. Agent need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by the Lender Group on which Borrower may in any way be liable.
11.2 The Lender Group's Liability for Collateral. Borrower hereby agrees
that: (a) so long as the Lender Group complies with its obligations, if any,
under Section 9207 of the Code, the Lender Group shall not in any way or manner
be liable or responsible for: (i) the safekeeping of the Collateral; (ii) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (iii) any diminution in the value thereof; or (iv) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other Person; and (b)
all risk of loss, damage, or destruction of the Collateral shall be borne by
Borrower.
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11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold the
Agent-Related Persons, the Lender-Related Persons with respect to each Lender,
each Participant, and each of their respective officers, directors, employees,
counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless
(to the fullest extent permitted by law) from and against any and all claims,
demands, suits, actions, investigations, proceedings, and damages, and all
reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them in connection with or as a result of or related
to the execution, delivery, enforcement, performance, and administration of this
Agreement and any other Loan Documents or the transactions contemplated herein,
and with respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person under this Section
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the other Obligations.
12. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document shall be in writing
and (except for financial statements and other informational documents which may
be sent by first-class mail, postage prepaid) shall be personally delivered or
sent by registered or certified mail (postage prepaid, return receipt
requested), overnight courier, or telefacsimile to the relevant party at its
address set forth below:
If to Borrower: PANACO, Inc.
1100 Louisiana, Suite 5100
Houston, Texas 77002-5220
Attn: Larry M. Wright
Fax No. 713.970.3151
with copies to: Schully, Robert, Slattery, Jaubert & Marino
New Orleans, Louisiana 70163-1800
Attn: Lisa Jaubert, Esq.
Fax No. 504.585.7890
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If to Agent or
the Lender Group
in care of Agent: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
with copies to: Patton Boggs LLP
2001 Ross Avenue, Suite 3000
Dallas, Texas 75201
Attn: James C. Chadwick, Esq.
Fax No. 214.758.1550
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to all
other parties. All notices or demands sent in accordance with this Section 12,
other than notices by the Lender Group in connection with Sections 9504 or 9505
of the Code, shall be deemed received on the earlier of the date of actual
receipt or 3 days after the deposit thereof in the mail. Borrower acknowledges
and agrees that notices sent by the Lender Group in connection with Sections
9504 or 9505 of the Code shall be deemed sent when deposited in the mail or
personally delivered, or, where permitted by law, transmitted telefacsimile or
other similar method set forth above.
13. CHOICE OF LAW AND VENUE; SERVICE OF PROCESS; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE
OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF
ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND THE LENDER GROUP WAIVE,
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TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER HEREBY
IRREVOCABLY DESIGNATES LARRY M. WRIGHT LOCATED AT 1100 LOUISIANA, SUITE 5110,
HOUSTON, TEXAS 77002, AS THE DESIGNEE, APPOINTEE AND AGENT OF BORROWER TO
RECEIVE, FOR AND ON BEHALF OF BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE
JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN
DOCUMENTS. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT
WILL BE PROMPTLY FORWARDED BY OVERNIGHT COURIER TO BORROWER AT ITS ADDRESS SET
FORTH UNDER ITS SIGNATURE BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE SUCH
COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE REPAID, TO BORROWER AT ITS SAID ADDRESS,
SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. BORROWER
AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
BORROWER AND THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered to
any one or more members of the Lender Group may be destroyed or otherwise
disposed of by such member of the Lender Group 4 months after they are delivered
to or received by such member of the Lender Group, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
15.1 Assignments and Participations.
(a) Any Lender may, with the written consent of Agent, assign and delegate
to one or more assignees (provided that no written consent of Agent shall be
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required in connection with any assignment and delegation by a Lender to an
Eligible Transferee) (each an "Assignee") all, or any ratable part of all, of
the Obligations, the Commitments and the other rights and obligations of such
Lender hereunder and under the other Loan Documents, in a minimum amount of
$5,000,000 (except that such minimum amount shall not apply in connection with
any assignment and delegation by a Lender (x) to any Affiliate (other than
individuals) of, or any fund, money market account, investment account or other
account managed by, a pre-existing Lender under this Agreement or (y) of the
entire Obligations, Commitments and other rights and obligations of such Lender
hereunder and under the other Loan Documents); provided, however, that Borrower
and Agent may continue to deal solely and directly with such Lender in
connection with the interest so assigned to an Assignee until (i) written notice
of such assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to Borrower and
Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall
have delivered to Borrower and Agent an Assignment and Acceptance ("Assignment
and Acceptance") in form and substance satisfactory to Agent; and (iii) the
assignor Lender or Assignee has paid to Agent for Agent's sole and separate
account a processing fee in the amount of $5,000 (except that such processing
fee shall not apply to any assignment and delegation by a Lender to any
Affiliate (other than individuals) of, or any fund, money market account,
investment account or other account managed by, a pre-existing Lender under this
Agreement). Anything contained herein to the contrary notwithstanding, the
consent of Agent shall not be required (and payment of any fees shall not be
required) if such assignment is in connection with any merger, consolidation,
sale, transfer, or other disposition of all or any substantial portion of the
business or loan portfolio of such Lender.
(b) From and after the date that Agent notifies the assignor Lender that it
has received an executed Assignment and Acceptance and payment of the
above-referenced processing fee, (i) the Assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the assignor
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights (except with respect to Section 11.3 hereof)
and be released from its obligations under this Agreement (and in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement and the other Loan
Documents, such Lender shall cease to be a party hereto and thereto), and such
assignment shall effect a novation between Borrower and the Assignee.
(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (1) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document furnished pursuant hereto;
(2) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower or the
performance or observance by Borrower of any of its obligations under this
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Agreement or any other Loan Document furnished pursuant hereto; (3) such
Assignee confirms that it has received a copy of this Agreement, together with
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(4) such Assignee will, independently and without reliance upon Agent, such
assigning Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (5) such
Assignee appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (6) such Assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written consent of Agent, sell to
one or more commercial banks, financial institutions, or other Persons not
Affiliates of such Lender (a "Participant") participating interests in the
Obligations, the Commitment, and the other rights and interests of that Lender
(the "originating Lender") hereunder and under the other Loan Documents
(provided that no written consent of Agent shall be required in connection with
any sale of any such participating interests by a Lender to an Eligible
Transferee); provided, however, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations,
(iii) Borrower and Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents, (iv) no Lender
shall transfer or grant any participating interest under which the Participant
has the sole and exclusive right to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Document, except to the
extent such amendment to, or consent or waiver with respect to this Agreement or
of any other Loan Document would (A) extend the final maturity date of the
Obligations hereunder in which such Participant is participating; (B) reduce the
interest rate applicable to the Obligations hereunder in which such Participant
is participating; (C) release all or a material portion of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating; (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through such Lender; or (E) change
the amount or due dates of scheduled principal repayments or prepayments or
premiums; and (v) all amounts payable by Borrower hereunder shall be determined
as if such Lender had not sold such participation; except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement. The rights of any Participant only shall be
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derivative through the originating Lender with whom such Participant
participates and no Participant shall have any direct rights as to the other
Lenders, Agent, Borrower, the Collections, the Collateral, or otherwise in
respect of the Obligations. No Participant shall have the right to participate
directly in the making of decisions by the Lenders among themselves.
(f) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may disclose all documents and information
which it now or hereafter may have relating to Borrower or Borrower's business.
(g) Any other provision in this Agreement notwithstanding, any Lender may
at any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement in favor of any Federal Reserve Bank
in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR 203.14, and such Federal Reserve Bank may enforce such pledge
or security interest in any manner permitted under applicable law.
15.2 Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without the Lenders' prior written consent and any prohibited assignment shall
be absolutely void ab initio. No consent to assignment by the Lenders shall
release Borrower from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 15.1 hereof and, except as expressly required pursuant to
Section 15.1 hereof, no consent or approval by Borrower is required in
connection with any such assignment.
16. AMENDMENTS; WAIVERS
16.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Required Lenders (or by Agent at the written request
of the Required Lenders) and Borrower and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by all the Lenders and Borrower and
acknowledged by Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees or other amounts due to
the Lenders (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein on
any Loan, or any fees or other amounts payable hereunder or under any other Loan
Document;
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(d) change the percentage of the Commitments or Obligations, as the case
may be, that is required for the Lenders or any of them to take any action
hereunder;
(f) amend this Section or any provision of the Agreement providing for
consent or other action by all Lenders;
(g) release Collateral other than as permitted by Section 17.11;
(h) change the definition of "Required Lenders";
(i) release Borrower or Guarantor from any Obligation for the payment of
money; or
(j) amend any of the provisions of Article 17.
and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by Agent, affect the rights or duties of Agent
under this Agreement or any other Loan Document; and, provided further, however,
that no amendment, waiver or consent shall, unless in writing and signed by
Foothill in its individual capacity as a Lender, affect the specific rights or
duties of Foothill in its individual capacity as a Lender (as contrasted with
rights or duties of Foothill as a member of the Lender Group) under this
Agreement or any other Loan Document. The foregoing notwithstanding, any
amendment, modification, waiver, consent, termination, or release of or with
respect to any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of Borrower, shall not require consent
by or the agreement of Borrower.
16.2 No Waivers; Cumulative Remedies. No failure by Agent or any Lender to
exercise any right, remedy, or option under this Agreement, any other Loan
Document, or any present or future supplement hereto or thereto, or in any other
agreement between or among Borrower and Agent or any Lender, or delay by Agent
or any Lender in exercising the same, will operate as a waiver thereof. No
waiver by Agent or any Lender will be effective unless it is in writing, and
then only to the extent specifically stated. No waiver by Agent or the Lenders
on any occasion shall affect or diminish Agent's and each Lender's rights
thereafter to require strict performance by Borrower of any provision of this
Agreement. Agent's and each Lender's rights under this Agreement and the other
Loan Documents will be cumulative and not exclusive of any other right or remedy
which Agent or any Lender may have.
17. AGENT; THE LENDER GROUP.
17.1 Appointment and Authorization of Agent. Each Lender hereby designates
and appoints Foothill as its agent under this Agreement and the other Loan
Documents and each Lender hereby irrevocably authorizes Agent to take such
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Agent agrees to
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act as such on the express conditions contained in this Article 17. The
provisions of this Article 17 are solely for the benefit of Agent and the
Lenders, and Borrower shall have no rights as a third party beneficiary of any
of the provisions contained herein; provided, however, that certain of the
provisions of Section 17.10 hereof also shall be for the benefit of Borrower.
Any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document notwithstanding, Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Agent have
or be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against Agent; it being expressly understood and agreed that the use of the word
"Agent" is for convenience only, that Foothill is merely the representative of
the Lenders, and has only the contractual duties set forth herein. Except as
expressly otherwise provided in this Agreement, Agent shall have and may use its
sole discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions which Agent
is expressly entitled to take or assert under or pursuant to this Agreement and
the other Loan Documents. Without limiting the generality of the foregoing, or
of any other provision of the Loan Documents that provides rights or powers to
Agent, Lenders agree that Agent shall have the right to exercise the following
powers as long as this Agreement remains in effect: (a) maintain, in accordance
with its customary business practices, ledgers and records reflecting the status
of the Advances, the Letters of Credit, the Collateral, the Collections, and
related matters; (b) execute or file any and all financing or similar statements
or notices, amendments, renewals, supplements, documents, instruments, proofs of
claim, notices and other written agreements with respect to the Loan Documents;
(c) make Advances, and the Letters of Credit, for itself or on behalf of Lenders
as provided in the Loan Documents; (d) exclusively receive, apply, and
distribute the Collections as provided in the Loan Documents; (e) open and
maintain such bank accounts and lock boxes as Agent deems necessary and
appropriate in accordance with the Loan Documents for the foregoing purposes
with respect to the Collateral and the Collections; (f) perform, exercise, and
enforce any and all other rights and remedies of the Lender Group with respect
to Borrower, the Obligations, the Collateral, the Collections, or otherwise
related to any of same as provided in the Loan Documents; and (g) incur and pay
such Lender Group Expenses as Agent may deem necessary or appropriate for the
performance and fulfillment of its functions and powers pursuant to the Loan
Documents.
17.2 Delegation of Duties. Except as otherwise provided in this section,
Agent may execute any of its duties under this Agreement or any other Loan
Document by or through agents, employees or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects as long as such selection was made in
compliance with this section and without gross negligence or willful misconduct.
17.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by Borrower or any Subsidiary or
Affiliate of Borrower, or any officer or director thereof, contained in this
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Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by Agent
under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of Borrower or any of
Borrower's Subsidiaries or Affiliates.
17.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement 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 counsel to Borrower
or counsel to any Lender), independent accountants and other experts selected by
Agent. Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless it shall first receive
such advice or concurrence of the Lenders as it deems appropriate and until such
instructions are received, Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its reasonable
satisfaction by Lenders against any and all liability and expense that may be
incurred by it by reason of taking or continuing to take any such action. Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement or any other Loan Document in accordance with a request or
consent of the Lenders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Lenders.
17.5 Notice of Default or Event of Default. Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Agent for the account of the Lenders, except
with respect to Events of Default of which Agent has actual knowledge, unless
Agent shall have received written notice from a Lender or Borrower referring to
this Agreement, describing such Default or Event of Default, and stating that
such notice is a "notice of default." Agent promptly will notify the Lenders of
its receipt of any such notice or of any Event of Default of which Agent has
actual knowledge. If any Lender obtains actual knowledge of any Event of
Default, such Lender promptly shall notify the other Lenders and Agent of such
Event of Default. Each Lender shall be solely responsible for giving any notices
to its Participants, if any. Subject to Section 17.4, Agent shall take such
action with respect to such Default or Event of Default as may be requested by
the Required Lenders in accordance with Section 9; provided, however, that
unless and until Agent has received any such request, Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable.
17.6 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by Agent hereinafter taken, including any review of the affairs of Borrower
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and its Subsidiaries or Affiliates, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower and any other Person (other than the Lender Group)
party to a Loan Document, and all applicable bank regulatory laws relating to
the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to Borrower. Each Lender also represents
that it will, independently and without reliance upon any Agent-Related Person
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 Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower and any other Person (other than the Lender Group)
party to a Loan Document. Except for notices, reports and other documents
expressly herein required to be furnished to the Lenders by Agent, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of Borrower and any other
Person party to a Loan Document that may come into the possession of any of the
Agent-Related Persons.
17.7 Costs and Expenses; Indemnifications. Agent may incur and pay Lender
Group Expenses to the extent Agent deems reasonably necessary or appropriate for
the performance and fulfillment of its functions, powers, and obligations
pursuant to the Loan Documents, including without limiting the generality of the
foregoing, court costs, reasonable attorneys fees and expenses, costs of
collection by outside collection agencies and auctioneer fees and costs of
security guards or insurance premiums paid to maintain the Collateral, whether
or not Borrower is obligated to reimburse Agent or Lenders for such expenses
pursuant to the Loan Agreement or otherwise. Agent is authorized and directed to
deduct and retain sufficient amounts from Collections to reimburse Agent for
such out-of-pocket costs and expenses prior to the distribution of any amounts
to Lenders. In the event Agent is not reimbursed for such costs and expenses
from Collections, each Lender hereby agrees that it is and shall be obligated to
pay to or reimburse Agent for the amount of such Lender's Pro Rata Share
thereof. Whether or not the transactions contemplated hereby are consummated,
the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent
not reimbursed by or on behalf of Borrower and without limiting the obligation
of Borrower to do so), according to their Pro Rata Shares, from and against any
and all Indemnified Liabilities; provided, however, that no Lender shall be
liable for the payment to the Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender shall
reimburse Agent upon demand for its ratable share of any costs or out-of-pocket
expenses (including attorneys fees and expenses) incurred by Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, any other Loan Document, or any document contemplated by or
referred to herein, to the extent that Agent is not reimbursed for such expenses
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by or on behalf of Borrower. The undertaking in this section shall survive the
payment of all Obligations hereunder and the resignation or replacement of
Agent.
17.8 Agent in Individual Capacity. Foothill and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with Borrower and its
Subsidiaries and Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents as though Foothill were not Agent hereunder and
without notice to or consent of the Lenders. The Lenders acknowledge that,
pursuant to such activities, Foothill or its Affiliates may receive information
regarding Borrower or its Affiliates and any other Person (other than the Lender
Group) party to any Loan Documents that is subject to confidentiality
obligations in favor of Borrower or such other Person and that prohibit the
disclosure of such information to the Lenders, and the Lenders acknowledge that,
in such circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver Agent will use its reasonable best efforts to obtain),
Agent shall be under no obligation to provide such information to them. With
respect to the Foothill Loans and Agent Advances, Foothill shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not Agent, and the terms "Lender" and "Lenders" include
Foothill in its individual capacity.
17.9 Successor Agent. Agent may resign as Agent upon 45 days notice to the
Lenders. If Agent resigns under this Agreement, the Required Lenders shall
appoint a successor Agent for the Lenders. If no successor Agent is appointed
prior to the effective date of the resignation of Agent, Agent shall appoint,
after consulting with the Lenders, a successor Agent and such appointed
successor Agent shall be deemed acceptable to the Lenders. If Agent has
materially breached or failed to perform any material provision of this
Agreement or of applicable law, the Required Lenders may agree in writing to
remove and replace Agent with a successor Agent from among the Lenders. In any
such event, upon the acceptance of its appointment as successor Agent hereunder,
such successor Agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor Agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 17 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement. If no successor Agent
has accepted appointment as Agent by the date which is 45 days following a
retiring Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of Agent hereunder until such time, if any, as the Lenders appoint a
successor Agent as provided for above.
17.10 Withholding Tax. (a) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the IRC and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the IRC, such Lender agrees with and in favor of Agent and Borrower, to
deliver to Agent and Borrower:
(i) if such Lender claims an exemption from, or a reduction of, withholding
tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8
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before the payment of any interest in the first calendar year and before the
payment of any interest in each third succeeding calendar year during which
interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively connected
with a United States trade or business of such Lender, two properly completed
and executed copies of IRS Form 4224 before the payment of any interest is due
in the first taxable year of such Lender and in each succeeding taxable year of
such Lender during which interest may be paid under this Agreement, and IRS Form
W-9; and
(iii) such other form or forms as may be required under the IRC or other
laws of the United States as a condition to exemption from, or reduction of,
United States withholding tax.
Such Lender agrees promptly to notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of, withholding tax
under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of Borrower to such Lender, such Lender agrees to notify Agent
of the percentage amount in which it is no longer the beneficial owner of
Obligations of Borrower to such Lender. To the extent of such percentage amount,
Agent will treat such Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States withholding tax by
filing IRS Form 4224 with Agent sells, assigns, grants a participation in, or
otherwise transfers all or part of the Obligations of Borrower to such Lender,
such Lender agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the IRC.
(d) If any Lender is entitled to a reduction in the applicable withholding
tax, Agent may withhold from any interest payment to such Lender an amount
equivalent to the applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by subsection (a) of
this Section are not delivered to Agent, then Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United States or
other jurisdiction asserts a claim that Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered, was not properly executed, or because such Lender failed to
notify Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason) such Lender
shall indemnify Agent fully for all amounts paid, directly or indirectly, by
Agent as tax or otherwise, including penalties and interest, and including any
taxes imposed by any jurisdiction on the amounts payable to Agent under this
Section, together with all costs and expenses (including attorneys fees and
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expenses). The obligation of the Lenders under this subsection shall survive the
payment of all Obligations and the resignation or replacement of Agent.
17.11 Collateral Matters.
(a) The Lenders hereby irrevocably authorize Agent, at its option and in
its sole discretion, to release any Lien on any Collateral (i) upon the
termination of the Commitments and payment and satisfaction in full by Borrower
of all Obligations; (ii) constituting property being sold or disposed of if a
release is required or desirable in connection therewith and if Borrower
certifies to Agent that the sale or disposition is permitted under Section 7.4
of this Agreement or the other Loan Documents (and Agent may rely conclusively
on any such certificate, without further inquiry); (iii) constituting property
in which Borrower owned no interest at the time the security interest was
granted or at any time thereafter; or (iv) constituting property leased to
Borrower under a lease that has expired or is terminated in a transaction
permitted under this Agreement. Except as provided above, Agent will not execute
and deliver a release of any Lien on any Collateral without the prior written
authorization of (y) if the release is of all or substantially all of the
Collateral, of all of the Lenders, or (z) otherwise, all of the Lenders. Upon
request by Agent or Borrower at any time, the Lenders will confirm in writing
Agent's authority to release any such Liens on particular types or items of
Collateral pursuant to this Section 17.11; provided, however, that (1) Agent
shall not be required to execute any document necessary to evidence such release
on terms that, in Agent's opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of Borrower in respect of)
all interests retained by Borrower, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
(c) Agent shall have no obligation whatsoever to any of the Lenders to
assure that the Collateral exists or is owned by Borrower or is cared for,
protected, or insured or has been encumbered, or that the Agent's Liens have
been properly or sufficiently or lawfully created, perfected, protected, or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent pursuant to any of the Loan Documents, it being understood
and agreed that in respect of the Collateral, or any act, omission or event
related thereto, subject to the terms and conditions contained herein, Agent may
act in any manner it may deem appropriate, in its sole discretion given Agent's
own interest in the Collateral in its capacity as one of the Lenders and that
Agent shall have no other duty or liability whatsoever to any Lender as to any
of the foregoing, except as otherwise provided herein.
17.12 Restrictions on Actions by Lenders; Sharing of Payments. (a) Each of
the Lenders agrees that it shall not, without the express consent of Agent, and
that it shall, to the extent it is lawfully entitled to do so, upon the request
of Agent, set off against the Obligations, any amounts owing by such Lender to
Borrower or any accounts of Borrower now or hereafter maintained with such
Lender. Each of the Lenders further agrees that it shall not, unless
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specifically requested to do so by Agent, take or cause to be taken any action,
including, the commencement of any legal or equitable proceedings, to foreclose
any Lien on, or otherwise enforce any security interest in, any of the
Collateral the purpose of which is, or could be, to give such Lender any
preference or priority against the other Lenders with respect to the Collateral.
(b) Subject to Section 17.8, if, at any time or times any Lender shall
receive (i) by payment, foreclosure, setoff or otherwise, any proceeds of
Collateral or any payments with respect to the Obligations arising under, or
relating to, this Agreement or the other Loan Documents, except for any such
proceeds or payments received by such Lender from Agent pursuant to the terms of
this Agreement, or (ii) payments from Agent in excess of such Lender's ratable
portion of all such distributions by Agent, such Lender promptly shall (1) turn
the same over to Agent, in kind, and with such endorsements as may be required
to negotiate the same to Agent, or in same day funds, as applicable, for the
account of all of the Lenders and for application to the Obligations in
accordance with the applicable provisions of this Agreement, or (2) purchase,
without recourse or warranty, an undivided interest and participation in the
Obligations owed to the other Lenders so that such excess payment received shall
be applied ratably as among the Lenders in accordance with their Pro Rata
Shares; provided, however, that if all or part of such excess payment received
by the purchasing party is thereafter recovered from it, those purchases of
participations shall be rescinded in whole or in part, as applicable, and the
applicable portion of the purchase price paid therefor shall be returned to such
purchasing party, but without interest except to the extent that such purchasing
party is required to pay interest in connection with the recovery of the excess
payment.
17.13 Agency for Perfection. Agent and each Lender hereby appoints each
other Lender as agent for the purpose of perfecting the Agent's Liens in assets
which, in accordance with Article 9 of the UCC can be perfected only by
possession. Should any Lender obtain possession of any such Collateral, such
Lender shall notify Agent thereof, and, promptly upon Agent's request therefor
shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
17.14 Payments by Agent to the Lenders. All payments to be made by Agent to
the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds to:
If to Foothill: The Chase Manhattan Bank
New York, New York
ABA # 021-000-021
Credit: Foothill Capital Corporation
Account No. 323-266193
Re: PANACO, Inc.
If to Ableco Chase Bank of Texas, N.A.
Finance LLC: ABA # 113-000-609
Account No. 00102619468
BNF: Wires-Clearing-Asset Backed Securities
OBI: Ref: Kevin Celestine/Ableco
Finance/Panaco/Acct. #2316401
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If to Foothill
Partners III, L.P.: The Chase Manhattan Bank
New York, New York
ABA # 021000021
Credit: Foothill Partners III, L.P.
Account No. 323-214711
Re: PANACO, INC.
or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to Agent. Concurrently with each such payment,
Agent shall identify whether such payment (or any portion thereof) represents
principal, premium or interest on revolving advances or otherwise.
17.15 Concerning the Collateral and Related Loan Decuments. Each member of
the Lender Group authorizes and directs Agent to enter into this Agreement and
the other Loan Documents relating to the Collateral, for the benefit of the
Lender Group. Each member of the Lender Group agrees that any action taken by
Agent or all Lenders, as applicable, in accordance with the terms of this
Agreement or the other Loan Documents relating to the Collateral and the
exercise by Agent or all Lenders, as applicable, of their respective powers set
forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.
17.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other . By signing this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such Lender, promptly
after it becomes available, a copy of each field audit or examination report
(each a "Report" and collectively, "Reports") prepared by Agent, and Agent shall
so furnish each Lender with such Reports;
(b) expressly agrees and acknowledges that neither Foothill nor Agent (i)
makes any representation or warranty as to the accuracy of any Report, or (ii)
shall be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or other party performing any
audit or examination will inspect only specific information regarding Borrower
and will rely significantly upon Borrower's books and records, as well as on
representations of Borrower's personnel;
(d) agrees to keep all Reports and other material, non-public information
regarding Borrower and its Subsidiaries and their operations, assets, and
existing and contemplated business plans in a confidential manner; it being
understood and agreed by Borrower that in any event such Lender may make
disclosures (a) to counsel for and other advisors, accountants, and auditors to
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such Lender, (b) reasonably required by any bona fide potential or actual
Assignee, transferee, or Participant in connection with any contemplated or
actual assignment or transfer by such Lender of an interest herein or any
participation interest in such Lender's rights hereunder, (c) of information
that has become public by disclosures made by Persons other than such Lender,
its Affiliates, assignees, transferees, or participants, or (d) as required or
requested by any court, governmental or administrative agency, pursuant to any
subpoena or other legal process, or by any law, statute, regulation, or court
order; provided, however, that, unless prohibited by applicable law, statute,
regulation, or court order, such Lender shall notify Borrower of any request by
any court, governmental or administrative agency, or pursuant to any subpoena or
other legal process for disclosure of any such non-public material information
concurrent with, or where practicable, prior to the disclosure thereof; and
(e) without limiting the generality of any other indemnification provision
contained in this Agreement, agrees: (i) to hold Agent and any such other Lender
preparing a Report harmless from any action the indemnifying Lender may take or
conclusion the indemnifying Lender may reach or draw from any Report in
connection with any loans or other credit accommodations that the indemnifying
Lender has made or may make to Borrower, or the indemnifying Lender's
participation in, or the indemnifying Lender's purchase of, a loan or loans of
Borrower; and (ii) to pay and protect, and indemnify, defend and hold Agent and
any such other Lender preparing a Report harmless from and against, the claims,
actions, proceedings, damages, costs, expenses and other amounts (including,
attorney costs) incurred by Agent and any such other Lender preparing a Report
as the direct or indirect result of any third parties who might obtain all or
part of any Report through the indemnifying Lender.
In addition to the foregoing: (x) Any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent that has not been contemporaneously
provided by Borrower to such Lender, and, upon receipt of such request, Agent
shall provide a copy of same to such Lender promptly upon receipt thereof from
Borrower; (y) To the extent that Agent is entitled, under any provision of the
Loan Documents, to request additional reports or information from Borrower, any
Lender may, from time to time, reasonably request Agent to exercise such right
as specified in such Lender's notice to Agent, whereupon Agent promptly shall
request of Borrower the additional reports or information specified by such
Lender, and, upon receipt thereof from Borrower, Agent promptly shall provide a
copy of same to such Lender; and (z) Any time that Agent renders to Borrower a
statement regarding the Loan Account, Agent shall send a copy of such statement
to each Lender.
17.17 Several Obligations; No Liability. Notwithstanding that certain of
the Loan Documents now or hereafter may have been or will be executed only by or
in favor of Agent in its capacity as such, and not by or in favor of the
Lenders, any and all obligations on the part of Agent (if any) to make any
credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of, the business,
assets, profits, losses, or liabilities of any other Lender. Each Lender shall
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be solely responsible for notifying its Participants of any matters relating to
the Loan Documents to the extent any such notice may be required, and no Lender
shall have any obligation, duty, or liability to any Participant of any other
Lender. Except as provided in Section 17.7, no member of the Lender Group shall
have any liability for the acts or any other member of the Lender Group. No
Lender shall be responsible to Borrower or any other Person for any failure by
any other Lender to fulfill its obligations to make credit available hereunder,
nor to advance for it or on its behalf in connection with its Commitment, nor to
take any other action on its behalf hereunder or in connection with the
financing contemplated herein.
18. GENERAL PROVISIONS.
18.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower and each member of the Lender Group whose signature is
provided for on the signature pages hereof.
18.2 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
18.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against the Lender Group or
Borrower, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
18.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
18.5 Amendments in Writing. This Agreement can only be amended by a writing
signed by Agent, the requisite Lenders, and Borrower.
18.6 Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The forgoing shall apply to each other Loan Document mutatis
mutandis.
18.7 Revival and Reinstatement of Obligations. If the incurrence or payment
of the Obligations by Borrower or any guarantor of the Obligations or the
transfer by either or both of such parties to the Lender Group of any property
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of either or both of such parties should for any reason subsequently be declared
to be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if the Lender
Group is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that the Lender Group is
required or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of the Lender Group related thereto, the liability
of Borrower or such guarantor automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had never been made.
18.8 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
18.9 Amendment and Restatement; Release. This Agreement and the obligations
of Borrower set forth herein constitute an amendment, modification and
restatement, but not an extinguishment or novation, of obligations of the
Borrower originally owed to the Prior Lenders and/or the predecessors in
interest to Prior Lenders (the "Prior Obligations"), the Prior Lenders having
assigned all of such Prior Obligations (together with all Liens and security
documents securing the same) to Agent and the Lender Group pursuant to the Prior
Lender Assignment Agreements. This Agreement and the other Loan Documents are
not intended as, and shall not be construed as, a release, impairment or
novation of the Prior Obligations or the other indebtedness, liabilities and
obligations of Borrower or any of the other Loan Parties under the agreements,
documents and instruments executed in connection therewith or relating thereto
or the Liens granted therein, all of which Liens are hereby modified and
affirmed. BORROWER AND EACH OTHER LOAN PARTY HEREBY VOLUNTARILY AND KNOWINGLY
RELEASE AND FOREVER DISCHARGE AGENT AND EACH OF THE LENDERS, ITS PREDECESSORS,
AGENTS, EMPLOYEES, ATTORNEYS, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS,
DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES
WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR
UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING
IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH
BORROWER AND SUCH OTHER LOAN PARTIES, INDIVIDUALLY OR COLLECTIVELY, MAY NOW OR
HEREAFTER HAVE AGAINST AGENT, ANY OF THE LENDERS, ITS PREDECESSORS, AGENTS,
EMPLOYEES, ATTORNEYS, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF
WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR
REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY ADVANCES, LETTERS OF CREDIT OR
OTHER INDEBTEDNESS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE
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HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER
THE AGREEMENT OR OTHER TRANSACTION DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION
OF THIS AGREEMENT.
[Remainder of Page Intentionally Left Blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed.
BORROWER:
PANACO, INC.,
a Delaware corporation
By_____________________________________
Title:_________________________________
PANACO PRODUCTION COMPANY,
a Texas corporation
By_____________________________________
Title:_________________________________
AGENT:
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent for the Lenders
By ____________________________________
Title:_________________________________
LENDERS:
FOOTHILL CAPITAL CORPORATION,
a California corporation, as a Lender
By______________________________________
Title:__________________________________
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ABLECO FINANCE LLC,
a Delaware limited liability company, as a Lender
By_______________________________________
Title:___________________________________
FOOTHILL PARTNERS III, L.P.
a Delaware limited partnership, as a Lender
By_______________________________________
Title:___________________________________
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SCHEDULE A-1
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of any date of determination thereof:
(a) the sum of
(i) discounted future net revenue from Proved Reserves of Panaco and its
Subsidiaries, calculated in accordance with SEC guidelines (before any state or
federal income tax), as estimated by one or more reputable firms of independent
petroleum engineers as of a date no earlier than the date of Panaco's latest
annual consolidated financial statements, as
(A) increased by, as of the date of determination, the estimated discounted
future net revenues from
(I) estimated Proved Reserves acquired since the date of such year-end
Reserve Report, and
(II) estimated oil and natural gas reserves attributable to upward
revisions of estimates of Proved Reserves since the date of such year-end
Reserve Report due to exploration, development or exploitation activities, in
each case calculated in accordance with SEC guidelines (utilizing the prices
utilized in such year-end Reserve Report), and
(B) decreased by, as of the date of determination, the estimated discounted
future net revenues from
(I) estimated Proved Reserves produced or disposed of since the date of
such year-end Reserve Report, and
(II) estimated Proved Reserves attributable to downward revisions of
estimates of Proved Reserves attributable to downward revisions of estimates of
Proved Reserves since the date of such year-end Reserve Report due to changes in
geological conditions or other factors which would, in accordance with standard
A-1-1
<PAGE>
industry practice, cause such revisions, in each case calculated in accordance
with standard industry practice, cause such revisions, in each case calculated
in accordance with SEC guidelines (utilizing the prices utilized in such
year-end Reserve Report);
provided, however, that, in the case of each of the determinations made pursuant
to clauses (A) and (B), such increases and decreases shall be as estimated by
Panaco's petroleum engineers, unless in the event that there is a Material
Adverse Change as a result of such acquisitions, dispositions or revisions, then
the discounted future net revenues utilized for purposes of this clause (a)(i)
shall be confirmed in writing, by one or more reputable firms of independent
petroleum engineers (which may be Panaco's independent petroleum engineers who
prepare the Panaco's annual Reserve Report), plus
(ii) the capitalized costs that are attributable to oil and natural gas
properties of the Panaco and its Subsidiaries to which no Proved Reserves are
attributable, based on the Panaco's books and records as of a date no earlier
than the date of the Panaco's latest annual or quarterly financial statements,
plus
(iii) the Net Working Capital on a date no earlier than the date of the
Panaco's latest consolidated annual or quarterly financial statements, plus
(iv) with respect to each other tangible asset of the Panaco or its
Subsidiaries specifically including, but not to the exclusion of any other
qualifying tangible assets, the Panaco's or its Subsidiaries' Crude Oil and
Natural Gas Related Assets (to the extent not included in (i), (ii) and (iii)
above or otherwise in this clause (iv)) (less any remaining deferred income
taxes which have been allocated to such Crude Oil and Natural Gas Related
Assets), Real Property, Equipment, leasehold improvements, investments carried
on the equity method, restricted cash and the carrying value of marketable
securities, the greater of (A) the net book value of such other tangible asset
on a date no earlier than the date of the Panaco's latest consolidated annual or
quarterly financial statements or (B) the appraised value, as estimated by a
qualified Independent Advisor, of such other tangible assets of the Panaco and
its Subsidiaries, as of a date no earlier than the date of the Panaco's latest
audited financial statements, plus
(v) to the extent deducted in the calculation of (i) above, reserves
against plugging and abandonment expenses; provided, that such reserves shall be
A-1-2
<PAGE>
included under this clause (v) only to the extent of any cash deposited by the
Panaco against such liabilities, minus
(b) minority interests and, to the extent not otherwise taken into account in
determining Adjusted Consolidated Net Tangible Assets, any natural gas
balancing liabilities of the Panaco and its Subsidiaries reflected in the
Panaco's latest audited financial statements.
In addition to, but without duplication of, the foregoing, for purposes of this
definition, "Adjusted Consolidated Net Tangible Assets" shall be calculated
after giving effect, on a pro forma basis, to (1) any Investment not prohibited
by the Unsecured Notes Indenture, to and including the date of the transaction
giving rise to the need to calculate Adjusted Consolidated Net Tangible Assets
(the "Assets Transaction Date"), in any other Person that, as a result of such
Investment, becomes a Subsidiary of the Borrower, (2) the acquisition, to and
including the Assets Transaction Date (by merger, consolidation or purchase of
stock or assets), of any business or assets, including, without limitation,
Permitted Industry investments, and (3) any sales or other dispositions of
assets permitted by the Unsecured Notes Indenture (other than sales of
Hydrocarbons or other mineral products in the ordinary course of business)
occurring on or prior to the Assets Transaction Date.
Solely for purposes of this definition of "Adjusted Consolidated Net Tangible
Assets", the following terms have the respective meanings:
(A) "Crude Oil and Natural Gas Business" means (i) the acquisition,
exploration, development, operation and disposition of interests in Oil and
Gas Properties and all other Hydrocarbon properties, (ii) the gathering,
marketing, treating, processing, storage, selling and transporting of any
production from such interests or properties of Panaco or of others, and
(iii) activities incidental to the foregoing.
(B) "Crude Oil and Natural Gas Related Assets" means any Investment or capital
expenditure (but not including additions to working capital or repayments
of any revolving credit or working capital borrowings) by Panaco or any
Subsidiary of Panaco which is related to the Crude Oil and Natural Gas
Business.
(C) "Independent Advisor" means a nationally recognized investment banking or
accounting firm, or a reputable engineering firm, (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct
or indirect material financial interest in the Panaco and its Subsidiaries
and (ii) which, in the judgment of the Board of Directors of the Panaco and
its Subsidiaries, is otherwise disinterested, independent and qualified to
perform the task for which it is to be engaged.
(D) "Investment" means, with respect to any Person, any direct or indirect (i)
loan, advance or other extension of credit (including, without limitation,
a guarantee) or capital contribution to by means of any transfer of cash or
A-1-3
<PAGE>
other property (valued at the fair market value thereof as of the date of
transfer) others or any payment for property or services for the account or
use of others, (ii) purchase or acquisition by such Person of any capital
stock, bonds, notes, debentures or other securities or evidences of
indebtedness issued by, any Person (whether by merger, consolidation,
amalgamation or otherwise and whether or not purchased directly from the
issuer of such securities or evidences of Indebtedness), (iii) guarantee or
assumption of the Indebtedness of any other Person, and (iv) other items
that would be classified as investments on a balance sheet of such Person
prepared in accordance with GAAP. Notwithstanding the foregoing,
"Investment" shall exclude extensions of trade credit by Panaco and its
Subsidiaries on commercially reasonable terms in accordance with normal
trade practices of Panaco or such Subsidiary, as the case may be. The
amount of any Investment shall not be adjusted for increases or decreases
in value, or write-ups, write-downs or write-offs with respect to such
Investment. If Panaco or any Subsidiary sells or otherwise disposes of any
capital Stock of any Subsidiary such that, after giving effect to any such
sale or disposition, it ceases to be a Subsidiary of Panaco, Panaco shall
be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the capital stock of such
Subsidiary not sold or disposed of.
(E) "Net Working Capital" means (i) all current assets of Panaco and its
Subsidiaries, minus (ii) all current liabilities of Panaco and its
Subsidiaries, except current liabilities included in Indebtedness, in each
case as set forth in financial statements of Panaco prepared in accordance
with GAAP.
(F) "Permitted Industry Investments" means (i) capital expenditures, including,
without limitation, acquisitions of Properties of Panaco and its
Subsidiaries and interests therein; (ii) (a) entry into operating
agreements, joint ventures, working interests, royalty interests, mineral
leases, unitization agreements, pooling arrangements or other similar or
customary agreements, transactions, properties, interests or arrangements,
and Investments and expenditures in connection therewith or pursuant
thereto, in each case made or entered into in the ordinary course of the
oil and natural gas business, and (b) exchanges of the Properties of Panaco
and its Subsidiaries for other Properties of Panaco and its Subsidiaries of
at least equivalent value as determined in good faith by the Board of
Directors of Panaco; and (iii) Investments of operating funds on behalf of
co-owners of Oil and Gas Properties of Panaco or the Subsidiaries pursuant
to joint operating agreements.
A-1-4
<PAGE>
SCHEDULE C-1
COMMITMENTS
Name of Lender Commitment
-------------- ----------
Foothill Capital Corporation $30,000,000
Ableco Finance LLC $20,000,000
Foothill Partners III, L.P. $10,000,000
C-1-1
<PAGE>
Schedule 5.20
-------------
Y2K COMPLIANCE TIMELINE
-----------------------
See Attached
Schedule 5.20
<PAGE>
Exhibit 3.3(e)
--------------
MAY 11, 1999 CORRESPONDENCE FROM THE MMS TO PANACO
--------------------------------------------------
See Attached
Schedule 5.20
<PAGE>
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