EXHIBIT 10.1
HAYNES AND BOONE DRAFT: 7/29/09
SENIOR SECURED BRIDGE LOAN
BY AND AMONG
MAINLAND RESOURCES, INC.,
AS BORROWER,
GUGGENHEIM CORPORATE FUNDING, LLC,
AS ADMINISTRATIVE AGENT,
AND
THE LENDERS SIGNATORY HERETO
DATED AS OF AUGUST [ ], 2009
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TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS............................1
1.1 DEFINED
TERMS...............................................1
1.2 ACCOUNTING
TERMS...........................................11
1.3 NUMBER AND GENDER OF
WORDS.................................11
ARTICLE 2 TERMS OF
CREDIT............................................12
2.1 TERM
LOAN..................................................12
2.2
LOANS......................................................12
2.3 LOAN PROCEDURES AND
PROVISIONS............................12
2.4 REPAYMENT
PROVISIONS.......................................14
2.5 INTEREST RATES,
PAYMENT....................................14
2.6 GENERAL PROVISIONS RELATING TO
INTEREST....................14
2.7
FEES.......................................................15
2.8 METHOD OF PAYMENT; PRO RATA
TREATMENT......................15
2.9 INCREASED
COSTS............................................15
2.10
TAXES......................................................16
ARTICLE 3
CONDITIONS PRECEDENT.......................................17
3.1 CONDITIONS TO EXECUTION AND
MAKING OF ADVANCES.............17
3.2 FURTHER CONDITIONS TO BUENA VISTA
ADVANCE..................19
ARTICLE 4
REPRESENTATIONS AND WARRANTIES.............................19
4.1 EXISTENCE AND GOOD
STANDING................................20
4.2 DUE
AUTHORIZATION..........................................20
4.3 VALID AND BINDING
OBLIGATIONS..............................20
4.4 SCOPE AND ACCURACY OF FINANCIAL
STATEMENTS.................20
4.5 LIABILITIES AND
LITIGATION.................................20
4.6 TITLE TO
ASSETS............................................20
4.7
[RESERVED].................................................20
4.8
[RESERVED].................................................20
4.9 GAS
IMBALANCES.............................................20
4.10 AUTHORIZATIONS AND
CONSENTS................................21
4.11 COMPLIANCE WITH
LAWS.......................................21
4.12 PROPER FILING OF TAX RETURNS AND
PAYMENT OF TAXES DUE......21
4.13 ERISA
COMPLIANCE...........................................21
4.14 INVESTMENT COMPANY ACT
COMPLIANCE..........................21
4.15 LIEN
PRIORITY..............................................21
4.16 USE OF
PROCEEDS............................................21
4.17 FULL
DISCLOSURE............................................21
4.18 PLACES OF
BUSINESS.........................................22
4.19 IDENTIFICATION
NUMBERS.....................................22
4.20
SUBSIDIARIES...............................................22
4.21 NO
DEFAULT.................................................22
ARTICLE 5
AFFIRMATIVE COVENANTS......................................22
5.1 MAINTENANCE AND ACCESS TO
RECORDS..........................22
5.2 QUARTERLY FINANCIAL
STATEMENTS.............................22
5.3 ANNUAL FINANCIAL
STATEMENTS................................22
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5.4 COMPLIANCE
CERTIFICATES....................................23
5.5
[RESERVED].................................................23
5.6
[RESERVED].................................................23
5.7 SALES, PRODUCTION AND OPERATIONS
REPORTS...................23
5.8 LIENS ON NEWLY ACQUIRED OIL AND
GAS PROPERTIES.............23
5.9 TITLE
OPINIONS.............................................23
5.10 STATEMENT OF MATERIAL ADVERSE
EFFECT.......................23
5.11 TITLE
DEFECTS..............................................24
5.12 ADDITIONAL
INFORMATION.....................................24
5.13 COMPLIANCE WITH LAWS AND PAYMENT OF
TAXES..................24
5.14 MAINTENANCE OF EXISTENCE AND GOOD
STANDING.................24
5.15 FURTHER
ASSURANCES.........................................24
5.16
[RESERVED].................................................24
5.17 MAINTENANCE OF TANGIBLE
PROPERTY...........................24
5.18 MAINTENANCE OF
INSURANCE...................................24
5.19 RIGHT OF
INSPECTION........................................25
5.20
NOTICE.....................................................25
5.21 COLLATERAL
PROTECTION......................................25
5.22 ERISA INFORMATION AND
COMPLIANCE...........................25
5.23 USE OF
PROCEEDS............................................26
5.24 RIGHT OF LAST
OFFER........................................26
ARTICLE 6 NEGATIVE
COVENANTS.........................................26
6.1 OTHER DEBT OF
BORROWER.....................................26
6.2 DERIVATIVE
CONTRACTS.......................................27
6.3 GUARANTY OF PAYMENT OR
PERFORMANCE.........................27
6.4 LOANS, ADVANCES OR
INVESTMENTS.............................27
6.5 MORTGAGES OR PLEDGES OF
ASSETS.............................27
6.6 CANCELLATION OF
INSURANCE..................................27
6.7 SALES OF
PROPERTY..........................................27
6.8 DIVIDENDS AND
DISTRIBUTIONS................................28
6.9 CHANGES IN
STRUCTURE.......................................28
6.10 PAYMENT OF ACCOUNTS
PAYABLE................................28
6.11 TRANSACTIONS WITH
AFFILIATES...............................28
6.12 NATURE OF
BUSINESS.........................................28
6.13 NO
SUBSIDIARIES............................................28
6.14 ERISA
COMPLIANCE...........................................28
6.15 NEGATIVE PLEDGE
AGREEMENTS.................................28
6.16 GAS IMBALANCES, TAKE-OR-PAY OR OTHER
PREPAYMENTS...........28
ARTICLE 7 EVENTS OF
DEFAULT..........................................29
7.1 EVENTS OF
DEFAULT..........................................29
7.2 RIGHTS UPON OCCURRENCE OF AN
EVENT OF DEFAULT..............30
ARTICLE 8 THE
ADMINISTRATIVE AGENT...................................31
8.1 APPOINTMENT;
POWERS........................................31
8.2 DUTIES AND OBLIGATIONS OF
ADMINISTRATIVE AGENT.............32
8.3 ACTIONS BY ADMINISTRATIVE
AGENT............................32
8.4 RELIANCE BY ADMINISTRATIVE
AGENT...........................33
8.5
SUBAGENTS..................................................33
8.6 RESIGNATION OR REMOVAL OF
ADMINISTRATIVE AGENT.............33
8.7 ADMINISTRATIVE AGENT AS A
LENDER...........................33
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8.8 NO
RELIANCE................................................34
8.9 AUTHORITY OF
ADMINISTRATIVE AGENT TO RELEASE COLLATERAL
AND LIENS..................................................34
8.10 ADMINISTRATIVE AGENT MAY FILE PROOFS
OF CLAIM..............34
8.11 DELIVERY BY ADMINISTRATIVE
AGENT...........................35
ARTICLE 9
MISCELLANEOUS..............................................35
9.1
NOTICES....................................................35
9.2 AMENDMENTS AND
WAIVERS.....................................36
9.3 EXPENSES, INDEMNITY, DAMAGE
WAIVER.........................37
9.4 SURVIVAL OF
AGREEMENTS.....................................39
9.5 SUCCESSORS AND
ASSIGNS.....................................39
9.6
INVALIDITY.................................................42
9.7
[RESERVED].................................................42
9.8
WAIVERS....................................................42
9.9 CUMULATIVE
RIGHTS..........................................42
9.10 EXHIBITS;
CONFLICTS........................................42
9.11 TITLES OF ARTICLES, SECTIONS AND
SUBSECTIONS...............42
9.12
JURISDICTION...............................................43
9.13
COUNTERPARTS...............................................43
9.14
EFFECTIVENESS..............................................43
9.15
DOCUMENTS..................................................43
9.16 RIGHTS OF THIRD
PERSON.....................................43
9.17
ANNOUNCEMENTS..............................................43
9.18 SURVIVAL OF CERTAIN
COVENANTS..............................43
9.19 JURY TRIAL
WAIVED..........................................43
9.20 GOVERNING
LAW..............................................44
9.21
ARBITRATION................................................44
9.22 ENTIRE
AGREEMENT...........................................45
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SCHEDULES
SCHEDULE I Area of Mutual
Interest
SCHEDULE 2.1 Lenders' Pro Rata
Percentages
SCHEDULE 4.6 Mortgaged Properties
EXHIBITS
EXHIBIT A Form of
Note
EXHIBIT B Form of
Borrowing Request
EXHIBIT C Form of
Compliance Certificate
EXHIBIT D Form of
Assignment and Acceptance Agreement
EXHIBIT E Form of
Letter in Lieu
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This SENIOR SECURED BRIDGE LOAN
AGREEMENT, dated as of August [ ], 2009 is
by and among MAINLAND RESOURCES, INC., a Nevada
corporation (the "BORROWER"),
each of the lenders which is or which may from time to
time become a signatory
hereto (individually, a "LENDER" and collectively, the "LENDERS")
and GUGGENHEIM
CORPORATE FUNDING, LLC, a Delaware limited liability company,
as administrative
agent for the Lenders (in such capacity, together with
its successors in such
capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H T H A T:
WHEREAS, Borrower has
requested the Lenders extend to Borrower up
to
$3,500,000.00 on a short term basis subject to the terms and
conditions hereof;
and
WHEREAS, Borrower acknowledges that
Administrative Agent is arranging this
facility in anticipation of arranging a Senior Secured
Advancing Line of Credit
Facility, more particularly described in a separate
Arrangement Letter between
Administrative Agent and Borrower of even date herewith
according to the terms
outlined in EXHIBIT A attached thereto (the
"ARRANGEMENT LETTER") and Borrower
intends to close the Senior Secured
Advancing Line of Credit Facility as
expeditiously as possible;
NOW, THEREFORE, in
consideration of the mutual covenants and agreements
herein contained and of the loans and commitment
hereinafter referred to, the
Borrower, the Lenders, and the Administrative Agent agree as
follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINED TERMS. As used in this
Agreement, the following terms have the
following meanings:
"ADMINISTRATIVE AGENT" has the
meaning indicated in the opening
paragraph hereof.
"ADMINISTRATIVE AGENT'S PAYMENT OFFICE" means the address for
payments
as Administrative Agent may from time to
time specify.
"ADVANCE
LIMIT" means $3,500,000.00.
"AFE" means
an authorization for expenditures representing an estimate
of work to be performed. AFE's shall
not include COPAS overhead or other
similar expenses related to Borrower's
direct overhead expense.
"AFFILIATE" means any Person controlling,
controlled by, or under
common control with, any other
Person. For purposes of this definition,
"control" (including "controlled by" and
"under common control with") means
the possession, directly or indirectly, of
the power to direct or cause the
direction of the management and
policies of such Person, whether through
the ownership of voting securities or
otherwise.
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"AGREEMENT" means this Senior Secured Bridge Loan
Agreement and all
exhibits and schedules hereto, as the same
may be amended from time to time
according to the terms hereof.
"AREA OF
MUTUAL INTEREST" or "AMI" means the area of mutual
interest
more particularly described on SCHEDULE I
hereto.
"ARRANGEMENT
LETTER" has the meaning set forth in the Recitals.
"ASSIGNMENT AND ACCEPTANCE" means an Assignment
and Acceptance, in
substantially the form
attached hereto as EXHIBIT D with
appropriate
completions.
"BANKRUPTCY
CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. ss. 101, et
seq.), as amended, and
regulations promulgated
thereunder.
"BASE RATE"
means, for any day, the fluctuating rate of
interest in
effect for such day which rate per
annum shall be equal to the prime rate
published in The Wall Street
Journal's "Money Rates" or similar table. If
multiple prime rates are quoted in
the table, then the highest prime rate
will be the Base Rate. In
the event that the prime rate is no
longer
published by The Wall Street Journal in
the "Money Rates" or similar table,
then Administrative Agent may select
an alternative published index based
upon comparable information as
a substitute Base Rate. Upon the selection
of a substitute Base Rate, the
applicable interest rate shall thereafter
vary in relation to the substitute
index
"BORROWER"
has the meaning indicated in the opening paragraph hereof.
"BORROWING
REQUEST" means the request by the Borrower for the Loans in
accordance with SECTION 2.3
duly executed by an Authorized Officer of a
Borrower substantially in the form
attached hereto as EXHIBIT B.
"BUENA
VISTA ADVANCE" has the meaning assigned such term
in SECTION
2.1(B).
"BUENA VISTA
PROSPECT" means the Oil and Gas Properties to be acquired
by Borrower in the properties known as the
Buena Vista Prospect, located in
[ ] County, Mississippi, more particularly
described in SCHEDULE I hereto.
"BUSINESS DAY" means a day other than a
Saturday, Sunday or legal
holiday for commercial banks in the State
of Texas.
"CHANGE IN LAW" means (a) the adoption of any Law
after the date of
this Agreement, (b) any
change in any Law or in the interpretation or
application thereof by any Tribunal after
the date of this Agreement or (c)
compliance by any Lender, by any
lending office of such Lender or by such
Lender's holding company with any
request, guideline or directive (whether
or not having the force of law) of
any Tribunal made or issued after the
date of this Agreement.
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"CLO" means
any entity (whether a corporation, partnership, trust
or
otherwise) that is engaged in
making, purchasing, holding or otherwise
investing in bank loans and
similar extensions of credit in the ordinary
course of its business and
is administered or managed by a Lender or an
Affiliate of such Lender.
"CLOSING DATE" means the date when all the
conditions precedent set
forth in SECTION 3.1 of this Agreement
have been satisfied or waived by the
Lenders.
"CODE"
means the Internal Revenue Code of 1986,
as amended, and
regulations promulgated thereunder.
"COLLATERAL" means all assets and property of the
Borrower now owned
or hereafter
acquired, including, without
limitation, the Mortgaged
Properties.
"COMMITMENT" means, with respect to each Lender,
the commitment of
such Lender to fund its pro-rata share of
the Initial Advance and the Buena
Vista Advance, and
"Commitments" means the aggregate of the
Lenders'
Commitments which amount shall be equal to
the Commitment Amount.
"COMMITMENT
AMOUNT" means $3,500,000.
"COMMITMENT TERMINATION DATE" means the earlier of (i)
the Maturity
Date or (ii) the date on which the
Lenders' Commitment otherwise terminates
in accordance with the provisions of this
Agreement.
"COMPLIANCE CERTIFICATES" means the
certificates of a Responsible
Officer submitted to the
Administrative Agent and the Lenders from time to
time pursuant to this Agreement,
which certificates shall be substantially
in the form attached hereto as EXHIBIT
C.
"CONTESTED
IN GOOD FAITH" means contested in good faith by appropriate
and lawful proceedings diligently
conducted, reasonably satisfactory to the
Administrative Agent (a) in which
foreclosure, distraint, sale, forfeiture,
levy, execution or other
similar proceedings have not been initiated
or
have been stayed and
continue to be stayed, (b) in which a good
faith
contest will not reasonably be expected to
have a Material Adverse Effect,
and (c) for which matter a reserve or
other appropriate provision has been
established in accordance with the
requirements of GAAP.
"DEBT" of
any Person means, to the extent of such Person's
liability,
(a) all items of
indebtedness for borrowed money,
obligations, and
liabilities (whether matured
or unmatured, liquidated or unliquidated,
direct or indirect, joint or
several, contingent or otherwise), which in
accordance with GAAP should be classified
upon such Person's balance sheet
as liabilities, but in any event
including liabilities secured by any Lien
existing on Property of such Person or a
Subsidiary of such Person, (b) the
deferred purchase price of
Property or services and direct and contingent
obligations incurred in
connection with letters of credit and similar
agreements, (c) all
obligations as a lessee under leases which have been,
or which in accordance with
GAAP should be, capitalized for
financial
reporting purposes, (d)
all obligations under operating
leases which
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require such Person or its Affiliate to
make payments over the term of such
lease, including payments at
termination, based on the purchase price or
appraisal value of the
Property subject to such lease plus a
marginal
interest rate, and used
primarily as a financing vehicle for,
or to
monetize, such Property; (e) all
guaranties, endorsements (other than for
collection or deposit in
the ordinary course of business), and
other
contingent obligations of such
Person with respect to obligations of other
Persons of the types described in
clauses (a), (b) and/or (c) preceding,
(f) liabilities of
unfunded vested benefits under any Plan, (g) all
net
obligations with respect to
Derivative Contracts, (h) all obligations to
supply funds to, invest in or maintain
working capital or equity capital of
any other Person, or otherwise to maintain
the net worth or solvency or any
balance sheet condition of any other
Person, (i) the undischarged balance
of any production
payment created by such Person or for the creation
of
which such Person directly or indirectly
received payment.
"DEBTOR RELIEF LAWS" means the
Bankruptcy Code and all other
applicable
liquidation, conservatorship,
bankruptcy, moratorium,
rearrangement, receivership,
insolvency, reorganization, or similar debtor
relief Laws or general
equitable principles from time to time in effect
affecting the Rights of creditors
generally.
"DEFAULT RATE" shall mean the lesser of the
Base Rate PLUS twelve
percent (12.0%) or the Highest Lawful
Rate.
"DERIVATIVE CONTRACT" means all future contracts,
forward contracts,
swap, cap or collar contracts, option
contracts, hedging contracts or other
derivative contracts or similar agreements
covering oil and gas commodities
or prices or financial, monetary or
interest rate instruments.
"DOLLARS" or "$" refers to lawful
money of the United States of
America.
"DRILLING AND COMPLETION COSTS" means amounts
owed to third Persons
that are not an Affiliate of the
Borrower incurred by the Borrower, or to
the extent such contracts are
with Affiliates of Borrower, amounts owed
under such contracts to the extent on an
arm's-length basis with terms and
costs approved by
Administrative Agent, in its sole
discretion, in
drilling, completing and equipping for
production a Well.
"EQUITY INTERESTS" means shares
of capital stock, partnership
interests, membership interests in a
limited liability company, beneficial
interests in a trust or other equity
ownership interests in a Person, and
any warrants, options or
other rights entitling the holder thereof
to
purchase or acquire any such Equity
Interest.
"ERISA"
means the Employee Retirement Income Security Act of 1974,
as
amended, and regulations promulgated
thereunder.
"ERISA
AFFILIATE" means any trade or
business (whether or not
incorporated) under common control
with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and
Sections 414(m) and (o) of the Code
for purposes of provisions relating to
Section 412 of the Code).
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"ERISA
EVENT" means (a) a Reportable Event with respect to a Plan; (b)
a withdrawal by the Borrower or any
ERISA Affiliate from a Plan subject to
Section 4063 of ERISA
during a plan year in which it was a substantial
employer (as defined in
Section 4001(a)(2) of ERISA) or a cessation
of
operations which is treated as such
a withdrawal under Section 4062(e) of
ERISA; (c) a complete or
partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan
or notification that a Multiemployer
Plan is in
reorganization; (d) the filing of a
notice of intent to
terminate (other than pursuant to Section
4041(b) of ERISA), the treatment
of a Plan amendment as a
termination under Section 4041(c) or 4041A of
ERISA, or the commencement of
proceedings by the PBGC to terminate a Plan
or Multiemployer Plan; (e) an event
or condition which might reasonably be
expected to constitute
grounds under Section 4042 of
ERISA for the
termination of, or the appointment of a
trustee to administer, any Plan or
Multiemployer Plan; or (f) the
imposition of any liability under Title IV
of ERISA, other than PBGC
premiums due but not delinquent under Section
4007 of ERISA, upon the Borrower or any
ERISA Affiliate.
"EVENT OF
DEFAULT" means any of the events specified in SECTION
7.1,
provided that the requirements, if any,
for the giving of notice, the lapse
of time, or both, or any other condition
specified in SECTION 7.1 have been
satisfied.
"EXCLUDED
TAXES" means, with respect to the Administrative Agent,
any
Lender, or any other recipient
of any payment to be made by or on account
of any obligation of the
Borrower hereunder or under any other
Loan
Document, (a) income or franchise taxes
imposed on (or measured by) its net
income by the United States of America or
such other jurisdiction under the
laws of which such recipient is organized
or in which its principal office
is located or, in the case of any
Lender, in which its applicable lending
office is located, (b)
windfall profit or other excess profits taxes that
are imposed on
Administrative Agent or any Lender, and (c) any
branch
profits taxes imposed by the
United States of America or any similar tax
imposed by any other jurisdiction in which
the Borrower is located.
"FACILITY" means the $3,500,000 Senior Secured Bridge
Loan evidenced
by this Agreement.
"FACILITY RATE" means on any day a varying rate of interest
per annum
equal to the Base Rate, from
time to time in effect, plus seven percent
(7.00%), but in no event to exceed the
Highest Lawful Rate.
"FINANCIAL
STATEMENTS" means statements of financial condition, as
at
the point in time and for the period
indicated, and consisting of at least
a balance sheet
and related statements of
operations, changes in
shareholder's equity and cash flow.
"GAAP"
means, generally accepted accounting principles established
by
the Financial Accounting Standards Board
and in effect in the United States
from time to time during the term of
this Agreement and applied on a basis
consistent with that adopted in the
Financial Statements of the Borrower to
be delivered to the Administrative Agent
and to the Lenders.
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"HAZARDOUS
SUBSTANCES" means any flammables, explosives,
radioactive
materials, hazardous wastes,
asbestos or any material containing asbestos,
polychlorinated biphenyls
(PCB's), toxic substances or related materials,
and associated oil or natural gas
exploration, production and development
wastes or any substances
defined as "hazardous substances," "hazardous
materials," "hazardous wastes" or "toxic
substance" under the Oil Pollution
Act, as amended; Comprehensive
Environmental Response, Compensation and
Liability Act, as amended; the
Superfund Amendments and Reauthorization
Act, as amended; the Hazardous
Materials Transportation Act, as amended;
the Resource
Conservation and Recovery Act, as
amended; the Toxic
Substances Control Act, as amended;
or any other law, statute, ordinance,
rule, regulation or order now or
hereafter enacted or promulgated by any
governmental authority with
jurisdiction and relating to the protection of
the environment.
"HIGHEST LAWFUL RATE" means the maximum rate (or,
if the context so
permits or requires, an
amount calculated at such rate) of interest (if
any) that, at the time in question, would
not cause the interest charged on
the Obligations owed to the
Lenders to exceed the maximum amount that the
Lenders would be allowed to contract for,
charge, take, reserve or receive
under applicable Law after taking
into account, to the extent required by
applicable Law, all relevant payments and
charges under the Loan Documents.
"INDEMNIFIED
TAXES" means Taxes other than Excluded Taxes.
"INITIAL ADVANCE" has the meaning
assigned such term in SECTION
2.1(B).
"INVESTMENT" means, for any Person: (a) the acquisition
(whether for
cash, Property, services or securities or
otherwise) of Equity Interests of
any other Person or any agreement to make
any such acquisition (including,
without limitation, any "short
sale" or any sale of any securities at a
time when such securities are
not owned by the Person entering into such
short sale) or any capital contribution to
any other Person; (b) the making
of any deposit with, or advance,
loan or other extension of credit to, any
other Person (including
the purchase of Property from another Person)
subject to an understanding or
agreement, contingent or otherwise, to
resell such Property to
such Person; or (c) the entering into of
any
guarantee of, or other contingent
obligation (including the deposit of any
Equity Interests to be sold)
with respect to, Debt or other liability of
any other Person and
(without duplication) any amount committed
to be
advanced, lent or extended to such
Person.
"LAWS"
means all applicable statutes, laws,
ordinances, rules,
rulings,
interpretations, regulations,
judgments, requirements,
governmental authorizations
(including licenses, permits, franchises and
other governmental
consents necessary for the ownership or operation
of
Property), orders,
writs, injunctions or decrees of any
Tribunal (or
interpretations of any of the foregoing by
any Tribunal).
"LENDER" and
"LENDERS" have the respective meanings indicated in
the
opening paragraph hereof.
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"LETTERS IN LIEU" means the
letters in lieu of transfer orders
described in SECTION 3.1(a)(4)(iii).
"LIEN"
means any lien, charge,
claim, restriction, mortgage,
mechanic's lien, materialmen's lien,
pledge, hypothecation, inchoate lien,
assignment, deposit arrangement,
conditional sale or other title retention
agreement, financing lease, security
interest, security agreement or other
encumbrance, whether
arising by contract or under Law,
and includes
conditions, leases and
other title exceptions and the filing
of any
financing statement under the Uniform
Commercial Code of the State of Texas
or comparable Law of any jurisdiction
perfecting any such Lien.
"LITIGATION" means any
proceeding, claim,
lawsuit, and/or
investigation conducted, or threatened and
known to the Person in question,
by or before any Tribunal.
"LOAN
DOCUMENTS" means this Agreement, the
Notes, the Security
Documents, all agreements,
documents and instruments governing or related
to Derivative Contracts entered into
between the Borrower and any Lender or
the Administrative
Agent or any Affiliate of
any Lender or the
Administrative Agent and
all other notes, mortgages, deeds of
trust,
restatements, ratifications
and amendments of mortgages, deeds of trust,
financing statements,
guarantees, security agreements, pledge agreements,
documents, instruments and
other agreements now or hereafter delivered
pursuant to the terms of, or
in connection with, this Agreement,
the
Obligations and/or the
Collateral, and all renewals,
extensions and
restatements of, and
amendments and supplements to any or all of
the
foregoing.
"LOANS" means the loans and
other extensions of credit by the
Administrative Agent on behalf of
the Lenders to or for the account of the
Borrower pursuant to this Agreement.
"MAJORITY LENDERS" means
Lenders holding at least fifty (50%) of the
outstanding aggregate principal
amount of the Loans (without regard to any
sale by a Lender of a participation in any
Loan under SECTION 9.5).
"MARKETABLE TITLE" means title free of all
liens and encumbrances
other than the Permitted Liens, that
entitles Borrower (i) to receive not
less than the
percentage set forth on SCHEDULE 4.6
as "Net Revenue
Interest" and (ii) to bear not
more than the percentages set forth
on
SCHEDULE 4.6 as "Working Interests"
without a corresponding increase in the
Net Revenue Interest as such
percentages relate to each Well as described
in SCHEDULE 4.6 and is otherwise free and
clear from reasonable doubt as to
matters of law and
fact such that a prudent operator of
Oil and Gas
Properties, advised of
the facts and their legal
significance, would
willingly accept.
"MATERIAL
ADVERSE EFFECT" means any material and adverse effect on (a)
the business, assets,
liabilities, financial condition,
business or
operations of the
Borrower, (b) the ability of the Borrower to meet
its
Obligations under any of the
Loan Documents on a timely basis as provided
herein or therein or
(c) the legality, validity, binding
effect or
enforceability against the Borrower
of any Loan Document to which it is a
party.
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"MATURITY
DATE" means December 1, 2009.
"MORTGAGED PROPERTIES" means those Oil and Gas
Properties covered by
the Mortgages, including,
without limitation, the Oil and Gas Properties
described on SCHEDULE 4.6 as same may be
amended from time to time.
"MORTGAGES"
means the mortgages described in SECTIONS 3.1(A)(4)(I).
"MULTIEMPLOYER PLAN" means a "MULTIEMPLOYER PLAN," within the
meaning
of Section 4001(a)(3)
of ERISA, to which the Borrower or
any ERISA
Affiliate makes, is
making, or is obligated to make
contributions or,
during the preceding three (3) calendar
years, has made, or been obligated
to make, contributions.
"NOTES" means the promissory notes of the
Borrower payable to the
order of the respective
Lender, in substantially the form attached hereto
as EXHIBIT A with appropriate
completions, and all extensions, renewals,
replacements, modifications,
supplements or rearrangements thereof from
time to time, and "NOTE" means any one of
the Notes.
"OBLIGATIONS" means all present
and future loans, advances,
indebtedness, obligations,
covenants, duties and liabilities, and
all
renewals for any period,
increases and extensions thereof, or any
part
thereof, now or hereafter owing to
the Lenders or the Administrative Agent
by the Borrower arising
from or pursuant to any of the Loan Documents
including, without limitation,
obligations under Derivative Contracts with
any Lender or Lender Affiliate
entered into at the time such counterparty
was a Lender or an
Affiliate of a Lender, together with
all interest
accruing thereon, and costs,
expenses, and attorneys' fees incurred in the
enforcement or collection thereof, whether
such indebtedness, obligations,
and liabilities are
direct, indirect, fixed, contingent,
liquidated,
unliquidated, joint, several, or joint and
several.
"OIL AND GAS
PROPERTIES" means fee, leasehold or other interests in or
under mineral estates, or oil, gas
and other liquid or gaseous hydrocarbon
leases with respect to properties situated
in the United States, including,
without limitation, overriding
royalty and royalty interests, leasehold
estate interests, net profits
interests, production payment interests and
mineral fee interests,
together with contracts executed in
connection
therewith and all tenements,
hereditaments, appurtenances and properties,
real or personal, appertaining, belonging,
affixed or incidental thereto.
"ORGANIZATIONAL DOCUMENTS" shall mean, as applicable, for any
entity,
such entity's articles or certificate of
incorporation, by-laws, memorandum
and articles of
association, partnership agreement, trust
agreement,
certificate of limited partnership,
articles of organization, certificate
of formation, shareholder
agreement, voting trust agreement, operating
agreement, subscription
agreement, limited liability company
agreement
and/or analogous documents, as
amended, modified or supplemented from time
to time.
8
<PAGE>
"OTHER
TAXES" means any and all present or future stamp or documentary
taxes or any other excise or
Property taxes, charges or similar levies
arising from any payment made hereunder or
from the execution, delivery or
enforcement of, or otherwise with
respect to, this Agreement and any other
Loan Document.
"PBGC"
means the Pension Benefit Guaranty
Corporation, or any
governmental entity
succeeding to any of its principal functions
under
ERISA.
"PENSION PLAN" means a pension plan (as defined
in Section 3(2) of
ERISA) subject to Title IV of ERISA, other
than a Multiemployer Plan, which
the Borrower sponsors,
maintains, or to which the Borrower makes,
is
making, or is obligated to make
contributions, or in the case of a multiple
employer plan (as
described in Section 4064(a) of
ERISA) has made
contributions at any time during
the immediately preceding five (5) plan
years.
"PERMITTED
LIENS" means, to the extent same are valid and enforceable:
(a) Liens for Taxes, not yet
due or which are being Contested in
Good
Faith; (b) Liens in connection
with workers' compensation, unemployment
insurance or other social
security (other than Liens created by Section
4068 of ERISA), old age pension or
public liability obligations which are
not yet due or which are being
Contested in Good Faith; (c) vendors',
carriers',
warehousemen's,
repairmen's, mechanics',
workmen's,
materialmen's, construction or other
similar Liens arising by operation of
Law in the ordinary
course of business or incident to
the drilling,
construction or improvement of any
Property in respect of obligations which
are not yet due or which are
being Contested in Good Faith; (d)
Liens
existing prior to the filing of
the Mortgages in favor of operators and
non-operators under joint
operating agreements arising in the ordinary
course of business to secure amounts
owing, which amounts are not yet due
or are being Contested in Good
Faith; (e) Liens under division orders and
other agreements customary in
the oil and gas business for processing,
producing and selling hydrocarbons
and statutory Liens in favor of royalty
owners; (f) Liens
created in favor of the Administrative Agent or
any
Lender securing Obligations
hereunder and other Liens expressly permitted
under the Security Documents; (g)
easements, rights-of-way, restrictions
and other similar
encumbrances, and minor defects in the chain of
title
which are customarily accepted in
the oil and gas industry, none of which
interfere with the
ordinary conduct of the business of the owner of
the
Property or materially
detract from the value or use of the Property to
which they apply; (h) Liens of
record under terms and provisions of the
leases, unit agreements, assignments
and other transfer of title documents
in the chain of title
under which the owner of the relevant
Property
acquired such Property; (i)
Liens securing the purchase price or existing
under conditional sale
for title retention contracts
for equipment
purchased or leased in the
normal course of business of the
Borrower,
provided that such Lien shall not extend
to or cover any other Property of
the Borrower; and (j)
Lessor's Liens under oil and gas leases securing
payment of royalties.
"PERSON"
means any individual, sole proprietorship, firm, corporation,
trust, association,
institution, partnership, joint venture,
limited
liability company, Tribunal or other
entity.
9
<PAGE>
"PLAN"
means an employee benefit plan (as defined in Section 3(3)
of
ERISA) which is subject to
ERISA, other than a Multiemployer Plan,
and
which the Borrower sponsors,
maintains or to which the Borrower makes, is
making or is obligated to make
contributions and includes any Pension Plan.
"PRO RATA
PERCENTAGE" means, with respect to each Lender, at any time,
a fraction (expressed as
a percentage carried out to the ninth decimal
place), the numerator of
which is the amount of the Commitment of such
Lender at such time and the denominator of
which is the aggregate amount of
the Commitments at such
time. The initial Pro Rata Percentage of
each
Lender is set forth opposite the
name of such Lender on SCHEDULE 2.1 or in
the Assignment and
Assumption Agreement pursuant to which such
Lender
becomes a party hereto, as applicable.
"PROPERTY" means any interest in any kind
of property or asset,
whether real, personal or mixed, tangible
or intangible.
"REGULATION D" means Regulation D of the Board
of Governors of the
Federal Reserve System (or any
successor).
"RELATED
PARTIES" means, with respect to any specified
Person, such
Person's Affiliates and the
respective directors, officers, employees,
agents and advisors (including
attorneys, accountants and experts) of such
Person and such Person's Affiliates.
"REPORTABLE EVENT" means any of the
events set forth in Section
4043(b) of ERISA or the regulations
thereunder, other than any such event
for which the 30-day notice
requirement under ERISA has been waived in
regulations issued by the PBGC.
"RESPONSIBLE OFFICERS" means Michael J. Newport and
William Thomas,
and other executive officers of Borrower
as designated in written notice to
Administrative Agent.
"RIGHTS"
means rights, remedies, powers and privileges.
"SECTION" means a section or subsection in
this Agreement unless
specified otherwise.
"SECURITY DOCUMENTS" means the
documents described in SECTION
3.1(A)(4) of this
Agreement and all other documents now
or hereafter
existing which provide
the Administrative Agent and/or the Lenders with
Collateral, as the same may be amended or
restated from time to time.
"SUBSIDIARY" of any Person means
any corporation, association,
partnership, joint venture or other
business entity of which more than 50%
of the voting stock or other equity
interests (in the case of Persons other
than corporations), is owned
or controlled directly or indirectly by the
Person, or one or more of the
Subsidiaries of the Person, or a combination
thereof.
10
<PAGE>
"TAXES"
means all taxes, assessments, filing or other
fees, levies,
imposts, duties,
deductions, withholdings, stamp
taxes, interest
equalization taxes, capital
transaction taxes, foreign exchange taxes or
charges, or other charges of any
nature whatsoever from time to time or at
any time imposed by any Law or
Tribunal.
"TRIBUNAL" means any court, governmental
department or authority,
commission, board,
bureau, agency, arbitrator or instrumentality of
any
state, political subdivision,
commonwealth, nation, territory, county,
parish or
municipality, whether now or
hereafter existing, having
jurisdiction over the Administrative
Agent, any Lender, the Borrower or any
of their respective Property.
"UNFUNDED PENSION LIABILITY" means the
excess of a Plan's benefit
liabilities under Section 4001(a)
(16) of ERISA, over the current value of
that Plan's assets, determined in
accordance with the assumptions used for
funding the Pension
Plan pursuant to Section 412 of the Code
for the
applicable Plan year.
"UNMATURED EVENT OF DEFAULT" means any
event or occurrence which
solely with the lapse of time or
the giving of notice or both will ripen
into an Event of Default.
"WELL"
means any oil and gas well which the Borrower
drills on the
Mortgaged Properties with the
proceeds, in whole or in part, of Advances
hereunder.
1.2 ACCOUNTING TERMS. All accounting and
financial terms used in any of the
Loan Documents and the compliance with
each covenant contained in the Loan
Documents that relates to financial matters shall
be determined in accordance
with GAAP, except to the extent that a deviation
therefrom is expressly stated
in such Loan Documents.
1.3 NUMBER AND GENDER OF WORDS. Whenever
the singular number is used in any
Loan Document, the same shall include the plural
where appropriate, and VICE
VERSA; words of any gender in any Loan Document shall include
each other gender
where appropriate; and the words "herein," "hereof," "hereunder"
and other words
of similar import refer to the relevant Loan Document as a
whole and not to any
particular part, section or subdivision thereof.
11
<PAGE>
ARTICLE 2
TERMS OF CREDIT
2.1 TERM LOAN. Subject
to the terms and conditions set forth
herein
(including, without limitation, the right of
the Lenders to terminate the
Commitment hereunder upon an
Event of Default) and
relying on the
representations and warranties contained in this
Agreement and the other Loan
Documents, until the Commitment Termination Date, each Lender
severally (and not
jointly) agrees to make the following advances equal to its Pro
Rata Percentage,
provided, however, no advance shall be
made which will cause the sum of all
advances pursuant to this SECTION
2.1 to exceed, either
singularly or
cumulatively, the Advance Limit:
(a) The
first advance shall be made on the Closing Date (the
"INITIAL
ADVANCE") in the amount of
$2,500,000.00 to (i) fund cash calls related to
the Dehan 15-1 Well, in an amount
not to exceed $1,500,000.00, (ii) fund
cash calls related to
the Stevenson-Douglas 16-1 Well and general
and
administrative expenses, in an aggregate
amount not to exceed $900,000, and
(iii) to pay Borrower's out of
pocket legal expenses and closing fees
related to this Facility, in an amount not
to exceed $100,000.00.
(b) The
second advance (the "BUENA VISTA
ADVANCE") shall be made
subject to the
conditions set forth in SECTION 3.2 in
the amount of
$1,000,000.00 to fund expenses related to
the acquisition of acreage in the
Buena Vista Prospect.
(c)
The Commitments are not revolving and amounts
repaid or prepaid
may not be re-borrowed under any
circumstance.
2.2 LOANS.
(a)
SEVERAL OBLIGATIONS. Each Loan shall
be made by the Lenders
ratably in accordance with their
respective Commitments. The failure of any
Lender to fund its
Loan shall not relieve any
other Lender of its
obligations hereunder; provided,
however, that the Commitments are several
and no Lender shall be responsible
for any other Lender's failure to fund
its Loan as required.
(b) NOTES.
The Loan made by each Lender shall be evidenced by a single
promissory note of the
Borrower in substantially the form of EXHIBIT A,
dated, in the case of (i) any Lender party
hereto, as of the Closing Date,
or (ii) any Lender
that becomes a party hereto pursuant
to a Lender
Assignment Agreement, as of
the effective date of the Lender Assignment
Agreement, payable to the order of
such Lender in a principal amount equal
to such Lender's funded Loan as in
effect on such date, and otherwise duly
completed.
2.3 LOAN PROCEDURES AND PROVISIONS.
(a)
BORROWING REQUEST.
(1) INITIAL ADVANCE. Not later than 11:00 a.m., Houston time,
one
(1) Business
Day before the Closing Date, the Borrower shall
request
the
Initial Advance by notifying
the Administrative Agent by
telephone,
fax (or electronic communication, if arrangements for doing
so have been
approved by the Administrative Agent), and shall confirm
12
<PAGE>
such request
by delivering to the Administrative Agent and the Lenders
a written
Borrowing Request in substantially the form of EXHIBIT B and
signed by
the Borrower. Promptly following receipt of the
Borrowing
Request in
accordance with this SECTION 2.3(A)(1), the
Administrative
Agent
shall advise each Lender of the
details thereof and of the
amount of
such Lender's Loan to be made.
(2) BUENA VISTA ADVANCE. Upon satisfaction
of the conditions
under
SECTION 3.2, the Borrower shall request the Buena Vista
Advance
by notifying
the Administrative Agent by telephone, fax (or electronic
communication, if arrangements for doing so have been
approved by the
Administrative Agent), and shall confirm such request by delivering
to
the
Administrative Agent and the Lenders a written Borrowing
Request
in
substantially the form of EXHIBIT B and signed by
the Borrower.
Promptly
following receipt of the Borrowing Request in accordance with
this
SECTION 2.3(A)(2), the Administrative Agent
shall advise each
Lender of
the details thereof and of the amount of such Lender's
Loan
to be
made.
(b)
FUNDING.
(1) FUNDING BY LENDERS. Each Lender shall make
its Loan on the
Closing Date and the date specified for the Buena
Vista Advance by
wire
transfer of immediately available funds by noon,
Houston, Texas
time,
to the account of the Administrative
Agent most recently
designated by it for such purpose by
notice to the Lenders. The
Administrative Agent will make such Loans available to the Borrower
by
promptly crediting the amounts so
received, in like funds, to
Borrower's account designated by the
Borrower in the Borrowing
Request.
(2) PRESUMPTION OF FUNDING
BY THE LENDERS. Unless the
Administrative Agent shall have received notice from a Lender prior
to
the
Closing Date that such Lender will not make
available to the
Administrative Agent such Lender's Loan, the Administrative
Agent may
assume
that such Lender has made its Loan available on such
date in
accordance with SECTION 2.3(B)(1) and may,
in reliance upon such
assumption, make available to the Borrower a corresponding
amount. In
such event,
if a Lender has not in fact made its Loan available to the
Administrative Agent, then the applicable
Lender and the Borrower
agrees to
pay to the Administrative Agent forthwith
on demand such
corresponding amount with interest
thereon, for each day from and
including the date such amount is made available
to the Borrower to
but
excluding the date of payment to the Administrative Agent, at
(i)
in the case
of such Lender, the greater of the Federal Funds Rate and
a rate
determined by the Administrative Agent in
accordance with
banking industry rules on interbank compensation or
(ii) in the case
of the
Borrower, the Facility Rate. If such Lender pays such amount to
the
Administrative Agent, then such amount
shall constitute such
Lender's
Loan.
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<PAGE>
2.4 REPAYMENT PROVISIONS. All
outstanding principal Debt evidenced by the
Notes, accrued but unpaid interest
thereon and expenses due and payable
hereunder, if not sooner paid, shall be repayable upon the Maturity
Date.
2.5 INTEREST RATES, PAYMENT.
Principal amounts of Loans outstanding under
the Notes shall bear interest at the lesser of (a) the Facility
Rate, calculated
on the basis of a year of three hundred sixty
(360) days, or (b) the Highest
Lawful Rate, calculated on the basis of a year of three hundred
sixty-five (365)
or three hundred sixty-six (366) days, as
the case may be, and if no Highest
Lawful Rate exists, all outstanding Loans under the Notes shall
bear interest at
the Facility Rate, calculated on the basis of a
year of three hundred sixty
(360) days. Interest payable hereunder shall be due and
payable, in arrears, on
the last day of each month during the term hereof commencing August
31, 2009.
If an Event of
Default shall exist, principal amounts outstanding under
the Notes and, to the extent permitted by applicable Law, any
interest payment
on the Loans or any fees or other amounts owed
hereunder, shall bear interest
(including post-petition interest in any proceeding under the
Bankruptcy Code or
other applicable Bankruptcy Laws) from the date
of such Event of Default (if
such Event of Default is not cured on or prior to the expiration of
any right to
cure provided under the Loan Documents) at the lesser
of (a) the Default Rate,
calculated on the basis of a year of three hundred sixty
(360) days, or (b) the
Highest Lawful Rate, calculated on
the basis of a year of three
hundred
sixty-five (365) or three hundred sixty-six (366) days, as
the case may be, and
if no Highest Lawful Rate exists, principal amounts
outstanding under the Notes
shall bear interest at the Default Rate,
calculated on the basis of a year of
three hundred sixty (360) days.
2.6 GENERAL PROVISIONS
RELATING TO INTEREST. It is the intention of the
parties hereto to comply strictly with the
applicable usury Laws as in effect
from time to time; and in this connection, there shall never be
taken, reserved,
contracted for, collected, charged or
received on any Loan or any other
Obligation interest in excess of that which would accrue at
the Highest Lawful
Rate. To the extent that the interest
rate Laws of the State of Texas are
applicable to the Loans, for purposes of Chapter 303 of the
Texas Finance Code,
as amended, the Borrower agrees that
the Highest Lawful Rate shall be the
"weekly rate ceiling" as defined in such chapter,
provided that the Lender may
also rely, to the extent permitted by applicable Laws,
on alternative maximum
rates of interest under such other applicable Laws, if greater.
If under any
circumstances the aggregate amount paid on the Obligations
includes amounts that are by Law deemed to be interest which
exceed the Highest
Lawful Rate (the "excess interest"), the Borrower
stipulates that such payment
and collection will have been and will be deemed to
have been, to the fullest
extent permitted by applicable Laws, the result
of mathematical error on the
part of the Borrower, the
Administrative Agent and the Lenders,
and the
Administrative Agent and the Lenders shall
promptly credit the amount of such
excess interest on the principal amount of the
outstanding Obligations, or if
the principal amount of the Obligations shall have been paid in
full, refund the
excess interest to the Borrower. In the event that the
maturity of the Notes is
accelerated by reason of an election of the Lenders resulting
from any Event of
Default or by reason of operation of
SECTION 7.2(A), or in the event of any
prepayment, then such consideration
that constitutes interest under Laws
applicable to the Administrative Agent or
the Lenders may never exceed the
Highest Lawful Rate, and excess interest, if
any, provided for in the Notes,
this Agreement or otherwise
shall be cancelled
automatically by the
Administrative Agent or the Lenders as of
the date of such acceleration or
prepayment and, if theretofore paid, shall be
credited by the Administrative
14
<PAGE>
Agent or the Lenders on the principal
amount of the Obligations, or if the
principal amount of the Obligations shall have been
paid in full, refunded by
the Administrative Agent or the Lenders to the Borrower.
All sums paid, or
agreed to be paid, to the Administrative Agent or the
Lenders for the use, forbearance, and
detention of the proceeds of the Loans
shall, to the extent permitted by
applicable Law, be amortized, prorated,
allocated, and spread throughout the full term of the
Obligations until paid in
full so that the actual rate of interest is
uniform, but does not exceed the
Highest Lawful Rate, throughout the full term hereof.
2.7 FEES.
(a)
FACILITY FEE. The Borrower agrees to pay to
the Administrative
Agent a fee equal to 3% of the
Commitment Amount; such fee shall be fully
earned and payable on the Closing
Date.
(b)
TERMINATION FEE. The Borrower agrees to pay to the
Administrative
Agent a fee equal to 3% of the Commitment
Amount; such fee shall be payable
upon repayment of the Facility
in full and shall be credited against any
facility fees owing to
the Lenders incurred under the Senior
Secured
Advancing Term Loan.
2.8 METHOD OF PAYMENT; PRO
RATA TREATMENT. All payments of
principal,
interest, and other amounts to be made by the Borrower under
this Agreement and
the other Loan Documents shall be
made to the Administrative Agent at the
Administrative Agent's Payment Office for the account of the
Lenders in dollars
and in immediately available funds, without setoff,
deduction, or counterclaim,
not later than 1:00 P.M. New York,
New York time on the date on which such
payment shall become due (each such payment
made after such time on such due
date to be deemed to have been made on the next
succeeding Business Day). Each
payment received by the Administrative Agent under this
Agreement or any other
Loan Document for the account of a Lender shall be paid
promptly to such Lender
in immediately available funds. Whenever any payment under this
Agreement or any
other Loan Document shall be stated to be due on
a day that is not a Business
Day, such payment may be made on the next
succeeding Business Day, and such
extension of time shall in such case be
included in the computation of the
payment of interest.
Each payment
and prepayment of principal or interest under the
Notes
shall be made to the Administrative Agent for the
account of the Lenders pro
rata in accordance with the respective unpaid principal amounts
evidenced by the
Notes.
2.9 INCREASED COSTS.
(a) If any
Lender determines that any Change in Law regarding
capital
requirements has the effect of reducing
the rate of return on such Lender's
capital or on the capital of such
Lender's holding company, if any, as a
consequence of this
Agreement or the Loan made by such Lender to a level
below that which such Lender or such
Lender's holding company could have
achieved but for such
Change in Law (taking into
consideration such
Lender's policies and the policies
of such Lender's holding company with
respect to capital adequacy), then
from time to time the Borrower will pay
to such Lender such additional
amount or amounts as will compensate such
Lender or such Lender's holding company
for any such reduction suffered.
15
<PAGE>
(b) A
certificate of a Lender setting forth the
amount or amounts
necessary to compensate such Lender or its
holding company, as the case may
be, as specified in SECTION 2.9(A)
and reasonably detailed calculations
therefor shall be delivered to the
Borrower and shall be conclusive absent
manifest error. The Borrower shall
pay such Lender the amount shown as due
on any such certificate within 30 days
after receipt thereof.
(c) Failure
or delay on the part of any Lender to demand compensation
pursuant to this SECTION 2.9 shall not
constitute a waiver of such Lender's
right to demand such compensation.
2.10 TAXES
(a) Any and
all payments by or on account of any
obligation of the
Borrower under any
Loan Document shall be made free and clear
of and
without deduction for any
Indemnified Taxes or Other Taxes; provided that
if the Borrower shall be required to
deduct any Indemnified Taxes or Other
Taxes from such payments, then
(i) the sum payable shall be increased as
necessary so that
after making all required
deductions (including
deductions applicable to additional
sums payable under this SECTION 2.10),
the Administrative Agent or Lender
(as the case may be) receives an amount
equal to the sum it would have received
had no such deductions been made,
(ii) the Borrower shall make
such deductions and (iii) the Borrower shall
pay the full amount deducted to the
relevant Tribunal in accordance with
applicable law.
(b) The
Borrower shall pay any Other Taxes to the relevant Tribunal in
accordance with applicable law.
(c) The
Borrower shall indemnify the Administrative
Agent and each
Lender, within ten (10) days after
written demand therefor, for the full
amount of any Indemnified Taxes or
Other Taxes paid by the Administrative
Agent or such Lender as the case may be,
on or with respect to any payment
by or on account of any
obligation of the Borrower hereunder
(including
Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to
amounts payable under this SECTION
2.10) and any penalties, interest and
reasonable expenses arising
therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes
were correctly or legally imposed
or asserted by the relevant
Tribunal. A certificate of the Administrative
Agent or a Lender as to the amount of such
payment or liability under this
SECTION 2.10 and
reasonably detailed calculations therefor
shall be
delivered to the Borrower and shall be
conclusive absent manifest error.
(d) As soon
as practicable after any payment of Indemnified Taxes
or
Other Taxes by the Borrower to a
Tribunal, the Borrower shall deliver to
the Administrative Agent
the original or a certified copy of a receipt
issued by such Tribunal
evidencing such payment, a copy of the
return
reporting such payment
or other evidence of such payment
reasonably
satisfactory to the Administrative
Agent.
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ARTICLE 3
CONDITIONS
3.1 CONDITIONS PRECEDENT TO
EXECUTION AND MAKING OF INITIAL ADVANCE. The
execution and delivery of this Agreement by the Lenders and
the Administrative
Agent and the making of the Initial Advance pursuant to
SECTION 2.1 is subject
to the fulfillment of the following conditions precedent,
with all documents to
be delivered to the Administrative
Agent (with sufficient copies for each
Lender) to be in form and substance satisfactory to the
Administrative Agent:
(a)
The Administrative Agent shall have
received the following
documents, appropriately
executed and acknowledged by all
appropriate
parties and in multiple
counterparts as requested by the
Administrative
Agent:
(1) this Agreement executed by each party hereto;
(2) Note executed by the Borrower payable to each
Lender in the
principal
amount of their respective Commitments;
(3) a certificate of the Secretary of Borrower
certifying as of
the
Closing Date: (i) resolutions of the
board of directors of
Borrower, authorizing the transactions contemplated
hereby; (ii) the
names and
genuine signatures of the officers of Borrower authorized to
execute, deliver and perform, as applicable, this Note,
the Security
Documents and all other Loan Documents;
(iii) the Organizational
Documents of
Borrower as in effect on the Closing Date; (iv) the good
standing
and existence certificates for Borrower,
from Borrower's
state
of incorporation, formation or
organization, as applicable,
evidencing
Borrower's qualification to do business in such state as of
a date
satisfactory to Administrative Agent; and (v) as
applicable,
certificate(s) of authority for Borrower from foreign
states wherein
Borrower
conducts business, evidencing Borrower's qualifications to do
business in such state as of a date satisfactory
to Administrative
Agent;
(4) the
following documents creating, evidencing and
perfecting
Liens in
favor of the Administrative Agent to secure the Obligations:
(i) a First Lien Act of Mortgage, Assignment of
Production,
Security Agreement, Fixture Filing and Financing
Statement from
Borrower in favor of Administrative
Agent, as agent for the
Lenders, covering the Mortgaged Properties located in
the State
of Louisiana;
(ii) a Financing Statement from
the Borrower covering
accounts from the sale of oil and gas produced from such Oil
and
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Gas Properties and equipment
and other personal Property
associated therewith;
(iii) Letters in Lieu of transfer orders,
in the form of
EXHIBIT E hereto, directed to each party remitting proceeds
from
the sale of production from such Oil and Gas Properties;
(5) the Arrangement Letter;
and
(6) Such other agreements, documents,
instruments, opinions,
certificates, waivers, consents, and evidence as
the Administrative
Agent or the
Lenders may reasonably request in compliance with or
to
accomplish
the terms and provisions of any of the Loan Documents;
(b) The
representations and warranties contained in ARTICLE 4 shall be
true and correct in all material
respects on the date of execution of this
Agreement;
(c) No Event
of Default or Unmatured Event of
Default shall have
occurred and be continuing;
(d)
The Administrative Agent shall have
received copies of the
Borrower's most recent
Financial Statements, in form
and substance
acceptable to the Administrative Agent in
its sole discretion;
(e)
The Administrative Agent shall
have received an insurance
certificate as set forth in SECTION
5.18;
(f)
The Administrative Agent shall be satisfied with
the Borrower's
hedging program for Derivative
Contracts;
(g)
Administrative Agent shall have received (i) the fees due on
the
Closing Date under SECTION 2.7, (ii) any
such costs, fees and expenses due
under SECTION 9.3 and (iii) estimated fees
and expenses associated with the
filing of the Security Documents;
(h) The
Administrative Agent shall have received an opinion of counsel
and an opinion of Louisiana
local counsel to the Borrower in form
and
substance acceptable to the Administrative
Agent at its sole discretion;
(i) The
Administrative Agent shall be satisfied with the environmental
condition, material contracts
related to, and Borrower's title to its Oil
and Gas Properties;
(j)
The Administrative Agent shall be satisfied with
background and
credit checks on the Borrower and its
executive officers;
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[(k)
The Administrative Agent shall have received
copies of current
AFE's for the Dehan 15-1 Well and
Stevenson-Douglass 16-1 Well;] and
(l) All
legal matters incident to the execution of
this Agreement
shall be satisfactory to
Haynes and Boone, LLP, special counsel for the
Administrative Agent.
3.2 CONDITIONS TO BUENA VISTA
ADVANCE. The obligation of the Lenders to
make the Buena Vista Advance pursuant to SECTION 2.1 is
subject to fulfillment
of the following further conditions precedent:
(a) The
representations and warranties contained in ARTICLE 4 shall be
true and correct in all material respects
as of the date of the Buena Vista
Advance;
(b) No Event
of Default or Unmatured Event of
Default shall have
occurred and be
continuing or will have occurred at the
completion of
making the Buena Vista Advance;
(c) No
Material Adverse Effect shall have occurred since the
Closing
Date;
(d)
The Administrative Agent shall have received a
Borrowing Request
as required under SECTION 2.3(A)(2);
(e)
The Administrative Agent shall have
received, in form and
substance satisfactory to the
Administrative Agent evidence of Borrower's
Marketable Title to the Buena Vista
Prospect;
(f)
The Administrative Agent shall have received
Security Documents
covering Borrower's interest
in the Buena Vista Prospect and opinion of
Mississippi counsel as to the
enforceability of the Security Documents
under Mississippi law;
[(g)
The Administrative Agent shall
have received evidence of
Borrower's authority to do business in the
state of Mississippi;]
[(h) The
Administrative Agent shall have received AFE's for the
Buena
Vista Prospect wells;]
(i) All
legal matters incident to the consummation of the Buena
Vista
Advance shall be satisfactory to
Haynes and Boone, LLP or special counsel
for the Administrative Agent.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into
this Agreement and to make the Loans
pursuant to SECTION 2.1, the
Borrower represents and
warrants to the
Administrative Agent and the Lenders (which representations and
warranties shall
survive the delivery of the Notes and the making of the Loans)
that:
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4.1 EXISTENCE AND GOOD
STANDING. The Borrower is a corporation,
duly
formed, legally existing and in good standing under the Laws of the
jurisdiction
of its formation and is duly qualified and
in good standing as a foreign
corporation in all jurisdictions where the
failure to be so qualified could
reasonably be expected to result in a Material Adverse Effect.
4.2 DUE AUTHORIZATION. The
execution and delivery by the Borrower of this
Agreement and the borrowings hereunder,
the execution and delivery by the
Borrower of the Notes and the other Loan Documents, the
repayment of the Loans
and interest and fees provided in
the Notes and this Agreement and
the
performance of all Obligations of the
Borrower under this Agreement and the
other Loan Documents, are within the power
of the Borrower, have been duly
authorized by all necessary company action on behalf of the
Borrower and do not
(a) require the consent of any Tribunal or
other Person which has not been
obtained, (b) contravene or conflict with any provision of
applicable Law or the
certificate of formation or company agreement of the
Borrower, (c) contravene,
conflict with or result in a default under any indenture,
instrument, contract
or other agreement to which the Borrower is a party or by
which its Properties
may be presently bound or encumbered, or (d) result in
or require the creation
or imposition of any Lien upon any of the Property of the
Borrower, other than
Permitted Liens.
4.3 VALID AND BINDING
OBLIGATIONS. This Agreement and the other
Loan
Documents to which it is a party constitute valid and binding
obligations of the
Borrower, enforceable in accordance with
their respective terms, except as
limited by Debtor Relief Laws and general principles of equity.
4.4 SCOPE AND ACCURACY OF FINANCIAL
STATEMENTS. The Financial Statements of
the Borrower, which have been delivered to the
Lender, have been prepared in
accordance with GAAP and fairly and accurately present the
financial condition
and the results of the operations thereof in all
material respects, as of the
dates and for the periods stated therein.
4.5 LIABILITIES AND
LITIGATION. Except as set forth on the
Financial
Statements of the Borrower submitted to Administrative
Agent prior to Closing,
the Borrower does not have any material
liabilities of any nature, direct or
contingent; and the Borrower is not in default with respect to any
such material
liabilities or any material agreements
by which it is bound. There is no
judgment against the Borrower, nor is there any
Litigation or other action of
any nature pending before any Tribunal or, to the
knowledge of the Borrower,
threatened against or affecting the Borrower or any of its
Property.
4.6 TITLE TO ASSETS.
The Borrower has Marketable Title to all of
the
Mortgaged Properties set forth on SCHEDULE 4.6.
4.7 RESERVED.
4.8 RESERVED.
4.9 GAS IMBALANCES.
There are no gas imbalances, take or pay or
other
prepayments with respect to the Mortgaged
Properties which would require the
Borrower to deliver oil and gas produced from such Mortgaged
Properties at some
future time without then or thereafter receiving full payment
therefor.
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4.10 AUTHORIZATIONS AND
CONSENTS. No authorization, consent,
approval,
exemption, franchise, permit or license of,
or filing (except for filings
required to perfect and maintain perfection of the Liens created by
the Security
Documents) with, any Tribunal or any third Person is required
to authorize, or
is otherwise required in connection with, the
valid execution, delivery and
performance by the Borrower of this Agreement, the other Loan
Documents to which
it is a party or any other agreement contemplated hereby or the
repayment by the
Borrower of the Obligations.
4.11 COMPLIANCE WITH LAWS.
Neither the business nor any of the activities
of the Borrower as presently conducted violates any
applicable Law, the result
of which violation would have a Material Adverse
Effect. The Borrower, and to
the extent the Borrower is not
the operator of any of its Oil
and Gas
Properties, the operator, has confirmed that it or the
operator possesses all
licenses, approvals, registrations, permits and other
authorizations necessary
to enable it to carry on its business in all material respects as
now conducted.
All such licenses, approvals, registrations,
permits and other authorizations
are in full force and effect. Furthermore, the Borrower does not
have any reason
to believe that it will be unable to obtain the renewal
of any such licenses,
approvals, registrations, permits and other authorizations in due
course.
4.12 PROPER FILING OF TAX RETURNS
AND PAYMENT OF TAXES DUE. The Borrower
has duly and properly filed all Tax returns which are
required to be filed and
has paid all Taxes due pursuant to such returns or
pursuant to any assessment
received, except such Taxes, if any, as are being Contested
in Good Faith. The
charges and reserves on the books of the Borrower with
respect to any Taxes are
adequate, and the Borrower does not owe any deficiency or
additional assessment
in a material amount in connection with Taxes.
4.13 ERISA COMPLIANCE. The Borrower
does not sponsor or maintain a Plan or
Pension Plan as defined under the provisions of ERISA,
the Code and any other
Federal or state law.
4.14 INVESTMENT COMPANY ACT
COMPLIANCE. The Borrower is not an "investment
company" or directly or indirectly
controlled by or acting on behalf of any
Person which is an "investment company" within
the meaning of the Investment
Company Act of 1940, as amended.
4.15 LIEN PRIORITY. The Liens
created in favor of the Administrative Agent
under the Security Documents constitute
and, until released or otherwise
terminated in accordance with the Loan Documents,
shall remain first priority
Liens covering the Collateral
securing the Obligations, subject
only to
Permitted Liens.
4.16 USE OF PROCEEDS. The proceeds of any
Loan are not and will not be used
directly or indirectly for the purpose of
purchasing or carrying, or for the
purpose of extending credit to others for the purpose of purchasing
or carrying,
any "margin stock" as that term is defined
in Regulation U of the Board of
Governors of the Federal Reserve System,
as amended, and in violation of
Regulations T, U or X.
4.17 FULL DISCLOSURE. All of the
Loan Documents and all written statements
furnished by or on behalf of the Borrower in connection with the
consummation of
the transactions contemplated by this Agreement,
when taken together, do not
contain any untrue statement of a material fact or omit to state a
material fact
necessary to make the statements contained herein or
therein not misleading as
of the date made or deemed made.
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<PAGE>
4.18 PLACES OF BUSINESS. The chief
executive office and principal place of
business of the Borrower is 20333 SH 249, Suite
200, Houston, TX 77070. All
records of the Borrower are maintained at such office.
4.19 IDENTIFICATION NUMBERS. The
Borrower's Federal employer identification
number is 90-0335743 and its organizational identification
number issued by the
State of Nevada is E0358282006-3.
4.20 SUBSIDIARIES. The Borrower currently
has no Subsidiaries.
4.21 NO DEFAULT. No Event of Default
exists or would be reasonably expected
to result from the incurring of any Obligations by the
Borrower.
ARTICLE 5
AFFIRMATIVE COVENANTS
So long as any Debt evidenced by the
Notes remains unpaid or the Lenders
remain obligated to make Advances, and in the absence of
written consent of the
Administrative Agent to the contrary:
5.1 MAINTENANCE AND ACCESS TO
RECORDS. The Borrower will keep adequate
records, in accordance with GAAP, of all of
its transactions so that at any
time, and from time to time, its true and complete
financial condition may be
readily determined. At any Lender's or the
Administrative Agent's reasonable
request, the Borrower will make all
such records available during normal
business hours for inspection and permit any Lender or the
Administrative Agent
to make and take away copies thereof.
5.2 QUARTERLY FINANCIAL
STATEMENTS. The Borrower will deliver to
the
Administrative Agent with sufficient
copies for the Lenders, as soon
as
available but in no event later than
sixty (60) days after the end of each
fiscal quarter of each fiscal
year of the Borrower, quarterly
unaudited
Financial Statements of the Borrower reflecting
the financial condition and
results of operations of the Borrower as at the end of such
period and from the
beginning of such year to the end of such quarter, as applicable.
Such Financial
Statements shall be certified by a Responsible Officer
as having been prepared
in accordance with GAAP and presenting the financial
condition and the results
of the operations of the Borrower subject to
changes resulting from year-end
audit adjustments. Such Financial
Statements shall also be accompanied by a
certificate of a Responsible Officer
showing, in reasonable detail, the
Borrower's Derivative Contract position.
5.3 ANNUAL FINANCIAL
STATEMENTS. The Borrower will
deliver to the
Administrative Agent with sufficient
copies for the Lenders, as soon
as
available but in no event later than one hundred
twenty (120) days after the
close of each fiscal year of the Borrower, annual audited
Financial Statements
of the Borrower reflecting the financial
condition of the Borrower, together
with a report and opinion issued by a nationally recognized
firm of independent
certified public accountants or another firm of
independent certified public
accountants reasonably satisfactory to the
Administrative Agent, that such
Financial Statements fairly present
the financial position and results of
operations of the Borrower for the periods indicated in
accordance with GAAP.
Such Financial Statements shall also be
accompanied by a certificate of a
Responsible Officer showing, in reasonable
detail, the Borrower's Derivative
Contract position.
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5.4 COMPLIANCE
CERTIFICATES. The Borrower
will deliver to the
Administrative Agent with sufficient copies for the Lenders, with
each Financial
Statement delivered pursuant to SECTION 5.2 or 5.3 a
duly executed Compliance
Certificate.
5.5 RESERVED.
5.6 RESERVED
5.7 SALES, PRODUCTION AND OPERATIONS
REPORTS. The Borrower will deliver to
the Administrative Agent with sufficient
copies for the Lenders, as soon as
available and in any event within
thirty (30) days after the end of each
calendar month, commencing with
the month ending July 2009, a
report
summarizing, as requested by the Administrative Agent,
(a) the gross volume of
sales and actual production during such month from all of the
Borrower's Oil and
Gas Properties and current prices being received for
such production, (b) the
related severance, gross production, occupation,
excise, sales, recording, ad
valorem, gathering and other similar Taxes, if any, deducted from
gross proceeds
during such month, (c) production imbalances, (d)
leasehold operating expenses
and (e) Drilling and Completion Costs
expenditures attributable thereto and
incurred during such month.
During any period in which the
Borrower is participating in a Well being
drilled in the AMI, the Borrower will promptly
deliver to the Administrative
Agent by e-mail daily drilling reports. Upon the request of
the Administrative
Agent, the Borrower will promptly deliver to the
Administrative Agent a report,
in form reasonably acceptable to
the Administrative Agent,
summarizing
operations conducted on the Mortgaged Properties for
the time period requested
by the Administrative Agent.
5.8 LIENS ON NEWLY
ACQUIRED OIL AND GAS PROPERTIES. As new Oil and
Gas
Properties are acquired by the Borrower within the AMI,
from time to time, the
Borrower shall execute and deliver, as security for the payment of
the Notes and
the performance of the Obligations of the Borrower under
this Agreement, such
Security Documents (each substantially in the form of
the similar instruments
given pursuant to SECTIONS
3.1(A)(4)(I) in connection with the
Mortgaged
Properties) as necessary to create a first priority
Lien (subject to Permitted
Liens) on all of Borrower's Oil and
Gas Mortgaged Properties not already
encumbered by the Security Documents.
5.9 TITLE OPINIONS. Upon
the request of the Administrative Agent,
the
Borrower shall have prepared,
with sufficient copies delivered
to the
Administrative Agent (i) with respect to each
drillsite, division order title
opinions, drill site title opinions, or other title
information, and (ii) with
respect to each offsite acreage site,
such title information as is in the
Borrower's possession, each
in form reasonably
satisfactory to the
Administrative Agent, evidencing the Borrower's
Marketable Title to any of the
Mortgaged Properties.
5.10 STATEMENT OF MATERIAL ADVERSE EFFECT.
The Borrower will deliver to the
Administrative Agent with sufficient copies for the
Lenders, promptly upon any
Responsible Officer having knowledge of any Unmatured Event of
Default, Event of
Default or event or condition (except for events or conditions as
to the economy
of the United States as a whole or the energy
industry in the United States
generally) causing, or that could reasonably be
expected to cause, a Material
Adverse Effect, a statement of a
Responsible Officer, setting forth the
Unmatured Event of Default, Event of Default or such event or
condition causing,
or that could reasonably be expected to cause, a Material Adverse
Effect and the
steps being taken with respect thereto.
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5.11 TITLE DEFECTS. Other than Permitted
Liens, the Borrower will clear any
title defects to the Mortgaged Properties as
requested by the Administrative
Agent, and, in the event any such
title defects are not cured in a timely
manner, pay all related costs and fees incurred by the
Administrative Agent to
do so.
5.12 ADDITIONAL
INFORMATION. The Borrower
will furnish to the
Administrative Agent with sufficient copies for the
Lenders, promptly upon the
Administrative Agent's request from time to time, such
additional financial or
other information concerning
the assets, liabilities,
operations and
transactions of the Borrower as the Administrative Agent may
reasonably request.
5.13 COMPLIANCE WITH LAWS AND PAYMENT OF
TAXES. The Borrower will comply in
all material respects with
all
