FORBEARANCE AND AMENDMENT
AGREEMENT
THIS FORBEARANCE
AND AMENDMENT AGREEMENT (this “ Agreement ”) is
made as of September 3, 2009, by and among TMR DRILLING
CORPORATION, a Texas corporation (the “ Borrower
”), THE MERIDIAN RESOURCE CORPORATION, a Texas corporation
(“ Meridian ”), THE MERIDIAN RESOURCE &
EXPLORATION LLC, a Delaware limited liability company (“
TMR Exploration ,” and collectively with the Borrower
and Meridian, the “ CIT Credit Parties ”) and
THE CIT GROUP/EQUIPMENT FINANCING, INC. (“ CIT
”), in its capacity as Administrative Agent and Lender under
the CIT Credit Agreement (as defined below).
WHEREAS, the
Borrower and CIT have entered into that certain Credit Agreement
dated as of May 2, 2008 (the “ CIT Credit Agreement
”);
WHEREAS, pursuant
to that Guaranty dated as of May 2, 2008, Meridian and TMR
Exploration have guaranteed the full and prompt payment of all
Obligations of Borrower under the CIT Credit Agreement and the
other Loan Documents (as defined in the CIT Credit
Agreement);
WHEREAS, as of the
date hereof certain Events of Default as set forth in
Appendix I to this Agreement (the “ Designated
Events of Default ”) have occurred and are continuing, or
are anticipated to occur, under the CIT Credit Agreement and the
other Loan Documents, including Events of Default arising as a
result of “Defaults” under and as defined in the
Working Capital Loan Agreement (as defined below), by and among
Meridian, the Guarantors (as defined therein), Fortis Capital Corp.
(“ Fortis ”) as Administrative Agent, and the
lenders from time to time party thereto (the “ Lenders
”);
WHEREAS, the CIT
Credit Parties acknowledge and agree that as a result of the
occurrence of the Designated Events of Default, CIT is entitled to
declare all Obligations under the CIT Credit Agreement and the
other Loan Documents to be immediately due and payable, to seek
immediate payment in full of such Obligations, and to exercise all
of its rights and remedies with respect thereto under the Loan
Documents;
WHEREAS, the CIT
Credit Parties, Fortis and certain of the other parties to the
Working Capital Loan Agreement have entered into that Forbearance
and Amendment Agreement dated as of the date hereof (the “
Bank Group Forbearance Agreement ”), pursuant to which
Fortis and certain of the Lenders have agreed to forbear from
exercising rights and remedies under the Working Capital Loan
Documents on the terms and conditions set forth in the Bank Group
Forbearance Agreement; and
WHEREAS, the CIT
Credit Parties have requested that CIT forbear from accelerating
the Obligations under the CIT Credit Agreement and the other Loan
Documents, from taking present action to collect payment in full of
such Obligations and from exercising any other rights and remedies
under the Loan Documents with respect to the Designated Events of
Default, and CIT has agreed to do so under the terms and conditions
set forth in this Agreement.
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NOW, THEREFORE,
for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound,
each of CIT and the CIT Credit Parties agrees as
follows:
1.
Definitions . Capitalized terms defined in the preamble and
the Recitals section of this Agreement are incorporated herein by
this reference and are used herein as so defined. Capitalized terms
used and not defined in this Agreement shall have the meanings
assigned to such terms in the CIT Credit Agreement. This Agreement
is a Loan Document as defined in the CIT Credit
Agreement.
2.
Agreement to Forbear .
(a)
Forbearance . During the period (the “ Forbearance
Period ”) commencing on the Effective Date (as defined in
Section 10 below) and ending on the earlier to occur of:
(i) 5:00 p.m. (Central Time) on the earlier of (x) the
date which is 91 days following the Effective Date, or
(y) December 4, 2009; or (ii) the date that any CIT
Forbearance Default (as defined in Section 11 below) occurs,
and subject to the other terms and conditions of this Agreement,
CIT agrees that it will forbear from exercising any right or remedy
under the CIT Credit Agreement and the other Loan Documents arising
as a result of the Designated Events of Default in consideration of
the CIT Credit Parties’ agreements, covenants, releases and
waivers contained in this Agreement. Upon the expiration or
termination of the Forbearance Period: (x) such forbearance
shall automatically terminate, and (y) CIT shall be entitled
to exercise any and all of its rights and remedies under this
Agreement, the CIT Credit Agreement and the other Loan Documents
without further notice.
(b) No
Extension . The CIT Credit Parties agree that CIT shall have no
obligation to extend the Forbearance Period.
(c) No Waiver,
Restatement or Amendment . Notwithstanding CIT’s
agreement to forbear set forth in Section 2(a) above:
(i) such forbearance by CIT is not intended to and shall not
constitute, and shall not be construed or interpreted to
constitute, a waiver of the Designated Events of Default, or of any
other default which may now or hereafter exist under the Loan
Documents; (ii) this Agreement and such forbearance by CIT
shall not constitute a restatement or novation of the indebtedness
evidenced by the Note and the other Loan Documents; and
(iii) this Agreement and such forbearance by CIT shall not
constitute an amendment or modification of the Loan Documents,
except as expressly provided for herein. Except as expressly
provided for herein, (x) the terms and conditions of the CIT
Credit Agreement and any other Loan Document are and shall remain
in full force and effect, and the same are hereby ratified and
confirmed by the CIT Credit Parties in all respects, and
(y) CIT reserves all rights, privileges and remedies granted
under the CIT Credit Agreement and the other Loan Documents, this
Agreement and any other contract or instrument between any CIT
Credit Party and CIT, and such rights, privileges and remedies may,
at CIT’s sole election, be exercised at any time and from
time to time and without notice, except to the extent notice is
required (and is not waived) under the Loan Documents.
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(d) No Future
Loans . The CIT Credit Parties acknowledge that nothing in this
Agreement shall be construed as creating any obligation whatsoever
on the part of CIT to make any Loans or other extensions of credit
to or for the benefit of any of the CIT Credit Parties.
3.
Outstanding Indebtedness . The CIT Credit Parties hereby
acknowledge and confirm that (i) the outstanding principal
balance under the Note as of the date of this Agreement is
$7,647,483.77; (ii) the payment of such amount is not subject
to any defenses, counterclaim, recoupment or offset of any kind,
and (iii) interest under the Note has been paid through
September 2, 2009.
4.
Interest Rate . Without limiting the rights of CIT under the
CIT Credit Agreement and regardless of whether the Designated
Events of Default continue to exist, the CIT Credit Parties agree
that during the Forbearance Period interest shall accrue on the
outstanding principal amount of the Loan at the Default Rate
specified in Section 2.05(b) of the CIT Credit Agreement, and
the CIT Credit Parties agree to pay such interest at the Default
Rate.
5.
Forbearance Fee . In consideration of the agreements set
forth herein, CIT shall be entitled to a forbearance fee of 0.75%
of the aggregate outstanding Obligations of the Borrower under the
CIT Credit Agreement after application of the CIT Paydown (as
defined in Section 8(a) below) (the “ Forbearance Fee
”).
6.
Amendments to the CIT Credit Agreement . The CIT Credit
Parties and CIT agree that the CIT Credit Agreement will be amended
as follows:
(a) The definition
of “Borrower” in Section 1.01 is hereby amended to
read as follows:
“
Borrower ” means each of (i) TMR Drilling
Corporation, (ii) The Meridian Resource Corporation and
(iii) The Meridian Resource & Exploration LLC, and shall
include all three collectively.
(b) The definition
of “Working Capital Loan Agreement” in
Section 1.01 is hereby amended to read as follows:
“
Working Capital Loan Agreement ” means that
certain Amended and Restated Credit Agreement, dated as of
December 23, 2004, among TMR, as Borrower, the lenders from
time to time parties thereto, Fortis Capital Corp., as
Administrative Agent, sole Lead Arranger, and Bookrunner, Comerica
Bank, as Syndication Agent, and Union Bank of California, N.A., as
Documentation Agent, as amended from time to time, including by
that certain First Amendment to Credit Agreement dated as of
February 25, 2008, and that certain Second Amendment to Credit
Agreement dated December 19, 2008.
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(c) The definition
of “Working Capital Loan Documents” in
Section 1.01 is hereby amended to read as follows:
“
Working Capital Loan Documents ” means the
“Loan Documents” as defined in the Working Capital Loan
Agreement and shall include that Forbearance and Amendment
Agreement dated as of September 3, 2009, by and among The
Meridian Resource Corporation, a Texas corporation, the Guarantors
party thereto, the several banks, financial institutions and other
entities from time to time parties to the Working Capital Loan
Agreement and Fortis Capital Corp., as administrative
agent.
(d)
Section 4.01(q)(ii) is hereby amended by inserting the words
“of Borrower” after the word “Debt” and
before the words “which remain” in the second line
thereof.
(e) Reporting
Requirements . In addition to the reporting and notification
requirements set forth in Section 5.03, the CIT Credit Parties
shall furnish to CIT:
(i) within
45 days after the end of each calendar month commencing
September 15, 2009, for July, 2009, an unaudited balance sheet and
income statement for such month (i.e. July, 2009) and projections
for the month in which delivery thereof is made (i.e. September,
2009) in the same form as the financial information furnished to
Fortis on April 15, 2009, including a variance analysis
comparing actual results to budgets delivered pursuant to clause
(iv) below with explanations as to material
variances;
(ii) within
20 days of the end of each calendar month commencing
September 20, 2009, for August, 2009, a monthly liquidity
report for such month (i.e. August, 2009) which shall include
information on accounts receivable aging and accounts payable
aging, and a list of the cash balances of Meridian and its
Subsidiaries;
(iii) on the
15 th
and last day of each calendar month,
commencing September 15, 2009, a status report on the
transactions described in Section 10(a) of the Bank Group
Forbearance Agreement; and
(iv) no later than
ten (10) days prior to the first Business Day of each month, a
cash flow budget, approved by Fortis, for the three-month period
commencing with such month, and on or before Friday of each week, a
budget-to-actual report for the previous week.
7.
Acknowledgments by CIT . CIT acknowledges and agrees as
follows:
(a) The policies
of insurance required to be obtained and maintained by the Borrower
under Section 5.01(d) of the CIT Credit Agreement and
Section 8 of that Security Agreement dated as of May 2,
2008, by Borrower in favor of CIT (the “ TMR Security
Agreement ”) have been prior to the date hereof, and, if
otherwise acceptable to
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CIT, may in the
future be, obtained and maintained directly or through one or more
affiliates, subsidiaries or lessees of the Collateral (as defined
in the TMR Security Agreement), including without limitation Orion
Drilling Company, LLC (“ Orion ”).
(b) The security
interest granted to Orion in the Collateral (as defined in the TMR
Security Agreement) pursuant to that Security Agreement dated as of
September 3, 2009, among Borrower, TMR Exploration and Orion
(the “ Orion Security Agreement ”) to secure the
Liabilities (as defined in the Orion Security Agreement) is,
subject strictly to the terms of that Intercreditor and
Subordination Agreement dated as of September 3, 2009, by and
among Orion, CIT and the CIT Credit Parties (the “
Intercreditor Agreement ”), a permitted encumbrance on
the Collateral.
(c) The incurrence
by Borrower of Debt under the Working Capital Loan Documents is
permitted Debt under the terms of the CIT Loan
Documents.
8.
Payments by the Borrower .
(a) On or before
the Effective Date, the CIT Credit Parties shall pay to CIT
(i) the Forbearance Fee in the amount of $49,856.13, and
(ii) a prepayment to CIT in the amount of $1,000,000 (the
“ CIT Paydown ”), to be applied to the principal
amount outstanding under the CIT Credit Agreement as provided in
Section 8(d) below.
(b) During the
Forbearance Period, the CIT Credit Parties shall continue to make
all payments of principal and interest, including interest at the
Default Rate, under the CIT Credit Agreement and the Note as and
when such payments are due.
(c) So long as the
CIT Paydown is made as provided in Section 8(a) above, CIT agrees
to waive (i) the provisions of Section 2.04(a) of the CIT
Credit Agreement prohibiting voluntary partial prepayment of the
Loan, and (ii) any Breakage Costs, Prepayment Fee or similar
charges in connection with the CIT Paydown.
(d) The CIT
Paydown shall reduce the outstanding principal amount of the Loan
and shall be applied to the monthly installments of principal due
under the Note in reverse order beginning with installment 60. The
monthly installment payments of principal and interest under the
Note in the amount of $196,247.50 each shall remain unchanged,
except during any period when interest is payable at the Default
Rate, in which case the monthly installment payment amounts shall
be adjusted accordingly.
9.
Ratifications, Representations and Warranties .
(a)
Ratification of Loan Documents and Liens . Except as
expressly modified and superseded by this Agreement, the terms and
provisions of the CIT Credit Agreement and the other Loan Documents
are ratified and confirmed and shall continue in full force and
effect. Each CIT Credit Party and CIT agree that the Loan Documents
shall continue to be legal, valid, binding and enforceable in
accordance with their respective terms. Each CIT Credit Party
further expressly acknowledges and agrees that CIT has a valid,
non-avoidable, enforceable and perfected security interest in and
lien against each item of Collateral described in the Collateral
Documents and that such security interest and lien
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secures the
payment Obligations and the performance of all other Obligations of
the CIT Credit Parties under the Loan Documents.
(b) General
Representations and Warranties . Each CIT Credit Party hereby
jointly and severally represents and warrants to CIT that
(i) the execution, delivery and performance of this Agreement
has been
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