FORBEARANCE AND AMENDMENT
AGREEMENT
THIS FORBEARANCE
AND AMENDMENT AGREEMENT (this “ Agreement
”) is made as of September 3, 2009, by and among THE
MERIDIAN RESOURCE CORPORATION, a Texas corporation (“
Meridian ”), THE MERIDIAN RESOURCE &
EXPLORATION LLC, a Delaware limited liability company (“
TMRX ”), and TMR DRILLING CORPORATION, a Texas
corporation (“ TMR Drilling ,” and
together with Meridian and TMRX, the “ Meridian
Group ”), and ORION DRILLING COMPANY LLC, a Texas
limited liability company and successor to Orion Drilling Company,
LP (“ Orion ”). Each of Meridian, TMRX,
TMR Drilling, and Orion may be referred to herein individually as a
“ Party ” and collectively as the “
Parties .”
WHEREAS, TMRX and
Orion have entered into (a) that certain Drilling Bid Proposal
and Daywork Drilling Contract — U.S., dated as of
February 12, 2007, as amended by the Triton Letter Agreement
(as hereinafter defined), relating to the Triton Rig (as so
amended, the “ Triton Drilling Contract
”), and (b) that certain Drilling Bid Proposal and
Daywork Drilling Contract — U.S., dated as of August 9,
2007, as amended by letter, dated September 4, 2008, and
further amended by the Taurus Letter Agreement (as hereinafter
defined), relating to the Taurus Rig (as so amended, the “
Taurus Drilling Contract ,” and together with
the Triton Drilling Contract, the “ Drilling
Contracts ”), pursuant to which Orion has agreed to
provide daily drilling, equipment, and labor services to TMRX in
connection with the operation of certain oil and/or natural gas
wells owned by TMRX;
WHEREAS, TMR
Drilling and Orion have entered into that certain Equipment Lease
(Rig No. 8) dated as of February 12, 2007, as amended
from time to time (the “ Equipment Lease
”), pursuant to which TMR Drilling leased the Triton Rig and
related equipment to Orion;
WHEREAS, Orion is
successor by merger to Orion Drilling Company, LP and has succeeded
by operation of law to all of the obligations of Orion Drilling
Company, LP, including, without limitation, the obligations thereof
under the Equipment Lease and each of the Drilling
Contracts;
WHEREAS, as of the
date hereof, certain defaults and events of default as set forth in
Annex A to this Agreement have occurred and are continuing,
or are anticipated to occur, under the Equipment Lease and each of
the Drilling Contracts (the “ Existing Events of
Default ”);
WHEREAS, the
Meridian Group acknowledges that as a result of the occurrence and
continuance of the Existing Events of Defaults, Orion is entitled
to seek immediate payment in full of any unpaid obligations (if
any) under the Equipment Lease and any unpaid obligations under
each of the Drilling Contracts and to exercise any and all of its
other rights and remedies (if any) with respect to such Existing
Events of Default under the Equipment Lease and Drilling
Contracts;
WHEREAS, the
Meridian Group has requested that Orion forbear from taking any
present action to collect payment in full of the obligations of the
Meridian Group (if any) under the Equipment Lease and Drilling
Contracts and from exercising any of its other rights and remedies
(if any) under the Equipment Lease and Drilling Contracts or under
any other agreement, document, or instrument as a result of the
Existing Events of Default or any and all other breaches, defaults,
or events of default that may hereafter occur, arise, or exist
under the Equipment Lease, either of the Drilling Contracts, or any
agreement, document, or instrument executed in connection
therewith, or any amendment, supplement, or modification of any of
the foregoing (collectively, the “ Designated Events of
Default ”), and Orion has agreed to so forbear on the
terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE,
for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound,
each of the Parties hereby agrees as follows:
1.1.1
Certain Defined Terms . Capitalized terms defined in the
preamble and the Recitals sections of this Agreement are
incorporated herein by reference and are used herein as so defined.
Other capitalized terms used and not defined in this Agreement
shall have the meanings ascribed to such terms in the Equipment
Lease and Drilling Contracts, as applicable.
1.1.2
Additional Definitions . As used in this Agreement, the
following terms shall have the meanings set forth below:
“
CIT ” means The CIT Group/Equipment Financing,
Inc., a Delaware corporation.
“ CIT
Credit Agreement ” means that certain Credit
Agreement, dated May 2, 2008, among TMR Drilling and CIT, as
amended from time to time (including by the CIT Forbearance
Agreement).
“ CIT
Forbearance Agreement ” means that certain
Forbearance and Amendment Agreement dated September 3, 2009,
by and among TMR Drilling, Meridian, TMRX, and CIT, as
administrative agent and lender under the CIT Credit
Agreement.
“ CIT
Maturity Date ” means the date that is the earlier to
occur of (a) the Maturity Date, (b) the date on which the
CIT Note is paid in full by TMR Drilling, or otherwise satisfied
and discharged in full, and (c) the expiration or termination
of the CIT Forbearance Agreement and the commencement by CIT of the
exercise of its remedies as a secured creditor.
“ CIT
Note ” means that certain Term Note Due May 2,
2013, dated May 2, 2008, made by TMR Drilling to the order of
CIT evidencing the indebtedness of TMR Drilling to CIT under the
CIT Credit Agreement.
“
Expiration Period ” means the period of time in
duration less than a full calendar quarter in which the Forbearance
Period expires or terminates, which period commences on the day
immediately following the last day of the immediately preceding
full calendar quarter and ends on either (a) the CIT Maturity
Date, if the Forbearance Period ends on the CIT Maturity Date, or
(b) on the thirtieth (30 th )
day immediately following the termination or expiration of the
Forbearance Period, if the Forbearance Period ends on any date
other than the CIT Maturity Date.
“
Forbearance Period ” means the period
commencing on the date of this Agreement and ending on the earlier
to occur of (a) the date that is fifteen (15) days after
the CIT Maturity Date, (b) the commencement of any bankruptcy
or insolvency proceedings filed by or against Meridian,
(c) the expiration or termination of the CIT Forbearance
Agreement or the commencement by CIT of the exercise of its
remedies as a secured creditor, (d) a default by the Meridian
Group under this Agreement or the Security Agreement, (e) the
failure or failures by TMR Drilling to perform or make when due
cash payments exceeding, individually or in the aggregate, $50,000
with respect to obligations owing to any one or more of Orion or
third parties (respectively) pursuant to the express terms of
the Equipment Lease and which failure or failures remain
Forbearance and Amendment
Agreement (Orion)
Page 2 of 13
uncured thirty
(30) days after receipt of written notice thereof by Orion to
TMR Drilling, including, but not limited to, such failure or
failures under Sections 8 or 9 of the Equipment Lease (but
excluding any failure to pay taxes when due if such taxes are being
contested in good faith pursuant to proceedings diligently
conducted), and (f) the date TMR Drilling transfers title to
the Triton Rig Assets to a Person other than Orion or any
subsidiary or affiliate of TMR Drilling.
“
Lien ” means a lien, deed of trust, mortgage,
security interest, hypothecation, pledge, or other
encumbrance.
“
Maturity Date ” shall have the meaning set
forth in the CIT Credit Agreement.
“
Meridian Quarterly Obligations ” means any and
all sums, amounts, and obligations due and owing by or through the
Meridian Group (or any of them or any of their subsidiaries or
affiliates) to Orion (or any of its subsidiaries and affiliates)
under the Equipment Lease, either or both of the Drilling
Contracts, or any agreement, document, or instrument executed in
connection therewith, for a single calendar quarter commencing with
the calendar quarter ended September 30, 2009 or for the
Expiration Period (as applicable).
“ Net
Quarterly Obligations ” means the net amount
resulting at the end of a single calendar quarter or at the end of
the Expiration Period (as applicable) upon the offset, setoff, and
application of the Meridian Quarterly Obligations, on the one hand,
and the Orion Quarterly Obligations, on the other hand, against
each other.
“ Net
Cumulative Balance ” means the net cumulative sums,
amounts, and obligations (without duplication) due, owing, and
unpaid by or through the Meridian Group (or any of them or any of
their subsidiaries or affiliates) to Orion (or any of its
subsidiaries and affiliates), on the one hand, and by or through
Orion (or any of its subsidiaries and affiliates) to the Meridian
Group (or any of them or any of their subsidiaries or affiliates),
on the other hand, under the Equipment Lease, either or both of the
Drilling Contracts, or any agreement, document, or instrument
executed in connection therewith, including, but not limited to,
the amounts referenced in Section 1.2.4 hereof to the extent
not paid or offset prior to the date of determination.
“
Orion Quarterly Obligations ” means any and all
sums, amounts, and obligations due and owing by or through Orion
(or any of its subsidiaries and affiliates) to the Meridian Group
(or any of them or any of their subsidiaries or affiliates) under
the Equipment Lease, either or both of the Drilling Contracts, or
any agreement, document, or instrument executed in connection
therewith, for a single calendar quarter commencing with the
calendar quarter ended September 30, 2009 or for the
Expiration Period (as applicable).
“
Other Meridian Obligations ” means the
aggregate amount of payments pursuant to each such Drilling
Contract and Equipment Lease that Orion would have received through
the respective terms of such Drilling Contracts (as presently in
effect) through the fifteenth (15 th )
day after the CIT Maturity Date but for the release contemplated in
Section 1.3.4 hereof and which are not included in such
unpaid Accrued Meridian Obligations
“
Permitted Liens ” means those Liens identified
in Annex B .
“
Person ” means any individual, firm,
association, incorporated or unincorporated organization,
partnership, business, trust, estate, joint stock company, joint
venture, club, syndicate, limited liability company, corporation,
governmental authority, or other legal entity.
Forbearance and Amendment
Agreement (Orion)
Page 3 of 13
“ Put
Option ” means the right of TMR Drilling, exercisable
at any time within fifteen (15) days after the CIT Maturity
Date at TMR Drilling’s sole discretion and election and in
full satisfaction of all unpaid Accrued Meridian Obligations as of
the CIT Maturity Date, to require Orion or its designee to acquire
the Triton Rig Assets free and clear of all Liens other than
Permitted Liens.
“
Taurus Rig ” means that certain land based
drilling rig designated as Rig No. 5, and identified as the
Taurus rig at http://www.oriondrilling.com/rig-taurus.html ,
and equipped with IDM equipment drawworks (1500 horsepower) powered
by two 800 horsepower DC traction motors, with diesel electric
generators, a Canrig 350 ton AC top drive, and other equipment as
described at such website.
“
Triton Rig ” means that certain land based
drilling rig designated as Rig No. 8, and identified as the
Triton Rig at http://www.oriondrilling.com/rig-triton.html ,
and equipped with IDM drawworks (1500 horsepower) powered by two
800 horsepower DC traction motors, with diesel electric generators,
a Canrig 350 ton AC top drive, and other equipment as described at
such website, and further identified as being that rig presently
encumbered by a security interest and Lien in favor of CIT pursuant
to the CIT Credit Agreement.
“
Triton Rig Equipment ” means all equipment and
accessories appurtenant to, installed on, or attached to the Triton
Rig, including, without limitation, (a) the portable 350 ton
AC top drive, model 1035 AC, and all related accessories and
appurtenances, including, but not limited to, the blower system,
control console, control and interface panel, hydraulic power unit,
torque guide, interface materials, control valve configuration,
tool kit, elevator position arm and wash pipe installation and
removal tool, and the Triton Rig-specific top drive and torque
guide interfaces, manufactured by Canrig Drilling Technology Ltd.,
(b) the hydraulic catwalk, and (c) those items of
equipment listed in Annex C hereto.
“
Triton Rig Assets ” means the Triton Rig, the
Triton Rig Equipment, and the additional assets listed in Annex
D hereto relating thereto.
“
Triton Letter Agreement ” means that certain
letter agreement, dated April 2, 2009, between TMRX and
Orion.
“
Taurus Letter Agreement ” means that certain
letter agreement, dated April 2, 2009, between TMRX and
Orion.
1.2 Agreement
to Forbear.
1.2.1
Forbearance . During the Forbearance Period, in
consideration of the Meridian Group’s agreements and
covenants contained in this Agreement, and subject to the other
terms and conditions of this Agreement, Orion hereby agrees to
forbear from exercising, and to postpone in effect, any and all of
its rights and remedies under the Equipment Lease (except as to
Meridian Group obligations under Sections 8 or 9 thereof,
other than obligations to pay taxes when due, to the extent that
such obligations are for taxes being contested in good faith by
appropriate proceedings diligently conducted), each of the Drilling
Contracts, and any agreement, document, or instrument executed in
connection therewith, or any letter agreement, amendment,
supplement, or modification of any of the foregoing, arising as a
result of the Designated Events of Default, other than as provided
in Sections 1.3 and 1.3.2 below. Upon the
expiration or termination of the Forbearance Period (a) such
forbearance by Orion shall automatically terminate, and
(b) Orion shall be entitled to exercise, without any further
notice, any and all of its rights and remedies under this
Agreement, the Equipment Lease, each of the Drilling
Forbearance and Amendment
Agreement (Orion)
Page 4 of 13
Contracts, but
subject to the Intercreditor Agreement and the Security Agreement.
In consideration of Orion’s agreements and covenants
contained in this Agreement, the Meridian Group hereby agrees that
all statutes of limitation applicable to any and all defaults,
rights, remedies, or one or more of the provisions of the Equipment
Lease, Drilling Contracts, and any agreement, document, or
instrument executed in connection therewith, or any letter
agreement, amendment, supplement, or modification thereof, shall be
tolled, suspended, and shall not run for a period of time
concurrent with the Forbearance Period and the thirty
(30) days immediately following the date of expiration
thereof.
1.2.2
No Extension . The Meridian Group agrees that Orion shall
have no obligation to extend the Forbearance Period.
1.2.3
No Waiver, Restatement, or Amendment . Notwithstanding
Orion’s agreement to forbear set forth in
Section 1.2.1 above, (a) such forbearance by Orion
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, (b) this Agreement and such forbearance by
Orion shall not constitute a restatement of the obligations of the
Meridian Group under the Equipment Lease or either of the Drilling
Contracts, and (c) this Agreement and such forbearance by
Orion shall not constitute an amendment or modification of any of
the terms of the Equipment Lease or either of the Drilling
Contracts, except as expressly set forth herein. Except as
expressly set forth herein, (i) the terms and conditions of
the Equipment Lease and each of the Drilling Contracts are and
shall remain in full force and effect, and the same are hereby
ratified and confirmed in all respects by the Meridian Group, and
(ii) Orion reserves all rights, privileges, and remedies
granted under this Agreement, the Equipment Lease and each of the
Drilling Contracts, and such rights, privileges, and remedies may,
at Orion’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 such agreements, contracts, and
instruments.
1.2.4
Outstanding Obligations . The Meridian Group hereby
acknowledges that (a) as of July 31, 2009, the accrued
and unpaid obligations of TMR Drilling under the Equipment Lease
are equal to zero, (b) as of July 31, 2009, the accrued,
past due, and unpaid obligations of TMRX under the Triton Drilling
Contract are equal to $195,450.89, after giving effect to any
offset and setoff agreements pertaining thereto; (c) as of
July 31, 2009, the accrued, past due, and unpaid obligations
of TMRX under the Taurus Drilling Contract are equal to
$1,830,546.97, after giving effect to any offset and setoff
agreements pertaining thereto; and (d) the payment of such
amounts is not subject to any defense, counterclaim, recoupment, or
offset of any kind, except as otherwise provided in this Agreement
(including Section 1.3 below), provided , that
such amounts shall be subject to confirmation and proposals for
revision (based on audit or other review of the applicable drilling
contract) by the Meridian Group on or before the earlier of
December 31, 2010 and the CIT Maturity Date, and Orion hereby
agrees that the Meridian Group and their representatives and
affiliates shall be entitled, upon forty eight (48) hours
notice and during normal business hours, to full access (i) to
review and make copies of the books and records and other reports
of Orion and its affiliates related to such amounts and
(ii) to speak with the employees of Orion about any and all
matters pertaining thereto, provided , further , that
such access shall be conducted in a manner that does not materially
interfere with the normal business operations of Orion and its
affiliates. The Parties agree that except for the amounts set forth
above, as of the dates set forth above there are no other or
additional unpaid sums, amounts, or obligations outstanding under
the Equipment Lease, either of the Drilling Contracts, or any
agreement, document, or instrument executed in connection
therewith, or any letter agreement, amendment, supplement, or
modification of any of the foregoing, and that from and after such
dates additional obligations have and will continue to accrue and
be owing (subject to deferred payment in accordance with
Section 1.3 below) under and pursuant to the terms of
such agreements.
Forbearance and Amendment
Agreement (Orion)
Page 5 of 13
1.3 Additional
Agreements of the Parties.
1.3.1
Offset and Accrual of Amounts Due . The Parties hereby agree
that, during the Forbearance Period and notwithstanding any
provision to the contrary in the Equipment Lease or either of the
Drilling Contracts or any other agreement, document, or instrument
by or among any of the Parties (which shall be deemed amended
hereby as applicable), at the end of each full calendar quarter
commencing with the calendar quarter ended September 30, 2009
and at the end of the Expiration Period (as applicable), the
Meridian Quarterly Obligations and the Orion Quarterly Obligations
shall be offset, setoff, and applied against each other, and such
amounts shall be discharged to the extent of such offset, setoff,
and application. For the avoidance of doubt, the Parties
acknowledge and agree that (i) the Net Cumulative Balance is
to be redetermined each calendar quarter, and (ii) for
purposes of the initial calculation of the Net Cumulative Balance
as of September 30, 2009, such calculation shall be effected
by first determining the sum of (A) the accrued and unpaid
obligations of each member of the Meridian Group under the Triton
Drilling Contract and the Taurus Drilling Contract as of
July 31, 2009, using the amounts as set forth in
Section 1.2.4, plus (B) the accrued and unpaid
obligations of each member of the Meridian Group under the Drilling
Contracts and the Equipment Lease for the two month period ended
September 30, 2009, and then netting, offsetting and applying
such sum against the accrued and unpaid obligations of Orion under
the Drilling Contracts and the Equipment Lease for the two-month
period ending September 30, 2009. After September 30,
2009, the Net Quarterly Obligations for such calendar quarter or
Expiration Period (as applicable) shall be offset, setoff, and
applied against (without duplication) the Net Cumulative Balance
existing as of the end of the immediately preceding calendar
quarter, and such Net Cumulative Balance shall be discharged to the
extent of such offset, setoff, and application, with the resulting
Net Cumulative Balance for such calendar quarter being carried over
for offset, setoff, and application at the end of the immediately
subsequent full calendar quarter(s) or Expiration Period (as
applicable and to the extent thereof). Such offsets, setoffs, and
applications shall be effected (without duplication) within thirty
(30) days after the end of each such full calendar quarter and
Expiration Period (as applicable). If at the end of each such full
calendar quarter and Expiration Period (as applicable) there is a
Net Cumulative Balance owing by the Meridian Group (or any of them
or any of their subsidiaries or affiliates) to Orion (or any of its
subsidiaries and affiliates), such Net Cumulative Balance shall be
accrued on the books and records of the Parties but shall not be
payable until fifteen days after the CIT Maturity Date
(collectively, the “ Accrued Meridian
Obligations ”). If at the end of each such calendar
quarter and Expiration Period (as applicable) there is a Net
Cumulative Balance owing by Orion (or any of its subsidiaries and
affiliates) to the Meridian Group (or any of them or any of their
subsidiaries or affiliates), such Net Cumulative Balance shall be
accrued on the books and records of the Parties but shall not be
payable until fifteen days after the CIT Maturity Date
(collectively, the “ Accrued Orion Obligations
”). Within thirty (30) days of the end of each such full
calendar quarter and Expiration Period (as applicable), Orion
agrees to provide to the Meridian Group (a) a true and
accurate accounting of the Net Cumulative Balance as of the end of
such period and all of the obligations accrued and offset hereunder
during such period, (b) any and all calculations and
methodologies or other information related to such Net Cumulative
balance and accruals and offsets, and (c) any and all
additional information pertaining thereto as the Meridian Group (or
any of them or their representatives or affiliates) may reasonably
request. Orion agrees that the Meridian Group and their
representatives and affiliates shall be entitled, upon forty eight
(48) hours notice and during normal business hours, to full
access (i) to review and make copies of
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