DIP CREDIT AGREEMENT

Exhibit 10.1

Execution Version

 

 

DIP CREDIT AGREEMENT

 

by and among

 

FOOTHILLS RESOURCES, INC.

and

EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO

each as a debtor and debtor-in-possession

as Borrowers,

 

THE LENDERS THAT ARE SIGNATORIES HERETO

as the Lenders,

and

REGIMENT CAPITAL SPECIAL SITUATIONS FUND III, L.P.

as Agent

 

Dated as of February 23, 2009

 

 

DIP CREDIT AGREEMENT

THIS DIP CREDIT AGREEMENT (this “ Agreement ”), is entered into as of February 23, 2009 by and among the lenders identified on the signature pages hereof (such lenders, together with their respective successors and permitted assigns, are referred to hereinafter each individually as a “ Lender ” and collectively as the “ Lenders ”), REGIMENT CAPITAL SPECIAL SITUATIONS FUND III, L.P., a Delaware limited partnership , as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, “ Agent ”), FOOTHILLS RESOURCES, INC., a Nevada corporation, as a debtor and debtor-in-possession (“ Parent ”) and each of Parent’s Subsidiaries identified on the signature pages hereof, each as a debtor and debtor-in-possession (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a “ Borrower ”, and individually and collectively, jointly and severally, as the “ Borrowers ”).

Each of Borrowers have commenced cases (the “ Chapter 11 Cases ”) under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “ Bankruptcy Court ”), and Borrowers have retained possession of their assets and are authorized under the Bankruptcy Code to continue the operation of their businesses as debtors-in-possession.

Borrowers have asked the Lenders to make post-petition loans and advances consisting of revolving credit facility in an aggregate principal amount not to exceed $2,500,000, which will include a subfacility for the issuance of letters of credit. The Lenders are severally, and not jointly, willing to extend such credit to Borrower subject to the terms and conditions hereinafter set forth.

The parties agree as follows:

1.	DEFINITIONS AND CONSTRUCTION

1.1          Definitions . Capitalized terms used in this Agreement shall have the meanings specified therefor on Schedule 1.1 .

1.2         Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term “ financial statements ” shall include the notes and schedules thereto. Whenever the term “ Borrowers ” or the term “ Parent ” is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent and its Subsidiaries on a consolidated basis, unless the context clearly requires otherwise.

1.3         Code . Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein; provided , however , that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern.

1.4         Construction . Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to

 

the singular include the plural, the terms “ includes ” and “ including ” are not limiting, and the term “ or ” has, except where otherwise indicated, the inclusive meaning represented by the phrase “ and/or. ” The words “ hereof, ” “ herein, ” “ hereby, ” “ hereunder, ” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein or in any other Loan Document to the satisfaction or repayment in full of the Obligations shall mean the repayment in full in cash (or, in the case of Letters of Credit or Bank Products, the cash collateralization or support by a standby letter of credit in accordance with the terms hereof) of all Obligations other than unasserted contingent indemnification Obligations and other than any Bank Product Obligations that, at such time, are allowed by the applicable Bank Product Provider to remain outstanding and that are not required by the provisions of this Agreement to be repaid or cash collateralized. Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of a writing contained herein or in any other Loan Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.

1.5         Schedules and Exhibits . All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.

2.	LOAN AND TERMS OF PAYMENT.

            2.1           Revolver Advances.

 

(a)       Subject to the terms and conditions of this Agreement and the Bankruptcy Court Orders, on and after the Interim Facility Effective Date and until the Final Maturity Date, each Lender agrees (severally, not jointly or jointly and severally) to make advances (“ Advances ”) to Borrower in an amount at any one time outstanding not to exceed such Lender’s Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolver Amount less the Letter of Credit Usage at such time less the sum of (A) the Bank Product Reserve, (B) the Priority Professional Expenses Reserve and (C) the aggregate amount of other reserves, if any, established by Agent under Section 2.1(b) , and (ii) for any week, an amount equal to 110% of the difference between (x) the cumulative uses of cash, excluding prepayments of Advances, minus (y) the cumulative sources of cash, excluding Advances, in each case as set forth in the Budget through such week.

(b)       Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right to establish reserves against amounts Borrowers are entitled to borrow under Section 2.1(a) in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, including reserves with respect to (i) sums that

 

 

Parent or its Subsidiaries are required to pay under any Section of this Agreement or any other Loan Document (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and have failed to pay,(ii) amounts owing by Parent or its Subsidiaries to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (including proceeds thereof or collections from the sale of Hydrocarbons which may from time to time come into the possession of Lenders or their agent(s)) (other than a Permitted Priority Lien), which Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to Agent’s Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such item of the Collateral, (iii) the Bank Product Reserve and (iv) the Priority Professional Expenses Reserve.

                         (c)        [Intentionally Deleted]

 

                                 (d)         [Intentionally Deleted]

 

 (e)         Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. The outstanding principal amount of the Advances, together with interest accrued and unpaid thereon, shall be due and payable on the Final Maturity Date or, if earlier, on the date on which they are declared due and payable pursuant to the terms of this Agreement.

2.2

[Intentionally Deleted]

 

2.3

Borrowing Procedures and Settlements.

(a)        Procedure for Borrowing . Each Borrowing shall be made by an irrevocable written request by an Authorized Person delivered to Agent. Such notice must be received by Agent no later than 1:00 p.m. (Georgia time) at least 2 Business Days before the Business Day that is the requested Funding Date specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Agent’s election, in lieu of delivering the above-described written request, any Authorized Person may give Agent telephonic notice of such request by the required time. In such circumstances, Borrowers agree that any such telephonic notice will be confirmed in writing within 24 hours of the giving of such telephonic notice, but the failure to provide such written confirmation shall not affect the validity of the request.

(b)           [Intentionally Deleted]

(c)            Making of Loans.

(i)        Promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a) , Agent shall notify the Lenders, not later than 1:00 p.m. (Georgia time) on the Business Day immediately preceding the Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent’s Account, not later than 1:00 p.m. (Georgia time) on

 

 

the Funding Date applicable thereto. After Agent’s receipt of the proceeds of such Advances, Agent shall make the proceeds thereof available to Administrative Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to Administrative Borrower’s Designated Account; provided , however , that, subject to the provisions of Section 2.3(d)(ii) , Agent shall not request any Lender to make, and no Lender shall have the obligation to make, any Advance if Agent shall have actual knowledge that (1) one or more of the applicable conditions precedent set forth in Section 4 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date.

(ii)       Unless Agent receives notice from a Lender prior to 9:00 a.m. (Georgia time) on the date of a Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of Borrowers the amount of that Lender’s Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to Agent in immediately available funds and Agent in such circumstances has made available to Borrowers such amount, that Lender shall on the Business Day following such Funding Date make such amount available to Agent, together with interest at the Defaulting Lender Rate for each day during such period. A notice submitted by Agent to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is so made available, such payment to Agent shall constitute such Lender’s Advance on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Administrative Borrower of such failure to fund and, upon demand by Agent, Borrowers shall pay such amount to Agent for Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Advances composing such Borrowing. The failure of any Lender to make any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on any Funding Date

(iii)      Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrowers to Agent for the Defaulting Lender’s benefit, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments to each other non-Defaulting Lender member of the Lender Group ratably in accordance with their Commitments (but only to the extent that such Defaulting Lender’s Advance was funded by the other members of the Lender Group) or, if so directed by Administrative Borrower and if no Default or Event of Default had occurred and is continuing (and to the extent such Defaulting Lender’s Advance was not funded by the Lender Group), retain same to be re-advanced to Borrowers as if such Defaulting Lender had made Advances to Borrowers. Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrowers for the account of such Defaulting Lender the amount of all such payments received and retained by Agent for the account of such Defaulting Lender. Solely for the purposes of voting or consenting to matters with respect to the Loan Documents, such Defaulting Lender shall be deemed not to be a “ Lender ” and such Lender’s Commitment shall be deemed to be zero. This Section shall remain

 

 

effective with respect to such Lender until (x) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable, (y) the non-Defaulting Lenders, Agent, and Administrative Borrower shall have waived such Defaulting Lender’s default in writing, or (z) the Defaulting Lender makes its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing by Defaulting Lender in respect thereof. The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations hereunder, or to relieve or excuse the performance by Borrowers of their duties and obligations hereunder to Agent or to the Lenders other than such Defaulting Lender. Any such failure to fund by any Defaulting Lender shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Administrative Borrower at its option, upon written notice to Agent, to arrange for a substitute Lender to assume the Commitment of such Defaulting Lender, such substitute Lender to be acceptable to Agent. In connection with the arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance in favor of the substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being repaid its share of the outstanding Obligations (other than Bank Product Obligations, but including an assumption of its Pro Rata Share of the Risk Participation Liability) but without any premium or penalty of any kind whatsoever; provided , however , that any such assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups’ or Borrowers’ rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund.

                                (d)           Protective Advances and Optional Overadvances.

(i)        Agent hereby is authorized by Borrowers and the Lenders, from time to time in Agent’s sole discretion, (A) after the occurrence and during the continuance of a Default or an Event of Default, or (B) at any time that any of the other applicable conditions precedent set forth in Section 4 are not satisfied, to make Advances to Borrowers on behalf of the Lenders that Agent, in its Permitted Discretion deems necessary or desirable (1) to preserve or protect the Collateral, or any portion thereof, (2) to enhance the likelihood of repayment of the Obligations (other than the Bank Product Obligations), or (3) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement, including Lender Group Expenses and the costs, fees, and expenses described in Section 10 (any of the Advances described in this Section 2.3(d)(i) shall be referred to as “ Protective Advances ”).

(ii)       Any contrary provision of this Agreement notwithstanding, the Lenders hereby authorize Agent and Agent may, but is not obligated to, knowingly and intentionally, continue to make Advances to Borrowers notwithstanding that an Overadvance exists or thereby would be created, so long as after giving effect to such Advances, the outstanding Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver Amount. In the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted by the immediately foregoing provisions, regardless of the amount of, or reason for, such excess, Agent shall notify the Lenders as soon as practicable (and prior to making any (or any additional) intentional Overadvances (except for and excluding amounts charged to the Loan

 

 

Account for interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or its value), and the Lenders thereupon shall, together with Agent, jointly determine the terms of arrangements that shall be implemented with Borrowers intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrowers to an amount permitted by the preceding sentence. In such circumstances, if any Lender objects to the proposed terms of reduction or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination of the Required Lenders. Each Lender shall be obligated to settle with Agent as provided in Section 2.3(e) for the amount of such Lender’s Pro Rata Share of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as permitted under this Section 2.3(d)(ii) , and any Overadvances resulting from the charging to the Loan Account of interest, fees, or Lender Group Expenses.

(iii)      Each Protective Advance and each Overadvance shall be deemed to be an Advance hereunder. The Protective Advances and Overadvances shall be repayable on demand, secured by Agent’s Liens, constitute Obligations hereunder, and bear interest at the rate applicable from time to time to Advances. The provisions of this Section 2.3(d) are for the exclusive benefit of Agent and the Lenders and are not intended to benefit Borrower in any way.

(e)        Settlement . It is agreed that each Lender’s funded portion of the Advances is intended by the Lenders to equal, at all times, such Lender’s Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent and the Lenders agree (which agreement shall not be for the benefit of any Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among the Lenders as to the Advances and the Protective Advances shall take place on a periodic basis in accordance with the following provisions:

(i)        Agent shall request settlement (“ Settlement ”) with the Lenders on a weekly basis, or on a more frequent basis if so determined by Agent (1) for itself, with respect to the outstanding Protective Advances, and (2) with respect to Parent and its Subsidiaries’ Collections or payments received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:00 p.m. (Georgia time) on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the “ Settlement Date ”). Such notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances and Protective Advances for the period since the prior Settlement Date. Subject to the terms and conditions contained herein (including Section 2.3(c)(iii) ): (y) if a Lender’s balance of the Advances (including Protective Advances) exceeds such Lender’s Pro Rata Share of the Advances (including Protective Advances) as of a Settlement Date, then Agent shall, by no later than 3:00 p.m. (Georgia time) on the Settlement Date, transfer in immediately available funds to a Deposit Account of such Lender (as such Lender may designate), an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances (including Protective Advances), and (z) if a Lender’s balance of the Advances (including Protective Advances) is less than such Lender’s Pro Rata Share of the Advances (including Protective Advances) as of a Settlement Date, such Lender shall no later than 12:00 p.m. (Georgia time) on the Settlement Date transfer in immediately available funds to the Agent’s Account, an amount such that each such Lender shall, upon transfer of such amount,

 

 

have as of the Settlement Date, its Pro Rata Share of the Advances (including Protective Advances). Such amounts made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Protective Advances and shall constitute Advances of such Lenders. If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate.

(ii)       In determining whether a Lender’s balance of the Advances and Protective Advances is less than, equal to, or greater than such Lender’s Pro Rata Share of the Advances and Protective Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by Agent with respect to principal, interest, fees payable by Borrowers and allocable to the Lenders hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any such Lender after such application, such net amount shall be distributed by Agent to that Lender as part of such next Settlement.

(iii)      Between Settlement Dates, Agent, to the extent Protective Advances are outstanding, may pay over to Agent any Collections or payments received by Agent, that in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to the Protective Advances. During the period between Settlement Dates, Agent with respect to Protective Advances, and each Lender (subject to the effect of agreements between Agent and individual Lenders) with respect to the Advances and Protective Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by Agent or the Lenders, as applicable.

(f)         Notation . Agent shall record on its books the principal amount of the Advances owing to each Lender and Protective Advances owing to Agent, and the interests therein of each Lender, from time to time and such records shall, absent manifest error, conclusively be presumed to be correct and accurate.

(g)        Lenders’ Failure to Perform . All Advances (other than Protective Advances) shall be made by the Lenders contemporaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advance (or other extension of credit) hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder.

            2.4           Payments

 

                                 (a)          Payments by Borrower . 

 

(i)        Except as otherwise expressly provided herein, all payments by Borrowers shall be made to Agent’s Account for the account of the Lender Group and shall be made in immediately available funds, no later than 2:00 p.m. (Georgia time) on the date specified herein. Any payment received by Agent later than 2:00 p.m. (Georgia time) shall be deemed to

 

 

have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(ii)       Unless Agent receives notice from Administrative Borrower prior to the date on which any payment is due to the Lenders that Borrowers will not make such payment in full as and when required, Agent may assume that Borrowers have made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrowers do not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date such amount is distributed to such Lender until the date repaid.

                        (b)           Apportionment and Application .

 

(i)        Except as otherwise provided with respect to Defaulting Lenders who would otherwise be entitled to receive such payments as provided herein, all principal and interest payments shall be apportioned ratably among the applicable Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and all payments of fees and expenses (other than fees or expenses that are for Agent’s separate account) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee or expense relates. All payments to be made hereunder by Borrower shall be remitted to Agent, and all such payments, and all proceeds of Collateral received by Agent, shall be applied as set forth in Section 2.4(b)(ii) below.

(ii)       Except as otherwise provided with respect to Defaulting Lenders, all payments remitted to Agent and all proceeds of Collateral received by Agent shall be applied as follows:

(A)       first , to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities then due to Agent under the Loan Documents, until paid in full,

(B)       second , to pay any fees or premiums then due to Agent under the Loan Documents until paid in full,

(C)      third , to pay the Regiment Guaranty Obligations,

(D)       fourth, to pay interest due in respect of all Protective Advances until paid in full,

(E)        fifth , to pay the principal of all Protective Advances until paid in full,

(F)        sixth , ratably to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities then due to any of the Lenders under the Loan Documents, until paid in full,

 

 

(G)       seventh , ratably to pay any fees or premiums then due to any of the Lenders, until paid in full,

(H)       eighth , ratably to pay interest due in respect of the Advances (other than Protective Advances), until paid in full,

(I)         ninth , ratably (i) to pay the principal of all Advances until paid in full, (ii) to Agent, to be held by Agent, for the ratable benefit of Issuing Lender and the other Lenders, as cash collateral in an amount up to 105% of the Letter of Credit Usage and (iii) to Agent, to be held by Agent, for the benefit of the Bank Product Providers, as cash collateral in an amount up to 105% of the amount of Bank Product Obligations in respect of Swap Agreements, and

(J)        ninth , to pay any other Obligations (including the provision of amounts to Agent, to be held by Agent, for the benefit of the Bank Product Providers, as cash collateral in an amount up to the amount determined by Agent in its Permitted Discretion as the amount necessary to secure Parent’s and its Subsidiaries’ obligations in respect of Bank Products) until paid in full.

(iii)      Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.3(e) .

(iv)       [Intentionally Deleted].

(v)       For purposes of Section 2.4(b)(ii) other than clause (J), “ paid in full ” means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including in each case interest and such fees accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not any of the foregoing (other than disallowed interest and disallowed loan fees, if any) would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding; provided , however , that for the purposes of Section 2.4(b)(ii)(J) , “ paid in full ” means payment of all amounts owing under the Loan Documents according to the terms hereof, including loan fees, service fees, professional fees, interest (and specifically including interest and fees accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not any of the foregoing would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.

(vi)      In the event of a direct conflict between the priority provisions of this Section 2.4 and any other provision contained in any other Loan Document, it is the intention of the parties hereto that such provisions be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and govern.

                                (c)            Prepayments .

 

 

 

(i)         Excess Usage . If at any time the sum of the aggregate principal amount of the outstanding Advances, the outstanding Letter of Credit Usage, the Bank Product Reserve and the aggregate amount of reserves, if any, established by Agent under Section 2.1 exceeds the lesser of (A) an amount equal to 110% of the difference between (x) the cumulative uses of cash, excluding prepayments of Advances, minus (y) the cumulative sources of cash, excluding Advances, in each case as set forth in the Budget through such time, and (B) the Maximum Revolver Amount, Borrower shall immediately prepay the Obligations in an amount equal to such excess, which prepayments shall be applied in the manner set forth in Section 2.4(d) .

(ii)        Optional Prepayments . The Advances and the Protective Advances may be voluntarily prepaid in full or in part at any time without premium or penalty.

(iii)       Mandatory Prepayments .

(A)      Immediately upon the receipt by Parent or any of its Subsidiaries of the proceeds of any voluntary or involuntary sale or disposition by Parent or any of its Subsidiaries of property or assets (including casualty losses or condemnations), Borrower shall, subject to the order of the Bankruptcy Court, prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(d) in an amount equal to one hundred percent (100%) of such Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such sales or dispositions. Nothing contained in this Section 2.4(c)(iii)(A) shall permit Parent or any of its Subsidiaries to sell or otherwise dispose of any property or assets other than in accordance with Section 7.4 .

(B)      Immediately upon the receipt by Parent or any of its Subsidiaries of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(d) in an amount equal to 100% of such Extraordinary Receipts, net of any reasonable expenses incurred in collecting such Extraordinary Receipts..

(C)      Immediately upon the issuance or incurrence by Parent or any of its Subsidiaries of any Indebtedness (other than Indebtedness permitted under Section 7.1 ) or the issuance by Parent or any of its Subsidiaries of any shares of Parent’s Stock or its Subsidiaries Stock (other than in the event that Parent or any of its Subsidiaries forms a Subsidiary in accordance with the terms hereof, the issuance by such Subsidiary of Stock to Parent or such Subsidiary, as applicable), Borrowers shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(d) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such incurrence of Indebtedness or such issuance of Stock. The provisions of this Section 2.4(c)(iii)(C) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.

(D)          [Intentionally Deleted]

(E)       Simultaneously with the receipt by any Borrower of any tax refund or the proceeds of any judgment, settlement or other consideration of any kind in

 

 

connection with any cause of action arising under the Bankruptcy Code or otherwise, Borrower shall prepay the outstanding principal amount of the Obligations in an amount equal to 100% of the net proceeds received.

(F)       Without limiting any other provision of this Agreement or any other Loan Document permitting or requiring prepayment of the Loans in whole or in part, Borrowers shall prepay the Obligations in full on March 16, 2009, in the event that the Final Bankruptcy Court Order shall not have been entered on or before such date.

(d)        Application of Payments . Each prepayment pursuant to any clause of Section 2.4(c)(iii) above shall (A) so long as no Event of Default shall have occurred and be continuing and subject to the last sentence of this subsection, be applied, first, to the outstanding principal amount of the Advances until paid in full, and second, to cash collateralize the Letters of Credit in an amount equal to 105% of the then extant Letter of Credit Usage, and (B) if an Event of Default shall have occurred and be continuing, be applied in the manner set forth in Section 2.4(b)(ii) .

2.5         Overadvances . If, at any time or for any reason, the amount of Obligations owed by Borrowers to the Lender Group pursuant to Section 2.1 or Section 2.12 is greater than any of the limitations set forth in Section 2.1 or Section 2.12 , as applicable (an “ Overadvance ”), Borrowers immediately upon demand shall pay to Agent, in cash, the amount of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with the priorities set forth in Section 2.4(b) . Borrowers promise to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full on the Final Maturity Date or, if earlier, on the date on which the Obligations are declared due and payable pursuant to the terms of this Agreement.

2.6          Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.

(a)        Interest Rates . Except as provided in Section 2.6(c) , all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to the Base Rate.

(b)        Letter of Credit Fee . Borrowers shall pay Agent (for the ratable benefit of the Lenders with a Revolver Commitment, subject to any agreements between Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e) ) which shall accrue at a rate equal to 12.0% per annum times the Daily Balance of the undrawn amount of all outstanding Letters of Credit.

(c)        Default Rate . Upon the occurrence and during the continuation of an Event of Default (and at the election of Agent or the Required Lenders),

(i)        all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 2 percentage points above the per annum rate otherwise applicable hereunder, and

 

 

(ii)       the Letter of Credit fee provided for in Section 2.6(b) shall be increased to 2 percentage points above the per annum rate otherwise applicable hereunder.

(d)        Payment . Subject to the terms of the Bankruptcy Court Orders and except as provided to the contrary in Section 2.6(g) and the Fee Letter, interest, Letter of Credit fees, and all other fees payable hereunder shall be due and payable monthly, in arrears, on each Interest Payment Date at any time that Obligations or Commitments are outstanding. Borrowers hereby authorize Agent to charge all interest and fees (when due and payable), all Lender Group Expenses (after the same become due and payable in accordance with Section 18.10 ), all charges, commissions, fees, and costs provided for in Section 2.12(e) (as and when due and payable), all fees and costs provided for in Section 2.11 (as and when due and payable), and all other payments as and when due and payable under any Loan Document (including any amounts due and payable to the Bank Product Providers in respect of Bank Products up to the amount of the Bank Product Reserve) to the Loan Account, which amounts thereafter shall constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances. Any interest not paid when due shall be compounded by being charged to the Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances; provided , however that if, at any time any amount due and payable to the Bank Product Reserve is charged to the Loan Account, an Event of Default or Overadvance exists, or would result therefrom, such amounts shall not constitute Advances but instead shall continue to remain due and payable to the Bank Product Providers in respect of the Bank Products up to the amount of the Bank Product Reserve; provided , further , however , that the failure to make any such payment and the compounding of such interest shall nonetheless constitute an Event of Default under Section 8.1 .

(e)        Computation . All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed.

(f)         Intent to Limit Charges to Maximum Lawful Rate . In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrowers and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided , however , that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto , as of the date of this Agreement, Borrowers are and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrowers in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. Without limiting the foregoing, it is the intention of the parties hereto that the Agent and each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to the Agent or any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to the Agent or such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in

 

 

connection with or as security for the Loans, it is agreed as follows: (a) the aggregate of all consideration with constitutes interest under law applicable to the Agent or any Lender that is contracted for, taken, reserved, charged or received by the Agent or such Lender under any of the Loan Documents or agreements or otherwise in connection with the Loans shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by the Agent or such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by the Agent or such Lender to the borrowers; and (b) in the event that the maturity of the Loans is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Agent or any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any provided for in this Agreement or otherwise shall be canceled automatically by the Agent or such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by the Agent or such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by the Agent or such Lender to the Borrowers). All sums paid or agreed to be paid to the Agent or any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to the Agent or such Lender, be amortized, prorated, allocated and spread throughout the stated term of the Loans until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to the Agent or any Lender on any date shall be computed at the maximum rate allowable under law applicable to the Agent or such Lender pursuant to this Section 2.6(f) and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to the Agent or such Lender would be less than the amount of interest payable to the Agent or such Lender computed at the maximum rate allowable under law applicable to the Agent or such Lender, then the amount of interest payable to the Agent or such Lender in respect of such subsequent interest computation period shall continue to be computed at the maximum lawful rate applicable to the Agent or such Lender until the total amount of interest payable to the Agent or such Lender shall equal the total amount of interest which would have been payable to the Agent or such Lender if the total amount of interest had been computed without giving effect to this Section 2.6(f) . To the extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of determining the maximum lawful rate applicable to the Agent or a Lender, the Agent or such Lender elects to determine the applicable rate ceiling under such Chapter by the weekly ceiling from time to time in effect. Chapter 346 of the Texas Finance Code does not apply to any Borrower’s obligations hereunder.

(g)        PIK Interest . The interest due and payable on each Interest Payment Date (herein referred to as “ PIK Interest ”) will be payable in kind as provided in the next sentence. On each Interest Payment Date, any PIK Interest that is then unpaid and that has not been previously added to the principal amount of the Advances shall be added, on a pro rata basis, to each Advance, and amounts so added shall thereafter be deemed to be a part of the principal amount of each such Advance. If not sooner paid in cash, all accrued unpaid PIK Interest will be due and payable in cash upon the earliest to occur of (i) the Final Maturity Date,

 

 

(ii) the prepayment of the Loan in accordance with Section 2.4(c) , or (iii) the date on which the Obligations are declared due and payable in accordance with this Agreement.

                2.7           Cash Management.

(a)       All Deposit Accounts and Securities Accounts maintained by Parent and its Subsidiaries are set forth on Schedule 2.7(a) . Upon Agent’s request, Parent shall and shall cause each of its Subsidiaries to (i) establish and maintain cash management services of a type and on terms satisfactory to Agent at one or more of the banks set forth on Schedule 2.7(a) (each a “ Cash Management Bank ”), and shall request in writing and otherwise take such reasonable steps to ensure that all of its and its Subsidiaries’ Account Debtors forward payment of the amounts owed by them directly to such Cash Management Bank, and (ii) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all of their Collections (including those sent directly by their Account Debtors to Parent or its Subsidiaries) into a bank account in Agent’s name (a “ Cash Management Account ”) at one of the Cash Management Banks. Agent reserves the right, in its sole discretion, to require that any amounts received in any Cash Management Account which may represent amounts that constitute trust funds (i.e., production taxes, severance taxes, or payroll taxes) or amounts attributable to interests of third Persons such as overriding royalty interest be segregated by such Cash Management Bank and held in a separate account or otherwise as directed by Agent.

(b)       Upon Agent’s request, each Cash Management Bank shall establish and maintain Control Agreements with Agent and Borrowers. Each such Control Agreement shall provide, among other things, that (i) the Cash Management Bank will comply with any instructions originated by Agent directing the disposition of the funds in such Cash Management Account without further consent by Parent or its Subsidiaries, as applicable, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Cash Management Account other than for payment of its service fees and other charges directly related to the administration of such Cash Management Account and for returned checks or other items of payment, and (iii) upon the instruction of the Agent (an “ Activation Instruction ”), it will forward by daily sweep all amounts in the applicable Cash Management Account to the Agent’s Account. Agent agrees not to issue an Activation Instruction with respect to the Cash Management Accounts or to give instructions to the Cash Management Bank directing the disposition of funds in a Cash Management Account unless a Triggering Event has occurred and is continuing at such time.

(c)       So long as no Default or Event of Default has occurred and is continuing, Administrative Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Bank or Cash Management Account; provided , however , that (i) such prospective Cash Management Bank shall be reasonably satisfactory to Agent, and (ii) prior to the time of the opening of such Cash Management Account, Parent (or its Subsidiary, as applicable) and such prospective Cash Management Bank shall have executed and delivered to Agent a Control Agreement if requested by the Agent. Parent (or its Subsidiaries, as applicable) shall close any of their Cash Management Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 30 days of notice from Agent that the creditworthiness of any Cash Management Bank is no longer acceptable in Agent’s reasonable judgment, or as promptly as practicable and in any event within 60 days of

 

 

notice from Agent that the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Cash Management Accounts or Agent’s liability under any Control Agreement with such Cash Management Bank is no longer acceptable in Agent’s reasonable judgment.

2.8         Crediting Payments . The receipt of any payment item by Agent (whether from transfers to Agent by the Cash Management Banks pursuant to the Control Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Agent’s Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrowers shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into the Agent’s Account on a Business Day on or before 2:00 p.m. (Georgia time). If any payment item is received into the Agent’s Account on a non-Business Day or after 2:00 p.m. (Georgia time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day; provided , however , Agent reserves the right, in its sole discretion, to exclude from such provisional reduction and payment the amount of any such payments that Agent determines may constitute trust funds (e.g., production taxes, severance taxes, or payroll taxes) or amounts attributable to interests of third Persons such as overriding royalty interests.

2.9         Designated Account . Agent is authorized to make the Advances, and Issuing Lender is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person or, without instructions, if pursuant to Section 2.6(d) . Administrative Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrowers and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and Administrative Borrower, any Advance or Protective Advance requested by Borrowers and made by Agent or the Lenders hereunder shall be made to the Designated Account.

2.10       Maintenance of Loan Account; Statements of Obligations . Agent shall maintain an account on its books in the name of Borrowers (the “ Loan Account ”) on which Borrowers will be charged with all Advances (including Protective Advances and PIK Interest) made by Agent or the Lenders to Borrowers or for Borrowers’ account, the Letters of Credit issued by Issuing Lender for Borrowers’ account, and with all other payment Obligations hereunder or under the other Loan Documents (except for Bank Product Obligations), including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.8 , the Loan Account will be credited with all payments received by Agent from Borrowers or for Borrowers’ account, including all amounts received in the Agent’s Account from any Cash Management Bank. Agent shall render statements regarding the Loan Account to Administrative Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements, absent manifest error, shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrowers and the Lender Group unless, within 30 days after receipt thereof by Administrative Borrower, Administrative Borrower shall deliver to Agent written

 

 

objection thereto describing the error or errors contained in any such statements. Promptly after receipt of such written objection and Agent’s evaluation thereof, the Agent shall credit the Loan Account for amounts (if any) contained in such statements that Agent agrees were charged in error.

2.11       Fees . Borrowers shall pay to Agent, as and when due and payable under the terms of the Fee Letter, the fees set forth in the Fee Letter.

                2.12      Letters of Credit.

 

(i)        Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to cause the Underlying Issuer to issue letters of credit for the account of Borrowers (each, an “ L/C ”), whether by purchasing participations, executing indemnities or reimbursement obligations, or otherwise (each such undertaking, an “ L/C Undertaking ”) with respect to letters of credit issued by an Underlying Issuer for the account of Borrowers; provided , however , that the Issuing Lender in its sole discretion may decline to cause the issuance of any L/C so requested. Each request for the issuance of a Letter of Credit, or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be made in writing by an Authorized Person and delivered to the Issuing Lender and Agent via hand delivery, telefacsimile, or other electronic method of transmission reasonably in advance of the requested date of issuance, amendment, renewal, or extension. Each such request shall be in form and substance satisfactory to the Issuing Lender in its Permitted Discretion and shall specify (i) the amount of such Letter of Credit, (ii) the date of issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the expiration date of such Letter of Credit, (iv) the name and address of the beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as applicable), and (v) such other information (including, in the case of an amendment, renewal, or extension, identification of the outstanding Letter of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend, renew, or extend such Letter of Credit. If requested by the Issuing Lender, Borrowers also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking. No Letter of Credit shall be issued if the Letter of Credit Usage would exceed the Maximum Revolver Amount less the outstanding amount of Advances less the Bank Product Reserve, and less the aggregate amount of reserves, if any, established by Agent under Section 2.1(b) .

Each Letter of Credit (and corresponding Underlying Letter of Credit) shall be in form and substance acceptable to the Issuing Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender is obligated to advance funds under a Letter of Credit, Borrowers immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C Disbursement not later than 2:00 p.m., Georgia time, on the date that such L/C Disbursement is made, if Administrative Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 1:00 p.m., Georgia time, on such date, or, if such notice has not been received by Administrative Borrower prior to such time on such date, then not later than 2:00 p.m., Georgia time, on the Business Day that Administrative Borrower receives such notice, if such notice is received prior to 1:00 p.m., Georgia time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be an Advance hereunder and, initially, shall bear interest at the rate then

 

 

applicable to Advances. To the extent an L/C Disbursement is deemed to be an Advance hereunder, Borrowers’ obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting Advance. Promptly following receipt by Agent of any payment from Borrowers pursuant to this paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section 2.12(b) to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear.

(b)       Promptly following receipt of a notice of L/C Disbursement pursuant to Section 2.12(a) , each Lender with a Revolver Commitment agrees to fund its Pro Rata Share of any Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as if Borrowers had requested such Advance and Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender or the Lenders with Revolver Commitments, the Issuing Lender shall be deemed to have granted to each Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall be deemed to have purchased, a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and each such Lender agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of any payments made by the Issuing Lender under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of each L/C Disbursement made by the Issuing Lender and not reimbursed by Borrowers on the date due as provided in Section 2.12(a) , or of any reimbursement payment required to be refunded to Borrowers for any reason. Each Lender with a Revolver Commitment acknowledges and agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount equal to its respective Pro Rata Share of each L/C Disbursement made by the Issuing Lender pursuant to this Section 2.12(b) shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3 . If any such Lender fails to make available to Agent the amount of such Lender’s Pro Rata Share of each L/C Disbursement made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, such Lender shall be deemed to be a Defaulting Lender and Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full.

(c)       Each Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by the Lender Group arising out of or in connection with any Letter of Credit; provided , however , that no Borrower shall be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. Each Borrower agrees to be bound by the Underlying Issuer’s regulations and interpretations of any Underlying Letter of Credit or by Issuing Lender’s interpretations of any L/C issued by Issuing Lender to or for such Borrower’s account, even though this interpretation may be different from such Borrower’s own, and each Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrowers’ instructions

 

 

or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Each Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrowers against such Underlying Issuer. Each Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group’s indemnification of any Underlying Issuer; provided , however , that no Borrower shall be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. Each Borrower hereby acknowledges and agrees that neither the Lender Group nor the Issuing Lender shall be responsible for delays, errors, or omissions resulting from the malfunction of equipment in connection with any Letter of Credit.

(d)       Each Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender’s instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application.

(e)       Any and all issuance charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrower to Agent for the account of the Issuing Lender.

(f)        If by reason of (i) any change after the Interim Facility Effective Date in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto):

(i)        any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or

(ii)       there shall be imposed on the Underlying Issuer or the Lender Group any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto,

and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by the Lender Group, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Administrative Borrower, and Borrowers shall pay on demand such amounts as Agent may specify to be necessary to compensate the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Advances hereunder. The determination by Agent of any amount due pursuant to this Section, as set forth in a certificate setting forth the

 

 

calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.

                2.13      [Intentionally Deleted].

2.14       Capital Requirements . If, after the date hereof, any Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request, or directive of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on such Lender’s or such holding company’s capital as a consequence of such Lender’s Commitments hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration such Lender’s or such holding company’s then existing policies with respect to capital adequacy and assuming the full utilization of such entity’s capital) by any amount deemed by such Lender to be material, then such Lender may notify Administrative Borrower and Agent thereof. Following receipt of such notice, Borrowers agree to pay such Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 90 days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender’s calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, such Lender may use any reasonable averaging and attribution methods. Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Borrowers shall not be required to compensate a Lender pursuant to this Section for any reduction in return incurred more than 360 days prior to the date that such Lender notifies the Administrative Borrower of such law, rule, regulation or guideline giving rise to such reductions and of such Lender’s intention to claim compensation therefor; provided further that if such claim arises by reason of the adoption of or change in any law, rule, regulation or guideline that is retroactive, then the 360-day period referred to above shall be extended to include the period of retroactive effect thereof.

2.15       [Intentionally Deleted].

                2.16       Joint and Several Liability of Borrowers .

 

                                (a)       Each Borrower is accepting joint and several liability hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Lender Group under this Agreement, for the mutual benefit, directly and indirectly, of each Borrower and in consideration of the undertakings of the other Borrowers to accept joint and several liability for the Obligations.

 

(b)       Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations (including any Obligations arising under this Section 2.16 ), it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each Borrower without preferences or distinction among them.

 

 

(c)       If and to the extent that any Borrower shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Borrowers will make such payment with respect to, or perform, such Obligation.

(d)       The Obligations of each Borrower under the provisions of this Section 2.16 constitute the absolute and unconditional, full recourse Obligations of each Borrower enforceable against each Borrower to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Agreement or any other circumstances whatsoever, subject to applicable law.

(e)       Except as otherwise expressly provided in this Agreement, each Borrower hereby waives notice of acceptance of its joint and several liability, notice of any Advances or Letters of Credit issued under or pursuant to this Agreement, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Each Borrower hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Agent or Lenders at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any Borrower. Without limiting the generality of the foregoing, each Borrower assents to any other action or delay in acting or failure to act on the part of any Agent or Lender with respect to the failure by any Borrower to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.16 afford grounds for terminating, discharging or relieving any Borrower, in whole or in part, from any of its Obligations under this Section 2.16 , it being the intention of each Borrower that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of each Borrower under this Section 2.16 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each Borrower under this Section 2.16 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any Borrower or any Agent or Lender.

(f)        Each Borrower represents and warrants to Agent and Lenders that such Borrower is currently informed of the financial condition of Borrowers and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower further represents and warrants to Agent and Lenders that such Borrower has read and understands the terms and conditions of the Loan Documents. Each Borrower hereby covenants that such Borrower will continue to keep

 

 

informed of Borrowers’ financial condition, the financial condition of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations.

(g)       Each Borrower waives all rights and defenses arising out of an election of remedies by Agent or any Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Agent’s or such Lender’s rights of subrogation and reimbursement against such Borrower by the operation of Section 580(d) of the California Code of Civil Procedure or otherwise.

(h)       Each Borrower waives all rights and defenses that such Borrower may have because the Obligations are secured by Real Property. This means, among other things:

(i)        Agent and Lenders may collect from such Borrower without first foreclosing on any Real or Personal Property Collateral pledged by Borrowers.

(ii)       If Agent or any Lender forecloses on any Real Property Collateral pledged by Borrowers:

(A)      Subject to applicable law, the amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price.

(B)      Agent and Lenders may collect from such Borrower even if Agent or Lenders, by foreclosing on the Real Property Collateral, has destroyed any right such Borrower may have to collect from the other Borrowers.

Subject to applicable law, this is an unconditional and irrevocable waiver of any rights and defenses such Borrower may have because the Obligations are secured by Real Property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure.

(i)        The provisions of this Section 2.16 are made for the benefit of Agent, Lenders and their respective successors and assigns, and may be enforced by it or them from time to time against any or all Borrowers as often as occasion therefor may arise and without requirement on the part of Agent, Lender, successor or assign first to marshal any of its or their claims or to exercise any of its or their rights against any Borrower or to exhaust any remedies available to it or them against any Borrower or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.16 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by Agent or any Lender upon the insolvency, bankruptcy or reorganization of any Borrower, or otherwise, the provisions of this Section 2.16 will forthwith be reinstated in effect, as though such payment had not been made.

(j)        Until the Obligations have been paid in full and all of the Commitments terminated, each Borrower hereby agrees that it will not enforce any of its rights of contribution

 

 

or subrogation against any other Borrower with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to Agent or Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to any Agent or Lender hereunder or under any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor.

(k)       Each Borrower hereby agrees that, after the occurrence and during the continuance of any Default or Event of Default, the payment of any amounts due with respect to the indebtedness owing by any Borrower to any other Borrower is hereby subordinated to the prior payment in full in cash of the Obligations. Each Borrower hereby agrees that after the occurrence and during the continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Obligations shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Borrower as trustee for Agent, and such Borrower shall deliver any such amounts to Agent for application to the Obligations in accordance with Section 2.4(b) .

3.            SECURITY AND ADMINISTRATIVE PRIORITY.

 

3.1         Collateral; Grant of Lien and Security Interest . (a) As security for the full and timely payment and performance of all of the Obligations, to the extent authorized by the Bankruptcy Court Orders, each of the Loan Parties assigns, pledges and grants (or causes the assignment, pledge and grant in respect of any indirectly owned assets) to Agent, for the benefit of Agent, Bank Product Providers and the Lenders, a security interest in and to and Lien on all of the property, assets or interests in property or assets of such Person, of any kind or nature whatsoever, real or personal, now existing or hereafter acquired or created, including, without limitation, all property of the Debtor’s estates (within the meaning of the Bankruptcy Code) of such Loan Party, and all accounts, inventory, goods, contract rights, instruments, documents, chattel paper, patents, trademarks, copyrights and licenses therefor, general intangibles, payment intangibles, letters of credit, letter-of-credit rights, supporting obligations, machinery and equipment, real property, fixtures, leases, all of the Stock of each Subsidiary of such Loan Party, all of the Stock of all other Persons directly owned by such Loan Party, money, investment property, deposit accounts, all commercial tort claims and all causes of action arising under the Bankruptcy Code or otherwise, and all cash and non-cash proceeds, rents, products and profits of any of collateral described above (all property of the Loan Parties subject to the security interest referred to in this Section 3.1(a) being hereafter collectively referred to as the “ Collateral ”).

(b)       The Agent’s Liens and security interests in favor of Agent, Bank Product Providers and the Lenders referred to in Section 3.1(a) hereof shall be valid and perfected Liens

 

 

and security interests in the Collateral, superior to all other Liens and security interests in the Collateral, other than the Permitted Priority Liens. Such Agent’s Liens and security interests and their priority shall remain in effect until the Commitments hereunder have been terminated and the payment to Agent, in cash, of the Obligations (including providing Bank Product Collateralization with respect to the then existing Bank Products), in full.

(c)       Agent’s and Lenders’ Liens on the Collateral owned by the Loan Parties and Agent’s and Lenders’ respective administrative claims shall be subject to the prior payment of the following: (i) allowed, accrued, but unpaid professional fees of Borrowers and the Committee (each to the extent consistent with the Budget) which have accrued and been incurred prior to the occurrence of an Event of Default which may and shall be paid after any such Event of Default to the extent allowed by the Bankruptcy Court (the “ Pre-Event of Default Carve-Out Expenses ”), (ii) allowed, accrued but unpaid professional fees and expenses incurred by Borrowers and the Committee (each to the extent consistent with the Budget) incurred in the Chapter 11 Case after an Event of Default (that is not cured or waived) in an aggregate amount not to exceed $250,000 (collectively, the “ Post-Event of Default Carve-Out Expenses ”), and (iii) fees payable to the Office of the United States Trustee pursuant to 28 U.S.C. § 1930 and to the clerk of the Bankruptcy Court (collectively, with the Pre-Event of Default Carve-Out Expenses and the Post-Event of Default Carve-Out Expenses, the “ Carve-Out Expenses ”), provided that the Carve-Out Expenses shall not include any other claims that are or may be senior to or pari passu with any of the Carve-Out Expenses or any professional fees and expenses of a Chapter 7 trustee and, provided, further, that Carve-Out Expenses shall not include any fees or disbursements (A) arising after the conversion of any of the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code or (B) except as permitted by Section 7.13 , any fees or disbursements related to the investigation of, preparation for, or commencement or prosecution of investigation of prepetition secured claims.

3.2         Administrative Priority . Each of the Loan Parties agrees for itself that, subject to the terms of the Bankruptcy Court Orders, the Obligations of such Person and the adequate protection claims granted pursuant to the Bankruptcy Court Orders shall constitute allowed superpriority administrative expenses in the Chapter 11 Cases, having priority over any and all administrative expense claims, adequate protection claims and all other claims against the Debtors, now existing or hereafter arising, of any kind whatsoever, including without limitation, all claims arising under sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546, 726, 1113 or 1114 and any other provision of the Bankruptcy Code or otherwise, whether or not such expenses or claims may become secured by a judgment lien or other non-consensual lien, levy or attachment, subject only to the prior payment of Carve-Out Expenses.

3.3         Grants, Rights and Remedies . The Agent’s Liens and security interests granted pursuant to Section 3.1(a) hereof and the administrative priority granted pursuant to Section 3.2 hereof may be independently granted by the Loan Documents and by other Loan Documents hereafter entered into. This Agreement, the Bankruptcy Court Orders and such other Loan Documents supplement each other, and the grants, priorities, rights and remedies of the Agents and the Lenders hereunder and thereunder are cumulative.

3.4         No Filings Required . The Agent’s Liens and security interests referred to herein shall be deemed valid and perfected by entry of the Interim Bankruptcy Court or the Final

 

 

Bankruptcy Court Order, as the case may be, and entry of the Interim Bankruptcy Court or the Final Bankruptcy Court Order shall have occurred before the date of any Loan. Agent shall not be required to file any financing statements, mortgages, certificates of title, notices of Lien or similar instruments in any jurisdiction or filing office or to take any other action in order to validate or perfect the Lien and security interest granted by or pursuant to this Agreement or the Interim Bankruptcy Court or the Final Bankruptcy Court Order, as the case may be, or any other Loan Document; provided , that Agent shall be permitted to file any financing statements, mortgages, certificates of title, notices of Lien or similar instruments in any jurisdiction or filing office or to take any other action with respect to the Lien and security interest granted by or pursuant to this Agreement (and the Budget shall be deemed to have been increased to account for any costs incurred by or charged to Borrowers for any such action).

3.5         Survival . The Agent’s Liens, lien priority, administrative priorities and other rights and remedies granted to Agent and the Lenders pursuant to this Agreement, the Bankruptcy Court Orders and the other Loan Documents (specifically including, but not limited to, the existence, perfection and priority of the Liens and security interests provided herein and therein, and the administrative priority provided herein and therein) shall not be modified, altered or impaired in any manner by any other financing or extension of credit or incurrence of Indebtedness by any Loan Party (pursuant to Section 364 of the Bankruptcy Code or otherwise), or by any dismissal or conversion of any of the Chapter 11 Cases, or by any other act or omission whatsoever. Without limitation, notwithstanding any such order, financing, extension, incurrence, dismissal, conversion, act or omission:

(a)       except for the Carve-Out Expenses, no costs or expenses of administration which have been or may be incurred in the Chapter 11 Cases or any conversion of the same or in any other proceedings related thereto, and no priority claims, are or will be prior to or on parity with any claim of Agent and the Lenders against any Loan Party in respect of any Obligation;

(b)       on and after the Final Bankruptcy Court Order Entry Date, the Liens in favor of Agent, Bank Product Providers and the Lenders set forth in Section 3.1(a) hereof shall constitute valid and perfected first priority Liens and security interests, subject only to Permitted Priority Liens; and

(c)       the Agent’s Liens in favor of Agent, Bank Product Providers and the Lenders set forth herein and in the other Loan Documents shall continue to be valid and perfected without the necessity that Agent file financing statements, mortgages, certificates of title or otherwise perfect its Lien under applicable non-bankruptcy law.

3.6         Further Assurances . The Loan Parties shall take any other actions reasonably requested by Agent and the Lenders from time to time to cause the attachment, perfection and first priority of, and the ability of Agent and the Lenders to enforce, the security interest of Agent and the Lenders in any and all of the Collateral, including, without limitation, (a) executing and delivering any requested security agreement, pledge agreement or Mortgage, (b) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the Uniform Commercial Code or other applicable law, to the extent, if any, that any Loan Party’s signature thereon is required therefor, (c) causing Agent’s name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment,

 

 

perfection or priority of, or ability of Agent to enforce, the security interest of Agent in such Collateral, (d) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Agent to enforce, the security interest of Agent in such Collateral, and (e) obtaining the consents and approvals of any Governmental Authority or third party, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, and taking all actions required by any earlier versions of the Uniform Commercial Code or by other law, as applicable in any relevant jurisdiction (and the Budget shall be deemed to have been increased to account for any costs incurred by or charged to the Loan Parties for any such action).

4.             CONDITIONS; TERM OF AGREEMENT.

 

4.1         Conditions Precedent to Interim Facility Effectiveness and Final Facility Effectiveness . The obligation of each Lender to make its extensions of credit provided for hereunder is subject to the fulfillment, to the satisfaction of Agent and each Lender, of each of the conditions precedent to Interim Facility Effectiveness and Final Facility Effectiveness set forth on Schedule 4.1 attached to this Agreement.

4.2         Conditions Precedent to all Extensions of Credit . The obligation of the Lender Group (or any member thereof) to make any Advance (or to extend any other credit hereunder) at any time shall be subject to the following conditions precedent:

(a)       the representations and warranties of Parent or its Subsidiaries contained in this Agreement or in the other Loan Documents or other certificate or other writing delivered to the Agent or any Lender pursuant hereto or thereto shall be true and correct in all respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date);

(b)       no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof;

(c)       no injunction, writ, restraining order, or other order of any nature restricting or prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against Borrower, Agent, or any Lender;

(d)       to the extent permitted by the Bankruptcy Court Orders, Borrowers shall have paid all Lender Group Expenses and Fees pursuant to Section 2.11 then payable by Borrowers pursuant to this Agreement and the other Loan Documents, unless otherwise waived by Agent and the Lenders;

(e)       the making of such Loan shall not contravene any law, rule or regulation applicable to the Agent or any Lender;

(f)        Agent shall have received a notice of borrowing pursuant to Section 2.3 hereof; and

 

 

                        (g)        no Material Adverse Change shall have occurred since the Filing Date.

4.3         Term . This Agreement shall become effective upon the Interim Facility Effective Date and continue in full force and effect for a term ending on the Final Maturity Date. The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default.

4.4         Effect of Termination . On the date of termination of this Agreement, all Obligations (including contingent reimbursement obligations of Borrowers with respect to outstanding Letters of Credit and including all Bank Product Obligations) immediately shall become due and payable without notice or demand (including the requirement that Borrower provide (a) Letter of Credit Collateralization, and (b) Bank Product Collateralization). No termination of this Agreement, however, shall relieve or discharge Parent or its Subsidiaries of their duties, Obligations, or covenants hereunder or under any other Loan Document and Agent’s Liens in the Collateral shall remain in effect until all Obligations have been paid in full and the Lender Group’s obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations have been paid in full and the Lender Group’s obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrowers’ sole expense, without recourse, representation or warranty, execute and deliver any termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, Agent’s Liens and all notices of security interests and liens previously filed by Agent with respect to the Obligations (and the Budget shall be deemed to have been increased to account for any costs charged to Borrower for any such action).

4.5         Early Termination by Borrowers . Borrowers have the option, at any time upon 10 days prior written notice to Agent, to terminate this Agreement and terminate the Commitments hereunder by paying to Agent, in cash, the Obligations (including (a) providing Letter of Credit Collateralization with respect to the then existing Letter of Credit Usage and (b) providing Bank Product Collateralization with respect to the then existing Bank Products), in full. If Borrowers have sent a notice of termination pursuant to the provisions of this Section, then the Commitments shall terminate and Borrowers shall be obligated to repay the Obligations (including (a) providing Letter of Credit Collateralization with respect to the then existing Letter of Credit Usage and (b) providing Bank Product Collateralization with respect to the then existing Bank Products), in full on the date set forth as the date of termination of this Agreement in such notice.

5.             REPRESENTATIONS AND WARRANTIES.

 

In order to induce the Lender Group to enter into this Agreement, each Borrower makes the following representations and warranties with respect to itself and its property to the Lender Group which shall be true, correct, and complete, in all respects, as of the date hereof, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date which shall have

 

 

been true, correct and complete as of such earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:

5.1         No Encumbrances . Schedule 5.1 sets forth all Real Property (other than Oil and Gas Properties) owned, leased, subleased or used by Parent or any of its Subsidiaries as of the Interim Facility Effective Date. Parent and its Subsidiaries have good and defensible title to, or a valid leasehold interest in, their personal property assets and good and marketable title to, or a valid leasehold interest in, their Real Property (other than Oil and Gas Properties), in each case, free and clear of Liens except for Permitted Liens. Schedule 5.1 also describes any purchase options, rights of first refusal or other similar contractual rights in favor of Parent or any of its Subsidiaries pertaining to any Real Property (other than Oil and Gas Properties) owned or leased by Parent or any of its Subsidiaries as of the Interim Facility Effective Date. No portion of any Real Property (other than Oil and Gas Properties) has suffered any material damage by fire or other casualty loss which has not heretofore been repaired and restored in all material respects to its original condition or otherwise remedied. All material permits required to have been issued or appropriate to enable the Real Property (other than Oil and Gas Properties) to be lawfully occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are in full force and effect in all material respects.

5.2         Margin Stock . Neither Parent nor any of its Subsidiaries is engaged, nor will it engage, principally or as one of their important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin security” as such terms are defined in Regulation U of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as “Margin Stock”). Neither Parent nor any of its Subsidiaries owns any Margin Stock, and none of the proceeds of the Advances or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any Margin Stock or for any other purpose which might cause any of the Advances or other extensions of credit under this Agreement to be considered a “purpose credit” within the meaning of Regulation T, U or X of the Federal Reserve Board.

5.3         Brokers . No broker or finder acting on behalf of any Borrower brought about the obtaining, making or closing of the Loans and no Borrower has any obligation to any Person in respect of any finder’s or brokerage fees in connection therewith.

5.4         Jurisdiction of Organization; Location of Chief Executive Office; Organizational Identification Number; Commercial Tort Claims .

(a)       The name of (within the meaning of Section 9-503 of the Code) and jurisdiction of organization of Parent and each of its Subsidiaries is set forth on Schedule 5.4(a) (as such Schedule may be updated from time to time to reflect changes permitted to be made under Section 7.5 ).

(b)       The chief executive office of Parent and each of its Subsidiaries is located at the address indicated on Schedule 5.4(b) (as such Schedule may be updated from time to time to reflect changes permitted to be made under Section 7.5 ).

 

 

(c)       Parent’s and each of its Subsidiaries’ tax identification numbers and organizational identification numbers, if any, are identified on Schedule 5.4(c) (as such Schedule may be updated from time to time to reflect changes permitted to be made under Section 7.5 ).

(d)       As of the Interim Facility Effective Date, Parent and its Subsidiaries do not hold any commercial tort claims, except as set forth on Schedule 5.4(d) .

5.5         Due Organization and Qualification; Compliance with Laws; Subsidiaries .

(a)       Each Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to result in a Material Adverse Change.

(b)       Set forth on Schedule 5.5(b) , is a complete and accurate description of the authorized capital Stock of each Borrower, by class, and, as of the Interim Facility Effective Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule 5.5(b) , there are no subscriptions, options, warrants, or calls relating to any shares of each Borrower’s capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. No Borrower is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock. Sufficient shares of Common Stock have been (and will remain) authorized and reserved for the Lenders, free from pre-emptive rights, for the purpose of enabling Borrowers to satisfy any obligation to issue Common Stock upon the exercise of the Warrants.

(c)       Set forth on Schedule 5.5(c) (as such Schedule may be updated from time to time to reflect changes permitted to be made under Section 6.15 ), is a complete and accurate list of Parent’s direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization, (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries, and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by the applicable Borrower. Borrowers have no joint ventures or similar arrangements with any Person. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable.

(d)       Except as set forth on Schedule 5.5(d) , there are no subscriptions, options, warrants, or calls relating to any shares of Parent’s Subsidiaries’ capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Neither Parent nor any of its Subsidiaries are subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of Parent’s Subsidiaries’ capital Stock or any security convertible into or exchangeable for any such capital Stock.

(e)       (i)        Neither Parent nor any of its Subsidiaries are in violation of any law, statute, regulation, ordinance, judgment, order, or decree applicable to it (other than (A) Environmental Law which is addressed in Section 5.11 below and (B) as set forth below in subclause (ii)), which violation could reasonably be expected to cause a Material Adverse Change.

 

 

(ii)       Neither Parent nor any of its Subsidiaries have violated any laws or failed to obtain any material license, permit, franchise or other authorization from any Governmental Authority necessary for the ownership of any of its Oil and Gas Properties or the conduct of its business. The Oil and Gas Properties of Parent and its Subsidiaries (and assets and properties utilized therewith) have been maintained, operated and developed in a good and workmanlike manner and in substantial conformity with all applicable laws and all rules, regulations and orders of all Governmental Authorities having jurisdiction and in substantial conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of such Oil and Gas Properties (except such non-conformity arising solely by virtue of the filing of the Chapter 11 Cases); specifically in this connection, (A) no Oil and Gas Property of Parent (or any of its Subsidiaries) with a Total Reserve Value in excess of $100,000 is subject to having allowable production reduced below the full and regular allowable production (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) prior to the Interim Facility Effective Date and (B) none of the wells comprising a part of such Oil and Gas Properties (or assets and properties utilized therewith) is deviated from the vertical by more than the maximum permitted by applicable laws, regulations, rules and orders of any Governmental Authority, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, such Oil and Gas Properties (or in the case of wells located on Real Property utilized therewith, such utilized Real Property) covered by the leases.

            5.6           Due Authorization; No Conflict.

 

(a)       As to each Borrower, the execution, delivery, and performance by such Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Borrower and such Borrower, subject to the entry and terms of the Bankruptcy Court Orders, has full power and authority to own and hold under lease its property and to conduct its business substantially as currently conducted by it.

(b)       As to each Borrower, the execution, delivery, and performance by such Borrower of this Agreement and the other Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to any Borrower, the Governing Documents of any Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on any Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract of any Borrower (other than defaults arising solely by virtue of the filing of the Chapter 11 Cases) or require any approval or consent of any Person under any Material Contract of any Borrower, other than consents or approvals that have been obtained and that are still in force and effect or which, if not obtained, would not result in a Material Adverse Change since the Filing Date, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of any Borrower’s equityholders, other than approvals that have been obtained and that are still in force and effect.

 

 

(c)       Except for the Final Bankruptcy Court Order, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required for (i) the execution, delivery and performance by each Loan Party of this Agreement and the other Loan Documents to which it is a party, (ii) the pledge or grant by the Loan Parties of the Liens created in favor of Agent, Bank Product Providers and the Lenders pursuant to this Agreement or any of the Loan Documents or (iii) the exercise by Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to this Agreement, any of the Loan Documents or created or provided for by applicable law), except as may be required, in connection with the disposition of any pledged Collateral, by laws generally affecting the offering and sale of securities.

(d)       Subject to the entry of the Bankruptcy Court Orders, as to each Borrower, this Agreement and the other Loan Documents to which such Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Borrower will be the legally valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

(e)        [Intentionally Deleted]

(f)        The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Guarantor and each Guarantor, subject to the entry and terms of the Bankruptcy Court Orders, has full power and authority to own and hold under lease its property and to conduct its business substantially as currently conducted by it.

(g)       The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to such Guarantor, the Governing Documents of such Guarantor, or any order, judgment, or decree of any court or other Governmental Authority binding on such Guarantor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract of such Guarantor (other than with respect to defaults arising solely by virtue of the filing of the Chapter 11 Cases) or require any approval or consent of any Person under any Material Contract of such Guarantor, other than consents or approvals that have been obtained and that are still in force and effect, or which, if not obtained, would not result in a Material Adverse Change since the Filing Date, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Guarantor, other than Permitted Liens, or (iv) require any approval of such Guarantor’s equityholders other than approvals that have been obtained and that are still in force and effect.

(h)       Except for the Bankruptcy Court Orders, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required for (i) the execution, delivery and performance by each Guarantor of this Agreement and the other Loan Documents to which such Guarantor is a party, (ii) the pledge or grant by each Guarantor or any or its Subsidiaries of the Liens created in favor of Agent, Bank Product Providers and the

 

 

Lenders pursuant to this Agreement or any of the Loan Documents or (iii) the exercise by Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to this Agreement, any of the Loan Documents or created or provided for by applicable law), except as may be required, in connection with the disposition of any pledged Collateral, by laws generally affecting the offering and sale of securities.

(i)        Subject to the entry of the Bankruptcy Court Orders, the Loan Documents to which each Guarantor is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Guarantor will be the legally valid and binding obligations of such Guarantor, enforceable against such Guarantor in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

(j)            No Default or Event of Default exists.

5.7         Litigation . Other than those matters disclosed on Schedule 5.7 and other than matters arising after the Interim Facility Effective Date that reasonably could not be expected to result in a Material Adverse Change, there are no actions, suits, or proceedings pending or, to the best knowledge of each Borrower, threatened against any Borrower.

               5.8         No Material Adverse Change .

 

(a)       All financial statements relating to Parent and its Subsidiaries that have been delivered by Borrowers to the Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Parent’s and its Subsidiaries’ financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change with respect to Parent and its Subsidiaries since the Filing Date.

(b)       The Projections, including any Projections delivered on or before the Interim Facility Effective Date, when submitted to Agent as required pursuant to the Loan Documents represent Borrowers’ good faith estimate of the future revenue and expenses of Parent and its consolidated Subsidiaries for the periods set forth therein based on assumptions believed by Borrowers to be reasonable at the time of delivery thereof to Agent (it being understood that such projections and forecasts are subject to uncertainties and contingencies, many of which are beyond the control of Parent and its Subsidiaries and no assurances can be given that such projections or forecasts will be realized and further understood that projections concerning (i) volumes attributable to the Oil and Gas Properties and production and cost estimates contained in the Projections and (ii) case administration expenses (including professional fees) are necessarily based upon third-party professional opinions, estimates and projections and that Parent and its Subsidiaries do not warrant that such opinions, estimates and projections will ultimately prove to have been accurate, provided that all such Projections shall be prepared in good faith based upon assumptions believed by Borrowers to be reasonable at the time of the delivery thereof to Agent and consistent with industry standards).

 

 

5.9         Fraudulent Transfer . No transfer of property is being made by Parent or any of its Subsidiaries and no obligation is being incurred by Parent or any of its Subsidiaries in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Parent or its Subsidiaries.

5.10       Employee Benefits . None of Parent, any of its Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Pension Plan, Multiemployer Plan or other Defined Benefit Plan.

                5.11      Environmental Condition . Except as set forth on Schedule 5.11 ,

 

(a)       Parent, its Subsidiaries and their businesses, operations, Real Property and real property formerly owned, leased, operated, managed, or occupied by Parent, its Subsidiaries or any of their predecessors in interest (the “ Former Real Property ”) are and have at all times during Borrowers’ or any Subsidiary’s ownership, lease, operation, management, occupation or use thereof been in material compliance with any applicable Environmental Laws;

(b)       Parent and its Subsidiaries have obtained all material permits required for the conduct of their business and operations, and the ownership, operation and use of the Real Property, under all applicable Environmental Laws (the “ Environmental Permits ”). Parent and its Subsidiaries are in material compliance with the terms and conditions of such Environmental Permits, and all such Environmental Permits are valid and in good standing. No material expenditures or operational adjustments are reasonably anticipated to be required to remain in compliance with the terms and conditions of, or to renew or modify such Environmental Permits;

(c)       There has been no Release or threatened Release or any handling, management, generation, treatment, storage or disposal of Hazardous Materials on, at, under or from any Real Property or Former Real Property that has resulted in, or is reasonably likely to result in, a material Environmental Liability for Parent or any of its Subsidiaries;

(d)       There is no material Environmental Action or Environmental Liability pending or, to the knowledge of Parent or its Subsidiaries, threatened against Parent or its Subsidiaries, or relating to the Real Property or Former Real Property or relating to the operations of Parent or its Subsidiaries, and, to the knowledge of Parent or its Subsidiaries, there are no actions, activities, circumstances, conditions, events or incidents that are reasonably likely to form the basis of such an Environmental Action or Environmental Liability;

(e)       Neither Parent nor any of its Subsidiaries is conducting, financing or is obligated to perform any material Response Action or otherwise incur any material expense under Environmental Law pursuant to any Environmental Action or agreement by which it is bound or has expressly assumed by contract or agreement;

(f)        No Real Property or facility owned, operated or leased by Parent or any of its Subsidiaries and, to the knowledge of Parent or any of its Subsidiaries, no Former Real Property is (i) listed or proposed for listing on the National Priorities List as defined in and promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §9601 et seq. (“ CERCLA ”) or (ii) included on any similar list

 

 

maintained by any Governmental Authority that indicates that Parent or any of its Subsidiaries has or may have an obligation to undertake any material Response Action;

(g)       No Environmental Lien has been recorded or, to the knowledge of Parent or any of its Subsidiaries, threatened with respect to any Real Property;

(h)       The execution, delivery and performance of this Agreement, the other Loan Documents and the other transactions contemplated hereby and thereby will not require any notification, registration, filing, reporting, disclosure, investigation, remediation or cleanup obligations pursuant to any requirement of Governmental Authority or any other Environmental Law;

(i)        Parent and its Subsidiaries have made available to the Lenders all material records and files in the possession, custody or control of, or otherwise reasonably available to, Parent or its Subsidiaries concerning compliance with or liability or obligation under Environmental Law, including those concerning the condition of the Real Property or the existence of Hazardous Materials at the Real Property or Former Real Property; and

(j)        None of the matters disclosed in Schedule 5.11 , individually or in the aggregate, is reasonably likely to cause a Material Adverse Change.

5.12       Intellectual Property . Except with respect to Seismic Licenses, Parent and each of its Subsidiaries own, or hold licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted, and attached hereto as Schedule 5.12 (as updated from time to time) is a true, correct, and complete listing of all material patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which Parent or one of its Subsidiaries is the owner or is an exclusive licensee; provided , however , that Borrowers may amend Schedule 5.12 to add additional property so long as such amendment occurs by written notice to Agent not less than 10 days before the date on which Parent or any of its Subsidiaries acquires any such property after the Interim Facility Effective Date.

5.13       Leases . Parent and its Subsidiaries enjoy good and defensible title under all leases covering any Proved Oil and Gas Property with a Total Reserve Value in excess of $100,000 and any other Real Property material to their business and to which they are parties or under which they are operating, and all of such leases are valid and subsisting and no material default by Parent or its Subsidiaries exists under any of them except any defaults arising solely by virtue of the filing of the Chapter 11 Cases). Except as set forth on Schedule 5.13 , there are no leases, subleases, contracts or other operating agreements that allocate operating expenses to Parent or any of its Subsidiaries in excess of its working interest of record in the particular Oil and Gas Property subject to such lease, the sublease, contract or other operating agreement.

5.14       Deposit Accounts and Securities Accounts . Set forth on Schedule 5.14 is a listing of all of Parent’s and its Subsidiaries’ Deposit Accounts and Securities Accounts, including, with respect to each bank or securities intermediary (a) the name and address of such Person, and (b) the account numbers of the Deposit Accounts or Securities Accounts maintained with such Person. So long as no Default or Event of Default has occurred and is continuing,

 

 

Borrowers may amend Schedule 5.14 to add or replace a Deposit Account or Securities Account; provided , however , that (i) such prospective bank or securities intermediary shall be reasonably satisfactory to Agent, and (ii) prior to the time of the opening of such Deposit Account or Securities Account, Parent (or its Subsidiaries, as applicable) and such prospective bank or securities intermediary shall have executed and delivered to Agent a Control Agreement.

5.15       Complete Disclosure . Subject to Section 5.8(b) as to the Projections, none of the factual information (taken as a whole) furnished by or on behalf of Parent or its Subsidiaries in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents, or any transaction contemplated herein or therein contains any material misstatement of fact, or omits to state any material fact necessary to make such information not misleading in any material respect, at such time in light of the circumstances under which such information was provided.

5.16       Indebtedness. Set forth on Schedule 5.16 is a true and complete list of all Indebtedness of Parent and its Subsidiaries outstanding immediately prior to the Interim Facility Effective Date that is to remain outstanding after the Interim Facility Effective Date and such Schedule accurately sets forth the aggregate principal amount of such Indebtedness and the principal terms thereof.

5.17       Material Contracts . Set forth on Schedule 5.17 is a description of all Material Contracts of Parent and its Subsidiaries, showing the parties and principal subject matter thereof and amendments and modifications thereto; provided , however , that Borrowers may amend Schedule 5.17 to add additional Material Contracts so long as such amendment of Schedule 5.17 occurs by written notice to Agent not less than 5 days after the date on which Parent or its Subsidiary enters into such Material Contract after the Interim Facility Effective Date. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change and except as may have resulted solely from the filing of the Chapter 11 Cases, each Material Contract (other than those that have expired at the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable against Parent or its Subsidiary and, to the best of Parent’s knowledge, each other Person that is a party thereto in accordance with its terms, (b) has not been otherwise amended or modified (other than amendments or modifications permitted by Section 7.7(c) ), and (c) is not in default due to the action or inaction of Parent or any of its Subsidiaries.

5.18       Government Regulation . Neither Parent or any of its Subsidiaries is an “ investment company ” or an “ affiliated person ” of, or “ promoter ” or “ principal underwriter ” for, an “ investment company, ” as such terms are defined in the Investment Company Act of 1940 as amended. Neither Parent nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 2005, the Federal Power Act, or any other federal or state statute that restricts or limits its ability to incur Indebtedness or to perform its obligations hereunder. The Advances and the other transactions contemplated hereunder, the application of the proceeds thereof and repayment thereof comply in all material respects with any such statute or any rule, regulation or order issued by the SEC.

5.19

Foreign Assets Control Regulations, Etc.

 

 

(a)       Neither Parent nor any of its Subsidiaries is in violation in any material respect of the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.

(b)       Neither Parent nor any of its respective Subsidiaries (i) is, or will become, a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti Terrorism Order or (ii) engages or will engage in any dealings or transactions, or is or will be otherwise associated, with any such Person. Parent and its Subsidiaries are in compliance, in all material respects, with the USA Patriot Act.

(c)       No part of the proceeds from the loans made hereunder will be used by Borrowers, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

5.20       Insurance and Bonds . Schedule 5.20 lists all insurance policies of any nature maintained for current occurrences by Borrowers, as well as a summary of the terms of each such policy. No Borrower is in default of any obligation under any such policy except any default arising solely by virtue of the filing of the Chapter 11 Cases. Except as set forth on Schedule 5.20 , all such policies are in full force and effect, all premiums with respect thereto covering all periods up to and including the Interim Facility Effective Date have been paid, and no notice of cancellation or termination has been received with respect to any such policy. Schedule 5.20 contains an accurate and complete description of all performance bonds related to operations on or pertaining to the Oil and Gas Properties of Parent and its Subsidiaries as of the Interim Facility Effective Date. Such bonds and insurance policies are sufficient for compliance with all requirements of law and of all agreements to which Parent and each of its Subsidiaries is a party; are valid, outstanding and enforceable policies; provide adequate coverage in at least such amounts and against at least such risks (but including in any event public liability) as are required by Governmental Authorities and/or usually insured or bonded against in the same general area by companies engaged in the same or a similar business for the assets and operations of Parent and its Subsidiaries; will remain in full force and effect through the respective dates set forth in Schedule 5.20 without the payment of additional premiums except as set forth on Schedule 5.20 ; and will not in any way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement.

5.21       Government Contracts . Except as set forth in Schedule 5.21 , neither Parent nor any of its Subsidiaries is a party to any contract or agreement with any Governmental Authority and no Account of either Parent or any of its Subsidiaries is subject to the Federal Assignment of Claims Act, as amended (31 U.S.C. Section 3727).

5.22       Taxes . All federal, state and other material tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by Parent and its Subsidiaries have been filed with the appropriate Governmental Authority (and all such returns, reports and statements accurately reflect in all material respects all liabilities of Parent

 

 

and each of its Subsidiaries for the periods covered thereby) and all charges have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding charges or other amounts that are subject to a Permitted Protest. Proper and accurate amounts have been withheld by Parent and its Subsidiaries from its respective employees for all periods in full and complete compliance with all applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. Schedule 5.22 sets forth as of the Interim Facility Effective Date those taxable years for which Parent’s and its Subsidiaries’ tax returns are currently being audited by the IRS or any other applicable Governmental Authority and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. As of the Interim Facility Effective Date and except as set forth on Schedule 5.22 , there is no action, suit, proceeding, investigation, audit or claim now pending or threatened by any authority regarding any taxes relating to Parent or its Subsidiaries, which, either individually or in the aggregate, could reasonably be expected to cause a Material Adverse Change or to result in a material liability to Parent or its Subsidiaries. Except as described on Schedule 5.22 , neither Parent nor any of its Subsidiaries has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any charges or other amounts. None of Parent or its Subsidiaries and their respective predecessors are liable for any charges or other amounts: (a) under any agreement (including any tax sharing agreements) or (b) to Parent’s or its Subsidiaries’ knowledge, as a transferee. As of the Interim Facility Effective Date, neither Parent nor its Subsidiaries has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, which could cause a Material Adverse Change.

5.23       Gas, Imbalances, Prepayments . As of the date hereof, except as set forth on Schedule 5.23 , on a net basis there are no gas imbalances, take-or-pay or other similar arrangement or any prepayment with respect to any of the Oil and Gas Properties that would require Parent or any of its Subsidiaries either to make cash settlements for such production or to deliver Hydrocarbons produced from the Oil and Gas Properties at some future time in any case without then or thereafter receiving full payment therefor exceeding, during any monthly period, two percent (2%) of the current aggregate monthly gas production for such monthly period from the Oil and Gas Properties of Parent and its Subsidiaries.

5.24       Swap Agreements . Schedule 5.24 sets forth, as of the Interim Facility Effective Date, a true and complete list of all Swap Agreements (including any commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of Hydrocarbons or other commodities) of Borrowers, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), all credit support agreements relating thereto (including any margin required or supplied), and the counterparty to each such agreement.

5.25       Location of Real Property and Leased Premises.

(a)        Schedule 5.25 lists completely and correctly as of the Interim Facility Effective Date all Oil and Gas Properties that are Real Property whether leased or owned by

 

 

Parent (and its Subsidiaries, as applicable) and the respective addresses (if any), counties and states thereof.

(b)       Parent and each of its Subsidiaries have good and defensible title to all of their Oil and Gas Properties set forth on Schedule 5.25 which constitute Real Property and good and defensible title to all of their Oil and Gas Properties which constitute personal property, except for (i) such imperfections of title which do not in the aggregate materially detract from the value thereof to, or the use thereof in, the business of Borrowers or (ii) Permitted Liens. The quantum and nature of the interest of Parent and its Subsidiaries in and to the Oil and Gas Properties as set forth in the most recent Reserve Report includes the entire interest of Parent and its Subsidiaries in such Oil and Gas Properties as of the date of such applicable Reserve Report, and are complete and accurate in all material respects as of the date of such applicable Reserve Report; and there are no “back-in” or “reversionary” interests held by third parties which could materially reduce the interest of any Borrower in such Oil and Gas Properties except as expressly set forth in the most recent Reserve Report. The ownership of the Oil and Gas Properties by Parent and each of its Subsidiaries shall not in any material respect obligate Parent or any such Subsidiary to bear the costs and expenses relating to the maintenance, development or operations of each such Oil and Gas Property in an amount in excess of the working interest of record of Borrowers in each Oil and Gas Property set forth in the most recent Reserve Report, other than with respect to the ORRI Conveyance pursuant to which Foothills Texas, Inc. retains responsibility for costs and expenses associated with maintenance, development and operations of the Oil and Gas Properties covered by such agreement as set forth therein.

(c)       For current volumes of production of Hydrocarbons from the Oil and Gas Properties of Parent and its Subsidiaries, Parent and each of its Subsidiaries’ marketing, gathering, transportation, processing and treating facilities and equipment, together with any marketing, gathering, transportation, processing and treating contracts in effect between and/or among Parent, its Subsidiaries and any other Person, are sufficient to gather, transport, process and/or treat such volumes of production of Hydrocarbons from such Oil and Gas Properties.

(d)       For reasonably anticipated volumes (in excess of current volumes referred to in clause (c) above) of production of Hydrocarbons from the Oil and Gas Properties of Parent and its Subsidiaries arising after the Interim Facility Effective Date, Parent and each of its Subsidiaries fully expect to acquire sufficient marketing, gathering, transportation, processing and treating facilities and equipment, together with any marketing, gathering, transportation, processing and treating contracts in effect between and/or among Parent, its Subsidiaries and any other Person to gather, transport, process and/or treat such reasonably anticipated volumes of production of Hydrocarbons from the Oil and Gas Properties, and the Projections most recently furnished to Agent and Lenders reflect the anticipated cost and expense of obtaining and rendering the foregoing operational.

5.26       Nature of Business . Neither Parent nor any of its Subsidiaries is engaged in any business other than the Oil and Gas Business within the continental United States.

5.27       Seismic Licenses . To the extent not prohibited by the terms thereof, or any confidentiality agreement, S chedule 5.27 (as amended by Borrowers from time to time) identifies all of the license agreements relating to the performance of seismic exploration on the Oil and

 

 

Gas Properties (“ Seismic Licenses ”) to which Parent and its Subsidiaries are a party. With respect to the Seismic Licenses: (i) all Seismic Licenses are in effect and have not expired or terminated; (ii) neither Parent nor any of its Subsidiaries is in material breach or material default, and there has occurred no event, fact, or circumstance, that, with the lapse of time or the giving of notice, or both, would constitute such a material breach or material default by Parent or any of its Subsidiaries, as applicable, with respect to the terms of any Seismic License except any default by Parent or its Subsidiaries arising solely by virtue of the filing of the Chapter 11 Cases; and (iii) neither Parent, nor any Subsidiary thereof, nor, to the knowledge of Borrowers, any other party to any Seismic License has given written notice of any action to terminate, cancel, rescind, or procure a judicial reformation of any Seismic License or any provision thereof. To the extent not prohibited by the terms of the Seismic Licenses or any confidential agreement, all of the transfer fees or similar amounts payable by Parent or any of its Subsidiaries, as applicable, under the terms of the Seismic Licenses upon the consummation of the transactions contemplated herein, or the method of calculating same, are set forth in Schedule 5.27 .

5.28       Marketing of Production . Except for (i) contracts listed and in effect on the date hereof on Schedule 5.28 , and (ii) contracts thereafter either disclosed in writing to Agent or included in the most recently delivered Reserve Report and, in any case, approved by Agent (with respect to all of which contracts Borrowers represent that they or their Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject Property’s delivery capacity), Borrowers have no Long Term Fixed Rate Contracts. As used herein, “ Long Term Fixed Rate Contracts ” means any material agreement that is not cancelable on 60 days notice or less without penalty or detriment for the sale of production from Parent’s or its Subsidiaries’ Hydrocarbons (including, without limitation, calls on or other rights to purchase, production, whether or not the same are currently being exercised) that (a) pertains to the sale of production at a fixed price and (b) has a maturity or expiry date of more than six (6) months from the date of such agreement. Each Borrower (and each of its Subsidiaries) (x) is presently receiving a price for all production from (or attributable to) each Oil and Gas Property covered by a production sales contract or marketing contract that is computed in accordance with the terms of such contract and none of such proceeds are currently being held in suspense by such purchaser or any other Person and (y) is not having deliveries of production from such Oil and Gas Property curtailed by any purchaser or transporter of production substantially below such property’s delivery capacity. Except as set forth in Schedule 5.28 , none of the Oil and Gas Properties of Parent or any Subsidiary thereof) are subject to any contractual or other arrangement whereby payment for production therefrom is to be deferred for a substantial period of time after the month in which such production is delivered (i.e., in the case of oil, not in excess of 60 days, and in the case of gas, not in excess of 90 days).

5.29       Administrative Priority; Lien Priority . (a)        Subject to the terms of the Bankruptcy Court Orders, after the Interim Bankruptcy Court Order Entry Date or the Final Bankruptcy Court Order Entry Date, as the case may be, the Obligations of the Loan Parties and the adequate protection claims granted pursuant to the Bankruptcy Court Orders will constitute allowed administrative expenses in the Chapter 11 Cases, having priority in payment over all other administrative expenses and unsecured claims against the Loan Parties now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, all

 

 

administrative expenses of the kind specified in, or arising or ordered under, Sections 105, 326, 328, 330, 331, 503(b), 507(a), 507(b), 546(c), 726 and 1114 of the Bankruptcy Code (and after the Final Bankruptcy Court Order Entry Date, arising or ordered under Section 506(c) of the Bankruptcy Code), subject only to the prior payment of Carve-Out Expense.

(b)       Subject to the terms of the Bankruptcy Court Orders, after the Interim Bankruptcy Court Order Entry Date or the Final Bankruptcy Court Order Entry Date, as the case may be, Agent’s Liens and security interests of Agent on the Collateral referred to in Section 3.1(a) hereof shall be valid and perfected first priority Liens, subject only to Permitted Priority Liens.

(c)       The Interim Bankruptcy Court Order is in full force and effect, and has not been reversed, modified, amended, stayed or vacated.

6.	AFFIRMATIVE COVENANTS.

Each Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations, Borrowers shall and shall cause each of their respective Subsidiaries to do all of the following:

6.1         Accounting System . Maintain a system of accounting that enables Parent and its Subsidiaries to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Agent. Parent and its Subsidiaries also shall keep a reporting system that shows all additions, sales, claims, returns, and allowances with respect to their and their Subsidiaries’ sales.

6.2         Collateral Reporting . Provide Agent (and if so requested by Agent, with copies for each Lender) with each of the reports set forth on Schedule 6.2 at the times specified therein.

6.3         Financial Statements, Reports, Certificates . Deliver to Agent, with copies to each Lender, each of the financial statements, reports, or other items set forth on Schedule 6.3 at the times specified therein. In addition, Parent agrees that no Subsidiary of Parent will have a fiscal year different from that of Parent.

6.4         Guarantor Reports . Cause each Guarantor to deliver its annual financial statements at the time when Parent provides its audited financial statements to Agent, but only to the extent such Guarantor’s financial statements are not consolidated with Parent’s financial statements.

6.5         Inspection . Permit Agent, each Lender and each of their duly authorized representatives or agents to visit any of its properties and inspect any of its assets or books and records, to examine and make copies of its books and records, and to discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers and employees at such reasonable times and intervals as Agent or any such Lender may designate and, so long as no Default or Event of Default then exists, (i) up to two such visits per calendar year shall be at the sole cost of Borrowers (and the Budget shall be deemed to have been increased to account for any costs incurred by or charged to Borrowers for any such action), it being understood and agreed that except as otherwise expressly provided in this Section with respect to visits, nothing

 

 

in this Section 6.5 shall limit in any respect the obligation of Parent and its Subsidiaries to pay other Obligations and Lender Group Expenses, including, without limitation, all out-of-pocket fees, costs and expenses in connection with the preparation and delivery of Reserve Reports and all fees and charges set forth in the Fee Letter, and (ii) such visits shall be with reasonable prior notice to Administrative Borrower.

                6.6           Maintenance of Properties . Parent and its Subsidiaries will:

(a)       prudently operate their Oil and Gas Properties for the production of Hydrocarbons, operate their other Properties and, to the extent Parent or one of its Subsidiaries is not the operator of a Property in which it has an interest, Borrowers shall use reasonable efforts to cause the operator to operate such Property, in each case in a careful and efficient manner in accordance with the usual and customary practices of the industry, in substantial compliance with all applicable contracts and agreements, in the case of Oil and Gas Properties in accordance with good engineering practices and in all cases in compliance in all respects with all laws, including, without limitation, applicable proration requirements and Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of their Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom, except, in each case, where the failure to comply could not (either individually or in the aggregate) reasonably be expected to result in a Material Adverse Change;

(b)       keep and maintain all Property material to the conduct of their business in good working order and condition, ordinary wear and tear excepted, preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear excepted) all of their material Oil and Gas Properties and other material Properties, including, without limitation, all equipment, machinery, facilities, and marketing, gathering, transportation and processing assets and, from time to time, will make all the reasonably necessary repairs, renewals and replacements so that at all times the state and conditions of such Oil and Gas Properties and other material Properties will be fully preserved and maintained, except to the extent a portion of such assets is no longer capable of producing Hydrocarbons in economically reasonable amounts;

(c)       promptly pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to their material Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder except any default arising solely by virtue of the Chapter 11 Cases; and

(d)       promptly perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting their interests in their material Oil and Gas Properties and other material Properties and all the accompanying elements in quantities and at prices providing for continued efficient and profitable operations of business