FINAL FIRST AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

 

 

FIRST AMENDED AND RESTATED

NOTE PURCHASE AGREEMENT

by and between

 

AURORA ANTRIM NORTH, LLC,

as Issuer,

AURORA ENERGY, LTD.

and

TCW ASSET MANAGEMENT COMPANY,

in the capacities described herein,

 

TCW ENERGY FUND X - NL, L.P.,

 

TCW ENERGY FUND XB - NL, L.P.,

 

TCW ENERGY FUND XC - NL, L.P.,

 

and

 

TCW ENERGY FUND XD - NL, L.P.

 

as Purchasers

 

and

 

TCW ASSET MANAGEMENT COMPANY ,

as Administrative Agent and Collateral Agent

Dated as of December 8, 2005

 

TABLE OF CONTENTS

Page

 

 

FIRST AMENDED AND RESTATED

NOTE PURCHASE AGREEMENT

THIS FIRST AMENDED AND RESTATED NOTE PURCHASE AGREEMENT (this “ Agreement ”) is dated as of December 8, 2005, and is being entered into by and among Aurora Antrim North, LLC, a Michigan limited liability company (the “Issuer” ); Aurora Energy, Ltd., a Nevada corporation (“ Aurora ”); TCW Energy Fund X - NL, L.P., a California limited partnership (“ Fund X - NL ”); TCW Energy Fund XB - NL, L.P., a California limited partnership (“ Fund XB - NL ”); TCW Energy Fund XC - NL, L.P., a California limited partnership (“ Fund XC - NL ”); TCW Energy Fund XD - NL, L.P., a California limited partnership (“ Fund XD - NL ”); TCW Asset Management Company (“ Tamco ”), a California corporation, as Investment Manager under the Amended and Restated Investment Management and Custody Agreement dated as of December 3, 2003 among Ensign Peak Advisors, Inc. and others; Tamco as Investment Manager under the Amended and Restated Investment Management and Custody Agreement dated as of March 18, 2004 among ING Life Insurance and Annuity Company and others; Tamco as Investment Manager under the Amended and Restated Investment Management and Custody Agreement dated as of December 11, 2003, among Harry L. Bradley, Jr. Partition Trust and others; Tamco, as Investment Manager under the Investment Management Agreement dated June 13, 2005 among The Ford Foundation and others (Tamco in the capacities designated above, Fund X - NL, Fund XB - NL, Fund XC - NL and Fund XD - NL are hereinafter collectively referred to as the “ Purchasers ,” each a “ Purchaser ”); Tamco as Administrative Agent (together with its successors in such capacity, the “ Administrative Agent ”); and Tamco as Collateral Agent (together with its successors in such capacity, the “ Collateral Agent ”).

RECITALS:

A.   As of August 12, 2004, the Issuer, certain Purchasers, Administrative Agent and Collateral Agent entered into the Note Purchase Agreement (the “ Original Note Purchase Agreement ”) pursuant to which the Issuer requested that certain Purchasers purchase Notes in an aggregate principal amount of Thirty Million Dollars ($30,000,000).

B.   Certain Purchasers have purchased Notes from the Issuer in an aggregate principal amount equal to Thirty Million Dollars ($30,000,000) upon the terms and conditions of the Original Note Purchase Agreement.

C.   The Issuer, Purchasers, Administrative Agent and Collateral Agent desire to amend and restate the Original Note Purchase Agreement in its entirety to become effective as of the date hereof, in order to, among other things, increase the Aggregate Commitment Amount to Fifty Million Dollars ($50,000,000).

NOW THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound by the terms hereof, hereby agree as follows:

 

SECTION 1   

DEFINITIONS AND ACCOUNTING MATTERS

 

Section 1.1     Defined Terms. As used in this Agreement, each capitalized term has the meaning ascribed to it in this Section 1.1 :

“ Additional Amounts ” has the meaning ascribed to such term in Section 3.9(b) hereof.

“ Administrative Agent ” means the Administrative Agent for the Purchasers and Holders approved pursuant to Section 7.4(a) hereof, together with its successors, if any, in such capacity.

“ Adjusted Net Cash Flow ” (or “ ANCF ”) means the positive difference of:

(i)   Gross Cash Revenues determined on a Consolidated basis during any ANCF Quarter (or other period of calculation, if applicable)

less

(ii)   actual payments by Issuer during such ANCF Quarter (or other period of calculation, if applicable) of:

(A)   The Overriding Royalty Interest and other existing royalties and burdens on the Qualified Properties, if any, that constitute Permitted Encumbrances (to the extent and only to the extent production receipts relating to the same are included in Gross Cash Revenues);

(B)   Direct Taxes on the Qualified Properties;

(C)   Approved LOE;

(D)   Interest payments on the Notes and accrued Commitment Fees;

(E)   Approved Capital Expenditures, not including Capital Expenditures to be paid with the proceeds of Advances under this Agreement, to the extent the same are specifically permitted by Administrative Agent to be deducted from Gross Cash Revenues by means of an Approval Letter; and

(F)   Approved G&A.

 

“ ANCF Quarter ” means, with respect to a Quarterly Payment Date and the calculation of ANCF, the three Calendar Month period ending on the last day of the most recent of February, May, August or November immediately preceding the Quarterly Payment Date.

“ Additional Advance ” has the meaning ascribed to such term in Section 2.1(b).

“ Advance ” means an Initial Advance, Additional Advance or Subsequent Advance.

“ AEL Security Agreement ” means the AEL Security Agreement, dated as of August 12, 2004, among Aurora and the Collateral Agent.

“ Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified and, in the case of a Person who is an individual, shall include (i) members of such specified Person’s immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (ii) trusts, the trustee and all beneficiaries of which are such specified Person or members of such Person’s immediate family as determined in accordance with the foregoing clause (i). For clarity, Hudson Pipeline shall be considered an Affiliate of Issuer for all purposes of the Note Documents.

“ Aggregate Commitment Amount ” means $50,000,000.

“ Agreement ” has the meaning ascribed to such term in the preamble hereto.

“Amendment Closing” has the meaning ascribed to such term in Section 2.1(c) hereof.

“Amendment Closing Date” means the date on which the closing of this Agreement occurs and the conditions set forth in Section 6.2 shall be satisfied or waived by the Administrative Agent.

“ Approved Capital Expenditures ” means Capital Expenditures made or to be made by Issuer the aggregate amount of which expenditures shall not exceed the total amount set forth on Schedule 1.1(a), including the costs and expenses set forth on Schedule 1.1(a) for the drilling and completion of the wells described in the Development Plan or any costs or expenses for capital improvements in addition to or in substitution for the Capital Expenditures set forth in Schedule 1.1(a), to the extent such costs and expenses for such additional or substitute capital improvements have been approved by Administrative Agent or Collateral Agent at the time in question by means of an Approval Letter.

“ Approved G&A ” means (a) $0 (zero) at all times the Dedication Rate is equal to 75% and (b) if the Dedication Rate is equal to 100%, such amount of G&A costs as determined by the Requisite Holders in their sole discretion.

“ Approved LOE ” means leasehold operating expenses and other field level or lease level charges for operations on the Qualified Properties, to the extent that such expenses (i) are attributable to such properties; (ii) are not capitalizable under the provisions of Rule 4-10 of Regulation S-X, 17 C.F.R. § 210.4-10, of the Commission (as such Rule exists as of the date hereof) by a reporting entity that follows the successful-efforts method of accounting for oil and gas producing activities (as such activities are defined in paragraph (a) of said Rule); (iii) do not represent any amortization of Capital Expenditures or any write-offs or impairment of capitalized costs; (iv) are not property acquisition costs, exploration costs or development costs (as defined in paragraph (a) of said Rule); (v) are production costs (as defined in paragraph (a) of the Rule), other than depreciation, general and administrative costs and overhead costs (but including Permitted Fixed Rate Overhead) of Borrower related to production; and (vi) do not exceed the amounts set forth in Schedule 1.1(b) during and after 2004, as the same may be amended from time with Administrative Agent’s express written approval in its sole and absolute discretion.

 

“ Area of Mutual Interest ” means the counties in the Project Area, as well as the counties of Benzie, Manistee, Leelanau, Grand Traverse, Kalkaska, Antrim, Crawford and Oscoda in the state of Michigan.

“ Aurora ” means Aurora Energy, Ltd., a Nevada corporation, and the sole member of Issuer.

“Availability ” means the Initial Availability or such greater amount up to the Aggregate Commitment Amount determined by the Administrative Agent in its sole and absolute discretion from time to time, notice of which is given to Issuer pursuant to Section 10.3 .

“ Board ” has the meaning ascribed to such term in Section 5.1(a) hereof.

“ Business Day ”   means any day that is not a Saturday, Sunday or other day on which commercial banks in Traverse City, Michigan or New York, New York are authorized or required by law to remain closed.

“ Capital Expenditures ” means, for any period, all expenditures (whether paid in cash or accrued as a liability, including the portion of Capital Lease Obligations originally incurred during such period that are capitalized on the consolidated balance sheet of the Issuer) by the Issuer and its Subsidiaries during such period that, in conformity with GAAP, are included in “capital expenditures,”“additions to property, plant or equipment” or comparable items in the consolidated financial statements of the Issuer, but excluding expenditures for the restoration, repair or replacement of any fixed or capital asset that was destroyed or damaged, in whole or in part, in an amount equal to any insurance proceeds received in connection with such damage or destruction.

“ Capital Lease Obligations ” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“ Capital Stock ” means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person.

 

“ Closing Date” means the Initial Closing Date or the Amendment Closing Date, as appropriate.

“ Closing Documents ” means the Note Documents and all other material documents, instruments and agreements executed or delivered by the Issuer, or any of its Affiliates in connection with, or otherwise pertaining to, the Closing Transactions.

“ Closing Transactions ” means the transactions to occur on the Initial Closing Date and the Amendment Closing Date, including, without limitation, the payment of all fees and expenses of the Purchasers in connection with the transactions provided herein.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

“ Collateral ” has the meaning ascribed to such term in Section 7.1 hereof.

“ Collateral Account ” has the meaning ascribed to such term in Section 2.6 hereof.

“ Collateral Agent ” means the Collateral Agent for the Holders appointed pursuant to Section 7.4(b) hereof, together with its successors, if any, in such capacity.

“ Collateral Coverage Ratio ”means the quotient of (i) the sum of (a) Issuer’s Total Modified NPV10 and (b) Issuer’s Working Capital (which, if negative, shall be deducted from Total Modified NPV10) divided by (ii) the Total Indebtedness.

“ Collateral Documents ” means the Mortgages, the Security Agreement, the AEL Security Agreement and all mortgages, security agreements, guarantees, financing statements, instruments and other documents now or hereafter executed by Issuer, any Affiliate of Issuer or any other Person pursuant to this Agreement or any other Note Document to secure the payment or performance of the Note Obligations.

“ Commission ” means the Securities and Exchange Commission of the United States, or any Governmental Authority succeeding to any or all of the functions of such Commission.

“ Commitment Expiry Date ” means the earliest to occur of:

(i)   the date on which an Event of Default occurs;

(ii)   if elected by Requisite Holders, the date on which a Coverage Deficiency occurs; and

(iii)   August 12, 2007.

 

“ Commitment Period ” means the period from and including the date hereof until the Commitment Expiry Date.

“ Companies ” means the Issuer and all of its Affiliates.

“ Compliance Certificate ” has the meaning ascribed to such term in Section 6.1(a)(vi) .

“ Confidential Information ” has the meaning ascribed to such term in Section   10.10(a) hereof.

“ Consolidated ” refers to the consolidation of any Person, in accordance with GAAP, with its properly consolidated subsidiaries. References herein to a Person’s Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries.

“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

“ Coupon Rate ” has the meaning ascribed to such term in Section 3.1(a) .

“ Coverage Default ” means the Collateral Coverage Ratio is less than 1.20 at any time after February 1, 2005.

“ Coverage Deficiency ” means, either (i) the Collateral Coverage Ratio is less than 1.50 but equal to or greater than 1.20 or (ii) the PDP Coverage Ratio is less than 1.0.

“ Current Ratio ” means the ratio of Issuer’s Consolidated current Assets to Issuer’s Consolidated current liabilities as of the end of each calendar quarter.

“ Dedication Rate ” means 75%, provided that such rate will increase to 100% whenever (a) an Event of Default occurs or is continuing or (b) a Coverage Deficiency occurs and such Coverage Deficiency is not cured within thirty (30) days.

“ Default ” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“ Default Interest ” has the meaning ascribed to such term in Section 3.1(b) hereof.

“ Deposit Account Control Agreement ” means that certain Deposit Account Control Agreement, dated as of August 12, 2004, by and among Collateral Agent, for the benefit of the Purchasers, Issuer, and Northwestern Bank (“Bank”), as it may be amended, modified or supplemented from time to time.

 

“ Development Plan ” means the Development Plan attached as Schedule 2.5 .

“ Direct Taxes ” means production, severance, ad valorem, excise or other taxes or governmental charges or assessments on (i) the Qualified Properties, (ii) the production therefrom or (iii) the proceeds of such production, but excluding any federal, state or local income or franchise taxes.

“ Disclosed Matters ” means the actions, suits and proceedings and the environmental matters disclosed in Schedule 4.1(f)(i) .

“ dollars ” or “$” refers to lawful money of the United States of America.

“ Engineering Report ” means (i) the Initial Engineering Report and (ii) each engineering report to be delivered to Administrative Agent pursuant to Section 5.1(c)(vii).

“ Environmental Actions ” means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any Person or Governmental Authority involving violations of Environmental Laws or Releases of Hazardous Materials (i) from any assets, properties or businesses owned or operated by Aurora or any of its Subsidiaries or any predecessor in interest; (ii) from adjoining properties or businesses; or (iii) onto any facilities which received Hazardous Materials generated by the Issuer or any of its Subsidiaries or any predecessor or successor in interest.

“ Environmental Laws ” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

“ Environmental Liability ” means any liability, contingent or otherwise, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigations and feasibility studies), fines, penalties, sanctions or interest incurred as a result of any claim or demand by any Governmental Authority or any third party, of the Issuer or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment, onto any property presently or formerly owned by the Issuer or any of its Subsidiaries or any facility which received Hazardous Materials generated, owned, handled, possessed or otherwise connected in any way with the Issuer or any of its Subsidiaries or (e) any written contract, agreement or other written consensual arrangement to which the Issuer or any Subsidiary is a party and pursuant to which liability is assumed or imposed on the Issuer or any Subsidiary with respect to any of the foregoing.

“ Environmental Lien ” means any Lien in favor of any Governmental Authority for Environmental Liability.

 

“ Equity ” means shares of Capital Stock or partnership, profits, capital or member interest, or options, warrants or any other right to substitute for or otherwise acquire the Capital Stock or a partnership, profits, capital or member interest of the Issuer or any Subsidiary of the Issuer.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with the Issuer, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ ERISA Event ” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Issuer or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Issuer or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Issuer or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Issuer or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Issuer or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“ Event of Default ” has the meaning ascribed to such term in Section 9.1 .

“ FERC ” means the Federal Energy Regulatory Commission, and any successor agency thereto.

“Fiscal Quarter ” means a fiscal quarter of the Issuer, ending on the last day of March, June, September or December of each year.

“ Fiscal Year ” means the fiscal year of the Issuer ending on December 31 of each year.

“ Funded Indebtedness ” means, as to any Person, without duplication, all Indebtedness for borrowed money, all obligations evidenced by bonds, debentures, notes or similar instruments, all Capital Lease Obligations, and all Guarantees of Funded Indebtedness of other Persons.

 

“ G&A Costs ” means all overhead and administration costs incurred or to be incurred by Issuer.

“ GAAP ” means generally accepted accounting principles in the United States of America.

“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Governmental Requirement ” shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement (whether or not having the force of law), including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

“ Gross Cash Revenues ” means all cash revenues and receipts received by or on behalf of Issuer or any of its Affiliates from or in any way relating to the Collateral or by or on behalf of Issuer or any Subsidiary thereof from any other source, (i) including without limitation receipts generated by the sale of Hydrocarbon production from the Collateral, but (ii) excluding revenues from (A) a sale approved by Requisite Holders of any portion of the Qualified Properties or (B) a refinancing of the Notes.

“ Guarantee ” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit, or letter of guaranty issued to support such Indebtedness or obligation; provided , that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

“ Hazardous Materials ” means (a) any element, compound or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous substance or chemical, hazardous waste, special waste, or solid waste under Environmental Laws or that is likely to cause immediately, or at some future time, harm to or have an adverse effect on, the environment or risk to human health or safety, including, without limitation, any pollutant, contaminant, waste, hazardous waste, toxic substance or dangerous good which is defined or identified in any Environmental Law and which is present in the environment in such quantity or state that it contravenes any Environmental Law; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any substance exhibiting a hazardous waste characteristic, including, without limitation, corrosiveness, ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (e) any raw materials, building components (including, without limitation, asbestos-containing materials) and manufactured products containing hazardous substances listed or classified as such under Environmental Laws.

 

“ Highest Lawful Rate ” means the maximum non-usurious rate of interest that the Holders are permitted under applicable law to contract for, take, charge, or receive with respect to the Note Obligation in question.

“Hydrocarbons” means and includes any and all crude oil, petroleum, natural gas, condensate, casinghead gas, natural gas liquids and all similar or gaseous hydrocar-bons and other substances produced in association therewith, including helium, hydrogen sulphide, sulphur and other products produced in association therewith or therefrom.

“ Indebtedness ” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable and accrued expenses incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, (k) all obligations under leases commonly known as synthetic leases or leases that require such Person or its Affiliate to make payments over the term of such lease based on the purchase price or appraised value of the asset subject to such lease plus a marginal interest rate, and used primarily as a financing vehicle for, or to monetize, such asset, and (l) any Capital Stock of such Person in which such Person has a mandatory obligation to redeem such stock to the extent such stock is redeemable prior to the Maturity Date. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person holds a partnership interest) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“ Independent Engineer ” means Schlumberger Data and Consulting Services or another nationally or regionally recognized independent petroleum engineering company, which may be chosen by Issuer if acceptable to the Requisite Holders in their sole discretion.

“ Initial Advance ” has the meaning ascribed to such term in Section 2.1(a) .

“ Initial Advance Date ” means the date on which the Purchasers funded the Initial Advance pursuant to the provisions of Section 2.1(a).

“Initial Availability ” means that portion of the Aggregate Commitment Amount equal to $40,000,000.

“ Initial Closing ” means the closing of the Original Note Purchase Agreement on August 12, 2004.

“ Initial Closing Date ” means August 12, 2004.

“ Initial Engineering Report ” means the engineering report prepared by the Independent Engineer and effective as of January 1, 2004.

“ Initial Environmental Report ”means the environmental report relating to the Project Area prepared by Pilko & Associates, Inc., dated as of June 2004.

“ Insolvency Proceeding ” means any voluntary or involuntary liquidation, dissolution, sale of all or substantially all assets, marshalling of assets or liabilities, receivership. conservatorship, assignment for the benefit of creditors, insolvency, bankruptcy, reorganization, arrangement or composition of Issuer or any Subsidiary of Issuer; provided , that , any merger, consolidation, or liquidation or sale of all or substantially all assets of Issuer or any Subsidiary of Issuer which is permitted under this Agreement shall not constitute an “Insolvency Proceeding.”

“ Insurance Advisor ” means Aon Risk Services or such other reputable insurance advisor reasonably acceptable to the Requisite Holders.

“ Lien ” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset.

 

“ Material Adverse Change ” means any circumstance or event that has had a Material Adverse Effect.

“ Material Adverse Effect ” means any event, change or development, or combination of events, changes or developments, individually or in the aggregate, that has or would reasonably be expected to have a significant material adverse effect on (a) the business, operations, property, prospects or financial condition of the Issuer, or the Issuer and its Subsidiaries as it relates to the Project, (b) the right or ability of the Issuer or its Subsidiaries to fully, completely and timely perform any of their obligations under this Agreement and the other Closing Documents, (c) the validity or enforceability of any Closing Document against the Issuer or any Subsidiary which is a party thereto, (d) the validity, perfection or priority of any Lien intended to be created under or pursuant to any Closing Document to secure the Note Obligations, or (e) the rights of, or benefits available to, the Holders under this Agreement and the other Closing Documents.

“ Material Contracts ” shall have the meaning ascribed to such term in Section 4.1(m) .

“ Maturity Date ” means the penultimate Business Day in the Fiscal Quarter ending September 30, 2009.

“ Modified NPV10 ” means:

(i)   with respect to any Proved Developed Producing Reserves attributable to the Qualified Properties, NPV10 of 95% of such Reserves;

(ii)   with respect to any Proved Developed Non-Producing Reserves attributable to the Qualified Properties, NPV10 of 85% of such Reserves; or

(iii)   with respect to any Proved Undeveloped Reserves attributable to the Qualified Properties, NPV10 of 75% of such Reserves;

in each case as determined by the Administrative Agent from the applicable Engineering Report, provided, however, that the Modified NPV10 for any particular Proved Developed Non-Producing Reserves or Proved Undeveloped Reserves shall be zero (0) unless capital expenditures for the development of such Reserves, in at least the amounts required pursuant to the most recent Engineering Report, have been scheduled and such capital is reasonably expected to be available from Advances or as a deduction from ANCF as Approved Capital Expenditures.

“ Moody’s ” means Moody’s Investors Service, Inc., or a successor rating agency.

“ Mortgage ” means a mortgage, deed of trust or deed to secure debt, in form and substance reasonably satisfactory to the Requisite Holders, made by the Issuer or its Subsidiaries in favor of the Collateral Agent for the benefit of the Holders, securing the Note Obligations and delivered to each Holder pursuant to the terms hereof.

 

“ Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“ Note Documents ” means this Agreement, the Original Note Purchase Agreement, the Notes, the ORRI Conveyance, the Collateral Documents, and all other agreements, certificates, documents, instruments and writings at any time delivered by Issuer in connection with the purchase and sale of the Notes (exclusive of the term sheets, commitment letters, correspondence and similar documents used in the negotiation thereof).

“ Note Interest Rate ” means the rate of interest payable on the Notes from time to time, determined in accordance with Section 3.1(a) and Section 3.1(b) .

“ Note Obligations ” means the sum of all Indebtedness from time to time owing by the Issuer to the Holders under or pursuant to any of the Note Documents.

“ Notes ” has the meaning ascribed to such term in Section 2.2 hereof.

“ NPV10 ” means with respect to any Proved Reserves expected to be produced from the Qualified Properties, the net present value of the future net revenues expected to accrue to Issuer’s interests in such Reserves during the remaining expected economic lives of such Reserves, discounted at 10% per annum. Each calculation of such expected future net revenues shall be made as of the date when requested in accordance with the then existing standards of the Society of Petroleum Engineers and Society of Petroleum Evaluation Engineers, provided that in any event:

(i)   appropriate deductions shall be made for (A) Direct Taxes and existing burdens that are Permitted Encumbrances (excluding, however, the Overriding Royalty Interest), (B) LOE, (C) transportation, gathering and marketing burdens, (D) Capital Expenditures (including plugging and abandonment costs), and (E) COPAS or other overhead costs, all consistent with the most recent Engineering Report; and

(ii)   the pricing assumptions and escalations used in determining NPV10 for any particular Proved Reserves shall be:

(A)   the contract price, if any, during the term of any written oil and gas sales contract between Issuer and unrelated Persons who are “investment grade” purchasers (it being agreed that any such contract with a duration of more than six (6) months shall be subject to the written approval of Requisite Holders); or

(B)   if no sales contract exits:

(I)   for volumes of oil and gas swapped or hedged with investment grade counter parties, the hedged price net of any costs, expenses or deductions relating thereto; and

(II)   for “naked” or long unhedged volumes, the monthly average NYMEX oil and gas prices for each of the four years immediately following the date of determination and for all years thereafter, the unescalated monthly average NYMEX oil and gas prices for the fourth year after the date of determination, all with adjustment for basis (quality and geographical) differentials.

 

“ Observer ” has the meaning assigned to such term in Section 5.1(a) .

“ Operating Agreement ” means that certain Operating Agreement of Issuer, dated as of January 18, 2001 attached hereto as Schedule 1.1(c) .

“ Order ” means any order, writ, injunction, decree, judgment, award, determination, direction or demand.

“ ORRI Conveyance ” means the Conveyance of Overriding Royalty Interest substantially in the form of Exhibit C , and all amendments, supplements, modifications or memoranda thereof.

“ Overriding Royalty Interest ” has the meaning given in Section 2.7 .

“ORRI Assignee” means TCW Energy Funds X Holdings, L.P., a California limited partnership.

“ ORRI Documents ” means the ORRI Conveyance and all other documents required or necessary to transfer the Overriding Royalty Interest to the ORRI Assignee.

“ Payment Date ” means: (1) any date on which the maturity of any or all of the Notes is accelerated in accordance with Section 9.1(b) ; (2) any date on which any interest on or principal of or premium on the Notes or any Commitment Fee is required to be prepaid in accordance with Section 2.4 , 3.1 , 3.3 or 3.4 ; and (3) the Maturity Date.

“ PBGC ” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“ PDP Coverage Ratio ” is equal to (i) the sum of (a) the Modified NPV10 of Issuer’s PDP Reserves and (b) Issuer’s Working Capital (which, if negative, shall be deducted from such Modified NPV10) divided by (ii) Total Indebtedness.

“ Permitted Distributions ” means distributions from Issuer to Aurora permitted to be made pursuant to Section 5.2(a) .

“ Permitted Encumbrances ” means:

(a)   Liens imposed by law for taxes, assessments or other governmental charges or levies that are not at the time delinquent or are being contested in compliance with Section 5.1(i) ;

(b)   carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue or are being contested in compliance with Section 5.1(i) ;

 

(c)   pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

(d)   deposits to secure the performance of tenders, bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e)   irregularities in title, boundaries, or other survey defects, easements, leases, restrictions, servitudes, permits, zoning restrictions, rights-of-way, conditions, covenants, and rights of others in any property of the Issuer and its Subsidiaries for streets, roads, bridges, pipes, pipelines, railroads, electric transmission and distribution lines, telegraph and telephone lines, flood control, water rights, rights of others with respect to navigable waters, sewage and drainage rights existing as of the Closing Date or granted by the Issuer or its Subsidiaries in the ordinary course of business and other similar charges or encumbrances which do not secure the payment of money and otherwise do not materially interfere with the occupation, use and enjoyment by the Issuer or its Subsidiaries of any of the Property in the normal course of business or materially impair the value thereof;

(f)   licenses granted in the ordinary course of business and leases of Property of the Issuer and its Subsidiaries that is not material to the business and operations of the Issuer and its Subsidiaries;

(g)   security interests arising by operation of law solely under Article 2 of the UCC to the extent and so long as the “debtor” with respect to such security interests does not have or does not lawfully obtain possession of the goods subject thereto;

(h)   any Lien or privilege vested in any lessor, licensor or permittor for rent to become due or for other obligations or acts to be performed, the payment of which rent or the performance of which other obligations or acts is required under leases, subleases, licenses or permits; and

(i)   any obligations or duties affecting any of the Property to any municipality or public authority with respect to any franchise, grant, license or permit which do not materially impair the use of such Property for the purposes for which it is held;

provided   that the term “Permitted Encumbrances” shall not include any Lien securing Funded Indebtedness.

“ Permitted Fixed Rate Overhead ” means overhead charges based on a fixed amount per month per well incurred at the field or lease level pursuant to existing joint operating agreements in the nature of overhead charges made pursuant to Section III of the COPAS Accounting Exhibit to AAPL JOA Form No. 610, excluding however any such overhead charges payable to Aurora or any Affiliate thereof.

 

“ Permitted Investments ” means:

(a)   direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;

(b)   investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, a rating of at least A2 from S&P or P2 from Moody’s;

(c)   investments in certificates of deposit, banker’s acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000, or any domestic office of a foreign commercial bank which has a combined capital and surplus and undivided profits in an amount equivalent to not less than $500,000,000;

(d)   fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and

(e)   shares of money market or similar funds not less than 95% of the assets of which are comprised of investments of the type specified in clauses (a) through (d) above and as to which withdrawals are permitted at least every 30 days.

“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“ Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Issuer or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“ Prepayment ” has the meaning ascribed to such term in Section 3.6 hereof.

“ Prepayment Notice ” has the meaning ascribed to such term in Section 3.6 hereof.

“ Prohibited Lien ” means any Lien not expressly allowed under Section 5.2(g) .

“ Project Area ” means the counties of Alcona, Alpena, Charlevoix, Cheboygan, Montmorency and Otsego in the State of Michigan.

“ Project” means all drilling, completion and reserve acquisition activities in or relating to the Project Area.

 

“ Property ” means any interest in any kind of property or asset, whether real, personal or mixed.

“ Pro Rata Portion ” shall be determined, as of any period, by dividing (i) the aggregate principal amount of the outstanding Notes held by a Holder by (ii) the aggregate original principal amount of the outstanding Notes held by all Holders. The initial Pro Rata Portions of the Holders as of the Closing Date are set forth on Exhibit B-2 hereto.

“Proved Developed Non-Producing Reserves” (or “ PDNP Reserves ”) are Proved Reserves that include Shut-in and Behind-pipe Reserves. “Shut-in Reserves” are those expected to be recovered from completion intervals open at the time of the estimate, but which had not started producing, or were shut in for market conditions or pipeline connections, or were not capable of production for mechanical reasons (including the requirement for installation or restaging of compression), and the time when sales will start is uncertain. “Behind-pipe Reserves” are those expected to be recovered from zones behind casing in existing wells, which will require additional completion work or a future completion prior to the start of production.

“Proved Developed Producing Reserves” ( or “ PDP Reserves ”) means Proved Reserves that are expected to be recovered from completion intervals open and producing at the time of the estimate.

“Proved Reserves” means those Reserves which are “proved oil and gas reserves” within the meaning of Rule 4-10 of Regulation S-X, 17 C.F.R. § 210.4-10 of the Commission where the commercial producibility of the reservoir is supported by actual production or formation tests based on the estimated volume of reserves and not just the productivity of the well or reservoir. In certain instances, Proved Reserves may be assigned on the basis of electrical and other well logs or core analysis that indicates the subject reservoir is Hydrocarbon bearing and is analogous to reservoirs in the same area which are producing, or have demonstrated the ability to produce on a formation test. The area of a reservoir considered proved includes (a) the area delineated by drilling and defined by fluid contacts, if any, and (b) the undrilled areas that can be reasonably judged as commercially productive on the basis of available geologic and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of Hydrocarbons controls the proved limit unless otherwise indicated by definitive engineering or performance data. In addition, Proved Reserves must have facilities to process and transport those reserves to market which are operational at the time of the estimate, or there is a commitment or reasonable expectation to install such facilities in the future.

“Proved Undeveloped Reserves” means Proved Reserves that are assigned to undrilled locations which satisfy the following conditions: (i) the locations are direct offsets to wells which have indicated commercial production in the objective formation, (ii) it is reasonably certain that the locations are within the known proved productive limits of the objective formation, (iii) the locations conform to existing well spacing regulations, if any, and (iv) it is reasonably certain that the locations will be developed. Reserves for other undrilled locations are classified as Proved Undeveloped Reserves only in those cases where interpretations of data from wells indicate that the objective formation is laterally continuous and contains commercially recoverable hydro-carbons at locations beyond direct offsets.

 

“ Purchaser(s) ” has the meaning ascribed to such term in the preamble hereto.

“ Purchaser’s Initial Commitment Amount ” means, with respect to each Purchaser, the amount set forth in column titled “Commitment Amount” opposite such Purchaser’s name in Exhibit B-1 hereto.

“ Purchaser’s Subsequent Commitment Amount ” means, with respect to each Purchaser, the amount set forth in column titled “Commitment Amount” opposite such Purchaser’s name in Exhibit B-2 hereto.

“ Quarterly Payment Date ” means the penultimate Business Day of each March, June, September and December, commencing on September 29, 2004.

“ Qualified Property ” means an oil and gas property which at the particular time in question: (i) is owned by Issuer or, if specifically approved in writing by Administrative Agent, by Aurora; (ii) is subject to a recorded ORRI Conveyance and a recorded Mortgage; (iii) is not subject to any Prohibited Liens; (iv) if a Michigan State lease, is the subject of an approval of the assignment to Issuer of such lease, and all related state permissions relating thereto and (v) is the subject of favorable title opinions to Collateral Agent from legal counsel acceptable to Collateral Agent, (A) based upon abstract or record examinations to dates acceptable to Collateral Agent, (B) stating that Issuer has good and marketable title to such property and that it is subject to no Prohibited Liens, and (C) covering such other matters as Administrative Agent may reasonably request.

“ Register ” has the meaning ascribed to such term in Section 10.7(a) hereof.

“ Related Parties ” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“ Release ” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, seeping, migrating, dumping or disposing of any Hazardous Material (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Material) into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through or in the ambient air, soil, surface or ground water, or property.

“ Remedial Action ” means all actions taken to (i) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any other way address Hazardous Materials in the indoor or outdoor environment; (ii) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies and investigations and post-remedial operation and maintenance activities; or (iv) perform any other actions authorized by 42 U.S.C. § 9601.

“ Requisite Holders ” means the Holders who hold at least fifty-one percent (51%) of the aggregate principal amount outstanding under the Notes at any time (excluding any Notes held by the Issuer or any Affiliates).

 

“ Reserves ” means estimated volumes of crude oil, condensate, natural gas, natural gas liquids, and associated substances anticipated to be commercially recoverable from known accumulations from a given date forward, under then existing economic conditions, by established operating practices, and under current government regulations. Reserve estimates are based on interpretation of geologic or engineering data available at the time of the estimate. Reserves do not include volumes of crude oil, condensate, natural gas (including storage gas), or natural gas liquids being held in inventory. If required for financial reporting, reserve estimates or other purposes, Reserves may be reduced for on-site or processing losses.

“ Responsible Officer ” means the president, chief executive officer, chief financial officer, principal accounting officer, treasurer or controller of the Issuer.

“ Restricted Payments ” means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares or interests of any class of Capital Stock or Equity of the Issuer or any Subsidiary, (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares or interests of Capital Stock or Equity of the Issuer or any option, warrant or other right to acquire any such shares or interests of Capital Stock or Equity of the Issuer, and (c) any payments of any compensation, management fee, consulting fee or similar amount to an Affiliate of the Issuer or any Subsidiary.

“ Restricted Notes ” has the meaning set forth under Rule 144 promulgated under the Securities Act.

“ S&P ” means Standard & Poor’s, or a successor entity performing rating services.

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Security Agreement ” means that certain Security Agreement, dated as of August 12, 2004, by Issuer in favor of Collateral Agent.

“ Solvent ” as applied to any Person at any date shall mean that on and as of such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities on and as of any date shall be computed as the amount that, in the light of all the facts and circumstances existing on and as of such date, represents the amount that can reasonably be expected to become an actual or matured liability. For purposes of this definition, “Person” shall mean, where so required by the context in which the term “Solvent” appears, such Person and its Affiliates taken as a whole.

 

“ Stated Maturity ” means (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable.

“ Subsequent Advance ” has the meaning ascribed to such term in Section 2.1(c).

“ Subsequent Advance Notes ” has the meaning ascribed to such term in Section 2.1(c).

“ subsidiary ” means, with respect to any Person (the “ parent ”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

“ Subsidiary ” means any subsidiary of the Issuer.

“ Subsidiary Guarantee ” means an unconditional and irrevocable guarantee of payment, and not of collectibility, of the Note Obligations, executed by a Subsidiary pursuant to Section 7.2 , in form and substance satisfactory to Holders.

“ Supplements to ORRI Conveyance ” has the meaning ascribed to such term in Section 5.1(m) .

“Tamco Origination Fee ” has the meaning ascribed to such term in Section 6.2(a) hereof.

“ Taxes ” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“ TCW Governing Documents ” has the meaning ascribed to such term in Section 7.4(d)(iii) .

“ Total Modified NPV10 ” means the sum of the Modified NPV10’s for all Proved Developed Producing Reserves, Proved Developed Non-Producing Reserves and Proved Undeveloped Reserves as determined by Administrative Agent from the Engineering Report most recently prepared as of such time.

“ Trustco ” means Trust Company of the West, a California trust company.

 

“ UCC ” means the Uniform Commercial Code as adopted in the States of New York and Michigan, as from time to time amended.

“ Unassigned Interests ” means collectively, (a) the working and other interests in oil, gas and mineral leases issued by the State of Michigan held by Aurora or any Affiliate thereof on Lands in the Project Area with respect to which the necessary consent to the assignment thereof to Issuer has not been obtained and (b) working and other interests in oil, gas and mineral leases and fee mineral interests on Lands in the Project Area which are acquired by Aurora pending assignment to Issuer and Samson Resources.

“ Unused Availability ” has the meaning ascribed to such term in Section 2.4 .

“ Wholly Owned Subsidiary ” means, as to any Person, any other Person all of the Equity of which (other than directors’ qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.

“ Withdrawal Liability ” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part 1 of Subtitle E of Title IV of ERISA.

“ Working Capital ” means Issuer’s Consolidated current assets minus Issuer’s Consolidated current liabilities. For purposes of this definition:

 

Section 1.2     Accounting Terms and Determinations . Except as otherwise expressly provided for in this Agreement, all accounting terms used in this Agreement shall be interpreted, all determinations with respect to accounting matters hereunder shall be made and all financial statements and certificates and reports as to financial matters required to be delivered to the Holders under this Agreement shall be prepared in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Purchasers under this Agreement. Issuer will not change the last day of its fiscal year from December 31 of each year.

Section 1.3     Interpretation . In this Agreement, unless otherwise indicated, the singular includes the plural and conversely; words importing one gender include the others; references to statutes or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending or replacing the statute or regulation referred to; references to “writing” include printing, typing, lithography and other means of reproducing words in a tangible visible form; the word “or” shall not be exclusive (i.e., shall be deemed to include “and/or”); the words “including,”“includes” and “include” shall be deemed to be followed by the words “without limitation”; references to articles, sections (or subdivisions of sections), exhibits, annexes or schedules are to such parts of this Agreement; references to agreements and other contractual instruments shall be deemed to include all subsequent amendments, extensions and other modifications to such instruments (without, however, limiting any prohibition on any such amendments, extensions and other modifications by the terms of this Agreement); and references to Persons include their respective permitted successors and assigns and, in the case of any Governmental Authority, Persons succeeding to their respective functions and capacities.

 

SECTION 2   

PURCHASE AND SALE OF SECURITIES

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(a)       At the Initial Closing, Issuer issued to certain Purchasers, and each of such Purchasers purchased from Issuer, a Note or Notes in an aggregate principal amount equal to the such Purchaser’s Initial Commitment Amount on the Initial Advance Date at which time such Purchasers made an initial advance on the Notes in the amount of $5,000,000, with an additional $5,000,000 advanced no later than ten (10) Business Days after the Initial Closing (collectively, the “ Initial Advance ”).

(b)       Such Purchasers have made additional advances to Issuer on the Notes (the “ Additional Advances ”) from time to time during the Commitment Period in a total aggregate amount, including the Initial Advance, of $30,000,000;

 

(c)         Subject to the terms and conditions hereof, including Sections 6.1 and 6.2, at the closing of the transactions described herein (the “ Amendment Closing ”), the Issuer shall issue to the Purchasers, and each of the Purchasers shall purchase from Issuer, a Note or Notes in an aggregate principal amount equal to the such Purchaser’s Subsequent Commitment Amount (collectively, the “ Subsequent Advance Notes ”) and Purchasers agree to make additional advances to the Issuer (so long as all conditions precedent required hereby shall have been satisfied) on the Subsequent Advance Notes (the “ Subsequent Advances ”) from time to time during the Commitment Period in an aggregate principal amount equal to the such Purchaser’s Subsequent Commitment Amount; provided, the aggregate amount of all Advances shall not exceed the Aggregate Commitment Amount.

Section 2.2     The Notes . Issuer’s obligation to repay to the Holders the aggregate amount of Advances made thereto in accordance with Section 3.3 and 3.4, together with interest accruing in connection therewith, shall be evidenced by senior secured amortizing promissory notes (the “ Notes ”) made by Issuer in the form of Exhibit A with appropriate insertions, each payable to the order of the Note Holders in the stated principal amounts of the Notes set forth on Exhibit B-2 hereof as the same may be updated as amended from time to time. Interest on the Notes shall accrue and be due and payable as provided herein and therein. Amounts borrowed and repaid on the Notes may not be re-borrowed hereunder.

 

Section 2.3     Request for Advances . Issuer must give the Purchasers at least ten (10) Business Days’ prior written notice of any requested Subsequent Advance, unless otherwise waived by Administrative Agent. Each such written notice must be made in the form and substance of the “ Request for Subsequent Advance ” attached as Exhibit G (duly completed).

(a)       All Advances shall be made before the Commitment Expiry Date and shall each be in a minimum amount (with respect to all, as opposed to any, Purchasers) of $2,000,000 and integral multiples of $500,000 in excess of that amount.

(b)       If all conditions precedent to such Advance have been met as provided in Sections 6.1, 6.2 and 6.3, as appropriate, the Purchasers will, on the funding date specified in Issuer’s Request for Subsequent Advance or on the date such conditions precedent have been met, make the proceeds of such Advance available to Issuer in immediately available funds.

Section 2.4     Commitment Fee . Issuer agrees to pay a commitment fee (the “ Commitment Fee ”) on Unused Availability (as defined below) from time to time. As used herein “ Unused Availability” means the difference between (a) the amount of Availability applicable from time to time minus (b) the aggregate amount of all Advances theretofore made. The Commitment Fee will be payable to Administrative Agent quarterly in arrears on each Quarterly Payment Date and will be calculated at 0.5% per annum on the basis of a 360-day year and the actual number of days elapsed and the amount of the Unused Availability as of 5:00 p.m. local Los Angeles time on each day.

Section 2.5     Use of Proceeds . The proceeds from the issuance of the Notes will be used by the Issuer solely (a) to pay Approved Capital Expenditures as described in the Development Plan attached hereto as Schedule 2.5 and (b) to pay the Tamco Origination Fee and all expenses of the Purchasers, the Administrative Agent and the Collateral Agent, including, without limitation, the fees and expenses of their counsel, consultants and other advisors.

Section 2.6     Collateral Account

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(a)        Establishment of Collateral Accounts; Rules.

(i)        Issuer shall establish and maintain at its expense a collateral account (the “ Collateral Account ”) pursuant to the Deposit Account Control Agreement.

 

(ii)        Issuer shall deposit or cause to be deposited into the Collateral Account all Gross Cash Revenues from and after the Initial Advance through the Maturity Date from the Project.

 

(iii)        On the last Business Day of each month, all amounts in the Collateral Account shall be applied in the following order or priority:

 

(A)        Direct Taxes and the Overriding Royalty Interest;

 

 

 

 

 

 

 

(iv)        Collateral Agent may instruct the administrator of the Collateral Account to transfer or disburse amounts from it to Administrative Agent only to the extent such amounts are due and payable under the Notes, this Agreement or any other Note Document.

 

(v)        After the occurrence of an Event of Default under any Note Document or Issuer’s failure to comply with the terms of this Section 2.6, Collateral Agent may, at its option, apply all sums in the Collateral Account to the reduction of outstanding principal, interest and other sums owed by Issuer on, the Notes or other Note Documents.

 

(vi)        Upon the satisfaction in full of all amounts owed by Issuer under the Note Documents, Collateral Agent shall have all amounts remaining in the Collateral Account disbursed to Issuer.

 

(b)        Notice. Not later than five (5) business days after a request by the Administrative Agent, Issuer shall send a notice, substantially in the form of Exhibit J , to all existing and/or new purchasers of Hydrocarbon produced from the Material, directing them to forward all amounts payable to Issuer directly to the Collateral Account at the mailing address of the depositary bank for deposit into the Collateral Account. The failure of such Hydrocarbon purchasers to comply with any such notice shall not constitute a Default hereunder by any Related Party, provided that (i) such Hydrocarbon purchasers’ failure to comply with such notice is not done at the request of Issuer and (ii) Issuer shall forward all amounts received from such Hydrocarbon purchasers to the Collateral Account within one (1) Business Day of Issuer’s or Issuer’s Affiliate’s receipt thereof.

 

(c)        Acknowledgments. Issuer hereby acknowledges that:

 

(i)        It has granted and assigned to Collateral Agent a first priority, perfected security interest in the Collateral Account, all funds therein and all proceeds thereof pursuant to the Deposit Account Control Agreement; and

 

(ii)        Issuer shall not be permitted to withdraw, transfer or disburse any funds from the Collateral Account except in accordance with the terms hereof, the Deposit Account Control Agreement and each other Note Document.

 

 

(d)        Attorney-in-fact. Issuer hereby appoints Collateral Agent its attorney-in-fact, with full power of substitution, to execute and file on behalf of Issuer, any financing statement, continuation statement or instrument of further assurance to more effectively perfect, continue or confirm (i) the provisions of this Section 2.6 and of any agreement entered into by Issuer, Collateral Agent and the depositary bank administering the Collateral Account and (ii) the security interest granted in the Collateral Accounts. This power, being coupled with an interest, shall be irrevocable until all amounts due in connection with the Notes have been paid in full. 

 

Section 2.7     Overriding Royalty Interest.

As additional consideration for the Notes, Issuer and Aurora shall, pursuant to an ORRI Conveyance executed, delivered and recorded concurrently with   the later of the Closing or Issuer’s or Aurora’s acquisition of title, assign to ORRI Assignee an overriding royalty interest (the “ Overriding Royalty Interest ”) in the Lands covered or included in the Initial Engineering Report or any subsequent Engineering Report and all other properties in the Project Area drilled or otherwise developed by Issuer or Aurora on or before the later of the Maturity Date or the repayment in full of the Notes and the Note Obligations (excluding those Note Obligations arising under the Overriding Royalty Interest). The Overriding Royalty Interest will have a royalty share of four percent (4%) proportionally reduced to Issuer’s or Aurora’s (i) working interest if the burdened interest of Issuer or Aurora shall be a working interest or (ii) overriding royalty or fee interest if the burdened interest of Issuer or Aurora is an overriding royalty or fee interest (as such burdened interest may be adjusted upwards but not downwards by reason of any “back-in,” reversionary, “after-payout” or similar interest or event). The Overriding Royalty Interest shall be senior and superior to the Liens of the Collateral Documents and any other Liens other than Permitted Liens (except as otherwise expressly provided herein).

SECTION 3   

TERMS OF THE NOTES

Section 3.1     Rate of Interest; Payment of Interest. 

(a)       During the period from the Initial Closing Date to and including the date of their repayment in full, the Notes shall bear and accrue interest on the unpaid principal amount from time to time outstanding at the rate of eleven and one half percent (11 ½%) per annum (the “ Coupon Rate ”) compounded quarterly on each Quarterly Payment Date to the extent not paid. Interest on the Notes shall be payable in arrears on each Quarterly Payment Date.

(b)       Without limiting the remedies available to the Holders under this Agreement, the other Note Documents or otherwise, to the maximum extent permitted by applicable law, upon the occurrence and during the continuance of an Event of Default under this Agreement, the Administrative Agent or the Requisite Holders may, at their option (except in the case of an Event of Default arising by reason of the commencement of a bankruptcy petition by or against Issuer pursuant to Section 9(a)(vii ) or ( viii ) of this Agreement in which event such imposition shall be automatic), declare the entire outstanding principal amount of the Notes shall accrue interest at the rate of two percent (2%) per annum in addition to the Note Interest rate in effect from time to time (“ Default Interest ”) until the date of actual payment (after as well as before judgment. In addition and without limiting the foregoing or other remedies available) to Holders, Administrative Agent or Collateral Agent under this Agreement the other Note Documents or otherwise, to the maximum extent permitted by applicable law, without need for any action by Administrative Agent or Requisite Holders, if Issuer fails to make:

 

(i)       any payment in respect of the principal or interest due on the Notes on any Payment Date; or

 

(ii)       any other payment provided for in this Agreement or in any other Note Document, on or before its due date as specified in this Agreement or the other Note Documents (whether at Stated Maturity or otherwise) or, if not so specified, as notified by the Holder to the Issuer,

 

the Issuer shall pay Default Interest in respect of the amount of such payment due and unpaid from the date any such payment became due until the date of actual payment (as well after as before judgment). Default Interest shall be payable on demand, or if not demanded, on each Quarterly Payment Date after such failure.

 

Section 3.2     Computation of Interest . Interest shall be computed on the Notes on the basis of a 360-day year and the actual number of days elapsed. Interest on the Notes shall be computed as the sum of the daily interest for the period prior to each Payment Date, taking into account the outstanding principal balance of the Notes on each day of the period (where such balance on any given day shall reflect any payment of principal credited on such date pursuant to Section 3.4 and 3.6 hereof).

 

Section 3.3     Payment of Principal . The outstanding principal balance of the Notes shall be due and payable in full on the Maturity Date to the extent not prepaid pursuant to Section 3.4 , 3.5 or 8.1(b) prior thereto.

Section 3.4     Required Prepayments of the Notes.  

(a)       On each Quarterly Payment Date beginning with September 28, 2006 and on each Quarterly Payment Date thereafter, to and including the Quarterly Payment Date immediately preceding the Maturity Date, the Issuer shall make a principal payment in respect of the Notes in an aggregate amount equal to (x) the Dedication Rate multiplied by (y) the Adjusted Net Cash Flow of the ANCF Quarter applicable thereto, in immediately available funds for the account of Holders. If any principal or interest amount payable under the Notes remains outstanding at the Maturity Date, such amount must be paid in full by the Issuer to the Holders in immediately available funds on such Maturity Date.

(b)       If the Requisite Holders shall, in their sole discretion approve the sale of any Collateral, Issuer shall make a principal payment in respect of the Notes in an aggregate amount equal to the sales proceeds received by Issuer net only of reasonable out-of-pocket costs of such sale paid to non-Affiliates of Issuer.

 

Section 3.5     Optional Prepayments of the Notes.  

(a)       Except as required under Section 3.4 or as permitted under Section 3.5(b) , the Issuer may not prepay (a) any principal on the Notes prior to August 15, 2006 and (b) principal on the Notes in excess of $30,000,000 prior to the second anniversary of the Amendment Closing Date. Thereafter, the Issuer may prepay the Notes, at its option, in accordance with the procedures set forth in Section 3.6 , in whole or in part so long as such prepayment is accompanied by the payment of, and there shall be due and payable upon any prepayment in full of principal during such period whether by optional prepayment or mandatory prepayment pursuant to Section 3.4(b) , a prepayment premium (the “ Prepayment Premium ”) equal to the product of the applicable “ Prepayment Premium Percentage ” set forth below opposite the time period in which the date of prepayment occurs multiplied by the principal amount prepaid:

 

Date of Prepayment of First $30 million of Principal	Prepayment Premium Percentage
Prior to August 15, 2007	5%
August 15, 2007 to August 14, 2008	2.5%
On and after August 15, 2008	0%

 

 

Date of Prepayment of any Principal in excess of $30 million	Prepayment Premium Percentage
Prior to December 9, 2008	5%
December 9, 2008 to December 9, 2009	2.5%
On and after December 10, 2009	0%

 

Notwithstanding the foregoing and for the avoidance of doubt, any scheduled principal payment under Section 3.4(a) hereof or principal prepayment made with Collateral insurance proceeds pursuant to any mandatory prepayment provision of any Collateral Document (but excluding any mandatory prepayment under Section 3.4(b) or after the occurrence of an Event of Default) shall be at par without payment of a Prepayment Premium.

(b)       In addition to the prepayments required under Section 3.4 or permitted under Section 3.5(a) above, the Issuer may prepay the Notes in part in accordance with the procedures set forth in Section 3.6 in order to and to the extent necessary to cure a Coverage Deficiency without payment of a Prepayment Premium.

Section 3.6     Prepayment.  

(a)       The Issuer shall have the right, subject to Section 3.5 , but not the obligation, to prepay all or any portion of the Notes pursuant to Section 3.5 (the “ Prepayment ”), provided that:

 

(i)       the Issuer shall deliver to the Holders a prepayment notice in writing (the “ Prepayment Notice ”) substantially in the form of Exhibit H to this Agreement not less than thirty (30) Business Days prior to the date of the proposed Prepayment, setting forth the date and amount of such proposed Prepayment;

 

 

(ii)       the Prepayment shall be effective as of the subsequent Quarterly Payment Date;

 

(iii)       any Prepayment Notice delivered shall be irrevocable;

 

(iv)       the Issuer shall, at the time of such Prepayment, pay all accrued and unpaid interest with respect to the portion of the Notes being prepaid;

 

(v)       the Issuer shall deliver to the Holders, prior to the date of Prepayment, evidence satisfactory to the Holders that all approvals necessary in respect of the Prepayment have been obtained from all Governmental Authorities and all other Persons;

 

(vi)       such Prepayment shall be in an amount not less than Five Million Dollars ($5,000,000) in the aggregate with respect to all Notes, except if the principal amount outstanding under the Notes is less than $5,000,000, in which case the Prepayment shall be equal to such remaining principal amount; and

 

(vii)       in the case of a Prepayment of less than the entire principal amount of the Notes then outstanding, the amount of any Prepayment shall be made ratably as to all outstanding Notes based on the Pro Rata Portion of the aggregate amount of such Prepayment and shall be applied to scheduled principal payments due on the Notes under Section 3.4(a) in reverse order of maturity.

 

(b)       Any principal prepaid pursuant to Section 3.5 hereof shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Note Documents at the time of such prepayment. Any prepayments pursuant to Section 3.5 hereof shall be applied first , to any prepayment premium payable under Section 3.5 hereof, second , to accrued but unpaid interest on the Notes and third , to outstanding principal on the Notes until paid in full.

Section 3.7     General Payment Provision.

(a)       Except as may be agreed by Holders, Issuer shall make each payment which Issuer owes under this Agreement and any of the other Note Documents not later than 10:00 a.m., New York, New York time, on the date such payment becomes due and payable, without set-off, deduction or counterclaim, in lawful money of the United States of America, in immediately available funds sent by wire transfer to the bank accounts specified with respect to each Holder on Exhibit D attached hereto (or to such other bank and accounts and pursuant to such other directions as the Holders may from time to time specify). Any payment received by the Holders after such time shall be deemed to have been made on the next following Business Day. Should any such payment become due and payable on a day other than a Business Day, the maturity of such payment shall be the succeeding Business Day. Each payment under a Note Document shall be due and payable at the place provided therein and, if no specific place of payment is provided, shall be due and payable at the place of payment of the Notes. When the Holders collect or receive money on account of the Note Obligations which is insufficient to pay all Note Obligations then due and payable, the Holders shall apply such money pursuant to Subsection 3.7(b) below.

 

(b)       Payments or prepayments of principal on the Notes shall be applied ratably to such Notes based on their respective Pro Rata Portions. Payments of interest or premium on the Notes shall be applied ratably to such Notes based on the respective amounts then owed on the respective Notes. Except for prepayments pursuant to Section 3.4 or Section 3.5 (which shall be applied as provided in Section 3.6(b) ), any amount received by any Holder, whether as an interest payment or principal payment from or on behalf of Issuer, shall be applied as follows in descending order of priority:

 

(i)       to all costs and expenses (including reasonable attorneys’ fees) payable pursuant to Section 10.15 hereof or in enforcing any Note Obligations of, or in collecting any payments from, any obligor hereunder or under the other Note Documents;

 

(ii)       to Note Obligations (other than principal or interest) then due and owing to Holders under any of the Note Documents;

 

(iii)       to interest which has accrued on any amounts hereunder, including, without limitation, on the Notes pursuant to Section 3.1 ;

 

(iv)       to payment of principal on the Notes until paid in full; and

 

(v)       if all Note Obligations under the Note Documents have been paid in full, to the Issuer.

 

Section 3.8     Ranking . The Notes are senior secured obligations of the Issuer. The Notes shall be senior in all respects to any other Indebtedness of Issuer, other than Indebtedness permitted under Section 5.2(f) (which may rank pari passu to the Notes in right of payment, but shall be structurally subordinated to the Notes).

Section 3.9     Taxes, Duties and Fees

.

(a)       Except where Issuer is contesting in good faith and has established adequate reserves, Issuer shall pay or cause to be paid all present and future Taxes, duties, fees and other charges of whatsoever nature, if any, now or at any time hereafter levied or imposed by any Governmental Authority, by any department, agency, political subdivision or taxing or other authority thereof or therein, or by any jurisdiction through which Issuer makes payments hereunder, on or in connection with the payment of any and all amounts due under this Agreement and the other Closing Documents, and all payments of principal, interest and other amounts due under this Agreement and the other Closing Documents shall be made without deduction for or on account of any such Taxes, duties, fees and other charges.

(b)       In the event Issuer is required to withhold any such amount or is prevented by operation of law or otherwise from paying or causing to be paid such Taxes, duties, fees or other charges as aforesaid, the principal, interest or other amounts due under this Agreement and the other Closing Documents (as the case may be) shall be increased to such amount as shall be necessary to yield and remit to the payees the full amount such payees would have received (taking into account any such Taxes, duties, fees or other charges payable on amounts payable by the Issuer under this Section 3.9(b) had such payment been made without deduction of such Taxes, duties, fees or other charges (all and any of such additional amounts, herein referred to as the “ Additional Amounts ”).

 

(c)       If Section 3.9(b) above applies and any Holder so requires, Issuer shall deliver to such Holder official tax receipts evidencing payment (or certified copies of them) of such Additional Amounts within thirty (30) days of the date of payment.

 

(d)       Issuer shall pay all Taxes (including, without limitation, stamp taxes), duties, fees or other charges payable on or in connection with the execution, issue, delivery, registration, notarization or enforcement of this Agreement (including translation costs) and the other Closing Documents and shall, upon notice from any Holder, reimburse such Holder for any such Taxes, duties, fees or other charges paid by the Holder thereon.

SECTION 4   

REPRESENTATIONS AND WARRANTIES

Section 4.1     Representations and Warranties of the Issuer . The Issuer hereby represents, warrants and covenants to the Purchasers that, as of the date hereof and as of the Closing Date, each of the following representations and warranties set forth below in this Section 4.1 is true and correct:

(a)       Organization; Powers . Each of the Issuer, Aurora and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.

 

(b)       Authorization; Enforceability . The Closing Transactions are within the Issuer’s and Aurora’s corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Issuer and constitutes a legal, valid and binding obligation of the Issuer, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

 

(c)       Consents and Approvals; No Conflicts . The Closing Transactions (i) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other Person, except (x) such as have been obtained or made and are in full force and effect or where failure to obtain such consent or approval will not have a Material Adverse Effect and (y) filings and recordings required to perfect and assign the Liens created under the Collateral Documents and the Overriding Royalty Interest under the ORRI Conveyance, (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Issuer, Aurora or any of its Subsidiaries or any order of any Governmental Authority, (iii) will not violate or result in a default under any material indenture, agreement or other instrument binding upon the Issuer, Aurora or any of its Affiliates or its assets, or give rise to a right thereunder to require any payment to be made by the Issuer, Aurora or any of its Affiliates, and (iv) will not result in the creation or imposition of any Lien on any asset of the Issuer, Aurora or any of its Subsidiaries except as contemplated as part of the Closing Transactions.

 

(d)       Financial Condition; No Material Adverse Change .

(i)       Each of Aurora and the Issuer has heretofore furnished to the Purchasers the financial statements (including profit and loss statements and statistical data) of Aurora for the years ended December 31, 2001, December 31, 2002 and December, 2003 and tax returns for the calendar years 1998, 1999, 2000, 2001, 2002 and 2003 and the balance sheet of Issuer as of June 30, 2004, attached hereto as Schedule 4.1(d)(i) . Such financial and other information is accurate in all material respects as of the dates and for such periods set forth therein and presents fairly, in all material respects, the financial condition and results of operations of the Persons reflected therein on a consolidated basis as of such dates and for such periods.

 

(ii)       Since the formation of Aurora or the Issuer, as applicable (a) there has been no material adverse change in the business, property, operations, prospects or financial condition of Aurora, the Issuer, or the Issuer and its Subsidiaries, taken as a whole, as applicable and (b) no Restricted Payment or investment (other than a Permitted Investment) has been, directly or indirectly, declared, ordered, paid or made. Each of the Issuer, Aurora and its Subsidiaries is Solvent.

 

(iii)       Each of the Issuer and Aurora has heretofore furnished to the Purchasers the projections referred to on Schedule 4.1(d)(iii) hereto, which projections were prepared in good faith, are based upon assumptions that the Issuer and Aurora believe are reasonable and, to the best of the Issuer’s and Aurora’s knowledge, take into account all material information regarding the matters set forth therein, but excluding items which affect the economy generally.

 

(iv)       Except as set forth in the financial and other information referenced in this Section 4.1(d) , none of the Issuer, Aurora or any Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of Issuer, Aurora or any of its Subsidiaries or in the notes thereto or which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Change.

 

(e)       Properties .

 

(i)    Title; Collateral Documents; Interests Issuer Collateral. Subject to this paragraph, Issuer (or, with respect to Collateral owned by Aurora, Aurora) owns and has good, legal and marketable title (with respect to personality) and good, legal and indefeasible title (with respect to real property) to the Collateral purported to be so owned and covered by the Collateral Documents to which it is a party free and clear of all Liens other than Permitted Encumbrances. Issuer’s (or, as applicable, Aurora’s) ownership of the interest in Qualified Properties has not been forfeited and there is no basis for a claim of forfeiture under any documents relating thereto. Issuer (or, as applicable, Aurora) is entitled to receive (net of all Permitted Encumbrances) the share of the oil, gas and other minerals produced from or allocated to the wells, leases and lands listed or described in Schedule 4.1(e) hereto or in any Security Document (the “ Collateral Properties ”) specified as fractional, percentage or decimal interests in such Schedule 4.1(e) hereto or Security Document under the heading “NRI”. Such shares of production which Issuer (or, as applicable, Aurora) is entitled to receive (and Issuer’s (or, as applicable, Aurora’s) share of expenses relating to the Collateral Properties with respect to each lease and lands affected thereby and also specified in Schedule 4.1(e) or Security Document under the heading “WI”) are not subject to change except, and only to the extent that, such changes are reflected in Schedule 4.1(e) ; and such shares of production and the oil and gas interests to which some of them relate are (and, unless and until released by Collateral Agent, shall remain) encumbered by the Collateral Documents. There is no financing statement, mortgage or similar document covering any Collateral on file in any public office naming any party other than Collateral Agent as mortgagee or secured party other than financing statements, mortgage or similar documents which have heretofore expired or been terminated.

 

 

(ii)    Status of Leases, etc. The leases and other contracts and agreements, permits and approvals forming a part of the Collateral Properties, which are material to the operation or value of any Properties, when taken as a whole, are in full force and effect. All rents, royalties and other payments due and payable under such leases and other contracts and agreements, forming a part of the Collateral Properties, or under the Permitted Encumbrances, have been properly and timely paid in accordance with prudent industry practices, but in no event later than ninety (90) days past due. Issuer is not in default with respect to its obligations under such leases and other contracts or agreements, or under Permitted Encumbrances, or otherwise attendant to the ownership or operation of the Collateral Properties, where such default could have a Material Adverse Effect.

 

(iii)    Production Sales, etc. Except as set forth in the Disclosure Matters, neither Issuer (or, as applicable, Aurora) or Issuer’s (or, as applicable, Aurora’s) predecessors-in-title, including without limitation Aurora, have received prepayments (including, but not limited to, payments for gas not taken pursuant to “take or pay” arrangements) for any oil or gas to be produced from the Collateral Properties after the Closing, no Collateral Property is subject to any contractual or other arrangement whereby payment for production from such Collateral Property is to be deferred for a substantial period after the end of the calendar month in which such production is delivered in the case of oil, not in excess of thirty (30) days, and in the case of gas, not in excess of sixty (60) days. Except for Disclosed Matters, no Collateral Property is subject to any contractual or other arrangement for the sale of hydrocarbons which cannot be canceled on ninety (90) days’ or less notice. No Collateral Property is subject at the present time to any regulation refund obligation, and to the best of Issuer’s and Aurora’s knowledge and belief, no situation exists where the same might be imposed. Except for Disclosed Matters, no Collateral Property is subject to a gas balancing arrangement under which an imbalance exists, with respect to which imbalance Issuer (or, as applicable, Aurora) is in an overproducing or overproduced status and is required to (i) permit one or more third parties to take a portion of the production attributable to such Collateral without payment (or without full payment) therefor and/or (ii) make payment in cash, in order to correct such imbalance.

(iv)    Operation of Collateral Properties . The Collateral Properties have been and are being operated in a good and workmanlike manner in compliance with applicable joint operating agreements, laws, rules and regulations. Neither Issuer nor Aurora is aware of any fact or condition that would cause a material risk that (1) the Collateral Properties will not continue to produce Hydrocarbons as projected in the Initial Engineering Report, (2) either the Hydrocarbons produced from the Collateral Properties will not be sold or Issuer’s share of sales proceeds will not be remitted at its direction, in each case as consistent with prior practice, and (3) once funded as contemplated hereby, the Approved Development Plan will not be conducted as contemplated therein.

 

(f)       Litigation; Commercial Tort Claims; Environmental Matters .

(i)       After giving effect to the Closing Transactions, and except for the Disclosed Matters set forth on Schedule 4.1(f)(i) , there are no judgments, decrees or orders in effect and binding on the Issuer, Aurora, any of its Subsidiaries or any of their respective assets and no actions, suits, or proceedings (or facts that would reasonably be expected to give rise to an action, suit, or proceeding) by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Issuer or Aurora, threatened against the Issuer, Aurora or any of its Subsidiaries or any of their respective assets.

 

(ii)       After giving effect to the Closing Transactions, and except for the Disclosed Matters set forth on Schedule 4.1(f)(i) , as of the Closing Date, the Issuer does not hold any commercial tort claims in respect of which a claim has been filed in a court of law or a written notice by an attorney has been given to a potential defendant.

 

(iii)       After giving effect to the Closing Transactions, and except for the Disclosed Matters, neither the Issuer, Aurora nor any of its Subsidiaries (w) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (x) has become subject to any Environmental Liability, (y) has received written notice of any claim with respect to any Environmental Liability or (z) has a reasonable basis to know of any basis for any Environmental Liability, except to the extent any such event, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(g)       Compliance with Laws and Agreements . Each of the Issuer and its Subsidiaries is in compliance with all Governmental Requirements applicable to it or its property, including, without limitation, all FERC regulations, and all indentures, agreements and other instruments binding upon it or its property, except to the extent any noncompliance, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. None of the Issuer, Aurora or any of its Subsidiaries or any holder of more than ten percent (10%) of the Capital Stock of Aurora, is a Person described by section 1 of Executive Order 13224 of September 24, 2001 entitled Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism, 66 Fed. Reg. 49,079 (2001), and none of the Issuer, Aurora or any of its Subsidiaries or any holder of more than ten percent (10%) of the Capital Stock of Aurora engages in any transactions or dealings, or is otherwise associated with any such Persons. Neither the Issuer, Aurora nor any of its Subsidiaries is in violation of the USA Patriot Act, as amended. Neither the Issuer, Aurora nor any of its Subsidiaries is bound by any agreement, document, instrument, judgment, decree, order, statute, law, rule or regulation that limits or could reasonably be expected to limit its performance under any Closing Document.

 

(h)       Investment and Holding Company Status . Neither the Issuer, Aurora nor any of its Subsidiaries is (i) an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940 or (ii) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

(i)       Taxes . Aurora and each Subsidiary thereof has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except Taxes that are being contested in good faith by appropriate proceedings and for which Aurora, and such Subsidiary or Subsidiaries of Aurora, as applicable, has set aside on its books adequate reserves. None of the Issuer, any Subsidiaries of the Issuer or Aurora has executed any waiver or waivers that would have the effect of extending the applicable statute of limitations or period in respect of any tax liabilities. The charges, accruals and reserves in the financial statements referred to in Section 5.1(c) in respect of taxes for all fiscal periods are adequate, and there are no known material unpaid assessments for additional taxes for any fiscal period or of any basis therefor.

(j)       ERISA . Neither the Issuer, Aurora nor or any ERISA Affiliate has at any time within six years prior to the Closing Date sponsored, maintained or contributed to (and has not been required to do the same) any Plan or any Multiemployer Plan, and no act, omission or transaction has occurred which could result in an imposition on the Issuer, Aurora or any ERISA Affiliate (whether directly or indirectly) of (A) liability under Section 502 of ERISA or a tax or penalty imposed pursuant to Subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (B) breach of fiduciary duty liability damages under Section 409 of ERISA which could reasonably be expected