SUBORDINATED CREDIT AGREEMENT

 

TABLE OF CONTENTS

 

			Page
ARTICLE I                                 DEFINITIONS AND ACCOUNTING TERMS			1
Section 1.01	Certain Defined Terms		1
Section 1.02	Computation of Time Periods		19
Section 1.03	Accounting Terms; Changes in GAAP		19
Section 1.04	Types of Advances		20
Section 1.05	Miscellaneous		20
ARTICLE II                             CREDIT FACILITIES			20
Section 2.01		Commitment for Advances	20
Section 2.02		[Reserved]	21
Section 2.03		Method of Borrowing	21
Section 2.04		Reduction of the Commitment	23
Section 2.05		Prepayment of Advances	24
Section 2.06		Repayment of Advances	26
Section 2.07		Commitment Fees	26
Section 2.08		Fees	26
Section 2.09		Interest	26
Section 2.10		Payments and Computations	27
Section 2.11		Sharing of Payments, Etc	28
Section 2.12		Breakage Costs	29
Section 2.13		Increased Costs	29
Section 2.14		Taxes	30
Section 2.15		Replacement of Lender	32
Section 2.16		Increase in Commitments	33
ARTICLE III                         CONDITIONS OF LENDING			34
Section 3.01		Conditions Precedent to Initial Credit Extension	34
Section 3.02		Conditions Precedent to All Borrowings	37
ARTICLE IV                         REPRESENTATIONS AND WARRANTIES			37
Section 4.01		Existence; Subsidiaries	37
Section 4.02		Power	38
Section 4.03		Authorization and Approvals	38
Section 4.04		Enforceable Obligations	38
Section 4.05		Financial Statements	38
Section 4.06		True and Complete Disclosure	39
Section 4.07		Litigation; Compliance with Laws	39
Section 4.08		Use of Proceeds	40
Section 4.09		Investment Company Act	40
Section 4.10		Federal Power Act	40

 

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Section 4.11	Taxes	40
Section 4.12	Pension Plans	41
Section 4.13	Condition of Property; Casualties	41
Section 4.14	No Burdensome Restrictions; No Defaults	41
Section 4.15	Environmental Condition	42
Section 4.16	Permits, Licenses, Etc	42
Section 4.17	Gas Contracts	43
Section 4.18	Liens; Titles, Leases, Etc	43
Section 4.19	Solvency and Insurance	43
Section 4.20	Hedging Agreements	43
Section 4.21	Material Agreements	43
ARTICLE V                             AFFIRMATIVE COVENANTS		44
Section 5.01	Compliance with Laws, Etc	44
Section 5.02	Maintenance of Insurance	44
Section 5.03	Preservation of Corporate Existence, Etc	45
Section 5.04	Payment of Taxes, Etc	45
Section 5.05	Visitation Rights	45
Section 5.06	Reporting Requirements	45
Section 5.07	Maintenance of Property	49
Section 5.08	Agreement to Pledge	49
Section 5.09	Use of Proceeds	49
Section 5.10	Title Evidence and Opinions	50
Section 5.11	Further Assurances; Cure of Title Defects	50
Section 5.12	Hedging Arrangements	50
Section 5.13	Bank Accounts	51
ARTICLE VI                         NEGATIVE COVENANTS		51
Section 6.01	Liens, Etc	51
Section 6.02	Debts, Guaranties, and Other Obligations	52
Section 6.03	Agreements Restricting Liens and Distributions	53
Section 6.04	Merger or Consolidation; Asset Sales	53
Section 6.05	Restricted Payments	54
Section 6.06	Investments	54
Section 6.07	Affiliate Transactions	55
Section 6.08	Compliance with ERISA	55
Section 6.09	Sale-and-Leaseback	56
Section 6.10	Change of Business	56
Section 6.11	Organizational Documents, Name Change	56
Section 6.12	Use of Proceeds	56
Section 6.13	Gas Imbalances, Take-or-Pay or Other Prepayments	57
Section 6.14	Limitation on Speculative Hedging	57
Section 6.15	Additional Subsidiaries; Additional Oil and Gas Properties	57
Section 6.16	Account Payables	57
Section 6.17	Current Ratio	57

 

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Section 6.18	Leverage Ratio	58
Section 6.19	Interest Coverage Ratio	58
Section 6.20	Senior Debt	58
Section 6.21	Non-Guarantor Subsidiary	58
Section 6.22	Equity Issuance	58
Section 6.23	Minimum Asset Coverage Ratio	59
ARTICLE VII                     EVENTS OF DEFAULT; REMEDIES		59
Section 7.01	Events of Default	59
Section 7.02	Optional Acceleration of Maturity	62
Section 7.03	Automatic Acceleration of Maturity	62
Section 7.04	Right of Set-off	63
Section 7.05	Non-exclusivity of Remedies	63
Section 7.06	Application of Proceeds	63
ARTICLE VIII                 THE ADMINISTRATIVE AGENT		64
Section 8.01	Authorization and Action	64
Section 8.02	Administrative Agent’s Reliance, Etc	64
Section 8.03	The Administrative Agent and Its Affiliates	65
Section 8.04	Lender Credit Decision	65
Section 8.05	Indemnification	65
Section 8.06	Successor Administrative Agent	66
Section 8.07	Collateral Matters	67
ARTICLE IX                        MISCELLANEOUS		67
Section 9.01	Amendments, Etc	67
Section 9.02	Notices, Etc	68
Section 9.03	No Waiver; Remedies	68
Section 9.04	Costs and Expenses	68
Section 9.05	Binding Effect	69
Section 9.06	Lender Assignments and Participations	69
Section 9.07	Indemnification; Waiver	71
Section 9.08	Execution in Counterparts	72
Section 9.09	Survival of Representations, Etc	72
Section 9.10	Severability	72
Section 9.11	Business Loans	72
Section 9.12	Governing Law; Submission to Jurisdiction	72
Section 9.13	Subordination and Intercreditor Agreement	73
Section 9.14	USA Patriot Act	73
Section 9.15	WAIVER OF JURY TRIAL	73
Section 9.16	ORAL AGREEMENTS	73

 

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EXHIBITS:
Exhibit A		-		Form of Assignment and Acceptance
Exhibit B		-		Form of Compliance Certificate
Exhibit C		-		Form of Guaranty
Exhibit D		-		Form of Mortgage
Exhibit E		-		Form of Note
Exhibit F		-		Form of Notice of Borrowing
Exhibit G		-		Form of Notice of Conversion or Continuation
Exhibit H		-		Form of Pledge Agreement
Exhibit I		-		Form of Security Agreement
Exhibit J		-		Form of Transfer Letters
Exhibit K		-		Form of Borrower’s Counsel Opinion

 

SCHEDULES:
Schedule I      -		Notice Information and Commitments
Schedule 4.01 -		Subsidiaries of Borrower
Schedule 4.05 -		Existing Debt
Schedule 4.07 -		Litigation
Schedule 4.14(a) -		Material Debt Documents
Schedule 4.20 -		Hedging Contracts
Schedule 4.21 -		Material Agreements

 

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SUBORDINATED CREDIT AGREEMENT

 

This Subordinated Credit Agreement dated as of December 17, 2008 (the “Effective Date”) is among Cano Petroleum, Inc., a Delaware corporation (“Borrower”), the lenders party hereto from time to time (“Lenders”), and UnionBanCal Equities, Inc. as administrative agent for such Lenders (in such capacity, the “Administrative Agent”).

 

The parties hereto agree to as follows:

 

Section 1.

 

DEFINITIONS AND ACCOUNTING TERMS

 

(a)           Certain Defined Terms .  As used in this Agreement, the terms defined above shall have the meanings set forth therein and the following terms shall have the following meanings (unless otherwise indicated, such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

“ Acceptable Security Interest ” in any Property means a Lien which (a) exists in favor of the Administrative Agent for the benefit of the Secured Parties, (b) is superior to all Liens or rights of any other Person in the Property encumbered thereby, other than Permitted Prior Liens, (c) secures the Obligations, and (d) is perfected and enforceable.

 

“ Acquisition ” means the purchase by the Borrower or any of its Subsidiaries of any business, including the purchase of all or substantially all the associated assets or operations or of stock (or other ownership interests) of a Person (other than of a wholly-owned Subsidiary of the Borrower).

 

“ Adjusted Reference Rate ” means, for any day, the fluctuating rate per annum of interest equal to the greatest of (a) the Reference Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus ½ of 1% and (c) the Eurodollar Rate for an Interest Period of one month which begins on such day plus 1.50%.

 

“ Administrative Agent ” means UnionBanCal Equities, Inc., in its capacity as agent pursuant to Article VIII, and any successor agent pursuant to Section 8.06.

 

“ Advance ” means an advance by a Lender to the Borrower pursuant to Section 2.01(a) as part of a Borrowing and refers to a Reference Rate Advance or a Eurodollar Rate Advance.

 

“ Affiliate ” means, as to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person or any Subsidiary of such Person.  The term “control” (including the terms “controlled by” or “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of a Control Percentage, by contract, or otherwise.  Without limiting the generality of the foregoing, a Person shall be deemed to be controlled by another Person if such other Person

 

 

possesses, directly or indirectly, the power to vote 10% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.

 

“ Agreement ” means this Subordinated Credit Agreement, as the same may be amended, supplemented, restated, and otherwise modified from time to time.

 

“ Applicable Margin ” means, (a) with respect to any Eurodollar Advance, (i) during any time when an Event of Default exists, 8% per annum, and (ii) at any other time, 6% per annum, and (b) with respect to any Reference Rate Advance, (i) during any time when an Event of Default exists 6.875% per annum, and (ii) at any other time, 4.875% per annum.  The Applicable Margin for any Advance shall change when and as any such Event of Default commences or terminates and subject to further adjustments as set forth in Section 2.8(d).

 

“ Assignment and Acceptance ” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of the attached Exhibit A.

 

“ Availability ” means, with respect to a Lender at any time, such Lender’s Commitment (after giving effect to any increases thereto effected at such time) at such time minus the aggregate principal amount of all Advances made by such Lender under this Agreement (whether such Advances are outstanding or have been paid); provided that, from and after the Commitment Termination Date, Availability shall be $0.

 

“ Borrowing ” means a borrowing consisting of Advances made on the same day by the Lenders pursuant to Section 2.01(a).

 

“ Borrowing Base ” shall have the definition given to such term in the Senior Credit Agreement as in effect on the date hereof of as modified in accordance with the Subordination and Intercreditor Agreement.

 

“ Business Day ” means a day of the year on which banks are not required or authorized to close in Dallas, Texas and Los Angeles, California and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on by banks in the London interbank market.

 

“ Capital Leases ” means, as applied to any Person, any lease of any Property by such Person as lessee which would, in accordance with GAAP, be required to be classified and accounted for as a capital lease on the balance sheet of such Person.

 

“ CERCLA ” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements thereunder in each case as now or hereafter in effect.

 

“ Certificate of Designation ” means the Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock of Cano Petroleum, Inc. which is filed with the Secretary of State of Delaware on August 31, 2006 and which has been acknowledged by the Senior Administrative Agent on August 25, 2006.

 

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“ Change in Control ” shall mean the occurrence of any of the following events: (a) the Borrower ceases to own, either directly or indirectly, 100% of the Equity Interest in any Subsidiary other than as a result of a sale of assets or merger permitted under Section 6.04, (b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) other than a Permitted Holder becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 33% or more of the Equity Interest of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right), or (c) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body.   For purposes of this definition, “Permitted Holder” means any of the following: (A) any Person that is the “beneficial owner” (as referred to above) of an Equity Interest in the Borrower on the date hereof, (B) any such Person’s estate, spouse and lineal descendants and the legal representative of any of the foregoing, (C) the trustees of any bona fide trusts of which any of the foregoing are the sole beneficiaries and grantors, and (D) any corporation, limited partnership, limited liability company, or similar entity, all of the Voting Securities of which is owned by any of the foregoing.

 

“ Code ” means the Internal Revenue Code of 1986, as amended, and any successor statute.

 

“ Collateral ” means (a) all “Collateral”, “Pledged Collateral” and “Mortgaged Properties” (as defined in each of the Mortgages, the Security Agreements, and the Pledge Agreement, as applicable) or similar terms used in the Security Instruments, and (b) all amounts contained in the Borrower’s and its Subsidiaries’ bank accounts.

 

“ Commitment ” means the amount set opposite such Lender’s name on the Schedule I hereof as its Commitment, or if such Lender has entered into any Assignment and Acceptance, as set forth for such Lender as its Commitment in the Register maintained by the Administrative Agent pursuant to Section 9.06(c), or if such Lender has increased its Commitment under Section 2.16 below, as set forth in the agreement increasing such Commitment or joinder agreement, as applicable, as such amount may be reduced, increased or terminated pursuant to Section 2.04, 2.16 or Article VII or otherwise under this Agreement.  The aggregate amount of the Commitments on the date hereof is $15,000,000.00.

 

“ Commitment Termination Date ” means earlier of (a) March 17, 2009 and (b) the earlier termination in whole of the Commitments pursuant to Section 2.04 or Article VII.

 

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“ Compliance Certificate ” means a compliance certificate in the form of the attached Exhibit B signed by a Responsible Officer of the Borrower.

 

“ Consolidated Net Income ” means, with respect to the Borrower and its consolidated Subsidiaries, for any period, the net income for such period after taxes, as determined in accordance with GAAP, excluding, however, (a) extraordinary items, including (i) any net non-cash gain or loss during such period arising from the sale, exchange, retirement or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business, and (ii) any write-up or write-down of assets and (b) the cumulative effect of any change in GAAP.

 

“ Control Percentage ” means, with respect to any Person, the percentage of the outstanding Equity Interest (including any options, warrants or similar rights to purchase such Equity Interest) of such Person having ordinary voting power which gives the direct or indirect holder of such Equity Interest the power to elect a majority of the board of directors (or other applicable governing body) of such Person.

 

“ Controlled Group ” means all members of a controlled group of corporations and all businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

 

“ Convert ,” “ Conversion ,” and “ Converted ” each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.03(b).

 

“ Credit Extension ” means an Advance made by any Lender.

 

“ Debt ,” for any Person, means without duplication:

 

(i)                                      indebtedness of such Person for borrowed money;

 

(ii)                                   obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

 

(iii)                                obligations of such Person to pay the deferred purchase price of Property or services (including, without limitation, obligations that are non-recourse to the credit of such Person but are secured by the assets of such Person, but excluding trade accounts payable);

 

(iv)                               obligations of such Person as lessee under Capital Leases and obligations of such Person in respect of synthetic leases;

 

(v)                                  obligations of such Person under letters of credit and agreements relating to the issuance of letters of credit or acceptance financing;

 

(vi)                               obligations of such Person under any Hedge Contract;

 

(vii)                            obligations of such Person owing in respect of redeemable preferred stock or other preferred Equity Interest of such Person;

 

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(viii)                         any obligations of such Person owing in connection with any volumetric or production prepayments;

 

(ix)                                 obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) of such Person to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) above;

 

(x)                                    indebtedness or obligations of others of the kinds referred to in clauses (a) through (i) above secured by any Lien on or in respect of any Property of such Person; and

 

(xi)                                 all liabilities of such Person in respect of unfunded vested benefits under any Plan.

 

“ Debt Issuance ” means the issuance by the Borrower of Debt in the form of convertible notes.

 

“ Debt Issuance Proceeds ” means, with respect to any Debt Issuance, all cash and cash equivalent investments received by the Borrower from such Debt Issuance after payment of, or provision for, all underwriter fees and expenses, SEC and blue sky fees, printing costs, fees and expenses of accountants, lawyers and other professional advisors, brokerage commissions and other out-of-pocket fees and expenses actually incurred in connection with such Debt Issuance.

 

“ Default ” means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would become an Event of Default.

 

“ Defaulting Lender ” means any Lender that (a) has failed to fund its Pro Rata Share of any Advance required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder unless such failure has been cured within three Business Days (or such longer time period accepted by the Borrower and the Administrative Agent), (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute or unless such failure has been cured within three Business Days (or such longer time period accepted by the Administrative Agent or such other Lender, as applicable), or (c) has, or has an Affiliate that has, been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

 

“ Dollars ” and “ $ ” means lawful money of the United States of America.

 

“ EBITDA ” means, for any period, without duplication, (a) Consolidated Net Income for such period plus (b) to the extent deducted in determining Consolidated Net Income, Interest Expense, taxes, depreciation, amortization, depletion and other non-cash charges for such period (including any provision for the reduction in the carrying value of assets recorded in accordance with GAAP and including non-cash charges resulting from the requirements of SFAS 133 or 143) for such period minus (c) all non-cash items of income which were included in determining such Consolidated Net Income (including non-cash income resulting from the requirements of SFAS 133 or 143) plus (d) the net gain on the Pantwist Sale; provided that this clause (d) shall only apply for the financial covenant ratios calculated at, and as of, the fiscal quarter ending

 

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December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009, plus (e) without duplication, any items provided for in clause (a), (b) and (c) above associated with Pantwist, LLC for any period that such Person was a wholly-owned Subsidiary of the Borrower; provided that, such EBITDA shall be subject to pro forma adjustments for the Acquisition and for acquisitions and non-ordinary course asset sales assuming that such transactions had occurred on the first day of the determination period, which adjustments shall be made in accordance with the guidelines for pro forma presentations set forth by the SEC or in a manner otherwise acceptable to the Administrative Agent.

 

“ Eligible Assignee ” means (a) any Lender, (b) any Subsidiary or Affiliate of a Lender, and (c) any commercial bank or other financial institution (i) approved by the Administrative Agent in its sole discretion, and (ii) unless an Event of Default has occurred and is continuing, reasonably acceptable to the Borrower.

 

“ Engineering Report ” means either an Independent Engineering Report or an Internal Engineering Report.

 

“ Environment ” or “ Environmental ” shall have the meanings set forth in 42 U.S.C.  9601(8) (1988).

 

“ Environmental Claim ” means any third party (including governmental agencies and employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree, consent agreement or notice of potential or actual responsibility or violation (including claims or proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating to health or safety of employees) which seeks to impose liability under any Environmental Law.

 

“ Environmental Law ” means, as to the Borrower or its Subsidiaries, all Legal Requirements or common law theories applicable to the Borrower or its Subsidiaries arising from, relating to, or in connection with the Environment, health, or safety, including without limitation CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous, or toxic substances, materials or wastes; (d) the safety or health of employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous or toxic substances, materials or wastes.

 

“ Environmental Permit ” means any permit, license, order, approval, registration or other authorization under Environmental Law.

 

“ Equity Interest ” means with respect to any Person, any shares, interests, participation, or other equivalents (however designated) of corporate stock, membership interests or partnership interests (or any other ownership interests) of such Person.

 

“ Equity Issuance ” means any issuance of equity securities or any other Equity Interests (including any preferred equity securities) by the Borrower or any of its Subsidiaries other than

 

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equity securities issued (i) to the Borrower or one of its Subsidiaries, (ii) pursuant to employee or director and officer stock option plans in the ordinary course of business, and (iii) the conversion of previously issued preferred, convertible Equity Interests or convertible notes to the extent such Equity Interests and notes were issued in compliance with the terms hereof.

 

“ Equity Issuance Proceeds ” means, with respect to any Equity Issuance, all cash and cash equivalent investments received by the Borrower or any of its Subsidiaries from such Equity Issuance after payment of, or provision for, all underwriter fees and expenses, SEC and blue sky fees, printing costs, fees and expenses of accountants, lawyers and other professional advisors, brokerage commissions and other out-of-pocket fees and expenses actually incurred in connection with such Equity Issuance.

 

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

 

“ Eurocurrency Liabilities ” has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time.

 

“ Eurodollar Rate ” means, for the Interest Period for each Eurodollar Rate Advance comprising the same Borrowing, the interest rate per annum (rounded upward to the nearest whole multiple of 1/100 of 1% per annum) set forth on the Reuters Reference LIBOR01 as the London Interbank Offered Rate, for deposits in Dollars at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest Period and for a period equal to such Interest Period; provided that, if no such quotation appears on the Reuters Reference LIBOR01, the Eurodollar Rate shall be an interest rate per annum equal to the rate per annum at which deposits in Dollars are offered by the principal office of Union Bank of California, N.A.  in London, England to prime banks in the London interbank market at 11:00 a.m.  (London, England time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Eurodollar Rate Advance to be maintained by the Lender that is the Administrative Agent in respect of such Borrowing and for a period equal to such Interest Period.

 

“ Eurodollar Rate Advance ” means an Advance which bears interest as provided in Section 2.09(b).

 

“ Eurodollar Rate Reserve Percentage ” of any Lender for the Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental, or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.

 

“ Event of Default ” has the meaning specified in Section 7.01.

 

“ Federal Funds Rate ” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds

 

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transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for any such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

 

“ Federal Reserve Board ” means the Board of Governors of the Federal Reserve System or any of its successors.

 

“ Financial Statements ” means the financial statements included in the Form 10-K filed by the Borrower with the SEC on September 11, 2008, including the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as of fiscal year ended June 30, 2008, and the related audited consolidated statements of income, cash flow, and retained earnings of the Borrower and its consolidated Subsidiaries for the fiscal year then ended, copies of which have been delivered to the Administrative Agent and the Lenders.

 

“ Fire Litigation ” means those certain lawsuits and claims now pending or hereafter filed against Borrower or any of its Subsidiaries related to or arising from fires beginning on March 12, 2006 in the Texas panhandle.

 

“ GAAP ” means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.03.

 

“ Governmental Authority ” means, as to any Person in connection with any subject, any foreign, national, state or provincial governmental authority, or any political subdivision of any state thereof, or any agency, department, commission, board, authority or instrumentality, bureau or court, in each case having jurisdiction over such Person or such Person’s Property in connection with such subject.

 

“ Guarantor ” means each Subsidiary of the Borrower executing a Guaranty.

 

“ Guaranty ” means a Guaranty in substantially the form of the attached Exhibit C and executed by a Guarantor, and “ Guaranties ” shall mean all such guaranties collectively.

 

“ Hazardous Substance ” means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including without limitation pollutants, contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and infectious waste.

 

“ Hazardous Waste ” means the substances regulated as such pursuant to any Environmental Law.

 

“ Hedge Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, puts, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor

 

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transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement; provided that, a “Hedge Contract” shall not include any “Master Agreement” that provides solely for the sale by the Borrower or its Subsidiaries of physical Hydrocarbons in exchange for cash in the ordinary course of its business.

 

“ Hydrocarbon Hedge Agreement ” means a Hedge Contract which is intended to reduce or eliminate the risk of fluctuations in the price of Hydrocarbons.

 

“ Hydrocarbons ” means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith from a well bore and all products, by-products, and other substances derived therefrom or the processing thereof, and all other minerals and substances produced in conjunction with such substances, including, but not limited to, sulfur, geothermal steam, water, carbon dioxide, helium, and any and all minerals, ores, or substances of value and the products and proceeds therefrom.

 

“ Independent Engineer ” means (a) Forest Garb & Associates, (b) Miller and Lents, Ltd., (c) Netherland, Sewell & Associates, Inc. or (d) any other engineering firm acceptable to the Administrative Agent.

 

“ Independent Engineering Report ” means a report, in form and substance satisfactory to the Administrative Agent and each of the Lenders, prepared by an Independent Engineer, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender.

 

“ Interest Expense ” means, for the Borrower and its consolidated Subsidiaries for any period, total interest, letter of credit fees, and other fees and expenses incurred in connection with any Debt for such period, whether paid or accrued, including, without limitation, (i) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing, imputed interest under Capital Leases, and net costs under Interest Hedge Agreements, all as determined in conformity with GAAP, and (ii) all interests,

 

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dividends, distributions, or other payments made in respect of preferred Equity Interests or Debt Issuances; but excluding (A) dividends payable solely in Equity Interests of the Borrower made in respect of preferred Equity Interests and (B) the expensing of deferred amortized costs pertaining to the payment in full of the Subordinated Debt and pertaining to the Obligations.

 

“ Interest Hedge Agreement ” means a Hedge Contract between the Borrower and one or more financial institutions providing for the exchange of nominal interest obligations between the Borrower and such financial institution or the cap of the interest rate on any Debt of the Borrower.

 

“ Interest Period ” means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Reference Rate Advance into a Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03 and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03.  The duration of each such Interest Period shall be three months (other than for purposes of the definition of “Adjusted Reference Rate”); provided , however , that:

 

(i)                                      the Borrower may not select any Interest Period which ends after the Maturity Date;

 

(ii)                                   Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration;

 

(iii)                                whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

 

(iv)                               any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month.

 

“ Interim Financial Statements ” means the financial statements included in the Form 10 Q filed by the Borrower with the SEC on November 10, 2008 including the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries dated September 30, 2008, and the related unaudited consolidated statements of income, cash flow, and retained earnings of the Borrower and its consolidated Subsidiaries for the three months then ended, copies of which have been delivered to the Administrative Agent and the Lenders.

 

“ Internal Engineering Report ” means a report, in form and substance satisfactory to the Administrative Agent and each Lender, prepared by the Borrower and certified by a Responsible Officer of the Borrower, addressed to the Administrative Agent and the Lenders with respect to

 

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the Oil and Gas Properties owned by the Borrower or any of its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender.

 

“ Junior Capital Issuance ” means either (a) an Equity Issuance permitted under Section 6.22 or (b) a Debt Issuance.

 

“ Leases ” means all oil and gas leases, oil, gas and mineral leases, oil, gas and casinghead gas leases or any other instruments, agreements, or conveyances under and pursuant to which the owner thereof has or obtains the right to enter upon lands and explore for, drill, and develop such lands for the production of Hydrocarbons.

 

“ Legal Requirement ” means, as to any Person, any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, including, but not limited to, Regulations D, T, U, and X, which is applicable to such Person.

 

“ Lenders ” means the lenders listed on the signature pages of this Agreement and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 9.06.

 

“ Lending Office ” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s administrative questionnaire requested by the Administrative Agent, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

 

“ Leverage Ratio ” means, as of the end of any fiscal quarter, the ratio of (a) the consolidated Debt of the Borrower (other than obligations under Hedge Contracts) as of such fiscal quarter end to (b) the consolidated EBITDA of the Borrower for the four fiscal quarter period then ended.

 

“ Lien ” means any mortgage, lien, pledge, assignment, charge, deed of trust, security interest, hypothecation, preference, deposit arrangement or encumbrance (or other type of arrangement having the practical effect of the foregoing) to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law, or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, synthetic lease, Capital Lease, or other title retention agreement).

 

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“ Liquid Investments ” means:

 

(i)                                      direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States maturing within 180 days from the date of any acquisition thereof;

 

(ii)                                   (i) negotiable or nonnegotiable certificates of deposit, time deposits, or other similar banking arrangements maturing within 180 days from the date of acquisition thereof (“bank debt securities”), issued by (A) any Lender or any Senior Lender (or any Affiliate of any Lender or any Senior Lender) or (B) any other bank or trust company so long as such certificate of deposit is pledged to secure the Borrower’s or any Subsidiaries’ ordinary course of business bonding requirements, or any other bank or trust company which has primary capital of not less than $500,000,000, if at the time of deposit or purchase, such bank debt securities are rated not less than “AA” (or the then equivalent) by the rating service of Standard & Poor’s Ratings Group or of Moody’s Investors Service, Inc., and (ii) commercial paper issued by (A) any Lender or any Senior Lender (or any Affiliate of any Lender or any Senior Lender) or (B) any other Person if at the time of purchase such commercial paper is rated not less than “A-1” (or the then equivalent) by the rating service of Standard & Poor’s Ratings Group or not less than “P-1” (or the then equivalent) by the rating service of Moody’s Investors Service, Inc., or upon the discontinuance of both of such services, such other nationally recognized rating service or services, as the case may be, as shall be selected by the Borrower with the consent of the Majority Lenders;

 

(iii)                                deposits in money market funds investing exclusively in investments described in clauses (a) and (b) above;

 

(iv)                               repurchase agreements relating to investments described in clauses (a) and (b) above with a market value at least equal to the consideration paid in connection therewith, with any Person who regularly engages in the business of entering into repurchase agreements and has a combined capital surplus and undivided profit of not less than $500,000,000, if at the time of entering into such agreement the debt securities of such Person are rated not less than “AA” (or the then equivalent) by the rating service of Standard & Poor’s Ratings Group or of Moody’s Investors Service, Inc.; and

 

(v)                                  such other instruments (within the meaning of Article 9 of the Texas Business and Commerce Code) as the Borrower may request and the Administrative Agent may approve in writing.

 

“ Loan Documents ” means this Agreement, the Notes, the Guaranties, the Security Instruments, the Subordination and Intercreditor Agreement, and each other agreement, instrument, or document executed by the Borrower, any Guarantor, or any of the Borrower’s or a Guarantor’s Subsidiaries or any of their officers at any time in connection with this Agreement.

 

“ Maximum Note Amount ” means $25,000,000.

 

“ Majority Lenders ” means, (a) if there are less than three Lenders, then all Lenders and (b) at all other times, Lenders holding at least 50% of the then aggregate unpaid principal amount of the Notes held by the Lenders at such time; provided that, if no such principal amount is then outstanding, “Majority Lenders” shall mean Lenders having at least 50% of the aggregate

 

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amount of the Commitments at such time; provided further that, if there are two or more Lenders, the Commitment of, and the portion of the Advances held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Majority Lenders.

 

“ Material Adverse Change ” means (a) a material adverse change in the business, assets (including the Oil and Gas Properties of the Borrower or any of its Subsidiaries), condition (financial or otherwise), or results of operations of the Borrower or any of its Subsidiaries, taken as a whole, or (b) a material adverse effect on the Borrower’s or any Subsidiary’s ability to perform its obligations under this Agreement, any Note, any Guaranty, or any other Loan Document.

 

“ Maturity Date ” means June 17, 2013.

 

“ Maximum Rate ” means the maximum nonusurious interest rate under applicable law (determined under such laws after giving effect to any items which are required by such laws to be construed as interest in making such determination, including without limitation if required by such laws, certain fees and other costs).

 

“ Mortgage ” means each of the Mortgages, Deeds of Trust, Security Agreements, Assignment of Liens and Security Interests, Financing Statements and Assignments of Production or any other mortgage or deed of trust executed by any one or more of the Borrower, a Guarantor or any of their respective Subsidiaries in favor of the Administrative Agent for the ratable benefit of the Secured Parties in substantially the form of the attached Exhibit D or such other form as may be requested by the Administrative Agent, together with any assumptions or assignments of the obligations thereunder by the Borrower, any Guarantor or any of their respective Subsidiaries, and “ Mortgages ” shall mean all of such Mortgages collectively.

 

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

 

“ Net Cash Proceeds ” shall mean, with respect to any Asset Sale, the proceeds thereof in the form of cash, cash equivalents and marketable securities (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable, or by the sale, transfer or other disposition of any non-cash consideration received in connection therewith or otherwise, but only as and when received) received by the Borrower or any Subsidiary (including cash proceeds subsequently received (as and when received by the Borrower or any Subsidiary) in respect of non-cash consideration initially received) net of (i) reasonable and customary selling expenses (including reasonable brokers’ fees or commissions, legal, accounting and other professional and transactional fees, transfer and similar taxes and Borrower’s good faith estimate of income taxes paid or payable in connection with such sale (after taking into account any available tax credits or deductions and any tax sharing arrangements)), (ii) the principal amount, premium or penalty, if any, interest and other amounts of the Senior Debt which are repaid with such proceeds, and (iii) the principal amount, premium or penalty, if any, and interest of the Debt under the Series D Preferred Shares which are required to be paid as a result of such Asset Sale and which are repaid with such proceeds.

 

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“ Note ” means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of the attached Exhibit E, evidencing indebtedness of the Borrower to such Lender resulting from Advances owing to such Lender and in an amount equal to such Lenders Pro Rata Share of the Maximum Note Amount.

 

“ Notice of Borrowing ” means a notice of borrowing in the form of the attached Exhibit F signed by a Responsible Officer of the Borrower.

 

“ Notice of Conversion or Continuation ” means a notice of conversion or continuation in the form of the attached Exhibit G signed by a Responsible Officer of the Borrower.

 

“ NPV ” means, with respect to any Proven Reserves expected to be produced from any undivided interests in Oil and Gas Properties, the net present value, discounted at 10% per annum, of the future net revenues expected to accrue to the Borrower’s or any of its Subsidiary’s interests in such Proven Reserves (after deducting all existing burdens) during the remaining expected economic lives of such Proven Reserves.  Each calculation of such expected future net revenues shall be made in accordance with the then existing standards of the Society of Petroleum Engineers, provided that in any event (a) appropriate deductions shall be made for severance and ad valorem taxes, and for operating (including purchasing and injecting water), gathering, transportation and marketing costs required for the production and sale of such reserves, (b) the pricing assumptions and escalations used in determining NPV for any particular reserves shall be based upon the Strip Price (or any other pricing assumptions and escalations to which the Borrower and Majority Lenders may agree) and (c) the cash-flows derived from the pricing assumptions set forth in clause (b) above shall be further adjusted to account for the historical basis ( i.e. the differential that exists as of any time between the price at a pricing point and the price at the point of sale) in a manner reasonably acceptable to the Administrative Agent.  NPV shall be calculated hereunder in connection with each Engineering Report, either by the Borrower, by Administrative Agent, or by the third party engineering firm who prepares such Engineering Report; in the event of any conflict, Administrative Agent’s calculation shall be conclusive and final, absent manifest error.

 

“ NYMEX Pricing ” means, as of any date of determination with respect to any month: (i) for crude oil, the closing settlement price for the Light, Sweet Crude Oil futures contract for the first nearby month, and (ii) for natural gas, the closing settlement price for the Henry Hub Natural Gas futures contract for the first nearby month, in each case, as published by New York Mercantile Exchange (NYMEX) on its website currently located at www.nymex.com, or any successor thereto (as such price may be corrected or revised from time to time by the NYMEX in accordance with its rules and regulations); provided that, if the NYMEX no longer provides futures contract price quotes or has ceased to operate, the comparable futures contract prices quoted on such other nationally recognized commodities exchange as the Administrative Agent shall designate.

 

“ Obligations ” means all principal, interest, fees, reimbursements, indemnifications, and other amounts payable by the Borrower, any Guarantor or any of their respective Subsidiaries to the Administrative Agent, or the Lenders under the Loan Documents.

 

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“ Oil and Gas Properties ” means fee mineral interests, term mineral interests, Leases, subleases, farm-outs, royalties, overriding royalties, net profit interests, carried interests, production payments and similar mineral interests, and all unsevered and unextracted Hydrocarbons in, under, or attributable to such oil and gas Properties and interests.

 

“ Pantwist Sale ” means the sale of 100% of the Equity Interest held by the Borrower in Pantwist LLC pursuant to the terms of the Purchase and Sale Agreement dated as of September 5, 2008 among the Borrower, Pantwist LLC and Legacy Reserves Operating LP without giving effect to any amendments, modification or supplements thereto.

 

“ Patriot Act ” means the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)).

 

“ PBGC ” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

 

“ PDP Reserves ” means Proven Reserves which are categorized as both “Developed” and “Producing” in the definitions promulgated by the Society of Petroleum Evaluation Engineers and the World Petroleum Congress as in effect at the time in question; “ PDNP Reserves ” means Proven Reserves which are categorized as both “Developed” and “Non-Producing” in such definitions; and “ PUD Reserves ” means Proved Reserves which are categorized as “Undeveloped” in such definitions.

 

“ PDNP NPV ” means the NPV attributable to all PDNP Reserves from the Oil and Gas Properties of the Borrower and its Subsidiaries and based on an Engineering Report or other applicable information relating to the Proven Reserves of the Borrower and its Subsidiaries provided by Borrower.

 

“ PDP Present Value ” means the NPV attributable to all PDP Reserves from the Oil and Gas Properties of the Borrower and its Subsidiaries and based on an Engineering Report or other applicable information relating to the Proven Reserves of the Borrower and its Subsidiaries provided by Borrower.

 

“ Permit ” means any approval, certificate of occupancy, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from any Governmental Authority, including without limitation, an Environmental Permit.

 

“ Permitted Liens ” means the Liens permitted under Section 6.01.

 

“ Permitted Prior Liens ” means the Liens securing the Senior Debt and Liens permitted under paragraphs (c) through (i) of Section 6.01.

 

“ Person ” means an individual, partnership, corporation (including a business trust), joint stock company, limited liability corporation or company, limited liability partnership, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official.

 

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“ Plan ” means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

 

“ Pledge Agreement ” means a Pledge Agreement in substantially the form of the attached Exhibit H, executed by the Borrower or any of its Subsidiaries or any of the Guarantors.

 

“ Projections ” means, as to the Borrower and for a given period, the Borrower’s forecasted consolidating balance sheets, profit and loss statements, and cash flow statements, and including therein projections for anticipated income, revenues, expenses, taxes, EBITDA and budgeted capital expenditures during such period, all based on good faith estimates and utilizing the assumptions which are set forth in such Projections and prepared in accordance with GAAP.

 

“ Property ” of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person.

 

“ Proven Reserves ” means, at any particular time, the estimated quantities of Hydrocarbons which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs attributable to Oil and Gas Properties included or to be included in the Borrowing Base under then existing economic and operating conditions (i.e., prices and costs as of the date the estimate is made).

 

“ PUD Present Value ” means the NPV attributable to all PUD Reserves from the Oil and Gas Properties of the Borrower and its Subsidiaries and based on an Engineering Report or other applicable information relating to the Proven Reserves of the Borrower and its Subsidiaries provided by Borrower.

 

“ Pro Rata Share ” means, with respect to any Lender, the ratio (expressed as a percentage) of aggregate Commitments of such Lender to the aggregate Commitments of all the Lenders (or if such Commitments have been terminated or cancelled, the ratio (expressed as a percentage) of outstanding Advances owing to such Lender to the aggregate outstanding Advances owing to all such Lenders.

 

“ Reference Rate ” means a fluctuating interest rate per annum as shall be in effect from time to time equal to the rate of interest publicly announced by Union Bank of California, N.A., as its reference rate, whether or not the Borrower has notice thereof.

 

“ Reference Rate Advance ” means an Advance which bears interest as provided in Section 2.09(a).

 

“ Register ” has the meaning set forth in paragraph (c) of Section 9.06.

 

“ Regulations D, T, U, and X ” mean Regulations D, T, U, and X of the Federal Reserve Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.

 

“ Release ” shall have the meaning set forth in CERCLA or under any other Environmental Law.

 

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“ Response ” shall have the meaning set forth in CERCLA or under any other Environmental Law.

 

“ Responsible Officer ” means (a) with respect to any Person that is a corporation, such Person’s Chief Executive Officer, President, Chief Financial Officer, or Vice President, (b) with respect to any Person that is a limited liability company, a manager or the Responsible Officer of such Person’s managing member or manager, and (c) with respect to any Person that is a general partnership or a limited liability partnership, the Responsible Officer of such Person’s general partner or partners.

 

“ Restricted Payment ” means, with respect to any Person, (a) any direct or indirect dividend or distribution (whether in cash, securities or other Property) or any direct or indirect payment of any kind or character (whether in cash, securities or other Property) in consideration for or otherwise in connection with any retirement, purchase, redemption or other acquisition of any Equity Interest of such Person, or any options, warrants or rights to purchase or acquire any such Equity Interest of such Person or (b) principal or interest payments (in cash, Property or otherwise) on,  or redemptions of, subordinated debt of such Person; provided that the term “Restricted Payment” shall not include any dividend or distribution payable solely in Equity Interests of the Borrower or warrants, options or other rights to purchase such Equity Interests.

 

“ SEC ” means the United States Securities and Exchange Commission.

 

“ Secured Parties ” means the Administrative Agent and the Lenders.

 

“ Security Agreements ” means the Security Agreements, each in substantially the form of the attached Exhibit I, executed by the Borrower, any of its Subsidiaries, or any of the Guarantors.

 

“ Security Instruments ” means, collectively, (a) the Mortgages, (b) the Transfer Letters, (c) the Pledge Agreements, (d) the Security Agreements, (e) each other agreement, instrument or document executed at any time in connection with the Pledge Agreements, the Security Agreements, or the Mortgages, and (f) each other agreement, instrument or document executed at any time in connection with securing the Obligations.

 

“ Senior Administrative Agent ” means Union Bank of California, N.A., in its capacity as agent under the Senior Credit Agreement, and any successor agent pursuant thereto.

 

“ Senior Credit Agreement ” means the Amended and Restated Credit Agreement dated of even date herewith among the Borrower, the Senior Administrative Agent, and the Senior Lenders, as heretofore amended and as hereafter amended, modified, restated or supplemented in accordance with the terms of the Subordination and Intercreditor Agreement.

 

“ Senior Debt ” means the “Obligations” as defined in the Senior Credit Agreement as in effect on the date hereof of as modified in accordance with the Subordination and Intercreditor Agreement.

 

“ Senior Lenders ” means the lenders from time to time parties to the Senior Credit Agreement.

 

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“ Senior Loan Documents ” means the Senior Credit Agreement, the promissory notes executed and delivered pursuant to the Senior Credit Agreement, all agreements, instruments, or documents executed at any time in connection with securing the Senior Debt, and each other agreement, instrument, or document executed by the Borrower or any of its Subsidiaries or any of their officers in connection with the Senior Credit Agreement.

 

“ Series D Preferred Shares ” means the convertible, preferred Equity Interests of the Borrower known as the “Series D Convertible Preferred Stock” issued on August 25, 2006 and maturing on August 25, 2011, the terms of which are as set forth in the Certificate of Designation.

 

“ Solvent ” means, with respect to any Person as of the date of any determination, that on such date (a) the fair value of the Property of such Person (both at fair valuation and at present fair saleable value) is greater than the total liabilities, including contingent liabilities, of such Person, (b) the present fair saleable 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 is able to realize upon its assets and pay its debts and other liabilities, contingent obligations, and other commitments as they mature in the normal course of business, (d) 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 (e) 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 unreasonably small capital after giving due consideration to current and anticipated future capital requirements and current and anticipated future business conduct and the prevailing practice in the industry in which such Person is engaged.  In computing the amount of contingent liabilities at any time, such liabilities shall be computed at the amount which, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

 

“ Strip Price ” shall mean, at any time, (a) for the remainder of the current calendar year, the average NYMEX Pricing for the remaining contracts in the current calendar year, (b) for each of the succeeding two complete calendar years, the average NYMEX Pricing for the twelve months in each such calendar year, and (c) for the succeeding third complete calendar year, and for each calendar year thereafter, the average NYMEX Pricing for the twelve months in such third calendar year.

 

“ Subordination and Intercreditor Agreement ” means that certain Subordination and Intercreditor Agreement, which shall be in a form acceptable to the Administrative Agent and the Lenders, dated as of the date hereof among the Administrative Agent, the Borrower, the Guarantors, the Lenders, the Senior Agent and the Senior Lenders.

 

“ Subsidiary ” means, with respect to any Person (the “ parent ”) at any date, any other Person 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 Person, a majority of whose outstanding Voting Securities (other than directors’ qualifying shares) shall at any time be owned by such parent or one or more Subsidiaries of such parent.  Unless otherwise specified, all references herein to a “Subsidiary”

 

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or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower; provided that Tri-Flow shall not be considered a Subsidiary of the Borrower or any Guarantor.

 

“ Termination Event ” means (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

 

“ Total Present Value ” means an amount, based on the most recent Engineering Report or other applicable information provided by Borrower as of the applicable determination date, equal to the sum of (i) 100% of the PDP NPV plus (ii) 100% of the PDNP NPV plus (iii) 100% of the PUD NPV; provided that, Total Present Value will be limited to the extent that the amount determined under clause (i) shall always constitute at least 60% of the Total Present Value.

 

“ Transfer Letters ” means, collectively, the letters in lieu of transfer orders in substantially the form of the attached Exhibit J and executed by the Borrower, any Guarantor or any of their respective Subsidiaries executing a Mortgage.

 

“ Tri-Flow ” means Tri-Flow, Inc., an Oklahoma corporation.

 

“ Type ” has the meaning set forth in Section 1.04.

 

“ Voting Securities ” means (a) with respect to any corporation (including any unlimited liability company), capital stock of such corporation having general voting power under ordinary circumstances to elect directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have special voting power or rights by reason of the happening of any contingency), (b) with respect to any partnership, any partnership interest or other ownership interest having general voting power to elect the general partner or other management of the partnership or other Person, and (c) with respect to any limited liability company, membership certificates or interests having general voting power under ordinary circumstances to elect managers of such limited liability company.

 

(b)          Computation of Time Periods .  In this Agreement, with respect to the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

 

(c)           Accounting Terms; Changes in GAAP .  Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof) 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 Lenders hereunder (which prior to the delivery of the first financial statements under Section 5.06 hereof, shall mean the Financial

 

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Statements and the Interim Financial Statements).  All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with those used in the preparation of the annual or quarterly financial statements furnished to the Lenders pursuant to Section 5.06 hereof most recently delivered prior to or concurrently with such calculations (or, prior to the delivery of the first financial statements under Section 5.06 hereof, used in the preparation of the Financial Statements and the Interim Financial Statements).  In addition, all calculations and defined accounting terms used herein shall, unless expressly provided otherwise, when referring to any Person, refer to such Person on a consolidated basis and mean such Person and its consolidated subsidiaries.

 

(d)          Types of Advances .  Advances are distinguished by “Type.”  The “Type” of an Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or Reference Rate Advance.

 

(e)           Miscellaneous .  Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified.  All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified.  The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  The term “including” means “including, without limitation,”.  Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement.

 

Section 2.

 

CREDIT FACILITIES

 

(a)           Commitment for Advances .

 

(i)                                      Advances .  Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Commitment Termination Date in an amount for each Lender not to exceed such Lender’s Availability at such time.  Each Borrowing shall be in an aggregate amount not less than $5,000,000, and in integral multiples of $500,000 in excess thereof, and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Availability.  Any Advances which have been prepaid or repaid may not be reborrowed.

 

(ii)                                   Advances upon Increase in Commitments .  Each Lender that increases its Commitment under Section 2.16 (including any new Lender that joins this Agreement as a Lender pursuant to a joinder agreement as provided in Section 2.16) severally agrees, on the terms and conditions set forth in this Agreement, to make a single advance term loan on the Increase Effective Date on a non-revolving basis to the Borrower in an amount equal to its

 

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unfunded Commitment on such Increase Effective Date (after giving effect to such increase).  Any Advances which have been prepaid or repaid may not be reborrowed.

 

(iii)                                Notes .  The indebtedness of the Borrower to each Lender resulting from the Advance owing to such Lender shall be evidenced by a Note of the Borrower payable to the order of such Lender.

 

(b)          [Reserved] .

 

(c)           Method of Borrowing .

 

(i)                                      Notice .  Each Borrowing shall be made pursuant to a Notice of Borrowing (or by telephone notice promptly confirmed in writing by a Notice of Borrowing), given not later than 10:00 a.m.  (Dallas, Texas time) / 8:00 a.m. (Los Angeles, California time) (i) on the third Business Day before the date of the proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances (other than the initial Borrowing to be made on the Effective Date) or (ii) on the Business Day of the proposed Borrowing, in the case of a Borrowing comprised of Reference Rate Advances (or Eurodollar Rate Advances in the case of the Borrowing to be made on the Effective Date), by the Borrower to the Administrative Agent, which shall in turn give to each Lender prompt notice of such proposed Borrowing by telecopier or telex.  Each Notice of a Borrowing shall be given by telecopier or telex, confirmed immediately in writing, specifying the information required therein.  In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify each Lender of the applicable interest rate under Section 2.09(b).  Each Lender shall, before 12:00 p.m.  (Dallas, Texas time) / 10:00 a.m. (Los Angeles, California time) on the date of such Borrowing, make available for the account of its Lending Office to the Administrative Agent at its address referred to in Section 9.02, or such other location as the Administrative Agent may specify by notice to the Lenders, in same day funds, in the case of a Borrowing, such Lender’s Pro Rata Share of such Borrowing.  After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent shall make such funds available to the Borrower at its account with the Administrative Agent.

 

(ii)                                   Conversions and Continuations .  The Borrower may elect to Convert or continue any Borrowing under this Section 2.03 by delivering an irrevocable Notice of Conversion or Continuation to the Administrative Agent at the Administrative Agent’s office no later than 10:00 a.m.  (Dallas, Texas time) / 8:00 a.m.  (Los Angeles, California time) (i) on the date which is at least three Business Days in advance of the proposed Conversion or continuation date in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances and (ii) on the Business Day of the proposed Conversion in the case of a Conversion to a Borrowing comprised of Reference Rate Advances.  Each such Notice of Conversion or Continuation shall be in writing or by telex or telecopier confirmed immediately in writing specifying the information required therein.  Promptly after receipt of a Notice of Conversion or Continuation under this Section, the Administrative Agent shall provide each Lender with a copy thereof and, in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances, notify each Lender of the applicable interest rate under Section 2.09(b).

 

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(iii)                                Certain Limitations .  Notwithstanding anything to the contrary contained in paragraphs (a) and (b) above:

 

(i)                                      at no time shall there be more than one Interest Period applicable to outstanding Eurodollar Rate Advances and the Borrower may not select Eurodollar Rate Advances for any Borrowing at any time that a Default has occurred and is continuing;

 

(ii)                                   if any Lender shall, at least one Business Day before the date of any requested Borrowing, Conversion, or continuation, notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful, for such Lender or its Lending Office to perform its obligations under this Agreement to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, the right of the Borrower to select Eurodollar Rate Advances from such Lender shall be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and the Advance made by such Lender in respect of such Borrowing, Conversion, or continuation shall be a Reference Rate Advance;

 

(iii)                                if the Administrative Agent is unable to determine the Eurodollar Rate for Eurodollar Rate Advances comprising any requested Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Reference Rate Advance;

 

(iv)                               if the Majority Lenders shall, at least one Business Day before the date of any requested Borrowing, notify the Administrative Agent that the Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Reference Rate Advance; and

 

(v)                                  if the Borrower shall fail to select the duration or continuation of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01 and paragraph (b) above, the Administrative Agent shall forthwith so notify the Borrower and the Lenders and such Advances shall be made available to the Borrower on the date of such Borrowing as Reference Rate Advances or, if an existing Advance, Convert into Reference Rate Advances.

 

(iv)                               Notices Irrevocable .  Each Notice of Borrowing and Notice of Conversion or Continuation shall be irrevocable and binding on the Borrower.  In the case of any Borrowing for which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, out-of-pocket cost, or expense incurred by such Lender as a result of any failure by the Borrower to fulfill on or before

 

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the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III including, without limitation, any loss (including any loss of anticipated profits), cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

 

(v)                                  Administrative Agent Reliance .  Unless the Administrative Agent shall have received notice from a Lender before the date of any Borrowing that such Lender shall not make available to the Administrative Agent such Lender’s Pro Rata Share of a Borrowing, the Administrative Agent may assume that such Lender has made its Pro Rata Share of such Borrowing available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (a) of this Section 2.03 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount.  If and to the extent that such Lender shall not have so made its Pro Rata Share of such Borrowing available to the Administrative Agent, such Lender and the Borrower severally agree to immediately repay to the Administrative Agent on demand such corresponding amount, together with interest on such amount, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable on such day to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for such day.  If such Lender shall repay to the Administrative Agent such corresponding amount and interest as provided above, such corresponding amount so repaid shall constitute such Lender’s Advance as part of such Borrowing for purposes of this Agreement even though not made on the same day as the other Advances comprising such Borrowing.

 

(vi)                               Lender Obligations Several .  The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, to make its Advance on the date of such Borrowing.  No Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

 

(d)          Reduction of the Commitment .

 

(i)                                      The Borrower shall have the right, upon at least three Business Days’ notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portion of the Commitment; provided that each partial reduction shall be in the aggregate amount of $3,000,000 or in integral multiples of $1,000,000 in excess thereof.

 

(ii)                                   Other than as provided in Section 2.04(c) below, any reduction and termination of the Commitments pursuant to this Section 2.04 shall be applied ratably to each Lender’s Commitment and shall be permanent, with no obligation of the Lenders to reinstate such Commitments.

 

(iii)                                In the event of a Defaulting Lender, the Borrower, at the Borrower’s election may (with the consent of the Administrative Agent) elect to terminate such Defaulting Lender’s Commitment hereunder; provided that (i) such termination must be of the Defaulting Lender’s entire Commitment, (ii) the Borrower shall pay all amounts owed by the Borrower to

 

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such Defaulting Lender under this Agreement and under the other Loan Documents (including principal of and interest on the Advances owed to such Defaulting Lender, accrued commitment fees, and letter of credit fees but specifically excluding any amounts owing under Section 2.12 as result of such payment of Advances), (iii) a Defaulting Lender’s Commitment may be terminated by the Borrower under this Section 2.04(c) if and only if at such time, the Borrower has elected, or is then electing, to terminate the Commitments of all then existing Defaulting Lenders.  Upon written notice to the Defaulting Lender and Administrative Agent of the Borrower’s election to terminate a Defaulting Lender’s Commitment pursuant to this clause (c) and the payment and deposit of amounts required to be made by the Borrower under clause (ii) above, (A) such Defaulting Lender shall cease to be a “Lender” hereunder for all purposes except that such Lender’s rights under Sections 2.13, 2.14, and 9.07 shall continue with respect to events and occurrences occurring before or concurrently with its ceasing to be a “Lender” hereunder, (B) such Defaulting Lender’s Commitment shall be deemed terminated, and (C) such Defaulting Lender shall be relieved of its obligations hereunder

 

(e)           Prepayment of Advances .

 

(i)                                      Optional .  The Borrower may prepay the Advances, after giving by 10:00 a.m.  (Dallas, Texas, time) / 8:00 a.m. (Los Angeles, California time): (i) in the case of Eurodollar Rate Advances, at least three Business Days’ or (ii) in the case of Reference Rate Advances, same Business Day’s, irrevocable prior written notice to the Administrative Agent stating the proposed date and aggregate principal amount of such prepayment.  If any such notice is given, the Borrower shall prepay the Advances in whole or ratably in part in an aggregate principal amount equal to the amount specified in such notice, together with (i) the accrued interest to the date of such prepayment on the principal amount prepaid, (ii) the amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date, (iii) if such prepayment is made on or prior to the first anniversary of the Effective Date, a prepayment premium in an amount equal to 2.00% of the principal amount being prepaid; and (iv) if such prepayment is after the first anniversary of the Effective Date but on or prior to the second anniversary of the Effective Date, a prepayment premium in an amount equal to 1.00% of the principal amount being prepaid; provided, however, that each partial prepayment shall be made in minimum amounts of $2,500,000 and in integral multiples of $2,500,000 in excess thereof and full prepayments of any Borrowing are permitted without restriction of amounts.  No prepayment premium will be due for any optional prepayment made under this clause (a) after the second anniversary of the Effective Date.

 

(ii)                                   Mandatory .

 

(i)                                      Change in Control .  If a Change in Control shall occur and the Borrower has not optionally prepaid in full the outstanding principal amount of the Advances concurrently with the consummation of such Change in Control, at the Lenders’ option (which option may be exercised in their sole discretion) the Borrower shall prepay the outstanding principal amount of the Advances, in whole or in part as elected by the Lenders, together with (A) the accrued interest to the date of such prepayment on the principal amount prepaid, (B) the amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date, (C) if such Change in Control occurs on or prior to the first anniversary of the Effective Date, a prepayment premium in an amount equal to 2.00% of the principal amount required to be

 

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prepaid; and (D) if such Change in Control occurs after the first anniversary of the Effective Date but on or prior to the second anniversary of the Effective Date, a prepayment premium in an amount equal to 1.00% of the principal amount required to be prepaid.  No prepayment premium will be due for any Change of Control which occurs after the second anniversary of the Effective Date.  If the Lenders require the Borrower to prepay the Advances as provided above, the Administrative Agent shall so notify the Borrower in writing, which notice shall specify the amount to be paid by the Borrower pursuant to this Section 2.05(b).  The Borrower shall pay all such amounts in full within two Business Days of receipt of such notice.  The foregoing will not be deemed to be a consent by Lenders to any Change of Control or a waiver of any Default resulting therefrom.

 

(ii)                                   Asset Sales .  Subject to the terms of the Subordination and Intercreditor Agreement, not later than one Business Day following the receipt of any Net Cash Proceeds of any Asset Sale (regardless of whether such Asset Sale was permitted herein), the Borrower shall apply 100% of such Net Cash Proceeds and make a prepayment of the outstanding Advances, together with (A) the accrued interest to the date of such prepayment on the principal amount prepaid, (B) the amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date, (C) if such Asset Sale occurs on or prior to the first anniversary of the Effective Date, a prepayment premium in an amount equal to 2.00% of the principal amount required to be prepaid; and (D) if such Asset Sale occurs after the first anniversary of the Effective Date but on or prior to the second anniversary of the Effective Date, a prepayment premium in an amount equal to 1.00% of the principal amount required to be prepaid.  No prepayment premium will be due for any Asset Sale which occurs after the second anniversary of the Effective Date.   The foregoing will not be deemed to be a consent by Lenders to any Asset Sale or a waiver of any Default resulting therefrom.

 

(iii)                                Illegality .  If any Lender shall notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its Lending Office to perform its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Lender then outstanding hereunder, (i) the Borrower shall, no later than 10:00 a.m.  (Dallas, Texas time) / 8:00 a.m. (Los Angeles, California time) (A) if not prohibited by law, on the last day of the Interest Period for each outstanding Eurodollar Rate Advance made by such Lender or (B) if required by such notice, on the second Business Day following its receipt of such notice, prepay all of the Eurodollar Rate Advances made by such Lender then outstanding, together with accrued interest on the principal amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date, (ii) such Lender shall simultaneously make a Reference Rate Advance to the Borrower on such date in an amount equal to the aggregate principal amount of the Eurodollar Rate Advances prepaid to such Lender, and (iii) the right of the Borrower to select Eurodollar Rate Advances from such Lender for any subsequent Borrowing shall be suspended until such Lender gives notice referred to above shall notify the Administrative Agent that the circumstances causing such suspension no longer exist.

 

(iv)                               No Additional Right; Ratable Prepayment .  The Borrower shall have no right to prepay any principal amount of any Advance except as provided in this Section 2.05, and

 

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all notices given pursuant to this Section 2.05 shall be irrevocable and binding upon the Borrower.  Each payment of any Advance pursuant to this Section 2.05 shall be made in a manner such that all Advances comprising part of the same Borrowing are paid in whole or ratably in part.

 

(f)             Repayment of Advances .  The Borrower shall repay to the Administrative Agent for the ratable benefit of the Lenders the outstanding principal amount of each Advance, together with any accrued interest thereon, on the Maturity Date or such earlier date pursuant to Section 7.02 or Section 7.03.

 

(g)          Commitment Fees .  The Borrower agrees to pay to the Administrative Agent for the account of each Lender having a Commitment a commitment fee equal to 1.00% per annum of the daily Availability of such Lender, from the Effective Date until the Commitment Termination Date; provided that, no Commitment Fee shall accrue on the Commitment of a Defaulting Lender during the period such Lender remains a Defaulting Lender.  The commitment fees shall be due and payable quarterly in arrears on the last day of each March, June, September, and December commencing on December 31, 2008 and continuing thereafter through and including the Commitment Termination Date.

 

(h)          Fees .  The Borrower shall pay the fees as agreed to between the Borrower and the Administrative Agent in that certain fee letter dated the date hereof.

 

(i)              Interest .

 

(i)                                      Rates Based on Applicable Margin .  The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

 

(i)                                      Reference Rate Advances .  If such Advance is a Reference Rate Advance, a rate per annum equal at all times to the Adjusted Reference Rate in effect from time to time plus the Applicable Margin in effect from time to time, payable quarterly in arrears on the last day of each calendar quarter, commencing with the calendar quarter ending December 31, 2008 and on the date such Reference Rate Advance shall be paid.

 

(ii)                                   Eurodollar Rate Advances .  If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time, payable on the last day of such Interest Period.

 

(ii)                                   Additional Interest on Eurodollar Rate Advances .  The Borrower shall pay to each Lender, so long as any such Lender shall be required under regulations of the Federal Reserve Board to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the effective date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which

 

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interest is payable on such Advance.  Such additional interest payable to any Lender shall be determined by such Lender and notified to the Borrower through the Administrative Agent (such notice to include the calculation of such additional interest, which calculation shall be conclusive in the absence of manifest error).

 

(iii)                                [Reserved]

 

(iv)                               Usury Recapture .

 

(i)                                      If, with respect to any Lender, the effective rate of interest contracted for under the Loan Documents, including the stated rates of interest and fees contracted for hereunder and any other amounts contracted for under the Loan Documents which are deemed to be interest, at any time exceeds the Maximum Rate, then the outstanding principal amount of the loans made by such Lender hereunder shall bear interest at a rate which would make the effective rate of interest for such Lender under the Loan Documents equal the Maximum Rate until the difference between the amounts which would have been due at the stated rates and the amounts which were due at the Maximum Rate (the “Lost Interest”) has been recaptured by such Lender.

 

(ii)                                   If, when the loans made hereunder are repaid in full, the Lost Interest has not been fully recaptured by such Lender pursuant to the preceding paragraph, then, to the extent permitted by law, for the loans made hereunder by such Lender the interest rates charged under Section 2.09 hereunder shall be retroactively increased such that the effective rate of interest under the Loan Documents was at the Maximum Rate since the effectiveness of this Agreement to the extent necessary to recapture the Lost Interest not recaptured pursuant to the preceding sentence and, to the extent allowed by law, the Borrower shall pay to such Lender the amount of the Lost Interest remaining to be recaptured by such Lender.

 

(iii)                                NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND THE LOAN DOCUMENTS TO THE CONTRARY, IT IS THE INTENTION OF EACH LENDER AND THE BORROWER TO CONFORM STRICTLY TO ANY APPLICABLE USURY LAWS.  ACCORDINGLY, IF ANY LENDER CONTRACTS FOR, CHARGES, OR RECEIVES ANY CONSIDERATION WHICH CONSTITUTES INTEREST IN EXCESS OF THE MAXIMUM RATE, THEN ANY SUCH EXCESS SHALL BE CANCELED AUTOMATICALLY AND, IF PREVIOUSLY PAID, SHALL AT SUCH LENDER’S OPTION BE APPLIED TO THE OUTSTANDING AMOUNT OF THE LOANS MADE HEREUNDER BY SUCH LENDER OR BE REFUNDED TO THE BORROWER .

 

(j)              Payments and Computations .

 

(i)                                      Payment Procedures .  The Borrower shall make each payment under this Agreement and under the Notes not later than 10:00 a.m.  (Dallas, Texas time) / 8:00 a.m. (Los Angeles, California time) on the day when due in Dollars to the Administrative Agent at the location referred to in the Notes (or such other location as the Administrative Agent shall designate in writing to the Borrower) in same day funds without deduction, setoff, or counterclaim of any kind, except as may be applicable to any Defaulting Lender.  The Administrative Agent shall promptly thereafter cause to be distributed like funds relating to the

 

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payment of principal, interest or fees ratably (other than amounts payable solely to the Administrative Agent or a specific Lender pursuant to Section 2.08(c), 2.09(d), 2.12, 2.13, 2.14, 8.05, or 9.07, but after taking into account payments effected pursuant to Section 9.04) in accordance with each Lender’s Pro Rata Share to the Lenders for the account of their respective Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Lending Office, in each case to be applied in accordance with the terms of this Agreement.

 

(ii)                                   Computations .  All computations of interest based on the Reference Rate and of fees shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate and the Federal Funds Rate shall be made by the Administrative Agent, on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable.  Each determination by the Administrative Agent of an interest rate or fee shall be conclusive and binding for all purposes, absent manifest error.

 

(iii)                                Non-Business Day Payments .  Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided , however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

 

(iv)                               Administrative Agent Reliance .  Unless the Administrative Agent shall have received written notice from the Borrower prior to the date on which any payment is due to the Lenders that the Borrower shall not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such date an amount equal to the amount then due such Lender.  If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate for such day.

 

(k)           Sharing of Payments, Etc .  If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it in excess of its Pro Rata Share of payments on account of the Advances obtained by all the Lenders, such Lender shall notify the Administrative Agent and forthwith purchase from the other Lenders such participations in the Advances made or held by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided , however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender’s ratable share (according to the proportion of (a) the amount of the participation sold by such Lender to the purchasing Lender as a result of such excess payment to (b) the total amount

 

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of such excess payment) of such recovery, together with an amount equal to such Lender’s ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to the purchasing Lender to (ii) the total amount of all such required repayments to the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.  The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.  If a Lender fails to make an Advance with respect to a Borrowing as and when required hereunder and the Borrower subsequently makes a repayment of any Advances, such repayment shall be split among the non-defaulting Lenders ratably in accordance with their respective Commitment percentages until each Lender (including the Defaulting Lender) has its percentage of all of the outstanding Advances and the balance of such repayment shall be applied among the Lenders in accordance with their Pro Rata Share.

 

(l)              Breakage Costs .  If (a) any payment of principal of any Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance, whether as a result of any payment pursuant to Section 2.05, the acceleration of the maturity of the Notes pursuant to Article VII, or otherwise, or (b) the Borrower fails to make a principal or interest payment with respect to any Eurodollar Rate Advance on the date such payment is due and payable, the Borrower shall, within 10 days of any written demand sent by any Lender to the Borrower through the Administrative Agent, pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, out-of-pocket costs or expenses which it may reasonably incur as a result of such payment or nonpayment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.

 

(m)        Increased Costs .

 

(i)                                      Eurodollar Rate Advances .  If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding, or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), immediately pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost.  A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.

 

(ii)                                   Capital Adequacy .  If any Lender determines in good faith that compliance with any law or regulation adopted or changed after the date hereof or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such

 

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Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender’s commitment to lend and other commitments of this type, then, upon 30 days’ prior written notice by such Lender (with a copy of any such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender, in light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender’s commitment to lend under this Agreement.  A certificate as to such amounts and detailing the calculation of such amounts submitted to the Borrower by such Lender shall be conclusive and binding for all purposes, absent manifest error.

 

(iii)                                Reserved .

 

(iv)                               Mitigation .  Each Lender claiming compensation pursuant to this Section 2.13 shall designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole discretion of such Lender, be otherwise disadvantageous to such Lender.

 

(n)          Taxes .

 

(i)                                      No Deduction for Certain Taxes .  Any and all payments by the Borrower shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision of the jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”) and, in the case of each Lender, Taxes by the jurisdiction of such Lender’s Lending Office or any political subdivision of such jurisdiction.  If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14), such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made; provided , however, that if the Borrower’s obligation to deduct or withhold Taxes is caused solely by such Lender’s, or the Administrative Agent’s failure to provide the forms described in paragraph (d) of this Section 2.14 and such Lender or the Administrative Agent could have provided such forms, no such increase shall be required; (ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.

 

(ii)                                   Other Taxes .  In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes, or the other Loan Documents (hereinafter referred to as “Other Taxes”).

 

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(iii)                                Indemnification .  THE BORROWER INDEMNIFIES EACH LENDER AND THE ADMINISTRATIVE AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 2.14) PAID BY SUCH LENDER OR THE ADMINISTRATIVE AGENT (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED.  EACH PAYMENT REQUIRED TO BE MADE BY THE BORROWER IN RESPECT OF THIS INDEMNIFICATION SHALL BE MADE TO THE ADMINISTRATIVE AGENT FOR THE BENEFIT OF ANY PARTY CLAIMING SUCH INDEMNIFICATION WITHIN 30 DAYS FROM THE DATE THE BORROWER RECEIVES WRITTEN DEMAND THEREFOR FROM THE ADMINISTRATIVE AGENT ON BEHALF OF ITSELF AS ADMINISTRATIVE AGENT OR ANY SUCH LENDER.  IF ANY LENDER OR THE ADMINISTRATIVE AGENT RECEIVES A REFUND IN RESPECT OF ANY TAXES PAID BY THE BORROWER UNDER THIS PARAGRAPH (C), SUCH LENDER OR THE ADMINISTRATIVE AGENT, AS THE CASE MAY BE, SHALL PROMPTLY PAY TO THE BORROWER THE BORROWER’S SHARE OF SUCH REFUND.

 

(iv)                               Foreign Lender Withholding Exemption .  Each Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that it shall deliver to the Borrower and the Administrative Agent (i) two duly completed copies of United States Internal Revenue Service Form W8-ECI or W8-BEN or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, (ii) if applicable, an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax, and (iii) any other governmental forms which are necessary or required under an applicable tax treaty or otherwise by law to reduce or eliminate any withholding tax, which have been reasonably requested by the Borrower.  Each Lender which delivers to the Borrower and the Administrative Agent a Form W8-ECI or W8-BEN and Form W-8 or W-9 pursuant to the next preceding sentence further undertakes to deliver to the Borrower and the Administrative Agent two further copies of the said letter and Form W8-ECI or W8-BEN and Form W-8 or W-9 , or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to the Borrower and the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by the Borrower and the Administrative Agent certifying in the case of a Form W8-ECI or W8-BEN that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes.  If an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any delivery required by the preceding sentence would otherwise be required which renders all such forms inapplicable or which would prevent any Lender from duly completing and delivering any such letter or form with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8

 

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or W-9, establishing an exemption from United States backup withholding tax, such Lender shall not be required to deliver such letter or forms.  The Borrower shall withhold tax at the rate and in the manner required by the laws of the United States with respect to payments made to a Lender failing to timely provide the requisite Internal Revenue Service forms.

 

(o)          Replacement of Lender .  If (i) any Lender requests compensation under Section 2.13(a) or (b), (ii) any Lender suspends its obligation to continue, or Convert Advances into, Eurodollar Rate Advances pursuant to Section 2.03(c)(ii) or Section 2.11, or (iii) at any time prior to the Commitment Termination Date, any Lender becomes a Defaulting Lender (any such Lender, a “ Subject Lender ”), then (A) in the case of a Defaulting Lender, the Administrative Agent may, upon notice to the Subject Lender and the Borrower, require such Subject Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment) and (B) in the case of any Subject Lender, including a Defaulting Lender, the Borrower may, upon notice to the Subject Lender and the Administrative Agent and at the Borrower’s sole cost and expense, require such Subject Lender to assign, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

 

(A)                               as to assignments required by the Borrower, the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 9.06;

 

(B)                                 such Subject Lender shall have received payment of an amount equal to the outstanding principal of its Advances and participations in outstanding Letter of Credit Obligations, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 2.12) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Applicable Borrower (in the case of all other amounts);

 

(C)                                 in the case of any such assignment resulting from a claim for compensation under Section 2.13, such assignment will result in a reduction in such compensation or payments thereafter; and

 

(D)                                such assignment does not conflict with applicable Legal Requirements.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.  Solely for purposes of effecting the assignment required for a Defaulting Lender under this Section 2.15 and to the extent permitted under applicable Legal Requirements, each Lender hereby designates and appoints the Administrative Agent as true and lawful agent and attorney-in-fact, with full power and authority, for and on behalf of and in the name of such Lender to execute, acknowledge and deliver the Assignment and Acceptance required hereunder if such Lender was a Defaulting

 

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Lender and such Lender shall be bound thereby as fully and effectively as if such Lender had personally executed, acknowledged and delivered the same.  In lieu of the Borrower or the Administrative Agent replacing a Defaulting Lender as provided in this Section 2.15, the Borrower may terminate such Defaulting Lender’s Commitment as provided in Section 2.04.].

 

(p)   Increase in Commitments .

 

(i)            Request for Increase .  Provided there exists no Default and subject to the Subordination and Intercreditor Agreement, upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Borrower may at any time prior to the Maturity Date, request an increase in the aggregate Commitments (each such increase being a “ Commitment Increase ”) by an amount (for all such requests) not exceeding $10,000,000; provided that (i) any such request for an increase shall be in a minimum amount of $5,000,000, (ii) the aggregate Commitments, after giving effect to all Commitment Increases, shall not exceed the Maximum Note Amount, (iii) the Company may make a maximum of two such requests and (iv) all Commitments and Advances provided pursuant to a Commitment Increase shall be available on the same terms as those applicable to the existing Commitments and Advances.  At the time of sending such notice, the Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten Business Days from the date of delivery of such notice to the Lenders).

 

(ii)           Lender Elections to Increase .  Each Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Commitment and, if so, whether by an amount equal to, greater than, or less than its Pro Rata Share of such requested increase.  Any Lender not responding within such time period shall be deemed to have declined to increase its Commitment.

 

(iii)          Notification by Administrative Agent; Additional Lenders .  The Administrative Agent shall notify the Borrower and each Lender of the Lenders’ responses to each request made hereunder.  To achieve the full amount of a requested increase and subject to the approval of the Administrative Agent, the Borrower may also invite additional Eligible Assignees to become Lenders pursuant to a joinder agreement in form and substance satisfactory to the Administrative Agent and its counsel.

 

(iv)          Effective Date and Allocations .  If the Commitments are increased in accordance with this Section, the Administrative Agent and the Borrower shall determine the effective date (the “ Increase Effective Date ”) and the final allocation of such increase.  The Administrative Agent shall promptly notify the Borrower and the Lenders of the final allocation of such increase and the Increase Effective Date.

 

(v)           Conditions to Effectiveness of Increase .  An increase of the Commitments provided in this Section 2.16 shall become effective on the Increase Effective Date only upon the satisfaction of the following conditions precedent on or prior to such Increase Effective Date:  the receipt by the Administrative Agent of (i) an agreement in form and substance reasonably satisfactory to the Administrative Agent signed by the Borrower, each Lender and each new lender, setting forth its Commitments, if any, increased pursuant to this Section 2.16 and setting forth the agreement of each new lender to become a party to this Agreement and to be bound by

 

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all the terms and provisions hereof binding upon each Lender, and (ii) a certificate of each Guarantor and the Borrower dated as of the Increase Effective Date (in sufficient copies for each Lender) signed by a Responsible Officer of such Person certifying and attaching the resolutions adopted by such Person approving or consenting to such increase, and in the case of the Borrower, certifying that, before and after giving effect to such increase, (A) the representations and warranties contained in Article IV and the other Loan Documents are true and correct, in all material respects, on and as of the Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct, in all material respects, as of such earlier date, and except that for purposes of this Section 2.16, the representations and warranties contained in subsections (b) and (c) of Section 4.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 5.06, and (B) no Default exists.

 

(vi)          No Commitment.   This Section 2.16 shall not be construed to create any obligation on the Administrative Agent or any of the Lenders to advance or to commit to advance any credit to the Borrower or to arrange for any other Person to advance or to commit to advance any credit to the Borrower.

 

(vii)         Conflicting Provisions .  This Section shall supersede any provisions in Section 2.11 or 9.01 to the contrary.

 

Section 3.

CONDITIONS OF LENDING

 

(a)   Conditions Precedent to Initial Credit Extension .  The obligation of each Lender to make its Credit Extension on the Effective Date hereunder is subject to satisfaction of the following conditions precedent:

 

(i)            Documentation .  The Administrative Agent shall have received the following duly executed by all the parties thereto, in form and substance satisfactory to the Administrative Agent and the Lenders, and, where applicable, in sufficient copies for each Lender:

 

(i)            this Agreement, a Note payable to the order of each Lender in the amount of its Commitment, the Guaranties, the Pledge Agreement, the Security Agreements, and Mortgages encumbering substantially all of the Borrower’s and its Subsidiaries’ Proven Reserves and Oil and Gas Properties in which the Senior Administrative Agent has a Lien, and each of the other Loan Documents, and all attached exhibits and schedules;

 

(ii)           a favorable opinion of the Borrower’s, its Subsidiaries’ and the Guarantors’ counsel dated as of the date of this Agreement and substantially in the form of the attached Exhibit K covering the matters discussed in such Exhibit and such other matters as any Lender through the Administrative Agent may reasonably request;

 

(iii)          copies, certified as of the date of this Agreement by a Responsible Officer of the Borrower of (A) the resolutions of the Board of Directors of the Borrower approving the Loan Documents to which the Borrower is a party, (B) the certificate of incorporation of the

 

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Borrower, (C) the bylaws of the Borrower, and (D) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Note, and the other Loan Documents;

 

(iv)          certificates of a Responsible Officer of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement, the Notes, Notices of Borrowing, Notices of Conversion or Continuation, and the other Loan Documents to which the Borrower is a party;

 

(v)           copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of each Guarantor of (A) the resolutions of the Board of Directors (or other applicable governing body) of such Guarantor approving the Loan Documents to which it is a party, (B) the articles or certificate (as applicable) of incorporation (or organization) and bylaws of such Guarantor, and (C) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Guaranty, the Security Instruments, and the other Loan Documents to which such Guarantor is a party;

 

(vi)          a certificate of the secretary or an assistant secretary of each Guarantor certifying the names and true signatures of officers of such Guarantor authorized to sign the Guaranty, Security Instruments and the other Loan Documents to which such Guarantor is a party;

 

(vii)         a certificate dated as of the date of this Agreement from the Responsible Officer of the Borrower stating that the conditions in this Section 3.01 have been met;

 

(viii)        appropriate UCC-1 Financing Statements covering the Collateral for filing with the appropriate authorities and any other documents, agreements or instruments necessary to create an Acceptable Security Interest in such Collateral;

 

(ix)           insurance certificates evidencing insurance which meets the requirements of this Agreement and the Security Instruments, and which is otherwise satisfactory to the Administrative Agent;

 

(x)            the initial Independent Engineer’s Report dated effective as of a date acceptable to the Administrative Agent;

 

(xi)           the Subordination and Intercreditor Agreement; and

 

(xii)          such other documents, governmental certificates, agreements and lien searches as the Administrative Agent or any Lender may reasonably request.

 

(ii)           Payment of Fees .  On or prior to the date of this Agreement, the Borrower shall have paid the fees required by Section 2.08(c) and all costs and expenses that have been invoiced and are payable pursuant to Section 9.04.

 

(iii)          Delivery of Financial Statements .  The Administrative Agent and the Lenders shall have received true and correct copies of (i) the Financial Statements, (ii) the Interim Financial Statements, (iii) Projections through [June 30, 2012], (iv) pro forma unaudited

 

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consolidating financial statements of the Borrower as of the Effective Date after giving effect to the Advances made hereunder and any credit extensions outstanding on the Effective Date under the Senior Credit Agreement, including therein the Borrower’s consolidated balance sheet and statements of income, cash flows, and retained earnings, (v) a sources and uses statement outlining the uses to which the proceeds of the Advances will be applied on the Effective Date, and (vi) such other financial information as the Lenders may reasonably request.

 

(iv)          Security Instruments .  The Administrative Agent shall have received all appropriate evidence required by the Administrative Agent and the Lenders in their sole discretion necessary to determine that the Administrative Agent (for its benefit and the benefit of the Secured Parties) shall have an Acceptable Security Interest in the Collateral and that all actions or filings necessary to protect, preserve and validly perfect such Liens have been made, taken or obtained, as the case may be, and are in full force and effect.

 

(v)           Due Diligence on Title and Environmental .  The Administrative Agent shall be satisfied with the condition of the Oil and Gas Properties with respect to the Borrower’s and its Subsidiaries’ compliance with Environmental Laws and the Borrower’s and its Subsidiaries’ title to such properties.

 

(vi)          No Default .  No Default shall have occurred and be continuing.

 

(vii)         Representations and Warranties .  The representations and warranties contained in Article IV hereof and in each other Loan Document shall be true and correct in all material respects.

 

(viii)        Material Adverse Change .  No event or circumstance that could cause a Material Adverse Change shall have occurred.

 

(ix)           No Proceeding or Litigation; No Injunctive Relief .  No action, suit, investigation or other proceeding (including, without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be threatened or pending and no preliminary or permanent injunction or order by a state or federal court shall have been entered (i) in connection with this Agreement or any transaction contemplated hereby or (ii) which in the judgment of the Administrative Agent, could reasonably be expected to result in a Material Adverse Change (other than the developments under the litigation proceedings set forth on Schedule 4.07 which have been disclosed to the Administrative Agent prior to the Effective Date).

 

(x)            Consents, Licenses, Approvals, etc .  The Administrative Agent shall have received true copies (certified to be such by the Borrower or other appropriate party) of all consents, licenses and approvals required in accordance with applicable law, or in accordance with any document, agreement, instrument or arrangement to which the Borrower, the Guarantors and their respective Subsidiaries is a party, in connection with the execution, delivery, performance, validity and enforceability of this Agreement and the other Loan Documents.  In addition, the Borrower, the Guarantors and their respective Subsidiaries shall have all such material consents, licenses and approvals required in connection with the continued operation of the Borrower, the Guarantors and respective Subsidiaries, and such approvals shall

 

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be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on this Agreement and the actions contemplated hereby.

 

(xi)           Hedging Arrangements .  The Borrower shall have entered into the Hydrocarbon Hedge Agreements required by Section 5.12.

 

(xii)          Material Contracts .  The Borrower shall have delivered to the Administrative Agent copies of all material contracts, agreements or instruments listed on the attached Schedule 4.21.

 

(xiii)         USA Patriot Act .  The Borrower has delivered to each Lender that is subject to the Patriot Act such information requested by such Lender in order to comply with the Patriot Act.

 

(b)   Conditions Precedent to All Borrowings .  The obligation of each Lender to make an Advance on the occasion of each Borrowing shall be subject to the further conditions precedent that on the date of such Borrowing:

 

(i)            the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and Notice of Conversion or Continuation and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true):

 

(i)            the representations and warranties contained in Article IV of this Agreement and the representations and warranties contained in the Security Instruments, the Guaranties, and each of the other Loan Documents are true and correct in all material respects on and as of the date of such Borrowing before and after giving effect to such Borrowing and to the application of the proceeds from such Borrowing, as though made on and as of such date except to the extent that any such representation or warranty expressly relates solely to an earlier date, in which case it shall have been true and correct in all material respects as of such earlier date; and

 

(ii)           no Default has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom, and

 

(ii)           the Administrative Agent shall have received such other approvals, opinions, or documents reasonably deemed necessary or desirable by any Lender as a result of circumstances occurring after the date of this Agreement, as any Lender through the Administrative Agent may reasonably request.

 

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Section 4.

 

REPRESENTATIONS AND WARRANTIES

 

The Borrower represents and warrants as follows:

 

(a)   Existence; Subsidiaries .  The Borrower is a corporation duly organized, validly existing and in good standing under the laws of Delaware and in good standing and qualified to do business in each other jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification except where the failure to be so qualified could not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.  Each Subsidiary of the Borrower is duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation and in good standing and qualified to do business in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification except where the failure to be so qualified could not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.  As of the date hereof, the Borrower has no Subsidiaries other than those listed identified in Schedule 4.01.

 

(b)   Power .  The execution, delivery, and performance by the Borrower of this Agreement, the Notes, and the other Loan Documents to which it is a party and by the Guarantors of the Guaranties and the other Loan Documents to which they are a party and the consummation of the transactions contemplated hereby and thereby (a) are within the Borrower’s and such Guarantors’ governing powers, (b) have been duly authorized by all necessary governing action, (c) do not contravene (i) the Borrower’s or any Guarantor’s certificate or articles of incorporation, bylaws, limited liability company agreement, or other similar governance documents or (ii) any law or any contractual restriction binding on or affecting the Borrower or any Guarantor, and (d) will not result in or require the creation or imposition of any Lien prohibited by this Agreement.  At the time of each Advance, such Advance and the use of the proceeds of such Advance, will be within the Borrower’s governing powers, will have been duly authorized by all necessary corporate action, will not contravene (i) the Borrower’s certificate of incorporation and bylaws or other organizational documents or (ii) any law or any contractual restriction binding on or affecting the Borrower and will not result in or require the creation or imposition of any Lien prohibited by this Agreement.

 

(c)   Authorization and Approvals .  No consent, order, authorization, or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required for the due execution, delivery, and performance by the Borrower of this Agreement, the Notes, or the other Loan Documents to which the Borrower is a party or by each Guarantor of its Guaranty or the other Loan Documents to which it is a party or the consummation of the transactions contemplated thereby.  At the time of each Borrowing, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or the use of the proceeds of such Borrowing.

 

(d)   Enforceable Obligations .  This Agreement, the Notes, and the other Loan Documents to which the Borrower is a party have been duly executed and delivered by the Borrower and the Guaranties and the other Loan Documents to which each Guarantor is a party have been duly executed and delivered by the Guarantors.  Each Loan Document is the legal,

 

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valid, and binding obligation of the Borrower and each Guarantor which is a party to it enforceable against the Borrower and each such Guarantor in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity.

 

(e)   Financial Statements .

 

(i)            The Borrower has delivered to the Administrative Agent and the Lenders copies of the Financial Statements and the Interim Financial Statements, and the Financial Statements and the Interim Financial Statements are accurate and complete in all material respects and present fairly the financial condition of Borrower and its consolidated Subsidiaries for their respective period in accordance with GAAP.  As of the date of the Financial Statements, there were no material contingent obligations, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses of the Borrower or any Subsidiary, except as disclosed therein and adequate reserves for such items have been made in accordance with GAAP.

 

(ii)           Since the date of the Financial Statements, no event or circumstance that could cause a Material Adverse Change has occurred.

 

(iii)          As of the date hereof, the Borrower, the Guarantors and their respective Subsidiaries have no Debt other than the Debt listed on Schedule 4.05.

 

(f)    True and Complete Disclosure .  All factual information (excluding estimates) heretofore or contemporaneously furnished by or on behalf of the Borrower or any of the Guarantors in writing to any Lender or the Administrative Agent for purposes of or in connection with this Agreement, any other Loan Document or any transaction contemplated hereby or thereby is, and all other such factual information hereafter furnished by or on behalf of the Borrower and the Guarantors in writing to the Administrative Agent or any of the Lenders was or shall be, true and accurate in all material respects on the date as of which such information was or is dated or certified and did not or does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein not misleading at such time.  All projections, estimates, and pro forma financial information furnished by the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were furnished.

 

(g)   Litigation; Compliance with Laws .

 

(i)            There is no pending or, to the best knowledge of the Borrower, threatened action or proceeding affecting the Borrower or any of the Guarantors before any court, Governmental Authority or arbitrator which could reasonably be expected to cause a Material Adverse Change other than as set forth in Schedule 4.07 or which purports to affect the legality, validity, binding effect or enforceability of this Agreement, any Note, or any other Loan Document.  Additionally, there is no pending or, to the best of the knowledge of the Borrower, threatened action or proceeding instituted against the Borrower or any of the Guarantors which

 

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seeks to adjudicate the Borrower or any of the Guarantors as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property.

 

(ii)           The Borrower and its Subsidiaries have complied in all material respects with all material statutes, rules, regulations, orders and restrictions of any Governmental Authority having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property

 

(h)   Use of Proceeds .  The proceeds of the Advances will be used by the Borrower for the purposes described in Section 5.09.  The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U).  No proceeds of any Advance will be used to purchase or carry any margin stock in violation of Regulation T, U or X.

 

(i)    Investment Company Act .  Neither the Borrower nor any of the Guarantors is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

(j)    Federal Power Act .  Neither the Administrative Agent nor any of the Lenders, solely by virtue of the execution, delivery and performance of, and the consummation of the transactions contemplated by, the Loan Documents shall be or become subject to regulation (a) under the Federal Power Act, as amended, (b) as a “public utility” or “public service corporation” or the equivalent under the applicable law of any state, or (c) under the applicable laws of any state relating to public utilities or public service corporations.

 

(k)   Taxes .

 

(i)            Reports and Payments .  All Returns (as defined below in clause (c) of this Section) required to be filed by or on behalf of the Borrower, the Guarantors, or any member of the Controlled Group (hereafter collectively called the “Tax Group”) have been duly filed on a timely basis or appropriate extensions have been obtained and such Returns are and will be true, complete and correct, except where the failure to so file would not be reasonably expected to cause a Material Adverse Change; and all Taxes shown to be payable on the Returns or on subsequent assessments with respect thereto will have been paid in full on a timely basis, and no other Taxes will be payable by the Tax Group with respect to items or periods covered by such Returns, except in each case to the extent of (i) reserves reflected in the Financial Statements and the Interim Financial Statements, or (ii) taxes that are being contested in good faith.  The reserves for accrued Taxes reflected in the financial statements delivered to the Lenders under this Agreement are adequate in the aggregate for the payment of all unpaid Taxes, whether or not disputed, for the period ended as of the date thereof and for any period prior thereto, and for which the Tax Group may be liable in its own right, as withholding agent or as a transferee of the assets of, or successor to, any Person.

 

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(ii)           Taxes Definition .  “Taxes” in this Section 4.11 shall mean all taxes, charges, fees, levies, or other assessments imposed by any federal, state, local, or foreign taxing authority, including without limitation, income, gross receipts, excise, real or personal property, sales, occupation, use, service, leasing, environmental, value added, transfer, payroll, and franchise taxes (and including any interest, penalties, or additions to tax attributable to or imposed on with respect to any such assessment).

 

(iii)          Returns Definition .  “Returns” in this Section 4.11 shall mean any federal, state, local, or foreign report, estimate, declaration of estimated Tax, information statement or return relating to, or required to be filed in connection with, any Taxes, including any information return or report with respect to backup withholding or other payments of third parties.

 

(l)    Pension Plans .  All Plans are in compliance in all material respects with all applicable provisions of ERISA.  No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code.  No “accumulated funding deficiency” (as defined in Section 302 of ERISA) has occurred and there has been no excise tax imposed under Section 4971 of the Code.  No Reportable Event under Section 4043 of ERISA and the regulations issued thereunder has occurred with respect to any Multiemployer Plan, and each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code.  The present value of all benefits vested under each Plan (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such vested benefits.  Neither the Borrower nor any member of the Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any withdrawal liability.  As of the most recent valuation date applicable thereto, neither the Borrower nor any member of the Controlled Group would become subject to any liability under ERISA if the Borrower or any member of the Controlled Group has received notice that any Multiemployer Plan is insolvent or in reorganization.  Based upon GAAP existing as of the date of this Agreement and current factual circumstances, the Borrower has no reason to believe that the annual cost during the term of this Agreement to the Borrower or any member of the Controlled Group for post-retirement benefits to be provided to the current and former employees of the Borrower or any member of the Controlled Group under Plans that are welfare benefit plans (as defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be expected to cause a Material Adverse Change.

 

(m)  Condition of Property; Casualties .  Each of the Borrower and the Guarantors has good and marketable title to all of its Oil and Gas Properties as is customary in the oil and gas industry in all material respects, free and clear of all Liens except for Permitted Liens.  Each of the Borrower and the Guarantors has good and indefeasible title to all of its other Properties, free and clear of all Liens except for Permitted Liens.  The material Properties used or to be used in the continuing operations of the Borrower and each of the Guarantors are in good repair, working order and condition.  Since the date of the Financial Statements, neither the business nor the material Properties of the Borrower and each of the Guarantors, taken as a whole, has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property

 

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or cancellation of contracts, Permits, or concessions by a Governmental Authority, riot, activities of armed forces, or acts of God or of any public enemy.

 

(n)   No Burdensome Restrictions; No Defaults .

 

(i)            Other than those identified on Schedule 4.14(a), neither the Borrower nor any Guarantor is a party to any indenture, loan, or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction or provision of applicable law or governmental regulation that could reasonably be expected to cause a Material Adverse Change.  Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any contract, agreement, lease, or other instrument to which the Borrower or any Subsidiary is a party and which could reasonably be expected to cause a Material Adverse Change or under any agreement in connection with any Debt.  Neither the Borrower nor any of its Subsidiaries has received any notice of default under any material contract, agreement, lease, or other instrument to which the Borrower or such Subsidiary is a party a copy of which has not been delivered to the Administrative Agent.

 

(ii)           No Default has occurred and is continuing.

 

(o)   Environmental Condition .

 

(i)            Permits, Etc .  The Borrower and the Guarantors (i) have obtained all Environmental Permits necessary for the ownership and operation of their respective Properties and the conduct of their respective businesses; (ii) have at all times been and are in material compliance with all terms and conditions of such Permits and with all other material requirements of applicable Environmental Laws; (iii) have not received notice of any material violation or alleged violation of any Environmental Law or Permit; and (iv) are not subject to any actual or contingent Environmental Claim, which could reasonably be expected to cause a Material Adverse Change.

 

(ii)           Certain Liabilities .  To the Borrower’s actual knowledge, none of the present or previously owned or operated Property of the Borrower or any Guarantor or of any of their former Subsidiaries, wherever located, (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws; (ii) is subject to a Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property owned or operated by the Borrower or any of the Guarantors, wherever located, which could reasonably be expected to cause a Material Adverse Change; or (iii) has been the site of any Release of Hazardous Substances or Hazardous Wastes from present or past operations which has caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response that would cause a Material Adverse Change.

 

(iii)          Certain Actions .  Without limiting the foregoing, (i) all necessary notices have been properly filed, and no further action is required under current Environmental Law as

 

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to each Response or other restoration or remedial project undertaken by the Borrower or the Guarantors or any of their former Subsidiaries on any of their presently or formerly owned or operated Property and (ii) the present and, to the Borrower’s best knowledge, future liability, if any, of the Borrower and the Guarantors which could reasonably be expected to arise in connection with requirements under Environmental Laws will not result in a Material Adverse Change.

 

(p)   Permits, Licenses, Etc .  The Borrower and the Guarantors possess all authorizations, Permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names rights and copyrights which are material to the conduct of their business.  The Borrower and the Guarantors manage and operate their business in all material respects in accordance with all applicable Legal Requirements and good industry practices.

 

(q)   Gas Contracts .  Neither the Borrower nor any of the Guarantors, as of the date hereof, (a) is obligated in any material respect by virtue of any prepayment made under any contract containing a “take-or-pay” or “prepayment” provision or under any similar agreement to deliver hydrocarbons produced from or allocated to any of the Borrower’s and its Subsidiaries’ Oil and Gas Properties at some future date without receiving full payment therefor at the time of delivery, or (b) except as has been disclosed to the Administrative Agent, has produced gas, in any material amount, subject to, and none of the Borrower’s and the Guarantors’ Oil and Gas Properties is subject to, balancing rights of third parties or subject to balancing duties under governmental requirements.

 

(r)    Liens; Titles, Leases, Etc .  None of the Property of the Borrower or any of the Guarantors is subject to any Lien other than Permitted Liens.  On the date of this Agreement, all governmental actions and all other filings, recordings, registrations, third party consents and other actions which are necessary to create and perfect the Liens provided for in the Security Instruments will have been made, obtained and taken in all relevant jurisdictions.  All leases and agreements for the conduct of business of the Borrower and the Guarantors are valid and subsisting, in full force and effect and there exists no default or event of default or circumstance which with the giving of notice or lapse of time or both would give rise to a default under any such leases or agreements which could reasonably be expected to cause a Material Adverse Change.  Neither the Borrower nor any of the Guarantors is a party to any agreement or arrangement (other than this Agreement and the Security Instruments), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to secure the Obligations against their respective assets or Properties.

 

(s)   Solvency and Insurance .  Before and after giving effect to the making of the initial Advances, each of the Borrower and its Subsidiaries is Solvent.  Additionally, each of the Borrower and its Subsidiaries carry insurance required under Section 5.02 of this Agreement.

 

(t)    Hedging Agreements .  Schedule 4.20 sets forth, as of the date hereof, a true and complete list of all Interest Hedge Agreements, Hydrocarbon Hedge Agreements, and Hedge Contracts of the Borrower and its Subsidiaries, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied), and the counterparty to each such agreement.

 

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(u)   Material Agreements .  Schedule 4.21 sets forth a complete and correct list of all material agreements, leases, indentures, purchase agreements, obligations in respect of letters of credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as of the date hereof (other than the agreements set forth in Schedule 4.20) providing for, evidencing, securing or otherwise relating to any Debt of the Borrower or any of the Guarantors, and all obligations of the Borrower or any of the Guarantors to issuers of surety or appeal bonds issued for account of the Borrower or any such Guarantor, and such list correctly sets forth the names of the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations outstanding or to be outstanding and the Property subject to any Lien securing such Debt or lease obligation.  Also set forth on Schedule 4.21 hereto is a complete and correct list of all material agreements and other instruments of the Borrower and the Guarantors relating to the purchase, transportation by pipeline, gas processing, marketing, sale and supply of natural gas and other Hydrocarbons.  The Borrower has heretofore delivered to the Administrative Agent and the Lenders a complete and correct copy of all such material credit agreements, indentures, purchase agreements, contracts, letters of credit, guarantees, joint venture agreements, or other instruments, including any modifications or supplements thereto, as in effect on the date hereof.

 

Section 5.

 

AFFIRMATIVE COVENANTS

 

So long as any Note or any amount under any Loan Document shall remain unpaid, or any Lender shall have any Commitment hereunder, the Borrower agrees, unless the Majority Lenders shall otherwise consent in writing, to comply with the following covenants.

 

(a)   Compliance with Laws, Etc .  The Borrower shall comply, and cause each of its Subsidiaries to comply, in all material respects with all material Legal Requirements.  Without limiting the generality and coverage of the foregoing, the Borrower shall comply, and shall cause each of its Subsidiaries to comply, in all material respects, with all material Environmental Laws and all laws, regulations, or directives with respect to equal employment opportunity and employee safety in all jurisdictions in which the Borrower, or any of its Subsidiaries do business; provided , however, that this Section 5.01 shall not prevent the Borrower or any of its Subsidiaries from, in good faith and with reasonable diligence, contesting the validity or application of any such laws or regulations by appropriate legal proceedings.  Without limitation of the foregoing, the Borrower shall, and shall cause each of its Subsidiaries to, (a) maintain and possess all authorizations, Permits, licenses, trademarks, trade names, rights and copyrights which are necessary to the conduct of its business and (b) obtain, as soon as practicable, all consents or approvals required from any states of the United States (or other Governmental Authorities) necessary to grant the Administrative Agent an Acceptable Security Interest in the Borrower’s and its Subsidiaries’ Oil and Gas Properties.

 

(b)   Maintenance of Insurance .

 

(i)            The Borrower shall, and shall cause each of its Subsidiaries to, procure and maintain or shall cause to be procured and maintained continuously in effect policies of insurance in form and amounts and issued by companies, associations or organizations reasonably satisfactory to the Administrative Agent covering such casualties, risks, perils,

 

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liabilities and other hazards reasonably required by the Administrative Agent.  In addition, the Borrower shall, and shall cause each of its Subsidiaries to, comply with all requirements regarding insurance contained in the Security Instruments.

 

(ii)           All certified copies of policies or certificates thereof, and endorsements and renewals thereof shall be delivered to and retained by the Administrative Agent.  Unless the Senior Credit Agreement requires otherwise, all policies of insurance shall either have attached thereto a Lender’s loss payable endorsement for the benefit of the Administrative Agent, as loss payee in form reasonably satisfactory to the Administrative Agent or shall name the Administrative Agent as an additional insured, as applicable.  The Borrower shall furnish the Administrative Agent with a certificate of insurance or a certified copy of all policies of insurance required.  All policies or certificates of insurance shall set forth the coverage, the limits of liability, the name of the carrier, the policy number, and the period of coverage.  Unless the Senior Credit Agreement requires otherwise, all policies of insurance required under the terms hereof shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act of negligence of the Borrower, or a Subsidiary or any party holding under the Borrower or a Subsidiary which might otherwise result in a forfeiture of the insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against the Borrower and its Subsidiaries.  Unless the Senior Credit Agreement requires otherwise, all such policies shall contain a provision that notwithstanding any contrary agreements between the Borrower, its Subsidiaries, and the applicable insurance company, such policies will not be canceled, allowed to lapse without renewal, surrendered or amended (which provision shall include any reduction in the scope or limits of coverage) without at least 30 days’ prior written notice to the Administrative Agent.  In the event that, notwithstanding the “lender’s loss payable endorsement” requirement of this Section 5.02, the proceeds of any insurance policy described above are paid to the Borrower or a Subsidiary, any Obligations are outstanding and the Senior Debt has been indefeasibly paid in full, the Borrower shall deliver such proceeds to the Administrative Agent immediately upon receipt.

 

(c)   Preservation of Corporate Existence, Etc .  The Borrower shall preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate or limited liability company, as applicable, existence, rights, franchises, and privileges in the jurisdiction of its incorporation or organization, as applicable, and qualify and remain qualified, and cause each such Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its Properties, and, in each case, where failure to qualify or preserve and maintain its rights and franchises could reasonably be expected to cause a Material Adverse Change.

 

(d)   Payment of Taxes, Etc .  The Borrower shall pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (a) all taxes, assessments, and governmental charges or levies imposed upon it or upon its income or profits or Property that are material in amount, prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, might by law become a Lien upon its Property; provided , however, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim which is being

 

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contested in good faith and by appropriate proceedings, and with respect to which reserves in conformity with GAAP have been provided.

 

(e)   Visitation Rights .  At any reasonable time and from time to time, upon reasonable notice, the Borrower shall, and shall cause its Subsidiaries to, permit the Administrative Agent and any Lender or any of their respective agents or representatives thereof, to (a) examine and make copies of and abstracts from the records and books of the account of, and visit and inspect at their reasonable discretion the Properties of, the Borrower and any such Subsidiary, and (b) discuss the affairs, finances and accounts of the Borrower and any such Subsidiary with any of their respective officers or directors.

 

(f)    Reporting Requirements .  The Borrower shall furnish to the Administrative Agent and each Lender:

 

(i)            Annual Financials .  As soon as available and in any event not later than 90 days after the end of each fiscal year of the Borrower and its consolidated Subsidiaries, commencing with fiscal year ending June 30, 2009, (i) to the extent not otherwise provided in the Form 10-K filed by the Borrower with the SEC for such fiscal year end, a copy of the annual audit report for such year for the Borrower and its consolidated Subsidiaries, including therein the Borrower’s and its consolidated Subsidiaries’ balance sheets as of the end of such fiscal year and the Borrower’s and its consolidated Subsidiaries’ statements of income, cash flows, and retained earnings, in each case certified by an independent certified public accountants of national standing reasonably acceptable to the Administrative Agent and including any management letters delivered by such accountants to the Borrower or any Subsidiary in connection with such audit, (ii) any management letters delivered by such accountants to the Borrower, (iii) the Form 10-K filed with the SEC for such fiscal year end, (iv) a Compliance Certificate executed by a Responsible Officer of the Borrower and (v) a copy of the unaudited annual consolidating financial statements of each of its Subsidiaries, including therein such Subsidiary’s balance sheet and statements of income, cash flows, and retained earnings for such fiscal year;

 

(ii)           Quarterly Financials .  As soon as available and in any event not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower and its consolidated Subsidiaries, commencing with the fiscal quarter ending December 31, 2008, (i) to the extent not otherwise provided in the Form 10-Q for such fiscal quarter end, the unaudited balance sheet and the statements of income, cash flows, and retained earnings of each such Person for the period commencing at the end of the previous year and ending with the end of such fiscal quarter, all in reasonable detail and duly certified with respect to such consolidated statements (subject to year-end audit adjustments) by a Responsible Officer of the Borrower as having been prepared in accordance with GAAP, (ii) the Form 10-Q filed with the SEC for such fiscal quarter end, and (iii) a Compliance Certificate executed by the Responsible Officer of the Borrower;

 

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(iii)          Oil and Gas Reserve Reports .

 

(i)            As soon as available but in any event on or before each September 30 of each year, an Independent Engineering Report dated effective as of July 1 for such year;

 

(ii)           As soon as available but in any event on or before (A) May 1, 2009, and (b) March 31 of each year, commencing with March 31, 2010, an Internal Engineering Report dated effective as of the immediately preceding January 1;

 

(iii)          Such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base;

 

With the delivery of each Engineering Report, a certificate from a Responsible Officer of the Borrower certifying that, to the best of his knowledge and in all material respects: (A) the information contained in the Engineering Report and any other information delivered in connection therewith is true and correct, (B) the Borrower or its Subsidiary, as applicable, owns good and marketable title to the Oil and Gas Properties evaluated in such Engineering Report, as is customary in the oil and gas industry, and such Oil and Gas Properties are subject to an Acceptable Security Interest and free of all Liens except for Permitted Liens, (C) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments with respect to its Oil and Gas Properties evaluated in such Engineering Report which would require the Borrower or any of its Subsidiaries to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (D) none of its Oil and Gas Properties have been sold since the date of the last Borrowing Base determination except as set forth on an exhibit to the certificate, which certificate shall list all of its Oil and Gas Properties sold and in such detail as reasonably required by the Majority Lenders, (E) attached to the certificate is a list of its Oil and Gas Properties added to and deleted from the immediately prior Engineering Report and a list showing any change in working interest or net revenue interest in its Oil and Gas Properties occurring and the reason for such change, (F) attached to the certificate is a list of all Persons disbursing proceeds to the Borrower or to its Subsidiary, as applicable, from its Oil and Gas Properties, (G) except as set forth on a schedule attached to the certificate, all of the Oil and Gas Properties evaluated by such Engineering Report are pledged as Collateral for the Obligations, and (H) attached to the certificate is a quarterly cash flow budget for the four quarters following the delivery of such certificate setting forth the Borrower’s projections for production volumes, revenues, expenses, taxes and budgeted capital expenditures during such period.

 

(iv)          Production and Hedging Reports .  As soon as available and in any event within 45 days after the end of each quarter, commencing with the quarter ending December 31, 2008, a report certified by a Responsible Officer of the Borrower in form and substance satisfactory to the Administrative Agent prepared by the Borrower (i) covering each of the Oil and Gas Properties of the Borrower and its Subsidiaries and detailing on a quarterly basis (A) the production, revenue, and price information and associated operating expenses for each such quarter, (B) any changes to any producing reservoir, production equipment, or producing well during each such quarter, which changes could cause a Material Adverse Change, and (C) any sales of the Borrower’s or any Subsidiaries’ Oil and Gas Properties during each such quarter,

 

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(ii) setting forth a true and complete list of all Hedge Contracts of the Borrower and its Subsidiaries and detailing the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied), and the counterparty to each such agreement, and (iii) certifying the Borrower’s compliance with Section 5.12 hereof;

 

(v)           Defaults .  As soon as possible and in any event within five days after (i) the occurrence of any Default or (ii) the occurrence of any default under any instrument or document evidencing Debt of the Borrower or any Subsidiary, in each case known to any officer of the Borrower or any of its Subsidiaries which is continuing on the date of such statement, a statement of a Responsible Officer of the Borrower setting forth the details of such Default or default, as applicable, and the actions which the Borrower or such Subsidiary has taken and proposes to take with respect thereto;

 

(vi)          Termination Events .  As soon as possible and in any event (i) within 30 days after the Borrower or any member of the Controlled Group knows or has reason to know that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, and (ii) within 10 days after the Borrower or any of its Affiliates knows or has reason to know that any other Termination Event with respect to any Plan has occurred, a statement of a Responsible Officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or such Affiliate proposes to take with respect thereto;

 

(vii)         Termination of Plans .  Promptly and in any event within two Business Days after receipt thereof by the Borrower or any member of the Controlled Group from the PBGC, copies of each notice received by the Borrower or any such member of the Controlled Group of the PBGC’s intention to terminate any Plan or to have a trustee appointed to administer any Plan;

 

(viii)        Other ERISA Notices .  Promptly and in any event within five Business Days after receipt thereof by the Borrower or any member of the Controlled Group from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or any member of the Controlled Group concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA;

 

(ix)           Environmental Notices .  Promptly upon the receipt thereof by the Borrower or any of its Subsidiaries, a copy of any form of request, notice, summons or citation received from the Environmental Protection Agency, or any other Governmental Authority, concerning (i) violations or alleged violations of Environmental Laws, which seeks to impose liability therefor and could cause a Material Adverse Change, (ii) any action or omission on the part of the Borrower or any Subsidiary or any of their former Subsidiaries in connection with Hazardous Waste or Hazardous Substances which could reasonably result in the imposition of liability therefor that could cause a Material Adverse Change, including without limitation any information request related to, or notice of, potential responsibility under CERCLA, or (iii) concerning the filing of a Lien upon, against or in connection with the Borrower or any Subsidiary or their former Subsidiaries, or any of their leased or owned Property, wherever located;

 

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(x)            Other Governmental Notices .  Promptly and in any event within five Business Days after receipt thereof by the Borrower or any Subsidiary, a copy of any notice, summons, citation, or proceeding seeking to modify in any material respect, revoke, or suspend any material contract, license, permit or agreement with any Governmental Authority;

 

(xi)           Material Changes .  Prompt written notice of any condition or event of which the Borrower has knowledge, which condition or event has resulted or may reasonably be expected to result in (i) a Material Adverse Change or (ii) a breach of or noncompliance with any material term, condition, or covenant of any material contract to which the Borrower or any of its Subsidiaries is a party or by which they or their Properties may be bound;

 

(xii)          Disputes, Etc .  Prompt written notice of (i) any claims, legal or arbitration proceedings, proceedings before any Governmental Authority, or disputes pending, or to the knowledge of the Borrower threatened, or affecting the Borrower, or any of its Subsidiaries which, if adversely determined, could reasonably be expected to cause a Material Adverse Change, or any material labor controversy of which the Borrower or any of its Subsidiaries has knowledge resulting in or reasonably considered to be likely to result in a strike against the Borrower or any of its Subsidiaries and (ii) any claim, judgment, Lien or other encumbrance (other than a Permitted Lien) affecting any Property of the Borrower or any Subsidiary if the value of the claim, judgment, Lien, or other encumbrance affecting such Property shall exceed $500,000.

 

(xiii)         Other Accounting Reports .  Promptly upon receipt thereof, a copy of each other report or letter submitted to the Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower and its Subsidiaries, and a copy of any response by the Borrower or any Subsidiary of the Borrower, or the Board of Directors (or other applicable governing body) of the Borrower or any Subsidiary of the Borrower, to such letter or report;

 

(xiv)        Notices Under Other Loan Agreements .  Promptly after the furnishing thereof, copies of any statement, report or notice furnished to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 5.06;

 

(xv)         SEC Filings .  Promptly after the sending or filing thereof, copies of all proxy material, reports and other information which the Borrower or any of its Subsidiaries sends to or files with the SEC or sends to any shareholder of the Borrower or of any of its Subsidiaries;

 

(xvi)        USA Patriot Act .  Promptly, following a request by any Lender, all documentation and other information that such Lender reasonably requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act; and

 

(xvii)       Other Information .  Such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Borrower or any of its

 

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Subsidiaries, as any Lender through the Administrative Agent may from time to time reasonably request.  The Administrative Agent agrees to provide the Lenders with copies of any material notices and information delivered solely to the Administrative Agent pursuant to the terms of this Agreement.

 

(g)   Maintenance of Property .  The Borrower shall, and shall cause each of its Subsidiaries to, maintain their owned, leased, or operated Property in good condition and repair; and shall abstain, and cause each of its Subsidiaries to abstain from, knowingly or willfully permitting the commission of waste or other injury, destruction, or loss of natural resources, or the occurrence of pollution, contamination, or any other condition in, on or about the owned or operated Property involving the Environment that could reasonably be expected to result in Response activities and that could reasonably be expected to cause a Material Adverse Change.

 

(h)   Agreement to Pledge .  The Borrower shall, and shall cause each Subsidiary to, grant to the Administrative Agent an Acceptable Security Interest in any Property of the Borrower or any Subsidiary now owned or hereafter acquired promptly after receipt of a written request from the Administrative Agent.

 

(i)    Use of Proceeds .  The Borrower shall use the proceeds of the Advances (a) to pay to the Senior Lenders a portion of the Senior Debt outstanding under the Senior Credit Agreement, (b) for capital expenditures, and (c) for working capital and other general corporate purposes.

 

(j)    Title Evidence and Opinions .  The Borrower shall from time to time upon the reasonable request of the Administrative Agent, take such actions and execute and deliver such documents and instruments as the Administrative Agent shall require to ensure that the Administrative Agent shall, at all times, have received satisfactory title evidence, which title evidence shall be in form and substance acceptable to the Administrative Agent in its sole discretion and shall include information regarding the before payout and after payout ownership interests held by the Borrower and the Borrower’s Subsidiaries, for all wells located on the Oil and Gas Properties, covering at least 80% of the present value of the Proven Reserves of the Borrower and its Subsidiaries and at least 80% of the present value of the proved developed producing reserves of the Borrower and its Subsidiaries as determined by the Administrative Agent.  Within 60 days after the date hereof, the Borrower shall have delivered to the Administrative Agent title and lien searches from the county recording offices of (a) Chavez and Roosevelt counties of New Mexico, (b) Lincoln and Nowata counties of Oklahoma, and (c) Erath, Comanche, Eastland, Carson, Gray and Hutchinson counties of Texas.

 

(k)   Further Assurances; Cure of Title Defects .  The Borrower shall, and shall cause each Subsidiary to, cure promptly any defects in the creation and issuance of the Notes and the execution and delivery of the Security Instruments and this Agreement.  The Borrower hereby authorizes the Administrative Agent to file any financing statements without the signature of the Borrower to the extent permitted by applicable law in order to perfect or maintain the perfection of any security interest granted under any of the Loan Documents.  The Borrower at its expense will, and will cause each Subsidiary to, promptly execute and deliver to the Administrative Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower or any Subsidiary, as the case may be,

 

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in the Security Instruments and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Notes, or to correct any omissions in the Security Instruments, or to state more fully the security obligations set out herein or in any of the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of the Security Instruments, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith or to enable the Administrative Agent to exercise and enforce its rights and remedies with respect to any Collateral.  Within 30 days after a request by the Administrative Agent or the Lenders to cure any title defects or exceptions which are not Permitted Liens raised by such information, the Borrower shall (i) cure such title defects or exceptions which are not Permitted Liens or substitute acceptable Oil and Gas Properties with no title defects or exceptions except for Permitted Liens covering Collateral of an equivalent value and (ii) deliver to the Administrative Agent satisfactory title evidence (including supplemental or new title opinions meeting the foregoing requirements) in form and substance acceptable to the Administrative Agent in its reasonable business judgment as to the Borrower’s and its Subsidiaries’ ownership of such Oil and Gas Properties and the Administrative Agent’s Liens and security interests therein as are required to maintain compliance with Section 5.10.

 

(l)    Hedging Arrangements .  The Borrower shall maintain each Hydrocarbon Hedge Agreement described in Schedule 4.20 until the stated maturity of such Hydrocarbon Hedge Agreement.  Other than such Hydrocarbon Hedge Agreements, no other Hedge Contracts are required on the date hereof.

 

(m)  Bank Accounts .  The Borrower shall, and shall cause each of its Subsidiaries to, (a) maintain their principal operating accounts and other deposit accounts with the Senior Administrative Agent or any Senior Lender or any other bank that has executed an account control agreement reasonably acceptable in form and substance to the Senior Administrative Agent, or (b) within 30 days from the date hereof, provide an account control agreement reasonably acceptable in form and substance to the Senior Administrative Agent and executed by each depository bank that holds any operating accounts or deposit accounts of the Borrower or any Guarantor and in existence on the date hereof.

 

Section 6.

 

NEGATIVE COVENANTS

 

So long as any Note or any amount under any Loan Document shall remain unpaid or any Lender shall have any Commitment, the Borrower agrees, unless the Majority Lenders otherwise consent in writing, to comply with the following covenants.

 

(a)   Liens, Etc .  The Borrower shall not create, assume, incur, or suffer to exist, or permit any of its Subsidiaries to create, assume, incur, or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Borrower and its Subsidiaries may create, incur, assume, or suffer to exist:

 

(i)            Liens created by the Security Instruments;

 

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(ii)           purchase money Liens or purchase money security interests upon or in any equipment acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business prior to or at the time of the Borrower’s or such Subsidiary’s acquisition of such equipment; provided that, the Debt secured by such Liens (i) was incurred solely for the purpose of financing the acquisition of such equipment, and does not exceed the aggregate purchase price of such equipment, (ii) is secured only by such equipment and not by any other assets of the Borrower and its Subsidiaries, and (iii) is not increased in amount;

 

(iii)          Liens for taxes, assessments, or other governmental charges or levies not yet due or that (provided foreclosure, sale, or other similar proceedings shall not have been initiated) are being contested in good faith by appropriate proceedings, and such reserve as may be required by GAAP shall have been made therefor;

 

(iv)          Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen, construction, or similar Liens arising by operation of law in the ordinary course of business in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings, provided such reserve as may be required by GAAP shall have been made therefor;

 

(v)           Liens to operators and non-operators under joint operating agreements arising in the ordinary course of the business of the Borrower or the relevant Subsidiary to secure amounts owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor;

 

(vi)          royalties, overriding royalties, net profits interests, production payments, reversionary interests, calls on production, preferential purchase rights and other burdens on or deductions from the proceeds of production, that do not secure Debt for borrowed money and that are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Subsidiaries warranted in the Security Instruments or in the Senior Credit Agreement;

 

(vii)         Liens arising in the ordinary course of business out of pledges or deposits under workers’ compensation laws, unemployment insurance, old age pensions or other social security or retirement benefits, or similar legislation or to secure public or statutory obligations of the Borrower;

 

(viii)        operating agreements, unitization and pooling agreements and orders, farmout agreements, gas balancing agreements and other agreements, in each case that are customary in the oil, gas and mineral production business and that are entered into in the ordinary course of business that are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Subsidiaries warranted in the Security Instruments or in the Senior Credit Agreement, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto;

 

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(ix)           easements, rights-of-way, restrictions, and other similar encumbrances, and minor defects in the chain of title that are customarily accepted in the oil and gas financing industry, none of which interfere with the ordinary conduct of the business of Borrower or any Subsidiary or materially detract from the value or use of the Property to which they apply; and

 

(x)            Liens securing the Senior Debt.

 

(b)   Debts, Guaranties, and Other Obligations .  The Borrower shall not, and shall not permit any of its Subsidiaries to, create, assume, suffer to exist, or in any manner become or be liable in respect of, any Debt except:

 

(i)            Debt of the Borrower and its Subsidiaries under the Loan Documents;

 

(ii)           Senior Debt;

 

(iii)          Debt in the form of obligations for the deferred purchase price of Property or services incurred in the ordinary course of business which are not yet due and payable or are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established;

 

(iv)          Debt secured by the Liens permitted under paragraph (b) of Section 6.01 in an aggregate amount not to exceed $3,000,000 at any time;

 

(v)           Debt under Hydrocarbon Hedge Agreements which are not prohibited by the terms of Section 6.14; provided that (i) such Debt shall not be secured, other than such Debt owing to Swap Counerparties (as defined in the Senior Credit Agreement) which are secured under the Senior Loan Documents, (ii) such Debt shall not obligate the Borrower or any of its Subsidiaries to any margin call requirements, and (iii) the deferred premium payments associated with such Hedge Contracts shall be limited to the deferred premium payments for put option contracts which are secured under the Loan Documents; provided that, the aggregate outstanding amount of such deferred premium payments shall not exceed $500,000;

 

(vi)          Debt consisting of sureties or bonds provided to any Governmental Authority or other Person and assuring payment of contingent liabilities of the Borrower in connection with the operation of the Oil and Gas Properties, including with respect to plugging, facility removal and abandonment of its Oil and Gas Properties;

 

(vii)         Debt of the Borrower or any Subsidiary owing to the Borrower or to any other Subsidiary; provided that such Debt is subordinated to the Obligations on terms acceptable to the Administrative Agent in its sole discretion;

 

(viii)        Debt that constitutes a renewal, refinancing or extension of any Debt referred to clause (d) of this Section 6.02; provided that (i) no Lien existing at the time of such renewal, refinancing or extension shall be extended to cover any property not already subject to such Lien, and (ii) the principal amount of any Debt renewed, refinanced or extended shall not exceed the amount of such Debt outstanding immediately prior to such renewal, refinancing or extension; and

 

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(ix)           Debt under the Series D Preferred Shares; provided that, (A) other than the extension of the maturity date thereof, the terms, conditions and provisions of such Debt (including but not limited to, the subordination terms thereof) shall not be amended, supplemented, restated or otherwise modified in any way without the consent of the Majority Lenders, and (B) the amount of such Debt shall not increase other than as a result of dividend payments which have been added to the principal amount thereof as elected by certain holders of the Series D Preferred Shares.

 

(c)   Agreements Restricting Liens and Distributions .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, create, incur, assume or permit to exist any contract, agreement or understanding (other than this Agreement, the Senior Loan Documents and the Security Instruments) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property, whether now owned or hereafter acquired, to secure the Obligations or restricts any Subsidiary from paying dividends to the Borrower, or which requires the consent of or notice to other Persons in connection therewith.

 

(d)   Merger or Consolidation; Asset Sales .  The Borrower shall not, nor shall it permit any of its Subsidiaries to:

 

(a)           merge or consolidate with or into any other Person without the prior consent of all of the Lenders; provided that the Borrower or any Subsidiary may merge or may be consolidated into the Borrower or any Guarantor if the Borrower or such Guarantor is the surviving entity; or

 

(b)           sell, lease, transfer, assign, farm-out, convey, or otherwise dispose of any of its Property (including, without limitation, any working interest, overriding royalty interest, production payments, net profits interest, royalty interest, or mineral fee interest) other than:

 

(i)            the sale of Hydrocarbons in the ordinary course of business,

 

(ii)           the sale or transfer of equipment that is (A) obsolete, worn out, depleted or uneconomic and disposed of in the ordinary course of business, (B) no longer necessary for the business of such Person or (C) contemporaneously replaced by equipment of at least comparable value and use, and

 

(iii)          the sale, lease, transfer, assignment, farm-out, conveyance, or other disposition of Property; provided that, (A) 100% of the consideration received in respect of such disposition shall be cash or cash equivalents, (B) the consideration received in respect of such disposition shall be equal to or greater than the fair market value of the such Property, interest therein or Subsidiary subject of such disposition (as reasonably determined by the board of directors or the equivalent governing body of the Borrower and, if requested by the Administrative Agent, the Borrower shall deliver a certificate of a Responsible Officer of the Borrower certifying to that effect), (C) if any such disposition is of a Subsidiary owning Oil and Gas Properties, such disposition shall include all the Equity Interests of such Subsidiary; and (D) the aggregate fair market value of Properties subject to such dispositions consummated during any consecutive twelve month period shall not exceed $4,000,000.

 

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(e)   Restricted Payments .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, make any Restricted Payments except that if no Default has occurred both before and after giving effect to the making of such Restricted Payment, (a) the Subsidiaries may make Restricted Payments to the Borrower, (b) the Borrower may make Restricted Payments to officers, directors, consultants and employees of the Borrower or any Guarantor in any form other than cash or other assets of the Borrower, (c) the Borrower may make Restricted Payments to officers, directors, consultants and employees of the Borrower or any Guarantor in the form of cash in an aggregate amount not to exceed $1,000,000 per fiscal year, and (d) with respect to the Series D Preferred Shares and to the extent such payments would be permitted under the subordination terms in effect in favor of the Obligations and covering such Series D Preferred Shares, the Borrower may make Restricted Payments which are mandatory pursuant to the terms thereof.

 

(f)    Investments .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, make or permit to exist any loans, advances, or capital contributions to, or make any investment in (including, without limitation, the making of any Acquisition), or purchase or commit to purchase any stock or other securities or evidences of indebtedness of or interests in any Person or any Oil and Gas Properties or activities related to Oil and Gas Properties, except:

 

(i)            Liquid Investments;

 

(ii)           trade and customer accounts receivable which are for goods furnished or services rendered in the ordinary course of business and are payable in accordance with customary trade terms;

 

(iii)          creation of any additional Subsidiaries or acquisition of Oil and Gas Properties in compliance with Section 6.15;

 

(iv)          the loans, advances, capital contributions, investments, and commitments made prior to the date hereof and identified in the Interim Financial Statements; provided that, the respective amounts of such loans, advances, capital contributions, investments, and commitments shall not be increased (other than by appreciation);

 

(v)           investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business; provided that, the aggregate amount of such investment shall not exceed $1,000,000 (other than by appreciation); and

 

(vi)          investments consisting of any deferred portion of the sales price received by the Borrower or any Subsidiary in connection with any sale of assets permitted hereunder.

 

(g)   Affiliate Transactions .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of transactions (including, but not limited to, the purchase, sale, lease or exchange of Property, the making of any investment, the giving of any guaranty, the assumption of any obligation or the rendering of any service) with any of their Affiliates unless such transaction or series of transactions is on terms no less favorable to the Borrower or the Subsidiary, as applicable, than

 

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those that could be obtained in a comparable arm’s length transaction with a Person that is not such an Affiliate.

 

(h)   Compliance with ERISA .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly, (a) engage in, or permit any Subsidiary or ERISA Affiliate to engage in, any transaction in connection with which the Borrower, any Subsidiary or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b) terminate, or permit any Subsidiary or ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to the Borrower, any Subsidiary or any ERISA Affiliate to the PBGC; (c) fail to make, or permit any Subsidiary or ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto; (d) permit to exist, or allow any Subsidiary or ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) permit, or allow any Subsidiary or ERISA Affiliate to permit, the actuarial present value of the benefit liabilities (as “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA) under any Plan maintained by the Borrower, any Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (f) contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan; (g) acquire, or permit any Subsidiary or ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower, any Subsidiary or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (h) incur, or permit any Subsidiary or ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; (j) amend or permit any Subsidiary or ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower, any Subsidiary or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code; or (k) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any other event or condition, which presents a material (in the opinion of the Majority Lenders) risk of such a termination by the PBGC of any Plan.

 

(i)    Sale-and-Leaseback .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, sell or transfer to a Person any Property, whether now owned or hereafter

 

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acquired, if at the time or thereafter the Borrower or a Subsidiary shall lease as lessee such Property or any part thereof or other Property which the Borrower or a Subsidiary intends to use for substantially the same purpose as the Property sold or transferred.

 

(j)    Change of Business .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, make any material change in the character of its business as an independent oil and gas exploration and production company, nor will the Borrower or any Subsidiary operate any business in any jurisdiction other than the United States, including the Gulf of Mexico.

 

(k)   Organizational Documents, Name Change .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, amend, supplement, modify or restate their articles or certificate of incorporation, bylaws, limited liability company agreements, or other equivalent organizational documents where such amendment, supplement, modification or restatement could have an adverse effect on the Lenders as determined by the Administrative Agent in its sole reasonable discretion, or amend its name or change its jurisdiction of incorporation, organization or formation without prior written notice to, and prior consent of, the Administrative Agent.

 

(l)    Use of Proceeds .  The Borrower will not permit the proceeds of any Advance to be used for any purpose other than those permitted by Section 5.09.  The Borrower will not engage in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U).  Neither the Borrower nor any Person acting on behalf of the Borrower has taken or shall take, nor permit any of the Borrower’s Subsidiaries to take any action which might cause any of the Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect, including without limitation, the use of the proceeds of any Advance to purchase or carry any margin stock in violation of Regulation T, U or X.

 

(m)  Gas Imbalances, Take-or-Pay or Other Prepayments .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any Subsidiary which would require the Borrower or any Subsidiary to deliver their respective Hydrocarbons produced on a monthly basis from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor.

 

(n)   Limitation on Speculative Hedging .  Other than the Hedge Contracts required to be entered into and maintained pursuant to Section 5.12 hereof, the Borrower shall not, nor shall it permit any of its Subsidiaries to, (a) purchase, assume, or hold a speculative position in any commodities market or futures market or enter into any Hydrocarbon Hedge Agreement, Interest Hedge Agreement or similar hedge arrangement for speculative purposes, or (b) be party to or otherwise enter into any Hedge Contract which (i) is entered into for reasons other than as a part of its normal business operations as a risk management strategy and/or hedge against changes resulting from market conditions related to the Borrower’s operations, (ii) covers notional volumes in excess of 85% of the anticipated production volumes attributable to Proven Reserves

 

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of the Borrower and its Subsidiaries during the period such hedge arrangement is in effect, or (iii) is longer than three years in duration.

 

(o)   Additional Subsidiaries; Additional Oil and Gas Properties .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, create or acquire any additional Subsidiaries or acquire any additional Oil and Gas Properties without (a) such new Subsidiary executing and delivering to the Administrative Agent, at its request, a Guaranty, a Pledge Agreement, a Security Agreement and a Mortgage, and such other Security Instruments as the Administrative Agent or the Majority Lenders may reasonably request, (b) the delivery by the Borrower of any certificates, opinions of counsel, title opinions or other documents as the Administrative Agent may reasonably request, and (c) the Borrower or such Subsidiary acquiring such Oil and Gas Properties executing and delivering to the Administrative Agent a new Mortgage or a supplement to an existing Mortgage encumbering such Oil and Gas Properties; provided that, in any event, no Subsidiary may be created or acquired and no Oil and Gas Properties may be acquired if a Default has occurred before or after giving effect to such creation or acquisition of the new Subsidiary or the acquisition of the additional Oil and Gas Properties.

 

(p)   Account Payables .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, allow (a) any of its trade payables or other accounts payable to be outstanding for more than 90 days (except in cases where any such trade payable is being disputed in good faith and adequate reserves under GAAP have been established) and (b) the weighted average maturity of all such trade payables to exceed 120 days.

 

(q)   Current Ratio .  The Borrower shall not permit the ratio of, as of the end of each fiscal quarter of the Borrower, beginning with the fiscal quarter ending December 31, 2008, (a) its current assets to (b) its current liabilities, to be less 1.00 to 1.00.  For purposes of this calculation (i) “current assets” shall include, as of the date of calculation, the aggregate Unused Commitment Amounts (as defined under the Senior Credit Agreement) and Availability under this Agreement but shall exclude (A) any cash deposited with or at the request of a counterparty to any Hedge Contract or any other similar hedge arrangement and (B) any assets representing a valuation account arising from the application of SFAS 133 and 143, and (ii) “current liabilities” shall exclude, as of the date of calculation, the current portion of long-term Debt existing under this Agreement and the current portion of long-term Debt existing under the Senior Credit Agreement, and any liabilities representing a valuation account arising from the application of SFAS 133 and 143.  For the avoidance of doubt, the parties hereto acknowledge that “current liabilities” includes the current portion of the Series D Preferred Shares.

 

(r)    Leverage Ratio .  The Borrower shall not permit the Leverage Ratio for each fiscal quarter period ending on or after December 31, 2008, to be greater than 4.50 to 1.00; solely for purposes of calculating Leverage Ratio under this clause, “consolidated Debt” shall not include Debt outstanding under preferred Equity Interests issued in compliance with Section 6.22.

 

(s)   Interest Coverage Ratio .  The Borrower shall not permit the ratio of, as of the end of each fiscal quarter ending on or after December 31, 2008, (a) the consolidated EBITDA of the Borrower calculated for the four fiscal quarters then ended, to (b) the consolidated Interest Expense of the Borrower for the four fiscal quarters then ended, to be less than 2.50 to 1.00.

 

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(t)    Senior Debt .  Except as otherwise permitted by the terms of the Subordination and Intercreditor Agreement none of the Borrower or any of its Subsidiaries shall amend, supplement or otherwise modify the terms of the Senior Debt unless otherwise consented to by the Majority Lender, including but not limited to, any increases in the Borrowing Base above $120,000,000.

 

(u)   Non-Guarantor Subsidiary .  Notwithstanding anything to the contrary contained herein, including any provision of this Article VI, the Borrower shall not, nor shall it permit any of its Subsidiaries to, (a) create, assume, incur or suffer to exist any Lien on or in respect of any of its Property for the benefit of Tri-Flow, (b) sell, assign, pledge, or otherwise transfer any of its Properties to Tri-Flow, or (c) make or permit to exist any loans, advances, or capital contributions to, or make any investment in, or purchase or commit to purchase any stock or other securities or evidences of indebtedness of or interests in, Tri-Flow or in any Properties of Tri-Flow other than the loans, advances, capital contributions, investments, and commitments made prior to the date hereof in Tri-Flow; provided that, the respective amounts of such loans, advances, capital contributions, investments, and commitments shall not be increased (other than by appreciation).

 

(v)   Equity Issuance .  The Borrower shall not, nor shall it permit any of its Subsidiaries to, issue any preferred, convertible equity securities or other Equity Interests other than common Equity Interests of the Borrower.

 

(w)  Minimum Asset Coverage Ratio .

 

(i)            The Borrower shall not permit at any time the ratio of (i) the Total Present Value as of such date to (ii) the consolidated Debt of the Borrower (other than obligations under Hedge Contracts) as of the applicable determination date to be less than 1.50 to 1.00.

 

(ii)           Upon any change to Total Present Value pursuant to a Scheduled Redetermination or an Interim Redetermination (as such terms are defined below), the Borrower will promptly, but in any event within fifteen (15) days after any such redetermination, deliver to the Administrative Agent a certificate of a Responsible Officer of the Borrower setting forth the consolidated Debt of the Borrower and the Total Present Value and demonstrating compliance with Section 6.23(a).

 

(iii)          The Total Present Value shall be calculated semi-annually in accordance with this Section 6.23 on or about April 15th and October 15th of each year, commencing April 15, 2009 (each such semi-annual calculation, a “ Scheduled Redetermination ”).  In addition, the Total Present Value shall be calculated between Scheduled Redeterminations at the time of any interim or additional redetermination of the Borrowing Base under the Senior Credit Agreement (each such interim or additional calculation, an “ Interim Redetermination ”) in accordance with this Section 6.23.  Promptly after receiving each Engineering Report or other applicable information relating to the Proven Reserves of the Borrower and its Subsidiaries delivered in connection with a Scheduled Redetermination or Interim Redetermination, and using the calculations of PDP NPV, PDNP NPV and PUD NPV contained therein (as well as any recalculations thereof made by Administrative Agent as provided for in the definitions of PDP NPV, PDNP NPV and PUD NPV) the Administrative Agent shall notify the Borrower and each Lender of the resulting Total Present Value.  Such Total Present Value shall thereupon be used

 

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for the purposes of Section 6.23(a) until a new Total Present Value is calculated or estimated pursuant to this Section 6.23.  Each determination of Total Present Value shall be made as of the date of the applicable Engineering Report or other applicable information delivered in connection with a Scheduled Redetermination or Interim Redetermination.

 

(iv)          In the event that the Borrower does not furnish to the Administrative Agent and the Lenders the Independent Engineering Report, Internal Engineering Report or other information specified in Sections 5.06(c)(i), 5.06(c)(ii), or 5.06(c)(iii), as applicable, by the date specified in such clauses, the Administrative Agent may, based on the information available to it, estimate in good faith the Total Present Value from time to time thereafter until the Administrative Agent and the Lenders receive the relevant Independent Engineering Report, Internal Engineering Report, or other information, as applicable.  Such estimated Total Present Value shall thereupon be used for the purposes of Section 6.23(a) until a new Total Present Value is calculated or estimated pursuant to this Agreement.

 

Section 7.

 

EVENTS OF DEFAULT; REMEDIES

 

(a)   Events of Default .  The occurrence of any of the following events shall constitute an “Event of Default” under any Loan Document:

 

(i)            Payment .  The Borrower shall (i) fail to pay when due any principal or interest payable hereunder or under the Notes or (ii) fail to pay, within 3 Business Days of when due, any other amounts (including fees, reimbursements, and indemnifications) payable hereunder, under the Notes, or under any other Loan Document;

 

(ii)           Representation and Warranties .  Any representation or warranty made or deemed to be made (i) by the Borrower, any Guarantor or any of their respective Subsidiaries (or any of their respective officers) in this Agreement or in any other Loan Document, or (ii) by the Borrower, any Guarantor or any of their respective Subsidiaries (or any of their respective officers) in connection with this Agreement or any other Loan Document, shall prove to have been incorrect in any material respect when made or deemed to be made;

 

(iii)          Covenant Breaches .  The Borrower, any Guarantor or any of their respective Subsidiaries shall fail to (i) perform or observe any covenant contained in Section 5.02(a), Section 5.03, Section 5.06(e), Section 5.09, Section 5.12, or Article VI of this Agreement or (ii) fail to perform or observe any other term or covenant set forth in this Agreement or in any other Loan Document which is not covered by clause (i) above or any other provision of this Section 7.01 if such failure shall remain unremedied for 30 days after the occurrence of such breach or failure;

 

(iv)          Cross-Defaults .  (i) The Borrower, any Guarantor or any of their respective Subsidiaries shall fail to pay any principal of or premium or interest on its Debt which is outstanding in a principal amount of at least $1,000,000 individually or when aggregated with all such Debt of the Borrower, any Guarantor or any of their respective Subsidiaries so in default (but excluding Debt evidenced by the Notes) when the same becomes due and payable (whether

 

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by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to Debt (including, without limitation, the Senior Credit Agreement) which is outstanding in a principal amount of at least $1,000,000 individually or when aggregated with all such Debt of the Borrower, such Subsidiary, or such Guarantor so in default, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or (iii) any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; provided that, for purposes of this subsection 7.01(d), the “principal amount” of the obligations in respect of any Hedging Contracts at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that would be required to be paid if such Hedging Contracts were terminated at such time;

 

(v)           Insolvency .  The Borrower, any Guarantor or any of their respective Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower, any of its Subsidiaries, or any Guarantor seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property and, in the case of any such proceeding instituted against the Borrower, any such Subsidiary or any such Guarantor either such proceeding shall remain undismissed for a period of 60 days or any of the actions sought in such proceeding shall occur; or the Borrower, any of its Subsidiaries, or any Guarantor shall take any corporate action to authorize any of the actions set forth above in this paragraph (e);

 

(vi)          Judgments .  Any judgment or order for the payment of money in excess of $1,000,000 shall be rendered against the Borrower, any Guarantor or any of their respective Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;

 

(vii)         Termination Events .  Any Termination Event with respect to a Plan shall have occurred, and, 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent, (i) such Termination Event shall not have been corrected and (ii) the then present value of such Plan’s vested benefits exceeds the then current value of assets accumulated in such Plan by more than the amount of $1,000,000 (or in the case of a Termination Event involving the withdrawal of a “substantial employer” (as defined in Section 4001(a)(2) of ERISA), the withdrawing employer’s proportionate share of such excess shall exceed such amount);

 

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(viii)        Plan Withdrawals .  The Borrower or any member of the Controlled Group as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $1,000,000.

 

(ix)           Change in Control .  The Borrower shall have discontinued its usual business or a Change in Control shall have occurred;

 

(x)            Reserved .

 

(xi)           Loan Documents .  Any material provision of any Loan Document shall for any reason cease to be valid and binding on the Borrower or a Guarantor or any of their respective Subsidiaries or any such Person shall so state in writing;

 

(xii)          Security Instruments .  (i) The Administrative Agent shall fail to have an Acceptable Security Interest in any material portion of the Collateral as determined in the sole discretion of the Administrative Agent, (ii) the Administrative Agent shall fail to have an Acceptable Security Interest in any immaterial portion of the Collateral as determined in the sole discretion of the Administrative Agent and such failure continues for more than 30 days after the Administrative Agent shall have given notice thereof, and a request to cure such failure, to the Borrower, or (iii) any Security Instrument shall at any time and for any reason cease to create the Lien on the Property purported to be subject to such agreement in accordance with the terms of such agreement, or cease to be in full force and effect, or shall be contested by the Borrower, any Guarantor or any of their respective Subsidiaries;

 

(xiii)         Potential Failure of Title .  The title of the Borrower, any Guarantor or any of their respective Subsidiaries to any of the Oil and Gas Properties subject to the Mortgages, or any material part thereof, shall become the subject matter of litigation before any Governmental Authority or arbitrator which could reasonably be expected to result in a Material Adverse Change with respect to the Borrower’s, such Guarantor’s or such Subsidiary’s title to such Oil and Gas Properties;

 

(xiv)        Material Adverse Change .  An event resulting in a Material Adverse Change shall have occurred;

 

(xv)         Casualty .  Loss, theft, substantial damage or destruction of a material portion of the Collateral the subject of any Security Instrument and not fully covered by insurance (except for deductibles and allowing for the depreciated value of such Collateral) shall have occurred; or

 

(b)   Optional Acceleration of Maturity .  If any Event of Default (other than an Event of Default pursuant to paragraph (e) of Section 7.01) shall have occurred and be continuing, then, and in any such event,

 

(i)            the Administrative Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the obligation, if any, of each Lender to make extensions of credit hereunder to be terminated, whereupon the same shall forthwith

 

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terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower; and

 

(ii)           the Administrative Agent shall at the request of, or may with the consent of, the Majority Lenders (but subject to the Subordination and Intercreditor Agreement) proceed to enforce its rights and remedies under the Security Instruments, the Guaranties, and any other Loan Documents for the ratable benefit of the Secured Parties by appropriate proceedings.

 

(c)   Automatic Acceleration of Maturity .  If any Event of Default pursuant to paragraph (e) of Section 7.01 shall occur,

 

(i)            (i) the obligation, if any, of each Lender to make extensions of credit hereunder shall terminate, and (ii) all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower; and

 

(ii)           the Administrative Agent shall at the request of, or may with the consent of, the Majority Lenders (but subject to the Subordination and Intercreditor Agreement) proceed to enforce its rights and remedies under the Security Instruments, the Guaranties, and any other Loan Document for the ratable benefit of the Secured Parties by appropriate proceedings.

 

(d)   Right of Set-off .  Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Administrative Agent or such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Notes held by the Administrative Agent or such Lender, and the other Loan Documents, irrespective of whether or not the Administrative Agent or such Lender shall have made any demand under this Agreement, such Notes, or such other Loan Documents, and although such obligations may be unmatured.  The Administrative Agent and each Lender agrees to promptly notify the Borrower after any such set-off and application made by the Administrative Agent or such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application.  The rights of the Administrative Agent and each Lender under this Section 7.04 are in addition to any other rights and remedies (including, without limitation, other rights of set-off) that the Administrative Agent or such Lender may have.

 

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(e)   Non-exclusivity of Remedies .&n