Exhibit 10.2
Execution copy 6/28/11
Forbearance Agreement
FORBEARANCE AGREEMENT, dated as of June 28, 2011 (this “Agreement”) among DHS
HOLDING COMPANY, a Delaware corporation (“Holdings”), DHS DRILLING COMPANY, a
Colorado corporation (the “Borrower”), the other Loan Parties party hereto, and
LEHMAN COMMERCIAL PAPER INC., as administrative agent (in such capacity, the
“Administrative Agent”) and as the Lender (in such capacity, the “Lender”) under
that certain Credit Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower, Holdings, the Lender and the Administrative Agent are
parties to that certain Amended and Restated Credit Agreement, dated as of
August 15, 2008, as amended by that certain Amendment No. 1, dated as of
September 19, 2008, and further amended by that certain Waiver and Amendment
No. 2, dated as of April 1, 2010 (as further amended, modified or supplemented
from time to time in accordance with its terms, the “Credit Agreement”;
capitalized terms used but not defined herein shall have the respective meanings
ascribed to such terms in the Credit Agreement);
WHEREAS, the Borrower, Holdings, the Lender and the Administrative Agent are
parties to that certain Forbearance Agreement, dated as of May 13, 2011 (the
“Existing Forbearance Agreement”), pursuant to which the Lender and the
Administrative Agent agreed to forbear from exercising certain rights under the
Credit Agreement and the other Loan Documents in connection with the Forbearance
Default (as defined herein);
WHEREAS, the Borrower has failed in its performance of certain provisions of the
Credit Agreement as further described herein, such failure constituting a
default under the Credit Agreement;
WHEREAS, the Borrower and Holdings have requested that the Lender and the
Administrative Agent amend and restate the Existing Forbearance Agreement, and
the Lender and the Administrative Agent have agreed to do so, to, inter alia,
extend the Forbearance Period (as defined herein) and provide for the Waiver (as
defined herein) on the terms and conditions specified;
WHEREAS, the Borrower has informed the Administrative Agent of its desire to
sell certain of its rigs (such rigs, DHS rigs 5,11,16, and 24, shall be referred
to as the “Specified Rigs”) to a third-party purchaser, and is in receipt of a
conditional offer from Estrella International Energy Services Ltd. (“Estrella”)
to purchase the Specified Rigs, and is awaiting execution of a formal purchase
and sale agreement (the “Purchase and Sale Agreement”) by Estrella to consummate
such sale of the Specified Rigs; and
WHEREAS, the Borrower and Holdings have requested that the Lender and the
Administrative Agent forbear, and the Lender and the Administrative Agent have
agreed, subject to the terms and conditions of this Agreement, to forbear, from
exercising certain rights under the Credit Agreement and the other Loan
Documents during the Forbearance Period (as defined below).

 

 

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NOW, THEREFORE, in consideration of the premises and the agreements hereinafter
contained, the parties hereto agree as follows:
1. Forbearance.
(a) Acknowledgement. As of the date hereof, each of the Loan Parties party
hereto acknowledge that the failure and anticipated failure, as the case may be,
by the Borrower to (a) on each of January 3, 2011, April 1, 2011 and July 1,
2011, service the amortization payment due and payable pursuant to
Section 2.4(a)(i) of the Credit Agreement (together, the “Payment Default”),
(b) on January 3, 2011, April 1, 2011 and July 1, 2011 service the interest
payment due and payable pursuant to Section 2.8(b) of the Credit Agreement
(together, the “Interest Default”) and (c) for the fiscal quarter ending on
December 31, 2010, comply with the covenant under Section 6.1 (a) of the Credit
Agreement with respect to maintenance of Minimum Consolidated EBITDA (the
“Maintenance Default,” together with the Payment Default and Interest Default,
the “Forbearance Default”) constitutes a default under the Credit Agreement.
(b) Forbearance Period, (i) During the period from the Effective Date (as
defined below) until August 1, 2011 (the “Forbearance Period”), each of the
Administrative Agent and the Lender hereby agrees to forbear (the “Forbearance”)
from exercising its rights and remedies under the Credit Agreement and the other
Loan Documents arising as a result of the Forbearance Default; provided,
however, that upon the occurrence of any Event of Default other than the
Forbearance Default, including the Events of Defaults set forth in Section l(d)
hereof, the Forbearance Period shall automatically and immediately terminate,
and the Administrative Agent and the Lender shall be entitled to exercise any
and all of their rights and remedies under the Credit Agreement, the other Loan
Documents and applicable law, without further notice other than as required
therein. Upon termination of the Forbearance Period, (A) the forbearance shall
automatically terminate and be of no further force or effect without any further
action by the Lender, (B) the Forbearance Default is, without further action,
reinstated and shall have the same force and effect as if the Forbearance had
not been agreed to by the parties hereto and (C) subject to the terms of the
Credit Agreement, the Loan Documents and applicable law, the Lender may
thereafter, without limitation, sue, ask for or demand from the Loan Parties
payment of the Obligations due and payable to such Lender, in whole or in part,
and otherwise enforce any of its rights and remedies (including rights of
acceleration and foreclosure) provided for under the Credit Agreement, the Loan
Documents or applicable law against any party. Each of the Loan Parties party
hereto agrees that, subject to the agreement of the Lender to forbear from
exercising certain of their rights and remedies as and to the extent expressly
set forth in this Agreement, all rights and remedies of the Lender under the
Credit Agreement, the Loan Documents or applicable law with respect to such Loan
Party shall continue to be available to the Lender from and after the Effective
Date.
(ii) It is understood and agreed that interest shall accrue from the Effective
Date through the remainder of the Forbearance Period on the outstanding
Obligations at the applicable default rates provided for pursuant to the Credit
Agreement.
(c) Waiver. Each of the Lender and the Administrative Agent hereby agree to
waive compliance by each of Holdings and the Borrower with the terms of
Section 5.2(a)(i) of the Credit Agreement, solely as such section requires
Holdings and the Borrower to deliver a Rig Appraisal in respect of all Rigs on
or before June 30 of each calendar year (the “Waiver”); provided, that this
Waiver shall terminate and be of no further force and effect if such Rig
Appraisal is not delivered by Holdings and the Borrower on or prior to August 1,
2011, in accordance with the terms of the Credit Agreement and this Agreement.

 

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(d) Additional Events of Default. The following events shall constitute Events
of Default under the terms of the Credit Agreement and the other Loan Documents:
(i) any of the Borrower, Holdings or the other Loan Parties shall pledge,
encumber, charge, assign or grant a security interest in, or encumbrance of any
kind on, any Collateral; or
(ii) any of the Borrower, Holdings or the other Loan Parties shall enter into
any arrangement to provide priority or preference with respect thereto, in
connection with securing or obtaining debtor-in-possession financing; or
(iii) any of the Loan Parties shall (x) pay any management fees to either of
Delta Petroleum Corporation (“Parent”) or Chesapeake Energy Corporation
(“Chesapeake”) or (y) make any other payments, distributions or dividends in
respect of stock held by either of Parent or Chesapeake in any Loan Party; or
(iv) Holdings, the Borrower or any other Loan Party shall fail to perform or
observe any term, covenant or agreement set forth in this Agreement; or
(v) any representation or warranty made or deemed made by any Loan Party herein
or any representation or warranty made or deemed made hereafter by any Loan
Party in any Loan Document or which is made in connection with this Agreement or
any other Loan Document shall prove to have been incorrect or misleading in any
material respect on or as of the date made or deemed made; or
(vi) the Borrower shall fail to enter into the Purchase and Sale Agreement on or
before July 20, 2011 (or such later date as determined by the Administrative
Agent in its sole discretion); or
(vii) any party to the Purchase and Sale Agreement terminates or materially
breaches its obligations under the Purchase and Sale Agreement.
2. Forbearance Requirements.
As consideration for the Forbearance, during the Forbearance Period:
(a) Holdings and Borrower shall permit any third party financial consultant or
advisor acting on behalf of the Lender or Administrative Agent to inspect the
property of Holdings and its Subsidiaries and to conduct such other activity as
contemplated in Section 5.7(b) of the Credit Agreement.
(b) The Borrower shall facilitate such meetings between the Administrative Agent
and Macquarie Capital (USA) Inc., as the Borrower’s financial advisor, as the
Administrative Agent may request from time to time.
(c) The Borrower shall use best efforts to effectuate the sale of the Specified
Rigs.
(d) The Borrower shall notify the Administrative Agent of execution of the
Purchase and Sale Agreement, and promptly provide a fully executed copy of such
Purchase and Sale Agreement to the Administrative Agent.
(e) The Borrower shall immediately notify the Administrative Agent of the
termination or any material breach of the Purchase and Sale Agreement.

 

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(f) The Loan Parties shall provide the Lender with such other certificates,
documents and agreements as the Lender may reasonably request.
3. Representations and Warranties. Each of the Loan Parties party hereto
represents and warrants as follows (which representations and warranties shall
survive the execution and delivery of this Agreement):
(a) Each Loan Party has taken all necessary action to authorize the execution,
delivery and performance of this Agreement.
(b) This Agreement constitutes the legal, valid and binding obligation of each
Loan Party, enforceable against them in accordance with their respective terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the enforcement of creditors’ rights generally and to
general equity principles.
(c) No consent or approval of any person, firm, corporation or entity, and no
consent, license, approval or authorization of any governmental authority is or
will be required in connection with the execution, delivery, performance,
validity or enforcement of this Agreement, other than any such consent,
approval, license or authorization which has been obtained and remains in full
force and effect or where the failure to obtain such consent, approval, license
or authorization would not result in a Material Adverse Effect.
(d) After giving effect to this Agreement, each of the Borrower, Holdings and
the other Loan Parties is in compliance with all of the various covenants and
agreements set forth in the Credit Agreement and each of the other Loan
Documents, other than the Forbearance Default.
(e) After giving effect to this Agreement and the agreements to be delivered in
connection herewith, no event has occurred and is continuing which constitutes a
Default or an Event of Default, other than the Forbearance Default.
(f) After giving effect to this Agreement and the agreements to be delivered in
connection herewith, all representations and warranties contained in the Credit
Agreement and each of the other Loan Documents are true and correct in all
material respects as of the date hereof, except to the extent that any
representation or warranty relates to a specified date, in which case such are
true and correct in all material respects as of the specific date to which such
representations and warranties relate, and except to the extent of any
inconsistency in such representations or warranties arising directly out of the
Forbearance Default.
(g) Each report delivered and any information provided pursuant to or in
connection with this Agreement has and will be prepared on a reasonable basis
and in good faith, and has/will be based on assumptions believed by the
applicable Loan Party to be reasonable at the time made and upon the best
information available to such Loan Party, and such Loan Party is not aware of
any facts or information that would lead the applicable party to believe that
any such information or report is incorrect or misleading in any material
respect.
4. Fees and Expenses. The Borrower and Holdings agree to pay on demand all fees,
costs and expenses, including reasonable attorneys’ and consultants’ fees, of
the Administrative Agent and the Lender incurred in connection with this
Agreement.

 

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5. Effective Date. This Agreement shall not become effective unless and until
(the latest date upon which such occurs, the “Effective Date”) this Agreement
shall have been duly executed and delivered by the Loan Parties party hereto,
the Lender and the Administrative Agent.
6. Reference and Continued Effectiveness of the Loan Documents.
(a) The term “Agreement”, “hereof, “herein” and similar terms as used in the
Credit Agreement, and references in the other Loan Documents to the Credit
Agreement, shall mean and refer to, from and after the Effective Date, the
Credit Agreement as affected by this Agreement.
(b) The Loan Parties hereby agree that all of the covenants and agreements
contained in the Credit Agreement and the Loan Documents are hereby ratified and
confirmed in all respects and confirm the Collateral will remain subject to the
security interest of the Administrative Agent for the benefit of the Secured
Parties pursuant to the Loan Documents.
(c) The execution, delivery and effectiveness of this Agreement shall not,
except as expressly provided herein, operate as a forbearance or waiver of any
right, power or remedy of the Administrative Agent or the Lender under any of
the Loan Documents, nor constitute a forbearance or waiver of any other
provision in any of the Loan Documents, except as expressly provided herein.
(d) This Agreement constitutes a Loan Document.
7. Counterparts. This Agreement may be executed in counterparts, each of which
shall be an original, and all of which, taken together, shall constitute a
single instrument. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.
8. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to the
conflict of laws provisions thereof.
9. Limitation. Each party hereto hereby agrees that this Agreement does not
impose on Lehman Commercial Paper Inc. affirmative obligations or indemnities
not existing, as of the date of its petition commencing its proceeding under
chapter 11 of the United States Code, and that could give rise to administrative
expense claims.

 

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10. Indemnity. The Borrower, Holdings and the other Loan Parties further agree,
jointly and severally, to defend, protect, indemnify and hold harmless the
Administrative Agent and the Lender, each of their respective Affiliates and
their respective officers, directors, employees, attorneys and agents
(collectively the “Indemnitees”) from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses of any kind or nature whatsoever (including, without limitation,
the reasonable fees and expenses of counsel for such Indemnitees in connection
with any investigative, administrative or judicial proceeding, whether or not
such Indemnitees shall be designated as a party thereto), imposed on, incurred
by, or asserted against such Indemnitees in any manner relating to or arising
out of this Agreement or any other Loan Document (collectively the “Indemnified
Matters”); provided, however, that neither the Borrower, Holdings or any Loan
Party shall have an obligation to an Indemnitee hereunder with respect to
Indemnified Matters caused or resulting from (a) a dispute among the Lender or a
dispute between the Lender and the Administrative Agent or (b) the willful
misconduct or gross negligence of such Indemnitee. If the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, the Borrower,
Holdings and the other Loan Parties shall contribute the maximum portion which
it is permitted to pay and satisfy under the applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by Indemnities. This Section 10
shall survive the payment of the Obligations and the termination of this
Agreement or any other Loan Document.
[Signature Pages Follow]

 

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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed by their respective officers as of the date first written above.

            DHS DRILLING COMPANY, as the Borrower
      By:   /s/ Kevin K. Nanke         Name:   Kevin K. Nanke        Title:  
Chief Financial Officer        DHS HOLDING COMPANY, as Holdings
      By:   /s/ Kevin K. Nanke         Name:   Kevin K. Nanke        Title:  
Chief Financial Officer        CHAPMAN TRUCKING COMPANY, INC., as Guarantor
      By:   /s/ Gregory D. Tubbs         Name:   Gregory D. Tubbs       
Title:   Executive Vice President        HASTINGS DRILLING COMPANY, as Guarantor
      By:   /s/ Gregory D. Tubbs         Name:   Gregory D. Tubbs       
Title:   Executive Vice President        C&L DRILLING COMPANY, as Guarantor
      By:   /s/ Gregory D. Tubbs         Name:   Gregory D. Tubbs       
Title:   Executive Vice President     

[Signature Page to Agreement]

 

 

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            LEHMAN COMMERCIAL PAPER, INC, as Administrative Agent and Lender
      By:   /s/ Ashvin Rao         Name:   Ashvin Rao        Title:   Vice
President     

[Signature Page to Agreement]