Exhibit 10.18
 

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SECOND AMENDMENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this
“Second Amendment”) is entered into as of the Second Amendment Closing Date (as
defined below) by and among CYMRI, L.L.C., a Nevada limited liability company
(F/K/A THE CYMRI CORPORATION, a Texas corporation) (“CYMRI”) and TRIUMPH ENERGY,
INC., a Louisiana corporation (“Triumph”) (each individually, a “Borrower” and,
collectively, the “Borrowers”), and TEXAS CAPITAL BANK, N.A. (the “Lender”).
 
RECITALS
 
A.           Borrowers and Lender entered into that certain Second Amended and
Restated Credit Agreement dated as of August 5, 2008 (as amended by that certain
First Amendment thereto dated May 28, 2009, the “Credit Agreement”).
 
B.           Borrowers and Lender have agreed to amend the Credit Agreement,
subject to the terms and conditions of this Second Amendment.
 
C.           Capitalized terms used but not defined in this Second Amendment
have the meaning given them in the Credit Agreement.
 
AGREEMENT
 
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are acknowledged, the undersigned hereby agree as follows:
 
I. Amendments to Credit Agreement.
 
Section 1.2, Additional Defined Terms, of the Credit Agreement, is hereby
amended by adding the following definitions in their proper alphabetical order:
 
“G&A Expenses” means, for any period, the actual general and administrative
expenses of Borrowers for such period, including capitalized general and
administrative expenses, calculated in accordance with GAAP.
 
“Second Amendment” means the Second Amendment to Second Amended and Restated
Credit Agreement dated as of the Second Amendment Closing Date by and among
Borrowers and Lender.
 
“Second Amendment Closing Date” means November 16, 2009.
 
 
Exhibit 10.18 Page 1

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“Total Revenues” means, for any period, Borrowers’ (i) gross oil and gas
revenues derived from the sale of Hydrocarbons from the Borrowing Base Oil and
Gas Properties for such period and (ii) gross revenues derived from contract
operating services in the ordinary course of business for such period,
calculated in accordance with GAAP.
 
Section 1.2, Additional Defined Terms, of the Credit Agreement, is hereby
amended by revising the following definitions in their entirety to read as
follows:
 
“Current Assets” means all assets which would, in accordance with GAAP, be
included as current assets, on a consolidated basis, on the balance sheet of
Borrowers as of the date of calculation.
 
“Current Liabilities” means (i) all liabilities which would, in accordance with
GAAP, be included as current liabilities, on a consolidated basis, on the
balance sheet of Borrowers as of the date of calculation, less (ii) fifty
percent (50%) of Borrowers’ current liabilities consisting of royalties
attributable to the production of Hydrocarbons from the Borrowing Base Oil and
Gas Properties (including payables in connection with suspended royalties).
 
“Maturity Date” means January 1, 2011.
 
Section 1.2, Additional Defined Terms, of the Credit Agreement, is hereby
amended by deleting therefrom the definition of “Net Income” and such term shall
have no effect from and after the Second Amendment Closing Date.
 
Section 2.7, Borrowing Base, of the Credit Agreement is hereby amended by
replacing the text of subsection (a) thereof with the following text:
 
“(a)  The Borrowing Base as of the Second Amendment Closing Date is acknowledged
by the Borrowers and the Lender to be $3,076,000.  The amount of the Borrowing
Base (as adjusted from time to time under the terms of this Agreement) shall be
reduced by $0.00 on the first day of each month beginning October 1, 2009 (the
“Monthly Borrowing Base Reduction”).  Such Monthly Borrowing Base Reductions
shall continue until the effective date of the next redetermination of the
Borrowing Base and Monthly Borrowing Base Reduction.”
 
Section 5.24, Production and Expense Reports, of the Credit Agreement, is hereby
amended to replace the reference to “sixtieth (60th)” therein with “thirtieth
(30th).”

Section 6.7, Loans or Advances, of the Credit Agreement, is hereby amended by
replacing the text thereof with the following text:

 
Exhibit 10.18 Page 2

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“Make or agree to make or repay or agree to repay any loans or advances to or
from any Person; provided, however, the foregoing restrictions shall not apply
to (a) advances or extensions of credit by Borrowers in the form of accounts
receivable incurred in the ordinary course of business and upon terms common in
the industry for such accounts receivable, (b) advances by Borrowers to
employees of the Borrowers for the payment of expenses in the ordinary course of
business, or (c) prior to the occurrence of an Event of Default, (i) advances
from one Borrower to the other Borrower, and (ii) subject to Lender’s prior
written consent, advances by Borrowers to Guarantor for the general and
administrative expenses and other general corporate purposes of Guarantor.”
 
Section 6.15, EBITDA to Fixed Charges, of the Credit Agreement, is hereby
deleted in its entirety and replaced by the following new Section 6.15:

“Section 6.15  Loan Balance to EBITDA Ratio.  Permit, as of the end of any
fiscal quarter, the ratio of (a) Loan Balance to (b) EBITDA, to be (i) greater
than 4.00 to 1.00 calculated on a rolling four-quarter basis beginning with the
fiscal quarter ending on September 30, 2009, (ii) greater than 3.50 to 1.00 for
the fiscal quarter ending December 31, 2009, and (iii) greater than 3.00 to 1.00
for the fiscal quarter ending March 31, 2010 and for each fiscal quarter
thereafter; provided, however, that, with regard to the fiscal quarter ending
September 30, 2009, the calculation of EBITDA shall be based on EBITDA for that
ending fiscal quarter multiplied by 4; the calculation of EBITDA for the fiscal
quarter ending December 31, 2010 shall be based on the sum of EBITDA for that
ending fiscal quarter plus the prior fiscal quarter multiplied by 2; and the
calculation of EBITDA for the fiscal quarter ending March 31, 2010 shall be
based on the sum of EBITDA for that ending fiscal quarter plus the prior two
fiscal quarters multiplied by 1.33; and EBITDA for each following fiscal quarter
shall be calculated on a rolling four-quarter basis.”
 
Section 6.16, Tangible Net Worth, of the Credit Agreement, is hereby deleted in
its entirety and replaced by the following new Section 6.16:

“Section 6.16  Interest Expense Coverage Ratio.  Permit, as of the end of any
fiscal quarter, the ratio of (a) EBITDA to (b) Interest Expense to be less than
3.00 to 1.00, calculated on a quarterly basis beginning with the fiscal quarter
ending on September 30, 2009.”
 
Section 6.17, Hedging Limitation, of the Credit Agreement is hereby amended by
replacing the text thereof with the following text:

“Permit less then fifty percent (50%) or more than eighty percent (80%) of the
anticipated monthly notional volumes of crude oil or natural gas attributable to
the proved developed producing reserves that are projected to be produced from
Borrowers’ Borrowing Base Oil and Gas Properties, as reflected in the most
recently delivered Reserve Report delivered pursuant to Section 2.7 or as
otherwise determined by the Lender, to be covered by Permitted Commodity Hedge
Agreements for periods of at least twelve (12) months at all times, commencing
on the Second Amendment Closing Date.”

 
Exhibit 10.18 Page 3

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ARTICLE VI, NEGATIVE COVENANTS, of the Credit Agreement, is hereby amended by
adding to the end thereof the following new Section 6.18:

“Section 6.18  G&A Expenses.  Permit, as of the end of any fiscal quarter, the
ratio of (a) G&A Expenses to (b) Total Revenue to be greater than (i) thirty
percent (30%) beginning with the fiscal quarter ending on December 31, 2009 and
(ii) twenty-five percent (25%) for the fiscal quarter ending March 31, 2010 and
each fiscal quarter thereafter.”

Exhibit III, Compliance Certificate, attached to the Credit Agreement, is hereby
deleted in its entirety and replaced with the Exhibit III attached hereto and
each reference in any Loan Document to such Exhibit III shall include and
incorporate Exhibit III attached to this Second Amendment.

II. Limited Waiver.  Subject to the other terms and conditions set forth herein,
Lender hereby waives Borrowers’ compliance with (i) the financial covenants set
forth in Section 6.14 (Current Ratio), Section 6.15 (EBITDA to Fixed Charges),
and Section 6.16 (Tangible Net Worth) of the Credit Agreement (in effect
immediately prior to this Second Amendment) solely in relation to the fiscal
quarter ending June 30, 2009 and (ii) the financial covenant set forth in
Section 6.14 (Current Ratio) of the Credit Agreement solely in relation to the
fiscal quarter ending September 30, 2009.  The waiver granted hereunder does not
indicate an intent to establish any course of dealing between Lender and
Borrowers with regard to future waivers, consents, agreements to forbear or any
other modifications that may be requested.  Lender’s agreeing to the waiver
herein should not be construed as an indication that Lender would be willing to
agree to any further or future consents, waivers, agreements to forbear or any
modifications to any of the terms of the Credit Agreement or other Loan
Documents, or any Events of Default or Defaults that may exist or occur
thereunder.
 
III. Calculation and Testing of Financial Covenants.  Borrowers and Lender
hereby acknowledge and agree that the financial covenants set forth in Section
6.14 (Current Ratio), Section 6.15 (Loan Balance to EBITDA Ratio), Section 6.16
(Interest Expense Coverage Ratio), and Section 6.18 (G&A Expenses) of the Credit
Agreement (as amended hereby) shall, as of the close of each fiscal quarter
commencing September 30, 2009, be calculated based on Borrowers’ consolidated
Financial Statements.
 
IV. Conditions Precedent.  This Second Amendment shall be effective once the
following conditions precedent have been satisfied:
 
(a) This Second Amendment has been executed and delivered by Borrowers and
Lender;
 
(b) In connection with Section 6.18 of the Credit Agreement, Borrowers have
provided to Lender evidence acceptable to Lender, in its sole discretion, that
no less than two thousand (2,000) barrels of crude oil per month are covered by
Permitted Commodity Hedge Agreements at a strike price equal to or greater than
$65.00 per barrel of crude oil for the 2010 fiscal year;
 

 
Exhibit 10.18 Page 4

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(c) In consideration of the accommodations provided by Lender in this Second
Amendment, Borrowers have paid to Lender, in immediately available funds, the
amount of $7,690.00; and
 
(d) Borrowers deliver to Lender such other documents as Lender reasonably
requests.
 
V. Representations, Warranties and Covenants.  Borrowers represent and warrant
to Lender that (a) they possess all requisite power and authority to execute,
deliver and comply with the terms of this Second Amendment, (b) this Second
Amendment has been duly authorized and approved by all requisite company and
corporate action on the part of the Borrowers, (c) no other consent of any
Person (other than Lender) is required for this Second Amendment to be
effective, (d) the execution and delivery of this Second Amendment does not
violate their Governing Documents, (e) the representations and warranties in
each Loan Document to which they are a party are true and correct in all
material respects on and as of the date of this Second Amendment as though made
on the date of this Second Amendment (f) they are in full compliance with all
covenants and agreements contained in each Loan Document to which they are a
party, (g) no Event of Default or Default has occurred and is continuing, and
(h) no exhibit or schedule to the Credit Agreement is required to be
supplemented, amended or modified in connection with the transactions
contemplated by this Second Amendment or any other matters occurring prior to
the Second Amendment Closing Date.  The representations and warranties made in
this Second Amendment shall survive the execution and delivery of this Second
Amendment.  No investigation by Lender is required for Lender to rely on the
representations and warranties in this Second Amendment.
 
VI. Scope of Amendment; Reaffirmation; Release.  All references to the Credit
Agreement shall refer to the Credit Agreement as amended by this Second
Amendment.  Except as affected by this Second Amendment, the Loan Documents are
unchanged and continue in full force and effect.  However, in the event of any
inconsistency between the terms of the Credit Agreement (as amended by this
Second Amendment) and any other Loan Document, the terms of the Credit Agreement
shall control and such other document shall be deemed to be amended to conform
to the terms of the Credit Agreement.  Borrowers hereby reaffirm their
obligations under the Loan Documents to which they are a party to and agree that
all Loan Documents to which they are a party remain in full force and effect and
continue to be legal, valid, and binding obligations enforceable in accordance
with their terms (as the same are affected by this Second Amendment).  BORROWERS
HEREBY RELEASE, DISCHARGE AND ACQUIT LENDER FROM ANY AND ALL CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, REMEDIES, AND LIABILITIES OF EVERY KIND OR NATURE
(INCLUDING WITHOUT LIMITATION, OFFSETS, REDUCTIONS, REBATES, AND LENDER
LIABILITY) ARISING OUT OF ANY ACT, OCCURRENCE, TRANSACTION OR OMISSION OCCURRING
IN CONNECTION WITH THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS PRIOR TO
THE DATE OF THIS SECOND AMENDMENT.
 

 
Exhibit 10.18 Page 5

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VII. Miscellaneous.
 
(a)           No Waiver of Defaults.  Except as specifically provided in Section
II above, this Second Amendment does not constitute (i) a waiver of, or a
consent to, (A) any provision of the Credit Agreement or any other Loan
Document, or (B) any present or future violation of, or default under, any
provision of the Loan Documents, or (ii) a waiver of Lender’s right to insist
upon future compliance with each term, covenant, condition and provision of the
Loan Documents.
 
(b)           Form.  Each agreement, document, instrument or other writing to be
furnished to Lender under any provision of this Second Amendment must be in form
and substance satisfactory to Lender and its counsel.
 
(c)           Headings.  The headings and captions used in this Second Amendment
are for convenience only and will not be deemed to limit, amplify or modify the
terms of this Second Amendment, the Credit Agreement, or the other Loan
Documents.
 
(d)           Costs, Expenses and Attorneys’ Fees.  Borrowers agree to pay or
reimburse Lender on demand for all its reasonable out-of-pocket costs and
expenses incurred in connection with the preparation, negotiation, and execution
of this Second Amendment, including, without limitation, the reasonable fees and
disbursements of Lender’s counsel.
 
(e)           Successors and Assigns.  This Second Amendment shall be binding
upon and inure to the benefit of each of the undersigned and their respective
successors and permitted assigns.
 
(f)           Multiple Counterparts.  This Second Amendment may be executed in
any number of counterparts with the same effect as if all signatories had signed
the same document.  All counterparts must be construed together to constitute
one and the same instrument.  This Second Amendment may be transmitted and
signed by facsimile or portable document file (PDF).  The effectiveness of any
such documents and signatures shall, subject to applicable law, have the same
force and effect as manually-signed originals and shall be binding on Borrowers
and Lender.  Lender may also require that any such documents and signatures be
confirmed by a manually-signed original; provided that the failure to request or
deliver the same shall not limit the effectiveness of any facsimile document or
signature.
 
(g)           GOVERNING LAW.  THIS SECOND AMENDMENT AND THE OTHER LOAN DOCUMENTS
MUST BE CONSTRUED, AND THEIR PERFORMANCE ENFORCED, UNDER TEXAS LAW.
 
(h)           ENTIRETY.  The Loan Documents (as amended hereby) Represent the
Final Agreement By and Among Borrowers, Guarantor and Lender and May Not Be
Contradicted by Evidence of Prior, Contemporaneous, or Subsequent Oral
Agreements by the Parties.  There Are No Unwritten Oral Agreements between the
Parties.
 
(Signature page follows)

 
Exhibit 10.18 Page 6

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IN WITNESS WHEREOF, this Second Amendment is executed effective as of the Second
Amendment Closing Date.
 

 
BORROWERS:
       
CYMRI, L.L.C. (F/K/A THE CYMRI CORPORATION)
                   
By:
/s/ D. Hughes Watler, Jr.
 
 
D. Hughes Watler, Jr.
 
 
Secretary
                   
TRIUMPH ENERGY, INC.
                   
By:
/s/ D. Hughes Watler, Jr.
 
 
D. Hughes Watler, Jr.
 
 
Secretary
             
LENDER:
       
TEXAS CAPITAL BANK, N.A.
                   
By:
/s/ Jonathan Gregory
 
 
Jonathan Gregory
 
 
Executive Vice President

Signature Page to Second Amendment
 
 
Exhibit 10.18 Page 7

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GUARANTOR’S CONSENT AND AGREEMENT
TO
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT

As an inducement to Lender to execute, and in consideration of Lender’s
execution of, this Second Amendment, the undersigned hereby consents to this
Second Amendment and agrees that this Second Amendment shall in no way release,
diminish, impair, reduce or otherwise adversely affect the obligations and
liabilities of the undersigned under its Guaranty executed by the undersigned in
connection with the Credit Agreement, or under any Loan Documents, agreements,
documents or instruments executed by the undersigned to create liens, security
interests or charges to secure any of the Obligations (as defined in the Credit
Agreement), all of which are in full force and effect.  The undersigned further
represents and warrants to Lender that (a) the representations and warranties in
each Loan Document to which it is a party are true and correct in all material
respects on and as of the date of this Second Amendment as though made on the
date of this Second Amendment, (b) it is in full compliance with all covenants
and agreements contained in each Loan Document to which it is a party, and (c)
no Default or Event of Default has occurred and is continuing.  GUARANTOR HEREBY
RELEASES, DISCHARGES AND ACQUITS LENDER FROM ANY AND ALL CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, REMEDIES, AND LIABILITIES OF EVERY KIND OR NATURE
(INCLUDING WITHOUT LIMITATION, OFFSETS, REDUCTIONS, REBATES, AND LENDER
LIABILITY) ARISING OUT OF ANY ACT, OCCURRENCE, TRANSACTION OR OMISSION OCCURRING
IN CONNECTION WITH THE GUARANTY PRIOR TO THE DATE OF THIS SECOND
AMENDMENT.  This Consent and Agreement shall be binding upon the undersigned,
and its permitted assigns, if any, and shall inure to the benefit of Lender and
its respective successors and assigns.
 

 

 
GUARANTOR:
       
STRATUM HOLDINGS, INC.,
 
a Nevada corporation
             
By:
/s/ D. Hughes Watler, Jr.
 
 
D. Hughes Watler, Jr.
 
 
Chief Financial Officer & Secretary

Signature Page to Guarantor’s Consent and Agreement to Second Amendment
 
 
Exhibit 10.18 Page 8

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EXHIBIT III
 
Compliance Certificate
 

 
I, the Chief Executive Officer of CYMRI, L.L.C. (the “Company”), pursuant to
Sections 5.2 and 5.3 of the Second Amended and Restated Credit Agreement dated
as of August 5, 2008, by and among TEXAS CAPITAL BANK, N.A. (“Bank”) and the
Company and Triumph Energy, Inc., (the “Agreement”) do hereby certify, as of the
date hereof, that to my knowledge:
 
 
1.
No Event of Default (as defined in the Agreement) has occurred and is
continuing, and no Default (as defined in the Agreement) has occurred and is
continuing;

 
 
2.
No material adverse change has occurred in the business, prospects, financial
condition, or the results of operations of the Company since the date of the
previous Financial Statements (as defined in the Agreement) provided to Bank;
and

 
 
3.
Except as otherwise stated in the Schedule, if any, attached hereto, each of the
representations and warranties of the Company contained in Article IV of the
Agreement is true and correct in all respects.

 
 
4.
Attached hereto as Schedule 1 are the calculations showing compliance with the
requirements of Sections 6.14, 6.15, 6.16 and 6.18 of the Credit Agreement
[and/or non-compliance with the requirements of Sections 6.14, 6.15, 6.16 and
6.18 of the Credit Agreement]

 
This certificate is executed this ___ day of August, 2008.
 

 
CYMRI, L.L.C.
             
By:
 
   
D. Hughes Watler, Jr.
   
Secretary

 
Exhibit 10.18 Page 9
 

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