Exhibit 10.3

 

May 3, 2016

 

Synergy Resources Corporation

1625 Broadway, Suite 300

Denver, CO 80202

 

Attention:  James P. Henderson

Executive Vice President Finance and Chief Financial Officer

 

Re:                             Commitment Letter

$80,000,000 Senior Unsecured Notes

 

Ladies and Gentlemen:

 

Synergy Resources Corporation (“you”, “Synergy” or the “Company”) has advised
MTP Energy Master Fund Ltd. (“Lender 1”) and GSO Capital Partners LP, signing on
behalf of one or more funds managed, advised or sub-advised by GSO Capital
Partners LP (“Lender 2” and, together with Lender 1, the “Commitment Lenders” or
“we”) that the Company will acquire certain oil and gas assets (the “Assets”)
from Noble Energy, Inc., NBL Energy Royalties, Inc. and Noble Energy Wyco, LLC
(collectively, “Seller”) pursuant to a Purchase and Sale Agreement  (the
“Purchase Agreement”) dated May 2, 2016 (the “Acquisition”).  Capitalized terms
used in this letter but not defined herein shall have the meanings given to them
in the Summary of Terms and Conditions attached hereto as Annex I (the “Term
Sheet”).

 

A.                                    Commitment

 

In connection with the foregoing, Lender 1 is pleased to severally commit to
provide fifty percent (50%) of and Lender 2 is pleased to severally commit to
provide fifty percent (50%) of the $80.0 million principal amount of the Senior
Unsecured Notes due 2021 (the “Notes”) described in the Term Sheet (referred to
in this letter as each such Commitment Lender’s “Commitment”), subject to the
terms and conditions set forth in this letter (including Section C) and the Term
Sheet (collectively, this “Commitment Letter”).  The commitments and other
agreements of each Commitment Lender in this Commitment Letter are several and
not joint.  No Commitment Lender is responsible for the performance of the
obligations of any other Commitment Lender, and the failure of a Commitment
Lender to perform its obligations hereunder will not prejudice the rights of any
other Commitment Lender hereunder.  The purchase of the Notes contemplated by
this Commitment Letter shall be referred to herein as the “Financing”.

 

B.                                    Exclusivity

 

From the date hereof until the earliest of (a) the mutual agreement of the
parties hereto not to pursue the Financing; (b) the termination of the Loan
Documents (as defined below) in accordance with the terms thereof; (c) the
initial closing date of the Acquisition and the Financing and other related
transactions (the “Transaction”); and (d) the Termination Date (as defined
below) (or such later date as the Company and the Commitment Lenders shall have
mutually agreed to extend the commitment hereunder), unless the Company first
obtains the approval of the Commitment Lenders, the Company:

 

(i)                                     shall not, and shall cause its
affiliates, agents, representatives, counsel, consultants and advisors and any
other person acting on its or their behalf not to, directly or indirectly
solicit, participate in any negotiations or discussions with or provide or
afford access to information to any third party with respect to, or otherwise
effect, facilitate, encourage or accept any offers for the funding of

 

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the Financing or any alternative debt financing arrangements in connection with
the Acquisition (other than the Equity Issuance (as defined below)); and

 

(ii)                                  shall terminate or have terminated prior
to the date hereof any written agreement or arrangement related to the foregoing
to which the Company or its affiliates are parties, as well as any activities
and discussions related to the foregoing as may be continuing on the date hereof
with any party other than the Commitment Lenders and their respective
representatives.

 

The Company agrees and acknowledges that, in conjunction with the initial
closing of the Acquisition and subject to the terms and conditions set forth in
this Commitment Letter, and subject to the negotiation and execution of Loan
Documents in a form consistent with the Term Sheet and the completion of the
Equity Issuance (as each of those terms is defined below), the Company will sell
and issue the Notes to the Commitment Lenders. It is understood and agreed by
each of the parties hereto that money damages would not be a sufficient remedy
for the Company’s breach of its obligation to sell and issue the Notes to the
Commitment Lenders pursuant to this Commitment Letter and that the Commitment
Lenders shall be entitled to specific performance and injunctive or other
equitable relief as a remedy for such breach and the Commitment Lenders shall be
entitled to seek such relief or remedy even if this Commitment Letter has been
terminated; provided, however, that if the Purchase Agreement is terminated,
subject to the following paragraph, the Commitment Lenders’ sole remedy with
respect to such termination shall be receipt of the fees and other amounts
contemplated by that certain letter dated as of the date hereof among the
parties hereto (the “Fee Letter”).  The foregoing is in addition to, and not as
a limitation on, the Commitment Lenders’ respective rights and remedies in
connection with this Commitment Letter.

 

In addition to the restrictions set forth above, if on or prior to the date that
is 6 months after the date of this Commitment Letter, the Company or any of its
affiliates acquires any material portion of the Seller’s assets (any such
transaction, an “Alternative Transaction”) and, in connection with the
consummation of the Alternative Transaction, another institution proposes to
provide debt financing (including but not limited to senior secured loans,
mezzanine or high yield debt) or similar financing (notwithstanding a
willingness on the part of a Commitment Lender to provide such financing at the
time of such Alternate Transaction), the Company shall provide such Commitment
Lender reasonable opportunity to provide a percentage of such financing equal to
the respective commitment percentages set forth in this Commitment Letter (even
if such Commitment Lender is not willing to provide such amount of such
financing) on substantially the same terms so proposed prior to the consummation
of such Alternative Transaction, and shall enter with such Commitment Lender in
an agreement similar to this Commitment Letter for such alternative financing to
the extent such Commitment Lender has agreed to provide such financing.  In
enforcing its rights hereunder for any breach of this Commitment Letter, the
parties acknowledge that the Commitment Lenders will be entitled to any form of
equitable relief including, without limitation, injunctive relief, without
posting of any bond or other security as well as the right to pursue any and all
other rights and remedies (and recover any and all damages) available at law or
in equity.  Notwithstanding any term or provision hereof to the contrary, all of
the rights of the Commitment Lenders under this paragraph shall remain in full
force and effect notwithstanding the termination of this Commitment Letter or
the Commitment Lenders’ commitments and agreements hereunder.  It is understood
and agreed by each of the parties hereto that money damages would not be a
sufficient remedy for the Company’s breach of its obligations under this
paragraph and that the Commitment Lenders shall be entitled to specific
performance and injunctive or other equitable relief as a remedy for such
breach.

 

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C.                                    Conditions Precedent

 

The undertakings and Commitments of the Commitment Lenders under this Commitment
Letter are subject to the conditions set forth below, it being understood that
there are no conditions (implied or otherwise) to the funding of the Commitments
hereunder (including compliance with the terms of the Commitment Letter and the
Loan Documents) other than those conditions set forth below that are expressly
stated to be conditions to the purchase of the Notes (and upon satisfaction or
waiver by the Commitment Lenders of such conditions, the issuance of the Notes
shall occur):

 

1.                                      Negotiation and execution of a customary
and mutually satisfactory definitive purchase agreement, indenture and/or
customary note or similar loan documents (collectively, the “Loan Documents,”
and the date of execution of the Loan Documents, the “Closing Date”) in a form
consistent with the Term Sheet, it being understood and agreed that (i) subject
to the Certain Funds Provision, the representations and warranties provided by
the Company in the definitive purchase agreement with respect to the Notes shall
be (A) the representations made by the Seller under the Purchase Agreement and
(B) otherwise, consistent with those provided in the Underwriting Agreement
between the Company and Credit Suisse Securities (USA) LLC dated April 11, 2016,
with modifications reasonably necessary to reflect that the Financing
constitutes a private placement of debt instruments rather than an registered
equity offering; (ii) the Loan Documents shall contain customary provisions
relating to the reimbursement of expenses for the Commitment Lenders in the
event that the Company shall request the Commitment Lenders to execute or agree
to any future amendment or similar modification to the Loan Documents or the
Commitment Lenders are enforcing their rights and remedies under the Loan
Documents (it being understood, for the avoidance of doubt, that such
reimbursement shall not cover any transfer, assignments or other similar matters
by the Commitment Lenders in respect of the Notes); and (iii) each of the
Commitment Lenders and the Company shall negotiate in good faith with respect to
the Loan Documents (it being understood that the substantive terms of such Loan
Documents will be based on precedent described on Schedule A attached hereto,
with such modifications as are necessary to reflect the terms set forth in the
Term Sheet; provided that, other than as set forth in the Term Sheet, any
“baskets” set forth in the Loan Documents shall be mutually agreed upon by the
Commitment Lenders and the Company).

 

2.                                      Receipt of the following documentation
relating to the Company which shall be reasonably satisfactory to the Commitment
Lenders:  organizational documents, evidence of borrowing authority, customary
officer’s certificates, customary legal opinions, evidence of insurance (but not
endorsements), and solvency certificates with respect to the Company (after
giving effect to the Acquisition and the associated transactions).

 

3.                                      Payment of all fees and expenses due to
the Commitment Lenders under the Fee Letter.

 

4.                                      No default or event of default under the
Company’s Existing Credit Agreement shall exist, and any necessary amendments or
consents relating to the Existing Credit Agreement to effect the transactions
contemplated by the Purchase Agreement and this Commitment Letter shall be in
effect on or prior to the Closing Date.

 

5.                                      The Commitment Lenders will have
received a true and correct fully-executed copy of the Purchase Agreement,
including all exhibits and schedules thereto.  No provision of such agreement
shall have been waived, amended, supplemented or otherwise modified in any
respect by the Company in a manner materially adverse to the Commitment Lenders,
without the approval of the Commitment Lenders (such approval not to be
unreasonably withheld, delayed or conditioned), it being understood that any
modification to the definition of Material Adverse Effect contained in the
Purchase Agreement shall be deemed to be materially adverse to the

 

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Commitment Lenders. The first closing of the Acquisition shall have been (or
substantially concurrently with the closing and issuance of the Notes shall be)
consummated in accordance with applicable law and on the terms described in the
Purchase Agreement without giving effect to any waiver, modification or consent
thereunder that is materially adverse to the interests of the Commitment
Lenders, unless approved by the Commitment Lenders (such approval not to be
unreasonably withheld, delayed or conditioned), it being understood that any
modification to the definition of Material Adverse Effect contained in the
Purchase Agreement shall be deemed to be materially adverse to the Commitment
Lenders, and each Commitment Lender shall be in its reasonable judgment
satisfied that all conditions precedent under the Purchase Agreement have been
satisfied.

 

6.                                      (a) Since May 2, 2016, there shall not
have occurred any event that has had or would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect (as defined in the
Purchase Agreement) and (b) since December 31, 2015, there shall not have been
any material adverse change, nor any development or event involving a
prospective material adverse change, in or affecting the business, properties,
management, condition (financial or otherwise), stockholders’ equity, results of
operations or prospects of the Company (and its subsidiaries, if any).

 

7.                                      No Governmental Authority (as defined in
the Purchase Agreement) shall have enacted, issued, promulgated, or deemed
applicable any Law (as defined in the Purchase Agreement), or issued or granted
any final and non-appealable Order (as defined in the Purchase Agreement), that
is in effect and that has the effect of permanently enjoining, making illegal,
or otherwise prohibiting or preventing the consummation of the Acquisition or
the Financing, no Governmental Authority shall have threatened in writing to
enact, issue, promulgate, make applicable, or grant any such Law or Order, and
all approvals of Governmental Authorities required under the Purchase Agreement
to complete the initial closing of the Acquisition shall have been received.

 

8.                                      (a) In order to fund the Acquisition,
the Company shall have received at least $250 million in gross proceeds from the
sale of equity or equity-linked securities (other than any convertible debt
securities) in one or more public or private offerings, which, if not in the
form of common equity, will be on terms and conditions reasonably satisfactory
to the Commitment Lenders (the “Equity Issuance”), with such proceeds being
received prior to the purchase and sale of the Notes (it being understood, for
the avoidance of doubt, that the proceeds of the equity issuance by the Company
in April 2016 shall not be included for purposes of determining satisfaction of
this condition) and (b) the Company shall not have more than $10 million of
outstanding indebtedness under the Existing Credit Agreement and any other
indebtedness for borrowed money that is secured by a lien (such debt, “Secured
Debt”).

 

9.                                      The Company shall have represented to
the Commitment Lenders on the Closing Date that the Company shall have no
indebtedness for borrowed money other than (i) up to $10 million of indebtedness
for borrowed money (whether or not such debt is Secured Debt, including debt
under the Existing Credit Agreement), and (ii) the Notes; and any existing liens
relating to the assets to be acquired pursuant to the Purchase Agreement shall
have been terminated or released.

 

10.                               The Company shall have represented to the
Commitment Lenders in writing on or prior to the Closing Date that the borrowing
base under the Existing Credit Agreement in effect immediately following closing
of the Acquisition is at least $125 million.

 

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11.                               The Commitment Lenders shall have received, at
least five business days prior to the Closing Date, all documentation and other
information required by regulatory authorities under applicable “know your
customer” and anti-money laundering rules and regulations, including without
limitation the PATRIOT Act.

 

12.                               There shall be no default or event of default
under the Loan Documents, and, subject to the Certain Funds Provision, all
representations and warranties contained in the Loan Documents shall be true and
correct.

 

13.                               The Company shall be in compliance with its
obligations under clause D below.

 

Notwithstanding anything in this Commitment Letter, the Loan Documents or any
other letter agreement or other undertaking concerning the financing of the
Transaction to the contrary, (i) the only representations and warranties the
accuracy of which shall be a condition to the consummation of the Financing
shall be (A) such of the representations and warranties made by the Seller in
the Purchase Agreement as are material to the interests of the Commitment
Lenders, but only to the extent you have the right, pursuant to the Purchase
Agreement, to terminate your obligations under the Purchase Agreement or decline
to consummate the Acquisition as a result of a breach of any such
representations and warranties (the “Specified Purchase Agreement
Representations”) and (B) the Specified Representations (as defined below), and
(ii) the terms of the Loan Documents and the Closing Deliverables shall be in a
form such that they do not impair the funding for and issuance of the Notes on
the Closing Date if the conditions expressly set forth above in this Section C
are satisfied or waived by the Commitment Lenders.  For purposes hereof,
“Specified Representations” means the representations and warranties of the
Company set forth in the Loan Documents relating to corporate or other company
existence; due organization, the power and authority (as to execution, delivery
and performance of the applicable Loan Documents) of the Company; delivery and
enforceability and binding effect of the Loan Documents; the due authorization,
execution and delivery of the applicable Loan Documents; solvency; no conflicts
of Loan Documents with charter or other organizational documents and material
laws; receipt of all governmental consents required in connection with the first
closing of the Acquisition; Federal Reserve margin regulations; Investment
Company Act; Patriot Act; OFAC and Anti-Corruption Laws; and the Information
contained in Section D below.  This paragraph shall be referred to herein as the
“Certain Funds Provision”.

 

D.                                    Information Requirements

 

The Company represents and warrants (with respect to Information relating to
Seller or its assets, to the best of the Company’s knowledge after reasonable
inquiry) to, and covenants with, the Commitment Lenders that all written
information that has been or will be made available to the Commitment Lenders by
the Company or any of its representatives in connection with the Transaction,
including reports filed by the Company with the U.S. Securities and Exchange
Commission (the “Information”) is, and in the case of Information made available
after the date hereof, will be, complete and correct in all material respects
and does not, and in the case of Information made available after the date
hereof, will not, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.  The Company agrees to supplement the Information from time to time
so that the representation and warranty contained in this paragraph remains
correct.  In issuing the Commitments and undertakings hereunder, the Commitment
Lenders are relying on the accuracy of the Information without independent
verification thereof.

 

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E.                                    Fees; Indemnification

 

1.                                      Fees.  The Company shall pay (or cause
to be paid) to each Commitment Lender the fees and expenses set forth in the Fee
Letter.

 

2.                                      Indemnification.  The Company agrees to
indemnify and hold harmless each Commitment Lender, its affiliates and its
directors, officers, employees, agents, representatives, legal counsel, and
consultants (each, an “Indemnified Person”) against, and to reimburse each
Indemnified Person upon its demand for, any losses, claims, damages, liabilities
or other expenses (“Losses”) incurred by such Indemnified Person or asserted
against such Indemnified Person by any third party, arising out of or in
connection with this Commitment Letter, the Fee Letter, the use of the proceeds
from the sale of the Notes, the Transaction or any related transaction, or any
claim, litigation, investigation or proceeding relating to any of the foregoing,
and to reimburse each Indemnified Person upon demand for any legal or other
expenses incurred in connection with investigating or defending any of the
foregoing, whether or not such Indemnified Person is a party to any such
proceeding; provided that the Company shall not be liable pursuant to this
indemnity for any Losses to the extent that a court having competent
jurisdiction shall have determined by a final judgment (not subject to further
appeal) that such Loss resulted from the gross negligence or willful misconduct
of such Indemnified Person.  The Company shall not, without the prior written
consent of the affected Indemnified Person, effect any settlement of any pending
or threatened proceeding in respect of which such Indemnified Person is a party
and indemnity has been sought hereunder by such Indemnified Person, unless such
settlement includes an unconditional release of such Indemnified Person from all
liability on claims that are the subject matter of such indemnity and does not
include a statement as to, or an admission of, fault, culpability, or a failure
to act by or on behalf of such Indemnified Person.  No Indemnified Person shall
be responsible or liable for any special, indirect, punitive, exemplary or
consequential damages that may be alleged as a result of this Commitment Letter,
the Fee Letter, the use of proceeds, the Transaction or any related
transaction.  No Indemnified Person shall be liable for any indirect or
consequential damages in connection with its activities related to the
Financing.

 

F.                                     Miscellaneous

 

1.                                      Termination.  All commitments and
obligations of the Commitment Lenders under this Commitment Letter will
terminate on the earliest of (a) 11:59 p.m. Denver, Colorado time on June 30,
2016, (b) the closing of the Acquisition without the use of the Financing, and
(c) the valid termination of the Purchase Agreement, unless in each case, the
Loan Documents shall have been executed and delivered and the Notes Issued, with
such earliest date referred to as the “Termination Date”.  Notwithstanding any
term or provision hereof to the contrary, all of the rights and obligations of
any Commitment Lender and the Company hereunder and under the Fee Letter in
respect of governing law, submission to jurisdiction, indemnification,
confidentiality, exclusivity, payment of fees and other amounts, and expense
reimbursement shall remain in full force and effect regardless of whether
definitive financing documentation shall be executed and delivered and
notwithstanding the termination of this Commitment Letter or the Fee Letter or
such Commitment Lender’s Commitments and agreements hereunder or under the Fee
Letter.

 

2.                                      No Third-Party Beneficiaries.  This
Commitment Letter and the Fee Letter are solely for the benefit of the Company,
the Commitment Lenders and the Indemnified Persons; no provision hereof or of
the Fee Letter shall be deemed to confer rights on any other person or entity.

 

3.                                      No Assignment; Amendment.  This
Commitment Letter and the Fee Letter may not be assigned by the Company to any
other person or entity (and any attempted assignment shall be null and void),
but all of the obligations of the Company hereunder and under the Fee Letter
shall be binding upon the successors and assigns of the Company. 
Notwithstanding the foregoing, any and all obligations of, and services to be
provided by, a Commitment Lender hereunder (including, without limitation, its

 

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Commitment) may be performed and any and all rights of such Commitment Lender
hereunder may be exercised by or through any of its affiliates or branches
having the ability to perform such Commitment Lender’s obligations hereunder. 
This Commitment Letter and the Fee Letter may be not be amended or modified
except in writing executed by each of the parties hereto.

 

4.                                      Use of Name and Information.  The
Company agrees that any references to a Commitment Lender or any of its
affiliates made in connection with the Financing are subject to the prior
approval of such Commitment Lender, which approval shall not be unreasonably
withheld, conditioned or delayed; provided that this provision shall not apply
to any filings required to be made by the Company with the U.S. Securities and
Exchange Commission or pursuant to security exchange rules and regulations.

 

5.                                      Governing Law.  This Commitment Letter
and the Fee Letter will be governed by and construed in accordance with the laws
of the state of New York without regard to the principles of conflicts of laws
thereof.  THE COMPANY AND EACH COMMITMENT LENDER IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS COMMITMENT
LETTER, THE FEE LETTER, THE LOAN DOCUMENTS, THE USE OF PROCEEDS THEREOF OR ANY
OF THE TRANSACTIONS OR THE ACTIONS OF ANY COMMITMENT LENDER IN THE NEGOTIATION,
PERFORMANCE OR ENFORCEMENT HEREOF.  THE COMPANY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF THE SUPREME COURT OF THE STATE OF NEW
YORK SITTING IN NEW YORK COUNTY AND APPELLATE COURTS THEREOF FOR THE PURPOSE OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS COMMITMENT
LETTER, THE FEE LETTER, THE LOAN DOCUMENTS, THE USE OF PROCEEDS THEREOF, THE
TRANSACTIONS AND THE OTHER TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY AND
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT.  THE COMPANY AND EACH
COMMITMENT LENDER IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. A FINAL JUDGMENT IN ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT MAY BE ENFORCED IN ANY
OTHER COURTS TO WHOSE JURISDICTION THE COMPANY OR A COMMITMENT LENDER ARE OR
MAY BE SUBJECT, BY SUIT UPON JUDGMENT. SERVICE OF ANY PROCESS, SUMMONS, NOTICE
OR DOCUMENT ON THE COMPANY MAY BE MADE BY REGISTERED MAIL ADDRESSED TO THE
COMPANY AT THE ADDRESS APPEARING AT THE BEGINNING OF THIS LETTER FOR ANY SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT PURSUANT TO THIS COMMITMENT
LETTER.

 

6.                                      Survival.  The obligations of the
Company under the expense reimbursement, indemnification, confidentiality,
governing law, submission to jurisdiction, jury trial waiver, no fiduciary duty,
and survival provisions of this Commitment Letter and the Fee Letter shall
survive the expiration and termination of this Commitment Letter and any
expiration or termination of the commitment and undertakings of the Commitment
Lenders hereunder regardless of whether the Loan Documents are executed,
delivered and closed.

 

7.                                      Confidentiality.  Subject to the last
sentence of this Section 7, the Company agrees that it will not disclose,
directly or indirectly, this Commitment Letter, the Fee Letter, the Term Sheet,
the other

 

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exhibits and attachments hereto or the contents of each thereof, or the
activities of the Commitment Lenders pursuant hereto or thereto, to any person
or entity, except (a) to your officers, directors, agents, employees, attorneys,
accountants, advisors, controlling persons or equity holders who are informed of
the confidential nature thereof, on a confidential and need-to-know basis,
(b) if the Commitment Lenders consent in writing (such consent not to be
unreasonably withheld or delayed) to such proposed disclosure or (c) pursuant to
the order of any court or administrative agency in any pending legal, judicial
or administrative proceeding, or otherwise as required by applicable law or
compulsory legal process or to the extent requested or required by governmental
and/or regulatory authorities, in each case based on the reasonable advice of
your legal counsel (in which case the Company agrees, to the extent practicable
and not prohibited by applicable law, rule or regulation to inform the
Commitment Lenders promptly thereof prior to disclosure); provided that the
Company may disclose this Commitment Letter and the contents hereof, including
the Term Sheet attached hereto (but not the Fee Letter and any information
contained therein) (i) if portions thereof have been redacted in a manner
reasonably agreed by us (including the portions thereof addressing fees payable
to the Commitment Lenders), to the Seller, its subsidiaries and its and their
respective officers, directors, agents, employees, attorneys, accountants,
controlling persons or advisors, on a confidential and need-to-know basis and
(ii) in the Company’s Current Report on Form 8-K, its press release announcing
the Acquisition and its prospectus supplement for the Equity Issuance and other
related marketing materials therefor.  In the event that the Notes are issued,
the Company’s obligations under this paragraph shall terminate automatically
and, to the extent covered thereby, be superseded by the confidentiality
provisions in the Loan Documents upon the initial funding thereunder to the
extent such provisions are binding on the Company.  Otherwise, the
confidentiality provisions set forth in this paragraph shall survive the
termination of this Commitment Letter and expire and shall be of no further
effect commencing on the date that is 18 months following the date hereof.

 

We will use all non-public information provided to us by or on behalf of you
hereunder or in connection with the Transactions solely for the purpose of
performing the obligations which are the subject of this Commitment Letter and
negotiating, evaluating and contemplating the transactions contemplated hereby
and shall treat confidentially all such information and shall not publish,
disclose or otherwise divulge, such information; provided that nothing herein
shall prevent us  from disclosing any such information (a) pursuant to the order
of any court or administrative agency or in any pending legal, judicial or
administrative proceeding, or otherwise as required by applicable law, rule or
regulation, or compulsory legal process based on the reasonable advice of
counsel (in which case we agree (except with respect to any audit or examination
conducted by bank accountants or any governmental or bank regulatory authority
exercising examination or regulatory authority), to the extent practicable and
not prohibited by applicable law, rule or regulation, to inform you promptly
thereof prior to disclosure), (b) upon the request or demand of any regulatory
authority having jurisdiction over us (in which case we agree (except with
respect to any audit or examination conducted by bank accountants or any
governmental or bank regulatory authority exercising examination or regulatory
authority), to the extent practicable and not prohibited by applicable law,
rule or regulation, to inform you promptly thereof prior to disclosure), (c) to
the extent that such information becomes publicly available other than by reason
of improper disclosure by us or any related parties thereto (including the
persons referred to in clause (f) below) in violation of any confidentiality
obligations owing to the Company or any of your subsidiaries or affiliates or
related parties, (d) to the extent that such information is or was received by
us from a third party that is not, to our knowledge, subject to contractual or
fiduciary confidentiality obligations owing to you, the Company or any of your
or their respective affiliates or related parties, (e) to the extent that such
information was already in our possession prior to the date hereof, or is
independently developed us without the use of any confidential information and
without violating the terms of this Commitment Letter, (f) to our affiliates and
to its and their respective directors, officers, employees, legal counsel,
independent auditors, professionals and other experts or agents who need to know
such information in connection with the Transactions and who otherwise are
informed of the confidential nature of such information and who are subject to
customary confidentiality obligations of professional practice or who

 

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agree in writing to be bound by the terms of this paragraph (or language
substantially similar to this paragraph) (with a Commitment Lender, to the
extent within its control, responsible for such person’s compliance with this
paragraph), (g) for the purposes of establishing a “due diligence” defense or
(h) to potential or prospective funding sources, participants or assignees and
to any direct or indirect contractual counterparty to any swap or derivative
transaction relating to the Company or any of its subsidiaries, in each case who
agree to be bound by the terms of this paragraph (or language substantially
similar to this paragraph); provided that (i) the disclosure of any such
information to any purchasers of the Notes, participants, assignees, hedge
providers or funding sources or prospective purchasers of the Notes shall be
made subject to the acknowledgment and acceptance by such purchaser of the
Notes, funding source, participant, assignee, hedge provider or prospective
purchaser of the Notes that such information is being disseminated on a
confidential basis (on substantially the terms set forth in this paragraph or as
is otherwise reasonably acceptable to you and the Commitment Lenders). In the
event that the Notes are issued, the Commitment Lenders’ obligations under this
paragraph shall terminate automatically and, to the extent covered thereby, be
superseded by the confidentiality provisions in the Loan Documents upon the
initial funding thereunder to the extent such provisions are binding on the
Commitment Lenders. Otherwise, the confidentiality provisions set forth in this
paragraph shall survive the termination of this Commitment Letter and expire and
shall be of no further effect commencing on the date that is 18 months following
the date hereof.

 

Notwithstanding anything to the contrary provided elsewhere herein, none of the
provisions of this Commitment Letter shall in any way limit the activities of
any affiliate of a Commitment Lender in its respective businesses distinct from
the business of such Commitment Lender, provided that the non-public information
referenced in the foregoing paragraph is not made available to representatives
of such affiliate, if any, of such Commitment Lender who is not involved in the
business of such Commitment Lender. Should such information be made available to
a representative of such affiliate of such Commitment Lender who is not involved
in the business of such Commitment Lender, such representative and affiliate
shall be bound by the confidentiality provisions of this Commitment Letter in
accordance with its terms.

 

8.                                      No Fiduciary Duty.  The Company
acknowledges and agrees that (i) the commitment pursuant to this Commitment
Letter is an arm’s-length commercial transaction between the Company, on the one
hand, and the Commitment Lenders, on the other, and you are capable of
evaluating and understanding, and do understand and accept, the terms, risks and
conditions of the transactions contemplated by this Commitment Letter; (ii) in
connection with the transactions contemplated hereby and the process leading to
such transactions, each Commitment Lender is and has been acting solely as a
principal and is not the agent or fiduciary of the Company or its affiliates,
stockholders, creditors, employees or any other party, (iii) no Commitment
Lender has assumed an advisory responsibility or fiduciary duty in favor of the
Company with respect to the transactions contemplated hereby or the process
leading thereto and the Commitment Lenders have no obligation to the Company
except those expressly set forth in this Commitment Letter, (iv) the Commitment
Lenders and their respective affiliates may be engaged in a broad range of
transactions that involve interests that differ from those of the Company and
its affiliates, and the Commitment Lenders have no obligation to disclose any of
such interests by virtue of any fiduciary or advisory relationship as a
consequence of this Commitment Letter; and (v) the Commitment Lenders have not
provided any legal, accounting, regulatory or tax advice with respect to any of
the transactions contemplated hereby and the Company has consulted its own
legal, accounting, regulatory and tax advisors to the extent it deemed
appropriate.  The Company waives and releases, to the fullest extent permitted
by law, any claims that it may have against any Commitment Lender with respect
to any breach or alleged breach of fiduciary duty as a consequence of this
Commitment Letter.  You acknowledge that the Commitment Lenders and their
respective affiliates may be providing debt financing, equity capital or other
services (including financial advisory services) to other companies in respect
of which you may have conflicting interests.  Neither we nor any of our

 

9

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respective affiliates will use confidential information obtained from you by
virtue of the transactions contemplated by this Commitment Letter or our other
relationships with you in connection with the performance by us of services for
other companies, and we will not furnish any such information to other
companies.  You also acknowledge that neither we nor any of our affiliates has
any obligation to use in connection with the transactions contemplated by this
Commitment Letter, or to furnish to you, confidential information obtained by us
from other companies.

 

9.                                      Counterparts.  This Commitment Letter
and the Fee Letter may be executed in multiple counterparts, and by different
parties hereto in any number of separate counterparts, all of which taken
together shall constitute one original.  Delivery of an executed counterpart of
a signature page to this Commitment Letter or the Fee Letter by telecopier or by
electronic transmission (in pdf form) shall be as effective as delivery of a
manually executed counterpart hereof.

 

10.                               Entire Agreement.  This Commitment Letter,
together with the Term Sheet and the Fee Letter, supersedes all prior
understandings, whether written or oral, among the parties hereto with respect
to the Financing and sets forth the entire understanding of the parties hereto
with respect thereto.

 

11.                               Patriot Act.  Each Commitment Lender hereby
notifies the Company that pursuant to the requirements of the USA Patriot
Improvement and Reauthorization Act of 2005, Title III of Pub. L. 109-177
(signed into law March 9, 2006) (the “Patriot Act”), it and its affiliates are
required to obtain, verify and record information that identifies the Company,
which information includes the name, address, tax identification number and
other information regarding the Company that will allow such Commitment Lender
to identify the Company and Guarantors in accordance with the Patriot Act.  This
notice is given in accordance with the requirements of the Patriot Act and is
effective for such Commitment Lender and its affiliates.

 

10

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We look forward to working with you on this important transaction.

 

 

Very truly yours,

 

 

 

 

 

MTP ENERGY MASTER FUND LTD.

 

 

 

By: MTP Energy Management LLC

 

Its: Investment Advisor

 

By: Magnetar Financial LLC

 

Its: Sole Member

 

 

 

By:

/s/ Paul Smith

 

 

Name: Paul Smith

 

 

Title: Chief Legal Officer

 

 

 

GSO CAPITAL PARTNERS LP, signing on behalf of one or more funds managed, advised
or sub-advised by GSO Capital Partners LP

 

 

 

 

 

By:

/s/ Marisa J. Beeney

 

 

Name: Marisa J. Beeney

 

 

Title: Authorized Signatory

 

 

 

 

ACCEPTED AND AGREED

 

this 3rd day of May, 2016:

 

 

 

SYNERGY RESOURCES CORPORATION

 

 

 

By:

/s/ James P. Henderson

 

 

James P. Henderson

 

 

Executive Vice President Finance and Chief Financial Officer

 

 

Signature Page to Commitment Letter

 

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Annex I - Summary of Principal Terms and Conditions

 

See attached.

 

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Senior Unsecured Notes due 2021

 

Summary of Terms and Conditions

 

This Summary of Terms and Conditions (this “Term Sheet”) is only a summary of
the definitive agreements, the negotiation and execution of which shall be
consummated in accordance with this Term Sheet and the Commitment Letter to
which this Term Sheet is attached.  Capitalized terms used in this Term Sheet
but not defined herein shall have the meanings given to them in the Commitment
Letter to which this Term Sheet is attached.

 

General

 

Issuer:

 

Synergy Resources Corporation (the “Issuer”).

 

 

 

Initial Purchasers:

 

The Commitment Lenders named within the Commitment Letter

 

 

 

Future Guarantors:

 

All subsidiaries of the Issuer that guarantee the RBL (as defined below) or any
of the Issuer’s or any such subsidiary’s other debt in excess of $15 million,
will also guarantee the Notes.

 

 

 

Placement Agent:

 

Credit Suisse Securities (USA) LLC to act as placement agent in the placement of
Notes to investors, and will not purchase the Notes for its own account.

 

 

 

Issuance:

 

Pursuant to the private placement exemption from U.S. securities laws provided
by Rule 4(a)(2) of the U.S. Securities Act of 1933.

 

 

 

Amount:

 

$80 million (the “Notes”)

 

 

 

Maturity:

 

5 years from date of issue.

 

 

 

Ranking:

 

Senior unsecured obligations of the Issuer and any Future Guarantors.

 

 

 

Interest Rate:

 

9.00% (cash interest to be paid on a semi-annual basis)

 

Interest on overdue principal shall accrue at the otherwise applicable rate plus
2%, and interest on other overdue amounts shall accrue at the rate applicable to
principal of the Notes plus 2%

 

 

 

OID or Commitment Fee:

 

As set forth in the Fee Letter

 

 

 

Use of Proceeds:

 

Acquisition of assets pursuant to the Purchase Agreement, payment of fees and
expenses relating to the Transactions and general corporate purposes

 

 

 

Amortization:

 

None

 

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Registration Rights:

 

None, unless the Issuer grants registration rights to a holder of the Issuer’s
debt securities while the Notes remain outstanding, in which case the Issuer
will use its reasonable best efforts to register the Notes and have the
registration statement with respect to the Notes declared or made automatically
effective within 3 months from the date the Issuer granted registration rights
to such other holder; provided that from and after the date that is 12 months
after issuance, the Issuer shall have no such obligation if (i) the Notes are
freely tradable by non-affiliates under Rule 144 and (ii) to the extent
requested by holders of the Notes, (A) the restrictive legend has been or is
removed from the Notes (other than those Notes held by affiliates), and (B) the
Notes are or become not associated with a restricted CUSIP (other than those
Notes held by affiliates).

 

 

 

DTC eligible:

 

Issuer to use reasonable best efforts to deliver the Notes via the book-entry
facilities of DTC at closing

 

 

 

Redemption and Repurchase

 

 

 

 

 

Optional Redemption:

 

Make-Whole Premium redemption:

 

 

 

 

 

·             Prior to the 2.5-year anniversary of the date of issue, the Notes
may be redeemed by the Issuer, in whole or in part, subject to a customary
“Make-Whole Premium” discounted at T+50bps.

 

 

 

 

 

Step down redemption:

 

 

 

 

 

·             Between the 2.5-year anniversary of the date of issue and the
3.5-year anniversary of the date of issue, the Notes may be redeemed, in whole
or in part, at a price equal to par plus 50% of the interest rate applicable to
the Notes.

·             Between the 3.5-year anniversary of the date of issue and the
4.5-year anniversary of the date of issue, the Notes may be redeemed, in whole
or in part, at a price equal to par plus 25% of the interest rate applicable to
the Notes.

·             After the 4.5-year anniversary of the date of issue, the
redemption price will step down to par

·             All such redemptions shall include accrued but unpaid interest on
the Notes.

 

 

 

 

 

Equity Claw-Back redemption:

 

 

 

 

 

·             Prior to the 2.5-year anniversary of the date of issue, up to 35%
of the Notes may be redeemed at a price equal to par plus the interest rate
applicable to the Notes, using the net cash proceeds of an equity offering,
provided that at least 65% of the Notes originally issued remain outstanding.

 

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Change of Control Repurchase:

 

Upon a Change of Control, the Issuer must make an offer to purchase the Notes at
a price equal to 101%.

 

 

 

 

 

A Change of Control includes (i) direct sale of all or substantially all assets,
(ii) adoption of a plan of liquidation or dissolution, (iii) a transaction
whereby a person or group acquires more than 50% of the voting power of the
Issuer, or (iv) the day upon which the majority of the board are not continuing
directors.

 

 

 

Asset Sales:

 

Issuer will not consummate an Asset Sale unless consideration is at least 75%
cash or cash equivalents, including assumption of liabilities or costs and
expenses of an oil and gas property, publicly traded securities and other
obligations received from the transferee and converted to cash w/in 180 days, or
receipt of assets or a business in the oil and gas industry. The aggregate
amount of all forms of consideration other than cash and cash equivalents
received for all Asset Sales since the Closing Date shall not exceed the greater
of $20 million or 3% ACNTA.

 

 

 

 

 

Issuer will apply net proceeds from an Asset Sale once in excess of $20 million
(within 365 days after receipt of net proceeds, as may be extended by 180 days
from commitment to use proceeds) to:

 

 

 

 

 

·             Repay secured debt;

·             Permanently repay unsecured debt on a pro rata basis with the
Notes;

·             Acquire (all or substantially all) assets or stock of a company
principally engaged in oil & gas business; or

·             Make capex or acquire assets useful in the oil & gas business.

 

 

 

 

 

Carve-outs from the Asset Sale procedures to include:

 

 

 

 

 

·             De minimis transactions that involve assets with a fair market
value of less than $20 million (measured at the time of the relevant sale or
other disposition) in the aggregate in any calendar year

·             Other customary carve-outs, including (i) Asset Swaps, (ii) sale
or disposition of oil & gas or other mineral products in the ordinary course of
business, and (iii) customary farm-out of oil & gas properties.

 

 

 

Covenants

 

 

 

 

 

Suspension upon Investment Grade Rating:

 

Certain restrictive covenants to be suspended for any period where Notes obtain
an investment grade rating by both Moody’s and S&P.

 

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Rating on Notes:

 

Issuer will use reasonable best efforts to obtain ratings of the Notes from S&P
and Moody’s by December 31, 2016 and Issuer will use commercially reasonable
efforts to maintain such rating from S&P and Moody’s.

 

 

 

Restricted Payments:

 

Issuer and restricted subsidiaries may not pay dividends, distributions or any
other restricted payments to equity holders, repurchase equity interests,
repurchase, redeem or make non- scheduled payments on any subordinated debt,
make any investment other than Permitted Investments (to be defined in a
mutually agreeable manner), unless it has capacity under the Builder Basket to
make such a payment.

 

 

 

 

 

The “Builder Basket” shall mean the sum, without duplication, of:

 

·             (i) 50% of Consolidated Net Income (to be defined in a manner
mutually agreeable) (100% of net loss) from start of fiscal quarter preceding
date of issue to the end of the most recently ended fiscal quarter,

·             (ii) 100% of cash proceeds received from the issue or sale of
equity interest of the Issuer,

·             (iii) 100% of the reduction in indebtedness (other than
subordinated indebtedness) from the contractual conversion or exchange of
convertible or exchangeable debt for capital stock,

·             (iv) proceeds from the sale or repayment of restricted Investments
and

·             (v) the fair market value of investments in subsidiaries
redesignated as Restricted Subsidiaries to the extent initially constituting a
restricted investment.

 

As a condition to use of the Builder Basket for any purpose, the Issuer must be
able to incur $1 of additional debt under the 2.25:1.00 Fixed Charge Coverage
Ratio noted below.

 

 

 

 

 

Permitted Restricted Payment carve-outs for the following (among other customary
payments):

 

 

 

 

 

·             Repurchase of management or employee equity interests up to $10
million in any fiscal year with unused amounts permitted to be carried forward
to subsequent fiscal years, not to exceed $7.5 million for any fiscal year

·             General Restricted Payment basket of greater of (A) $25 million,
and (B) 4.0% ACNTA

 

 

 

 

 

Permitted Investment carve-outs for the following (among customary investments):

 

--------------------------------------------------------------------------------

 

 

 

·             Loans to employees up to $1.0 million

·             Investments, other than in unrestricted subsidiaries, entered into
in the ordinary course of business and customary in the oil and gas business
(“Permitted Business Investments”)

·             General Permitted Investment Basket of greater of (A) $30 million,
and (B) 2.5% ACNTA

 

 

 

Indebtedness:

 

Issuer and Future Guarantors may incur debt if Fixed Charge Coverage Ratio (to
be defined in a mutually agreeable manner) in excess of 2.25:1.00 (“Fixed Charge
Coverage Ratio Test”).

 

 

 

 

 

Permitted debt carve-outs for the following (among other customary incurrences):

 

·             Basket for indebtedness under an RBL equal to the greater of
(A) $225 million and (B) 35.0% of ACNTA (calculatedper the Modified ACNTA
pricing definition below); provided that, in the case of both (A) and (B) above,
the cost of debt pursuant to this clause shall not exceed LIBOR + 550 bps (with
the cost of debt to be calculated to include fees and OID and LIBOR not to
exceed the lesser of 1.0% and the then prevailing LIBOR) (the “RBL Basket”)

 

As used herein, “RBL” shall mean one or more traditional corporate banking
borrowing base revolvers for oil and gas secured loan transactions in a single
tranche (i.e. not permitted to tranche into first out and second out first lien
loans), including customary mechanisms for periodic determination thereof that
are provided by one or more commercial banks that routinely provide revolving
credit facilities providing for revolving credit loans and/or letters of credit
on a secured or unsecured basis on customary market terms for similar facilities

 

·             Existing Debt, other than debt incurred under the Credit Facility
Basket

·             Hedging Obligations incurred in the ordinary course of business to
mitigate risk and not for speculative purposes

·             Capital Lease/Purchase Money basket of greater of (A) $25 million,
and (B) 4.0% ACNTA

·             Acquired / Acquisition Debt basket (provided, that pro forma for
the acquisition, Issuer can incur $1 of additional debt under the Fixed Charge
Coverage Ratio Test or the acquisition improves the Fixed Charge Coverage Ratio
can be incurred to finance acquisition or assume target’s debt)
(“Acquired/Acquisition Debt Basket”)

·             General Debt basket of greater of (A) $30 million, and (B)

 

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4.0% ACNTA

 

 

 

Liens:

 

Issuer and restricted subsidiaries may not incur any liens unless the Notes are
equally and ratably secured, or secured on a senior basis, in the case of liens
securing subordinated indebtedness.

 

 

 

 

 

Permitted lien carve-outs for the following (among other customary incurrences):

 

 

 

 

 

·             Liens securing debt incurred under the RBL Basket (liens securing
the RBL may not be reclassified to any other lien basket)

·             Liens to secure Acquired Debt (provided that such liens do not
spread to any assets other than the assets securing such debt immediately prior
to such acquisition)

·             Liens securing Capital Lease/Purchase Money debt basket (limited
to the assets purchased, improved or constructed with the proceeds of debt
incurred under the Capital Lease/Purchase Money debt basket)

·             Liens securing hedging obligations incurred in the ordinary course
of business to mitigate risk and not for speculative purposes

·             Liens arising under customary oil and gas agreements but not to
secure indebtedness

·             General Lien basket of (A) $30 million, and (B) 4.0% ACNTA, which
cannot be used for second or junior lien debt for borrowed money

 

 

 

Production Payments:

 

The Issuer and restricted subsidiaries are not permitted to engage in any
production payment, royalties, ORRI, NPIs and similar transactions.

 

 

 

Other Covenants:

 

Customary other covenants, including restrictions on:

 

 

 

 

 

·             Dividend Stoppers

·             Sale and Leaseback transactions

·             Transactions with Affiliates

·             Mergers and sale of substantially all assets (unless, among other
customary conditions, the acquisition improves the Fixed Charge Coverage Ratio,
and successor entity assumes obligations under Notes)

·             Business Activities

·             Selective Payments for Consent to amend terms of Notes

 

 

 

Reports:

 

Issuer must provide Note holders with the following information:

 

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·             all quarterly and annual reports that would be required to be
filed with the SEC on Forms 10-Q and 10-K if Synergy were required to file such
reports; and

·             all current reports of Synergy that would be required to be filed
with the SEC on Form 8-K if Synergy were required to file such reports
(typically 4 business days)

 

 

 

Events of Default

 

 

 

 

 

 

 

Customary events of default, including:

 

 

 

 

 

·             nonpayment of principal when due

·             nonpayment of interest, fees or other amounts within 30 days of
when due

·             violation of covenants not cured within 60 days of notice of
default by at least 25% of holders of Notes

·             cross-acceleration of debt in excess of $20 million

·             judgment in excess of $20 million

·             certain bankruptcy events.

 

Upon the occurrence of an event of default, noteholders holding 25% or more of
the outstanding principal amount of the Notes may accelerate all outstanding
amounts under the Notes

 

 

 

Other

 

 

 

 

 

Definition of ACNTA:

 

Customary definition, to be keyed off discounted future net revenues of Proved
Reserves as calculated based on the Modified ACNTA pricing, discounted at 10%
and prepared under an independent reserve engineer’s report following Issuer’s
most recent fiscal year end.

 

Contribution from Proved Reserves from undeveloped locations to constitute no
more than 35% of the discounted net revenues of Proved Reserves as referenced
above

 

 

 

Modified ACNTA pricing:

 

At the date of determination, the five-year strip price for crude oil (WTI
Cushing), for natural gas liquids (Mont Belvieu) and natural gas (Henry Hub),
with such price held flat for each subsequent year, quoted on the NYMEX (or its
successor) as of the calculation date

 

 

 

Amendments:

 

Amendments to the Loan Documents will generally require consent of holders
holding at least a majority in principal amount of the Notes, subject to certain
customary exceptions which shall require the consent of each affected holder,
including reductions in principal, delay or forgiveness of required payments,
reduction in the rate of interest and release of guarantees from significant
subsidiaries.

 

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Governing Law and Forum:

 

State of New York

 

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