stratum10k123109x1018_472010.htm


     

     

    
      Exhibit
10.18

       

        
          

        

      

      
 

      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

          
            

          

        

        
           


        

      

      “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

          
            

          

        

        
           


        

      

      


      “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

          
            

          

        

        
           


        

      


      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

          
            

          

        

        
           


        

      

       

      (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

          
            

          

        

        
           


        

      

       

      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

          
            

          

        

        
           


        

      


      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

          
            

          

        

        
           


        

      


      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

          
            

          

        

        
           


        

      


      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