Document:

parl_ex101.htm

EXHIBIT 10.1

 

FIRST AMENDED AND RESTATED SUBLICENSE

 

This First Amended and Restated Sublicense (the “Amended Sublicense”) is made as of the 3rd day of April, 2009, by and among Parlux Fragrances, Inc., a Delaware corporation, with its principal offices at 5900 North Andrews Avenue, Suite 500, Ft. Lauderdale, FL 33309 (“Sub-Licensee”), and Iconic Fragrances, LLC, now known as Artistic Brands Development, LLC, a Delaware limited liability company, with its principal offices at 1800 N.W. 84th Avenue, Suite 100, Miami, FL 33126 (“Sub-Licensor”).

 

WHEREAS, Sub-Licensor, Kanye West (“Artist”) and Mascotte Holdings, Inc., an entity or representative owning the rights to market such Artist’s name and any related trademark (“Licensor”) previously entered into that certain License Agreement, dated as of April 3, 2009 (the “License Agreement”), pursuant to which Sub-Licensor holds the exclusive right and license to use the Licensed Mark in the Territory for use on and solely in connection with the manufacture, promotion, distribution and sale of Licensed Products in the Licensed Channels of Distribution (as all of such terms are defined in the License Agreement); and

 

WHEREAS, Sub-Licensor and Sub-Licensee previously entered into that certain Sublicense (the “Sublicense”) pursuant to which Sub-Licensor exclusively sublicensed the License Agreement, on the terms and conditions set forth in the Sublicense, to Sub-Licensee, which Sublicense was signed by Licensor and Artist as to Paragraph 16 only; and

 

WHEREAS, Sub-Licensor, Licensor and Artist have entered into that certain First Amended and Restated License Agreement (the “Amended License Agreement”), dated as of April 3, 2009, pursuant to which the License Agreement was amended in certain respects, which Amended License Agreement restated, superseded and replaced the License Agreement; and

 

WHEREAS, Sub-Licensor, Licensor, Artist and Sub-Licensee, pursuant hereto, desire to amend the Sublicense and to restate, supersede and replace the Sublicense with this Amended Sublicense.

 

WHEREAS, Sub-Licensor has the right and obligation pursuant to the Amended License Agreement to sublicense its rights and obligations under the Amended License Agreement to Sub-Licensee; and

 

WHEREAS, pursuant to that certain Agreement entered into by Sub-Licensee and Sub-Licensor dated April 3, 2009 (the "Parlux-Iconic Agreement"), Sub-Licensor desires to sublicense the Amended License Agreement to Sub-Licensee, and Sub-Licensee desires to sublicense the Amended License Agreement from Sub-Licensor; and

 

WHEREAS, the Artist and Licensor desire to permit the Amended Sublicense between Sub-Licensee and Sub-Licensor to be entered into;

 

NOW, THEREFORE, the parties hereto agree as follows:

 

1. Grant of Exclusive Sublicense.  Sub-Licensor hereby grants to Sub-Licensee, and Sub-Licensee hereby accepts, the exclusive sublicense of the Amended License Agreement, on the terms and subject to the conditions set forth in this Amended Sublicense, pursuant to which the Sub-Licensee shall be responsible for performing all of Sub-Licensor’s obligations under the Amended License Agreement directly for the benefit of the Licensor, and the Sub-Licensee shall be entitled directly to all of the rights and benefits of the Sub-Licensor under the Amended License Agreement.  The Sub-Licensee hereby assumes all of Sub-Licensor’s obligations to the Licensor under the Amended License Agreement and guarantees to the Licensor and Artist that it will fully perform as the licensee under the Amended License Agreement, as if the Amended License Agreement were directly entered into with the Sub-Licensee.  All capitalized terms used in this Amended Sublicense shall have the meaning assigned to such terms in the Amended License Agreement, except as otherwise defined in this Amended Sublicense.

 

  

  

  

2. Term.  The Initial Term of this Amended Sublicense shall be for the same Initial Term as the Amended License Agreement, as may be extended by the Sub-Licensee's exercise of the Sublicensor’s option to extend the Amended License Agreement for a Renewal Term, in accordance with the terms and conditions of the Amended License Agreement.

3. Royalties.  The Sub-Licensee shall assume the Sub-Licensor’s obligation to make payments of Sales Royalties to the Licensor on account of Sub-Licensee’s Net Sales for the applicable Licensed Products covered by the Amended License Agreement including the payment of any Guaranteed Minimum Royalties required in the Amended License Agreement, subject to any advance payments of Guaranteed Minimum Royalties that Sub-Licensor may agree to make on Sub-Licensee’s behalf pursuant to the terms of the Parlux-Iconic Agreement, the repayment of which shall be governed by the terms of the Parlux-Iconic Agreement.  The Sub-Licensee shall remit payment of such Sales Royalties directly to the Licensor under the Amended License Agreement in accordance with the terms and conditions of the Amended License Agreement.  The Licensor shall be entitled to enforce its rights to be paid Sales Royalties under the Amended License Agreement directly from the Sub-Licensee, and the Licensor need not proceed against the Sub-Licensor to enforce its rights against the Sub-Licensee.

4. Audit.  Sub-Licensee shall permit Licensor's and Sub-Licensor’s employees, agents and other representatives to audit, review and inspect Sub-Licensee's books and records in accordance with the Amended License Agreement and the Parlux-Iconic Agreement.  Licensor and Sub-Licensor agree to coordinate their audit rights so that no more than one joint audit on behalf of Licensor and Sub-Licensor or two separate but simultaneously performed audits by Licensor and Sub-Licensor, respectively, per period is conducted for the benefit of Licensor and Sub-Licensor, if any audit is conducted.

 

5. Indemnity by Sub-Licensee.  Sub-Licensee assumes full responsibility for the conduct of its business and shall indemnify and hold harmless Licensor, Artist and Sub-Licensor (each, an “Indemnified Party,” and collectively, the “Indemnified Parties”), from and against any and all losses, liabilities, claims, charges, actions, proceedings, demands, judgments, settlements, costs and expenses (including, without limitation, reasonable attorneys' fees) which any of them may incur as a result of any claim or demand which may be made against any of them arising in any way out of this Amended Sublicense including, without limitation, claims alleging negligence in connection with the conduct of the business operated by Sub-Licensee or any product liability or other defects or any inherent danger in or from the business conducted by Sub-Licensee or the products it sells or manufactures, and for any breach by Sub-Licensee of any representation, warranty, covenant, agreement or obligation of Sub-Licensee in this Amended Sublicense or in the Parlux-Iconic Agreement.  Furthermore, Sub-Licensee shall indemnify and hold harmless Sub-Licensor from and against any and all losses, liabilities, claims, charges, actions, proceedings, demands, judgments, settlements, costs and expenses (including, without limitation, reasonable attorneys' fees) which Sub-Licensor may incur as a result of any claim or demand by Licensor or Artist against Sub-Licensor alleging that Sub-Licensee failed to perform any obligations of Sub-Licensor under the Amended License Agreement.

 

  

2

  

 

6. Indemnity by Sub-Licensor.  Sub-Licensor shall indemnify and hold harmless Sub-Licensee from and against any and all losses, liabilities, claims, charges, actions, proceedings, demands, judgments, settlements, costs and expenses (including, without limitation, reasonable attorneys' fees) which Sub-Licensee may incur as a result of any claim or demand which may be made against Sub-Licensee arising in any way out of this Amended Sublicense including, without limitation, claims alleging that the Licensed Mark infringes on another person's intellectual property rights, negligence in connection with the conduct of the business operated by Licensor, for any breach by Licensor or Artist of any representation, warranty, covenant, agreement or obligation of the Licensor or Artist under the Amended License Agreement, and for any claim for income taxes due and payable by Licensor with respect to Sales Royalties or other sums paid to Licensor under the Amended License Agreement or pursuant to any assignment of rights to Licensor by the Sub-Licensor under the Parlux-Iconic Agreement.

7. Governing Law.  The provisions of, and all rights and obligations under, this Amended Sublicense shall be governed by and construed in accordance with the laws of the State of Florida.

8. Modification of Sublicense.  No modification of any provision of this Amended Sublicense shall be effective against Sub-Licensor, Licensor or Artist unless the same shall be in writing and signed by all parties hereto, and then such modification or consent shall be effective only in the specific instance and for the purpose for which given.

9. Successors and Assigns.  This Amended Sublicense shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the benefit of the parties hereto and, to the extent permitted, their respective successors and assigns.

10. Invalidity.  Any provision of this Amended Sublicense which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceability, without invalidating the remaining provisions of this Amended Sublicense or affecting the validity or enforceability of such provision in any other jurisdiction.

11. Notices.  Except as otherwise set forth herein, any agreement, approval, consent, notice, request or other communication required or permitted to be given by any party under this Amended Sublicense shall be in writing and shall be deemed to have been given when received and delivered (i) by hand or by courier, (ii) by a nationally-recognized over-night courier service such as Federal Express, or (iii) upon transmittal by facsimile with confirmation of receipt to the number set forth below:

 

  

3

  

If to Sub-Licensor:

Artistic Brands Development, LLC

1800 N.W. 84th Avenue

Suite 100

Miami, FL  33126

Attention:  Rene Garcia, Manager

Facsimile:  305-448-4068

With a copy to

Littman Krooks LLP

655 Third Avenue

New York, NY  10017

Attention:  Mitchell C. Littman, Esq.

Facsimile:  212-490-2990

If to Sub-Licensee:

Parlux Fragrances, Inc.

5900 North Andrews Avenue

Suite 500

Fort Lauderdale, FL  33309

Attention:  Frederick E. Purches, Chief Executive Officer

Facsimile:  954-491-1187

With a copy to

Squire, Sanders & Dempsey L.L.P.

200 South Biscayne Boulevard, Suite 4100

Miami, FL 33131

Attention:  Alvin B. Davis, Esq.

Facsimile:  305-577-7001

or to such other address as the recipient party shall have designated by notice given in accordance with this Section.

 

  

4

  

12. Further Assurances.  Each of the parties hereby agrees to execute such further documentation and perform such other actions as may be reasonably requested to evidence and effect the purposes and intent of this Amended Sublicense.

13. Entire Agreement.  This Amended Sublicense constitutes the entire agreement of the parties relating to its subject matter and supersedes all prior oral or written understandings or agreements relating thereto.  No promise, understanding, representation, inducement, condition or warranty not set forth herein has been made or relied upon by either party hereto.

14. Counterparts.  This Amended Sublicense may be executed in counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same instrument.

15. Headings.  The headings in this Amended Sublicense are for reference purposes only, do not constitute a part of this Sublicense and shall not affect its meaning or interpretation.

16. Licensor and Artist Consent; Enforcement.  The undersigned Licensor and Artist hereby consent to the above Amended Sublicense and agree, and represent to the Sub-Licensee, that the Sub-Licensee has the right to enforce the obligations of the Licensor and Artist under the Amended License Agreement, to the same extent as the Sub-Licensor.  The Sub-Licensee agrees, and represents to the Licensor and Artist, that the Licensor and/or the Artist shall have the right to enforce against Sub-Licensee (and/or the Sublicensor) the obligations of the Sublicensor under the Amended License Agreement, as well as enforce the terms and conditions of this Amended Sublicense.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

  

5

  

IN WITNESS WHEREOF, the parties have caused this Amended Sublicense to be executed as of the date first written above, with intent to be bound hereby.

 

	 	
SUB-LICENSEE:

 

PARLUX FRAGRANCES, INC.

	 
	 	 	 	 
	
 

	
By: 

	 /s/ Frederick E. Purches  	 
	 	 	Frederick E. Purches	 
	 	 	Chairman & CEO	 
	 	 	 	 
	 	 	 	 
	 	
SUB-LICENSOR:  

 

ARTISTIC BRANDS DEVELOPMENT, LLC

	 
	 	 	 	 
	 	By:	 /s/ Rene Garcia, Manager   	 
	 	 	Rene Garcia, Manager	 
	 	 	 	 
	 	 	 	 
	 	
LICENSOR: 

MASCOTTE HOLDINGS, INC.

	 
	 	 	 	 
	 	By:	/s/ Charles A. Willhoit   	 
	 	 	(as to Paragraph 16 only)	 
	 	 	Charles A. Willhoit  	 
	 	 	Vice-President	 
	 	 	 	 
	 	 	 	 
	 	
ARTIST: 

KANYE WEST

	 
	 	 	 	 
	 	By:	/s/ Kanye West    	 
	 	 	Kanye West	 
	 	 	(as to Paragraph 16 only)	 

 

  

6

  

 

 

FIRST AMENDED AND RESTATED LICENSE AGREEMENT

 

THIS AGREEMENT made and entered into as of the 3rd day of April 2009 (the “Effective Date”), by and between MASCOTTE HOLDINGS, INC., a California corporation with offices at c/o IWP Wealth, 3200 Cherry Creek Drive South, Suite 620, Denver, CO 80209, Attn: Charlie Willhoit  (“Licensor”), and ARTISTIC BRANDS DEVELOPMENT, LLC, a Delaware limited liability company with offices at 1600 N.W. 84th Avenue, Miami, FL 33126 (“Licensee”) (together the “Parties”).

 

W I T N E S S E T H :

 

WHEREAS, Licensor and Licensee (formerly known as Iconic Fragrances, LLC) previously entered into that certain License Agreement (the “Original Agreement”) dated as of April 3, 2009, and by this agreement (the “Agreement”) intend to amend, restate, supersede and replace the Original Agreement with this Agreement;

 

WHEREAS, Licensor and its Affiliates (as defined below) own or have the right to grant licenses of the Licensed Mark (as defined below), which is to be licensed herein solely in connection with the Licensed Products, as defined below.  (Licensor agrees to provide a copy of the signed master license agreement or other document demonstrating a clear chain of title and rights in the “KANYE WEST” mark to Mascotte Holdings, Inc.); and

 

WHEREAS, Licensee is engaged in the business of manufacturing, promoting and/or selling fragrance and related skin care and personal beauty care products, and Licensor desires to obtain the services of Licensee in connection with the manufacture, promotion and sale of the Licensed Products, bearing the Licensed Mark; and

 

WHEREAS, in accordance with the terms and conditions of this Agreement, Licensor is willing to grant to the Licensee and Licensee desires to obtain from Licensor, the exclusive right and license to use the Licensed Mark in the Territory (as hereinafter defined) for use on and solely in connection with the manufacture, promotion, distribution and sale of Licensed Products in the Licensed Channels of Distribution (as such terms are hereinafter defined);

 

NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto covenant and agree as follows:

 

  

  

  

 

ARTICLE 1

Definitions

 

 

The following definitions shall apply:

 

A.  Territory.  All countries of the world and all duty-free-shops, ships, airplanes, military bases and diplomatic missions of every country of the world, including the worldwide web, in accordance with the Licensed Channels of Distribution, as defined below.  Licensee will supply Licensor with a plan within 180 days prior to the projected First Shipment Date, as defined below, that will set forth a timetable for introducing the Licensed Products, as defined below, into specified foreign countries (“Roll Out Schedule”). Licensor and Licensee shall agree upon the foregoing Roll Out Schedule based upon Licensee’s reasonable judgment as to where there is substantial profit potential and taking into account the availability of the Licensed Mark, as defined below, and any secondary marks.  Licensor shall not unreasonably withhold its agreement with Licensee’s proposed Roll Out Schedule.  Licensor shall have the right, in the exercise of its reasonable discretion, to prohibit distribution and sale in a particular country in the event that there is a substantial impediment to use of the ”Kanye West” trademark or any words, phrases, images or logos to be associated with the ”Kanye West” trademark (collectively, “Associated Matter”) so that it is unlikely that registration of said ”Kanye West” trademark, either alone or together with such Associated Matter, will be obtained in said country.  In the event that the difficulty in registration pertains only to the ”Kanye West” trademark and not to any or all of the Associated Matter, and the country in which such difficulty arises and in which Licensor exercises its discretion hereunder to prohibit distribution and sale represents a material market (defined as the United States, France, Italy, United Kingdom, and other countries of similar economic scope based on historic sales figures for products competitive with or comparable to the Licensed Products) (hereinafter, a “Material Market”) for the Licensed Products, the parties will negotiate in good faith to attempt to achieve a mutually agreeable adjustment to the Net Sales Minimum to reflect the loss of such market for the applicable period(s) of the Term.  In the event that the difficulty in registration pertains to any or all of the Associated Matter and not to the ”Kanye West” trademark, and Licensor exercises its discretion hereunder to prohibit distribution and sale in such market, and the country in which such difficulty arises is a Material Market, the parties will negotiate in good faith to attempt to achieve a mutually agreeable adjustment to the Net Sales Minimum to reflect the loss of such market for the applicable period(s) of the Term, but in such event the adjustment shall be no greater than a * (*%) reduction of the Net Sales Minimum for the applicable Sales Year.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

2

  

 

B.  Licensed Products. Men’s and women’s fragrances, skin care products and solely the following related personal fragrance enhanced beauty care products: body lotions, body crème, hand crème, body butter, body mist, bath and shower gel, bath oil, body oil, dusting powder, after shave balm or gel, deodorant stick, bath soap, incense, room fragrances and scented candles (but excluding cosmetic products, hair care products and other skin care products not set forth herein), which are manufactured, produced, sold, distributed, promoted and advertised by Licensee in the Licensed Channels of Distribution, as defined below, and which bear the Licensed Mark, as defined below, under this Agreement.  Licensee shall cause the Licensed Products to be launched on retail shelves in commercially reasonable quantities (the “Product Launch Date”) no later than *.

 

C.  Licensed Mark.  The trademarks “KANYE WEST” and any approved secondary marks, approved logos, the approved signature of the artist known as “KANYE WEST” (the “Artist”), and the approved likeness of Artist and any derivative thereof, and such other trademarks as are, from time to time, agreed to and approved in writing by Licensor, which approval will not be unreasonably withheld.  Licensor acknowledges and agrees that the name “Kanye West”” will be used either alone or in association with other words or phrases in connection with the Licensed Products.  Nevertheless, the manner and style of the lettering and placement of the term “Kanye West” on the bottle and packaging of such Licensed Products and any other words or phrases proposed to be used in conjunction with such term shall be subject to Licensor’s approval in accordance with the applicable provisions of Article 7 hereof.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

3

  

 

    D.  Net Sales. The term “Net Sales” shall mean the gross invoice price of all Licensed Products shipped by or on behalf of the Licensee (including but not limited to its Subsidiaries, Affiliates or any sub-licensees, except that sales by Perfumania Holdings, Inc. and its Subsidiaries and Affiliates (collectively, the “Perfumania Group”) shall not be deemed sales by the Subsidiaries, Affiliates, sub-licensees of Licensee for purposes of determining the gross invoice price upon which Net Sales is derived under this Agreement, minus (i) any documented actual allowances for damaged or returned Licensed Products, (ii) any documented credits for the return of Licensed Products to Licensee actually accepted or destroyed in the field, and (iii) any documented and bona fide trade and quantity discounts or allowances (including margin or markdown allowances) actually taken with respect to the Licensed Products (collectively, “Permitted Reductions”).  The total Permitted Reductions in any Sales Year during the Initial Term and Renewal Term for all customers other than department store customers (“Non-Department Store Customers”) shall in no event exceed * (*%) percent of the gross invoice price of all Licensed Products shipped by or on behalf of the Licensee to such Non Department Store Customers in such Sales Year.  The total Permitted Reductions in any Sales Year during the Initial Term and Renewal Term for all department store customers shall in no event exceed * (*%) of the gross invoice price of all Licensed Products shipped by or on behalf of the Licensee to such department store customers in such Sales Year. In computing Net Sales, no costs incurred in manufacturing, selling, advertising or distributing the Licensed Products and no indirect expenses shall be deducted, nor shall there be any deduction for uncollectible accounts.  Licensed Products shall be deemed sold when shipped, distributed, billed, sold or paid for, whichever occurs first.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

 

  

4

  

 

    Subject to the exception for the Perfumania Group set forth in this Article 1D, in the event of sales by Licensee of Licensed Products to a marketing organization, individual, distributor or any other company in whole or in part controlled by Licensee for ultimate sale to a retailer, or in any transaction other than an arm’s length transaction, the invoice price used to determine Net Sales hereunder shall be the invoice price at which the Licensed Products are resold by any such person or entity to an unrelated retailer in an arm’s length transaction.  Licensed Products shall be deemed sold when shipped, distributed, billed, sold or paid for, whichever occurs first.

    Licensee covenants and agrees that sales made by Licensee, Parlux and their respective Subsidiaries or Affiliates, sub-licensees or distributors to any and all members of the Perfumania Group shall be bona fide, arms length transactions at prices that are consistent with historical practices and reasonably comparable to those prices charged to third party distributors which are not Affiliates or Subsidiaries of Licensee or Parlux.  Licensee and Parlux will provide Licensor with access to historical sales records to enable Licensor to audit compliance by Licensee with the foregoing covenant.

 

    E.  Subsidiary.  Any person, corporation or other entity that is more than 50%, directly or indirectly, owned by Licensee.

 

    F.  Affiliate.  Any person, corporation or other, which directly or indirectly controls, is controlled by, or is under common control with a party. "Control" shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies of any such person, corporation or entity, through ownership of voting securities, by contract or otherwise.

 

    G.  Sales Year.  Each twelve (12) month period during the Term, as defined below, of this Agreement, commencing on April 1 and ending on the succeeding March 31, except that Sales Year 1 shall commence on the first date of shipment of Licensed Products by Licensee or its distributor or sub-licensee in commercially reasonable quantities (the “First Shipment Date”) for the first line of Licensed Products to be launched by Licensee or its distributor or sub-licensee, and shall end on *.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

5

  

 

ARTICLE 2

Grant Of License

 

A.  Upon the terms and conditions of this Agreement, Licensor hereby grants to Licensee, during the Term, as defined below, of this Agreement, the sole and exclusive right and license to use the Licensed Mark in the Licensed Channels of Distribution, as defined below, in the Territory as a trademark in connection with the manufacture, promotion, sale and distribution solely of the Licensed Products and on all related packing materials, containers, promotional material, publicity, sales, advertising, newspaper, magazine, radio, television, cinema and similar media presently existing or that may exist in the future, in connection solely with the creation, manufacture, introduction, marketing, distribution, sale and advertising of the Licensed Products, through the channels used to manufacture, sell, distribute, advertise and promote Licensed Products of comparable prestige design and quality as described in paragraphs 7A(i) and 7B of Article 7 below (collectively, the “Licensed Channels of Distribution”).  Licensor acknowledges and agrees that it will not license the name “Kanye” or any variation of the “Kanye West” name in connection with the Licensed Products to any other parties other than Licensee hereunder during the Term of this Agreement.

 

B.  Licensor shall not, during the Term, as defined below, of this Agreement and in the Territory, grant to any third party any rights to use the Licensed Mark or any derivative thereof in connection with Licensed Products in Licensed Channels of Distribution. It is understood and agreed that this Agreement shall pertain only to the Licensed Products for sale in the aforesaid Licensed Channels of Distribution and does not extend to any other product or service or other territory or other distribution channel, unless otherwise agreed to by the parties as evidenced by a mutually executed written amendment of this Agreement, specifically setting forth the further intention and agreement of Licensee and Licensor to do so.  Except for the rights to use the Licensed Mark solely in connection with the manufacture and sale of the Licensed Products in the Territory through the Licensed Channels of Distribution expressly provided for herein, Licensor reserves all rights to the use of the Licensed Mark. Licensee shall have the right to sub-license the Licensed Mark to Parlux Fragrances, Inc. (“Parlux”), subject to and on the same terms and conditions as set forth in this Agreement and so long as Parlux guarantees in writing to Licensor the performance by Parlux and Licensee of all the terms, obligations, warranties, restrictions, payments and conditions contained in this Agreement as though Parlux was a party hereto.  It is the essence of this Agreement that Licensee enter into a sub-license agreement with Parlux within the time period set forth in this Agreement and that Parlux guarantees in writing to Licensor the performance by Licensee and Parlux of all the terms, obligations, restrictions, warranties, payments and conditions contained in this Agreement and any exhibits or agreements incorporated by reference herein.  Failure to enter into a sublicense agreement with Parlux in the time provided and upon the foregoing terms and conditions shall afford Licensor the immediate right to terminate the Agreement upon written notice and retain all payments which may have been previously paid to Licensor under this Agreement, and Licensor shall thereafter have no further obligations to Licensee hereunder.

 

C.  Licensor and Artist each agree not to promote any products described herein as Licensed Products utilizing any other brand during the Term of this Agreement including without limitation the brand “Kanye” or any other variant of the “Kanye West” name; provided however, that neither Artist nor Licensor shall be in breach of this Agreement in the event any sponsors of any events in which Artist participates, including but not limited to any tours, television programs, films or special events, are companies in the business of selling fragrance products, provided that the sale of fragrance products is not their primary business (neither Artist nor Licensor shall be in breach of the foregoing in the event that Artist does not have final control over the engagement of any such sponsors), and provided further that Artist shall not be precluded from using or wearing any products whatsoever in the ordinary course, but Artist shall not publicly disclose that he wears any fragrance brands that are not Licensed Products hereunder, except those fragrance brands in which Iconic has an interest.  Furthermore, Artist shall not be precluded from editorializing in connection with any products described herein as Licensed Products (utilizing any other brand) on Artist's "blog" in a complimentary fashion or otherwise, provided however, that Artist shall not be free to disparage or make any negative or derogatory comments about other fragrance brands in which Licensee or Parlux has an interest.

 

  

6

  

 

ARTICLE 3

Exclusivity of License

 

Licensor will not grant any other license effective during the Term, as defined below, of this Agreement for the use of the Licensed Mark on or in connection with Licensed Products through Licensed Channels of Distribution in the Territory.  Licensor may use or grant others the right to use the Licensed Mark on or in connection with goods of all other types and descriptions in the Territory.  Licensor acknowledges that Licensee or its sub-licensees or distributors presently manufacture and/or distribute in parts of the Territory products similar to or the same as the Licensed Products covered by this Agreement, which bear other trademarks.  Licensor further acknowledges that Licensee will be obtaining other licenses for the manufacture and/or distribution of other similar lines during the Term, as defined below, of this Agreement.  Licensee will not, during the Term, as defined below, of this Agreement and thereafter, attack either Licensor’s title in and to the Licensed Mark or the validity of this License.

 

 

ARTICLE 4

Term of Agreement

 

Subject to the rights of termination set forth in this Agreement, the initial term of this Agreement (the “Initial Term”), shall commence on the date of execution hereof (the “Effective Date”) and shall terminate on March 31, 2017. Licensee shall have the option to renew this Agreement for an additional three-year period under the terms set forth in this Agreement applicable to such renewal period (the “Renewal Term”) provided:

 

  

7

  

 

	
A.  

	
The Guaranteed Minimum Royalty (as hereinafter defined) for each Sales Year of the Initial Term of this Agreement which, by the terms of this Agreement, are due to be paid prior to the expiration of the Initial Term have been paid in full prior to the expiration of the Initial Term;

 

	
B.  

	
Licensee has achieved in Sales Years 1 through 4 Net Sales, in the aggregate, of at least $* and has paid its Sales Royalty on such Net Sales;

 

	
C.  

	
Licensee is not otherwise in material breach of any terms or conditions of the Agreement, unless Licensor waives in writing any such breach;

 

	
D.  

	
Licensor has not otherwise exercised its rights set forth herein to terminate this Agreement.

 

	
E.  

	
Licensee gives Licensor notice in writing of its intent to renew no later than sixty (60) days following the end of Sales Year 4 and no earlier than the end of Sales Year 4.

 

The Initial Term and the Renewal Term are collectively referred to in this Agreement as the “Term.”

 

 

ARTICLE 5

Confidentiality-Publicity

 

A.  Each party (each a “Restricted Party”) (i) shall, and shall cause its officers, directors, managers, members, employees, attorneys, accountants, auditors and agents (collectively, “Representatives”), to the extent such persons have received any Confidential Information, and their Affiliates and their Representatives, to the extent such entities have received any Confidential Information, as a result of or in connection with or in relation to the conduct and performance of this Agreement, to maintain in strictest confidence the terms of this Agreement and any and all information relating to the parties  that is proprietary to each party, as applicable, or otherwise not available to the general public including, but not limited to, this Agreement, any of the terms of this Agreement, information about royalties, warrants, marketing strategies, marketing plans, customer lists, supplier information, distribution channels, contacts at such suppliers, customers and distributors, information related to costs and profits, employees, finances, businesses and operations and activities of each party or their Affiliates, and all notes, analyses, compilations, studies, forecasts, interpretations or other documents prepared by a party or its Representatives or Affiliates which contain, reflect or are based upon, in whole or in part, the information furnished to or acquired by such party (“Confidential Information”) and (ii) shall not disclose, and shall cause its Representatives, its Affiliates and their Representatives not to disclose, Confidential Information to any entity except as required by law, regulation or legal process or by the requirements of any securities exchange on which the securities of a party hereto are listed or quoted (as reasonably determined by such party) and (iii) shall not use, and shall cause its Representatives, its Affiliates and their Representatives not to use, the Confidential Information other than for the purposes anticipated by this Agreement.  The provisions of this paragraph shall not apply with respect to:

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

8

  

 

1.  any information that is generally available to the public other than as a result of disclosure in violation of the foregoing;

 

2.  any information that is known to the recipient thereof prior to disclosure thereof by the disclosing party or independently developed by the recipient;

 

3.  any otherwise confidential information that is disclosed to a Party by a third party and such disclosure by the third party is not, to the best knowledge of such receiving Party, in violation of any confidentiality agreement that such third party has with the other Party to this Agreement; or

 

4.  information that is required to be disclosed by judicial or administrative order or required to be disclosed to enforce the terms and conditions hereof.

 

B.  All press releases and other public announcements related to this Agreement and the business contemplated herein shall, subject to applicable law and applicable disclosure obligations as required by law, be produced and released by Licensee, subject to Licensor’s reasonable prior approval, for release by Licensee.  Licensor shall refer all press inquiries concerning this Agreement and Licensed Products to Licensee for handling.   For purposes hereof, the Artist shall be free without prior approval of Licensee to handle impromptu media interviews and question and answer sessions in which the subject of this Agreement or Licensed Products is raised.

 

  

9

  

 

ARTICLE 6

Duties of Licensee

 

A.  Best Efforts. During the Term of this Agreement, Licensee will use its best efforts to exploit the rights herein granted throughout the Territory and to sell directly or through its Licensor approved sub-licensee or distributors through the Licensed Channels of Distribution the maximum quantity of Licensed Products consistent with the high standards and prestige represented by the Licensed Mark.

 

B.  Design and Sample Making. Licensor shall not be responsible for the production, design or sample making of the Licensed Products and Licensee shall bear all costs related thereto.

 

ARTICLE 7

Quality Standards

 

 

A.  Manufacture of Licensed Products; Quality Control.

 

(i)  The contents and workmanship of Licensed Products shall be at all times of the highest quality consistent with the reputation, image and prestige of the Licensed Mark, and Licensed Products shall be distributed and sold with packaging and sales promotion materials appropriate for such high quality products.  The Parties agree that the Licensed Products shall be of the same or similar premium quality and prestige as that of the Paris Hilton, Britney Spears and Jennifer Lopez fragrance brands as of the date of this Agreement.

 

(ii)  All Licensed Products shall be manufactured, labeled, sold, distributed and advertised in accordance with all applicable national, state and local laws and regulations.

 

  

10

  

 

(iii)  Licensee shall submit to Licensor the fragrance, scent, packaging and other material, designs, pre-production samples, design concepts, sketches, colors, tags, containers and labels and advertising and marketing materials and any other matter utilizing the Licensed Mark or Associated Matter for Licensor’s review and approval, which approval shall not be unreasonably withheld: however, should Licensor fail to respond to written requests for approval within twenty (20) days of receipt of such requests, Licensor shall be deemed to have approved the item or items for which approval was requested.

 

(iv)  During the Term of this Agreement, upon Licensor’s request, Licensee shall submit, free of charge to Licensor, a then current production sample of each Licensed Product marketed.  Production samples submitted by Licensee for this purpose may be retained by Licensor and Licensor will pay Licensee for any additional production samples Licensor requests and retains at prices equal to Licensee’s actual costs.  All Licensed Products to be sold hereunder shall be at least equal in quality to the samples presented to Licensor.  Licensor and its duly authorized representatives shall have the right, upon reasonable advance notice and during normal business hours, at Licensor’s expense, to examine Licensed Products in the process of being manufactured and to inspect all facilities utilized by Licensee or its sub-licensee in connection therewith.

 

B.  Distribution.  Upon and immediately following the First Shipment Date of any line of Licensed Products, in order to maintain the reputation, image and prestige of the Licensed Mark, subject to the limitations set forth below, Licensee and its sub-licensee or distributor shall only sell Licensed Products to (i) better department stores (as defined below) and specialty stores (including those better department and specialty stores in Canada and Puerto Rico), including perfumeries and travel retail outlets, and to (ii) retailers and distributors that sell prestige designer and celebrity fragrances such as the Paris Hilton, Britney Spears and Jennifer Lopez fragrance brands in the mid-tier market, which shall include without limitation international (excluding Canada and Puerto Rico, which are included above in the department store and specialty store category) and stores such as JC Penney and Sears. For purposes hereof, the term “better department stores” shall describe the category and type of department stores that includes without limitation those stores identified on Schedule 7B hereto.  Notwithstanding the foregoing, Licensor shall be kept informed of the general make up of the Licensed Channels of Distribution with respect to each product line of the Licensed Products.  For each line of Licensed Products, Licensee shall not be permitted to begin selling into the mass market until at least six months after the First Shipment Date of such line.

 

  

11

  

 

C.  Product Design.  Throughout the Term of this Agreement, Licensor and Licensee shall work together in good faith in deciding the types of articles of Licensed Products that Licensee may manufacture, sell, and market, all subject to Licensor’s reasonable approval. Licensee shall provide Licensor with a product development plan for each line of all Licensed Products, which plan may include Licensee’s assessment of market needs and competitive positioning, and such additional information as reasonably requested by Licensor.

 

(i)  Licensee and Licensor shall jointly establish product development calendars, under which at appropriate agreed points throughout the development process of Licensed Products, Licensee shall make available to Licensor the concepts, materials, fabrications (if applicable), packaging and other relevant contents of each line of all Licensed Products for Licensor’s prior written approval as to concept interpretation, workmanship and quality and to assure that Licensed Products are consistent in quality with comparable prestige products such as those referred to in Section 7A(i) above and with Licensor's standing and reputation with the public.  The parties shall make every reasonable effort to adhere to the product development calendars.

 

(ii)  For each new line of Licensed Products (other than items from prior lines to be continued), Licensee shall prepare and deliver to Licensor, for its prior written approval, product concepts and specifications for those Licensed Products that it proposes to include in such line in accordance with the approved product development plan. The various lines of Licensed Products shall be created from such initial concepts and specifications, which shall then be modified and developed cooperatively by Licensor and Licensee until Licensor has approved, in writing, a line which, including items from prior lines to be continued, is consistent with the approved product development plan.

 

  

12

  

 

(iii)  Upon Licensor's approval in accordance with this Section, Licensee shall prepare and deliver product assortments/samples for each line of Licensed Products, together with the carding, tags, labels and packaging (“Packaging Materials”) intended to be used with them and Licensee’s internal sales materials for that product introduction, and all advertising and promotional materials to be used in connection therewith, for Licensor’s prior written approval.  Once Licensor approves the bottle design and execution and the cap and collar thereto, Licensee shall be permitted to commence production of the bottle, cap and collar.  Such production may proceed even if Licensor has not yet approved the bottle contents, packaging materials and any advertising or promotional materials associated therewith.  Subject to the foregoing, Licensee shall not commence commercial production of any item or matter utilizing the Licensed Mark, including but not limited to the Packaging Materials, until Licensor has approved in writing a final product assortment and the associated Packaging Materials and all other items or matter utilizing the Licensed Mark.  Licensee expressly acknowledges that all approved sample Licensed Products and all original, approved production specification drawings, models, molds and patterns therefor (collectively “Sample Materials”) will be Licensor’s property and Licensee shall surrender these Sample Materials to Licensor immediately upon the expiration or termination of the Term. Approval of an item or Licensed Product which uses particular artwork does not imply approval of such artwork with a different item or Licensed Product or of such item or Licensed Product with different artwork.  Licensee acknowledges that Licensor’s approval of an item or Licensed Product does not imply approval of, or license to use, any non-Licensor controlled elements contained in any item or Licensed Product.  After a sample of an item has been approved, Licensee shall not make any changes without resubmitting the modified item for Licensor’s written approval.  All decisions by Licensor shall be subject to the approval timing and other approval procedures that are set forth in Section 7A above and any disapproval of any Licensed Product shall be made in Licensor’s reasonable discretion, and shall be accompanied with an explanation and a proposed solution or alternative design, concept and/or execution.  Should Licensor fail to give its approval, Licensor agrees to engage in good faith negotiations with Licensee to solve whatever objections Licensor may have.  After such negotiations conclude and an agreement is not reached, then Licensor’s disapproval shall be final and binding and shall not be subject to review in any proceeding.

 

(iv)  All Packaging Materials shall be submitted to Licensor with product affixed in either actual form or actual digital image for review and final approval in accordance with the terms hereof.  All fees, if any, associated with the acquisition of any image of the Artist to be used in connection with the Packaging Materials shall be the responsibility of Licensee.

 

  

13

  

 

D.  Legal Notices/Quality Control.  The license granted hereunder is conditioned upon Licensee’s full and complete compliance with the marking provisions of the trademark, patent and copyright laws of the United States and other countries in the Territory.

 

 (i)  The Licensed Products, as well as all promotional, packaging and advertising material relative thereto, shall include all appropriate legal notices as required by applicable law.

(ii)  The Licensed Products shall be of a quality at least equal to comparable prestige fragrance products as set forth in Article 7, and marketed by Licensee, in conformity with a standard sample reasonably approved in writing by Licensor.

(iii)  Licensee covenants and agrees that all the Licensed Product shall be manufactured, sold, marketed and advertised in compliance with all applicable laws, rules and regulations (collectively, “Laws”).  Licensee shall pretest a sampling of all proposed and approved Licensed Products and shall cause truthful labeling regarding the care, maintenance, and use to be affixed to the Licensed Products as required by the Laws. Licensee shall immediately inform Licensor in writing of any complaint by any governmental or other regulatory or self-regulatory body relevant to the Licensed Products, and the status and resolution thereof.  Licensee shall act expeditiously to resolve any such complaint. Licensee covenants on behalf of itself and on behalf of all of Licensee’s manufacturers, that it shall not use child labor, prison labor and shall only employ persons whose presence is voluntary, and shall otherwise provide employees with a safe and healthy workplace in compliance with all applicable Laws, including but not limited to wage and hour Laws, including minimum wage, overtime, and maximum hours, shall comply with all discrimination and other labor Laws, and all environmental Laws.

 

  

14

  

 

(iv)  In the event of Licensee’s unapproved or unauthorized manufacture, distribution, use or sale of any Licensed Products or any packaging materials bearing any reference to the Licensed Mark, including promotional and advertising materials, or the failure of Licensee to comply with any provisions of this Section 7, Licensor shall have the right to: (a) immediately revoke Licensee’s rights with respect to any such Licensed Products licensed under this Agreement, and/or (b) at Licensee’s expense, confiscate or order the destruction of such unapproved, unauthorized or non-complying products, packaging materials or other materials.  Such right(s) shall be in addition to and without prejudice to any other rights Licensor may have under this Agreement or otherwise.

 

(v)  Licensee covenants and agrees that: (a) All Licensed Products manufactured, sold and distributed hereunder will be merchantable and fit for the purpose for which they are intended; (b) the Licensed Products will conform at all times to all applicable federal, state and local laws, rules, regulations, ordinances and other enactments provided in the Territory or otherwise applicable, and all applicable industry standards, including but not limited to, those relating to product safety; and (c) all Licensed Products will conform in all respects to the samples approved by Licensor and that Licensee will not distribute or sell any Licensed Products which are of a quality or standard inferior to or different from the approved quality or are injurious to the reputation and goodwill associated with the Licensed Mark.

 

ARTICLE 8

Guaranteed Minimum Royalty

 

In consideration of the license granted hereunder and the other covenants and obligations of Licensor hereunder, Licensee shall pay to Licensor the greater of (A) the Sales Royalty provided by Section 9(A) based on Licensee’s Net Sales during each Sales Year of the Term, or (B) the Guaranteed Minimum Royalty (which are nonrefundable, recoupable advances against certain Sales Royalties) as follows:

 

  

15

  

 

The Initial Term

 

	Sales Year 1 	 	 $*

 

Payable as follows:  $* as a nonrefundable, recoupable advance against certain Sales Royalties, on or before *, and in five (5) equal installments of $* each payable on the fifteenth day of each month thereafter commencing on * and ending on *.

 

	 Sales Year 2   	 	$*
	 	 	 
	Payable as follows: 	 	
*$*    due by *

*$*    due by *

*$*    due by *

*$*    due by *

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

16

  

 

	 Sales Year 3	 	$*
	 	 	 
	Payable as follows: 	 	
*$*    due by *

*$*    due by *

*$*    due by *

*$*    due by *

 

	 Sales Year 4	 	$*
	 	 	 
	Payable as follows: 	 	
*$*    due by *

*$*    due by *

*$*    due by *

*$*    due by *

	 Sales Year 5	 	$*
	 	 	 
	Payable as follows: 	 	
*$*    due by *

*$*    due by *

*$*    due by *

*$*    due by *

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

17

  

 

The Guaranteed Minimum Royalty for the entire Initial Term shall be $*.  The Guaranteed Minimum Royalty for each Sales Year during the Initial Term shall be credited only against the Sales Royalty due during the Initial Term, except that to the extent that the Guaranteed Minimum Royalty paid on account of Sales Year 1 exceeds the actual Sales Royalty earned for Sales Year 1 computed on the greater of the Net Sales Minimum or actual Net Sales in Sales Year 1 (the “Sales Year 1 Guaranteed Minimum Royalty Rollover Credit”), such excess shall be credited to the Guaranteed Minimum Royalty due in excess of the actual Sales Royalty earned in Sales Years 2 through 5 of the Initial Term.

 

The Renewal Term

 

	Sales Year 6	 	$*
	 	 	 
	Payable as follows: 	 	
*$*    due by *

*$*    due by *

*$*    due by *

*$*    due by *

 

	Sales Year 7	 	$*
	 	 	 
	Payable as follows: 	 	
*$*    due by *

*$*    due by *

*$*    due by *

*$*    due by *

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

18

  

	 Sales Year 8 	 	$*
	 	 	 
	Payable as follows: 	 	
*$*    due by *

*$*    due by *

*$*    due by *

*$*    due by *

 

The Guaranteed Minimum Royalty for the entire Renewal Term shall be $* . The Guaranteed Minimum Royalty for each Sales Year during the Renewal Term shall be credited only against the Sales Royalty due during the Renewal Term.

Notwithstanding the foregoing, on a quarterly basis during the Term, Licensee shall pay to Licensor the greater of an amount equal to the Guaranteed Minimum Royalty (subject to any Sales Year 1 Guaranteed Minimum Royalty Rollover Credit set forth above) or the actual Sales Royalty due on the Net Sales for such quarterly period.

 

ARTICLE 9

Sales Royalty; Accountings; Withholding Taxes

 

A.  Licensee shall pay to Licensor a royalty of *  (*%) on Net Sales in each Sales Year (the “Sales Royalty”).

 

B.  The Sales Royalty hereunder shall be accounted for and paid quarterly within thirty (30) days after the close of each quarterly period ending June 30, September 30, December 31 and March 31 during the Term of this Agreement (or portion thereof in the event of prior termination for any reason or if in Sales Year 1 the First Shipment Date occurs on any date other than the  first or last day of a calendar quarter).  The Sales Royalty payable for each  quarterly period during each Sales Year shall be computed on the basis of Net Sales during such Sales Year, with a credit for any Guaranteed Minimum Royalty and Sales Royalty payments made to Licensor for said Sales Year.  It is the essence of this Agreement that payment of the Sales Royalty, the Guaranteed Minimum Royalty and any other amounts payable under this Agreement shall be guaranteed in writing by Parlux.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

19

  

 

C.  All payments made hereunder by Licensee to Licensor shall be made in dollars in lawful currency of the United States of America.  All payments, along with a copy of all reports, shall be sent to the address of Licensor first above written, or to such other address as Licensor may designate in writing.  The receipt or acceptance by Licensor of any royalty statement, or the receipt or acceptance of any royalty payment made, shall not prevent Licensor from challenging the validity or accuracy of such statement or payment in accordance with the provisions of Section 9E below.  Late payments shall incur interest at the rate of one half percent (0.5%) per month from the date such payments were originally due provided written notice of default in payment is provided by Licensor to Licensee.

D.  Licensee’s obligations for the payment of the Sales Royalty as provided herein shall survive expiration or termination of this Agreement, and will continue for so long as Licensee and/or its affiliates or sub-licensees continue to sell or otherwise market the Licensed Products in accordance with the terms hereof.

E.  All payments made by Licensee under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, turnover, sales, value added stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings (individually or collectively, “Taxes”), now or hereafter imposed, levied, collected, withheld or assessed by any tax or other governmental authority (a “Governmental Authority”), excluding all present and future income taxes imposed on the Licensor or any of its direct or indirect members (“Excluded Taxes”). In the event that any Taxes (other than any Excluded Taxes) are now or hereafter required to be imposed, levied, collected, withheld, paid and/or assessed under applicable law from, or in respect of, any amount otherwise payable to the Licensor hereunder (including any turnover, sales, value-added or similar type of Taxes imposed by any Governmental Authority and for which the Licensor and/or any of its direct or indirect members or beneficial owners are liable)(individually or collectively, the “Non-Excluded Taxes”), then the amount so payable by Licensee to the Licensor shall be increased and grossed-up to the extent necessary to yield to the Licensor and its direct and indirect members and beneficial owners (after payment, and/or the taking into account, of all such Non-Excluded Taxes) the amount specified in the Agreement as being payable to the Licensor. Whenever any Non-Excluded Taxes are payable by the Licensee, as promptly as possible thereafter Licensee shall send to the Licensor a certified copy of an original official receipt received or other documentary evidence by Licensee showing payment thereof.  If Licensee fails to pay any Non-Excluded Taxes when due to the appropriate Government Authority or fails to remit to the Licensor the required receipts or other required documentary evidence, Licensee shall indemnify the Licensor and all of its direct and indirect members and other beneficial owners for any incremental Taxes and any interest or penalties that may become payable by the Licensor or any of its direct or indirect members or beneficial owners as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of all amounts payable hereunder.  The requirements of this Section 9E shall apply, provided that Licensor is a domestic (United States) business such as a corporation or limited liability company.  If Licensor is a domestic partnership, then such requirements shall only apply if Licensor has no foreign partners.

 

  

20

  

 

ARTICLE 10

Net Sales Minimums

 

A.  Initial Term

 

	
Net Sales Minimum for Sales Year 1:

	
$ *

	
Net Sales Minimum for Sales Year 2:

	
$ *

	
Net Sales Minimum for Sales Year 3:

	
$ *

	
Net Sales Minimum for Sales Year 4:

	
$ *

	
Net Sales Minimum for Sales Year 5:

	
$ *

	
Total Net Sales Minimum:

	
$ *

 

B.  Renewal Term

 

	
Net Sales Minimum for Sales Year 6:

	
$ *

	
Net Sales Minimum for Sales Year 7:

	
$ *

	
Net Sales Minimum for Sales Year 8:

	
$ *

	
Total Net Sales Minimum:

	
$ *

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

21

  

 

D.  In the event that Licensee fails to meet its Net Sales Minimum in any Sales Year (including during the Renewal Term if applicable), provided that it promptly pays its Guaranteed Minimum Royalty for such Sales Year within thirty (30) days after the close of such Sales Year, Licensee shall not be deemed in breach of the Agreement on account of any shortfall in Net Sales against the Net Sales Minimum for such Sales Year.  Failure to pay the Guaranteed Minimum Royalty within the time provided, shall afford Licensor an automatic right to terminate the Agreement.  If Licensee fails to meet the Net Sales Minimum in any Sales Year after the first three (3) Sales Years (including such failure during the Renewal Period if applicable), Licensor may terminate this Agreement, upon notice to Licensee, notwithstanding Licensee’s payment of the Guaranteed Minimum Royalty for the Sales Year in which Licensee failed to meet the Net Sales Minimum resulting in such termination.  Licensee shall have no obligation to pay the Guaranteed Minimum Royalty or to make any further sales of Licensed Products for any period following the date of termination.  Notwithstanding the foregoing, such termination shall not relieve Licensee of any other obligations that survive termination of this Agreement in accordance with paragraph 18N below.

 

ARTICLE 11

Advertising and Promotion

 

Licensee and its sub-licensee and distributors will jointly spend in the Territory for “Consumer Advertising and Promotion” (as defined below) no less than the following:

 

A.  Initial Term  Sales Year 1  *% of the greater of the Net Sales Minimum or actual Net Sales (for purposes of Sales Year 1, expenditures for Consumer Advertising and Promotion that are made after the Effective Date and prior to the commencement of Sales Year 1 shall be credited to Sales Year 1 for purposes of this required minimum), in the event that the first line of Licensed Products are accepted for sale by department stores, and if not accepted for sale by department stores, then *% of actual Net Sales.  In the event that the expenditure for Consumer Advertising and Promotion in a Sales Year is less than the minimum required under this Article 11, Licensee or its sub-licensee or distributor must spend the shortfall on Consumer Advertising and Promotion during the first quarter of the next Sales Year.  Any shortfall remaining at the end of such first quarter shall be remitted to Licensor.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

22

  

 

Sales Year 2                                           *% of actual Net Sales

 

Sales Year 3                                           *% of actual Net Sales

 

Sales Year 4                                           *% of actual Net Sales

 

Sales Year 5                                           *% of actual Net Sales

 

B.  Renewal Term

 

Sales Year 6                                           *% of actual Net Sales

 

Sales Year 7                                           *% of actual Net Sales

 

Sales Year 8                                           *% of actual Net Sales

 

C. In the event that Licensee launches a new line of Licensed Products in any of Sales Years 2 through 5 of the Initial Term or Sales Years 6 through 8 of the Renewal Term, in the Sales Year in which launch occurs, the Consumer Advertising and Promotion commitment for such Sales Year for the new line shall be increased by *%.  For example, if a new line is launched in Sales Year 4, the Consumer Advertising and Promotion commitment for the new line in that year would be *% (*% as required above plus a *% increment for just the year of launch with respect to Net Sales of only the new line).  Notwithstanding the foregoing, the Consumer Advertising and Promotion commitment, expressed as a percentage of aggregate Net Sales in any Sales Year, cannot be less than the Guaranteed Minimum Royalty in such Sales Year, expressed as a percentage of Net Sales.

 

D.  “Consumer Advertising and Promotion” shall be understood to include newspapers, magazines, television, radio, signage/billboards (including related artwork and production charges for these five categories), social media (including production and development costs), cooperative advertising, retailer demonstration charges, retailers’ catalogues, gifts-with-purchase (including the free portion of seasonal value sets), marketing collateral materials, direct mail, remittance envelopes, blow-ins, billing inserts (both scented and unscented), product samples, pamphlets, free goods (including those to Licensor for events and other public relations activities), free aspect of seasonal value sets, selling assistant programs, window and counter displays (including testers, dummies, counter cards and other visual aids), in-store demonstrators and models, special events, contests, publicity and promotions.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

23

  

 

 

E.  Licensor undertakes, and Artist agrees, subject to Artist’s prior professional commitments, at Licensee’s request to make Artist available at reasonable intervals and for reasonable periods (which shall involve at least five (5) appearances in each Sales Year of the Term) for promotional tie-ins serving to associate Artist with the Licensed Products.  During the Term and in the Territory, Licensee shall also be entitled to the non-exclusive use of Artist’s approved likeness, and approved signature solely for advertising, packaging and promotional purposes upon Licensor’s approval first being obtained in each instance, which approval shall not be unreasonably withheld or delayed.  Licensor’s failure to approve any representation of Artist’s signature or likeness within twenty (20) days of written request therefor shall be deemed an approval thereof.  Licensor shall make every reasonable effort, in light of his busy schedule and subject to his prior professional commitments, at the request of the Licensee and upon at least twenty (20) days written notice, to arrange for Artist’s cooperation for a reasonable number of publicity photographs, launch parties, personal appearances and radio and TV interviews (which shall be included in Artist’s obligations of five (5) appearances discussed above).  Licensee shall pay for all reasonable costs involved in providing Artist and two of Artist’s personal assistant/manager(s) with round-trip first-class travel (including ground transportation) and five star hotel accommodations (separate rooms), food and other related expenses mutually agreed upon in advance of each appearance attended by Artist at Licensee’s request.  The above commitments by Artist shall not include any musical performances by Artist unless otherwise agreed in writing by the parties and subject to a mutually approved budget (including additional round trip travel and accommodation riders for dancers, etc).  Licensee shall pay for the reasonable costs involved in providing Artist’s stylist, production person and two security guards with round-trip economy class air travel and lodging, food and other related expenses mutually agreed upon in advance of each appearance attended by Artist at Licensee’s request.  If Artist fails to appear for a scheduled Licensor approved event (other than for reasons out of his control such as health reasons, bad weather conditions grounding his assigned aircraft), Licensee will have the right to deduct its non-refundable, directly related, reasonable out of pocket expenses incurred in connection with each specific event from the Sales Royalty.  The failure to appear at a scheduled event could have a material adverse effect on the Licensee’s ability to market the Licensed Products.  Budgets for the above travel shall be discussed and agreed upon by the Parties prior to travel bookings.  Expenses incurred by Licensee under this paragraph shall be included in the Consumer Advertising and Promotion commitment.

 

  

24

  

 

F.  Licensee shall not advertise or promote any of the Licensed Products in any publication or communications medium that is reasonably likely to damage the goodwill of the Licensed Mark and shall not offer any premiums, bundling or tie-ins with other products without Licensor’s prior written consent.  Licensor and Artist and their respective reputations and businesses shall not in any way be used in any illegal, vulgar, obscene, immoral, unsavory or offensive manner.  Licensee shall obtain, at its sole cost and expense, all third party consents and approvals necessary in connection with advertising and promotional activities.  If at any time during the Term, the commercial value of Artist’s name and image is substantially impaired by reason of his conviction of a felony or any other crime involving moral turpitude and that such conduct will materially diminish the ability of Licensee to sell the Licensed Products, Licensee shall have the right to terminate this Agreement following which the parties shall have no further obligations hereunder except as provided herein.

 

ARTICLE 12

Sales Statement; Books and Records; Audits

 

A.  Sales Statement. Licensee shall deliver to Licensor at the time each Sales Royalty payment is due, a reasonably detailed report in accordance with Generally Accepted Accounting Principles signed by an officer of Licensee and Parlux and certified as true, accurate and complete, identifying separately by SKU number the items, quantities and Net Sales of each style of Licensed Product sold by Licensee and/or its Affiliates, Subsidiaries, and/or sub-licensees during the quarter for which payment is being made, and any other information reasonably requested by Licensor in connection therewith.  Each such report shall include, in addition to the total number of each Licensed Product sold and the royalty due thereon, a detailed presentation of the computation of royalties, including the quantities and Net Sales of each item sold, and the application of any credits.  A statement shall be rendered for each quarter whether or not any royalties are due.  Such information shall be maintained in confidence by and on behalf of Licensor, subject to disclosure only as required by law or to enforce the terms and conditions of this Agreement.  Notwithstanding the foregoing, Licensor acknowledges and agrees that Licensee shall not be selling the Licensed Products into the market.  Sales will actually be made by Parlux and the books and records reflecting such sales shall be in the exclusive control and possession of Parlux so that any reporting required herein shall be generated by Parlux based on the accounting records of Parlux.

 

  

25

  

 

Licensee and Parlux shall deliver to Licensor, not later than ninety (90) days after the close of each Sales Year during the Term of this Agreement (or portion thereof in the event of prior termination for any reason), a statement, prepared in accordance with GAAP, signed by a duly authorized officer relating to said entire Sales Year, setting forth the same information required to be submitted by Licensee in accordance with the first paragraph of this Article and also setting forth the information concerning expenditures for the Consumer Advertising and Promotion of Licensed Products during such Sales Year required by Article 11 hereof.

 

B.  Books and Records; Audits. Licensee and Parlux shall prepare and maintain, in such manner as will allow its accountants to audit same in accordance with GAAP complete, accurate and separate books of account and records (specifically including without limitation the originals or copies of documents supporting entries in the books of account) in which accurate entries will be made covering all transactions, including advertising expenditures, arising out of or relating to this Agreement.  Licensee and Parlux shall keep separate general ledger accounts for such matters that do not include matters or sales related to this Agreement.  Licensor and its duly authorized representatives shall have the right, for the duration of this Agreement and for three (3) years thereafter, during regular business hours and upon seven (7) business days advance notice (unless a shorter period is appropriate in the circumstances), to audit said books of account and records and examine all other documents and material in the possession or under the control of Licensee and/or Parlux with respect to the subject matter and the terms of this Agreement, including, without limitation, invoices, credits and shipping documents, and to make copies of any and all of the above.  All such books of account, records, documents and materials shall be kept available by Licensee and/or Parlux for at least three (3) years after the end of the Sales Year to which they relate.

 

  

26

  

 

If, as a result of any audit of Licensee’s and/or Parlux’s books and records, it is shown that Licensee’s and/or Parlux’s payments were less than the amount which should have been paid by an amount equal to * (*%) percent or more of the payments actually made with respect to sales occurring during the period in question, Licensee and/or Parlux shall reimburse Licensor for the cost of such audit and shall make all payments required to be made to eliminate any discrepancy revealed by said audit together with interest accruing thereon within ten (10) days after Licensor’s demand therefor.

 

C.  Licensee shall submit to Licensor for its prior written approval an annual business plan, which shall include specific product offerings, advertising and marketing strategies for distribution and sale of the Licensed Products, and sales forecasts.  Such plan shall be delivered to Licensor at least ninety (90) days prior to the beginning of each Sales Year, except that with respect to Sales Year 1 the plan shall be delivered within one hundred and twenty (120) days prior to the First Shipment Date.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

27

  

 

D.  Licensee’s and/or Parlux’s obligations to maintain the records and provide audit rights as provided herein shall survive expiration or termination of this Agreement, and will continue for three (3) years after Licensee and/or its distributors or sub-licensees have ceased to manufacture, to have manufactured, sell or otherwise market the Licensed Products in accordance with the terms hereof.

 

ARTICLE 13

Indemnification and Insurance

 

A.  Indemnification of Licensor. Licensee hereby agrees to save and hold Licensor and its officers, directors, members, managers, representatives, agents and employees (“Indemnitees”) harmless of and from and to indemnify them against any and all claims, suits, injuries, losses, liability, demands, damages and expenses (including, subject to subparagraph D below, Licensor’s reasonable attorneys’ fees and expenses) which any Indemnitee may incur or be obligated to pay, or for which any Indemnitee may become liable or be compelled to pay in any action, claim or proceeding against it, for or by reason of any acts, whether of omission or commission, that may be committed or suffered by Licensee or any of its servants, agents or employees in connection with Licensee’s performance of this Agreement, including but not limited to those arising out of  (i) any use of any of Licensor’s intellectual property by Licensee, its subsidiaries and/or affiliates or sub-licensees in connection with the Licensed Products not expressly authorized under this Agreement (ii) the sale or use of the Licensed Products, (iii) any allegedly unauthorized use of any patent, process, idea, method, or device in connection with the Licensed Products except as authorized by this Agreement, (iv)  any claims, suits, losses and damages arising out of alleged defects in the Licensed Products, (v) any failure of Licensee, or any person, firm, or entity acting under or through Licensees, to comply with the provisions of this Agreement or to comply with any applicable laws, rules and regulations (including, without limitation all SEC regulations), (vi) the manufacture, labeling, sale, distribution or advertisement of any Licensed Product by Licensee in violation of any national, state or local law or regulation or the breach of Article 5 hereof, or (vii) the death of, or injury to, persons or damage to property, and (viii) third party claims of infringement of intellectual property rights, including copyrights, trademark (other than the Licensed Mark), trade dress and/or patent claims.  The provisions of this paragraph and Licensee’s obligations hereunder shall survive the expiration or termination of this Agreement.  This indemnity shall not apply to the extent any claim, suit, injury, loss, liability, demand, damage or expense arises out of the negligence or willful misconduct of Licensor. Licensee shall give Licensor prompt written notice of any such claim, demand or suit.

 

  

28

  

 

B.  Insurance Policy. Licensee shall procure and maintain at its own expense in full force and effect at all times during which Licensed Products are being sold, with a qualified AA or higher rated insurance carrier acceptable to Licensor, a public liability insurance policy with a general liability insurance, products liability insurance, errors and omissions insurance and worker’s compensation insurance having the minimum coverages specified as follows:

 

Commercial General Liability Insurance for limits of $2,000,000 per occurrence Bodily Injury and Property Damage Combined, $1,000,000 per occurrence Personal & Advertising Injury, $2,000,000 aggregate Products and Completed Operations Liability, Workers Compensation of $1,000,000 per occurrence and $10,000,000 umbrella coverage each occurrence for General Liability and Product Damage, with Cargo coverage of up to $25,000,000.

 

Such insurance policies shall provide for at least thirty (30) days prior written notice to said parties of the cancellation or substantial modification thereof. Licensor shall be a named insured on each such policy.  Such insurance may be obtained by Licensee in conjunction with a policy which covers products other than Licensed Products.

 

C.  Evidence of Insurance. Licensee shall, from time to time upon reasonable request by Licensor, promptly furnish or cause to be furnished to Licensor evidence in form and substance satisfactory to Licensor of the maintenance of the insurance required by subparagraph B above, including, but not limited to, copies of policies, certificates of insurance (with applicable riders and endorsements) and proof of premium payments.  Nothing contained in this paragraph shall be deemed to limit in any way the indemnification provisions of the subparagraph A above.

 

  

29

  

 

D.  Notice. Licensor will give Licensee notice of any action, claim, suit or proceeding in respect of which indemnification may be sought and Licensee shall defend such action, claim, suit or proceeding on behalf of Licensor. In the event appropriate action is not taken by Licensee within thirty (30) days after its receipt of notice from Licensor, then Licensor shall have the right, but not the obligation, to defend such action, claim, suit or proceeding and in such defense Licensor may, subject to Licensee’s indemnity obligation under subparagraph A above, be represented by its own counsel.  In any case, the Licensor and the Licensee shall keep each other fully advised of all developments and shall cooperate fully with each other in all respects in connection with any such defense as is made.  Nothing contained in this paragraph shall be deemed to limit in any way the indemnification provisions of the subparagraph A above except that in the event appropriate action is being taken by Licensee by counsel reasonably acceptable to Licensor, with respect to any non-trademark or intellectual property, action, claim, suit or proceeding.  Licensor shall not be permitted to seek indemnification from Licensee for attorneys’ fees and expenses incurred without the consent of Licensee.  In connection with the aforesaid actions, claims and proceedings, the parties shall, where no conflict of interest exists, seek to be represented by common reasonably acceptable counsel.  In connection with actions, claims or proceedings involving trademark or other intellectual property matters which are subject to indemnification hereunder, Licensor shall at all times be entitled to be represented by its own counsel, for whose reasonable fees and disbursements it shall be entitled to indemnification hereunder.

 

  

30

  

 

ARTICLE 14

The Licensed Mark

 

A.  Licensee shall not join any name or names with the Licensed Mark so as to form a new mark, unless and until Licensor consents thereto in writing.  Licensee acknowledges the validity of the Licensed Mark, the secondary meaning associated with the Licensed Mark, and the rights of Licensor with respect to the Licensed Mark in the Territory in any form or embodiment thereof and the goodwill attached or which shall become attached to the Licensed Mark in connection with the business and goods in relation to which the same has been, is or shall be used.  Sales by Licensee shall be deemed to have been made by Licensor for purposes of trademark registration and all uses of the Licensed Mark by Licensee shall inure to the benefit of Licensor.  Licensee shall not, at any time, do or suffer to be done, any act or thing which may in any way materially adversely affect any rights of Licensor in and to the Licensed Mark or any registrations thereof or which, directly or indirectly, may materially reduce the value of the Licensed Mark or detract from its reputation.

 

B.  At Licensor’s request, Licensee shall execute any documents, including registered user agreements, reasonably required by Licensor to confirm the respective rights of Licensor in and to the Licensed Mark in each jurisdiction in the Territory and the respective rights of Licensor and Licensee pursuant to this Agreement.  Licensee shall cooperate with Licensor, in connection with the filing and the prosecution by Licensor of applications to register or renew the Licensed Mark for Licensed Products sold hereunder in each jurisdiction in the Territory where Licensee has reasonably requested the same in accordance with this Agreement.  Such filings and prosecution shall be at the expense of Licensor.  Nothing contained herein shall obligate Licensor to prosecute any trademark application outside the U.S. which is opposed or rejected in any country after the application is filed, provided, however, that any such prosecution shall go forward if (a) Licensee requests same; (b) Licensee pays for same directly; and (c) such prosecution is in Licensor’s name and directed by Licensor.  Licensor shall cooperate fully with any such prosecution.  If the prosecution fails, Licensee shall receive no credit for the monies it expended in connection therewith; if the prosecution succeeds, Licensee shall be entitled to receive a credit for the monies it expended in connection therewith against any Sales Royalty due Licensor from sales derived in the country of such prosecution.

 

  

31

  

 

C.  Licensee shall use the Licensed Mark in each jurisdiction in the Territory strictly in compliance with the legal requirements obtaining therein and shall use such markings in connection therewith as may be required by applicable legal provisions. Licensee shall cause to appear on all Licensed Products and on all materials on or in connection with which the Licensed Mark is used, such legends, markings and notices as may be reasonably necessary in order to give appropriate notice of any trademark, trade name or other rights therein or pertaining thereto.

 

D.  Licensee shall never challenge the validity of the Licensed Mark or any application for registration thereof, or any trademark registration thereof, or any rights of Licensor therein.  The foregoing shall not be deemed to prevent Licensee from asserting, as a defense to a claim of breach of contract brought against Licensee by Licensor for failure to perform its obligations hereunder, that its ceasing performance under this Agreement was based upon Licensor’s failure to own the ‘Kanye West’ trademark in the United States of America, provided that it is established in a court of law that Licensor does not own the ‘Kanye West’ trademark in the United States of America, that the ‘Kanye West’ trademark is owned by a third party so as to preclude the grant of the license provided herein.

 

E.  Licensee shall promptly notify Licensor of any counterfeiting or other infringement of the Licensed Mark, or any diversion of the Licensed Products from the Licensed Channels of Distribution, of which Licensee becomes aware. Licensor shall have the right, but not the obligation, to institute legal action or take any other actions which it deems necessary to protect its interest in the Trademarks, and Licensee shall fully cooperate with Licensor in any such action, provided that any out-of-pocket expenses of Licensee incurred in connection therewith are paid or reimbursed by Licensor or credited against any Sales Royalty due thereafter to Licensor.  Any monetary recovery (the “Licensor Recovery”) resulting from any such action shall be allocated between Licensor and Licensee as follows:  first, all out of pocket expenses incurred by Licensor and Licensee in prosecuting such action (the “Recovery Expenses”) shall be paid to Licensor and Licensee as actually incurred by each; second, Licensor shall be paid an amount equal to the balance of the Licensor Recovery, after deducting the Recovery Expenses, times the Royalty Rate; and third, Licensor shall receive twenty-five (25%) percent and Licensee shall receive seventy-five (75%) percent of the remaining balance of the Licensor Recovery. If Licensor declines to institute or continue any legal action, Licensee may, with the consent of Licensor, which will not be unreasonably withheld, institute or continue same in its name, at its sole expense, in which event any monetary recovery (the “Licensee Recovery”) resulting therefrom shall be allocated between Licensor and Licensee as follows:  first, the Recovery Expenses shall be paid to Licensor and Licensee in the amounts actually incurred by each; second, Licensor shall be paid an amount equal to the balance of the Licensee Recovery, after deducting the Recovery Expenses, times the Royalty Rate; and third, Licensor shall receive twenty-five (25%) percent and Licensee shall receive seventy-five (75%) percent of the remaining balance of the Licensee Recovery.  Should the amount of the recovery under this paragraph not be sufficient to pay 100% of the Recovery Expenses, then the allocation hereunder shall be adjusted on a pro-rata basis in proportion to the relative amounts of Recovery Expenses incurred by each of Licensor and Licensee.

 

  

32

  

 

F.  Licensor shall not be required to protect, indemnify or hold Licensee harmless against, or be liable to Licensee for, any liabilities, losses, expenses or damages which may be suffered or incurred by Licensee as a result of any infringement or allegation thereof by any other person, firm or corporation, other than by reason of Licensor’s breach of the representations made and obligations assumed herein.

 

G.  Ownership of all intellectual property rights, whether recognized currently or in the future, including, without limitation, copyright, patent, trade secret and trademark rights, in the Licensed Products and in all formulae, designs, logos, artwork, packaging, copy, literary text, advertising material and promotion material of any sort utilizing the Licensed Mark, including all such material developed by Licensee (collectively, the "Work"), shall vest in Licensor, and title thereof shall be in the name of Licensor.  All such items and all Licensed Products shall bear the copyright and trademark notices as are reasonable and customary and any other legal notices, which Licensor may from time to time prescribe.  Notwithstanding the foregoing, the parties hereto understand and agree that the formulae and scents shall be owned by a third-party fragrance house, which fragrance house shall agree directly with either Licensee or Parlux and Licensor that, during and after the Term of the Agreement such formulae and scents shall be exclusive to Licensor.  Any and all additions to, and new renderings, modifications or embellishments of the Work shall, notwithstanding their invention, creation and use by Licensee and/or its representatives, affiliates and/or sub-licensees, if applicable, be and remain the property of Licensor, and Licensor may use, and license others to use the Work, subject only to the provisions of this Agreement. Licensee shall advise Licensor of specific Work to be developed, designed and/or manufactured by third parties (collectively, “Developers”) and shall provide Licensor with the names and addresses of all such Developers.  Licensee shall impose restrictions on such Developers, including but not limited to having such Developers execute confidentiality, trademarks acknowledgement and anti-pirating and anti-infringement agreements and/or letter agreements guaranteeing the Developers’ compliance with the provisions of this Agreement.  Licensee shall obligate each Developer to covenant in its agreement that it will not subcontract any of its obligations to develop, design or manufacture Licensed Products or Work without the prior written approval by the Licensor.  The right, title and interest in and to any samples or prototypes of the Work, including any modifications or improvements thereto, that are submitted by Licensee or Parlux to Licensor for approval, but (i) which are not approved by Licensor (ii) not then used in connection with the Licensed Mark or the Licensed Products and (iii) are not confusingly similar to the Work ultimately approved or used by the Licensor in connection with the Licensed Mark (provided that any reference to or inclusion of the Licensed Mark is removed from such Work), shall revert to Licensee or, as applicable, to the designer or fragrance house that designed, developed prepared and provided such Work.

 

  

33

  

 

H.  Licensee shall not use any other tradenames, trademarks or other designations including, without limitation, Licensee's own corporate name or tradename in connection with the Licensed Mark in any consumer advertising and publicity, labeling, packaging or printed matter utilized by Licensee in connection with the Licensed Products.  Licensee may, however, use its own corporate name or tradename in connection with the Licensed Products in transactions between and among the parties hereto, and with Manufacturers, merchants, wholesale customers and others relating to: the manufacture of Licensed Products; the creation and development of designs, styles, advertising, promotional materials, packaging, printed matter and labeling of the Licensed Products; and the wholesale sale of the Licensed Products. Licensee shall not use the Licensed Mark in combination with any other names or marks to form a new mark and shall not use the Licensed Mark as a tradename or in any other manner other than in connection with the manufacture, distribution, sale and promotion of Licensed Products under this Agreement.  Licensee will at all times make reference on the Licensed Products and on all packaging and promotional materials used in connection therewith that the Licensed Mark is under license from the Licensor.  For clarification purposes and avoidance of doubt, Licensee and its sub-licensees and distributors may use their corporate names on the labeling of Licensed Products to indicate the identity and location of the manufacturer and/or distributor of Licensed Products as is customary solely in order to comply with applicable labeling laws and regulations.  Moreover, Licensee and its sublicensees and/or distributors shall be permitted in trade press articles and media interviews or question and answer sessions, on their websites, in their catalogues and company literature to identify the Artist and the Licensed Products as one of several licensors and brands included in Licensee’s or its sublicensees’ or distributors’ catalogue of brands and product lines.

 

  

34

  

 

ARTICLE 15

Defaults; Termination

 

A.   The following conditions and occurrences shall constitute “Events of Default” by Licensee:

 

(i).  the failure to pay Licensor the full amount due it under any of the provisions of this Agreement by the prescribed date for such payment;

 

(ii).  the failure to deliver full and accurate reports pursuant to any of the provisions of this Agreement by the prescribed due date therefor;

 

(iii).  the making or furnishing of a knowingly false statement in connection with or as part of any material aspect of a report, notice or request rendered pursuant to this Agreement;

 

(iv).  the failure to maintain the insurance required by Article 12;

 

(v).  the use of the Licensed Mark in an unauthorized or unapproved manner;

 

(vi).  Licensee’s use of other trademarks on or in association with the Licensed Products, without prior written consent of Licensor;

 

(vii).  the commencement against Licensee of any proceeding in bankruptcy, or similar law, seeking reorganization, liquidation, dissolution, arrangement, readjustment, discharge of debt, or seeking the appointment of a receiver, trustee or custodian of all or any substantial part of Licensee’s property, not dismissed within sixty (60) days, or Licensee’s making of an assignment for the benefit of creditors, filing of a bankruptcy petition, its acknowledgment of its insolvency or inability to pay debts, or taking advantage of any other provision of the bankruptcy laws;

 

(viii).  the material breach of any other material promise or agreement made herein (or any agreements or exhibits incorporated by reference herein) including but not limited to (1) the failure of Licensee to enter into a sublicense agreement with Parlux as set forth in this Agreement including Section 2 hereof or (2) the failure of Licensee to launch the Licensed Products on retail shelves in commercially reasonable quantities by *.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

35

  

 

B.  In the event Licensee fails to cure an Event of Default, (in the event such Event of Default is curable) within thirty (30) days after written notice of default is transmitted to Licensee or within such further period as Licensor may allow, this Agreement shall, at the option of Licensor, be terminated, on notice to Licensee.

 

C.  In the event Licensor breaches this Agreement, Licensor shall have thirty (30) days after written notice of such breach is transmitted to Licensor, or within such further period as Licensee may allow, to cure such breach (in the event such breach is curable), failing which this Agreement shall, at the option of Licensee, be terminated on notice to Licensor.

 

D.  Upon the expiration or termination of this Agreement for any reason, in the event this Agreement is not renewed as provided in Article 4 above, or in the event of the termination or expiration of a renewal term of this Agreement, Licensee, except as specified in Article 16 below, will immediately discontinue use of the Licensed Mark, will not resume the use thereof or adopt any colorable imitation of the Licensed Mark or any of its parts, will promptly deliver and convey to Licensor within no later than ninety (90) days from such termination (free of all liens and encumbrances) (i) all plates, engravings, silk-screens, or the like used to make or reproduce the Licensed Mark and its designs, but not the bottle mold or tooling which Licensor shall be entitled to purchase or recover as provided below; and (ii) all items affixed with likeness or reproductions of the Licensed Mark, whether Licensed Products, labels, bags, hangers, tags or otherwise, and, upon request by Licensor, will assign to Licensor such rights as Licensee may have acquired in the Licensed Mark. In the event that this Agreement expires or is terminated by Licensor due to Licensee’s default, Licensor shall have an option, but not an obligation, to purchase the bottle mold and tooling for the Licensed Products, free of all liens and other encumbrances, at a price equal to Licensee’s cost for same established by submission of bill(s) from supplier and satisfactory proof of payment for same. Licensor shall pay such cost as follows: by wire transfer in advance.  Licensor shall exercise its aforesaid option within thirty (30) days after Licensee’s submission of documents establishing cost. Notwithstanding the foregoing, if Licensor has terminated this Agreement due to Licensee’s default, Licensor, at its option, shall be entitled, in exercising its purchase option, to deduct from the cost price an amount equal to the Sales and Guaranteed Minimum Royalties Licensor is entitled to recover, for which deduction Licensee shall receive a credit.  In the event Licensor exercises its aforesaid option, Licensee shall be precluded forever from using the bottle molds or tools and from selling or otherwise transferring or licensing any rights whatsoever in the molds or tools to any third party. In the event that Licensor does not exercise its aforesaid option, Licensee shall not use the bottle molds or tools or sell or otherwise transfer or license any rights whatsoever in the bottle mold or tools to any third party for a period of two (2) years after the determination of the fair market value. In the event of any permitted use of the bottle mold and/or tools by Licensee, Licensee shall not use in connection therewith the Licensed Mark, any trademark confusingly similar thereto, any trade dress associated with the Licensed Products, any advertising or promotional materials used in connection with the Licensed Products or any other markings or materials which would cause a reasonable consumer to believe that any new items sold using the bottle mold and tools are authorized by Licensor or in some way associated with the Licensed Mark. Any permitted sale or license of the bottle mold and/or tools by Licensee shall prohibit in writing the purchaser or licensee from using the Licensed Mark, and confusingly similar trademark and any such trade dress, advertising, promotional materials, markings or other materials and shall expressly make Licensor a third party beneficiary of such provision.

 

  

36

  

 

ARTICLE 16

 

Rights on Expiration or Termination

 

A.  If this Agreement expires or is terminated for any reason, Licensee shall cease to manufacture Licensed Products (except for work in process or to balance component inventory) but shall be entitled, for an additional period of six (6) months only, on a non-exclusive basis, to sell and dispose of its inventory subject, however, to the provisions of paragraph D of this Article. Such sales shall be made subject to all of the provisions of this Agreement and to an accounting for and the payment of Sales Royalty thereon but not to the payment of Guaranteed Minimum Royalties.  Such accounting and payment shall be made monthly.  If Licensor has entered into a license agreement with a new distributor to replace Licensee, then Licensor shall be permitted to purchase Licensee’s remaining inventory at Licensee’s cost plus ten (10%) percent to cover carrying and handling charges for purposes of distribution by the new licensee. Upon termination of this Agreement, Licensee shall take commercially reasonable efforts to allocate appropriate stock of Licensed Product in order not to have excess stock at the end of the Term.  In the event excess stock of Licensed Product is not sold at the end of the Term, Licensee shall have the non-exclusive right for six (6) months (the “Sell-Off Period”) from the end of the Term to sell through the Licensed Product pursuant to this Agreement.  Licensee agrees to refrain from “dumping” any articles of Licensed Products in the market during the Sell-Off Period.  “Dumping” shall mean the distribution of the Licensed Products at volume levels significantly above Licensee’s prior sales practices with respect to Licensed Products, and at price levels so far below prior sales practices with respect to Licensed Products as to disparage the Licensed Products.

 

B.  In the event of termination in accordance with Article 15 above, Licensee shall pay to Licensor, the Sales Royalty then owed to it pursuant to this Agreement for Net Sales made through the date of termination or otherwise.

 

C.  Notwithstanding any termination in accordance with Article 15 above, Licensor shall have and hereby reserves all rights and remedies which it has, or which are granted to it by operation of law, this Agreement, or in equity, including but not limited to, the right to enjoin the unlawful or unauthorized use of the Licensed Mark, and to collect royalties payable by Licensee pursuant to this Agreement and to be compensated for damages for breach of this Agreement.

 

  

37

  

 

D.  Upon the expiration or termination of this Agreement and no later than 20 days after such expiration or termination, Licensee shall deliver to Licensor a complete and accurate schedule of Licensee’s inventory of Licensed Products, and of related work in process then on hand, including components and products and materials in the process of manufacture  (including any such items held by Subsidiaries, Affiliates, sublicensees or others on behalf of Licensee) (hereinafter referred to as “Inventory). Such schedule shall be prepared as of the close of business on the date of such expiration or termination and shall reflect Licensee’s cost of each such item. Notwithstanding anything contained to the contrary in this Agreement, Licensor thereupon shall have the option, exercisable by notice in writing delivered to Licensee within thirty (30) days after its receipt of the complete Inventory schedule, to purchase all, but no less than all, of the Inventory, free of all liens and other encumbrances, for an amount equal to the lowest Licensee’s selling price. In the event such notice is sent by Licensor, Licensee shall deliver to Licensor or its designee all of the Inventory referred to therein within thirty (30) days after Licensor’s said notice and, in respect of any Inventory so purchased, assign to Licensor all then outstanding orders from Licensee to its suppliers and to Licensee from its customers. Licensor shall pay Licensee for such Inventory by wire transfer in advance of the delivery of such Inventory to Licensor.  No Sales Royalty shall be payable to Licensor with respect to any such inventory purchased by Licensor.

 

E.  Immediately upon the expiration or termination of this Agreement for any reason, Licensor shall have the free and unrestricted right to grant other parties one or more licenses to use the Licensed Mark in connection with the manufacture, sale, distribution or advertising and promotion of Licensed Product in the Territory or to enter into such other transactions as it desires for the use of the Licensed Mark with Licensed Products or in any other manner, without any obligation of any kind to Licensee.  The right of Licensee to sell items of Inventory under this Section is non-exclusive only and shall not in any manner limit Licensor’s right to enter into other licenses or transactions.

 

  

38

  

 

ARTICLE 17

 

Sublicensing and Distribution

 

A.  (i) The performance of Licensee hereunder is of a personal nature.  Therefore, neither this Agreement nor the license or other rights granted hereunder may be assigned, sublicensed or transferred by Licensee, whether to a Subsidiary or Affiliate, nor may Licensee delegate any of Licensee’s obligations under this Agreement without Licensor’s prior written approval, such approval not to be unreasonably withheld or delayed.  Any attempted assignments, transfer, or sublicenses by Licensee without such approval shall be void and a material breach of this Agreement.  Notwithstanding the foregoing, Licensee shall have the right, subject to the terms of this Agreement including but not limited to Section 2 hereof, to sub-license the Licensed Mark to Parlux Fragrances, Inc. or to assign this Agreement to Parlux Fragrances, Inc.

 

(ii)  Consolidation.  This Agreement shall not terminate if Licensee is merged with, acquired by or otherwise consolidated with or into another entity if (a) the surviving entity has a net worth under GAAP equal to or greater than that of Licensee, (b) the surviving entity owns or controls, directly or indirectly, a majority of the stock or assets of Licensee, (c) the surviving entity has assumed all of Licensee’s obligations hereunder, and (d) the surviving entity has retained substantially all of the infrastructure of Licensee’s sub-licensee, Parlux Fragrances, Inc., for the development, marketing, merchandising, manufacturer and sales of prestige fragrance brands to department and specialty stores.

 

B.  Subject to the Licensed Channels of Distribution set forth in this Agreement, Licensee shall be entitled to use distributors in the Territory in connection with its sale of Licensed Products under this Agreement with the prior written approval of Licensor.  No such distributor, however, shall be entitled to exercise any of Licensee’s rights hereunder except for the sale of Licensed Products which have been approved by Licensor hereunder.

 

  

39

  

 

ARTICLE 18

 

Miscellaneous

 

A.  Representations. The Parties respectively represent and warrant that they have full right, power and authority to enter into this Agreement and perform all of their obligations hereunder and that they are under no legal impediment which would prevent their signing this Agreement or consummating the same. Licensor represents and warrants that it has the right to license the Licensee the ”Kanye West” trademark in connection with Licensed Productsin the United States of America (and with respect to countries and regions outside of the United States of America within the Territory, to the extent and at such time (and not retroactively) that Licensor receives a trademark registration for such trademark), and that Licensor has not granted any other existing license to use the ‘Kanye West’ or “Kanye” trademark in connection with Licensed Products in the Territory and that no such license will be granted during the Term of this Agreement except in accordance with the provisions hereof.  Licensor makes no representations or warranties except as expressly provided herein.

 

B.  Licensor’s Rights. Notwithstanding anything to the contrary contained in this Agreement (except for the provisions of Section 17A(ii), to which this Section 18B shall be subject), Licensor shall not have the right to enter into agreements with third parties pursuant to which it may grant a license to use the Licensed Mark in connection with the manufacture, distribution and/or sale of Licensed Products covered hereunder in the Territory or provide consultation and design services with respect to such Licensed Products in the Territory prior to the termination or expiration of this Agreement.

 

C.  Licensor’s Retail Stores. In the event Licensor opens one or more retail stores or boutiques selling various products bearing the Licensed Mark, Licensee agrees to sell Licensed Products to Licensor for sale in such stores at regular listed retail prices less a *% (*) percent discount. Licensee further agrees that any sales pursuant to this paragraph shall be included in the computation of Net Sales for any applicable Sales Year hereunder.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

40

  

 

D.  Governing Law; Entire Agreement. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State, contains the entire understanding and agreement between the parties hereto with respect to the subject matter hereof (including all exhibits referred to herein), supersedes all prior oral or written understandings and agreements relating thereto and may not be modified, discharged or terminated, nor may any of the provisions hereof be waived, orally.

 

E.  No Agency. Nothing herein contained shall be construed to constitute the Parties hereto as partners or as joint venturers, or either as agent of the other, and Licensee shall have no power to obligate or bind Licensor in any manner whatsoever.

 

F.  No Waiver. No waiver by either party, whether express or implied, of any provision of this Agreement, or of any breach or default thereof, shall constitute a continuing waiver of such provision or of any other provision of this Agreement.  Acceptance of payments by Licensor shall not be deemed a waiver by Licensor of any violation of or default under any of the provisions of this Agreement by Licensee.

 

G.  Void Provisions. If any provision or any portion of any provision of this Agreement shall be held to be void or unenforceable, the remaining provisions of this Agreement and the remaining portion of any provision held void or unenforceable in part shall continue in full force and effect.

 

H.  Construction. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing this Agreement to be drafted. If any words or phrases in this Agreement shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Agreement shall be construed as if those words or phrases were never included in this Agreement, and no implication or inference shall be drawn from the fact that the words or phrases were so stricken out or otherwise eliminated.

 

  

41

  

 

I.  Force Majeure. Neither party hereto shall be liable to the other for delay in any performance or for the failure to render any performance under the Agreement (other than payment to any accrued obligation for the payment of money) when such delay or failure is by reason of lockouts, strikes, riots, fires, explosions, blockade, civil commotion, epidemic, insurrection, war or warlike conditions, terrorism or threat of terrorism, the elements, embargoes, act of God or the public enemy, compliance with any law, regulation or other governmental order, whether or not valid, or other similar causes beyond the control of the party effected. The party claiming to be so affected shall give notice to the other party promptly after it learns of the occurrence of said event and of the adverse results thereof. Such notice shall set forth the nature and extent of the event. The delay or failure shall not be excused unless such notice is so given. Notwithstanding any other provision of this Agreement, either party may terminate this Agreement if the other party is unable to perform any or all of its obligations hereunder for a period of six (6) months by reason of one or more of the foreging force majeure events as if the date of termination were the date set forth herein as the expiration date hereof.  If either party elects to terminate this Agreement under this paragraph, Licensee shall have no further obligations for the Guaranteed Minimum Royalty beyond the date of termination (which shall be prorated if less than a Sales Year is involved) and Licensee shall be obligated to pay any Sales Royalty which is then due or becomes due.

 

J.  Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties, their respective successors, Licensor’s transferees and assigns and Licensee’s permitted transferees and assigns.

 

K.  Resolution of Disputes. Any controversy or claim arising out of, in connection with, or relating to this Agreement except as set forth in paragraph 18(L) below, shall be determined by arbitration by a three person arbitration panel at the office of the American Arbitration Association sitting in New York, New York.  Both Parties shall share equally the cost of such arbitration (except each shall bear its own attorney’s fees).  Any decision rendered by the arbitrators shall be final and binding, and judgment may be entered in any court having jurisdiction. Notwithstanding anything to the contrary herein, due to the irreparable harm that would result from certain actual or threatened violations of this Agreement (including but not limited to copyright infringement claims), where either party is seeking only injunctive relief (e.g., a temporary restraining order, temporary injunction or permanent injunction), such party may file suit or bring an application for such injunctive relief in any federal or state court of competent jurisdiction without violating this Agreement.

 

  

42

  

 

L.  Governing Law, Trademarks.  Notwithstanding Section 18 (K), in the event of a dispute between the parties hereto arising out of trademark infringement or ownership of trademarks and trademark registrations, such dispute shall be brought in a court of competent jurisdiction in the New York County, New York and the parties hereby irrevocably submit to personal jurisdiction in such venue for all such proceedings. Any such lawsuit shall be construed and enforced in accordance with the laws of the State of New York, excluding any conflicts of law rule or principle which might refer such construction to the laws of another state or country.  In such event each party hereby (i) submits to personal jurisdiction in the State of New York for the enforcement of this Agreement and (ii) waives any and all personal rights under the law of any other state or country to object to jurisdiction within the State of New York for the purposes of litigation to enforce this Agreement.

 

M.  Consolidation. Notwithstanding anything contained to the contrary in this Agreement (a) this Agreement shall not terminate if Licensor is merged or otherwise consolidated into another entity, which is the surviving entity. (b) Licensor shall be entitled to assign this Agreement to any entity to which the Licensed Mark is assigned.

 

N.  Survival. The provisions of paragraphs 12, 13, 16, 17, 18 and 20 (together with such other provisions herein which either expressly or by their nature survive expiration or termination of this Agreement) shall survive any expiration or termination of this Agreement.

 

O.  Paragraph Headings. The paragraph headings in this Agreement are for convenience of reference only and shall be given no substantive effect.

 

  

43

  

 

P.  Entire Agreement; Amendments.  This Agreement, inclusive of the Exhibits hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein, and supersedes all other prior representations, warranties, agreements, understandings or letters of intent between or among any of the parties hereto.  This Agreement shall not be amended, modified or supplemented except by a written instrument or agreement signed by each of the parties.

 

Q.  Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument.  In addition, signed signature pages transmitted by facsimile or scanned into an image file and transmitted via email shall be deemed due execution of the Agreement.

 

ARTICLE 19

 

Notices

 

Any notice or other communications required or permitted by this Agreement to be given to a party will be in writing and will be considered to be duly given when sent by certified mail or registered mail, return receipt requested, or by recognized overnight courier such as UPS or Federal Express, to the party concerned to the following persons or addresses (or to such other persons or addresses as a party may specify by notice to the other):

 

	 If to Licensor:  	Mascotte Holdings, Inc. 

c/o IWP Wealth

3200 Cherry Creek Drive South

Suite 620

Denver, CO 80209

Attention:  Charlie Willhoit

	 	 
	With a courtesy copy to:	Gang, Tyre, Ramer & Brown, Inc. 

132 S. Rodeo Drive

Beverly Hills, CA 90121-2403

Attn:  Donald S. Passman, Esq.

	 	 
	If to Licensee:  	Artistic Brands Development, LLC 

1600 N.W. 84th Avenue

Miami, FL 33126

Attention:  Rene Garcia, President

 

  

44

  

 

Notice of the change of any of the foregoing addresses shall be duly given by either party to the other in the manner herein provided.

 

ARTICLE 20

 

Conditions

 

A.  This Agreement shall only be effective upon satisfaction of the following conditions (hereinafter, collectively, the “Conditions”):  (i) within sixty (60) days of the Effective Date, Parlux Fragrances, Inc. (“Parlux”) executes a sub-license agreement with Licensee, pursuant to which Parlux agrees to serve as the exclusive sub-licensee and distributor of the Licensed Products for a period equal to the Term of the Agreement; (ii) Parlux provides a written guaranty to Licensor guaranteeing all of Licensee’s obligations to Licensor under the Agreement, and (iii) within one hundred fifty (150) days of the Effective Date, the Parlux shareholders (a) if required, approve the sub-license agreement between Iconic and Parlux and (b) if required, approve the issuance of warrants to Iconic in a quantity sufficient to satisfy any commitment made by Licensee to Licensor with respect to the issuance of Parlux warrants (the “Warrant Commitment”) (whether such Warrant Commitment is made before or after the Effective Date).  In the event that Parlux has filed its draft proxy statement with the SEC within sixty (60) days of the Effective Date, in connection with seeking shareholder approval of (1) the issuance of warrants to Iconic and (2) the sub-license with Iconic, and the SEC’s clearance of the proxy statement is not rendered within thirty (30) days of its submission to the SEC (the “Initial Review Period”), then the 150 day period hereunder for shareholder approval shall be extended for so long as the proxy statement has not received SEC clearance after the expiration of the Initial Review Period, but in no event shall such extension exceed twenty (20) days (“Extended Review Period”).  The aforesaid 150-day period, plus any Extended Review Period, shall hereinafter be collectively referred to as the “Shareholder Approval Period.”  The aforementioned Parlux guaranty shall, among other things, provide Licensor with direct audit rights with Parlux as it relates to this Agreement and the Licensed Products.  Additionally, Licensor shall have a direct claim against Parlux on the guaranty for breaches of the Agreement (including but not limited to dilution of trademark, failure to obtain artist approval, violation of child labor laws etc).  The manufacture of Licensed Products may be undertaken directly by Parlux.  There shall be no further sublicensing permitted without the prior written approval of Licensor.  The manufacture of Licensed Products shall be in accordance with all applicable laws, rules and regulations.  Any third party manufacturer must sign a manufacturing agreement agreeing to comply with all applicable laws.  The Agreement will have no force and effect and will terminate in its entirety with no further obligation by either party in the event that any of the foregoing conditions is not satisfied, provided, however, that in the event that any of the foregoing conditions is not satisfied and this Agreement is thereupon terminated, Licensee shall pay Licensor a $* nonrefundable termination fee (the “Termination Fee”).  Notwithstanding the foregoing, in the event that Parlux’s shareholders fail to approve the transaction that includes, among other things, the issuance of warrants to Licensee or Licensor in satisfaction of the Warrant Commitment, but, within the Shareholder Approval Period, (i) Parlux has executed a sub-license agreement with Licensee in accordance with this Agreement, (ii) Parlux has executed a written guaranty of Licensee’s obligations under this Agreement, (iii) Licensor has otherwise received Parlux warrants in an amount and on terms that satisfy Licensee’s obligations to Licensor in accordance with the Warrant Commitment, and (iv) Licensee pays the Guaranteed Minimum Royalty for the First Sales Year, then all of the foregoing Conditions shall be deemed to be satisfied, in which event the Termination Fee shall not be paid and the Agreement will remain in full force and effect.

 

	
*

	
Confidential terms omitted and provided separately to the Securities and Exchange Commission.

 

  

45

  

 

ARTICLE 21

 

Most Favored Nations

 

If the financial terms of any license agreement Licensee enters into with Shawn Carter or any party directly or indirectly affiliated with Shawn Carter (also known as Jay-Z) (Shawn Carter or any such party shall hereinafter be referred to as an “SCA”) in the same or similar product categories as is covered by this Agreement, whether entered into before or after the Effective Date, are more favorable to such SCA than the terms provided to Licensor under this Agreement, then the financial terms of this Agreement shall thereupon be modified so as to be no less favorable to Licensor than the financial terms of any license agreement entered into with such SCA, whether entered into before or after the Effective Date.  If the terms relating to the manner in which sales to distributors are treated for Royalty purposes of any license agreement Licensee enters into with any third party (each an “ATP”) in the same or similar product categories as is covered by this Agreement, whether entered into before or after the Effective Date, are more favorable to such ATP than the terms provided to Licensor under this Agreement, then the terms of this Agreement shall thereupon be modified so as to be no less favorable to Licensor with respect to the treatment of sales to distributors for Royalty purposes than such terms of any license agreement entered into with such ATP, whether entered into before or after the Effective Date.  Such modifications shall be effective on a retroactive basis hereunder so that such modifications shall be deemed effective as of the Effective Date, and Licensee shall make all payments to Licensor and take such actions as may be required to effect same upon the execution of any such agreement with an SCA or an ATP, as applicable.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

  

46

  

 

IN WITNESS WHEREOF the parties have executed this Agreement on the date first above written.

 

	
LICENSEE:

	  
	  	  	  
	
ARTISTIC BRANDS DEVELOPMENT, LLC

	  
	  	  	  
	
By:

	
 /s/ Rene Garcia

	
Date:  3/1/11

	  	
Print name:  Rene Garcia

	  
	  	
Title:  President

	  
	  	  	  

 

 

	
LICENSOR

	  
	  	  	  
	
MASCOTTE HOLDINGS, INC.

	  
	  	  	  
	
By:

	
 /s/ Charles A. Willhoit

	
Date:  2/11/20111

	  	
Print name:  Charles A. Willhoit

	  
	  	
Title:  Vice President

	  
	  	  	  

 

 

	
ARTIST:

	  
	  	  	  
	
By:

	
/s/ Kanye West  

	  
	  	
Kanye West

	  
	  	
As to Paragraphs 2C and 11E

	  

 

  

47

  

 

SCHEDULE 7B

 

	
MACY’S

	
DILLARD’S

	
BELK

	
BON-TON/ CARSON PIRIE SCOTT

	
BOSCOV’S

	
VON MAUR

	
SAKS INC

	
NORDSTROM

	
LORD & TAYLOR

	
YOUNKERS

	
MILITARY EXCHANGE

	
STAGE STORES

	
NEIMAN MARCUS

	
ROGERS DEPARTMENT STORES

	
SEPHORA

	VICTORIA’S SECRET
	ULTA
	
PERFUMANIA

 

AND THE ABOVE RETAILERS’ WEBSITES

 

 

 

48ex_10-1.htm

Exhibit 10.1

 

SECOND AMENDED AND RESTATED

CREDIT AGREEMENT

 

 

DATED AS OF

 

MARCH 10, 2011

 

 

AMONG

 

 

LEGACY RESERVES LP,

AS BORROWER,

 

 

BNP PARIBAS,

AS ADMINISTRATIVE AGENT,

 

 

WELLS FARGO BANK, N.A.,

AS SYNDICATION AGENT,

 

 

COMPASS BANK,

AS DOCUMENTATION AGENT,

 

 

AND

 

 

THE LENDERS PARTY HERETO

 

 

SOLE LEAD ARRANGER AND BOOK RUNNER

 

BNP PARIBAS SECURITIES CORP.

 

  

  

  

 

TABLE OF CONTENTS

Page

ARTICLE I

Definitions and Accounting Matters

	
Section 1.01

	
Terms Defined Above

	
1

	
Section 1.02

	
Certain Defined Terms

	
1

	
Section 1.03

	
Types of Loans and Borrowings

	
21

	
Section 1.04

	
Terms Generally

	
21

	
Section 1.05

	
Accounting Terms and Determinations; GAAP

	
22

 

ARTICLE II

The Credits

	
Section 2.01

	
Commitments.

	
22

	
Section 2.02

	
Loans and Borrowings.

	
23

	
Section 2.03

	
Requests for Borrowings

	
24

	
Section 2.04

	
Interest Elections.

	
25

	
Section 2.05

	
Funding of Borrowings.

	
26

	
Section 2.06

	
Termination and Reduction of Aggregate Maximum Credit Amounts.

	
27

	
Section 2.07

	
Borrowing Base.

	
27

	
Section 2.08

	
Letters of Credit.

	
30

 

ARTICLE III

Payments of Principal and Interest; Prepayments; Fees

	
Section 3.01

	
Repayment of Loans

	
35

	
Section 3.02

	
Interest.

	
35

	
Section 3.03

	
Alternate Rate of Interest

	
36

	
Section 3.04

	
Prepayments.

	
37

	
Section 3.05

	
Fees.

	
39

 

ARTICLE IV

Payments; Pro Rata Treatment; Sharing of Set-offs.

	
Section 4.01

	
Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

	
39

	
Section 4.02

	
Presumption of Payment by the Borrower

	
41

	
Section 4.03

	
Certain Deductions by the Administrative Agent

	
41

	
Section 4.04

	
Payments and Deductions to a Defaulting Lender.

	
41

 

ARTICLE V

Increased Costs; Break Funding Payments; Taxes; Illegality

	
Section 5.01

	
Increased Costs.

	
43

	
Section 5.02

	
Break Funding Payments

	
44

	
Section 5.03

	
Taxes.

	
45

	
Section 5.04

	
Designation of Different Lending Office

	
46

	
Section 5.05

	
Illegality

	
46

	
Section 5.06

	
Replacement of Lenders Under Certain Circumstances.

	
46

 

ARTICLE VI

Conditions Precedent

 

  

i

  

 

	
Section 6.01

	
Effective Date

	
47

	
Section 6.02

	
Each Credit Event

	
49

 

ARTICLE VII

Representations and Warranties

	
Section 7.01

	
Organization; Powers

	
50

	
Section 7.02

	
Authority; Enforceability

	
50

	
Section 7.03

	
Approvals; No Conflicts

	
50

	
Section 7.04

	
Financial Position; No Material Adverse Change.

	
50

	
Section 7.05

	
Litigation

	
51

	
Section 7.06

	
Environmental Matters

	
51

	
Section 7.07

	
Compliance with the Laws and Agreements; No Defaults.

	
52

	
Section 7.08

	
Investment Company Act

	
53

	
Section 7.09

	
Taxes

	
53

	
Section 7.10

	
ERISA.

	
53

	
Section 7.11

	
Disclosure; No Material Misstatements

	
54

	
Section 7.12

	
Insurance

	
54

	
Section 7.13

	
Restriction on Liens

	
55

	
Section 7.14

	
Subsidiaries

	
55

	
Section 7.15

	
Location of Business and Offices

	
55

	
Section 7.16

	
Properties; Titles, Etc.

	
55

	
Section 7.17

	
Maintenance of Properties

	
56

	
Section 7.18

	
Gas Imbalances, Prepayments

	
56

	
Section 7.19

	
Marketing of Production

	
57

	
Section 7.20

	
Swap Agreements

	
57

	
Section 7.21

	
Use of Loans and Letters of Credit

	
57

	
Section 7.22

	
Solvency

	
57

 

ARTICLE VIII

Affirmative Covenants

	
Section 8.01

	
Financial Statements; Other Information

	
58

	
Section 8.02

	
Notices of Material Events

	
61

	
Section 8.03

	
Existence; Conduct of Business

	
61

	
Section 8.04

	
Payment of Obligations

	
61

	
Section 8.05

	
Performance of Obligations under Loan Documents

	
61

	
Section 8.06

	
Operation and Maintenance of Properties

	
62

	
Section 8.07

	
Insurance

	
62

	
Section 8.08

	
Books and Records; Inspection Rights

	
62

	
Section 8.09

	
Compliance with Laws

	
63

	
Section 8.10

	
Environmental Matters.

	
63

	
Section 8.11

	
Further Assurances.

	
64

	
Section 8.12

	
Reserve Reports.

	
64

	
Section 8.13

	
Title Information.

	
65

	
Section 8.14

	
Additional Collateral; Additional Guarantors.

	
66

	
Section 8.15

	
ERISA Compliance

	
67

	
Section 8.16

	
Marketing Activities

	
67

 

  

ii

  

 

ARTICLE IX

Negative Covenants

	
Section 9.01

	
Financial Covenants.

	
68

	
Section 9.02

	
Debt

	
68

	
Section 9.03

	
Liens

	
69

	
Section 9.04

	
Dividends, Distributions and Redemptions; Repayment of Senior Notes.

	
69

	
Section 9.05

	
Investments, Loans and Advances

	
70

	
Section 9.06

	
Nature of Business

	
71

	
Section 9.07

	
Limitation on Leases

	
71

	
Section 9.08

	
Proceeds of Notes

	
72

	
Section 9.09

	
ERISA Compliance

	
72

	
Section 9.10

	
Sale or Discount of Receivables

	
73

	
Section 9.11

	
Mergers, Etc

	
73

	
Section 9.12

	
Sale of Properties

	
73

	
Section 9.13

	
Environmental Matters

	
74

	
Section 9.14

	
Transactions with Affiliates

	
74

	
Section 9.15

	
Subsidiaries

	
74

	
Section 9.16

	
Negative Pledge Agreements; Dividend Restrictions

	
74

	
Section 9.17

	
Gas Imbalances, Take-or-Pay or Other Prepayments

	
75

	
Section 9.18

	
Swap Agreements

	
75

	
Section 9.19

	
Swap Agreement Termination

	
75

	
Section 9.20

	
Tax Status as Partnership; Partnership Agreement

	
76

 

ARTICLE X

Events of Default; Remedies

	
Section 10.01

	
Events of Default

	
76

	
Section 10.02

	
Remedies.

	
78

	
Section 10.03

	
Disposition of Proceeds

	
79

 

ARTICLE XI

The AgentS

	
Section 11.01

	
Appointment; Powers

	
79

	
Section 11.02

	
Duties and Obligations of Administrative Agent

	
79

	
Section 11.03

	
Action by Administrative Agent

	
80

	
Section 11.04

	
Reliance by Administrative Agent

	
81

	
Section 11.05

	
Subagents

	
81

	
Section 11.06

	
Resignation or Removal of Administrative Agent

	
81

	
Section 11.07

	
Administrative Agent and Lenders

	
82

	
Section 11.08

	
No Reliance

	
82

	
Section 11.09

	
Administrative Agent May File Proofs of Claim

	
82

	
Section 11.10

	
Authority of Administrative Agent to Release Collateral and Liens

	
83

	
Section 11.11

	
The Arranger, the Syndication Agent and the Documentation Agent

	
83

 

ARTICLE XII

Miscellaneous

	
Section 12.01

	
Notices.

	
83

 

  

iii

  

 

	
Section 12.02

	
Waivers; Amendments.

	
85

	
Section 12.03

	
Expenses, Indemnity; Damage Waiver.

	
86

	
Section 12.04

	
Successors and Assigns.

	
88

	
Section 12.05

	
Survival; Revival; Reinstatement.

	
91

	
Section 12.06

	
Counterparts; Integration; Effectiveness.

	
92

	
Section 12.07

	
Severability

	
92

	
Section 12.08

	
Right of Setoff

	
92

	
Section 12.09

	
GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS

	
93

	
Section 12.10

	
Headings

	
94

	
Section 12.11

	
Confidentiality

	
94

	
Section 12.12

	
Interest Rate Limitation

	
95

	
Section 12.13

	
EXCULPATION PROVISIONS

	
95

	
Section 12.14

	
Collateral Matters; Swap Agreements

	
96

	
Section 12.15

	
No Third Party Beneficiaries

	
96

	
Section 12.16

	
USA Patriot Act Notice

	
96

	
Annex I

	

List of Maximum Credit Amounts

	
 

	
Exhibit A

	Form of Note  	
 

	
Exhibit B

	Form of Compliance Certificate  	
 

	
Exhibit C

	Security Instruments  	
 

	
Exhibit D

	Form of Assignment and Assumption  	
 

	
Schedule 7.05

	Litigation  	
 

	
Schedule 7.14

	Subsidiaries  	
 

	
Schedule 7.15

	Location of Businesses  	
 

	
Schedule 7.18

	Gas Imbalances  	
 

	
Schedule 7.19

	Marketing Contracts  	
 

	
Schedule 7.20

	Swap Agreements  	
 

  

iv

  

 

This SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 10, 2011, is among Legacy Reserves LP, a limited partnership duly formed and existing under the laws of the State of Delaware (the “Borrower”); each of the Lenders from time to time party hereto; BNP PARIBAS (in its individual capacity, “BNP Paribas”), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the “Administrative Agent”), Wells Fargo Bank, N.A., as syndication agent (the “Syndication Agent”), and Compass Bank as document agent (the “Document Agent”).

 

R E C I T A L S

 

A.           The Borrower, the Administrative Agent and other agents and lenders party thereto have entered that certain Amended and Restated Credit Agreement dated as of March 27, 2009, as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of March 31, 2010, pursuant to which such lenders provided certain loans and extensions of credit to the Borrower (the “Existing Credit Agreement”).

 

B.           The Borrower has requested the Lenders, and the Lenders have agreed, to amend and restate the Existing Credit Agreement subject to the terms and conditions of this Agreement.

 

C.           In consideration of the mutual covenants and agreements herein contained and of the loans, extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS

 

Section 1.01                      Terms Defined Above.  As used in this Agreement, each term defined above has the meaning indicated above.

 

Section 1.02                      Certain Defined Terms.  As used in this Agreement, the following terms have the meanings specified below:

 

“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

 

“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to i) the LIBO Rate for such Interest Period multiplied by ii) the Statutory Reserve Rate.

 

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

 

“Affected Loans” has the meaning assigned such term in Section 5.05.

 

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

 

“Agents” means, collectively, the Administrative Agent, the Syndication Agent and the Documentation Agent; and “Agent” shall mean either the Administrative Agent, the Syndication Agent or the Documentation Agent, as the context requires.

 

  

1

  

 

“Aggregate Maximum Credit Amounts” at any time shall equal the sum of the Maximum Credit Amounts, as the same may be reduced or terminated pursuant to Section 2.06.

 

“Agreement” means this Second Amended and Restated Credit Agreement, as the same may from time to time be amended, modified, supplemented or restated.

 

“Alternate Base Rate” means, for any day, a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1⁄2 of 1% and (c) the LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that, in the context of this definition of Alternate Base Rate and for the avoidance of doubt, the LIBO Rate for any day shall be based on the rate as quoted at approximately 11:00 a.m. London time on such day to the Administrative Agent’s London office for dollar deposits of $5,000,000 having a one-month maturity.  Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the LIBO Rate, respectively.

 

“Applicable Margin” means, for any day, with respect to any ABR Loan or Eurodollar Loan, as the case may be, the rate per annum set forth in the Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization Percentage then in effect:

 

	  	
Borrowing Base Utilization Percentage

	
Eurodollar Loans

	
ABR Loans

	
Level 1

	
less than 25%

	
1.75%

	
0.75%

	
Level 2

	
greater than or equal to 25%, but less than 50%

	
2.00%

	
1.00%

	
Level 3

	
greater than or equal to 50%, but less than 75%

	
2.25%

	
1.25%

	
Level 4

	
greater than or equal to 75%, but less than 90%

	
2.50%

	
1.50%

	
Level 5

	
greater than or equal to 90%

	
2.75%

	
1.75%

Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change, provided, however, that if at any time the Borrower fails to deliver a Reserve Report pursuant to Section 8.12(a), then the “Applicable Margin” means the rate per annum set forth on the grid when the Borrowing Base Utilization Percentage is at its highest level.

 

  

2

  

 

“Applicable Percentage” means, with respect to any Lender, the percentage of the Aggregate Maximum Credit Amounts represented by such Lender’s Maximum Credit Amount as such percentage is set forth on Annex I.

 

“Approved Counterparty” means (a) any Lender or any Affiliate of a Lender and (b) any other Person whose long term senior unsecured debt rating is A/A2 by S&P or Moody’s (or their equivalent) or higher.

 

“Arranger” means BNP Paribas Securities Corp., in its capacity as lead arranger and book runner hereunder.

 

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 12.04(b)), and accepted by the Administrative Agent, in the form of Exhibit D or any other form approved by the Administrative Agent.

 

“Availability Period” means the period from and including the Effective Date to but excluding the Termination Date.

 

“Available Cash” means, with respect to any fiscal quarter ending prior to the Termination Date:

 

(a)           the sum of (i) all cash and cash equivalents of the Borrower and its Subsidiaries, treated as a single consolidated entity, on hand at the end of such fiscal quarter; and (ii) all additional cash and cash equivalents of the Borrower and its Subsidiaries on hand on the date of determination of Available Cash with respect to such fiscal quarter resulting from working capital borrowings (including borrowings under this Agreement) made subsequent to the end of such fiscal quarter, less

 

(b)           the amount of any cash reserves established by Legacy Reserves GP, LLC as the general partner of the Borrower to (i) provide for the proper conduct of the business of the Borrower and its Subsidiaries (including reserves for future capital expenditures including drilling and acquisitions and for anticipated future credit needs of the Borrower and its Subsidiaries), (ii) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Borrower or an Affiliate is a party or by which it is bound or its assets are subject or (iii) provide funds for distributions with respect to any one or more of the next four fiscal quarters; provided, that disbursements made by the Borrower or its Subsidiaries or cash reserves established, increased or reduced after the end of such fiscal quarter but on or before the date of determination of Available Cash with respect to such fiscal quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, within such fiscal quarter if Legacy Reserves GP, LLC as the general partner of the Borrower so determines.

 

“Board” means the Board of Governors of the Federal Reserve System of the United States of America or any successor Governmental Authority.

 

“Borrowing” means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

 

  

3

  

 

“Borrowing Base” means at any time an amount equal to the amount determined in accordance with Section 2.07, as the same may be adjusted from time to time pursuant to Section 2.07(e), Section 2.07(f), Section 8.13(c) or Section 9.12(d).

 

“Borrowing Base Deficiency” occurs if at any time the total Revolving Credit Exposures exceeds the Borrowing Base then in effect.

 

“Borrowing Base Utilization Percentage” means, as of any day, the fraction expressed as a percentage, the numerator of which is the sum of the Revolving Credit Exposures of the Lenders on such day, and the denominator of which is the Borrowing Base in effect on such day.

 

“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03.

 

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City or Houston, Texas are authorized or required by law to remain closed; and if such day relates to a Borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice by the Borrower with respect to any such Borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in dollar deposits are carried out in the London interbank market.

 

“Capital Leases” means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, recorded as capital leases on the balance sheet of the Person liable (whether contingent or otherwise) for the payment of rent thereunder.

 

“Casualty Event” means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by condemnation or similar proceeding of, any Property of the Borrower or any of its Subsidiaries having a fair market value in excess of $250,000 in the aggregate for any calendar year.

 

“Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group of Persons acting in concert as a partnership or other “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof) other than any Permitted Holders (except that such person or group shall be deemed to have “beneficial ownership” of all shares that any person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), of Equity Interests representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower (or its successor by merger, consolidation or purchase of all or substantially all of its assets);  (b) the first day on which a majority of the members of the Board of Directors of Legacy Reserves GP, LLC are not Continuing Directors; (c) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets (including Equity Interests of the Subsidiaries) of the Borrower and its Subsidiaries taken as a whole to any “person” (as such term is used in Section 13(d) and 14(d) of the Securities and Exchange Act of 

 

  

4

  

 

1934); (d) the adoption of a plan relating to the liquidation or dissolution of the Borrower; or (e) Legacy Reserves GP, LLC ceases to be the sole general partner of the Borrower.

 

“Change in Law” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or any Issuing Bank (or, for purposes of Section 5.01(b), by any lending office of such Lender or by such Lender’s or such Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

 

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

 

“Commitment” means, with respect to each Lender, the commitment of such Lender to make Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder, as such commitment may be (a) modified from time to time pursuant to Section 2.06 and (b) modified from time to time pursuant to assignments by or to such Lender pursuant to Section 12.04(b).  The amount representing each Lender’s Commitment shall at any time be the lesser of such Lender’s Maximum Credit Amount and such Lender’s Applicable Percentage of the then effective Borrowing Base.

 

“Consolidated Net Income” means with respect to the Borrower and the Consolidated Subsidiaries, for any period, the aggregate of the net income (or loss) of the Borrower and the Consolidated Subsidiaries after allowances for taxes for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) the following:  (a) the net income of any Person in which the Borrower or a Consolidated Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Borrower and the Consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in cash during such period by such other Person to the Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net income (but not loss) during such period of any Consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that Consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Governmental Requirement applicable to such Consolidated Subsidiary or is otherwise restricted or prohibited, in each case determined in accordance with GAAP; (c) the net income (or loss) of any Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; and (d) any extraordinary gains or losses during such period; and provided further that if the Borrower or any Consolidated Subsidiary shall acquire or dispose of any Property during such period, then Consolidated Net Income shall be calculated after giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition had occurred on the first day of such period.

 

“Consolidated Subsidiaries” means each Subsidiary of the Borrower (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of the Borrower in accordance with GAAP.

 

  

5

  

 

“Continuing Directors” means, as of any date of determination, any member of the board of directors of Legacy Reserves GP, LLC who (a) was a member of such board of directors on the date of this Agreement or (b) was nominated for election or elected to such board of directors with the approval of a majority of the Continuing Directors who were members of such board of directors at the time of such nomination or election.

 

“Contributing Parties” means Moriah Properties, Ltd., a Texas limited partnership, DAB Resources, Ltd., a Texas limited partnership, Brothers Production Properties, Ltd., a Texas limited partnership, Brothers Production Company, Inc., a Texas corporation, Brothers Operating Company, Inc., a Texas corporation, J&W McGraw Properties, Ltd., a Texas limited partnership, H2K Holdings, Ltd., a Texas limited partnership, MBN Properties LP, a Delaware limited partnership, Charities Support Foundation, Inc., a Texas nonprofit corporation, Moriah Foundation, Inc., a Texas nonprofit corporation, and Cary Brown Family Foundation, Inc., a Texas nonprofit corporation.

 

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  For the purposes of this definition, and without limiting the generality of the foregoing, any Person that owns directly or indirectly 10% or more of the Equity Interests having ordinary voting power for the election of the directors or other governing body of a Person will be deemed to “control” such other Person.  “Controlling” and “Controlled” have meanings correlative thereto.

 

“Debt” means, for any Person, the sum of the following (without duplication): (a) all obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of credit, surety or other bonds and similar instruments; (c) all accounts payable, accrued expenses, liabilities or other obligations of such Person, in each such case to pay the deferred purchase price of Property or services; (d) all obligations under Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other clauses of this definition) of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) a Lien on any Property of such Person, whether or not such Debt is assumed by such Person; (g) all Debt (as defined in the other clauses of this definition) of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the lesser of the amount of such Debt and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others; (i) obligations to deliver commodities, goods or services, including, without limitation, Hydrocarbons, in consideration of one or more advance payments, other than gas balancing arrangements in the ordinary course of business; (j) obligations to pay for goods or services whether or not such goods or services are actually received or utilized by such Person; (k) any Debt of a partnership for which such Person is liable either by agreement, by operation of law or by a Governmental Requirement but only to the extent of such liability; 

 

  

6

  

 

(l) Disqualified Capital Stock; and (m) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment.  The Debt of any Person shall include all obligations of such Person of the character described above to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is not included as a liability of such Person under GAAP.

 

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

 

“Defaulting Lender” means any Lender, as determined by the Administrative Agent, that has (a) failed to fund any portion of its Loans or participations in Letters of Credit within three Business Days of the date required to be funded by it hereunder, (b) notified the Borrower, the Administrative Agent, the Issuing Bank or any Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three Business Days after request by the Administrative Agent or the Borrower, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Loans and participations in then outstanding Letters of Credit, (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) become or is insolvent or has a parent company that has become or is insolvent or (ii) become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.

 

“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock), pursuant to a sinking fund obligation or otherwise, or is convertible or exchangeable for Debt or redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is one year after the earlier of (a) the Maturity Date and (b) the date on which there are no Loans, LC Exposure or other obligations hereunder outstanding and all of the Commitments are terminated.

 

“dollars” or “$” refers to lawful money of the United States of America.

 

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of the United States of America or any state thereof or the District of Columbia.

 

  

7

  

 

“EBITDA” means, for any period, Consolidated Net Income for such period plus, to the extent deducted from revenues in determining Consolidated Net Income, (i) Consolidated Interest Expense, (ii) expense for income and income based taxes paid or accrued, (iii) depreciation, depletion, amortization, accretion and impairment, including without limitation, impairment of goodwill, and (iv) any non-cash items associated with (a) mark to market accounting related to derivatives or investments, (b) stock based compensation arising from the grant of or issuance or replacement of stock, stock options or other equity-based awards or any amendment, modification, substitution or change of any such stock, stock options or other equity-based awards, in each case in connection with employee plans or other compensation arrangements, and/or (c) any gains or losses attributable to writeups or writedowns of assets, including ceiling test writedowns; less, all non-cash items increasing Consolidated Net Income, all calculated for the Borrower and its Subsidiaries on a consolidated basis.

 

“Effective Date” means the date on which the conditions specified in Section 6.01 are satisfied (or waived in accordance with Section 12.02).

 

“Engineering Reports” has the meaning assigned such term in Section 2.07(c)(i).

 

“Environmental Laws” means any and all Governmental Requirements pertaining in any way to health, safety the environment or the preservation or reclamation of natural resources, in effect in any and all jurisdictions in which the Borrower or any of its Subsidiaries is conducting or at any time has conducted business, or where any Property of the Borrower or any of its Subsidiaries is located, including without limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Governmental Requirements.  The term “oil” shall have the meaning specified in OPA, the terms “hazardous substance” and “release” (or “threatened release”) have the meanings specified in CERCLA, the terms “solid waste” and “disposal” (or “disposed”) have the meanings specified in RCRA and the term “oil and gas waste” shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code (“Section 91.1011”); provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (b) to the extent the laws of the state or other jurisdiction in which any Property of the Borrower or any of its Subsidiaries is located establish a meaning for “oil,” “hazardous substance,” “release,” “solid waste,” “disposal” or “oil and gas waste” which is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply.

 

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such Equity Interest.

 

  

8

  

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute.

 

“ERISA Affiliate” means each trade or business (whether or not incorporated) which together with the Borrower or any of its Subsidiaries would be deemed to be a “single employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code.

 

“ERISA Event” means (a) a “Reportable Event” described in section 4043 of ERISA and the regulations issued thereunder, (b) the withdrawal of the Borrower or any of its Subsidiaries or any ERISA Affiliate from a Plan during a plan year in which it was a “substantial employer” as defined in section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or condition which might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

 

“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

 

“Event of Default” has the meaning assigned such term in Section 10.01.

 

“Excepted Liens” means:  (a) Liens for Taxes, assessments or other governmental charges or levies which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (b) Liens in connection with workers’ compensation, unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (d) contractual Liens which arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien 

 

  

9

  

 

referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any of its Subsidiaries or materially impair the value of such Property subject thereto; (e) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided that no such deposit account is a dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board and no such deposit account is intended by the Borrower or any of its Subsidiaries to provide collateral to the depository institution; (f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any Property of the Borrower or any of its Subsidiaries for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, that do not secure any monetary obligations and which in the aggregate do not materially impair the use of such Property for the purposes of which such Property is held by the Borrower or any of its Subsidiaries or materially impair the value of such Property subject thereto; (g) Liens on cash or securities pledged to secure performance of tenders, surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other obligations of a like nature incurred in the ordinary course of business and (h) judgment and attachment Liens not giving rise to an Event of Default, provided that any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired and no action to enforce such Lien has been commenced; provided further that Liens described in clauses (a) through (e) shall remain “Excepted Liens” only for so long as no action to enforce such Lien has been commenced and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted existence of such Excepted Liens.

 

“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower or any Guarantor hereunder or under any other Loan Document, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America or such other jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower or any Guarantor is located and (c) in the case of a Foreign Lender any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 5.03(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts with respect to such withholding tax pursuant to Section 5.03(a) or Section 5.03(c).

 

“Existing Credit Agreement” has the meaning assigned such term in Recital A.

 

  

10

  

 

“Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

 

“Financial Officer” means, for any Person, the chief financial officer, principal accounting officer, treasurer or controller of such Person.  Unless otherwise specified, all references to a Financial Officer shall mean a Financial Officer of the Borrower.

 

“Financial Statements” means the financial statement or statements of the Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).

 

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located.  For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

 

“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.

 

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time subject to the terms and conditions set forth in Section 1.05.

 

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government over the Borrower or any of its Subsidiaries, any of their Properties, any Agent, any Issuing Bank or any Lender.

 

“Governmental Requirement” means any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement, whether now or hereinafter in effect, including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

 

“Guarantors” means (a) Legacy Reserves Operating LP, (b) Legacy Reserves Operating GP LLC, (c) Legacy Reserves Services, Inc., (d) Iron Creek Energy Group, LLC and (e) each Material Domestic Subsidiary formed or acquired during the term of this Agreement or other Domestic Subsidiary that guarantees the Indebtedness pursuant to Section 8.14(b).

 

“Guaranty Agreement” means the Second Amended and Restated Guarantee Agreement executed by the Guarantors on the date hereof, unconditionally guarantying on a joint and several basis payment of the Indebtedness, as the same may be amended, modified or supplemented from time to time.

 

  

11

  

 

“Highest Lawful Rate” means, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws allow as of the date hereof.

 

“Hydrocarbon Interests” means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature.

 

“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom.

 

“Indebtedness” means any and all amounts owing or to be owing by the Borrower, any of its Subsidiaries or any Guarantor (whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising): (a) to the Administrative Agent, any Issuing Bank or any Lender under any Loan Document; (b) (i) to any Lender or any Affiliate of a Lender under any Swap Agreements among such Person and the Borrower or any Subsidiary or assigned to such Person and (ii) those counterparties to Swap Agreements with the Borrower or its Subsidiaries entered into while such Person or its Affiliate was a Lender regardless of whether such Person is a Lender or Affiliate of a Lender thereafter; and (c) all renewals, extensions and/or rearrangements of any of (a) or (b)(i) above.

 

“Indemnified Taxes” means Taxes other than Excluded Taxes.

 

“Initial Reserve Report” means the report of LaRoche Petroleum Consultants Ltd., with respect to the value of the Oil and Gas Properties of the Borrower and its Subsidiaries as of December 31, 2010.

 

“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.04.

 

“Interest Expense” means, for any period, the sum (determined without duplication) of the aggregate gross interest expense of the Borrower and the Consolidated Subsidiaries for such period, including (a) to the extent included in interest expense under GAAP:  (i) amortization of debt discount, (ii) capitalized interest and (iii) the portion of any payments or accruals under Capital Leases allocable to interest expense, plus the portion of any payments or accruals under Synthetic Leases allocable to interest expense whether or not the same constitutes interest expense under GAAP and (b) cash dividend payments by the Borrower in respect of any Disqualified Capital Stock.

 

“Interest Period” means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; 

 

  

12

  

 

provided, that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (b) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period.  For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

 

“Interim Redetermination” has the meaning assigned such term in Section 2.07(b).

 

“Investment” means, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity Interests of any other Person or any agreement to make any such acquisition (including, without limitation, any “short sale” or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or capital contribution to, assumption of Debt of, purchase or other acquisition of any other Debt or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding ninety (90) days representing the purchase price of inventory or supplies sold by such Person in the ordinary course of business); (c) the purchase or acquisition (in one or a series of transactions) of Property of another Person that constitutes a business unit or (d) the entering into of any guarantee of, or other contingent obligation (including the deposit of any Equity Interests to be sold) with respect to, Debt or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person.

 

“Iron Creek Energy Group, LLC” means Iron Creek Energy Group, LLC, a Wyoming limited liability company.

 

 “Issuing Bank” means BNP Paribas, in its capacity as an issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.08(i).  Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

 

“LC Commitment” at any time means Two Million Dollars ($2,000,000).

 

“LC Disbursement” means a payment made by any Issuing Bank pursuant to a Letter of Credit issued by such Issuing Bank.

 

“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time.  The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.

 

  

13

  

 

“Legacy Reserves GP, LLC” means Legacy Reserves GP, LLC, a Delaware limited liability company and the general partner of the Borrower.

 

“Legacy Reserves Operating GP LLC” means Legacy Reserves Operating GP LLC, a Delaware limited liability company, the general partner of Legacy Reserves Operating LP and a wholly-owned Subsidiary of the Borrower.

 

“Legacy Reserves Operating LP” means Legacy Reserves Operating LP, a Delaware limited partnership and a wholly-owned Subsidiary of the Borrower.

 

“Legacy Reserves Services, Inc.” means Legacy Reserves Services, Inc., a Texas corporation and a wholly-owned Subsidiary of the Borrower.

 

“Lenders” means the Persons listed on Annex I, and any Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.

 

“Letter of Credit” means any letter of credit issued pursuant to this Agreement.

 

“Letter of Credit Agreements” means all letter of credit applications and other agreements (including any amendments, modifications or supplements thereto) submitted by the Borrower, or entered into by the Borrower, with any Issuing Bank relating to any Letter of Credit issued by such Issuing Bank.

 

“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period.  In the event that such rate is not available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate (rounded upwards, if necessary, to the next 1/100th of 1%) at which dollar deposits of an amount comparable to such Eurodollar Borrowing and for a maturity comparable to such Interest Period are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

 

“Lien” means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (a) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for 

 

  

14

  

 

security purposes or (b) production payments and the like payable out of Oil and Gas Properties.  The term “Lien” shall include easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations. For the purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to be the owner of any Property which they have acquired or hold subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing.

 

“Loan Documents” means this Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit and the Security Instruments.

 

“Loans” means the loans made by the Lenders to the Borrower pursuant to this Agreement.

 

“Majority Lenders” means, at any time while no Loans or LC Exposure is outstanding, Lenders having more than fifty percent (50.00%) of the Aggregate Maximum Credit Amounts; and at any time while any Loans or LC Exposure is outstanding, Lenders holding more than fifty percent (50.00%) of the outstanding aggregate principal amount of the Loans or participation interests in Letters of Credit (without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)).

 

“Material Adverse Effect” means a material adverse change in, or any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on (a) the business, operations, Property, liabilities (actual or contingent) or condition (financial or otherwise) of the Borrower and its Guarantors taken as a whole, (b) the ability of the Borrower, any of its Subsidiaries or any Guarantor to perform any of its obligations under any Loan Document to which it is a party, (c) the validity or enforceability of any Loan Document or (d) the rights and remedies of or benefits available to the Administrative Agent, any other Agent, any Issuing Bank or any Lender under any Loan Document.

 

“Material Domestic Subsidiary” means, as of any date, any Domestic Subsidiary that (a) is a Wholly-Owned Subsidiary and (b) together with its Subsidiaries, owns Property having a fair market value of $2,000,000 or more.

 

“Material Indebtedness” means Debt (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $2,000,000.  For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any of its Subsidiaries in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.

 

“Maturity Date” means March 10, 2016.

 

“Maximum Credit Amount” means, as to each Lender, the amount set forth opposite such Lender’s name on Annex I under the caption “Maximum Credit Amounts”, as the same may be (a) reduced or terminated from time to time in connection with a reduction or termination of the Aggregate Maximum Credit Amounts pursuant to Section 2.06(b) or (b) modified from time to time pursuant to any assignment permitted by Section 12.04(b).

 

  

15

  

 

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency.

 

“Mortgaged Property” means any Property owned by the Borrower or any Guarantor, which is subject to the Liens existing and to exist under the terms of the Security Instruments.

 

“Multiemployer Plan” means a Plan that is a multiemployer plan as defined in section 3(37) or 4001 (a)(3) of ERISA.

 

“Net Cash Proceeds” means in connection with any issuance or sale of Equity Interests or Debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of attorneys’ fees, investment banking fees, accountants’ fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith.

 

“New Borrowing Base Notice” has the meaning assigned such term in Section 2.07(d).

 

“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.

 

“Notes” means the promissory notes of the Borrower described in Section 2.02(d) and being substantially in the form of Exhibit A, together with all amendments, modifications, replacements, extensions and rearrangements thereof.

 

“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (d) all operating agreements, contracts and other agreements, including production sharing contracts and agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment, rental equipment or other personal Property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, 

 

  

16

  

 

machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.

 

“Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or Property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and any other Loan Document.

 

“Participant” has the meaning set forth in Section 12.04(c)(i).

 

“Partnership Agreement” means the Partnership Agreement of the Borrower.

 

“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.

 

“Permitted Holders” means (i) the natural persons that were the direct or indirect beneficial owners as of March 15, 2006 of the Contributing Parties, (ii) any family members (including spouses) of any Persons described in clause (i), and (iii) any Affiliates of the Persons described in clauses (i) or (ii), including the Contributing Parties, as of the Effective Date, but only for such time as they remain so affiliated.

 

“Permitted Refinancing Debt” means Debt (for purposes of this definition, “new Debt”) incurred in exchange for, or proceeds of which are used to refinance, all or any Senior Notes (the “Refinanced Debt”); provided that (a) such new Debt is in an aggregate principal amount not in excess of the aggregate principal amount then outstanding of the Refinanced Debt (or, if the Refinanced Debt is exchanged or acquired for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount) plus an amount equal to accrued and unpaid interest, prepayment premium (if any), fees and expenses reasonably incurred in connection with such refinancing; (b) such new Debt has a stated maturity no earlier than the stated maturity of the Refinanced Debt and an average life no shorter than the average life of the Refinanced Debt; (c) such new Debt does not contain covenants which taken as a whole are materially more onerous to the Borrower and its Subsidiaries than those imposed by the Refinanced Debt and (d) if the Refinanced Debt was subordinated, then such new Debt (and any guarantees thereof) is subordinated in right of payment to the Indebtedness (or, if applicable, the Guaranty Agreement) to at least the same extent as the Refinanced Debt and is otherwise subordinated on terms reasonably satisfactory to the Administrative Agent.  “Refinanced Debt” shall included any Debt which was incurred in exchange for, or proceeds of which were used to refinance, all or any Senior Notes or any subsequently issued Refinanced Debt.

 

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

“Plan” means any employee pension benefit plan, as defined in section 3(2) of ERISA, which (a) is currently or hereafter sponsored, maintained or contributed to by the Borrower, any of its Subsidiaries or an ERISA Affiliate or (b) was at any time during the six calendar years preceding the date hereof, sponsored, maintained or contributed to by the Borrower, any of its Subsidiaries or an ERISA Affiliate.

 

  

17

  

 

“Pledge Agreement” means the Second Amended and Restated Pledge Agreement of even date herewith executed by Borrower pledging its limited partner interests in Legacy Reserves Operating LP, its membership interests in Legacy Reserves Operating GP LLC, its membership interests in Iron Creek Energy Group, LLC, and all of the common stock of Legacy Reserves Services, Inc., and by Legacy Reserves Operating GP LLC pledging its general partner interest in Legacy Reserves Operating LP.

 

“Prime Rate” means the rate of interest per annum publicly announced from time to time by BNP Paribas as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.  Such rate is set by BNP Paribas as a general reference rate of interest, taking into account such factors as BNP Paribas may deem appropriate; it being understood that many of BNP Paribas’s commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that BNP Paribas may make various commercial or other loans at rates of interest having no relationship to such rate.

 

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and contract rights.

 

“Proposed Borrowing Base” has the meaning assigned to such term in Section 2.07(c)(i).

 

“Proposed Borrowing Base Notice” has the meaning assigned to such term in Section 2.07(c)(ii).

 

“Proved Developed Producing Properties” means Oil and Gas Properties which are categorized as “Proved Reserves” that are both “Developed” and “Producing”, as such terms are defined in the Definitions for Oil and Gas Reserves as promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.

 

“Redemption” means with respect to any Debt, the repurchase, redemption, prepayment, repayment or defeasance or any other acquisition or retirement for value (or the segregation of funds with respect to any of the foregoing) of any such Debt.  “Redeem” has the correlative meaning thereto.

 

“Redetermination Date” means, with respect to any Scheduled Redetermination or any Interim Redetermination, the date that the redetermined Borrowing Base related thereto becomes effective pursuant to Section 2.07(d).

 

“Register” has the meaning assigned such term in Section 12.04(b)(iv).

 

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors (including attorneys, accountants and experts) of such Person and such Person’s Affiliates.

 

  

18

  

 

“Remedial Work” has the meaning assigned such term in Section 8.10(a).

 

“Required Lenders” means, at any time while no Loans or LC Exposure is outstanding, Lenders having at least sixty-six and two-thirds percent (66-2/3%) of the Aggregate Maximum Credit Amounts; and at any time while any Loans or LC Exposure is outstanding, Lenders holding at least sixty-six and two-thirds percent (66-2/3%) of the outstanding aggregate principal amount of the Loans or participation interests in Letters of Credit (without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)).

 

“Reserve Report” means a report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each January 1st or July 1st (or such other date in the event of an Interim Redetermination) the oil and gas reserves attributable to the Oil and Gas Properties of the Borrower and its Subsidiaries, together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the economic assumptions consistent with the Administrative Agent’s lending requirements at the time.

 

“Responsible Officer” means, as to any Person, the Chief Executive Officer, the President, any Financial Officer or any Vice President of such Person.  Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrower.

 

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other Property) with respect to any Equity Interests in the Borrower, or any payment (whether in cash, securities or other Property), including any sinking fund or similar deposit, on account of the purchase, Redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any option, warrant or other right to acquire any such Equity Interests in the Borrower.

 

“Revolving Credit Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Loans and its LC Exposure at such time.

 

“Scheduled Redetermination” has the meaning assigned such term in Section 2.07(b).

 

“Scheduled Redetermination Date” means the date on which a Borrowing Base that has been redetermined pursuant to a Scheduled Redetermination becomes effective as provided in Section 2.07(d).

 

“Security Instruments” means the Guaranty Agreement, the Pledge Agreement, mortgages, deeds of trust and other agreements, instruments or certificates described or referred to in Exhibit C, and any and all other agreements, instruments, consents or certificates now or hereafter executed and delivered by the Borrower or any other Person (other than Swap Agreements with the Lenders or any Affiliate of a Lender or participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment or performance of the Indebtedness, the Notes, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented or restated from time to time.

 

  

19

  

 

“Senior Indentures” means, collectively or individually, as the context requires, any indenture or other agreement pursuant to which any Senior Notes are issued, as the same may be amended, restated or supplemented, subject to the terms of Section 9.04(b).

 

“Senior Notes” means any unsecured senior or senior subordinated notes issued by the Borrower under Section 9.02(f) and any guarantees thereof by the Borrower or a Guarantor.

 

“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., and any successor thereto that is a nationally recognized rating agency.

 

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate for Eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve percentages shall include those imposed pursuant to such Regulation D.  Eurodollar Loans shall be deemed to constitute Eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation.  The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

 

“Subsidiary” means:  (a) any Person of which at least a majority of the outstanding Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board of directors, manager or other governing body of such Person (irrespective of whether or not at the time Equity Interests of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower or one or more of its Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any partnership of which the Borrower or any of its Subsidiaries is a general partner.  Unless otherwise indicated herein, each reference to the term “Subsidiary” shall mean a Subsidiary of the Borrower.

 

“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or any of its Subsidiaries shall be a Swap Agreement.

 

“Synthetic Leases” means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, treated as operating leases on the financial statements of the Person liable (whether contingently or otherwise) for the payment of rent thereunder and which were properly treated as indebtedness for borrowed money for purposes of U.S. federal income taxes, if the lessee in respect thereof is obligated to either purchase for an amount in excess of, or pay upon early termination an amount in excess of, 80% of the residual value of the Property subject to such operating lease upon expiration or early termination of such lease.

 

  

20

  

 

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

 

“Termination Date” means the earlier of the Maturity Date and the date of termination of the Commitments.

 

“Total Debt” means, at any date, all Debt of the Borrower and the Consolidated Subsidiaries on a consolidated basis, excluding (i) non-cash obligations under FAS 133 and (ii) accounts payable and other accrued liabilities (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business which are not greater than ninety (90) days past the date of invoice or delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP.  The term “Total Debt” specifically excludes any obligations of the Borrower under any Swap Agreements.

 

“Transactions” means, with respect to (a) the Borrower, the execution, delivery and performance by the Borrower of this Agreement, and each other Loan Document to which it is a party, borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, and the grant of Liens by the Borrower on Mortgaged Properties and other Properties pursuant to the Security Instruments and (b) any Guarantor, the execution, delivery and performance by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the Indebtedness and the other obligations under the Guaranty Agreement by such Guarantor and such Guarantor’s grant of the security interests and provision of collateral under the Security Instruments, and the grant of Liens by such Guarantor on Mortgaged Properties and other Properties pursuant to the Security Instruments.

 

“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.

 

“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding Equity Interests (other than any directors’ qualifying shares mandated by applicable law), on a fully-diluted basis, are owned by the Borrower or one or more of the Wholly-Owned Subsidiaries or are owned by the Borrower and one or more of the Wholly-Owned Subsidiaries.

 

Section 1.03                      Types of Loans and Borrowings.  For purposes of this Agreement, Loans and Borrowings, respectively, may be classified and referred to by Type (e.g., a “Eurodollar Loan” or a “Eurodollar Borrowing”).

 

Section 1.04                      Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word 

 

  

21

  

 

“shall”.  Unless the context requires otherwise iii) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth in the Loan Documents herein), iv) any reference herein to any law shall be construed as referring to such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, v) any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to the restrictions contained in the Loan Documents herein), vi) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, vii) with respect to the determination of any time period, the word “from” means “from and including” and the word “to” means “to and including” and viii) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement.  No provision of this Agreement or any other Loan Document shall be interpreted or construed against any Person solely because such Person or its legal representative drafted such provision.

 

Section 1.05                      Accounting Terms and Determinations; GAAP.  Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the Financial Statements except for changes in which the Borrower’s independent certified public accountants concur and which are disclosed to Administrative Agent on the next date on which financial statements are required to be delivered to the Lenders pursuant to Section 8.01(a); provided that, unless the Borrower and the Majority Lenders shall otherwise agree in writing, no such change shall modify or affect the manner in which compliance with the covenants contained herein is computed such that all such computations shall be conducted utilizing financial information presented consistently with prior periods.

 

ARTICLE II

THE CREDITS

 

Section 2.01                      Commitments.

 

(a)           Subject to the terms and conditions set forth herein, each Lender agrees to make Loans to the Borrower during the Availability Period in an aggregate principal amount that will not result in ix) such Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment or x) the total Revolving Credit Exposures exceeding the total Commitments.  Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, repay and reborrow the Loans.

 

(b)           On the Effective Date (or as soon as practicable with respect to (iii)):

 

(i)           the Borrower shall pay all accrued and unpaid commitment fees, break funding fees under Section 5.02 and all other fees that are outstanding under the Existing Credit Agreement for the account of each “Lender” under the Existing Credit Agreement;

 

  

22

  

 

(ii)           each “ABR Loan” and “Eurodollar Loan” outstanding under the Existing Credit Agreement shall be deemed to be repaid with the proceeds of a new ABR Loan or Eurodollar Loan, as applicable, under this Agreement;

 

(iii)           the Administrative Agent shall use reasonable efforts to cause such “Lender” under the Existing Credit Agreement to deliver to the Borrower as soon as practicable after the Effective Date the note issued by the Borrower to it under the Existing Credit Agreement, marked “canceled” or otherwise similarly defaced;

 

(iv)           each Letter of Credit issued and outstanding under the Existing Credit Agreement shall be deemed issued under this Agreement without the payment of additional fees; and

 

(v)           the Existing Credit Agreement and the commitments thereunder shall be superceded by this Agreement and such commitments shall terminate.

 

It is the intent of the parties hereto that this Agreement not constitute a novation of the obligations and liabilities existing under the Existing Credit Agreement or evidence repayment of any such obligations and liabilities and that this Agreement amend and restate in its entirety the Existing Credit Agreement and re-evidence the obligations of the Borrower outstanding thereunder.

Section 2.02                      Loans and Borrowings.

 

(a)           Borrowings; Several Obligations.  Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments.  The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.

 

(b)           Types of Loans.  Subject to Section 3.03, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith.  Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.

 

(c)           Minimum Amounts; Limitation on Number of Borrowings.  At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $1,000,000.  At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $250,000 and not less than $1,000,000; provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.08(e).  Borrowings of more than one Type may be outstanding at the 

 

  

23

  

 

same time; provided that there shall not at any time be more than a total of eight (8) Eurodollar Borrowings outstanding.  Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

 

(d)           Notes.  At the request of a Lender, the Loans made by such Lender shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit A, dated, in the case of (1) any Lender party hereto as of the date of this Agreement, as of the date of this Agreement or (2) any Lender that becomes a party hereto pursuant to an Assignment and Assumption, as of the effective date of the Assignment and Assumption, payable to the order of such Lender in a principal amount equal to its Maximum Credit Amount as in effect on such date, and otherwise duly completed.  In the event that such Lender’s Maximum Credit Amount increases or decreases for any reason (whether pursuant to Section 2.06, Section 12.04(b) or otherwise), the Borrower shall deliver or cause to be delivered on the effective date of such increase or decrease, a new Note payable to the order of such Lender in a principal amount equal to its Maximum Credit Amount after giving effect to such increase or decrease, and otherwise duly completed.  The date, amount, Type, interest rate and, if applicable, Interest Period of each Loan made by such Lender, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for its Note, and, prior to any transfer, may be endorsed by such Lender on a schedule attached to such Note or any continuation thereof or on any separate record maintained by such Lender.  Failure to make any such notation or to attach a schedule shall not affect any Lender’s or the Borrower’s rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of its Note.

 

Section 2.03                      Requests for Borrowings.  To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone b) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., Houston time, three Business Days before the date of the proposed Borrowing or c) in the case of an ABR Borrowing, not later than 12:00 noon, Houston time, on the Business Day prior to the proposed Borrowing; provided that no such notice shall be required for any deemed request of an ABR Borrowing to finance the reimbursement of an LC Disbursement as provided in Section 2.08(e).  Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower.  Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:

 

(c)           the aggregate amount of the requested Borrowing;

 

(d)           the date of such Borrowing, which shall be a Business Day;

 

(e)           whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;

 

(f)           in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”;

 

  

24

  

 

(g)           the amount of the then effective Borrowing Base, the current total Revolving Credit Exposures (without regard to the requested Borrowing) and the pro forma total Revolving Credit Exposures (giving effect to the requested Borrowing); and

 

(h)           the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05.

 

If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be a Eurodollar Loan having an Interest Period of one-month.  If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.  Each Borrowing Request shall constitute a representation that the amount of the requested Borrowing shall not cause the total Revolving Credit Exposures to exceed the total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base).

 

Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

 

Section 2.04                      Interest Elections.

 

(a)           Conversion and Continuance.  Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request.  Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.04.  The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

 

(b)           Interest Election Requests.  To make an election pursuant to this Section 2.04, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election.  Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.

 

(c)           Information in Interest Election Requests.  Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

 

(i)           the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall be specified for each resulting Borrowing);

 

  

25

  

 

(ii)           the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

 

(iii)           whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

 

(iv)           if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

 

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

 

(d)           Notice to Lenders by the Administrative Agent.  Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

 

(e)           Effect of Failure to Deliver Timely Interest Election Request and Events of Default and Borrowing Base Deficiencies on Interest Election.  If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be continued as a Eurodollar Loan having an Interest Period of one-month.  Notwithstanding any contrary provision hereof, if an Event of Default or a Borrowing Base Deficiency has occurred and is continuing:  (1) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing (and any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective) and (2) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.

 

Section 2.05                      Funding of Borrowings.

 

(a)           Funding by Lenders.  Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 2:00 p.m., Houston time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders.  The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower and designated by the Borrower in the applicable Borrowing Request; provided that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.08(e) shall be remitted by the Administrative Agent to the Issuing Bank that made such LC Disbursement.  Nothing herein shall be deemed to obligate any Lender to obtain the funds for its Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for its Loan in any particular place or manner.

 

  

26

  

 

(b)           Presumption of Funding by the Lenders.  Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.05(a) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount.  In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (3) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (4) in the case of the Borrower, the interest rate applicable to ABR Loans.  If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.

 

Section 2.06                      Termination and Reduction of Aggregate Maximum Credit Amounts.

 

(a)           Scheduled Termination of Commitments.  Unless previously terminated, the Commitments shall terminate on the Maturity Date.  If at any time the Aggregate Maximum Credit Amounts or the Borrowing Base is terminated or reduced to zero, then the Commitments shall terminate on the effective date of such termination or reduction.

 

(b)           Optional Termination and Reduction of Aggregate Credit Amounts.

 

(i)           The Borrower may at any time terminate, or from time to time reduce, the Aggregate Maximum Credit Amounts; provided that (a) each reduction of the Aggregate Maximum Credit Amounts shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000 and (b) the Borrower shall not terminate or reduce the Aggregate Maximum Credit Amounts if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 3.04(c), the total Revolving Credit Exposures would exceed the total Commitments.

 

(ii)           The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Aggregate Maximum Credit Amounts under Section 2.06(b)(i) at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof.  Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof.  Each notice delivered by the Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable.  Any termination or reduction of the Aggregate Maximum Credit Amounts shall be permanent and may not be reinstated.  Each reduction of the Aggregate Maximum Credit Amounts shall be made ratably among the Lenders in accordance with each Lender’s Applicable Percentage.

 

Section 2.07                      Borrowing Base.

 

  

27

  

 

(a)           Initial Borrowing Base.  For the period from and including the Effective Date to but excluding October 1st, 2011, the amount of the Borrowing Base shall be equal to $500,000,000.  Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to Section 8.13(c) or Section 9.12(d).

 

(b)           Scheduled and Interim Redeterminations.  Subject to Section 2.07(d), the Borrowing Base shall be redetermined (a “Scheduled Redetermination”) on April 1st and October 1st of each year, commencing October 1st, 2011.  In addition, either the Borrower or the Administrative Agent, at the direction of the Required Lenders, may once during each calendar year, each elect to cause the Borrowing Base to be redetermined between Scheduled Redeterminations (an “Interim Redetermination”) in accordance with this Section 2.07. The Borrower shall have the right, once during each calendar year, to initiate an Interim Redetermination in addition to the one otherwise provided in this Section 2.07(b) upon the proposed acquisition of Proved Developed Producing Properties whose purchase price is greater than 10% of the Borrowing Base, provided such Interim Redetermination is in accordance with this Section 2.07.

 

(c)           Scheduled and Interim Redetermination Procedure.

 

(i)           Each Scheduled Redetermination and each Interim Redetermination shall be effectuated as follows:  Upon receipt by the Administrative Agent of (5) the Reserve Report and the certificate required to be delivered by the Borrower to the Administrative Agent, in the case of a Scheduled Redetermination, pursuant to Section 8.12(a) and (c), and, in the case of an Interim Redetermination, pursuant to Section 8.12(b) and (c), and (6) such other reports, data and supplemental information, including, without limitation, the information provided pursuant to Section 8.12(c), as may, from time to time, be reasonably requested by the Required Lenders (the Reserve Report, such certificate and such other reports, data and supplemental information being the “Engineering Reports”), the Administrative Agent shall evaluate the information contained in the Engineering Reports and shall, in good faith, propose a new Borrowing Base (the “Proposed Borrowing Base”) based upon such information and such other information (including, without limitation, the status of title information with respect to the Oil and Gas Properties as described in the Engineering Reports and the existence of any other Debt) as the Administrative Agent deems appropriate in its sole discretion and consistent with its normal oil and gas lending criteria as it exists at the particular time.  In no event shall the Proposed Borrowing Base exceed the Aggregate Maximum Credit Amounts.

 

(ii)           The Administrative Agent shall notify the Borrower and the Lenders of the Proposed Borrowing Base (the “Proposed Borrowing Base Notice”):

 

(A)           in the case of a Scheduled Redetermination (a) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on or before the March 15th and September 15th of such year following the date of delivery of such Engineering Report or (b) if the Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely and complete manner, then promptly after the Administrative Agent has received complete Engineering Reports from the Borrower and has had a reasonable opportunity to determine the Proposed Borrowing Base in accordance with Section 2.07(c)(ii) and in any event, within fifteen (15) days after the Administrative Agent has received the required Engineering Report; and

 

  

28

  

 

(B)           in the case of an Interim Redetermination, promptly, and in any event, within fifteen (15) days after the Administrative Agent has received the required Engineering Reports.

 

(iii)           Any Proposed Borrowing Base that would increase the Borrowing Base then in effect must be approved or deemed to have been approved by all of the Lenders as provided in this Section 2.07(c)(iii); and any Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect must be approved or be deemed to have been approved by the Required Lenders as provided in this Section 2.07(c)(iii).  Upon receipt of the Proposed Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with the Proposed Borrowing Base or disagree with the Proposed Borrowing Base by proposing an alternate Borrowing Base.  If at the end of such fifteen (15) days, any Lender has not communicated its approval or disapproval in writing to the Administrative Agent, such silence shall be deemed to be an approval of the Proposed Borrowing Base.  If, at the end of such 15-day period, all of the Lenders, in the case of a Proposed Borrowing Base that would increase the Borrowing Base then in effect, or the Required Lenders, in the case of a Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect, have approved or deemed to have approved, as aforesaid, then the Proposed Borrowing Base shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).  If, however, at the end of such 15-day period, all of the Lenders or the Required Lenders, as applicable, have not approved or deemed to have approved, as aforesaid, then the Administrative Agent shall poll the Lenders to ascertain the highest Borrowing Base then acceptable to a number of Lenders sufficient to constitute the Required Lenders and, so long as such amount does not increase the Borrowing Base then in effect, such amount shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).

 

(d)           Effectiveness of a Redetermined Borrowing Base.  After a redetermined Borrowing Base is approved or is deemed to have been approved by all of the Lenders or the Required Lenders, as applicable, pursuant to Section 2.07(c)(iii), the Administrative Agent shall notify the Borrower and the Lenders of the amount of the redetermined Borrowing Base (the “New Borrowing Base Notice”), and such amount shall become the new Borrowing Base, effective and applicable to the Borrower, the Administrative Agent, each Issuing Bank and the Lenders:

 

(i)           in the case of a Scheduled Redetermination, (c) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the April 1st or October 1st, as applicable, following delivery of the New Borrowing Base Notice, or (d) if the Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the Business Day next succeeding delivery of the New Borrowing Base Notice; and

 

  

29

  

 

(ii)           in the case of an Interim Redetermination, on the Business Day next succeeding delivery of such notice.

 

Such amount shall then become the Borrowing Base until the next Scheduled Redetermination Date, the next Interim Redetermination date or the next adjustment to the Borrowing Base under Section 2.07(e), Section 2.07(f), Section 8.13(c) or Section 9.12, whichever occurs first.

 

(e)           Reduction of Borrowing Base Upon Termination of Hedge Positions. If the Borrower or any Subsidiary shall terminate or create any off-setting positions in respect of any hedge positions (whether evidenced by a floor, put or Swap Agreement) upon which the Lenders relied in determining the Borrowing Base and the net effect of such action (when taken together with any other Swap Agreements executed contemporaneously with the taking of such action) would be to reduce the economic value supporting the Borrowing Base, then the Borrowing Base shall be simultaneously reduced in an amount reasonably determined by the Majority Lenders equal to the economic value of such reduction; provided, that the Borrower shall have the right, no later than 10 Business Days after receiving notice of such reduction, to initiate an Interim Redetermination in accordance with Section 2.07(b) and such Interim Redetermination shall not count against the maximum Interim Redeterminations allowed in any calendar year.

 

(f)           Reduction of Borrowing Base Upon Issuance of Permitted Senior Notes.  Notwithstanding anything to the contrary contained herein, upon the issuance of any Senior Notes in accordance with Section 9.02(f) or Permitted Refinancing Debt in accordance with Section 9.02(g), the Borrowing Base then in effect shall be reduced by an amount equal to the product of 0.25 and (i) in the case of Senior Notes, the stated principal amount of such Senior Notes (without regard to any initial issue discount) and (ii) in the case of Permitted Refinancing Debt, the portion of the stated principal amount of such Permitted Refinancing Debt that exceeds the original principal amount of the refinanced Debt, and the Borrowing Base as so reduced shall become the new Borrowing Base immediately upon the date of such issuance, effective and applicable to the Borrower, the Agents, the Issuing Bank and the Lenders on such date until the next redetermination or modification thereof hereunder.

 

Section 2.08                      Letters of Credit.

 

(a)           General.  Subject to the terms and conditions set forth herein, the Borrower may request any Issuing Bank to issue Letters of Credit for its own account or for the account of the Borrower or any of its Subsidiaries, in a form reasonably acceptable to the Administrative Agent and such Issuing Bank, at any time and from time to time during the Availability Period; provided that the Borrower may not request the issuance, amendment, renewal or extension of Letters of Credit hereunder if a Borrowing Base Deficiency exists at such time or would exist as a result thereof.  In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, an Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.

 

  

30

  

 

(b)           Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.  To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall deliver as permitted by Section 12.01(a) (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to any Issuing Bank and the Administrative Agent (not less than five (5) Business Days in advance of the requested date of issuance, amendment, renewal or extension) a notice:

 

(i)           requesting the issuance of a Letter of Credit or identifying the Letter of Credit issued by such Issuing Bank to be amended, renewed or extended;

 

(ii)           specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day);

 

(iii)           specifying the date on which such Letter of Credit is to expire (which shall comply with Section 2.08(c));

 

(iv)           specifying the amount of such Letter of Credit;

 

(v)           specifying the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit; and

 

(vi)           specifying the amount of the then effective Borrowing Base and whether a Borrowing Base Deficiency exists at such time, the current total Revolving Credit Exposures (without regard to the requested Letter of Credit or the requested amendment, renewal or extension of an outstanding Letter of Credit) and the pro forma total Revolving Credit Exposures (giving effect to the requested Letter of Credit or the requested amendment, renewal or extension of an outstanding Letter of Credit).

 

Each notice shall constitute a representation that after giving effect to the requested issuance, amendment, renewal or extension, as applicable, (e) the LC Exposure shall not exceed the LC Commitment and (f) the total Revolving Credit Exposures shall not exceed the lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base.

 

If requested by any Issuing Bank, the Borrower also shall submit a letter of credit application on such Issuing Bank’s standard form in connection with any request for a Letter of Credit.

 

(c)           Expiration Date.  Each Letter of Credit shall expire at or prior to the close of business on the earlier of (7) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (8) the date that is five Business Days prior to the Maturity Date.

 

  

31

  

 

(d)           Participations.  By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank that issues such Letter of Credit or the Lenders, each Issuing Bank that issues a Letter of Credit hereunder hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit.  In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of any Issuing Bank that issues a Letter of Credit hereunder, such Lender’s Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in Section 2.08(e), or of any reimbursement payment required to be refunded to the Borrower for any reason.  Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this Section 2.08(d) in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default, the existence of a Borrowing Base Deficiency or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

 

(e)           Reimbursement.  If any Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit issued by such Issuing Bank, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 1:00 p.m., Houston time, on the third day after such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 9:00 a.m., Houston time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 1:00 p.m., Houston time, on (9) the third day after the Borrower receives such notice, if such notice is received prior to 9:00 a.m., Houston time, on the day of receipt, or (10) the Business Day immediately following the third day after the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that if such LC Disbursement is not less than $1,000,000, the Borrower shall, subject to the conditions to Borrowing set forth herein, be deemed to have requested, and the Borrower does hereby request under such circumstances, that such payment be financed with a Eurodollar Borrowing with an Interest Period of one month in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting Eurodollar Borrowing.  If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender’s Applicable Percentage thereof.  Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank that issued such Letter of Credit the amounts so received by it from the Lenders.  Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this Section 2.08(e), the Administrative Agent shall distribute such payment to the Issuing Bank that issued such Letter of Credit or, to the extent that Lenders have made payments pursuant to this Section 2.08(e) to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as their interests may appear.  Any payment made 

 

  

32

  

 

by a Lender pursuant to this Section 2.08(e) to reimburse any Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.  Any LC Disbursement not reimbursed by the Borrower or funded as a Loan prior to 1:00 p.m., Houston time on the date such Disbursement is made, shall bear interest for each such day such Disbursement is outstanding at the ABR plus the Applicable Margin.

 

(f)           Obligations Absolute.  The Borrower’s obligation to reimburse LC Disbursements as provided in Section 2.08(e) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of ii) any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement or this Agreement, or any term or provision therein, iii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, iv) payment by any Issuing Bank under a Letter of Credit issued by such Issuing Bank against presentation of a draft or other document that does not comply with the terms of such Letter of Credit or any Letter of Credit Agreement, or v) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.08(f), constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder.  Neither the Administrative Agent, the Lenders nor any Issuing Bank, nor any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of any Issuing Bank; provided that the foregoing shall not be construed to excuse any Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof.  The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of any Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised all requisite care in each such determination.  In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank that issued such Letter of Credit may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

 

(g)           Disbursement Procedures.  Each Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit issued by such Issuing Bank.  Such Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand 

 

  

33

  

 

for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement.

 

(h)           Interim Interest.  If any Issuing Bank shall make any LC Disbursement, then, until the Borrower shall have reimbursed such Issuing Bank for such LC Disbursement (either with its own funds or a Borrowing under Section 2.08(e)), the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans.  Interest accrued pursuant to this Section 2.08(h) shall be for the account of such Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to Section 2.08(e) to reimburse such Issuing Bank shall be for the account of such Lender to the extent of such payment.

 

(i)           Replacement of an Issuing Bank.  Any Issuing Bank may be replaced or resign at any time by written agreement among the Borrower, the Administrative Agent, such resigning or replaced Issuing Bank and, in the case of a replacement, the successor Issuing Bank.  The Administrative Agent shall notify the Lenders of any such resignation or replacement of an Issuing Bank.  At the time any such resignation or replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the resigning or replaced Issuing Bank pursuant to Section 3.05(b).  In the case of the replacement of an Issuing Bank, from and after the effective date of such replacement, vi) the successor Issuing Bank shall have all the rights and obligations of the replaced Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and vii) references herein to “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require.  After the resignation or replacement of an Issuing Bank hereunder, the resigning or replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such resignation or replacement, but shall not be required to issue additional Letters of Credit.

 

(j)           Cash Collateralization.  If viii) any Event of Default shall occur and be continuing and the Borrower receives notice from the Administrative Agent or the Majority Lenders demanding the deposit of cash collateral pursuant to this Section 2.08(j), or ix) the Borrower is required to pay to the Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then the Borrower shall deposit, in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to, in the case of an Event of Default, the LC Exposure, and in the case of a payment required by Section 3.04(c), the amount of such excess as provided in Section 3.04(c), as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower or any of its Subsidiaries described in Section 10.01(h) or Section 10.01(i).  The Borrower hereby grants to the Administrative Agent, for the benefit of each Issuing Bank and the Lenders, an exclusive first priority and continuing perfected security interest in and Lien on such 

 

  

34

  

 

account and all cash, checks, drafts, certificates and instruments, if any, from time to time deposited or held in such account, all deposits or wire transfers made thereto, any and all investments purchased with funds deposited in such account, all interest, dividends, cash, instruments, financial assets and other Property from time to time received, receivable or otherwise payable in respect of, or in exchange for, any or all of the foregoing, and all proceeds, products, accessions, rents, profits, income and benefits therefrom, and any substitutions and replacements therefor.  The Borrower’s obligation to deposit amounts pursuant to this Section 2.08(j) shall be absolute and unconditional, without regard to whether any beneficiary of any such Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrower or any of its Subsidiaries may now or hereafter have against any such beneficiary, any Issuing Bank, the Administrative Agent, the Lenders or any other Person for any reason whatsoever.  Such deposit shall be held as collateral securing the payment and performance of the Borrower’s and any Guarantor’s obligations under this Agreement and the other Loan Documents.  The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account; provided that investments of funds in such account in investments permitted by Section 9.05(c) or Section 9.05(e) may be made at the option of the Borrower at its direction, risk and expense.  Interest or profits, if any, on such investments shall accumulate in such account.  Moneys in such account shall be applied by the Administrative Agent to reimburse, on a pro rata basis, each Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other obligations of the Borrower and the Guarantors, if any, under this Agreement or the other Loan Documents.  If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, and the Borrower is not otherwise required to pay to the Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.

 

ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

 

Section 3.01                      Repayment of Loans.  The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Termination Date.

 

Section 3.02                      Interest.

 

(a)           ABR Loans.  Each ABR Loan comprising an ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate.

 

(b)           Eurodollar Loans.  Each Eurodollar Loan comprising a Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Eurodollar Loan plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate.

 

  

35

  

 

(c)           Post-Default and Borrowing Base Deficiency Rate.  Notwithstanding the foregoing, x) if an Event of Default has occurred and is continuing, or if any principal of or interest on any Loan or any fee or other amount payable by the Borrower or any Guarantor hereunder or under any other Loan Document is not paid when due, whether at stated maturity, upon acceleration or otherwise, and including any payments in respect of a Borrowing Base Deficiency under Section 3.04(c), then all Loans outstanding, in the case of an Event of Default, and such overdue amount, in the case of a failure to pay amounts when due, shall bear interest, after as well as before judgment, at the Alternate Base Rate plus two percent (2%), but in no event to exceed the Highest Lawful Rate, and xi) during any Borrowing Base Deficiency, the amount of such Borrowing Base Deficiency shall bear interest, after as well as before judgment, at the rate then applicable to such Loans, plus the Applicable Margin, if any, plus an additional two percent (2%), but in no event to exceed the Highest Lawful Rate.

 

(d)           Interest Payment Dates.  Accrued interest on each Loan shall be payable in arrears on:  xii) with respect to any ABR Loan, the last day of each March, June, September and December; xiii) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part but, in the case of any Interest Period longer than three months, each successive date three months after the first day of such Interest Period, and xiv) in any case, on the Termination Date; provided that (a) interest accrued pursuant to Section 3.02(c)(i) shall be payable on demand, (b) in the event of any repayment or prepayment of any Loan (other than an optional prepayment of an ABR Loan prior to the Termination Date), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, and (c) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

 

(e)           Interest Rate Computations.  All interest hereunder shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), except that interest computed by reference to the Alternate Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day).  The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error, and be binding upon the parties hereto.

 

Section 3.03                      Alternate Rate of Interest.  If prior to the commencement of any Interest Period for a Eurodollar Borrowing:

 

(a)           the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest Period; or

 

(b)           the Administrative Agent is advised by the Majority Lenders that the Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;

 

  

36

  

 

then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (2) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (3) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.

 

Section 3.04                      Prepayments.

 

(a)           Optional Prepayments.  The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with Section 3.04(b) and payment of applicable breakage costs, if any, under Section 5.02.

 

(b)           Notice and Terms of Optional Prepayment.  The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder xv) in the case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon, Houston time, three Business Days before the date of prepayment, or xvi) in the case of prepayment of an ABR Borrowing, not later than 12:00 noon, Houston time, one Business Day before the date of prepayment.  Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid.  Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof.  Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02.  Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing.  Prepayments shall be accompanied by accrued interest to the extent required by Section 3.02.

 

(c)           Mandatory Prepayments.

 

(i)           If, after giving effect to any termination or reduction of the Aggregate Maximum Credit Amounts pursuant to Section 2.06(b), the total Revolving Credit Exposures exceeds the total Commitments, then the Borrower shall (1) prepay the Borrowings on the date of such termination or reduction in an aggregate principal amount equal to such excess, and (2) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j).

 

(ii)           Upon any redetermination of or adjustment to the amount of the Borrowing Base in accordance with Section 2.07(a) through (d) or Section 8.13(c), if the total Revolving Credit Exposures exceeds the redetermined or adjusted Borrowing Base, then the Borrower shall (3) prepay the Borrowings in an aggregate principal amount equal to such excess, and (4) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j).  The Borrower shall be obligated to make such prepayment and/or deposit of cash collateral within one hundred twenty (120) days following the later of its receipt of the New Borrowing Base Notice in accordance with Section 2.07(d) or the date the adjustment occurs; provided that all payments required to be made pursuant to this Section 3.04(c)(ii) must be made on or prior to the Termination Date.

 

  

37

  

 

(iii)           Upon any adjustments to the Borrowing Base pursuant to Section 2.07(e), Section 2.07(f) or Section 9.12(d), if the total Revolving Credit Exposures exceed the Borrowing Base as adjusted, then the Borrower shall (A) prepay the Borrowings in an aggregate principal amount equal to such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j).  The Borrower shall be obligated to make such prepayment and/or deposit of cash collateral on the date it or any Subsidiary receives cash proceeds as a result of such termination, creation of offsetting positions, issuance of Senior Notes or disposition, as applicable; provided that all payments required to be made pursuant to this Section 3.04(c)(iii) must be made on or prior to the Termination Date.

 

(iv)           Notwithstanding anything to the contrary herein, if the Borrower or any of its Subsidiaries sells any Property when a Borrowing Base Deficiency or Event of Default exists, then the Borrower shall (A) prepay the Borrowings in an aggregate principal amount equal to the net cash proceeds received from such sale, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j).  The Borrower shall be obligated to make such prepayment and/or deposit of cash collateral on the date it or any Subsidiary receives cash proceeds as a result of such sale; provided that all payments required to be made pursuant to this Section 3.04(c)(iii) must be made on or prior to the Termination Date.

 

(v)           Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied, first, ratably to any ABR Borrowings then outstanding, and, second, to any Eurodollar Borrowings then outstanding, and if more than one Eurodollar Borrowing is then outstanding, to each such Eurodollar Borrowing in order of priority beginning with the Eurodollar Borrowing with the least number of days remaining in the Interest Period applicable thereto and ending with the Eurodollar Borrowing with the most number of days remaining in the Interest Period applicable thereto.

 

(vi)           Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied ratably to the Loans included in the prepaid Borrowings.  Prepayments pursuant to this Section 3.04(c) shall be accompanied by accrued interest to the extent required by Section 3.02.

 

(d)           No Premium or Penalty.  Prepayments permitted or required under this Section 3.04 shall be without premium or penalty, except as required under Section 5.02.

 

  

38

  

 

Section 3.05                      Fees.

 

(a)           Commitment Fees.  The Borrower agrees to pay to the Administrative Agent for the account of each Lender (subject to Section 4.04(c)(i)) a commitment fee, which shall accrue at a rate per annum equal to 0.50% on the average daily amount of the unused amount of the Commitment of such Lender during the period from and including the date of this Agreement to but excluding the Termination Date.  Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the Termination Date, commencing on the first such date to occur after the date hereof.  All commitment fees shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

 

(b)           Letter of Credit Fees.  The Borrower agrees to pay (5) to the Administrative Agent for the account of each Lender (subject to Section 4.04(c)(iii)) a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Margin used to determine the interest rate applicable to Eurodollar Loans on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the date of this Agreement to but excluding the later of the date on which such Lender’s Commitment terminates and the date on which such Lender ceases to have any LC Exposure, (6) to each Issuing Bank a fronting fee equal to 0.50% per annum on the face amount of each Letter of Credit issued by such Issuing Bank hereunder, provided that in no event shall such fee be less than $500 and (7) to each Issuing Bank, for its own account, its standard fees with respect to the amendment, renewal or extension of any Letter of Credit issued by such Issuing Bank or processing of drawings thereunder.  Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the date of this Agreement; provided that all such fees shall be payable on the Termination Date and any such fees accruing after the Termination Date shall be payable on demand.  Any other fees payable to an Issuing Bank pursuant to this Section 3.05(b) shall be payable within 10 days after demand.  All participation fees and fronting fees shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case such fees shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

 

(c)           Administrative Agent Fees.  The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.

 

ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.

 

Section 4.01                      Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

 

  

39

  

 

(a)           Payments by the Borrower.  The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to 1:00 p.m., Houston time, on the date when due, in immediately available funds, without defense, deduction, recoupment, set-off or counterclaim.  Fees, once paid, shall be fully earned and shall not be refundable under any circumstances.  Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon.  All such payments shall be made to the Administrative Agent at its offices specified in Section 12.01, except payments to be made directly to an Issuing Bank as expressly provided herein and except that payments pursuant to Section 5.01, Section 5.02, Section 5.03 and Section 12.03 shall be made directly to the Persons entitled thereto.  The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof.  If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.  All payments hereunder shall be made in dollars.

 

(b)           Application of Insufficient Payments.  If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied xvii) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and xviii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.

 

(c)           Sharing of Payments by Lenders.  If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements; provided that xix) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and xx) the provisions of this Section 4.01(c) shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 4.01(c) shall apply).  The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

 

  

40

  

 

Section 4.02                      Presumption of Payment by the Borrower.  Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or any Issuing Bank that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or such Issuing Bank, as the case may be, the amount due.  In such event, if the Borrower has not in fact made such payment, then each of the Lenders or such Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

 

Section 4.03                      Certain Deductions by the Administrative Agent.  If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(b), Section 2.08(d), Section 2.08(e) or Section 4.02 then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.

 

Section 4.04                      Payments and Deductions to a Defaulting Lender.

 

(a)           The Borrower shall have the right, to the extent permitted by applicable law, to setoff any amounts owed to it by any Defaulting Lender or any of such Defaulting Lender’s Affiliates in respect of deposit liabilities against amounts due by the Borrower or any Guarantor to such Defaulting Lender or its Affiliates under this Agreement, provided that the amount of such set-off shall not exceed the amount of such Defaulting Lender’s Revolving Credit Exposures and interest.  Further, if any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(a), Section 2.08(d), Section 2.08(e) or Section 4.02 then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid in cash.

 

(b)           If a Defaulting Lender (or a Lender who would be a Defaulting Lender but for the expiration of the relevant grace period) as a result of the exercise of a set-off shall have received a payment in respect of its Revolving Credit Exposure which results in its Revolving Credit Exposure being less than its Applicable Percentage of the aggregate Revolving Credit Exposures, then no payments will be made to such Defaulting Lender until such time as all amounts due and owing to the Lenders have been equalized in accordance with each of the Lenders respective pro rata share of the Indebtedness.  Further, if at any time prior to the acceleration or maturity of the Loans, the Administrative Agent shall receive any payment in respect of principal of a Loan or a reimbursement of an LC Disbursement while one or more 

 

  

41

  

 

Defaulting Lenders shall be party to this Agreement, the Administrative Agent shall apply such payment first to the Borrowing(s) for which such Defaulting Lender(s) shall have failed to fund its pro rata share until such time as such Borrowing(s) are paid in full or each Lender (including each Defaulting Lender) is owed its Applicable Percentage of all Loans then outstanding.  After acceleration or maturity of the Loans, subject to the first sentence of this Section 4.04(b), all principal will be paid ratably as provided in Section 10.02(c).

 

(c)           Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:

 

(i)           Fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 3.05.

 

(ii)           The Commitment of such Defaulting Lender shall not be included in determining whether all Lenders, the Majority Lenders or the Required Lenders, as applicable, have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 12.02), provided that any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender which affects such Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender.

 

(iii)           if any LC Exposure exists at the time a Lender becomes a Defaulting Lender then:

 

(A)           all or any part of such LC Exposure shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent (I) the sum of all Non-Defaulting Lenders’ Revolving Credit Exposures plus such Defaulting Lender’s LC Exposure does not exceed the total of all Non-Defaulting Lenders’ Commitments and (II) the conditions set forth in Section 6.02 are satisfied at such time;

 

(B)           if the reallocation described in clause (A) above cannot, or can only partially, be effected, then the Borrower shall within one Business Day following notice by the Administrative Agent cash collateralize such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (A) above) in accordance with the procedures set forth in Section 2.08(e) for so long as such LC Exposure is outstanding;

 

(C)           if the Borrower cash collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to this Section 4.04 then the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 3.05(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is cash collateralized;

 

(D)           if the LC Exposure of the Non-Defaulting Lenders is reallocated pursuant to Section 4.04(c), then the fees payable to the Lenders pursuant to Section 3.05(a) and Section 3.05(b) shall be adjusted in accordance with such Non-Defaulting Lenders’ Applicable Percentages; or

 

  

42

  

 

(E)           if any Defaulting Lender’s LC Exposure is neither cash collateralized nor reallocated pursuant to Section 4.04(c)(iii), then, without prejudice to any rights or remedies of the Issuing Bank or any Lender hereunder, all commitment fees that otherwise would have been payable to such Defaulting Lender (solely with respect to the portion of such Defaulting Lender’s Commitment that was utilized by such LC Exposure) and letter of credit fees payable under Section 3.05(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to the Issuing Bank until such LC Exposure is cash collateralized and/or reallocated.

 

(d)           So long as any Lender is a Defaulting Lender, the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure will be 100% covered by the Commitments of the Non-Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 4.04(c), and participating interests in any such newly issued or increased Letter of Credit shall be allocated among Non-Defaulting Lenders in a manner consistent with Section 2.08(d) (and Defaulting Lenders shall not participate therein).

 

(e)           In the event that the Administrative Agent, the Borrower and the Issuing Bank each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment and on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.

 

ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

 

Section 5.01                      Increased Costs.

 

(a)           Eurodollar Changes in Law.  If any Change in Law shall:

 

(i)           impose, modify or deem applicable any reserve (including marginal, special, emergency or supplemental reserves), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender for Eurocurrency liabilities under Regulation D of the Board (as the same may be amended, supplemented or replaced from time to time) or otherwise; or

 

(ii)           impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender;

 

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

 

  

43

  

 

(b)           Capital Requirements.  If any Lender or any Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Bank’s capital or on the capital of such Lender’s or such Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.

 

(c)           Certificates.  A certificate of a Lender or any Issuing Bank setting forth in reasonable detail the basis of its request and the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in Section 5.01(a) or (b) shall be delivered to the Borrower and shall be conclusive absent manifest error.  The Borrower shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

 

(d)           Effect of Failure or Delay in Requesting Compensation.  Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section 5.01 shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation, provided that no Lender may make any such demand more than 180 days after the Termination Date, nor for any amount which has accrued more than 270 days prior to such Lender or Issuing Bank delivering the certificate required in Section 5.01(c).

 

Section 5.02                      Break Funding Payments.  In the event of d) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), e) the conversion of any Eurodollar Loan into an ABR Loan other than on the last day of the Interest Period applicable thereto, or f) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event.  In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (1) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (2) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market.

 

  

44

  

 

A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 5.02 shall be delivered to the Borrower and shall be conclusive absent manifest error.  The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

 

Section 5.03                      Taxes.

 

(a)           Payments Free of Taxes.  Any and all payments by or on account of any obligation of the Borrower or any Guarantor under any Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower or any Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then ii) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, iii) the Borrower or such Guarantor shall make such deductions and iv) the Borrower or such Guarantor shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

 

(b)           Payment of Other Taxes by the Borrower.  The Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

 

(c)           Indemnification by the Borrower.  The Borrower shall indemnify the Administrative Agent, each Lender and each Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 5.03) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate of the Administrative Agent, a Lender or an Issuing Bank as to the basis of such Indemnified Taxes and Other Taxes and the amount of such payment or liability under this Section 5.03 shall be delivered to the Borrower and shall be conclusive absent manifest error.

 

(d)           Evidence of Payments.  As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

 

(e)           Foreign Lenders.  Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement or any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate.

 

  

45

  

 

Section 5.04                      Designation of Different Lending Office.  If any Lender requests compensation under Section 5.01, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.03, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment g) would eliminate or reduce amounts payable pursuant to Section 5.01 or Section 5.03, as the case may be, in the future and h) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender.  The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

 

Section 5.05                      Illegality.  Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its applicable lending office to honor its obligation to make or maintain Eurodollar Loans either generally or having a particular Interest Period hereunder, then i) such Lender shall promptly notify the Borrower and the Administrative Agent thereof and such Lender’s obligation to make such Eurodollar Loans shall be suspended (the “Affected Loans”) until such time as such Lender may again make and maintain such Eurodollar Loans and j) all Affected Loans which would otherwise be made by such Lender shall be made instead as ABR Loans (and, if such Lender so requests by notice to the Borrower and the Administrative Agent, all Affected Loans of such Lender then outstanding shall be automatically converted into ABR Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) ABR Loans, all payments of principal which would otherwise be applied to such Lender’s Affected Loans shall be applied instead to its ABR Loans.

 

Section 5.06                      Replacement of Lenders Under Certain Circumstances.

 

(a)           If at any time (i) the Borrower becomes obligated to pay additional amounts or indemnity payments described in Sections 5.01 or 5.03 as a result of any condition described in such Sections or any Lender ceases to make Eurodollar Loans as a result of any condition described in Section 5.05 or (ii) any Lender becomes a Defaulting Lender, then the Borrower may, on 10 Business Days’ prior written notice to the Administrative Agent and such Lender, replace such Lender by requiring such Lender to (and such Lender shall be obligated to) assign pursuant to Section 12.04(b) (with the assignment fee to be paid by the Borrower in each such instance) all of its rights and obligations under this Agreement to one or more assignees; provided that neither the Administrative Agent nor any Lender shall have any obligation to the Borrower to find a replacement Lender or other such Person; and provided further that in the case of any such assignment resulting from a claim for compensation under Section 5.01 or payments required to be made pursuant to Section 5.03, such assignment will result in a reduction in such compensation or payments.

 

(b)           Any Lender being replaced pursuant to Section 5.06(a) above shall (i) execute and deliver an Assignment and Assumption with respect to such Lender’s applicable Commitment, outstanding Loans and participations in L/C Exposure in respect thereof, and (ii) deliver any Notes evidencing such Loans to the Borrower or to the Administrative Agent.

 

  

46

  

 

(c)           Notwithstanding anything to the contrary contained above, any Lender that acts as an Issuing Bank may not be replaced hereunder at any time that it has any Letter of Credit outstanding hereunder unless arrangements reasonably satisfactory to such Issuing Bank (including the furnishing of a back-up standby letter of credit in form and substance, and issued by an issuer reasonably satisfactory to such Issuing Bank or the depositing of cash collateral into a cash collateral account in amounts and pursuant to arrangements reasonably satisfactory to such Issuing Bank) have been made with respect to each such outstanding Letter of Credit and the Lender that acts as the Administrative Agent may not be replaced hereunder except in accordance with the terms of Section 11.06.

 

ARTICLE VI

CONDITIONS PRECEDENT

 

Section 6.01                      Effective Date.  The obligations of the Lenders to make the initial Loans and of any Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 12.02):

 

(a)           The Arranger, the Administrative Agent and the Lenders shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder.

 

(b)           The Administrative Agent shall have received a certificate of the Borrower and of each Guarantor setting forth (1) resolutions of the board of directors or other managing body with respect to the authorization of the Borrower or such Guarantor to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (2) the individuals (a) who are authorized to sign the Loan Documents to which the Borrower or such Guarantor is a party and (b) who will, until replaced by another individual duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the other Loan Documents to which it is a party, (3) specimen signatures of such authorized individuals, and (4) the articles or certificate of incorporation or formation and bylaws, operating agreement or partnership agreement, as applicable, of the Borrower and each Guarantor, in each case, certified as being true and complete.  The Administrative Agent and the Lenders may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Borrower to the contrary.

 

(c)           The Administrative Agent shall have received certificates of the appropriate State agencies with respect to the existence, qualification and good standing of the Borrower and each Guarantor, if any.

 

  

47

  

 

(d)           The Administrative Agent shall have received a compliance certificate, which shall be substantially in the form of Exhibit B, duly and properly executed by a Responsible Officer and dated as of the Effective Date.

 

(e)           The Administrative Agent shall have received from each party hereto counterparts (in such number as may be requested by the Administrative Agent) of this Agreement signed on behalf of such party.

 

(f)           The Administrative Agent shall have received from each party thereto duly executed counterparts (in such number as may be requested by the Administrative Agent) of the Security Instruments, including the Guaranty Agreements, the Pledge Agreement, and the other Security Instruments described on Exhibit C.  In connection with the execution and delivery of the Security Instruments, the Administrative Agent shall be reasonably satisfied that the Security Instruments create first priority, perfected Liens (subject only to Excepted Liens identified in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such definition) on at least 80% of the total value of the Oil and Gas Properties evaluated in the Initial Reserve Report.

 

(g)           The Administrative Agent shall have received an opinion of (5) Andrews Kurth, LLP, special counsel to the Borrower, (6) Cotton, Bledsoe, Tighe & Dawson, P.C., special New Mexico counsel, (iii) Commercial Law Group, P.C., special Oklahoma counsel, and (iv) Beatty-Wozniak, special Wyoming counsel, each in form and substance satisfactory to the Administrative Agent, as to such matters incident to the Transactions as the Administrative Agent may reasonably request.

 

(h)           The Administrative Agent shall have received a certificate of insurance coverage of the Borrower evidencing that the Borrower is carrying insurance in accordance with Section 7.12.

 

(i)           The Administrative Agent shall have received such information as the Administrative Agent may reasonably require, all of which shall be reasonably satisfactory to the Administrative Agent in form and substance, on the title to not less than 80% of the Oil and Gas Properties evaluated in the Initial Reserve Report.

 

(j)           The Administrative Agent shall be reasonably satisfied with the environmental condition of the Oil and Gas Properties of the Borrower and its Subsidiaries.

 

(k)           The Administrative Agent shall have received a certificate of a Responsible Officer certifying that the Borrower has received all consents and approvals required by Section 7.03.

 

(l)           The Administrative Agent shall have received the financial statements referred to in Section 7.04(a) and the Initial Reserve Report.

 

(m)           The Administrative Agent shall have received appropriate UCC search certificates reflecting no prior Liens encumbering the Properties of the Borrower, and its Subsidiaries for each of the following jurisdictions:  Delaware, New Mexico, Oklahoma, Texas, Wyoming and any other 

 

  

48

  

 

jurisdiction requested by the Administrative Agent; other than those being assigned or released on or prior to the Effective Date or Liens permitted by Section 9.03.

 

(n)           The Administrative Agent shall have received such other documents as the Administrative Agent or special counsel to the Administrative Agent may reasonably request.

 

The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of each Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 12.02) at or prior to 1:00 p.m., Houston time, on March 31, 2011 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

 

Section 6.02                      Each Credit Event.  The obligation of each Lender to make a Loan on the occasion of any Borrowing (including the initial funding), and of each Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:

 

(a)           At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing.

 

(b)           At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Material Adverse Effect shall have occurred.

 

(c)           The representations and warranties of the Borrower and the Guarantors, if any, set forth in this Agreement and in the other Loan Documents shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, such representations and warranties shall continue to be true and correct as of such specified earlier date.

 

(d)           The making of such Loan or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, would not conflict with, or cause any Lender or any Issuing Bank to violate or exceed, any applicable Governmental Requirement, and no Change in Law shall have occurred, and no litigation shall be pending or threatened, which does or, with respect to any threatened litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, the issuance, amendment, renewal, extension or repayment of any Letter of Credit or any participations therein or the consummation of the transactions contemplated by this Agreement or any other Loan Document.

 

(e)           The receipt by the Administrative Agent of a Borrowing Request in accordance with Section 2.03 or a request for a Letter of Credit in accordance with Section 2.08(b), as applicable.

 

  

49

  

 

Each request for a Borrowing and each issuance, amendment, renewal or extension of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in Section 6.02(a) through (e).

 

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

 

The Borrower represents and warrants to the Lenders that:

 

Section 7.01                      Organization; Powers.  Each of the Borrower and its Subsidiaries is duly organized, validly existing and, if applicable, in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority, and has all material governmental licenses, authorizations, consents and approvals necessary, to own its assets and to carry on its business as now conducted, and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where failure to have such power, authority, licenses, authorizations, consents, approvals and qualifications could not reasonably be expected to have a Material Adverse Effect.

 

Section 7.02                      Authority; Enforceability.  The Transactions are within the Borrower’s and each Guarantor’s corporate powers and have been duly authorized by all necessary corporate and, if required, member action (including, without limitation, any action required to be taken by any class of directors of the Borrower or any other Person, whether interested or disinterested, in order to ensure the due authorization of the Transactions).  When executed and delivered, each Loan Document to which the Borrower and any Guarantor is a party will have been duly executed and delivered by the Borrower and such Guarantor and will constitute a legal, valid and binding obligation of the Borrower and such Guarantor, as applicable, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

 

Section 7.03                      Approvals; No Conflicts.  The Transactions ii) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other third Person (including the members or any class of directors of the Borrower or any other Person, whether interested or disinterested), nor is any such consent, approval, registration, filing or other action necessary for the validity or enforceability of any Loan Document or the consummation of the transactions contemplated thereby, except such as have been obtained or made and are in full force and effect, and except for the filing and recording of Security Instruments to perfect the Liens created hereby, iii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, iv) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or their Properties, or give rise to a right thereunder to require any payment to be made by the Borrower or such Subsidiary and v) will not result in the creation or imposition of any Lien on any Property of the Borrower or any of its Subsidiaries (other than the Liens created by the Loan Documents).

 

Section 7.04                      Financial Position; No Material Adverse Change.

 

  

50

  

 

(a)           The Borrower has heretofore furnished to the Lenders the audited financial statements of Borrower ended December 31, 2010.  Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of Borrower and its Consolidated Subsidiaries as of such date and for such period in accordance with GAAP.

 

(b)           Since December 31, 2010, (1) there has been no event, development or circumstance that has had or could reasonably be expected to have a Material Adverse Effect and (2) the business of the Borrower and its Subsidiaries has been conducted only in the ordinary course consistent with past business practices.

 

(c)           Neither the Borrower nor any of its Subsidiaries has on the date hereof any material Debt (including Disqualified Capital Stock), or any contingent liabilities, off-balance sheet liabilities or partnerships, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the Financial Statements.

 

Section 7.05                      Litigation.  Except as set forth on Schedule 7.05, there are no actions, suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries vi) as to which there is a reasonable possibility of an adverse determination that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or vii) that involve any Loan Document or the Transactions.  Since the date of this Agreement, there has been no change in the status of the matters disclosed in Schedule 7.05 that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.

 

Section 7.06                      Environmental Matters.  Except as could not be reasonably expected to have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions could not be reasonably expected to have a Material Adverse Effect):

 

(a)           neither any Property of the Borrower or any of its Subsidiaries nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws.

 

(b)           no Property of the Borrower or any of its Subsidiaries nor the operations currently conducted thereon or, to the knowledge of the Borrower, by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws.

 

(c)           all notices, permits, licenses, exemptions, approvals or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property of the Borrower and each of its Subsidiaries, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance, oil and gas waste or solid waste into the environment, have been duly obtained or filed or requested, and the Borrower and each of its Subsidiaries are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations.

 

  

51

  

 

(d)           all hazardous substances, solid waste and oil and gas waste, if any, generated at any and all Property of the Borrower or any of its Subsidiaries have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the knowledge of the Borrower, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws.

 

(e)           the Borrower has taken all steps reasonably necessary to determine and has determined that no oil, hazardous substances, solid waste or oil and gas waste, have been disposed of or otherwise released and there has been no threatened release of any oil, hazardous substances, solid waste or oil and gas waste on or to any Property of the Borrower or any of its Subsidiaries except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment.

 

(f)           to the extent applicable, all Property of the Borrower and each of its Subsidiaries currently satisfies all design, operation, and equipment requirements imposed by the OPA, and the Borrower does not have any reason to believe that such Property, to the extent subject to the OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement.

 

(g)           neither the Borrower nor any of its Subsidiaries has any known contingent liability or Remedial Work in connection with any release or threatened release of any oil, hazardous substance, solid waste or oil and gas waste into the environment.

 

Section 7.07                      Compliance with the Laws and Agreements; No Defaults.

 

(a)           Each of the Borrower and its Subsidiaries is in compliance with all Governmental Requirements applicable to it or its Property and all agreements and other instruments binding upon it or its Property, and possesses all licenses, permits, franchises, exemptions, approvals and other authorizations granted by Governmental Authorities necessary for the ownership of its Property and the present conduct of its business, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

 

(b)           Neither the Borrower nor any of its Subsidiaries is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default or would require the Borrower or any of its Subsidiaries to Redeem or make any offer to Redeem all or any portion of any Debt outstanding under any indenture, note, credit agreement or instrument pursuant to which any Material Indebtedness is outstanding or by which the Borrower or any of its Subsidiaries or any of their Properties is bound.

 

(c)           No Default has occurred and is continuing.

 

  

52

  

 

Section 7.08                      Investment Company Act.  Neither the Borrower nor any of its Subsidiaries is an “investment company” or a company “controlled” by an “investment company,” within the meaning of, or subject to regulation under, the Investment Company Act of 1940, as amended.

 

Section 7.09                      Taxes.  Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except viii) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or ix) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.  The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of Taxes and other governmental charges are, in the reasonable opinion of the Borrower, adequate.  No Tax Lien has been filed and, to the knowledge of the Borrower, no claim is being asserted with respect to any such Tax or other such governmental charge.

 

Section 7.10                      ERISA.

 

(a)           The Borrower, its Subsidiaries and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan, if any.

 

(b)           Each Plan, if any, is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code.

 

(c)           No act, omission or transaction has occurred that could result in imposition on the Borrower, any of its Subsidiaries or any ERISA Affiliate (whether directly or indirectly) of x) either a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or xi) breach of fiduciary duty liability damages under section 409 of ERISA.

 

(d)           No Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated since September 2, 1974.  No liability to the PBGC (other than for the payment of current premiums which are not past due) by the Borrower, any of its Subsidiaries or any ERISA Affiliate has been or is expected by the Borrower, any of its Subsidiaries or any ERISA Affiliate to be incurred with respect to any Plan.  No ERISA Event with respect to any Plan has occurred.

 

(e)           Full payment when due has been made of all amounts which the Borrower, any of its Subsidiaries or any ERISA Affiliate is required under the terms of each Plan, if any, or applicable law to have paid as contributions to such Plan as of the date hereof, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan.

 

(f)           The actuarial present value of the benefit liabilities under each Plan, if any, which is subject to Title IV of ERISA does not, as of the end of the Borrower’s most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with 

 

  

53

  

 

Title IV of ERISA) of such Plan allocable to such benefit liabilities.  The term “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA.

 

(g)           Neither the Borrower, its Subsidiaries nor any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by the Borrower, any of its Subsidiaries or any ERISA Affiliate in its sole discretion at any time without any material liability.

 

(h)           Neither the Borrower, its Subsidiaries nor any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the six-year period preceding the date hereof sponsored, maintained or contributed to, any Multiemployer Plan.

 

(i)           Neither the Borrower, its Subsidiaries nor any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan.

 

Section 7.11                      Disclosure; No Material Misstatements.  None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower or any of its Subsidiaries to the Administrative Agent or any Lender or any of their Affiliates in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or under any other Loan Document (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.  There is no fact peculiar to the Borrower or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect or in the future is reasonably likely to have a Material Adverse Effect and which has not been set forth in this Agreement or the Loan Documents or the other documents, certificates and statements furnished to the Administrative Agent or the Lenders by or on behalf of the Borrower or any of its Subsidiaries prior to, or on, the date hereof in connection with the transactions contemplated hereby.  There are no statements or conclusions in any Reserve Report which are based upon or include misleading information or fail to take into account material information regarding the matters reported therein.

 

Section 7.12                      Insurance.  The Borrower has, and has caused all of its Subsidiaries to have, xii) all insurance policies sufficient for the compliance by each of them with all material Governmental Requirements and all material agreements and xiii) insurance coverage in at least amounts and against such risk (including, without limitation, public liability) that are usually insured against by companies similarly situated and engaged in the same or a similar business for the assets and operations of the Borrower and its Subsidiaries.  The Administrative Agent and the Lenders have been named as additional insureds in respect of such liability insurance policies and the Administrative Agent has been named as loss payee with respect to Property loss insurance.

 

  

54

  

 

Section 7.13                      Restriction on Liens.  Neither the Borrower nor any of its Subsidiaries is a party to any material agreement or arrangement, or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to the Administrative Agent and the Lenders on or in respect of their Properties to secure the Indebtedness and the Loan Documents.

 

Section 7.14                      Subsidiaries.  Except as set forth on Schedule 7.14 or as disclosed in writing to the Administrative Agent (which shall promptly furnish a copy to the Lenders), which shall be a supplement to Schedule 7.14, the Borrower has no Subsidiaries.  The Borrower has no Foreign Subsidiaries or foreign operations.

 

Section 7.15                      Location of Business and Offices.  The Borrower’s jurisdiction of organization is Delaware; the name of the Borrower as listed in the public records of its jurisdiction of organization is Legacy Reserves LP, and the organizational identification number of the Borrower in its jurisdiction of organization is 4038949 (or as set forth in a notice delivered to the Administrative Agent pursuant to Section 8.01(m)).  The Borrower’s principal place of business and chief executive offices are located at the address specified in Section 12.01 (or as set forth in a notice delivered pursuant to Section 8.01(m)).  Each Subsidiary’s jurisdiction of organization, name as listed in the public records of its jurisdiction of organization, organizational identification number in its jurisdiction of organization, and the location of its principal place of business and chief executive office is stated on Schedule 7.15 (or as set forth in a notice delivered pursuant to Section 8.01(m)).

 

Section 7.16                      Properties; Titles, Etc.

 

(a)           Each of the Borrower and its Subsidiaries has good and defensible title to its Oil and Gas Properties evaluated in the most recently delivered Reserve Report and good title to all its personal Properties, in each case, free and clear of all Liens except Liens permitted by Section 9.03.  After giving full effect to the Excepted Liens, the Borrower or any of its Subsidiaries specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and the ownership of such Properties shall not in any material respect obligate the Borrower or any of its Subsidiaries to bear the costs and expenses relating to the maintenance, development and operations of each such Property in an amount in excess of the working interest of each Property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate increase in the Borrower’s or any of its Subsidiaries’ net revenue interest in such Property.

 

(b)           All material leases and agreements necessary for the present conduct of the business of the Borrower and its Subsidiaries are valid and subsisting, in full force and effect, and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which could reasonably be expected to have a Material Adverse Effect.

 

(c)           The rights and Properties presently owned, leased or licensed by the Borrower and its Subsidiaries including, without limitation, all easements and rights of way, include all rights and Properties necessary to permit the Borrower and its Subsidiaries to conduct their business in all 

 

  

55

  

 

material respects as of the date hereof.

 

(d)           All of the material Properties of the Borrower and each of its Subsidiaries that are reasonably necessary for the operation of their businesses are in good working condition and are maintained in accordance with prudent business standards.

 

(e)           The Borrower and each of its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual Property material to its business, and the use thereof by the Borrower and such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.  The Borrower and its Subsidiaries either own or have valid licenses or other rights to use all databases, geological data, geophysical data, engineering data, seismic data, maps, interpretations and other technical information used in their businesses as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons, with such exceptions as could not reasonably be expected to have a Material Adverse Effect.

 

Section 7.17                      Maintenance of Properties.  Except for such acts or failures to act as could not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties (and Properties unitized therewith) have been maintained, operated and developed in a good and workmanlike manner and in conformity with all Government Requirements and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties.  Specifically in connection with the foregoing, except as could not reasonably be expected to have a Material Adverse Effect, xiv) no Oil and Gas Property is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) and xv) none of the wells comprising a part of the Oil and Gas Properties (or Properties unitized therewith) is deviated from the vertical more than the maximum permitted by Government Requirements, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on Properties unitized therewith, such unitized Properties).  All pipelines, wells, gas processing plants, platforms and other material improvements, fixtures and equipment owned in whole or in part by the Borrower or any of its Subsidiaries that are necessary to conduct normal operations are being maintained in a state adequate to conduct normal operations, and with respect to such of the foregoing which are operated by the Borrower or any of its Subsidiaries, in a manner consistent with the Borrower’s or its Subsidiaries’ past practices (other than those the failure of which to maintain in accordance with this Section 7.17 could not reasonably be expect to have a Material Adverse Effect).

 

Section 7.18                      Gas Imbalances, Prepayments.  As of the date hereof, except as set forth on Schedule 7.18 or on the most recent certificate delivered pursuant to Section 8.12(c), on a net basis there are no gas imbalances, take or pay or other prepayments which would require the Borrower or 

 

  

56

  

 

any of its Subsidiaries to deliver, in the aggregate, two percent (2%) or more of the monthly production from Hydrocarbons produced from the Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor.

 

Section 7.19                      Marketing of Production.  Except for contracts listed and in effect on the date hereof on Schedule 7.19, and thereafter either disclosed in writing to the Administrative Agent or included in the most recently delivered Reserve Report (with respect to all of which contracts the Borrower represents that it or its Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject Property’s delivery capacity), no material agreements exist which are not cancelable on 60 days notice or less without penalty or detriment for the sale of production from the Borrower’s or its Subsidiaries’ Hydrocarbons (including, without limitation, calls on or other rights to purchase, production, whether or not the same are currently being exercised) that xvi) pertain to the sale of production at a fixed price and xvii) have a maturity or expiry date of more than six (6) months from the date hereof.

 

Section 7.20                      Swap Agreements.  Schedule 7.20, as of the date hereof, and after the date hereof, each report required to be delivered by the Borrower pursuant to Section 8.01(e), sets forth, a true and complete list of all Swap Agreements of the Borrower and each of its Subsidiaries, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net marked-to-market value thereof, all credit support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement.

 

Section 7.21                      Use of Loans and Letters of Credit.  The proceeds of the Loans and the Letters of Credit shall be used k) for general corporate purposes of the Borrower and its Subsidiaries, and l) for any distribution advances of Available Cash.  The Borrower and its Subsidiaries are not engaged principally, or as one of its or their important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board).  No part of the proceeds of any Loan or Letter of Credit will be used for any purpose which violates the provisions of Regulations T, U or X of the Board.

 

Section 7.22                      Solvency.  After giving effect to the transactions contemplated hereby, m) the aggregate assets (after giving effect to amounts that could reasonably be received by reason of indemnity, offset, insurance or any similar arrangement), at a fair valuation, of the Borrower and the Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrower and the Guarantors on a consolidated basis, as the Debt becomes absolute and matures, n) each of the Borrower and the Guarantors will not have incurred or intended to incur, and will not believe that it will incur, Debt beyond its ability to pay such Debt (after taking into account the timing and amounts of cash to be received by each of the Borrower and the Guarantors and the amounts to be payable on or in respect of its liabilities, and giving effect to amounts that could reasonably be received by reason of indemnity, offset, insurance or any similar arrangement) as such Debt becomes absolute and matures and o) each of the Borrower and the Guarantors will not have (and will have no reason to believe that it will have thereafter) unreasonably small capital for the conduct of its business.

 

  

57

  

 

ARTICLE VIII

AFFIRMATIVE COVENANTS

 

Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that:

 

Section 8.01                      Financial Statements; Other Information.  The Borrower will furnish to the Administrative Agent and each Lender:

 

(a)           Annual Financial Statements.  As soon as available, but in any event not later than 90 days after the end of each fiscal year, the Borrower’s audited consolidated balance sheet and related statements of operations, members’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing and reasonably acceptable to the Administrative Agent (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial position and results of operations of the Borrower and its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied.

 

(b)           Quarterly Financial Statements.  As soon as available, but in any event not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, members’ equity and cash flows as of the end of and for such quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by a Financial Officer as presenting fairly in all material respects the financial position and results of operations of the Borrower and its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes.

 

(c)           Certificate of Financial Officer – Compliance.  Concurrently with any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer in substantially the form of Exhibit B hereto i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, ii) setting forth reasonably detailed calculations demonstrating compliance with Section 9.01 and iii) stating whether any change in GAAP or in the application thereof has occurred since the Effective Date and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate.

 

(d)           Certificate of Accounting Firm – Defaults.  Concurrently with any delivery of financial statements under Section 8.01(a), a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of 

 

  

58

  

 

such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines).

 

(e)           Certificate of Financial Officer – Swap Agreements.  Concurrently with any delivery of financial statements under Section 8.01(a) and Section 8.01(b), a certificate of a Financial Officer, in form and substance satisfactory to the Administrative Agent, setting forth as of the last Business Day of such calendar month or fiscal year, a true and complete list of all Swap Agreements of the Borrower and each of its Subsidiaries, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark-to-market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.20, any margin required or supplied under any credit support document, and the counterparty to each such agreement.

 

(f)           Certificate of Insurer – Insurance Coverage.  Concurrently with any delivery of financial statements under Section 8.01(a), a certificate of insurance coverage from each insurer with respect to the insurance required by Section 8.07, in form and substance satisfactory to the Administrative Agent, and, if requested by the Administrative Agent or any Lender, all copies of the applicable policies.

 

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

 

(h)           SEC and Other Filings; Reports to Shareholders.  Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the SEC, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be.

 

(i)           Notices Under Material Instruments.  Promptly after the furnishing thereof, copies of any financial statement, report or notice furnished to or by any Person pursuant to the terms of any preferred stock designation, indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 8.01.

 

(j)           Lists of Purchasers.  Concurrently with the delivery of any Reserve Report to the Administrative Agent pursuant to Section 8.12, a list of all Persons purchasing Hydrocarbons from the Borrower or any of its Subsidiaries.

 

(k)           Notice of Sales of Oil and Gas Properties.  In the event the Borrower or any of its Subsidiaries intends to sell, transfer, assign or otherwise dispose of any Oil or Gas Properties included in the most recently delivered Reserve Report (or any Equity Interests in any Subsidiary owning interests in such Oil and Gas Properties) during any period between two successive Scheduled Redetermination Dates having a fair market value, individually or in the aggregate, in excess of $1,000,000, prior written notice of such disposition, the price thereof, the anticipated date of closing, and any other 

 

  

59

  

 

details thereof requested by the Administrative Agent or any Lender.

 

(l)           Notice of Casualty Events.  Prompt written notice, and in any event within three Business Days, of the occurrence of any Casualty Event or the commencement of any action or proceeding that could reasonably be expected to result in a Casualty Event.

 

(m)           Information Regarding Borrower and Guarantors.  Prompt written notice (and in any event within 30 days prior thereto) of any change iv) in the Borrower or any Guarantor’s corporate name or in any trade name used to identify such Person in the conduct of its business or in the ownership of its Properties, v) in the location of the Borrower or any Guarantor’s chief executive office or principal place of business, vi) in the Borrower or any Guarantor’s identity or corporate structure or in the jurisdiction in which such Person is incorporated or formed, vii) in the Borrower or any Guarantor’s jurisdiction of organization or such Person’s organizational identification number in such jurisdiction of organization, and viii) in the Borrower or any Guarantor’s federal taxpayer identification number, if any.

 

(n)           Production Report and Lease Operating Statements.  Within 30 days after the end of each fiscal quarter, a report setting forth, for each calendar month during the then-current fiscal year to date, the volume of production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such calendar month from the Oil and Gas Properties, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto and incurred for each such calendar month.

 

(o)           Notices of Certain Changes.  Promptly, but in any event within five (5) Business Days after the execution thereof, copies of any amendment, modification or supplement to the certificate or articles of incorporation, by-laws, any preferred stock designation or any other organic document of the Borrower or any of its Subsidiaries.

 

(p)           Annual Budget.  Promptly, but in any event within 90 days after the end of each fiscal year, a budget for the then current fiscal year, including a pro forma balance sheet and income and cash flow projections.

 

(q)           Certificate of Financial Officer – Available Cash.  As soon as available, but in any event not later than 45 days after the end of each fiscal quarter, commencing with the quarter ending on March 31, 2011, a certificate of a financial officer ix) setting forth reasonably detailed calculations of Available Cash with respect to such quarter and x) the distributions to holders of Borrower’s Equity Interests with respect to such quarter.

 

(r)           Other Requested Information.  Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA), or compliance with the terms of this Agreement or any other Loan Document, as the Administrative Agent or any Lender may reasonably request.

 

  

60

  

 

Section 8.02                      Notices of Material Events.  The Borrower will furnish to the Administrative Agent and each Lender, promptly after the Borrower obtains knowledge thereof, written notice of the following:

 

(a)           the occurrence of any Default;

 

(b)           the filing or commencement of, or the threat in writing of, any action, suit, investigation, arbitration or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Subsidiary thereof, or any material adverse development in any action, suit, proceeding, investigation or arbitration (whether or not previously disclosed to the Lenders), that, in either case, if adversely determined, could reasonably be expected to result in liability in excess of $1,000,000;

 

(c)           the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $1,000,000; and

 

(d)           any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

 

Each notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

 

Section 8.03                      Existence; Conduct of Business.  The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business and maintain, if necessary, its qualification to do business in each other jurisdiction in which any of its Oil and Gas Properties is located or the ownership of its Properties requires such qualification, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 9.12.

 

Section 8.04                      Payment of Obligations.  The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities of the Borrower and all of its Subsidiaries before the same shall become delinquent or in default, except where p) the validity or amount thereof is being contested in good faith by appropriate proceedings, q) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and r) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect or result in the seizure or levy of any Property of the Borrower or any of its Subsidiaries.

 

Section 8.05                      Performance of Obligations under Loan Documents.  The Borrower will pay the Notes according to the reading, tenor and effect thereof, and the Borrower will, and the Borrower will cause each of its Subsidiaries to do and perform every act and discharge all of the obligations to be performed and discharged by them under the Loan Documents, including, without limitation, this Agreement, at the time or times and in the manner specified.

 

  

61

  

 

Section 8.06                      Operation and Maintenance of Properties.  The Borrower will, and will cause each of its Subsidiaries to:

 

(a)           operate its Oil and Gas Properties and other material Properties or cause such Oil and Gas Properties and other material Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Governmental Requirements, including, without limitation, applicable proration requirements and Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom, except, in each case, where the failure to comply could not reasonably be expected to have a Material Adverse Effect.

 

(b)           keep and maintain all Property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear excepted) all of its material Oil and Gas Properties and other material Properties, including, without limitation, all material equipment, machinery and facilities.

 

(c)           promptly pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to its Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder.

 

(d)           promptly perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards and in all material respects, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its Oil and Gas Properties and other material Properties.

 

(e)           to the extent the Borrower or one of its Subsidiaries is not the operator of any Property, the Borrower shall use reasonable efforts to cause the operator to comply with this Section 8.06.

 

Section 8.07                      Insurance.  The Borrower will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.  The loss payable clauses or provisions in said insurance policy or policies insuring any of the collateral for the Loans shall be endorsed in favor of and made payable to the Administrative Agent as its interests may appear and such policies shall name the Administrative Agent and the Lenders as “additional insureds” and provide that the insurer will give at least 30 days prior notice of any cancellation to the Administrative Agent.

 

Section 8.08                      Books and Records; Inspection Rights.  The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities.  

 

  

62

  

 

The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its Properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested.

 

Section 8.09                      Compliance with Laws.  The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to them or their Property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

 

Section 8.10                      Environmental Matters.

 

(a)           The Borrower shall, and shall cause each of its Subsidiaries to:  i) comply, and shall cause its Properties and operations and each of its Subsidiaries and each Subsidiary’s Properties and operations to comply, with all applicable Environmental Laws, the breach of which could be reasonably expected to have a Material Adverse Effect; ii) not dispose of or otherwise release, and shall cause each Subsidiary not to dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid waste on, under, about or from any of the Borrower’s or its Subsidiaries’ Properties or any other Property to the extent caused by the Borrower’s or any of its Subsidiaries’ operations except in compliance with applicable Environmental Laws, the disposal or release of which could reasonably be expected to have a Material Adverse Effect; iii) timely obtain or file, and shall cause each of its Subsidiaries to timely obtain or file, all notices, permits, licenses, exemptions, approvals, registrations or other authorizations, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of the Borrower’s or its Subsidiaries’ Properties, which failure to obtain or file could reasonably be expected to have a Material Adverse Effect; iv) promptly commence and diligently prosecute to completion, and shall cause each of its Subsidiaries to promptly commence and diligently prosecute to completion, any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other remedial obligations (collectively, the “Remedial Work”) in the event any Remedial Work is required or reasonably necessary under applicable Environmental Laws because of or in connection with the actual or suspected past, present or future disposal or other release of any oil, oil and gas waste, hazardous substance or solid waste on, under, about or from any of the Borrower’s or its Subsidiaries’ Properties, which failure to commence and diligently prosecute to completion could reasonably be expected to have a Material Adverse Effect; and v) establish and implement, and shall cause each of its Subsidiaries to establish and implement, such procedures as may be reasonably necessary to continuously determine and assure that the Borrower’s and its Subsidiaries’ obligations under this Section 8.10(a) are timely and fully satisfied, which failure to establish and implement could reasonably be expected to have a Material Adverse Effect.

 

(b)           The Borrower will promptly, but in no event later than five days after the occurrence thereof, notify the Administrative Agent and the Lenders in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any 

 

  

63

  

 

landowner or other third party against the Borrower or its Subsidiaries or their Properties of which the Borrower has knowledge in connection with any Environmental Laws (excluding routine testing and corrective action) if the Borrower reasonably anticipates that such action will result in liability (whether individually or in the aggregate) in excess of $1,000,000, not fully covered by insurance, subject to normal deductibles.

 

(c)           The Borrower will, and will cause each of its Subsidiaries to, provide environmental audits and tests in accordance with American Society of Testing Materials standards upon request by the Administrative Agent and the Lenders (or as otherwise required to be obtained by the Administrative Agent or the Lenders by any Governmental Authority), in connection with any future acquisitions of Oil and Gas Properties or other material Properties.

 

Section 8.11                      Further Assurances.

 

(a)           The Borrower at its sole expense will, and will cause each of its Subsidiaries to, promptly execute and deliver to the Administrative Agent all such other documents, agreements and instruments reasonably requested by the Administrative Agent to comply with, cure any defects or accomplish the conditions precedent, covenants and agreements of the Borrower or any of its Subsidiaries, as the case may be, in the Loan Documents, including the Notes, or to further evidence and more fully describe the collateral intended as security for the Indebtedness, or to correct any omissions in this Agreement or the Security Instruments, or to state more fully the obligations secured therein, or to perfect, protect or preserve any Liens created pursuant to this Agreement or any of the Security Instruments or the priority thereof, or to make any recordings, file any notices or obtain any consents, all as may be reasonably necessary or appropriate, in the sole discretion of the Administrative Agent, in connection therewith.

 

(b)           The Borrower hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Mortgaged Property without the signature of the Borrower or any other Guarantor where permitted by law.  A carbon, photographic or other reproduction of the Security Instruments or any financing statement covering the Mortgaged Property or any part thereof shall be sufficient as a financing statement where permitted by law.  The Administrative Agent will promptly send the Borrower any financing or continuation statements it files without the signature of the Borrower or any other Guarantor and the Administrative Agent will promptly send the Borrower the filing or recordation information with respect thereto.

 

Section 8.12                      Reserve Reports.

 

(a)           On or before March 1st and September 1st of each year, commencing September 1, 2011, the Borrower shall furnish to the Administrative Agent and the Lenders a Reserve Report as of the immediately preceding December 31 or June 30, as applicable.  The Reserve Report as of December 31 of each year shall be prepared by one or more independent petroleum engineers reasonably acceptable to the Administrative Agent and the June 30 Reserve Report of each year shall be prepared by or under the supervision of the “Manager of Acquisitions and Planning” of the Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately preceding December 31 Reserve Report.

 

  

64

  

 

(b)           In the event of an Interim Redetermination, the Borrower shall furnish to the Administrative Agent and the Lenders a Reserve Report prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately preceding January 1 Reserve Report.  For any Interim Redetermination requested by the Administrative Agent or the Borrower pursuant to Section 2.07(b), the Borrower shall provide such Reserve Report with an “as of” date as required by the Administrative Agent as soon as possible, but in any event no later than thirty (30) days following the receipt of such request.

 

(c)           With the delivery of each Reserve Report, the Borrower shall provide to the Administrative Agent and the Lenders a certificate from a Responsible Officer certifying that in all material respects:  vi) the information contained in the Reserve Report and any other information delivered in connection therewith is true and correct, vii) the Borrower or its Subsidiaries owns good and defensible title to the Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section 9.03, viii) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 7.18 with respect to their Oil and Gas Properties evaluated in such Reserve Report that would require the Borrower or any of its Subsidiaries to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, ix) none of their Oil and Gas Properties have been sold since the date of the last Borrowing Base determination except as set forth on an exhibit to the certificate, which certificate shall list all of its Oil and Gas Properties sold and in such detail as reasonably required by the Administrative Agent, x) attached to the certificate is a list of all marketing agreements entered into subsequent to the later of the date hereof or the most recently delivered Reserve Report that the Borrower could reasonably be expected to have been obligated to list on Schedule 7.19 had such agreement been in effect on the date hereof and xi) attached thereto is a schedule of the Oil and Gas Properties evaluated by such Reserve Report that are Mortgaged Properties and demonstrating the percentage of the present value that such Mortgaged Properties represent.

 

Section 8.13                      Title Information.

 

(a)           On or before the delivery to the Administrative Agent and the Lenders of each Reserve Report required by Section 8.12(a), to the extent requested by the Administrative Agent, the Borrower will deliver title information in form and substance acceptable to the Administrative Agent covering enough of the Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that the Administrative Agent shall have received together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the total value of the Oil and Gas Properties evaluated by such Reserve Report.

 

(b)           If the Borrower has provided title information for additional Properties under Section 8.13(a), the Borrower shall, within 60 days of notice from the Administrative Agent that title defects or exceptions exist with respect to such additional Properties, either xii) cure any such title defects or exceptions (including defects or exceptions as to priority) which are not permitted by Section 9.03 raised by such information, xiii) substitute acceptable Mortgaged Properties with no title defects or exceptions except for Excepted Liens (other than Excepted Liens described in clauses (e), (g) and (h) of such 

 

  

65

  

 

definition) having an equivalent value or xiv) deliver title information in form and substance reasonably acceptable to the Administrative Agent so that the Administrative Agent shall have received, together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the value of the Oil and Gas Properties evaluated by such Reserve Report.

 

(c)           If the Borrower is unable to cure any title defect requested by the Administrative Agent or the Lenders to be cured within the 60-day period or the Borrower does not comply with the requirements to provide acceptable title information covering 80% of the value of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default, but instead the Administrative Agent and/or the Required Lenders shall have the right to exercise the following remedy in their sole discretion from time to time, and any failure to so exercise this remedy at any time shall not be a waiver as to future exercise of the remedy by the Administrative Agent or the Lenders.  To the extent that the Administrative Agent or the Required Lenders are not reasonably satisfied with title to any Mortgaged Property after the 60-day period has elapsed, such unacceptable Mortgaged Property shall not count towards the 80% requirement, and the Administrative Agent may send a notice to the Borrower and the Lenders that the then outstanding Borrowing Base shall be reduced by an amount as determined by the Required Lenders to cause the Borrower to be in compliance with the requirement to provide acceptable title information on 80% of the value of the Oil and Gas Properties.  This new Borrowing Base shall become effective immediately after receipt of such notice.

 

Section 8.14                      Additional Collateral; Additional Guarantors.

 

(a)           In connection with each redetermination of the Borrowing Base, the Borrower shall review the Reserve Report and the list of current Mortgaged Properties (as described in Section 8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at least 80% of the total value of the Oil and Gas Properties evaluated in the most recently completed Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production.  In the event that the Mortgaged Properties do not represent at least 80% of such total value, then the Borrower shall, and shall cause its Subsidiaries to, grant to the Administrative Agent or its designee as security for the Indebtedness a first-priority Lien interest (provided the Excepted Liens of the type described in clauses (a) to (d) and (f) of the definition thereof may exist, but subject to the provisos at the end of such definition) on additional Oil and Gas Properties not already subject to a Lien of the Security Instruments such that after giving effect thereto, the Mortgaged Properties will represent at least 80% of such total value.  All such Liens will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements or other Security Instruments, all in form and substance reasonably satisfactory to the Administrative Agent or its designee and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes.  In order to comply with the foregoing, if any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary is not a Guarantor, then it shall become a Guarantor and comply with Section 8.14(b).

 

(b)           In the event that xv) the Borrower determines that any Subsidiary is a Material Domestic Subsidiary or xvi) any Domestic Subsidiary incurs or guarantees any Debt, then the Borrower shall promptly cause such Subsidiary to guarantee the Indebtedness pursuant to the Guaranty 

 

  

66

  

 

Agreement.  In connection with any such guaranty, the Borrower shall, or shall cause such Subsidiary to, (a) execute and deliver a supplement to the Guaranty Agreement executed by such Subsidiary, (b) pledge all of the Equity Interests of such Subsidiary (including, without limitation, delivery of original stock certificates evidencing the Equity Interests of such Subsidiary, together with an appropriate undated stock powers for each certificate duly executed in blank by the registered owner thereof) and (c) execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Administrative Agent or its designee.

 

Section 8.15                      ERISA Compliance.  The Borrower will promptly furnish, and will cause its Subsidiaries and any ERISA Affiliate to promptly furnish, to the Administrative Agent s) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan, if any, or any trust created thereunder, t) immediately upon becoming aware of the occurrence of any ERISA Event or of any “prohibited transaction,” as described in section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by the President or the principal Financial Officer of the Borrower, its Subsidiaries or the ERISA Affiliate, as the case may be, specifying the nature thereof, what action the Borrower, its Subsidiaries or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and u) immediately upon receipt thereof, copies of any notice of the PBGC’s intention to terminate or to have a trustee appointed to administer any Plan.  With respect to each Plan, if any (other than a Multiemployer Plan), the Borrower will, and the Borrower will cause each of its Subsidiaries and ERISA Affiliates to, (1) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (2) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA.

 

Section 8.16                      Marketing Activities.  The Borrower will not, and will not permit any of its Subsidiaries to, engage in marketing activities for any Hydrocarbons or enter into any contracts related thereto other than v) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be produced from their proved Oil and Gas Properties during the period of such contract, w) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be produced from proved Oil and Gas Properties of third parties during the period of such contract associated with the Oil and Gas Properties of the Borrower and its Subsidiaries that the Borrower or one of its Subsidiaries has the right to market pursuant to joint operating agreements, unitization agreements or other similar contracts that are usual and customary in the oil and gas business and x) other contracts for the purchase and/or sale of Hydrocarbons of third parties (1) which have generally offsetting provisions (i.e., corresponding pricing mechanics, delivery dates and points and volumes) such that no “position” is taken and (2) for which appropriate credit support has been taken to alleviate the material credit risks of the counterparty thereto.

 

  

67

  

 

ARTICLE IX

NEGATIVE COVENANTS

 

Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that:

 

Section 9.01                      Financial Covenants.

 

(a)           Current Ratio.  The Borrower will not permit, as of the last day of any fiscal quarter, its ratio of ii) consolidated current assets (including the unused amount of the total Commitments, but excluding non-cash assets under FAS 133) to iii) consolidated current liabilities (excluding non-cash obligations under FAS 133 and current maturities under this Agreement) to be less than 1.0 to 1.0.

 

(b)           Ratio of Total Debt to EBITDA.  The Borrower will not, on any date of determination, permit its ratio of Total Debt as of such date to EBITDA for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available to be greater than 4.00 to 1.00.

 

Section 9.02                      Debt.  Neither the Borrower nor any of its Subsidiaries will incur, create, assume or suffer to exist any Debt, except:

 

(a)           the Notes or other Indebtedness arising under the Loan Documents or any guaranty of or suretyship arrangement for the Notes or other Indebtedness arising under the Loan Documents.

 

(b)           accounts payable and other accrued expenses, liabilities or other obligations to pay (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business which are not greater than 90 days past the date of invoice or delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP.

 

(c)           intercompany Debt between the Borrower and any of its Subsidiaries or between Subsidiaries to the extent permitted by Section 9.05(g); provided that such Debt is not held, assigned, transferred, negotiated or pledged to any Person other than the Borrower or one of their Wholly-Owned Subsidiaries, and, provided further, that any such Debt owed by either the Borrower or a Guarantor shall be subordinated to the Indebtedness on terms set forth in the Guaranty Agreement.

 

(d)           endorsements of negotiable instruments for collection in the ordinary course of business.

 

(e)           other Debt not to exceed $4,000,000 in the aggregate at any one time outstanding.

 

  

68

  

 

(f)           Debt under any Senior Notes issued after the Effective Date, provided that (i) the aggregate principal amount of such Debt outstanding at any time shall not exceed $500,000,000, (ii) at the time of incurring such Debt (A) no Default has occurred and is then continuing and (B) no Default would result from the incurrence of such Debt after giving effect to the incurrence of such Debt (and any concurrent repayment of Debt with the proceeds of such incurrence), (iii) such Debt does not have any scheduled amortization prior to one year after the Maturity Date, (iv) such Debt does not mature sooner than one year after the Maturity Date, (v) the terms of such Debt are not materially more onerous, taken as a whole, than the terms of this Agreement and the other Loan Documents, and (vi) the Borrowing Base is adjusted as contemplated by Section 2.07(f) and the Borrower makes any prepayment required under Section 3.04(c)(iii).

 

(g)           Permitted Refinancing Debt.

 

Section 9.03                      Liens.  Neither the Borrower nor any of its Subsidiaries will create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except:

 

(a)           Liens securing the payment of any Indebtedness.

 

(b)           Excepted Liens.

 

(c)           Liens on Property not constituting collateral for the Indebtedness and not otherwise permitted by the foregoing clauses of this Section 9.03; provided that the aggregate principal or face amount of all Debt secured under this Section 9.03(c) shall not exceed $250,000 at any time.

 

Section 9.04                      Dividends, Distributions and Redemptions; Repayment of Senior Notes.

 

(a)           Restricted Payments.                                           The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, return any capital to its stockholders or make any distribution of their Property to their respective Equity Interest holders, except iv) the Borrower may declare and pay dividends or distributions with respect to its Equity Interests payable solely in additional shares of its Equity Interests (other than Disqualified Capital Stock), v) Subsidiaries may declare and pay dividends or distributions ratably with respect to their Equity Interests, vi) so long as no Borrowing Base Deficiency, Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may declare and pay quarterly cash dividends to its partners of Available Cash in accordance with the Partnership Agreement, and (iv) if no Default or Event of Default has occurred and is continuing or would exist after giving effect thereto, the repurchase or other acquisition of equity securities, limited partnership interest or units of the Borrower, from employees, former employees, directors or former directors of the Borrower or its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) or other arrangements approved by the general partner of the Borrower under which such equity securities, limited partnership interest or units were granted, issued or sold.

 

  

69

  

 

(b)           Redemption of Senior Notes; Amendment of Senior Indentures  The Borrower will not, and will not permit any Subsidiary to, prior to the date that is ninety-one (91) days after the Maturity Date: (i) call, make or offer to make any optional or voluntary Redemption of or otherwise optionally or voluntarily Redeem (whether in whole or in part) the Senior Notes; provided that the Borrower may prepay any Senior Notes and any premiums relating thereto with the Net Cash Proceeds of any sale of Equity Interests (other than Disqualified Capital Stock) of the Borrower or with the Net Cash Proceeds of Permitted Refinancing Debt or (ii) amend, modify, waive or otherwise change, consent or agree to any amendment, supplement, modification, waiver or other change to, any of the terms of the Senior Notes or any Senior Indenture if (A) the effect thereof would be to shorten its maturity or average life or increase the amount of any payment of principal thereof or increase the rate or shorten any period for payment of interest thereon, or (B) such action requires the payment of a consent fee (howsoever described) if the payment of such consent fee would have the pro forma effect of causing a Default under Section 9.01 hereof, provided that the foregoing shall not prohibit the execution of supplemental indentures to add guarantors if required by the terms of any Senior Indenture provided such Person complies with Section 8.14(b).

 

Section 9.05                      Investments, Loans and Advances.  Neither the Borrower nor any of its Subsidiaries will make or permit to remain outstanding any Investments in or to any Person, except that the foregoing restriction shall not apply to:

 

(a)           Investments reflected in the Financial Statements.

 

(b)           accounts receivable arising in the ordinary course of business.

 

(c)           direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year from the date of creation thereof.

 

(d)           commercial paper maturing within one year from the date of creation thereof rated in the highest grade by S&P or Moody’s.

 

(e)           deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $250,000,000 (as of the date of such bank or trust company’s most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or Moody’s, respectively.

 

(f)           deposits in money market funds investing exclusively in Investments described in Section 9.05(c), Section 9.05(d) or Section 9.05(e).

 

(g)           Investments vii) made by the Borrower in or to the Guarantors, viii) made by any Subsidiary in or to the Borrower or any Guarantor, and ix) made by the Borrower or any Guarantor in Subsidiaries that are not Guarantors, provided that the aggregate of all Investments made by the 

 

  

70

  

 

Borrower and the Guarantors in or to all Subsidiaries that are not Guarantors shall not exceed $4,000,000 at any time, and only to the extent an Event of Default or Borrowing Base Deficiency does not exist and would not result from making such Investments.

 

(h)           Investments (including, without limitation, capital contributions) in general or limited partnerships or other types of entities (each a “venture”) entered into by the Borrower or any of its Subsidiaries with others in the ordinary course of business; provided that x) any such venture is engaged exclusively in oil and gas exploration, development, production, processing and related activities, including transportation, xi) the interest in such venture is acquired in the ordinary course of business and on fair and reasonable terms and xii) such venture interests acquired and capital contributions made (valued as of the date such interest was acquired or the contribution made) do not exceed, in the aggregate at any time outstanding an amount equal to $4,000,000, and only to the extent an Event of Default or Borrowing Base Deficiency does not exist and would not result from making such Investments.

 

(i)           subject to the limits in Section 9.06, Investments in direct ownership interests in additional Oil and Gas Properties and gas gathering systems related thereto or related to farm-out, farm-in, joint operating, joint venture or area of mutual interest agreements, gathering systems, pipelines or other similar arrangements which are usual and customary in the oil and gas exploration and production business located within the geographic boundaries of the United States of America, and only to the extent an Event of Default or Borrowing Base Deficiency does not exist and would not result from making such Investments.

 

(j)           loans or advances to employees, officers or directors in the ordinary course of business of the Borrower or any of its Subsidiaries, in each case only as permitted by applicable law, including Section 402 of the Sarbanes Oxley Act of 2002, but in any event not to exceed $250,000 in the aggregate at any time.

 

(k)           Investments in stock, obligations or securities received in settlement of debts arising from Investments permitted under this Section 9.05 owing to the Borrower or any of its Subsidiaries as a result of a bankruptcy or other insolvency proceeding of the obligor in respect of such debts or upon the enforcement of any Lien in favor of the Borrower or any of its Subsidiaries; provided that the Borrower shall give the Administrative Agent prompt written notice in the event that the aggregate amount of all investments held at any one time under this Section 9.05(i) exceeds $250,000.

 

Section 9.06                      Nature of Business.  Neither the Borrower nor any of its Subsidiaries will allow any material change to be made in the character of its business as an independent oil and gas exploration and production company.  The Borrower will not, and will not permit any of its Subsidiaries to, operate its business outside the geographical boundaries of the United States.

 

Section 9.07                      Limitation on Leases.  Neither the Borrower nor any of its Subsidiaries will create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal but excluding leases of Hydrocarbon Interests), under leases or lease agreements which would cause the aggregate amount of all payments made by the Borrower and its Subsidiaries pursuant to all such leases or lease agreements, including, without limitation, any residual payments at the end of any lease, to exceed $5,000,000 in any period of twelve consecutive calendar 

 

  

71

  

 

months during the life of such leases.

 

Section 9.08                      Proceeds of Notes.  The Borrower will not permit the proceeds of the Notes to be used for any purpose other than those permitted by Section 7.21.  Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause any of the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.  If requested by the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 or such other form referred to in Regulation U, Regulation T or Regulation X of the Board, as the case may be.

 

Section 9.09                      ERISA Compliance.  The Borrower and its Subsidiaries will not at any time:

 

(a)           engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with which the Borrower any of its Subsidiaries or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code.

 

(b)           terminate, or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability of the Borrower, any of its Subsidiaries or any ERISA Affiliate to the PBGC.

 

(c)           fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrower, any of its Subsidiaries or any ERISA Affiliate is required to pay as contributions thereto.

 

(d)           permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan.

 

(e)           permit, or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by the Borrower, any of its Subsidiaries or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities.  The term “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA.

 

(f)           contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan.

 

(g)           acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower or any of its Subsidiaries or with respect to any ERISA Affiliate of the Borrower or any of its Subsidiaries if such Person 

 

  

72

  

 

sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, xiii) any Multiemployer Plan, or xiv) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities.

 

(h)           incur, or permit any ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA.

 

(i)           contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability.

 

(j)           amend, or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower, any of its Subsidiaries or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code.

 

Section 9.10                      Sale or Discount of Receivables.  Except for receivables obtained by the Borrower or any of its Subsidiaries out of the ordinary course of business or the settlement of joint interest billing accounts in the ordinary course of business or discounts granted to settle collection of accounts receivable or the sale of defaulted accounts arising in the ordinary course of business in connection with the compromise or collection thereof and not in connection with any financing transaction, neither the Borrower nor any of its Subsidiaries will discount or sell (with or without recourse) any of its notes receivable or accounts receivable.

 

Section 9.11                      Mergers, Etc.  Neither the Borrower nor any of its Subsidiaries will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person, except that any Wholly-Owned Subsidiary may merge with any other Wholly-Owned Subsidiary and that the Borrower may merge with any Wholly-Owned Subsidiary so long as the Borrower is the survivor.

 

Section 9.12                      Sale of Properties.  The Borrower will not, and will not permit any of its Subsidiaries to, sell, assign, farm-out, convey or otherwise transfer any Property except for: y) the sale of Hydrocarbons in the ordinary course of business; z) farmouts of undeveloped acreage and assignments in connection with such farmouts; aa) the sale or transfer of equipment that is no longer necessary for the business of the Borrower or such Subsidiary or is replaced by equipment of at least comparable value and use; provided that the total fair market value of such equipment being sold or transferred does not exceed $250,000 during any 12-month period; bb) sales or other dispositions (including Casualty Events) of Oil and Gas Properties or any interest therein or Subsidiaries owning Oil and Gas Properties; provided that (1) 100% of the consideration received in respect of such sale or other disposition shall be cash, (2) the consideration received in respect of such sale or other disposition shall be equal to or greater than the fair market value of the Oil and Gas Property, interest therein or Subsidiary subject of such sale or other disposition (as reasonably determined by the board of directors of the 

 

  

73

  

 

Borrower and, if requested by the Administrative Agent, the Borrower shall deliver a certificate of a Responsible Officer of the Borrower certifying to that effect), (3) if such sale or other disposition of Oil and Gas Property or Subsidiary owning Oil and Gas Properties included in the most recently delivered Reserve Report during any period between two successive Scheduled Redetermination Dates has a fair market value (as determined by the Administrative Agent), individually or in the aggregate, in excess of 5% of the Borrowing Base, the Borrowing Base shall be reduced, effective immediately upon such sale or disposition, by an amount equal to the value, if any, assigned such Property, as determined by the Majority Lenders in the most recently delivered Reserve Report; (4) if any such sale or other disposition is of a Subsidiary owning Oil and Gas Properties, such sale or other disposition shall include all the Equity Interests of such Subsidiary; and (5) such sales under this Section 9.12(d) shall be allowed only to the extent an Event of Default or Borrowing Base Deficiency does not exist and would not result from such sale or transfer; and cc) sales and other dispositions of Properties not regulated by Section 9.12(a) to (d) having a total fair market value not to exceed $500,000 during any 12-month period.

 

Section 9.13                      Environmental Matters.  The Borrower will not, and will not permit any Subsidiary to, violate or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any Remedial Work under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations could reasonably be expected to have a Material Adverse Effect.

 

Section 9.14                      Transactions with Affiliates.  The Borrower will not, and will not permit any Subsidiary to, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate (other than the Guarantors and Wholly-Owned Subsidiaries of the Borrower) unless such transactions are otherwise permitted under this Agreement and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm’s length transaction with a Person not an Affiliate.

 

Section 9.15                      Subsidiaries.  The Borrower shall have no Subsidiaries other than Wholly-Owned Subsidiaries.  The Borrower shall not, and shall not permit its Subsidiaries to, create or acquire any additional Subsidiary unless the Borrower gives written notice to the Administrative Agent of such creation or acquisition and complies with Section 8.14(b).  The Borrower shall not, and shall not permit any of its Subsidiaries to, sell, assign or otherwise dispose of any Equity Interests in any of its Subsidiaries.  The Borrower shall have no Foreign Subsidiaries.

 

Section 9.16                      Negative Pledge Agreements; Dividend Restrictions.  Neither the Borrower nor any of its Subsidiaries will create, incur, assume or suffer to exist any contract, agreement or understanding (other than this Agreement or the Security Instruments) that in any way prohibits or 

 

  

74

  

 

restricts the granting, conveying, creation or imposition of any Lien on any of its Property in favor of the Administrative Agent and the Lenders or restricts any Subsidiary from paying dividends or making distributions to the Borrower or any Guarantor, or which requires the consent of or notice to other Persons in connection therewith.

 

Section 9.17                      Gas Imbalances, Take-or-Pay or Other Prepayments.  The Borrower will not, and will not permit any of its Subsidiaries to, allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any of its Subsidiaries that would require the Borrower or such Subsidiary to deliver, in the aggregate, two percent (2%) or more of the monthly production of Hydrocarbons at some future time without then or thereafter receiving full payment therefor.

 

Section 9.18                      Swap Agreements.  Neither the Borrower nor any of its Subsidiaries will enter into any Swap Agreements with any Person other than i) Swap Agreements in respect of commodities (1) with an Approved Counterparty and (2) the notional volumes for which (when aggregated with other commodity Swap Agreements then in effect other than basis differential swaps on volumes already hedged pursuant to other Swap Agreements) do not exceed, as of the date such Swap Agreement is executed, 85% of the reasonably anticipated projected production from Proved Developed Producing Properties for each month during the period during which such Swap Agreement is in effect for each of crude oil, natural gas and natural gas liquids, each calculated separately (for purposes of the foregoing, natural gas liquids may he hedged directly or for crude oil in a ratio based on current market conditions and acceptable to the Administrative Agent), for each of the next five succeeding calendar years, provided that upon the date the Borrower or any of its Subsidiaries signs a definitive acquisition agreement for any acquisition of Property or Equity Interests of any Person not prohibited by this Agreement, Swap Agreements may be entered into for 85% of the reasonably anticipated projected production from Proved Developed Producing Properties the subject of such acquisition (provided that should such acquisition fail to close within 60 days of the date the Borrower or any of its Subsidiaries signing such definitive acquisition agreement, the Borrower shall, or shall cause such Subsidiary, to terminate or unwind such Swap Agreements entered into in respect of such acquisition such that the Borrower or its Subsidiaries are in compliance with clause (a)(ii) above), excluding the effect of the provision for pending acquisitions, may be purchased limited to total notional volumes of all Swap Agreements and puts options not exceeding 100% of projected production from Proved Developed Producing Properties as described in (a)(ii) above, and ii) Swap Agreements in respect of interest rates with an Approved Counterparty, which effectively convert interest rates from floating to fixed, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrower and its Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not exceed 90% of the then outstanding principal amount of the Borrower’s Debt for borrowed money which bears interest at a floating rate.  In no event shall any Swap Agreement contain any requirement, agreement or covenant for the Borrower or any of its Subsidiaries to post collateral or margin to secure their obligations under such Swap Agreement or to cover market exposures.

 

Section 9.19                      Swap Agreement Termination.  The Borrower shall, and shall require its Subsidiaries to, maintain the hedged positions established pursuant to Swap Agreements used to calculate the then effective Borrowing Base and shall, and shall require its Subsidiaries to, neither assign, 

 

  

75

  

 

terminate or unwind any such Swap Agreements nor sell any such Swap Agreements if the effect of such action (when taken together with any other Swap Agreements executed contemporaneously with the taking of such action) would have the effect of reducing the economic value supporting the Borrowing Base; provided that notwithstanding the foregoing, the Borrower may, and may permit its Subsidiaries to, assign, terminate or unwind Swap Agreements with the effect of reducing the economic value supporting the Borrowing Base if it provides not less than 10 Business Days prior written notice of such intent to the Administrative Agent and the Lenders, and concurrently with such notice the Majority Lenders shall have the right to adjust the Borrowing Base in accordance with Section 2.07(e).

 

Section 9.20                      Tax Status as Partnership; Partnership Agreement.  The Borrower shall not alter its status as a partnership for purposes of United States Federal Income taxes.  The Borrower shall not, and shall not permit any Subsidiary to, amend or modify any provision of the Partnership Agreement or any other organizational document, or any agreements with Affiliates of the type referred to in Section 9.14, if such amendment or modification could reasonably be expected to have a Material Adverse Effect.

 

ARTICLE X

EVENTS OF DEFAULT; REMEDIES

 

Section 10.01                                Events of Default.  One or more of the following events shall constitute an “Event of Default”:

 

(a)           the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise.

 

(b)           the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in Section 10.01(a)) payable under any Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days.

 

(c)           any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries in or in connection with any Loan Document or any amendment or modification of any Loan Document or waiver under such Loan Document, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect when made or deemed made.

 

(d)           the Borrower or any of its Subsidiaries shall fail to observe or perform any covenant, condition or agreement contained in, Section 8.01(m), Section 8.01(n), Section 8.02, Section 8.03 or in ARTICLE IX.

 

(e)           the Borrower or any of its Subsidiaries shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any other Loan Document, and such failure shall continue unremedied for a period of 30 days after the earlier to occur of iii) notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender) or iv) a Responsible Officer of the Borrower or any of its Subsidiaries otherwise becoming aware of such default.

 

  

76

  

 

(f)           the Borrower or any of its Subsidiaries shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable (after giving effect to any applicable notice and cure period).

 

(g)           any event or condition occurs (after giving effect to any notice or cure period) that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the Redemption thereof or any offer to Redeem to be made in respect thereof, prior to its scheduled maturity or require the Borrower or any of its Subsidiaries to make an offer in respect thereof.

 

(h)           an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (1) liquidation, reorganization or other relief in respect of the Borrower or any of its Subsidiaries or its debts, or of a substantial part of its assets, under any  Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (2) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its Subsidiaries or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered.

 

(i)           the Borrower or any of its Subsidiaries shall v) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, vi) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 10.01(h), vii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its Subsidiaries or for a substantial part of its assets, viii) file an answer admitting the material allegations of a petition filed against it in any such proceeding, ix) make a general assignment for the benefit of creditors or x) take any action for the purpose of effecting any of the foregoing; or any member of the Borrower shall make any request or take any action for the purpose of calling a meeting of the members of the Borrower to consider a resolution to dissolve and wind-up the Borrower’s affairs.

 

(j)           the Borrower or any of its Subsidiaries shall become unable, admit in writing its inability or fail generally to pay its debts as they become due.

 

(k)           xi) one or more judgments for the payment of money in an aggregate amount in excess of $2,000,000 (to the extent not covered by independent third party insurance provided by insurers of the highest claims paying rating or financial strength as to which the insurer does not dispute coverage and is not subject to an insolvency proceeding) or (1) any one or more non monetary judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, shall be rendered against the Borrower, any of its Subsidiaries or any combination thereof; 

 

  

77

  

 

and, in case of each of clause (i) or (ii), the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any of its Subsidiaries to enforce any such judgment.

 

(l)           the Loan Documents after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms against the Borrower or a Guarantor party thereto or shall be repudiated by them, or cease to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, except to the extent permitted by the terms of this Agreement, or the Borrower or any of its Subsidiaries shall so state in writing.

 

(m)           an ERISA Event shall have occurred that, in the opinion of the Majority Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $2,000,000 in any year.

 

(n)           a Change in Control shall occur.

 

Section 10.02                                Remedies.

 

(a)           In the case of an Event of Default other than one described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter during the continuance of such Event of Default, the Administrative Agent may, and at the request of the Majority Lenders, shall, by notice to the Borrower, take either or both of the following actions, at the same or different times:  xii) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and xiii) declare the Notes and the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower and the Guarantors accrued hereunder and under the Notes and the other Loan Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall become due and payable immediately, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by the Borrower and each Guarantor; and in case of an Event of Default described in Section 10.01(h), Section 10.01(i) or  Section 10.01(j), the Commitments shall automatically terminate and the Notes and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and the other obligations of the Borrower and the Guarantors accrued hereunder and under the Notes and the other Loan Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and each Guarantor.

 

(b)           In the case of the occurrence of an Event of Default, the Administrative Agent and the Lenders will have all other rights and remedies available at law and equity.

 

  

78

  

 

(c)           All proceeds realized from the liquidation or other disposition of collateral or otherwise received after maturity of the Notes, whether by acceleration or otherwise, shall be applied:  first, to reimbursement of expenses and indemnities provided for in this Agreement and the Security Instruments; second, to accrued interest on the Notes; third, to fees; fourth, pro rata to principal outstanding on the Notes and Indebtedness referred to in clause (b) of the definition of Indebtedness owing to a Lender or an Affiliate of a Lender; fifth, to any other Indebtedness; sixth, to serve as cash collateral to be held by the Administrative Agent to secure the LC Exposure; and any excess shall be paid to the Borrower or as otherwise required by any Governmental Requirement.

 

Section 10.03                                Disposition of Proceeds.  The Security Instruments contain an assignment by the Borrower and/or the Guarantors unto and in favor of the Administrative Agent for the benefit of the Lenders of all of the Borrower’s or each Guarantor’s interest in and to production and all proceeds attributable thereto which may be produced from or allocated to the Mortgaged Property.  The Security Instruments further provide in general for the application of such proceeds to the satisfaction of the Indebtedness and other obligations described therein and secured thereby.  Notwithstanding the assignment contained in such Security Instruments, except after the occurrence and during the continuance of an Event of Default, dd) the Administrative Agent and the Lenders agree that they will neither notify the purchaser or purchasers of such production nor take any other action to cause such proceeds to be remitted to the Administrative Agent or the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrower and its Subsidiaries and ee) the Lenders hereby authorize the Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to the Borrower and/or its Subsidiaries.

 

ARTICLE XI

THE AGENTS

 

Section 11.01                                Appointment; Powers.  Each of the Lenders and each Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof and the other Loan Documents, together with such actions and powers as are reasonably incidental thereto.

 

Section 11.02                                Duties and Obligations of Administrative Agent.  The Administrative Agent shall have no duties or obligations except those expressly set forth in the Loan Documents.  Without limiting the generality of the foregoing, ff) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing (the use of the term “agent” herein and in the other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law; rather, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties), gg) the Administrative Agent shall have no duty to take any discretionary action or exercise any discretionary powers, except as provided in Section 11.03, and hh) except as expressly set forth herein, the Administrative Agent shall have no duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or 

 

  

79

  

 

obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity.  The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and shall not be responsible for or have any duty to ascertain or inquire into (1) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (2) the contents of any certificate, report or other document delivered hereunder or under any other Loan Document or in connection herewith or therewith, (3) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or in any other Loan Document, (4) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, (5) the satisfaction of any condition set forth in ARTICLE VI or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent, (6) the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower and its Subsidiaries or any other obligor or guarantor, or (7) any failure by the Borrower or any other Person (other than itself) to perform any of its obligations hereunder or under any other Loan Document or the performance or observance of any covenants, agreements or other terms or conditions set forth herein or therein.  For purposes of determining compliance with the conditions specified in ARTICLE VI, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received written notice from such Lender prior to the proposed closing date specifying its objection thereto.

 

Section 11.03                                Action by Administrative Agent.  The Administrative Agent shall have no duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise in writing as directed by the Majority Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02) and in all cases the Administrative Agent shall be fully justified in failing or refusing to act hereunder or under any other Loan Documents unless it shall ii) receive written instructions from the Majority Lenders, the Required Lenders or the Lenders, as applicable, (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02) specifying the action to be taken and jj) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action.  The instructions as aforesaid and any action taken or failure to act pursuant thereto by the Administrative Agent shall be binding on all of the Lenders.  If a Default has occurred and is continuing, then the Administrative Agent shall take such action with respect to such Default as shall be directed by the requisite Lenders in the written instructions (with indemnities) described in this Section 11.03, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders.  In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the Loan Documents or applicable law.  If a Default has occurred and is continuing, neither the Syndication Agent nor the 

 

  

80

  

 

Documentation Agent shall have any obligation to perform any act in respect thereof.  The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or the Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02), and otherwise the Administrative Agent shall not be liable for any action taken or not taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.

 

Section 11.04                                Reliance by Administrative Agent.  The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person.  The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon and each of the Borrower, the Lenders and each Issuing Bank hereby waives the right to dispute the Administrative Agent’s record of such statement, except in the case of gross negligence or willful misconduct by the Administrative Agent.  The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.  The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent.

 

Section 11.05                                Subagents.  The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties.  The exculpatory provisions of the preceding Sections of this ARTICLE XI shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

 

Section 11.06                                Resignation or Removal of Administrative Agent.  Subject to the appointment and acceptance of a successor Administrative Agent as provided in this Section 11.06, the Administrative Agent may resign at any time by notifying the Lenders, each Issuing Bank and the Borrower, and the Administrative Agent may be removed at any time with or without cause by the Majority Lenders.  Upon any such resignation or removal, the Majority Lenders shall have the right, in consultation with the Borrower, to appoint a successor.  If no successor shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation or removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders and each Issuing Bank, appoint a successor Administrative Agent.  Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall 

 

  

81

  

 

be discharged from its duties and obligations hereunder.  The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor.  After the Administrative Agent’s resignation hereunder, the provisions of this ARTICLE XI and Section 12.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.

 

Section 11.07                                Administrative Agent and Lenders.  Each bank serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder.

 

Section 11.08                                No Reliance.  Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, any other Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and each other Loan Document to which it is a party.  Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, any other Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder.  The Agents shall not be required to keep themselves informed as to the performance or observance by the Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided for herein or to inspect the Properties or books of the Borrower or its Subsidiaries.  Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, no Agent nor the Arranger shall have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of such Agent or any of its Affiliates.  In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this transaction as special counsel to the Administrative Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document.  Each other party hereto will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein.

 

Section 11.09                                Administrative Agent May File Proofs of Claim.  In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Borrower or any of its Subsidiaries, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

 

(a)           to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Indebtedness that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders 

 

  

82

  

 

and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 12.03) allowed in such judicial proceeding; and

 

(b)           to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

 

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 12.03.

 

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Indebtedness or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

 

Section 11.10                                Authority of Administrative Agent to Release Collateral and Liens.  Each Lender and each Issuing Bank hereby authorizes the Administrative Agent to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents.  Each Lender and each Issuing Bank hereby authorizes the Administrative Agent to execute and deliver to the Borrower, at the Borrower’s sole cost and expense, any and all releases of Liens, termination statements, assignments or other documents reasonably requested by the Borrower in connection with any sale or other disposition of Property to the extent such sale or other disposition is permitted by the terms of Section 9.12 or is otherwise authorized by the terms of the Loan Documents.

 

Section 11.11                                The Arranger, the Syndication Agent and the Documentation Agent.  The Arranger, the Syndication Agent and the Documentation Agent shall have no duties, responsibilities or liabilities under this Agreement and the other Loan Documents other than their duties, responsibilities and liabilities in their capacity as a Lender hereunder to the extent they are a party to this Agreement as a Lender.

 

ARTICLE XII

MISCELLANEOUS

 

Section 12.01                                Notices.

 

(a)           Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to Section 12.01(b)), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

 

  

83

  

 

(i)           if to the Borrower, to it at

 

Legacy Reserves LP

303 West Wall Street, Suite 1400

Midland, Texas  79701

Attention:  Steven H. Pruett, President and CFO

Email:  spruett@legacyLP.com

Phone:  432.689.5217

Fax:  432.689.5299

(ii)           if to the Administrative Agent, to it at

 

525 Washington Blvd.

Jersey City New Jersey 07310

Attention:  Veronica Burke, Loan Assistant

Email:  agency.ls.support@americas.bnpparibas.com

Telecopy:  201.850.4020

with a copies to the Administrative Agent at:

1200 Smith Street, Suite 3100

Houston, Texas  77002

Attention:  Melina Duval

Email:  melina.duval@americas.bnpparibas.com

Telecopy:  713.659.6915

1200 Smith Street, Suite 3100

Houston, Texas  77002

Attention:  Donna Verwold

Email:  donna.verwold@americas.bnpparibas.com

Telecopy:  713.659.6915

(iii)           if to any other Lender, in its capacity as such, or any other Lender in its capacity as an Issuing Bank, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.

 

(b)           Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to ARTICLE II, ARTICLE III, ARTICLE IV and ARTICLE V unless otherwise agreed by the Administrative Agent and the applicable Lender.  The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

 

(c)           Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.  All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed 

 

  

84

  

 

to have been given on the date of receipt.

 

Section 12.02                                Waivers; Amendments.

 

(a)           No failure on the part of the Administrative Agent, any other Agent, any Issuing Bank or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege, or any abandonment or discontinuance of steps to enforce such right, power or privilege, under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies of the Administrative Agent, each other Agent, each Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by Section 12.02(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any other Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time.

 

(b)           In each instance subject to Section 4.04(c)(ii), neither this Agreement nor any provision hereof nor any Security Instrument nor any provision thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Majority Lenders or by the Borrower and the Administrative Agent with the consent of the Majority Lenders; provided that no such agreement shall i) increase the Maximum Credit Amount of any Lender without the written consent of such Lender, ii) increase the Borrowing Base without the written consent of each Lender, decrease or maintain the Borrowing Base without the consent of the Required Lenders, or modify in any manner Section 2.07 without the consent of each Lender, iii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, or reduce any other Indebtedness hereunder or under any other Loan Document, without the written consent of each Lender affected thereby, iv) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or any other Indebtedness hereunder or under any other Loan Document, or reduce the amount of, waive or excuse any such payment, or postpone or extend the Termination Date or the Maturity Date without the written consent of each Lender affected thereby, v) change Section 4.01(b) or Section 4.01(c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, vi) “(vi) waive or amend Section 4.04, Section 6.01 or Section 8.14 or change the definition of the terms “Domestic Subsidiary”, “Foreign Subsidiary”, “Material Domestic Subsidiary” or “Subsidiary”, without the written consent of each Lender, vii) release any Guarantor (except as set forth in the Guaranty Agreement), release all or substantially all of the collateral (other than as provided in Section 11.09), or reduce the percentage set forth in Section 8.14(a) to less than 80%, without the written consent of each Lender, or viii) waive or amend clause (b) of the definition of Indebtedness, Section 10.02(c), Section 12.14, any of the provisions of this Section 12.02(b) or the definition of “Majority Lenders”, “Required Lenders” or any other provision hereof specifying the number or 

 

  

85

  

 

percentage of Lenders required to waive, amend or modify any rights hereunder or under any other Loan Documents or make any determination or grant any consent hereunder or any other Loan Documents, without the written consent of each Lender and the consent of each Person that is adversely affected thereby and a party to a Swap Agreement secured by the Security Instruments which is not a Lender (or an Affiliate of a Lender) at the time of such waiver or amendment; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, any other Agent or any Issuing Bank hereunder or under any other Loan Document without the prior written consent of the Administrative Agent, such other Agent or such Issuing Bank, as the case may be.  Notwithstanding the foregoing, any supplement to Schedule 7.14 (Subsidiaries) shall be effective simply by delivering to the Administrative Agent a supplemental schedule clearly marked as such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the Lenders.

 

Section 12.03                                Expenses, Indemnity; Damage Waiver.

 

(a)           The Borrower shall pay ix) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including, without limitation, the reasonable fees, charges and disbursements of counsel and other outside consultants for the Administrative Agent, the reasonable travel, photocopy, mailing, courier, telephone and other similar expenses and, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration (both before and after the execution hereof and including advice of counsel to the Administrative Agent as to the rights and duties of the Administrative Agent and the Lenders with respect thereto) of this Agreement and the other Loan Documents and any amendments, modifications or waivers of or consents related to the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), x) all out-of-pocket costs, expenses, Taxes, assessments and other charges incurred by any Agent or any Lender in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement or any Security Instrument or any other document referred to therein, xi) all reasonable out-of-pocket expenses incurred by each Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit issued by such Issuing Bank or any demand for payment thereunder, xii) all out-of-pocket expenses incurred by any Agent, any Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for any Agent, any Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this Section 12.03, or in connection with the Loans made or Letters of Credit issued hereunder, including, without limitation, all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

 

(b)           THE BORROWER SHALL INDEMNIFY EACH AGENT, THE ARRANGER, EACH ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY 

 

  

86

  

 

INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF xiii) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, xiv) THE FAILURE OF THE BORROWER OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, xv) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, xvi) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, INCLUDING, WITHOUT LIMITATION, (a) ANY REFUSAL BY ANY ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT ISSUED BY SUCH ISSUING BANK IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (b) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, xvii) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, xviii) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, xix) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, xx) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ITS SUBSIDIARIES OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, xxi) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, xxii) THE PAST OWNERSHIP BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, xxiii) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, xxiv) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR xxv) ANY 

 

  

87

  

 

OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR xxvi) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

 

(c)           To the extent that the Borrower fails to pay any amount required to be paid by it to any Agent, the Arranger or any Issuing Bank under Section 12.03(a) or (b), each Lender severally agrees to pay to such Agent, the Arranger or such Issuing Bank, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against such Agent, the Arranger or such Issuing Bank in its capacity as such.

 

(d)           To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.

 

(e)           All amounts due under this Section 12.03 shall be payable within ten (10) Business Days of written demand therefor.

 

Section 12.04                                Successors and Assigns.

 

(a)           The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit), except that xxvii)  the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and xxviii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 12.04.  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of 

 

  

88

  

 

Credit), Participants (to the extent provided in Section 12.04(c)) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, each Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

 

(b)           xxix)  Subject to the conditions set forth in Section 12.04(b)(ii), any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

 

(A)           the Borrower, provided that no consent of the Borrower shall be required if such assignment is to a Lender or an Affiliate of a Lender or, if an Event of Default has occurred and is continuing, is to any other assignee; and

 

(B)           the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment to an assignee that is a Lender or any Affiliate of a Lender, immediately prior to giving effect to such assignment.

 

(ii)           Assignments shall be subject to the following additional conditions:

 

(A)           except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender’s Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing;

 

(B)           each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;

 

(C)           the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and

 

(D)           the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

 

(iii)           Subject to Section 12.04(b)(iv) and the acceptance and recording thereof, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Section 5.01, Section 5.02, Section 5.03 and Section 12.03).  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 12.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.04(c).

 

  

89

  

 

(iv)           The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Maximum Credit Amount of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, each Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  The Register shall be available for inspection by the Borrower, any Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.  In connection with any changes to the Register, if necessary, the Administrative Agent will reflect the revisions on Annex I and forward a copy of such revised Annex I to the Borrower, each Issuing Bank and each Lender.

 

(v)           Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section 12.04(b) and any written consent to such assignment required by Section 12.04(b), the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register.  No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this Section 12.04(b).

 

(c)           xxx)  Any Lender may, without the consent of the Borrower the Administrative Agent or any Issuing Bank, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that xxxi) such Lender’s obligations under this Agreement shall remain unchanged, xxxii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and xxxiii) the Borrower, the Administrative Agent, each Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver 

 

  

90

  

 

described in the proviso to Section 12.02 that affects such Participant.  In addition such agreement must provide that the Participant be bound by the provisions of Section 12.03.  Subject to Section 12.04(c)(ii) the Borrower agrees that each Participant shall be entitled to the benefits of Section 5.01, Section 5.02 and Section 5.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.04(b).  To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 12.08 as though it were a Lender, provided such Participant agrees to be subject to Section 4.01(c) as though it were a Lender.

 

(ii)           A Participant shall not be entitled to receive any greater payment under Section 5.01 or Section 5.03 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent.  A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 5.03 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 5.03(e) as though it were a Lender.

 

(d)           Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

 

Section 12.05                                Survival; Revival; Reinstatement.

 

(a)           All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any other Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated.  The provisions of Section 5.01, Section 5.02, Section 5.03 and Section 12.03 and ARTICLE XI shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement, any other Loan Document or any provision hereof or thereof.

 

(b)           To the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Administrative Agent’s and the Lenders’ Liens, security interests, rights, powers and remedies under this Agreement and each Loan 

 

  

91

  

 

Document shall continue in full force and effect.  In such event, each Loan Document shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Administrative Agent and the Lenders to effect such reinstatement.

 

Section 12.06                                Counterparts; Integration; Effectiveness.

 

(a)           This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.

 

(b)           This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof and thereof.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

(c)           Except as provided in Section 6.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

 

Section 12.07                                Severability.  Any provision of this Agreement or any other Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

 

Section 12.08                                Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations (of whatsoever kind, including, without limitations obligations under Swap Agreements) at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower or any of its Subsidiaries against any of and all 

 

  

92

  

 

the obligations of the Borrower or any of its Subsidiaries owed to such Lender now or hereafter existing under this Agreement or any other Loan Document, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations may be unmatured.  The rights of each Lender under this Section 12.08 are in addition to other rights and remedies (including other rights of setoff) which such Lender or its Affiliates may have.

 

Section 12.09                                GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.

 

(a)           THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED.  CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.

 

(b)           ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.

 

(c)           EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.

 

(d)           EACH PARTY HEREBY xxxiv) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND 

 

  

93

  

 

FOR ANY COUNTERCLAIM THEREIN; xxxv) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; xxxvi) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND xxxvii) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.

 

Section 12.10                                Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

 

Section 12.11                                Confidentiality.  The Administrative Agent, each other Agent, each Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed kk) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), ll) to the extent requested by any regulatory authority, mm) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, nn) to any other party to this Agreement or any other Loan Document, oo) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, pp) subject to an agreement containing provisions substantially the same as those of this Section 12.11, to (1) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (2) any actual or prospective counterparty (or its advisors) to any Swap Agreement relating to the Borrower and their obligations, qq) with the consent of the Borrower or rr) to the extent such Information (1) becomes publicly available other than as a result of a breach of this Section 12.11 or (2) becomes available to the Administrative Agent, any other Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower.  For the purposes of this Section 12.11, “Information” means all information received from the Borrower or any of its Subsidiaries relating to the Borrower or any of its Subsidiaries and their businesses, other than any such information that is available to the Administrative Agent, any other Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries; provided that, in the case of information received from the Borrower, or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information as provided in this Section 12.11 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

 

  

94

  

 

Section 12.12                                Interest Rate Limitation.  It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it.  Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows:  ss) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower); and tt) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower).  All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the stated term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law.  If at any time and from time to time (1) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12 and (2) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.12.  To the extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of determining the Highest Lawful Rate applicable to a Lender, such Lender elects to determine the applicable rate ceiling under such Chapter by the weekly ceiling from time to time in effect.  Chapter 346 of the Texas Finance Code does not apply to the Borrower’s obligations hereunder.

 

Section 12.13                                EXCULPATION PROVISIONS.  EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE 

 

  

95

  

 

OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

 

Section 12.14                                Collateral Matters; Swap Agreements.  The benefit of the Security Instruments and of the provisions of this Agreement relating to any collateral securing the Indebtedness shall also extend to and be available to those Lenders or their Affiliates which are counterparties to any Swap Agreement with the Borrower or any of its Subsidiaries, and those counterparties to any Swap Agreement with the Borrower or any of its Subsidiaries which were Lenders (or Affiliates of a Lender) when they entered into such Swap Agreement but are no longer Lenders (or Affiliates of a Lender), in each case on a pro rata basis in respect of any obligations of the Borrower or any of its Subsidiaries which arise under any such Swap Agreement with such Persons, including any Swap Agreements between such Persons in existence prior to the date hereof.  In addition, it is understood and agreed that the benefit of the Security Instruments and the provisions of this Agreement relating to any collateral securing the Indebtedness shall also extend to and be available to such Lenders or their Affiliates as provided herein and in the Security Instruments notwithstanding that any such Lender (as defined in the Existing Credit Agreement) is not a Lender hereunder.  Except as set forth in Section 12.02(b)(viii), no Lender, any Lender (as defined in the Existing Credit Agreement) or any of their Affiliates shall have any voting rights under any Loan Document as a result of the existence of obligations owed to it under any such Swap Agreements

 

Section 12.15                                No Third Party Beneficiaries.  This Agreement, the other Loan Documents, and the agreement of the Lenders to make Loans and the Issuing Bank to issue, amend, renew or extend Letters of Credit hereunder are solely for the benefit of the Borrower, and no other Person (including, without limitation, any Subsidiary of the Borrower, any obligor, contractor, subcontractor, supplier or materialsman) shall have any rights, claims, remedies or privileges hereunder or under any other Loan Document against the Administrative Agent, the other Agents, the Issuing Bank or any Lender for any reason whatsoever.  There are no third party beneficiaries.

 

Section 12.16                                USA Patriot Act Notice.  Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the 

 

  

96

  

 

Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act.

 

  

97

  

 

The parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

 

	
BORROWER:

	
LEGACY RESERVES LP

By: Legacy Reserves GP, LLC,

       its general partner

	  
	  	  	  	  
	  	
By:

	
/s/ Steven H. Pruett

	  
	  	  	
Name: Steven H. Pruett

	  
	  	  	
Title:   President and Chief Financial Officer

	  

 

  

Signature Page - 1

Second Amended and Restated Credit Agreement

  

 

	ADMINISTRATIVE AGENT:	BNP PARIBAS, as Administrative Agent	 
	 	 	 	 
	
 

	
By: 

	/s/ Betsy Jocher	 
	 	 	Name: Betsy Jocher	 
	 	 	Title:   Director 	 

	 	 	 	 
	
 

	
By: 

	/s/ Richard Hawthorne	 
	 	 	Name: Richard Hawthorne	 
	 	 	Title:   Director 	 
	 	 	 	 

 

  

Signature Page - 2

Second Amended and Restated Credit Agreement

  

 

	SYNDICATION AGENT:	
WELLS FARGO BANK, N.A., as

Syndication Agent

	 
	 	 	 	 
	
 

	
By: 

	/s/ Charles D. Kirkham	 
	 	 	Name: Charles D. Kirkham 	 
	 	 	Title:   Managing Director 	 
	 	 	 	 

 

  

Signature Page - 3

Second Amended and Restated Credit Agreement

  

 

	DOCUMENTATION AGENT:	
COMPASS BANK, as Documentation

Agent

	 
	 	 	 	 
	
 

	
By: 

	/s/ Kathleen J. Bowen	 
	 	 	Kathleen J. Bowen 	 
	 	 	Senior Vice President	 
	 	 	 	 

 

 

  

Signature Page - 4

Second Amended and Restated Credit Agreement

  

 

	LENDERS:	BNP PARIBAS	 
	 	 	 	 
	
 

	
By: 

	/s/ Betsy Jocher	 
	 	 	Name: Betsy Jocher 	 
	 	 	Title:  Director 	 
	 	 	 	 

	
 

	
By: 

	/s/ Richard Hawthorne	 
	 	 	Name: Richard Hawthorne 	 
	 	 	Title:   Director 	 
	 	 	 	 

 

 

  

Signature Page - 5

Second Amended and Restated Credit Agreement

  

 

	 	WELLS FARGO BANK, N.A.	 
	 	 	 	 
	
 

	
By: 

	/s/ Charles D. Kirkham	 
	 	 	Name: Charles D. Kirkham 	 
	 	 	Title:   Managing Director 	 
	 	 	 	 

 

 

  

Signature Page - 6

Second Amended and Restated Credit Agreement

  

 

	 	COMPASS BANK	 
	 	 	 	 
	
 

	
By: 

	/s/ Kathleen J. Bowen	 
	 	 	Kathleen J. Bowen	 
	 	 	Senior Vice President	 
	 	 	 	 

 

 

  

Signature Page - 7

Second Amended and Restated Credit Agreement

  

 

	 	BANK OF AMERICA, N.A.	 
	 	 	 	 
	
 

	
By: 

	/s/ Sandra M. Serie	 
	 	 	Name: Sandra M. Serie 	 
	 	 	Title:   Vice President 	 
	 	 	 	 

 

  

Signature Page - 8

Second Amended and Restated Credit Agreement

  

 

	 	THE BANK OF NOVA SCOTIA	 
	 	 	 	 
	
 

	
By: 

	/s/ J. Frazell	 
	 	 	Name: J. Frazell 	 
	 	 	Title:   Director 	 
	 	 	 	 

 

  

Signature Page - 9

Second Amended and Restated Credit Agreement

  

 

	 	ROYAL BANK OF CANADA	 
	 	 	 	 
	
 

	
By: 

	/s/ Don J. McKinnerney	 
	 	 	Name: Don J. McKinnerney 	 
	 	 	Title:   Authorized Signatory 	 
	 	 	 	 

 

  

Signature Page - 10

Second Amended and Restated Credit Agreement

  

 

	 	U.S. BANK NATIONAL ASSOCIATION	 
	 	 	 	 
	
 

	
By: 

	/s/ Mark E. Thompson	 
	 	 	Name: Mark E. Thompson 	 
	 	 	Title:   Senior Vice President 	 
	 	 	 	 

 

  

Signature Page - 11

Second Amended and Restated Credit Agreement

  

 

	 	KEYBANK N.A.	 
	 	 	 	 
	
 

	
By: 

	/s/ David Morris	 
	 	 	Name: David Morris 	 
	 	 	Title:   Vice President 	 
	 	 	 	 

 

  

Signature Page - 12

Second Amended and Restated Credit Agreement

  

 

	 	WEST TEXAS NATIONAL BANK	 
	 	 	 	 
	
 

	
By: 

	/s/ Chris L. Whigham	 
	 	 	Name: Chris L. Whigham 	 
	 	 	Title:   Senior Vice President 	 
	 	 	 	 

 

  

Signature Page - 13

Second Amended and Restated Credit Agreement

  

 

	 	SOCIETE GENERALE	 
	 	 	 	 
	
 

	
By: 

	/s/ David M. Bornstein	 
	 	 	Name: David M. Bornstein 	 
	 	 	Title:   Director 	 
	 	 	 	 

 

 

  

Signature Page - 14

Second Amended and Restated Credit Agreement

  

 

	 	UNION BANK, N.A.	 
	 	 	 	 
	
 

	
By: 

	/s/ Douglas Gale	 
	 	 	Name: Douglas Gale 	 
	 	 	Title:   Vice President 	 
	 	 	 	 

 

  

Signature Page - 15

Second Amended and Restated Credit Agreement

  

 

	 	
CREDIT AGRICOLE CORPORATE

AND INVESTMENT BANK

	 
	 	 	 	 
	
 

	
By: 

	/s/ Dennis E. Petito	 
	 	 	Name: Dennis E. Petito 	 
	 	 	Title:   Director 	 
	 	 	 	 

	
 

	
By: 

	/s/ Sharada Manne	 
	 	 	Name: Sharada Manne 	 
	 	 	Title:   Director 	 
	 	 	 	 

 

  

Signature Page - 16

Second Amended and Restated Credit Agreement

  

 

	 	UBS AG, STAMFORD BRANCH	 
	 	 	 	 
	
 

	
By: 

	/s/ Irja R. Otsa	 
	 	 	Name: Irja R. Otsa 	 
	 	 	Title:   Associate Director 	 
	 	 	 	 

	
 

	
By: 

	/s/ Mary E. Evans	 
	 	 	Name: Mary E. Evans 	 
	 	 	Title:   Associate Director 	 
	 	 	 	 

 

 

  

Signature Page - 17

Second Amended and Restated Credit Agreement

  

ANNEX I

 

LIST OF MAXIMUM CREDIT AMOUNTS

 

Aggregate Maximum Credit Amounts

 

	
Name of Lender

	
Applicable Percentage

	
Maximum Credit Amount

	
BNP Paribas

	
13.00%

	
$130,000,000.00

	
Wells Fargo Bank, N.A.

	
10.80%

	
$108,000,000.00

	
Compass Bank

	
10.80%

	
$108,000,000.00

	
Bank of America, N.A.

	
9.00%

	
$90,000,000.00

	
Royal Bank of Canada

	
7.60%

	
$76,000,000.00

	
UBS AG, Stamford Branch

	
7.60%

	
$76,000,000.00

	
U.S. Bank National Association

	
7.60%

	
$76,000,000.00

	
The Bank of Nova Scotia

	
7.60%

	
$76,000,000.00

	
Credit Agricole Corporate and Investment Bank

	
7.60%

	
$76,000,000.00

	
Union Bank, N.A.

	
6.00%

	
$60,000,000.00

	
Societe Generale

	
6.00%

	
$60,000,000.00

	
KeyBank N.A.

	
5.00%

	
$50,000,000.00

	
West Texas National Bank

	
1.40%

	
$14,000,000.00

	
 

TOTAL

	
 

100.0000000%

	
 

$1,000,000,000.00

 

  

Annex I - 1

  

 

EXHIBIT A

 

[FORM OF] NOTE

 

$[          ]                                                                                                                                [          ], 201[     ]

 

FOR VALUE RECEIVED, Legacy Reserves LP, a Delaware limited partnership (the “Borrower”), hereby promises to pay to the order of [          ] (the “Lender”), at the principal office of BNP Paribas, as administrative agent (the “Administrative Agent”), the principal sum of [          ] Dollars ($[          ]) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Lender to the Borrower under the Credit Agreement, as hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.

 

The date, amount, Type, interest rate, Interest Period and maturity of each Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, may be endorsed by the Lender on the schedules attached hereto or any continuation thereof or on any separate record maintained by the Lender.  Failure to make any such notation or to attach a schedule shall not affect any Lender’s or the Borrower’s rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of this Note.

 

This Note is one of the Notes referred to in the Second Amended and Restated Credit Agreement dated as of March 10, 2011 among the Borrower, the Administrative Agent, the other Agents, and the lenders signatory thereto (including the Lender), and evidences Loans made by the Lender thereunder (such Credit Agreement as the same may be amended, supplemented or restated from time to time, the “Credit Agreement”) and replaces and supersedes any notes issued by the Borrower to the Lender under the Existing Credit Agreement.  Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement.

 

This Note is issued pursuant to, and is subject to the terms and conditions set forth in, the Credit Agreement and is entitled to the benefits provided for in the Credit Agreement and the other Loan Documents.  The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events, for prepayments of Loans upon the terms and conditions specified therein and other provisions relevant to this Note.

 

  

Exhibit A - 1

  

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

 

	 	
LEGACY RESERVES LP

 

By: Legacy Reserves GP, LLC,

       its general partner

	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

  

Exhibit A - 2

  

 

EXHIBIT B

 

[FORM OF]

 

COMPLIANCE CERTIFICATE

 

Each of the undersigned hereby certifies that he/she is the [          ] of Legacy Reserves LP, a Delaware limited partnership (the “Borrower”), and that as such he/she is authorized to execute this certificate on behalf of the Borrower.  With reference to the Second Amended and Restated Credit Agreement dated as of March 10, 2011 (together with all amendments, supplements or restatements thereto being the “Agreement”) among the Borrower, BNP Paribas, as Administrative Agent, the other Agents, and the lenders (the “Lenders”) which are or become a party thereto, and such Lenders, each of the undersigned represents and warrants as follows (each capitalized term used herein having the same meaning given to it in the Agreement unless otherwise specified):

 

(a)           The representations and warranties of the Borrower contained in ARTICLE VII of the Agreement and in the Loan Documents and otherwise made in writing by or on behalf of the Borrower or any other Guarantor pursuant to the Agreement and the Loan Documents were true and correct when made, and are repeated at and as of the time of delivery hereof and are true and correct in all material respects at and as of the time of delivery hereof, except to the extent such representations and warranties are expressly limited to an earlier date or the Majority Lenders have expressly consented in writing to the contrary.

 

(b)           The Borrower has performed and complied with all agreements and conditions contained in the Agreement and in the Loan Documents required to be performed or complied with by it prior to or at the time of delivery hereof [or specify default and describe].

 

(c)           Since December 31, 2010 no change has occurred, either in any case or in the aggregate, in the condition, financial or otherwise, of the Borrower or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect [or specify event].

 

(d)           There exists no Default or Event of Default [or specify Default and describe].

 

(e)           Attached hereto are the detailed computations necessary to determine whether the Borrower is in compliance with Section 9.01 and Section 8.14 as of the end of the fiscal quarter ending [          ].

 

EXECUTED AND DELIVERED this [          ] day of [          ].

 

	 	
LEGACY RESERVES LP

 

By:  Legacy Reserves GP, LLC,

        its general partner

	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

  

Exhibit B - 1

  

EXHIBIT C

 

SECURITY INSTRUMENTS

 

1)           Second Amended and Restated Guaranty Agreement dated as of March 10, 2011 among Legacy Reserves Operating LP, Legacy Reserves Operating GP LLC, Legacy Reserves Services, Inc., and the Administrative Agent

 

2)           Second Amended and Restated Pledge Agreement dated as of March 10, 2011 among the Borrower, Legacy Reserves Operating GP LLC, Legacy Reserves Operating LP, and the Administrative Agent pledging limited partner interests in Legacy Reserves Operating LP, membership interests in Legacy Reserves Operating GP LLC and Iron Creek Energy Group, LLC, general partner interests in Legacy Reserves Operating LP, common stock of Legacy Reserves Services, Inc.

 

3)           Second Amended and Restated Pledge Agreement UCC-3 Financing Statement Amendments:

 

(a)           Borrower

 

(b)           Legacy Reserves Operating GP LLC

 

(c)           Legacy Reserves Operating LP

 

4)           Deed of Trust, Mortgage, Line of Credit Mortgage, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement (New Mexico), dated as of March 10, 2011 by Legacy Reserves Operating LP in favor of, in the case of non-Federal Leases, BNP Paribas, as Administrative Agent, as Mortgagee, and in the case of Federal Leases, Paribas North America, Inc., as collateral agent fore the Administrative Agent, and as Mortgagee

 

5)           UCC-1, to be filed with the Delaware Secretary of State

 

6)           Deed of Trust, Mortgage, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement (Texas), dated as of March 10, 2011 by Legacy Reserves Operating LP in favor of BNP Paribas, as Mortgagee and Administrative Agent

 

7)           UCC-1, to be filed with the Delaware Secretary of State

 

8)           Mortgage, Fixture Filing, Assignment of As-Extracted Collateral, Security Agreement and Financing Statement (Oklahoma), dated as of March 10, 2011 by Legacy Reserves Operating LP in favor of BNP Paribas, as Mortgagee and Administrative Agent

 

9)           UCC-1, to be filed with the Delaware Secretary of State

 

10)           Mortgage, Fixture Filing, Assignment of As-Extracted Collateral, Security Agreement and Financing Statement (Wyoming), dated as of March 10, 2011 by Legacy Reserves Operating LP in favor of BNP Paribas, as Mortgagee and Administrative Agent

 

11)           UCC-1, to be filed with the Delaware Secretary of State

 

  

Exhibit C - 1

  

 

12)           Fee Letter among BNP Paribas, BNP Paribas Securities Corp. and the Borrower dated February 22, 2011

 

 

 

  

Exhibit C - 2

  

 

EXHIBIT D

 

[FORM OF] ASSIGNMENT AND ASSUMPTION

 

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee.  The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

 

The Assignor named on the reverse hereof hereby sells and assigns, without recourse, to the Assignee named on the reverse hereof, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Assignment Date set forth on the reverse hereof, the interests set forth on the reverse hereof (the “Assigned Interest”) in the Assignor’s rights and obligations under the Credit Agreement, including, without limitation, the interests set forth on the reverse hereof in the Commitment of the Assignor on the Assignment Date and Loans owing to the Assignor which are outstanding on the Assignment Date, together with the participations in Letters of Credit and LC Disbursements held by the Assignor on the Assignment Date, but excluding accrued interest and fees to and excluding the Assignment Date.  The Assignee hereby acknowledges receipt of a copy of the Credit Agreement.  From and after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement.

 

This Assignment and Assumption is being delivered to the Administrative Agent together with (i) if the Assignee is a Foreign Lender, any documentation required to be delivered by the Assignee pursuant to Section 5.03(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee.  The [Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 12.04(b) of the Credit Agreement.

 

This Assignment and Assumption shall be governed by and construed in accordance with the laws of the State of Texas.

 

	
Credit Agreement:

	
Second Amended And Restated Credit Agreement dated as of March 10, 2011, is among Legacy Reserves LP, each of the Lenders from time to time party thereto, BNP Paribas as administrative agent for the Lenders, and the other Agents party thereto

 

Legal Name of Assignor:

 

Legal Name of Assignee:

 

  

Exhibit D - 1

  

 

Assignee’s Address for Notices:

 

Assignment Date:

 

	
Facility

	
Principal Amount Assigned

	
Percentage Assigned of Facility/Commitment (set forth, to at least 8 decimals, as a percentage of the Facility and the aggregate Commitments of all Lenders thereunder)

	
Commitment Assigned:

	
$

	
%

	
Loans:

	  	  

 

The terms set forth above and on the reverse side hereof are hereby agreed to:

 

	 	[Name of Assignor], as Assignor	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

	 	[Name of Assignee], as Assignee	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

 

The undersigned hereby consent to the within assignment:

	
Legacy Reserves LP

 

By:  Legacy Reserves GP, LLC,

        as General Partner 

	

BNP Paribas,

as Administrative Agent

	 

	 	 	 	 	 
	
/s/

	 	 	
/s/ 

	 
	
Name

	 	 	
Name 

	 
	
Title 

	 	 	
Title

	 

	 	 	 
	
 

	/s/ 	 
	 	Name 	 
	 	Title 	 
	 	 	 

 

 

  

Exhibit D - 2

  

 

LEGACY RESERVES LP

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

 

1.           Representations and Warranties.

 

1.1           Assignor.  The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

 

1.2.           Assignee.  The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 8.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

 

2.           Payments.  From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the 

 

  

Second Amended and Restated Credit Agreement - 1

Standard Terms and Conditions for Assignment and Assumption 

  

 

Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

 

3.           General Provisions.  This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.  This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption.  This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of Texas.

 

  

Second Amended and Restated Credit Agreement - 2

Standard Terms and Conditions for Assignment and Assumption 

  

 

 

SCHEDULE 7.05

LITIGATION

 

None.

 

  

Schedule 7.05 - 1

  

 

 

SCHEDULE 7.14

SUBSIDIARIES

 

Subsidiaries of Legacy Reserves LP

 

 

	
Entity Name

	
Jurisdiction of Organization

	
Location of Chief Executive Offices

	
Organizational ID

	
Legacy Reserves Operating GP LLC

	
Delaware

	
303 W. Wall

Suite 1400

Midland, Texas 79701

	
4096662

	
Legacy Reserves Operating LP

	
Delaware

	
303 W. Wall

Suite 1400

Midland, Texas 79701

	
4096664

	
Legacy Reserves Services, Inc.

	
Texas

	
303 W. Wall

Suite 1400

Midland, Texas 79701

	
800619799

	
Iron Creek Energy Group, LLC

	
Wyoming

	
1501 Stampede Avenue, Suite 3170 Cody, Wyoming 82414

	
2004-000464122

  

Schedule 7.14 - 1

  

 

SCHEDULE 7.15

LOCATION OF BUSINESSES

 

Legacy Reserves Operating LP, Legacy Reserves Operating GP LLC and Legacy Reserves Services, Inc.

303 W. Wall, Suite 1400

Midland, Texas 79701

Iron Creek Energy Group, LLC

1501 Stampede Avenue, Suite 3170

Cody, WY  82414

 

  

Schedule 7.15 - 1

  

 

SCHEDULE 7.18

GAS IMBALANCES

 

There are no gas imbalances or prepayments that would require Legacy to deliver 2% or more of monthly hydrocarbon production without then receiving payment

 

  

Schedule 7.18 - 1

  

 

SCHEDULE 7.19

MARKETING CONTRACTS

 

None.

 

  

Schedule 7.19 - 1

  

 

SCHEDULE 7.20

SWAP AGREEMENTS

 

See attached.

 

  

Schedule 7.20 - 1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00186-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00186-of-00352.parquet"}]]