Document:

Exhibit 10.15

 

SECOND AMENDMENT TO CREDIT AGREEMENT

 

THIS SECOND AMENDMENT TO SECOND LIEN CREDIT AGREEMENT (hereinafter called this “Amendment”) is entered into effective as of December 23, 2011, between CINCO RESOURCES, INC., a Delaware corporation (“Borrower”), CINCO NATURAL RESOURCES CORPORATION, a Delaware corporation, DERNICK RESOURCES, LLC,  a Delaware limited liability company, CAMDEN RESOURCES, LLC, a Delaware limited liability company, CINCO LOGISTICS, LLC, a Texas limited liability company, PATHEX PETROLEUM, INC., a Delaware corporation, SEDNA ENERGY, INC., an Arkansas corporation, and CIMA RESOURCES, INC., a Delaware corporation (individually, a “Guarantor” and collectively, the “Guarantors”), each of the lenders which is a signatory hereto (individually, a “Lender” and, collectively, the “Lenders”), and WELLS FARGO ENERGY CAPITAL, INC., a Texas corporation, as Administrative Agent for the Lenders (in such capacity, together with its successors in such capacity “Administrative Agent”).

 

W  I  T  N  E  S  S  E  T  H:

 

WHEREAS, Borrower, Guarantors, Administrative Agent and the Lenders entered into that certain Second Lien Credit Agreement dated as of October 30, 2009, as amended by that certain First Amendment and Limited Waiver to Credit Agreement dated as of May 27, 2010 (as the same may be further restated, modified, amended, or supplemented from time to time, the “Credit Agreement”), whereby, upon the terms and conditions therein stated, Administrative Agent and the Lenders agreed to make available to Borrower a credit facility upon the terms and conditions set forth in the Credit Agreement;

 

WHEREAS, Borrower and Guarantors have asked Administrative Agent and the Lenders to amend the Credit Agreement as described herein; and

 

WHEREAS, Administrative Agent and the Lenders are willing to amend the Credit Agreement as requested by the Borrower and Guarantors, subject to the terms and conditions set forth herein.

 

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, the parties to this Amendment hereby agree as follows:

 

SECTION 1.                            Terms Defined in Credit Agreement.  As used in this Amendment, except as otherwise provided herein, all capitalized terms defined in the Credit Agreement shall have the same meaning herein as therein, all of such terms and their definitions being incorporated herein by reference. The Credit Agreement, as amended by this Amendment, is hereinafter called the “Agreement.”

 

SECTION 2.                            Amendment to the Credit Agreement.  Subject to the conditions precedent set forth in Section 4 hereof, the Credit Agreement is hereby amended in its entirety to read as set forth on Annex A attached hereto.

 

SECTION 3.                            Amendment to Schedules to Credit Agreement.  Subject to the conditions precedent set forth in Section 4 hereof:

 

(a)                                  Schedule 6.19 to the Credit Agreement is hereby amended in its entirety to read as set forth on Annex B attached hereto; and

 

(b)                                 Schedule 6.22 to the Credit Agreement is hereby amended in its entirety to read as set forth on Annex C attached hereto.

 

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SECTION 4.                            Conditions of Effectiveness.  The obligations of Administrative Agent and the Lenders to amend the Credit Agreement are subject to the fulfillment of the following conditions precedent:

 

(a)                                  Borrower shall have delivered to Administrative Agent multiple counterparts of this Amendment, as requested by Administrative Agent, duly executed by Borrower and Guarantors;

 

(b)                                 Borrower shall have delivered (i) copies of resolutions of Borrower and each Guarantor authorizing the transactions contemplated hereby, certified as of the date hereof by a Responsible Officer of each; (ii) certificate of Secretary of Borrower and each Guarantor certifying the names and true signatures of the officers or such Person authorized to execute, deliver and perform, as applicable, this Amendment, the Notes and all other Loan Documents to be delivered by it hereunder; and (iii) the Organization Documents of Borrower and each Guarantor as in effect on the date hereof;

 

(c)                                  Borrower shall have delivered a current certificate for each of Borrower and Guarantors (i) from its state of incorporation, evidencing its proper registration as a corporation, and (ii) from each state wherein such Person is qualified under the laws of such jurisdiction wherein its ownership, lease or operation of its Property or the conduct of its business requires such registration or qualification and where the failure to be so qualified would reasonably be expected to result in a Material Adverse Effect;

 

(d)                                 Borrower shall have delivered an opinion of counsel for Borrower and the Guarantors as to matters described in Sections 6.01, 6.02, 6.03, 6.04 and 6.16 of the Credit Agreement, and such other matters as Administrative Agent may request, in the form satisfactory to Administrative Agent dated as of the date hereof;

 

(e)                                  Administrative Agent shall have received evidence that Borrower has entered into an amendment to the Senior Credit Agreement on terms and conditions satisfactory to Administrative Agent;

 

(f)                                    Borrower and, as applicable, each Subsidiary shall have evidence of Marketable Title on at least eighty percent (80%) of the net present value of Borrower’s and each Subsidiary’s Borrowing Base Properties subject to no other liens, other than Permitted Liens, as evidenced by opinions of title or other title information reasonably satisfactory to Administrative Agent and the Lenders;

 

(g)                                 Administrative Agent and the Lenders shall be satisfied with the condition of Borrower’s and its Subsidiaries’ Borrowing Base Properties and each Person’s compliance with Environmental Laws;

 

(h)                                 Borrower shall have delivered to Administrative Agent insurance certificates in form and substance reasonably satisfactory to Administrative Agent, from Borrower’s insurance carriers reflecting the current insurance policies required under Section 7.06 of the Credit Agreement including any necessary endorsements to reflect Administrative Agent as “loss payee” or “additional insured,” as applicable, for the ratable benefit of the Lenders;

 

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(i)                                     Borrower shall have delivered certifications from Borrower and any Subsidiary party to the Security Documents that no “Building” (as defined in applicable flood insurance regulations) is included in the Mortgaged Property;

 

(j)                                     Borrower shall have delivered such other approvals, opinions, documents or materials as Administrative Agent or any Lender may reasonably request, including, without limitation, any new Mortgages or amendments or supplements to existing Mortgages, financing statements or amendments to financing statements;

 

(k)                                  Borrower shall have made payment of all fees and expenses due and owing under the Credit Agreement and under any separate fee agreement entered into by the parties pursuant to Section 2.05(a) of the Credit Agreement including such fees and expenses specified in Section 7 hereof and payment of all outstanding invoices of Mayer Brown LLP;

 

(l)                                     no Material Adverse Effect shall have occurred; and

 

(m)                               no Default or Event of Default shall have occurred.

 

SECTION 5.                            Representations and Warranties. Each of Borrower and the Guarantors represents and warrants to Administrative Agent and each Lender, with full knowledge that Administrative Agent and each Lender are relying on the following representations and warranties in executing this Amendment, as follows:

 

(a)                                  It has the organizational power and authority to execute, deliver and perform this Amendment and all other Loan Documents executed and delivered herewith, and all organizational action on the part of it, requisite for the due execution, delivery and performance of this Amendment and all other Loan Documents executed and delivered herewith, has been duly and effectively taken.

 

(b)                                 The Credit Agreement, as amended by this Amendment, and the Loan Documents and each and every other document executed and delivered in connection with this Amendment to which it is a party constitute the legal, valid and binding obligations of it, to the extent it is a party thereto, enforceable against such Person in accordance with their respective terms.

 

(c)                                  This Amendment does not and will not violate any provisions of any of the Organizational Documents of it or any contract, agreement, instrument or requirement of any Governmental Authority to which it is subject.  Its execution of this Amendment will not result in the creation or imposition of any lien upon any of its properties other than those permitted by the Agreement and this Amendment.

 

(d)                                 Execution, delivery and performance of this Amendment does not require the consent or approval of any other Person, including, without limitation, any regulatory authority or governmental body of the United States of America or any state thereof or any political subdivision of the United States of America or any state thereof.

 

(e)                                  As of the date of this Amendment, each of Borrower and the Guarantors is solvent.

 

(f)                                    After giving effect to this Amendment no Default or Event of Default will exist, and all of the representations and warranties contained in the Agreement and all instruments and

 

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documents executed pursuant thereto or contemplated thereby are true and correct in all material respects on and as of this date other than those which have been disclosed to Administrative Agent in writing (except to the extent such representations and warranties expressly refer to an earlier or other date, in which case they shall be true and correct as of such earlier or other date).

 

(g)                                 Borrower has heretofore delivered to Administrative Agent true and complete copies of reports prepared by Borrower’s in-house staff dated as of July 1, 2011 (the “July 2011 Reserve Report”), relating to an evaluation of the Oil and Gas attributable to the Borrowing Base Properties described therein. Borrower hereby certifies as of the date hereof that (a) the assumptions stated or used in the preparation of the July 2011 Reserve Report are reasonable, (b) all information used in the preparation of the July 2011 Reserve Report was accurate in all material respects, (c) there has been no material adverse change in the amount of the estimated Oil and Gas shown in the July 2011 Reserve Report since the date thereof, except for changes which have occurred as a result of production in the ordinary course of business, and (d) the July 2011 Reserve Report does not omit any statement or information necessary to cause the same not to be misleading to Administrative Agent and the Banks in any material respect.

 

(h)                                 Except to the extent expressly set forth herein as the contrary, nothing in this Section 5 is intended to amend any of the representations or warranties contained in the Agreement or of the Loan Documents to which Borrower or any Guarantor is a party.

 

SECTION 6.                            Reference to and Effect on the Agreement.

 

(a)                                  Upon the effectiveness hereof, on and after the date hereof, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import, shall mean and be a reference to the Credit Agreement as amended hereby.

 

(b)                                 Except as specifically amended by this Amendment, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed.

 

SECTION 7.                            Cost, Expenses, Taxes and Fees.

 

(a)                                  Borrower agrees to pay all reasonable legal fees and expenses to be incurred in connection with the preparation, reproduction, execution and delivery of this Amendment and the other instruments and documents to be delivered in connection with the transactions associated herewith, including reasonable attorneys’ fees and out-of-pocket expenses of the Administrative Agent and the Lenders, and agrees to save Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such fees.

 

(b)                                 Borrower agrees to pay an upfront fee in an amount equal to 0.25% of the Effective Amount under the Credit Agreement, payable to the Administrative Agent for the benefit of the Lenders on the effective date of this Amendment.

 

(c)                                  Borrower agrees to pay a fee in an amount equal to 1.50% of the Effective Amount under the Credit Agreement, payable to the Administrative Agent for the benefit of the Lenders, on July 1, 2012, if, by such date, Borrower has not repaid the Effective Amount under the Credit Agreement, including all accrued unpaid interest and outstanding expenses under the Credit Agreement or any other Loan Document.

 

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SECTION 8.                            Extent of Amendments.  Except as otherwise expressly provided herein, the Credit Agreement and the other Loan Documents are not amended, modified or affected by this Amendment. Each of Borrower and the Guarantors ratifies and confirms that (i) except as expressly amended hereby, all of the terms, conditions, covenants, representations, warranties and all other provisions of the Credit Agreement remain in full force and effect, (ii) each of the other Loan Documents are and remain in full force and effect in accordance with their respective terms, and (iii) the Collateral is unimpaired by this Amendment.

 

SECTION 9.                            Affirmation and Agreement by Guarantors.  Guarantors hereby (i) ratify and confirm the Credit Agreement and agree that they are party to the Credit Agreement and are, as applicable, bound by its terms, conditions, covenants and obligations, (ii) agree that this Amendment shall in no way release, diminish, impair, reduce or otherwise adversely affect the respective obligations and liabilities of each of the undersigned under each Guaranty described in the Credit Agreement, or any agreements, documents or instruments executed by any of the undersigned to create liens, security interests or charges to secure any of the Obligations under the Loan Documents, all of which Obligations are, and shall continue to be, in full force and effect, and (iii) agree the Guaranty executed by each Guarantor is ratified, and the “Obligations” as defined in each Guaranty includes, without limitation, the “Obligations” as defined in the Credit Agreement as amended hereby.  As of the date hereof, Guarantors make such representation and warranties as are set forth in the Credit Agreement, as applicable, as if such representations and warranties were restated herein in full.  This affirmation and agreement shall be binding upon the undersigned Guarantors, and the respective successors and assigns of each, shall inure to the benefit of Administrative Agent and Lenders, and the respective successors and assigns of each.

 

SECTION 10.                     Grant and Affirmation of Security Interest.  Each of Borrower and, as applicable, its Subsidiaries hereby confirms and agrees that (i) any and all liens, security interests and other security or Collateral now or hereafter held by Administrative Agent for the benefit of, and as representative of, the Lenders as security for payment and performance of the obligations hereby are renewed and carried forth to secure payment and performance of all of the Obligations and (ii) Administrative Agent is hereby authorized to file, in any jurisdiction where Administrative Agent deems necessary, financing statements or amendments to financing statements to maintain and continue the validity and priority of its security interests in the Mortgaged Property.  The Loan Documents, as such may be amended in accordance herewith, are and remain legal, valid and binding obligations of the parties thereto, enforceable in accordance with their respective terms.

 

SECTION 11.                     Claims.  As additional consideration to the execution, delivery, and performance of this Amendment by the parties hereto and to induce Administrative Agent and the Lenders to enter into this Amendment, Borrower represents and warrants that it does not know of any defenses, counterclaims or rights of setoff to the payment of any Indebtedness of Borrower to Administrative Agent or any Lender.

 

SECTION 12.                     Execution and Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.  Delivery of an executed counterpart of this Amendment by facsimile and other Loan Documents shall be equally as effective as delivery of a manually executed counterpart of this Amendment and such other Loan Documents.

 

SECTION 13.                     Governing Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of Texas.

 

SECTION 14.                     Headings.  Section headings in this Amendment are included herein for convenience and reference only and shall not constitute a part of this Amendment for any other purpose.

 

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SECTION 15.                     NO ORAL AGREEMENTS.  THE RIGHTS AND OBLIGATIONS OF EACH OF THE PARTIES TO THE LOAN DOCUMENTS SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS, DOCUMENTS, AND INSTRUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN SUCH PARTIES ARE SUPERSEDED BY AND MERGED INTO SUCH WRITINGS.  THIS AGREEMENT (AS AMENDED IN WRITING FROM TIME TO TIME) AND THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED BY ANY OF BORROWER OR THE GUARANTORS AND THE ADMINISTRATIVE AGENT AND/OR ANY LENDER (TOGETHER WITH ALL FEE LETTERS AS THEY RELATE TO THE PAYMENT OF FEES AFTER THE CLOSING DATE) REPRESENT THE FINAL AGREEMENT BETWEEN SUCH PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY SUCH PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN SUCH PARTIES.

 

SECTION 16.                     No Waiver.  Except as set forth herein, each of Borrower and the Guarantors agrees that no Event of Default and no Default has been waived or remedied by the execution of this Amendment by Administrative Agent or the Lenders, and any such Default or Event or Default heretofore arising and currently continuing shall continue after the execution and delivery hereof.  Except as set forth herein, nothing contained in this Amendment nor any past indulgence by the Administrative Agent or any Lender nor any other action or inaction on behalf of Administrative Agent or any Lender (i) shall constitute or be deemed to constitute a waiver of any Defaults or Events of Default which may exist under the Agreement or the other Loan Documents, or (ii) shall constitute or be deemed to constitute an election of remedies by Administrative Agent or any Lender or a waiver of any of the rights or remedies of Administrative Agent or any Lender provided in the Agreement or the other Loan Documents or otherwise afforded at law or in equity.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

[Remainder of page intentionally left blank.  Signature pages to follow.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized.

 

	
 
    	
BORROWER:
    
	
 
    	
 
    	
 
    
	
Address   for Notice:
    	
 
    	
CINCO   RESOURCES, INC.
    
	
2626   Howell Street, Suite 800
    	
 
    	
a   Delaware corporation
    
	
Dallas,   Texas 75204
    	
 
    	
 
    
	
Attn:   Secretary
    	
 
    	
 
    
	
Phone:   214-520-7727
    	
 
    	
By:
    	
/s/   Wayne Stoltenberg
    
	
Fax:   214-520-6464
    	
 
    	
 
    	
Wayne   Stoltenberg
    
	
Email:   lprieto@cinconrc.com
    	
 
    	
 
    	
Chief   Financial Officer
    

 

	
 
    	
GUARANTORS:
    
	
 
    	
 
    	
 
    
	
Address   for Notice:  
    	
 
    	
CINCO   NATURAL RESOURCES CORPORATION  
    
	
2626   Howell Street, Suite 800
    	
 
    	
a   Delaware corporation
    
	
Dallas,   Texas 75204 
    	
 
    	
 
    
	
Attn:   Secretary
    	
 
    	
 
    
	
Phone:   214-520-7727
    	
 
    	
By:
    	
/s/   Wayne Stoltenberg
    
	
Fax:   214-520-6464
    	
 
    	
 
    	
Wayne   Stoltenberg
    
	
Email:   lprieto@cinconrc.com 
    	
 
    	
 
    	
Chief   Financial Officer 
    
	
 
    	
 
    	
 
    
	
Address   for Notice:
    	
 
    	
DERNICK   RESOURCES, LLC, 
    
	
2626   Howell Street, Suite 800  
    	
 
    	
a   Delaware limited liability company  
    
	
Dallas,   Texas 75204
    	
 
    	
 
    
	
Attn:   Secretary
    	
 
    	
 
    
	
Phone:   214-520-7727
    	
 
    	
By:
    	
/s/   Wayne Stoltenberg
    
	
Fax:   214-520-6464
    	
 
    	
 
    	
Wayne   Stoltenberg 
    
	
Email:   lprieto@cinconrc.com
    	
 
    	
 
    	
President   and Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
Address   for Notice:
    	
 
    	
CAMDEN   RESOURCES, LLC, 
    
	
2626   Howell Street, Suite 800
    	
 
    	
a   Delaware limited liability company 
    
	
Dallas,   Texas 75204 
    	
 
    	
 
    
	
Attn:   Secretary
    	
 
    	
 
    
	
Phone:   214-520-7727
    	
 
    	
By:
    	
/s/   Wayne Stoltenberg 
    
	
Fax:   214-520-6464 
    	
 
    	
 
    	
Wayne   Stoltenberg 
    
	
Email:   lprieto@cinconrc.com
    	
 
    	
 
    	
Chief   Financial Officer
    
	
 
    	
 
    	
 
    
	
Address   for Notice:  
    	
 
    	
CINCO   LOGISTICS, LLC, 
    
	
2626   Howell Street, Suite 800
    	
 
    	
a   Texas limited liability company 
    
	
Dallas,   Texas 75204 
    	
 
    	
 
    
	
Attn:   Secretary
    	
 
    	
 
    
	
Phone:   214-520-7727
    	
 
    	
By:
    	
/s/   Jon L. Glass 
    
	
Fax:   214-520-6464
    	
 
    	
 
    	
Jon   L. Glass 
    
	
Email:   lprieto@cinconrc.com
    	
 
    	
 
    	
President,   Chief Executive Officer and Secretary
    

 

 

	
Address   for Notice:  
    	
 
    	
PATHEX   PETROLEUM, INC.,  
    
	
2626   Howell Street, Suite 800
    	
 
    	
a   Delaware corporation
    
	
Dallas,   Texas 75204    
    	
 
    	
 
    
	
Attn:   Secretary
    	
 
    	
 
    
	
Phone:   214-520-7727
    	
 
    	
By:
    	
/s/   Wayne Stoltenberg 
    
	
Fax:   214-520-6464
    	
 
    	
 
    	
Wayne   Stoltenberg 
    
	
Email:   lprieto@cinconrc.com
    	
 
    	
 
    	
President
    
	
 
    	
 
    	
 
    
	
Address   for Notice: 
    	
 
    	
SEDNA   ENERGY, INC., 
    
	
2626   Howell Street, Suite 800
    	
 
    	
an   Arkansas corporation, 
    
	
Dallas,   Texas 75204    
    	
 
    	
formerly   known as Freedom Energy, Inc.
    
	
Attn:   Secretary
    	
 
    	
 
    
	
Phone:   214-520-7727
    	
 
    	
 
    	
 
    
	
Fax:   214-520-6464
    	
 
    	
By:
    	
/s/   Wayne Stoltenberg
    
	
Email:   lprieto@cinconrc.com
    	
 
    	
 
    	
Wayne   Stoltenberg 
    
	
 
    	
 
    	
 
    	
President
    
	
 
    	
 
    	
 
    
	
Address   for Notice:  
    	
 
    	
CIMA   RESOURCES, INC., 
    
	
2626   Howell Street, Suite 800
    	
 
    	
a   Delaware corporation 
    
	
Dallas,   Texas 75204    
    	
 
    	
 
    
	
Attn:   Secretary
    	
 
    	
 
    
	
Phone:   214-520-7727
    	
 
    	
By:
    	
/s/   Jon L. Glass 
    
	
Fax:   214-520-6464
    	
 
    	
 
    	
Jon   L. Glass 
    
	
Email:   lprieto@cinconrc.com
    	
 
    	
 
    	
President
    

 

Signature Page to Second Amendment

to Second Lien Credit Agreement

 

 

	
 
    	
ADMINISTRATIVE AGENT:
    
	
 
    	
 
    
	
Address   for Notice:  
    	
WELLS   FARGO ENERGY CAPITAL, INC., 
    
	
1000   Louisiana Street, 9th Floor
    	
as   Administrative Agent  
    
	
Houston,   Texas 77002   
    	
 
    
	
 
    	
 
    
	
Attn:   Chris C. Carter
    	
By:
    	
 /s/ Chris C. Carter 
    
	
Telephone:   713-319-1369
    	
 
    	
Chris   C. Carter
    
	
Facsimile:   713-652-5874
    	
 
    	
Director
    
	
E-mail:   chris.c.carter@wellsfargo.com
    	
 
    

 

Signature Page to Second Amendment

to Second Lien Credit Agreement

 

 

	
 
    	
THE LENDERS:
    
	
 
    	
 
    
	
Address   for Notice: 
    	
WELLS   FARGO ENERGY CAPITAL, INC., 
    
	
1000   Louisiana Street, 9th Floor 
    	
a   Texas corporation 
    
	
Houston,   Texas 77002 
    	
 
    
	
 
    	
 
    
	
Attn:   Chris C. Carter
    	
By:
    	
/s/   Chris C. Carter 
    
	
Telephone:   713-319-1369
    	
 
    	
 Chris C. Carter
    
	
Facsimile:   713-652-5874
    	
 
    	
Director
    
	
E-mail:   chris.c.carter@wellsfargo.com
    	
 
    	
 
    

 

Signature Page to Second Amendment

to Second Lien Credit Agreement

 

 

	
Address   for Notice: 
    	
CITICORP   NORTH AMERICA, INC. 
    
	
390   Greenwich Street, 7th Floor 
    	
 
    
	
New   York, NY 10013   
    	
 
    
	
Telephone:   212-723-5315
    	
By:
    	
 /s/ Kane Park
    
	
Facsimile:   646.291.5028
    	
 
    	
Kane   Park 
    
	
E-mail:   kane.j.park@citi.com
    	
 
    	
Vice   President
    

 

Signature Page to Second Amendment

to Second Lien Credit Agreement

 

 

 

ANNEX A

 

Credit Agreement Reflecting Second Amendment

(see attached)

 

Annex A to Second Amendment to Credit Agreement

 

 

 

SECOND LIEN CREDIT AGREEMENT

 

among

 

CINCO RESOURCES, INC.,

as Borrower,

 

CINCO NATURAL RESOURCES CORPORATION,

DERNICK RESOURCES, LLC,

CAMDEN RESOURCES, LLC,

CINCO LOGISTICS, LLC,

PATHEX PETROLEUM, INC.,

SEDNA ENERGY INC., and

CIMA RESOURCES, INC.,

as Guarantors,

 

WELLS FARGO ENERGY CAPITAL, INC.,

as Administrative Agent and a Lender,

 

THE OTHER FINANCIAL INSTITUTIONS AS PARTY HERETO,

 

and

 

WELLS FARGO SECURITIES, LLC,

as Lead Arranger

 

 

Dated as of October 30, 2009

 

 

 

	
ARTICLE I.
    	
DEFINITIONS
    	
 
    
	
 
    	
 
    	
 
    
	
1.01
    	
Certain   Defined Terms
    	
1
    
	
 
    	
 
    	
 
    
	
1.02
    	
Other   Interpretive Provisions
    	
15
    
	
 
    	
 
    	
 
    
	
1.03
    	
Accounting   Principles
    	
16
    
	
 
    	
 
    	
 
    
	
ARTICLE II.
    	
THE CREDIT
    	
 
    
	
 
    	
 
    	
 
    
	
2.01
    	
Amounts   and Terms of the Commitment
    	
16
    
	
 
    	
 
    	
 
    
	
2.02
    	
Conversion   and Continuation Elections
    	
17
    
	
 
    	
 
    	
 
    
	
2.03
    	
Optional   Prepayments
    	
18
    
	
 
    	
 
    	
 
    
	
2.04
    	
Repayment
    	
18
    
	
 
    	
 
    	
 
    
	
2.05
    	
Fees
    	
19
    
	
 
    	
 
    	
 
    
	
2.06
    	
Computation   of Fees and Interest
    	
19
    
	
 
    	
 
    	
 
    
	
2.07
    	
Payments   by Borrower; Borrowings Pro Rata
    	
19
    
	
 
    	
 
    	
 
    
	
2.08
    	
Payments   by the Lenders to Administrative Agent
    	
20
    
	
 
    	
 
    	
 
    
	
2.09
    	
Sharing   of Payments, Etc
    	
21
    
	
 
    	
 
    	
 
    
	
ARTICLE III.
    	
TAXES, YIELD PROTECTION AND ILLEGALITY
    	
 
    
	
 
    	
 
    	
 
    
	
3.01
    	
Taxes
    	
22
    
	
 
    	
 
    	
 
    
	
3.02
    	
Illegality
    	
23
    
	
 
    	
 
    	
 
    
	
3.03
    	
Increased   Costs and Reduction of Return
    	
23
    
	
 
    	
 
    	
 
    
	
3.04
    	
Funding   Losses
    	
24
    
	
 
    	
 
    	
 
    
	
3.05
    	
Inability   to Determine Rates
    	
24
    
	
 
    	
 
    	
 
    
	
3.06
    	
Survival
    	
25
    
	
 
    	
 
    	
 
    
	
3.07
    	
Contents   of Notice
    	
25
    
	
 
    	
 
    	
 
    
	
3.08
    	
Substitution   of Lenders
    	
25
    
	
 
    	
 
    	
 
    
	
3.09
    	
Foreign   Lenders, Participants, and Assignees
    	
26
    
	
 
    	
 
    	
 
    
	
ARTICLE IV.
    	
SECURITY
    	
 
    
	
 
    	
 
    	
 
    
	
4.01
    	
Agreement   to Deliver Security Documents
    	
26
    
	
 
    	
 
    	
 
    
	
4.02
    	
Perfection   and Protection of Security Interests and Liens
    	
26
    
	
 
    	
 
    	
 
    
	
4.03
    	
Offset
    	
27
    
	
 
    	
 
    	
 
    
	
4.04
    	
Letters   in Lieu/Power of Attorney
    	
27
    
	
 
    	
 
    	
 
    
	
4.05
    	
Assignment   of Runs
    	
28
    
	
 
    	
 
    	
 
    
	
4.06
    	
Authorization   to File Financing Statements
    	
28
    
	
 
    	
 
    	
 
    
	
ARTICLE V.
    	
CONDITIONS PRECEDENT
    	
 
    
	
 
    	
 
    	
 
    
	
5.01
    	
Conditions   of Initial Loan
    	
28
    

 

i

 

	
5.02
    	
Conditions   to All Loans
    	
31
    
	
 
    	
 
    	
 
    
	
ARTICLE VI.
    	
REPRESENTATIONS AND WARRANTIES
    	
 
    
	
 
    	
 
    	
 
    
	
6.01
    	
Existence   and Authority
    	
31
    
	
 
    	
 
    	
 
    
	
6.02
    	
Organizational   Authorization; No Contravention
    	
31
    
	
 
    	
 
    	
 
    
	
6.03
    	
Governmental   Authorization
    	
32
    
	
 
    	
 
    	
 
    
	
6.04
    	
Binding   Effect
    	
32
    
	
 
    	
 
    	
 
    
	
6.05
    	
Litigation
    	
32
    
	
 
    	
 
    	
 
    
	
6.06
    	
No   Default
    	
32
    
	
 
    	
 
    	
 
    
	
6.07
    	
ERISA
    	
32
    
	
 
    	
 
    	
 
    
	
6.08
    	
Margin   Regulations
    	
33
    
	
 
    	
 
    	
 
    
	
6.09
    	
Title   to Borrowing Base Properties; No Buildings
    	
33
    
	
 
    	
 
    	
 
    
	
6.10
    	
Oil   and Gas Operations
    	
33
    
	
 
    	
 
    	
 
    
	
6.11
    	
Initial   Reserve Report
    	
34
    
	
 
    	
 
    	
 
    
	
6.12
    	
Gas   Imbalances
    	
34
    
	
 
    	
 
    	
 
    
	
6.13
    	
Taxes
    	
34
    
	
 
    	
 
    	
 
    
	
6.14
    	
Financial   Condition
    	
34
    
	
 
    	
 
    	
 
    
	
6.15
    	
Environmental   Matters
    	
34
    
	
 
    	
 
    	
 
    
	
6.16
    	
Regulated   Entities
    	
35
    
	
 
    	
 
    	
 
    
	
6.17
    	
No   Burdensome Restrictions
    	
35
    
	
 
    	
 
    	
 
    
	
6.18
    	
Copyrights,   Patents, Trademarks and Licenses, etc
    	
35
    
	
 
    	
 
    	
 
    
	
6.19
    	
Subsidiary
    	
35
    
	
 
    	
 
    	
 
    
	
6.20
    	
Insurance
    	
35
    
	
 
    	
 
    	
 
    
	
6.21
    	
Full   Disclosure
    	
35
    
	
 
    	
 
    	
 
    
	
6.22
    	
Derivative   Contracts
    	
36
    
	
 
    	
 
    	
 
    
	
6.23
    	
Solvency
    	
36
    
	
 
    	
 
    	
 
    
	
6.24
    	
Assumption   of Prior Obligations and Affirmation of Existing Liens
    	
36
    
	
 
    	
 
    	
 
    
	
6.25
    	
Patriot   Act
    	
36
    
	
 
    	
 
    	
 
    
	
ARTICLE VII.
    	
AFFIRMATIVE COVENANTS
    	
 
    
	
 
    	
 
    	
 
    
	
7.01
    	
Financial   Statements
    	
36
    
	
 
    	
 
    	
 
    
	
7.02
    	
Certificates;   Other Production and Reserve Information
    	
37
    
	
 
    	
 
    	
 
    
	
7.03
    	
Notices
    	
39
    
	
 
    	
 
    	
 
    
	
7.04
    	
Preservation   of Company Existence, Subsidiary Guarantees, Etc
    	
39
    
	
 
    	
 
    	
 
    
	
7.05
    	
Maintenance   of Borrowing Base Properties
    	
40
    

 

ii

 

	
7.06
    	
Insurance
    	
42
    
	
 
    	
 
    	
 
    
	
7.07
    	
Payment   of Obligations
    	
42
    
	
 
    	
 
    	
 
    
	
7.08
    	
Compliance   with Laws
    	
42
    
	
 
    	
 
    	
 
    
	
7.09
    	
Inspection   of Property and Books and Records
    	
43
    
	
 
    	
 
    	
 
    
	
7.10
    	
Environmental   Laws
    	
43
    
	
 
    	
 
    	
 
    
	
7.11
    	
Use   of Proceeds
    	
43
    
	
 
    	
 
    	
 
    
	
7.12
    	
Further   Assurances
    	
43
    
	
 
    	
 
    	
 
    
	
7.13
    	
[Reserved]
    	
44
    
	
 
    	
 
    	
 
    
	
7.14
    	
Phase   I Reports
    	
44
    
	
 
    	
 
    	
 
    
	
7.15
    	
ERISA   Information and Compliance
    	
44
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII.
    	
NEGATIVE COVENANTS
    	
 
    
	
 
    	
 
    	
 
    
	
8.01
    	
Limitation   on Liens
    	
45
    
	
 
    	
 
    	
 
    
	
8.02
    	
Disposition   of Assets
    	
46
    
	
 
    	
 
    	
 
    
	
8.03
    	
Consolidations   and Mergers
    	
46
    
	
 
    	
 
    	
 
    
	
8.04
    	
Loans   and Investments
    	
46
    
	
 
    	
 
    	
 
    
	
8.05
    	
Limitation   on Indebtedness
    	
47
    
	
 
    	
 
    	
 
    
	
8.06
    	
Transactions   with Affiliates
    	
47
    
	
 
    	
 
    	
 
    
	
8.07
    	
Margin   Stock
    	
48
    
	
 
    	
 
    	
 
    
	
8.08
    	
Contingent   Obligations
    	
48
    
	
 
    	
 
    	
 
    
	
8.09
    	
Restricted   Payment
    	
48
    
	
 
    	
 
    	
 
    
	
8.10
    	
Asset   Coverage Test
    	
48
    
	
 
    	
 
    	
 
    
	
8.11
    	
Consolidated   EBITDAX to Consolidated Interest Coverage Ratio
    	
48
    
	
 
    	
 
    	
 
    
	
8.12
    	
Current   Ratio
    	
48
    
	
 
    	
 
    	
 
    
	
8.13
    	
Total   Debt to Consolidated EBITDAX
    	
49
    
	
 
    	
 
    	
 
    
	
8.14
    	
Change   in Business
    	
49
    
	
 
    	
 
    	
 
    
	
8.15
    	
Accounting   Changes
    	
49
    
	
 
    	
 
    	
 
    
	
8.16
    	
Derivative   Contracts
    	
49
    
	
 
    	
 
    	
 
    
	
8.17
    	
ERISA   Compliance
    	
51
    
	
 
    	
 
    	
 
    
	
8.18
    	
Negative   Pledge
    	
51
    
	
 
    	
 
    	
 
    
	
8.19
    	
Subsidiaries
    	
52
    
	
 
    	
 
    	
 
    
	
8.20
    	
Local   Counsel Opinions
    	
52
    
	
 
    	
 
    	
 
    
	
8.21
    	
Modifications   of Certain Agreements
    	
52
    
	
 
    	
 
    	
 
    
	
ARTICLE IX.
    	
EVENTS OF DEFAULT
    	
 
    

 

iii

 

	
9.01
    	
Event   of Default
    	
52
    
	
 
    	
 
    	
 
    
	
9.02
    	
Remedies
    	
54
    
	
 
    	
 
    	
 
    
	
9.03
    	
Rights   Not Exclusive
    	
54
    
	
 
    	
 
    	
 
    
	
ARTICLE X.
    	
ADMINISTRATIVE AGENT
    	
 
    
	
 
    	
 
    	
 
    
	
10.01
    	
Appointment   and Authorization; Rights as a Lender
    	
55
    
	
 
    	
 
    	
 
    
	
10.02
    	
Delegation   of Duties
    	
55
    
	
 
    	
 
    	
 
    
	
10.03
    	
Liability   of Administrative Agent
    	
55
    
	
 
    	
 
    	
 
    
	
10.04
    	
Reliance   by Administrative Agent
    	
56
    
	
 
    	
 
    	
 
    
	
10.05
    	
Notice   of Default
    	
57
    
	
 
    	
 
    	
 
    
	
10.06
    	
Credit   Decision
    	
57
    
	
 
    	
 
    	
 
    
	
10.07
    	
Indemnification
    	
58
    
	
 
    	
 
    	
 
    
	
10.08
    	
Administrative   Agent in Individual Capacity
    	
58
    
	
 
    	
 
    	
 
    
	
10.09
    	
Successor   Administrative Agent
    	
58
    
	
 
    	
 
    	
 
    
	
10.10
    	
Administrative   Agent May File Proofs of Claim
    	
59
    
	
 
    	
 
    	
 
    
	
10.11
    	
Collateral   and Guaranty Matters
    	
59
    
	
 
    	
 
    	
 
    
	
ARTICLE XI.
    	
MISCELLANEOUS
    	
 
    
	
 
    	
 
    	
 
    
	
11.01
    	
Amendments   and Waivers
    	
60
    
	
 
    	
 
    	
 
    
	
11.02
    	
Notices
    	
61
    
	
 
    	
 
    	
 
    
	
11.03
    	
No   Waiver; Cumulative Remedies
    	
62
    
	
 
    	
 
    	
 
    
	
11.04
    	
Costs   and Expenses
    	
62
    
	
 
    	
 
    	
 
    
	
11.05
    	
Indemnity
    	
62
    
	
 
    	
 
    	
 
    
	
11.06
    	
Payments   Set Aside
    	
63
    
	
 
    	
 
    	
 
    
	
11.07
    	
Successors   and Assigns
    	
64
    
	
 
    	
 
    	
 
    
	
11.08
    	
Assignments
    	
64
    
	
 
    	
 
    	
 
    
	
11.09
    	
Set-off
    	
65
    
	
 
    	
 
    	
 
    
	
11.10
    	
Interest
    	
66
    
	
 
    	
 
    	
 
    
	
11.11
    	
Automatic   Debits of Fees
    	
66
    
	
 
    	
 
    	
 
    
	
11.12
    	
Notification   of Addresses, Lending Offices, Etc
    	
67
    
	
 
    	
 
    	
 
    
	
11.13
    	
Counterparts;   Integration; Effectiveness; Electronic Communication
    	
67
    
	
 
    	
 
    	
 
    
	
11.14
    	
Severability
    	
67
    
	
 
    	
 
    	
 
    
	
11.15
    	
No   Third Parties Benefited
    	
67
    
	
 
    	
 
    	
 
    
	
11.16
    	
Reserved
    	
68
    
	
 
    	
 
    	
 
    
	
11.17
    	
GOVERNING   LAW
    	
68
    

 

iv

 

	
11.18
    	
ARBITRATION
    	
69
    
	
 
    	
 
    	
 
    
	
11.19
    	
Intercreditor   Agreement
    	
71
    
	
 
    	
 
    	
 
    
	
11.20
    	
Amendment   and Restatement
    	
71
    
	
 
    	
 
    	
 
    
	
11.21
    	
Confidentiality
    	
71
    
	
 
    	
 
    	
 
    
	
11.22
    	
Patriot   Act Notice
    	
72
    
	
 
    	
 
    	
 
    
	
11.23
    	
Entire   Agreement
    	
72
    
	
 
    	
 
    	
 
    
	
11.24
    	
NO   ORAL AGREEMENTS
    	
72
    

 

v

 

	
SCHEDULES
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Schedule   2.01
    	
Commitments
    	
 
    
	
Schedule   4.01
    	
Security   Documents
    	
 
    
	
Schedule   6.19
    	
Other   Subsidiaries
    	
 
    
	
Schedule   6.22
    	
Derivative   Contracts
    	
 
    
	
 
    	
 
    	
 
    
	
EXHIBITS
    	
 
    	
 
    
	
Exhibit A
    	
Form of   Note
    	
 
    
	
Exhibit B
    	
Form of   Notice of Borrowing/Prepayment
    	
 
    
	
Exhibit C
    	
Form of   Notice of Continuation/Conversion
    	
 
    
	
Exhibit D
    	
Form of   Letter-in-Lieu
    	
 
    
	
Exhibit E
    	
Form of   Compliance Certificate
    	
 
    
	
Exhibit F
    	
Form of   Assignment and Acceptance Agreement
    	
 
    
	
Exhibit G
    	
Form of   Guaranty
    	
 
    

 

vi

 

This SECOND LIEN CREDIT AGREEMENT (the “Agreement”) is dated as of October 30, 2009, among CINCO RESOURCES, INC., a Delaware corporation (“Borrower”), CINCO NATURAL RESOURCES CORPORATION, a Delaware corporation, DERNICK RESOURCES, LLC, a Delaware limited liability company, CAMDEN RESOURCES, LLC, a Delaware limited liability company, CINCO LOGISTICS, LLC, a Texas limited liability company, PATHEX PETROLEUM, INC., a Delaware corporation, SEDNA ENERGY, INC., an Arkansas corporation, and CIMA RESOURCES, INC., a Delaware corporation  (individually a “Guarantor” and collectively the “Guarantors”), each of the lenders which is or which may from time to time become a signatory hereto (individually, a “Lender” and collectively, the “Lenders”) and WELLS FARGO ENERGY CAPITAL, INC., a Texas corporation, as Administrative Agent for the Lenders (in such capacity, together with its successors in such capacity “Administrative Agent”).

 

Borrower, Administrative Agent and the Lenders hereby agree effective as of the Closing Date as follows:

 

ARTICLE I.

 

DEFINITIONS

 

1.01        Certain Defined Terms.  The following terms have the following meanings:

 

Acquisition means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock of a corporation (or similar entity), which stock has ordinary voting power for the election of the members of such entity’s board of directors or persons exercising similar functions (other than stock having such power only by reason of the happening of a contingency), or the acquisition of in excess of 50% of the partnership interests or equity of any Person not a corporation which acquisition gives the acquiring Person the power to direct or cause the direction of the management and policies of such Person, or (c) a merger or consolidation or any other combination with another Person provided that Borrower is the surviving entity.

 

Administrative Agent means Wells Fargo Energy Capital, Inc., a Texas corporation, in its capacity as Administrative Agent for the Lenders hereunder or any successor thereto.

 

Administrative Agent’s Payment Office means the address for payments as Administrative Agent may from time to time specify.

 

Affected Lender has the meaning specified in Section 3.08.

 

Affected Loan has the meaning specified in Section 2.11.

 

Affiliate means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise.

 

Agent-Related Persons as to the Administrative Agent or any sub-agent appointed by Administrative Agent, means Administrative Agent or such sub-agent, their Affiliates, and the parties,

 

 

officers, directors, employees, agents, trustees, administrators, managers, advisors, counsel, representatives and attorneys-in-fact of Administrative Agent, such sub-agent and their Affiliates.

 

Agreement means this Second Lien Credit Agreement as same may be amended, restated, modified or renewed from time to time.

 

Applicable Margin means, with respect to LIBOR Loans and Base Rate Loans, the amounts set forth on the Pricing Grid.

 

Applicable Usury Laws has the meaning specified in Section 11.10.

 

Asset Coverage Ratio has the meaning specified in Section 8.10.

 

Assignee has the meaning specified in Subsection 11.08(b).

 

Assignment and Acceptance Agreements has the meaning specified in Subsection 11.08(b).

 

Attorney Costs means and includes all reasonable fees and disbursements of any law firm or other external counsel, together with all disbursements of internal counsel.

 

Bankruptcy Code means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et seq.), as amended, and regulations promulgated thereunder.

 

Base Rate means, for any day, the fluctuating rate of interest in effect for such day which rate per annum shall be equal to the highest of (a) the rate of interest as publicly announced from time to time by Wells Fargo Bank as its “reference rate” (the “reference rate” is a rate set by Wells Fargo Bank based upon various factors including costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate), (b) one-half of one percent (0.50%) per annum above the Federal Funds Rate in effect from time to time or (c) LIBOR for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus one percent (1.00%). Any change in the reference rate announced by Wells Fargo Bank shall take effect at the opening of business on the day specified in the public announcement of such change.

 

Base Rate Loan means a Loan that bears interest based at the Base Rate, plus the Applicable Margin.

 

Borrower shall have the meaning set forth in the introductory paragraph hereto.

 

Borrowing means a borrowing hereunder consisting of Loans of the same Interest Rate Type made to Borrower on the same day by any of the Lenders under Article II, and, other than in the case of Base Rate Loans, having the same Interest Period.

 

Borrowing Base Properties  shall have the meaning provided in the Senior Credit Agreement or in the event the Senior Credit Agreement shall be terminated, it shall mean the Borrower’s and its Subsidiaries’ Oil and Gas Properties.

 

Borrowing Date means any date on which a Borrowing occurs under Section 2.01.

 

Business Day means any day other than a Saturday, Sunday or other day on which commercial banks in Houston, Texas are authorized or required by any law to close and, if the applicable Business

 

2

 

Day relates to any LIBOR Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market.

 

Capital Adequacy Regulation means any guideline, request or directive of any central bank or other Governmental Authority, or any other Requirement of Law, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank.

 

Capital Lease means a lease or other agreement conveying the right to use real and/or personal Property, which obligations are required to be classified and accounted for as a capital lease under GAAP.

 

Cash Equivalents means: (a) securities issued or fully guaranteed or insured by the United States Government or any agency thereof and backed by the full faith and credit of the United States having maturities of not more than twelve (12) months from the date of acquisition; (b) certificates of deposit, time deposits, Eurodollar time deposits, or bankers’ acceptances having in each case a tenor of not more than three (3) months from the date of acquisition issued by any U.S. commercial bank or any branch or agency of a non-U.S. commercial bank licensed to conduct business in the U.S. having combined capital and surplus of not less than Five Hundred Million Dollars ($500,000,000); and (c) commercial paper of an issuer rated in one of the two highest rating categories of Standard and Poor’s Rating Service, a division of McGraw Hill, Inc., or Moody’s Investor Services, Inc. at the time of acquisition, and in either case having a tenor of not more than twelve (12) months.

 

Change of Control means (a) a purchase or acquisition, directly or indirectly, by any “person” or “group” within the meaning of Section 13(d)(3) and 14(d)(2) of the Securities and Exchange Act of 1934 (a “Group”), of “beneficial ownership” (as such term is defined in Rule 13d-3 under the Exchange Act) of securities of the Borrower which, together with any securities owned beneficially by any “affiliates” or “associates” of such Group (as such terms are defined in Rule 12b-2 under the Exchange Act), shall represent more than fifty percent (50%) of the combined voting power of the Borrower’s securities which are entitled to vote generally in the election of directors and which are outstanding on the date immediately prior to the date of such purchase or acquisition; or (b) a sale of all or substantially all of the assets of the Borrower and its Subsidiaries taken as a whole to any Person or Group; or (c) the liquidation or dissolution of the Borrower; or (d) the first day on which a majority of the Board of Directors of the Borrower are not Continuing Directors (as herein defined).  As herein defined, “Continuing Directors” means any member of the Board of Directors of the Borrower who (x) is a member of such Board of Directors as of the date of this Agreement or (y) was nominated for election or elected to such Board of Directors with the affirmative vote of two-thirds of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.

 

Closing means the date on which this Agreement is signed by Borrower, Administrative Agent and the Lenders.

 

Closing Date means the date on which all conditions precedent set forth in Section 5.01 are satisfied or waived by the Lenders.

 

Code means the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder.

 

Collateral means all Property of any kind which is subject to a Lien granted by Borrower in favor of Administrative Agent for the benefit of the Lenders and counterparties or which under the terms of any Security Document is purported to be subject to such Lien.

 

3

 

Commitment  means as to each Lender, such Lender’s Pro Rata Share of the Maximum Loan Amount, as such Commitment may be terminated and/or reduced or increased from time to time in accordance with the provisions hereof.

 

Compliance Certificate means a certificate substantially in the form of Exhibit E.

 

Consolidated Adjusted Net Income means, for any period, the consolidated net income (or net loss) of Borrower and its Subsidiaries for such period determined in accordance with GAAP consistently applied and excluding any net gain or loss from any Disposition, income from discontinued operations and extraordinary items for such period.

 

Consolidated EBITDAX means for any fiscal period, without duplication, (a) Consolidated Adjusted Net Income of Borrower, plus (b) Borrower’s depreciation, depletion, amortization and other non-cash items reducing Consolidated Adjusted Net Income, plus (c) Borrower’s Consolidated Interest Expense, plus (d) all income taxes (including franchise taxes to the extent based upon net income) which were deducted in determining such Consolidated Adjusted Net Income (if income taxes are a net benefit, such amount shall be subtracted), plus (e) non recurring general and administrative expenses of the Borrower and its Subsidiaries that reduced Consolidated Adjusted Net Income to the extent incurred in connection with (i) the negotiation and settlement of certain matters with the former officers and directors of Dernick Resources, Inc. pursuant to that certain Settlement Agreement, dated as of August 28, 2009, by and among Dernick Resources, LLC and the others parties thereto, including but not limited to that certain Agreement and Plan of Merger, dated August 31, 2009, by and among Cinco Natural Resources Corporation, DRI Merger Corp. and Dernick Resources, Inc., and (ii) the negotiation and settlement of certain matters related to the McCourt Field with both the Burciagas and the Wilsteins, including but not limited to the terms of that certain Settlement Agreement, dated as of September 2, 2009, by and among Dernick Resources, LLC, Lakota Resources, Inc. and the other parties thereto, plus (f) Expensed Workovers, minus (g) all non-cash items of income which were included in determining such Consolidated Adjusted Net Income.

 

Consolidated Interest Expense means the consolidated Interest Expense of Borrower and its Subsidiaries.

 

Contingent Obligation means, as to any Person without duplication, any direct or indirect liability of that Person with or without recourse, (a) with respect to any Indebtedness, dividend, letter of credit or other similar obligation (the “primary obligations”) of another Person (the “primary obligor”), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a “Guaranty Obligation”); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) with respect to any Derivative Contract; or (d) to purchase any materials, supplies or other Property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other Property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other Property is ever made or tendered, or such services are ever performed or tendered.  The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the maximum stated or determinable amount of the primary obligation in respect of which such Guaranty

 

4

 

Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations, shall be equal to the maximum reasonably anticipated liability in respect thereof

 

Contracts and Records has the meaning specified in Subsection 7.05(c)(2).

 

Contractual Obligation means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its Property is bound.

 

Conversion/Continuation Date means any date on which, under Section 2.02, Borrower (a) converts Loans of one Interest Rate Type to another Interest Rate Type, or (b) continues as Loans of the same Interest Rate Type, but with a new Interest Period, Loans having Interest Periods expiring on such date.

 

Current Assets means, for any Person, all assets of such Person that, in accordance with GAAP, would be included as current assets on a balance sheet as of the date of calculation, less any non-cash assets for any Derivative Contracts resulting from the requirements of FAS 133 at such time; provided that, for purposes of calculating Borrower’s Current Ratio, the Available Borrowing Base as defined under the Senior Credit Agreement shall be included as Current Assets.

 

Current Liabilities means, for any Person, all liabilities of such Person that, in accordance with GAAP, would be included as current liabilities on a balance sheet as of the date of calculation, less any non-cash obligations for any Derivative Contracts resulting from the requirements of FAS 133 at such time; provided that, for purposes of calculating Borrower’s Current Ratio, aggregate current maturities of Borrower’s Indebtedness shall be excluded as Current Liabilities.

 

Current Ratio has the meaning specified in Section 8.12.

 

Default means any event or circumstance which, with the giving of notice, the lapse of time, or both, would constitute an Event of Default.

 

Defaulting Lender means any Lender that (a) has failed to fund any portion of the Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless such amount is the subject of a good faith dispute, (c) has notified the Borrower, the Administrative Agent or any other 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 or has failed to comply with its funding obligations under this Agreement or under other agreements in which it commits or is obligated to extend credit, or (d) has become or is insolvent or 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.

 

Default Rate shall have the meaning set forth in Subsection 2.04(c).

 

Derivative Contracts means all future contracts, forward contracts, swap, cap or collar contracts, option contracts, hedging contracts or other derivative contracts or similar agreements covering Oil and Gas commodities or prices or financial, monetary or interest rate instruments.

 

5

 

Determination Period means each six (6) month period commencing April 1, and October 1 of each year.

 

Disposition has the meaning specified in Section 8.02.

 

Dollars, dollars and $ each mean lawful money of the United States.

 

Effective Amount means on any date, the aggregate outstanding principal amount of all Loans after giving effect to any prepayments or repayments of Loans occurring on such date.

 

Environmental Claims means all material claims by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release of Hazardous Substances or injury to the environment.

 

Environmental Laws means all material federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all material administrative orders, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, and safety matters.

 

ERISA means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder.

 

ERISA Affiliate means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

 

ERISA Event means (a) a Reportable Event with respect to a Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate (other than pursuant to Section 4041(b) of ERISA), the treatment of a Plan amendment as a termination under Section 4041(c) or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate.

 

Event of Default means any of the events or circumstances specified in Section 9.01.

 

Exchange Act means the Securities Exchange Act of 1934, as amended, and regulations promulgated thereunder.

 

Existing Cinco Credit Agreement means that certain Loan Agreement dated as of December 13, 2006, by and among Cinco Natural Resources Corporation, Capital One, National Association, as Lender, as amended, modified or restated from time to time prior to the date hereof.

 

Existing Dernick Credit Agreement means that certain Second Lien Credit Agreement dated as of December 14, 2006, by and among Dernick Resources, Inc., as Borrower, certain Guarantors party

 

6

 

thereto, Administrative Agent and certain Lenders party thereto, as amended, modified or restated from time to time prior to the date hereof.

 

Expensed Workovers means, all items which have been (or in accordance with GAAP should be) characterized as workover expenses on the Borrower’s or its Subsidiaries’ statement of income.

 

FAS 133 means Statement No. 133 of the Financial Accounting Standards Board to Derivative Contracts.

 

Federal Funds Rate means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, “H.15(519)”) on the preceding Business Day opposite the caption “Federal Funds (Effective)”; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the average as determined by Administrative Agent of the rates for the last transaction in overnight federal funds arranged prior to 9:00 a.m. (New York, New York time) on that day by each of three leading brokers of federal funds transactions in New York, New York selected by Administrative Agent.

 

FRB means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions.

 

GAAP means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination.

 

Governmental Authority means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

Guarantor or Guarantors  means, in such context, Cinco Natural Resources Corporation, Dernick Resources, LLC, Camden Resources, LLC, Cinco Logistics, LLC, Pathex Petroleum, Inc., Sedna Energy, Inc., Cima Resources, Inc. and any other Material Subsidiary of Borrower hereafter acquired or created.

 

Guaranty means that certain Guaranty Agreement in substantially the form of Exhibit G hereto executed by each Guarantor

 

Hazardous Substances means any substances defined as “hazardous substances,” “hazardous materials,” “hazardous wastes,” or “toxic substances” under Environmental Laws.

 

Highest Lawful Rate means, for each Lender, the maximum rate (or, if the context so permits or requires, an amount calculated at such rate) of interest which, at the time in question would not cause the interest charged on the portion of the loan owed to such Lender at such time to exceed the maximum amount which such Lender would be allowed to contract for, charge, take, reserve, or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges under the Loan Documents. To the extent Texas law is applicable, the Lenders hereby notify and disclose to Borrower that, for purposes of Texas Finance Code §303.001, as it may from time to time be amended, the “applicable ceiling” shall be the “weekly ceiling” from time to time in effect as limited by Texas Finance Code §303.009; provided, however, that to the extent permitted by

 

7

 

applicable law, the Lenders reserve the right to change the “applicable ceiling” from time to time by further notice and disclosure to Borrower.

 

Hydrocarbon Interests means leasehold and other interests in or under Oil and Gas leases with respect to the Borrowing Base Properties, mineral fee interests, overriding royalty and royalty interests, net profit interests, production payment interests relating to Oil and Gas wherever located, including any beneficial, reserved or residual interest of whatever nature.

 

Indebtedness of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of Property or services (other than trade payables entered into in the ordinary course of business on ordinary terms not more than 60 days past due); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of Property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to Property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such Property) including, without limitation, production payments, net profit interests and other Hydrocarbon Interests subject to repayment out of future Oil and Gas production; (f) all obligations with respect to Capital Leases; (g) all net obligations with respect to Derivative Contracts; (h) Contingent Obligations, (i) all indebtedness referred to in clauses (a) through (h) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in Property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (j) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) above.

 

Indemnified Liabilities has the meaning specified in Section 11.05.

 

Indemnified Person has the meaning specified in Section 11.05.

 

Independent Auditor has the meaning specified in Subsection 7.01(a).

 

Initial Commitment Amount has the meaning specified in Section 2.01(a).

 

Initial Reserve Report has the meaning specified in Section 6.11.

 

Insolvency Proceeding means (a) any case, action or proceeding relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code.

 

Intercreditor Agreement means that certain Intercreditor Agreement dated of even date herewith between Borrower, Administrative Agent, for the benefit of the Lenders, and Senior Administrative Agent for the benefit of the Senior Lenders, pursuant to which the Liens granted in connection with this Agreement are subordinate and junior to the Liens granted in connection with the Senior Credit Agreement.

 

Interest Expense means, for any fiscal period, the aggregate amount of all costs, fees and expenses paid by the Borrower in such fiscal period (including capitalized interest) which are classified as

 

8

 

interest expense on the Borrower’s financial statements all as determined in accordance with GAAP; provided that any imputed, non-cash interest expense Borrower is required to record under GAAP prior to making payments thereof shall be excluded for the purposes of this definition.

 

Interest Payment Date means (a) as to any Base Rate Loan, the last Business Day of each calendar month and each date such a Base Rate Loan is converted into another Interest Rate Type of Loan, and (b) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan, provided, however, that if any Interest Period for a LIBOR Loan exceeds three (3) months, the date that falls three (3) months after the beginning of such Interest Period, and the date that falls three (3) months after each Interest Payment Date thereafter for such Interest Period, is also an Interest Payment Date.

 

Interest Period means, as to any LIBOR Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as LIBOR Loan, and ending on the date one, three or six months thereafter as selected by Borrower in its Notice of Borrowing/Prepayment or Notice of Conversion/Continuation; provided that: (a) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of a LIBOR Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period pertaining to a LIBOR Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (c) no Interest Period for any Loan shall extend beyond the Termination Date.

 

Interest Rate Type means, with respect to any Loan, the interest rate, being either the Base Rate or the LIBOR forming the basis upon which interest is charged against such Loan hereunder.

 

IRS means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code.

 

Lender means any financial institution a party hereto as having a Commitment, and its successors and assigns, and Lenders shall mean all Lenders.  References to “Lenders” shall include Wells Fargo Energy Capital, Inc., and such other lending institutions now a party or hereafter a party to this Agreement.

 

Lending Office means, as to any bank, the office or offices of such Lender specified as its “Lending Office,” or such other office or offices as such Lender may from time to time notify Borrower and Administrative Agent.

 

Letters in Lieu means the letters described under Subsection 4.04(a).

 

LIBOR means a per annum rate of interest (rounded upwards, if necessary, to the nearest .01%) equal to the quotient obtained by dividing (a) the rate at which Wells Fargo Bank is offered deposits by major banks in dollars in the aggregate amount of the relevant Loans and for a period comparable to the applicable Interest Period in the London interbank market at approximately 11:00 a.m. (London time), two (2) Business Days prior to the beginning of the relevant Interest Period, by (b) a percentage equal to 100% minus the average maximum rate of all reserve requirements relating to the LIBOR Rate Loans under regulations issued by the Board of Governors of the Federal Reserve System or any other Governmental Authority during such Interest Period (including, without limitation, any margin, emergency, supplemental, special or other reserves required by applicable Law) applicable to

 

9

 

Administrative Agent. The determination and calculation of the LIBOR and each component thereof by Administrative Agent shall be conclusive and binding, absent manifest error.

 

LIBOR Rate Loan means a Loan that bears interest based on the LIBOR, plus the Applicable Margin.

 

Lien means with respect to any Property, any right or interest therein of a creditor to secure Indebtedness owed to such creditor or any other arrangement with such creditor which provides for the payment of such Indebtedness out of such Property or which allows such creditor to have such debt satisfied out of such Property prior to the general creditors of any owner thereof, including any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any Property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement and the interest of a lessor under a Capital Lease), any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law and any contingent or other agreement to provide any of the foregoing.

 

Loan means an extension of credit by a Lender to Borrower under Article II.

 

Loan Documents means this Agreement, the Notes, the Security Documents, the Intercreditor Agreement and all other agreements, instruments, or documents delivered to Administrative Agent or any Lender in connection herewith.

 

Margin Stock means “margin stock” as such term is defined in Regulation U or X of the FRB.

 

Marketable Title means record title free and clear from reasonable doubt as to matters of law and fact such that a prudent operator of Oil and Gas properties, advised of the facts and their legal significance, would willingly accept.

 

Material Adverse Effect means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties or financial condition of Borrower and its Subsidiaries, taken as a whole; or (b) a material adverse effect upon the legality, validity, binding effect or enforceability against Borrower or any of its Subsidiaries of any Loan Document.

 

Material Subsidiary means any direct or indirect wholly-owned subsidiary of Borrower which owns five percent (5%) or more by value of the consolidated assets of Borrower and its Subsidiaries.

 

Maximum Amount has the meaning specified in Section 11.10.

 

Maximum Loan Amount means the amount of $50,000,000.

 

Monthly Status Report means a status report prepared by Borrower in form, scope and content acceptable to Administrative Agent, setting forth as of such month then ended (a) detailing production from the Borrowing Base Properties, the volumes of Oil and Gas produced and saved, the volumes of Oil and Gas sold, gross revenue, net income, related leasehold operating expenses, severance taxes, other taxes, capital costs and any production imbalances or take or pay imbalances incurred during such period and (b) such additional information with respect to any of Borrower’s or any Subsidiary’s Borrowing Base Properties as may be reasonably requested by Administrative Agent, including the names and

 

10

 

addresses of current purchasers of production and copies of current division orders from such purchasers showing Borrower’s or such Subsidiary’s interest in the subject wells and Borrowing Base Properties.

 

Mortgages means the Mortgages, Deeds of Trust, Assignments of Production, Security Agreements and Financing Statements from Borrower and any Subsidiary, to the extent such Subsidiary owns Oil and Gas Properties, in favor of Administrative Agent, for the ratable benefit of the Lenders, and all supplements, assignments, amendments and restatements thereto (or any agreement in substitution therefor).

 

Mortgaged Properties means the Oil and Gas Properties described in the Mortgages as the same may be amended or supplemented from time to time, until released.

 

Multiemployer Plan means a “multiemployer plan,” within the meaning of Section 4001 (a)(3) of ERISA, to which Borrower or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three (3) calendar years, has made, or been obligated to make, contributions.

 

Non-Defaulting Lenders has the meaning specified in Section 2.09.

 

Notes mean the promissory notes specified in Section 2.01, substantially in the same form as Exhibit A, including any amendments, modifications, renewals or replacements of such promissory notes.

 

Notice of Borrowing/Prepayment means a notice in substantially the form of Exhibit B.

 

Notice of Continuation/Conversion means a notice in substantially the form of Exhibit C.

 

NYMEX Pricing shall mean, as of any date of determination with respect to any month (i) for crude oil, the closing settlement price for the Light, Sweet Crude Oil futures contract for each month, and (ii) for natural gas, the closing settlement price for the Henry Hub Natural Gas futures contract for such month, in each case as published by New York Mercantile Exchange (NYMEX) on its website currently located at www.nymex.com, or any successor thereto (as such price may be corrected or revised from time to time by the NYMEX in accordance with its rules and regulations).

 

Obligations means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by Borrower to any Lender (including obligations under any Derivative Contract by Borrower to any of the Lenders or any of their Affiliates so long as such contract was entered into at the time such counterparty was a Lender or an Affiliate of a Lender and held a Commitment or had Loans outstanding hereunder), Administrative Agent or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising.

 

Oil and Gas means petroleum, natural gas and other related hydrocarbons or minerals or any of them and all other commercial substances produced or extracted in association therewith.

 

Oil and Gas Properties means Hydrocarbon Interests now owned or hereafter acquired by Borrower or any Subsidiary and contracts executed in connection therewith and all tenements, hereditaments, appurtenances, and properties belonging, affixed or incidental to such Hydrocarbon Interests, including, without limitation, any and all Property, real or personal, now owned or hereafter acquired by Borrower or any Subsidiary and situated upon or to be situated upon, and used, built for use, or useful in connection with the operating, working or developing of such Hydrocarbon Interests, including, without limitation, any and all petroleum and/or natural gas wells, buildings, structures, field

 

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separators, processing plants, liquid extractors, plant compressors, pumps, pumping units, field gathering systems, tank and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, liters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, taping, tubing and rods, surface leases, rights-of-way, easements and servitudes, and all additions, substitutions, replacements for, fixtures and attachments to any and all of the foregoing owned directly or indirectly by Borrower or any Subsidiary.

 

Operating Agreements shall have the meaning set forth in Subsection 5.01(k).

 

Organization Documents means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of the shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation necessary in connection with the authorization of the foregoing documents or others in connection with the due organization of such corporation; for any limited liability company the articles of organization, certificate of authorization, operating agreement, organizational agreement, certificate of formation, regulations, certificates of qualification, joint resolutions of members (or any committee thereof) authorizing the foregoing; and for any partnership, the agreement of partnership and any certificates of such partnership or instrument relating to the rights of the partners of such partnership and all applicable resolutions of any corporate partners of such partnerships authorizing the foregoing.

 

Other Taxes means any present or future stamp or documentary taxes or any other excise or Property taxes, charges or similar levies which arise from any payment made by Borrower or any Subsidiary hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents.

 

Participant has the meaning set forth in Subsection 11.08(a).

 

Patriot Act shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, signed into law October 26, 2001, as amended.

 

PBGC means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA.

 

Pension Plan means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA, other than a Multiemployer Plan, which Borrower sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years.

 

Permitted Liens has the meaning set forth in Section 8.01.

 

Person means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority.

 

Plan means an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to ERISA, other than a Multiemployer Plan, and which Borrower sponsors or maintains or to which Borrower makes, is making, or is obligated to make contributions and includes any Pension Plan.

 

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Pricing Grid means the annualized variable rates (stated in terms of basis points (“bps”)) set forth below for the Applicable Margin as follows:

 

	
Applicable Margin
    	
 
    
	
LIBOR Rate
    	
 
    	
Base Rate
    	
 
    
	
8.00
    	
%
    	
7.00
    	
%
    

 

Principal Business means the business of the exploration for, and development, acquisition, production, and upstream marketing of Oil and Gas, through joint venture, joint operating, farm-in, farm-out or other agreements or arrangements.

 

Property means property of all kinds, real, personal or mixed, tangible or intangible (including without limitation, all rights thereto), whether owned or acquired on or after the date of this Agreement.

 

Pro Rata Share means, as to any Lender at any time, the percentage set forth opposite its name on Schedule 2.01 hereto, as amended from time to time.

 

Proven Reserves means, at any particular time, the estimated quantities of Oil and Gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs attributable to Oil and Gas Properties under then existing economic and operating conditions (i.e., prices and costs as of the date the estimate is made).

 

Replacement Lender has the meaning specified in Section 3.08.

 

Reportable Event means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC.

 

Required Lenders means, at any time, Administrative Agent and the Lenders (such Lenders must include at least one Lender other than Administrative Agent or an Affiliate thereof) holding more than sixty-six and two-thirds percent (66 2/3%) of the sum of the Effective Amount or, if there is no Effective Amount, Administrative Agent and the Lenders (such Lenders must include at least one Lender other than Administrative Agent or an Affiliate thereof) holding more than sixty-six and two-thirds percent (66 2/3%) of the sum of the Commitments of all of the Lenders; provided that, the Commitment of, and the portion of the outstanding Loans held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

 

Requirement of Law means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its Property or to which the Person or any of its Property is subject.

 

Reserve Report means a report, in form and substance satisfactory to Administrative Agent, prepared in a manner consistent with practices of reservoir engineers who prepare such reports for use in reserve-based lending transactions, that sets forth the present discounted value of the Proven Reserves attributable to the Borrowing Base Properties.

 

Responsible Officer means the president or any vice president, treasurer, chief financial officer or chief accounting officer of Borrower.

 

Restricted Payments has the same meaning set forth in Section 8.09.

 

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Security Agreements means collectively, each Security Agreement executed by Borrower or any Material Subsidiary in favor of Administrative Agent for the ratable benefit of the Lenders, granting a security interest in all personal Property and pledging all interest in the Material Subsidiaries and all supplements, assignments, amendments and restatements thereto (or any agreements in substitution therefor).

 

Security Documents means the Mortgages, Security Agreements, collateral assignments, pledges, assignments and related financing statements listed on Schedule 4.01 as same may be amended from time to time, Letters in Lieu, and any and all other instruments now or hereafter executed in connection with or as security for the payment of the Obligations secured by the Collateral.

 

Senior Administrative Agent  means Wells Fargo Bank, in its capacity as Administrative Agent under the Senior Credit Agreement.

 

Senior Credit Agreement means that certain Credit Agreement of even date herewith between Borrower and Senior Administrative Agent and the Senior Lenders.

 

Senior Lenders means the “Banks” party to the Senior Credit Agreement from time to time.

 

Solvent means, as to any Person at any time, that (a) the fair value of all of the Property of such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (b) the present fair saleable value of all of the Property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s Property would constitute unreasonably small capital.

 

Strip Price shall mean, at any time, (a) for the remainder of the current calendar year, the average NYMEX Pricing for the remaining contracts in the current calendar year, (b) for each of the succeeding two complete calendar years, the average NYMEX Pricing for the twelve months in each such calendar year, and (c) for the succeeding third complete calendar year, and for each calendar year thereafter, the average NYMEX Pricing for the twelve months in such third calendar year.

 

Subsidiary of a Person means any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a “Subsidiary” refer to a Subsidiary of Borrower.

 

Surety Instruments means all letters of credit (including standby), banker’s acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments.

 

Taxes means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and Administrative Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by such Lender’s or Administrative Agent’s net income in the jurisdiction (whether federal, state, local, or foreign and including any political subdivision thereof) under the laws of which such Lender or Administrative Agent, as the case may be, is organized or maintains a lending office.

 

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Termination Date means the earlier of (a) July 5, 2016, or (b) the date on which the Lenders’ Commitments terminate in accordance with this Agreement.

 

Testing Date means (i) each April 1 and October 1 of each year, (ii) upon any material Acquisition or Disposition of Oil and Gas Properties by the Borrower or any Guarantor, and (iii) such other date during each calendar year, if any, as selected by the Administrative Agent at the request of any Lender, provided Administrative Agent shall select no more than one additional Testing Date during any calendar year.

 

Total Debt means, as to Borrower and its Subsidiaries on a consolidated basis, at any date, (a) all obligations for borrowed money, plus (b) Capital Leases, plus (c) issued and outstanding letters of credit, plus (d) Contingent Obligations for funded indebtedness, less (e) cash on hand.

 

Total Proved PW10% shall mean, with respect to any Proved Reserves (as defined in accordance with the standards of the Society of Petroleum Engineers) expected to be produced from any Oil and Gas Properties, the net present value, discounted at ten percent (10%) per annum, of the future net revenues expected to accrue to the Borrower’s and its Subsidiaries’ collective interests in such Proved Reserves during the remaining expected economic lives of such reserves. Each calculation of such expected future net revenues shall be made in accordance with the then existing standards of the Society of Petroleum Engineers, provided that in any event (i) appropriate deductions shall be made for severance and ad valorem taxes, and for operating, gathering, transportation and marketing costs required for the production and sale of such reserves (such operating, gathering, transportation and marketing costs to be held constant), (ii) appropriate adjustments shall be made for hedging operations acceptable to the Required Lenders, (iii) the pricing assumptions used in determining Total Proved PW10% for any particular reserves shall be based upon the Strip Price and (d) the cash-flows derived from the pricing assumptions set forth in clauses (ii) and (iii) above shall be further adjusted to account for the historical basis in a manner acceptable to the Required Lenders; provided, however, that for purposes of this calculation, Proved Developed Producing Reserves (as defined in accordance with the standards of the Society of Petroleum Engineers) shall constitute not less than 60% of the Total Proved PW10%.

 

Unfunded Pension Liability means the excess of a Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable Plan year.

 

United States and U.S. each means the United States of America.

 

Wells Fargo Bank means Wells Fargo Bank, N.A., a national banking association, and any bank successor in interest thereto.

 

1.02                        Other Interpretive Provisions.  The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. Unless otherwise specified or the context clearly requires otherwise, the words “hereof,” “herein,” “hereunder” and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and Subsection, Section, Schedule and Exhibit references are to this Agreement. The term “documents” includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. The term “including” is not limiting and means “including without limitation.” In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding,” and the word “through” means “to and including.” Unless

 

15

 

otherwise expressly provided herein, (a) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (b) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.  This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to Administrative Agent, Borrower and the other parties and are the products of all parties. Accordingly, they shall not be construed against Borrower, the Lenders or Administrative Agent merely because of Borrower’s, Lenders’ or Administrative Agent’s involvement in their preparation.

 

1.03                        Accounting Principles.  Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied by Borrower.

 

ARTICLE II.

 

THE CREDIT

 

2.01                        Amounts and Terms of the Commitment.

 

(a)                                 On the Closing Date, each Lender severally agrees, on the terms and conditions set forth herein, to make Loans to Borrower (each such loan, a “Loan”) of its Pro Rata Share of, and the Borrower agrees to borrow,  the amount of $30,000,000 (the “Initial Commitment Amount”).  The obligation of Borrower to repay to each Lender the aggregate amount of all Loans made by such Lender, together with interest accruing in connection therewith, shall be evidenced by a single promissory note (herein called such Lender’s “Note”) made by Borrower payable to the order of such Lender in the form of Exhibit A with appropriate insertions.  The amount of principal owing on any Lender’s Note at any given time shall be the aggregate amount of all Loans theretofore made by such Lender minus all payments of principal theretofore received by such Lender on such Note and amounts repaid hereunder may not be reborrowed.  Interest on each Note shall accrue and be due and payable as provided herein.  The obligation of Borrower to repay the aggregate amount of all Loans made by the Lenders, together with interest accruing in connection therewith, shall be evidenced by the Notes.

 

(b)                                 Each Borrowing shall be made subject to the following procedures:

 

(i)                                     Each Borrowing of Loans shall be made upon Borrower’s irrevocable written notice delivered to Administrative Agent in the form of a Notice of Borrowing/Prepayment duly completed; which notice must be received by Administrative Agent prior to 11:00 a.m. (Houston, Texas time) at least (A) three (3)

 

16

 

Business Days prior to the requested Borrowing Date, in the case of LIBOR Rate Loans; and (B) on the requested Borrowing Date, in the case of Base Rate Loans.

 

(ii)                                  Each Notice of Borrowing/Prepayment shall specify (A) the amount of the Borrowing, which shall be in an aggregate minimum amount (i) for Base Rate Loans equal to (z) $100,000 and (ii) for LIBOR Rate Loans $1,000,000 or any multiple integrals of $100,000 in excess thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Interest Rate Type of Loans comprising the Borrowing; and (D) for LIBOR Rate Loans the duration of the Interest Period applicable to such Loans. If the Notice of Borrowing/Prepayment fails to specify the duration of the Interest Period for any Borrowing comprised of LIBOR Rate Loans, such Interest Period shall be three (3) months.

 

(iii)                               Administrative Agent will promptly notify each Lender of its receipt of any Notice of Borrowing/Prepayment and of the amount of such Lender’s Pro Rata Share of that Borrowing, and such Notice of Borrowing/Prepayment shall not thereafter be revocable by Borrower.

 

(iv)                              Provided the applicable conditions in Article 5 are met, each Lender will make the amount of its Pro Rata Share of each Borrowing available to Administrative Agent for the account of Borrower at Administrative Agent’s Payment Office by 12:30 p.m. (Houston, Texas time) on the Borrowing Date requested by Borrower in funds immediately available to Administrative Agent.  The proceeds of all such Loans will then be made available to Borrower by Administrative Agent to Borrower’s operating account with Administrative Agent of like funds as received by Administrative Agent.

 

2.02                        Conversion and Continuation Elections.

 

(a)                                 Prior to the Termination Date, Borrower may, upon irrevocable written notice to Administrative Agent in accordance with Subsection 2.02(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of LIBOR Loans, to convert any such Loans into Loans of any other Interest Rate Type; or (ii) elect as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day; provided, that no more than five (5) LIBOR Loan tranches may exist at any one time and if at any time a LIBOR Loan in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to less than $1,000,000, such LIBOR Loan shall automatically convert into a Base Rate Loan.

 

(b)                                 Borrower shall deliver an irrevocable Notice of Conversion/Continuation to be received by Administrative Agent not later than 11:00 a.m. (Houston, Texas time) at least (i) three (3) Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into LIBOR Loans; (ii) as of the last day of the applicable Interest Period, in the case of LIBOR Loans, to continue any such Loans having Interest Periods expiring on such day as LIBOR Loans of the same or different Interest Period; and (iii) one (1) Business Day in advance of the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of

 

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Loans to be converted or renewed; (C) the Interest Rate Type of Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period.

 

(c)                                  If upon the expiration of any Interest Period applicable to LIBOR Loans, Borrower has failed to timely notify Administrative Agent of its selection for a new Interest Period to be applicable to LIBOR Loans, or if any Default or Event of Default then exists, Borrower shall be deemed to have elected to convert such LIBOR Loans into Base Rate Loans effective as of the expiration date of such Interest Period.

 

(d)                                 Administrative Agent will promptly notify each Lender of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by Borrower, Administrative Agent will promptly notify each Lender of the details of any automatic conversion.  All conversions and continuations shall be made ratably according to the respective Lender’s Pro Rata Share of outstanding principal amounts of the Loans with respect to which the notice was given.

 

2.03                        Optional Prepayments.  Subject to the Intercreditor Agreement and Section 3.04 hereof, Borrower may, at any time or from time to time:

 

(a)                                 prepay Base Rate Loans upon irrevocable notice to Administrative Agent prior to 11:00 a.m. (Houston, Texas time) on the requested day of such prepayment, in whole or in part, in minimum principal amounts of $500,000 or integral multiples thereof (unless the portion of the Effective Amount consisting of Base Rate Loans is less than $500,000, then such prepayments shall be equal to the then outstanding amount of Base Rate Loans); and

 

(b)                                 prepay LIBOR Loans upon irrevocable notice to Administrative Agent not less than three (3) Business Days, in whole or in part, in minimum principal amounts of $500,000 or integral multiples thereof.

 

Such notice shall be in the form of Notice of Borrowing/Prepayment and shall specify the date and amount of such prepayment and the Interest Rate Type(s) of Loans to be prepaid. Administrative Agent will promptly notify each Lender of its receipt of any such notice and of such Lender’s Pro Rata Share of such prepayment. The payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.04.  Except as provided herein, there shall be no penalty or premium for such prepayment.

 

2.04                        Repayment.  Borrower shall repay to Administrative Agent for the Lenders’ respective Pro Rata Shares the Effective Amount on or before the Termination Date, on which date all accrued unpaid interest and outstanding expenses hereunder or under the Loan Documents shall be due and payable in full.

 

(a)                                 Each LIBOR Rate Loan shall bear interest on the aggregate outstanding principal amount thereof from the applicable Borrowing Date or date of conversion or continuation pursuant to Section 2.02, as the case may be, at a rate per annum equal to the lesser of (A) the sum of (x) the greater of (1) LIBOR or (2) 1.50%, plus (y) the Applicable Margin, or (B) the Highest Lawful Rate.  Each Loan that is a Base Rate Loan shall bear interest on the

 

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aggregate outstanding principal amount thereof from the applicable Borrowing Date or date of conversion or continuation pursuant to Section 2.03, as the case may be, at a rate per annum equal to the lesser of (A) the sum of (x) the greater of (1) the Base Rate or (2) 3.00%, plus (y) the Applicable Margin or (B) the Highest Lawful Rate.

 

(b)                                 Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default under Subsection 9.01(a), (f) or (g) or upon acceleration of any or all of the Obligations, interest shall be paid on demand of Administrative Agent.

 

(c)                                  Notwithstanding Subsection 2.04(a), while any Event of Default under Subsections 9.01(a), (f) or (g) or upon acceleration of any or all of the obligations exists or after acceleration, Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations then due and payable, at a rate per annum equal to the lesser of (x) the Highest Lawful Rate or (y) the Base Rate, plus the Applicable Margin, plus three percent (3%) (the “Default Rate”).

 

2.05                        Fees.

 

(a)                                 Agency and Other Fees.  Borrower shall pay to Administrative Agent and its Affiliates such fees and other amounts as Borrower shall be required to pay to Administrative Agent and its Affiliates from time to time pursuant to any separate agreement between Borrower and Administrative Agent or any of its Affiliates setting forth the compensation to be paid to Administrative Agent and its Affiliates in consideration for providing services in connection with the credit facilities provided pursuant hereto.

 

2.06                        Computation of Fees and Interest.

 

(a)                                 All computations of interest and fees shall be made on the basis of a 360-day year and actual days elapsed, except that interest on Base Rate Loans when the Base Rate is determined by Wells Fargo Bank’s “prime rate” shall be computed on the basis of a 365/366-day year and actual days elapsed. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof (including the first day but excluding such last day).

 

(b)                                 Each determination of an interest rate by Administrative Agent, except in case of manifest error, shall be final, conclusive and binding on the parties.

 

2.07                        Payments by Borrower; Borrowings Pro Rata.

 

(a)                                 All payments to be made by Borrower shall be made without set-off, recoupment or counterclaim.  All payments by Borrower shall be made in immediately available funds to Administrative Agent at Administrative Agent’s Payment Office for the account of Administrative Agent or the Lender to whom such payment is owed, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (Houston, Texas time) on the date specified herein. Except to the extent otherwise provided herein, (i) each payment by Borrower of fees payable to the Lenders shall be made for the account of the Lenders pro rata in

 

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accordance with their respective Pro Rata Shares, (ii) each payment of principal of Loans shall be made for the account of the Lenders pro rata in accordance with their respective outstanding principal amount of Loans, and (iii) each payment of interest on Loans shall be made for the account of the Lenders pro rata in accordance with their respective shares of the aggregate amount of interest due and payable to the Lenders.  Notwithstanding the foregoing, to the extent money is received by Administrative Agent pursuant to the exercise of remedies under the Security Documents such money shall be applied to the pro rata payment of Obligations secured by such Security Document.

 

(b)                                 Administrative Agent will promptly distribute to each Lender its applicable share of such payment in like funds as received.  Any payment received by Administrative Agent later than 11:00 a.m. (Houston, Texas time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue.  When Administrative Agent collects or receives money on account of the Obligations or otherwise pursuant to the Security Documents if such money is insufficient to pay all such Obligations, such money shall be applied first to any reimbursements due Administrative Agent.

 

(c)                                  Subject to the provisions set forth in the definition of “Interest Period” herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be.

 

(d)                                 Unless Administrative Agent receives notice from Borrower prior to the date on which any payment is due to the Lenders that Borrower will not make such payment in full as and when required, Administrative Agent may assume that Borrower has made such payment in full to Administrative Agent on such date in immediately available funds and Administrative Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender.  If and to the extent Borrower has not made such payment in full to Administrative Agent, each Lender shall repay to Administrative Agent on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount is distributed to such Lender at the Federal Funds Rate for the first three (3) days following demand by Administrative Agent and for each day thereafter until the date repaid at the Base Rate.

 

(e)                                  Except to the extent otherwise expressly provided herein, each Borrowing hereunder shall be from the Lenders pro rata in accordance with their respective Pro Rata Shares.

 

2.08                        Payments by the Lenders to Administrative Agent.

 

(a)                                 Unless Administrative Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one (1) Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Administrative Agent for the account of Borrower the amount of that Lender’s Pro Rata Share of the Borrowing, Administrative Agent may assume that each Lender has made such amount available to Administrative Agent in immediately available funds on the Borrowing Date and Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower on such date a corresponding amount.  If and

 

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to the extent any Lender shall not have made its full amount available to Administrative Agent in immediately available funds and Administrative Agent in such circumstances has made available to Borrower such amount, that Lender shall on the Business Day following such Borrowing Date make such amount available to Administrative Agent, together with interest at the Federal Funds Rate for the first three (3) days during such period and thereafter at the Base Rate.  A notice of Administrative Agent submitted to any Lender with respect to amounts owing under this Subsection 2.08(a) shall be conclusive, absent manifest error.  If such amount is so made available, such payment to Administrative Agent shall constitute such Lender’s Loan on the date of Borrowing for all purposes of this Agreement.  If such amount is not made available to Administrative Agent on the Business Day following the Borrowing Date, Administrative Agent will notify Borrower of such failure to fund and, upon demand by Administrative Agent, Borrower shall pay such amount to Administrative Agent for Administrative Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing.

 

(b)                                 The failure of any Lender to make any Loan on any Borrowing Date shall not relieve any other Lender of any obligation hereunder to make a Loan on such Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on any Borrowing Date.

 

2.09                        Sharing of Payments, Etc.  If any Lender shall obtain on account of the Obligations made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) or receive any collateral in respect thereof in excess of the amount such Lender was entitled to receive pursuant to the terms hereof, such Lender shall immediately (a) notify Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment according to the terms hereof; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender’s ratable share (according to the proportion of (i) the amount of such paying Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.  Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of setoff, but subject to Section 11.09) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section 2.09 and will in each case notify the Lenders following any such purchases or repayments.  Notwithstanding the foregoing, if any Defaulting Lender shall have failed to fund all or any portion of any Loan (each such Loan, an “Affected Loan”), each payment by Borrower hereunder shall be applied first to such Affected Loan and the principal amount and interest with respect to such payment shall be distributed (i) to each Lender that is not a Defaulting Lender (each, a “Non-Defaulting Lenders”) pro rata based on the outstanding principal amount of Affected Loans owing to all Non-Defaulting Lenders, until the principal amount of all Affected Loans has been repaid in full and (ii) to the extent of any remaining amount of such payment, to each Lender pro rata in accordance with such Lender’s

 

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Pro Rata Share. Each payment made by the Borrower on account of the interest on any Affected Loan shall be distributed to each Non-Defaulting Lender pro rata based on the outstanding principal amount of Affected Loans owing to all Non-Defaulting Lenders.

 

ARTICLE III.

 

TAXES, YIELD PROTECTION AND ILLEGALITY

 

3.01                        Taxes.  Except as provided in Section 3.09:

 

(a)                                 Any and all payments by Borrower to each Lender or Administrative Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes.  In addition, Borrower shall pay all Other Taxes. However, Borrower may delay paying or discharging any Other Taxes so long as it is in good faith contesting the validity thereof by appropriate proceedings and has set aside on its books adequate reserve therefor.

 

(b)                                 Borrower agrees to indemnify and hold harmless each Lender and Administrative Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.01) paid by each Lender and Administrative Agent to the extent such Lender or Administrative Agent has provided Borrower with five (5) Business Days’ notice of its intent to pay or discharge same and any liability (including penalties, interest, additions to tax and reasonable expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted (except to the extent of Other Taxes contested by Borrower provided in Subsection 3.01(a) above). Payment under this indemnification shall be made within thirty (30) days after the date the Lender or Administrative Agent makes written demand therefor.

 

(c)                                  If Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or Administrative Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section 3.01) such Lender or Administrative Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) Borrower shall make such deductions and withholdings; (iii) Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) Borrower shall also pay to each Lender or Administrative Agent for the account of such Lender, at the time interest is paid, all additional amounts which the respective Lender specifies as necessary to preserve the after-tax yield Lender would have received if such Taxes or Other Taxes had not been imposed.

 

(d)                                 Upon request of Administrative Agent, Borrower shall furnish Administrative Agent the original or a certified copy of a receipt evidencing payment by Borrower of Taxes or Other Taxes under Subsection 3.01(c), or other evidence of payment satisfactory to Administrative Agent.

 

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3.02                        Illegality.

 

(a)                                 If any Lender reasonably determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration thereof by any Governmental Authority of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make LIBOR Loans, then, on notice thereof by the Lender to Borrower through Administrative Agent, any obligation of that Lender to make LIBOR Loans shall be suspended until such Lender notifies Administrative Agent and Borrower that the circumstances giving rise to such determination no longer exist (which the Lender agrees to do promptly thereafter).  Each Lender represents that as of the Closing Date no such circumstances exist as to such Lender.

 

(b)                                 If any Lender reasonably determines that it is unlawful to maintain any LIBOR Loan, such Loan will automatically convert into a Base Rate Loan either on the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Loan.

 

(c)                                  If the obligation of any Lender to make or maintain LIBOR Loans has been so terminated or suspended, all Loans which would otherwise be made by such Lender as LIBOR Loans shall be instead Base Rate Loans.

 

(d)                                 Before giving any notice to Administrative Agent under this Section 3.02, the affected Lender shall designate a different Lending Office with respect to its LIBOR Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Lender, be illegal or otherwise disadvantageous to the Lender.

 

3.03                        Increased Costs and Reduction of Return.

 

(a)                                 If any Lender determines that, due to either (i) the introduction after the Closing Date of any new law or regulation or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR) after the Closing Date in or in the interpretation of any law or regulation by any Governmental Authority charged with the interpretation or administration thereof or (ii) the compliance by that Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) made or issued after the Closing Date, there shall be any increase in the actual cost to such Lender of agreeing to make or making, funding or maintaining any LIBOR Loans, then Borrower shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to Administrative Agent), pay to Administrative Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs. Notwithstanding anything herein to the contrary (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a change in law, regardless of the date enacted, adopted or issued.

 

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(b)                                 If any Lender reasonably shall have determined that (i) the introduction after the Closing Date of any Capital Adequacy Regulation, (ii) any change after the Closing Date in any Capital Adequacy Regulation, (iii) any change after the Closing Date in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Lender (or its Lending Office) or any corporation controlling the Lender with any such Capital Adequacy Regulation, affects the amount of capital required to be maintained by the Lender or any corporation controlling the Lender and (taking into consideration such Lender’s or such corporation’s policies with respect to such Lender’s capital adequacy) reasonably determines that the amount of such capital is increased as a consequence of its Commitments, loans, credits or obligations under this Agreement, then, upon demand of such Lender to Borrower through Administrative Agent, Borrower shall pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender for such increase.

 

3.04                        Funding Losses.  Borrower shall reimburse each Lender and hold each Lender harmless from any loss or expense which the Lender may actually sustain or incur as a consequence of: (a) the failure of Borrower to make on a timely basis any payment of principal of any LIBOR Loan; (b) the failure of Borrower to borrow, continue or convert a Loan after Borrower has given (or is deemed to have given) a Notice of Borrowing/Prepayment or a Notice of Conversion/Continuation (including by reason of the failure to satisfy any condition precedent thereto); (c) the failure of Borrower to make any prepayment in accordance with any notice delivered under Section 2.03; (d) the prepayment or other payment (including after acceleration thereof) of any LIBOR Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under Section 3.02 of any LIBOR Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by Borrower to the Lenders under this Section and under Section 3.03, each LIBOR Loan made by a Lender (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR for such LIBOR Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBOR Rate Loan is in fact so funded.

 

3.05                        Inability to Determine Rates.  If Administrative Agent determines that for any reason adequate and reasonable means do not exist for determining the LIBOR for any requested Interest Period with respect to a proposed LIBOR Loan, or the Required Lenders notify the Administrative Agent that the LIBOR applicable for any requested Interest Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, Administrative Agent will promptly so notify Borrower. Thereafter, the obligation of such Lenders to make, maintain or convert Loans into LIBOR Rate Loans hereunder shall be suspended until Administrative Agent upon the instruction of the Lenders revokes such notice in writing and each LIBOR Rate Loan that has been affected will automatically, on the last day of the then-existing Interest Period therefor, convert into a Base Rate Loan. Upon receipt of such notice, Borrower may revoke any Notice of Borrowing/Prepayment or Notice of Conversion/Continuation then submitted by it. If Borrower

 

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does not revoke such Notice, the Lenders shall make, convert or continue the Loans, as proposed by Borrower, in the amount specified in the applicable notice submitted by Borrower, but such Loans shall be made, converted or continued as Base Rate Loans instead of LIBOR Loans. If any of the Lenders notify Borrower through Administrative Agent of any event occurring after the date hereof that will entitle such Lender to compensation pursuant to Section 3.01 or 3.03 or if any of the Lenders shall notify the Borrower through Administrative Agent of any event as to illegality under Section 3.02, then such Lender shall designate a different Lending Office for the Loans affected by such event if such designation will, as the case may be, avoid the need for, or reduce the amount of, such compensation or avoid such illegality and will not, in the sole opinion of the Lender, be disadvantageous to the Lender.

 

3.06                        Survival.  The agreements and obligations of Borrower in this Article III shall survive the payment of all other Obligations.

 

3.07                        Contents of Notice.  If any Lender requests payment or reimbursement from Borrower under Section 3.03 or 3.04, Lender shall deliver to Borrower (with a copy to Administrative Agent) a notice requesting same and shall set forth in reasonable detail the basis and amount of its request for compensation. Any request for additional compensation under Section 3.03 or 3.04 shall be paid by Borrower within 30 days of the receipt by Borrower of the notice described in this Section 3.07.  Failure or delay on the part of any Lender to demand compensation pursuant to this Section 3.07 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Borrower shall not be required to compensate a Lender pursuant to this Section 3.07 for any increased costs or reductions incurred more than 270 days prior to the date that such Lender notifies Borrower of the event giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the event giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.

 

3.08                        Substitution of Lenders.  Upon the receipt by Borrower from any Lender (an “Affected Lender”) of a claim for compensation under this Article III, or if Borrower is required to pay any additional amounts to any Governmental Authority pursuant to Section 3.01, or if any Lender becomes a Defaulting Lender and continues as a Defaulting Lender for more than five (5) Business Days at any time, or if any Lender refuses to consent to any amendment, waiver or other modification of any Loan Document requested by Borrower that requires the consent of a greater percentage of the Lenders than the Required Lenders and such amendment, waiver or other modification is consented to by the Required Lenders, Borrower may: (i) obtain a replacement bank or financial institution satisfactory to Administrative Agent to acquire and assume all or a ratable part of all of such Affected Lender’s Loans and Commitment (a “Replacement Lender”); or (ii) request one more of the other Lenders to acquire and assume all or part of such Affected Lender’s Loans and Commitment but none of the Lenders shall have any obligation to do so; and in each case the Affected Lender shall be required to so assign its loans and commitments pursuant to Section 11.08.  Any such designation of a Replacement Lender under clause (i) shall be subject to the prior written consent of Administrative Agent which consent shall not be unreasonably withheld.

 

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3.09                        Foreign Lenders, Participants, and Assignees.  Each Lender, Participant (by accepting a participation interest under this Agreement), and Assignee (by executing an Assignment and Acceptance Agreement) that is not organized under the laws of the United States of America or one of its states (a) represents to Administrative Agent and Borrower that (i) no Taxes are required to be withheld by Administrative Agent or Borrower with respect to any payments to be made to it in respect of the Obligations, and (ii) it has furnished to Administrative Agent and Borrower two (2) duly completed copies of either U.S. Internal Revenue Service Form W-8BEN, Form W-8ECI, or other form acceptable to Administrative Agent that entitles it to exemption from U. S. Federal withholding Tax on all interest payments under the Loan Documents, and (b) covenants to (i) provide Administrative Agent and Borrower a new Form W-8BEN, Form W-8ECI, or other form acceptable to Administrative Agent upon the expiration or obsolescence of any previously delivered form according to applicable laws and regulations, duly executed and completed by it, and (ii) comply from time to time with all applicable laws and regulations with regard to the withholding Tax exemption.  If any of the foregoing is not true or the applicable forms are not provided, then (a) Borrower and Administrative Agent (but without duplication) may deduct and withhold from interest payments under the Loan Documents any US federal-income Tax at the maximum rate under the Code (taking into account any reduction to which each Lender, Participant, or Assignee is entitled under an applicable United States tax treaty) and (b) each Lender, Participant, and Assignee shall indemnify and hold harmless Borrower for the full amount of such Tax.  The indemnities afforded by each Lender, Participant, and Assignee under this section shall survive the payment of all Obligations and the resignation or replacement of Administrative Agent.

 

ARTICLE IV.

 

SECURITY

 

4.01                        Agreement to Deliver Security Documents.  Borrower and, as applicable, each Subsidiary shall, from time to time, execute such Mortgages, Security Agreements, financing statements and other Security Documents in form and substance satisfactory to Administrative Agent for the purpose of granting and perfecting first and prior liens or security interests subordinate only to the liens and security interests in favor of the Senior Lenders as provided in the Intercreditor Agreement (a) in all of Borrower’s and each of its present and future Subsidiary’s personal Property, including, without limitation, all of Borrower’s interest in such Subsidiaries, and (b) in Borrower’s and, as applicable, each Subsidiary’s Mortgaged Property (subject to any Permitted Liens having priority) now owned by Borrower or its Subsidiaries or hereafter acquired by Borrower or its Subsidiaries, which Mortgaged Properties shall comprise at least eighty percent (80%), by present discounted value (as determined by the Senior Administrative Agent for the Borrowing Base under the Senior Credit Agreement using the most recent Reserve Report), of the Proven Reserves.

 

4.02                        Perfection and Protection of Security Interests and Liens.  Borrower and any Subsidiary, as applicable, will from time to time deliver to Administrative Agent such additional Mortgages, Security Agreements, financing statements, amendments, assignment and continuation statements, extension agreements and other documents, properly completed and executed (and acknowledged when required) by Borrower in form and substance reasonably satisfactory to Administrative Agent, which the Lenders reasonably request for the purpose of

 

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perfecting, confirming, or protecting any Liens or other rights in the Collateral securing any Obligations.

 

4.03                        Offset.  To secure the repayment of the Obligations, Borrower hereby grants Administrative Agent and each Lender a security interest, a lien, and a right of offset, each of which shall be in addition to all other interests, liens, and rights of Administrative Agent and each Lender at common law, under the Loan Documents, or otherwise, and each of which shall be upon and against (a) any and all moneys, securities or other Property (and the proceeds therefrom) owned by Borrower and each Subsidiary now or hereafter held or received by or in transit to Administrative Agent or any Lender from or for the account of Borrower and each Subsidiary, whether for safekeeping, custody, pledge, transmission, collection or otherwise,  and (b) any and all deposits (general or special, time or demand, provisional or final) of Borrower and each Subsidiary with Administrative Agent or any Lender, including certificates of deposit.  Upon the acceleration of the Obligations pursuant to Section 9.02, Administrative Agent or any Lender is hereby authorized to foreclose upon and apply, at any time and from time to time, without notice to Borrower or any Subsidiary to the extent permitted by law, any and all items hereinabove referred to against the Obligations then due and payable.  Each Lender agrees promptly to notify Borrower after such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application.

 

4.04                        Letters in Lieu/Power of Attorney.

 

(a)                                 Borrower and any Subsidiary, as applicable, shall provide to Administrative Agent undated letters, in form of Exhibit D attached hereto, in blank to each purchaser of production and disburser of proceeds of production from or attributable to the Mortgaged Properties, with the addressees left blank, authorizing and directing the addressees to make future payments attributable to production from the Mortgaged Properties directly to Administrative Agent for the ratable benefit of the Lenders.

 

(b)                                 Borrower and any Subsidiary, as applicable, hereby designates Administrative Agent as its agent and attorney-in-fact, effective during the continuance of an Event of Default, to act in their name, place, and stead for the purpose of completing and delivering any and all of the letters in lieu of transfer orders delivered by Borrower and any Subsidiary, as applicable, to Administrative Agent, including, without limitation, completing any blanks contained in such letter and attaching exhibits thereto describing the relevant Collateral. The Borrower and each such Subsidiary hereby ratifies and confirms all that Administrative Agent shall lawfully do or cause to be done by virtue of this power of attorney and the rights granted with respect to such power of attorney. This power of attorney is coupled with the interest of Administrative Agent in the Collateral, shall commence and be in full force and effect as of the Closing Date and shall remain in full force and effect and shall be irrevocable so long as any Obligation remains outstanding or unpaid or any Commitment exists. The powers conferred on Administrative Agent by this appointment are solely to protect the interests of Administrative Agent and each of the Lenders under the Loan Documents and shall not impose any duty upon Administrative Agent to exercise any such powers. Administrative Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and shall not be responsible to Borrower, any Subsidiary or any other Person for any act or failure to act with respect to such powers, except for gross negligence or willful misconduct.

 

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4.05                        Assignment of Runs.  Notwithstanding that, under Article III of the Mortgages, Borrower and, as applicable, each Subsidiary has assigned to Administrative Agent for the ratable benefit of the Lenders all of the proceeds of runs accruing to the Mortgaged Properties covered thereby:

 

(a)                                 Until such time as an Event of Default shall have occurred and be continuing and Administrative Agent shall notify Borrower and, as applicable, each Subsidiary, to the contrary, Borrower shall be entitled to receive from the purchasers or disbursers of its production all such proceeds of runs, subject however to the liens created under the Mortgages, which liens are hereby affirmed and ratified. Upon the occurrence and during the continuance of an Event of Default, to the extent permitted pursuant to the Intercreditor Agreement, Administrative Agent may deliver to the addressees the letters-in-lieu described in Section 4.04 above and may exercise all rights and remedies granted under the Mortgages, including the right to obtain possession of all proceeds of runs then held by Borrower and any Subsidiary or to receive directly from the purchaser or disburser of production all other proceeds of runs.

 

(b)                                 In no case shall any failure, whether purposed or inadvertent, by Administrative Agent to collect directly any such proceeds of runs constitute in any way a waiver, remission or release of any of its rights under the Mortgages, nor shall any release of any other proceeds of runs or of any rights of Administrative Agent to collect other proceeds of runs thereafter.

 

(c)                                  Borrower and, as applicable, each Subsidiary, will upon the instruction of Administrative Agent join with Administrative Agent in notifying in writing and accompanied (if necessary) by certified copies of the Mortgages the purchasers or disbursers of production produced from the Mortgaged Properties of the existence of the Mortgages, and instructing that all proceeds of runs be paid directly to Administrative Agent for the ratable benefit of the Lenders.

 

4.06                        Authorization to File Financing Statements.  Borrower and each Subsidiary hereby authorizes Administrative Agent to file, in any applicable jurisdiction where Administrative Agent deems it reasonably necessary, a financing statement or statements.  At the request of Administrative Agent, such Person will join Administrative Agent in executing one or more financing statements pursuant to the applicable Uniform Commercial Code in form satisfactory to Administrative Agent, and will pay the cost of filing or recording this instrument, as a financing statement, in all public offices at any time and from time to time whenever filing or recording of any financing statement is deemed by Administrative Agent to be reasonably necessary or desirable.

 

ARTICLE V.

 

CONDITIONS PRECEDENT

 

5.01                        Conditions of Initial Loan.  The effectiveness of this Agreement and the obligation of each Lender to make its initial Loan hereunder is subject to the condition that Administrative Agent shall have received all of the following, in form and substance satisfactory to Administrative Agent and each Lender, and in sufficient copies for each Lender:

 

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(a)                                 Credit Agreement, Notes and Security Documents. This Agreement, the Notes, the Guaranty and the Security Documents executed by each party thereto and, where appropriate, properly acknowledged and notarized.

 

(b)                                 Assignment of Notes and Liens.  In connection with refinancing the Existing Dernick Credit Agreement and the Existing Cinco Credit Agreement, the Administrative Agent shall have received evidence of the assignment, continuation and confirmation of certain security documents and liens of Cinco Natural Resources Corporation, Dernick Resources, LLC and Borrower’s other Subsidiaries under the Existing Dernick Credit Agreement and the Existing Cinco Credit Agreement including, but not limited to, the documents and liens listed on Schedule 4.01(b).  Administrative Agent shall have also received evidence that all notes executed in connection with the Existing Dernick Credit Agreement and the Existing Cinco Credit Agreement are endorsed in favor of the Senior Administrative Agent for the benefit of the Senior Lenders, as bailee for the Administrative Agent.

 

(c)                                  Resolutions; Incumbency; Organization Documents.  (i) Copies of resolutions of Borrower and each Guarantor authorizing the transactions contemplated hereby, certified as of the Closing Date by a Responsible Officer of each; (ii) Certificate of Secretary of Borrower and each Guarantor certifying the names and true signatures of the officers or such Person authorized to execute, deliver and perform, as applicable, this Agreement, the Notes and all other Loan Documents to be delivered by it hereunder; and (iii) the Organization Documents of Borrower and each Guarantor as in effect on the Closing Date.

 

(d)                                 Certificates.  A current certificate for each of Borrower and Guarantors (i) from its state of incorporation, evidencing its proper registration as a corporation, and (ii) from each state wherein such Person is qualified under the laws of such jurisdiction wherein its ownership, lease or operation of its Property or the conduct of its business requires such registration or qualification and where the failure to be so qualified would reasonably be expected to result in a Material Adverse Effect.

 

(e)                                  Payment of Fees.  Payment by Borrower of all accrued and unpaid fees, costs and expenses owed pursuant to this Agreement including (i) any fees payable to Administrative Agent and the Lenders payable on the Closing Date, (ii) any such costs, fees and expenses due under Section 11.04 and for which Borrower has received an invoice in customary form prior to the Closing Date and (iii) estimated fees and expenses associated with the filing of the Security Documents.

 

(f)                                   Opinions of Counsel.  An opinion of counsel for Borrower and the Guarantors as to matters described in Sections 6.01, 6.02, 6.03, 6.04 and 6.16, and such other matters as Administrative Agent may request, in the form satisfactory to Administrative Agent dated as of the Closing Date.

 

(g)                                  Senior Credit Agreement.  The Senior Lenders under the Senior Credit Agreement shall provide a commitment of at least $60,000,000 upon terms and conditions satisfactory to the Administrative Agent.

 

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(h)                                 Reorganization. Administrative Agent shall have received evidence that Borrower has completed its reorganization pursuant to the terms of that certain Agreement and Plan of Merger, dated October 29, 2009, pursuant to which Cinco Natural Resources Corporation was merged with and into Cinco Merger, Inc. and became a Subsidiary of Borrower.

 

(i)                                     Equity Issuance. Administrative Agent shall have received evidence that Borrower has received $25,000,000 in net cash proceeds from an equity issuance funded by Yorktown Energy Partners.

 

(j)                                    Intercreditor Agreement. Borrower, Administrative Agent on behalf of the Lenders, and Senior Administrative Agent on behalf of the Senior Lenders, shall have duly executed the Intercreditor Agreement.

 

(k)                                 Title.  Borrower and, as applicable, each Subsidiary shall have evidence of Marketable Title on at least eighty percent (80%) of the net present value of Borrower’s and each Subsidiary’s Borrowing Base Properties subject to no other liens, other than Permitted Liens, as evidenced by opinions of title or other title information reasonably satisfactory to Administrative Agent and the Lenders.

 

(l)                                     Environmental.  Administrative Agent and the Lenders shall be satisfied with the condition of Borrower’s and its Subsidiaries’ Borrowing Base Properties and each Person’s compliance with Environmental Laws.

 

(m)                             Company Due Diligence.  Due diligence review satisfactory to Administrative Agent and the Lenders including, but not limited to, review of and satisfaction with Borrower’s and its Subsidiaries’ legal, corporate and capital structure and formation documents.

 

(n)                                 Insurance Certificates.  Borrower shall provide to Administrative Agent insurance certificates in form and substance reasonably satisfactory to Administrative Agent, from Borrower’s insurance carriers reflecting the current insurance policies required under Section 7.06 including any necessary endorsements to reflect Administrative Agent as “loss payee” or “additional insured,” as applicable, for the ratable benefit of the Lenders (subject to the interest of the Senior Administrative Agent).

 

(o)                                 Operating Agreements.  Administrative Agent and the Lenders shall be satisfied with the terms of Borrower’s existing and proposed material operating, processing, transportation, marketing and other agreements applicable to Borrower’s interests in the Borrowing Base Properties (collectively herein, the “Operating Agreements”).

 

(p)                                 Contingent Liabilities.  Review satisfactory to Administrative Agent and the Lenders of Borrower’s Contingent Liabilities, if any.

 

(q)                                 Derivative Contracts.  Administrative Agent shall have received evidence that Borrower has entered into Derivative Contracts in accordance with Section 7.13 and on terms and conditions satisfactory to Administrative Agent.

 

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(r)            Other Documents.  Such other approvals, opinions, documents or materials as Administrative Agent or any Lender may reasonably request.

 

5.02        Conditions to All Loans.  The obligation of each Lender to make any Loan (including the initial Loan) or to continue or convert any Loan under Section 2.02 (other than automatic conversions from LIBOR Rate Loans to Base Rate Loans under Subsection 2.02(c)) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or Conversion/Continuation Date:

 

(a)           Notice.  Administrative Agent shall have received a Notice of Borrowing/Prepayment or a Notice of Conversion/Continuation, as applicable;

 

(b)           Continuation of Representations and Warranties.  The representations and warranties in Article VI shall be true and correct on and as of such Borrowing Date or Conversion/Continuation Date with the same effect as if made on and as of such Borrowing Date or Conversion/Continuation Date (except to the extent such representations and warranties expressly refer to an earlier or other date, in which case they shall be true and correct as of such earlier or other date); and

 

(c)           No Existing Default.  No Material Adverse Effect shall have occurred and no other Default or Event of Default shall exist or shall result from such Borrowing or continuation or conversion.

 

ARTICLE VI.

 

REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants to Administrative Agent and each of the Lenders that:

 

6.01        Existence and Authority.  Borrower (i) is a corporation, duly incorporated and validly existing under the laws of Delaware; (ii) has the power and authority and all material governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (iii) is duly registered as a foreign corporation and is licensed and in good standing in each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification or license, except where the failure to be so qualified or licensed would not reasonably be expected to result in a Material Adverse Effect; and (iv) is in compliance with all Requirements of Law except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect.

 

6.02        Organizational Authorization; No Contravention.  The execution, delivery and performance by Borrower and each Subsidiary of this Agreement and each other Loan Document to which such Person is a party, have been duly authorized by all necessary corporate, company, and partnership action on the part of such Person, and do not and will not: (a) contravene the terms of any of that Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any material Contractual Obligation to which such Person is a party (except as permitted by this Agreement or the Senior Credit Agreement) or any order, injunction, writ or decree of any Governmental

 

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Authority to which such Person or its Property is subject; or (c) result in a violation by such Person of any Requirement of Law.

 

6.03        Governmental Authorization.  Except for recordations and filings relating to the Security Documents, no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required to be obtained by the Borrower in connection with the execution, delivery or performance by, or enforcement against, Borrower of this Agreement or any other Loan Document to which it is a party.

 

6.04        Binding Effect.  This Agreement and each other Loan Document to which Borrower or its Subsidiaries is a party constitute the legal, valid and binding obligations of such Person to the extent it is a party thereto, enforceable against such Person in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability.

 

6.05        Litigation.  There are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of Borrower, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against Borrower or its Subsidiaries, or any of their respective Properties which: (i) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (ii) would reasonably be expected to have a Material Adverse Effect.  No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority binding on the Borrower or its Property purporting to enjoin or restrain Borrower’s execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided.

 

6.06        No Default.  No Default or Event of Default exists or would be reasonably expected to result from the incurring of any of the Obligations by Borrower. As of the Closing Date, neither Borrower nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, would reasonably be expected to have a Material Adverse Effect.

 

6.07        ERISA.

 

(a)           Borrower has complied in all material respects with ERISA and, where applicable, the Code regarding each Plan except where failure to comply would not reasonably be expected to have a Material Adverse Effect.

 

(b)           Each Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code except where failure to comply would not reasonably be expected to have a Material Adverse Effect.

 

(c)           No act, omission or transaction has occurred which could result in imposition on Borrower (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to section 502(c), (i) or (1) of ERISA or a tax imposed pursuant to Chapter 43 of

 

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Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA, which could, in either event, be reasonably expected to have a Material Adverse Effect.

 

(d)           No liability to the PBGC (other than for the payment of current premiums which are not past due) by Borrower has been or is expected by Borrower 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 Borrower is required under the terms of each Plan or applicable law to have paid as contributions to such Plan, 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)            Borrower does not sponsor, maintain or contribute to an employee welfare benefit plan, as defined in section 3(l) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by Borrower in its sole discretion at any time without any material liability.

 

(g)           Borrower does not sponsor, maintain or contribute to, or has at any time in the preceding six calendar years, sponsored, maintained or contributed to, any Multiemployer Plan.

 

(h)           Borrower is not 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.

 

6.08        Margin Regulations.  The proceeds of the Loans shall be used solely for the purposes set forth in and permitted by Section 7.11.  Neither Borrower nor any of its Subsidiaries is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock.

 

6.09        Title to Borrowing Base Properties; No Buildings.  Borrower and its Subsidiaries each have Marketable Title to its respective Borrowing Base Properties, subject only to the Permitted Liens, and each has good title to all other Property which is necessary or used in the ordinary conduct of its business.  In no event is any Building (as defined in the applicable Flood Insurance Regulations) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulations) included in the definition of “Mortgaged Properties” in the Security Documents and no Building or Manufactured (Mobile) Home is encumbered by the Security Documents.  As used herein, “Flood Insurance Regulations” shall mean (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statue thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et seq.), as the same may be amended or recodified from time to time, and (iv) the Flood Insurance Reform Act of 2004 and any regulations promulgated thereunder.

 

6.10        Oil and Gas Operations.  The Oil and Gas attributable to Borrower’s and its Subsidiaries’ interests in the Borrowing Base Properties will be produced and marketed in accordance with all Requirements of Law, except where the failure to so comply would not reasonably be expected to cause a Material Adverse Effect. The Hydrocarbon Interests and Operating Agreements attributable to the Borrowing Base Properties are in force and effect in

 

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accordance with their terms, and Borrower and its Subsidiaries shall comply with all material terms thereof, except where the failure to so comply would not reasonably be expected to cause a Material Adverse Effect during the term of this Agreement.

 

6.11        Initial Reserve Report.  Borrower has heretofore delivered to Administrative Agent true and complete copies of reports prepared by Borrower’s in-house staff dated as of October 1, 2009 (the “Initial Reserve Report”), relating to an evaluation of the Oil and Gas attributable to the Borrowing Base Properties described therein.  Borrower hereby certifies as of the Closing Date that (a) the assumptions stated or used in the preparation of the Initial Reserve Report are reasonable, (b) all information used in the preparation of the Initial Reserve Report was accurate in all material respects, (c) there has been no material adverse change in the amount of the estimated Oil and Gas shown in the Initial Reserve Report since the date thereof, except for changes which have occurred as a result of production in the ordinary course of business, and (d) the Initial Reserve Report does not omit any statement or information necessary to cause the same not to be misleading to Administrative Agent and the Lenders in any material respect.

 

6.12        Gas Imbalances.  There are no gas imbalances, take or pay or other prepayments with respect to any of the Borrowing Base Properties which would require the Borrower or any Subsidiary to deliver Oil and Gas produced from any of the Borrowing Base Properties at some future time without then or thereafter receiving full payment therefor exceeding .5 Bcf of gas (on an Bcf equivalent basis) in the aggregate.

 

6.13        Taxes.  Borrower and its Subsidiaries have filed all federal tax returns and reports required to be filed, or appropriate extensions thereof, and has paid all federal taxes, assessments, fees and other governmental charges levied or imposed upon it or its Borrowing Base Properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided. Borrower and its Subsidiaries have filed all state and other non-federal tax returns and reports required to be filed, or appropriate extensions thereof, and has paid all state and other non-federal taxes, assessments, fees and other governmental charges levied or imposed upon it or its Borrowing Base Properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided. To Borrower’s knowledge, there is no proposed audit or tax assessment against Borrower or its Subsidiaries that would, if made, reasonably be expected to have a Material Adverse Effect.

 

6.14        Financial Condition.  The consolidated financial statement dated September 30, 2011, of Borrower delivered to Administrative Agent fairly presents as of such date the information contained therein and the consolidated financial position and the results of operations of Borrower and its Subsidiaries with respect to the Borrowing Base Properties. Since September 30, 2011, there has been no Material Adverse Effect in the consolidated financial condition of Borrower.

 

6.15        Environmental Matters.  Borrower’s and each Subsidiary’s Borrowing Base Properties are operated in accordance with all applicable Environmental Laws except where failure to so comply could not reasonably be expected to have a Material Adverse Effect.  Borrower is not aware of any Environmental Claims that are or would be, individually or in the

 

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aggregate, reasonably expected to have a Material Adverse Effect on Borrower or any of Borrower’s Borrowing Base Properties or upon any Subsidiary or its Borrowing Base Properties. Borrower conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and such properties which it is acquiring or planning to acquire including the Borrowing Base Properties.

 

6.16        Regulated Entities.  Borrower is not an “Investment Company” within the meaning of the Investment Company Act of 1940.  Borrower is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other federal or state statute or regulation limiting its ability to incur Indebtedness.

 

6.17        No Burdensome Restrictions.  Neither Borrower nor any of its Subsidiaries is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which would reasonably be expected to have a Material Adverse Effect.

 

6.18        Copyrights, Patents, Trademarks and Licenses, etc.  Borrower owns or is licensed or otherwise has the right to use all of the material patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of its businesses, without conflict with the rights of any other Person.

 

6.19        Subsidiary.  As of the Closing Date, except for the Guarantors and the Subsidiaries set forth on Schedule 6.19, Borrower has no other Subsidiary nor any material equity investments in any other corporation, partnership, limited liability company or other entity.

 

6.20        Insurance.  Borrower has previously identified the insurance policies covering its Mortgaged Properties and the underwriters thereof, such policies and underwriters being acceptable to Administrative Agent. Borrower shall renew such policies on terms no less favorable to Administrative Agent for the ratable benefit of the Lenders during the term of this Agreement. Any substitute underwriter shall be as financially sound as Borrower’s existing underwriters. The Borrowing Base Properties of Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrowing Base Properties are located.

 

6.21        Full Disclosure.  None of the representations or warranties made by Borrower in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, written statement or certificate furnished by or on behalf of Borrower in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of Borrower to Administrative Agent or any of the Lenders prior to the Closing Date), taken as whole, contains any untrue statement of a material fact known to Borrower or any Responsible Officer or omits any material fact

 

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known to Borrower or any Responsible Officer required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered; provided that, with respect to engineering reports and projections Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

 

6.22        Derivative Contracts.  Schedule 6.22 sets forth, as of the Closing Date, a true and complete list of all Derivative Contracts (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied), and the counter party to each such agreement.

 

6.23        Solvency.  As of the Closing Date, each of Borrower and its Subsidiaries is Solvent.

 

6.24        Assumption of Prior Obligations and Affirmation of Existing Liens.  Borrower has assumed and hereby assumes all “Obligations” of each “Borrower” under the Existing Cinco Credit Agreement and the Existing Dernick Credit Agreement and acknowledges that the Liens granted under such existing credit agreements are valid and enforceable and secure Borrower’s Obligations hereunder.

 

6.25        Patriot Act.  Neither the Borrower nor any of its Subsidiaries is in violation of any laws relating to terrorism or money laundering, including, without limitation, the Patriot Act, except to the extent such violation could not reasonably be expected to have a Material Adverse Effect.

 

ARTICLE VII.

 

AFFIRMATIVE COVENANTS

 

So long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Lenders waive compliance in writing:

 

7.01        Financial Statements.  Borrower shall maintain for itself and its Subsidiaries a system of accounting established and administered in accordance with GAAP consistently applied, and deliver to Administrative Agent, with sufficient copies for each Lender:

 

(a)           As soon as available, but not later than one hundred and twenty (120) days after the end of each fiscal year a copy of the audited annual consolidated and consolidating financial statements of Borrower and its Subsidiaries as of the end of such year including the related balance sheet and statements of income, stockholders’ equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year accompanied, in the case of the financial statements, by an opinion which opinion shall not be subject to any qualifications and exceptions not reasonably acceptable to Administrative Agent (it being expressly understood that any “going concern” or like qualification and any qualification on the scope of the audit will not be acceptable) from Hein & Associates or such

 

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other independent accounting firm reasonably acceptable to Administrative Agent (the “Independent Auditor”), along with a certificate of Borrower’s Derivative Contract position, Borrower’s calculations confirming no Event of Default and Borrower’s compliance with all financial covenants herein, all as certified by a Responsible Officer of Borrower or such Subsidiary, as applicable, as fairly presenting in all material respects the consolidated and consolidating financial position and the results of operations of Borrower and its Subsidiaries in accordance with GAAP; and

 

(b)           As soon as available, but not later than sixty (60) days after the close of each fiscal quarter of Borrower (including the last fiscal quarter in each fiscal year), a copy of the unaudited consolidated quarterly balance sheet of Borrower as of the end of such quarter and the related statements of income, stockholders’ equity, and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer of Borrower as fairly presenting in all material respects, in accordance with GAAP, subject to normal year-end adjustments and the absence of footnotes, consistently applied, the consolidated financial position and the results of operations of Borrower together with a certificate regarding Borrower’s Derivative Contract position and calculations confirming no Event of Default and Borrower’s compliance with all financial covenants herein

 

7.02        Certificates; Other Production and Reserve Information.  Borrower shall furnish to Administrative Agent, with sufficient copies for each Lender:

 

(a)           commencing for the first full calendar month following the Closing Date and thereafter, as soon as available but in any event no later than sixty (60) days following the last day of each month during the term of this Agreement, a Monthly Status Report in a form reasonably acceptable to the Administrative Agent, as of such calendar month then ended;

 

(b)           concurrently with the delivery of the statements and reports of Borrower referred to in Subsections 7.01 (a) and (b) and delivery of a Reserve Report in connection with the Asset Coverage Ratio pursuant to Section 7.02(h):

 

(i)            a Compliance Certificate executed by a Responsible Officer; and

 

(ii)           a certificate executed by a Responsible Officer, in form and substance satisfactory to the Administrative Agent, setting forth as of the last Business Day of such fiscal quarter or fiscal year, a true and complete list of all Derivative Contracts of Borrower and each of its Subsidiaries, listing the type, term, effective date, termination date and notional amounts or volumes, the net marked-to-market value therefor, any new credit support agreements relating thereto not listed on Schedule 6.22, any margin required or supplied under any credit support document, and the counterparty to each such agreement.

 

(c)           commencing April 1, 2012, and annually thereafter, as soon as available but in any event no later than April 1 of each year during the term of this Agreement, a Reserve Report prepared by an independent petroleum engineer selected by Borrower and reasonably acceptable to the Administrative Agent covering the Borrowing Base Properties as of January 1 of such year, and commencing October 1, 2012 and annually thereafter, as soon as available but

 

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in any event no later than each October 1 of each year during the term of this Agreement, a Reserve Report prepared by Borrower’s in-house staff covering the Borrowing Base Properties as of July 1 of such year; 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, to the best of his knowledge and in all material respects: (i) the historical information delivered in connection therewith to the preparers of such report is true and correct, (ii)the Borrower and its Subsidiaries own 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 8.01, and such Properties comply with all Environmental Laws except for Environmental Matters permitted by Section 6.15, (iii) 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 with respect to its Oil and Gas Properties evaluated in such Reserve Report which would require the Borrower or its Subsidiaries to deliver hydrocarbons produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) none of its Oil and Gas Properties have been sold since the date of the last Reserve Report 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, (v) attached to the certificate is a list of its Oil and Gas Properties added to and deleted from the immediately prior Reserve Report and a list showing any change in working interest or net revenue interest in its Oil and Gas Properties occurring and the reason for such change, (vi) attached to the certificate is a list of Persons disbursing at least 95% of the aggregate amount of proceeds to the Borrower from its Oil and Gas Properties and (vii) except as set forth on a schedule attached to the certificate all of the Oil and Gas Properties evaluated by such Reserve Report are Mortgaged Property;

 

(d)           promptly upon the reasonable request of the Administrative Agent, access to copies of all geological, engineering and related data contained in Borrower’s files or readily accessible to Borrower relating to the Borrowing Base Properties as may reasonably be requested;

 

(e)           on reasonable request by Administrative Agent, or if required by regulations to which Administrative Agent or any of the Lenders is subject, title opinions from legal counsel reasonably acceptable to Administrative Agent, in form and substance reasonably acceptable to Administrative Agent, covering 80% of the value of the Borrowing Base Property as may be designated by Administrative Agent, and Administrative Agent’s security interests under the Security Documents in question;

 

(f)            promptly after any acquisition of Oil and Gas Properties with a proved developed producing value in excess of $2,000,000 during any Determination Period, title evidence and Mortgage Liens satisfactory to Administrative Agent and a Mortgage covering such Oil and Gas Properties;

 

(g)           in the event that the Borrower or any of its Subsidiaries shall enter into any Derivative Contracts, promptly, and in any event no later than fifteen (15) days following the last day of each month, a report, in reasonable detail, setting forth the type, term, effective date, termination date and notional amounts or volumes hedged, the pricing, the counterparties to such Derivative Contracts, any new credit support agreements related thereto not listed on Schedule

 

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6.22, any margin required or supplied under any credit support document, and the counterparty to each such agreement;

 

(h)           in the event the Administrative Agent, at the request of any Lender, shall request an unscheduled redetermination of the Asset Coverage Ratio (which the Administrative Agent may request not more than once per calendar year) 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 Reserve Report.  For any unscheduled Asset Coverage Ratio, 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 forty-five (45) days following the receipt of the request by the Administrative Agent;

 

(i)            promptly after the furnishing thereof, copies of any statement, report or certificate furnished to the Senior Administrative Agent or any Senior Lender under the Senior Credit Agreement by the Borrower or any Subsidiary thereof pursuant to Section 7.01, Section 7.02 or any other clause of the Senior Credit Agreement; and

 

(j)            promptly, such additional information regarding the business, financial or business affairs of Borrower as Administrative Agent, at the request of any Lender, may from time to time reasonably request.

 

7.03        Notices.  Borrower shall promptly notify Administrative Agent:

 

(a)           of the occurrence of any Default or Event of Default;

 

(b)           of any matter that has resulted or may reasonably be expected to result in a Material Adverse Effect;

 

(c)           of any material change in accounting policies or financial reporting practices by Borrower; and

 

(d)           of the formation or acquisition of any Subsidiary,

 

Each notice under this Section 7.03 shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action Borrower proposes to take with respect thereto and at what time. Each notice under Subsection 7.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated.

 

7.04        Preservation of Company Existence, Subsidiary Guarantees, Etc.

 

(a)           Borrower shall:

 

(i)            preserve and maintain in full force and effect its corporate, partnership or limited liability company existence as appropriate, and shall maintain its good standing under the laws of each state wherein it is registered to transact business

 

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except where the failure to do so would not reasonably be expected to have a Material Adverse Effect;

 

(ii)           preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except where the failure to do so would not reasonably be expected to have a Material Adverse Effect;

 

(iii)          preserve its business organization and goodwill except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; and

 

(iv)          preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

 

(b)           Each Subsidiary of Borrower which is created or acquired or otherwise comes into existence after the date hereof shall be a wholly owned Subsidiary of Borrower or another wholly owned Subsidiary of Borrower and shall promptly become a party to this Agreement by executing and delivering to Administrative Agent a Guaranty in the form of Exhibit G, with such modification therein as Administrative Agent shall from time to time reasonably specify.  Each such Subsidiary shall deliver to Administrative Agent, simultaneously with its delivery of such Guaranty, written evidence satisfactory to Administrative Agent that such Subsidiary has taken all corporate action necessary to approve and authorize its execution, delivery and performance thereof and any other document which it is required to execute.  To the extent such Subsidiary owns any Borrowing Base Properties, it shall also execute a Mortgage and such other documents as provided under Article IV hereof to the extent necessary to comply with Section 4.01.

 

(c)           Borrower shall amend and supplement the Security Agreements with respect to each such newly formed or acquired Subsidiary to pledge to Administrative Agent, for the ratable benefit of the Lenders, but subject to the Intercreditor Agreement, all of Borrower’s equity interest therein.

 

7.05        Maintenance of Borrowing Base Properties.

 

(a)           Borrower and each Subsidiary shall maintain and preserve all its Borrowing Base Properties in the ordinary course of its Principal Business and in a manner consistent with a prudent operator in the Oil and Gas industry.

 

(b)           During each Determination Period during the term of this Agreement, but only for so long as no Default or Event of Default exists or would be caused thereby and Borrower and its Subsidiaries are in pro-forma compliance with Section 8.10 after giving effect to such Disposition, Borrower and its Subsidiaries shall be authorized to make one or more Dispositions of the Borrowing Base Properties that have an aggregate market value of no more than 5% of the current Borrowing Base under the Senior Credit Agreement.  In the event Borrower elects to sell one or more Borrowing Base Properties to one or more third parties, Borrower shall promptly advise Administrative Agent in writing of the Borrowing Base Properties to be sold.

 

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(c)           Subordination of Obligor’s Liens.

 

(i)            Borrower and each Subsidiary hereby subordinates and assigns in favor of Administrative Agent for the benefit of the Lenders any and all liens, statutory or otherwise and any rights of offset contractual or otherwise it has or may have in the future against such Person’s interests in the Mortgaged Properties or in the Borrowing Base Properties and revenues attributable to its interest therein including the Contracts and Records (defined below).

 

(ii)           Any officer or employee of Administrative Agent is expressly granted the right at its option upon not less than one (1) Business Day’s notice, to visit and inspect during regular business hours (A) Borrower and each Subsidiary’s offices, including all books and records, farmout agreements, area of mutual interest agreements, development agreements, geologic and geophysical survey agreements, operating agreements, contracts and other agreements that relate to any of the Mortgaged Properties or in the Borrowing Base Properties, seismic, geological and geophysical, drilling and production data and records, all accounting records, joint interest billing records, division order records, land files, and contracts and records referring to the production, sale, purchase, exchange or processing of Hydrocarbons whether such data, information or agreements are in written form or electronic format (the “Contracts and Records”), and to examine, take copies and extracts therefrom, and (B) any of the Mortgaged Properties.

 

(iii)          Following the occurrence and during the continuance of an Event of Default, Borrower and each Subsidiary acknowledges that the Administrative Agent is expressly granted the right to exercise any and all liens, statutory or otherwise, rights of offset or recoupment it has and to receive the monies, income, proceeds, or benefits attributable to the sale of Oil and Gas produced from or attributable to the Mortgaged Properties, to hold the same as security for the Obligations and to apply it on the principal and interest or other amounts owing on any of the Obligations, whether or not then due, in such order or manner as Administrative Agent may elect.

 

(iv)          In the event of a foreclosure, deed in lieu, or other transfer of record or beneficial ownership or operations of the Mortgaged Properties, Borrower and each Subsidiary, as bailee, agrees to cooperate and assist Administrative Agent and its officers, agents and counsel in the peaceful transfer and delivery of such Contracts and records to such party or parties as Administrative Agent may in writing direct.

 

(v)           Following the occurrence and during the continuance of a Default or Event of Default and within thirty (30) days after receipt of notice from Administrative Agent, Administrative Agent shall have the right to appoint a contract operator to perform for the period of time the Event of Default is continuing any or all of Borrower’s or any of its Subsidiaries’ obligations as operator of any Borrowing Base Properties, but in no event shall any such action taken by Administrative Agent cause Borrower or any of its Subsidiaries to be deemed to have resigned as operator under any applicable operating agreement covering the Borrowing Base Properties.

 

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(d)           Subordination of Intercompany Debt.  Any intercompany Indebtedness or advances of any of Borrower or its Subsidiaries howsoever evidenced by journal entries or hereafter owed to or held by any of Borrower or other Subsidiary are hereby subordinated to the Obligations of Borrower to the Lenders, and any document or instrument evidencing such loans or advances shall contain a legend giving notice of such subordination.  Following the occurrence and during the continuance of a Default or Event of Default or to the extent such payment would cause a Default, any intercompany Indebtedness or advances, if the Administrative Agent so requests, shall be collected, enforced and received by such Person as trustee for the Lenders and to the extent permitted by the Intercreditor Agreement be paid over to the Administrative Agent for the account of the Lenders on account of the Obligations but without affecting in any manner the liability of such Person under the other provisions of this Agreement or any other Loan Document.  Any Lien, claim, right or other encumbrance on any property of any of Borrower or its Subsidiaries in favor of any of Borrower or other Subsidiary is hereby subordinated in all respects to the Liens granted to the Administrative Agent for the benefit of the Lenders.

 

7.06        Insurance.  Borrower shall maintain, with financially sound and reputable independent insurers, insurance with respect to the Borrowing Base Properties and business against loss or damage satisfactory to Administrative Agent, naming Administrative Agent, for the ratable benefit of the Lenders, as “loss payee” under its property loss policies and as “additional insured” on its comprehensive and general policies (subject to the interest of the Senior Administrative Agent), which policies shall not be amended or changed without at least thirty (30) days written notice to Administrative Agent. So long as no Event of Default exists and is continuing proceeds of any insurance policies shall be applied first to the restoration, repair or replacement of the Borrowing Base Properties to the extent such actions would be reasonably prudent and the remainder, if any, subject to the terms of the Intercreditor Agreement shall be applied to the Obligations to prepay the Obligations in any manner or order as elected by Administrative Agent at the time of such prepayments.  Upon an Event of Default, and for so long as same is continuing, proceeds of any insurance policies shall be applied to the extent permitted by the Intercreditor Agreement to the Obligations in such manner and order as the Administrative Agent and Required Lenders may elect.

 

7.07        Payment of Obligations.  Borrower shall pay and discharge as the same shall become due and payable, its obligations and liabilities, including: (a) all Tax liabilities, assessments and governmental charges or levies upon it or the Borrowing Base Properties, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by Borrower; and (b) all lawful claims prior to the time at which, if such claims remain unpaid, a Lien upon the Borrower’s Property would be imposed by law; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.

 

7.08        Compliance with Laws.  Borrower and its Subsidiaries shall comply with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect.

 

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7.09        Inspection of Property and Books and Records.  Borrower and its Subsidiaries shall maintain proper books of record and account, in which, in all material respects, full, true and correct entries in accordance with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of Borrower. Borrower shall permit, representatives and independent contractors of Administrative Agent or any Lender to visit and inspect any of the Borrowing Base Properties, to examine Borrower’s Organizational Documents, and financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and, in the presence of one or more Responsible Officers of Borrower, independent public accountants, all at the expense of Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to Borrower; provided, however, when an Event of Default exists Administrative Agent or any Lender may do any of the foregoing at the expense of Borrower at any time during normal business hours and without advance notice.

 

7.10        Environmental Laws.

 

(a)           Borrower and its Subsidiaries shall conduct its operations and keep and maintain the Borrowing Base Properties in compliance with all Environmental Laws, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect;

 

(b)           Borrower will promptly furnish to Administrative Agent all written notices of violation, orders, claims, citations, complaints, penalty assessments, suits or other proceedings received by Borrower or any Subsidiary, or of which it has notice, pending or threatened against Borrower or any of its Subsidiaries by any Governmental Authority with respect to any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations in connection with its ownership or use of the Borrowing Base Properties.

 

(c)           Borrower will promptly furnish to Administrative Agent all requests for information, notices of claim, demand letters, and other notifications, received by Borrower or its Subsidiaries in connection with their ownership or use of the Borrowing Base Properties relating to potential responsibility with respect to any investigation or clean-up of Hazardous Substances at any location.

 

7.11        Use of Proceeds.  Borrower shall use the proceeds of the Loans for capital expenditures and general corporate needs, including without limitation the acquisitions of Oil and Gas Properties in the United States.

 

7.12        Further Assurances.  Upon instruction from the Administrative Agent, Borrower will promptly cure any defects in the creation and issuance of the Notes and the execution and delivery by the Borrower of its Subsidiaries of this Agreement, the Security Documents or any other instruments referred to or mentioned herein or therein. Further, Borrower at its expense will promptly do and, will cause its Subsidiaries to do, all acts and things, and execute and file or record all instruments reasonably requested by Administrative Agent, to establish, perfect, maintain and continue the perfected security interest of Administrative Agent in or the Lien of

 

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Administrative Agent on the Mortgaged Properties. Borrower will pay the reasonable costs and expenses of all filings and recordings and all searches reasonably deemed necessary by Administrative Agent to establish and determine the validity and the priority of the Liens created or intended to be created by the Security Documents; and Borrower will satisfy and will cause its Subsidiaries as applicable to satisfy all other claims and charges which in the reasonable opinion of Administrative Agent might prejudice or impair any of the Mortgaged Properties or any Liens thereon in favor of Administrative Agent for the benefit of the Lenders. Contemporaneously with the granting of any Lien on any property to or for the benefit of the Senior Administrative Agent or any Senior Lender under the Senior Credit Agreement, Borrower shall, or shall cause such Subsidiary to, grant to Administrative Agent a subordinated Lien interest (subject only to Permitted Liens) on such property for the benefit of the Lenders to secure the Obligations hereunder. All such Liens shall be created and perfected by and in accordance with the provisions of the applicable Security Documents and this Agreement, all in form and substance reasonably satisfactory to Administrative Agent.

 

7.13        [Reserved].

 

7.14        Phase I Reports.  As soon as available, and in any case within three (3) Business Days prior to closing an acquisition of Borrowing Base Properties where (i) the value of the Borrowing Base Properties acquired exceeds $5,000,000, and (ii) the Borrower’s liability for environmental remediation potentially associated with the ownership and/or operation of all such Borrowing Base Properties is reasonably expected to exceed $100,000, Borrower shall deliver to Administrative Agent an environmental site assessment report covering such Borrowing Base Properties to be acquired in form and substance reasonably satisfactory to Administrative Agent.

 

7.15        ERISA Information and Compliance.  Borrower will promptly furnish to the Administrative Agent with sufficient copies to the Lenders (a) upon written request of Administrative Agent, copies of each annual and other report with respect to each Plan or any trust created thereunder, filed with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, (b) 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 a Responsible Officer specifying the nature thereof, what action the Borrower 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 (c) immediately upon receipt thereof, copies of any notice of the PBGCs intention to terminate or to have a trustee appointed to administer any Plan.  With respect to each Plan (other than a Multiemployer Plan), Borrower will (a) 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 (b) 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.

 

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ARTICLE VIII.

 

NEGATIVE COVENANTS

 

So long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Lenders waive compliance in writing:

 

8.01        Limitation on Liens.  Borrower agrees that it shall not, and its Subsidiaries shall not, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of their Properties other than the following (“Permitted Liens”):

 

(a)           any Lien created under the Security Documents or any other Loan Document;

 

(b)           any usual, customary, valid and perfected liens arising under Oil and Gas leases for royalty payments not yet due and payable and reciprocal liens arising under operating agreements for joint interest billings not yet due and payable or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject thereto with adequate reserves set aside therefor;

 

(c)           Liens for Taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 7.07 or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject thereto with adequate reserves set aside therefor;

 

(d)           carrier, warehousemen, mechanic, landlord, materialmen, repairmen or other similar statutory Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject thereto with adequate reserves set aside therefor;

 

(e)           Liens consisting of pledges or deposits required in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation;

 

(f)            easements, rights-of-way, restrictions, defects or other exceptions to title and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, are not incurred to secure Indebtedness, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the businesses of Borrower;

 

(g)           non-recourse purchase money liens for equipment financing in and aggregate amount at any one time outstanding not to exceed $1,000,000;

 

(h)           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 as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit

 

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account is not a dedicated cash collateral account and is not subject to restrictions against access by Borrower, (ii) Borrower maintains (subject to such right of set-off) dominion and control over such account(s), and (iii) such deposit account is not intended by Borrower to provide cash collateral to the depository institution; and

 

(i)            any Lien securing obligations under the Senior Credit Agreement subject to terms of the Intercreditor Agreement; provided, however, that no Lien shall be granted on any Property to secure the Senior Credit Agreement unless a Lien is also being granted on such Property to secure the Obligations, this Agreement and the other Loan Documents.

 

8.02        Disposition of Assets.  Borrower shall not, and shall not permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) (collectively, “Dispositions”) to any Person (other than the Borrower) any Property used or useful in connection with its Borrowing Base Properties (including accounts and notes receivable, with or without recourse attributable to the Borrowing Base Properties) or enter into any binding agreement to do any of the foregoing,, except:

 

(a)           Dispositions of inventory including Oil and Gas produced in the ordinary course of business;

 

(b)           Dispositions as permitted under Section 7.05(b), hereof; and

 

(c)           Dispositions of obsolete or worn-out equipment in the ordinary course of business.

 

Provided, neither Borrower nor any Subsidiary shall make any Dispositions of Borrowing Base Properties under (b) and (c) above during the period of time following the occurrence of an Event of Default without the written consent of Administrative Agent and the Required Lenders until such Event of Default has been remedied or resolved in accordance with the other terms of this Agreement.

 

8.03        Consolidations and Mergers.  Borrower shall not merge, amalgamate or consolidate with or into, or permit any of its Subsidiaries to merge, amalgamate or consolidate with or into, any Person (other than the Borrower or another direct or indirect wholly owned Subsidiary of Borrower) or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), or permit any such Subsidiary to convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets to any Person (other than the Borrower or another direct or indirect wholly owned Subsidiary of Borrower); provided  however, that nothing herein shall prohibit (a) Sedna Energy, Inc., Pathex Petroleum, Inc. and Cima Resources, Inc. from converting to limited liability companies; and (b) Cinco Logistics, LLC from being liquidated and dissolved so long as any assets of such Subsidiary are distributed to Borrower or any Guarantor.  Consent to the restructuring referenced in Subsections (a) and (b) above remains subject to delivery of notice and documentation related to the conversions and dissolutions to the Administrative Agent within five (5) days of consummating such restructuring.

 

8.04        Loans and Investments.  Borrower agrees that it shall not purchase or acquire or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or

 

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make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of Borrower, except for:

 

(a)           investments in Cash Equivalents;

 

(b)           investments in Guarantors;

 

(c)           extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business;

 

(d)           notes receivable secured by a pledge of stock from certain stockholders that exist on the Closing Date in the aggregate approximate amount of $28,000,000.00 plus all future accrued interest;

 

(e)           investments in Derivative Contracts permitted under Section 8.16; and

 

(f)            investments with third parties that are (i) customary in the Oil and Gas business, and (ii) made in the ordinary course of Borrower’s business, and (iii) made in the form of or pursuant to Operating Agreements, farm in agreements, farm out agreements, development agreements, unitization agreements, joint bidding agreements, service contracts and other similar agreements.

 

8.05        Limitation on Indebtedness.  Borrower and its Subsidiaries shall not create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except:

 

(a)           Indebtedness incurred pursuant to this Agreement;

 

(b)           Indebtedness consisting of Contingent Obligations permitted pursuant to Section 8.08;

 

(c)           current liabilities for lease operating expenses, capital expenditures, accounts payable, expense accruals, Taxes and assessments incurred or assumed in the ordinary course of business;

 

(d)           Indebtedness permitted by Section 8.16;

 

(e)           Indebtedness as between Borrower and any Guarantor; and

 

(f)            Indebtedness arising under the Senior Credit Agreement, subject to the Intercreditor Agreement, not to exceed $100,000,000.00 in principal amount without prior consent of the Lenders.

 

8.06        Transactions with Affiliates.  Borrower agrees that it shall not enter into and shall not permit any Subsidiary to enter into any transaction with or make any payment or transfer to any Affiliate of Borrower, except in the ordinary course of business and upon fair and reasonable terms no less favorable to such Person than would obtain in a comparable arm’s-length transaction with a Person not an Affiliate of Borrower.

 

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8.07        Margin Stock.  Borrower shall not use any portion of the Loan proceeds, directly or indirectly, (a) to purchase or carry Margin Stock, (b) to repay or otherwise refinance Indebtedness of Borrower or others incurred to purchase or carry Margin Stock, (c) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (d) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act.

 

8.08        Contingent Obligations.  Borrower agrees that it shall not, and its Subsidiaries shall not create, incur, assume or suffer to exist any Contingent Obligations except:

 

(a)           endorsements for collection or deposit in the ordinary course of business;

 

(b)           obligations under plugging bonds, performance bonds and fidelity bonds issued for the account of Borrower, obligations to indemnify or make whole any surety and similar agreements incurred in the ordinary course of;

 

(c)           this Agreement, Derivative Contracts permitted or required pursuant to Section 8.16 with any of the Lenders, Senior Lenders or any Affiliates thereof; and

 

(d)           obligations under take-or-pay contracts, transportation contracts, joint operating agreements, farm-in agreements and other similar agreements typical in the Oil and Gas industry.

 

8.09        Restricted Payment.  Borrower shall not purchase, redeem or otherwise acquire for value any of its shares, rights or options to acquire such interests, now or hereafter outstanding and will not declare or pay any dividend or distribution, or make any distribution of assets or Property to its shareholders (collectively “Restricted Payments”).

 

8.10        Asset Coverage Test.  Borrower shall maintain a ratio of Total Proved PW10% to consolidated Indebtedness of not less than 1.50 to 1 as of each Testing Date (the “Asset Coverage Ratio”).

 

8.11        Consolidated EBITDAX to Consolidated Interest Coverage Ratio.  Borrower shall at all times maintain a ratio of Consolidated EBITDAX to Consolidated Interest Expense of not less than (a) 2.50:1.00 during the fiscal quarter ending December 31, 2011; and (b) 2.50:1.00 during the fiscal quarter ending March 31, 2012, and each quarterly period thereafter.  Each such ratio shall be based upon EBITDAX measured on a four (4) quarters trailing basis; provided however, during the last quarter of 2011 and the first and second quarters of 2012, EBITDAX shall be annualized as follows: (i) for the last quarter of 2011, by multiplying EBITDAX for such quarter by four (4); (ii) for the first quarter of 2012, by adding EBITDAX for the last quarter of 2011 and the first quarter of 2012, and multiplying the sum thereof by two (2); and (iii) for the second quarter of 2012, by adding EBITDAX for the last quarter of 2011 and the first and second quarters of 2012, and multiplying the sum thereof by one and one-third (1.33).

 

8.12        Current Ratio.  Borrower shall maintain at all times, on a consolidated basis, a current ratio of Current Assets to Current Liabilities of not less than 1.00:1.00 (the “Current Ratio”). The Current Ratio shall be calculated at the end of each fiscal quarter.

 

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8.13        Total Debt to Consolidated EBITDAX.  Borrower shall at all times maintain a ratio of Total Debt to Consolidated EBITDAX of not more than (a) 4.50:1.00 during the fiscal quarter ending December 31, 2011; and (b) 4.50:1.00 during the fiscal quarter ending March 31, 2012, and each quarterly period thereafter.  Each such ratio shall be based upon EBITDAX measured on a four (4) quarters trailing basis; provided however, during the last quarter of 2011 and the first and second quarters of 2012, EBITDAX shall be annualized as follows: (i) for the last quarter of 2011, by multiplying EBITDAX for such quarter by four (4); (ii) for the first quarter of 2012, by adding EBITDAX for the last quarter of 2011 and the first quarter of 2012, and multiplying the sum thereof by two (2); and (iii) for the second quarter of 2012, by adding EBITDAX for the last quarter of 2011 and the first and second quarters of 2012, and multiplying the sum thereof by one and one-third (1.33).

 

8.14        Change in Business.  Borrower and its Subsidiaries shall not engage in any business or activity other than (i) the Principal Business and (ii) the operation of certain Oil and Gas assets owned by Cima Resources, Inc. pursuant to that certain Master Services Agreement dated May 27, 2010 by and among Borrower and Cima Resources, Inc.

 

8.15        Accounting Changes.  Borrower shall not make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of Borrower or any Subsidiary.

 

8.16        Derivative Contracts.  Borrower shall not and shall not permit any Subsidiaries to enter into or in any manner be liable under any Derivative Contract attributable to the Borrowing Base Properties except such Derivative Contracts as may be required under the Senior Credit Agreement and:

 

(a)           Derivative Contracts entered into with the purpose and effect of fixing prices on Oil and Gas attributable to the Borrowing Base Properties and expected to be produced by Borrower and its Subsidiaries provided that at all times: (1) the aggregate of all such Derivative Contracts limits or reduces such market price risk for a term of no more than forty-eight (48) months; (2) notional volumes of such Derivative Contracts for crude oil, when aggregated with all Derivative Contracts for crude oil permitted under this Subsection 8.16(a) then in effect (other than (i) put option contracts that are not related to corresponding calls, collars or swaps, and (ii) basis differential swaps on volumes already hedged pursuant to other Derivative Contracts), do not exceed, as of the date such Derivative Contract is executed, (A) for any period of time prior to January 1, 2014, ninety percent (90%) of total estimated crude oil to be produced from the proved developed producing Borrowing Base Properties as so designated in the most recent Reserve Report furnished by Borrower under Subsection 7.02(c) and (B) for any period of time on or after January 1, 2014, eighty percent (80%) of total estimated crude oil to be produced from the proved developed producing Borrowing Base Properties as so designated in the most recent Reserve Report furnished by Borrower under Subsection 7.02(c) (in each case after deducting projected production from any Borrowing Base Properties or interests sold or under contract for sale that had been included in such Reserve Report and after adding projected production from any Borrowing Base Properties or interests that had not been reflected in such Reserve Report but that are reflected in a separate or supplemental Reserve Reports meeting the requirements of such Subsection 7.02(c) above and otherwise are satisfactory to Administrative Agent); (3) the notional volumes of such Derivative Contracts for

 

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natural gas, when aggregated with all Derivative Contracts for natural gas permitted under this Subsection 8.16(a) then in effect (other than (i) put option contracts that are not related to corresponding calls, collars or swaps, and (ii) basis differential swaps on volumes already hedged pursuant to other Derivative Contracts), do not exceed, as of the date such Derivative Contract is executed, eighty percent (80%) of total estimated natural gas to be produced from the proved developed producing Borrowing Base Properties as so designated in the most recent Reserve Report furnished by Borrower under Subsection 7.02(c); (4) no such contract with a counter-party other than a Lender, a Senior Lender or their respective Affiliate requires or creates an obligation for Borrower to put up money, assets, letters of credit, or other security against the event of its nonperformance or credit exposure thereunder prior to actual default by Borrower in performing obligations thereunder; and (5) each such contract shall be with any of the Lenders, the Senior Lenders or any Affiliates thereof, or on an unsecured basis with a counter-party or have a guarantor of the obligation of the counter-party who, at the time the contract is made, has long-term obligations rated BBB or Baa2 or better, respectively, by Standard & Poor’s Rating Group, a division of McGraw Hill, Inc., or Moody’s Investors Service, Inc. (or a successor credit rating agency).

 

(b)           Derivative Contracts entered into with the purpose and effect of fixing interest rates on a principal amount of Indebtedness of Borrower that is accruing interest at a variable rate; provided that, (1) the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding Indebtedness of Borrower to be hedged by such contract and in no event shall the term of such contract extend beyond the Termination Date; (2) no such contract with a counter-party other than a Lender, a Senior Lender or their respective Affiliate requires Borrower to put up money, assets, letters of credit, or other security against the event of its nonperformance prior to actual default by Borrower in performing obligations thereunder; and (3) each such contract shall be with a Lender, a Senior Lender or their respective Affiliate or on an unsecured basis with a counter-party or have a guarantor of the obligation of the counter-party who, at the time the contract is made, has long-term obligations rated AA or Aa or better, respectively, by Standard & Poor’s Rating Group, a division of McGraw Hill, Inc., or Moody’s Investors Service, Inc. (or a successor credit rating agency).

 

(c)           In the event Borrower enters into a Derivative Contract with any of the Lenders or any Affiliate of the Lenders, the Contingent Obligation evidenced under such Derivative Contract shall not be applied against such Lender’s Commitment or against the Effective Amount.  For so long as such contract was entered into at the time such counterparty was a Lender or an Affiliate of a Lender and held a Commitment hereunder, any Indebtedness to any Lender or any Affiliate of the Lenders incurred under any Derivative Contract shall be treated as an Obligation pari passu and secured pro rata under the Security Documents with all Obligations otherwise incurred hereunder or under the other Loan Documents. Borrower covenants and agrees the payment on each and all of such Derivative Contracts with any of the Lenders or their Affiliates is and shall be secured by liens on the Collateral under the Security Documents.

 

(d)           [Borrower and its Subsidiaries shall not terminate or amend any Derivative Contracts without the consent of the Required Lenders if such termination or amendment would negatively impact the Borrowing Base under the Senior Credit Agreement.]

 

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8.17        ERISA Compliance.  Borrower will not at any time:

 

(a)           Engage in any transaction in connection with which Borrower could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (1) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code;

 

(b)           Terminate any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to Borrower to the PBGC;

 

(c)           Fail to make full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, Borrower is required to pay as contributions thereto if such failure could reasonable be expected to result in a Material Adverse Effect ;

 

(d)           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)           Contribute to or assume an obligation to contribute to any Multiemployer Plan;

 

(f)            Acquire an interest in any Person that causes such Person to become an ERISA Affiliate with respect to Borrower if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) 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 if such sponsorship could reasonably be expected to result in a Material Adverse Effect;

 

(g)           Incur a material liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA;

 

(h)           Contribute to or assume an obligation to contribute to any employee welfare benefit plan, as defined in section 3(l) 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; or

 

(i)            Amend a Plan resulting in an increase in current liability such that Borrower is required to provide security to such Plan under section 401 (a)(29) of the Code.

 

8.18        Negative Pledge.  Borrower shall not enter into or permit to exist any contractual obligation (other than this Agreement, the Senior Credit Agreement, or any other document entered into in connection therewith) that limits the ability (a) of any Subsidiary to make Restricted Payments to or otherwise transfer property to the Borrower or any Guarantor, (b) of any Subsidiary to guarantee the Indebtedness of the Borrower, or (c) of the Borrower, or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person to secure the Obligations.

 

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8.19        Subsidiaries.  The Borrower shall not, and shall not permit any Subsidiary to, create any additional Subsidiaries except in compliance with  Section 7.04(b).

 

8.20        Local Counsel Opinions.  With respect to any Mortgaged Properties that are added to the Borrowing Base under the Senior Credit Agreement in accordance with the terms hereof at any time after the date hereof, Borrower shall deliver to Administrative Agent opinions of local counsel in the jurisdictions wherein the Mortgaged Properties are located.  Such opinions shall be in form and substance reasonably satisfactory to Administrative Agent.

 

8.21        Modifications of Certain Agreements.  The Borrower shall not, and shall not permit any Subsidiary to, consent to any amendment, supplement, waiver or other modification of, or enter into any forbearance from exercising any rights with respect to the terms or provisions contained in any of the Senior Loan Documents, other than any amendment, supplement, waiver or modification to the extent permitted by the Intercreditor Agreement.

 

ARTICLE IX.

 

EVENTS OF DEFAULT

 

9.01        Event of Default.  Any of the following shall constitute an “Event of Default”:

 

(a)           Non-Payment.  Borrower fails to pay, when and as required to be paid herein, any amount of principal of any Loan or fails to pay within five (5) days of when due any interest, fee or other amount payable hereunder or under any other Loan Document; or

 

(b)           Representation or Warranty.  Any representation or warranty by Borrower or any Guarantor made or deemed made herein, in any other Loan Document, or which is contained in any certificate, document or financial or other statement by Borrower or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or

 

(c)           Specific Defaults.  Borrower or any Subsidiary fails to perform or observe any term, covenant or agreement contained in any of Subsection 7.03(a) or in Article VIII, or

 

(d)           Other Defaults.  Borrower or any Subsidiary fails to perform or observe any other term or covenant contained in this Agreement (other than described in Subsections 9.01(a), (b) or (c)), the Intercreditor Agreement or any other Loan Document, and such default shall continue unremedied for a period of thirty (30) days after the earlier of (i) the date upon which a Responsible Officer knew of such default or (ii) the date upon which written notice thereof is given to Borrower by Administrative Agent; or

 

(e)           Cross-Default.  Borrower (i) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure in respect of any other Indebtedness or Contingent Obligation in excess of $100,000 principal amount, including without limitation, Indebtedness owing under the Senior Credit Agreement; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument

 

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relating to any such Indebtedness or Contingent Obligation in excess of $100,000 principal amount, and such failure shall continue after the applicable grace period, if any, specified in said agreement or instrument, if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded; or

 

(f)            Insolvency; Voluntary Proceedings.  Borrower or any Subsidiary (i) generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) commences any Insolvency Proceeding with respect to itself, or (iii) takes any action to effectuate or authorize any of the foregoing; or

 

(g)           Involuntary Proceedings.  (i) Any involuntary Insolvency Proceeding is commenced or filed against Borrower or any Subsidiary writ, judgment, warrant of attachment, execution or similar process, is issued or levied against all or a substantial part of Borrower’s or any Subsidiary’s Properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released or vacated within sixty (60) days after commencement, filing or levy; (ii) Borrower or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief is ordered in any Insolvency Proceeding; or (iii) Borrower or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its Property or business; or

 

(h)           Monetary Judgment.  One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against Borrower or any Subsidiary involving in the aggregate a liability in excess of $100,000 (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage), and the same shall remain unsatisfied, unvacated or unstayed pending appeal for a period of thirty (30) days after the entry thereof; or

 

(i)            Loss of Permit.  Any Governmental Authority revokes or fails to renew any material license, permit or franchise of Borrower or any Subsidiary, or Borrower or any Subsidiary for any reason loses any material license, permit or franchise, or Borrower or any Subsidiary suffers the imposition of any restraining order, escrow, suspension or impounding of funds in connection with any proceeding (judicial or administrative) with respect to any material license, permit or franchise; and, in each case such revocation, failure or loss could reasonably be expected to have a Material Adverse Effect; and such default remains unremedied for a period of thirty (30) days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such default or (ii) the date upon which written notice thereof is given to Borrower by Administrative Agent; or

 

(j)            Adverse Change.  There occurs a Material Adverse Effect and such default remains unremedied for a period of thirty (30) days after the earlier of (i) the date upon

 

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which a Responsible Officer knew or reasonably should have known of such default or (ii) the date upon which written notice thereof is given to Borrower by Administrative Agent; or

 

(k)           Loan Documents.  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, or, with respect to the Security Documents, 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 Borrower or any Subsidiary shall so state in writing; or

 

(l)            ERISA Event.  An ERISA Event shall have occurred that, in the opinion of the Required 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 (i) $100,000 in any year or (ii) $250,000 for all periods; or

 

(m)          Change of Control.  There occurs a Change of Control.

 

9.02        Remedies.  If any Event of Default occurs and is continuing:

 

(a)           Upon the occurrence of any event specified in Subsections 9.01(f) or (g), the unpaid principal amount of all outstanding Loans, interest and other amounts payable under the Loan Documents shall automatically become due and payable without further act of Administrative Agent, and in each case under Section 9.01(a), without presentment, demand, protest, notice of intention to accelerate, notice of acceleration or any other notice of any kind, all of which are hereby expressly waived by Borrower;

 

(b)           Administrative Agent shall, at the request of, or may, with the consent of, the Lenders, declare the Commitment, if any, of each of the Lenders to make Loans to be terminated and (i) upon the occurrence of any event specified in Subsections 9.01(a) through (e) or (h) through (m) may declare all or any part of the unpaid principal of the Loans, all interest accrued and unpaid thereon, and all other amounts payable under the Loan Documents to be immediately due and payable; and

 

(c)           Administrative Agent may exercise on behalf of itself and the Lenders to the extent permitted by the Intercreditor Agreement all rights and remedies available to it and the Lenders under the Loan Documents and applicable law.

 

9.03        Rights Not Exclusive.  The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising.

 

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ARTICLE X.

 

ADMINISTRATIVE AGENT

 

10.01      Appointment and Authorization; Rights as a Lender.

 

(a)           Each Lender hereby irrevocably (subject to Section 10.09) appoints, designates and authorizes Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document (including the Intercreditor Agreement), to enter into the Intercreditor Agreement and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, Administrative Agent shall have only such duties or responsibilities, as expressly set forth herein, Administrative Agent shall not have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Administrative Agent.

 

(b)           The Person serving as Administrative 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 Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as Administrative Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrowers or any of their Subsidiaries or other Affiliates thereof as if such Person were not Administrative Agent hereunder and without any duty to account therefor to the Lenders.

 

10.02      Delegation of Duties.  Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by Administrative Agent.  Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Agent-Related Persons.  The exculpatory provisions of this Article shall apply to any such sub-agent and to the Agent-Related Persons of 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.  Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.

 

10.03      Liability of Administrative Agent.

 

(a)           Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the foregoing, Administrative Agent:

 

(i)            shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

 

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(ii)           shall not have any 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 Administrative Agent is required to exercise as directed in writing by Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under the Bankruptcy Code or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of the Bankruptcy Code; and

 

(iii)          shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or its Subsidiaries or any of their Affiliates that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity.

 

(b)           Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Banks as shall be necessary, or as Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 9.02 and 11.01) or (ii) in the absence of its own gross negligence or willful misconduct.  Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to Administrative Agent by Borrower or a Lender.

 

(c)           Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article V or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to Administrative Agent.

 

10.04      Reliance by Administrative Agent.

 

(a)           Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, electronic mail, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Administrative Agent. Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Lenders as it deems

 

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appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders and their Affiliates against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.

 

(b)           For purposes of determining compliance with the conditions specified in Section 5.01, each Lender that has made available to Administrative Agent its Pro Rata Share of the initial Loan or subsequent Loan, as the case may be, shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender as a condition precedent to such initial Loan or subsequent Loan, as applicable.

 

10.05      Notice of Default.  Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to Administrative Agent for the account of the Lenders, unless Administrative Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”. Administrative Agent will notify the Lenders of its receipt of any such notice. Subject to Subsection 10.04(a), Administrative Agent shall take such action with respect to such Default or Event of Default as may be requested by the Lenders in accordance with Article IX; provided, however, that unless and until Administrative Agent has received any such request, Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders.

 

10.06      Credit Decision.  Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by any Agent-Related Person hereafter taken, including any review of the affairs of Borrower and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower hereunder.  Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by Administrative Agent, Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations,

 

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property, financial and other condition or creditworthiness of Borrower which may come into the possession of any of the Agent-Related Persons.

 

10.07      Indemnification.  Whether or not the transactions contemplated hereby are consummated, the Lenders and any Affiliates of the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of the Borrower to do so), pro rata according to each respective Lender’s Pro Rata Share, each Agent-Related Person from and against any and all Indemnified Liabilities INCLUDING SUCH INDEMNIFIED LIABILITIES AS MAY ARISE OR BE CAUSED BY THE NEGLIGENCE, SOLE, JOINT, CONCURRENT, COMPARATIVE OR OTHERWISE of such Agent-Related Persons; provided, however, that no Lender shall be liable for the payment to any Agent-Related Persons of any portion of such Indemnified Liabilities to the extent the same arise from (i) the gross negligence or willful misconduct of any Agent-Related Person or (ii) a claim or action asserted by one or more other Agent-Related Persons.  Without limitation of the foregoing, each Lender shall reimburse Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Administrative Agent is not reimbursed for such expenses by or on behalf of Borrower.  The undertaking in this Section 10.07 shall survive the payment of all Obligations hereunder and the resignation or replacement of Administrative Agent.

 

10.08      Administrative Agent in Individual Capacity.  Wells Fargo Energy Capital, Inc. and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Borrower and its Subsidiaries and Affiliates as though Wells Fargo Energy Capital, Inc. were not Administrative Agent hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Wells Fargo Energy Capital, Inc. or its Affiliates may receive information regarding Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of Borrower or such Subsidiary) and acknowledge that the Agent-Related Persons shall be under no obligation to provide such information to them. With respect to its Loans, Wells Fargo Energy Capital, Inc. shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not Administrative Agent.

 

10.09      Successor Administrative Agent.  Administrative Agent may resign as Administrative Agent upon 30 days’ notice to the Lenders.  If Administrative Agent resigns under this Agreement, the Lenders shall appoint from among the Lenders a successor administrative agent in the same capacity as the retiring Administrative Agent for the Lenders.  If no successor administrative agent is appointed prior to the effective date of the resignation of such retiring Administrative Agent, such retiring Administrative Agent may appoint, after consulting with the Lenders, a successor administrative agent from among the Lenders.  Upon the acceptance of its appointment as successor administrative agent hereunder, such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term “Administrative Agent” shall mean such successor

 

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administrative agent and the retiring Administrative Agent’s appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Article X and Sections 11.04 and 11.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.  If no successor administrative agent has accepted appointment as Administrative Agent in the same capacity as the retiring Administrative Agent by the date which is 30 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent shall either withdraw its resignation or may appoint as a successor administrative agent a commercial bank organized under the laws of the United States of America or of any State thereof having a commercial capital surplus of at least $500,000,000.

 

10.10      Administrative Agent May File Proofs of Claim.  In case of the pendency of any proceeding under the Bankruptcy Code or any other judicial proceeding relative to any Borrower or Subsidiary, 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 Administrative Agent shall have made any demand on Borrower) shall be entitled and empowered (but not obligated) 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 Obligations 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 and Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and Administrative Agent under Sections 2.06, 11.04 and 11.05  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 Administrative Agent and, in the event that Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Administrative Agent and its agents and counsel, and any other amounts due Administrative Agent under Sections 2.06, 11.04 and 11.05.

 

10.11      Collateral and Guaranty Matters.

 

(a)           Each Lender (on behalf of itself and any Affiliate that is or will be a party to a Derivative Contract with a Borrower or Subsidiary) irrevocably authorize Administrative Agent, at its option and in its discretion:

 

(i)            to release any Lien on any Property granted to or held by Administrative Agent under any Loan Document (x) upon termination of all Commitments and payment in full of all Obligations (other than contingent indemnification obligations), (y) that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in connection with any sale or other disposition

 

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permitted under the Loan Documents, or (z) subject to Section 11.01, if approved, authorized or ratified in writing by the Required Lenders; and

 

(ii)           to release any Guarantor from its obligations under the Guaranty Agreement if such Person ceases to be a Subsidiary as a result of a transaction permitted under the Loan Documents.

 

Upon request by Administrative Agent at any time, the Required Lenders will confirm in writing Administrative Agent’s authority to release its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 10.11.

 

(b)           Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the collateral, the existence, priority or perfection of Administrative Agent’s Lien thereon, or any certificate prepared by Borrower or any Subsidiary in connection therewith, nor shall Administrative Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.

 

ARTICLE XI.

 

MISCELLANEOUS

 

11.01      Amendments and Waivers.  No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Administrative Agent at the written request of the Required Lenders) and Borrower and acknowledged by Administrative Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided however, that no such waiver, amendment, modification, termination or consent shall, unless in writing and signed by all of the Lenders and Borrower and acknowledged by Administrative Agent, do any of the following:

 

(a)           increase or extend the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 9.02), increase the Initial Commitment Amount or require any Lender to make any Loan in excess of its Pro Rata Share of the Initial Commitment Amount;

 

(b)           postpone the final maturity date of any Loan, or postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document;

 

(c)           reduce the principal of, or the rate of interest specified herein on any Loan, or any fees or other amounts payable hereunder or under any other Loan Document;

 

(d)           change the definition of Required Lenders, the Pro Rata Shares or change in any manner the percentage of Lenders required to take any action under this Agreement;

 

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(e)           amend this Section 11.01 or any provision of this Agreement which, by its terms, expressly requires the approval or concurrence of all Lenders;

 

(f)            release all, substantially all, or any material portion of the Collateral (except for releases in connection with dispositions of assets which are permitted hereunder or under any Loan Document);

 

and; provided further, that (i) any amendment, modification, termination or waiver of any of the provisions contained in Article V shall be effective only if evidenced by a writing signed by or on behalf of Administrative Agent and all of the Lenders and, (ii) no amendment, waiver or consent shall, unless in writing and signed by Administrative Agent in addition to the any or all of the Lenders, as the case may be, affect the rights or duties of Administrative Agent under this Agreement or any other Loan Document.  Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment or Loans of such Lender may not be increased or extended without the consent of such Lender.

 

11.02      Notices.

 

(a)           All notices, requests and other communications shall be in writing and mailed by certified mail, electronically transmitted by e-mail, faxed or delivered, to the address or facsimile number specified for notices on the signature page hereof, or, as directed to Borrower, the Lenders or Administrative Agent at such other address as shall be designated by such party in a written notice to Borrower, the Lenders and Administrative Agent.

 

(b)           All such notices, requests and communications shall, when transmitted by delivery, certified mail, e-mail, or fax, shall be effective when delivered or transmitted in legible form.

 

(c)           Any agreement of Administrative Agent and the Lenders herein to receive certain notices by telephone, e-mail or facsimile is solely for the convenience and at the request of Borrower. Administrative Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by Borrower to give such notice and Administrative Agent and the Lenders shall not have any liability to Borrower or other Person on account of any action taken or not taken by Administrative Agent or any of the Lenders in reliance upon such telephonic, e-mail or facsimile notice. The obligation of Borrower to repay the Loans shall not be affected in any way or to any extent by any failure by Administrative Agent and the Lenders to receive written confirmation of any telephonic, e-mail or facsimile notice or the receipt by Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by Administrative Agent and the Lenders to be contained in the telephonic or facsimile notice.

 

(d)           Platform.

 

(i)            Borrower agrees that Administrative Agent may, but shall not be obligated to, make the Communications (as defined below) available to the Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system (the “Platform”).

 

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(ii)           The Platform is provided “as is” and “as available.”  The Agent-Related Persons do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications.  No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent-Related Person in connection with the Communications or the Platform.  In no event shall any Agent-Related Person have any liability to the Borrower, Subsidiaries, any Lender or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of any transmission of communications through the Platform by Borrower, any Subsidiary or Administrative Agent.  “Communications” means, collectively, any notice, demand, communication, information, document or other material that Borrower or any Subsidiary provides to Administrative Agent pursuant to any Loan Document or the transactions contemplated therein which is distributed to Administrative Agent or any Lender by means of electronic communications pursuant to this Section, including through the Platform.

 

11.03      No Waiver; Cumulative Remedies.  No failure to exercise and no delay in exercising, on the part of Administrative Agent or any of the Lenders, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

11.04      Costs and Expenses.  Borrower shall:

 

(a)           whether or not the transactions contemplated hereby are consummated, pay or reimburse Administrative Agent within five (5) Business Days after reasonably detailed written demand for all reasonable costs and expenses incurred by Administrative Agent in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including Attorney Costs incurred by Administrative Agent with respect thereto; and

 

(b)           pay or reimburse Administrative Agent within five (5) Business Days after written demand for all costs and expenses (including Attorney Costs) incurred by it in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any “workout” or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding).

 

11.05      Indemnity.  Whether or not the transactions contemplated hereby are consummated, Borrower shall indemnify and hold the Agent-Related Persons, each Lender, and each of its officers, directors, employees, counsel, and attorneys-in-fact (each, an “Indemnified Person”) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including 

 

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Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans, and the termination, resignation or replacement of Administrative Agent or replacement of any Lender), be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”) WHETHER OR NOT SUCH INDEMNIFIED LIABILITIES ARISE OUT OF OR AS A RESULT OF ANY INDEMNIFIED PARTY’S NEGLIGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT LIMITATION, THOSE CLAIMS WHICH RESULT FROM THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PARTY, OR ANY ONE OR MORE OF THEM; provided that, Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities to the extent same arise from the gross negligence or willful misconduct of any Indemnified Person or that arise solely by reason of claims among Indemnified Parties; PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 11.05 IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS, OR THEIR AGENTS OR REPRESENTATIVES, SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE). The agreements in this Section 11.05 shall survive payment of all other Obligations.

 

Each of the Lenders and the Administrative Agent and each of their respective directors, officers, employees, affiliates, advisors and agents shall not be liable to the Borrower for, and the Borrower agrees not to assert any claim for, amounts constituting special, indirect, consequential, punitive, treble or exemplary damages arising out of or in connection with any breach by such Lender or the Administrative Agent of any of its obligations hereunder.

 

To the extent that Borrower for any reason fails to indefeasibly pay any amount required under Section 11.04 or this Section 11.05 to be paid by it to Administrative Agent (or any sub-agent thereof) or any Related Party of any of the foregoing, each Lender severally agrees to pay to Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s Pro Rata Share (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 Administrative Agent (or any such sub-agent) in its capacity as such, or against any Related Party of any of the foregoing acting for Administrative Agent (or any such sub-agent) in connection with such capacity.

 

11.06      Payments Set Aside.  To the extent that Borrower makes a payment to Administrative Agent or the Lenders, or Administrative Agent or the Lenders exercise their rights of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by Administrative Agent or such Lender in its 

 

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discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent permitted by law and to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to Administrative Agent upon demand its Pro Rata Share of any amount so recovered from or repaid by Administrative Agent.

 

11.07      Successors and Assigns.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of Administrative Agent and each Lender.

 

11.08      Assignments.  No Lender may transfer, pledge, assign, sell any participation in, or otherwise encumber its portion of the Obligations except as permitted by clauses (a) or (b) below.

 

(a)           Any Lender may (subject to the provisions of this section, in accordance with applicable law, in the ordinary course of its business, and at any time) sell to one or more Persons (each a “Participant”) participating interests in its portion of the Obligations. The selling Lender remains a “Lender” under the Loan Documents, the Participant does not become a “Lender” under the Loan Documents, and the selling Lender’s obligations under the Loan Documents remain unchanged. The selling Lender remains solely responsible for the performance of its obligations and remains the holder of its share of the outstanding Loan for all purposes under the Loan Documents. Borrower and Administrative Agent shall continue to deal solely and directly with the selling Lender in connection with that Lender’s rights and obligations under the Loan Documents, and each Lender must retain the sole right and responsibility to enforce due obligations of the Companies. Participants have no rights under the Loan Documents except certain voting rights as provided below. Subject to the following, each Lender may obtain (on behalf of its Participants) the benefits of Article XI with respect to all participations in its part of the Obligations outstanding from time to time so long as Borrower is not obligated to pay any amount in excess of the amount that would be due to that Lender under Article XI calculated as though no participations have been made. No Lender may sell any participating interest under which the Participant has any rights to approve any amendment, modification, or waiver of any Loan Document except as to matters in Section 11.01.

 

(b)           Each Lender may make assignments to the Federal Reserve Bank. Each Lender may assign to one or more assignees (each an “Assignee”) all or any part of its rights and obligations under the Loan Documents so long as (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, upon the written consent of Administrative Agent and, if no Default exists, with the consent of Borrower (which consent shall not be unreasonably withheld or delayed), (ii) such Assignee does not own any voting or non-voting ownership interests of the Borrower or a Guarantor, (iii) the assignor Lender and Assignee execute and deliver to Administrative Agent an assignment and assumption agreement in substantially the form of Exhibit F (an “Assignment and Acceptance Agreement”) and pay to Administrative Agent a processing fee of $3,500, (iv) the Assignee acquires an identical percentage interest in the Commitment of the assignor Lender and an identical percentage of the interests in the outstanding Loan held by such assignor Lender, (v) except in the case of an assignment to 

 

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another Lender or an assignment of all of a Lender’s rights and obligations under this Agreement, any partial assignment shall be in an amount equal to $2,500,000 or an integral multiple of $100,000 in excess thereof, and (vi) the conditions (including, without limitation, minimum amounts of the Commitment that may be assigned or that must be retained) for that assignment set forth in the applicable Assignment and Acceptance Agreement are satisfied. The “Effective Date” in each Assignment and Acceptance Agreement must (unless a shorter period is agreeable to Borrower and Administrative Agent) be at least five (5) Domestic Business Days after it is executed and delivered by the assignor Lender and Assignee to Administrative Agent and Borrower for acceptance. Once that Assignment and Acceptance Agreement is accepted by Administrative Agent and Borrower, then, from and after the Effective Date stated in it (i) Assignee automatically becomes a party to this Agreement and, to the extent provided in that Assignment and Acceptance Agreement, has the rights and obligations of a Lender under the Loan Documents, (ii) the assignor Lender, to the extent provided in that Assignment and Acceptance Agreement, is released from its obligations to fund Borrowings under this Agreement and its reimbursement obligations under this Agreement and, in the case of an Assignment and Acceptance Agreement covering all of the remaining portion of the assignor Lender’s rights and obligations under the Loan Documents, that Lender ceases to be a party to the Loan Documents, (iii) Borrower shall execute and deliver to the assignor Lender and Assignee the appropriate Notes in accordance with this Agreement following the transfer, (iv) upon delivery of the Notes under clause (iii) preceding, the assignor Lender shall return to Borrower all Notes previously delivered to that Lender under this Agreement, and (v) Schedule 2.01 is automatically deemed to be amended to reflect the name, address, telecopy number, and Commitment of Assignee and the remaining Commitment (if any) of the assignor Lender, and Administrative Agent shall prepare and circulate to Borrower and Lenders an amended Schedule 2.01 reflecting those changes.

 

(c)           Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement, including pledges in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Board.

 

11.09      Set-off.  In addition to any rights and remedies of Administrative Agent, each of the Lenders and any Affiliate thereof provided by law, if the Obligations are accelerated pursuant to Section 9.02, each Lender or any Affiliate thereof is authorized at any time and from time to time, without prior notice to Borrower, to the extent permitted by law, any such notice being waived by Borrower 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 by, and other Indebtedness at any time owing by, such Lender or such Lender’s Affiliates to or for the credit or the account of Borrower against any and all Obligations owing to such Lender or such Lender’s Affiliates, now or hereafter existing, irrespective of whether such Lender or such Lender’s Affiliates shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured.  Each Lender and any Affiliate thereof agrees promptly to notify Borrower after any such setoff and application made by such Lender or such Lender’s Affiliates, provided that the failure to give such notice shall not affect the validity of such setoff and applications. The rights of each Lender and any Affiliate thereof under this Section 11.09 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which such Lender or such Lender’s Affiliates may have.

 

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11.10      Interest.  It is the intention of the parties hereto to conform strictly to Applicable Usury Laws regarding the use, forbearance or detention of the indebtedness evidenced by this Agreement, the Notes and the other Loan Documents, whether such Laws are now or hereafter in effect, including the Laws of the United States of America or any other jurisdiction whose Laws are applicable, and including any subsequent revisions to or judicial interpretations of those Laws, in each case to the extent they are applicable to this Agreement, the Notes and the other Loan Documents (the “Applicable Usury Laws”). Accordingly, if any acceleration of the maturity of the Notes or any payment by Borrower or any other Person produces a rate in excess of the Highest Lawful Rate or otherwise results in Borrower or such other Person being deemed to have paid any interest in excess of the Maximum Amount, as hereinafter defined, or if Administrative Agent or any of the Lenders shall for any reason receive any unearned interest in violation of any Applicable Usury Laws, or if any transaction contemplated hereby would otherwise be usurious under any Applicable Usury Laws, then, in that event, regardless of any provision contained in this Agreement or any other Loan Document or other agreement or instrument executed or delivered in connection herewith, the provisions of this Section 11.10 shall govern and control, and neither Borrower nor any other Person shall be obligated to pay, or apply in any manner to, any amount that would be excessive interest. Administrative Agent or the Lenders shall never be deemed to have contracted for or be entitled to receive, collect, charge, reserve or apply as interest on any Loan (whether termed interest therein or deemed to be interest by judicial determination or operation of law), any amount in excess of the Highest Lawful Rate, and, in the event that Administrative Agent or any of the Lenders ever receive, collect, or apply as interest any such excess, such amount which would be excessive interest shall be applied as a partial prepayment of principal and treated hereunder as such, and, if the principal amount of the applicable Loans are paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest contracted for, received, collected, charged reserved, paid or payable, including under any specific contingency, exceeds the Highest Lawful Rate, Borrower, Administrative Agent and the Lenders shall, to the maximum extent permitted under applicable law, (a) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense or fee rather than as interest, (b) exclude voluntary pre-payments and the effect thereof, and (c) amortize and spread the total amount of interest throughout the entire stated term of the Loans so that the interest rate is uniform throughout such term; provided that if the Loans are paid in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence thereof exceeds the Highest Lawful Rate, if any, then Administrative Agent or the Lenders shall refund to Borrower the amount of such excess, or credit the amount of such excess against the aggregate unpaid principal balance of all Loans made by Administrative Agent or the Lenders. As used herein, the term “Maximum Amount” means the maximum nonusurious amount of interest which may be lawfully contracted for, reserved, charged, collected or received by Administrative Agent or such Lender in connection with the indebtedness evidenced by this Agreement, the Notes and other Loan Documents under all Applicable Usury Laws. Texas Finance Code, Chapter 346, which regulates certain revolving loan accounts and revolving tri-party accounts, shall not apply to any revolving loan accounts created under, or apply in any manner to, the Notes, this Agreement or the other Loan Documents.

 

11.11      Automatic Debits of Fees.  With respect to any arrangement fee or other fee, or any other cost or expense (including Attorney Costs) past due and payable to Administrative Agent under the Loan Documents, Borrower hereby irrevocably authorizes Administrative 

 

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Agent, after giving five (5) Business Days’ prior notice to Borrower, to debit any deposit account of Borrower with Administrative Agent or any of its Affiliates in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in Administrative Agent’s or such Affiliate’s, as the case may be, sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section 11.11 shall be deemed a set-off.

 

11.12      Notification of Addresses, Lending Offices, Etc.  Each Lender shall notify Administrative Agent in writing of any changes in the address to which notices to the Lender should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as Administrative Agent shall reasonably request.

 

11.13      Counterparts; Integration; Effectiveness; Electronic Communication.

 

(a)           This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 5.01, this Agreement shall become effective when it shall have been executed by Administrative Agent and when Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.

 

(b)           The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Acceptance Agreement shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

 

11.14      Severability.  The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

 

11.15      No Third Parties Benefited.  This Agreement is made and entered into for the sole protection and legal benefit of Borrower, the Lenders, Administrative Agent and the Agent-Related Persons and their permitted successors and assigns, and no other Person shall be a direct 

 

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or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents.

 

11.16      Reserved.

 

11.17      GOVERNING LAW.  THIS AGREEMENT, THE NOTES, THE SECURITY DOCUMENTS AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT (1) THE MORTGAGES SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BORROWING BASE PROPERTIES COVERED BY ANY SUCH MORTGAGE ARE LOCATED, OR (2) TO THE EXTENT REQUIRED BY FEDERAL LAWS OF THE UNITED STATES OF AMERICA THAT MAY APPLY; AND ADMINISTRATIVE AGENT, AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

 

(a)           BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW. SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

(b)           ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF TEXAS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS TO THE EXTENT PERMITTED BY LAW. BORROWER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING 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 ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. BORROWER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, AND CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS FOR NOTICES SET FORTH HEREIN, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

(c)           TO THE EXTENT PERMITTED BY LAW, BORROWER, THE LENDERS AND ADMINISTRATIVE AGENT EACH WAIVES ITS RESPECTIVE RIGHTS 

 

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TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER, THE LENDERS AND ADMINISTRATIVE AGENT EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

11.18      ARBITRATION.

 

(a)           Arbitration.  Upon the demand of any party, any dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A “dispute” shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute.

 

(b)           Governing Rules.  Arbitration proceedings shall be administered by the American Arbitration Association (“AAA”) or such other administrator as the parties shall mutually agree upon in accordance with the AAA commercial arbitration rules. All disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in Texas selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a lender of the protections afforded to it under 12 U.S.C. 91 or any similar applicable state law.

 

69

 

(c)           No Waiver; Provisional Remedies, Self-Help and Foreclosure.  No provision hereof shall limit the right of any party to exercise self-help remedies such as set-off, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration hereunder.

 

(d)           Arbitrator Qualifications and Powers; Awards.  Arbitrators must be active members of the Texas State Bar with expertise in the substantive laws applicable to the subject matter of the dispute. Arbitrators are empowered to resolve disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all disputes in accordance with the substantive law of the State of Texas, (ii) may grant any remedy or relief that a court of the state of Texas could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Texas Rules of Civil Procedure or other applicable law. Any dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations.

 

(e)           Judicial Review. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of Texas, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (a) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (b) whether the conclusions of law are erroneous under the substantive law of the state of Texas. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of Texas.

 

(f)            Miscellaneous.  To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the 

 

70

 

subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

 

11.19      Intercreditor Agreement.  Reference is made to the Intercreditor Agreement dated as of October 30, 2009 (as amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among the Borrower, the Subsidiaries of the Borrower party thereto, Wells Fargo Bank, National Association, as First Lien Agent (as defined therein), and Wells Fargo Energy Capital, as Second Lien Agent (as defined therein).  Each Lender hereunder (a) acknowledges that it has received a copy of the Intercreditor Agreement, (b) consents to the subordination of Liens provided for in the Intercreditor Agreement, (c) agrees that it will be bound by and will take no actions contrary to the provisions of the Intercreditor Agreement and (d) authorizes and instructs the Administrative Agent to enter into the Intercreditor Agreement as Administrative Agent and on behalf of such Lender.  The foregoing provisions are intended as an inducement to the lenders under the Senior Credit Agreement to permit the incurrence of Indebtedness under this Credit Agreement and to extend credit to the Borrower and such lenders are intended third party beneficiaries of such provisions.

 

11.20      Amendment and Restatement.  The parties hereto agree that as of the Closing Date: (a) the Obligations (as defined in this Agreement) represents, among other things, the restatement, renewal, amendment, extension, and modification of the (i) “Indebtedness” (as defined in the Existing Dernick Credit Agreement) and (ii) “Indebtedness” (as defined in the Existing Cinco Credit Agreement); (b) this Agreement is intended to, and does hereby, restate, renew, extend, amend, modify, supersede, and replace the Existing Dernick Credit Agreement and the Existing Cinco Credit Agreement in their entirety; (c) the Notes executed pursuant to the Existing Dernick Credit Agreement and the Existing Cinco Credit Agreement remain in full force and effect to evidence the Obligations; (d) the Security Documents executed pursuant to the Existing Dernick Credit Agreement and the Existing Cinco Credit Agreement remain in full force and effect to secure the Obligations; (e) each Guaranty executed pursuant to the Existing Dernick Credit Agreement remains in full force and effect to guaranty the Obligations; and (f) the entering into and performance of their respective obligations under this Agreement (and any other Loan Document executed in connection herewith) and the transactions evidenced hereby (and thereby, as applicable) do not constitute a novation nor shall they be deemed to have terminated, extinguished, or discharged the (i) “Indebtedness” under the Existing Dernick Credit Agreement and (ii) “Indebtedness” under the Existing Cinco Credit Agreement, or the Security Documents, any Guaranty, or the other Loan Documents (or the collateral security therefor) executed in connection therewith, all of which Obligations is assumed and reaffirmed by Borrower and all Collateral shall continue under and be governed by this Agreement and the other Loan Documents, except as expressly provided otherwise herein.

 

11.21      Confidentiality.  Each Lender agrees that it will use reasonable efforts, to the extent not inconsistent with practical business requirements, not to disclose without the prior consent of the Borrower (other than to employees, auditors, accountants, counsel or other professional advisors of the Agent or any Lender) any information with respect to the Borrower or its Subsidiaries which is furnished pursuant to this Agreement, provided that any Lender may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to or required by any municipal, state or Federal regulatory body having or claiming to have jurisdiction over any 

 

71

 

Lender or its Affiliates or submitted to or required by the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, and including any self-regulatory body having or claiming authority to regulate or oversee any aspect of any Lender’s or its Affiliates’ businesses, (c) as may be required or appropriate in response to any summons or subpoena in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to any Lender, (e) to any assignee, participant, prospective assignee, or prospective participant that has agreed to comply with this Section 11.21, (f) in connection with the exercise of any remedy by any Lender pertaining to this Agreement, any of the Notes or any other document or instrument delivered in connection herewith, (g) in connection with any litigation involving any Lender pertaining to any Loan Document or any other document or instrument delivered in connection herewith, (h) to any Lender or the Agent, or (i) to any Affiliate of any Lender.

 

11.22      Patriot Act Notice.  Each Lender and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Patriot Act. The Borrower shall provide, to the extent commercially reasonable in light of applicable restrictions or limitations under contract or law, regulation or governmental guidelines, such information and take such actions as are reasonably requested by the Administrative Agent or any Lenders in order to assist the Administrative Agent and the Lenders in maintaining compliance with the Patriot Act.

 

11.23      Entire Agreement.  This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among Borrower, the Lenders, and Administrative Agent, and supersedes all prior or contemporaneous agreements and any other understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof.

 

11.24      NO ORAL AGREEMENTS.  THIS WRITTEN LOAN AGREEMENT, TOGETHER WITH THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES 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.

 

72Exhibit 10.16

 

	
 
    

 

INTERCREDITOR AGREEMENT

 

dated as of

 

October 30, 2009,

 

among

 

CINCO RESOURCES, INC.,

 

as Borrower,

 

the Subsidiaries of CINCO RESOURCES, INC.
 from time to time party hereto,

 

WELLS FARGO BANK, N.A.,

 

as First Lien Agent

 

and

 

WELLS FARGO ENERGY CAPITAL, INC.

 

as Second Lien Agent

 

THIS IS THE INTERCREDITOR AGREEMENT REFERRED TO IN THE SECURITY DOCUMENTS REFERRED TO IN THE CREDIT AGREEMENTS REFERRED TO HEREIN.

 

	
 
    

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE I DEFINITIONS
    	
1
    
	
 
    	
 
    	
 
    
	
Section 1.01.
    	
Certain Defined Terms
    	
1
    
	
Section 1.02.
    	
Other Defined Terms
    	
1
    
	
Section 1.03.
    	
Terms Generally
    	
6
    
	
 
    	
 
    	
 
    
	
ARTICLE II LIEN PRIORITIES
    	
6
    
	
 
    	
 
    	
 
    
	
Section 2.01.
    	
Relative Priorities
    	
6
    
	
Section 2.02.
    	
Prohibition on Contesting Liens
    	
6
    
	
Section 2.03.
    	
No New Liens
    	
7
    
	
Section 2.04.
    	
Similar Liens and Agreements
    	
7
    
	
Section 2.05.
    	
No Debt Subordination
    	
7
    
	
 
    	
 
    	
 
    
	
ARTICLE III ENFORCEMENT OF   RIGHTS; MATTERS RELATING TO COLLATERAL
    	
7
    
	
 
    	
 
    	
 
    
	
Section 3.01.
    	
Exercise of Rights and Remedies
    	
7
    
	
Section 3.02.
    	
No Interference
    	
9
    
	
Section 3.03.
    	
Rights as Unsecured Creditors
    	
11
    
	
Section 3.04.
    	
Automatic Release of Second Priority Liens
    	
11
    
	
Section 3.05.
    	
Automatic Release of First Priority Liens
    	
12
    
	
Section 3.06.
    	
Insurance and Condemnation Awards
    	
12
    
	
 
    	
 
    	
 
    
	
ARTICLE IV PAYMENTS
    	
13
    
	
 
    	
 
    	
 
    
	
Section 4.01.
    	
Application of Proceeds
    	
13
    
	
Section 4.02.
    	
Payment Over
    	
13
    
	
Section 4.03.
    	
Certain Agreements with Respect to Unenforceable Liens
    	
13
    
	
 
    	
 
    	
 
    
	
ARTICLE V
    	
14
    
	
 
    	
 
    	
 
    
	
Section 5.01.
    	
Bailment for Perfection of Certain Security Interests
    	
14
    
	
 
    	
 
    	
 
    
	
ARTICLE VI INSOLVENCY OR   LIQUIDATION PROCEEDINGS
    	
15
    
	
 
    	
 
    
	
Section 6.01.
    	
Finance and Sale Matters
    	
15
    
	
Section 6.02.
    	
Relief from the Automatic Stay
    	
16
    
	
Section 6.03.
    	
Reorganization Securities
    	
16
    
	
Section 6.04.
    	
Post-Petition Interest
    	
17
    
	
Section 6.05.
    	
Certain Waivers by the Second Lien Secured Parties
    	
17
    
	
Section 6.06.
    	
Certain Voting Matters
    	
17
    
	
 
    	
 
    	
 
    
	
ARTICLE VII OTHER AGREEMENTS
    	
17
    
	
 
    	
 
    	
 
    
	
Section 7.01.
    	
Matters Relating to Loan Documents
    	
17
    
	
Section 7.02.
    	
Effect of Refinancing of Indebtedness under First Lien Loan   Documents
    	
19
    

 

i

 

	
Section 7.03.
    	
No Waiver by First Lien Secured Parties
    	
20
    
	
Section 7.04.
    	
Reinstatement
    	
20
    
	
Section 7.05.
    	
Further Assurances
    	
20
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII REPRESENTATIONS   AND WARRANTIES
    	
21
    
	
 
    	
 
    
	
Section 8.01.
    	
Representations and Warranties of Each Party
    	
21
    
	
Section 8.02.
    	
Representations and Warranties of Each Agent
    	
21
    
	
 
    	
 
    	
 
    
	
ARTICLE IX NO RELIANCE; NO   LIABILITY; OBLIGATIONS ABSOLUTE
    	
21
    
	
 
    	
 
    	
 
    
	
Section 9.01.
    	
No Reliance; Information
    	
21
    
	
Section 9.02.
    	
No Warranties or Liability
    	
22
    
	
Section 9.03.
    	
Obligations Absolute
    	
23
    
	
 
    	
 
    	
 
    
	
ARTICLE X MISCELLANEOUS
    	
23
    
	
 
    	
 
    	
 
    
	
Section 10.01.
    	
Notices
    	
23
    
	
Section 10.02.
    	
Conflicts
    	
24
    
	
Section 10.03.
    	
Effectiveness; Survival
    	
24
    
	
Section 10.04.
    	
Severability
    	
24
    
	
Section 10.05.
    	
Amendments; Waivers
    	
24
    
	
Section 10.06.
    	
Subrogation
    	
25
    
	
Section 10.07.
    	
Applicable Law; Jurisdiction; Consent to Service of Process
    	
25
    
	
Section 10.08.
    	
Waiver of Jury Trial
    	
25
    
	
Section 10.09.
    	
Parties in Interest
    	
25
    
	
Section 10.10.
    	
Specific Performance
    	
26
    
	
Section 10.11.
    	
Headings
    	
26
    
	
Section 10.12.
    	
Counterparts
    	
26
    
	
Section 10.13.
    	
Provisions Solely to Define Relative Rights
    	
26
    

 

ii

 

INTERCREDITOR AGREEMENT dated as of October 30, 2009 (this “Agreement”), among CINCO RESOURCES INC., a Delaware corporation (the “Borrower”), WELLS FARGO BANK, N.A., as agent for the First Lien Lenders (as defined below) (in such capacity, the “First Lien Agent”), and WELLS FARGO ENERGY CAPITAL, INC., as agent for the Second Lien Lenders (as defined below) (in such capacity, the “Second Lien Agent”).

 

PRELIMINARY STATEMENT

 

Reference is made to (a) the Credit Agreement dated as of October 30, 2009 (the “First Lien Credit Agreement”), among the Borrower, the lenders from time to time party thereto (the “First Lien Lenders”) and the First Lien Agent, (b) the Second Lien Credit Agreement dated as of October 30, 2009 (the “Second Lien Credit Agreement” and, together with the First Lien Credit Agreement, the “Credit Agreements”), among the Borrower, the lenders from time to time party thereto (the “Second Lien Lenders”) and Second Lien Agent, and (c) the other Security Documents referred to in the Credit Agreements.

 

RECITALS

 

A.            The First Lien Lenders have agreed to make loans and other extensions of credit to the Borrower pursuant to the First Lien Credit Agreement on the condition, among others, that the First Lien Obligations (such term and each other capitalized term used but not defined in the preliminary statement or these recitals having the meaning given it in Article I) shall be secured by first priority Liens on, and security interests in, the Collateral.

 

B.            The Second Lien Lenders have agreed to make loans to the Borrower pursuant to the Second Lien Credit Agreement on the condition, among others, that the Second Lien Obligations shall be secured by second priority Liens on, and security interests in, the Collateral.

 

C.            The Credit Agreements require, among other things, that the parties thereto set forth in this Agreement, among other things, their respective rights, obligations and remedies with respect to the Collateral.

 

Accordingly, the parties hereto agree as follows:

 

Article I

 

Definitions

 

Section 1.01.          Certain Defined Terms.  Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings set forth in the First Lien Credit Agreement, the Second Lien Credit Agreement or the Security Documents, as applicable.

 

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

 

“Agreement” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“Bankruptcy Code” shall mean Title 11 of the United States Code entitled “Bankruptcy,” as now and hereinafter in effect, or any successor statute.

 

 

“Bankruptcy Law” shall mean the Bankruptcy Code and any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law.

 

“Borrower” shall have the meaning assigned to such term in the preamble to this Agreement.

 

“Borrowing Base” shall have the meaning assigned to such term in the First Lien Credit Agreement or, if the Indebtedness outstanding under the First Lien Loan Documents is Refinanced as contemplated by Section 7.02, as defined in the New First Lien Loan Documents, provided that such “Borrowing Base” complies with the First Lien Agent’s conforming traditional corporate banking borrowing base for oil and gas transactions, similar with the existing transaction, including customary mechanisms for periodic redeterminations thereof in the discretion of the lenders thereunder.

 

“Collateral” shall mean, collectively, the First Lien Collateral and the Second Lien Collateral.

 

“Agents” shall mean the First Lien Agent and the Second Lien Agent.

 

“Comparable Second Lien Security Document” shall mean, in relation to any Collateral subject to any Lien created under any First Lien Security Document, the Second Lien Security Document that creates a Lien on the same Collateral, granted by the same Grantor.

 

“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.  “Controlling” and “Controlled” have meanings correlative thereto.

 

“Credit Agreements” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“Credit Exposure” under a Derivative Contract as of any time means the marked-to-market dollar amount of credit exposure of the First Lien Secured Parties that are party to such Derivative Contract (giving effect to any netting arrangements) and fees, expenses and other amounts owed to such First Lien Secured Parties pursuant thereto as determined by such First Lien Secured Parties and specified in a writing delivered to the First Lien Agent.

 

“Derivative Contract” means Derivative Contracts as defined in the First Lien Credit Agreement, the obligations under which constitute Obligations as defined in the First Lien Credit Agreement.

 

“DIP Financing” shall have the meaning assigned to such term in Section 6.01(a)(ii).

 

“DIP Financing Liens” shall have the meaning assigned to such term in Section 6.01(a)(ii).

 

“Discharge of First Lien Obligations” shall mean, subject to Section 7.02 and Section 7.04, (a) payment in full in cash of the principal of and interest (including interest accruing during the pendency of any Insolvency or Liquidation Proceeding, regardless of whether allowed or allowable in such Insolvency or Liquidation Proceeding) and premium, if any, on all Indebtedness (including reimbursement obligations in respect of letters of credit) outstanding under the First Lien Loan Documents, (b) payment in full in cash of all other First Lien Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid, (c) cancellation of or the entry into arrangements satisfactory to the First Lien Agent and the Issuing Bank with respect to all letters of credit issued and outstanding under the First Lien Credit Agreement, (d) payment of the Credit Exposure of the First Lien Secured Parties under each Derivative Contract (or, with respect to any particular Derivative Contract, such other arrangements as have been made by the First Lien Lender who

 

2

 

is a party to such Derivative Contract (and communicated to the First Lien Agent) pursuant to the terms of the First Lien Credit Agreement), and (e) termination or expiration of all commitments to lend and all obligations to issue or extend letters of credit under the First Lien Credit Agreement.

 

“Disposition” shall mean any sale, lease, exchange, transfer or other disposition.  “Dispose” shall have a correlative meaning.

 

“First Lien Agent” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“First Lien Collateral” shall mean all “Collateral” as defined in the First Lien Credit Agreement.

 

“First Lien Credit Agreement” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“First Lien Lenders” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“First Lien Loan Documents” shall mean the “Loan Documents”, as defined in the First Lien Credit Agreement.

 

“First Lien Mortgages” shall mean, collectively, each mortgage, deed of trust, leasehold mortgage, assignment of leases and rents, modifications thereof and any other agreement, document or instrument pursuant to which a Lien on real property is granted to secure any First Lien Obligations or under which rights or remedies with respect to any such Lien are governed.

 

“First Lien Obligations” shall mean the “Obligations”, as defined in the First Lien Credit Agreement.

 

“First Lien Required Lenders” shall mean the “Majority Banks”, as defined in the First Lien Credit Agreement.

 

“First Lien Secured Parties” shall mean, at any time, (a) the First Lien Lenders, (b) the First Lien Agent, (c) the Issuing Bank, (d) each other Person to whom any of the First Lien Obligations (including First Lien Obligations under any Derivative Contract and indemnification obligations) is owed and (e) the successors and assigns of each of the foregoing.

 

“First Lien Security Documents” shall mean the “Security Documents”, as defined in the First Lien Credit Agreement, and any other agreement, document or instrument pursuant to which a Lien is granted to secure any First Lien Obligations or under which rights or remedies with respect to any such Lien are governed.

 

“First Priority Liens” shall mean all Liens on the First Lien Collateral securing the First Lien Obligations, whether created under the First Lien Security Documents or acquired by possession, statute (including any judgment lien), operation of law, subrogation or otherwise.

 

“Grantors” shall mean the Borrower and each other Person that shall have created or purported to create any First Priority Lien or Second Priority Lien on all or any part of its assets to secure any First Lien Obligations or any Second Lien Obligations.

 

3

 

“Guarantors” shall mean, collectively, each Subsidiary that has guaranteed, or that may from time to time hereafter guarantee, the First Lien Obligations or the Second Lien Obligations.

 

“Indebtedness” shall mean and includes all obligations that constitute “Indebtedness”, as defined in the First Lien Credit Agreement or the Second Lien Credit Agreement, as applicable.

 

“Insolvency or Liquidation Proceeding” shall mean (a) any voluntary or involuntary proceeding under the Bankruptcy Code or any other Bankruptcy Law with respect to any Grantor, (b) any voluntary or involuntary appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Grantor or for a substantial part of the property or assets of any Grantor, (c) any voluntary or involuntary winding-up or liquidation of any Grantor, or (d) a general assignment for the benefit of creditors by any Grantor.

 

“Lien” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third Person with respect to such securities.

 

“Loan Documents” shall mean the First Lien Loan Documents and the Second Lien Loan Documents.

 

“Loan Party” shall mean Borrower and each of the Guarantors.

 

“New First Lien Agent” shall have the meaning assigned to such term in Section 7.02.

 

“New First Lien Loan Documents” shall have the meaning assigned to such term in Section 7.02.

 

“New First Lien Obligations” shall have the meaning assigned to such term in Section 7.02.

 

“Person”  shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

 

“Pledged or Controlled Collateral” shall have the meaning assigned to such term in Article V.

 

“Refinance” shall mean, in respect of any Indebtedness, to refinance, extend, renew, restructure or replace or to issue other Indebtedness in exchange or replacement for, such Indebtedness, in whole or in part.  “Refinanced” and “Refinancing” shall have correlative meanings.

 

“Refinancing Notice” shall have the meaning assigned to such term in Section 7.02.

 

“Release” shall have the meaning assigned to such term in Section 3.04.

 

“Second Lien Agent” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“Second Lien Collateral” shall mean all assets of any Grantor now or at any time hereafter subject to Liens securing any Second Lien Obligations.

 

4

 

“Second Lien Credit Agreement” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“Second Lien Lenders” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“Second Lien Loan Documents” shall mean the “Loan Documents”, as defined in the Second Lien Credit Agreement.

 

“Second Lien Mortgages” shall mean, collectively, each mortgage, deed of trust, leasehold mortgage, assignment of leases and rents, modifications thereof and any other agreement, document or instrument pursuant to which any Lien on real property is granted to secure any Second Lien Obligations or under which rights or remedies with respect to any such Lien are governed.

 

“Second Lien Obligations” shall mean the “Obligations”, as defined in the Second Lien Credit Agreement.

 

“Second Lien Permitted Actions” shall have the meaning assigned to such term in Section 3.01(a).

 

“Second Lien Release” shall have the meaning assigned to such term in Section 3.05.

 

“Second Lien Required Lenders” shall mean the “Required Lenders”, as defined in the Second Lien Credit Agreement.

 

“Second Lien Secured Parties” shall mean, at any time, (a) the Second Lien Lenders, (b) the Second Lien Agent, (c) each other Person to whom any of the Second Lien Obligations (including indemnification obligations) is owed and (d) the successors and assigns of each of the foregoing.

 

“Second Lien Security Documents” shall mean the “Security Documents”, as defined in the Second Lien Credit Agreement, and any other agreement, document or instrument pursuant to which a Lien is granted to secure any Second Lien Obligations or under which rights or remedies with respect to any such Lien are governed.

 

“Second Priority Liens” shall mean all Liens on the Second Lien Collateral securing the Second Lien Obligations, whether created under the Second Lien Security Documents or acquired by possession, statute (including any judgment Lien), operation of law, subrogation or otherwise.

 

“Security Documents” shall mean the First Lien Security Documents and the Second Lien Security Documents.

 

“Standstill Period” shall have the meaning assigned to such term in Section 3.02(a)(i).

 

“subsidiary” shall mean, with respect to any Person (herein referred to as the “parent”), any corporation, partnership, limited liability company, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership or membership interests are, at the time any determination is being made, owned, Controlled or held, or (b) that is, at the time any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

 

5

 

“Subsidiary” shall mean any subsidiary of the Borrower.

 

“Uniform Commercial Code” or “UCC” shall mean the Uniform Commercial Code (or any similar or equivalent legislation) as in effect from time to time in any applicable jurisdiction.

 

Section 1.03.          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 “shall”.  Unless the context requires otherwise (a) 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, restated, supplemented or otherwise modified, (b) any reference herein (i) to any Person shall be construed to include such Person’s successors and assigns and (ii) to the Borrower or any other Grantor shall be construed to include the Borrower or such Grantor as debtor and debtor-in-possession and any receiver or trustee for the Borrower or any other Grantor, as the case may be, in any Insolvency or Liquidation Proceeding, (c) 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, (d) all references herein to Articles or Sections shall be construed to refer to Articles or Sections of this Agreement, and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

 

Article II

 

Lien Priorities

 

Section 2.01.          Relative Priorities.  Notwithstanding the date, manner or order of grant, attachment or perfection of any Second Priority Lien or any First Priority Lien, and notwithstanding any provision of the UCC or any other applicable law or the provisions of any Security Document or any other Loan Document or any other circumstance whatsoever, the Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, hereby agrees that, so long as the Discharge of First Lien Obligations has not occurred, (a) any First Priority Lien now or hereafter held by or for the benefit of any First Lien Secured Party shall be senior in right, priority, operation, effect and all other respects to any and all Second Priority Liens and (b) any Second Priority Lien now or hereafter held by or for the benefit of any Second Lien Secured Party shall be junior and subordinate in right, priority, operation, effect and all other respects to any and all First Priority Liens.  The First Priority Liens shall be and remain senior in right, priority, operation, effect and all other respects to any Second Priority Liens for all purposes, whether or not any First Priority Liens are subordinated in any respect to any other Lien securing any other obligation of the Borrower, any other Grantor or any other Person.

 

Section 2.02.          Prohibition on Contesting Liens.  Each of the First Lien Agent, for itself and on behalf of the other First Lien Secured Parties, and the Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, agrees that it will not, and hereby waives any right to, contest or support any other Person in contesting, in any proceeding (including any Insolvency or Liquidation Proceeding), the priority, validity or enforceability of any Second Priority Lien or any First Priority Lien, as the case may be; provided that nothing in this Agreement shall be construed to prevent or impair the rights of the First Lien Agent or any other First Lien Secured Party to enforce this Agreement.

 

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Section 2.03.         No New Liens.  The parties hereto agree that, so long as the Discharge of First Lien Obligations has not occurred, none of the Grantors shall, or shall permit any of its subsidiaries to, (a) grant or permit any additional Liens on any asset to secure any Second Lien Obligation unless it has granted, or concurrently therewith grants, a Lien on such asset to secure the First Lien Obligations or (b) grant or permit any additional Liens on any asset to secure any First Lien Obligations unless it has granted, or concurrently therewith grants, a Lien on such asset to secure the Second Lien Obligations, with each such Lien to be subject to the provisions of this Agreement.  To the extent that the provisions of the immediately preceding sentence are not complied with for any reason, without limiting any other right or remedy available to the First Lien Agent or the other First Lien Secured Parties, the Second Lien Agent agrees, for itself and on behalf of the other Second Lien Secured Parties, that any amounts received by or distributed to any Second Lien Secured Party pursuant to or as a result of any Lien granted in contravention of this Section 2.03 shall be subject to Section 4.02.

 

Section 2.04.         Similar Liens and Agreements.  The parties hereto acknowledge and agree that it is their intention that the First Lien Collateral and the Second Lien Collateral be identical.  In furtherance of the foregoing, the parties hereto agree:

 

(a)           to cooperate in good faith in order to determine, upon any reasonable request by the First Lien Agent or the Second Lien Agent, the specific assets included in the First Lien Collateral and the Second Lien Collateral, the steps taken to perfect the First Priority Liens and the Second Priority Liens thereon and the identity of the respective parties obligated under the First Lien Loan Documents and the Second Lien Loan Documents; and

 

(b)           that the documents, agreements and instruments creating or evidencing the Second Lien Collateral and the Second Priority Liens shall be in all material respects in the same form as the documents, agreements and instruments creating or evidencing the First Lien Collateral and the First Priority Liens, other than with respect to the first priority and second priority nature of the Liens created or evidenced thereunder, the identity of the Secured Parties that are parties thereto or secured thereby and other matters contemplated by this Agreement.

 

Section 2.05.         No Debt Subordination.  Nothing contained in this Agreement is intended to subordinate any debt claim by a Second Lien Secured Party to a debt claim by a First Lien Secured Party. All debt claims of the First Lien Secured Parties and the Second Lien Secured Parties are intended to be pari passu.

 

Article III

 

Enforcement of Rights; Matters Relating to Collateral

 

Section 3.01.         Exercise of Rights and Remedies.

 

(a)           So long as the Discharge of First Lien Obligations has not occurred, whether or not any Insolvency or Liquidation Proceeding has been commenced, the First Lien Agent and the other First Lien Secured Parties shall have the exclusive right to enforce rights and exercise remedies (including any right of setoff) with respect to the Collateral (including making determinations regarding the release, Disposition or restrictions with respect to the Collateral), or to commence or seek to commence any action or proceeding with respect to such rights or remedies (including any foreclosure action or proceeding or any Insolvency or Liquidation Proceeding), in each case, without any consultation with or

 

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the consent of the Second Lien Agent or any other Second Lien Secured Party; provided that, notwithstanding the foregoing,

 

(i)            in any Insolvency or Liquidation Proceeding, the Second Lien Agent may file a proof of claim or statement of interest with respect to the Second Lien Obligations;

 

(ii)           the Second Lien Agent may take any action to preserve or protect the validity and enforceability of the Second Priority Liens, provided that no such action is, or could reasonably be expected to be, (A) adverse to the First Priority Liens or the rights of the First Lien Agent or any other First Lien Secured Party to exercise remedies in respect thereof or (B) otherwise inconsistent with the terms of this Agreement, including the automatic release of Second Priority Liens provided in Section 3.04;

 

(iii)          the Second Lien Secured Parties may file any responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person objecting to or otherwise seeking the disallowance of the claims of the Second Lien Secured Parties, including any claims secured by the Collateral or otherwise make any agreements or file any motions pertaining to the Second Lien Obligations, in each case, to the extent not inconsistent with the terms of this Agreement;

 

(iv)          the Second Lien Secured Parties may exercise rights and remedies as unsecured creditors, as provided in Section 3.03;

 

(v)           the Second Lien Secure Parties may (A) present a cash bid for Collateral or purchase Collateral for cash at any Section 363 hearing or at any public or judicial foreclosure sale and (B) credit bid for Collateral pursuant to Section 363(k) of the Bankruptcy Code (provided that such credit bid may only be made if the Discharge of First Lien Obligations has occurred or will occur concurrently as a result of a cash bid for such Collateral in addition to such credit bid);

 

(vi)          the Second Lien Secured Parties shall be entitled to vote on any plan of reorganization, to the extent consistent with the provisions hereof; and

 

(vii)         subject to Section 3.02(a), the Second Lien Agent and the other Second Lien Secured Parties may enforce any of their rights and exercise any of their remedies with respect to the Collateral after the termination of the Standstill Period

 

(the actions described in clauses (i) through (v) above being referred to herein as the “Second Lien Permitted Actions”).  Except for the Second Lien Permitted Actions, unless and until the Discharge of First Lien Obligations has occurred, the sole right of the Second Lien Agent and the other Second Lien Secured Parties with respect to the Collateral shall be to receive the proceeds of the Collateral, if any, remaining after the Discharge of First Lien Obligations has occurred and in accordance with the Second Lien Loan Documents and applicable law.

 

(b)           In exercising rights and remedies with respect to the Collateral, the First Lien Agent and the other First Lien Secured Parties may enforce the provisions of the First Lien Loan Documents and exercise remedies thereunder, all in such order and in such manner as they may determine in their sole discretion.  Such exercise and enforcement shall include the rights of an agent appointed by them to Dispose of Collateral upon foreclosure, to incur expenses in connection with any such Disposition and to exercise all the rights and remedies of a secured creditor under the Uniform Commercial Code, the Bankruptcy Code or any other Bankruptcy Law.  The First Lien Agent agrees to provide at least

 

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five days’ prior written notice to the Second Lien Agent of its intention to foreclose upon or Dispose of any Collateral.

 

(c)           The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, hereby acknowledges and agrees that no covenant, agreement or restriction contained in any Second Lien Security Document or any other Second Lien Loan Document shall be deemed to restrict in any way the rights and remedies of the First Lien Agent or the other First Lien Secured Parties with respect to the Collateral as set forth in this Agreement and the other First Lien Loan Documents.

 

(d)           Notwithstanding anything in this Agreement to the contrary, (i) the acceleration of the Indebtedness then outstanding under the First Lien Credit Agreement, (ii) a payment default under the First Lien Credit Agreement that has not been cured or waived by the First Lien Lenders within sixty (60) days of the occurrence thereof or (iii) the commencement of an Insolvency or Liquidation Proceeding, the Second Lien Secured Parties may, at their sole expense and effort, upon notice within thirty (30) days following such acceleration to the First Lien Agent and the Borrower, require the First Lien Secured Parties to transfer and assign to the Second Lien Secured Parties, without warranty or representation or recourse (except for representations and warranties required to be made by assigning lenders pursuant to the Assignment and Acceptance Agreement (as such term is defined in the First Lien Credit Agreement)),  all (but not less than all) of the First Lien Obligations; provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, and (y) the Second Lien Secured Parties shall have paid to the First Lien Agent, for the account of the First Lien Secured Parties, in immediately available funds, an amount equal to 100% of the principal of such Indebtedness plus all accrued and unpaid interest thereon plus all accrued and unpaid fees plus all the other First Lien Obligations then outstanding (which shall include, with respect to (i) the aggregate face amount of the letters of credit outstanding under the First Lien Credit Agreement, an amount in cash equal to 105% thereof, and (ii) Derivative Contracts that constitute First Lien Obligations, 100% of the aggregate amount of such First Lien Obligations (giving effect to any netting arrangements) that the applicable Loan Party would be required to pay if such Derivative Contracts were terminated at such time).  In order to effectuate the foregoing, the First Lien Agent shall calculate, upon the written request of the Second Lien Agent from time to time, the amount in cash that would be necessary so to purchase the First Lien Obligations.

 

Section 3.02.         No Interference.

 

(a)           The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, agrees that, whether or not any Insolvency or Liquidation Proceeding has been commenced, the Second Lien Secured Parties:

 

(i)            except for Second Lien Permitted Actions, will not, so long as the Discharge of First Lien Obligations has not occurred, (A) enforce or exercise, or seek to enforce or exercise, any rights or remedies (including any right of setoff) with respect to any Collateral (including the enforcement of any right under any account control agreement, landlord waiver or bailee’s letter or any similar agreement or arrangement to which the Second Lien Agent or any other Second Lien Secured Party is a party) or (B) commence or join with any Person (other than the First Lien Agent) in commencing, or petition for or vote in favor of any resolution for, any action or proceeding with respect to such rights or remedies (including any foreclosure action); provided, however, that the Second Lien Agent may enforce or exercise any or all such rights and remedies, or commence, join with any Person in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding, after a period of 180 days has elapsed since the date on which the Second Lien Agent has delivered to the First Lien Agent written notice of the

 

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acceleration of the Indebtedness then outstanding under the Second Lien Credit Agreement (the “Standstill Period”); provided  further, however, that (A) notwithstanding the expiration of the Standstill Period or anything herein to the contrary, in no event shall the Second Lien Agent or any other Second Lien Secured Party enforce or exercise any rights or remedies with respect to any Collateral, or commence, join with any Person in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding, if the First Lien Agent or any other First Lien Secured Party shall have commenced, and shall be diligently pursuing (or shall have sought or requested relief from or modification of the automatic stay or any other stay in any Insolvency or Liquidation Proceeding to enable the commencement and pursuit thereof), the enforcement or exercise of any rights or remedies with respect to any Collateral or any such action or proceeding (prompt written notice thereof to be given to the Second Lien Agent by the First Lien Agent) and (B) after the expiration of the Standstill Period, so long as neither the First Lien Agent nor the First Lien Secured Parties have commenced any action to enforce their Lien on any material portion of the Collateral, in the event that and for so long as the Second Lien Secured Parties (or the Second Lien Agent on their behalf) have commenced actions to enforce their Lien with respect to all or any material portion of the Collateral to the extent permitted hereunder and are diligently pursuing such actions (it being understood that this clause shall not constitute a waiver by the First Lien Agent or the other First Lien Secured Parties of the provisions of Article VI), neither the First Lien Secured Parties nor the First Lien Agent shall take any action of a similar nature with respect to such Collateral; provided that all other provisions of this Intercreditor Agreement (including the turnover provisions of Article IV) are complied with; and provided  further that the Standstill Period shall be tolled for so long as any automatic stay or any other stay or other order prohibiting the exercise of remedies by the First Lien Agent or the First Lien Secured Parties with respect to the Collateral is in effect by operation of law or has been entered into by a court of competent jurisdiction;

 

(ii)           will not contest, protest or object to any foreclosure action or proceeding brought by the First Lien Agent or any other First Lien Secured Party, or any other enforcement or exercise by any First Lien Secured Party of any rights or remedies relating to the Collateral under the First Lien Loan Documents or otherwise, so long as Second Priority Liens attach to the proceeds thereof subject to the relative priorities set forth in Section 2.01;

 

(iii)          subject to the rights of the Second Lien Secured Parties under clause (i) above, will not object to the forbearance by the First Lien Agent or any other First Lien Secured Party from commencing or pursuing any foreclosure action or proceeding or any other enforcement or exercise of any rights or remedies with respect to the Collateral;

 

(iv)          will not, so long as the Discharge of First Lien Obligations has not occurred and except for Second Lien Permitted Actions, take or receive any Collateral, or any proceeds thereof or payment with respect thereto, in connection with the exercise of any right or enforcement of any remedy (including any right of setoff) with respect to any Collateral or in connection with any insurance policy award under a policy of insurance relating to any Collateral or any condemnation award (or deed in lieu of condemnation) relating to any Collateral;

 

(v)           will not, except for Second Lien Permitted Actions, take any action that would, or could reasonably be expected to, hinder, in any manner, any exercise of remedies under the First Lien Loan Documents, including any Disposition of any Collateral, whether by foreclosure or otherwise; and

 

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(vi)          will not attempt, directly or indirectly, whether by judicial proceeding or otherwise, to challenge or question the validity or enforceability of any First Lien Obligation or any First Lien Security Document, including this Agreement, or the validity or enforceability of the priorities, rights or obligations established by this Agreement.

 

provided, however, that, in the case of clauses (i) through (vii) above, the Liens granted to secure the Second Lien Obligations of the Second Lien Secured Parties shall attach to any Proceeds remaining from any such enforcement actions taken by the First Lien Agent or any First Lien Secured Party in accordance with this Agreement after application of such Proceeds to Discharge the First Lien Obligations.

 

Section 3.03.         Rights as Unsecured Creditors.  The Second Lien Agent and the other Second Lien Secured Parties may, in accordance with the terms of the Second Lien Loan Documents and applicable law, enforce rights and exercise remedies against the Borrower and any Guarantor as unsecured creditors; provided that no such action is otherwise inconsistent with the terms of this Agreement.  Nothing in this Agreement shall prohibit the acceleration of the Second Lien Obligations, the receipt by the Second Lien Agent or any other Second Lien Secured Party of the required payments of principal, premium, interest, fees and other amounts due under the Second Lien Loan Documents so long as such receipt is not the direct or indirect result of the enforcement or exercise by the Second Lien Agent or any other Second Lien Secured Party of rights or remedies as a secured creditor (including any right of setoff) or enforcement in contravention of this Agreement of any Second Priority Lien (including any judgment Lien resulting from the exercise of remedies available to an unsecured creditor).

 

Section 3.04.         Automatic Release of Second Priority Liens.

 

(a)           If, in connection with (i) any Disposition of any Collateral permitted under the terms of the First Lien Loan Documents or (ii) the enforcement or exercise of any rights or remedies or other actions taken in connection with the First Lien Obligations with respect to the Collateral, including any Disposition of Collateral by way of foreclosure, deed-in-lieu or similar transaction, the First Lien Agent, for itself and on behalf of the other First Lien Secured Parties, (x) releases any of the First Priority Liens, or (y) releases any Guarantor from its obligations under its guarantee of the First Lien Obligations (in each case, a “Release”), other than any such Release granted following the Discharge of First Lien Obligations, then, subject to Section 3.04(b), the Second Priority Liens on such Collateral, and the obligations of such Guarantor under its guarantee of the Second Lien Obligations, shall be automatically, unconditionally and simultaneously released, and the Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, shall promptly execute and deliver to the First Lien Agent, the relevant Grantor or such Guarantor such termination statements, releases and other documents as the First Lien Agent or the relevant Grantor or Guarantor may reasonably request to effectively confirm such Release; provided that, (i) in the case of a Disposition of Collateral (other than any such Disposition in connection with the enforcement or exercise of any rights or remedies or other actions taken in connection with the First Lien Obligations with respect to the Collateral by way of foreclosure, deed-in-lieu or similar transaction), the Second Priority Liens shall not be so released if such Disposition is not permitted under the terms of the Second Lien Credit Agreement and (ii) any proceeds received from such Disposition in connection with the enforcement or exercise of any rights or remedies or other actions taken in connection with the First Lien Obligations with respect to the Collateral by way of foreclosure, deed-in-lieu or similar transaction shall be applied by the First Lien Agent to the First Lien Obligations and permanently reduce the Borrowing Base with respect to the First Lien Obligations to the extent required by the First Lien Credit Agreement.

 

(b)           In the event that the sum of (i) the aggregate principal amount of the loans, letters of credit and unused revolving credit commitments outstanding under the First Lien Loan Documents, plus

 

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(ii) the Credit Exposure under Derivative Contracts, at any time is less than 25% of the sum of such amount and the aggregate principal amount of the loans outstanding under the Second Lien Loan Documents, then any Release (other than a Release in connection with a Disposition of Collateral in connection with the enforcement or exercise of any rights or remedies or other actions being taken in connection with the First Lien Obligations by way of foreclosure, deed-in-lieu or similar transaction with respect to the Collateral; provided that, any proceeds received from such a Disposition shall be applied by the First Lien Agent to the First Lien Obligations) shall require the consent of the holders of First Lien Obligations and Second Lien Obligations representing in the aggregate more than 50% of the sum of (i) the aggregate principal amount of loans, letters of credit and unused revolving credit commitments outstanding under the First Lien Loan Documents and (ii) the aggregate principal amount of the loans outstanding under the Second Lien Loan Documents.

 

(c)           Until the Discharge of First Lien Obligations occurs, the Second Lien Agent, for itself and on behalf of each other Second Lien Secured Party, hereby appoints the First Lien Agent, and any officer or agent of the First Lien Agent, with full power of substitution, as the attorney-in-fact of each Second Lien Secured Party for the purpose of carrying out the provisions of this Section 3.04 and taking any action and executing any instrument that the First Lien Agent may deem necessary or advisable to accomplish the purposes of this Section 3.04 (including any endorsements or other instruments of transfer or release), which appointment is irrevocable and coupled with an interest.

 

Section 3.05.         Automatic Release of First Priority Liens.  If, in connection with a sale of Collateral for fair market value for cash pursuant to enforcement or exercise of any rights or remedies with respect to such Collateral after the expiration of the Standstill Period that is permitted in accordance with clause (A) of the second proviso to Section 3.02(a)(i), the Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, (x) releases any of the Second Priority Liens, or (y) releases any Guarantor from its obligations under its guarantee of the Second Lien Obligations (in each case, a “Second Lien Release”), then upon the closing of such sale the First Lien Agent shall, for itself and on behalf of the other First Lien Secured Parties, promptly execute and deliver to the Second Lien Agent such termination statements and releases as shall be reasonably requested by the Second Lien Agent to release the First Priority Liens on such Collateral and to release the obligations of such Guarantor under its guarantee of the First Lien Obligations; provided that so long as the Discharge of First Lien Obligations has not occurred, the net proceeds of such sale shall be delivered to the First Lien Agent for the benefit of the First Lien Secured Parties, and any payments with respect to such Second Lien Release that are received by the Second Lien Agent or any other Second Lien Secured Party, shall be segregated and held in trust and forthwith transferred or paid over to the First Lien Agent for the benefit of the First Lien Secured Parties, in accordance with Section 4.02.

 

Section 3.06.         Insurance and Condemnation Awards.  So long as the Discharge of First Lien Obligations has not occurred, the First Lien Agent and the other First Lien Secured Parties shall have the exclusive right, subject to the rights of the Grantors under the First Lien Loan Documents, to settle and adjust claims in respect of Collateral under policies of insurance covering Collateral and to approve any award granted in any condemnation or similar proceeding, or any deed in lieu of condemnation, in respect of the Collateral.  All proceeds of any such policy and any such award, or any payments with respect to a deed in lieu of condemnation, shall (a) first, prior to the Discharge of First Lien Obligations and subject to the rights of the Grantors under the First Lien Loan Documents, be paid to the First Lien Agent for the benefit of First Lien Secured Parties to the extent required by the terms of the First Lien Loan Documents, (b) second, after the Discharge of First Lien Obligations and subject to the rights of the Grantors under the Second Lien Loan Documents, be paid to the Second Lien Agent for the benefit of the Second Lien Secured Parties to the extent required by the terms of the Second Lien Loan Documents, and (c) third, if no Second Lien Obligations are outstanding, be paid to the owner of the subject property, such other Person as may be entitled thereto or as a court of competent jurisdiction may otherwise direct.  Until the

 

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Discharge of First Lien Obligations has occurred, if the Second Lien Agent or any other Second Lien Secured Party shall, at any time, receive any proceeds of any such insurance policy or any such award or payment, it shall transfer and pay over such proceeds to the First Lien Agent in accordance with Section 4.02.

 

Article IV

 

Payments

 

Section 4.01.         Application of Proceeds.  So long as the Discharge of First Lien Obligations has not occurred, any Collateral or proceeds thereof received by the First Lien Agent in connection with any Disposition of, or collection on, such Collateral upon the enforcement or exercise of any right or remedy (including any right of setoff) shall be applied by the First Lien Agent to the First Lien Obligations.  Upon the Discharge of First Lien Obligations together with the concurrent permanent reducing of the Maximum Commitment in an amount equal to the amount of such payment, the First Lien Agent shall deliver to the Second Lien Agent any remaining Collateral and any proceeds thereof then held by it in the same form as received, together with any necessary endorsements, or as a court of competent jurisdiction may otherwise direct, to be applied by the Second Lien Agent to the Second Lien Obligations.

 

Section 4.02.         Payment Over.  So long as the Discharge of First Lien Obligations has not occurred, any Collateral, or any proceeds thereof or payment with respect thereto (together with assets or proceeds subject to Liens referred to in the final sentence of Section 2.03), received by the Second Lien Agent or any other Second Lien Secured Party in connection with any Disposition of, or collection on, such Collateral upon the enforcement or the exercise of any right or remedy (including any right of setoff) with respect to the Collateral, or in connection with any insurance policy claim or any condemnation award (or deed in lieu of condemnation), shall be segregated and held in trust and forthwith transferred or paid over to the First Lien Agent for the benefit of the First Lien Secured Parties in the same form as received, together with any necessary endorsements, or as a court of competent jurisdiction may otherwise direct.  Until the Discharge of First Lien Obligations occurs, the Second Lien Agent, for itself and on behalf of each other Second Lien Secured Party, hereby appoints the First Lien Agent, and any officer or agent of the First Lien Agent, with full power of substitution, the attorney-in-fact of each Second Lien Secured Party for the purpose of carrying out the provisions of this Section 4.02 and taking any action and executing any instrument that the First Lien Agent may deem necessary or advisable to accomplish the purposes of this Section 4.02, which appointment is irrevocable and coupled with an interest.

 

Section 4.03.         Certain Agreements with Respect to Unenforceable Liens.  Notwithstanding anything to the contrary contained herein, if in any Insolvency or Liquidation Proceeding a determination is made that any Lien encumbering any Collateral is not enforceable for any reason, then the Second Lien Agent and the Second Lien Secured Parties agree that, any distribution or recovery they may receive with respect to, or allocable to, the value of the assets intended to constitute such Collateral or any proceeds thereof shall (for so long as the Discharge of First Lien Obligations has not occurred) be segregated and held in trust and forthwith paid over to the First Lien Agent for the benefit of the First Lien Secured Parties in the same form as received without recourse, representation or warranty (other than a representation of the Second Lien Agent that it has not otherwise sold, assigned, transferred or pledged any right, title or interest in and to such distribution or recovery) but with any necessary endorsements or as a court of competent jurisdiction may otherwise direct until such time as the Discharge of First Lien Obligations has occurred.  Until the Discharge of First Lien Obligations occurs, the Second Lien Agent, for itself and on behalf of each other Second Lien Secured Party, hereby appoints the First Lien Agent, and any officer or agent of the First Lien Agent, with full power of substitution, the attorney-in-fact of

 

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each Second Lien Secured Party for the limited purpose of carrying out the provisions of this Section 4.03 and taking any action and executing any instrument that the First Lien Agent may deem necessary or advisable to accomplish the purposes of this Section 4.03, which appointment is irrevocable and coupled with an interest.

 

Article V

 

Section 5.01.         Bailment for Perfection of Certain Security Interests.

 

(a)           The First Lien Agent agrees that if it shall at any time hold a First Priority Lien on any Collateral that can be perfected by the possession or control of such Collateral or of any account in which such Collateral is held, and if such Collateral or any such account is in fact in the possession or under the control of the First Lien Agent, or of agents or bailees of the First Lien Agent (such Collateral being referred to herein as the “Pledged or Controlled Collateral”), the First Lien Agent shall, solely for the purpose of perfecting the Second Priority Liens granted under the Second Lien Loan Documents and subject to the terms and conditions of this Article V, also hold such Pledged or Controlled Collateral as bailee for the Second Lien Agent.  The First Lien Agent shall not charge the Second Lien Secured Parties a fee for holding such Collateral as bailee pursuant hereto.

 

(b)           So long as the Discharge of First Lien Obligations has not occurred, the First Lien Agent shall be entitled to deal with the Pledged or Controlled Collateral in accordance with the terms of this Agreement and the other First Lien Loan Documents as if the Second Priority Liens did not exist until the expiration of the Standstill Period or such longer period as provided under Section 3.02(a).  The obligations and responsibilities of the First Lien Agent to the Second Lien Agent and the other Second Lien Secured Parties under this Article V shall be limited solely to holding or controlling the Pledged or Controlled Collateral as bailee in accordance with this Article V.  Without limiting the foregoing, the First Lien Agent shall have no obligation or responsibility to ensure that any Pledged or Controlled Collateral is genuine or owned by any of the Grantors.  The First Lien Agent acting pursuant to this Article V shall not, by reason of this Agreement, any other Security Document or any other document, have a fiduciary relationship in respect of any other First Lien Secured Party, the Second Lien Agent or any other Second Lien Secured Party.

 

(c)           Upon the Discharge of First Lien Obligations, the First Lien Agent shall transfer the possession and control of the Pledged or Controlled Collateral, together with any necessary endorsements but without recourse or warranty (other than a representation of the First Lien Agent that it has not otherwise sold, assigned, transferred or pledged any right, title or interest in and to such Pledged or Controlled Collateral), (i) if the Second Lien Obligations are outstanding at such time, to the Second Lien Agent, and (ii) if no Second Lien Obligations are outstanding at such time, to the applicable Grantor or to whomever shall be entitled thereto, in each case so as to allow such Person to obtain possession and control of such Pledged or Controlled Collateral.  In connection with any transfer under clause (i) of the immediately preceding sentence, subject to the provisions of Section 5.01(d), the First Lien Agent agrees to take all actions in its power as shall be reasonably requested by the Second Lien Agent to permit the Second Lien Agent to obtain, for the benefit of the Second Lien Secured Parties, a first priority security interest in the Pledged or Controlled Collateral.

 

(d)           The First Lien Agent shall not be required to take any such action requested by the Second Lien Agent that the First Lien Agent in good faith believes exposes it to personal liability for expenses or other amounts unless the First Lien Agent receives an indemnity satisfactory to it from the Second Lien Agent or Second Lien Secured Parties with respect to such action.

 

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Article VI

 

Insolvency or Liquidation Proceedings

 

Section 6.01.         Finance and Sale Matters.

 

(a)           Until the Discharge of First Lien Obligations has occurred, the Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, agrees that, in the event of any Insolvency or Liquidation Proceeding, the Second Lien Secured Parties:

 

(i)            will not oppose or object to the use of any Collateral constituting cash collateral under Section 363 of the Bankruptcy Code, or any comparable provision of any other Bankruptcy Law, unless the First Lien Secured Parties, or a representative authorized by the First Lien Secured Parties, shall oppose or object to such use of cash collateral;

 

(ii)           will not oppose or object to any post-petition financing, whether provided by the First Lien Secured Parties or any other Person, under Section 364 of the Bankruptcy Code, or any comparable provision of any other Bankruptcy Law (a “DIP Financing”), or the Liens securing any DIP Financing (“DIP Financing Liens”), unless the First Lien Secured Parties, or a representative authorized by the First Lien Secured Parties, shall then oppose or object to such DIP Financing or such DIP Financing Liens, and, to the extent that such DIP Financing Liens are senior to, or rank pari passu with, the First Priority Liens, the Second Lien Agent will, for itself and on behalf of the other Second Lien Secured Parties, subordinate the Second Priority Liens to the First Priority Liens and the DIP Financing Liens on the terms of this Agreement; provided that the foregoing shall not prevent the Second Lien Secured Parties from proposing any other DIP Financing to any Grantors or to a court of competent jurisdiction and provided further that the foregoing shall not prohibit the Second Lien Agent or the Second Lien Secured Parties from objecting solely to any provisions in any DIP Financing to the extent under a plan of reorganization providing that the DIP Financing can be rolled into an exit financing;

 

(iii)          except to the extent permitted by paragraph (b) of this Section 6.01, in connection with the use of cash collateral as described in clause (i) above or a DIP Financing, will not request adequate protection or any other relief in connection with such use of cash collateral, DIP Financing or DIP Financing Liens unless the First Lien Secured Parties are deemed by a court of competent jurisdiction to be fully secured on the petition date of any Insolvency Proceeding and have received payment in full in cash of current post-petition interest, incurred fees and expenses, then the Second Lien Secured Parties shall not be prohibited from seeking adequate protection in the form of payments in the amount of current post-petition interest, incurred fees and expenses or other cash payments;

 

(iv)          unless the First Lien Secured Parties agree that they are fully secured, then the Second Lien Agent and the Second Lien Secured Parties shall not be prohibited from seeking adequate protection in the form of additional collateral, provided the First Lien Secured Parties shall also be granted a Lien on such additional collateral as security for the First Lien Obligations and for any DIP Financing and that any Lien on such additional collateral securing the Second Lien Obligations shall be subordinated to the Liens on such collateral securing the First Lien Obligations and any DIP Financing (and all Obligations relating thereto) and to any other Liens granted to the First Lien Secured Parties as adequate protection on the same basis as the other First Liens under this Agreement and the Liens securing any DIP Financing; and

 

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(v)           will not oppose or object to any Disposition of any Collateral free and clear of the Second Priority Liens or other claims under Section 363 of the Bankruptcy Code, or any comparable provision of any other Bankruptcy Law, if the First Lien Secured Parties, or a representative authorized by the First Lien Secured Parties, shall consent to such Disposition so long as the interests of the Second Lien Secured Parties in the Collateral (and any post-petition assets subject to adequate protection liens, if any, in favor of the Second Lien Agent) attach to the proceeds thereof, subject to the terms of this Agreement.

 

(b)           The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, agrees that no Second Lien Secured Party shall contest, or support any other Person in contesting, (i) any request by the First Lien Agent or any other First Lien Secured Party for adequate protection or (ii) any objection, based on a claim of a lack of adequate protection, by the First Lien Agent or any other First Lien Secured Party to any motion, relief, action or proceeding.  Notwithstanding the immediately preceding sentence, if, in connection with any DIP Financing or use of cash collateral, (A) any First Lien Secured Party is granted adequate protection in the form of a Lien on additional collateral, the Second Lien Agent may, for itself and on behalf of the other Second Lien Secured Parties, seek or request adequate protection in the form of a Lien on such additional collateral, which Lien will be subordinated to the First Priority Liens and DIP Financing Liens on the same basis as the other Second Priority Liens are subordinated to the First Priority Liens under this Agreement or (B) any Second Lien Secured Party is granted adequate protection in the form of a Lien on additional collateral, the First Lien Agent shall, for itself and on behalf of the other First Lien Secured Parties, be granted adequate protection in the form of a Lien on such additional collateral that is senior to such Second Priority Lien as security for the First Lien Obligations.

 

(c)           Notwithstanding the foregoing, the applicable provisions of Section 6.01(a) and (b) shall only be binding on the Second Lien Secured Parties with respect to any DIP Financing to the extent that (A) the amount of such DIP Financing does not exceed the sum of (i) to the extent Refinanced in connection with, and included as part of, such DIP Financing, the aggregate principal amount of the pre-petition First Lien Obligations, (ii) the pre-petition unused portion of the Borrowing Base and (iii) an amount equal to the greater of (x) $10,000,000 and (y)10% of the sum of clauses (i) and (ii) and (B) the DIP Financing proceeds are not to be used for capital expenditures other than new development, drilling, exploration or other acquisitions and other expenditures in the ordinary course of business.

 

Section 6.02.         Relief from the Automatic Stay.  The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, agrees that, so long as the Discharge of First Lien Obligations has not occurred, no Second Lien Secured Party shall, without the prior written consent of the First Lien Agent, seek or request relief from or modification of the automatic stay or any other stay in any Insolvency or Liquidation Proceeding in respect of any part of the Collateral, any proceeds thereof or any Second Priority Lien.

 

Section 6.03.         Reorganization Securities.  If, in any Insolvency or Liquidation Proceeding, debt obligations of the reorganized debtor secured by Liens upon any property of the reorganized debtor are distributed, pursuant to a plan of reorganization or similar dispositive restructuring plan, on account of both the First Lien Obligations and the Second Lien Obligations, then, to the extent the debt obligations distributed on account of the First Lien Obligations and on account of the Second Lien Obligations are secured by Liens upon the same assets or property, the provisions of this Agreement will survive the distribution of such debt obligations pursuant to such plan and will apply with like effect to the Liens securing such debt obligations.

 

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Section 6.04.         Post-Petition Interest.

 

(a)           The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, agrees that no Second Lien Secured Party shall oppose or seek to challenge any claim by the First Lien Agent or any other First Lien Secured Party for allowance in any Insolvency or Liquidation Proceeding of First Lien Obligations consisting of post-petition interest, fees or expenses to the extent of the value of the First Priority Liens (it being understood and agreed that such value shall be determined without regard to the existence of the Second Priority Liens on the Collateral).

 

(b)           The First Lien Agent, for itself and on behalf of the other First Lien Secured Parties, agrees that no First Lien Secured Party shall oppose or seek to challenge any claim by the Second Lien Agent or any other Second Lien Secured Party for allowance in any Insolvency or Liquidation Proceeding of Second Lien Obligations consisting of post-petition interest, fees or expenses to the extent of the value of the Second Priority Liens (it being understood and agreed that such value shall be determined taking into account the First Priority Liens on the Collateral).

 

Section 6.05.         Certain Waivers by the Second Lien Secured Parties.  The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, waives any claim any Second Lien Secured Party may hereafter have against any First Lien Secured Party arising out of (a) the election by any First Lien Secured Party of the application of Section 1111(b)(2) of the Bankruptcy Code, or any comparable provision of any other Bankruptcy Law, or (b) any use of cash collateral or financing arrangement, or any grant of a security interest in the Collateral, in any Insolvency or Liquidation Proceeding.

 

Section 6.06.         Certain Voting Matters.  Each of the First Lien Agent, on behalf of the First Lien Secured Parties and the Second Lien Agent on behalf of the Second Lien Secured Parties, agrees that, without the written consent of the other, it will not seek to vote with the other as a single class in connection with any plan of reorganization in any Insolvency or Liquidation Proceeding.  Except as provided in this Section 6.06, nothing in this Agreement is intended, or shall be construed, to limit the ability of the Second Lien Agent or the Second Lien Secured Parties to vote on any plan of reorganization.

 

Article VII

 

Other Agreements

 

Section 7.01.         Matters Relating to Loan Documents.

 

(a)           The First Lien Loan Documents may be amended, restated, supplemented or otherwise modified in accordance with their terms, and the Indebtedness under the First Lien Credit Agreement may be Refinanced, in each case, without the consent of any Second Lien Secured Party; provided, however, that, without the consent of the Second Lien Required Lenders, no such amendment, restatement, supplement, modification or Refinancing (or successive amendments, restatements, supplements, modifications or Refinancings) shall (i) contravene any provision of this Agreement,  (ii) result in the sum of (A) the aggregate principal amount of all loans (which includes unreimbursed letter of credit obligations outstanding under the First Lien Loan Documents) at such time, plus (B) the unused portion of the Borrowing Base at such time, exceeding 100% of the then applicable Borrowing Base, determined by giving pro forma effect to any increase resulting from the acquisition or other addition of properties proposed to be consummated pursuant to such amendment, restatement, supplement, modification or Refinancing, which Borrowing Base shall at no time exceed $100,000,000 (it being understood that no

 

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increase of the Borrowing Base to an amount not in excess of $100,000,000 shall, in and of itself, require the consent of the Second Lien Required Lenders) less the amount of all mandatory repayments of any Loans to the extent accompanied by a corresponding reduction in the Maximum Loan Amount, (iii) increase the “Applicable Margin” or similar component of the interest rate under the First Lien Loan Documents (excluding increases resulting from the accrual of interest at the default rate) without an equivalent increase in the “Applicable Margin” or similar component of the interest rate under the Second Lien Loan Documents (excluding increases resulting from the accrual of interest at the default rate), (iv) extend the Termination Date of the Indebtedness under the First Lien Credit Agreement or any Refinancing thereof beyond the Termination Date of the Indebtedness under the Second Lien Credit Agreement; (v) modify Section 7.05(b) of the First Lien Credit Agreement with respect to any increase (or have the effect of increasing) in the amount of dispositions of Collateral, the proceeds of which are not required to be used to prepay the First Lien Obligations and which may be retained by the Loan Parties for use as working capital or (vi) waive or otherwise modify in a manner adverse to the Second Lien Secured Parties any mandatory prepayments of First Lien Obligations pursuant to Section 2.04 of the First Lien Credit Agreement and provided further that the holders of the Indebtedness resulting from any such Refinancing, or a duly authorized agent on their behalf, agree in writing to be bound by the terms of this Agreement.

 

(b)           Until the Discharge of the First Lien Obligations occurs, without the prior written consent of the First Lien Required Lenders, no Second Lien Loan Document may be amended, restated, supplemented or otherwise modified, or entered into, or Refinanced to the extent such amendment, restatement, supplement or modification, or the terms of such new Second Lien Loan Document, or such Refinancing would (i) contravene the provisions of this Agreement, (ii) result in the Second Lien Lender’s aggregate Commitment exceeding $30,000,000, (iii) increase the “Applicable Margin” or similar component of the interest rate under the Second Lien Loan Documents by more than 200 basis points (excluding increases resulting from the accrual of interest at the default rate) provided that any increase above 200 basis points shall be permitted provided that the “Applicable Margin” or similar component of the interest rate under the First Lien Loan Documents shall be simultaneously increased by any incremental amount above 200 basis points, (iv) increase the three percent (3%) additional margin of interest that becomes due in connection with a default, (v) change to earlier dates any scheduled dates for payment of principal or of interest on Indebtedness under the Second Lien Loan Documents, (vi) change any default or event of default provisions set forth in the Second Lien Loan Documents in a manner adverse to the First Lien Secured Parties, (vii) change the redemption, prepayment, repurchase, tender or defeasance provisions set forth in the Second Lien Loan Documents in a manner that would require a redemption, prepayment, repurchase, tender or defeasance not required pursuant to the terms of the Second Lien Loan Documents as of the date hereof or in a manner otherwise adverse to First Lien Secured Parties, (viii) add to the Second Lien Collateral other than as specifically provided by this Agreement, (ix) modify any financial covenant or negative covenant to make it more restrictive than the First Lien Credit Agreement, or (x) otherwise materially increase the obligations of the Borrower or the other Loan Parties thereunder or confer additional rights on the Second Lien Secured Parties in a manner materially adverse to the First Lien Secured Parties.  As an intercreditor agreement only and without prejudice to any rights of the First Lien Lenders under the First Lien Credit Agreement (including any covenants therein that may restrict such Refinancings), Indebtedness under the Second Lien Loan Documents may be Refinanced subject to approval of the Majority Lenders under the First Lien Loan Documents if (A) the terms and conditions of such Refinancing Indebtedness are no less favorable in the aggregate to the First Lien Secured Parties than the terms and conditions of the Indebtedness then outstanding under the Second Lien Credit Agreement, (B) the final maturity and the average life to maturity of such Refinancing Indebtedness is at least equal to that of the Indebtedness then outstanding under the Second Lien Credit Agreement and (C) if such Refinancing Indebtedness is secured, the holders of such Refinancing Indebtedness, or a duly authorized agent on their behalf, agree in writing to be bound by the terms of this Agreement.

 

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(c)           Each of the Borrower and the Second Lien Agent agrees that the Second Lien Credit Agreement and each Second Lien Security Document shall contain the applicable provisions set forth on Annex I hereto, or similar provisions approved by the First Lien Agent, which approval shall not be unreasonably withheld or delayed.  Each of the Borrower and the Second Lien Agent further agrees that each Second Lien Mortgage covering any Collateral shall contain such other language as the First Lien Agent may reasonably request to reflect the subordination of such Second Lien Mortgage to the First Lien Security Document covering such Collateral pursuant to this Agreement.

 

(d)           Until the Discharge of the First Lien Obligations occurs, in the event that the First Lien Agent or the other First Lien Secured Parties and the relevant Grantor enter into any amendment, modification, waiver or consent in respect of any of the First Lien Security Documents (other than this Agreement), then such amendment, modification, waiver or consent shall apply automatically to any comparable provisions of the applicable Comparable Second Lien Security Document, in each case, without the consent of any Second Lien Secured Party and without any action by the Second Lien Agent, the Borrower or any other Grantor; provided, that (i) no such amendment, modification, waiver or consent shall (A) remove assets subject to the Second Priority Liens or release any such Liens, except to the extent that such release is permitted or required by Section 3.04 and provided that there is a concurrent release of the corresponding First Priority Liens, (B) amend, modify or otherwise affect the rights or duties of the Second Lien Agent without its prior written consent, (C) permit Liens on the Collateral which are not permitted under the terms of the Second Lien Loan Documents, (D) reduce the principal of, or interest or other amounts payable on, any amount payable under the Second Lien Credit Agreement or any Second Lien Loan Document, (E) postpone any date fixed for any payment of principal of, or interest or other amounts payable on, any amounts payable under the Second Lien Credit Agreement or any Second Lien Loan Document, and (ii) notice of such amendment, modification waiver or consent shall have been given to the Second Lien Agent no later than the tenth Business Day following the effective date of such amendment, modification, waiver or consent.

 

Section 7.02.         Effect of Refinancing of Indebtedness under First Lien Loan Documents.  If, substantially contemporaneously with the Discharge of First Lien Obligations and subject to consent of the Second Lien Required Lenders, the Borrower Refinances Indebtedness outstanding under the First Lien Loan Documents and provided that (a) such Refinancing is permitted hereby and (b) the Borrower gives to the Second Lien Agent written notice (the “Refinancing Notice”) electing the application of the provisions of this Section 7.02 to such Refinancing Indebtedness, then (i) such Discharge of First Lien Obligations shall automatically be deemed not to have occurred for all purposes of this Agreement, (ii) such Refinancing Indebtedness and all other obligations under the loan documents evidencing such Indebtedness (the “New First Lien Obligations”) shall automatically be treated as First Lien Obligations for all purposes of this Agreement, including for purposes of the Lien priorities and rights in respect of Collateral set forth herein, (iii) the credit agreement and the other loan documents evidencing such Refinancing Indebtedness (the “New First Lien Loan Documents”) shall automatically be treated as the First Lien Credit Agreement and the First Lien Loan Documents and, in the case of New First Lien Loan Documents that are security documents, as the First Lien Security Documents for all purposes of this Agreement, (iv) the Agent under the New First Lien Loan Documents (the “New First Lien Agent”) shall be deemed to be the First Lien Agent for all purposes of this Agreement and (v) the lenders under the New First Lien Loan Documents shall be deemed to be the First Lien Lenders for all purposes of this Agreement.  Upon receipt of a Refinancing Notice, which notice shall include the identity of the New First Lien Agent, the Second Lien Agent shall promptly enter into such documents and agreements (including amendments or supplements to this Agreement) as the Borrower or such New First Lien Agent may reasonably request in order to provide to the New First Lien Agent the rights and powers contemplated hereby, in each case consistent in all material respects with the terms of this Agreement.  The Borrower shall cause the agreement, document or instrument pursuant to which the New First Lien

 

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Agent is appointed to provide that the New First Lien Agent agrees to be bound by the terms of this Agreement.  In furtherance of Section 2.03, if the New First Lien Obligations are secured by assets of the Grantors that do not also secure the Second Lien Obligations, the applicable Grantors shall promptly grant a Second Priority Lien on such assets to secure the Second Lien Obligations.

 

Section 7.03.         No Waiver by First Lien Secured Parties.  Other than with respect to the Second Lien Permitted Actions, nothing contained herein shall prohibit or in any way limit the First Lien Agent or any other First Lien Secured Party from opposing, challenging or objecting to, in any Insolvency or Liquidation Proceeding or otherwise, any action taken, or any claim made, by the Second Lien Agent or any other Second Lien Secured Party, including any request by the Second Lien Agent or any other Second Lien Secured Party for adequate protection or any exercise by the Second Lien Agent or any other Second Lien Secured Party of any of its rights and remedies under the Second Lien Loan Documents or otherwise.

 

Section 7.04.         Reinstatement.  If, in any Insolvency or Liquidation Proceeding or otherwise, all or part of any payment with respect to the First Lien Obligations previously made shall be rescinded for any reason whatsoever, then the First Lien Obligations shall be reinstated to the extent of the amount so rescinded and, if theretofore terminated, this Agreement shall be reinstated in full force and effect and such prior termination shall not diminish, release, discharge, impair or otherwise affect the Lien priorities and the relative rights and obligations of the First Lien Secured Parties and the Second Lien Secured Parties provided for herein.

 

Section 7.05.         Further Assurances.  Each of the First Lien Agent, for itself and on behalf of the other First Lien Secured Parties, and the Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, and each Grantor party hereto, for itself and on behalf of its subsidiaries, agrees that it will execute, or will cause to be executed, any and all further documents, agreements and instruments, and take all such further actions, as may be required under any applicable law, or which the First Lien Agent or the Second Lien Agent may reasonably request, to effectuate the terms of this Agreement, including the relative Lien priorities provided for herein.

 

Section 7.06.         Notice of Exercise of Remedies.  Each of the First Lien Agent, on behalf of itself and the First Lien Secured Parties, and the Second Lien Agent, on behalf of itself and the Second Lien Secured Parties, agrees that :

 

(a)           it will promptly notify the other if there is an Event of Default under the First Lien Credit Agreement or the Second Lien Credit Agreement (as the case may be) and;

 

(b)           it will provide five days’ prior notice if:

 

(i)            it accelerates any Indebtedness in respect of the First Lien Obligations or the Second Lien Obligations, as the case may be (other than with respect to any automatic accelerations thereunder);

 

(ii)           it forecloses upon, or sells or otherwise realizes (or initiates any such action) upon any of the Collateral; or

 

(iii)          it takes any other action in respect of the Collateral which would result in the Second Lien Secured Parties releasing (or being required to release) their Liens on any portion of the Collateral; or

 

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(iv)          it exercises or seeks to exercise any other right or remedy (including setoff and the right to credit bid its debt) under the First Lien Loan Documents or the Second Lien Loan Documents or applicable law with respect to any of the Collateral or institutes any action or proceeding with respect to such rights or remedies (the actions and events referred to in clauses (a) through (b) shall be referred to herein as the “Noticed Actions”),

 

provided, however, that, notwithstanding the foregoing and without limiting each of the First Lien Agent’s and the Second Lien Agent’s obligation to provide the notice required by this Section 7.06, any such failure to timely provide notice of such Noticed Actions, the First Lien Agent and the Second Lien Agent shall be permitted to take a Noticed Action in accordance with the terms of the First Lien Loan Documents and the Second Lien Loan Documents, respectively, and the terms of this Agreement, and such Noticed Actions shall not be impaired or invalidated by such failure.

 

Article VIII

 

Representations and Warranties

 

Section 8.01.         Representations and Warranties of Each Party.  Each party hereto represents and warrants to the other parties hereto as follows:

 

(a)           Such party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to execute and deliver this Agreement and perform its obligations hereunder.

 

(b)           This Agreement has been duly executed and delivered by such party and constitutes a legal, valid and binding obligation of such party, enforceable in accordance with its terms.

 

(c)           The execution, delivery and performance by such party of this Agreement (i) do not require any consent or approval of, registration or filing with or any other action by any Governmental Authority and (ii) will not violate any provision of Requirements of Law, or of the certificate or articles of incorporation or other constitutive documents or by-laws of such party or any order of any Governmental Authority or any provision of any indenture, agreement or other instrument binding upon such party.

 

Section 8.02.         Representations and Warranties of Each Agent.  Each Agent represents and warrants to the other parties hereto that it has been authorized by the Lenders under and as defined in the First Lien Credit Agreement or the Second Lien Credit Agreement, as applicable, to enter into this Agreement.

 

Article IX

 

No Reliance; No Liability; Obligations Absolute

 

Section 9.01.         No Reliance; Information.  Each Agent, for itself and on behalf of the applicable other Secured Parties, acknowledges that (a) it and such Secured Parties have, independently and without reliance upon, in the case of the First Lien Secured Parties, any Second Lien Secured Party and, in the case of the Second Lien Secured Parties, any First Lien Secured Party, and based on such documents and information as they have deemed appropriate, made their own credit analysis and decision to enter into the Loan Documents to which they are party and (b) it and such Secured Parties will, independently and without reliance upon, in the case of the First Lien Secured Parties, any Second Lien Secured Party and, in the case of the Second Lien Secured Parties, any First Lien Secured Party, and

 

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based on such documents and information as they shall from time to time deem appropriate, continue to make their own credit decision in taking or not taking any action under this Agreement or any other Loan Document to which they are party.  The First Lien Secured Parties and the Second Lien Secured Parties shall have no duty to disclose to any Second Lien Secured Party or to any First Lien Secured Party, respectively, any information relating to the Borrower or any of the Subsidiaries, or any other circumstance bearing upon the risk of nonpayment of any of the First Lien Obligations or the Second Lien Obligations, as the case may be, that is known or becomes known to any of them or any of their Affiliates.  In the event any First Lien Secured Party or any Second Lien Secured Party, in its sole discretion, undertakes at any time or from time to time to provide any such information to, respectively, any Second Lien Secured Party or any First Lien Secured Party, it shall be under no obligation (i) to make, and shall not make or be deemed to have made, any express or implied representation or warranty, including with respect to the accuracy, completeness, truthfulness or validity of the information so provided, (ii) to provide any additional information or to provide any such information on any subsequent occasion or (iii) to undertake any investigation.

 

Section 9.02.         No Warranties or Liability.

 

(a)           The First Lien Agent, for itself and on behalf of the other First Lien Secured Parties, acknowledges and agrees that, except for the representations and warranties set forth in Article VIII, neither the Second Lien Agent nor any other Second Lien Secured Party has made any express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectability or enforceability of any of the Second Lien Loan Documents, the ownership of any Collateral or the perfection or priority of any Liens thereon.  The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, acknowledges and agrees that, except for the representations and warranties set forth in Article VIII, neither the First Lien Agent nor any other First Lien Secured Party has made any express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectability or enforceability of any of the First Lien Loan Documents, the ownership of any Collateral or the perfection or priority of any Liens thereon.

 

(b)           The Second Lien Agent and the other Second Lien Secured Parties shall have no express or implied duty to the First Lien Agent or any other First Lien Secured Party, and the First Lien Agent and the other First Lien Secured Parties shall have no express or implied duty to the Second Lien Agent or any other Second Lien Secured Party, to act or refrain from acting in a manner which allows, or results in, the occurrence or continuance of a default or an event of default under any First Lien Loan Document and any Second Lien Loan Document (other than, in each case, this Agreement), regardless of any knowledge thereof which they may have or be charged with.

 

(c)           The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, agrees no First Lien Secured Party shall have any liability to the Second Lien Agent or any other Second Lien Secured Party, and hereby waives any claim against any First Lien Secured Party, arising out of any and all actions which the First Lien Agent or the other First Lien Secured Parties may take or permit or omit to take with respect to (i) the First Lien Loan Documents (other than this Agreement), (ii) the collection of the First Lien Obligations or (iii) the maintenance of, the preservation of, the foreclosure upon or the Disposition of any Collateral.

 

(d)           The First Lien Agent, for itself and on behalf of the other First Lien Secured Parties, agrees no Second Lien Secured Party shall have any liability to the First Lien Agent or any other First Lien Secured Party, and hereby waives any claim against any Second Lien Secured Party, arising out of any and all actions which the Second Lien Agent or the other Second Lien Secured Parties may take or permit or omit to take with respect to (i) the Second Lien Loan Documents (other than this Agreement),

 

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(ii) the collection of the Second Lien Obligations or (iii) the maintenance of, the preservation of, the foreclosure upon or the Disposition of any Collateral.

 

Section 9.03.         Obligations Absolute.  The Lien priorities provided for herein and the respective rights, interests, agreements and obligations hereunder of the First Lien Agent and the other First Lien Secured Parties and the Second Lien Agent and the other Second Lien Secured Parties shall remain in full force and effect irrespective of:

 

(a)           any lack of validity or enforceability of any Loan Document;

 

(b)           any change in the time, place or manner of payment of, or in any other term of (including, subject to the limitations set forth in Section 7.01(a), the Refinancing of), all or any portion of the First Lien Obligations or the Second Lien Obligations, it being specifically acknowledged that a portion of the First Lien Obligations consists or may consist of Indebtedness that is revolving in nature, and the amount thereof that may be outstanding at any time or from time to time may be increased or reduced and subsequently reborrowed;

 

(c)           any change in the time, place or manner of payment of, or, subject to the limitations set forth in Section 7.01(a), in any other term of, all or any portion of the First Lien Obligations or the Second Lien Obligations;

 

(d)           any amendment, waiver or other modification, whether by course of conduct or otherwise, of any Loan Document;

 

(e)           the securing of any First Lien Obligations or Second Lien Obligations with any additional collateral or Guarantees, or any exchange, release, voiding, avoidance or non-perfection of any security interest in any Collateral or any other collateral or any release of any Guarantee securing any First Lien Obligations or Second Lien Obligations; or

 

(f)            any other circumstances that otherwise might constitute a defense available to, or a discharge of, the Borrower or any other Loan Party in respect of the First Lien Obligations, the Second Lien Obligations or this Agreement, or any of the Second Lien Secured Parties in respect of this Agreement.

 

Article X

 

Miscellaneous

 

Section 10.01.      Notices.  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 fax, as follows:

 

(a)           if to the Borrower or any other Grantor, to it at 2626 Howell Street, Suite 800, Dallas, Texas 75204, Attn: Secretary (Fax No. (214)-520-6464);

 

(b)           if to the First Lien Agent to Wells Fargo Bank, National Association, at 1000 Louisiana St., 9th Floor, Houston, TX 77002, Attn: Energy Group (Fax No. (713) 739-1087); and

 

(c)           if to the Second Lien Agent, to Wells Fargo Energy Capital, Inc., at 1000 Louisiana St., 9th Floor, Houston, TX 77002, Attn: Chris Carter (Fax No. (713) 739-5874).

 

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All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by fax or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 10.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 10.01.  As agreed to between the Borrower and any Agent from time to time, notices and other communications may also be delivered by e-mail to the e-mail address of a representative of the applicable Person provided from time to time by such Person.

 

Section 10.02.      Conflicts.  In the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the other Loan Documents, the provisions of this Agreement shall control.

 

Section 10.03.      Effectiveness; Survival.  This Agreement shall become effective when executed and delivered by the parties hereto.  All covenants, agreements, representations and warranties made by any party in this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement.  The terms of this Agreement shall survive, and shall continue in full force and effect, in any Insolvency or Liquidation Proceeding.  The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, hereby waives any and all rights the Second Lien Secured Parties may now or hereafter have under applicable law to revoke this Agreement or any of the provisions of this Agreement. The First Lien Agent, for itself and on behalf of the other First Lien Secured Parties, hereby waives any and all rights the First Lien Secured Parties may now or hereafter have under applicable law to revoke this Agreement or any of the provisions of this Agreement.

 

Section 10.04.      Severability.  In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction).  The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

 

Section 10.05.      Amendments; Waivers.

 

(a)           No failure or delay on the part of any party hereto in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of the parties hereto 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 consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 10.05, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

 

(b)           Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the First Lien Agent and the Second Lien Agent; provided that no such agreement shall amend, modify or otherwise affect the rights or obligations of any Grantor without such Person’s prior written consent.

 

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Section 10.06.      Subrogation.  The Second Lien Agent, for itself and on behalf of the other Second Lien Secured Parties, hereby waives any rights of subrogation it or they may acquire as a result of any payment hereunder until the Discharge of First Lien Obligations has occurred; provided, however, that, as between the Borrower and the other Grantors, on the one hand, and the Second Lien Secured Parties, on the other hand, any such payment that is paid over to the First Lien Agent pursuant to this Agreement shall be deemed not to reduce any of the Second Lien Obligations unless and until the Discharge of First Lien Obligations shall have occurred and the First Lien Agent delivers any such payment to the Second Lien Agent.

 

Section 10.07.      Applicable Law; Jurisdiction; Consent to Service of Process.

 

(a)           THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

 

(b)           Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of any Texas State court or Federal court of the United States of America sitting in the Southern District of Texas, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined only in such Texas State court or, to the extent permitted by law, in such Federal court.  Each party hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

(c)           Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any Texas State court or in any such Federal court.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

(d)           Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01.  Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

 

Section 10.08.      Waiver of Jury Trial.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.08.

 

Section 10.09.      Parties in Interest.  This provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, as well as the other First Lien Secured Parties and Second Lien Secured Parties, all of whom are intended to be bound by, and

 

25

 

to be third party beneficiaries of, this Agreement.  No other Person shall have or be entitled to assert rights or benefits hereunder.

 

Section 10.10.      Specific Performance.  Each Agent may demand specific performance of this Agreement and, on behalf of itself and the respective other Secured Parties, hereby irrevocably waives any defense based on the adequacy of a remedy at law and any other defense that might be asserted to bar the remedy of specific performance in any action which may be brought by the respective Secured Parties.

 

Section 10.11.      Headings.  Article and Section headings used herein and the Table of Contents hereto are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

 

Section 10.12.      Counterparts.  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, and shall become effective as provided in Section 10.03.  Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

 

Section 10.13.      Provisions Solely to Define Relative Rights.  The provisions of this Agreement are and are intended solely for the purpose of defining the relative rights of the First Lien Secured Parties, on the one hand, and the Second Lien Secured Parties, on the other hand.  None of the Borrower, any other Grantor, any Guarantor or any other creditor thereof shall have any rights or obligations, except as expressly provided in this Agreement, hereunder and none of the Borrower, any other Grantor or any Guarantor may rely on the terms hereof.  Nothing in this Agreement is intended to or shall impair the obligations of the Borrower or any other Grantor or any Guarantor, which are absolute and unconditional, to pay the First Lien Obligations and the Second Lien Obligations as and when the same shall become due and payable in accordance with their terms.

 

Section 10.14       Sharing of Information.  The Grantors agree that any information provided to the First Lien Agent, the Second Lien Agent, any First Lien Secured Party or any Second Lien Secured Party may be shared by such Person with any First Lien Secured Party, any Second Lien Secured Party, the First Lien Agent or the Second Lien Agent notwithstanding an request or demand by such Grantor that such information be kept confidential; provided, that such information shall otherwise be subject to the respective confidentiality provisions in the First Lien Credit Agreement and the Second Lien Credit Agreement, as applicable

 

[Remainder of this page intentionally left blank]

 

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

 

	
 
    	
CINCO   RESOURCES, INC.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By
    	
/s/ Wayne Stoltenberg
    
	
 
    	
 
    	
 
    	
Wayne   Stoltenberg
    
	
 
    	
 
    	
 
    	
Chief   Financial Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
CINCO   NATURAL RESOURCES CORPORATION
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By
    	
/s/ Wayne Stoltenberg
    
	
 
    	
 
    	
 
    	
Wayne   Stoltenberg
    
	
 
    	
 
    	
 
    	
Chief   Financial Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
DERNICK   RESOURCES, LLC
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By
    	
/s/   Wayne Stoltenberg
    
	
 
    	
 
    	
 
    	
Wayne   Stoltenberg
    
	
 
    	
 
    	
 
    	
President   and Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
CAMDEN   RESOURCES, LLC
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By
    	
/s/   Wayne Stoltenberg
    
	
 
    	
 
    	
 
    	
Wayne   Stoltenberg
    
	
 
    	
 
    	
 
    	
Chief   Financial Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
CINCO   LOGISTICS, LLC
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By
    	
/s/   Jon L. Glass
    
	
 
    	
 
    	
 
    	
Jon   L. Glass
    
	
 
    	
 
    	
 
    	
President,   Chief Executive Officer and Secretary
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
PATHEX   PETROLEUM, INC.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By
    	
/s/   Wayne Stoltenberg
    
	
 
    	
 
    	
 
    	
Wayne   Stoltenberg
    
	
 
    	
 
    	
 
    	
President
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
SEDNA   ENERGY, INC.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By
    	
/s/   Wayne Stoltenberg
    
	
 
    	
 
    	
 
    	
Wayne   Stoltenberg
    
	
 
    	
 
    	
 
    	
President
    

 

Signature Page to Intercreditor Agreement

 

 

	
 
    	
WELLS   FARGO BANK, NATIONAL ASSOCIATION, as First Lien Agent
    
	
 
    	
 
    
	
 
    	
By
    	
/s/   Andrew J. Watson
    
	
 
    	
Andrew   J. Watson
    
	
 
    	
Vice   President
    
				

 

[Signatures continued on next page]

 

Signature Page to Intercreditor Agreement

 

 

	
 
    	
WELLS FARGO ENERGY CAPITAL, as Second Lien Agent
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By
    	
/s/   Chris C. Carter
    
	
 
    	
 
    	
Chris   C. Carter
    
	
 
    	
 
    	
Vice   President
    

 

 

Signature Page to Intercreditor Agreement

 

 

ANNEX I

 

Provision for the Second Lien Credit Agreement

 

“Reference is made to the Intercreditor Agreement dated as of                       , 2009  (as amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among the Borrower, the Subsidiaries of the Borrower party thereto, Wells Fargo Bank, National Association, as First Lien Agent (as defined therein), and Wells Fargo Energy Capital, as Second Lien Agent (as defined therein).  Each Bank hereunder (a) acknowledges that it has received a copy of the Intercreditor Agreement, (b) consents to the subordination of Liens provided for in the Intercreditor Agreement, (c) agrees that it will be bound by and will take no actions contrary to the provisions of the Intercreditor Agreement and (d) authorizes and instructs the Administrative Agent to enter into the Intercreditor Agreement as Administrative Agent and on behalf of such Lender.  The foregoing provisions are intended as an inducement to the lenders under the First Lien Credit Agreement to permit the incurrence of Indebtedness under the Second Lien Credit Agreement and to extend credit to the Borrower and such lenders are intended third party beneficiaries of such provisions.”

 

Provision for the Second Lien Security Documents

 

“Reference is made to the Intercreditor Agreement dated as of                     , 2009 (as amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among the Borrower, the Subsidiaries of the Borrower party thereto, Wells Fargo Bank, National Association, as First Lien Agent (as defined therein), and Wells Fargo Energy Capital, as Second Lien Agent (as defined therein).  Notwithstanding anything herein to the contrary, (a) subject to the terms of the Intercreditor Agreement, the lien and security interest created by this [mortgage/security or pledge agreement] on the property described herein is junior and subordinate to the lien and security interest on such property created by any mortgage, deed of trust, security agreement or similar instrument now or hereafter granted for the benefit of Wells Fargo Bank, National Association, as agent for the “Banks” under the [First Lien Credit Agreement] and its successors and assigns, in such property, in accordance with the provisions of the Intercreditor Agreement, and (b) the exercise of any right or remedy by the [Trustee] [Agent] [Agent] and the other Secured Parties hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict or inconsistency between the provisions of the Intercreditor Agreement and this Agreement, the provisions of the Intercreditor Agreement shall control.”

 

Annex I to

Intercreditor Agreement

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