UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x Quarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
quarterly period ended March
31, 2009
oTransition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from __to
___
Commission
file number
1-9735
BERRY
PETROLEUM COMPANY
(Exact
name of registrant as specified in its charter)
|
DELAWARE
|
77-0079387
|
|||
|
(State
of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
1999
Broadway, Suite 3700
Denver,
Colorado 80202
(Address
of principal executive offices, including zip code)
Registrant's telephone number,
including area code: (303) 999-4400
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES x NO o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every
Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the
preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). YES o NO o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). YES o NO x
As of
April 20, 2009, the registrant had 42,790,536 shares of Class A Common Stock
($.01 par value) outstanding. The registrant also had 1,797,784 shares of Class
B Stock ($.01 par value) outstanding on April 20, 2009 all of which is held by
an affiliate of the registrant.
1
BERRY
PETROLEUM COMPANY
FIRST
QUARTER 2009 FORM 10-Q
TABLE
OF CONTENTS
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PART
I. FINANCIAL INFORMATION
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Page
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3
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3
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4
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4
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5
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6
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19
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30
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34
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PART
II. OTHER INFORMATION
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35
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35
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35
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35
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35
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35
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36
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BERRY PETROLEUM COMPANY
Unaudited
Condensed Balance Sheets
(In
Thousands, Except Share Information)
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March 31,
2009
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December
31, 2008
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|||||||
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ASSETS
|
||||||||
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Current
assets:
|
||||||||
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Cash
and cash equivalents
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$ | 49 | $ | 240 | ||||
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Short-term
investments
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65 | 66 | ||||||
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Accounts
receivable
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72,846 | 65,873 | ||||||
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Fair
value of derivatives
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95,931 | 111,886 | ||||||
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Assets
held for sale
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142,820 | - | ||||||
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Prepaid
expenses and other
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8,035 | 11,015 | ||||||
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Total
current assets
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319,746 | 189,080 | ||||||
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Oil
and gas properties (successful efforts basis), buildings and equipment,
net
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2,096,593 | 2,254,425 | ||||||
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Fair
value of derivatives
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48,641 | 79,696 | ||||||
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Other
assets
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27,649 | 19,182 | ||||||
| $ | 2,492,629 | $ | 2,542,383 | |||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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||||||||
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Current
liabilities:
|
||||||||
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Accounts
payable
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$ | 51,257 | $ | 119,221 | ||||
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Revenue
and royalties payable
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14,848 | 34,416 | ||||||
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Accrued
liabilities
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42,088 | 34,566 | ||||||
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Line
of credit
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- | 25,300 | ||||||
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Income
taxes payable
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460 | 187 | ||||||
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Fair
value of derivatives
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2,983 | 1,445 | ||||||
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Deferred
income taxes
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35,191 | 45,490 | ||||||
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Liabilities
held for sale
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4,228 | - | ||||||
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Total
current liabilities
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151,055 | 260,625 | ||||||
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Long-term
liabilities:
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||||||||
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Deferred
income taxes
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272,351 | 270,323 | ||||||
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Long-term
debt
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1,199,400 | 1,131,800 | ||||||
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Abandonment
obligation
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40,105 | 41,967 | ||||||
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Other
long-term liabilities
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4,835 | 5,921 | ||||||
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Fair
value of derivatives
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12,324 | 4,203 | ||||||
| 1,529,015 | 1,454,214 | |||||||
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Shareholders'
equity:
|
||||||||
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Preferred
stock, $.01 par value, 2,000,000 shares authorized; no shares
outstanding
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- | - | ||||||
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Capital
stock, $.01 par value:
|
||||||||
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Class
A Common Stock, 100,000,000 shares authorized; 42,783,498 shares issued
and outstanding (42,782,365 in 2008)
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427 | 427 | ||||||
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Class
B Stock, 3,000,000 shares authorized; 1,797,784 shares
issued and outstanding in 2009 and 2008 (liquidation preference of
$899)
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18 | 18 | ||||||
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Capital
in excess of par value
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82,641 | 79,653 | ||||||
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Accumulated
other comprehensive income
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64,142 | 113,697 | ||||||
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Retained
earnings
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665,331 | 633,749 | ||||||
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Total
shareholders' equity
|
812,559 | 827,544 | ||||||
| $ | 2,492,629 | $ | 2,542,383 | |||||
The
accompanying notes are an integral part of these financial
statements.
BERRY PETROLEUM COMPANY
Unaudited
Condensed Statements of Income
Three
Months Ended March 31, 2009 and 2008
(In
Thousands, Except Per Share Data)
|
Three
months ended March 31,
|
||||||||
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2009
|
2008
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|||||||
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REVENUES
AND OTHER INCOME ITEMS
|
||||||||
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Sales
of oil and gas
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$ | 127,869 | $ | 151,666 | ||||
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Sales
of electricity
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10,270 | 15,927 | ||||||
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Gas
marketing
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7,581 | 3,231 | ||||||
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Gain
on derivative terminations
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14,270 | - | ||||||
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Gain
(loss) on ineffective commodity derivatives
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22,894 | (708 | ) | |||||
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Interest
and other income, net
|
283 | 830 | ||||||
| 183,167 | 170,946 | |||||||
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EXPENSES
|
||||||||
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Operating
costs - oil and gas production
|
37,384 | 39,340 | ||||||
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Operating
costs - electricity generation
|
8,783 | 16,399 | ||||||
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Production
taxes
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5,652 | 5,183 | ||||||
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Depreciation,
depletion & amortization - oil and gas production
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36,398 | 24,207 | ||||||
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Depreciation,
depletion & amortization - electricity
generation
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959 | 693 | ||||||
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Gas
marketing
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7,284 | 2,982 | ||||||
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General
and administrative
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13,294 | 11,132 | ||||||
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Interest
expense
|
10,050 | 3,327 | ||||||
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Dry
hole, abandonment, impairment and exploration
|
122 | 2,728 | ||||||
| 119,926 | 105,991 | |||||||
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Income
before income taxes
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63,241 | 64,955 | ||||||
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Provision
for income taxes
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21,462 | 25,419 | ||||||
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Income
from continuing operations
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41,779 | 39,536 | ||||||
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(Loss)
income from discontinued operations, net of taxes
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(6,781 | ) | 3,495 | |||||
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Net
income
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$ | 34,998 | $ | 43,031 | ||||
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Basic
net income from continuing operations per share
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$ | .92 | $ | .88 | ||||
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Basic
net (loss) income from discontinued operations per
share
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$ | (.15 | ) | $ | .08 | |||
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Basic
net income per share
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$ | .77 | $ | .96 | ||||
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Diluted
net income from continuing operations per share
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$ | .92 | $ | .86 | ||||
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Diluted
net (loss) income from discontinued operations per
share
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$ | (.15 | ) | $ | .08 | |||
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Diluted
net income per share
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$ | .77 | $ | .94 | ||||
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Dividends
per share
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$ | .075 | $ | .075 | ||||
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Unaudited Condensed Statements of Comprehensive
Income
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||||||||
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Three
Months Ended March 31, 2009 and 2008
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||||||||
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(In
Thousands)
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||||||||
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Net
income
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$ | 34,998 | $ | 43,031 | ||||
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Unrealized
gains (losses) on derivatives, net of income taxes (benefits) of $48,160
and ($40,349), respectively
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78,577 | (60,523 | ) | |||||
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Reclassification
of realized gains on derivatives included in net income, net of income
taxes (benefits) of ($17,788) and $11,698, respectively
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(29,022 | ) | 17,547 | |||||
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Comprehensive
income
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$ | 84,553 | $ | 55 | ||||
The accompanying notes are an integral
part of these financial statements.
BERRY PETROLEUM COMPANY
Unaudited
Condensed Statements of Cash Flows
Three
Months Ended March 31, 2009 and 2008
(In
Thousands)
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Three months
ended March 31,
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||||||||
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2009
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2008
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|||||||
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Cash
flows from operating activities:
|
||||||||
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Net
income
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$ | 34,998 | $ | 43,031 | ||||
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Depreciation,
depletion and amortization
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39,545 | 27,769 | ||||||
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Dry
hole and impairment
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9,643 | 2,728 | ||||||
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Commodity
derivatives
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(22,842 | ) | 271 | |||||
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Stock-based
compensation expense
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2,988 | 2,107 | ||||||
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Deferred
income taxes
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21,059 | 22,082 | ||||||
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Gain
on sale of oil and gas properties
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- | (415 | ) | |||||
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Other,
net
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(3,952 | ) | 491 | |||||
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Change
in book overdraft
|
(23,510 | ) | 4,609 | |||||
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Cash
paid for abandonment
|
(112 | ) | (971 | ) | ||||
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Increase
in current assets other than cash and cash
equivalents
|
(12,933 | ) | (78 | ) | ||||
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Decrease
in current liabilities other than book overdraft, line of credit and fair
value of derivatives
|
(36,755 | ) | (14,389 | ) | ||||
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Net
cash provided by operating activities
|
8,129 | 87,235 | ||||||
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Cash
flows from investing activities:
|
||||||||
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Exploration
and development of oil and gas properties
|
(49,898 | ) | (75,869 | ) | ||||
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Property
acquisitions
|
(1,173 | ) | (261 | ) | ||||
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Additions
to vehicles, drilling rigs and other fixed assets
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(283 | ) | (909 | ) | ||||
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Proceeds
from sale of assets
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- | 1,809 | ||||||
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Deposits
on asset sales
|
14,000 | - | ||||||
|
Capitalized
interest
|
(5,312 | ) | (4,485 | ) | ||||
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Net
cash used in investing activities
|
(42,666 | ) | (79,715 | ) | ||||
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Cash
flows from financing activities:
|
||||||||
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Proceeds
from issuances on line of credit
|
147,800 | 100,600 | ||||||
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Payments
on line of credit
|
(173,100 | ) | (104,700 | ) | ||||
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Proceeds
from issuance of long-term debt
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159,600 | 69,200 | ||||||
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Payments
on long-term debt
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(92,000 | ) | (69,200 | ) | ||||
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Debt
issuance cost
|
(4,538 | ) | - | |||||
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Dividends
paid
|
(3,416 | ) | (3,327 | ) | ||||
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Proceeds
from stock option exercises
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- | 1,388 | ||||||
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Excess
tax benefit and other
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- | 882 | ||||||
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Net
cash provided by (used in) financing activities
|
34,346 | (5,157 | ) | |||||
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Net
(decrease) increase in cash and cash
equivalents
|
(191 | ) | 2,363 | |||||
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Cash
and cash equivalents at beginning of year
|
240 | 316 | ||||||
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Cash
and cash equivalents at end of period
|
$ | 49 | $ | 2,679 | ||||
The accompanying notes are an integral
part of these financial statements.
Berry Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
|
1.
|
General
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All
adjustments which are, in the opinion of management, necessary for a fair
statement of Berry Petroleum Company’s (the Company) financial position at March
31, 2009 and December 31, 2008 and results of operations and other
comprehensive income and cash flows for the three months ended March 31, 2009
and 2008 have been included. All such adjustments, except as described below,
are of a normal recurring nature. The results of operations and cash flows are
not necessarily indicative of the results for a full year.
The
accompanying unaudited condensed financial statements have been prepared on a
basis consistent with the accounting principles and policies reflected in the
December 31, 2008 financial statements. The December 31, 2008 Form 10-K
should be read in conjunction herewith. The year-end condensed Balance Sheet was
derived from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States of
America.
In the
first quarter of 2008, we determined there was an error in computing royalties
payable in prior years, accumulating to $10.5 million as of December 31, 2007.
We concluded the error was not material to any individual prior interim or
annual period (or to the projected earnings for 2008) and, therefore, the error
was corrected during the first quarter of 2008, with the effect of increasing
our sales of oil and gas by $10.5 million and reducing our royalties
payable.
Our cash
management process provides for the daily funding of checks as they are
presented to the bank. Included in accounts payable at March 31, 2009 and
December 31, 2008 is $8.2 million and $31.8 million, respectively, representing
outstanding checks in excess of the bank balance (book overdraft).
|
2.
|
Recent Accounting
Developments
|
In
September 2008, the Financial Accounting Standards Board (FASB) issued FASB
Staff Positions (FSP) No. 133-1 and FIN 45-4 to amend FASB Statement No. 133,
Accounting for Derivative
Instruments and Hedging Activities, to require disclosures by sellers of
credit derivatives, including credit derivatives embedded in a hybrid
instrument. This FSP also amends FASB Interpretation No.45,
Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, to require an additional disclosure about the
current status of the payment/performance risk of a
guarantee. Further, this FSP clarifies the FASB’s intent about the
effective date of FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. This FSP became
effective for our fiscal year beginning January 1, 2009 and we expanded our
disclosures accordingly.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133, which changes the disclosure requirements for derivative instruments
and hedging activities. Expanded disclosures are required to provide information
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. We adopted this Statement January 1, 2009 and we expanded our
disclosures accordingly.
In
December 2007, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 160, Noncontrolling
Interests in Consolidated Financial Statements. SFAS 160 was issued to
establish accounting and reporting standards for the noncontrolling interests in
a subsidiary (formerly called minority interests) and for the deconsolidation of
a subsidiary. We adopted this Statement January 1, 2009 and it did
not have a material effect on our financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which
expands the information that a reporting entity provides in its financial
reports about a business combination and its effects. This Statement establishes
principles and requirements for how the acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any non-controlling interests in the acquiree, recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase,
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply the statement before that date. We may experience a financial statement
impact depending on the nature and extent of any new business combinations
entered into after the effective date of SFAS No. 141(R).
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
In June
2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
("FSP EITF 03-6-1"), which clarifies that share-based payment awards
that entitle their holders to receive nonforfeitable dividends before vesting
should be considered participating securities. As participating securities,
these instruments should be included in the earnings allocation in computing
basic earnings per share under the two-class method described in SFAS
No. 128, Earnings per
Share. All prior period earnings per share data presented
shall be adjusted retrospectively to conform with the provisions of this
pronouncement. FSP EITF 03-6-1 is effective for financial statements
issued for fiscal years beginning after December 15, 2008 and interim
periods within those years. We implemented EITF 03-06-1 during the first quarter
of 2009. See Note 10 to the condensed financial
statements.
In April
2009, the FASB issued FSP No. FAS 107-1, Interim Disclosures about Fair Value
of Financial Instruments. FSP 107-1 requires disclosures about fair value of financial
instruments for interim reporting periods as well as in annual financial
statements. FSP 107-1 will be effective for us for the quarter ending
June 30, 2009. The adoption of FSP 107-1 will not have an impact on
our financial position and results of operations.
|
3.
|
Fair
Value Measurements
|
In
September 2006, SFAS No. 157, Fair Value Measurements was
issued by the FASB. This Statement defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
We adopted this Statement for financial instruments on January 1,
2008.
In
February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No.
157. This Statement delayed the effective date of SFAS No. 157
for nonfinancial assets and nonfinancial liabilities. We adopted SFAS
157 for nonfinancial assets and nonfinancial liabilities on January 1, 2009 and
it did not have a material effect on our financial statements.
In
February of 2007, the FASB issued SFAS 159 The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115, which is effective for fiscal years beginning after
November 15, 2007. SFAS 159 provides an option to elect fair value as an
alternative measurement for selected financial assets and financial liabilities
not previously carried at fair value. We adopted this Statement at January 1,
2008, but did not elect fair value as an alternative for any financial assets or
liabilities.
Determination
of fair value
We have
established and documented a process for determining fair values. Fair value is
based upon quoted market prices, where available. We have various controls in
place to ensure that valuations are appropriate. These controls
include: identification of the inputs to the fair value methodology through
review of counterparty statements and other supporting documentation,
determination of the validity of the source of the inputs, corroboration of the
original source of inputs through access to multiple quotes, if available, or
other information and monitoring changes in valuation methods and assumptions.
The methods described above may produce a fair value calculation that may not be
indicative of future fair values. Furthermore, while we believe these valuation
methods are appropriate and consistent with that used by other market
participants, the use of different methodologies, or assumptions, to determine
the fair value of certain financial instruments could result in a different
estimate of fair value.
Valuation
hierarchy
SFAS 157
establishes a three-level valuation hierarchy for disclosure of fair value
measurements. The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability as of the measurement date. The three
levels are defined as follows:
• Level
1 - inputs to the valuation methodology that are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
• Level
2 - inputs to the valuation methodology that include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full
term of the financial instrument.
• Level
3 - inputs to the valuation methodology that are unobservable and significant to
the fair value measurement. A
financial instrument's categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement.
Our oil
swaps, natural gas swaps and interest rate swaps are valued using the
counterparties’ mark-to-market statements which are validated by our internally
developed models and are classified within Level 2 of the valuation hierarchy.
The observable inputs include underlying commodity and interest rate levels and
quoted prices of these instruments on actively traded
markets. Derivatives that are valued based upon models with
significant unobservable market inputs (primarily volatility), and that are
normally traded less actively are classified within Level 3 of the valuation
hierarchy. Level 3 derivatives include oil collars, natural gas collars and
natural gas basis swaps.
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
Assets
and ( liabilities) measured at fair value on a recurring basis
|
March
31, 2009 (in millions)
|
Total
carrying value on the condensed Balance Sheet
|
Level
2
|
Level
3
|
|||||||||
|
Commodity
derivative assets
|
143.5 | 6.0 | 137.5 | |||||||||
|
Interest
rate swaps
|
(14.7 | ) | (14.7 | ) | - | |||||||
|
Total
fair value
|
128.8 | (8.7 | ) | 137.5 | ||||||||
Included in the
total $128.8 million asset above is a $0.5 million liability associated
with our DJ liabilities which are classified as "Liabilities held for sale"
as of March 31, 2009.
|
December
31, 2008 (in millions)
|
Total
carrying value on the condensed Balance Sheet
|
Level
2
|
Level
3
|
|||||||||
|
Commodity
derivatives assets
|
198.4 | 25.9 | 172.5 | |||||||||
|
Interest
rate swap liabilities
|
(12.5 | ) | (12.5 | ) | - | |||||||
|
Total
fair value of derivative assets
|
185.9 | 13.4 | 172.5 | |||||||||
Changes
in Level 3 fair value measurements
The table below includes a rollforward
of the condensed Balance Sheet amounts (including the change in fair value) for
financial instruments classified by us within Level 3 of the valuation
hierarchy. When a determination is made to classify a financial instrument
within Level 3 of the valuation hierarchy, the determination is based upon the
significance of the unobservable factors to the overall fair value measurement.
Level 3 financial instruments typically include, in addition to the unobservable
or Level 3 components, observable components (that is, components that are
actively quoted and can be validated to external sources).
|
(in
millions)
|
Three
months ended March 31, 2009
|
|||
|
Fair
value of Level 3 derivative assets, beginning of period
|
$ | 172.5 | ||
|
Total
realized and unrealized gains and (losses) included in sales of oil and
gas
|
(22.9 | ) | ||
|
Purchases,
sales and settlements, net
|
(15.5 | ) | ||
|
Transfers
in and/or out of Level 3
|
3.4 | |||
|
Fair
value of Level 3 derivative assets, March 31, 2009
|
$ | 137.5 | ||
|
Total
unrealized gains and (losses) included in income related to financial
assets and liabilities still on the condensed balance sheet at March 31,
2009
|
$ | 22.8 | ||
The fair
value of our DJ basin asset sale determined by our Borad of Directors was
confirmed by the sales price paid to us. The following nonrecurring
fair value measurements were recorded during the three months ended March 31,
2009 in conjunction with the sale of our DJ basin assets:
|
Three
Months Ended
March
31, 2009
|
Significant
Unobservable Inputs
Level
3
|
Total
Gains (Losses)
|
||||||||||
|
Long
lived assets and liabilities held for sale (in millions)
|
$ | 138,592 | $ | 138,592 | $ | (9,637 | ) | |||||
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
|
4.
|
Hedging
|
To
minimize the effect of a downturn in oil and gas prices and protect our
profitability and the economics of our development plans, we enter into crude
oil and natural gas hedge contracts from time to time. The terms of contracts
depend on various factors, including management's view of future crude oil and
natural gas prices, acquisition economics on purchased assets and our future
financial commitments. This price hedging program is designed to moderate the
effects of a severe crude oil and natural gas price downturn while allowing us
to participate in some commodity price increases. We benefit from lower natural
gas pricing as we are a consumer of natural gas in our California operations and
in the Rocky Mountains and East Texas, we benefit from higher natural gas
pricing. We have hedged, and may hedge in the future, both natural gas purchases
and sales as determined appropriate by management. Management
regularly monitors the crude oil and natural gas markets and our financial
commitments to determine if, when, and at what level some form of crude oil
and/or natural gas hedging and/or basis adjustments or other price protection is
appropriate in accordance with policy established by our board of
directors. Currently, our hedges are in the form of swaps and
collars. However, we may use a variety of hedge instruments in the
future to hedge WTI or the index gas price. We also utilize interest
rate derivatives to protect against changes in interest rates on our floating
rate debt.
The
related cash flow impact of all of our hedges is reflected in cash flows from
operating activities. At March 31, 2009, our net fair value of derivative assets
was $128.8 million as compared to $185.9 million at December 31, 2008 which
reflects decreases in commodity prices in the period. Based on NYMEX strip
pricing as of March 31, 2009, we expect to receive hedge proceeds under the
existing derivatives of $104.4 million during the next twelve months. At March
31, 2009, Accumulated Other Comprehensive Income consisted of $64.1 million, net
of tax, of unrealized gains from our crude oil and natural gas swaps and collars
that qualified for hedge accounting treatment at March 31, 2009. Deferred net
gains recorded in “Accumulated Other Comprehensive Income” at March 31, 2009 and
subsequent mark-to-market changes in the underlying hedging contracts are
expected to be reclassified to earnings in the same period that the forecasted
transaction impacts earnings.
We present our derivative assets and
liabilities in our Condensed Balance Sheets on a net basis. We net
derivative assets and liabilities, whenever we have a legally enforceable master
netting agreement with a counterparty to a derivative contract. We use
these agreements to manage and substantially reduce our potential counterparty
credit risk.
The
following table disaggregates our net derivative assets and liabilities into
gross components on a contract-by-contract basis before giving effect to master
netting arrangements. Finally, we identify the line items in our Condensed
Balance Sheets in which these fair value amounts are included. The gross asset and
liability values in the table below are segregated between those derivatives
designated in qualifying hedge accounting relationships and those not designated
in hedge accounting relationships. We use the end of period accounting
designation to determine the classification for each derivative
position.
|
As
of March 31, 2009
|
||||||||||
|
Derivative
Assets
|
Derivative
Liabilities
|
|||||||||
|
(in
millions)
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
||||||
|
Commodity
– Oil
|
Current
assets
|
94.6 |
Current
liability
|
2.3 | ||||||
|
Commodity
– Natural Gas
|
Current
assets
|
4.1 |
Current
liability
|
0.3 | ||||||
|
Commodity
– Oil
|
Long
term assets
|
52.4 |
Long
term liabilities
|
6.5 | ||||||
|
Commodity
– Natural Gas
|
Long
term assets
|
0.7 | - | |||||||
|
Commodity
– Natural Gas
|
Long
term liabilities
|
1.1 | - | |||||||
|
Interest
rate contracts
|
- |
Current
assets
|
2.9 | |||||||
|
Interest
rate contracts
|
- |
Long
term assets
|
4.4 | |||||||
|
Interest
rate contracts
|
- |
Current
liabilities
|
0.4 | |||||||
|
Interest
rate contracts
|
- |
Long
term liabilities
|
7.0 | |||||||
|
Total
derivatives designated as hedging instruments under Statement
133
|
152.9 | 23.8 | ||||||||
|
Commodity
– Oil
|
Current
assets
|
0.2 |
Current
liabilities
|
- | ||||||
|
Commodity
– Natural Gas
|
Liabilities
held for sale
|
0.8 |
Liabilities
held for sale
|
1.3 | ||||||
|
Total
derivatives not designated as hedging instruments under Statement
133
|
1.0 | 1.3 | ||||||||
|
Total
Derivatives
|
153.9 | 25.1 | ||||||||
Berry Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
The
tables below summarize the Statement of Income impacts on our derivative
instruments:
|
Derivatives
in Statement 133 cash flow hedging relationships
|
Amount
of gain (loss) Recognized in OCI on Derivative
(Effective portion)
|
Location
of Gain (Loss) Reclassified from AOCI into Income (Effective
Portion)
|
Amount
of Gain (Loss) Reclassified from AOCI into Income (Effective
Portion)
|
Location
of Gain Recognized in Income on Derivative (Ineffective Portion and Amount
Excluded from Effectiveness Testing)
|
Amount
of Gain Recognized in Income on Derivative (Ineffective Portion and
Amount Excluded from Effectiveness Testing)
|
|||||||||
|
Three
Months Ended
March
31, 2009
|
Three
Months Ended
March
31, 2009
|
Three
Months Ended
March
31, 2009
|
||||||||||||
|
Commodity -
Oil
|
$ | 36.5 |
Sales
of oil and gas
|
$ | 41.6 |
Sales
of oil and gas
|
$ | - | ||||||
|
Commodity -
Natural Gas
|
8.9 |
Sales
of oil and gas
|
6.6 |
Sales
of oil and gas
|
- | |||||||||
|
Commodity
– Oil
|
- |
Gain
(loss) on commodity –Oil
|
- |
Gain
(loss) on commodity-Oil
|
22.7 | |||||||||
|
Interest
rate
|
(3.4 | ) |
Interest
expense
|
(1.0 | ) |
Interest
expense
|
- | |||||||
|
Total
|
$ | 42.0 | $ | 47.2 | $ | 22.7 | ||||||||
Amount of
Gain or (Loss) Recognized in Income on Derivatives not designated as Hedging
Instruments under Statement 133:
|
Derivatives
not designated as Hedging Instruments under Statement 133
|
Location
of Gain (Loss) Recognized in Income on Derivative
|
Amount
of Gain (Loss) Recognized in Income on Derivate for Derivatives not
designated as Hedging Instruments under Statement 133
|
|||
|
Three
months ended March 31, 2009
|
|||||
|
Commodity
– Oil
|
Gain
(loss) on ineffective commodity derivatives
|
$ | 0.2 | ||
|
Commodity
- Natural Gas
|
(Loss)
income from discontinued operations, net of tax
|
(0.5 | ) | ||
|
Total
Derivatives
|
$ | (0.3 | ) | ||
We
entered into the following natural gas hedges during the three months ended
March 31, 2009:
|
·
|
Houston
Ship Channel basis swaps on 2,000 MMBtu/D for $0.38 for full year
2010
|
|
·
|
NGPL
basis swaps on 2,000 MMBtu/D for $0.49 for the full year
2010
|
|
·
|
Collars
on 4,000 MMBtu/D with floors of $6.50 and ceilings ranging from $8.75 to
$8.90 for full year 2010
|
These gas
hedges have been designated as cash flow hedges in accordance with SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities.
During
the first quarter of 2009, we entered into natural gas derivatives on behalf of
the purchaser of our DJ assets. We did not elect hedge
accounting for these hedges and recorded the unrealized net loss of $0.5 million
on the income statement under the caption “Income from discontinued
operations, net of taxes.”
In
conjunction with the sale of the DJ assets, during the first quarter of 2009, we
concluded that the forecasted transaction in certain of our hedging
relationships was not probable of occurring. As such, we reclassified
a gain of $14.3 million from accumulated other comprehensive income to the
statement of income under the caption “Gain on derivative
terminations.”
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
We
entered into the following oil collar derivatives during the three months ended
March 31, 2009:
|
Crude
Oil Sales (NYMEX WTI) Collars
|
Average
Barrels Per Day
|
Floor/Ceiling
Prices
|
||||||
|
Full
year 2011
|
1,000 | $ | 55.20 / $70.00 | |||||
|
Full
year 2011
|
1,000 | $ | 55.00 / $70.50 | |||||
|
Full
year 2011
|
1,000 | $ | 55.00 / $68.65 | |||||
|
Full
year 2011
|
1,000 | $ | 55.00 / $68.00 | |||||
|
Full
year 2011
|
1,000 | $ | 55.00 / $71.20 | |||||
|
Full
year 2011
|
1,000 | $ | 60.00 / $76.00 | |||||
|
Full
year 2011
|
1,000 | $ | 60.00 / $81.25 | |||||
These oil
hedge derivatives have been designated as cash flow hedges in accordance with
SFAS No. 133.
We
entered into the following oil swap derivatives during the three months ended
March 31, 2009:
|
Crude
Oil Sales (NYMEX WTI) Collars
|
Average
Barrels Per Day
|
Swap
Price
|
||||||
|
May
2009
|
1,000 | $ | 55.60 | |||||
|
June
2009
|
400 | $ | 57.00 | |||||
|
3rd
Quarter 2009
|
500 | $ | 52.40 | |||||
|
Full
year 2010
|
650 | $ | 56.90 | |||||
|
Full
year 2011
|
250 | $ | 61.80 | |||||
|
Full
year 2011
|
500 | $ | 57.36 | |||||
|
Full
year 2011
|
500 | $ | 57.40 | |||||
|
Full
year 2011
|
500 | $ | 57.50 | |||||
The oil
hedge derivatives have been designated as cash flow hedges in accordance with
SFAS No. 133, except as noted below. We did not elect hedge
accounting for the May and June 2009 hedges and recorded an unrealized net gain
of $0.2 million at March 31, 2009 on the income statement under the caption
“Gain (loss) on ineffective commodity derivatives”.
During
the first quarter of 2009, we also converted 6,000 Bbl/D oil collars ranging
from floors of $55.00 to $60.00 and ceilings of $75.00 to $83.10 for full year
2010 swaps for the same volumes with swap prices ranging from $61.00 to
$64.80.
In
December 2008, Big West Oil of California filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code. Our contract with
Big West provided for an oil price differential that was linked to NYMEX WTI
prices and allowed us to effectively hedge our oil production at the NYMEX WTI
index. Subsequent to the Big West bankruptcy, our crude oil has been
sold at field posting prices which resulted in some ineffectiveness related to
our WTI linked hedges. We recognized an unrealized net gain of
approximately $22.8 million on the income statement under the caption “Gain
(loss) on ineffective commodity derivatives” for the quarter ended March 31,
2009 as a result of this ineffectiveness.
We
entered into the following interest rate hedges during the three months ended
March 31, 2009 which have been designated as cash flow
hedges:
|
Beginning/Maturity
|
Rate
|
Notional
Amount (in millions)
|
||||||
|
4/15/09
– 7/15/12
|
1.89 | % | $ | 25 | ||||
|
12/15/09
– 7/15/12
|
2.15 | % | $ | 25 | ||||
|
12/15/09
– 7/15/12
|
2.05 | % | $ | 25 | ||||
|
12/15/09
– 7/15/12
|
2.00 | % | $ | 25 | ||||
|
12/15/09
– 7/15/12
|
2.00 | % | $ | 25 | ||||
|
12/15/09
– 7/15/12
|
1.94 | % | $ | 25 | ||||
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
Our hedge
contracts have been primarily executed with the counterparties that are party to
our senior secured revolving credit facility. Neither we nor our counterparties
are required to post collateral in connection with our derivative positions and
netting agreements are in place with each of our counterparties allowing us to
offset our derivative asset and liability positions. The credit
rating of each of these counterparties is AA-/Aa2, or better. Our
derivatives are held with a small number of counterparties and as of March 31,
2009, our largest two counterparties accounted for 80% of the value of our total
derivative positions.
As of
March 31, 2009, we had the following outstanding commodity
contracts:
|
Commodity
Hedges
|
||||||||||||||||
|
2009
|
2010
|
2011
|
2012
|
|||||||||||||
|
Oil
Bbl/D:
|
17,435 | 14,930 | 9,020 | 1,000 | ||||||||||||
|
Natural
Gas MMBtu/D:
|
5,000 | 9,000 | - | - | ||||||||||||
|
5.
|
Asset Retirement
Obligations
|
Inherent
in the fair value calculation of the asset retirement obligation (ARO) are
numerous assumptions and judgments including the ultimate settlement amounts,
inflation factors, credit adjusted discount rates, timing of settlement, and
changes in the legal, regulatory, environmental and political environments. To
the extent future revisions to these assumptions impact the fair value of the
existing ARO liability, a corresponding adjustment is made to the oil and gas
property balance.
The
following table summarizes the change in abandonment obligation for the three
months ended March 31, 2009 (in thousands):
|
Beginning
balance at January 1, 2009
|
$
|
41,967
|
||
|
Liabilities
incurred
|
-
|
|||
|
Liabilities
settled
|
(113
|
)
|
||
|
Revisions
in estimated liabilities
|
-
|
|||
|
Accretion
expense
|
1,002
|
|||
|
Ending
balance at March 31, 2009
|
$
|
42,856
|
Included
in the total of $42.9 million above is $2.8 million in AROs that are associated
with our DJ liabilities which are classified as "Liabilities held for sale"
as of March 31, 2009.
|
6.
|
Dispositions and Discontinued
Operations
|
On March
3, 2009, we entered into an agreement to sell our DJ basin assets and related
hedges for $154 million before customary closing adjustments. The $14
million sale of our DJ basin related hedges was completed in March
2009. The hedge forecasted transaction is no longer expected to occur
and the gain on the sale of these hedges is recorded under the caption “Gain on
derivative terminations” in the condensed statement of income and is included in
operating cash flows for the three months ended March 31, 2009. We received
a deposit of $14 million on the sale of the DJ basin assets which is included in
“Accrued Liabilities” on the condensed balance sheet as of March 31,
2009. The closing date of the sale was April 1, 2009. In
accordance with SFAS No. 144, these properties have been separately presented in
the accompanying condensed balance sheet at fair value less the cost to sell, as
of March 31, 2009. The sales cost associated with the DJ basin assets were $1.2
million. We recorded a pre-tax impairment loss of $9.6
million, which is aggregated within the $6.8 million “(loss) income from
discontinued operations, net of tax” on our statement of income for the three
months ended March 31, 2009.
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
Income
(loss) from discontinued operations, net of tax on our accompanying statements
of income is comprised of the following (in thousands):
|
For
the Three Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Oil
and gas revenue
|
$ | 5,396 | $ | 12,829 | ||||
|
Other
revenue
|
622 | 914 | ||||||
|
Total
Revenue
|
6,018 | 13,743 | ||||||
|
Operating
expenses
|
2,576 | 2,289 | ||||||
|
Production
taxes
|
195 | 784 | ||||||
|
DD&A
|
2,188 | 2,869 | ||||||
|
General
and administrative
|
388 | 251 | ||||||
|
Interest
expense
|
815 | 411 | ||||||
|
Commodity
derivatives
|
484 | - | ||||||
|
Dry
hole, abandonment, impairment and exploration
|
9,637 | 1,398 | ||||||
|
Total
Expenses
|
16,283 | 8,002 | ||||||
|
Income
(loss) from discontinued operations, before income taxes
|
(10,265 | ) | 5,741 | |||||
|
Income
tax benefit (expense)
|
3,484 | (2,246 | ) | |||||
|
Income
(loss) from discontinued operations
|
$ | (6,781 | ) | $ | 3,495 | |||
The
following is a summary of the assets and liabilities held for sale related to
the DJ Basin sale at March 31, 2009 (in thousands):
|
March
31, 2009
|
||||
|
Inventory
|
$
|
1,275
|
||
|
Oil
and gas properties, net of accumulated depreciation and
impairment
|
140,730
|
|||
|
Other
Assets
|
815
|
|||
|
Total
assets
|
$
|
142,820
|
||
|
Asset
retirement obligation
|
$
|
2,751
|
||
|
Other
liabilities
|
1,477
|
|||
|
Total
liabilities
|
$
|
4,228
|
||
|
7.
|
Dry
Hole, Abandonment and Impairment
|
During the three months
ended March 31, 2009 and 2008, we recorded dry hole, abandonment, impairment and
exploration expense of $0.1 million and $2.7 million,
respectively. In the first quarter of 2008, technical
difficulties on three wells in the Piceance basin were encountered before
reaching total depth and these holes were abandoned in favor of drilling to the
same bottom hole location by drilling a new well.
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
8. Pro
Forma Results
On July
15, 2008, the Company acquired certain interests in natural gas producing
properties on 4,500 net acres in Limestone and Harrison Counties in East Texas
for $668 million cash (East Texas Acquisition) including an initial purchase
price of $622 million, and normal post closing adjustments of $46
million.
The
unaudited pro forma results presented below for the three months ended March 31,
2008 have been prepared to give effect to the East Texas Acquisition on the
Company’s results of continuing operations under the purchase method of
accounting as if it had been consummated at January 1, 2008. The
unaudited pro forma results (in millions) do not purport to represent the
results of continuing operations that actually would have occurred on such date
or to project the Company’s results of operations for any future date or
period:
|
Three
Months Ended
March
31, 2008
|
||||
|
Pro
forma revenue
|
$ | 185,960 | ||
|
Pro
forma income from operations
|
$ | 60,073 | ||
|
Pro
forma net income
|
$ | 36,942 | ||
|
Pro
forma basic earnings per share
|
$ | 0.82 | ||
|
Pro
forma diluted earnings per share
|
$ | 0.81 | ||
|
9.
|
Income
Taxes
|
The
effective income tax rate was 33.9% for the first quarter of 2009 compared
to 45.1% for the fourth quarter of 2008 and 39% for the first quarter of
2008. The decrease in rate for first quarter is primarily due to a decrease
in anticipated state taxes. Our estimated annual effective tax rate
varies from the 35% federal statutory rate due to the effects of state income
taxes and estimated permanent differences.
As of
March 31, 2009, we had a gross liability for uncertain tax benefits of
$11.2 million of which $10.0 million, if recognized, would affect the
effective tax rate. There were no significant changes to the calculation since
year end 2008.
We
anticipate the balance of our unrecognized tax benefits could be reduced during
the next 12 months as the IRS finalizes certain examinations which are in
progress, however, we cannot reasonably estimate the impact of the examination
at this time.
|
10.
|
Earnings
per Share
|
In SFAS
No. 128, “Earnings per Share (as amended)”, the two-class method is an earnings
allocation formula that determines earnings per share for each class of stock
according to dividends declared (or accumulated) and participation rights in
undistributed earnings. In June 2008, the FASB issued FASB Staff
Position No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
("FSP EITF 03-6-1"), which clarifies that share-based payment awards
that entitle their holders to receive nonforfeitable dividends before vesting
should be considered participating securities. As participating securities,
these instruments should be included in the earnings allocation in computing
basic earnings per share under the two-class method described in SFAS
No. 128. All prior period earnings per share data presented were
adjusted retrospectively to conform with the provisions of this pronouncement.
FSP EITF 03-6-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and interim periods within
those years. Accordingly, we have adopted this pronouncement as of
January 1, 2009.
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
Undistributed
and distributed earnings allocated to shareholders are calculated as follows for
the three month periods ended:
|
March
31, 2009
|
March
31, 2008
|
|||||||
|
Income
from continuing operations
|
$ | 41,779 | $ | 39,536 | ||||
|
Less:
|
||||||||
|
Dividends
paid - shareholders
|
3,344 | 3,289 | ||||||
|
Dividends
paid - unvested shares and deferred stock units
|
72 | 38 | ||||||
|
Undistributed
income from continuing operations
|
$ | 38,363 | $ | 36,209 | ||||
|
(Loss)
income from discontinued operations
|
$ | (6,781 | ) | $ | 3,495 | |||
|
March
31, 2009
|
March
31, 2008
|
|||||||
|
Income
from continuing operations available to shareholders
|
||||||||
|
Distributed
earnings to shareholders
|
$ | 3,344 | $ | 3,289 | ||||
|
Allocation
of undistributed earnings to shareholders
|
37,387 | 35,705 | ||||||
|
Total
income from continuing operations available to
shareholders
|
$ | 40,731 | $ | 38,994 | ||||
|
Income
from discontinued operations available to
shareholders
|
||||||||
|
Distributed
earnings to shareholders
|
$ | - | $ | - | ||||
|
Allocation
of undistributed (loss) earnings available to
shareholders
|
(6,608 | ) | 3,445 | |||||
|
Total
(loss) income from discontinued operations available to
shareholders
|
$ | (6,608 | ) | $ | 3,445 | |||
Undistributed
earnings available to shareholders is calculated by dividing weighted average
shares outstanding by the total of weighted shares outstanding plus weighted
average of unvested shares outstanding plus the weighted average of deferred
stock units outstanding multiplied by undistributed earnings. Shares
issued during the period and shares reacquired during the period are weighted
for the portion of the period in which the shares were
outstanding. The weighted average number of unvested shares and
deferred stock units for the three month periods ended March 31, 2009 and 2008
is 1,164,391 and 628,685, respectively.
Weighted
average shares outstanding and dilutive shares outstanding are calculated as
follows:
|
March
31, 2009
|
March
31, 2008
|
|||||||
|
Weighted
average shares outstanding:
|
44,581 | 44,392 | ||||||
|
Add:
dilutive effects of stock options
|
12 | 623 | ||||||
|
Weighted
average shares outstanding, including the effects of dilutive common
shares
|
44,593 | 45,015 | ||||||
Options
to purchase 2.3 million and .2 million shares were outstanding at March 31, 2009
and 2008, respectively, and were excluded from the calculation of diluted
earnings per share because the options’ exercise price was greater than the
average market price of the shares.
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
Basic and
dilutive earnings per share from continuing and discontinued operations are
calculated as follows:
|
March
31, 2009
|
March
31, 2008
|
|||||||
|
Basic
|
||||||||
|
Income
from continuing operations available to shareholders
|
$ | 40,731 | $ | 38,994 | ||||
|
shares
outstanding
|
44,581 | 44,392 | ||||||
|
Basic
earnings per share from continuing operations
|
$ | .92 | $ | .88 | ||||
|
(Loss)
income from discontinued operations available to
shareholders
|
$ | (6,608 | ) | $ | 3,445 | |||
|
Shares
outstanding
|
44,581 | 44,392 | ||||||
|
Basic
(loss) earnings per share from discontinued
operations
|
$ | (.15 | ) | $ | .08 | |||
|
Basic
earnings per share
|
$ | .77 | $ | .96 | ||||
|
Dilutive
|
||||||||
|
Income
from continuing operations available to shareholders
|
$ | 40,731 | $ | 38,994 | ||||
|
Dilutive
shares
|
44,593 | 45,015 | ||||||
|
Dilutive
earnings per share from continuing operations
|
$ | .92 | $ | .86 | ||||
|
(Loss)
income from discontinued operations available to
shareholders
|
$ | (6,608 | ) | $ | 3,445 | |||
|
Dilutive
shares
|
44,593 | 45,015 | ||||||
|
Dilutive
(loss) earnings per share from discontinued
operations
|
$ | (.15 | ) | $ | .08 | |||
|
Dilutive
earnings per share
|
$ | .77 | $ | .94 | ||||
Upon
adoption, both basic income and dilutive income per share for the first quarter
of 2008 decreased by $.01 for continuing operations. Basic income and
dilutive income per share was unchanged for discontinued
operations.
|
11.
|
Debt
Obligations
|
Short-term
lines of credit
In 2005,
we completed an unsecured uncommitted money market line of credit (Line of
Credit). Borrowings under the Line of Credit may be up to $30 million for a
maximum of 30 days. The Line of Credit may be terminated at any time
upon written notice by either us or the lender. In conjunction with
the amendment to our senior secured credit facility, on July 15, 2008, the Line
of Credit was secured by our assets. At March 31, 2009 and
December 31, 2008, the outstanding balance under this Line of Credit was $0 and
$25.3 million, respectively. Interest on amounts borrowed is charged at
LIBOR plus a margin of approximately 1%.
Senior
Secured Revolving Credit Facility
On July
15, 2008, we entered into a five year amended and restated credit agreement (the
Agreement) with Wells Fargo Bank, N.A. as administrative agent and other
lenders. The Agreement is a revolving credit facility for up to $1.5
billion with a borrowing base of $1.0 billion. The outstanding Line
of Credit reduces our borrowing capacity available under the
Agreement. Interest on amounts borrowed under the Agreement was
charged at LIBOR plus a margin of 1.125% to 1.875% or the prime rate, with
margins on the various rate options based on the ratio of credit outstanding to
the borrowing base. An annual commitment fee of .25% to .375%
was charged on the unused portion of this credit facility.
On
October 17, 2008, we amended the Agreement which increased our borrowing base
from $1.0 billion to $1.25 billion with commitments of $1.08 billion and a new
maturity date of July 15, 2012. Commitments were increased during the
fourth quarter of 2008 with the addition of $130 million in commitments bringing
the total commitments under the facility to $1.21 billion from 19
banks.
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
On
February 19, 2009, we executed another amendment to the Agreement which modified
our covenants as follows:
|
Total
funded debt to EBITDAX ratio
|
||||||||||
|
2009
|
2010
|
Thereafter
|
||||||||
| 4.75 | 4.50 | 4.00 | ||||||||
|
Senior
secured debt to EBITDAX ratio
|
||||||||||||||
|
to
Sep 2010
|
Mar
2011
|
Sep
2011
|
Thereafter
|
|||||||||||
| 3.75 | 3.50 | 3.25 | 3.0 | |||||||||||
Additionally,
the write off of $38.5 million to bad debt expense associated with the
bankruptcy of Big West is excluded from the calculation of
EBITDAX. There were no changes to the current ratio covenant which,
as defined, must be at least 1.0. The LIBOR and prime rate margins
increased to between 2.25% and 3.0% based on the ratio of credit outstanding to
the borrowing base. Additionally, the annual commitment fee on the
unused portion of the credit facility increased to 0.50%, regardless of the
amount outstanding. This transaction was accounted for in
accordance with Emerging Issues Task Force (EITF) 98-14, Debtor’s Accounting for Changes in
Line-of-Credit or Revolving-Debt Arrangements.
The total
outstanding debt at March 31, 2009 under the Agreement, as amended, and the Line
of Credit was $999 million and $0, respectively, and $3 million in letters of
credit have been issued under the facility, leaving $208 million in borrowing
capacity available. The maximum amount available is subject to
semi-annual redeterminations of the borrowing base, based on the value of our
proved oil and gas reserves, in April and October of each year in accordance
with the lenders’ customary procedures and practices. Both we and the
banks have the bilateral right to one additional redetermination each
year.
We
further amended the Agreement on April 27, 2009. See Note 13
“Subsequent Events.”
Senior
Subordinated 8.25% notes due 2016
In 2006,
we issued in a public offering $200 million of 8.25% senior subordinated notes
due 2016 (the Notes). Interest on the Notes is paid semiannually in
May and November of each year. Under the Notes, as long as the
interest coverage ratio (as defined) is greater than 2.5 times, we may incur
additional debt. The deferred costs of approximately $5 million
associated with the issuance of this debt are being amortized over the ten year
life of the Notes.
Financial
Covenants
The
senior secured revolving credit facility contains restrictive covenants which,
among other things, require us to currently maintain a debt to EBITDAX ratio of
not greater than 4.75 and a minimum current ratio, as defined, of 1.0. The $200
million Notes are subordinated to our credit facility indebtedness. Under the
Notes, as long as the interest coverage ratio (as defined) is greater than 2.5
times, we may incur additional debt. We were in compliance with all of these
covenants as of March 31, 2009.
|
As
of
March
31, 2009
|
||||
|
Current
Ratio (Not less than 1.0)
|
2.9
|
|||
|
EBITDAX
To Total Funded Debt Ratio (Not greater than 4.75)
|
2.8
|
|||
|
Interest
Coverage Ratio (Not less than 2.5)
|
7.4
|
|||
The
weighted average interest rate on total outstanding borrowings at March 31, 2009
was 4.2%.
|
12.
|
Contingencies
and Commitments
|
We have
no material accrued environmental liabilities for our sites, including sites in
which governmental agencies have designated us as a potentially responsible
party, because it is not probable that a loss will be incurred and the minimum
cost and/or amount of loss cannot be reasonably estimated. However, because of
the uncertainties associated with environmental assessment and remediation
activities, future expense to remediate the currently identified sites, and
sites identified in the future, if any, could be incurred. Management believes,
based upon current site assessments, that the ultimate resolution of any matters
will not result in substantial costs incurred. We are involved in various other
lawsuits, claims and inquiries, most of which are routine to the nature of our
business. In the opinion of management, the resolution of these matters will not
have a material effect on our financial position, or on the results of
operations or liquidity.
During
the California energy crisis in 2000 and 2001, we had electricity sales
contracts with various utilities and a portion of the electricity prices paid to
us under such contracts from December 2000 to March 27, 2001 has been under a
degree of legal challenge since that time. It is possible that we may
have a liability pending the final outcome of the CPUC proceedings on the
matter. There are ongoing proceedings before the CPUC in which
Edison and PG&E are seeking credit against future payments they are to make
for electricity purchases based on retroactive adjustment to pricing under
contracts with us. Whether or not retroactive adjustments will be
ordered, how such adjustments would be calculated and what period they would
cover are too uncertain to estimate at this time.
Berry
Petroleum Company
Notes
to the Unaudited Condensed Financial Statements
In
December 2008, Flying J, Inc., and its wholly owned subsidiary Big West Oil and
its wholly owned subsidiary BWOC filed for bankruptcy protection under Chapter
11 of the United States Bankruptcy Code. Also in December 2008, BWOC
informed the Company that it was unable to receive the Company’s
production. Included in our allowance for doubtful accounts is $38.5
million due from BWOC. Of the $38.5 million due from BWOC, $12.4 million
represents December crude oil sales by the Company and $26.1 million represents
November crude oil sales. BWOC will also be liable to us for damages
under this contract. We have guarantees from Big West Oil and from
Flying J, Inc. in the amount of $75 million each, in the event that our claim is
not fully collectible from BWOC. While we believe that we may recover some or
all of the amounts due from BWOC, the data received from the bankruptcy
proceedings to date has not provided us with adequate data from which to make a
conclusion that any amounts will be collected.
On March
20, 2009, we entered into a crude oil purchase contract with a refiner for
the sale of all of the Company’s crude oil production from the Midway Sunset
Field. The volume approximates 12,000 Bbl/d. The agreement
is effective April 1, 2009 and continues until September 30, 2009.
In
February 2007, we entered into a multi-staged crude oil sales contract with a
refiner for our Uinta light crude oil. Under the agreement, the refiner began
purchasing 3,200 Bbl/D in July 2007. After partial completion of its refinery
expansion in Salt Lake City in March 2008, the refiner increased its total
purchase capacity to 5,000 Bbl/D. This contract is in effect through
June 30, 2013. Pricing under the contract, which includes
transportation and gravity adjustments, is at a fixed percentage of
WTI, which ranges from $10 to $15 per barrel at WTI prices between
$40 and $60 per barrel. This contract is our only sales contract for
our Uinta oil.
We have
two long-term firm transportation contracts that total 35,000 MMBtu/D on the
Rockies Express (REX) pipeline for gas production in the Piceance
basin. We pay a demand charge for this capacity and our own
production did not completely fill that capacity. To maximize the utilization of
our firm transportation, we bought our partners’ share of the gas produced in
the Piceance basin at the market rate for that area and used our excess
transportation to move this gas to the sales point. The pre-tax net of our
gas marketing revenue and our gas marketing expense in the Statements of Income
is $0.3 million and $0.2 million for the three month periods ended March 31,
2009 and 2008, respectively.
In
addition, Berry has signed a binding precedent agreement with El Paso
Corporation for an average of 35,000 MMBtu/d of firm transportation on the
proposed Ruby Pipeline from Opal, WY to Malin, OR. While it is not
certain that this new line will be constructed, the expectation is that the
project will proceed and be in service by 2011. As part of this
agreement and in order to access the Ruby pipeline, we also secured firm
transportation from the Piceance basin to Opal.
|
13.
|
Subsequent
Events
|
On April
1, 2009, we completed the sale of our DJ basin assets. Total proceeds
received for the sale were $139 million, including closing adjustments and the
$14 million deposit received in March 2009.
On April
27, 2009, we completed the scheduled redetermination of the borrowing under our
credit facility. Our borrowing base was reduced from $1.25 billion to
$1.05 billion, with $100 million of the reduction resulting from the sale of our
DJ basin assets. Also on April 27, 2009 we completed a $140 million
second lien credit facility, with lenders from among our current lending group,
which matures on January 16, 2013. Interest on the facility is
charged at LIBOR plus a margin of eight percent with a minimum LIBOR rate of
three percent. Covenants under this facility are similar but slightly
less restrictive than our senior secured credit facility. Our Line of
Credit is suspended as long as the second lien credit facility is outstanding.
Additionally, each dollar outstanding under the second lien credit facility
reduces the borrowing base under our senior secured credit facility by 30 cents
such that the $140 million second lien facility reduces our borrowing base from
$1.05 billion to $1.0 billion. Proceeds from the second lien facility were used
to pay down borrowings under our senior secured credit facility. On April 27,
2009, following the closing of the second lien credit facility, the outstanding
amount under our senior secured credit facility was approximately $735 million
providing us with approximately $275 million of liquidity.
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
General. The
following discussion provides information on the results of operations for the
three months ended March 31, 2009 and 2008 and our financial condition,
liquidity and capital resources as of March 31, 2009. The financial statements
and the notes thereto contain detailed information that should be referred to in
conjunction with this discussion.
The
profitability of our operations in any particular accounting period will be
directly related to the realized prices of oil, gas and electricity sold, the
type and volume of oil and gas produced and electricity generated and the
results of development, exploitation, acquisition, exploration and hedging
activities. The realized prices for natural gas and electricity will fluctuate
from one period to another due to regional market conditions and other factors,
while oil prices will be predominantly influenced by global supply and demand.
The aggregate amount of oil and gas produced may fluctuate based on the success
of development and exploitation of oil and gas reserves pursuant to current
reservoir management. The cost of natural gas used in our steaming operations
and electrical generation, production rates, labor, equipment costs, maintenance
expenses, and production taxes are expected to be the principal influences on
operating costs. Accordingly, our results of operations may fluctuate from
period to period based on the foregoing principal factors, among
others.
Overview.
We seek to increase shareholder value through consistent growth in our
production and reserves, both through the drill bit and acquisitions. We strive
to operate our properties in an efficient manner to maximize the cash flow and
earnings of our assets. The strategies to accomplish these goals
include:
|
|
·
|
Investing
our capital in a disciplined manner and maintaining a strong financial
position
|
|
|
·
|
Developing
our existing resource base
|
|
|
·
|
Calibrating
our cost structure to the current commodity price
environment
|
|
|
·
|
Acquiring
additional assets with significant growth
potential
|
|
|
·
|
Accumulating
significant acreage positions near our producing
operations
|
Notable
First Quarter Items.
|
|
·
|
Achieved
production averaging 33,330 BOE/D, up 19% from the first quarter of
2008
|
|
|
·
|
Announced
the sale of our DJ basin assets and related hedges for approximately $154
million
|
|
|
·
|
Entered
into short-term sales contracts for our California crude oil to replace
our terminated contract with Big
West
|
|
|
·
|
Continued
to return California wells to production after the December 2008 Big West
bankruptcy, increasing average California production from 16,000 Bbl/D in
the fourth quarter of 2008 to 16,440 Bbl/D in the first quarter of
2009
|
|
|
·
|
Increased
Diatomite net production to an average of 2,670 BOE/D, up 94% from the
first quarter of 2008
|
|
|
·
|
Amended
the covenants under our credit facility providing increased financial
flexibility going forward
|
|
|
·
|
Added
to our oil hedge positions increasing 2011 hedged volumes to 9,000 BOE/D
and 2012 volumes to 2,000 BOE/D
|
|
|
·
|
Increased
our fixed rate debt position to $725 million utilizing interest rate
swaps
|
Notable
Items and Expectations for the Second Quarter and Full Year 2009.
|
|
·
|
Closed
on the sale of our DJ assets using proceeds for the repayment of
debt
|
|
|
·
|
Completed
the redetermination of our credit facility with a borrowing base of $1.05
billion with no changes to the terms or interest rate
margins
|
|
|
·
|
Completed
a $140 million second lien facility, with existing lenders, increasing our
liquidity to approximately $275
million
|
|
|
·
|
Expect
production to average approximately 30,000 BOED with no future
contributions from the DJ assets which averaged approximately 3,100 BOE/D
in the first quarter of 2009.
|
Overview of the
first Quarter of 2009. We had net income from continuing operations of
$41.8 million, or $0.92 per diluted share, and net cash from operations was $8.1
million in the first quarter of 2009. We drilled 26 gross wells and capital
expenditures, excluding property acquisitions, totaled $50.2
million. We achieved average production of 33,330 BOE/D in the first
quarter of 2009, down 6% from an average of 35,583 BOE/D in the fourth quarter
of 2008.
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Results of
Operations. The following results
from continuing operations are in millions (except per share data) for the three
months ended:
|
March
31, 2009
(1Q09)
|
March
31, 2008
(1Q08)
|
1Q09
to 1Q08 Change
|
December
31, 2008
(4Q08)
|
1Q09
to 4Q08 Change
|
||||||||||||||||
|
Sales
of oil
|
$ | 99 | $ | 131 | (24 | %) | $ | 97 | 2 | % | ||||||||||
|
Sales
of gas
|
29 | 21 | 38 | % | 38 | (24 | %) | |||||||||||||
|
Total
sales of oil and gas
|
$ | 128 | $ | 152 | (16 | %) | $ | 135 | (6 | %) | ||||||||||
|
Sales
of electricity
|
10 | 16 | (38 | %) | 12 | (17 | %) | |||||||||||||
|
Gas
Marketing
|
8 | 3 | 167 | % | 8 | - | ||||||||||||||
|
Gain
on sale of assets
|
- | - | - | (2 | ) | - | ||||||||||||||
|
Gain
on hedge terminations
|
14 | - | - | - | - | |||||||||||||||
|
Gain
(loss) on commodity derivatives
|
23 | (1 | ) | - | (2 | ) | - | |||||||||||||
|
Interest
and other income, net
|
- | 1 | - | 1 | - | |||||||||||||||
|
Total
revenues and other income
|
$ | 183 | $ | 171 | 7 | % | $ | 152 | 20 | % | ||||||||||
|
Net
income (loss) from continuing operations
|
$ | 42 | $ | 40 | $ | (12 | ) | |||||||||||||
|
Diluted
earnings (loss) per share from continuing operations
|
$ | 0.92 | $ | 0.88 | $ | (.26 | ) | |||||||||||||
Our
revenues may vary significantly from period to period as a result of changes in
commodity prices and/or production volumes. Crude oil sales in the
three months ended March 31, 2009 were relatively flat with the three
months ended December 31, 2008 resulting from price increases of 5% offset by
sales volume decreases of 3%. Total oil sales volumes decreased
primarily from lower sales volumes in the Uinta basin where no capital activity
occurred during the first quarter of 2009 offset by increased production in
California where wells were brought back online after disruptions from the Big
West bankruptcy. The decrease in revenue when compared to the first quarter of
2008 is primarily the result of a 23% decrease in realized
prices. Natural gas revenues decreased from the quarter ended
December 31, 2008 as a result of a 13% decrease in volumes from our Piceance and
Uinta properties where no capital activity occurred during the quarter and a 9%
decrease in realized prices. Natural gas revenues were higher in the
first quarter of 2009 compared to the first quarter of 2008 from volume
increases of 69%, primarily due to the contribution of our East Texas assets and
the results of our 2008 capital program offset by a 32% decrease in realized
prices.
In the
first quarter of 2008, we determined there was an error in computing royalties
payable in prior years, accumulating to $10.5 million as of December 31, 2007.
We concluded the error was not material to any individual prior interim or
annual period (or to the projected earnings for 2008) and, therefore, the error
was corrected during the first quarter of 2008, with the effect of increasing
our sales of oil and gas by $10.5 million and reducing our royalties
payable.
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Operating
data. The following table is for the three months ended:
|
March
31, 2009
|
%
|
March
31, 2008
|
%
|
December
31, 2008
|
%
|
|||||||||||||||||||
|
Heavy
Oil Production (Bbl/D)
|
16,436 | 50 | 16,375 | 58 | 15,999 | 45 | ||||||||||||||||||
|
Light
Oil Production (Bbl/D)
|
3,066 | 9 | 3,510 | 13 | 3,659 | 10 | ||||||||||||||||||
|
Total
Oil Production (Bbl/D)
|
19,502 | 59 | 19,885 | 71 | 19,658 | 55 | ||||||||||||||||||
|
Natural
Gas Production (Mcf/D)
|
82,979 | 41 | 49,086 | 29 | 95,548 | 45 | ||||||||||||||||||
|
Total
operations (BOE/D)
|
33,332 | 100 | 28,066 | 100 | 35,583 | 100 | ||||||||||||||||||
|
DJ
Basin Production (BOE/D)
|
3,101 | 3,157 | 3,415 | |||||||||||||||||||||
|
Production
- Continuing Operations (BOE/D)
|
30,231 | 24,909 | 32,168 | |||||||||||||||||||||
|
Oil
and gas BOE for continuing operations
|
||||||||||||||||||||||||
|
Average
sales price before hedging
|
$ | 29.36 | $ | 75.11 | $ | 40.61 | ||||||||||||||||||
|
Average
sales price after hedging
|
47.11 | 62.44 | 45.57 | |||||||||||||||||||||
|
Oil,
per Bbl, for continuing operations:
|
||||||||||||||||||||||||
|
Average
WTI price
|
$ | 43.24 | $ | 97.82 | $ | 59.08 | ||||||||||||||||||
|
Price
sensitive royalties
|
(1.02 | ) | (4.47 | ) | (1.69 | ) | ||||||||||||||||||
|
Quality
differential and other
|
(9.53 | ) | (10.78 | ) | (8.55 | ) | ||||||||||||||||||
|
Crude
oil hedges
|
23.79 | (15.60 | ) | 4.69 | ||||||||||||||||||||
|
Correction
to royalties payable
|
- | 5.85 | - | |||||||||||||||||||||
|
Average
oil sales price after hedging
|
$ | 56.48 | $ | 72.82 | $ | 53.53 | ||||||||||||||||||
|
Natural
gas price for continuing operations:
|
||||||||||||||||||||||||
|
Average
Henry Hub price per MMBtu
|
$ | 4.90 | $ | 8.74 | $ | 6.95 | ||||||||||||||||||
|
Conversion
to Mcf
|
.25 | .44 | .35 | |||||||||||||||||||||
|
Natural
gas hedges
|
1.14 | (.19 | ) | .89 | ||||||||||||||||||||
|
Location,
quality differentials and other
|
(1.27 | ) | (1.56 | ) | (2.67 | ) | ||||||||||||||||||
|
Average
gas sales price after hedging per Mcf
|
$ | 5.02 | $ | 7.43 | $ | 5.52 | ||||||||||||||||||
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
 |
Gas Basis
Differential. Natural gas prices in the Rockies continue
to decline due to various factors, including takeaway pipeline capacity,
supply / inventory volumes, and regional demand issues. We have contracted
a total of 35,000 MMBtu/D on the Rockies Express Pipeline under two
separate transactions to provide firm transport for our Piceance gas
production. The CIG basis differential per MMBtu, based upon
first-of-month values, averaged $2.81 below HH and ranged from $0.93 to
$6.61 below HH in 2008. For the first quarter of 2009, the CIG
basis averaged $1.62 below HH. The Piceance gas was sold in the
first quarter of 2009 based upon a mid-continent index such as
PEPL. For the first three months of 2009, the mid-continent
PEPL index averaged $1.51 below HH. Correspondingly, most of
the Uinta Basis gas is sold based upon a Questar index which averaged
$1.72 below HH. For E. Texas, the Texas Eastern - East Texas
index averaged $0.78 below HH for the first quarter of
2009.
|
Gas Marketing.
We have two long-term (ten year) firm transportation contracts for our
Piceance natural gas production. The first contract is for 10,000 MMBtu/D on the
Rockies Express (REX) pipeline for gas production in the Piceance
basin. The second contract is for 25,000 MMBtu/D on the REX pipeline
for gas production in the Piceance basin. We pay a demand charge for this
capacity and our own production did not fill that capacity. In order to maximize
our firm transportation capacity, we bought our partners’ share of the gas
produced in the Piceance at the market rate for that area. We then used our
excess transportation to move this gas to where it was eventually sold. The
pre-tax net of our gas marketing revenue and our gas marketing expense in the
Statement of Income is $0.3 million in the three month period ended March 31,
2009.
In
addition, Berry has signed a binding precedent agreement with El Paso
Corporation for an average of 35,000 MMBtu/D of firm transportation on the
proposed Ruby Pipeline from Opal, WY to Malin, OR. While it is not
certain that this new line will be constructed, the expectation is that the
project will proceed and be in service in 2011. As part of this
agreement and in order to access the Ruby pipeline, we also secured firm
transportation from Piceance to Opal.
Oil Contracts.
California - On March 20, 2009, we entered into a crude oil purchase
contract with a refiner for the sale of all of the Company’s crude oil
production from the Midway Sunset field. The volume approximates
12,000 barrels per day. The agreement is effective on April 1, 2009
and continues until September 30, 2009.
We
continue to market our California crude oil production, other than production
from the Midway Sunset field discussed above, to various parties. The
term of these contracts range from nine months to one
month.
Utah - In
February 2007, we entered into a multi-staged crude oil sales contract with a
refiner for our Uinta basin light crude oil. Under the agreement, the refiner
began purchasing 3,200 Bbl/D in July 2007. The refiner has increased its total
capacity to 5,000 Bbl/D as provided in our contract. As operator we deliver all
produced volumes under our sales contracts, although our working interest
partners or royalty owners may take their respective volumes in kind and market
their own volumes. Gross oil production averaged approximately 3,280
BOE/D in the quarter ended March 31, 2009. The differential under the contract,
which includes transportation and gravity adjustments, is linked to WTI and
would range from $10 to $15 per barrel at WTI prices between $40 and $60. This
contract provides us an outlet to sell all of our current oil production in the
Uinta basin.
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Hedging.
See Note 4 to the unaudited condensed financial statements and Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
Electricity. We
consume natural gas as fuel to operate our three cogeneration facilities which
are intended to provide an efficient and secure long-term supply of steam
necessary for the cost-effective production of heavy oil in California. We sell
our electricity to utilities under standard offer contracts based on "avoided
cost" or SRAC pricing approved by the California Public Utilities Commission
(CPUC) and under which our revenues are currently linked to the cost of natural
gas. Natural gas index prices are the primary determinant of our electricity
sales price based on the current pricing formula under these contracts. The
correlation between electricity sales and natural gas prices allows us to manage
our cost of producing steam more effectively.
Our
electricity margins continued to benefit from lower Rockies natural gas prices
during 2009. We purchase and transport 12,000 MMBtu/D on the Kern
River Pipeline under our firm transportation contract and use this gas to
produce cogeneration steam in the Midway-Sunset field. The Rocky Mountain
natural gas price differentials have been greater than California differentials
allowing us to purchase a portion of our gas at a discount to the California
price. As our electricity revenue is linked to California prices, the fuel we
purchased at lower Rocky Mountain prices is the primary contributor to our
electricity margin.
Revenues
and operating costs were down for the quarter ended March 31, 2009 from the
quarter ended March 31, 2008 due to 35% lower electricity prices and 50% lower
natural gas prices. Revenues and operating costs were down for
the quarter ended March 31, 2009 from the quarter ended December 31, 2008 due to
16% lower electricity prices and 16% lower natural gas prices, respectively. We
purchased approximately 27 MMBtu/D as fuel for use in our cogeneration
facilities in both the quarter ended March 31, 2009 and the quarter ended March
31, 2008.
We
generally expect to have small gains or losses on electricity on a quarterly
basis which depends on seasonality as we receive improved pricing during the
summer months. However, wider natural gas price differentials in the Rockies
when compared to California will increase our margin on electricity as described
above. In the first quarter of 2009, our margin on electricity
increased to $1.5 million.
On
September 20, 2007, the CPUC issued a decision (SRAC Decision) that changes the
way SRAC energy prices will be determined for existing and new Standard Offer
(SO) contracts and revises the capacity prices paid under current SO1 contracts.
The effective date of the new pricing under the SRAC Decision has not been
determined as of yet and a portion of the SRAC Decision is being reconsidered by
the CPUC. We do not believe that the proposed pricing changes will
materially affect us in 2009.
The
following table is for the three months ended:
|
March
31, 2009
|
March
31, 2008
|
December
31, 2008
|
||||||||||
|
Electricity
|
||||||||||||
|
Revenues
(in millions)
|
$ | 10.3 | $ | 15.9 | $ | 12.3 | ||||||
|
Operating
costs (in millions)
|
$ | 8.8 | $ | 16.4 | $ | 9.3 | ||||||
|
Electric
power produced - MWh/D
|
2,068 | 2,152 | 2,086 | |||||||||
|
Electric
power sold - MWh/D
|
1,939 | 1,959 | 1,904 | |||||||||
|
Average
sales price/MWh
|
$ | 58.85 | $ | 90.48 | $ | 69.94 | ||||||
|
Fuel
gas cost/MMBtu (including transportation)
|
$ | 4.01 | $ | 7.94 | $ | 4.80 | ||||||
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Oil and Gas
Operating, Production Taxes, G&A and Interest Expenses.
The following table presents information about our continuing operating
expenses for each of the three month periods ended:
|
Amount
per BOE
|
Amount
(in thousands)
|
|||||||||||||||||||||||
|
March
31, 2009
|
March
31, 2008
|
December
31, 2008
|
March
31, 2009
|
March
31, 2008
|
December
31, 2008
|
|||||||||||||||||||
|
Operating
costs – oil and gas production
|
$ | 13.74 | $ | 17.36 | $ | 15.07 | $ | 37,384 | $ | 39,340 | $ | 44,598 | ||||||||||||
|
Production
taxes
|
2.08 | 2.29 | 2.10 | 5,652 | 5,183 | 6,213 | ||||||||||||||||||
|
DD&A
– oil and gas production
|
13.38 | 10.68 | 12.89 | 36,398 | 24,207 | 38,133 | ||||||||||||||||||
|
G&A
|
4.89 | 4.91 | 6.07 | 13,294 | 11,132 | 17,972 | ||||||||||||||||||
|
Interest
expense
|
3.69 | 1.47 | 3.05 | 10,050 | 3,327 | 9,032 | ||||||||||||||||||
|
Total
|
$ | 37.78 | $ | 36.71 | $ | 39.18 | $ | 102,778 | $ | 83,189 | $ | 115,948 | ||||||||||||
|
|
·
|
Operating
costs: Steam costs are the primary variable component of our operating
costs and fluctuate based on the amount of steam we inject and the price
of fuel used to generate steam. The following table presents steam
information:
|
|
March
31, 2009
(1Q09)
|
March
31, 2008
(1Q08)
|
1Q09
to
1Q08 Change
|
December
31, 2008
(4Q08)
|
1Q09
to 4Q08 Change
|
||||||||||||||||
|
Average
volume of steam injected (Bbl/D)
|
103,342 | 91,326 | 13 | % | 105,443 | (2 | %) | |||||||||||||
|
Fuel
gas cost/MMBtu (including transportation)
|
$ | 4.01 | $ | 7.94 | (49 | %) | $ | 4.80 | (16 | %) | ||||||||||
|
Approximate
net fuel gas volume consumed in steam generation (MMBtu/D)
|
26,427 | 21,634 | 22 | % | 27,978 | (6 | %) | |||||||||||||
Operating
costs decreased by $7.2 million or 16% between the fourth quarter of 2008 and
the first quarter of 2009. The majority of the decrease came from
decreased fuel gas costs of $4 million from decreased natural gas prices and a
$1 million decrease in compression, gathering and dehydration from lower natural
gas production volumes. The remainder of the decrease is due to
decreased activity levels and our cost reduction efforts. The
decrease in operating costs from the first quarter of 2008 to the first quarter
of 2009 was also primarily due to natural gas prices which decreased 49%,
offset, on an absolute basis by the addition of our East Texas
assets.
|
|
·
|
Production
taxes: Severance taxes paid in Utah, Colorado and Texas are directly
related to the field sales price of the commodity. In California, our
production is burdened with ad valorem taxes on our total proved reserves.
Our production taxes have remained consistent on a per BOE basis and
primarily fluctuates with changes in oil and natural gas
prices.
|
|
|
·
|
Depreciation,
depletion and amortization: DD&A increased per BOE by 25% and 4%
in the first quarter of 2009 as compared to the first quarter of 2008 and
fourth quarter of 2008, respectively. The increase per BOE is due to an
increase in the contribution of our development properties with higher
drilling and leasehold acquisition costs and the integration of our East
Texas assets which have higher finding and development costs than our
legacy assets.
|
|
|
·
|
General
and administrative: Approximately 70% of our G&A is related to
compensation. The primary reasons for the increase in G&A during the
first quarter of 2009 as compared to the first quarter of 2008 were due to
director compensation of $0.9 million which was paid in the first quarter
of 2009 and additional staffing related to our 2008 East Texas
acquisition. General and administrative costs for the quarter
ended December 31, 2008 included $2.3 million of rig termination
penalties, $0.6 million of costs to complete the relocation of our
corporate headquarters and the costs to establish our regional office in
E. Texas.
|
|
|
·
|
Interest
expense: Our total outstanding borrowings were approximately $1.2 billion
at March 31, 2009 compared to $455 million and $1.2 billion at March
31, 2008 and December 31, 2008, respectively. Our average borrowings
increased since June 30, 2008 primarily due to the East Texas acquisition
in the third quarter of 2008. For the three months ended March
31, 2009, $5 million of interest cost has been capitalized and we expect
to capitalize approximately $25 million of interest cost during the full
year of 2009.
|
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Estimated 2009
and Actual Three Months Ended March 31, 2009 and 2008 Oil and Gas
Operating, G&A and
Interest Expenses.
Based upon our reduced activity in the fourth quarter of 2008, we estimate our
average 2009 production volume will be approximately 30,000
BOE/D.
|
Anticipated
range
|
||||||||||||
|
Full
Year 2009
per
BOE
|
Three
months ended March 31, 2009
|
Three
months ended March 31, 2008
|
||||||||||
|
Operating
costs-oil and gas production
|
$ | 13.50 - 15.00 | $ | 13.74 | $ | 17.36 | ||||||
|
Production
taxes
|
1.50 - 2.50 | 2.08 | 2.29 | |||||||||
|
DD&A
– oil and gas production (1)
|
13.50 - 14.50 | 13.38 | 10.68 | |||||||||
|
G&A
|
4.25 - 4.75 | 4.89 | 4.91 | |||||||||
|
Interest
expense
|
4.00 - 4.75 | 3.69 | 1.47 | |||||||||
|
Total
|
$ | 36.75- 41.50 | $ | 37.78 | $ | 36.71 | ||||||
(1)
Full year estimate includes both oil and gas and electricity
Asset
Dispositions. On March 3, 2009, we entered into an agreement
to sell our DJ basin assets and related hedges for $154 million before
customary closing adjustments. The $14 million sale of our DJ basin related
hedges was completed in March 2009 and is recorded under the caption “Gain on
hedge terminations” in the condensed statements of income and is included in
operating cash flows for the three months ended March 31, 2009. We received
a deposit of $14 million on the sale of the DJ basin assets which is included in
“Accrued Liabilities” on the condensed balance sheets as of March 31,
2009. The closing date of the sale of our DJ basin assets was April
1, 2009. In accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, these properties have been separately
presented in the accompanying balance sheet at fair value less estimated costs
to sell, which were determined as of March 31, 2009. We recorded an impairment
charge of $9.6 million, which is aggregated within “(loss) income from
discontinued operations, net of tax,” on the condensed statements of income for
the three months ended March 31, 2009.
Dry
Hole, Abandonment, impairment and exploration. In the
three months ended March 31, 2009 and 2008, we recorded dry hole, abandonment,
impairment and exploration expense of $0.1 million and $2.7 million,
respectively. In the first quarter of 2008, technical
difficulties on three wells in the Piceance basin were encountered before
reaching total depth and these holes were abandoned, in favor of drilling to the
same bottom hole location by drilling a new well.
Income
Taxes. We experienced an effective tax rate of 33.9% and 39.1% in the
three months ended March 31, 2009 and March 31, 2008,
respectively. Our estimated annual effective tax rate varies from the
35% federal statutory rate due to the effects of state income taxes and
estimated permanent differences. See Note 9 to the condensed
financial statements.
Development, Exploitation and
Exploration Activity. We drilled 26 gross (26 net) wells during the first
quarter of 2009.
Drilling
Activity. The following table sets
forth certain information regarding drilling activities (including operated and
non-operated wells):
|
Three
months ended March 31, 2009
|
||||||||
|
Asset
Team
|
Gross
Wells
|
Net
Wells
|
||||||
|
S.
Midway
|
8 | 8 | ||||||
|
N.
Midway
|
15 | 15 | ||||||
|
Texas
|
3 | 3 | ||||||
|
Totals
|
26 | 26 | ||||||
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Recent
Accounting Developments
In
September 2008, the Financial Accounting Standards Board (FASB) issued FASB
Staff Positions (FSP) No. 133-1 and FIN 45-4 to amend FASB Statement No. 133,
Accounting for Derivative
Instruments and Hedging Activities, to require disclosures by sellers of
credit derivatives, including credit derivatives embedded in a hybrid
instrument. This FSP also amends FASB Interpretation No.45,
Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, to require an additional disclosure about the
current status of the payment/performance risk of a
guarantee. Further, this FSP clarifies the FASB’s intent about the
effective date of FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. This FSP became
effective for our fiscal year beginning January 1, 2009 and we expanded our
disclosures accordingly.
In
December 2007, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 160, Noncontrolling
Interests in Consolidated Financial Statements. SFAS 160 was issued to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary (formerly called minority interests) and for the deconsolidation of
a subsidiary. We adopted this Statement January 1, 2009 and it did
not have a material effect on our financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which
expands the information that a reporting entity provides in its financial
reports about a business combination and its effects. This Statement establishes
principles and requirements for how the acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any non controlling interest in the acquiree, recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase,
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply the principle before that date. We may experience a financial statement
impact depending on the nature and extent of any new business combinations
entered into after the effective date of SFAS No. 141(R).
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133, which changes the disclosure requirements for derivative instruments
and hedging activities. Expanded disclosures are required to provide information
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. We adopted this Statement January 1, 2009 and we expanded our
disclosures accordingly.
In June
2008, the FASB issued FASB Staff Position No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities ("FSP EITF 03-6-1"), which clarifies that
share-based payment awards that entitle their holders to receive nonforfeitable
dividends before vesting should be considered participating securities. As
participating securities, these instruments should be included in the earnings
allocation in computing basic earnings per share under the two-class method
described in SFAS No. 128, Earnings per Share. All prior period
earnings per share data presented shall be adjusted retrospectively to conform
with the provisions of this pronouncement. FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those years. We implemented
EITF 03-06-1 during the first quarter of 2009, see Note 10 to the financial
statements.
In April
2009, the FASB issued FSP No. FAS 107-1, Interim Disclosures about Fair Value
of Financial Instruments. FSP 107-1 requires disclosures about fair value of financial
instruments for interim reporting periods as well as in annual financial
statements. FSP 107-1 will be effective for us for the quarter ending
June 30, 2009. The adoption of FSP 107-1 will not have an impact on
our financial position and results of operations.
Properties
Asset
Team Descriptions
To
improve the efficiency of our operations we have consolidated our S.
Cal Asset Team into the S. Midway and N. Midway Asset Teams. The Poso
Creek Field has been incorporated into the S. Midway Asset Team and the
Placerita Field into our N. Midway Asset Team.
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
S. Midway
– Our S. Midway Asset Team now includes four assets (Poso Creek, Ethel D,
Homebase and Formax). We are in the process of drilling 10 additional
Homebase horizontal wells. These wells have been placed deeper and
closer to the oil-water contact. The first 8 of these wells are
currently on production and performing in line with expectations. At
Ethel D we are evaluating the steam flood pilots in preparation for future steam
flood expansion. Poso Creek production is recovering from the
disruptions associated with the Big West bankruptcy. Further
production recovery is expected as the number of steam flood patterns is
increased and as the steam flood patterns developed in 2008
respond. The team is focused on improving steam-oil ratios and
lowering operating expenses in all of its operations. Average daily
production during the three months ended March 31, 2009 from all S. Midway
assets was approximately 11,350 BOE/D.
N.
Midway – Our N. Midway Asset Team now includes three assets
(Diatomite, N. Midway, and Placerita). We began the full scale
development of our N. Midway diatomite asset in late 2006 and through the end of
2008 drilled 190 wells on this property. The delineation drilling in 2008
increased our original oil in place estimates by 35% to 330 million barrels. We
are targeting ultimate recovery between 23% and 40%, similar to other diatomite
developments in California.
We plan
to invest $37 million during 2009 to drill an additional 44 diatomite wells and
install additional steam generation facilities during 2009 and have drilled 15
of these wells. Additionally, we are seeking operating and capital cost
reductions through initiatives such as steam management to improve our steam oil
ratio and improved project management to reduce overall well costs. Production
in the first quarter of 2009 was 2,670 Bbl/D and is expected to average over
3,000 Bbl/D for the year. Average daily production during the three months
ended March 31, 2009 from all N. Midway assets was approximately 5,085
BOE/D.
Piceance – During the
three months ended March 31, 2009, production from the Piceance basin averaged
20 MMcf/D. No drilling or completion activity was performed during
the quarter. Currently we have an inventory of 44 initial completions
and recompletions that will be evaluated for supplemental capital should
commodity prices warrant.
Uinta
–
Average daily production during the three months ended March 31, 2009
from all Uinta basin assets was approximately 5,410 BOE/D. No
drilling or completion activity was performed during the quarter. The
Ashley Forest Development EIS continues to progress with approval now expected
in the second half of 2009.
DJ – In March 2009, we
announced the sale of our DJ basin assets and related hedges for approximately
$154 million. Our assets in the DJ basin produced 3,100 BOE/D during
the first quarter of 2009. The sale of these assets closed on April
1, 2009.
E. Texas
– During the
three months ended March 31, 2009, production from our East Texas assets
averaged 30 MMcf/D. We continue to operate a one rig program and
drilled three vertical wells in the Oakes field during the first quarter of
2009. We are currently drilling the fourth of the five planned
vertical Oakes wells for 2009. After completion of drilling in the
Oakes field, we expect to begin drilling in the Darco Field with our first
horizontal Haynesville well.
Financial Condition, Liquidity and
Capital Resources. Substantial capital is required to
replace and grow reserves. We achieve reserve replacement and growth primarily
through successful development and exploration drilling and the acquisition of
properties. Fluctuations in commodity prices, production rates and operating
expenses have been the primary reason for changes in our cash flow from
operating activities.
Liquidity. The
total outstanding debt at March 31, 2009 under the Agreement and the Line of
Credit was $999 million and $0, respectively, and $3 million in letters of
credit have been issued under the facility, leaving $208 million in borrowing
capacity available under the Agreement at March 31,
2009.
On April
27, 2009, we completed the scheduled redetermination of the borrowing under our
credit facility. Our borrowing base was reduced from $1.25 billion to
$1.05 billion, with $100 million of the reduction resulting from the sale of our
DJ basin assets. Also on April 27, 2009 we completed a $140 million
second lien credit facility, with lenders from among our existing lending group,
which matures on January 16, 2013. Interest on the facility is
charged at LIBOR plus a margin of eight percent with a minimum LIBOR rate of
three percent. Each dollar outstanding under the second lien credit
facility reduces the borrowing base under our senior secured credit facility by
30 cents such that the $140 million second lien facility reduces our borrowing
base from $1.05 billion to $1.0 billion. Proceeds from the second lien facility
were used to pay down borrowings under our senior secured credit facility. On
April 27, 2009, following the closing of the second lien credit facility, the
outstanding amount under our senior secured credit facility was approximately
$735 million providing us with $275 million of liquidity. With the
second lien facility in place, we expect our weighted average interest rate to
increase from 4.2% at March 31, 2009 to 5.0% for the remainder of 2009,
based on current LIBOR rates.
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Capital
Expenditure and Cash
Flows. We establish a capital
budget for each calendar year based on our development opportunities and the
expected cash flow from operations for that year. Acquisitions are typically
debt financed. We may revise our capital budget during the year as a result of
acquisitions and/or drilling outcomes or significant changes in cash
flows.
In 2009,
we have a capital program of approximately $100 million and we expect to fully
fund this program from operating cash flow which should approximate $175
million. Cash provided by operating activities was impacted in the
first quarter of 2009 by an annual royalty payment of $22 million which is paid
each February and a reduction in accounts payable which, at year-end 2008,
reflected our higher 2008 capital budget. Approximately 90% of our
oil production is hedged for 2009 and thus our sensitivity to changes in oil
prices is limited. A ten dollar change in oil prices impacts our
annual operating cash flow by approximately $2 million in 2009. A one
dollar change in natural gas prices impacts our annual operating cash flow by
approximately $5 million.
Capital
expenditures, excluding property acquisitions, totaled $50.2 million during the
three months ended March 31, 2009. A portion of our capital budget
reflects expenditures to complete projects initiated during 2008 and we expect
lower quarterly expenditures for the remainder of 2009.
Working
Capital. Cash flow from
operations is dependent upon the price of crude oil and natural gas and our
ability to increase production and manage costs. Our working capital balance
fluctuates as a result of the amount of borrowings and the timing of repayments
under our credit arrangements. We use our long-term borrowings under our credit
facility primarily to fund property acquisitions. Generally, we use excess cash
to pay down borrowings under our credit arrangement. As a result, we often have
a working capital deficit or a relatively small amount of positive working
capital.
The table
below compares continuing operations, financial condition, liquidity
and capital resources changes for the three month periods ended (in millions,
except for production and average prices):
|
March
31, 2009
(1Q09)
|
March
31, 2008
(1Q08)
|
1Q09
to 1Q09 Change
|
December
31, 2008
(4Q08)
|
1Q09
to 4Q08 Change
|
||||||||||||||||
|
Average
production (BOE/D)
|
33,332 | 28,066 | 19 | % | 35,583 | (6 | %) | |||||||||||||
|
Average
oil and gas sales prices, per BOE after hedging
|
$ | 47.11 | $ | 62.44 | (25 | %) | $ | 45.57 | 3 | % | ||||||||||
|
Net
cash provided by operating activities
|
$ | 8 | $ | 87 | (91 | %) | $ | 78 | (90 | %) | ||||||||||
|
Working
capital (deficit)
|
$ | 169 | $ | (123 | ) | 237 | % | $ | (72 | ) | 335 | % | ||||||||
|
Sales
of oil and gas
|
$ | 128 | $ | 152 | (16 | %) | $ | 135 | (5 | %) | ||||||||||
|
Total
debt
|
$ | 1,199 | $ | 455 | 164 | % | $ | 1,157 | 4 | % | ||||||||||
|
Capital
expenditures
|
$ | 50 | $ | 76 | (34 | %) | $ | 92 | (46 | %) | ||||||||||
|
Dividends
paid
|
$ | 3.4 | $ | 3.3 | 3 | % | $ | 3.4 | - | % | ||||||||||
Contractual
Obligations. Our contractual
obligations as of March 31, 2009 are as follows (in millions):
|
Total
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
||||||||||||||||||||||
|
Total
debt and interest
|
$ | 1,358.8 | $ | 46.8 | $ | 46.8 | $ | 46.8 | $ | 952.3 | $ | 16.5 | $ | 249.6 | ||||||||||||||
|
Abandonment
obligations
|
40.1 | 1.6 | 1.6 | 1.6 | 1.6 | 1.6 | 32.1 | |||||||||||||||||||||
|
Operating
lease obligations
|
17.8 | 1.9 | 2.4 | 2.5 | 2.4 | 2.5 | 6.1 | |||||||||||||||||||||
|
Drilling
and rig obligations
|
45.6 | 11.4 | 8.0 | 8.0 | 18.2 | - | - | |||||||||||||||||||||
|
Firm
natural gas transportation contracts
|
160.1 | 14.9 | 19.8 | 19.8 | 19.7 | 17.5 | 68.4 | |||||||||||||||||||||
|
Total
|
$ | 1,622.4 | $ | 76.6 | $ | 78.6 | $ | 78.7 | $ | 994.2 | $ | 38.1 | $ | 356.2 | ||||||||||||||
Drilling obligations
- - Under our June 2006 joint venture agreement in the Piceance basin we are
required to have 120 wells drilled by February 2011 to avoid penalties of $.2
million per well or a maximum of $24 million. As of March 31, 2009 we have
drilled 29 of these wells and we expect to meet our February 2011
obligation.
Berry
Petroleum Company
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Other Obligations -
As of March 31, 2009 we had a gross liability for uncertain tax benefits of
$11.2 million of which $10.0 million, if recognized, would affect the effective
tax rate. We are unable to predict the year in which these uncertain
tax positions will be settled and have excluded these commitments from the table
above.
In
February 2007, we entered into a multi-staged crude oil sales contract with a
refiner for our Uinta basin light crude oil. Under the agreement, the refiner
began purchasing 3,200 Bbl/D in July 2007, as provided in our
contract. The refiner has increased its total purchase capacity to
5,000 Bbl/D as provided in our contract. The differential under the contract,
which includes transportation and gravity adjustments, is linked to WTI and
would range from $10 to $15 per barrel at WTI prices between $40 and
$60. Gross oil production averaged approximately 3,280 BOE/D in the
quarter ended March 31, 2009.
Berry
Petroleum Company
Quantitative
and Qualitative Disclosures About Market Risk
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
As
discussed in Note 4 to the unaudited condensed financial statements, to minimize
the effect of a downturn in oil and gas prices and protect our profitability and
the economics of our development plans, we enter into crude oil and natural gas
hedge contracts from time to time. The terms of contracts depend on various
factors, including management's view of future crude oil and natural gas prices,
acquisition economics on purchased assets and our future financial commitments.
This price hedging program is designed to moderate the effects of a severe crude
oil and natural gas price downturn while allowing us to participate in some
commodity price increases. In California, we benefit from lower natural gas
pricing as we are a consumer of natural gas in our operations and elsewhere, we
benefit from higher natural gas pricing. We have hedged, and may hedge in the
future, both natural gas purchases and sales as determined appropriate by
management. Management regularly monitors the crude oil and natural gas markets
and our financial commitments to determine if, when, and at what level some form
of crude oil and/or natural gas hedging and/or basis adjustments or other price
protection is appropriate in accordance with policy established by our board of
directors. Currently, our hedges are in the form of swaps and
collars. However, we may use a variety of hedge instruments in the
future to hedge WTI or the index gas price.
Berry
Petroleum Company
Quantitative
and Qualitative Disclosures About Market Risk
The
following table summarizes our hedge position as of March 31, 2009:
|
Average
|
||||||||
|
Barrels
|
Average
|
|||||||
|
Term
|
Per
Day
|
Prices
|
||||||
|
Crude Oil Sales (NYMEX WTI)
Collars
|
||||||||
|
Full
year 2009
|
295 | $ | 80.00/$91.00 | |||||
|
Full
year 2009
|
1,000 | $ | 100.00/$163.60 | |||||
|
Full
year 2009
|
1,000 | $ | 100.00/$150.30 | |||||
|
Full
year 2009
|
1,000 | $ | 100.00/$160.00 | |||||
|
Full
year 2009
|
1,000 | $ | 100.00/$150.00 | |||||
|
Full
year 2009
|
1,000 | $ | 100.00/$157.48 | |||||
|
Full
year 2010
|
1,000 | $ | 65.15 / $75.00 | |||||
|
Full
year 2010
|
1,000 | $ | 65.50 / $78.50 | |||||
|
Full
year 2010
|
280 | $ | 80.00 / $90.00 | |||||
|
Full
year 2010
|
1,000 | $ | 100.00/$161.10 | |||||
|
Full
year 2010
|
1,000 | $ | 100.00/$150.30 | |||||
|
Full
year 2010
|
1,000 | $ | 100.00/$160.00 | |||||
|
Full
year 2010
|
1,000 | $ | 100.00/$150.00 | |||||
|
Full
year 2010
|
1,000 | $ | 100.00/$158.50 | |||||
|
Full
year 2010
|
1,000 | $ | 70.00/$86.00 | |||||
|
Full
year 2011
|
270 | $ | 80.00 / $90.00 | |||||
|
Full
year 2011
|
1,000 | $ | 55.20/$70.00 | |||||
|
Full
year 2011
|
1,000 | $ | 55.00 / $70.50 | |||||
|
Full
year 2011
|
1,000 | $ | 55.00/$68.65 | |||||
|
Full
year 2011
|
1,000 | $ | 55.00/$68.00 | |||||
|
Full
year 2011
|
1,000 | $ | 55.00/$71.20 | |||||
|
Full
year 2011
|
1,000 | $ | 60.00/$76.00 | |||||
|
Full
year 2011
|
1,000 | $ | 60.00/$81.25 | |||||
|
Full
year 2012
|
1,000 | $ | 63.00/$82.60 | |||||
|
Crude
Oil Sales (NYMEX WTI) Swaps
|
||||||||
|
May
2009
|
1,000 | $ | 55.60 | |||||
|
June
2009
|
400 | $ | 57.00 | |||||
|
Full
year 2009
|
240 | $ | 71.50 | |||||
|
Full
year 2009
|
1,000 | $ | 70.30 | |||||
|
Full
year 2009
|
1,000 | $ | 70.50 | |||||
|
3rd
Quarter 2009
|
500 | $ | 52.40 | |||||
|
2nd,
3rd & 4th Quarters 2009
|
2,000 | $ | 55.00 | |||||
|
Full
year 2009
|
1,000 | $ | 54.67 | |||||
|
Full
year 2009
|
2,000 | $ | 54.10 | |||||
|
Full
year 2009
|
5,000 | $ | 54.39 | |||||
|
Full
year 2010
|
1,000 | $ | 61.00 | |||||
|
Full
year 2010
|
1,000 | $ | 61.25 | |||||
|
Full
year 2010
|
1,000 | $ | 64.80 | |||||
|
Full
year 2010
|
1,000 | $ | 62.03 | |||||
|
Full
year 2010
|
1,000 | $ | 63.00 | |||||
|
Full
year 2010
|
1,000 | $ | 63.75 | |||||
|
Full
year 2010
|
650 | $ | 56.90 | |||||
|
Full
year 2011
|
500 | $ | 57.36 | |||||
|
Full
year 2011
|
500 | $ | 57.40 | |||||
|
Full
year 2011
|
500 | $ | 57.50 | |||||
|
Full
year 2011
|
250 | $ | 61.80 | |||||
|
Average
|
||||||||
|
MMBtu
|
Average
|
|||||||
|
Term
|
Per
Day
|
Price
|
||||||
|
Natural
Gas Sales (NYMEX HH TO PEPL) Basis Swaps
|
||||||||
|
4th
quarter 2009
|
4,000 | $ | 1.05 | |||||
|
Full
year 2009
|
2,000 | $ | 1.24 | |||||
|
Full
year 2009
|
3,000 | $ | 1.19 | |||||
|
Full
year 2010
|
2,000 | $ | 1.05 | |||||
|
Full
year 2010
|
3,000 | $ | 1.00 | |||||
|
Natural
Gas Sales (NYMEX HH) Swaps
|
||||||||
|
Full
year 2009
|
2,000 | $ | 6.15 | |||||
|
Full
year 2009
|
3,000 | $ | 6.19 | |||||
|
4th
quarter 2009
|
4,000 | $ | 8.50 | |||||
|
Natural
Gas Sales (NYMEX HH) Collars
|
||||||||
|
Full
year 2010
|
2,000 | $ | 6.00/$8.60 | |||||
|
Full
year 2010
|
3,000 | $ | 6.00/$8.65 | |||||
|
Full
year 2010
|
1,000 | $ | 6.50/$8.75 | |||||
|
Full
year 2010
|
1,000 | $ | 6.50/$8.85 | |||||
|
Full
year 2010
|
2,000 | $ | 6.50/$8.90 | |||||
|
Natural Gas Sales (NYMEX HH TO
NGPL) Basis Swaps
|
||||||||
|
Full
year 2010
|
2,000 | $ | 0.49 | |||||
|
Natural
Gas Sales (NYMEX HH TO HSC) Basis Swaps
|
||||||||
|
Full
year 2010
|
2,000 | $ | 0.38 | |||||
Berry
Petroleum Company
Quantitative
and Qualitative Disclosures About Market Risk
The
collar strike prices will allow us to protect a significant portion of our
future cash flow if prices decline below our floor prices while still
participating in any price increase up to the ceiling prices. These
hedges improve our financial flexibility by locking in significant revenues and
cash flow upon a substantial decline in crude oil or natural gas prices,
including certain basis differentials. It also allows us to develop our
long-lived assets and pursue exploitation opportunities with greater confidence
in the projected economic outcomes and allows us to borrow a higher amount under
our credit facility.
While we
have designated our hedges as cash flow hedges in accordance with SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities, a portion of the hedges
related to the movement in the WTI to California heavy crude oil price
differential will likely be ineffective. Likewise, we may have some
ineffectiveness in our natural gas hedges due to the movement of HH pricing as
compared to actual sales points. If this occurs, the ineffective portion will
directly impact net income rather than being reported as Other Comprehensive
Income (Loss). If the differential were to change significantly, it is possible
that our hedges, when marked-to-market, could have a material impact on earnings
in any given quarter and, thus, add increased volatility to our net income. The
mark-to-market values reflect the fair values of such hedges and not necessarily
the values of the hedges if they are held to maturity.
In
December 2008, Big West Oil of California filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code. Our contract with
Big West provided for an oil price differential that was linked to NYMEX WTI
prices and allowed us to effectively hedge our oil production at the NYMEX WTI
index. Subsequent to the Big West bankruptcy, our crude oil has been
sold at field posting prices which resulted in some ineffectiveness related to
our WTI linked hedges. We recognized an unrealized net gain of
approximately $22.8 million in the condensed statement of income under the
caption “Gain (loss) on ineffective commodity derivatives” for the quarter ended
March 31, 2009 as a result of this ineffectiveness.
We have
entered into interest rate hedges as shown below to swap the floating rate under
our senior secured credit facility (LIBOR) for a fixed interest
rate These interest rate swaps have been designated as cash flow
hedges.
|
Notional
|
||||||||
|
Amount
|
||||||||
|
Hedge
Term
|
$MM
|
Fixed
Rate
|
||||||
|
4/1/2009
– 6/30/2012
|
100 | 4.74 | % | |||||
|
4/15/2009
– 7/15/2012
|
150 | 1.95 | % | |||||
|
9/15/2009
– 7/15/2012
|
150 | 2.44 | % | |||||
|
12/15/2009
– 7/15/2012
|
125 | 2.03 | % | |||||
The
related cash flow impact of all of our derivative activities are reflected as
cash flows from operating activities. Irrespective of the unrealized gains
reflected in Other Comprehensive Income (Loss), the ultimate impact to net
income over the life of the hedges will reflect the actual settlement values.
All of these hedges have historically been deemed to be cash flow hedges and are
booked at fair value.
Berry
Petroleum Company
Quantitative
and Qualitative Disclosures About Market Risk
Based on
average NYMEX futures prices as of March 31, 2009 (WTI $63.88; HH $5.15) for the
term of our hedges we would expect to make pre-tax future cash payments or to
receive payments over the remaining term of our crude oil and natural gas hedges
in place as follows:
|
Impact
of percent change in futures prices
|
||||||||||||||||||||
|
March
31, 2009
|
on
pre-tax future cash (payments) and receipts
|
|||||||||||||||||||
|
NYMEX
Futures
|
-40 | % | -20 | % | + 20 | % | +40 | % | ||||||||||||
|
Average
WTI Futures Price (2009 – 2012)
|
$ | 63.88 | $ | 38.33 | $ | 51.11 | $ | 76.66 | $ | 89.43 | ||||||||||
|
Average
HH Futures Price (2009 – 2010)
|
5.15 | 3.09 | 4.12 | 6.19 | 7.22 | |||||||||||||||
|
Crude
Oil gain/(loss) (in millions)
|
$ | 153.8 | $ | 472.0 | $ | 297.9 | $ | 6.1 | $ | (159.5 | ) | |||||||||
|
Natural
Gas gain/(loss) (in millions)
|
3.1 | 21.4 | 18.6 | 14.8 | 15.2 | |||||||||||||||
|
Total
|
$ | 156.9 | $ | 493.4 | $ | 316.5 | $ | 20.9 | $ | (144.3 | ) | |||||||||
|
Net
pre-tax future cash (payments) and receipts by year (in millions) based on
average price in each year:
|
||||||||||||||||||||
|
2009
(WTI $53.70; HH $4.25)
|
$ | 80.5 | $ | 192.1 | $ | 139.1 | $ | 33.0 | $ | (20.1 | ) | |||||||||
|
2010
(WTI $61.92; HH $5.84)
|
81.1 | 237.3 | 162.7 | 24.8 | (39.0 | ) | ||||||||||||||
|
2011
(WTI $67.24)
|
(4.7 | ) | 56.4 | 12.1 | (36.4 | ) | (79.5 | ) | ||||||||||||
|
2012
(WTI $70.12)
|
- | 7.6 | 2.6 | (0.5 | ) | (5.7 | ) | |||||||||||||
|
Total
|
$ | 156.9 | $ | 493.4 | $ | 316.5 | $ | 20.9 | $ | (144.3 | ) | |||||||||
Interest
Rates. Our exposure to changes in interest rates results primarily from
long-term debt. In October 2006, we issued, in a public offering, $200 million
of 8.25% senior subordinated notes due 2016. At March 31, 2009, total
long-term debt outstanding was $1.2 billion. Interest on amounts borrowed under
our credit facility is charged at LIBOR plus 2.25% to 3.0%, with the exception
of the principal for which we have hedged, plus the credit facility’s margin
through July 15, 2012. Based on March 31, 2009 credit facility borrowings, a 1%
change in interest rates would have an annualized $3 million after tax
impact on our financial statements.
Berry
Petroleum Company
Controls
and Procedures
Item 4. Controls and Procedures
As of
March 31, 2009, we have carried out an evaluation under the supervision of, and
with the participation of, our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures pursuant to Rule 13a-15 under the
Securities Exchange Act of 1934, as amended.
Based on
their evaluation as of March 31, 2009, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of
1934) are effective to ensure that the information required to be disclosed by
us in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and include controls and procedures designed
to ensure that information required to be disclosed by us in such reports is
accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
There was
no change in our internal control over financial reporting that occurred during
the three months ended March 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. We may make changes in our internal control procedures from time to
time in the future.
Forward Looking
Statements
“Safe
harbor under the Private Securities Litigation Reform Act of 1995:” Any
statements in this Form 10-Q that are not historical facts are forward-looking
statements that involve risks and uncertainties. Words such as “plan,” “will,”
“intend,” “continue,” “target(s),” “expect,” “achieve,” “future,” “may,”
“could,” “goal(s),” “anticipate,” or other comparable words or phrases, or the
negative of those words, and other words of similar meaning indicate
forward-looking statements and important factors which could affect actual
results. Forward-looking statements are made based on management’s current
expectations and beliefs concerning future developments and their potential
effects upon Berry Petroleum Company. These items are discussed at length in
Part I, Item 1A on page 15 of our Form 10-K dated February 25, 2009, filed with
the Securities and Exchange Commission, under the heading “Risk Factors” and all
material changes are updated in Part II, Item 1A within this Form
10-Q.
Berry
Petroleum Company
Part II. Other
Information
PART II. OTHER
INFORMATION
Item
1. Legal Proceedings
None.
Item
1A. Risk Factors
None.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security
Holders
None.
Item
5. Other Information
None.
Berry
Petroleum Company
Part II. Other
Information
Item
6. Exhibits
|
Exhibit No.
|
Description of Exhibit
|
|
10.1*
|
Crude
Oil Purchase Contract dated March 20, 2009 between the [Registrant] and
Tesoro Corporation.
|
|
10.2
|
Third
Amendment to Amended and Restated Credit Agreement dated April 27, 2009 by
and among Registrant, Wells Fargo Bank National Association, individually
and as administrative agent, and certain financial institutions, as
lenders.
|
|
10.3
|
Second
Lien Credit Agreement dated April 27, 2009 among Registrant, Wells Fargo
Energy Capital, Inc., as administrative agent, and certain financial
institutions, as Lenders and agents.
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
*
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereto
duly authorized.
BERRY
PETROLEUM COMPANY
/s/ Shawn
M. Canaday
Shawn M.
Canaday
Vice
President and Controller
(Principal
Accounting Officer)
Date: April
30, 2009
36
Exhibit 10.1
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
Date:
3/20/2009
TESORO
Contract No: BEC09TP0003
Berry
Petroleum Company Contract No: Please Advise
FAX: 1-303-999-4141
Berry Petroleum Company
1999
Broadway Ste 3700 Denver, CO 80202
Attn: Ron
Cross
This Agreement confirms the transaction previously discussed between TESORO REFINING
AND MARKETING COMPANY, a Delaware Corporation (hereinafter referred to as
"TESORO" or “Buyer”), and Berry Petroleum Company (hereinafter referred to as
"Seller”) TESORO agrees to purchase, and Seller agrees to sell, Crude Oil under
the terms and conditions set forth herein and Conoco's General Provisions for
Domestic Crude Oil Agreements dated January 1, 1993.
1.
IDENTIFICATION OF CRUDE OIL BATCHS, DELIVERY POINTS,
QUANTITIES AND PRICES: The Crude
Oil being purchased hereunder is a crude petroleum oil, in its natural produced
state after normal oilfield separation, as specified and identified
below. The Crude Oil will be delivered and sold in four separate
batched deliveries, with the tems of sale of each batch as follows:
|
A.
|
Delivery
1
|
QUALITY: San
Joaquin Valley Heavy
QUANTITY: Approximately
5,000 Barrels Per Day
DELIVERY: Delivery
to the point of destination, SMWS Berry Central, CA, Into Pipe, Book Transfer,
In-tank, or Pumpover.
TITLE/RISK OF
LOSS: Except as
otherwise specified in this agreement, title and risk of loss or damage shall
pass to TESORO as the crude oil enters the ConcoPhillips (Unocal) Pipeline or
other common carrier pipeline through the inlet flange of metering facilities at
SMWS Berry Central, CA.
PRICE: TESORO
agrees to pay Seller based on the following price formula:
The price
shall be the higher of the two following calculations, to be determined at the
end of each month.
1)
The average of the four posters (Chevron, Union 76, Shell, and Exxon) for Midway
Sunset crude oil for the calendar month average (Including Weekend &
Holiday) adjusted for actual gravity, plus a differential of $*** United States
Dollars per Barrel.
2)
NYMEX's daily settle
quoted price for Light Sweet Crude Future for the calendar month average
(Excluding Weekend & Holiday) less $*** United States Dollars per
Barrel.
For
pricing purposes, any crude oil delivered hereunder shall be deemed to have been
delivered in equal daily quantities during the calendar month in which delivery
occurs.
|
B.
|
Delivery
2
|
QUALITY: San
Joaquin Valley Heavy
QUANTITY: Approximately
1,000 Barrels Per Day
DELIVERY: Delivery
to the point of destination, Berry Ethel D, CA, Into Pipe, Book Transfer,
In-tank, or Pumpover.
TITLE/RISK OF LOSS:
Except as
otherwise specified in this agreement, title and risk of loss or damage shall
pass to TESORO as the crude oil enters the Pacific Plains Pipeline through the
inlet flange of metering facilities at Berry Ethel D, CA.
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
PRICE: TESORO
agrees to pay Seller based on the following price formula:
The price
shall be the higher of the two following calculations, to be determined at the
end of each month:
1) The
average of the four posters (Chevron, Union 76, Shell, and Exxon) for Midway
Sunset crude oil for the calendar month average (Including Weekend & Holiday
adjusted for actual gravity), plus a differential of $*** United States Dollars
per Barrel.
2)
NYMEX's daily settle quoted price for Light Sweet Crude Future for the calendar
month average (Excluding Weekend & Holiday) less $*** United States Dollars
per Barrel.
For
pricing purposes, any crude oil delivered hereunder shall be deemed to have been
delivered in equal daily quantities during the calendar month in which delivery
occurs.
|
C.
|
Delivery
3
|
QUALITY: San
Joaquin Valley Heavy
QUANTITY: Approximately
3,500 Barrels Per Day
DELIVERY: Delivery
to the point of destination, NMWS Fairfield, CA, Into Pipe, Book Transfer,
In-tank, or Pumpover.
TITLE/RISK OF LOSS:
Except as
otherwise specified in this agreement, title and risk of loss or damage shall
pass to TESORO as the crude oil enters the Pacific Plains Pipeline through the
inlet flange of metering facilities at NMWS Fairfield, CA.
PRICE: TESORO
agrees to pay Seller based on the following price formula:
The price
shall be the higher of the two following calculations, to be determined at the
end of each month:
1) The
average of the four posters (Chevron, Union 76, Shell, and Exxon) for Midway
Sunset crude oil for the calendar month average (Including Weekend & Holiday
adjusted for actual gravity) plus a differential of $*** United States Dollars
per Barrel.
2)
NYMEX's daily settle quoted price for Light Sweet Crude Future for the calendar
month average (Excluding Weekend & Holiday) less $*** United States Dollars
per Barrel.
For
pricing purposes, any crude oil delivered hereunder shall be deemed to have been
delivered in equal daily quantities during the calendar month in which delivery
occurs.
|
D.
|
Delivery
4
|
QUALITY: San
Joaquin Valley Heavy
QUANTITY: Approximately
2,400 Barrels Per Day
DELIVERY: Delivery
to the point of destination, Berry Formax, CA, Into Pipe/BT/IT/PO
TITLE/RISK OF LOSS:
Except as
otherwise specified in this agreement, title and risk of loss or damage shall
pass to TESORO as the crude oil enters the ConocoPhillips (Unocap) Pipeline
through the inlet flange of metering facilities at Berry Formax,
CA.
PRICE: TESORO
agrees to pay Seller based on the following price formula:
The price
shall be the higher of the two following calculations, to be determined at the
end of each month:
1) The
average of the four posters (Chevron, Union 76, Shell, and Exxon) for Midway
Sunset crude oil for the calendar month average (Including Weekend &
Holiday) adjusted for actual gravity, plus a differential of $*** United States
Dollars per Barrel.
2)
NYMEX's daily settle quoted price for Light Sweet Crude Future for the calendar
month average (Excluding Weekend & Holiday) less $*** United States Dollars
per Barrel.
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
For
pricing purposes, any crude oil delivered hereunder shall be deemed to have been
delivered in equal daily quantities during the calendar month in which delivery
occurs.
|
2.
|
TERM:
This
Agreement shall extend for an initial
term from 4/1/2009 to 9/30/2009.
|
|
3.
|
PAYMENT:
Payment
due on the 20th day of the month after the month of
delivery.
|
Payment
shall be made by electronic funds transfer in United States
Dollars.
Payments
due on Saturday shall be paid the preceding Friday, and payments due on Sunday
shall be paid on the following Monday. Similarly, payments due on a federal bank
holiday shall be paid the preceding business day except when a federal bank
holiday falls on a Monday, when payment shall be due the following
day.
All
payments made under this agreement shall be made without offset, deduction or
counterclaim except as provided herein, by separate written agreement between
the parties, or within the GENERAL PROVISIONS attached hereto or previously
provided, incorporated into and made part of this Agreement by reference.
If
applicable, net-out invoices shall be according to the established netting
agreement between Buyer and Seller.
|
Send
Invoices to:
|
Tesoro
Refining and Marketing Company 300 Concord Plaza Drive San Antonio, TX
78216
|
Attn:
Crude Accounting, Fax (210) 881-6435
Email:
TSOCrudeinvoices@tsocorp.com
Attn:
Accounts Payable, Fax (210) 579-4573 Email: apayable@tsocorp.com
|
4.
|
OTHER
TERMS AND CONDITIONS:
|
A. The
terms stated in the ConocoPhillips General Provisions for Domestic Crude Oil
Agreements effective January 1, 1993 (“GP”),
attached hereto as Exhibit A and incorporated herein by reference, will be applicable to the extent that they are not in
conflict with any of the terms in this Agreement, provided, however:
1. The
fourth sentence of Paragraph A of the GP shall be changed to read as follows:
The crude oil delivered hereunder shall be merchantable and acceptable in the
applicable common or segregated stream of the carriers involved, but not to
exceed 3% S&W merchantable liquid hydrocarbons are defined as unrefined
liquid hydrocarbons which are suitable for normal refinery processing, meet
specifications of delivering carriers and are free of foreign contaminant
chemicals including, but not limited to, chlorinated and oxygenated
hydrocarbons.
2. The
second paragraph of Paragraph B of the GP shall be changed to read as follows:
Seller further warrants the crude oil delivered shall be
merchantable.
3. The
parties do not agree to comply with the specific laws, orders or regulations
identified in Paragraph C of the GP unless such party is otherwise subject to
such laws, orders or regulations.
4. In the first sentence of Paragraph E of the
GP the phrase “acts in furtherance of the International Energy Program,” shall
be deleted. The following shall be added at the end of the first
paragraph of Paragraph E: The parties acknowledge that there is no associated
purchase/sale, or exchange of crude oil, related to this
Agreement.”
5. In the
last paragraph of Paragraph F of the GP the reference to Morgan Guaranty Trust
Company of New York shall be deleted and Wells Fargo Bank, San Francisco shall
be substituted.
6. Paragraph H (1) shall be amended to read as
follows: “H. Termination: (1) Right to
Terminate. If a party to this Agreement (a) becomes the subject of
bankruptcy or other insolvency proceedings, or proceedings for the appointment
of a receiver, trustee or similar official, (b) becomes generally unable to pay
its debts as they become due, (c) makes a general assignment for the benefit of
creditors, (d) if Buyer defaults in the payment of any funds due under this
Agreement, or (e) if Buyer fails to accept and purchase any crude oil delivered
by Seller under this Agreement, then the other party to this Agreement (the
“Terminating Party”) may terminate this Agreement by giving written notice of
termination. Such a termination shall be deemed to be effective
immediately prior to any of the events described in clauses (a), (b) or (c) of
this Section H(1) and, in the case of termination for reasons described in
clauses (d) or (e) immediately upon the Buyer’s receipt of Seller’s notice of
termination. If this Agreement is associated with a separate
agreement contemplating a corresponding purchase or sale of crude oil, all
related agreements shall be deemed to be terminated at the same time as this
Agreement is terminated. All of the references to Liquidating Party
in this Paragraph H shall be substituted by Terminating Party. Upon
termination, the parties shall have no further rights or obligations with
respect to this Agreement, except for the payment of the amount(s) (the
‘Settlement Amount’ or ‘Settlement Amounts’) determined as provided in
Paragraph(3) of this Section.”
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
7. The following sentence shall be added to Paragraph H
(3) of the GP: “In the event of a contract termination, the Settlement Amount
shall be calculated using the estimated contract quantity of crude oil
multiplied by the remainder of the term of this Agreement except as such
Settlement Amount may be limited by the provisions of Paragraph H
(8).”
8. Paragraph H(5) Market Price is hereby amended to read
as follows: “Unless otherwise provided in this Agreement, the Market
Price of crude oil sold or exchanged under this Agreement shall be the price for
crude oil for the delivery month as specified in this Agreement and at the
delivery location that corresponds to the delivery location specified in this
Agreement.”
9.
The
governing law set forth in Paragraph M of the GP shall be California
law.
10. Any
modification of any of the referenced documents shall only be by written
instrument signed by both parties. Any conflict between the General Provisions
and this Agreement shall be resolved in
favor of this Agreement. The section
headings are for convenience only and shall not limit or change the subject
matter of this Agreement.
12. Tesoro agrees to immediately provide to Seller upon
Seller’s request from time to time copies of Tesoro’s financial statements for
the period requested either certified as to accuracy by Tesoro’s chief financial
officer or audited by Tesoro’s independent accounting firm in form and as to
date reasonably acceptable to Seller; provided however that Tesoro shall not be
required to 1) prepare any financial statements, 2) issue any certifications for
Seller’s benefit, or 3) be required to provide any information that
is not suitable for public disclosure in accordance with applicable securities
laws and regulations applicable to Tesoro as a publicly traded
entity.
B. In the
event of any claim, dispute or controversy arising out of or relating to this
Agreement, including an action for declaratory relief, the prevailing party in
such action or proceeding shall be entitled to recover its court costs and
reasonable out-of-pocket expenses not limited to taxable costs, including but
not limited to phone calls, photocopies, expert witness, travel, etc., and
reasonable attorneys fees to be fixed by the court. Such recovery shall include
court costs, out-of-pocket expenses and attorneys fees on appeal, if any. The
court shall determine who is the prevailing party, whether or not the dispute or
controversy proceeds to final judgment. If either party is reasonably required
to incur such out-of-pocket expenses and attorneys fees as a result of any claim
arising out of or concerning this Agreement or any right or obligation derived
hereunder, then the prevailing party shall be entitled to recover such
reasonable out-of-pocket expenses and attorneys fees whether or not an action is
filed.
CONFIDENTIALITY:
The
parties will treat all information contained within or produced pursuant to this Agreement as confidential and will use it only
for the purposes of this Agreement. Such
confidential information specifically includes, without limitation, the prices
specified in this Agreement. Neither party
will disclose the other party's confidential information to any third party or
in any public statement without the other party's express prior written consent,
provided however, that the parties shall disclose such information (other than
prices) to carriers and the operators of terminals and pipelines, as might be
required to arrange for delivery of Crude Oil being sold hereunder. Nothing
contained herein shall prevent a party from disclosing confidential information
when necessary to enforce provisions of this Agreement or when such party's counsel determines
in good faith that such disclosure is required to comply with applicable law,
judicial or administrative process or regulatory requirement, including without
limitation disclosures by Seller about the existence of the Agreement and identifying the parties and other
general information as may be deemed material for disclosure under applicable
securities regulations, but not including the price being sold hereunder unless approximations thereof are required to be
disclosed under applicable securities laws and regulations or unless ordered
disclosed by the applicable government agency after confidentialty protection
has been requested. In the event of any such disclosure, the party making
such disclosure pursuant to law, process or
regulatory requirement shall provide the other party with notice of and a
reasonable opportunity to object to such disclosure. This confidentiality
provision will remain in full force and effect for the term of this Agreement and for a period of one year
thereafter.
ADDRESSES: The
following address shall be used for notices under this Agreement.
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
|
To
TESORO
|
To
Seller
|
|
|
Tesoro
Refining and Marketing Company
|
Berry
Petroleum Company
|
|
|
300
Concord Plaza Drive
|
1999
Broadway Ste 3700
|
|
|
San
Antonio, Texas 78216-6999
|
Denver,
CO 80202
|
|
|
Attn:
Commercial Contract Administration
|
Attn:
Ron Cross
|
|
|
PHONE
# 1-210-626-7157
|
PHONE
# 1-303-999-4041
|
|
|
FAX
# 1-210-579-4578
|
FAX
# 1-303-999-4141
|
|
|
Email:
smanagment@tsocorp.com
|
rfc@bry.com
|
|
|
ADDITIONAL
TESORO CONTACTS:
|
||
|
OPERATIONS
Crude Scheduling
|
Phone:
(210) 626-4036
|
Fax:
(210) 745-4565
|
|
CREDIT
Brian Randecker
|
Phone:
(210) 626-4757
|
Fax:
(210) 745-4673
|
|
ACCOUNTING
Mid-Office Accounting
|
Fax:
(210) 881-6435
|
|
|
E-mail:
sat-tsocrudeinvoices(a)tsocorp.com
|
||
|
INTERNATIONAL
TRADE COMPLIANCE
|
Direct
questions for international shipments to
|
|
|
appropriate
person below:
|
||
|
Pipeline
Imports Kevin Wilder
|
Phone:
(210) 626-4843
|
Cell:
(210) 315-6192
|
|
Marine
Imports Audra Hanley
|
Phone:
(210) 626-4446
|
Cell:
(210) 315-6324
|
|
Exports
Gary Wilson
|
Phone:
(210) 626-4787
|
Cell:
(210) 241-5333
|
Regards,
Damon M
Van Zandt
Director,
North American Crude Trading Tesoro Refining and Marketing Company
Agreed and accepted as of the date first above
written.
BERRY PETROLEUM COMPANY
|
By:
|
/s/ Michael Duginski
|
|
|
Michael
Duginski,
|
||
|
Executive
Vice President and
|
||
|
Chief
Operating Officer
|
||
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
EXHIBIT A
TO MARCH __, 2009 CRUDE OIL PURCHASE
AGREEMENT
(JANUARY 1, 1993 CONOCO GENERAL PROVISIONS
FOR
DOMESTIC CRUDE OIL AGREEMENTS)
GENERAL PROVISIONS
DOMESTIC CRUDE OIL AGREEMENTS
A. Measurement and Tests: All
measurements hereunder shall be made from static tank gauges on 100 percent tank
table basis or by positive displacement meters. All measurements and
tests shall be made in accordance with the latest ASTM or ASME-API (Petroleum PD
Meter Code) published methods then in effect, whichever apply. Volume
and gravity shall be adjusted to 60 degrees Fahrenheit by the use of Table 6A
and 5A of the Petroleum Measurement Tables ASTM Designation D1250 in their
latest revision. The crude oil delivered hereunder shall be
marketable and acceptable in the applicable common or segregated stream of the
carriers involved but not to exceed 1% S&W. Full deduction for
all free water and S&W content shall be made according to the API/ASTM
Standard Method then in effect. Either party shall have the right to
have a representative witness all gauges, tests and measurements. In
the absence of the other party's representative, such gauges, tests and
measurements shall be deemed to be correct.
B. Warranty: The Seller warrants good title
to all crude oil delivered hereunder and warrants that such crude oil shall be
free from all royalties, liens, encumbrances and all applicable foreign,
federal, state and local taxes.
Seller further warrants that the crude oil delivered
shall not be contaminated by chemicals foreign to virgin crude oil including,
but not limited to chlorinated and/or oxygenated hydrocarbons and
lead. Buyer shall have the right, without prejudice to any other
remedy available to Buyer, to reject and return to Seller any quantities of
crude oil which are found to be so contaminated, even after delivery to
Buyer.
C. Rules and Regulations: The terms,
provisions and activities undertaken pursuant to this Agreement shall be subject
to all applicable laws, orders and regulations of all governmental
authorities. If at any time a provision hereof violates any such
applicable laws, orders or regulations, such provision shall be voided and the
remainder of the Agreement shall continue in full force and effect unless
terminated by either party upon giving written notice to the other party
hereto. If applicable, the parties hereto agree to comply with all
provisions (as amended) of the Equal Opportunity Clause prescribed in 41 C.F.R.
60-1.4; the Affirmative Action Clause for disabled veterans and veterans of the
Vietnam Era prescribed in 41 C.F.R. 60-250.4; the Affirmative Action Clause for
Handicapped Workers prescribed in 41 C.F.R. 60-741.4; 48 C.F.R. Chapter 1
Subpart 19.7 regarding Small Business and Small Disadvantaged Business Concerns;
48 C.F.R. Chapter 1 Subpart 20.3 regarding Utilization of Labor Surplus Area
Concerns; Executive Order 12138 and regulations thereunder regarding
subcontracts to women-owned business concerns; Affirmative Action Complicance
Program (41 C.F.R. 60-1.40); annually file SF-100 Employer Information Report
(41 C.F.R. 60-1.7); 41 C.F.R. 60-1.8 prohibiting segregated facilities; and the
Fair Labor Standards Act of 1938 as amended, all of which are incorporated in
this Agreement by reference.
D. Hazard Communication: Seller shall provide
its Material Safety Data Sheet ("MSDS") to Buyer. Buyer acknowledges
the hazards and risks in handling and using crude oil. Buyer shall
read the MSDS and advise its employees, its affiliates, and third parties, who
may purchase or come into contact with such crude oil, about the hazards of
crude oil, as well as the precautionary procedures for handling said crude oil,
which are set forth in such MSDS and any supplementary MSDS or written
warning(s) which Seller may provide to Buyer from time to
time.
E. Force Majeure: Except for payment due
hereunder, either party hereto shall be relieved from liability for failure to
perform hereunder for the duration and to the extent such failure is occasioned
by war, riots, insurrections, fire, explosions, sabotage, strikes, and other
labor or industrial disturbances, acts of God or the elements, governmental
laws, regulations, or requests, acts in furtherance of the International Energy
Program, disruption or breakdown of production or transportation facilities,
delays of pipeline carrier in receiving and delivering crude oil tendered, or by
any other cause, whether similar or not, reasonably beyond the control of such
party. Any such failures to perform shall be remedied with all
reasonable dispatch, but neither party shall be required to supply substitute
quantities from other sources of supply. Failure to perform due to
events of Force Majeure shall not extend the terms of this
Agreement.
Notwithstanding the above, and in the event that the
Agreement is an associated purchase/sale, or exchange of crude oil, the parties
shall have the rights and obligations described below in the circumstances
described below:
(1) If, because of Force Majeure, the party declaring
Force Majeure (the "Declaring Party") is unable to deliver part or all of the
quantity of crude oil which the Declaring Party is obligated to deliver under
the Agreement or associated contract, the other party (the "Exchange Partner")
shall have the right but not the obligation to reduce its deliveries of crude
oil under the same Agreement or associated contract by an amount not to exceed
the number of barrels of crude oil that the Declaring Party fails to
deliver.
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
(2) If, because of Force Majeure, the Declaring Party is
unable to take delivery of part or all of the quantity of crude oil to be
delivered by the Exchange Partner under the Agreement or associated contract,
the Exchange Partner shall have the right but not the obligation to reduce its
receipts of crude oil under the same Agreement or associated contract by an
amount not to exceed the number of barrels of crude oil that the Declaring Party
fails to take delivery of.
F. Payment: Unless otherwise specified in the
Special Provisions of this Agreement, Buyer agrees to make payment against
Seller's invoice for the crude oil purchased hereunder to a bank designated by
Seller in U.S. dollars by telegraphic transfer in immediately available
funds. Unless otherwise specified in the Special Provisions of this
Agreement, payment will be due on or before the 20th of the month following the
month of delivery. If payment due date is on a Saturday or New York
bank holiday other than Monday, payment shall be due on the preceding New York
banking day. If payment due date is on a Sunday or a Monday New York
bank holiday, payment shall be due on the succeeding New York banking
day.
Payment shall be deemed to be made on the date good
funds are credited to Seller's account at Seller's designated
bank.
In the event that Buyer fails to make any payment when
due, Seller shall have the right to charge interest on the amount of the overdue
payment at a per annum rate which shall be two percentage points higher than the
published prime lending rate of Morgan Guaranty Trust Company of New York on the
date payment was due, but not to exceed the maximum rate permitted by
law.
G. Financial Responsibility: Notwithstanding
anything to the contrary in this Agreement, should Seller reasonably believe it
necessary to assure payment, Seller may at any time require, by written notice
to Buyer, advance cash payment or satisfactory security in the form of a Letter
or Letters of Credit at Buyer's expense in a form and from a bank acceptable to
Seller to cover any or all deliveries of crude oil. If Buyer does not
provide the Letter of Credit on or before the date specified in Seller's notice
under this section, Seller or Buyer may terminate this Agreement
forthwith. However, if a Letter of Credit is required under the
Special Provisions of this Agreement and Buyer does not provide same, then
Seller only may terminate this Agreement forthwith. In no event shall
Seller be obligated to schedule or complete delivery of the crude oil until said
Letter of Credit is found acceptable to Seller. Each party may offset any
payments or deliveries due to the other party under this or any other agreement
between the parties.
If a party to this Agreement (the "Defaulting Party")
should (1) become the subject of bankruptcy or other insolvency proceedings, or
proceedings for the appointment of a receiver, trustee, or similar official, (2)
become generally unable to pay its debts as they become due, or (3) make a
general assignment for the benefit of creditors, the other party to this
Agreement may withhold shipments without notice.
|
H.
|
Liquidation:
|
(1) Right to Liquidate. At any time after the
occurrence of one or more of the events described in the third paragraph of
Section G, Financial Responsibility, the other party to the Agreement (the
"Liquidating Party") shall have the right, at its sole discretion, to liquidate
this Agreement by terminating this Agreement. Upon termination, the
parties shall have no further rights or obligations with respect to this
Agreement, except for the payment of the amount(s) (the "Settlement Amount" or
"Settlement Amounts") determined as provided in Paragraph (3) of this
section.
(2) Multiple Deliveries. If this
Agreement provides for multiple deliveries of one or more types of crude oil in
the same or different delivery months, or for the purchase or exchange of crude
oil by the parties, all deliveries under this Agreement to the same party at the
same delivery location during a particular delivery month shall be considered a
single commodity transaction ("Commodity Transaction") for the purpose of
determining the Settlement Amount(s). If the Liquidating Party elects
to liquidate this Agreement, the Liquidating Party must terminate all Commodity
Transactions under this Agreement.
(3) Settlement Amount. With respect to
each terminated Commodity Transaction, the Settlement Amount shall be equal to
the contract quantity of crude oil, multiplied by the difference between the
contract price per barrel specified in this Agreement (the "Contract Price") and
the market price per barrel of crude oil on the date the Liquidating Party
terminates this Agreement (the "Market Price"). If the Market Price
exceeds the Contract Price in a Commodity Transaction, the selling party shall
pay the Settlement Amount to the buying party. If the Market Price is
less than the Contract Price in a Commodity Transaction, the buying party shall
pay the Settlement Amount to the selling party. If the Market Price
is equal to the Contract Price in a Commodity Transaction, no Settlement Amount
shall be due.
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
(4) Termination Date. For the purpose
of determining the Settlement Amount, the date on which the Liquidating Party
terminates this Agreement shall be deemed to be (a) the date on which the
Liquidating Party sends written notice of termination to the Defaulting Party,
if such notice of termination is sent by telex or facsimile transaction; or (b)
the date on which the Defaulting Party receives written notice of termination
from the Liquidating Party, if such notice of termination is given by United
States mail or a private mail delivery service.
(5) Market Price. Unless otherwise
provided in this Agreement, the Market Price of crude oil sold or exchanged
under this Agreement shall be the price for crude oil for the delivery month
specified in this Agreement and at the delivery location that corresponds to the
delivery location specified in this Agreement, as reported in Platt's Oilgram
Price Report ("Platt's") for the date on which the Liquidating Party terminates
this Agreement. If Platt's reports a range of prices for crude oil on
that date, the Market Price shall be the arithmetic average of the high and low
prices reported by Platt's. If Platt's does not report prices for the
crude oil being sold under this Agreement, the Liquidating Party shall determine
the Market Price of such crude oil in a commercially reasonable manner, unless
otherwise provided in this Agreement.
(6) Payment of Settlement Amount. Any
Settlement Amount due upon termination of this Agreement shall be paid in
immediately available funds within two business days after the Liquidating Party
terminates this Agreement. However, if this Agreement provides for
more than one Commodity Transaction, or if Settlement Amounts are due under
other agreements terminated by the Liquidating Party, the Settlement Amounts due
to each party for such Commodity Transactions and/or agreements shall be
aggregated. The party owing the net amount after such aggregation
shall pay such net amount to the other party in immediately available funds
within two business days after the date on which the Liquidating Party
terminates this Agreement.
(7) Miscellaneous. This section shall
not limit the rights and remedies available to the Liquidating Party by law or
under other provisions of this Agreement. The parties hereby
acknowledge that this Agreement constitutes a forward contract for purposes of
Section 556 of the U.S. Bankruptcy Code.
I. Equal Daily Deliveries: For pricing
purposes only, unless otherwise specified in the Special Provisions, all crude
oil delivered hereunder during any calendar month shall be considered to have
been delivered in equal daily quantities during such month.
J. Exchange Balancing: If volumes are
exchanged, each party shall be responsible for maintaining the exchange in
balance on a month-to-month basis, as near as pipeline or other transportation
conditions will permit. In all events upon termination of this
Agreement and after all monetary obligations under this Agreement have been
satisfied, any volume imbalance existing at the conclusion of this Agreement of
less than 1,000 barrels will be declared in balance. Any volume
imbalance of 1,000 barrels or more, limited to the total contract volume, will
be settled by the underdelivering party making delivery of the total volume
imbalance in accordance with the delivery provisions of this Agreement
applicable to the underdelivering party, unless mutually agreed to the
contrary. The request to schedule all volume imbalances must be
confirmed in writing by one party or both parties. Volume imbalances
confirmed by the 20th of the month shall be delivered during the calendar month
after the volume imbalance is confirmed. Volume imbalances confirmed
after the 20th of the month shall be delivered during the second calendar month
after the volume imbalance is confirmed.
K. Delivery, Title, and Risk of
Loss: Delivery, title, and risk of loss of the crude oil delivered
hereunder shall pass from Seller to Buyer as follows: For lease delivery
locations, delivery of the crude oil to the Buyer shall be effected as the crude
oil passes the last permanent delivery flange and/or meter connecting the
Seller's lease/unit storage tanks or processing facilities to the Buyer's
carrier. Title to and risk of loss of the crude oil shall pass from
Seller to Buyer at the point of delivery.
For delivery locations other than lease/unit delivery
locations, delivery of the crude oil to the Buyer shall be effected as the crude
oil passes the last permanent delivery flange and/or meter connecting the
delivery facility designated by the Seller to the Buyer's carrier. If
delivery is by in-line transfer, delivery of the crude oil to the Buyer shall be
effected at the particular pipeline facility designated in this
Agreement. Title to and risk of loss of the crude oil shall pass from
the Seller to the Buyer upon delivery.
L. Term: Unless otherwise specified in the
Special Provisions, delivery months begin at 7:00 a.m. on the first day of the
calendar month and end at 7:00 a.m. on the first day of the following calendar
month.
M. Governing Law: This Agreement and any disputes
arising hereunder shall be governed by the laws of the State of
Texas.
Confidential
Portions Redacted and Filed with the Commission pursuant to 17 CFR
200.83. “***” Symbolizes Language Omitted Pursuant to an Application
For Confidential Treatment
N. Necessary Documents: Upon request, each
party agrees to furnish all substantiating documents incident to the
transaction, including a Delivery Ticket for each volume delivered and an
invoice for any month in which the sums are due.
O. Waiver: No waiver by either party
regarding the performance of the other party under any of the provisions of this
Agreement shall be construed as a waiver of any subsequent performance under the
same or any other provisions.
P. Assignment: Neither party shall assign
this Agreement or any rights hereunder without the written consent of the other
party unless such assignment is made to a person controlling, controlled by or
under common control of assignor, in which event assignor shall remain
responsible for nonperformance.
Q. Entirety of Agreement: The Special
Provisions and these General Provisions contain the entire Agreement of the
parties; there are no other promises, representations or
warranties. Any modification of this Agreement shall be by written
instrument. Any conflict between the Special Provisions and these
General Provisions shall be resolved in favor of the Special
Provisions. The section headings are for convenience only and shall
not limit or change the subject matter of this Agreement.
R. Definitions: When used in this Agreement,
the terms listed below have the following meanings:
"API" means the American Petroleum
Institute.
"ASME" means the American Society of Mechanical
Engineers.
"ASTM" means the American Society for Testing
Materials.
"Barrel" means 42 U.S. gallons of 231 cubic inches per
gallon corrected to 60 degrees Fahrenheit.
"Carrier" means a pipeline, barge, truck, or other
suitable transporter of crude oil.
"Crude Oil" means crude oil or condensate, as
appropriate.
"Day," "month," and "year" mean, respectively, calendar
day, calendar month, and calendar year, unless otherwise
specified.
"Delivery Ticket" means a shipping/loading document or
documents stating the type and quality of crude oil delivered, the volume
delivered and method of measurement, the corrected specific gravity,
temperature, and S&W content.
"Invoice" means a statement setting forth at least the
following information: The date(s) of delivery under the transaction;
the location(s) of delivery; the volume(s); price(s); the specific gravity and
gravity adjustments to the price(s) (where applicable); and the term(s) of
payment.
"S&W" means sediment and water.
Exhibit 10.2
[EXECUTION]
THIRD
AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) made as
of April 24, 2009 by and among BERRY PETROLEUM COMPANY, a Delaware corporation
(“Borrower”),
WELLS FARGO BANK, NATIONAL ASSOCIATION, individually and as administrative agent
(“Administrative
Agent”), and the Lenders party to the Original Credit Agreement defined
below (“Lenders”).
W I T N E
S S E T H:
WHEREAS,
Borrower, Administrative Agent and Lenders entered into that certain Amended and
Restated Credit Agreement dated as of July 15, 2008 (as amended, supplemented,
or restated to the date hereof, the “Original Credit
Agreement”), for the purpose and consideration therein expressed, whereby
Lenders became obligated to make loans to Borrower as therein provided;
and
WHEREAS,
Borrower, Administrative Agent and Lenders desire to amend the Original Credit
Agreement as set forth herein;
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein and in the Original Credit Agreement, in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as
follows:
ARTICLE
I.
DEFINITIONS AND
REFERENCES
§
1.1. Terms Defined in the
Original Credit Agreement. Unless the context otherwise
requires or unless otherwise expressly defined herein, the terms defined in the
Original Credit Agreement shall have the same meanings whenever used in this
Amendment.
§
1.2. Other Defined
Terms. Unless the context otherwise requires, the following
terms when used in this Amendment shall have the meanings assigned to them in
this Section 1.2.
“Amendment” means this
Third Amendment to Amended and Restated Credit Agreement.
“Credit Agreement”
means the Original Credit Agreement as amended hereby.
“Original Omnibus
Certificate” means the Omnibus Certificate dated July 15, 2008 executed
and delivered by officers of Borrower pursuant to the Original Credit
Agreement.
[Third
Amendment to Credit Agreement]
ARTICLE
II.
AGREEMENTS
§
2.1. Definitions.
(a)
The following definitions in Section 1.1 of the Original
Credit Agreement are hereby amended in their entirety to read as
follows:
“Availability” means
on any day during the Commitment Period, an amount equal to the lesser of the
Aggregate Commitment or the Borrowing Base, determined for such day by deducting
from such lesser amount at the end of such day, the Facility Usage.
“Secured Obligations”
means all Obligations and all Lender Hedging Obligations; provided that after
the end of the Suspension Period, SG Obligations will be included in the Secured
Obligations.
(b)
The following new definitions are hereby added to Section 1.1
of the Original Credit Agreement in alphabetical order to read as
follows:
“Discharge of Second Lien
Obligations” has the meaning given to such term in the Second Lien
Intercreditor Agreement.
“Second Lien Intercreditor
Agreement” means that certain Intercreditor Agreement dated as of April
24, 2009 among Administrative Agent, Wells Fargo Energy Capital, Inc., as
administrative agent for the Term Lenders (as defined therein), and
Borrower, as from time to time supplemented, amended or restated.”
“SG Obligations” means
the Indebtedness arising under the SG Money Market Facility in an aggregate
principal amount not to exceed $30,000,000, plus all interest accrued thereon
and all fees, expenses and other Liabilities payable with respect thereto;
provided that no loans or advances shall be made by SG under the SG Money Market
Facility during the Suspension Period.
“Suspension Period”
means the period from and including April 24, 2009 until the date on which the
Discharge of Second Lien Obligations has occurred.
(c)
The definition of “Impacted Lender” in Section 1.1 of the Original
Credit Agreement is hereby amended to replace the reference to “the LC Issuer”
in clause (b)(i) thereof with “Administrative Agent”.
§
2.2. Indebtedness. Subsection
(f) of Section 7.1 of the Original Credit Agreement is hereby amended in its
entirety to read as follows:
“(f) only
after the end of the Suspension Period, SG Obligations;”
[Third
Amendment to Credit Agreement]
2
§
2.3. Asset
Sales. Subsection (i) of Section 7.5 of the Original Credit
Agreement is hereby amended in its entirety to read as follows:
(i)
sales and dispositions of other property for a
purchase price paid in cash or Mineral Interests in an amount at least equal to
the fair market value thereof; provided that if the aggregate sales price for
all such property sold during any period between any two sequential
Determination Dates exceeds five percent (5%) of the Present Value of the
Borrowing Base Properties, the Borrowing Base shall be reduced effective
immediately upon such sale or disposition by an amount equal to the value, if
any, assigned to such property in the most recently delivered Engineering
Report.
§
2.4. Lenders
Schedule. Schedule 1 to the Credit Agreement is hereby
replaced with Exhibit A attached hereto.
§
2.5. Borrowing
Base. Pursuant to Section 2.9(a) of the Credit Agreement,
Administrative Agent and Lenders hereby notify Borrower that from the date
hereof until and including the next Determination Date the Borrowing Base shall
be $1,008,000,000, and by its execution hereof, Borrower accepts the foregoing
Borrowing Base.
§
2.6. Reallocation.
(a) Lenders
hereby authorize Administrative Agent and Borrower to request Revolving Loans
from the Lenders, to make prepayments of Revolving Loans and to reallocate
Commitments under the Credit Agreement among Lenders in order to ensure that,
upon the effectiveness of this Agreement, the Revolving Loans of the Lenders
shall be outstanding on a ratable basis in accordance with their respective
Percentage Shares and that the Commitments shall be as set forth on Schedule 1
of the Credit Agreement, as replaced hereby, and no such borrowing, prepayment
or reallocation shall violate any provisions of the Credit
Agreement. Lenders hereby confirm that, from and after the
effectiveness of this Agreement, all participations of Lenders in respect of
Letters of Credit outstanding under the Credit Agreement pursuant to Section
2.13 of the Credit Agreement shall be based upon the Percentage Shares of
Lenders (after giving effect to this Agreement).
(b)
Lenders hereby waive any requirements for minimum amounts of
prepayments of Revolving Loans and ratable payments on account of the principal
or interest of any Revolving Loan under the Credit Agreement to the extent such
prepayment or payments are required pursuant to the Credit
Agreement. Borrower shall pay any funding indemnification amounts
required by Section 3.4 of the Credit Agreement in the event the payment of any
principal of any Eurodollar Loan or the conversion of any Eurodollar Loan other
than on the last day of an Interest Period applicable thereto is required in
connection with the reallocation contemplated by this Section 2.5.
§2.6
Second Lien
Intercreditor Agreement. A new Section 9.14 is hereby added to
the Original Credit Agreement immediately after Section 9.13 thereof to read as
follows:
“Section
9.14. Second Lien Intercreditor
Agreement. Each Lender hereby irrevocably authorizes
Administrative Agent to execute and, by such execution, to bind such Lender to
the terms of the Second Lien Intercreditor Agreement and to take all actions
(and execute all documents) required (or deemed advisable) by the Administrative
Agent in accordance with the terms of the Second Lien Intercreditor Agreement,
and each of the Lenders agrees to be bound by the terms of the Second Lien
Intercreditor Agreement as fully as if a signatory thereto.”
[Third
Amendment to Credit Agreement]
3
§2.7.
SG
Obligations. SG hereby agrees that during the Suspension
Period, (i) it will not make any loans or advances under the SG Money Market
Facility, (ii) the SG Obligations will not be part of the Secured Obligations,
(iii) no SG obligations will be secured by the Collateral and (iv) SG will not
be entitled to any proceeds of the Collateral. Pursuant to Section
10.1(a) of the Original Credit Agreement, SG expressly consents to the terms of
this Amendment and the Second Lien Intercreditor Agreement and authorizes
Administrative Agent to enter into the Second Lien Intercreditor
Agreement.
ARTICLE
III.
CONDITIONS OF
EFFECTIVENESS
§3.1 Effective
Date. This Amendment shall become effective as of the date
first above written when and only when:
(a)
Administrative Agent shall have received all of the following, at Administrative
Agent’s office, duly executed and delivered and in form and substance
satisfactory to Administrative Agent, all of the following:
(i)
this
Amendment;
(ii)
a certificate of the
Secretary of Borrower dated the date of this Amendment certifying: (i) that
resolutions attached thereto previously adopted by the Board of Directors of the
Borrower authorize the execution, delivery and performance of this Amendment by
Borrower; (ii) the names and true signatures of the officers of the Borrower
authorized to execute and deliver Loan Documents; (iii) that the certificate of
incorporation and bylaws of Borrower are in effect on the date hereof and no
modifications have been made to them; and (iv) that all of the representations
and warranties set forth in Article IV hereof are true and correct on and as of
the date hereof, except to the extent that such representation or warranty was
made as of a specific date or updated, modified or supplemented as of a
subsequent date with the consent of Required Lenders and Administrative Agent,
in which cases such representations and warranties shall have been true and
correct in all material respects on and of such earlier date;
(iii) the
certificate of a Responsible Officer of Borrower required to be delivered
pursuant to clause (h) of the definition of Permitted Second Lien Debt, which
certificate relates to the Indebtedness of Borrower arising under that certain
Second Lien Credit Agreement dated of even date herewith among Borrower, Wells
Fargo Energy Capital, Inc., as administrative agent, and the other lenders party
thereto;
(iv) the
Second Lien Intercreditor Agreement;
[Third
Amendment to Credit Agreement]
4
(v)
evidence satisfactory to
Administrative Agent that no SG Obligations remain outstanding; and
(vi) such
other supporting documents as Administrative Agent may reasonably
request.
(b)
Borrower shall have
paid, in connection with such Loan Documents, all other fees and reimbursements
to be paid to Administrative Agent pursuant to any Loan Documents, or otherwise
due Administrative Agent and including fees and disbursements of Administrative
Agent’s attorneys.
ARTICLE
IV.
REPRESENTATIONS AND
WARRANTIES
§4.1 Representations and
Warranties of Borrower. In order to induce each Lender to
enter into this Amendment, Borrower represents and warrants to each Lender
that:
(a)
The representations and warranties contained in Article
V of the Original Credit Agreement are true and correct on and as of the date
hereof, except to the extent that such representation or warranty was made as of
a specific date or updated, modified or supplemented as of a subsequent date
with the consent of Required Lenders and Administrative Agent, in which cases
such representations and warranties shall have been true and correct in all
material respects on and of such earlier date.
(b)
Borrower is duly authorized to execute and deliver this
Amendment and is and will continue to be duly authorized to borrow monies and to
perform its obligations under the Credit Agreement. Borrower has duly taken all
corporate action necessary to authorize the execution and delivery of this
Amendment and to authorize the performance of the obligations of Borrower
hereunder.
(c)
The execution and delivery by Borrower of this Amendment, the performance
by Borrower of its obligations hereunder and the consummation of the
transactions contemplated hereby do not and will not (a) conflict with (i) any
Law, (ii) the articles of incorporation and bylaws of Borrower, or (iii) any
agreement, judgment, license, order or permit applicable to or binding upon
Borrower in any material respect, or (b) result in the creation of any Lien upon
any assets or properties of Borrower. Except for those which have
been obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by Borrower of this Amendment or to consummate the
transactions contemplated hereby.
(d)
When duly executed and delivered, each of this Amendment and the Credit
Agreement will be a legal and binding obligation of Borrower, enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of creditors’
rights and by equitable principles of general application.
(e)
The audited annual Consolidated financial statements of Borrower dated as of
December 31, 2008 fairly present the Consolidated financial position at such
date and the Consolidated statement of operations and the changes in
Consolidated financial position for the periods ending on such date for
Borrower. Copies of such financial statements have heretofore been
delivered to each Lender. Since such date no material adverse change
has occurred in the financial condition or businesses or in the Consolidated
financial condition or businesses of Borrower.
[Third
Amendment to Credit Agreement]
5
ARTICLE
V.
MISCELLANEOUS
§5.1 Ratification of
Agreements. The Original Credit Agreement as hereby amended is
hereby ratified and confirmed in all respects. The Loan Documents, as
they may be amended or affected by this Amendment, are hereby ratified and
confirmed in all respects. Any reference to the Credit Agreement in any Loan
Document shall be deemed to be a reference to the Original Credit Agreement as
hereby amended. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of Lenders under the Credit Agreement, the Notes, or
any other Loan Document nor constitute a waiver of any provision of the Credit
Agreement, the Notes or any other Loan Document.
§5.2 Survival of
Agreements. All representations, warranties, covenants and
agreements of Borrower herein shall survive the execution and delivery of this
Amendment and the performance hereof, including without limitation the making or
granting of the Loans, and shall further survive until all of the Obligations
are paid in full. All statements and agreements contained in any
certificate or instrument delivered by Borrower hereunder or under the Credit
Agreement to any Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under this Amendment
and under the Credit Agreement.
§5.3 Loan
Documents. This Amendment is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents apply
hereto.
§5.4 Governing
Law. This Amendment shall be governed by and construed in
accordance with and governed by the laws of the State of California and the laws
of the United States of America without regard to principles of conflicts of
law.
§5.5 Counterparts;
Fax. This Amendment may be separately executed in counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed shall be deemed to constitute one and the same
Amendment. This Amendment may be validly executed by facsimile or
other electronic transmission.
THIS
AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT 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 OF THE PARTIES.
[The remainder of this page has been
intentionally left blank.]
[Third
Amendment to Credit Agreement]
6
IN
WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
|
BERRY
PETROLEUM COMPANY
|
||
|
By:
|
/s/ David D. Wolf | |
|
Name:
David D. Wolf
|
||
|
Title:
Executive Vice President and Chief Financial
Officer
|
||
[Third
Amendment to Credit Agreement]
|
WELLS
FARGO BANK, NATIONAL ASSOCIATION, Administrative Agent, LC Issuer and
Lender
|
||
|
By:
|
/s/ Oleg Kogan | |
|
Oleg
Kogan
|
||
|
Vice
President
|
||
[Third
Amendment to Credit Agreement]
|
BNP
PARIBAS, Lender
|
||
|
By:
|
/s/ Betsy Jocher | |
|
Name:
Betsy Jocher
|
||
|
Title:
Director
|
||
|
By:
|
/s/ Greg Smothers | |
|
Name:
Greg Smothers
|
||
|
Title:
Director
|
||
[Third
Amendment to Credit Agreement]
|
SOCIÉTÉ
GÉNÉRALE, Lender under the Credit Agreement and the SG Money Market
Facility
|
||
|
By:
|
/s/ Stephen W. Warfel | |
|
Name:
Stephen W. Warfel
|
||
|
Title:
Managing Director
|
||
[Third
Amendment to Credit Agreement]
|
JPMORGAN
CHASE BANK, N.A., Lender
|
||
|
By:
|
/s/ Michael A. Kamauf | |
|
Name:
Michael A. Kamauf
|
||
|
Title:
Vice President
|
||
[Third
Amendment to Credit Agreement]
|
THE
ROYAL BANK OF SCOTLAND plc, Lender
|
||
|
By:
|
/s/ Lucy Walker | |
|
Name:
Lucy Walker
|
||
|
Title:
Vice President
|
||
[Third
Amendment to Credit Agreement]
|
THE
BANK OF NOVA SCOTIA, Lender
|
||
|
By:
|
/s/ Andrew Ostrov | |
|
Name:
Andrew Ostrov
|
||
|
Title:
Director
|
||
[Third
Amendment to Credit Agreement]
|
WACHOVIA
BANK, N.A., Lender
|
||
|
By:
|
/s/ Paul Pritchett | |
|
Name:
Paul Pritchett
|
||
|
Title:
Vice President
|
||
[Third
Amendment to Credit Agreement]
|
UNION
BANK, N.A. (formerly known as Union Bank of California, N.A.),
Lender
|
||
|
By:
|
/s/ Timothy Brendel | |
|
Name:
Timothy Brendel
|
||
|
Title:
Vice President
|
||
[Third
Amendment to Credit Agreement]
|
COMPASS
BANK, Lender
|
||
|
By:
|
/s/ Greg Determann | |
|
Name:
Greg Determann
|
||
|
Title:
Vice President
|
||
[Third
Amendment to Credit Agreement]
|
U.S.
BANK NATIONAL ASSOCIATION, Lender
|
||
|
By:
|
/s/ Justin M. Alexander | |
|
Name:
Justin M. Alexander
|
||
|
Title:
Vice President
|
||
[Third
Amendment to Credit Agreement]
|
CREDIT
SUISSE, CAYMAN ISLANDS BRANCH, Lender
|
||
|
By:
|
/s/ Nupur Kumar | |
|
Name:
Nupur Kumar
|
||
|
Title:
Vice President
|
||
|
By:
|
/s/ Shaheen Malik | |
|
Name:
Shaheen Malik
|
||
|
Title:
Vice President
|
||
[Third
Amendment to Credit Agreement]
|
BANK
OF SCOTLAND plc, Lender
|
||
|
By:
|
/s/ Julia R. Franklin | |
|
Name:
Julia R. Franklin
|
||
|
Title:
Assistant Vice President
|
||
[Third
Amendment to Credit Agreement]
|
NATIXIS,
Lender
|
||
|
By:
|
/s/ LouisP. Laville, III | |
|
Name:
Louis P. Laville, III
|
||
|
Title:
Managing Director
|
||
|
By:
|
/s/ Liana Tchernysheva | |
|
Name:
Liana Tchernysheva
|
||
|
Title:
Director
|
||
[Third
Amendment to Credit Agreement]
|
BANK
OF OKLAHOMA N.A., Lender
|
||
|
By:
|
/s/ Michael M. Logan | |
|
Name:
Michael M. Logan
|
||
|
Title:
Senior Vice President
|
||
[Third
Amendment to Credit Agreement]
|
RAYMOND
JAMES BANK, FSB, Lender
|
||
|
By:
|
/s/ Garrett McKinnon | |
|
Name:
Garrett McKinnon
|
||
|
Title:
Senior Vice President
|
||
[Third
Amendment to Credit Agreement]
|
GUARANTY
BANK AND TRUST COMPANY, Lender
|
||
|
By:
|
/s/ Gail J. Nofsinger | |
|
Name:
Gail J. Nofsinger
|
||
|
Title:
Senior Vice President
|
||
[Third
Amendment to Credit Agreement]
|
CITIBANK,
N.A., Lender
|
||
|
By:
|
/s/ Todd Mogil | |
|
Name:
Todd Mogil
|
||
|
Title:
Vice President
|
||
[Third
Amendment to Credit Agreement]
|
BANK
OF MONTREAL, Lender
|
||
|
By:
|
/s/ Gumaro Tijerina | |
|
Name:
Gumaro Tijerina
|
||
|
Title:
Director
|
||
[Third
Amendment to Credit Agreement]
|
CALYON
NEW YORK BRANCH, Lender
|
||
|
By:
|
/s/ Darrell Stanley | |
|
Name:
Darrell Stanley
|
||
|
Title:
Managing Director
|
||
|
By:
|
/s/ Sharada Manne | |
|
Name:
Sharada Manne
|
||
|
Title:
Director
|
||
[Third
Amendment to Credit Agreement]
Exhibit 10.3
Execution
Version
SECOND
LIEN CREDIT AGREEMENT
BERRY
PETROLEUM COMPANY
and
WELLS
FARGO ENERGY CAPITAL, INC.
as
Administrative Agent, Co-Lead Arranger and Co-Bookrunner,
THE ROYAL
BANK OF SCOTLAND plc,
as
Syndication Agent, Co-Lead Arranger and Co-Bookrunner,
CALYON
NEW YORK BRANCH and SOCIETE GENERALE,
as
Co-Documentation Agents, Co-Lead Arrangers and Co-Bookrunners,
UNIONBANCAL
EQUITIES, INC.,
as
Co-Lead Arranger and Co-Bookrunner
and
CERTAIN
FINANCIAL INSTITUTIONS
as
Lenders
April 24,
2009
SECOND
LIEN TERM LOAN FACILITY OF UP TO $140,000,000
TABLE OF
CONTENTS
|
Page
|
|||
|
ARTICLE I - - Definitions and
References
|
1
|
||
|
Section 1.1.
|
Defined Terms
|
1
|
|
|
Section 1.2.
|
Exhibits and Schedules; Additional
Definitions
|
23
|
|
|
Section 1.3.
|
Amendment of Defined
Instruments
|
24
|
|
|
Section 1.4.
|
References and Titles
|
24
|
|
|
Section 1.5.
|
Calculations and
Determinations
|
24
|
|
|
Section 1.6.
|
Joint Preparation; Construction of Indemnities and
Releases
|
24
|
|
|
ARTICLE II - - The Loans
|
25
|
||
|
Section 2.1.
|
Commitments to Lend; Notes
|
25
|
|
|
Section 2.2.
|
Borrowing Notice
|
25
|
|
|
Section 2.3.
|
Continuations and Conversions of
Loans
|
26
|
|
|
Section 2.4.
|
Use of Proceeds
|
27
|
|
|
Section 2.5.
|
Interest Rates and Fees
|
27
|
|
|
Section 2.6.
|
Optional Prepayments
|
28
|
|
|
Section 2.7.
|
Mandatory Termination of Commitments; Mandatory
Prepayments;
|
28
|
|
|
Section 2.8.
|
Intentionally Omitted
|
28
|
|
|
Section 2.9.
|
Intentionally Omitted
|
28
|
|
|
Section 2.10.
|
Intentionally Omitted
|
28
|
|
|
Section 2.11.
|
Intentionally Omitted
|
28
|
|
|
Section 2.12.
|
Intentionally Omitted
|
28
|
|
|
Section 2.13.
|
Intentionally Omitted
|
28
|
|
|
Section 2.14.
|
Intentionally Omitted
|
29
|
|
|
Section 2.15.
|
Intentionally Omitted
|
29
|
|
|
Section 2.16.
|
Intentionally Omitted
|
29
|
|
|
Section 2.17.
|
Intentionally Omitted
|
29
|
|
|
Section 2.18.
|
Obligations of Lenders
Several
|
29
|
|
|
ARTICLE III - - Payments to
Lenders
|
29
|
||
|
Section 3.1.
|
General Procedures
|
29
|
|
|
Section 3.2.
|
Increased Costs
|
30
|
|
|
Section 3.3.
|
Illegality
|
31
|
|
|
Section 3.4.
|
Funding Losses
|
31
|
|
|
Section 3.5.
|
Taxes
|
32
|
|
|
Section 3.6.
|
Alternative Rate of
Interest
|
33
|
|
|
Section 3.7.
|
Mitigation Obligations; Replacement of
Lenders
|
34
|
|
|
ARTICLE IV - - Conditions Precedent to
Lending
|
35
|
||
|
Section 4.1.
|
Documents to be Delivered
|
35
|
|
|
Section 4.2.
|
Intentionally Omitted
|
38
|
|
|
ARTICLE V - - Representations and
Warranties
|
38
|
||
|
Section 5.1.
|
No Default
|
39
|
|
|
Section 5.2.
|
Organization and Good
Standing
|
39
|
|
[Second
Lien Credit Agreement]
|
Section 5.3.
|
Authorization
|
39
|
|
|
Section 5.4.
|
No Conflicts or Consents
|
39
|
|
|
Section 5.5.
|
Enforceable Obligations
|
39
|
|
|
Section 5.6.
|
Initial Financial
Statements
|
39
|
|
|
Section 5.7.
|
Other Obligations and
Restrictions
|
40
|
|
|
Section 5.8.
|
Full Disclosure
|
40
|
|
|
Section 5.9.
|
Litigation
|
40
|
|
|
Section 5.10.
|
Labor Disputes and Acts of
God
|
41
|
|
|
Section 5.11.
|
ERISA Plans and Liabilities
|
41
|
|
|
Section 5.12.
|
Environmental and Other
Laws
|
41
|
|
|
Section 5.13.
|
Names and Places of
Business
|
42
|
|
|
Section 5.14.
|
Borrower’s Subsidiaries
|
42
|
|
|
Section 5.15.
|
Government Regulation
|
42
|
|
|
Section 5.16.
|
Solvency
|
42
|
|
|
Section 5.17.
|
Title to Properties;
Licenses
|
42
|
|
|
Section 5.18.
|
Leases and Contracts; Performance of
Obligations
|
43
|
|
|
Section 5.19.
|
Gas Imbalances, Prepayments
|
44
|
|
|
Section 5.20.
|
Operation of Mineral
Interests
|
44
|
|
|
Section 5.21.
|
Regulation U
|
45
|
|
|
Section 5.22.
|
Taxes; Tax Returns
|
45
|
|
|
Section 5.23.
|
Security Documents
|
45
|
|
|
ARTICLE VI - - Affirmative Covenants of
Borrower
|
45
|
||
|
Section 6.1.
|
Payment and Performance
|
45
|
|
|
Section 6.2.
|
Books, Financial Statements and
Reports
|
45
|
|
|
Section 6.3.
|
Other Information and
Inspections
|
48
|
|
|
Section 6.4.
|
Notice of Material Events and Change of
Address
|
48
|
|
|
Section 6.5.
|
Maintenance of Properties
|
49
|
|
|
Section 6.6.
|
Maintenance of Existence and
Qualifications
|
49
|
|
|
Section 6.7.
|
Payment of Trade Liabilities, Taxes,
etc
|
49
|
|
|
Section 6.8.
|
Insurance
|
49
|
|
|
Section 6.9.
|
Performance on Borrower’s
Behalf
|
50
|
|
|
Section 6.10.
|
Interest
|
50
|
|
|
Section 6.11.
|
Compliance with Agreements and
Law
|
50
|
|
|
Section 6.12.
|
Environmental Matters; Environmental
Reviews
|
51
|
|
|
Section 6.13.
|
Evidence of Compliance
|
51
|
|
|
Section 6.14.
|
Bank Accounts; Offset
|
51
|
|
|
Section 6.15.
|
Guaranties of Borrower’s
Subsidiaries
|
52
|
|
|
Section 6.16.
|
Pledge of Stock of Foreign
Subsidiaries
|
52
|
|
|
Section 6.17.
|
Collateral
|
53
|
|
|
Section 6.18.
|
Agreement to Deliver Security
Documents
|
53
|
|
|
Section 6.19.
|
Production Proceeds
|
54
|
|
|
Section 6.20.
|
Mortgaged Property
Covenants
|
54
|
|
|
Section 6.21.
|
Intentionally Omitted
|
54
|
|
|
ARTICLE VII - - Negative Covenants of
Borrower
|
54
|
||
|
Section 7.1.
|
Indebtedness
|
54
|
|
[Second
Lien Credit Agreement]
ii
|
Section 7.2.
|
Limitation on Liens
|
55
|
|
|
Section 7.3.
|
Hedging Contracts
|
56
|
|
|
Section 7.4.
|
Limitation on Mergers, Issuances of
Securities
|
58
|
|
|
Section 7.5.
|
Limitation on Sales of
Property
|
59
|
|
|
Section 7.6.
|
Limitation on Dividends, Stock Repurchases and
Subordinated Debt
|
59
|
|
|
Section 7.7.
|
Limitation on Acquisitions, Investments; and New
Businesses
|
60
|
|
|
Section 7.8.
|
Limitation on Credit
Extensions
|
60
|
|
|
Section 7.9.
|
Transactions with
Affiliates
|
60
|
|
|
Section 7.10.
|
Prohibited Contracts
|
60
|
|
|
Section 7.11.
|
Current Ratio
|
61
|
|
|
Section 7.12.
|
Total Funded Debt to EBITDAX
Ratio
|
61
|
|
|
Section 7.13.
|
Senior Secured Debt to EBITDAX
Ratio
|
62
|
|
|
Section 7.14.
|
Asset Coverage Test
|
62
|
|
|
Section 7.15.
|
Limitations on Layering,
Etc.
|
62
|
|
|
ARTICLE VIII - - Events of Default and
Remedies
|
63
|
||
|
Section 8.1.
|
Events of Default
|
63
|
|
|
Section 8.2.
|
Remedies
|
65
|
|
|
Section 8.3.
|
Application of Proceeds After
Acceleration
|
65
|
|
|
ARTICLE IX - - Administrative
Agent
|
66
|
||
|
Section 9.1.
|
Appointment and Authority
|
66
|
|
|
Section 9.2.
|
Exculpation Provisions
|
66
|
|
|
Section 9.3.
|
Reliance by Administrative
Agent
|
67
|
|
|
Section 9.4.
|
Non-Reliance on Administrative Agent and Other
Lenders
|
67
|
|
|
Section 9.5.
|
Rights as Lender
|
68
|
|
|
Section 9.6.
|
Sharing of Set-Offs and Other
Payments
|
68
|
|
|
Section 9.7.
|
Investments
|
68
|
|
|
Section 9.8.
|
Resignation of Administrative
Agent
|
69
|
|
|
Section 9.9.
|
Delegation of Duties
|
69
|
|
|
Section 9.10.
|
No Other Duties, etc
|
69
|
|
|
Section 9.11.
|
Administrative Agent May File Proofs of
Claim
|
70
|
|
|
Section 9.12.
|
Guaranty Matters
|
70
|
|
|
Section 9.13.
|
Collateral Matters.
|
70
|
|
|
Section 9.14.
|
Intercreditor Agreement
|
72
|
|
|
ARTICLE X - - Miscellaneous
|
72
|
||
|
Section 10.1.
|
Waivers and Amendments;
Acknowledgments
|
72
|
|
|
Section 10.2.
|
Survival of Agreements; Cumulative
Nature
|
74
|
|
|
Section 10.3.
|
Notices; Effectiveness; Electronic
Communication
|
74
|
|
|
Section 10.4.
|
Payment of Expenses;
Indemnity
|
75
|
|
|
Section 10.5.
|
Successors and Assigns;
Assignments
|
77
|
|
|
Section 10.6.
|
Confidentiality
|
79
|
|
|
Section 10.7.
|
Governing Law; Submission to
Process
|
80
|
|
|
Section 10.8.
|
Limitation on Interest
|
80
|
|
|
Section 10.9.
|
Termination; Limited
Survival
|
80
|
|
|
Section 10.10.
|
Severability
|
81
|
|
[Second
Lien Credit Agreement]
iii
|
Section 10.11.
|
Counterparts; Fax
|
81
|
|
|
SECTION 10.12.
|
WAIVER OF JURY TRIAL, PUNITIVE DAMAGES,
ETC
|
81
|
|
|
Section 10.13.
|
Controlling Agreement
|
81
|
|
|
Section 10.14.
|
Disposition of Collateral
|
82
|
|
|
Section 10.15.
|
USA Patriot Act Notice
|
82
|
[Second
Lien Credit Agreement]
iv
Schedules and
Exhibits:
|
Schedule
1
|
- Lenders
Schedule
|
|
Schedule
2
|
- Insurance
Schedule
|
|
Schedule
3
|
- Security
Schedule
|
|
Schedule
4
|
- Post-Closing
Obligations
|
|
Schedule
5
|
- Addresses
of Lenders for Notices
|
|
Exhibit
A
|
- Promissory
Note
|
|
Exhibit
B
|
- Borrowing
Notice
|
|
Exhibit
C
|
- Continuation/Conversion
Notice
|
|
Exhibit
D
|
- Certificate
Accompanying Financial Statements
|
|
Exhibit
E
|
- Opinion
of Counsel for Restricted Persons
|
|
Exhibit
F
|
- Assignment
and Assumption Agreement
|
|
Exhibit
G
|
- Disclosure
Letter
|
[Second
Lien Credit Agreement]
v
SECOND LIEN CREDIT
AGREEMENT
THIS
SECOND LIEN CREDIT AGREEMENT is made as of April 24, 2009, by and among BERRY
PETROLEUM COMPANY, a Delaware corporation (herein called “Borrower”), each
lender that becomes a signatory hereto (individually, together with its
successors and assigns, a “Lender”, and
collectively, together with their respective successors and assigns, the “Lenders”), and WELLS
FARGO ENERGY CAPITAL, INC., as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity pursuant to the terms
hereof, the “Administrative
Agent”).
WHEREAS,
Borrower, the lenders signatory thereto or later becoming bound thereby
(including Wells Fargo Bank, National Association (“Wells Fargo”) and
certain of the other lenders), and Wells Fargo, as administrative agent for such
lenders and the issuer of letters of credit thereunder, are parties to that
certain Amended and Restated Credit Agreement, dated as of July 15, 2008, as
amended by the First Amendment to Amended and Restated Credit Agreement dated as
of October 17, 2008, the Second Amendment to Amended and Restated Credit
Agreement dated as of February 19, 2009, and the Third Amendment to the Amended
and Restated Credit Agreement dated as of the date hereof (as so amended,
amended and restated, supplemented or modified, the “First Lien Credit
Agreement”);
WHEREAS,
Borrower has requested that the Lenders make available to it a second lien
credit facility for the purposes set forth herein; and
WHEREAS,
the Lenders have agreed to provide the requested second lien credit facility to
the Borrower on the terms, and subject to the conditions, set forth
herein.
ACCORDINGLY,
in consideration of the mutual covenants and agreements herein contained, the
parties hereto covenant and agree as follows:
ARTICLE I
- - - Definitions and
References
Section
1.1. Defined
Terms. As used in this Second Lien Credit Agreement, each of
the following terms has the meaning given to such term in this Section 1.1 or in
the sections and subsections referred to below:
“Adjusted Base Rate”
means, for any day, the Base Rate plus the Base Rate Margin for such day; provided that the
Adjusted Base Rate charged by any Person shall never exceed the Highest Lawful
Rate.
“Adjusted EBITDAX”
means, for any period, EBITDAX for such period adjusted (a) as permitted and in
accordance with Article 11 of Regulation S-X promulgated by the SEC, and (b) to
give effect to any acquisition or divestiture made by Borrower or any of its
Consolidated subsidiaries during such period as if such transactions had
occurred on the first day of such period, regardless of whether the effect is
positive or negative.
[Second
Lien Credit Agreement]
1
“Adjusted Eurodollar
Rate” means, for any Eurodollar Loan for any day during any Interest
Period therefor, the rate per annum equal to the sum of (a) the Eurodollar
Margin for such day plus (b) the higher of (i) 3% per annum and (ii) the rate
per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined
by Administrative Agent to be equal to the quotient obtained by dividing (A) the
Eurodollar Rate for such Eurodollar Loan for such Interest Period by (B) one
minus the Reserve Requirement for such Eurodollar Loan for such Interest Period;
provided that
no Adjusted Eurodollar Rate charged by any Person shall ever exceed the Highest
Lawful Rate. The Adjusted Eurodollar Rate for any Eurodollar Loan
shall change whenever the Eurodollar Margin or the Reserve Requirement
changes.
“Administrative Agent”
has the meaning given such term in the Preamble to this Agreement.
“Administrative
Questionnaire” means an Administrative Questionnaire in a form supplied
by Administrative Agent.
“Affiliate” means, as
to any Person, each other Person that directly or indirectly (through one or
more intermediaries or otherwise) controls, is controlled by, or is under common
control with, such Person. A Person shall be deemed to be “controlled
by” any other Person if such other Person possesses, directly or indirectly, the
power:
(a)
to vote 10% or more of the Equity Interests in
such Person (on a fully diluted basis) having ordinary voting power for the
election of directors or similar managing group; or
(b)
to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
“Aggregate Commitment”
means the aggregate amount of the Commitments of the Lenders; provided, that in no
event shall the Aggregate Commitment exceed the Maximum Credit
Amount.
“Agreement” means this
Second Lien Credit Agreement.
“Applicable Lending
Office” means, with respect to each Lender, such Lender’s Domestic
Lending Office in the case of Base Rate Loans and such Lender’s Eurodollar
Lending Office in the case of Eurodollar Loans.
“Approved Fund” means
any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a
Lender or (c) an entity or an Affiliate of an entity that administers or manages
a Lender.
“Assignment and
Assumption” means an assignment and assumption entered into by a Lender
and an Eligible Assignee (with the consent of any party whose consent is
required by Section 10.5), and accepted by Administrative Agent, in
substantially the form of Exhibit F or any
other form approved by Administrative Agent.
“Availability” means
“Availability” as defined in the First Lien Credit Agreement.
[Second
Lien Credit Agreement]
2
“Base Rate” means, for
any day, the rate per annum equal to the highest of (a) the Federal Funds Rate
for such day plus one and one-half of one percent (1.5%), (b) the Prime Rate for
such day, (c) the One-Month Eurodollar Rate for such day plus one and one-half
percent (1.5%), or (d) four percent (4%). Any change in the Base Rate
due to a change in the Prime Rate, the Federal Funds Rate or the One-Month
Eurodollar Rate shall be effective on the effective date of such change in the
Prime Rate or Federal Funds Rate or the One-Month Eurodollar Rate. As
used in this definition, “Prime Rate” means, at
any time, the per annum rate of interest most recently announced within Wells
Fargo at its principal office in San Francisco as its Prime Rate, with the
understanding that Wells Fargo’s Prime Rate is one of its base rates and serves
as the basis upon which effective rates of interest are calculated for those
loans making reference thereto, and is evidenced by the recording thereof after
its announcement in such internal publication or publications as Wells Fargo may
designate. Each change in the Prime Rate will be effective on the day
the change is announced within Wells Fargo.
“Base Rate Loan” means
a Loan which does not bear interest at the Adjusted Eurodollar
Rate.
“Base Rate Margin”
means, on any day, seven percent (7.00%) per annum.
“Borrowing Base” means
“Borrowing Base” as defined in the First Lien Credit Agreement.
“Borrowing Base
Deficiency” means “Borrowing Base Deficiency” as defined in the First
Lien Credit Agreement.
“Borrowing Base
Properties” means “Borrowing Base Properties” as defined in the First
Lien Credit Agreement.
“Borrowing Notice”
means a written or telephonic request, or a written confirmation, made by
Borrower which meets the requirements of Section 2.2.
“Business Day” means a
day, other than a Saturday or Sunday, on which commercial banks are open for
business with the public in Denver, Colorado. Any Business Day in any
way relating to Eurodollar Loans (such as the day on which an Interest Period
begins or ends) must also be a day on which, in the judgment of Administrative
Agent, significant transactions in dollars are carried out in the interbank
eurocurrency market.
“Capital Lease” means
a lease with respect to which the lessee is required concurrently to recognize
the acquisition of an asset and the incurrence of a liability in accordance with
GAAP.
“Capital Lease
Obligation” means, with respect to any Person and a Capital Lease, the
amount of the obligation of such Person as the lessee under such Capital Lease
which should, in accordance with GAAP, appear as a liability on the balance
sheet of such Person.
“Cash Equivalents”
means Investments in:
[Second
Lien Credit Agreement]
3
(a)
marketable obligations,
maturing within twelve months after acquisition thereof, issued or
unconditionally guaranteed by the United States of America or an instrumentality
or agency thereof and entitled to the full faith and credit of the United States
of America;
(b)
demand deposits, and time deposits (including certificates of
deposit) maturing within twelve months from the date of deposit thereof, with
any office of any Lender or with a domestic office of any national or state bank
or trust company which is organized under the Laws of the United States of
America or any state therein, which has capital, surplus and undivided profits
of at least $500,000,000, and whose long term certificates of deposit are rated
at least A2 by Moody’s or A by S & P;
(c)
repurchase obligations with a term of not more
than seven days for underlying securities of the types described in subsection
(a) above entered into with any commercial bank meeting the specifications of
subsection (b) above;
(d)
open market commercial paper, maturing
within 270 days after acquisition thereof, which are rated at least P-1 by
Moody’s or A-1 by S & P; and
(e)
money market or other mutual funds
substantially all of whose assets comprise securities of the types described in
subsections (a) through (d) above.
“Change in Law” means
the occurrence, after the date of this Agreement, of any of the following: (a)
the adoption or taking effect of any law, rule, regulation or treaty, (b) any
change in any law, rule, regulation or treaty or in the administration,
interpretation or application thereof by any Governmental Authority or (c) the
making or issuance of any request, guideline or directive (whether or not having
the force of law) by any Governmental Authority.
“Change of Control”
means the occurrence of either of the following events: (a) any Person or two or
more Persons acting as a group shall acquire beneficial ownership (within the
meaning of Rule 13d-3 of the SEC under the Securities Act of 1934, as amended,
and including holding proxies to vote for the election of directors other than
proxies held by Borrower’s management or their designees to be voted in favor of
Persons nominated by Borrower’s Board of Directors) of 30% or more of the
outstanding voting securities of Borrower, measured by voting power (including
both common stock and any preferred stock or other equity securities entitling
the holders thereof to vote with the holders of common stock in elections for
directors of Borrower) or (b) one-third or more of the directors of Borrower
shall consist of Persons not nominated by Borrower’s Board of Directors (not
including as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust arrangements or
similar arrangements).
“Closing Date” means
the date on which all of the conditions precedent set forth in Section 4.1 shall
have been satisfied or waived.
“Collateral” means all
property of any kind which is subject to a Lien in favor of Lenders (or in favor
of Administrative Agent for the benefit of Lenders) or which, under the terms of
any Security Document, is purported to be subject to such a Lien, in each case
that secures the Secured Obligations.
[Second
Lien Credit Agreement]
4
“Commitment” means,
for each Lender, the obligation of such Lender to make Loans to Borrower in an
aggregate amount not exceeding the amount set forth on the Lenders
Schedule.
“Consolidated” refers
to the consolidation of any Person, in accordance with GAAP, with its properly
consolidated subsidiaries. References herein to a Person’s
Consolidated financial statements, financial position, financial condition,
liabilities, etc. refer to the consolidated financial statements, financial
position, financial condition, liabilities, etc. of such Person and its properly
consolidated subsidiaries.
“Continuation” shall
refer to the continuation pursuant to Section 2.3 hereof of a Eurodollar Loan as
a Eurodollar Loan from one Interest Period to the next Interest
Period.
“Continuation/Conversion
Notice” means a written or telephonic request, or a written confirmation,
made by Borrower which meets the requirements of Section 2.3.
“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.
“Conversion” shall
refer to a conversion pursuant to Section 2.3 or Article III of one Type of Loan
into another Type of Loan.
“Core Acquisitions and
Investments” means (i) acquisitions of Mineral Interests and acquisitions
of assets used in the producing, drilling, transportation, processing, refining
or marketing of petroleum products that are related to a Restricted Person’s
producing Mineral Interests, and (ii) acquisitions of or Investments in Persons
engaged primarily in the business of acquiring, developing and producing Mineral
Interests or transporting, processing, refining or marketing petroleum products
that are related to a Restricted Person’s producing Mineral Interests; provided
that with respect to any acquisition or Investment described in this clause
(ii), either (A) immediately after making such acquisition or Investment,
Borrower shall directly or indirectly own at least fifty-one percent (51%) of
the Equity Interests of such Person, measured by voting power, or (B) such
Person shall not be a publicly traded entity and such acquisition or Investment
shall be related to the business and operations of Borrower or one of its
Subsidiaries.
“Current Assets” means
the sum of the current assets of Borrower and its Consolidated Subsidiaries at
such time, plus the Availability under the First Lien Credit Agreement at such
time, but excluding, for purposes of this definition any non-cash gains for any
Hedging Contract resulting from the requirements at such time of SFAS 133 or any
replacement accounting standard.
“Current Liabilities”
means the current liabilities of Borrower and its Consolidated Subsidiaries at
such time, but excluding for purposes of this definition, (i) any non-cash
losses or charges on any Hedging Contract resulting from the requirement at such
time of SFAS 133 or any replacement accounting standard and (ii) current
maturities of the Obligations and First Lien Obligations.
[Second
Lien Credit Agreement]
5
“Debtor Relief Laws”
means the Bankruptcy Code of the United States, and all other liquidation,
conservatorship, bankruptcy, assignment for the benefit of creditors,
moratorium, rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws of the United States or other applicable jurisdictions from
time to time in effect and affecting the rights of creditors
generally.
“Default” means any
Event of Default and any default, event or condition which would, with the
giving of any requisite notices and the passage of any requisite periods of
time, constitute an Event of Default.
“Default Rate” means,
at the time in question (a) with respect to any Base Rate Loan, the rate per
annum equal to three percent (3%) above the Adjusted Base Rate then in effect
and (b) with respect to any Eurodollar Loan, the rate per annum equal to three
percent (3%) above the Adjusted Eurodollar Rate then in effect for such Loan,
provided in each case that no Default Rate charged by any Person shall ever
exceed the Highest Lawful Rate.
“Disclosure Letter”
means the letter of even date with the Agreement from Borrower to the Agent,
attached hereto as Exhibit
G.
“Disclosure Report”
means either a notice given by Borrower under Section 6.4 or a certificate given
by Borrower’s Chief Financial Officer under Section 6.2(a).
“Dividend” means any
dividend or other distribution made by a Restricted Person on or in respect of
any stock, partnership interest, or other equity interest in such Restricted
Person or any other Restricted Person (including any option or warrant to buy
such an equity interest), excluding Stock Repurchases.
“Domestic Lending
Office” means, with respect to any Lender, the office of such Lender
specified as its “Domestic Lending Office” below its name on the Lenders
Schedule, or such other office as such Lender may from time to time specify to
Borrower and Administrative Agent; and, with respect to Administrative Agent,
the office, branch, or agency through which it administers this
Agreement.
“Domestic Subsidiary”
means any Subsidiary that is organized under the laws of any political
subdivision of the United States.
“EBITDAX” means, for
any period, the sum of (without duplication, and without giving effect to any
extraordinary losses or gains during such period) the following determined on a
Consolidated basis (1) Net Income during such period, plus (2) all interest paid
or accrued during such period on Indebtedness (including amortization of
original issue discount and the interest component of any deferred payment
obligations and capital lease obligations) which was deducted in determining
such Net Income, plus (3) all income taxes which were deducted in determining
such Net Income, plus (4) all depreciation, amortization (including amortization
of goodwill and debt issue costs), depletion, accretion and other non-cash
charges (including any provision for the reduction in the carrying value of
assets recorded in accordance with GAAP) which were deducted in determining such
Net Income, plus (5) all exploration expenses which were deducted in determining
such Net Income, minus (6) all non-cash items of income which were included in
determining such Net Income.
[Second
Lien Credit Agreement]
6
“Eligible Assignee”
means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, and (d)
any other Person (other than a natural person), approved by (i) Administrative
Agent, and (ii) unless a Default has occurred and is continuing, Borrower (each
such approval not to be unreasonably withheld or delayed); provided that
notwithstanding the foregoing, “Eligible Assignee” shall not include Borrower or
any of Borrower’s Affiliates or Subsidiaries.
“Engineering Report”
means the Initial Engineering Report and each engineering report delivered
pursuant to Section 6.2.
“Environmental Laws”
means any and all Laws relating to the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes into the environment
including ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
“Equity Interest”
means (i) with respect to any corporation, the capital stock of such
corporation, (ii) with respect to any limited liability company, the membership
interests in such limited liability company, (iii) with respect to any
partnership or joint venture, the partnership or joint venture interests
therein, and (iv) with respect to any other legal entity, the ownership
interests in such entity.
“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time,
and any successor statutes or statute, together with all rules and regulations
promulgated with respect thereto.
“ERISA Affiliate”
means each Restricted Person and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common Control, that, together with such Restricted Person, are treated as a
single employer under Section 414 of the Internal Revenue Code.
“ERISA Plan” means any
employee pension benefit plan subject to Title IV of ERISA maintained by any
ERISA Affiliate with respect to which any Restricted Person has a fixed or
contingent liability.
“Eurodollar Lending
Office” means, with respect to any Lender, the office of such Lender
specified as its “Eurodollar Lending Office” below its name on the Lenders
Schedule (or, if no such office is specified, its Domestic Lending Office), or
such other office of such Lender as such Lender may from time to time specify to
Borrower and Administrative Agent.
“Eurodollar Loan”
means a Loan that bears interest at the Adjusted Eurodollar Rate.
“Eurodollar Margin”
means, on any day, eight percent (8.00%) per annum.
“Eurodollar Rate”
means, for any Eurodollar Loan and with respect to the related Interest Period
therefor, (a) the interest rate per annum (carried out to the fifth decimal
place) equal to the applicable London interbank offered rate for deposits in the
requested currency appearing on the Reuters Reference LIBOR01 page for such
currency as of 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period, or (b) in the event the rate referenced in the
preceding subsection (a) does not appear on such page or service or such page or
service shall cease to be available, the rate per annum (carried out to the
fifth decimal place) equal to the rate determined by Administrative Agent to be
the offered rate on Page BBAM of the Bloomberg Financial Market Information
Service as of 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period, or (c) in the event the rates referenced in the
preceding subsections (a) and (b) are not available, the rate per annum
determined by Administrative Agent as the rate of interest at which deposits in
U.S. dollars (for delivery on the first day of such Interest Period) in same day
funds in the approximate amount of the applicable Eurodollar Loan and with a
term equivalent to such Interest Period would be offered by Wells Fargo or one
of its Affiliate banks to major banks in the London interbank market at their
request at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period.
[Second
Lien Credit Agreement]
7
“Event of Default” has
the meaning given to such term in Section 8.1.
“Excluded Property”
has the meaning given to such term in the Security Documents.
“Excluded Taxes”
means, with respect to Administrative Agent, any Lender or any other recipient
of any payment to be made by or on account of any obligation of Borrower
hereunder, (a) taxes imposed on or measured by its overall net income (however
denominated), and franchise taxes imposed on it (in lieu of net income taxes),
by the jurisdiction (or any political subdivision thereof) under the laws of
which such recipient is organized or in which its principal office is located
or, in the case of any Lender, in which its Applicable Lending Office is
located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction in which Borrower is located;
and (c) in the case of a Foreign Lender (other than an assignee pursuant to a
request by Borrower under Section 3.7(b), any withholding tax that is imposed on
amounts payable to such Foreign Lender at the time such Foreign Lender becomes a
party hereto (or designates a new lending office) or is attributable to such
Foreign Lender’s failure or inability (other than as a result of a Change in
Law) to comply with Section 3.5(e), except to the extent that such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts from Borrower
with respect to such withholding tax pursuant to Section 3.5(a).
“Federal Funds Rate”
means, for any day, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100th of one percent) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if
the day for which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate quoted to Administrative Agent on such day on
such transactions as determined by Administrative Agent.
“Fee Letter” means
that certain Fee Letter dated February 26, 2009 between Administrative Agent and
Borrower.
[Second
Lien Credit Agreement]
8
“First Lien Agent”
means “Administrative Agent” as defined in the First Lien Credit
Agreement.
“First Lien Credit
Agreement” has the meaning given to such term in the Recitals to this
Agreement.
“First Lien Lender Hedging
Obligations” means “Lender Hedging Obligations” as defined in the First
Lien Credit Agreement.
“First Lien Lenders”
means the syndicate of financial institutions that comprise the “Lenders” as
defined in the First Lien Credit Agreement; and “First Lien Lender”
means “Lender” as defined in the First Lien Credit Agreement.
“First Lien Loan
Documents” means “Loan Documents” as defined in the First Lien Credit
Agreement.
“First Lien Loans”
means “Loans” as defined in the First Lien Credit Agreement.
“First Lien
Obligations” means “Obligations” as defined in the First Lien Credit
Agreement.
“First Lien Secured
Obligations” means “Secured Obligations” as defined in the First Lien
Credit Agreement.
“First Lien Security
Documents” means “Security Documents” as defined in the First Lien Credit
Agreement.
“Fiscal Quarter” means
a three-month period ending on March 31, June 30, September 30 or December 31 of
any year.
“Fiscal Year” means a
twelve-month period ending on December 31 of any year.
“Foreign Lender” means
any Lender that is organized under the laws of a jurisdiction other than that in
which Borrower is resident for tax purposes. For purposes of this
definition, the United States of America, each State thereof and the District of
Columbia shall be deemed to constitute a single jurisdiction.
“Foreign Subsidiary”
means any Subsidiary of Borrower that is not a Domestic Subsidiary.
“Four-Quarter Period”
means any period of four consecutive Fiscal Quarters.
“Fund” means any
Person (other than a natural person) that is (or will be) engaged in making,
purchasing, holding or otherwise investing in commercial loans and similar
extensions of credit in the ordinary course of its business.
“GAAP” means those
generally accepted accounting principles and practices which are recognized as
such by the Financial Accounting Standards Board (or any generally recognized
successor) and which, in the case of Borrower and its Consolidated Subsidiaries,
are applied for all periods after the date hereof in a manner consistent with
the manner in which such principles and practices were applied to the audited
Initial Financial Statements. If any change in any accounting
principle or practice is required by the Financial Accounting Standards Board
(or any such successor) in order for such principle or practice to continue as a
generally accepted accounting principle or practice, all reports and financial
statements required hereunder with respect to Borrower or with respect to
Borrower and its Consolidated Subsidiaries shall be prepared in accordance with
such change, which change shall be disclosed to Administrative Agent on the next
date on which financial statements are required to be delivered to Lenders
pursuant to Section 6.2(a); provided that, unless
the Majority Lenders shall otherwise agree in writing, no such change shall
modify or affect the manner in which compliance with the covenants contained in
Article VII are computed such that all such computations shall be conducted
utilizing financial information presented consistently with prior
periods.
[Second
Lien Credit Agreement]
9
“Governmental
Authority” means the government of the United States or any other nation,
or of any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government (including any
supra-national bodies such as the European Union or the European Central
Bank).
“Guarantor” means any
Person who has guaranteed some or all of the Secured Obligations pursuant to a
guaranty listed on the Security Schedule or any other Person who has guaranteed
some or all of the Secured Obligations and who has been accepted by
Administrative Agent as a Guarantor or any Subsidiary of Borrower which now or
hereafter executes and delivers a guaranty to Administrative Agent pursuant to
Section 6.15.
“Hazardous Materials”
means any substances regulated under any Environmental Law, whether as
pollutants, contaminants, or chemicals, or as industrial, toxic or hazardous
substances or wastes, or otherwise.
“Hedging Contract”
means (a) any and all rate swap transactions, basis swaps, credit derivative
transactions, forward rate transactions, commodity swaps, commodity options,
forward commodity contracts, equity or equity index swaps or options, bond or
bond price or bond index swaps or options or forward bond or forward bond price
or forward bond index transactions, interest rate options, forward foreign
exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions,
currency options, spot contracts, or any other similar transactions or any
combination of any of the foregoing (including any options to enter into any of
the foregoing), whether or not any such transaction is governed by or subject to
any master agreement, and (b) any and all transactions of any kind, and the
related confirmations, which are subject to the terms and conditions of, or
governed by, any form of master agreement published by the International Swaps
and Derivatives Association, Inc., any International Foreign Exchange Master
Agreement, or any other master agreement (any such master agreement, together
with any related schedules, a “Master Agreement”),
including any such obligations or liabilities under any Master
Agreement.
[Second
Lien Credit Agreement]
10
“Highest Lawful Rate”
means, with respect to each Lender Party to whom Obligations are owed, the
maximum, nonusurious rate of interest that such Lender Party is permitted under
applicable Law to contract for, take, charge, or receive with respect to such
Obligations. All determinations herein of the Highest Lawful Rate, or
of any interest rate determined by reference to the Highest Lawful Rate, shall
be made separately for each Lender Party as appropriate to assure that the Loan
Documents are not construed to obligate any Person to pay interest to any Lender
Party at a rate in excess of the Highest Lawful Rate applicable to such Lender
Party.
“Indebtedness” of any
Person means Liabilities in any of the following categories (without
duplication):
(a)
Liabilities for borrowed money,
(b)
Liabilities constituting an obligation to pay the deferred
purchase price of property or services,
(c)
Liabilities evidenced by a bond, debenture, note
or similar instrument,
(d)
Liabilities which (i) would under GAAP be shown on such
Person’s balance sheet as a liability, and (ii) are payable more than one year
from the date of creation thereof (other than reserves for taxes and reserves
for contingent obligations),
(e)
Liabilities arising under Hedging
Contracts,
(f)
Liabilities constituting principal under leases
capitalized in accordance with GAAP,
(g)
Liabilities arising under conditional sales or
other title retention agreements,
(h)
Liabilities owing under direct or indirect guaranties of
Liabilities of any other Person or otherwise constituting obligations to
purchase or acquire or to otherwise protect or insure a creditor against loss in
respect of Liabilities of any other Person (such as obligations under working
capital maintenance agreements, agreements to keep-well, or agreements to
purchase Liabilities, assets, goods, securities or services), but excluding
endorsements in the ordinary course of business of negotiable instruments in the
course of collection,
(i)
Liabilities (for example, repurchase agreements,
mandatorily redeemable preferred stock and sale/leaseback agreements) consisting
of an obligation to purchase or redeem securities or other property, if such
Liabilities arises out of or in connection with the sale or issuance of the same
or similar securities or property,
(j)
Liabilities with respect to letters of credit or applications
or reimbursement agreements therefor;
(k)
Liabilities with respect to payments received in
consideration of oil, gas, or other minerals yet to be acquired or produced at
the time of payment (including obligations under “take-or-pay” contracts to
deliver gas in return for payments already received and the undischarged balance
of any production payment created by such Person or for the creation of which
such Person directly or indirectly received payment),
[Second
Lien Credit Agreement]
11
(l)
Liabilities with respect to other obligations to deliver goods
or services in consideration of advance payments therefor; or
(m) Liabilities
with respect to bankers acceptances;
provided, however,
that the “Indebtedness” of any Person shall not include Liabilities that were
incurred by such Person on ordinary trade terms to vendors, suppliers, or other
Persons providing goods and services for use by such Person in the ordinary
course of its business which are paid as required by Section 6.7.
“Indemnified Taxes”
means Taxes other than Excluded Taxes.
“Independent
Engineers” means an independent petroleum engineering firm chosen by
Borrower and acceptable to Administrative Agent.
“Initial Engineering
Report” means the engineering reports concerning the Mineral Interests of
the Restricted Persons prepared by Degolyer and MacNaughton as of January 1,
2009.
“Initial Financial
Statements” means the audited annual financial statements of Borrower
dated as of December 31, 2008.
“Insolvent” means with
respect to any Person, that such Person (a) is insolvent (as such term is
defined in the United States Bankruptcy Code, Title 11 U.S.C., as amended (the
“Bankruptcy
Code”), and with all terms used in this Section that are defined in the
Bankruptcy Code having the meanings ascribed to those terms in the text and
interpretive case law applicable to the Bankruptcy Code), or (b) the sum of such
Person’s debts, including absolute and contingent liabilities, the Obligations
or guarantees thereof, exceeds the value of such Person’s assets, at a fair
valuation, and (c) such Person’s capital is unreasonably small for the business
in which such Person is engaged and intends to be engaged. Such
Person has incurred (whether under the Loan Documents or otherwise), or intends
to incur debts which will be beyond its ability to pay as such debts
mature. In determining whether a Person is “Insolvent” all rights of
contribution of each Restricted Party against other Restricted Parties under the
Guaranty, at law, in equity or otherwise shall be taken into
account.
“Insurance Schedule”
means Schedule
2 attached hereto.
“Intercreditor
Agreement” means that certain Intercreditor Agreement, dated as of the
date hereof, among the Borrower, the Administrative Agent and the First Lien
Agent.
“Interest Payment
Date” means (a) with respect to each Base Rate Loan, the last day of each
Fiscal Quarter, and (b) with respect to each Eurodollar Loan, the last day of
the Interest Period that is applicable thereto and, if such Interest Period is
six, nine or twelve months in length, each date specified by Administrative
Agent which is approximately three, six or nine months after such Interest
Period begins.
[Second
Lien Credit Agreement]
12
“Interest Period”
means, with respect to each particular Eurodollar Loan, the period specified in
the Borrowing Notice or Continuation/Conversion Notice applicable thereto,
beginning on and including the date specified in such Borrowing Notice or
Continuation/Conversion Notice (which must be a Business Day), and ending one,
two, three, or six months and, if available, nine or twelve months thereafter,
as Borrower may elect in such notice; provided
that: (a) any Interest Period which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day; (b) any Interest
Period which begins on the last Business Day in 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 in a calendar
month; and (c) notwithstanding the foregoing, any Interest Period which would
otherwise end after the Maturity Date shall end on the Maturity Date (or, if the
Maturity Date is not a Business Day, on the first preceding Business
Day).
“Internal Revenue
Code” means the United States Internal Revenue Code of 1986, as amended
from time to time and any successor statute or statutes, together with all rules
and regulations promulgated with respect thereto.
“Investment” means any
investment, made directly or indirectly, in any Person or any property, whether
by purchase, acquisition of shares of capital stock, indebtedness or other
obligations or securities or by loan, advance, capital contribution or otherwise
and whether made in cash, by the transfer of property, or by any other
means.
“Law” means any
statute, law, regulation, ordinance, rule, treaty, judgment, order, decree,
permit, concession, franchise, license, agreement or other governmental
restriction of the United States or any state or political subdivision thereof
or of any foreign country or any department, province or other political
subdivision thereof. Any reference to a Law includes any amendment or
modification to such Law, and all regulations, rulings, and other Laws
promulgated under such Law.
“Lender Parties” means
Administrative Agent and all Lenders.
“Lenders” or “Lender” means each
signatory hereto (other than Borrower and any Restricted Person that is a party
hereto), including WFEC in its capacity as a Lender hereunder rather than as
Administrative Agent, and the successors of each such party as holder of a
Note.
“Lenders Schedule”
means Schedule
1 hereto.
“Liabilities” means,
as to any Person, all indebtedness, liabilities and obligations of such Person,
whether matured or unmatured, liquidated or unliquidated, primary or secondary,
direct or indirect, absolute, fixed or contingent, and whether or not required
to be considered pursuant to GAAP.
“Lien” means, with
respect to any property or assets, any right or interest therein of a creditor
to secure Liabilities owed to it or any other arrangement with such creditor
which provides for the payment of such Liabilities out of such property or
assets or which allows such creditor to have such Liabilities satisfied out of
such property or assets prior to the general creditors of any owner thereof,
including any lien, mortgage, security interest, pledge, deposit, production
payment, rights of a vendor under any title retention or conditional sale
agreement or lease substantially equivalent thereto, tax lien, mechanic’s or
materialman’s lien, or any other charge or encumbrance for security purposes,
whether arising by Law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of
business. “Lien” also means any filed financing statement, any
registration of a pledge (such as with an issuer of uncertificated securities),
or any other arrangement or action which would serve to perfect a Lien described
in the preceding sentence, regardless of whether such financing statement is
filed, such registration is made, or such arrangement or action is undertaken
before or after such Lien exists.
[Second
Lien Credit Agreement]
13
“Loan” has the meaning
given to such term in Section 2.1.
“Loan Documents” means
this Agreement, the Notes, the Intercreditor Agreement, the Security Documents,
and all other agreements, certificates, documents, instruments and writings at
any time delivered in connection herewith or therewith (exclusive of term sheets
and commitment letters).
“Majority Lenders”
means two or more Lenders whose aggregate Percentage Shares exceed fifty percent
(50.0%).
“Material Adverse
Change” means a material and adverse change, from the state of affairs
presented in the Initial Financial Statements or as represented or warranted in
any Loan Document, to (a) Borrower’s Consolidated financial condition, (b)
Borrower’s Consolidated operations, properties or prospects, considered as a
whole, (c) Borrower’s ability to timely pay the Obligations, (d) the
enforceability of the material terms of any Loan Documents, or (e) the rights
and remedies of Administrative Agent or Lenders under the Loan
Documents.
“Material Hedging
Modification” means any amendments, modifications, sales, assignments,
novations or terminations of any Hedging Contracts that, in the aggregate,
reduce by more than five percent (5%) the aggregate notional volume of oil, gas
and natural gas liquids subject to the Restricted Persons’ Hedging Contracts in
effect as of the most recent calculation of Total Proved PV10% to Total Funded
Debt pursuant to Section 7.14.
“Material Subsidiary”
means a Subsidiary of Borrower that (a) owns assets representing five percent
(5%) of the market value of Borrower’s Consolidated assets or (b) has EBITDAX
for the Four-Quarter Period most recently ended that equals or exceeds five
percent (5%) of Borrower’s Consolidated EBITDAX for such period.
“Maturity Date” means
January16, 2013.
“Maximum Credit
Amount” means $140,000,000.
“Mineral Interests”
means rights, estates, titles, and interests in and to oil, gas, sulfur, or
other mineral leases and any mineral interests, royalty and overriding royalty
interest, production payment, net profits interests, mineral fee interests, and
other rights therein, including, without limitation, any reversionary or carried
interests relating to the foregoing, together with rights, titles, and interests
created by or arising under the terms of any unitization, communization, and
pooling agreements or arrangements, and all properties, rights and interests
covered thereby, whether arising by contract, by order, or by operation of Law,
which now or hereafter include all or any part of the foregoing.
[Second
Lien Credit Agreement]
14
“Minimum Collateral
Amount” means Mineral Interests representing eighty percent (80%) of the
Present Value of the Proved Reserves properly attributed to the Borrowing Base
Properties or such higher percentage of the Borrowing Base Properties that may
be designated by First Lien Agent.
“Money Market
Facility” means a credit facility which (a) is evidenced by a bond,
debenture, note or similar instrument, (b) has financial covenants that are not
more restrictive with respect to the Restricted Persons than the financial
covenants under this Agreement and has other covenants and events of default
governing the Indebtedness evidenced by such credit facility that are not
materially more restrictive with respect to the Restricted Persons than the
covenants and Events of Default under this Agreement, and (c) the Indebtedness
of which is not subordinated to any other Indebtedness of the Restricted
Persons.
“Moody’s” means
Moody’s Investors Service, Inc. or its successor.
“Net Income” means,
for any period, the net income (or loss) of Borrower and its properly
consolidated Subsidiaries for such period, calculated on a consolidated
basis.
“Net Worth” of any
Person means, as of any date, the remainder of all Consolidated assets of such
Person minus such Person's Consolidated liabilities, each as determined by GAAP,
but excluding, for purposes of this definition any assets and liabilities for
any Hedging Contract resulting from the requirements of SFAS 133 at such
time.
“Non-Core Acquisitions and
Investments” means acquisitions and Investments that are not Core
Acquisitions and Investments.
“Note” has the meaning
given to such term in Section 2.1.
“NYMEX” means the New
York Mercantile Exchange.
“NYMEX Pricing” means,
as of any date of determination with respect to a oil and natural gas futures
contract for any month, (a) for crude oil, the closing settlement price for the
Light, Sweet Crude Oil futures contract for such month, and (b) 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 Liabilities from time to time owing by any Restricted Person to any Lender
Party under or pursuant to any of the Loan Documents. “Obligation” means any
part of the Obligations.
“One-Month Eurodollar
Rate” means, for any day for any Base Rate Loan, (a) the interest rate
per annum (carried out to the fifth decimal place) equal to the applicable
London interbank offered rate for deposits in the requested currency appearing
on the Reuters Reference LIBOR01 page for such currency as of 11:00 a.m. (London
time) on such day with a term equivalent to one month, or (b) in the event the
rate referenced in the preceding subsection (a) does not appear on such page or
service or such page or service shall cease to be available, the rate per annum
(carried out to the fifth decimal place) equal to the rate determined by
Administrative Agent to be the offered rate on Page BBAM of the Bloomberg
Financial Market Information Service as of 11:00 a.m. (London time) on such day
with a term equivalent to one month, or (c) in the event the rates referenced in
the preceding subsections (a) and (b) are not available, the rate per annum
determined by Administrative Agent using another comparable publicly available
service for displaying London inter-bank offered rates for deposits of U.S.
Dollars with a term equivalent to one month.
[Second
Lien Credit Agreement]
15
“Organizational
Documents” means, (a) with respect to any corporation, the certificate or
articles of incorporation and the bylaws (or equivalent or comparable
constitutive documents with respect to any non-U.S. jurisdiction); (b) with
respect to any limited liability company, the certificate or articles of
formation or organization and operating agreement; and (c) with respect to any
partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or
organization and, if applicable, any certificate or articles of formation or
organization of such entity.
“Other Taxes” means
all present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies arising from any payment made hereunder or
under any other Loan Document or from the execution, delivery or enforcement of,
or otherwise with respect to, this Agreement or any other Loan
Document.
“Participant” has the
meaning given to such term in Section 10.5(d).
“Percentage Share”
means, with respect to any Lender, the percentage set forth below such Lender’s
name on the Lenders Schedule or as set forth in any Assignment and Assumption
relating to any assignment that has become effective pursuant to Section 10.5,
as such amount may be modified from time to time pursuant to the terms
hereof. Notwithstanding the foregoing, after the Loans have been
made, “Percentage
Share” shall mean with respect to any Lender, the percentage obtained by
dividing (i) the unpaid principal balance of such Lender’s Loans at the time in
question by (ii) the aggregate unpaid principal balance of all Loans at such
time.
“Permitted Convertible
Debt” means Permitted Unsecured Debt which is convertible, in whole or in
part, into common Equity Interests in Borrower; provided that Permitted
Convertible Debt shall not contain any put or mandatory redemption provisions
which may be exercised prior to January 15, 2013.
“Permitted
Investments” means (a) Cash Equivalents, (b) property of the Restricted
Persons used in the ordinary course of business of the Restricted Persons, (c)
current assets arising from the sale or lease of goods and services in the
ordinary course of business by the Restricted Persons or from sales permitted
under Section 7.5, (d) investments, in an aggregate amount not to exceed
$4,000,000, in a Person engaged in the sole business of ownership and operation
of drilling rigs, and (e) sales or leases permitted under Section
7.5.
[Second
Lien Credit Agreement]
16
“Permitted Liens”
means:
(a)
statutory Liens for taxes, assessments or other
governmental charges or levies which are not yet delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP;
(b)
landlords’, operators’, carriers’, warehousemen’s,
repairmen’s, mechanics’, materialmen’s, or other like Liens which do not secure
Indebtedness, in each case only to the extent arising in the ordinary course of
business and only to the extent securing obligations which are not delinquent or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves have been maintained in accordance with GAAP;
(c)
minor defects and irregularities in title to any
property, so long as such defects and irregularities neither secure Indebtedness
nor materially impair the value of such property or the use of such property for
the purposes for which such property is held;
(d)
deposits of cash or securities to secure the
performance of bids, acquisition agreements, trade contracts, leases, statutory
obligations and other obligations of a like nature (excluding appeal bonds)
incurred in the ordinary course of business;
(e)
Liens under the Security Documents;
(f)
easements, restrictions, servitudes, permits,
conditions, covenants, exceptions or reservations in any property of Borrower or
any of its Subsidiaries for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, that do not secure
any monetary obligations and that do not materially interfere with the future
development of such property or with cash flow from such property as reflected
in the most recent Engineering Report;
(g)
Liens under joint operating agreements, pooling or unitization
agreements, partnership agreements, oil and gas leases, farm-out agreements,
division orders, contracts for the sale, purchase, transportation, processing or
exchange of oil, gas or other hydrocarbons, unitization and pooling declarations
and agreements, area of mutual interest agreements, development agreements,
joint ownership arrangements or similar contractual arrangements arising in the
ordinary course of the business of Borrower or its Subsidiaries to secure
amounts owing under such agreements and contracts, which amounts are not more
than 90 days past due or are being contested in good faith by appropriate
proceedings, if such reserve as may be required by GAAP shall have been made
therefor;
(h) (i)
Liens on fixed or capital assets acquired, constructed or improved by Borrower
or its Subsidiaries; provided, that (A)
such Liens secure Indebtedness permitted under Section 7.1, (B) such Liens and
the Indebtedness secured thereby are incurred substantially simultaneously with
the acquisition, construction or improvement of such fixed or capital assets or
within 180 days thereafter, (C) such Liens do not at any time encumber any
property other than the property financed by such Indebtedness and (D) the
amount of Indebtedness secured thereby is not more than 100% of the purchase
price, and (ii) Liens in the nature of precautionary financing statements filed
against leased property by lessors holding Capital Lease Obligations included in
Indebtedness permitted under Section 7.1;
[Second
Lien Credit Agreement]
17
(i)
all lessors’ royalties, overriding royalties, net profits
interests, carried interests, production payments that do not constitute
Indebtedness, reversionary interests and other burdens on or deductions from the
proceeds of production with respect to each Mineral Interest (in each case) that
do not operate to reduce the net revenue interest for such Mineral Interest (if
any) as reflected in any Security Document or Engineering Report or increase the
working interest for such Mineral Interest (if any) as reflected in any Security
Document or Engineering Report without a corresponding increase in the
corresponding net revenue interest; .
(j)
rights of first refusal, purchase options and similar rights
granted pursuant to joint operating agreements, joint ownership agreements,
stockholders agreements, organic documents and other similar agreements and
documents which are described in the Disclosure Letter;
(k)
pre-judgment Liens and judgment Liens; provided no Event of
Default has occurred under Section 8.1;
(l)
customary Liens for the fees, costs and expenses of trustees
and escrow agents pursuant to the indenture, escrow agreement or other similar
agreement establishing such trust or escrow arrangement;
(m) Liens
pursuant to merger agreements, stock purchase agreements, asset sale agreements
and similar agreements (i) limiting the transfer of properties and assets
pending consummation of the subject transaction and (ii) in respect of earnest
money deposits, good faith deposits, purchase price adjustment escrows and
similar deposits and escrow arrangements made or established
thereunder;
(n) rights
reserved to or vested in any municipality or governmental, statutory or public
authority by the terms of any right, power, franchise, grant, license or permit,
or by any provision of law, to terminate such right, power, franchise, grant,
license or permit or to purchase, condemn, expropriate or recapture or to
designate a purchaser of any of the property of such Person; rights reserved to
or vested in any municipality or governmental, statutory or public authority to
control or regulate any property of such Person, or to use such property in a
manner which does not materially impair the use of such property for the
purposes for which it is held by such Person; and any obligation or duties
affecting the property of such Person to any municipality or governmental,
statutory or public authority with respect to any franchise, grant, license or
permit; and
(o) Liens
created by or pursuant to the First Lien Loan Documents, so long as such Liens
created by or pursuant to the First Lien Loan Documents are limited to assets
constituting Collateral pursuant to the Security Documents and are at all times
subject to the terms provided in the Intercreditor Agreement.
“Permitted Subordinated
Debt” means Indebtedness in respect of subordinated notes issued by
Borrower from time to time that complies with all of the following
requirements:
[Second
Lien Credit Agreement]
18
(a)
such Indebtedness is and shall remain unsecured at all
times;
(b)
no payment of principal of such Indebtedness is
due on or before the Maturity Date as in effect on the date such Indebtedness is
issued (in this definition called the “Date of
Issuance”);
(c)
the financial covenants are no more restrictive
with respect to the Restricted Persons than the financial covenants under this
Agreement and all of the covenants and events of default governing such
Indebtedness are not, taken as a whole, materially more restrictive with respect
to the Restricted Persons than the covenants and Events of Default under this
Agreement;
(d)
on the Date of Issuance and after giving effect to
such Indebtedness (i) Borrower is in compliance on a pro forma basis with
Section 7.11, Section 7.12, Section 7.13 and Section 7.14 of this Agreement,
calculated for the most recent Four-Quarter Period for which the financial
statements described in Section 6.2(b) are available to Lender;
(e)
no Default or Event of Default exists on the Date of
Issuance or will occur as a result of the issuance of the subordinated notes
evidencing such Indebtedness;
(f)
the payment of such Indebtedness is subordinated to
payment of the Obligations pursuant to a written agreement (whether contained in
the applicable indenture or a separate subordination agreement) in form and
substance acceptable to Administrative Agent, in its sole discretion;
and
(g)
Borrower shall have delivered to Administrative Agent a
certificate in reasonable detail reflecting compliance with the foregoing
requirements.
“Permitted Unsecured
Debt” means Indebtedness in respect of senior unsecured notes (whether
issued under a loan agreement or indenture) issued by Borrower from time to time
(including guarantees thereof by its Material Domestic Subsidiaries), that
complies with all of the following requirements:
(a)
such Indebtedness is and shall remain unsecured at all
times;
(b)
no scheduled payment of principal, scheduled
mandatory redemption or scheduled sinking fund payment of such Indebtedness is
due on or before July 15, 2013; provided that such Indebtedness may be prepaid
in connection with a refinancing thereof with other Indebtedness which is
permitted by this Agreement;
(c)
the financial covenants are no more
restrictive with respect to the Restricted Persons than the financial covenants
under this Agreement and all of the covenants and events of default governing
such Indebtedness are not, taken as a whole, materially more restrictive with
respect to the Restricted Persons than the covenants and Events of Default under
this Agreement;
(d)
on each date on which such Indebtedness is issued (in
this definition defined as a “Date of Issuance”)
and immediately after giving effect to such Indebtedness Borrower is in
compliance on a pro forma basis with Section 7.11, Section 7.12, Section 7.13
and Section 7.14 of this Agreement, calculated for the most recent Four-Quarter
Period for which the financial statements described in Sections 6.2 (a) and (b)
are available to Lender;
[Second
Lien Credit Agreement]
19
(e)
no Default or Event of Default exists on the
Date of Issuance or will occur as a result of the issuance of the notes
evidencing such Indebtedness;
(f)
such Indebtedness is not guaranteed by any Person which
is not a Guarantor of all of the Secured Obligations; and
(g)
Borrower shall have delivered to
Administrative Agent a certificate in reasonable detail reflecting compliance
with the foregoing requirements.
“Person” means an
individual, corporation, partnership, limited liability company, association,
joint stock company, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, Governmental Authority or any
other legally recognizable entity.
“Present Value” of any
Mineral Interest means the present value of the future net revenues attributed
to such Mineral Interest in the most recent Engineering Report using a discount
rate of ten percent (10%).
“Projected Gas
Production” means the projected production of gas (measured by BTU
equivalent, not sales price) for the term of the contracts or a particular
month, as applicable, from properties and interests owned by any Restricted
Person which are located in or offshore of the United States and which have
attributable to them Proved Developed Producing Reserves, as such production is
projected in the most recent report delivered pursuant to Section 6.2(d) or (e),
after deducting projected production from any properties or interests sold or
under contract for sale that had been included in such report and after adding
projected production from any properties or interests that had not been
reflected in such report but that are reflected in a separate or supplemental
report meeting the requirements of such Section 6.2(d) or (e) above and
otherwise are satisfactory to Administrative Agent.
“Projected NGL
Production” means the projected production of natural gas liquids
(measured by volume unit, not sales price) for the term of the contracts or a
particular month, as applicable, from properties and interests owned by any
Restricted Person which are located in or offshore of the United States and
which have attributable to them Proved Developed Producing Reserves, as such
production is projected in the most recent report delivered pursuant to Section
6.2(d) or (e), after deducting projected production from any properties or
interests sold or under contract for sale that had been included in such report
and after adding projected production from any properties or interests that had
not been reflected in such report but that are reflected in a separate or
supplemental report meeting the requirements of such Section 6.2(d) or (e) above
and otherwise are satisfactory to Administrative Agent.
“Projected Oil
Production” means the projected production of oil or gas (measured by
volume unit, not sales price) for the term of the contracts or a particular
month, as applicable, from properties and interests owned by any Restricted
Person which are located in or offshore of the United States and which have
attributable to them Proved Developed Producing Reserves, as such production is
projected in the most recent report delivered pursuant to Section 6.2(d) or (e),
after deducting projected production from any properties or interests sold or
under contract for sale that had been included in such report and after adding
projected production from any properties or interests that had not been
reflected in such report but that are reflected in a separate or supplemental
report meeting the requirements of such Section 6.2(d) or (e) above and
otherwise are satisfactory to Administrative Agent.
[Second
Lien Credit Agreement]
20
“Proved Reserves”
shall have the meaning set forth in the standards of the Petroleum Resource
Management System promulgated by the Society of Petroleum Engineers (“SPE”), as may be
modified by the adjustments and assumptions set forth in clauses (a) and (b) of
the definition of Proved Total PV10%, or any successor standard of the
SPE.
“Proved Developed Producing
Reserves” means Proved Reserves, which are categorized as both
“Developed” and “Producing” in the Definitions for Oil and Gas Reserves
promulgated by the SPE as in effect at the time in question.
“Rating Agency” means
either S & P or Moody’s.
“Regulation D” means
Regulation D of the Board of Governors of the Federal Reserve System as from
time to time in effect.
“Related Parties”
means, with respect to any Person, such Person’s Affiliates and the partners,
directors, officers, employees, agents and advisors of such Person and of such
Person’s Affiliates.
“Required Lenders”
means two or more Lenders whose aggregate Percentage Shares equal or exceed
sixty-six and two-thirds percent (66 2/3%).
“Reserve Requirement”
means, at any time, the maximum rate at which reserves (including any marginal,
special, supplemental, or emergency reserves) are required to be maintained
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) by member banks of the Federal Reserve
System against “Eurocurrency liabilities” (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks with respect to (a) any category of liabilities which includes
deposits by reference to which the Adjusted Eurodollar Rate is to be determined,
or (b) any category of extensions of credit or other assets which include
Eurodollar Loans.
“Responsible Officer”
means, with respect to Borrower, the Chief Executive Officer, President, Chief
Operating Officer, or Chief Financial Officer of Borrower, and with respect to
any other Restricted Person, if such Restricted Person is a limited liability
company, a Manager of such Restricted Person, and if such Restricted Person is a
corporation, the President or Chief Financial Officer of such Restricted
Person.
“Restricted Person”
means any of Borrower and each Subsidiary of Borrower.
“S & P” means
Standard & Poor’s Ratings Services (a division of The McGraw-Hill
Companies), or its successor.
[Second
Lien Credit Agreement]
21
“SEC” means the
Securities and Exchange Commission, or any Governmental Authority succeeding to
any of its principal functions.
“Secured Obligations”
means all Obligations.
“Security Documents”
means all security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements, subordination agreements, intercreditor agreements, and other
agreements or instruments now, heretofore, or hereafter delivered by any
Restricted Person to Administrative Agent in connection with this Agreement or
any transaction contemplated hereby to secure or guarantee the payment of any
part of the Secured Obligations.
“Security Schedule”
means Schedule
3 hereto.
“SG” means Société
Générale in its capacity as the lender under the SG Money Market Facility and
not as a Lender hereunder.
“SG Money Market
Facility” means the Money Market Facility in the amount of $30,000,000
made available to Borrowers by SG pursuant to a Letter Agreement between
Borrower and SG.
“Staff Engineers”
means petroleum engineers who are employees of Borrower or of a staffing company
that provides its employees to Borrower.
“Stock Repurchase”
means any payment made by a Restricted Person to purchase, redeem, acquire or
retire any Equity Interest in such Restricted Person or any other Restricted
Person (including any option or warrant to purchase such an Equity
Interest).
“Strip Price” means,
at any time, (a) for the remainder of the current calendar year, the average
NYMEX Pricing for the remaining months of crude oil and natural gas futures
contracts in the current calendar year, (b) for each of the succeeding two
complete calendar years, the average NYMEX Pricing of the twelve months crude
oil and natural gas futures contracts in each such calendar year, and (c) for
the succeeding third complete calendar year, and for each calendar year
thereafter, the average NYMEX Pricing of the twelve months crude oil and natural
gas futures contracts in such third calendar year.
“Subsidiary” means,
with respect to any Person, any corporation, association, partnership, limited
liability company, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person;
provided that
associations, joint ventures or other relationships (a) which are established
pursuant to a standard form operating agreement or similar agreement or which
are partnerships for purposes of federal income taxation only, (b) which are not
corporations or partnerships (or subject to the Uniform Partnership Act) under
applicable state Law, and (c) whose businesses are limited to the exploration,
development and operation of oil, gas or mineral properties and interests owned
directly by the parties in such associations, joint ventures or relationships,
shall not be deemed to be “Subsidiaries” of such Person.
[Second
Lien Credit Agreement]
22
“Taxes” means all
present or future taxes, levies, imposts, duties, deductions, withholdings,
assessments, fees or other charges imposed by any Governmental Authority,
including any interest, additions to tax or penalties applicable
thereto.
“Termination Event”
means (a) the occurrence with respect to any ERISA Plan of (i) a reportable
event described in Section 4043(b)(5) or (6) of ERISA or (ii) any other
reportable event described in Section 4043(b) of ERISA other than a reportable
event not subject to the provision for 30-day notice to the Pension Benefit
Guaranty Corporation pursuant to a waiver by such corporation under Section
4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an ERISA
Plan during a plan year in which it was a “substantial employer” as defined in
Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to
terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under
Section 4042 of ERISA, or (e) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any ERISA Plan.
“Total Funded Debt”
means all Liabilities of the Restricted Persons of the types described in
clauses (a), (b), (c),(f), (h) and (j) of the definition of
Indebtedness.
“Total Proved PV10%”
means, with respect to any Proved Reserves expected to be produced from the
Restricted Persons’ Mineral Interests, the net present value, discounted at ten
percent (10%) per annum, of the future net revenues expected to accrue to the
Borrower’s collective interests in such proved Mineral Interests during the
remaining expected economic lives of such reserves. Each calculation
of such expected future net revenues shall be based on Proved Reserves, provided, that in any
event (a) 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 (operating expenses will not be
escalated), (b) the revenue pricing assumptions used in determining Total Proved
PV10% and Proved Reserves shall be based upon the Strip Price, as further
modified by appropriate adjustments (i) for existing Hedging Contracts with
solvent counterparties and (ii) to account for historical basis differentials,
which in the case of clauses (i) and (ii) are made in a manner acceptable to the
Administrative Agent, and (c) that for purposes of this calculation, the
discounted value of future net revenues attributable to Proved Reserves that are
not Proved Developed Producing Reserves shall be limited to no more than 40% of
the Total Proved PV10%.
“Type” means, with
respect to any Loans, the characterization of such Loans as either Base Rate
Loans or Eurodollar Loans.
“UCC” means the
Uniform Commercial Code in effect in the State of California from time to
time.
“Wells Fargo” has the
meaning given such term in the Recitals to this Agreement.
“WFEC” means Wells
Fargo Energy Capital, Inc.
Section
1.2. Exhibits and Schedules;
Additional Definitions. All Exhibits and Schedules attached to
this Agreement are a part hereof for all purposes. Reference is
hereby made to the Security Schedule for the meaning of certain terms defined
therein and used but not defined herein, which definitions are incorporated
herein by reference.
[Second
Lien Credit Agreement]
23
Section
1.3. Amendment of Defined
Instruments. Unless the context otherwise requires or unless
otherwise provided herein the terms defined in this Agreement which refer to a
particular agreement, instrument or document also refer to and include all
renewals, extensions, modifications, amendments and restatements of such
agreement, instrument or document; provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section
1.4. References and
Titles. All references in this Agreement to Exhibits,
Schedules, articles, sections, subsections and other subdivisions refer to the
Exhibits, Schedules, articles, sections, subsections and other subdivisions of
this Agreement unless expressly provided otherwise. Exhibits and
Schedules to any Loan Document shall be deemed incorporated by reference in such
Loan Document. References to any document, instrument, or agreement
(a) shall include all exhibits, schedules, and other attachments thereto, and
(b) shall include all documents, instruments, or agreements issued or executed
in replacement thereof. Titles appearing at the beginning of any
subdivisions are for convenience only and do not constitute any part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions. The words “this Agreement”, “this instrument”,
“herein”, “hereof”, “hereby”, “hereunder” and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited. The phrases “this section” and “this subsection” and
similar phrases refer only to the sections or subsections hereof in which such
phrases occur. The word “or” is not exclusive, and the word
“including” (in its various forms) means “including without
limitation”. Pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires. Accounting terms have the meanings assigned to them by
GAAP, as applied by the accounting entity to which they
refer. References to “days” shall mean calendar days, unless the term
“Business Day” is used. Unless otherwise specified, references herein
to any particular Person also refer to its successors and permitted
assigns.
Section
1.5. Calculations and
Determinations. All calculations under the Loan Documents
shall be made on the basis of actual days elapsed (including the first day but
excluding the last) and a year of 360 days. Each determination by a
Lender Party of amounts to be paid under Article III or any other matters which
are to be determined hereunder by a Lender Party (such as any Eurodollar Rate,
Adjusted Eurodollar Rate, Business Day, Interest Period, or Reserve Requirement)
shall, in the absence of manifest error, be conclusive and
binding. Unless otherwise expressly provided herein or unless
Majority Lenders otherwise consent all financial statements and reports
furnished to any Lender Party hereunder shall be prepared and all financial
computations and determinations pursuant hereto shall be made in accordance with
GAAP.
Section
1.6. Joint Preparation;
Construction of Indemnities and Releases. This Agreement and
the other Loan Documents have been reviewed and negotiated by sophisticated
parties with access to legal counsel and no rule of construction shall apply
hereto or thereto which would require or allow any Loan Document to be construed
against any party because of its role in drafting such Loan
Document. All indemnification and release provisions of this
Agreement shall be construed broadly (and not narrowly) in favor of the Persons
receiving indemnification or being released.
[Second
Lien Credit Agreement]
24
ARTICLE
II - - The
Loans
Section
2.1. Commitments to Lend;
Notes. Subject to the terms and conditions hereof, each Lender
severally agrees to make a term loan or loans to Borrower (each, a “Loan”, and together,
the “Loans”) on
the Closing Date in an aggregate principal amount not to exceed the Commitment
of such Lender. 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. Interest on each Note shall accrue and be due
and payable as provided herein and therein. Each Note shall be due
and payable as provided herein and therein, and shall be due and payable in full
on the Maturity Date. Once repaid or prepaid, no Loan incurred
hereunder may be reborrowed.
Section
2.2. Borrowing
Notice. Borrower must give to Administrative Agent written or
electronic notice (or telephonic notice promptly confirmed in writing) of all
requested Loans to be advanced by the Lenders hereunder on the Closing
Date. Such notice constitutes a “Borrowing Notice” hereunder and
must:
(a)
specify (i) the aggregate amount of any such Base Rate
Loans to be advanced, or (ii) the aggregate amount of any such Eurodollar Loans
to be advanced and the length of the applicable Interest Period;
and
(b)
be received by Administrative Agent not later than
11:00 a.m., Denver, Colorado time on, (i) if the Borrower requests Base Rate
Loans, the Closing Date, or (ii) if the Borrower requests Eurodollar Loans, the
third Business Day preceding the Closing Date.
Such
written request or confirmation must be made in the form and substance of the
“Borrowing Notice” attached hereto as Exhibit B, duly
completed. Such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of
the Borrowing Notice, Administrative Agent shall give each Lender prompt notice
of the terms thereof. If all conditions precedent to such Loans have
been met, each Lender will on the date requested promptly remit to
Administrative Agent at Administrative Agent’s office in Denver, Colorado the
amount of such Lender’s Loan in immediately available funds, and upon receipt of
such funds, unless to its actual knowledge any conditions precedent to such
Loans have been neither met nor waived as provided herein, Administrative Agent
shall promptly make such Loans available to Borrower. Unless
Administrative Agent shall have received prompt notice from a Lender that such
Lender will not make available to Administrative Agent such Lender’s Loan,
Administrative Agent may in its discretion assume that such Lender has made such
Loan available to Administrative Agent in accordance with this section and
Administrative Agent may if it chooses, in reliance upon such assumption, make
such Loan available to Borrower. In such event, if a Lender has not
in fact made its Loan available to Administrative Agent, then the applicable
Lender and Borrower severally agree to pay to Administrative Agent forthwith on
demand such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to Borrower to but excluding
the date of payment to Administrative Agent, at (i) in the case of a payment to
be made by such Lender, the greater of the Federal Funds Rate and a rate
determined by Administrative Agent in accordance with banking industry rules on
interbank compensation and (ii) in the case of a payment to be made by Borrower,
the interest rate applicable to Base Rate Loans. If Borrower and such
Lender shall pay such interest to Administrative Agent for the same or an
overlapping period, Administrative Agent shall promptly remit to Borrower the
amount of such interest paid by Borrower for such period. If such
Lender pays its Loan to Administrative Agent, then the amount so paid shall
constitute such Lender’s Loan. Any payment by Borrower shall be
without prejudice to any claim Borrower may have against a Lender that shall
have failed to make such payment to Administrative Agent.
[Second
Lien Credit Agreement]
25
Section
2.3. Continuations and
Conversions of Loans. Subject to the provisions of this
Agreement, prior to the Maturity Date, Borrower may make the following elections
with respect to Loans outstanding: (A) convert Base Rate Loans to
Eurodollar Loans, (B) convert Eurodollar Loans to Base Rate Loans on the last
day of the Interest Period applicable thereto, and (C) to continue Eurodollar
Loans beyond the expiration of such Interest Period by designating a new
Interest Period to take effect at the time of such expiration; provided, that
Borrower may not have outstanding at any time Eurodollar Loans containing more
than five different Interest Periods. To make any such election,
Borrower must give to Administrative Agent written notice (or telephonic notice
promptly confirmed in writing) of any such Conversion or Continuation of
existing Loans for each Loan converted or continued. Each such notice
constitutes a “Continuation/Conversion Notice” hereunder and must:
(a)
specify the existing Loans which are to be continued or
converted;
(b)
specify (i) the aggregate amount of Base Rate Loans into
which such existing Loans are to be continued or converted and the date on which
such Continuation or Conversion is to occur, or (ii) the aggregate amount of
Eurodollar Loans into which such existing Loans are to be continued or
converted, the date on which such Continuation or Conversion is to occur (which
shall be the first day of the Interest Period which is to apply to such
Eurodollar Loans), and the length of the applicable Interest Period;
and
(c)
be received by Administrative Agent not later than 11:00
a.m., Denver, Colorado time, on (i) the day on which any such Continuation or
Conversion to Base Rate Loans is to occur, or (ii) the third Business Day
preceding the day on which any such Continuation or Conversion to Eurodollar
Loans is to occur.
Each such
written request or confirmation must be made in the form and substance of the
“Continuation/Conversion Notice” attached hereto as Exhibit C, duly
completed. Each such telephonic request shall be deemed a
representation, warranty, acknowledgment and agreement by Borrower as to the
matters which are required to be set out in such written
confirmation. Upon receipt of any such Continuation/Conversion
Notice, Administrative Agent shall give each Lender prompt notice of the terms
thereof. Each Continuation/Conversion Notice shall be irrevocable and
binding on Borrower. During the continuance of any Default, Borrower
may not make any election to convert existing Loans into Eurodollar Loans or
continue existing Loans as Eurodollar Loans. If (due to the existence
of a Default or for any other reason) Borrower fails to timely and properly give
any Continuation/Conversion Notice with respect to existing Eurodollar Loans at
least three days prior to the end of the Interest Period applicable thereto,
such Eurodollar Loans shall automatically be converted into Base Rate Loans at
the end of such Interest Period. No new funds shall be repaid by
Borrower or advanced by any Lender in connection with any Continuation or
Conversion of existing Loans pursuant to this section, and no such Continuation
or Conversion shall be deemed to be a new advance of funds for any purpose; such
Continuations and Conversions merely constitute a change in the interest rate
applicable to already outstanding Loans.
[Second
Lien Credit Agreement]
26
Section
2.4. Use of
Proceeds. The Loans shall be used to provide working capital
for operations and for other general business purposes of Borrower and its
Subsidiaries. In no event shall the funds from any Loan be used
directly or indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any “margin stock” (as such term
is defined in Regulation U promulgated by the Board of Governors of the Federal
Reserve System) or to extend credit to others directly or indirectly for the
purpose of purchasing or carrying any such margin stock. Borrower
represents and warrants that Borrower is not engaged principally, or as one of
Borrower’s important activities, in the business of extending credit to others
for the purpose of purchasing or carrying such margin stock.
Section
2.5. Interest Rates and
Fees
(a)
Base
Rate Loans. So long as no Event of Default has occurred and is
continuing, all Base Rate Loans (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on each day
outstanding at the Adjusted Base Rate in effect on such day. If an
Event of Default has occurred and is continuing, all Base Rate Loans (exclusive
of any past due principal or interest) from time to time outstanding shall bear
interest on each day outstanding at the applicable Default Rate in effect on
such day. On each Interest Payment Date Borrower shall pay to the
holder hereof all unpaid interest which has accrued on the Base Rate Loans to
but not including such Interest Payment Date.
(b)
Eurodollar
Loans. So long as no Event of Default has occurred and is
continuing, each Eurodollar Loan (exclusive of any past due principal or
interest) shall bear interest on each day during the related Interest Period at
the related Adjusted Eurodollar Rate in effect on such day. If an
Event of Default has occurred and is continuing, all Eurodollar Loans (exclusive
of any past due principal or interest) from time to time outstanding shall bear
interest on each day outstanding at the applicable Default Rate in effect on
such day. On each Interest Payment Date relating to such Eurodollar
Loan, Borrower shall pay to the holder hereof all unpaid interest which has
accrued on such Eurodollar Loan to but not including such Interest Payment
Date.
(c)
Intentionally
Omitted.
[Second
Lien Credit Agreement]
27
(d)
Past Due Principal and
Interest. All past due principal of and past due interest on
the Loans shall bear interest on each day outstanding at the Default Rate in
effect on such day, and such interest shall be due and payable daily as it
accrues.
(e)
Intentionally
Omitted.
(f)
Administrative Agent’s
Fees. In addition to all other amounts due to Administrative
Agent under the Loan Documents, Borrower will pay fees to Administrative Agent
as described in the Fee Letter.
Section
2.6. Optional
Prepayments. Subject to the applicable provisions of this
Agreement and the Intercreditor Agreement, Borrower may from time to time and
without premium or penalty prepay the Notes, in whole or in part, so long as the
aggregate amount of Loans prepaid at any time must be equal to $3,000,000 or any
higher integral multiple of $1,000,000; provided, that if
Borrower prepays any Base Rate Loan, it shall give notice to Administrative
Agent at least one Business Day’s prior notice to the date such prepayment is
made and provided, further, that if
Borrower prepays any Eurodollar Loan, it shall give notice to Administrative
Agent at least three Business Days’ prior to the date such prepayment is made
and pay to Lenders any amounts due under Section 3.5.
Section
2.7.
Mandatory Termination of
Commitments; Mandatory Prepayments;.
(a) The
Commitments shall terminate in their entirety on the Closing Date (after giving
effect to the incurrence of Loans on such date).
(b)
All net proceeds of any Indebtedness under Section
7.1(g) and Section 7.1(h) and any issuance of Equity Interests under Section
7.4(b), in each case, after making any prepayment required by the First Lien
Credit Agreement, shall be used to prepay the principal of the
Obligations. Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so prepaid
and any amounts due under Section 3.4. Any principal or interest
prepaid pursuant to this section shall be in addition to, and not in lieu of,
all payments otherwise required to be paid under the Loan Documents at the time
of such prepayment
Section
2.8.
Intentionally
Omitted
Section
2.9.
Intentionally
Omitted
Section
2.10. Intentionally
Omitted
Section
2.11. Intentionally
Omitted
Section
2.12. Intentionally
Omitted
Section
2.13. Intentionally
Omitted
Section
2.14. Intentionally
Omitted
[Second
Lien Credit Agreement]
28
Section
2.15. Intentionally
Omitted
Section
2.16. Intentionally
Omitted
Section
2.17. Intentionally
Omitted
Section
2.18. Obligations of Lenders
Several. The obligations of the Lenders hereunder to make Loans are
several and not joint. The failure of any Lender to make any Loan or
to make any payment under Section 10.4(b) on any date required hereunder shall
not relieve any other Lender of its corresponding obligation to do so on such
date, and no Lender shall be responsible for the failure of any other Lender to
so make its Loan or to make its payment under Section 10.4(b).
ARTICLE
III - - Payments to
Lenders
Section
3.1. General
Procedures. Borrower will make each payment which it owes
under the Loan Documents to Administrative Agent for the account of the Lender
Party to whom such payment is owed, in lawful money of the United States of
America, without set-off, deduction or counterclaim, and in immediately
available funds. Each such payment must be received by Administrative
Agent not later than 11:00 a.m., Denver, Colorado time, on the date such payment
becomes due and payable. Any payment received by Administrative Agent
after such time will be deemed to have been made on the next following Business
Day. Should any such payment become due and payable on a day other
than a Business Day, the maturity of such payment shall be extended to the next
succeeding Business Day, and, in the case of a payment of principal or past due
interest, interest shall accrue and be payable thereon for the period of such
extension as provided in the Loan Document under which such payment is
due. Each payment under a Loan Document shall be due and payable at
the place set forth for Administrative Agent on the Lenders Schedule. When
Administrative Agent collects or receives money on account of the Obligations,
Administrative Agent shall distribute all money so collected or received, and
each Lender Party shall apply all such money so distributed, as follows (except
as otherwise provided in Section 8.3):
(a)
first,
for the payment of all Obligations which are then due (and if such money is
insufficient to pay all such Obligations, first to any reimbursements due to
Administrative Agent under Section 6.9 or 10.4 and then to the partial payment
of all other Obligations then due in proportion to the amounts thereof, or as
the Lender Parties shall otherwise agree);
(b)
second,
for the prepayment of amounts owing under the Loan Documents (other than
principal on the Notes) if so specified by Borrower;
(c)
third,
for the prepayment of principal on the Notes, together with accrued and unpaid
interest on the principal so prepaid; and
(d)
last,
for the payment or prepayment of any other Obligations.
All
payments applied to principal or interest on any Note shall be applied first to
any interest then due and payable, then to principal then due and payable, and
last to any prepayment of principal and interest in compliance with Section
2.6. All distributions of amounts described in any of subsections
(b), (c) or (d) above shall be made by Administrative Agent pro rata to each
Lender Party then owed Obligations described in such subsection in proportion to
all amounts owed to all Lender Parties which are described in such subsection;
provided that
if any Lender then owes payments to Administrative Agent under Section 10.4(b),
any amounts otherwise distributable under this section to such Lender shall be
deemed to belong to Administrative Agent to the extent of such unpaid payments,
and Administrative Agent shall apply such amounts to make such unpaid payments
rather than distribute such amounts to such Lender.
[Second
Lien Credit Agreement]
29
Section
3.2.
Increased
Costs.
(a)
Increased Costs
Generally. If any Change in Law shall:
(i)
impose, modify or deem applicable any reserve, special
deposit, compulsory loan, insurance charge or similar requirement against assets
of, deposits with or for the account of, or credit extended or participated in
by, any Lender (except any reserve requirement reflected in the Adjusted
Eurodollar Rate);
(ii)
subject any Lender to any Tax of any kind whatsoever with respect to
this Agreement or any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Lender in respect thereof (except for Indemnified
Taxes or Other Taxes covered by Section 3.5 and the imposition of, or any change
in the rate of, any Excluded Tax payable by such Lender); or
(iii) impose
on any Lender or the London interbank market any other condition, cost or
expense affecting this Agreement or Eurodollar Loans made by such
Lender;
and the
result of any of the foregoing shall be to increase the cost to such Lender of
making or maintaining any Eurodollar Loan, or to reduce the amount of any sum
received or receivable by such Lender hereunder (whether of principal, interest
or any other amount) then, upon request of such Lender, Borrower will pay to
such Lender such additional amount or amounts as will compensate such Lender for
such additional costs incurred or reduction suffered.
(b)
Capital
Requirements. If any Lender determines that any Change in Law
affecting such Lender or any lending office of such Lender or such Lender’s
holding company, if any, regarding capital requirements has or would have the
effect of reducing the rate of return on such Lender’s capital or on the capital
of such Lender’s holding company, if any, as a consequence of this Agreement,
the Loans made by such Lender to a level below that which such Lender or such
Lender’s holding company could have achieved but for such Change in Law (taking
into consideration such Lender’s policies and the policies of such Lender’s
holding company with respect to capital adequacy), then from time to time
Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender or such Lender’s holding company for any such reduction
suffered.
(c)
Certificates for
Reimbursement. A certificate of a Lender setting forth the
amount or amounts necessary to compensate such Lender or its holding company, as
the case may be, as specified in paragraph (a) or (b) of this Section and
delivered to Borrower shall be conclusive absent manifest
error. Borrower shall pay such Lender the amount shown as due on any
such certificate within ten days after receipt thereof.
[Second
Lien Credit Agreement]
30
(d)
Delay in
Requests. Failure or delay on the part of any Lender to demand
compensation pursuant to this Section 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
for any increased costs incurred or reductions suffered more than nine months
prior to the date that such Lender notifies Borrower of the Change in Law giving
rise to such increased costs or reductions and of such Lender’s intention to
claim compensation therefor (except that, if the Change in Law giving rise to
such increased costs or reductions is retroactive, then the nine-month period
referred to above shall be extended to include the period of retroactive effect
thereof).
Section
3.3. Illegality. If
any Change in Law after the date hereof shall make it unlawful for any Lender
Party to maintain Eurodollar Loans, then, upon notice by such Lender Party to
Borrower and Administrative Agent, (a) Borrower’s right to elect (i) to convert
Base Rate Loans to Eurodollar Loans or (ii) to continue Eurodollar Loans as
Eurodollar Loans from such Lender Party shall be suspended to the extent and for
the duration of such illegality, and (b) all Eurodollar Loans of such Lender
Party shall be converted automatically to Base Rate Loans on the respective last
days of the then current Interest Periods with respect to such Loans or within
such earlier period as required by Law. If any such Conversion of a
Eurodollar Loan occurs on a day which is not the last day of the then current
Interest Period with respect thereto, Borrower shall pay to such Lender Party
such amounts, if any, as may be required pursuant to Section 3.4.
Section
3.4. Funding
Losses. In addition to its other obligations hereunder,
Borrower will indemnify each Lender Party against, and reimburse each Lender
Party on demand for, any loss or expense incurred or sustained by such Lender
Party (including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by a Lender Party to fund or
maintain Eurodollar Loans), as a result of (a) any payment or prepayment
(whether authorized or required hereunder or otherwise) of all or a portion of a
Eurodollar Loan on a day other than the day on which the applicable Interest
Period ends, (b) any payment or prepayment, whether required hereunder or
otherwise, of a Loan made after the delivery, but before the effective date, of
a Continuation/Conversion Notice requesting the Continuation of outstanding
Eurodollar Loans as, or the Conversion of outstanding Base Rate Loans to,
Eurodollar Loans, if such payment or prepayment prevents such Continuation/
Conversion Notice from becoming fully effective, (c) the failure of any Loan to
be made or of any Continuation/Conversion Notice requesting the Continuation of
outstanding Eurodollar Loans as, or the Conversion of outstanding Base Rate
Loans to, Eurodollar Loans to become effective due to any condition precedent
not being satisfied or due to any other action or inaction of any Restricted
Person, (d) any Conversion (whether authorized or required hereunder or
otherwise) of all or any portion of any Eurodollar Loan into a Base Rate Loan or
into a different Eurodollar Loan on a day other than the day on which the
applicable Interest Period ends, or (e) any assignment of a Eurodollar Loan on a
day other than the last day of the Interest Period therefor as a result of a
request by Borrower pursuant to Section 3.7(b). Such indemnification
shall be on an after-tax basis.
[Second
Lien Credit Agreement]
31
Section
3.5. Taxes.
(a)
Payment Free of
Taxes. Any and all payments by or on account of any obligation
of Borrower hereunder or under any other Loan Document shall be made free and
clear of and without reduction or withholding for any Indemnified Taxes or Other
Taxes; provided
that if Borrower shall be required by applicable law to deduct any Indemnified
Taxes (including any Other Taxes) from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
Administrative Agent or Lender, as the case may be, receives an amount equal to
the sum it would have received had no such deductions been made, (ii) Borrower
shall make such deductions and (iii) Borrower shall timely pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
(b)
Payment of Other Taxes by
Borrower. Without limiting the provisions of paragraph (a)
above, Borrower shall timely pay any Other Taxes to the relevant Governmental
Authority in accordance with applicable law.
(c)
Indemnification by
Borrower. Borrower shall indemnify Administrative Agent and
each Lender, within ten (10) days after demand therefor, for the full amount of
any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section)
paid by Administrative Agent or such Lender, as the case may be, and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to Borrower
by a Lender (with a copy to Administrative Agent), or by Administrative Agent on
its own behalf or on behalf of a Lender, shall be conclusive absent manifest
error.
(d)
Evidence of
Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by Borrower to a Governmental Authority,
Borrower shall deliver to Administrative Agent the original or a certified copy
of a receipt issued by such Governmental Authority evidencing such payment, a
copy of the return reporting such payment or other evidence of such payment
reasonably satisfactory to Administrative Agent.
(e)
Status of
Lenders. Any Foreign Lender that is entitled to an exemption
from or reduction of withholding tax under the law of the jurisdiction in which
Borrower is resident for tax purposes, or any treaty to which such jurisdiction
is a party, with respect to payments hereunder or under any other Loan Document
shall deliver to Borrower (with a copy to Administrative Agent), at the time or
times prescribed by applicable law or reasonably requested by Borrower or
Administrative Agent, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate of withholding. In addition, any
Lender, if requested by Borrower or Administrative Agent, shall deliver such
other documentation prescribed by applicable law or reasonably requested by
Borrower or Administrative Agent as will enable Borrower or Administrative Agent
to determine whether or not such Lender is subject to backup withholding or
information reporting requirements.
[Second
Lien Credit Agreement]
32
Without
limiting the generality of the foregoing, in the event that Borrower is resident
for tax purposes in the United States of America, any Foreign Lender shall
deliver to Borrower and Administrative Agent (in such number of copies as shall
be requested by the recipient) on or prior to the date on which such Foreign
Lender becomes a Lender under this Agreement (and from time to time thereafter
upon the request of Borrower or Administrative Agent, but only if such Foreign
Lender is legally entitled to do so), whichever of the following is
applicable:
(i)
duly completed copies of Internal Revenue Service Form W-8BEN
claiming eligibility for benefits of an income tax treaty to which the United
States of America is a party,
(ii)
duly completed copies of Internal Revenue Service Form
W-8ECI,
(iii) in
the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under section 881(c) of the Code, (x) a certificate to the
effect that such Foreign Lender is not (A) a “bank” within the meaning of
section 881(c)(3)(A) of the Internal Revenue Code, (B) a “10 percent
shareholder” of Borrower within the meaning of section 881(c)(3)(B) of the
Internal Revenue Code, or (C) a “controlled foreign corporation” described in
section 881(c)(3)(C) of the Internal Revenue Code and (y) duly completed copies
of Internal Revenue Service Form W-8BEN, or
(iv) any
other form prescribed by applicable law as a basis for claiming exemption from
or a reduction in United States Federal withholding tax duly completed together
with such supplementary documentation as may be prescribed by applicable law to
permit Borrower to determine the withholding or deduction required to be
made.
(f)
Treatment of
Certain Refunds. If Administrative Agent or a Lender receives
a refund of any Taxes or Other Taxes as to which it has been indemnified by
Borrower or with respect to which Borrower has paid additional amounts pursuant
to this Section, it shall pay to Borrower an amount equal to such refund (but
only to the extent of indemnity payments made, or additional amounts paid, by
Borrower under this Section with respect to the Taxes or Other Taxes giving rise
to such refund), net of all out-of-pocket expenses of Administrative Agent or
such Lender, as the case may be, and without interest (other than any interest
paid by the relevant Governmental Authority with respect to such refund); provided that
Borrower, upon the request of Administrative Agent or such Lender, agrees to
repay the amount paid over to Borrower (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to Administrative Agent
or such Lender in the event Administrative Agent or such Lender is required to
repay such refund to such Governmental Authority. This subsection
shall not be construed to require Administrative Agent or any Lender to make
available its tax returns (or any other information relating to its taxes that
it deems confidential) to Borrower or any other Person.
Section
3.6.
Alternative Rate of
Interest. If prior to the commencement of any Interest Period
for any Eurodollar Loans:
(a)
Administrative Agent determines that adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for such Interest Period
(any such determination shall be conclusive absent manifest error);
or
[Second
Lien Credit Agreement]
33
(b)
Administrative Agent is advised by Required Lenders that the
Eurodollar Rate for such Interest Period will not adequately and fairly reflect
the cost to such Lenders of maintaining any Eurodollar Loans for such Interest
Period;
then
Administrative Agent shall give notice thereof to Borrower and Lenders by
telephone or facsimile as promptly as practicable thereafter and, until
Administrative Agent notifies Borrower and Lenders that the circumstances giving
rise to such notice no longer exist, any Continuation/Conversion Notice that
requests the Conversion of any Base Rate Loans to Eurodollar Loans or the
Continuation of any Eurodollar Loans shall be ineffective and shall only be
deemed a request to continue such Loans as Base Rate Loans. Upon
receipt of such notice, Borrower may revoke any pending request for the
Conversion to or Continuation of Eurodollar Loans.
Section
3.7.
Mitigation Obligations;
Replacement of Lenders.
(a)
Designation of a Different
Lending Office. If any Lender requests compensation under Section 3.2, or
requires Borrower to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 3.5, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 3.2 or 3.5, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such
Lender. Borrower hereby agrees to pay all reasonable costs and
expenses incurred by any Lender in connection with any such designation or
assignment.
(b)
Replacement of
Lenders. If any Lender requests compensation under Section
3.2, or if any Lender gives notice to Borrower under Section 3.3 that it is
unlawful for such Lender to fund or maintain Eurodollar Loans, or if Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 3.5, or if any
Lender defaults in its obligation to fund Loans hereunder, or if any Lender has
been deemed insolvent or becomes the subject of a bankruptcy or insolvency
proceeding, or if, in connection with any consent or approval of any proposed
amendment, modification, waiver, or consent that requires consent of each
Lender, the consent of Required Lenders shall have been obtained but any Lender
has not so consented or approved (any such Lender, a “Non-Consenting
Lender”), then Borrower may, at its sole expense and effort, upon notice
to such Lender and Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in, and consents required by, Section 10.5), all of its interests,
rights and obligations under this Agreement and the related Loan Documents to an
assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided
that:
(i)
Borrower shall have paid to Administrative Agent the
assignment fee specified in Section 10.5;
[Second
Lien Credit Agreement]
34
(ii)
such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder and under
the other Loan Documents (including any amounts under Section 3.4) from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or Borrower (in the case of all other amounts);
(iii) (A)
in the case of any such assignment resulting from a Lender becoming a
Non-Consenting Lender, the applicable assignees shall have agreed to, and shall
be sufficient (together with all other consenting Lenders) to cause the adoption
of, the applicable departure, waiver or amendment of the Loan Documents and (B)
in the case of any such assignment resulting from a claim for compensation under
Section 3.2 or payments required to be made pursuant to Section 3.5, such
assignment will result in a reduction in such compensation or payments
thereafter and (C) in the case of any assignment due to illegality, such
assignee can fund and maintain Eurodollar Loans; and
(iv) such
assignment does not conflict with applicable law.
A Lender
shall not be required to make any such assignment or delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances
entitling Borrower to require such assignment and delegation cease to
apply. In connection with any such replacement, if any such Lender
does not execute and deliver to Administrative Agent a duly executed assignment
specified in Section 10.5 reflecting such replacement within five Business Days
of the date on which the assignee Lender executes and delivers such assignment
to such Lender, then such Lender shall be deemed to have executed and delivered
such assignment without any action on the part of such Lender.
ARTICLE
IV - - Conditions
Precedent to Lending
Section
4.1. Documents to be
Delivered. No Lender has any obligation to make its Loan under
this Agreement unless Administrative Agent shall have received all of the
following, at Administrative Agent’s office in Denver, Colorado, duly executed
and delivered and in form, substance and date satisfactory to Administrative
Agent:
(a)
Loan
Documents. Administrative Agent shall have received
counterparts of each Loan Document originally executed and delivered by each
applicable Restricted Person and Lender and any other party thereto, and in such
numbers as Administrative Agent or its counsel may reasonably
request.
(b)
Organizational Documents;
Incumbency. Administrative Agent shall have received (i)
copies of each Organizational Document executed and delivered by each Restricted
Person, as applicable, and, to the extent applicable, certified as of a recent
date by the appropriate governmental official, each dated the Closing Date or a
recent date prior thereto; (ii) signature and incumbency certificates of the
officers of such Person executing the Loan Documents to which it is a party;
(iii) resolutions of the Board of Directors or similar governing body of each
Restricted Person approving and authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents to which it is a
party or by which it or its assets may be bound as of the Closing Date,
certified as of the Closing Date by a Responsible Officer as being in full force
and effect without modification or amendment; (iv) an existence and good
standing certificate from the applicable Governmental Authority of each
Restricted Person’s jurisdiction of incorporation, organization or formation and
in each jurisdiction in which it owns real property Collateral, each dated a
recent date prior to the Closing Date; and (v) such other documents as
Administrative Agent may reasonably request.
[Second
Lien Credit Agreement]
35
(c)
Closing
Certificate. Administrative Agent shall have received a
“Closing Certificate” of a Responsible Officer of Borrower, of even date with
this Agreement, in which such officer certifies to the satisfaction of each of
the conditions set out in Section 4.1.
(d)
Governmental Authorizations
and Consents. Each Restricted Person shall have obtained all
Governmental Authorizations and all consents of other Persons, in each case that
are necessary or advisable in connection with the transactions contemplated by
the Loan Documents and each of the foregoing shall be in full force and effect
and in form and substance reasonably satisfactory to Administrative
Agent. All applicable waiting periods shall have expired without any
action being taken or threatened by any competent authority which would
restrain, prevent or otherwise impose adverse conditions on the transactions
contemplated by the Loan Documents or the financing thereof and no action,
request for stay, petition for review or rehearing, reconsideration, or appeal
with respect to any of the foregoing shall be pending, and the time for any
applicable agency to take action to set aside its consent on its own motion
shall have expired.
(e)
Environmental
Reports. Administrative Agent shall have received reports and
other information, in form, scope and substance reasonably satisfactory to
Administrative Agent, regarding environmental matters relating to Borrower’s
material real property assets.
(f)
Evidence of
Insurance. Administrative Agent shall have received a
certificate from Borrower’s insurance broker or other evidence reasonably
satisfactory to it that all insurance required to be maintained pursuant to
Section 6.8 is in full force and effect and that Administrative Agent had been
named as additional insured and loss payee thereunder as its interests may
appear and to the extent required under Section 6.8.
(g)
Opinions of
Counsel. Administrative Agent shall have received originally
executed copies of the favorable written opinions of Musick, Peeler &
Garrett LLP, counsel to Restricted Persons, in the form of Exhibit E and opining
as to such other matters as Administrative Agent may reasonably request at least
three days prior to the Closing Date, dated as of the Closing Date and otherwise
in form and substance reasonably satisfactory to Administrative Agent (and each
Restricted Person hereby instructs such counsel to deliver such opinions to
Administrative Agent and Lenders).
(h)
Fees. Administrative
Agent shall have received all commitment, facility, agency, recording, filing,
and other fees required to be paid to Administrative Agent or any Lender
pursuant to any Loan Documents, the Fee Letter or any commitment agreement
heretofore entered into.
(i)
Financial
Statements. Lenders shall have received the Initial Financial
Statements, which shall be in form and substance reasonably satisfactory to
Administrative Agent, together with a certificate by a Responsible Officer
certifying the Initial Financial Statements.
[Second
Lien Credit Agreement]
36
(j)
Initial Engineering
Report. Lenders shall have received the Initial Engineering
Report, which shall be in form and substance reasonably satisfactory to
Administrative Agent.
(k)
Title. Administrative
Agent shall have received title reports, title opinions and other title
information in form, substance and authorship reasonably satisfactory to
Administrative Agent, with respect to the Borrowing Base Properties that are
subject to the Security Documents on the Closing Date.
(l)
Intentionally
Omitted.
(m) No
Litigation. There shall not exist any action, suit,
investigation, litigation or proceeding or other legal or regulatory
developments, pending or threatened in any court or before any arbitrator or
Governmental Authority that, in the reasonable opinion of Administrative Agent,
singly or in the aggregate, materially impairs the financing hereunder or any of
the other transactions contemplated by the Loan Documents, or that could
reasonably be expected to cause a Material Adverse Change.
(n)
Completion of
Proceedings. All partnership, corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incidental thereto not previously found acceptable by
Administrative Agent and its counsel shall be reasonably satisfactory in form
and substance to Administrative Agent and such counsel, and Administrative Agent
and such counsel shall have received all such counterpart originals or certified
copies of such documents as Administrative Agent may reasonably
request.
(o)
Material Adverse
Change. No event or circumstance shall have occurred or be
continuing since the date of the Initial Financial Statements that has had, or
could be reasonably expected to cause, either individually or in the aggregate,
a Material Adverse Change.
(p)
Due
Diligence. Administrative Agent and Lenders shall have
completed satisfactory due diligence review of the assets, liabilities,
business, operations, condition (financial or otherwise) and key officers of the
Restricted Persons, including, a review of their Mineral Interests and all
legal, financial, accounting, governmental, environmental, tax and regulatory
matters, and fiduciary aspects of the proposed financing.
(q)
First Lien Loan
Documents. Administrative Agent shall have received (i) copies
of all of the First Lien Loan Documents and all amendments thereto and (ii)
evidence that the First Lien Credit Agreement is in full force and effect as of
the Closing Date.
(r)
Solvency
Certificate. Administrative Agent shall have received, in form
and substance satisfactory to the Administrative Agent, a certificate from the
Chief Financial Officer of the Borrower certifying that, as of the Closing Date,
the representations and warranties contained in Section 5.16 are true and
correct.
(s)
UCC
Searches. Administrative Agent shall have received, and be
satisfied with, results of searches of the UCC Records of the Secretary of State
of the States of California, Delaware, Texas and Utah, and such other states as
the Administrative Agent deems necessary in its sole discretion, each search
report to be from a source or sources acceptable to the Administrative Agent and
reflecting no Liens, other than Permitted Liens and other Liens acceptable to
Administrative Agent, against any assets of the Borrower or any of the
Guarantors, as the case may be, as to which perfection of a Lien is accomplished
by the filing of a financing statement.
[Second
Lien Credit Agreement]
37
(t)
Other
Documentation. Administrative Agent shall have received all
documents and instruments which Administrative Agent has then reasonably
requested, in addition to those described in this Section 4.1. All
such additional documents and instruments shall be reasonably satisfactory to
Administrative Agent in form, substance and date. For purposes of
determining compliance with the conditions specified in this Section 4.1, each
Lender that has executed and delivered this Agreement shall be deemed to have
consented to, approved or accepted or to be satisfied with, each document or
other matter required thereunder to be consented to or approved by or acceptable
or satisfactory to a Lender unless the Administrative Agent shall have received
notice from such Lender prior to the proposed Closing Date specifying its
objection thereto
(u)
Representations and
Warranties True and Correct. All representations and
warranties made by any Restricted Person in any Loan Document shall be true and
correct in all material respects on and as of the date of such Loan as if such
representations and warranties had been made as of the date of such Loan, except
to the extent that such representation or warranty was made as of a specific
date or updated, modified or supplemented as of a subsequent date with the
consent of Required Lenders and Administrative Agent, in which cases such
representations and warranties shall have been true and correct in all material
respects on and of such earlier date.
(v)
No
Defaults. No Default shall exist at the date of such
Loan.
(w) Conditions
Satisfied. Each Restricted Person shall have performed and
complied with all agreements and conditions required in the Loan Documents to be
performed or complied with by it on or prior to the date of such
Loan.
(x)
Not
Prohibited by Law. The making of such Loan shall not be
prohibited by any Law and shall not subject any Lender to any penalty or other
onerous condition under or pursuant to any such Law.
Section
4.2.
Intentionally
Omitted.
ARTICLE V
- - - Representations
and Warranties
To
confirm each Lender’s understanding concerning Restricted Persons and Restricted
Persons’ businesses, properties and obligations and to induce each Lender to
enter into this Agreement and to extend credit hereunder, Borrower represents
and warrants to each Lender that:
Section
5.1.
No
Default. No event has occurred and is continuing which
constitutes a Default.
[Second
Lien Credit Agreement]
38
Section
5.2. Organization and Good
Standing. Each Restricted Person is duly organized, validly
existing and in good standing under the Laws of its jurisdiction of
organization, having all powers required to carry on its business and enter into
and carry out the transactions contemplated hereby. Each Restricted
Person is duly qualified, in good standing, and authorized to do business in all
other jurisdictions within the United States wherein the character of the
properties owned or held by it or the nature of the business transacted by it
makes such qualification necessary. Each Restricted Person has taken
all actions and procedures customarily taken in order to enter, for the purpose
of conducting business or owning property, each jurisdiction outside the United
States wherein the character of the properties owned or held by it or the nature
of the business transacted by it makes such actions and procedures
desirable.
Section
5.3. Authorization. Each
Restricted Person has duly taken all action necessary to authorize the execution
and delivery by it of the Loan Documents to which it is a party and to authorize
the consummation of the transactions contemplated thereby and the performance of
its obligations thereunder. Borrower is duly authorized to borrow
funds hereunder.
Section
5.4. No Conflicts or
Consents. The execution and delivery by the various Restricted
Persons of the Loan Documents to which each is a party, the performance by each
of its obligations under such Loan Documents, and the consummation of the
transactions contemplated by the various Loan Documents, do not and will not (a)
conflict with any provision of (i) any Law, (ii) the Organizational Documents of
any Restricted Person, or (iii) any agreement, judgment, license, order or
permit applicable to or binding upon any Restricted Person in any material
respect, (b) result in the acceleration of any Indebtedness owed by any
Restricted Person, or (c) result in or require the creation of any Lien upon any
assets or properties of any Restricted Person except as expressly contemplated
or permitted in the Loan Documents. Except as expressly contemplated
in the Loan Documents no consent, approval, authorization or order of, and no
notice to or filing with, any Governmental Authority or third party is required
in connection with the execution, delivery or performance by any Restricted
Person of any Loan Document or to consummate any transactions contemplated by
the Loan Documents.
Section
5.5. Enforceable
Obligations. This Agreement is, and the other Loan Documents
when duly executed and delivered will be, legal, valid and binding obligations
of each Restricted Person which is a party hereto or thereto, enforceable in
accordance with their terms except as such enforcement may be limited by
bankruptcy, insolvency or similar Laws of general application relating to the
enforcement of creditors’ rights.
Section
5.6. Initial Financial
Statements. Borrower has heretofore delivered to each Lender
true, correct and complete copies of the Initial Financial
Statements. The Initial Financial Statements fairly present
Borrower’s Consolidated financial position at the respective dates thereof and
the Consolidated results of Borrower’s operations and Borrower’s Consolidated
cash flows for the respective periods thereof. Since the date of the
annual Initial Financial Statements no Material Adverse Change has occurred,
except as reflected in the quarterly Initial Financial Statements or in Section
5.6 of the Disclosure Letter. All Initial Financial Statements were
prepared in accordance with GAAP.
[Second
Lien Credit Agreement]
39
Section
5.7. Other Obligations and
Restrictions. No Restricted Person has any outstanding
Liabilities of any kind (including contingent obligations, tax assessments, and
unusual forward or long-term commitments) which are, in the aggregate, material
to Borrower or material with respect to Borrower’s Consolidated financial
condition and not shown in the Initial Financial Statements or disclosed in
Section 5.7 of the Disclosure Letter or a Disclosure Report. Except
as shown in the Initial Financial Statements or disclosed in Section 5.7 of the
Disclosure Letter or a Disclosure Report, no Restricted Person is subject to or
restricted by any franchise, contract, deed, charter restriction, or other
instrument or restriction which could reasonably be expected to cause a Material
Adverse Change.
Section
5.8. Full
Disclosure. No certificate, statement or other information
delivered herewith or heretofore by any Restricted Person to any Lender in
connection with the negotiation of this Agreement or in connection with any
transaction contemplated hereby (excluding projections, estimates and
Engineering Reports) contains any untrue statement of a material fact or omits
to state any material fact known to any Restricted Person (other than
industry-wide risks normally associated with the types of businesses conducted
by Restricted Persons) necessary to make the statements contained herein or
therein not misleading as of the date made or deemed made; provided that, with
respect to the estimates, projections and pro forma financial information
contained in the materials referenced above, Borrower only represents that they
are based upon good faith estimates and assumptions believed by management of
Borrower to be reasonable at the time made, it being recognized by the Lenders
that such financial information as it relates to future events is not to be
viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth
therein by a material amount. There is no fact known to any
Restricted Person (other than industry-wide risks normally associated with the
types of businesses conducted by Restricted Persons) that has not been disclosed
to each Lender in writing which could reasonably be expected to cause a Material
Adverse Change. There are no statements or conclusions in any
Engineering Report which are based upon or include misleading information or
fail to take into account material information regarding the matters reported
therein, it being understood that each Engineering Report is necessarily based
upon professional opinions, estimates and projections and that Borrower does not
warrant that such opinions, estimates and projections will ultimately prove to
have been accurate. Borrower has heretofore delivered to each Lender true,
correct and complete copies of the Initial Engineering Report.
Section
5.9. Litigation. Except
as disclosed in the Initial Financial Statements or in Section 5.9 of the
Disclosure Letter: (a) there are no actions, suits or legal,
equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Restricted Person threatened, against any Restricted Person or
affecting any Collateral (including any which challenge or otherwise pertain to
any Restricted Person’s title to any Collateral) before any Governmental
Authority which could reasonably be expected to cause a Material Adverse Change,
(b) there are no outstanding judgments, injunctions, writs, rulings or orders by
any such Governmental Authority against any Restricted Person or any Restricted
Person’s stockholders, partners, directors or officers or affecting any
Collateral or any of its material assets or property which could reasonably be
expected to cause a Material Adverse Change, and (c) there are no cease and
desist, noncompliance orders or notices from the California Division of Oil, Gas
and Geothermal Resources or other Governmental Authorities which could
reasonably be expected to cause a Material Adverse Change.
[Second
Lien Credit Agreement]
40
Section
5.10. Labor Disputes and Acts of
God. Except as disclosed in Section 5.10 of the Disclosure
Letter or a Disclosure Report, neither the business nor the properties of any
Restricted Person has been affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or of the public enemy or other casualty (whether or not covered by
insurance), which could reasonably be expected to cause a Material Adverse
Change.
Section
5.11. ERISA Plans and
Liabilities. All currently existing ERISA Plans are listed in
Section 5.11 of the Disclosure Letter or a Disclosure Report. Except
as disclosed in the Initial Financial Statements or in Section 5.11 of the
Disclosure Letter or a Disclosure Report, no Termination Event has occurred with
respect to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA
in all material respects. No ERISA Affiliate is required to
contribute to, or has any other absolute or contingent liability in respect of,
any “multiemployer plan” as defined in Section 4001 of ERISA. Except
as set forth in Section 5.11 of the Disclosure Letter or a Disclosure
Report: (a) no “accumulated funding deficiency” (as defined in
Section 412(a) of the Internal Revenue Code) exists with respect to any ERISA
Plan, whether or not waived by the Secretary of the Treasury or his delegate,
and (b) the current value of each ERISA Plan’s benefits does not exceed the
current value of such ERISA Plan’s assets available for the payment of such
benefits by more than $500,000.
Section
5.12. Environmental and Other
Laws. Except as disclosed in Section 5.12 of the Disclosure
Letter or a Disclosure Report: (a) Restricted Persons are conducting their
businesses in material compliance with all applicable Laws, including
Environmental Laws, and have and are in compliance with all material licenses,
permits and bonds required under any such Laws; (b) none of the operations or
properties of any Restricted Person is the subject of federal, state or local
investigation evaluating whether any material remedial action is needed to
respond to a release of any Hazardous Materials into the environment or to the
improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (c) no Restricted Person (and to the best
knowledge of Borrower, no other Person) has filed any notice under any Law
indicating that any Restricted Person is responsible for the improper release
into the environment, or the improper storage or disposal, of any material
amount of any Hazardous Materials or that any Hazardous Materials have been
improperly released, or are improperly stored or disposed of, upon any property
of any Restricted Person; (d) no Restricted Person has transported or arranged
for the transportation of any Hazardous Material to any location which is (i)
listed on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, listed for
possible inclusion on such National Priorities List by the Environmental
Protection Agency in its Comprehensive Environmental Response, Compensation and
Liability Information System List, or listed on any similar state list or (ii)
the subject of federal, state or local enforcement actions or other
investigations which may lead to claims against any Restricted Person for
clean-up costs, remedial work, damages to natural resources or for personal
injury claims (whether under Environmental Laws or otherwise); and (e) no
Restricted Person otherwise has any known material contingent liability under
any Environmental Laws or in connection with the release into the environment,
or the storage or disposal, of any Hazardous Materials. Each
Restricted Person undertook, at the time of its acquisition of each of its
material properties, all appropriate inquiry into the previous ownership and
uses of the Property and any potential environmental liabilities associated
therewith.
[Second
Lien Credit Agreement]
41
Section
5.13. Names and Places of
Business. No Restricted Person has, during the preceding five
years, had, been known by, or used any other trade or fictitious name, except as
disclosed in Section 5.13 of the Disclosure Letter or a Disclosure
Report. Except as otherwise indicated in Section 5.13 of the
Disclosure Letter or a Disclosure Report, the chief executive office and
principal place of business of each Restricted Person are (and for the preceding
five years have been) located at the address of Borrower set out on the
signature pages hereto. Except as indicated in Section 5.13 of the
Disclosure Letter or a Disclosure Report, no Restricted Person has any other
office or place of business.
Section
5.14. Borrower’s
Subsidiaries. Borrower does not presently have any Subsidiary
or own any stock in any other corporation or association except those listed in
Section 5.14 of the Disclosure Letter or a Disclosure Report. Neither
Borrower nor any Restricted Person is a member of any general or limited
partnership, joint venture or association of any type whatsoever except those
listed in Section 5.14 of the Disclosure Letter or a Disclosure Report, and
associations, joint ventures or other relationships (a) which are established
pursuant to a standard form operating agreement or similar agreement or which
are partnerships for purposes of federal income taxation only, (b) which are not
corporations or partnerships (or subject to the Uniform Partnership Act) under
applicable state Law, and (c) whose businesses are limited to the exploration,
development and operation of oil, gas or mineral properties and interests owned
directly by the parties in such associations, joint ventures or
relationships. Except as otherwise revealed in a Disclosure Report,
Borrower owns, directly or indirectly, the Equity Interest in each of its
Subsidiaries which is indicated in Section 5.14 of the Disclosure
Letter.
Section
5.15. Government
Regulation. Neither Borrower nor any other Restricted Person
owing Obligations is subject to regulation under the Federal Power Act, the
Investment Company Act of 1940 (as any of the preceding acts have been amended)
or any other Law which regulates the incurring by such Person of Indebtedness,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
Section
5.16. Solvency. Upon
giving effect to the issuance of the Notes, the execution of the Loan Documents
by Borrower and each Guarantor and the consummation of the transactions
contemplated hereby, no Restricted Person will be Insolvent.
Section
5.17. Title to Properties;
Licenses. Except for those Mineral Interests disposed of in
accordance with this Agreement and oil and gas leases that have expired in
accordance with their terms, each Restricted Person has (a) good and defensible
title to, or valid leasehold interests in, all of the Mineral Interests covered
by the most recently delivered Engineering Report, free and clear of all Liens,
encumbrances, or adverse claims other than Permitted Liens; and (b) good and
valid title to, or valid leasehold interests in, licenses of, or rights to use,
all other Collateral owned or leased by such Restricted Person, free and clear
of all Liens, encumbrances, or adverse claims other than Permitted Liens, except
in the case of clauses (a) and (b) of this section, defects in title or adverse
claims which could not reasonably be expected to cause a Material Adverse
Change; provided that no
representation or warranty is made in this section with respect to any Mineral
Interest to which no Proved Reserves are properly attributed. Other
than changes which arise pursuant to non-consent provisions of operating
agreements or other agreements (if any) described in the exhibits to any
Security Document and except for properties disposed of in compliance with this
Agreement or leases that have expired in accordance with their
terms: (x) each Restricted Person owns the net interests in
production attributable to the wells and units of such Restricted Person
evaluated in the most recently delivered Engineering Report, subject only to
Permitted Liens, and (y) the ownership of such properties does not in the
aggregate in any material respect obligate such Restricted Person to bear the
costs and expenses relating to the maintenance, development and operations of
such properties in an amount materially in excess of the working interest of
such properties set forth in such Engineering Report. Upon delivery
of each Engineering Report furnished to the Lenders pursuant to Sections 6.2(d)
and (f), the statements made in the preceding sentences of this section and in
Section 5.8 shall be true with respect to such Engineering
Report. Each Restricted Person possesses all licenses, permits,
franchises, or otherwise has valid rights, rights to use all patents,
copyrights, trademarks and trade names, and other intellectual property (or
otherwise possesses the right to use such intellectual property without
violation of the rights of any other Person) which are necessary to carry out
its business as presently conducted and as presently proposed to be conducted
hereafter, and no Restricted Person is in violation in any material respect of
the terms under which it possesses such intellectual property or the right to
use such intellectual property.
[Second
Lien Credit Agreement]
42
Section
5.18. Leases and Contracts;
Performance of Obligations. Except for those Mineral Interests
disposed of in accordance with this Agreement and oil and gas leases that have
expired in accordance with their terms, the leases, contracts, servitudes and
other agreements forming a part of the Mineral Interests of the Restricted
Persons covered by the most recently delivered Engineering Report are in full
force and effect unless (a) disputed in good faith by appropriate proceedings
and for which adequate reserves have been maintained in accordance with GAAP, or
(b) the failure to be in full force and effect could not reasonably be expected
to cause a Material Adverse Change. All rents, royalties and other
payments due and payable under such leases, contracts, servitudes and other
agreements, or under any Permitted Liens, or otherwise attendant to the
ownership or operation of any Mineral Interests covered by the most recently
delivered Engineering Report, have been properly and timely paid or will be paid
prior to delinquency unless (i) disputed in good faith by appropriate
proceedings and for which adequate reserves have been maintained in accordance
with GAAP or (ii) the failure to pay could not reasonably be expected to cause a
Material Adverse Change. No Restricted Person is in default with
respect to its obligations (and no Restricted Person is aware of any default by
any third party with respect to such third party’s obligations) under any such
leases, contracts, servitudes and other agreements, or under any Permitted
Liens, or otherwise attendant to the ownership or operation of any part of the
Mineral Interests covered by the Engineering Report, where such failure could
reasonably be expected to cause a Material Adverse Change. No
Restricted Person is currently accounting for any royalties, or overriding
royalties or other payments out of production, on a basis (other than delivery
in kind) less favorable to such Restricted Person than proceeds received by such
Restricted Person (calculated at the well) from sale of production, and no
Restricted Person has any liability (or alleged liability) to account for the
same on any such less favorable basis.
Section
5.19. Gas Imbalances,
Prepayments. Except as listed on the Disclosure Letter, on a
net basis there are no gas imbalances, take or pay or other prepayments
(excluding firm transportation contracts entered into in the ordinary course of
business) which would require any Restricted Person to deliver Mineral Interests
produced from its oil and gas properties at some future time without then or
thereafter receiving full payment therefor exceeding 1 Bcf of gas or the energy
equivalent for oil in the aggregate. Except for contracts listed in
the Disclosure Letter or included in the most recently delivered Engineering
Report (with respect to all of which contracts the Borrower represents that it
or its Subsidiaries are receiving a price for all production sold thereunder
which is computed substantially in accordance with the terms of the relevant
contract and are not having deliveries curtailed substantially below the subject
property’s delivery capacity except as disclosed in the Disclosure Letter or the
most recently delivered Engineering Report), no material agreements exist which
are not cancelable on 120 days notice or less without penalty or detriment for
the sale of production from the Borrower’s or its Subsidiaries’ Mineral
Interests (including, without limitation, calls on or other rights to purchase,
production, whether or not the same are currently being exercised) that (a)
pertain to the sale of production at a fixed price and (b) have a maturity or
expiry date of longer than six (6) months.
[Second
Lien Credit Agreement]
43
Section
5.20. Operation of Mineral
Interests. Except for those Mineral Interests disposed of in
accordance with this Agreement and oil and gas leases that have expired in
accordance with their terms, the Mineral Interests covered by the most recently
delivered Engineering Report (and all properties unitized therewith) are being
(and, to the extent the same could adversely affect the ownership or operation
of the Mineral Interests covered by the most recently delivered Engineering
Report after the date hereof, have in the past been) maintained, operated and
developed in a good and workmanlike manner, in accordance with prudent industry
standards and in conformity with all applicable Laws and in conformity with all
oil, gas or other mineral leases and other contracts and agreements forming a
part of the Mineral Interest covered by the most recently delivered Engineering
Report and in conformity with the Permitted Liens except where the failure to do
so could not reasonably be expect to have a Material Adverse
Change. No Mineral Interest covered by the most recently delivered
Engineering Report is subject to having allowable production after the date
hereof reduced below the full and regular allowable (including the maximum
permissible tolerance) because of any overproduction (whether or not the same
was permissible at the time) prior to the date hereof and none of the wells
located on the Mineral Interests covered by the most recently delivered
Engineering Report (or properties unitized therewith) are or will be deviated
from the vertical more than the maximum permitted by applicable laws,
regulations, rules and orders, and such wells are bottomed under and producing
from, with the well bores wholly within, the Mineral Interests covered by the
most recently delivered Engineering Report (or, in the case of wells located on
properties unitized therewith, such unitized properties) except where such
matter could not reasonably be expect to have a Material Adverse
Change. Each Restricted Person has all governmental licenses, permits
and bonds necessary or appropriate to own and operate its Mineral Interests
covered by the most recently delivered Engineering Report, and no Restricted
Person has received notice of any violations in respect of any such licenses or
permits, except where the failure to do, or any such violation, so could not
reasonably be expect to have a Material Adverse Change.
Section
5.21. Regulation
U. Neither Borrower nor any of its Subsidiaries are engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock, and no proceeds of any Loans will be used for a purpose which
violates Regulation U.
Section
5.22. Taxes; Tax
Returns. Each Restricted Person has duly and properly filed
its United States income tax returns and all other tax returns which are
required to be filed and has paid all taxes shown as due from it thereon, except
such as are being contested in good faith and as to which adequate provisions
and disclosures have been made. The respective charges and reserves
on its books with respect to taxes and other governmental charges are
adequate.
[Second
Lien Credit Agreement]
44
Section
5.23. Security
Documents. The provisions of each Security Document executed
by the Borrower are effective to create, in favor of the Administrative Agent, a
legal, valid and enforceable Lien in all of any Restricted Person’s right,
title, and interest in the Collateral described therein, which Lien, assuming
the accomplishment of recording and filing in accordance with applicable Laws
prior to the intervention of rights of other Persons, constitutes a fully
perfected second-priority Lien (subject only to Permitted Liens) on all of any
Restricted Person’s right, title, and interest in the Collateral described
therein.
ARTICLE
VI - - Affirmative
Covenants of Borrower
To
conform with the terms and conditions under which each Lender is willing to have
credit outstanding to Borrower, and to induce each Lender to enter into this
Agreement and extend credit hereunder, Borrower warrants, covenants and agrees
that until the full and final payment of the Obligations and the termination of
this Agreement, unless Majority Lenders have previously agreed
otherwise:
Section
6.1. Payment and
Performance. Borrower will pay all amounts due under the Loan
Documents in accordance with the terms thereof and will observe, perform and
comply with every covenant, term and condition expressed or implied in the Loan
Documents. Borrower will cause each other Restricted Person to
observe, perform and comply with every such term, covenant and condition in any
Loan Document.
Section
6.2. Books, Financial Statements
and Reports. Each Restricted Person will at all times maintain
full and accurate books of account and records. Borrower will
maintain and will cause its Subsidiaries to maintain a standard system of
accounting, will maintain its Fiscal Year, and will furnish the following
statements and reports to each Lender Party at Borrower’s expense:
(a)
Annual
Financial Statements. As soon as available, and in any event
within 90 days after the end of each Fiscal Year, complete Consolidated and
consolidating financial statements of Borrower together with all notes thereto,
prepared in reasonable detail in accordance with GAAP, together with an
unqualified opinion, based on an audit using generally accepted auditing
standards, by independent certified public accountants selected by Borrower and
acceptable to Majority Lenders, stating that such Consolidated financial
statements have been so prepared. These financial statements shall
contain a Consolidated and consolidating balance sheet as of the end of such
Fiscal Year and Consolidated and consolidating statements of earnings, of cash
flows, and of changes in owners’ equity for such Fiscal Year, each setting forth
in comparative form the corresponding figures for the preceding Fiscal
Year.
(b)
Quarterly Financial
Statements. As soon as available, and in any event within 45
days after the end of each of the first three Fiscal Quarters in each Fiscal
Year, Borrower’s Consolidated and consolidating balance sheet as of the end of
such Fiscal Quarter and Consolidated and consolidating statements of Borrower’s
earnings and cash flows for the period from the beginning of the then current
Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and
prepared in accordance with GAAP, subject to changes resulting from normal
year-end adjustments. In addition Borrower will, together with each
set of financial statements furnished under Section 6.2(a) and this Section
6.2(b), furnish a certificate in the form of Exhibit D signed by
the Chief Financial Officer or the Treasurer of Borrower stating that such
financial statements are accurate and complete (subject to normal year-end
adjustments), stating that he has reviewed the Loan Documents, containing
calculations showing compliance (or non-compliance) at the end of such Fiscal
Quarter with the requirements of Section 7.11, Section 7.12, Section 7.13 and
Section 7.14 and stating that no Default exists at the end of such Fiscal
Quarter or at the time of such certificate or specifying the nature and period
of existence of any such Default.
[Second
Lien Credit Agreement]
45
(c)
Stockholder Documents;
Filings. As soon as available, and in any event within 15 days
after the date required to be delivered to the SEC, Borrower will deliver copies
of all financial statements, reports, notices and proxy statements sent by any
Restricted Person to its stockholders and all registration statements, periodic
reports and other statements and schedules filed by any Restricted Person with
any securities exchange, the SEC or any similar governmental
authority. Documents required to be delivered pursuant to Section
6.2(a), (b) or (c) (to the extent any such documents are included in materials
otherwise filed with the SEC) may be delivered electronically and if so
delivered, shall be deemed to have been delivered on the date (i) on which
Borrower posts such documents, or provides a link thereto, on Borrower’s website
on the Internet at the website address listed in the Disclosure Letter; or (ii)
on which such documents are posted on Borrower’s behalf on IntraLinks /
IntraAgency or another relevant website, if any, including, but not limited to
any filings made on EDGAR to which each Lender and Administrative Agent have
access (whether a commercial, third-party website or whether sponsored by
Administrative Agent); provided that: (A)
Borrower shall deliver paper copies of such documents to Administrative Agent or
any Lender that requests Borrower to deliver such paper copies until a written
request to cease delivering paper copies is given by Administrative Agent or
such Lender and (B) Borrower shall notify (which may be by facsimile or
electronic mail) Administrative Agent and each Lender of the posting of any such
documents and provide to Administrative Agent by electronic mail electronic
versions (i.e., soft copies) of such documents. Notwithstanding
anything contained herein, in every instance Borrower shall be required to
provide paper copies of the certificates required by Section 6.2(b) to
Administrative Agent and each of the Lenders. Except for such
certificates, Administrative Agent shall have no obligation to request the
delivery or to maintain copies of the documents referred to above, and in any
event shall have no responsibility to monitor compliance by Borrower with any
such request for delivery, and each Lender shall be solely responsible for
requesting delivery to it or maintaining its copies of such
documents.
(d)
Engineering
Reports. By March 1 of each year, Borrower will deliver an
Engineering Report prepared by the Independent Engineers, dated as of January 1
of such year, concerning all oil and gas properties and interests owned by any
Restricted Person which are located in or offshore of the United States and
which have attributable to them Proved Reserves. This report shall be
satisfactory to Administrative Agent, shall contain sufficient information to
enable Borrower to meet the reporting requirements concerning oil and gas
reserves contained in Regulations S-K and S-X promulgated by the SEC and shall
contain information and analysis comparable in scope to that contained in the
Initial Engineering Report. This report shall distinguish (or shall
be delivered together with a certificate from an appropriate officer of Borrower
which distinguishes) those properties treated in the report which are Collateral
from those properties treated in the report which are not
Collateral.
[Second
Lien Credit Agreement]
46
(e)
Additional Engineering
Reports. (i) By September 1 of each year and (ii) promptly
following notice of any unscheduled redeterminations of the Borrowing Base under
Section 2.9(b) and Section 2.9(d) of the First Lien Credit Agreement, Borrower
will deliver an Engineering Report prepared by Staff Engineers consistent in
form and scope of the Engineering Reports described in Section 6.2(d) above and
dated as of the date specified in Section 2.9(c) of the First Lien Credit
Agreement.
(f)
Lease Operating
Statements. Together with each Engineering Report required
under Section 6.2(d) and Section 6.2(e), Borrower will furnish lease operating
statements for the twelve consecutive calendar months then ended, which include
lease operating statements for such period and for each month during such
period, for properties covered by such Engineering Report.
(g)
Hedging
Reports. Together with each set of financial statements
furnished under Section 6.2(a) and Section 6.2(b), Borrower will furnish a
report (in form reasonably satisfactory to Administrative Agent) of all Hedging
Contracts of Borrower and each of its Subsidiaries, setting forth the type,
term, effective date, termination date and notional amounts or volumes and the
counterparty to each such agreement.
(h)
Production
Reports. As soon as available, and in any event within 45 days
after the end of each calendar quarter, Borrower will deliver a report
describing by lease or unit the gross volume of production and sales
attributable to production during such quarter from the properties described in
the most recent Engineering Report and describing the related severance taxes,
other taxes, leasehold operating expenses and capital costs attributable thereto
and incurred during such quarter.
(i)
Asset Acquisition Pro Forma
Financial Statements. When any Restricted Person acquires
assets during any Four-Quarter Period and such assets are included in the
calculation of Adjusted EBITDAX for such Four-Quarter Period, Borrower shall
deliver to Administrative Agent and Lenders, together with the financial
statements described in Section 6.2(b), pro forma financial statements of
Borrower for such period prepared on a Consolidated basis as if such assets had
been acquired by Borrower or such Subsidiary on the first day of such
Four-Quarter Period.
(j)
Imbalance
Reports. Concurrently with the reports referred to in Section
6.2(d), Borrower will deliver a report describing material gas imbalances and
curtailments of production for the Collateral.
(k)
Total Proved PV10%
Reports. Concurrently with (i) the delivery of Engineering
Reports under Section 6.2(d) and Section 6.2(e), (ii) any material acquisition
or divestiture of oil and gas properties by any Restricted Person, and (iii) any
Material Hedging Modification, Borrower will deliver (A) a report, in form and
substance reasonably satisfactory to Administrative Agent, prepared by the Staff
Engineers (or Independent Engineers with respect to reports delivered
concurrently with Engineering Reports provided under Section 6.2(d)), which
report shall set forth, as of the effective date of the applicable Engineering
Report, the date of such material acquisition or divestiture, or the date of
such Material Hedging Modification, as the case may be, the calculation of the
Total Proved PV10% attributable to all of the Borrower’s Mineral Interests,
based on the parameters set forth in the definition of “Total Proved PV10%”, and
(B) a certificate of a Responsible Officer of the Borrower showing, in
reasonable detail, the compliance by the Borrower with Section
7.14.
[Second
Lien Credit Agreement]
47
Section
6.3. Other Information and
Inspections. Each Restricted Person will furnish to each
Lender any information which Administrative Agent may from time to time
reasonably request concerning any provision of the Loan Documents, any
Collateral, or any matter in connection with Restricted Persons’ businesses,
properties, prospects, financial condition and operations. Each
Restricted Person will permit representatives appointed by Administrative Agent
(including independent accountants, auditors, Administrative Agents, attorneys,
appraisers and any other Persons) to visit and inspect during normal business
hours any of such Restricted Person’s property, including its books of account,
other books and records, and any facilities or other business assets, and to
make extra copies therefrom and photocopies and photographs thereof, and to
write down and record any information such representatives obtain, and each
Restricted Person shall permit Administrative Agent or its representatives to
investigate and verify the accuracy of the information furnished to
Administrative Agent or any Lender in connection with the Loan Documents and to
discuss all such matters with its officers, employees and
representatives.
Section
6.4.
Notice of
Material Events and Change of Address. Borrower will promptly
notify each Lender in writing, stating that such notice is being given pursuant
to this Agreement, of:
(a)
occurrence of any Material Adverse
Change,
(b)
the occurrence of any Default,
(c)
the acceleration of the maturity of any Indebtedness
owed by any Restricted Person or of any default by any Restricted Person under
any indenture, mortgage, agreement, contract or other instrument to which any of
them is a party or by which any of them or any of their properties is bound, if
such acceleration or default could cause a Material Adverse Change,
(d)
the occurrence of any Termination Event,
(e)
any claim of $10,000,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount, or any
other material adverse claim asserted against any Restricted Person or with
respect to any Restricted Person’s properties, and
(f)
the filing of any suit or proceeding against any
Restricted Person in which an adverse decision could reasonably be expected to
cause a Material Adverse Change.
[Second
Lien Credit Agreement]
48
Upon the
occurrence of any of the foregoing Restricted Persons will take all necessary or
appropriate steps to remedy promptly any such Material Adverse Change, Default,
acceleration, default or Termination Event, to protect against any such adverse
claim, to defend any such suit or proceeding, and to resolve all controversies
on account of any of the foregoing. Borrower will also notify
Administrative Agent and Administrative Agent’s counsel in writing at least 20
Business Days prior to the date that any Restricted Person changes its name or
the location of its chief executive office or principal place of business or the
place where it keeps its books and records, furnishing with such notice any
necessary financing statement amendments or requesting Administrative Agent and
its counsel to prepare the same.
Section
6.5. Maintenance of
Properties. Each Restricted Person will maintain, preserve,
protect, and keep all Collateral and all other property used or useful in the
conduct of its business in good condition and in compliance with all applicable
Laws in all material respects, and will from time to time make all repairs,
renewals and replacements needed to enable the business and operations carried
on in connection therewith to be promptly and advantageously conducted at all
times.
Section
6.6. Maintenance of Existence and
Qualifications. Each Restricted Person will maintain and
preserve its existence and its rights and franchises in full force and effect
and will qualify to do business in all states or jurisdictions where required by
applicable Law, except where the failure so to qualify will not cause a Material
Adverse Change. The foregoing shall not restrict (a) any merger or
consolidation permitted by Section 7.4 or (b) the liquidation or dissolution of
any Subsidiary if Borrower determines in good faith that such liquidation or
dissolution is in the best interests of Borrower and is not materially
disadvantageous to the Lenders.
Section
6.7. Payment of Trade
Liabilities, Taxes, etc. Each Restricted Person will (a)
timely file all required tax returns; (b) timely pay all taxes, assessments, and
other governmental charges or levies imposed upon it or upon its income, profits
or property; (c) pay all Liabilities owed by it on ordinary trade terms to
vendors, suppliers and other Persons providing goods and services used by it in
the ordinary course of its business within a period of time after the invoice
date that is customary in the oil and gas industry; (d) pay and discharge when
due all other Liabilities now or hereafter owed by it; and (e) maintain
appropriate accruals and reserves for all of the foregoing in accordance with
GAAP. Each Restricted Person may, however, delay paying or
discharging any of the foregoing so long as (i) it is in good faith contesting
the validity thereof by appropriate proceedings and has set aside on its books
adequate reserves therefor or (ii) the nonpayment or nondischarge could not
reasonably be expected to cause a Material Adverse Change.
Section
6.8. Insurance.
(a)
Each Restricted Person shall at all times maintain (at
its own expense) insurance for its property in accordance with the Insurance
Schedule in at least such amounts, with at least such limitations on
deductibles, and against such risks, in such form and with such financially
sound and reputable insurers as shall be reasonably satisfactory to
Administrative Agent from time to time. Each Restricted Person shall at all
times maintain insurance against its liability for injury to persons or property
in accordance with the Insurance Schedule, which insurance shall be by
financially sound and reputable insurers.
[Second
Lien Credit Agreement]
49
(b)
All insurance policies shall be modified or endorsed as
necessary to (A) name the Administrative Agent as loss payee on policies
insuring loss or damage of Collateral and as additional insured on policies
insuring against liability for injury to persons or property, and (B) prevent
any expiration, or cancellation of the coverage provided by such policies
without at least thirty (30) days prior written notice to Administrative Agent
by the insurer. Each Restricted Person shall, if so requested by
Administrative Agent, deliver to Administrative Agent original or duplicate
policies of such insurance and, as often as Administrative Agent may reasonably
request, a report of a reputable insurance broker with respect to such
insurance. Administrative Agent shall, upon the occurrence and during
the continuance of an Event of Default, have the right to collect and Borrower
hereby assigns to Administrative Agent for the benefit of Lenders (and hereby
agrees to cause each other Restricted Person to assign), any and all moneys that
may become payable under any such policies of insurance by reason of damage,
loss or destruction of any of the Collateral or any part thereof and to apply
such moneys to the payment of the Obligations as herein
provided. Reimbursement under any liability insurance maintained by
Restricted Persons pursuant to this Section 6.8 may be paid directly to the
Person who has incurred the liability covered by such insurance.
Section
6.9. Performance on Borrower’s
Behalf. If any Restricted Person fails to pay any taxes,
insurance premiums, expenses, attorneys’ fees or other amounts it is required to
pay under any Loan Document, Administrative Agent may pay the
same. Borrower shall immediately reimburse Administrative Agent for
any such payments and each amount paid by Administrative Agent shall constitute
an Obligation owed hereunder which is due and payable on the date such amount is
paid by Administrative Agent.
Section
6.10. Interest. Borrower
hereby promises to each Lender Party to pay interest at the Default Rate
applicable to Base Rate Loans on all Obligations (including Obligations to pay
fees or to reimburse or indemnify any Lender) which Borrower has in this
Agreement promised to pay to such Lender Party and which are not paid when
due. Such interest shall accrue from the date such Obligations become
due until they are paid.
Section
6.11. Compliance with Agreements
and Law. Each Restricted Person will perform all material
obligations it is required to perform under the terms of each indenture,
mortgage, deed of trust, security agreement, lease, franchise, agreement,
contract or other instrument or obligation to which it is a party or by which it
or any of its properties is bound, except when failure to do so could not
reasonably be expected to cause a Material Adverse Change. Each
Restricted Person will conduct its business and affairs in compliance with all
Laws applicable thereto and will maintain in good standing all licenses that may
be necessary or appropriate to carry on its business.
Section
6.12. Environmental Matters;
Environmental Reviews.
(a)
Except in each case where failure to do so could not
reasonably be expected to cause a Material Adverse Change, each Restricted
Person will comply in all material respects with all Environmental Laws now or
hereafter applicable to such Restricted Person, as well as all contractual
obligations and agreements with respect to environmental remediation or other
environmental matters, and shall obtain, at or prior to the time required by
applicable Environmental Laws, all environmental, health and safety permits,
licenses and other authorizations necessary for its operations and will maintain
such authorizations in full force and effect. Except in each case
where failure to do so could not reasonably be expected to cause a Material
Adverse Change, no Restricted Person will do anything or permit anything to be
done which will subject any of its properties to any remedial obligations under,
or result in noncompliance with applicable permits and licenses issued under,
any applicable Environmental Laws, assuming disclosure to the applicable
governmental authorities of all relevant facts, conditions and
circumstances. Upon Administrative Agent’s reasonable request, at any
time and from time to time, Borrower will provide at its own expense an
environmental inspection of any of the Restricted Persons’ material real
properties and audit of their environmental compliance procedures and practices,
in each case from an engineering or consulting firm reasonably acceptable to
Administrative Agent. Administrative Agent and Lenders will use their
best efforts to protect any attorney client privilege that exists with respect
to reports or audits prepared by such engineers or consultants.
[Second
Lien Credit Agreement]
50
(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 any Restricted Person, or of
which Borrower otherwise has notice, pending or threatened against any
Restricted Person by any Governmental Authority with respect to any alleged
violation of or non-compliance with any Environmental Laws or relating to
potential responsibility with respect to any investigation or clean-up of
Hazardous Material at any location, in each case which involves a claim or
liability in excess of $10,000,000.
Section
6.13. Evidence of
Compliance. Each Restricted Person will furnish to each Lender
at such Restricted Person’s or Borrower’s expense all evidence which
Administrative Agent from time to time reasonably requests in writing as to the
accuracy and validity of or compliance with all representations, warranties and
covenants made by any Restricted Person in the Loan Documents, the satisfaction
of all conditions contained therein, and all other matters pertaining
thereto.
Section
6.14. Bank Accounts;
Offset. To secure the repayment of the Obligations Borrower
hereby grants to 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
any 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) of Borrower now or hereafter held or
received by or in transit to any Lender from or for the account of Borrower,
whether for safekeeping, custody, pledge, transmission, collection or otherwise,
(b) any and all deposits (general or special, time or demand, provisional or
final) of Borrower with any Lender, and (c) any other credits and claims of
Borrower at any time existing against any Lender, including claims under
certificates of deposit. At any time and from time to time after the
occurrence of any Default, each Lender is hereby authorized to foreclose upon,
or to offset against the Obligations then due and payable (in either case
without notice to Borrower), any and all items hereinabove referred
to. The remedies of foreclosure and offset are separate and
cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
[Second
Lien Credit Agreement]
51
Section
6.15. Guaranties of Borrower’s
Subsidiaries. Each Domestic Subsidiary of Borrower that is a
Material Subsidiary now existing or created, acquired or coming into existence
after the date hereof shall, promptly upon request by Administrative Agent,
execute and deliver to Administrative Agent an absolute and unconditional
guaranty of the timely repayment of the Obligations and the due and punctual
performance of the obligations of Borrower hereunder, which guaranty shall be
satisfactory to Administrative Agent in form and substance. Each such
Domestic Subsidiary of Borrower that is a Material Subsidiary existing on the
date hereof shall duly execute and deliver such a guaranty prior to the making
of any Loan hereunder. Borrower will cause each such Domestic
Subsidiary to deliver to Administrative Agent, simultaneously with its delivery
of such a guaranty, written evidence satisfactory to Administrative Agent and
its counsel that such Domestic Subsidiary has taken all company action necessary
to duly approve and authorize its execution, delivery and performance of such
guaranty and any other documents which it is required to execute.
Section
6.16. Pledge of Stock of Foreign
Subsidiaries. Borrower shall execute and deliver to
Administrative Agent (and shall cause each Restricted Person to execute and
deliver to Administrative Agent) a pledge agreement covering sixty-six percent
(66%) of its Equity Interest in each Foreign Subsidiary of Borrower that is a
Material Subsidiary now existing or created, acquired or coming into existence
after the date hereof and securing the Obligations, in form and substance
acceptable to Administrative Agent. Borrower shall also deliver to
Administrative Agent all certificates (or other evidence acceptable to
Administrative Agent) evidencing Borrower’s Equity Interest in such Foreign
Subsidiary which shall be duly endorsed or accompanied by stock powers executed
in blank (as applicable) as Administrative Agent shall deem necessary or
appropriate to grant, evidence and perfect a first priority Lien in Borrower’s
Equity Interest in such Foreign Subsidiary.
Section
6.17. Collateral.
(a)
At all times the Secured Obligations shall be secured by first and prior
Liens (subject only to Permitted Liens) covering and encumbering (i) not less
than the Minimum Collateral Amount (but in no event less or more than the amount
of Mineral Interests covered by the First Lien Security Documents), and all
cogeneration facilities and transportation and gathering systems owned by any
Restricted Person used in connection with the production and development of the
Mineral Interests included therein, and (ii) all of the issued and outstanding
Equity Interest of each Subsidiary of Borrower owned by any Restricted Person
subject to the limitation with respect to Foreign Subsidiaries set forth in
Section 6.16, and (iii) all other personal property of the Restricted Persons
that can be perfected by the filing of a financing statement under the UCC
(excluding filings in the real property records), except for the Excluded
Property. On the
Closing Date, Borrower and its Subsidiaries shall deliver to Administrative
Agent for the ratable benefit of each Lender, Security Documents covering the
foregoing, each in form and substance acceptable to Administrative
Agent.
(b)
To the extent necessary to comply with the first sentence of Section 6.17(a),
(i) within 30 days after each redetermination of the Borrowing Base under
Section 2.9(a) of the First Lien Credit Agreement, Borrower and its Subsidiaries
shall execute and deliver to Administrative Agent, for the ratable benefit of
each Lender, deeds of trust, mortgages, chattel mortgages, security agreements
and financing statements in form and substance acceptable to Administrative
Agent and duly executed by Borrower and any such Subsidiary (as applicable)
together with such other assignments, conveyances, amendments, agreements and
other writings (each duly authorized and executed) as Administrative Agent shall
deem necessary or appropriate to grant, evidence and perfect the Liens required
by this Section 6.17.
[Second
Lien Credit Agreement]
52
(c)
Borrower also agrees to deliver favorable title
information, title opinions or updates of title opinions in form, substance and
authorship reasonable satisfactory to Administrative Agent with respect to the
properties described in subsection (b) immediately above and confirming that
such Restricted Person has good and defensible title to such properties and
interests, free and clear of all Liens other than Permitted Liens.
Section
6.18. Agreement to Deliver
Security Documents. Borrower agrees to deliver and to cause
each other Restricted Person to deliver to further secure the Secured
Obligations, whenever requested by Administrative Agent in its reasonable
discretion, deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other Security Documents in form and substance
satisfactory to Administrative Agent for the purpose of (i) granting,
confirming, and perfecting first and prior liens or security interests (subject
to Permitted Liens) in any real or personal property which is at such time
Collateral or which was required or intended to be Collateral pursuant to this
Agreement or any Security Document previously executed and not then released by
Administrative Agent, and (ii) maintaining compliance with all applicable Laws,
including those of any applicable Indian tribe, the Bureau of Indian Affairs,
and the U.S. Bureau of Land Management. Each Restricted Person hereby
authorizes Administrative Agent to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
collateral describing the Collateral as “all assets” without the signature of
any Restricted Person. Furthermore, Borrower agrees to deliver and to
cause each other Restricted Person to deliver, whenever requested by
Administrative Agent upon the occurrence and during the continuance of an Event
of Default, transfer orders or letters in lieu thereof with respect to the
production and proceeds of production from the Collateral, in form and substance
satisfactory to Administrative Agent.
Section
6.19. Production
Proceeds. Notwithstanding that, by the terms of the various
Security Documents, the Restricted Persons are and will be assigning to
Administrative Agent and Lenders all of the “Production Proceeds” (as defined
therein) accruing to the property covered thereby, so long as no Event of
Default has occurred, the Restricted Persons may continue to receive from the
purchasers of production all such Production Proceeds, subject, however, to the
Liens created under the Security Documents, which Liens are hereby affirmed and
ratified. Upon the occurrence of an Event of Default, Administrative
Agent and Lenders may exercise all rights and remedies granted under the
Security Documents subject to the terms thereof, including the right to obtain
possession of all Production Proceeds then held by Restricted Persons or to
receive directly from the purchasers of production all other Production
Proceeds. In no case shall any failure, whether intentioned or
inadvertent, by Administrative Agent or Lenders to collect directly any such
Production Proceeds constitute in any way a waiver, remission or release of any
of their rights under the Security Documents, nor shall any release of any
Production Proceeds by Administrative Agent or Lenders to Restricted Persons
constitute a waiver, remission, or release of any other Production Proceeds or
of any rights of Administrative Agent or Lenders to collect other Production
Proceeds thereafter.
[Second
Lien Credit Agreement]
53
Section
6.20. Mortgaged Property
Covenants. Each Restricted Person will carry out its sales of
production, will operate the Mineral Interests, and will otherwise deal with the
Mineral Interests and the production therefrom, in such a way that the
representations and warranties in Section 5.18 through 5.20 remain true and
correct at, and as of, all times that this Agreement is in effect (and not just
at, and as of, the times such representations and warranties are
made).
Section
6.21. Intentionally
Omitted.
ARTICLE
VII - - Negative
Covenants of Borrower
To
conform with the terms and conditions under which each Lender is willing to have
credit outstanding to Borrower, and to induce each Lender to enter into this
Agreement and make the Loans, Borrower warrants, covenants and agrees that until
the full and final payment of the Obligations and the termination of this
Agreement, unless Majority Lenders have previously agreed
otherwise:
Section
7.1.
Indebtedness. No
Restricted Person will in any manner owe or be liable for Indebtedness
except:
(a)
the Obligations;
(b)
Liabilities for taxes and governmental assessments in the
ordinary course of business that are not yet due;
(c)
Indebtedness arising under Hedging Contracts permitted under Section
7.3;
(d)
Liability for that certain royalty
associated with production from Borrower’s Formax properties;
(e)
intercompany Indebtedness arising from loans made by (i)
Borrower to its wholly-owned Subsidiaries that are Guarantors, or
(ii) any Subsidiary of Borrower to Borrower; provided, however, that upon the
request of Administrative Agent at any time, any such Indebtedness shall be
evidenced by promissory notes having terms reasonably satisfactory to
Administrative Agent, and the sole originally executed counterparts of which
shall be pledged and delivered to Administrative Agent, for the benefit of
Administrative Agent and Lenders, as security for the Obligations;
(f)
Intentionally Omitted;
(g)
Permitted
Subordinated Debt; provided, that if a
Borrowing Base Deficiency exists upon the date of issuance thereof, the net
proceeds from such issuance shall be applied (i) first,
to the prepayment of such Borrowing Base Deficiency, (ii) second,
to any other prepayment required by the First Lien Credit Agreement, and (iii)
third,
to the prepayment of the Notes in accordance with Section 2.7(b); and provided further,
that if no Borrowing Base Deficiency exists upon the date of issuance thereof,
the net proceeds from such issuance shall be applied (x) first,
to any prepayment required by the First Lien Credit Agreement and (y) second,
to the prepayment of the Notes in accordance with Section 2.7(b);
[Second
Lien Credit Agreement]
54
(h)
Permitted Unsecured Debt and Permitted Convertible Debt;
provided, that
the issuance thereof shall be subject to the provisions of Sections 2.9(b) and
2.9(c) of the First Lien Credit Agreement; provided further,
that if a Borrowing Base Deficiency exists upon the date of issuance thereof,
the net proceeds from such issuance shall be applied (i) first,
to the prepayment of such Borrowing Base Deficiency, (ii) second,
to any other prepayment required by the First Lien Credit Agreement, and (iii)
third,
to the prepayment of the Notes in accordance with Section 2.7(b); and provided further,
that if no Borrowing Base Deficiency exists upon the date of issuance thereof,
the net proceeds from such issuance shall be applied (x) first,
to any prepayment required by the First Lien Credit Agreement and (y) second,
to the prepayment of the Notes in accordance with Section 2.7(b);
(i)
Intentionally Omitted;
(j)
Indebtedness pursuant to the First Lien Loan Documents,
in a principal amount not to exceed $1,500,000,000; and
(k)
miscellaneous items of Indebtedness not described
in subsections (a) through (j) of this section, the outstanding amount of which
does not in the aggregate (taking into account all such Indebtedness of all
Restricted Persons) exceed at any one time an amount equal to five percent (5%)
of the Net Worth of Borrower at such time.
Section
7.2.
Limitation on
Liens. Except for Permitted Liens, no Restricted Person will
create, assume or permit to exist any Lien upon any of the properties or assets
which it now owns or hereafter acquires.
Section
7.3.
Hedging
Contracts. No Restricted Person will be a party to or in any
manner be liable on any Hedging Contract except:
(a)
Oil. Contracts
entered into with the purpose and effect of fixing prices on oil expected to be
produced, sold or transported by Restricted Persons from its oil and gas
properties, provided
that at all times: (i) no such contract fixes a price for a term of more
than 60 months except (x) contracts that are directly hedged to offset a longer
term fixed rate contract and (y) contracts covering oil and gas properties in
the Midway-Sunset Field which have a term not to exceed 84 months; (ii) the
aggregate monthly production covered by all such contracts (determined, in the
case of contracts that are not settled on a monthly basis, by a monthly
proration acceptable to the Administrative Agent and the First Lien Agent) for
any single month does not in the aggregate exceed 90% of the Restricted Persons’
aggregate Projected Oil Production anticipated to be sold in the ordinary course
of the Restricted Persons’ businesses for such month, and the aggregate monthly
production covered by all such contracts having a term of more than 60 months
but not more than 84 months shall not in the aggregate exceed 60% of the
Restricted Persons’ aggregate Projected Oil Production from the Midway-Sunset
Field anticipated to be sold in the ordinary course of such Persons’ business
for such month, (iii) except for letters of credit and the Collateral under the
First Lien Security Documents with respect to First Lien Lender Hedging
Obligations, no such contract requires any Restricted Person to put up money,
assets or other security against the event of its nonperformance prior to actual
default by such Restricted Person in performing its obligations thereunder, and
(iv) each such contract is with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Lender or one
of its Affiliates) at the time the contract is made has long-term obligations
rated A1 by Moody’s or A+ by S & P, or better, respectively, by either
Rating Agency.
[Second
Lien Credit Agreement]
55
(b)
Gas. Contracts
entered into with the purpose and effect of fixing prices on gas expected to be
produced, sold or transported by Restricted Persons from its oil and gas
properties or gas expected to be purchased by Restricted Persons for use in oil
production by such Restricted Persons, provided that at all
times: (i) no such contract fixes a price for a term of more than 60
months except contracts that are directly hedged to offset a longer term fixed
rate contract; (ii) the aggregate monthly production or purchase volume,
respectively, covered by all such contracts (determined, in the case of
contracts that are not settled on a monthly basis, by a monthly proration
acceptable to the Administrative Agent and the First Lien Agent) for any single
month does not exceed 90% of Restricted Persons’ aggregate Projected Gas
Production anticipated to be sold in the case of contracts on gas sales volumes,
or 90% of Restricted Persons’ aggregate volume of projected gas purchases
anticipated in the ordinary course of Restricted Persons’ businesses for such
month, (iii) except for letters of credit and the Collateral under the First
Lien Security Documents with respect to First Lien Lender Hedging Obligations,
no such contract requires any Restricted Person to put up money, assets or other
security against the event of its nonperformance prior to actual default by such
Restricted Person in performing its obligations thereunder, and (iv) each such
contract is with a counterparty or has a guarantor of the obligation of the
counterparty who (unless such counterparty is a Lender or one of its Affiliates)
at the time the contract is made has long-term obligations rated A1 by Moody’s
or A+ by S & P, or better, respectively, by either Rating
Agency.
(c)
NGL. Contracts
entered into with the purpose and effect of fixing prices on natural gas liquids
expected to be produced, sold or transported by Restricted Persons from its oil
and gas properties, provided that at all
times: (i) no such contract fixes a price for a term of more than 60
months except contracts that are directly hedged to offset a longer term fixed
rate contract; (ii) the aggregate monthly production covered by all such
contracts (determined, in the case of contracts that are not settled on a
monthly basis, by a monthly proration acceptable to the Administrative Agent and
the First Lien Agent) for any single month does not in the aggregate exceed 90%
of Restricted Persons’ aggregate Projected NGL Production anticipated to be sold
in the ordinary course of Restricted Persons’ businesses for such month, (iii)
except for letters of credit and the Collateral under the First Lien Security
Documents with respect to First Lien Lender Hedging Obligations, no such
contract requires any Restricted Person to put up money, assets or other
security against the event of its nonperformance prior to actual default by such
Restricted Person in performing its obligations thereunder, and (iv) each such
contract is with a counterparty or has a guarantor of the obligation of the
counterparty who (unless such counterparty is a Lender or one of its Affiliates)
at the time the contract is made has long-term obligations rated A1 by Moody’s
or A+ by S & P, or better, respectively, by either Rating
Agency.
(d)
Interest
Rates. Contracts entered into by a Restricted Person with the
purpose and effect of fixing or capping interest rates on a principal amount of
indebtedness of such Restricted Person that is accruing interest at a variable
rate, provided
that (i) the aggregate notional amount of such contracts never exceeds eighty
percent (80%) of the anticipated outstanding principal balance of the
indebtedness to be hedged by such contracts or an average of such principal
balances calculated using a generally accepted method of matching interest
hedging contracts to declining principal balances, (ii) the floating rate index
of each such contract generally matches the index used to determine the floating
rates of interest on the corresponding indebtedness to be hedged by such
contract, (iii) except for letters of credit and the Collateral under the First
Lien Security Documents with respect to First Lien Lender Hedging Obligations,
no such contract requires any Restricted Person to put up money, assets or other
security against the event of its nonperformance prior to actual default by such
Restricted Person in performing its obligations thereunder, and (iv) each such
contract is with a counterparty or has a guarantor of the obligation of the
counterparty who (unless such counterparty is a Lender or one of its Affiliates)
at the time the contract is made has long-term obligations rated A1 by Moody’s
or A+ by S & P, or better.
[Second
Lien Credit Agreement]
56
(e)
Electricity. Contracts
entered into with the purpose and effect of fixing prices on electricity
expected to be produced or sold by Restricted Persons, provided that at all
times: (i) no such contract fixes a price for a term of more
than sixty (60) months, (ii) the aggregate monthly production covered by all
such contracts (determined, in the case of contracts that are not settled on a
monthly basis, by a monthly proration acceptable to the Administrative Agent and
the First Lien Agent) for any single month does not in the aggregate exceed
ninety percent (90%) of Restricted Persons’ aggregate Projected Electricity
Production anticipated to be sold in the ordinary course of Restricted Persons’
businesses for such month, (iii) except for letters of credit and Collateral
under the First Lien Security Documents with respect to First Lien Lender
Hedging Obligations, no such contract requires any Restricted Person to put up
money, assets or other security against the event of its nonperformance prior to
actual default by such Restricted Person in performing its obligations
thereunder, and (iv) each such contract is with a counterparty or has a
guarantor of the obligation of the counterparty who (unless such counterparty is
a Lender or one of its Affiliates) at the time the contract is made has
long-term obligations rated A1 by Moody’s or A+ by S&P, or better,
respectively, by either Rating Agency. As used in this subsection,
the term “Projected
Electricity Production” means the projected production of electricity
(measured by volume unit or megawatt per hour equivalent, not sales price) for
the term of the contracts or a particular month, as applicable, from generating
facilities owned by any Restricted Person which are located in the United States
and projected by Restricted Persons.
(f)
Put Options; Cap
Transactions. Notwithstanding the foregoing provisions of this
Section 7.3, there shall be no limitations on the purchase by the Restricted
Persons of put options or floor transactions with respect to oil, gas, natural
gas liquids or electricity produced by, call options or cap transactions with
respect to gas expected to be purchased by, or cap transactions with respect to
principal balances of indebtedness of, the Restricted Person; provided, however,
that any such put or call options or cap or floor transactions shall be solely
for hedging, and not for speculative purposes, and the Restricted Person shall
have no obligations thereunder other than payment of the applicable premium for
any such put or call options or cap or floor transactions.
(g)
Modifications. Except
as set forth in Section 7.3(g) of the First Lien Credit Agreement, the
Restricted Persons shall maintain in effect for its full term and shall not
amend, modify, cancel, sell, assign, novate or terminate any Hedging Contract on
which the First Lien Agent and the First Lien Lenders have relied in determining
the Borrowing Base under the First Lien Credit Agreement.
[Second
Lien Credit Agreement]
57
Section
7.4.
Limitation on Mergers,
Issuances of Securities.
(a)
No Restricted Person will merge or consolidate
with or into any other Person; provided that so long
as no Default has occurred and is continuing or will occur as a result thereof
(i) Borrower may merge or consolidate with another Person so long as Borrower is
the surviving business entity, (ii) any wholly-owned Subsidiary of Borrower may
be merged into or consolidated with another Person so long as Borrower or a
wholly-owned Subsidiary of Borrower is the surviving business entity, and (iii)
any Subsidiary of Borrower may merge or consolidate with another Person so long
as Borrower or a Subsidiary of Borrower is the surviving business
entity.
(b)
Borrower will not issue any Equity Interests other
than (i) shares of Borrower’s common stock and any options or warrants giving
the holders thereof only the right to acquire such shares of common stock, and
(ii) shares of Borrower’s preferred stock, which are not treated as Indebtedness
under GAAP, which cannot be redeemed for cash (whether such redemption is
mandatory or contingent) prior to the Maturity Date, and which cannot be
converted into any debt instrument prior to such date.
(c)
No Subsidiary of Borrower will issue any additional
shares of its capital stock or other Equity Interests or any options, warrants
or other rights to acquire such additional shares or other Equity Interests
except to Borrower and only to the extent not otherwise forbidden under the
terms hereof.
Section
7.5. Limitation on Sales of
Property. No Restricted Person will sell, transfer, lease,
exchange, alienate or dispose of any of its material assets or properties or any
material interest therein or portions thereof, or discount, sell, pledge or
assign any notes payable to it, accounts receivable or future income, except, to
the extent not otherwise forbidden under the Security Documents:
(a)
equipment which is worthless or obsolete or which
is replaced by equipment of equal suitability and value;
(b)
inventory (including oil and gas sold as produced and
seismic data) which is sold in the ordinary course of business on ordinary trade
terms;
(c)
capital stock of any of Borrower’s Subsidiaries which is transferred
to Borrower or a wholly owned Subsidiary of Borrower;
(d)
interests in oil and gas properties or portions thereof,
to which no Proved Reserves of oil, gas or other liquid or gaseous hydrocarbons
are properly attributed;
(e)
leases of drilling rigs in the ordinary course of business and
sales of drilling rigs which are described in Schedule
4;
(f)
gathering pipelines and compression and dehydration equipment
located in the Piceance Basin in Colorado and the Darko and Oakes Field in East
Texas;
[Second
Lien Credit Agreement]
58
(g)
exchanges of (i) Restricted Persons’ oil and gas leasehold
interests in non-producing zones, to which no Proved Reserves of oil, gas or
other liquid or gaseous hydrocarbons are properly attributed, whether or not
such interests are subject to Liens in favor of Administrative Agent, for (ii)
other oil and gas leasehold interests in producing or non-producing zones owned
by other Persons;
(h)
transfers among Borrower and Guarantors; and
(i)
sales and dispositions of other property for a purchase price
paid in cash or Mineral Interests in an amount at least equal to the fair market
value thereof; provided that if the
aggregate sales price for all such property sold during any period between any
two sequential calculations of Total Proved PV10% exceeds five percent (5%) of
the then effective Total Proved PV10%, the Total Proved PV10% shall be reduced
effective immediately upon such sale or disposition by an amount equal to the
value assigned to such property in the most recent calculation of Total Proved
PV10%.
Section
7.6.
Limitation on Dividends,
Stock Repurchases and Subordinated Debt.
(a)
No Restricted Person will declare or make any Dividends or Stock
Repurchases other than (i) Dividends payable to Borrower or Subsidiaries of
Borrower, (ii) so long as no Default has occurred and is continuing or will
occur as a result thereof, (A) Dividends payable to Borrower’s shareholders and
(B) Stock Repurchases, to the extent that the aggregate value of all such
Dividends and Stock Repurchases made during any Four-Quarter Period does not
exceed the greater of $20,000,000 or seventy-five percent (75%) of Net Income
for such Four-Quarter Period, and (iii) Dividends made with the net cash
proceeds received from a substantially concurrent issue of new shares of its
common stock or other common Equity Interests.
(b)
No Restricted Person shall make any payment of
principal, interest or fees on Permitted Subordinated Debt, except to the extent
expressly permitted by the applicable subordination agreement with
Administrative Agent.
Section
7.7. Limitation on Acquisitions,
Investments; and New Businesses. Except as expressly permitted
by this section, no Restricted Person will make any acquisitions of, or capital
contributions to, or other Investments in any Person or property; provided that
the Restricted Persons (i) may make Permitted Investments and Core Acquisitions
and Investments without limitation, and (ii) may make Non-Core Acquisitions and
Investments so long as the aggregate amount expended on Non-Core Acquisitions
and Investments during the period from the date hereof until the Maturity Date
never exceeds 10% of Borrower’s Net Worth at any time during such
period. No Restricted Person will engage directly or indirectly in
any business or conduct any operations except in connection with or incidental
to its present businesses and operations, and (iii) transactions permitted by
Section 7.8.
Section
7.8. Limitation on Credit
Extensions. Except for Permitted Investments, no Restricted
Person will extend credit, make advances or make loans other than (a) normal and
prudent extensions of credit to customers buying goods and services in the
ordinary course of business, which extensions shall not be for longer periods
than those extended by similar businesses operated in a normal and prudent
manner and (b) seller financing for the sale of the drilling rigs described in
Section 7.5(e) of this Agreement.
[Second
Lien Credit Agreement]
59
Section
7.9. Transactions with
Affiliates. Neither Borrower nor any of its Subsidiaries nor
any Guarantor will engage in any material transaction with any of its Affiliates
on terms which are less favorable to it than those which would have been
obtainable at the time in arm’s-length dealing with Persons other than such
Affiliates; provided that such
restriction shall not apply to transactions among Borrower and its wholly owned
Subsidiaries.
Section
7.10. Prohibited
Contracts.
(a)
Except as expressly provided for in the Loan Documents, no
Restricted Person will, directly or indirectly, enter into, create, or otherwise
allow to exist any contract or other consensual restriction on (i) the ability
of any Subsidiary of Borrower to (1) pay dividends or make other distributions
to Borrower, (2) to redeem Equity Interests held in it by Borrower, (3) to repay
loans and other indebtedness owing by it to Borrower, or (4) to transfer any of
its assets to Borrower or (ii) on the ability of any Restricted Person to grant
to Administrative Agent and the Lenders Liens on its assets,
except:
(A) any
customary encumbrance or restriction with respect to a Subsidiary imposed
pursuant to a merger agreement or an agreement entered into for the sale or
disposition of all or substantially all the capital stock or assets of such
Subsidiary pending the closing of such sale or disposition; and
(B) with
respect to the above clauses (i)(4) and
(ii) above
only,
(i)
any such encumbrance or restriction consisting of customary
non-assignment provisions (including provisions forbidding subletting or
sublicensing) in agreements, leases governing leasehold interests and licenses
to the extent such provisions restrict the transfer of the agreement, lease or
license or the property leased, or licensed thereunder;
(ii)
customary restrictions contained in asset
sale agreements limiting the transfer of such assets pending the closing of such
sale;
(iii) restrictions
in the instruments creating Permitted Liens described in clause (d) or (h) of
the definition of Permitted Liens, limiting Liens on the property subject to
such Permitted Liens;
(iv) restrictions
on Equity Interests constituting minority Investments permitted by Section
7.7;
(v)
existing restrictions with respect to a
Person acquired by Borrower or any of its Subsidiaries (except to the extent
such restrictions were put in place in connection with or in contemplation of
such acquisition), which restrictions are not applicable to any Person, or the
properties or assets of any Person other than the Person, or the property or
assets of the Person, so acquired; and
[Second
Lien Credit Agreement]
60
(vi) customary
supermajority voting provisions and other customary provisions with respect to
the disposition or distribution of assets, each contained in corporate charters,
bylaws, stockholders’ agreements, limited liability company agreements,
partnership agreements, joint venture agreements and other similar agreements
entered into in the ordinary course of business of Borrower and its
Subsidiaries.
(b)
Except as permitted by Section 5.19, no Restricted Person will enter
into any “take-or-pay” contract or other contract or arrangement for the
purchase of goods or services which obligates it to pay for such goods or
services regardless of whether they are delivered or furnished to it, excluding
firm transportation contracts entered into in the ordinary course of
business. No Restricted Person will amend or permit any amendment to
any contract or lease which releases, qualifies, limits, makes contingent or
otherwise detrimentally affects the rights and benefits of Administrative Agent
or any Lender under or acquired pursuant to any Security
Documents. No ERISA Affiliate will incur any obligation to contribute
to any “multiemployer plan” as defined in Section 4001 of ERISA.
Section
7.11. Current
Ratio. Beginning with the Fiscal Quarter ending June 30, 2009,
the ratio of Borrower’s Current Assets to Borrower’s Current Liabilities will
never be less than 1.0 to 1.0.
Section
7.12. Total Funded Debt to EBITDAX
Ratio. As of the end of each Fiscal Quarter beginning with the
Fiscal Quarter ending June 30, 2009, the ratio of (a) Total Funded Debt to (b)
Adjusted EBITDAX for the Four-Quarter Period then ended, will not be greater
than the amount set forth below with respect to such Fiscal
Quarter:
|
Fiscal
Quarter ended June 30, 2009
|
5.45
to 1.0
|
through
Fiscal Quarter ended December 31, 2009
|
Fiscal
Quarter ended March 31, 2010
|
5.15
to 1.0
|
through
Fiscal Quarter ended December 31, 2010
|
Fiscal
Quarter ended March 31, 2011
|
4.60
to 1.0
|
and each
Fiscal Quarter thereafter
Borrower
will report for the fourth quarter of 2008 a $38,500,000 bad debt expense (in
this Section defined as the “Bad Debt Expense”) arising from its sales of
production to Big West Oil, which has filed for bankruptcy
protection. For purposes of the calculation of the financial ratios
described in Sections 7.12 and 7.13, EBITDAX shall be calculated treating the
Bad Debt Expense as an extraordinary loss and any recovery with respect to the
Bad Debt Expense as an extraordinary gain.
Section
7.13. Senior Secured Debt to
EBITDAX Ratio. As of the end of each Fiscal Quarter beginning
June 30, 2009, the ratio of (a) the First Lien Obligations then outstanding to
(b) Adjusted EBITDAX for the Four-Quarter Period then ended, will not be greater
than the amount set forth below with respect to such Fiscal
Quarter:
[Second
Lien Credit Agreement]
61
|
Fiscal
Quarter ended June 30, 2009
|
4.30
to 1.0
|
through
Fiscal Quarter ended September 30, 2010
|
Fiscal
Quarter ended December 31, 2010
|
4.00
to 1.0
|
and
Fiscal Quarter ended March 31, 2011
|
Fiscal
Quarter ended June 30, 2011
|
3.70
to 1.0
|
and
Fiscal Quarter ended September 30, 2011
|
Fiscal
Quarter ended December 31, 2011
|
3.45
to 1.0
|
and each
Fiscal Quarter thereafter
Section
7.14. Asset Coverage
Test. As of (a) each March 1 and September 1 of each year,
beginning on September 1, 2009, (b) each material acquisition or divestiture of
any Restricted Person’s oil and gas properties, and (c) each Material Hedging
Modification, the Borrower will maintain a ratio of Total Proved PV10% to Total
Funded Debt of not less than 1.5 to 1.0.
Section
7.15. Limitations on Layering,
Etc.. No Restricted Person will, except as otherwise permitted
herein or in the Intercreditor Agreement:
(a)
directly or indirectly, incur any Indebtedness that is or purports
to be by its terms (or by the terms of any agreement governing such
Indebtedness) contractually subordinated and/or junior in right of payment to
any Indebtedness of the Borrower or any of the Guarantors, unless such
Indebtedness is contractually subordinated and/or junior in right of payment to
the Loans and the other Obligations under the Loan Documents at least to the
same extent as contractually subordinated or junior in right of payment to such
other Indebtedness; or
(b)
directly or indirectly, create, incur, assume or
suffer to exist any Lien that secures obligations under any Indebtedness on any
asset or property of the Borrower or any of the Guarantors (other than
obligations under the First Lien Loan Documents or as otherwise permitted by the
Intercreditor Agreement) on a basis that is senior to the Liens securing the
Obligations under this Agreement, unless such Liens are permitted under Section
7.2 and are also senior to the Liens securing the First Lien Secured
Obligations.
ARTICLE
VIII - - Events of Default and Remedies
Section
8.1.
Events of
Default. Each of the following events constitutes an Event of
Default under this Agreement:
(a)
Any Restricted Person fails to pay any principal
component of any Obligation when due and payable, whether at a date for the
payment of a fixed installment or as a contingent or other payment becomes due
and payable or as a result of acceleration or otherwise;
(b)
Any Restricted Person fails to pay any Obligation
(other than the Obligations in subsection (a) above) when due and payable,
whether at a date for the payment of a fixed installment or as a contingent or
other payment becomes due and payable or as a result of acceleration or
otherwise, within three Business Days after the same becomes due;
[Second
Lien Credit Agreement]
62
(c)
Any “default” or “event of default” occurs under any Loan
Document which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document;
(d)
Any Restricted Person fails to duly observe, perform or comply
with any covenant, agreement or provision of Section 6.4 or Article
VII;
(e)
Any Restricted Person fails (other than as referred to in
subsections (a), (b), (c) or (d) above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of 30 days after notice of such failure
is given by Administrative Agent to Borrower;
(f)
Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Restricted Person in connection
with any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made, or any Loan Document at any
time ceases to be valid, binding and enforceable as warranted in Section 5.5 for
any reason other than its release or subordination by Administrative
Agent;
(g)
Any Restricted Person (i) fails to pay any
portion, when such portion is due, (A) of any Permitted Subordinated Debt,
Permitted Unsecured Debt, Permitted Second Lien Debt or Permitted Convertible
Debt, or (B) of any of its other Indebtedness in excess of $25,000,000, or (ii)
breaches or defaults in the performance of any agreement or instrument by which
the Permitted Subordinated Debt, the Permitted Unsecured Debt, the Permitted
Second Lien Debt, the Permitted Convertible Debt or any such other Indebtedness
in excess of $25,000,000 is issued, evidenced, governed, or secured, and any
such failure, breach or default continues beyond any applicable period of grace
provided thereof;
(h)
Either (i) any “accumulated funding deficiency”
(as defined in Section 412(a) of the Internal Revenue Code) in excess of
$5,000,000 exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such ERISA Plan’s
benefit liabilities exceeds the then current value of such ERISA Plan’s assets
available for the payment of such benefit liabilities by more than $5,000,000
(or in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer’s proportionate share of such excess exceeds
such amount);
(i)
Any Change of Control occurs;
(j)
Any Restricted Person:
(i)
suffers the entry against it of a judgment, decree
or order for relief by a Governmental Authority of competent jurisdiction in an
involuntary proceeding commenced under any applicable bankruptcy, insolvency or
other similar Law of any jurisdiction now or hereafter in effect, including the
federal Bankruptcy Code, as from time to time amended, or has any such
proceeding commenced against it which remains undismissed for a period of sixty
days; or
[Second
Lien Credit Agreement]
63
(ii)
commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended; or applies for or consents to the
entry of an order for relief in an involuntary case under any such Law; or makes
a general assignment for the benefit of creditors; or fails generally to pay (or
admits in writing its inability to pay) its debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing;
or
(iii) suffers
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of all or a substantial
part of its assets in a proceeding brought against or initiated by it, and such
appointment or taking possession is neither made ineffective nor discharged
within sixty days after the making thereof, or such appointment or taking
possession is at any time consented to, requested by, or acquiesced to by it;
or
(iv) suffers
the entry against it of a final judgment for the payment of money in excess of
$5,000,000 (not covered by insurance satisfactory to Administrative Agent in its
discretion), unless the same is discharged within sixty days after the date of
entry thereof or an appeal or appropriate proceeding for review thereof is taken
within such period and a stay of execution pending such appeal is obtained;
or
(v) suffers
a writ or warrant of attachment or any similar process to be issued by any
Governmental Authority against all or any substantial part of its assets, and
such writ or warrant of attachment or any similar process is not stayed or
released within sixty days after the entry or levy thereof or after any stay is
vacated or set aside;
(k)
Any “Event of Default” occurs under the First Lien Credit
Agreement that is not remedied within any applicable grace period contained in
the First Lien Credit Agreement; and
(l)
The Intercreditor Agreement or any material provision
thereof shall cease to be in full force and effect (other than (i) as a result
of any action by Administrative Agent or the First Lien Agent or (ii) in
accordance with the terms thereof); and
(m) Any
Indebtedness is incurred under the SG Money Market Facility.
Upon the
occurrence of an Event of Default described in subsection (j)(i), (j)(ii) or
(j)(iii) of this section with respect to Borrower, all of the Obligations shall
thereupon be immediately due and payable, without demand, presentment, notice of
demand or of dishonor and nonpayment, protest, notice of protest, notice of
intention to accelerate, declaration or notice of acceleration, or any other
notice or declaration of any kind, all of which are hereby expressly waived by
Borrower and each Restricted Person who at any time ratifies or approves this
Agreement. Upon any such acceleration, any obligation of any Lender
to make any further Loans hereunder shall be permanently
terminated. During the continuance of any other Event of Default,
Administrative Agent at any time and from time to time may (and upon written
instructions from Majority Lenders, Administrative Agent shall), without notice
to Borrower or any other Restricted Person, do either or both of the
following: (1) terminate any obligation of Lenders to make Loans
hereunder, and (2) declare any or all of the Obligations immediately due and
payable, and all such Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of any
kind, all of which are hereby expressly waived by Borrower and each Restricted
Person who at any time ratifies or approves this Agreement.
[Second
Lien Credit Agreement]
64
Section
8.2. Remedies. If
any Default shall occur and be continuing, each Lender Party may protect and
enforce its rights under the Loan Documents by any appropriate proceedings,
including proceedings for specific performance of any covenant or agreement
contained in any Loan Document, and each Lender Party may enforce the payment of
any Obligations due it or enforce any other legal or equitable right which it
may have. All rights, remedies and powers conferred upon Lender
Parties under the Loan Documents shall be deemed cumulative and not exclusive of
any other rights, remedies or powers available under the Loan Documents or at
Law or in equity.
Section
8.3. Application of Proceeds
After Acceleration. After the exercise of remedies provided
for in Section 8.2 (or after the Loans have automatically become immediately due
and payable), any amounts received on account of the Secured Obligations shall
be applied by Administrative Agent in the following order:
First,
to payment of that portion of the Obligations constituting fees, indemnities,
expenses and other amounts (including fees, charges and disbursements of counsel
to Administrative Agent (including fees and time charges for attorneys who may
be employees of Agent) and amounts payable under Article III) payable
to Administrative Agent in its capacity as such;
Second,
to payment of that portion of the Secured Obligations constituting fees,
indemnities and other amounts (other than principal and interest) payable to the
Lenders (including fees, charges and disbursements of counsel to the respective
Lenders and amounts payable under Article III), ratably
among them in proportion to the respective amounts described in this clause
Second payable
to them;
Third,
to payment of that portion of the Secured Obligations constituting accrued and
unpaid interest on the Loans, ratably among Lenders in proportion to the
respective amounts described in this clause Third payable to
them;
Fourth,
to payment of that portion of the Secured Obligations constituting unpaid
principal of the Loans, ratably among Lenders in proportion to the respective
amounts described in this clause Fourth held by them;
and
Last,
the balance, if any, after all of the Secured Obligations have been indefeasibly
paid in full, to Borrower or as otherwise required by Law.
ARTICLE
IX - - Administrative Agent
Section
9.1. Appointment and
Authority. Each of the Lenders hereby irrevocably appoints
WFEC to act on its behalf as Administrative Agent hereunder and under the other
Loan Documents and authorizes Administrative Agent to take such actions on its
behalf and to exercise such powers as are delegated to Administrative Agent by
the terms hereof or thereof, together with such actions and powers as are
reasonably incidental thereto. The provisions of this Article are
solely for the benefit of Administrative Agent and the Lenders and neither
Borrower nor any other Restricted Person shall have rights as a third party
beneficiary of any of such provisions.
[Second
Lien Credit Agreement]
65
Section
9.2. Exculpation
Provisions. 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:
(a)
shall not be subject to any fiduciary or other implied duties,
regardless of whether a Default has occurred and is continuing;
(b)
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 the Required Lenders (or such
other number or percentage of 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;
and
(c)
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 Borrower or any
of its Affiliates that is communicated to or obtained by the Person serving as
Administrative Agent or any of its Affiliates in any capacity.
(d)
Administrative Agent shall not be liable for any action
taken or not taken by it (i) with the consent or at the request of Required
Lenders (or such other number or percentage of the Lenders as shall be
necessary, or as Administrative Agent shall believe in good faith shall be
necessary, under the circumstances as provided in Sections 10.1 and 8.2) 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.
(e)
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 IV or elsewhere herein,
other than to confirm receipt of items expressly required to be delivered to
Administrative Agent.
[Second
Lien Credit Agreement]
66
Section
9.3. Reliance by Administrative
Agent. Administrative Agent shall be entitled to rely upon,
and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
(including any electronic message, Internet or intranet website posting or other
distribution) believed by it to be genuine and to have been signed, sent or
otherwise authenticated by the proper Person. Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to have been made by the proper Person, and shall not incur any liability
for relying thereon. In determining compliance with any condition
hereunder to the making of a Loan that by its terms must be fulfilled to the
satisfaction of a Lender, Administrative Agent may presume that such condition
is satisfactory to such Lender unless Administrative Agent shall have received
notice to the contrary from such Lender prior to the making of such
Loan. Administrative Agent may consult with legal counsel (who may be
counsel for Borrower), independent accountants and other experts selected by it,
and shall not be liable for any action taken or not taken by it in accordance
with the advice of any such counsel, accountants or experts.
Section
9.4. Non-Reliance on
Administrative Agent and Other Lenders. Each Lender acknowledges
that it has, independently and without reliance upon Administrative Agent or any
other Lender or any of their Related Parties and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges
that it will, independently and without reliance upon Administrative Agent or
any other Lender or any of their Related Parties and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or any related agreement or any document furnished
hereunder or thereunder.
Section
9.5. Rights as
Lender. 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 Borrower or any Subsidiary or other Affiliate thereof
as if such Person were not Administrative Agent hereunder and without any duty
to account therefor to the Lenders.
Section
9.6. Sharing of Set-Offs and
Other Payments. Each Lender Party agrees that if it shall,
whether through the exercise of rights under Security Documents or rights of
banker’s lien, set off, or counterclaim against Borrower or otherwise, obtain
payment of a portion of the aggregate Obligations owed to it, taking into
account all distributions made by Administrative Agent under Section 3.1, and
such payment causes such Lender Party to have received more than it would have
received had such payment been received by Administrative Agent and distributed
pursuant to Section 3.1, then (a) it shall be deemed to have simultaneously
purchased and shall be obligated to purchase interests in the Obligations as
necessary to cause all Lender Parties to share all payments as provided for in
Section 3.1, and (b) such other adjustments shall be made from time to time as
shall be equitable to ensure that Administrative Agent and all Lender Parties
share all payments of Obligations as provided in Section 3.1; provided, however,
that nothing herein contained shall in any way affect the right of any Lender
Party to obtain payment (whether by exercise of rights of banker’s lien, set-off
or counterclaim or otherwise) of indebtedness other than the
Obligations. Borrower expressly consents to the foregoing
arrangements and agrees that any holder of any such interest or other
participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any
and all rights of banker’s lien, set-off, or counterclaim as fully as if such
holder were a holder of the Obligations in the amount of such interest or other
participation. If all or any part of any funds transferred pursuant
to this section is thereafter recovered from the seller under this section which
received the same, the purchase provided for in this section shall be deemed to
have been rescinded to the extent of such recovery, together with interest, if
any, if interest is required pursuant to the order of a Governmental Authority
order to be paid on account of the possession of such funds prior to such
recovery.
[Second
Lien Credit Agreement]
67
Section
9.7. Investments. Whenever
Administrative Agent in good faith determines that it is uncertain about how to
distribute to Lender Parties any funds which it has received, or whenever
Administrative Agent in good faith determines that there is any dispute among
Lender Parties about how such funds should be distributed, Administrative Agent
may choose to defer distribution of the funds which are the subject of such
uncertainty or dispute. If Administrative Agent in good faith
believes that the uncertainty or dispute will not be promptly resolved, or if
Administrative Agent is otherwise required to invest funds pending distribution
to Lender Parties, Administrative Agent shall invest such funds pending
distribution; all interest on any such Investment shall be distributed upon the
distribution of such Investment and in the same proportion and to the same
Persons as such Investment. All moneys received by Administrative
Agent for distribution to Lender Parties (other than to the Person who is
Administrative Agent in its separate capacity as a Lender Party) shall be held
by Administrative Agent pending such distribution solely as Administrative Agent
for such Lender Parties, and Administrative Agent shall have no equitable title
to any portion thereof.
Section
9.8. Resignation of
Administrative Agent. Administrative Agent may at any time
give notice of its resignation to the Lenders and Borrower. Upon
receipt of any such notice of resignation, Required Lenders shall have the
right, in consultation with Borrower, to appoint a successor, which shall be a
bank with an office in the United States, or an Affiliate of any such bank with
an office in the United States. If no such successor shall have been
so appointed by Required Lenders and shall have accepted such appointment within
30 days after the retiring Administrative Agent gives notice of its resignation,
then the retiring Administrative Agent may on behalf of the Lenders, appoint a
successor Administrative Agent meeting the qualifications set forth above; provided that if
Administrative Agent shall notify Borrower and the Lenders that no qualifying
Person has accepted such appointment, then such resignation shall nonetheless
become effective in accordance with such notice and (a) the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents (except that in the case of any
Collateral held by Administrative Agent on behalf of the Lenders under any of
the Loan Documents, the retiring Administrative Agent shall continue to hold
such Collateral until such time as a successor Administrative Agent is
appointed) and (b) all payments, communications and determinations provided to
be made by, to or through Administrative Agent shall instead be made by or to
each Lender directly, until such time as Required Lenders appoint a successor
Administrative Agent as provided for above in this Section. Upon the
acceptance of a successor’s appointment as Administrative Agent hereunder, such
successor shall succeed to and become vested with all of the rights, powers,
privileges and duties of the retiring (or retired) Administrative Agent, and the
retiring Administrative Agent shall be discharged from all of its duties and
obligations hereunder or under the other Loan Documents (if not already
discharged therefrom as provided above in this Section). The fees
payable by Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between Borrower and
such successor. After the retiring Administrative Agent’s resignation
hereunder and under the other Loan Documents, the provisions of this Article and
Section 10.4 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while the
retiring Administrative Agent was acting as Administrative Agent.
[Second
Lien Credit Agreement]
68
Section
9.9. 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 Related Parties. The exculpatory provisions of this
Article shall apply to any such sub-agent and to the Related Parties 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
Section
9.10. No Other Duties,
etc. Anything herein to the contrary notwithstanding, none of
the Co-Bookrunners, the Syndication Agent, the Co-Documentation Agents, or the
Co-Lead Arrangers listed on the cover page hereof shall have any powers, duties
or responsibilities under this Agreement or any of the other Loan Documents,
except in its capacity, as applicable, as Administrative Agent or a Lender
hereunder.
Section
9.11. Administrative Agent May
File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to any Restricted
Person, 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, 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 Lenders and Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of Lenders and Administrative Agent and their
respective agents and counsel and all other amounts due Lenders and
Administrative Agent under Section 2.5 and 10.4) allowed in such judicial
proceeding; and
(b)
to collect and receive any moneys 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
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 2.5 and 10.4. Nothing contained herein shall be deemed to
authorize Administrative Agent to authorize or consent to or accept or adopt on
behalf of any Lender any plan of reorganization, arrangement, adjustment or
composition affecting the Obligations or the rights of any Lender or to
authorize Administrative Agent to vote in respect of the claim of any Lender in
any such proceeding.
[Second
Lien Credit Agreement]
69
Section
9.12. Guaranty
Matters. Each Lender hereby irrevocably authorizes
Administrative Agent, at its option and in its discretion, to release any
Guarantor from its obligations under any guaranty made by it in connection with
this Agreement if such Person ceases to be a Subsidiary as a result of a
transaction permitted hereunder. Upon request by Administrative Agent
at any time, each Lender will confirm in writing Administrative Agent’s
authority to release any Guarantor from its obligations under any guaranty made
by it in connection with this Agreement pursuant to this Section
9.12.
Section
9.13. Collateral
Matters.
(a)
Each Lender hereby irrevocably authorizes and
directs Administrative Agent to enter into the Security Documents for the
benefit of such Lender. Each Lender hereby agrees, and each holder of
any Note by the acceptance thereof will be deemed to agree, that, except as
otherwise set forth in Section 10.1, any action taken by the Required Lenders,
in accordance with the provisions of this Agreement or the Security Documents,
and the exercise by the Required Lenders of the powers set forth herein or
therein, together with such other powers as are reasonably incidental thereto,
shall be authorized and binding upon all of Lenders. Administrative
Agent is hereby authorized (but not obligated) on behalf of all of Lenders,
without the necessity of any notice to or further consent from any Lender, from
time to time prior to an Event of Default, to take any action with respect to
any Collateral or Security Documents which may be necessary to perfect and
maintain perfected the Liens upon the Collateral granted pursuant to the
Security Documents.
(b)
Each Lender hereby 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 (A)
upon payment in full of all Obligations (other than contingent indemnification
obligations), except as otherwise provided in the Security Documents, (B) that
is sold or to be sold as part of or in connection with any sale permitted
hereunder or under any other Loan Document, (C) subject to Section 10.1, if
approved, authorized or ratified in writing by the Required Lenders, or (D) in
connection with any foreclosure sale or other disposition of Collateral after
the occurrence of an Event of Default; and
(ii)
to subordinate any Lien on any
property granted to or held by Administrative Agent under any Loan Document to
the holder of any Lien on such property that is permitted by this Agreement or
any other Loan Document.
[Second
Lien Credit Agreement]
70
Upon
request by Administrative Agent at any time, each Lender will confirm in writing
Administrative Agent’s authority to release or subordinate its interest in
particular types or items of Collateral pursuant to this Section
9.13.
(c)
Subject to Section 9.13(b), Administrative Agent shall
and is hereby irrevocably authorized by each Lender to execute such documents as
may be necessary to evidence the release or subordination of the Liens granted
to Administrative Agent for the benefit of Administrative Agent and Lenders
herein or pursuant hereto upon the applicable Collateral; provided that (i)
Administrative Agent shall not be required to execute any such document on terms
which, in Administrative Agent’s opinion, would expose Administrative Agent to
or create any liability or entail any consequence other than the release or
subordination of such Liens without recourse or warranty and (ii) such release
or subordination shall not in any manner discharge, affect or impair the
Obligations or any Liens upon (or obligations of Borrower or any other
Restricted Person in respect of) all interests retained by Borrower or any other
Restricted Person, including the proceeds of the sale, all of which shall
continue to constitute part of the Collateral. In the event of any
sale or transfer of Collateral, or any foreclosure with respect to any of the
Collateral, Administrative Agent shall be authorized to deduct all expenses
reasonably incurred by Administrative Agent from the proceeds of any such sale,
transfer or foreclosure.
(d)
Administrative Agent shall have no obligation whatsoever to any
Lender or any other Person to assure that the Collateral exists or is owned by
Borrower or any other Restricted Person or is cared for, protected or insured or
that the Liens granted to Administrative Agent herein or in any of the Security
Documents or pursuant hereto or thereto have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise or to continue exercising at all or in any
manner or under any duty of care, disclosure or fidelity any of the rights,
authorities and powers granted or available to Administrative Agent in this
Section 9.13 or in any of the Security Documents, it being understood and agreed
that in respect of the Collateral, or any act, omission or event related
thereto, Administrative Agent may act in any manner it may deem appropriate, in
its sole discretion, given Administrative Agent’s own interest in the Collateral
as one of Lenders and that Administrative Agent shall have no duty or liability
whatsoever to the Lenders.
(e)
Each Lender hereby appoints each other Lender as agent
for the purpose of perfecting Lenders’ security interest in assets which, in
accordance with Article 9 of the UCC can be perfected only by
possession. Should any Lender (other than Administrative Agent)
obtain possession of any such Collateral, such Lender shall notify
Administrative Agent thereof, and, promptly upon Administrative Agent’s request
therefor shall deliver such Collateral to Administrative Agent or in accordance
with Administrative Agent’s instructions.
Section
9.14. Intercreditor
Agreement. Each Lender hereby irrevocably authorizes
Administrative Agent to execute and, by such execution, to bind such Lender to
the terms of the Intercreditor Agreement and to take all actions (and execute
all documents) required (or deemed advisable) by the Administrative Agent in
accordance with the terms of the Intercreditor Agreement, and each of the
Lenders agrees to be bound by the terms of the Intercreditor Agreement as fully
as if a signatory thereto.
ARTICLE X
- - - Miscellaneous
[Second
Lien Credit Agreement]
71
Section
10.1. Waivers and Amendments;
Acknowledgments.
(a)
Waivers and
Amendments. No failure or delay (whether by course of conduct
or otherwise) by any Lender in exercising any right, power or remedy which such
Lender Party may have under any of the Loan Documents shall operate as a waiver
thereof or of any other right, power or remedy, nor shall any single or partial
exercise by any Lender Party of any such right, power or remedy preclude any
other or further exercise thereof or of any other right, power or
remedy. No waiver of any provision of any Loan Document and no
consent to any departure therefrom shall ever be effective unless it is in
writing and signed as provided below in this section, and then such waiver or
consent shall be effective only in the specific instances and for the purposes
for which given and to the extent specified in such writing. No
notice to or demand on any Restricted Person shall in any case of itself entitle
any Restricted Person to any other or further notice or demand in similar or
other circumstances. This Agreement and the other Loan Documents set
forth the entire understanding between the parties hereto with respect to the
transactions contemplated herein and therein and supersede all prior discussions
and understandings with respect to the subject matter hereof and thereof, and no
waiver, consent, release, modification or amendment of or supplement to this
Agreement or the other Loan Documents shall be valid or effective against any
party hereto unless the same is in writing and signed by (i) if such party is
Borrower, by Borrower, (ii) if such party is Administrative Agent, by such
party, and (iii) if such party is a Lender, by such Lender or by Administrative
Agent on behalf of Lenders with the written consent of Majority Lenders (which
consent has already been given as to the termination of the Loan Documents as
provided in Section 10.9). Notwithstanding the foregoing or anything
to the contrary herein, Administrative Agent shall not, without the prior
consent of each individual Lender, execute and deliver on behalf of such Lender
any waiver or amendment which would: (1) waive any of the conditions
specified in Section 4.1 (provided that
Administrative Agent may in its discretion withdraw any request it has made
under Section 4.1(a)), (2) increase the maximum amount which such Lender is
committed hereunder to lend, (3) reduce any fees payable to such Lender
hereunder, or the principal of, or interest on, such Lender’s Note, (4) postpone
any date fixed for any payment of any such fees, principal or interest, (5)
amend the definition herein of “Majority Lenders” or “Required Lenders” or
otherwise change the aggregate amount of Percentage Shares which is required for
Administrative Agent, Lenders or any of them to take any particular action under
the Loan Documents, (6) amend the definition of “Maximum Credit Amount” to mean
an amount higher than $140,000,000, (7) release Borrower from its obligation to
pay such Lender’s Note, or any Guarantor from its guaranty of such payment, (8)
release all or substantially all of the Collateral, except for such releases
relating to sales or dispositions of property permitted by the Loan Documents,
or (9) amend this Section 10.1(a).
(b)
Acknowledgments and
Admissions. Borrower hereby represents, warrants, acknowledges
and admits that (i) it has been advised by counsel in the negotiation, execution
and delivery of the Loan Documents to which it is a party, (ii) it has made an
independent decision to enter into this Agreement and the other Loan Documents
to which it is a party, without reliance on any representation, warranty,
covenant or undertaking by Administrative Agent or any Lender, whether written,
oral or implicit, other than as expressly set out in this Agreement or in
another Loan Document delivered on or after the date hereof, (iii) there are no
representations, warranties, covenants, undertakings or agreements by any Lender
as to the Loan Documents except as expressly set out in this Agreement or in
another Loan Document delivered on or after the date hereof, (iv) no Lender has
any fiduciary obligation toward Borrower with respect to any Loan Document or
the transactions contemplated thereby, (v) the relationship pursuant to the Loan
Documents between Borrower and the other Restricted Persons, on one hand, and
each Lender, on the other hand, is and shall be solely that of debtor and
creditor, respectively, (vi) no partnership or joint venture exists with respect
to the Loan Documents between any Restricted Person and any Lender, (vii)
Administrative Agent is not Borrower’s Administrative Agent, but Administrative
Agent for Lenders, (viii) should a Default occur or exist, each Lender will
determine in its sole discretion and for its own reasons what remedies and
actions it will or will not exercise or take at that time, (ix) without limiting
any of the foregoing, Borrower is not relying upon any representation or
covenant by any Lender, or any representative thereof, and no such
representation or covenant has been made, that any Lender will, at the time of a
Default, or at any other time, waive, negotiate, discuss, or take or refrain
from taking any action permitted under the Loan Documents with respect to any
such Default or any other provision of the Loan Documents, and (x) all Lender
Parties have relied upon the truthfulness of the acknowledgments in this section
in deciding to execute and deliver this Agreement and to become obligated
hereunder.
[Second
Lien Credit Agreement]
72
(c)
Joint
Acknowledgment. This
written Agreement and the other Loan Documents represent 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.
Section
10.2. Survival of Agreements;
Cumulative Nature. All Restricted Persons’ various
representations, warranties, covenants and agreements in the Loan Documents
shall survive the execution and delivery of this Agreement and the other Loan
Documents and the performance hereof and thereof, including the making or
granting of the Loans and the delivery of the Notes and the other Loan
Documents, and shall further survive until all of the Obligations are paid in
full to each Lender Party and all of Lender Parties’ obligations to Borrower are
terminated. All statements and agreements contained in any
certificate or other instrument delivered by any Restricted Person to any Lender
Party under any Loan Document shall be deemed representations and warranties by
Borrower or agreements and covenants of Borrower under this
Agreement. The representations, warranties, indemnities, and
covenants made by Restricted Persons in the Loan Documents, and the rights,
powers, and privileges granted to Lender Parties in the Loan Documents, are
cumulative, and, except for expressly specified waivers and consents, no Loan
Document shall be construed in the context of another to diminish, nullify, or
otherwise reduce the benefit to any Lender Party of any such representation,
warranty, indemnity, covenant, right, power or privilege. In
particular and without limitation, no exception set out in this Agreement to any
representation, warranty, indemnity, or covenant herein contained shall apply to
any similar representation, warranty, indemnity, or covenant contained in any
other Loan Document, and each such similar representation, warranty, indemnity,
or covenant shall be subject only to those exceptions which are expressly made
applicable to it by the terms of the various Loan Documents.
Section
10.3. Notices; Effectiveness; Electronic
Communication.
[Second
Lien Credit Agreement]
73
(a)
Notices
Generally. Except in the case of notices and other
communications expressly permitted to be given by telephone (and except as
provided in subsection (b) below), all notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by facsimile as
follows and all notices and other communications expressly permitted hereunder
to be given by telephone shall be made to the applicable telephone number, as
follows and all notices and other communications expressly permitted hereunder
to be given by telephone shall be made to the applicable telephone number, as
follows:
(i)
if to Borrower or any other Restricted Person or
Administrative Agent; to the address, facsimile number, electronic mail address
or telephone number specified for such person on the signature pages
hereto;
(ii)
if to any other Lender Party, to it at its address, facsimile
number, electronic mail address or telephone number as specified on the Lenders
Schedule.
Notices
sent by hand or overnight courier service, or mailed by certified or registered
mail, shall be deemed to have been given when received; notices sent by
facsimile shall be deemed to have been given when sent (except that, if not
given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the
recipient). Notices delivered through electronic communications to
the extent provided in subsection (b) below, shall be effective as provided in
said subsection (b).
(b)
Electronic Communications.
(i)
Notices and other communications to the Lenders
hereunder may be delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures approved by
Administrative Agent, provided that the
foregoing shall not apply to notices to any Lender pursuant to Article II if
such Lender has notified Administrative Agent that it is incapable of receiving
notices under such Article by electronic
communication. Administrative Agent or Borrower or any other
Restricted Person may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that
approval of such procedures may be limited to particular notices or
communications.
(ii)
Unless Administrative Agent otherwise prescribes, (A)
notices and other communications sent to an e-mail address shall be deemed
received upon the sender’s receipt of an acknowledgement from the intended
recipient (such as by the “return receipt requested” function, as available,
return e-mail or other written acknowledgement); provided that if such
notice or other communication is not sent during the normal business hours of
the recipient, such notice or communication shall be deemed to have been sent at
the opening of business on the next business day for the recipient, and (B)
notices or communications posted to an Internet or intranet website shall be
deemed received upon the deemed receipt by the intended recipient at its e-mail
address as described in the foregoing clause (A) of notification that such
notice or communication is available and identifying the website address
therefor.
[Second
Lien Credit Agreement]
74
(c)
Change of Address,
Etc. Each of Borrower, any other Restricted Person and
Administrative Agent may change its address, facsimile or telephone number for
notices and other communications hereunder by notice to the other parties
hereto. Each other Lender Party may change its address, facsimile or
telephone number for notices and other communications hereunder by notice to
Borrower and Administrative Agent.
Section
10.4. Payment of Expenses;
Indemnity.
(a)
Payment of
Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, Borrower will promptly (and in any event, within 30
days after any invoice or other statement or notice) pay: (i) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Loan Documents or any other document or transaction referred to herein or
therein, (ii) all reasonable costs and expenses incurred by or on behalf of
Administrative Agent (including without limitation attorneys’ fees and
engineering fees, travel costs and miscellaneous expenses) in connection with
(1) the negotiation, preparation, execution and delivery of the Loan Documents,
and any and all consents, waivers or other documents or instruments relating
thereto, (2) the borrowings hereunder and other action reasonably required in
the course of administration hereof, (3) monitoring or confirming (or
preparation or negotiation of any document related to) any Restricted Person’s
compliance with any covenants or conditions contained in this Agreement or in
any Loan Document, and (iii) all reasonable costs and expenses incurred by or on
behalf of any Lender Party (including without limitation attorneys’ fees,
consultants’ fees and accounting fees) in connection with the preservation of
any rights under the Loan Documents or the defense or enforcement of any of the
Loan Documents (including this section), any attempt to cure any breach
thereunder by any Restricted Person, or the defense of any Lender Party’s
exercise of its rights thereunder. In addition to the foregoing,
until all Obligations have been paid in full, Borrower will also pay or
reimburse Administrative Agent for all reasonable out-of-pocket costs and
expenses of Administrative Agent or its Administrative Agents or employees in
connection with the continuing administration of the Loans and the related due
diligence of Administrative Agent, including reasonable travel and miscellaneous
expenses and fees and expenses of Administrative Agent’s outside counsel,
reserve engineers and consultants engaged in connection with the Loan
Documents.
(b)
Reimbursement by
Lenders. To the extent
that Borrower for any reason fails to indefeasibly pay any amount required under
paragraph (a) or (b) of this Section 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 Percentage 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. The obligations of the
Lenders under this paragraph (c) are subject to the provisions of Section
2.18.
[Second
Lien Credit Agreement]
75
(c)
Indemnity. Borrower agrees to
indemnify each Lender Party, upon demand, from and against any and all
liabilities, obligations, broker’s fees, claims, losses, damages, penalties,
fines, actions, judgments, suits, settlements, costs, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this section collectively called “liabilities
and costs”) which to any extent (in whole or in part) may be imposed on,
incurred by, or asserted against such Lender Party growing out of, resulting
from or in any other way associated with the Loan Documents and the transactions
and events (including the enforcement or defense thereof) at any time associated
therewith or contemplated therein (whether arising in contract or in tort or
otherwise). Among other things, the foregoing indemnification covers
all liabilities and costs incurred by any Lender Party related to any breach of
a Loan Document by a Restricted Person, any bodily injury to any Person or
damage to any Person’s property, or any violation or noncompliance with any
Environmental Laws by any Lender Party or any other Person or any liabilities or
duties of any Lender Party or any other Person with respect to Hazardous
Materials found in or released into the environment.
The
foregoing indemnification shall apply whether or not such liabilities and costs
are in any way or to any extent owed, in whole or in part, under any claim or
theory of strict liability or caused, in whole or in part by any negligent act
or omission of any kind by any Lender Party;
provided only that no Lender
Party shall be entitled under this section to receive indemnification for that
portion, if any, of any liabilities and costs which is proximately caused by its
own individual gross negligence or willful misconduct, as determined in a final
judgment. If any Person (including Borrower or any of its Affiliates)
ever alleges such gross negligence or willful misconduct by any Lender Party,
the indemnification provided for in this section shall nonetheless be paid upon
demand, subject to later adjustment or reimbursement, until such time as a court
of competent jurisdiction enters a final judgment as to the extent and effect of
the alleged gross negligence or willful misconduct. As used in this
section the term “Lender Party” shall refer not only to each Person designated
as such in Section 1.1 but also to each director, officer, Administrative Agent,
agent, advisor, trustee, attorney, employee, representative and Affiliate of or
for such Person.
Section
10.5. Successors and Assigns;
Assignments.
(a)
Successors
and Assigns Generally. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that neither Borrower
nor any other Restricted Person may assign or otherwise transfer any of its
rights or obligations hereunder without the prior written consent of
Administrative Agent and each Lender, and no Lender may assign or otherwise
transfer any of its rights or obligations hereunder except (i) to an Eligible
Assignee in accordance with the provisions of paragraph (b) of this Section,
(ii) by way of participation in accordance with the provisions of paragraph (d)
of this Section or (iii) by way of pledge or assignment of a security interest
subject to the restrictions of paragraph (f) of this Section (and any other
attempted assignment or transfer by any party hereto shall be null and
void). Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby, Participants to the extent
provided in paragraph (d) of this Section and, to the extent expressly
contemplated hereby, the Related Parties of each of Administrative Agent and the
Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
[Second
Lien Credit Agreement]
76
(b)
Assignments by
Lenders. Any Lender may at any time assign to one or more
Eligible Assignees all or a portion of its rights and obligations under this
Agreement (including all or a portion of the Loans at the time owing to it);
provided
that:
(i)
except in the case of an assignment of the entire remaining
amount of the assigning Lender’s Loans at the time owing to it or in the case of
an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with
respect to a Lender, the principal outstanding balance of the Loans of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Assumption with respect to such assignment is delivered to
Administrative Agent or, if “Trade Date” is specified in the Assignment and
Assumption, as of the Trade Date) shall not be less than
$1,000,000;
(ii)
each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender’s rights and obligations under
this Agreement with respect to the portion of the Loan assigned;
(iii) any
assignment of a Loan (or portion of a Loan) must be approved by Administrative
Agent (such approval not to be unreasonably withheld or delayed), unless the
Person that is the proposed assignee is itself a Lender with Loans outstanding
under this Agreement (whether or not the proposed assignee would otherwise
qualify as an Eligible Assignee);
(iv) any
assignment of a Loan (or portion of a Loan) must be approved by the Borrower
(such approval not to be unreasonably withheld or delayed) unless an Event of
Default exists at such time;
(v)
the parties to each assignment shall execute and deliver
to Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,000, and the Eligible Assignee, if it shall not be a
Lender, shall deliver to Administrative Agent an Administrative
Questionnaire.
Subject
to acceptance and recording thereof by Administrative Agent pursuant to
paragraph (c) of this Section, from and after the effective date specified in
each Assignment and Assumption, the Eligible Assignee thereunder shall be a
party to this Agreement and, to the extent of the interest assigned by such
Assignment and Assumption, have the rights and obligations of a Lender under
this Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Assumption, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Assumption covering all of the assigning Lender’s rights and obligations under
this Agreement, such Lender shall cease to be a party hereto) but shall continue
to be entitled to the benefits of Article III and Section 10.4 and
Section 10.12 with respect to facts and circumstances occurring prior to the
effective date of such assignment. Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (d) of this Section.
[Second
Lien Credit Agreement]
77
(c)
Register. Administrative
Agent, acting solely for this purpose as an agent of Borrower, shall maintain at
one of its offices a copy of each Assignment and Assumption delivered to it and
a register for the recordation of the names and addresses of the Lenders and the
and principal amounts of the Loans owing to each Lender pursuant to the terms
hereof from time to time (the “Register”). The
entries in the Register shall be conclusive, and Borrower, Administrative Agent
and the Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register shall
be available for inspection by Borrower and any Lender, at any reasonable time
and from time to time upon reasonable prior notice.
(d)
Participations. Any
Lender may at any time, without the consent of, or notice to, Borrower or
Administrative Agent, sell participations to any Person (other than a natural
person or Borrower or any of Borrower’s Affiliates or Subsidiaries) (each, a
“Participant”)
in all or a portion of such Lender’s rights and/or obligations under this
Agreement (including all or a portion of the Loans owing to it); provided that (i)
such Lender’s obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) Borrower, Administrative Agent and the
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this
Agreement.
Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the fifth sentence of Section 10.1(a) that affects such
Participant. Subject to paragraph (e) of this Section, Borrower
agrees that each Participant shall be entitled to the benefits of Article
III to the same
extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 6.14 as
though it were a Lender, provided such
Participant agrees to be subject to Section 9.6 as though it were a
Lender.
(e)
Limitations upon Participant
Rights. A Participant shall not be entitled to receive any
greater payment under Article III than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with Borrower’s
prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 3.5 unless Borrower is
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of Borrower, to comply with Section 3.5(e) as though it were a
Lender.
[Second
Lien Credit Agreement]
78
(f)
Certain
Pledges. Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank; provided that no such
pledge or assignment shall release such Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.
Section
10.6. Confidentiality. Each
Lender Party agrees to keep confidential any information furnished or made
available to it by any Restricted Person pursuant to this Agreement that is
marked confidential; provided that nothing
herein shall prevent any Lender Party from disclosing such information (a) to
any other Lender Party or any Affiliate of any Lender Party, or any officer,
director, employee, Administrative Agent, or advisor of any Lender Party or
Affiliate of any Lender Party, (b) to any other Person if reasonably incidental
to the administration of the credit facility provided herein, (c) as required by
any Law, (d) upon the order of any court or administrative agency, (e) upon the
request or demand of any Governmental Authority, (f) that is or becomes
available to the public or that is or becomes available to any Lender Party
other than as a result of a disclosure by any Lender Party prohibited by this
Agreement, (g) in connection with any litigation to which such Lender Party or
any of its Affiliates may be a party; provided that such
Lender Party makes reasonable efforts to obtain from the applicable court
protective orders or similar confidential procedures protecting such
confidential information, (h) to the extent necessary in connection with the
exercise of any right or remedy under this Agreement or any other Loan Document,
and (i) subject to provisions substantially similar to those contained in this
section, to (1) any actual or proposed participant or assignee or (2) any actual
or prospective counterparty (or its advisors) to any swap or derivative
transaction relating to Borrower and its obligations.
Section
10.7. Governing Law; Submission to
Process. Except to the extent that the law of another
jurisdiction is expressly elected in a Loan Document, the Loan Documents shall
be deemed contracts and instruments made under the laws of the State of
California and shall be construed and enforced in accordance with and governed
by the laws of the State of California and the laws of the United States of
America, without regard to principles of conflicts of law. Borrower
hereby irrevocably submits itself to the non-exclusive jurisdiction of the state
and federal courts sitting in the Northern District of California for the United
States District Court and agrees and consents that service of process may be
made upon it in any legal proceeding relating to the Loan Documents or the
Obligations by any means allowed under California or federal law.
Section
10.8. Limitation on
Interest. Lender Parties, Restricted Persons and the other
parties to the Loan Documents intend to contract in strict compliance with
applicable usury Law from time to time in effect. In furtherance
thereof such persons stipulate and agree that none of the terms and provisions
contained in the Loan Documents shall ever be construed to provide for interest
in excess of the maximum amount of interest permitted to be contracted for,
charged, or received by applicable Law from time to time in
effect. Neither any Restricted Person nor any present or future
guarantors, endorsers, or other Persons hereafter becoming liable for payment of
any Obligation shall ever be liable for unearned interest thereon or shall ever
be required to pay interest thereon in excess of the maximum amount that may be
lawfully contracted for, charged, or received under applicable Law from time to
time in effect, and the provisions of this section shall control over all other
provisions of the Loan Documents which may be in conflict or apparent conflict
herewith.
[Second
Lien Credit Agreement]
79
Section
10.9. Termination; Limited
Survival. In its sole and absolute discretion Borrower may, at
any time that no Obligations are owing, elect in a written notice delivered to
Administrative Agent to terminate this Agreement. Upon receipt by
Administrative Agent of such a notice, if no Obligations are then owing, this
Agreement and all other Loan Documents shall thereupon be terminated and the
parties thereto released from all prospective obligations thereunder, except as
otherwise provided in such Loan Documents. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Restricted Person in any Loan Document, any Obligations under Sections 3.2
through Section 3.5, any obligations which any Person may have to indemnify or
compensate any Lender Party and the provisions of Article IX and Section 10.1(a)
with respect to any Security Documents which remain in effect after the
termination of this Agreement, shall survive any termination of this Agreement
or any other Loan Document. At the request and expense of Borrower,
Administrative Agent shall prepare and execute all necessary instruments to
reflect and effect such termination of the Loan
Documents. Administrative Agent is hereby authorized to execute all
such instruments on behalf of all Lenders, without the joinder of or further
action by any Lender.
Section
10.10. Severability. If
any term or provision of any Loan Document shall be determined to be illegal or
unenforceable all other terms and provisions of the Loan Documents shall
nevertheless remain effective and shall be enforced to the fullest extent
permitted by applicable Law.
Section
10.11. Counterparts;
Fax. This Agreement may be separately executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Agreement. This Agreement and the Loan Documents may be validly
executed and delivered by facsimile or other electronic
transmission.
SECTION
10.12. WAIVER OF JURY TRIAL,
PUNITIVE DAMAGES, ETC. BORROWER AND EACH LENDER PARTY HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME
ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY “SPECIAL DAMAGES”, AS
DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
ADMINISTRATIVE AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS
SECTION, “SPECIAL
DAMAGES” INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE
DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS
WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
PARTY HERETO. NO “ADMINISTRATIVE AGENT” REFERRED TO IN 10.4 ABOVE,
AND NO “LENDER PARTY” REFERRED TO IN SECTION 10.4 ABOVE, SHALL BE LIABLE FOR ANY
DAMAGES ARISING FROM THE USE BY UNINTENDED RECIPIENTS OF ANY INFORMATION OR
OTHER MATERIALS DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR
OTHER INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
[Second
Lien Credit Agreement]
80
Section
10.13. Controlling
Agreement. In the event of a conflict between the provisions
of this Agreement and those of any other Loan Document (other than the
Intercreditor Agreement), the provisions of this Agreement shall
control. Each Lender acknowledges that the Intercreditor Agreement
provides certain rights to the First Lien Agent and the First Lien Lenders and
agrees that in the event of any conflict between the provisions of this
Agreement and the Security Documents on the one hand and the Intercreditor
Agreement on the other hand, the Intercreditor Agreement shall
control.
Section
10.14. Disposition of
Collateral. Notwithstanding any term or provision, express or
implied, in any of the Security Documents, but subject to applicable provisions
of this Agreement and the Intercreditor Agreement, the realization, liquidation,
foreclosure, or any other disposition on or of any or all of the Collateral
shall be in the order and manner and determined in the sole discretion of the
Administrative Agent; provided, however,
that in no event shall the Administrative Agent violate applicable Law or
exercise rights and remedies other than those provided in such Security
Documents or otherwise existing at Law or in equity.
Section
10.15. USA Patriot Act
Notice. Each Lender hereby notifies the Borrower that pursuant
to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed
into law October 26, 2001)) (as used in this section, the “USA Patriot Act”), it
is required to obtain, verify and record information that identifies the
Borrower and its Subsidiaries, which information includes the name and address
of the Borrower and its Subsidiaries and other information that will allow such
Lender to identify the Borrower and its Subsidiaries in accordance with the USA
Patriot Act.
[Signatures Pages
Follow]
[Second
Lien Credit Agreement]
81
IN
WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
|
BERRY
PETROLEUM COMPANY,
|
|||
|
Borrower
|
|||
|
By:
|
/s/ David D. Wolf | ||
|
David
D. Wolf
|
|||
|
Executive
Vice President and
|
|||
|
Chief
Financial Officer
|
|||
|
Address:
|
|||
|
1999
Broadway, Suite 3700
|
|||
|
Denver,
Colorado 80202
|
|||
|
Attention:
|
David
D. Wolf
|
||
|
Telephone:
|
(303)
999-4400
|
||
|
Fax:
|
(303)
999-4401
|
||
|
Email:
|
ddw@bry.com
|
||
[Signature
Page to Second Lien Credit Agreement]
|
WELLS
FARGO ENERGY CAPITAL, INC., as Administrative Agent and
Lender
|
|||
|
By:
|
/s/ Michael Nepveux | ||
|
Michael
Nepveux
|
|||
|
Senior
Vice President
|
|||
|
Address:
|
|||
|
1000
Louisiana St., 9th
Floor
|
|||
|
Houston,
TX 77002
|
|||
|
Attention:
|
Bryan
McDavid
|
||
|
Telephone:
|
(713)
319-1611
|
||
|
Fax:
|
(713)
652-5874
|
||
|
Email:
|
Bryan.M.McDavid@wellsfargo.com
|
||
[Signature
Page to Second Lien Credit Agreement]
|
THE
ROYAL BANK OF SCOTLAND plc, Lender
|
||
|
By:
|
/s/ Lucy Walker | |
|
Name:
Lucy Walker
|
||
|
Title:
Vice President
|
||
[Signature
Page to Second Lien Credit Agreement]
|
CALYON
NEW YORK BRANCH, Lender
|
||
|
By:
|
/s/ Dennis E. Petito | |
|
Name:
Dennis E. Petito
|
||
|
Title:
Managing Director
|
||
|
By:
|
/s/ Tom Byargeon | |
|
Name:
Tom Byargeon
|
||
|
Title:
Managing Director
|
||
[Signature
Page to Second Lien Credit Agreement]
|
SOCIÉTÉ
GÉNÉRALE, Lender
|
||
|
By:
|
/s/ Stephen D. Warfel | |
|
Name:
Stephen D. Warfel
|
||
|
Title:
Managing Director
|
||
[Signature
Page to Second Lien Credit Agreement]
|
UNIONBANCAL
EQUITIES, INC., Lender
|
||
|
By:
|
/s/ Ted McNulty | |
|
Name:
Ted McNulty
|
||
|
Title:
Senior Vice President
|
||
|
By:
|
/s/ John W. Schmidt | |
|
Name:
John W. Schmidt
|
||
|
Title:
Vice President
|
||
[Signature
Page to Second Lien Credit Agreement]
SCHEDULE
1
LENDERS
SCHEDULE
|
LENDER
|
PERCENTAGE
SHARE
|
COMMITMENT
|
|
Wells
Fargo Energy Capital, Inc.
|
28.57%
|
$40,000,000
|
|
The
Royal Bank of Scotland, plc
|
28.57%
|
$40,000,000
|
|
Calyon
New York Branch
|
17.86%
|
$25,000,000
|
|
Societe
Generale
|
14.29%
|
$20,000,000
|
|
UnionBanCal
Equities, Inc.
|
10.71%
|
$15,000,000
|
|
TOTAL
|
100.00%
|
$140,000,000
|
[Lender
Schedule to Second Lien Credit Agreement]
SCHEDULE
2
INSURANCE
SCHEDULE
See
attached.
[Insurance
Schedule to Second Lien Credit Agreement]
SCHEDULE
3
SECURITY
SCHEDULE
1.
Security Agreement of even date herewith
from Borrower to Administrative Agent for the benefit of Lenders (the “Security
Agreement”).
2.
Deed of Trust Assignment, Security Agreement, Fixture
Filing and Financing Statement of even date herewith from Borrower to
Administrative Agent for the benefit of Lenders covering properties located in
California (the “California Deed of Trust”).
3.
Deed of Trust Assignment, Security Agreement, Fixture
Filing and Financing Statement of even date herewith from Borrower to
Administrative Agent for the benefit of Lenders covering properties located in
Texas (the “Texas Deed of Trust”).
4.
Deed of Trust Assignment, Security Agreement, Fixture
Filing and Financing Statement of even date herewith from Borrower to
Administrative Agent for the benefit of Lenders covering properties located in
Utah (the “Utah Deed of Trust”).
[Security
Schedule to Second Lien Credit Agreement]
SCHEDULE
4
DRILLING RIGS PERMITTED TO
BE SOLD
UNDER SECTION
7.5(e)
RIG 1
MAST: Lee C. Moore 127’H x
13’6”W Cantilever Mast 236,000# Hook Load Capacity
SUBSTRUCTURE: Gee Bee Welding
12’ 6”H x 38’L Box Type Sub 250,000# Setback
DRAWWORKS: Superior
400 HP Drawworks, Lebus 1 1/8” Line, TSM 22S Water Brake, Crown-O-Matic
Hydraulic Catheads.
ENGINE: (New) Detroit Series
60 450 HP Diesel Engine.
MUD PUMPS: (2) Gardner Denver
PZ8 Triplex Pumps p/b (New) Detroit Series 2000 Engines
GENERATORS: (2) Caterpillar
SR-4 210 KW p/b (1) Caterpillar 3306 and (1) Caterpillar 3406 Diesel
Engines
BLOCK / HOOK: Sowa Model
0636-4 150-Ton w/ (4) 36” Sheaves
ROTARY TABLE: National C-175,
17 1/2"
SWIVEL: Ideco
TL200
BOP RAMS: (New) Townsend 11"
Double 3,000 PSI
BOP ANNULAR: (New) Townsend
11” 3,000 Type 90 Annular
CHOKE MANIFOLD: (New)
3,000#
CLOSING UNIT: Mayco Electric
5-Station
MUD PIT: (New) 6’ 6”H x 11'W x
45’L 570 BBL (5) Compartments, Swaco Linear Motion Shaker (2) Mission
Magnum Mixing Pumps, 7.5 HP Mud Agitator, Degasser, Mud Hopper Mud Guns,
Walkways and Rails.
FUEL TANK: 5,000
Gallons
WATER TANK: 400
BBL
DOGHOUSE: 9'W x
16'L
DRILL PIPE: 8,000 FT (New)
4.5" E 16.60#
DRILL COLLARS: (26)
(New) 6 1/2" (12) (New) 8"
SPINNERS: (New)
Graychain Hyd Drill Pipe Spinner, Foster Kelly Spinner
RIG 5
DRAWWORKS: One (1) Cooper
LTO-550 Single Drum
CARRIER: Cooper LTO-550 Self
Propelled
ENGINE: One (1) Detroit Series
60
MAST: One (1)
Premco 112’, 300,000# Static Hook Load Mast w/(6) Sheave Crown and Racking
Board,
SUBSTRUCTURE: One
(1) 10’H Box Type Substucture w/ Mud Boat Ramp 5’H x 30’L V-Door, Stairs &
Safety Rails
MUD PUMPS: Two (2)
Gardner-Denver PZ-8 Triplex
ENGINES: Two (2) (New) Detroit
Series 60
GENERATORS: One (2) Detroit
Series 60 Diesel Engines w/Marathon 350KW
BLOCK / HOOK: One (1)
McKissick 150-Ton
ROTARY TABLE: One (1) Cooper
27-1/2” Rotary Table w/Master Bushing,
SWIVEL: One (1) Gardner-Denver
SW-200 200-Ton
BOP RAMS: One (1) Townsend 11’
3000 PSI Double
BOP ANNULAR: One (1) Townsend
11” 3,000 PSI
CHOKE MANIFOLD: 3,000
PSI
MUD PITS: (New) 800
BBL
SHALE SHAKER: (New) Derrick
Linear Motion Shaker
DESANDER: One (1) Mud Cleaner
c/w 8 each Desilter Cones
FUEL TANK: One (1)
6000 gallon
WATER TANK: One (1) 280
bbl
[Schedule
4 to Second Lien Credit Agreement]
DOGHOUSE: One (1) Dog House 8'
x 8' x 16'
DRILL PIPE: 6000 FT
4” E 14.40#
DRILL COLLARS: (16)
6 1/2"
MISCELLANEOUS: Pipe Spinner,
Kelly Spinner, and Miscellaneous Handling Tools
RIG 9
DRAWWORKS: Gardner Denver 1000
HP Electric Drawworks w/ (2) 600 HP Electric Motors.
MAST: Partec 136’ Boot Strap,
Rated 480,000# Static Hook Load Capacity.
SUBSTRUCTURE: Partec 21’ Box
Substructure w/ 4’ Skid Structure, 80’ Long.
GENERATORS: (3) (New) Detroit
Series 2000 Diesel Engines w/600 Volt Generators for SCR.
SCR: (1) (New) Omron
3x3
TOP DRIVE: (New) Tesco 250T
A/C Drive
MUD PUMPS: (2) (New) 1300 HP
China F1300 Triplex, Belt Driven w/ (2) GE 752 Hi torque motors.
ROTARY TABLE: Rebuilt National
23”
SWIVEL: Rebuilt Gardner Denver
300 Ton
BLOCK/HOOK: Rebuilt Gardner
Denver 300 Ton unitized
BOP RAMS: (New) China 11’
5000# Double Ram BOP
BOP ANNULAR: (New) China 11’
5000# Annular
CHOKE MANIFOLD: 5000# Choke
Manifold
CLOSING UNIT: (New) 5 Station
110 Gallon Closing Unit
MUD SYSTEM: (New) 800 BBL Mud System w/ 6
x 8 centrifugal mixing pumps, low pressure mixing guns, shaker,
agitators.
SHALE SHAKER: (2) (New)
Derrick Linear Motion Shale Shaker
FUEL TANK: (New) 12,000
gallon
WATER TANK: (New) 500
BBL
DOGHOUSE: (New) 10' x 8' x
30'
DRILL PIPE: 13,000’ (New) 4.5”
G105 16.60#
DRILL COLLARS: (21) New
6.5"
MISCELLANEOUS: Toolpusher’s
quarters, Catwalk, Six (6) Pipe Racks, Pipe Spinner, Kelly Spinner, and
Miscellaneous Handling Tools.
[Schedule
4 to Second Lien Credit Agreement]
SCHEDULE
5
ADDRESSES OF LENDERS FOR
NOTICES
WELLS
FARGO ENERGY CAPITAL, INC.
1000
Louisiana St., 9th Floor
Houston,
TX 77002
|
Attention:
|
Bryan
McDavid
|
|
Tel:
|
713-319-1611
|
|
Fax:
|
713-652-5874
|
|
Email:
|
Bryan.M.McDavid@wellsfargo.com
|
THE
ROYAL BANK OF SCOTLAND plc
101 Park
Avenue – 6th
Floor
New York,
New York 10178
|
Attention:
|
Claudio
R. Truglia
|
|
Tel:
|
203.971.7658
|
|
Fax:
|
212.401.1494
|
|
Email:
|
claudio.truglia@rbs.com
|
600
Travis Street, Suite 6500
Houston,
TX 77002
|
Attention:
|
Mark
Lumpkin, Jr.
|
|
Tel:
|
713.221.2419
|
|
Fax:
|
713.221.2428
|
|
Email:
|
mark.lumpkin@RBS.com
|
CALYON
NEW YORK BRANCH
1301
Travis Suite 2100
Houston,
TX 77002
|
Attention:
|
Mark
Roche
|
|
Tel:
|
713-890-8617
|
|
Fax:
|
713-890-8668
|
|
Email:
|
mark.roche@us.calyon.com
|
1301
Avenue of the Americas
New York,
NY 10019
|
Attention:
|
Gener
David
|
|
Tel:
|
212-261-7741
|
|
Fax:
|
917-849-5440
|
|
Email:
|
gener.david@us.calyon.com
|
[Schedule
5 to Second Lien Credit Agreement]
SOCIÉTÉ
GÉNÉRALE
1111
Bagby, Suite 2020
Houston,
Texas 77002
|
Attention:
|
Josh
Rogers
|
|
Tel:
|
713.759.6315
|
|
Fax:
|
713.650.0824
|
|
Email:
|
josh.rogers@us.socgen.com
|
UNIONBANCAL
EQUITIES, INC.
445 S.
Figueroa Street, 21st Floor
Los
Angeles, CA 90071
|
Attention:
|
Ted
McNulty
|
|
Tel:
|
213-236-4224
|
|
Fax:
|
213-236-7619
|
|
Email:
|
ted.mcnulty@uboc.com
|
[Schedule
5 to Second Lien Credit Agreement]
EXHIBIT
A
PROMISSORY
NOTE
[_______________],
2009
FOR VALUE
RECEIVED, the undersigned, Berry Petroleum Company, a Delaware corporation
(herein called “Borrower”), hereby promises to pay to the order of
[________________________________________________] (herein called “Lender”), the
principal sum equal to the amount of such Lender’s Commitment, or, if less, the
aggregate unpaid principal amount of the Loans made under this Note by Lender to
Borrower pursuant to the terms of the Credit Agreement (as hereinafter defined),
together with interest on the unpaid principal balance thereof as hereinafter
set forth, both principal and interest payable as herein provided in lawful
money of the United States of America at the offices of Administrative Agent
under the Credit Agreement, 1740 Broadway, 4th
Floor, Denver, Colorado 80274, or at such other place as from time to
time may be designated by the holder of this Note.
This Note
(a) is issued and delivered under that certain Second Lien Credit Agreement of
even date herewith among Borrower, Wells Fargo Energy Capital, Inc., as
Administrative Agent, and the lenders (including Lender) referred to therein
(herein, as from time to time supplemented, amended or restated, called the
“Credit Agreement”), and is a “Note” as defined therein, (b) is subject to the
terms and provisions of the Credit Agreement, which contains provisions for
payments and prepayments hereunder and acceleration of the maturity hereof upon
the happening of certain stated events, and (c) is secured by and entitled to
the benefits of certain Security Documents (as identified and defined in the
Credit Agreement). Payments of principal and interest on this Note
shall be made and applied as provided herein and in the Credit
Agreement. Reference is hereby made to the Credit Agreement for a
description of certain rights, limitations of rights, obligations and duties of
the parties hereto and for the meanings assigned to terms used and not defined
herein and to the Security Documents for a description of the nature and extent
of the security thereby provided and the rights of the parties
thereto.
The
principal amount of this Note, together with all interest accrued hereon, shall
be due and payable in full on the Maturity Date.
If this
Note is placed in the hands of an attorney for collection after default, or if
all or any part of the indebtedness represented hereby is proved, established or
collected in any court or in any bankruptcy, receivership, debtor relief,
probate or other court proceedings, Borrower and all endorsers, sureties and
guarantors of this Note jointly and severally agree to pay reasonable attorneys’
fees and collection costs to the holder hereof in addition to the principal and
interest payable hereunder.
Borrower
and all endorsers, sureties and guarantors of this Note hereby severally waive
demand, presentment, notice of demand and of dishonor and nonpayment of this
Note, protest, notice of protest, notice of intention to accelerate the maturity
of this Note, declaration or notice of acceleration of the maturity of this
Note, diligence in collecting, the bringing of any suit against any party and
any notice of or defense on account of any extensions, renewals, partial
payments or changes in any manner of or in this Note or in any of its terms,
provisions and covenants, or any releases or substitutions of any security, or
any delay, indulgence or other act of any trustee or any holder hereof, whether
before or after maturity.
[Exhibit
A to Second Lien Credit Agreement]
This Note
and the rights and duties of the parties hereto shall be governed by the Laws of
the State of California (without regard to principles of conflicts of law),
except to the extent the same are governed by applicable federal
Law.
|
BERRY
PETROLEUM COMPANY
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
[Exhibit
A to Second Lien Credit Agreement]
EXHIBIT
B
BORROWING
NOTICE
Reference
is made to that certain Second Lien Credit Agreement dated as of
[_______________], 2009 (as from time to time amended, the “Agreement”), by and
among Berry Petroleum Company (“Borrower”), Wells Fargo Energy Capital, Inc., as
Administrative Agent, and certain financial institutions
(“Lenders”). Terms which are defined in the Agreement are used herein
with the meanings given them in the Agreement. Pursuant to the terms
of the Agreement, Borrower hereby requests a borrowing of Loans to be advanced
pursuant to Section 2.2 of the Agreement as follows:
|
Aggregate
amount of borrowing:
|
$_______________________
|
|
Type
of Loans in borrowing:
|
________________________
|
|
Date
on which Loans are to be advanced:
|
________________________
|
|
Length
of Interest Period for Eurodollar Loans (1, 2, 3, 6, 9 or 12
months):
|
__________________months
|
To induce
Lenders to make such Loans, Borrower hereby represents, warrants, acknowledges,
and agrees to and with Administrative Agent and each Lender that:
(a)
The officer of Borrower signing this instrument is the
duly elected, qualified and acting officer of Borrower as indicated below such
officer’s signature hereto having all necessary authority to act for Borrower in
making the request herein contained.
(b)
The representations and warranties of Borrower set forth
in the Agreement and the other Loan Documents are true and correct in all
material respects on and as of the date hereof as if such
representations and warranties have been made as of the date hereof, except to
the extent that such representations or warranties were made as of a specific
date or updated, modified or supplemented as of a subsequent date with the
consent of Required Lenders and Administrative Agent, in which case such
representations and warranties shall have been true and correct in all material
respects on and of such date.
(c)
There does not exist on the date hereof any condition or event which
constitutes a Default which has not been waived in writing as provided in
Section 10.1(a) of the Agreement; nor will any such Default exist upon
Borrower’s receipt and application of the Loans requested
hereby. Borrower will use the Loans hereby requested in compliance
with Section 2.4 of the Agreement.
(d)
Except to the extent waived in writing as provided
in Section 10.1(a) of the Agreement, Borrower has performed and complied with
all agreements and conditions in the Agreement required to be performed or
complied with by Borrower on or prior to the date hereof, and each of the
conditions precedent to Loans contained in the Agreement remains
satisfied.
[Exhibit
B to Second Lien Credit Agreement]
(e)
The Loans requested hereby are not in excess of the Aggregate
Commitments.
(f)
The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course of
dealing, or by any other means not provided for in Section 10.1(a) of the
Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
The
officer of Borrower signing this instrument hereby certifies that, to the best
of his knowledge after due inquiry, the above representations, warranties,
acknowledgments, and agreements of Borrower are true, correct and
complete.
IN
WITNESS WHEREOF, this instrument is executed as of [____________],
2009.
|
BERRY
PETROLEUM COMPANY
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
Exhibit B
– Page 2
[Exhibit
B to Second Lien Credit Agreement]
EXHIBIT
C
CONTINUATION/CONVERSION
NOTICE
Reference
is made to that certain Second Lien Credit Agreement dated as of
[_________________], 2009 (as from time to time amended, the “Agreement”), by
and among Berry Petroleum Company (“Borrower”), Wells Fargo Energy Capital,
Inc., as Administrative Agent, and the lenders referred to therein
(“Lenders”). Terms which are defined in the Agreement are used herein
with the meanings given them in the Agreement.
Borrower
hereby requests a Conversion or Continuation of existing Loans pursuant to
Section 2.3 of the Agreement as follows:
Existing
Loan(s) to be continued or converted:
$____________
of Eurodollar Loans with Interest Period ending
_____________
$____________
of Base Rate Loans
|
Aggregate
amount of borrowing:
|
$_______________________
|
|
Type
of Loans in new borrowing:
|
________________________
|
|
Date
of Continuation or Conversion:
|
________________________
|
|
Length
of Interest Period for Eurodollar Loans (1, 2, 3, 6, 9 or 12
months):
|
__________________months
|
To meet
the conditions set out in the Agreement for such Conversion/Continuation,
Borrower hereby represents, warrants, acknowledges, and agrees to and with
Administrative Agent and each Lender that:
(a)
The officer of Borrower signing this
instrument is the duly elected, qualified and acting officer of Borrower as
indicated below such officer’s signature hereto having all necessary authority
to act for Borrower in making the request herein contained.
(b)
There does not exist on the date hereof any
condition or event which constitutes a Default which has not been waived in
writing as provided in Section 10.1(a) of the Agreement.
(c)
The Loan Documents have not been modified, amended
or supplemented by any unwritten representations or promises, by any course of
dealing, or by any other means not provided for in Section 10.1(a) of the
Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
[Exhibit
C to Second Lien Credit Agreement]
The
officer of Borrower signing this instrument hereby certifies that, to the best
of his knowledge after due inquiry, the above representations, warranties,
acknowledgments, and agreements of Borrower are true, correct and
complete.
IN
WITNESS WHEREOF this instrument is executed as of [_____________],
20__.
|
BERRY
PETROLEUM COMPANY
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
Exhibit C
– Page 2
[Exhibit
C to Second Lien Credit Agreement]
EXHIBIT
D
CERTIFICATE
ACCOMPANYING
FINANCIAL
STATEMENTS
Reference
is made to that certain Second Lien Credit Agreement dated as of
[_____________], 2009 (as from time to time amended, the “Agreement”), by and
among Berry Petroleum Company (“Borrower”), Wells Fargo Energy Capital, Inc., as
Administrative Agent, and certain financial institutions (“Lenders”), which
Agreement is in full force and effect on the date hereof. Terms which
are defined in the Agreement are used herein with the meanings given them in the
Agreement.
This
Certificate is furnished pursuant to Section 6.2(b) of the
Agreement. Together herewith Borrower is furnishing to Administrative
Agent and each Lender Borrower’s *[audited/unaudited] financial statements (the
“Financial Statements”) as at ____________ (the “Reporting
Date”). Borrower hereby represents, warrants, and acknowledges to
Administrative Agent and each Lender that:
(a)
the officer of Borrower signing this instrument is the
duly elected, qualified and acting ____________ of Borrower and as such is
Borrower’s Chief Financial Officer;
(b)
the Financial Statements are accurate and complete and satisfy
the requirements of the Agreement;
(c)
attached hereto is a schedule of calculations showing
Borrower’s compliance as of the Reporting Date with the requirements of Section
7.11, Section 7.12, Section 7.13 and Section 7.14 of the Agreement *[and
Borrower’s non-compliance as of such date with the requirements of Section(s)
____________ of the Agreement];
(d)
on the Reporting Date Borrower was, and on the date
hereof Borrower is, in full compliance with the disclosure requirements of
Section 6.4 of the Agreement, and no Default otherwise existed on the Reporting
Date or otherwise exists on the date of this instrument *[except for Default(s)
under Section(s) ____________ of the Agreement, which *[is/are] more fully
described on a schedule attached hereto].
(e)
*[Unless otherwise disclosed on a schedule attached
hereto,] The representations and warranties of Borrower set forth in the
Agreement and the other Loan Documents are true and correct in all material
respects on and as of the date hereof as if such representations and warranties
have been made as of the date hereof, except to the extent that such
representations or warranties were made as of a specific date or updated,
modified or supplemented as of a subsequent date with the consent of Required
Lenders and Administrative Agent, in which case such representations and
warranties shall have been true and correct in all material respects on and of
such date.
The
officer of Borrower signing this instrument hereby certifies that he has
reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above representations, warranties and
acknowledgments of Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and
complete.
[Exhibit
D to Second Lien Credit Agreement]
IN
WITNESS WHEREOF, this instrument is executed as of ____________,
20__.
|
BERRY
PETROLEUM COMPANY
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
Exhibit D
– Page 2
[Exhibit
D to Second Lien Credit Agreement]
EXHIBIT
E
OPINION OF COUNSEL FOR
RESTRICTED PERSONS
[Exhibit
E to Second Lien Credit Agreement]
EXHIBIT
F
ASSIGNMENT
AND ASSUMPTION
This
Assignment and Assumption (this “Assignment and
Assumption”) is dated as of the Effective Date set forth below and is
entered into by and between [Insert name of Assignor] (the
“Assignor”) and
[Insert name of
Assignee] (the “Assignee”). Capitalized
terms used but not defined herein shall have the meanings given to them in the
Credit Agreement identified below (as from time to time amended, the “Credit
Agreement”). The Standard Terms and Conditions set forth in
Annex 1 attached hereto are hereby agreed to and incorporated herein by
reference and made a part of this Assignment and Assumption as if set forth
herein in full. The Assignee hereby acknowledges receipt of copies of
the Credit Agreement and the Intercreditor Agreement identified
below.
For an
agreed consideration, the Assignor hereby irrevocably sells and assigns to the
Assignee, and the Assignee hereby irrevocably purchases and assumes from the
Assignor, subject to and in accordance with the Standard Terms and Conditions
attached hereto as Annex 1 and the Credit Agreement, as of the Effective Date
inserted by Administrative Agent as contemplated below (i) all of the Assignor's
rights and obligations in its capacity as a Lender under the Credit Agreement
and any other documents or instruments delivered pursuant thereto to the extent
related to the amount and percentage interest identified below of all of such
outstanding rights and obligations of the Assignor under the respective
facilities identified below (including, without limitation, the Letters of
Credit or guarantees included in such facilities) and (ii) to the extent
permitted to be assigned under applicable law, all claims, suits, causes of
action and any other right of the Assignor (in its capacity as a Lender) against
any Person, whether known or unknown, arising under or in connection with the
Credit Agreement, any other documents or instruments delivered pursuant thereto
or the loan transactions governed thereby or in any way based on or related to
any of the foregoing, including, but not limited to, contract claims, tort
claims, malpractice claims, statutory claims and all other claims at law or in
equity related to the rights and obligations sold and assigned pursuant to
clause (i) above (the rights and obligations sold and assigned pursuant to
clauses (i) and (ii) above being referred to herein collectively as, the “Assigned
Interest”). Such sale and assignment is without recourse to
the Assignor and, except as expressly provided in this Assignment and
Assumption, without representation or warranty by the Assignor.
| 1. |
Assignor: ______________________________
|
| 2. |
Assignee: ______________________________
[and is an Affiliate/Approved Fund of [identify
Lender]]
|
| 3. |
Borrower: Berry
Petroleum Company
|
| 4. |
Administrative
Agent: Wells Fargo Energy Capital, Inc., as Administrative Agent
under the Credit Agreement
|
[Exhibit
F to Second Lien Credit Agreement]
| 5. |
Credit
Agreement: Second
Lien Credit Agreement dated as of [____________], 2009, by and among
Borrower, Administrative Agent, and certain financial institutions
(“Lenders”)
|
| 6. |
Assigned
Interest:
|
|
Aggregate
Amount of Commitment/Loans for all
Lenders*
|
Amount
of Commitment/Loans Assigned
|
Percentage
Assigned of Commitment/Loans
|
|
$________________
|
$________________
|
______________%
|
|
$________________
|
$________________
|
______________%
|
|
$________________
|
$________________
|
______________%
|
| [7. |
Trade
Date: __________________]
|
8.
Intercreditor
Agreement: Intercreditor
Agreement, dated as of [____________], 2009, by and among Administrative Agent
and Wells Fargo Bank, National Association, as administrative agent under the
First Lien Credit Agreement.
Effective
Date: __________________, 20__ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH
SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER
THEREFOR.]
The terms
set forth in this Assignment and Assumption are hereby agreed to:
|
ASSIGNOR
|
||
|
[NAME
OF ASSIGNOR]
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
|
ASSIGNEE
|
||
|
[NAME
OF ASSIGNEE]
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
[Exhibit
F to Second Lien Credit Agreement]
[Consented
to and] Accepted:
|
WELLS
FARGO ENERGY CAPITAL, INC.,
|
||
|
as
Administrative Agent
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
|
[Consented
to:]
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
[Exhibit
F to Second Lien Credit Agreement]
ANNEX 1
TO ASSIGNMENT AND ASSUMPTION
STANDARD
TERMS AND CONDITIONS FOR
ASSIGNMENT
AND ASSUMPTION
1.
Representations and
Warranties.
1.1.
Assignor. The
Assignor (a) represents and warrants that (i) it is the legal and beneficial
owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of
any lien, encumbrance or other adverse claim and (iii) it has full power and
authority, and has taken all action necessary, to execute and deliver this
Assignment and Assumption and to consummate the transactions contemplated
hereby; and (b) assumes no responsibility with respect to (i) any statements,
warranties or representations made in or in connection with the Credit Agreement
or any other Loan Document, (ii) the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Documents or any
collateral thereunder, (iii) the financial condition of Borrower, any of its
Subsidiaries or Affiliates or any other Person obligated in respect of any Loan
Document or (iv) the performance or observance by Borrower, any of its
Subsidiaries or Affiliates or any other Person of any of their respective
obligations under any Loan Document.
1.2.
Assignee. The
Assignee (a) represents and warrants that (i) it has full power and authority,
and has taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby and to become
a Lender under the Credit Agreement, (ii) it meets all requirements of an
Eligible Assignee under the Credit Agreement (subject to receipt of such
consents as may be required under the Credit Agreement), (iii) from and after
the Effective Date, it shall be bound by the provisions of the Credit Agreement
as a Lender thereunder and, to the extent of the Assigned Interest, shall have
the obligations of a Lender thereunder, (iv) it has received a copy of the
Credit Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 6.2(a) and (b) thereof, as applicable, and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Assumption and to
purchase the Assigned Interest on the basis of which it has made such analysis
and decision independently and without reliance on Administrative Agent or any
other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and
Assumption is any documentation required to be delivered by it pursuant to the
terms of the Credit Agreement, duly completed and executed by the Assignee; and
(b) agrees that (i) it will, independently and without reliance on
Administrative Agent, the Assignor or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Documents, and (ii) it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Lender.
2.
Payments. From
and after the Effective Date, Administrative Agent shall make all payments in
respect of the Assigned Interest (including payments of principal, interest,
fees and other amounts) to the Assignor for amounts which have accrued to but
excluding the Effective Date and to the Assignee for amounts which have accrued
from and after the Effective Date.
[Exhibit
F to Second Lien Credit Agreement]
3.
General
Provisions. This Assignment and Assumption shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page
of this Assignment and Assumption by telecopy shall be effective as delivery of
a manually executed counterpart of this Assignment and
Assumption. This Assignment and Assumption shall be governed by, and
construed in accordance with, the law of the State of California.
[Exhibit
F to Second Lien Credit Agreement]
EXHIBIT
G
DISCLOSURE
LETTER
[Exhibit
G to Second Lien Credit Agreement]
Exhibit 31.1
Certification of Chief Executive
Officer
Pursuant to Section 302 of
Sarbanes Oxley Act of 2002
I, Robert F. Heinemann, President, Chief Executive Officer and Director
certify that:
|
|
1.
|
I have reviewed this report on Form 10-Q of Berry Petroleum Company
(the Company);
|
|
|
|
|
||||
|
|
2.
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
|
|
|
|
|
||||
|
|
3.
|
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this
report;
|
|
|
|
|
||||
|
|
4.
|
The Company’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a - 15(e) and 15d - (e) and internal
control over financial reporting (as defined in Exchange Act Rules 13a -
15(f) and 15d - 15(f)) for the Company and have:
|
|
|
|
|
a)
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Company is made known
to us by others within those entities, particularly during the period in
which this report is being prepared;
|
|
|
|
|
||||
|
|
b)
|
designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designated under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
|
|
|
|
|
|
|
|
|
|
|
c)
|
evaluated the effectiveness of the Company’s disclosure controls and
procedures and presented in this report our conclusions abut the
effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on such evaluation;
and
|
|
|
|
|
||||
|
|
d)
|
disclosed in this report any change in the Company’s internal control
over financial reporting that occurred during the Company’s most recent
fiscal quarter that has materially affected or is reasonably likely to
materially affect the Company’s internal control over financial
reporting.
|
|
|
|
|
5.
|
The Company’s other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the Company’s auditors and the audit committee of the Company’s board
of directors:
|
|
|
a)
|
all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’s ability to record,
process, summarize and report financial information and have identified
for the registrant’s auditors any material weaknesses in internal
controls; and
|
|
|
|
|
||||
|
|
b)
|
any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company’s internal controls
over financial reporting.
|
|
|
|
|
|
|
|
|
/s/Robert F. Heinemann
|
|
|
|
Robert F. Heinemann
|
|
|
April 30, 2009
|
President, Chief Executive Officer and Director
|
|
Exhibit 31.2
Certification of Chief Financial
Officer
Pursuant to Section 302 of
Sarbanes Oxley Act of 2002
I, David D. Wolf, Executive Vice President and Chief Financial Officer,
certify that:
|
|
1.
|
I have reviewed this report on Form 10-Q of Berry Petroleum Company
(the Company);
|
|
|
|
|
||||
|
|
2.
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
|
|
|
|
|
||||
|
|
3.
|
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this report;
|
|
|
|
|
||||
|
|
4.
|
The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a - 15(e) and 15d - (e) and internal
control over financial reporting (as defined in Exchange Act Rules 13a -
15(f) and 15d - 15(f)) for the Company and have:
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a)
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designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Company is made known
to us by others within those entities, particularly during the period in
which this report is being prepared;
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b)
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designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designated under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
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c)
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evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on such evaluation; and
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d)
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disclosed in this report any change in the Company's internal control
over financial reporting that occurred during the Company's most recent
fiscal quarter that has materially affected or is reasonably likely to
materially affect the Company's internal control over financial
reporting;
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5.
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The Company's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting to
the Company's auditors and the audit committee of the Company's board of
directors:
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a)
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all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information; and
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b)
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any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls
over financial reporting.
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/s/ David D. Wolf
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David D. Wolf
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April 30, 2009
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Executive Vice President and Chief Financial Officer
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Exhibit 32.1
Certification of Chief Executive
Officer
Pursuant to Section 906 of
Sarbanes Oxley Act of 2002
In
Connection with the Quarterly Report of Berry Petroleum Company (the "Company")
on Form 10-Q for the period ending March 31, 2009 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Robert
F. Heinemann, President, Chief Executive Officer and Director of the Company,
certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the
Sarbanes-Oxley Act of 2002, that:
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1)
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The
Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
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2)
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The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
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/s/ Robert F. Heinemann
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Robert
F. Heinemann
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April
30, 2009
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President,
Chief Executive Officer and Director
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Exhibit 32.2
Certification of Chief Financial
Officer
Pursuant to Section 906 of
Sarbanes Oxley Act of 2002
In
Connection with the Quarterly Report of Berry Petroleum Company (the "Company")
on Form 10-Q for the period ending March 31, 2009 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, David
D. Wolf, Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the
Sarbanes-Oxley Act of 2002, that:
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1)
|
The
Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
|
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||||
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2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
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/s/
David D. Wolf
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David
D. Wolf
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April
30, 2009
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Executive
Vice President and Chief Financial Officer
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