Credit Agreement dated as of May 2, 2024 among Energy Resources 12 Operating Company, LLC and Energy Resources 12, L.P., as Borrowers, and BancFirst, as Lender

EX-10.1 2 ex_668189.htm EXHIBIT 10.1 ex_668189.htm

Exhibit 10.1

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CREDIT AGREEMENT

 

DATED AS OF

 

May 2, 2024

 

AMONG

 

ENERGY RESOURCES 12 OPERATING COMPANY, LLC and

 

ENERGY RESOURCES 12, L.P.

 

AS BORROWERS,

 

BANCFIRST,

 

AS LENDER

 

$20,000,000

 

 

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TABLE OF CONTENTS

 

		Page
Article I
Definitions and Accounting Matters
Section 1.01	Certain Defined Terms	1
Section 1.03	Terms Generally; Rules of Construction	20
Section 1.04	Accounting Terms and Determinations; GAAP	20
Article II
The Credits
Section 2.01	Commitments	21
Section 2.02	Loans and Borrowings	21
Section 2.03	Requests for Borrowings	22
Section 2.04	Funding of Borrowings.	22
Section 2.05	Borrowing Base	23
Article III
Payments of Principal and Interest; Prepayments; Fees
Section 3.01	Repayment of Loans	25
Section 3.02	Interest	25
Section 3.03	Prepayments	26
Section 3.04	Fees	27
Article IV
Payments; Pro Rata Treatment; Sharing of Set-offs.
Section 4.01	Payments Generally; Pro Rata Treatment; Sharing of Set-offs	28
Section 4.02	Disposition of Proceeds	28
Article V
Taxes; Illegality
Section 5.02	RESERVED	29
Section 5.03	Taxes	29
Section 5.04	Mitigation Obligations	31
Article VI
Conditions Precedent
Section 6.01	Effective Date; Initial Loans	31

 

 

Section 6.02	Each Credit Event	33
Article VII
Representations and Warranties
Section 7.01	Organization; Powers	34
Section 7.02	Authority; Enforceability	34
Section 7.03	Approvals; No Conflicts	34
Section 7.04	Financial Condition; No Material Adverse Change	35
Section 7.05	Compliance with the Laws and Agreements; No Defaults	36
Section 7.06	Investment Company Act	37
Section 7.07	Public Utility Holding Company Act	37
Section 7.08	Taxes	37
Section 7.09	ERISA	37
Section 7.10	Disclosure; No Material Misstatements	38
Section 7.11	Insurance	39
Section 7.12	Restriction on Liens	39
Section 7.13	Subsidiaries	40
Section 7.14	Location of Business and Offices	40
Section 7.15	Properties; Titles, Etc.	40
Section 7.16	Maintenance of Properties	41
Section 7.17	Gas Imbalances, Prepayments	42
Section 7.18	Marketing of Production	42
Section 7.19	Swap Agreements and Qualified ECP Counterparty	42
Section 7.20	Use of Loans	42
Section 7.21	Solvency	43
Section 7.22	Non-Operated Oil and Gas Properties	43
Article VIII
Affirmative Covenants
Section 8.01	Financial Statements; Other Information	43
Section 8.02	Notices of Material Events	46
Section 8.03	Existence; Conduct of Business	46
Section 8.04	Payment of Obligations	47
Section 8.05	Performance of Obligations under Loan Documents	47
Section 8.06	Operation and Maintenance of Properties	47
Section 8.07	Insurance	48
Section 8.08	Books and Records; Inspection Rights	48
Section 8.09	Compliance with Laws	49
Section 8.10	Environmental Matters	49
Section 8.11	Further Assurances	50
Section 8.12	Reserve Reports	50
Section 8.13	Title Information	51

 

 

Section 8.14	Additional Collateral; Additional Guarantors	52
Section 8.15	ERISA Compliance	53
Section 8.16	Commodity Exchange Act Keepwell Provisions	54
Section 8.17	Anti-Corruption Laws and Sanctions	54
Section 8.18	Deposit Accounts	54
Article IX
Negative Covenants
Section 9.01	Financial Covenants	55
Section 9.02	Debt	55
Section 9.03	Liens	56
Section 9.04	Intentionally Omitted	57
Section 9.05	Investments, Loans and Advances	57
Section 9.06	Nature of Business; International Operations	58
Section 9.07	Limitation on Leases	58
Section 9.08	Proceeds of Note/Loans	58
Section 9.09	ERISA Compliance	59
Section 9.10	Sale or Discount of Receivables	60
Section 9.11	Mergers, Etc.	60
Section 9.12	Sale of Properties	60
Section 9.13	Environmental Matters	62
Section 9.14	Transactions with Affiliates	63
Section 9.15	Subsidiaries	63
Section 9.16	Subsidiary Indebtedness and Preferred Stock	63
Section 9.17	Negative Pledge Agreements	63
Section 9.18	Take-or-Pay or Other Prepayments	64
Section 9.19	Intentionally Omitted	64
Article X
Events of Default; Remedies
Section 10.01	Events of Default	64
Section 10.02	Remedies	66
Article XI
[RESERVED]
Article XII
Miscellaneous
Section 12.01	Notices	67
Section 12.02	Waivers; Amendments	68
Section 12.03	Expenses, Indemnity; Damage Waiver	68

 

 

Section 12.04	Successors and Assigns	71
Section 12.05	Survival; Revival; Reinstatement	71
Section 12.06	Counterparts; Integration; Effectiveness	72
Section 12.07	Severability	72
Section 12.08	Right of Setoff	72
Section 12.09	Governing Law; Jurisdiction; Consent to Service of Process	73
Section 12.10	Commercially Reasonable Efforts	74
Section 12.12	Headings	74
Section 12.13	Exculpation Provisions	74
Section 12.14	No Third Party Beneficiaries	74
Section 12.15	US Patriot Act Notice	74
Section 12.16	Flood Insurance Regulations	75
Section 12.17	Multiple Borrowers	75

 

 

Annexes, Exhibits and Schedules

 

Annex I	List of Maximum Credit Amounts
Exhibit A	Form of Note
Exhibit B	Form of Borrowing Request
Exhibit C	Form of Compliance Certificate
Exhibit D	Form of Assignment and Assumption
Exhibit F-1	RESERVED
Exhibit G	Form of Guaranty Agreement
Exhibit H-1	Form of U.S. Tax Compliance Certificate (Foreign Lenders; Not Partnerships)
Exhibit H-2	Form of U.S. Tax Compliance Certificate (Foreign Participants; Not Partnerships)
Exhibit H-3	Form of U.S. Tax Compliance Certificate (Foreign Participants; Partnerships)
Exhibit H-4	Form of U.S. Tax Compliance Certificate (Foreign Lenders; Partnerships)
Schedule 7.04	Litigation
Schedule 7.13	Subsidiaries and Partnerships
Schedule 7.15	Properties
Schedule 7.17	Gas Imbalances
Schedule 7.18	Marketing Contracts
Schedule 7.19	Swap Agreements
Schedule 9.05	Investments

 

 

This Credit Agreement, dated as of May 2, 2024, is among ENERGY RESOURCES 12 OPERATING COMPANY, LLC, a Delaware limited liability company (“Energy 12 Operating”) and ENERGY RESOURCES 12, L.P., a Delaware limited partnership (“Energy 12 LP”; Energy 12 Operating and Energy 12 LP are jointly, severally and collectively referred to herein as the “Borrowers” and each individually as a “Borrower”), ENERGY RESOURCES 12 GP, LLC, a Delaware limited liability company (“the “Guarantor”), and BANCFIRST, an Oklahoma chartered bank ( “Lender”).

 

R E C I T A L S

 

A.    The Borrowers have requested that the Lender provide certain loans to and extensions of credit on behalf of the Borrowers.

 

B.    Lender has agreed to make such loans and extensions of credit subject to the terms and conditions of this Agreement.

 

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

 

ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS

 

Section 1.01    Certain Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

 

“Additional Costs” means (1) all third-party, out of pocket costs and expenses and actual losses Lender (in Lender’s reasonable determination) incur (at any time) from (i) making or maintaining the Loan, (ii) protecting the assets securing the Loan, or (iii) enforcing its remedies under the Loan Documents during an Event of Default, and (2) any reduction in any amount (including lost profits) to which Lender is entitled under the Loan Documents. Additional Costs includes costs which (a) subject Lender to any tax, duty or other charge with respect to the Loan, or changes the basis of taxation of any amounts payable to Lender under the Loan (other than taxes imposed on the overall net income of Lender or of its applicable lending office by the jurisdiction in which Lender’s principal office or such applicable lending office is located) or (b) impose or modify any reserve, special deposit or similar requirements relating to Lender. For purposes of this definition, the term “Lender”, at Lender’s option, includes Lender’s present and future participants in the Loan.

 

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

 

 

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

 

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrowers or any of their Affiliates from time to time concerning or relating to bribery or corruption.

 

“Anticipated Cure Deadline” has the meaning assigned to such term in Section 10.03(a).

 

“Approved Counterparty” means (a) Lender or any Affiliate of Lender, or (b) any other Person, approved by Lender, whose long term senior unsecured debt rating at the time of entry into the applicable Swap Agreement is A‑/A3 by S&P or Moody’s (or their equivalent) or higher. For the purposes hereof, BP Energy Company, a Delaware corporation (“BP”); Nextera Energy Marketing, LLC., a Delaware limited liability company and Cargill, Incorporated are each an “Approved Counterparty” and will continue as such until Borrowers are otherwise notified by Agent.

 

“Approved Fund” means (a) a CLO and (b) with respect to Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as Lender or by an Affiliate of such investment advisor.

 

“Approved Petroleum Engineer” means Pinnacle Energy Services, LLC or an independent petroleum engineer proposed by the Borrower and reasonably acceptable to the Lender.

 

“ASC” means the Financial Accounting Standards Board Accounting Standards Codification, as in effect from time to time.

 

“Availability” means, at any time, (a) the Lender’s Commitment at such time minus (b) the Credit Exposure of the Lender at such time.

 

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

 

“Bank Products” means any of the following bank services: (a) commercial credit cards, (b) stored value cards, and (c) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).

 

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

 

“Borrower” and “Borrowers” have the meaning given in the introductory paragraph.

 

 

“Borrowing” means Loans or an advance of funds pursuant to the line of credit described in Article 2 herein.

 

“Borrowing Base” means at any time an amount equal to the amount determined in accordance with Section 2.05, as the same may be adjusted from time to time pursuant to Section 8.13(c), Section 9.12(d) or Section 9.12(e).

 

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

 

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

 

“Business Day” means each day of the week which is not a Saturday, Sunday or a holiday recognized and observed by the Board of Governors of the Federal Reserve System.

 

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

 

“Casualty Event” means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by condemnation or similar proceeding of, any Property of either Borrower or any of its Subsidiaries having a fair market value in excess of the greater of (i) $500,000 or (ii) 5% of the Borrowing Base then in effect.

 

“Change in Control” means (i) either of Glade M. Knight or David S. McKenney ceases to have a membership in and/or participate in the management of the General Partner; (ii) General Partner ceases to be the General Partner of Borrower; (iii) the merger, combination, consolidation, division, or reorganization of the Borrower; or (iv) the sale or disposition of all or substantially all of the Borrower’s assets. Notwithstanding anything to the contrary contained herein and expressly not in limitation thereof, it shall be a deemed a “Change in Control” if at any time Glade Knight is not involved in the day to day management of Borrowers.

 

“Change in Law” means the adoption of any law, rule or regulation after the date of this Agreement, any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or compliance by Lender, by any lending office of Lender or by Lender’s holding company, if any, with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided, however, for the purposes of this Agreement, the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, guidelines or directives in connection therewith or promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision or the United States or foreign regulatory authorities, in each case, pursuant to Basel III, are deemed to have gone into effect and to have been adopted after the date of this Agreement.

 

 

“CLO” means any entity (whether a corporation, partnership, limited liability company, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by Lender or an Affiliate of Lender.

 

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

 

“Collateral” means the Mortgaged Properties and all other Property of Energy 12 Operating and its Subsidiaries, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Instrument.

 

“Commitment” means the commitment of Lender to make Loans hereunder in an aggregate principal amount at any one time outstanding not to exceed the lesser of (x) $20,000,000.00, as such amount may be adjusted from time to time in accordance with this Agreement, or (y) the amount determined by subtracting (i) the sum of the Monthly Commitment Reductions with respect to the Loans which have occurred subsequent to the immediately preceding Borrowing Base determination, as set forth in Section 4.02, from (ii) the Borrowing Base as in effect from time to time , as such commitment may be (a) modified from time to time pursuant to Section 2.05 and (b) modified from time to time pursuant to assignments by or to Lender pursuant to Section 12.04(b).

 

“Commitment Fee Rate” means one quarter of one percent (0.25%) per annum.

 

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute and any regulations promulgated thereunder.

 

“Consolidated Borrower Entities” means each of the Credit Parties and Consolidated Subsidiaries.

 

“Consolidated Subsidiaries” means each Subsidiary of Energy 12 LP, including Energy 12 Operating (whether now existing or hereafter created or acquired), the financial statements of which shall be (or should have been) consolidated with the financial statements of the Borrowers in accordance with GAAP.

 

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. For the purposes of this definition, and without limiting the generality of the foregoing, any Person that owns directly or indirectly more than 50% of the Equity Interests having ordinary voting power for the election of the directors or other governing body of a Person (other than as a limited partner of such other Person) will be deemed to “control” such other Person. “Controlling” and “Controlled” have meanings correlative thereto.

 

 

“Credit Exposure” means, with respect to Lender at any time, the sum of the outstanding principal amount of the Loans.

 

“Credit Parties” means, collectively, the Borrowers and Guarantor, and “Credit Party” means any one of the foregoing.

 

“Debt” means, for any Person, the sum of the following (without duplication): (a) all obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of credit, surety or other bonds and similar instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of such Person to pay the deferred purchase price of Property or services, in each case, which are not greater than 90 days past the date of invoice or delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (d) all obligations under Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other clauses of this definition) of others secured by a Lien on any Property of such Person, whether or not such Debt is assumed by such Person; (g) all Debt (as defined in the other clauses of this definition) of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the lesser of the amount of such Debt and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others; (i) all obligations to deliver commodities, goods or services, including, without limitation, Hydrocarbons, in consideration of one or more advance payments, other than gas balancing arrangements in the ordinary course of business; (j) all obligations to pay for goods or services whether or not such goods or services are actually received or utilized by such Person in each case, which are not greater than 90 days past the date of invoice or delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (k) any Debt of a partnership for which such Person is liable either by agreement, by operation of law or by a Governmental Requirement but only to the extent of such liability; and (l) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment.  The Debt of any Person shall include all obligations of such Person of the character described above to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is not included as a liability of such Person under GAAP.

 

“Debt Service Coverage Ratio” means that ratio determined by dividing EBITDAX less distributions by the sum of the Consolidated Borrower Entities’ interest expense plus the annualized amount of the principal payment necessary to amortize the loan balance over the Half Life of Borrowers’ Oil and Gas Properties plus any additional current maturities of long term debt due from other Debt for the most recent twelve months then-ended.

 

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

 

 

“Deposit Account” means any operating, administrative, cash management, collection activity, demand, time, savings, passbook or other deposit account maintained with a bank or other financial institution.

 

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

 

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

 

“EBITDAX” means, with respect to the Consolidated Borrower Entities for the most recent 12-months then ended: (a)  Net Income of the Consolidated Borrower Entities for such period, plus, to the extent deducted in the calculation of Net Income, (b) the sum of (i) income or franchise Taxes paid or accrued; (ii)  interest expense; (iii) amortization, depletion and depreciation expense; (iv) exploration expenses; (v) IDCs; (vi) any loss from the sale of assets; (vii) impairments; (viii) any non-cash losses or charges on any Swap Agreement resulting from the requirements of SFAS 133 for that period; (ix) non-recurring expenses or losses (including, any extraordinary expenses or losses); (x) any other non-cash expenses or non-cash losses; less, to the extent included in the calculation of Net Income, (c) the sum of (i) gains or losses from sales or other dispositions of assets (other than Hydrocarbons produced in the normal course of business); (ii) any non-cash gains on any Swap Agreement resulting from the requirements of SFAS 133 for that period; and (iii) extraordinary or non-recurring gains, but not net of extraordinary or non-recurring “cash” losses.

 

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

 

“Election Notice” has the meaning assigned to such term in Section 3.03(c)(ii).

 

“Energy 12 LP” has the meaning given in the introductory paragraph.

 

“Energy 12 Operating” has the meaning given in the introductory paragraph.

 

“Engineering Reports” has the meaning assigned to such term in Section 2.05(c)(i).

 

“Environmental Laws” means any and all applicable Governmental Requirements pertaining in any way to health, safety, the environment or the preservation or reclamation of natural resources, in effect in any and all jurisdictions in which the Borrowers or any Subsidiary is conducting or at any time has conducted business, or where any Property of the either Borrower or any Subsidiary of either Borrower is located, in each case, to the extent such Governmental Requirements relate to the release of, or exposure to, Hazardous Materials, including, without limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the

 

 

Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Governmental Requirements. The term “oil” shall have the meaning specified in OPA, the terms “hazardous substance” and “release” (or “threatened release”) have the meanings specified in CERCLA, the terms “solid waste” and “disposal” (or “disposed”) have the meanings specified in RCRA and the term “oil and gas waste” shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code (“Section 91.1011”); provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (b) to the extent the laws of the state or other jurisdiction in which any Property of either Borrower or any Subsidiary of either Borrower is located establish a meaning for “oil,” “hazardous substance,” “release,” “solid waste,” “disposal” or “oil and gas waste” which is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply.

 

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

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statutes, and all regulations and guidance promulgated thereunder.

 

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

 

“ERISA Event” means (a) a “Reportable Event” described in section 4043 of ERISA, other than a Reportable Event as to which the provisions of thirty (30) days’ notice to the PBGC is expressly waived under applicable regulations, (b) the withdrawal of either Borrower, a Subsidiary of either Borrower or any ERISA Affiliate from a Plan during a plan year in which it was a “substantial employer” as defined in section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or condition which might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

 

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

 

“Excepted Liens” means:  (a) Liens for Taxes, assessments or other governmental charges or levies which are not delinquent for more than sixty (60) days or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in

 

 

accordance with GAAP; (b) Liens in connection with workers’ compensation, unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not delinquent for more than sixty (60) days or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (d) contractual Liens that arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by a Borrower or any Subsidiary of a Borrower or materially impair the value of such Property subject thereto; (e) Liens arising solely by virtue of any statutory or common-law provision relating to banker’s liens, rights of set-off or similar rights and remedies and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided, that no such deposit account is a dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board and no such deposit account is intended by each Borrower or any of its Subsidiaries to provide collateral to the depository institution; (f) easements, restrictions, rights of way, servitudes, permits, conditions, covenants, exceptions or reservations in any Property of either Borrower or any Subsidiary of either Borrower 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, which in the aggregate do not materially impair the use of such Property for the purposes of which such Property is held by a Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (g) immaterial title defects or irregularities in title, zoning and land use requirements or restrictions, rights and interests of owners or lessees of a mineral estate to use of the related surface estate, which in the aggregate do not materially impair the use of such Property for the purposes of which such Property is held by a Borrower or any Subsidiary of a Borrower or materially impair the value of such Property subject thereto; (h)  Liens on cash or securities pledged to secure performance of tenders, surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other obligations of a like nature incurred

 

 

in the ordinary course of business or reimbursement or indemnification obligations of insurance carriers providing property, casualty, liability or other insurance to such Person to the extent that the amount of such pledged cash or securities is reasonable and customary with respect to such insurance and such insurance is being maintained in accordance with Section 8.07; (i) judgment and attachment Liens not giving rise to an Event of Default, provided that any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired and no action to enforce such Lien has been commenced; (j) Liens, titles and interests of licensors of software and other intangible Property licensed by such licensors to either Borrower or any Subsidiary of a Borrower, restrictions and prohibitions on encumbrances and transferability with respect to such Property and either Borrower’s or such Subsidiary’s interests therein imposed by such licenses, and Liens and encumbrances encumbering such licensors’ titles and interests in such Property and to which either Borrower’s or such Subsidiary’s license interests may be subject or subordinate, in each case, whether or not evidenced by UCC financing statement filings or other documents of record, provided, that such Liens do not secure Indebtedness for borrowed money of either Borrower or any Subsidiary of either Borrower and do not encumber Property of a Borrower or any Subsidiary of a Borrower other than the Property that is the subject of such licenses; and (k) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by a Borrower and the Subsidiaries of any Borrower in the ordinary course of business covering only the Property under lease; provided, further that Liens described in clauses (a) through (e) shall remain “Excepted Liens” only for so long as no action to enforce such Lien has been commenced and no intention to subordinate the first priority Lien granted in favor of the Lender is to be hereby implied or expressed by the permitted existence of such Excepted Liens.

 

“Excluded Swap Obligation” means, with respect to any Credit Party individually determined on a Credit Party by Credit Party basis, any Indebtedness in respect of any Swap Agreement if, and solely to the extent that, all or a portion of the guarantee of such Credit Party of, or the grant by such Credit Party of a security interest to secure, such Indebtedness in respect of any Swap Agreement (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Credit Party’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act at the time such guarantee or grant of a security interest becomes effective with respect to such related Indebtedness in respect of any Swap Agreement.

 

“Excluded Taxes” means, with respect to Lender or any other recipient of any payment to be made by or on account of any obligation of any Borrower or any Guarantor hereunder or under any other Loan Document, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such recipient being organized under the laws of , or having its principal office or, in the case of Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of Lender, U.S. Federal withholding Taxes imposed on amounts payable to or for the account of Lender with respect to an

 

 

applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrowers under Section 5.04(b)) or (ii) Lender changes its lending office, except in each case to the extent that, pursuant to Section 5.03, amounts with respect to such Taxes were payable either to Lender’s assignor immediately before Lender acquired the applicable interest in a Loan or Commitment or to Lender immediately before it changed its lending office, (c) is attributable to Lender’s failure to comply with or Section 5.03(e) or Section 5.03(f), and (d) any withholding Taxes imposed under FATCA.

 

“FATCA” means Sections 1471 through 1474 of the Code as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code and any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code.

 

“Financial Officer” means, for any Person, the chief financial officer, principal accounting officer, treasurer or controller of such Person. Unless otherwise specified, all references herein to a Financial Officer means David McKenney or a Financial Officer of Energy 12 LP.

 

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

 

“Flood Insurance Regulations” has the meaning assigned such term in Section 12.16.

 

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.

 

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

 

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

 

“Guarantor” means Energy Resources 12 GP, LLC, a Delaware limited liability company.

 

“Guaranty Agreement” means an agreement executed by the Guarantor and being substantially in the form of Exhibit D, pursuant to which such Guarantor unconditionally

 

 

guarantees on a joint and several basis with any future Domestic Subsidiary, payment of the Indebtedness, as the same may be amended, modified or supplemented from time to time.

 

“Half Life” means, for Borrowers’ (or any Borrower’s) Oil and Gas Properties, the lesser of sixty (60) months or the most recently determined half-life of Borrowers’ (or any Borrower’s) Oil and Gas Properties.

 

“Hazardous Material” means any substance regulated under any applicable Environmental Law including:  (i) any chemical, compound, material, product, byproduct, substance or waste defined as or included in the definition or meaning of “hazardous substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar meaning or import found in any applicable Environmental Law; (ii) Hydrocarbons, petroleum products, petroleum substances, natural gas, oil, oil and gas waste, crude oil, and any components, fractions, or derivatives thereof; and (iii) radioactive materials, explosives, asbestos or asbestos containing materials, polychlorinated biphenyls, radon, infectious or medical wastes.

 

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

 

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

 

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

 

“IDCs” means Intangible Drilling and Development Costs, as defined in Section 263 of the Code (including, without limitation and for the avoidance of doubt, intangible completion costs).

 

“Indebtedness” means any and all amounts owing or to be owing by the Borrowers, any Subsidiary of any of the Borrowers or any Guarantor (whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising):  (a) to Lender under any Loan Document, including, without limitation, all interest on any of the Loans (including any interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of any Credit Party (or could accrue but for the operation of applicable bankruptcy or insolvency laws), whether

 

 

or not such interest is allowed or allowable as a claim in any such case, proceeding or other action); (b) to any Secured Swap Provider under any Swap Agreement including any Swap Agreement in existence prior to the date hereof, but excluding any additional transactions or confirmations entered into (i) after such Secured Swap Provider ceases to be Lender or an Affiliate of Lender or otherwise an Approved Counterparty or (ii) after assignment by a Secured Swap Provider to another Secured Swap Provider that is not Lender or an Affiliate of Lender or otherwise an Approved Counterparty; (c) to any Secured Bank Products Provider in respect of Bank Products; and (d) all renewals, extensions and/or rearrangements of any of the above; provided, that solely with respect to any Guarantor that is not an “eligible contract participant” under the Commodity Exchange Act, Excluded Swap Obligations of such Guarantor shall in any event be excluded from “Indebtedness” owing by such Guarantor.

 

“Indemnified Taxes” means (a) Taxes other than Excluded Taxes imposed on or with respect to any payment made by, or on account of any obligation of any Borrower or Guarantor under any Loan Document and (b) to the extent not otherwise described in the foregoing clause (a) hereof, Other Taxes.

 

“Initial Borrowing Base” means a Borrowing Base in the amount of $10,000,000.00, which shall be in effect during the period commencing on the Effective Date and continuing until redetermined pursuant to Section 2.06(b).

 

“Initial Reserve Report” means an engineering and economic analysis of the oil and gas reserves attributable to the Oil and Gas Properties of Borrowers and Guarantor prepared by Pinnacle Energy Services or independent petroleum engineer or engineering firm acceptable to Lender.

 

“Interest Payment Date” means the last day of each month during the term hereof.

 

“Interim Redetermination” means any redetermination of the Borrowing Base, Monthly Commitment Reduction and Half Life under Section 2.05(b)(ii).

 

“Interim Redetermination Date” means the date on which a Borrowing Base, Monthly Commitment Reduction and Half Life that has been redetermined pursuant to an Interim Redetermination becomes effective as provided in Section 2.05(d).

 

“Investment” means, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity Interests of any other Person or any agreement to make any such acquisition (including, without limitation, any “short sale” or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale) or any capital contribution to any other Person; (b) the making of any deposit with, or advance, loan or capital contribution to, assumption of Debt of, purchase or other acquisition of any other Debt or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person); or (c) the entering into of any

 

 

guarantee of, or other contingent obligation (including the deposit of any Equity Interests to be sold) with respect to, Debt or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such other Person.

 

“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.

 

“Lender” means BancFirst, an Oklahoma banking association.

 

“Lien” means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (a) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (b) royalties, production payments and the like payable out of Oil and Gas Properties. The term “Lien” shall include easements, restrictions, servitudes, permits, conditions, covenants, encroachments, exceptions or reservations. For the purposes of this Agreement, the Borrowers and their Subsidiaries shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing.

 

“Loan Documents” means this Agreement, the Note, the Guaranty Agreement, and the Security Instruments.

 

“Loans” means the loans made by the Lender to the Borrowers pursuant to this Agreement.

 

“Material Adverse Effect” means a material adverse effect on (a) the business, operations, Property or financial condition of either Borrower and each of their Subsidiaries taken as a whole, (b) the ability of the Borrowers, any Subsidiary of the Borrowers or any Guarantor to perform any of their obligations under any Loan Document, (c) the validity or enforceability of any Loan Document or (d) the rights and remedies of or benefits available to the Lender under any Loan Document.

 

“Material Indebtedness” means Debt (other than the Loans), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrowers and their Subsidiaries in an aggregate principal amount exceeding $500,000; provided, however, that Swap Agreements entered into in accordance with the terms hereof shall not count as Material Indebtedness. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrowers or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrowers or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.

 

 

“Maturity Date” means the earliest of (a) March 1, 2026 and (b) the date on which the Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof.

 

“Maximum Credit Amount” shall equal $20,000,000.00, as the same may be increased, reduced or terminated pursuant to Section 2.05. The initial Maximum Credit Amount is $20,000,000.

 

“Monthly Commitment Reduction” means those monthly decreases to the Borrowing Base occurring as of the first (1st) day of each month during the term hereof as determined by the Lender in accordance with Article II below.

 

“Monthly Date” means the last day of each calendar month.

 

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

 

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

 

“Mortgages” means all mortgages, deeds of trust and similar documents, instruments and agreements (and all amendments, modifications and supplements thereof) creating, evidencing, perfecting or otherwise establishing the Liens on Mortgaged Property to secure payment of the Indebtedness or any party thereof. All Mortgages shall be in form and substance satisfactory to the Lender in its sole discretion.

 

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

 

“Net Income” means with respect to the Consolidated Borrower Entities, for any period, the aggregate of the net income (or loss) of the Consolidated Borrower Entities after allowances for taxes for such period determined in accordance with GAAP; provided, that there shall be excluded from such net income (to the extent otherwise included therein) the following: (a) the net income of any Person in which the Consolidated Borrower Entities has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Consolidated Borrower Entities in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in cash during such period by such other Person to any of the Consolidated Borrower Entities; (b) the net income (or loss) of any Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (c) any extraordinary gains or losses during such period; (d) the cumulative effect of a change in accounting principles and any gains or losses attributable to writeups or writedowns of assets; and (e) any writeups or writedowns of non-current assets.

 

“New Borrowing Base Notice” has the meaning assigned to such term in Section 2.05(d).

 

 

“Note” means the promissory note of the Borrowers described in Section 2.02(c) and being substantially in the form of Exhibit A, together with all amendments, modifications, replacements, extensions and rearrangements thereof.

 

“Obligations” means Indebtedness.

 

“OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.

 

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

 

“Other Connection Taxes” means, with respect to Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrowers or any Guarantor hereunder or under any other Loan Document, Taxes imposed as a result of a present or former connection between such recipient and the jurisdiction imposing such Taxes (other than a connection arising from such recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced, any Loan Document, or sold or assigned an interest in any Loan or any Loan Document).

 

 

“Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or Property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and any other Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 5.04(b)).

 

“Patriot Act” has the meaning set forth in Section 12.15.

 

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

 

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

 

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

 

“Prime Rate” means, for any day, the lesser of (i) the prime rate as published in The Wall Street Journal’s “Money Rates” table for that day plus 50 basis points and (ii) the Highest Lawful Rate. If multiple prime rates are quoted in the “Money Rates” table, then the highest quoted prime rate will be the Prime Rate. Notwithstanding the foregoing, if the Prime Rate calculated under Subparagraph (i) above is less than 4.50%, then the Prime Rate (inclusive of such 50 basis points) shall be deemed to be equal to four and one half of one percent (4.50%). If the Prime Rate is no longer published in The Wall Street Journal, then the Lender will choose a commercially reasonable substitute index rate for calculating the Prime Rate and promptly notify Borrowers of the new index rate. The Prime Rate may not be the lowest rate of interest that Lender charges. The Prime Rate will fluctuate with each change reported by The Wall Street Journal (or as determined by the Lender if no longer published by The Wall Street Journal) as of the day of any reported change.

 

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

 

“Proposed Borrowing Base” has the meaning assigned to such term in Section 2.05(c)(i).

 

“Proposed Borrowing Base Notice” has the meaning assigned to such term in Section 2.05(c)(ii).

 

“PV-9” means, on any date of determination, with respect to any proved and producing Oil and Gas Properties expected to be produced from any Oil and Gas Properties, the net present value, discounted at 9% per annum, of the future net revenues expected to accrue to the Borrowers’ interests in such proved Oil and Gas Properties during the remaining expected economic lives of

 

 

such reserves, calculated in accordance with the most recent bank price deck provided to the Borrowers by the Lender.

 

“Qualified ECP Counterparty” means, in respect of any Swap Agreement, each Credit Party that (a) has total assets exceeding $10,000,000 at the time any guaranty of obligations under such Swap Agreement becomes effective or (b) otherwise constitutes an “eligible contract participant” under the Commodity Exchange Act and can cause another Person to qualify as an “eligible contract participant” at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

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

 

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

 

“Regulation D” means Regulation D of the Board, as the same may be amended, supplemented or replaced from time to time.

 

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

 

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

 

“Reserve Report” means a report, in form and substance reasonably satisfactory to the Lender, setting forth, as of each January 1st or July 1st (or such other date in the event of an Interim Redetermination) the oil and gas reserves attributable to the proved Oil and Gas Properties of the Borrowers and the Guarantor (or as for Interim Redeterminations where Borrower has exercised its discretion in Section 8.12(b) to limit the Reserve Report to the proved Oil and Gas Properties acquired since the last redetermination of the Borrowing Base, the proved Oil and Gas Properties of the Borrowers and the Guarantor acquired since the last redetermination of the Borrowing Base), together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time, and reflecting Swap Agreements in place with respect to such production. Until superseded by the delivery of a subsequent Reserve Report pursuant to the terms of this Agreement, the Initial Reserve Report shall be considered the Reserve Report.

 

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

 

 

“Revolving Exposure” means, with respect to Lender at any time, the sum of the outstanding principal amount of Lender’s Loans and its LC Exposure (without regard to any sale by Lender of a participation in any Loan under Section 12.04(c)).

 

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

 

“Sanctioned Country” means, at any time, a country or territory which is itself the subject or target of any Sanctions (as of the Effective Date, the Crimea region of Ukraine, Cuba, Iran, North Korea, Sudan and Syria).

 

“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC or the U.S. Department of State, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).

 

“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by the U.S. government, including those administered by OFAC or the U.S. Department of State.

 

“Scheduled Redetermination” has the meaning assigned to such term in Section 2.05(b)(i).

 

“Scheduled Redetermination Date” means the date on which a Borrowing Base, Monthly Commitment Reduction and/or Half Life that has been redetermined pursuant to a Scheduled Redetermination becomes effective as provided in Section 2.05(d).

 

“SEC” means the U.S. Securities and Exchange Commission or any successor Governmental Authority.

 

“Secured Bank Products Provider” means Lender or Affiliate of Lender in regard to the provision of Bank Products to a Borrower, any Subsidiary of a Borrower or any Guarantor.

 

“Secured Parties” means, collectively, the Lender, each Secured Swap Provider, each Indemnitee, and any other Person owed Obligations and “Secured Party” means any of them individually.

 

“Secured Swap Provider” means any (a) Lender, (b) assignee of Lender so long as such assignee is an Approved Counterparty at the time of the assignment or at the time the relevant swap transaction is entered into (as applicable), and (c) any other party that is an Approved Counterparty at the time the relevant swap transaction is entered into.

 

“Security Instruments” means any Guaranty Agreement, any Pledge Agreement, any Mortgage, any account control agreement, security agreements and any and all other agreements, instruments or certificates now or hereafter executed and delivered by either Borrower or any other

 

 

Person (other than Swap Agreements with the Lender or participation or similar agreements between Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment or performance of the Indebtedness, the Note, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented or restated from time to time.

 

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

 

“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions (including any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act); provided, that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of a Borrower or its Subsidiaries and no purchased put option (or floors) for Hydrocarbons shall be a Swap Agreement.

 

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

 

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

 

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

 

“Transactions” means, with respect to (a) the Borrowers, the execution, delivery and performance by the Borrowers of this Agreement, each other Loan Document to which it is a party, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit

 

 

hereunder, and the grant of Liens by the Borrowers on Mortgaged Properties and other Properties pursuant to the Security Instruments and (b) each Guarantor, the execution, delivery and performance by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the Indebtedness and the other obligations under a Guaranty Agreement by such Guarantor and such Guarantor’s grant of the security interests and provision of collateral thereunder, and the grant of Liens by such Guarantor on Mortgaged Properties and other Properties pursuant to the Security Instruments.

 

“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding Equity Interests (other than any directors’ qualifying shares mandated by applicable law), on a fully-diluted basis, are owned by Energy 12 LP or one or more of the Wholly-Owned Subsidiaries or by either Borrower and one or more of the Wholly-Owned Subsidiaries.

 

Section 1.03    Terms Generally; Rules of Construction. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any law shall be construed as referring to such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, (c) any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to the restrictions contained herein), (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) with respect to the determination of any time period, the word “from” means “from and including” and the word “to” means “to and including” and (f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any Person solely because such Person or its legal representative drafted such provision.

 

Section 1.04    Accounting Terms and Determinations; GAAP. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Lender hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the Financial Statements except for changes in which Borrowers’ independent certified public accountants concur and which are disclosed to Lender on the next date on which financial statements are required to be delivered to the Lender pursuant to Section 8.01(a); provided, that unless the Borrowers and the Lender shall otherwise agree in writing, no such change shall modify or affect the manner in which compliance with the covenants contained herein is computed such that all such computations shall be conducted

 

 

utilizing financial information presented consistently with prior periods; provided further that, all terms of an accounting or financial nature used herein and all references to GAAP shall be construed, and all computations of amounts and ratios referred to herein shall be made without giving effect to the Financial Accounting Standards Board Accounting Standards Update No. 2016-02, Leases (Topic 842) (the “ASU”) so that all obligations of the Borrowers that is or would have been treated as operating leases for purposes of GAAP prior to the effectiveness of the ASU shall continue to be accounted for as operating leases for purposes of this Agreement (whether or not such operating lease obligations were in effect prior to the effectiveness of the ASU) regardless of whether such obligations are required to be treated as a Capital Lease in the financial statements of the Consolidated Borrower Entities in accordance with the ASU (on a prospective or retroactive basis or otherwise).

 

ARTICLE II
THE CREDITS

 

Section 2.01    Commitments. Subject to the terms and conditions set forth herein, Lender agrees to make Loans to the Borrowers during the Availability Period in an aggregate principal amount that will not result in Lender’s Credit Exposure exceeding the Commitment. The Borrowing Base component of the Commitment shall be reduced by the Monthly Commitment Reduction, if applicable pursuant to Article IV, on the first (1st) day of each calendar month during the term hereof. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers may borrow, repay (without premium or penalty) and reborrow the Loans.

 

Section 2.02    Loans and Borrowings.

 

(a)    Borrowings; Several Obligations. Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lender in accordance with its Commitment.

 

(b)  Minimum Amounts; Limitation on Number of Borrowings. Each Borrowing shall be in an aggregate amount that is an integral multiple of $100,000; provided that a Borrowing may be in an aggregate amount that is equal to the entire unused balance of the Commitment.

 

(c)   Note. Lender may request that Loans made by it be evidenced by a single promissory note. In such event, the Borrowers shall prepare, execute and deliver to Lender a promissory note payable to the order of Lender in substantially the form of Exhibit A, dated as of the date of this Agreement. If the Maximum Credit Amount increases or decreases for any reason, the Borrowers shall deliver or cause to be delivered on the effective date of such increase or decrease, a new Note payable to the order of Lender in a principal amount equal to its Maximum Credit Amount after giving effect to such increase or decrease, and otherwise duly completed, and Lender agrees to promptly thereafter return the previously issued Note held by it marked canceled or otherwise similarly defaced. The date and amount, of each Loan made by Lender, and all payments made on account of the principal thereof, shall be recorded by Lender on its books for, and, prior to any transfer, may be endorsed by Lender on a schedule attached to the Note or any

 

 

continuation thereof or on any separate record maintained by Lender. Failure to make any such notation or to attach a schedule shall not affect Lender’s or the Borrowers’ rights or obligations in respect of such Loans or affect the validity of such transfer by Lender of the Note.

 

Section 2.03    Requests for Borrowings. To request a Borrowing, the Borrowers shall notify the Lender of such request by telephone or by written Borrowing Request in substantially the form of Exhibit B and signed by the Borrowers (a “written Borrowing Request”) not later than 9:00 a.m., Oklahoma City, Oklahoma time, on the Business Day of the proposed Borrowing. Each telephonic and written Borrowing Request shall be irrevocable and each telephonic Borrowing Request shall be confirmed promptly by hand delivery or telecopy to the Lender of a written Borrowing Request. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:

 

(i)    the aggregate amount of the requested Borrowing;

 

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

 

(iii)    the location and number of the Borrowers’ account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04.

 

Section 2.04    Funding of Borrowings.

 

(a)         Borrowing Requests. Each Borrowing Request shall constitute a representation that the amount of the requested Borrowing shall not cause the total Credit Exposures to exceed the Commitment (i.e., the lesser of the Maximum Credit Amount and the then effective Borrowing Base).          

 

(b)         Fundings by Lender. Lender will make such Loans available to the Borrowers by promptly crediting the amounts so requested to an account of the Borrowers maintained with the Lender in Oklahoma City, Oklahoma and designated by the Borrowers in the applicable Borrowing Request.

 

Changes in the Aggregate Maximum Credit Amount.

 

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

 

(c)    Optional Termination and Reduction of Maximum Credit Amount.

 

(i)    The Borrowers may at any time terminate, or from time to time reduce, the Maximum Credit Amount; provided, that (A) each reduction of the Maximum Credit Amount shall be in an amount that is an integral multiple of $100,000 and not less than $100,000 and (B) the Borrowers shall not terminate or reduce the Maximum Credit

 

 

Amount if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 3.03(c), the total Credit Exposure would exceed the Commitment.

 

(ii)    The Borrowers shall notify the Lender of any election to terminate or reduce the Maximum Credit Amount under Section 2.04(c)(i) at least three (3) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Each notice delivered by the Borrowers pursuant to this Section 2.04(c)(ii) shall be irrevocable. Any termination or reduction of the Maximum Credit Amount shall be permanent and may not be reinstated.

 

Section 2.05    Borrowing Base.

 

(a)    Initial Borrowing Base. The Borrowing Base shall initially be $10,000,000 which represents the Lender’s determination, in its sole discretion and consistent with its normal oil and gas lending criteria for its petroleum industry customers as it exists at the particular time, of the maximum loan amount that may be supported by the Oil and Gas Properties of the Borrowers reflected in the most recently delivered Reserve Report, based upon evaluation of such Oil and Gas Properties. The determination of the Borrowing Base will be made in accordance with then-current practices, economic and pricing parameters, methodology, assumptions, and customary procedures and standards established by Lender from time to time for its petroleum industry customers including without limitation (a) an analysis of such reserve and production data with respect to any Borrower’s Oil and Gas Properties, including the Mortgaged Properties, as is provided to Lender in accordance herewith, and (b) such other information as Lender deems appropriate in its discretion, consistent with customary industry practices and which Lender customarily considers in evaluating similar oil and gas credits. Borrowers and Lender acknowledge that (i) due to the uncertainties of the oil and gas extraction process, each Borrower’s Oil and Gas Properties reflected in the most recently delivered Reserve Report are not subject to evaluation with a high degree of accuracy and are subject to potential rapid deterioration in value, and (ii) for this reason and the difficulties and expenses involved in liquidating and collecting against the Mortgaged Properties, the determination of the maximum loan amount with respect to each Borrower’s Oil and Gas Properties reflected in the most recently delivered Reserve Report contains an equity cushion (market value in excess of loan amount) which Borrowers acknowledge to be essential for the adequate protection of Lender. The aforementioned notwithstanding, in no event shall the Borrowing Base be more than 40% of the proved, producing and developed PV-9, as determined by Lender. The Borrowing Base in effect during the period from and including the Effective Date to a redetermination pursuant to Section 2.06(b) below shall be the Initial Borrowing Base and the Monthly Commitment Reduction during such period shall be $0.00 and the Half Life shall be 60 months. Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to Section 8.13(c) or Section 9.12.

 

(b)    Scheduled and Interim Redeterminations.

 

(i)    The Borrowing Base and Monthly Commitment Reduction and Half Life shall be redetermined semi-annually in accordance with this Section 2.05 (a

 

 

“Scheduled Redetermination”) on or near March 1 and September 1 during the term hereof and beginning on September 1, 2024 (the “First Redetermination Date”), and, subject to Section 2.05(d), such redetermined Borrowing Base, Monthly Commitment Reduction and Half Life shall become effective and applicable to the Borrowers and the Lender on March 1st and September 1st of each year, commencing with September 1, 2024.

 

(ii)    The Lender may, up to two (2) times during any consecutive period of 12 months, elect to cause the Borrowing Base, Monthly Commitment Reduction and Half Life to be redetermined between Scheduled Redeterminations in accordance with this Section 2.05.

 

(c)    Scheduled and Interim Redetermination Procedure.

 

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

 

(ii)    The Lender shall notify the Borrowers of the Borrowing Base:

 

(A)    in the case of a Scheduled Redetermination (1) if the Lender shall have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on or before March 1st (or such date promptly thereafter as reasonably practicable) and September 1st (or such date promptly thereafter as reasonably practicable) of such year following the date of delivery or (2) if the Lender shall not have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then promptly after the Lender has received complete Engineering Reports from the Borrowers and has had a reasonable opportunity to determine the Borrowing Base in accordance with Section 2.05(c)(i), and in any event within fifteen (15) days after the Lender has received the required Engineering Reports; and

 

 

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

 

(d)    Effectiveness of a Redetermined Borrowing Base. After a redetermined Borrowing Base is determined by Lender , the Lender shall notify the Borrowers of the amount of the redetermined Borrowing Base (the “New Borrowing Base Notice”), and such amount shall become the new Borrowing Base, effective and applicable to the Borrowers:

 

(i)    in the case of a Scheduled Redetermination, (A) if the Lender shall have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the March 1st or September 1st, as applicable, following such notice, or (B) if the Lender shall not have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the Business Day next succeeding delivery of such notice; and

 

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

 

Such amount shall then become the Borrowing Base until the next Scheduled Redetermination Date, the next Interim Redetermination Date or the next adjustment to the Borrowing Base under Section 8.13(c) or Section 9.12, whichever comes first. Notwithstanding the foregoing, no Scheduled Redetermination or Interim Redetermination shall become effective until the New Borrowing Base Notice related thereto is received by the Borrowers.

 

ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

 

Section 3.01    Repayment of Loans. Each Borrower hereby unconditionally promises to pay to the Lender the then unpaid principal amount of each Loan on the Termination Date.

 

Section 3.02    Interest Provisions.

 

(a)    Rate of Interest. The Loans and Additional Costs shall bear interest at the Prime Rate, but in no event shall such rate of interest exceed the Highest Lawful Rate.

 

(b)    Post-Default Rate. Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrowers or any Guarantor hereunder or under any other Loan Document is not paid when due, and remains unpaid after any applicable grace or cure period (if any), whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to five percent (5%) plus the Prime Rate as provided in Section 3.02(a), but in no event to exceed the Highest Lawful Rate.

 

 

(c)    Interest Payment Dates. Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and on the Termination Date.

 

(d)    Interest Rate Computations. All interest hereunder shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year). The Prime Rate shall be determined by the Lender, and such determination shall be conclusive absent manifest error, and be binding upon the parties hereto.

 

Section 3.03    Prepayments.

 

(a)    Optional Prepayments. The Borrowers shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with Section 3.03(b).

 

(b)    Notice and Terms of Optional Prepayment. The Borrowers shall notify the Lender by telephone (confirmed by e-mail) of any prepayment hereunder not later than 12:00 noon, Oklahoma City, Oklahoma time, on the Business Day of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid.

 

(c)    Mandatory Prepayments.

 

(i)    If, after giving effect to any termination or reduction of the Maximum Credit Amount pursuant to Section 2.04(c) or as a result of a Monthly Commitment Reduction, the Credit Exposure exceeds the Commitment, then the Borrowers shall prepay the Borrowings on the date of such termination or reduction in an aggregate principal amount equal to such excess.

 

(ii)    Upon any redetermination of or adjustment to the amount of the Borrowing Base in accordance with Section 2.05 or Section 8.13(c), if there is a Borrowing Base Deficiency, then the Borrowers shall, within fifteen (15) days following receipt of the New Borrowing Base Notice in accordance with Section 2.05(d) or the date the adjustment occurs, provide written notice (the “Election Notice”) to the Lender stating the action which the Borrowers propose to take to remedy such excess, and the Borrowers shall thereafter, at its option, either (A) within thirty (30) days following the delivery of the Election Notice, prepay the Borrowings in an aggregate principal amount equal to such excess, (B) eliminate such excess by making six (6) consecutive mandatory prepayments of principal on the Loan, each of which shall be in the amount of 1/6th of the amount of such excess, commencing on the first Monthly Date following the delivery of the Election Notice, and continuing on each Monthly Date thereafter, (C) within ninety (90) days following the delivery of the Election Notice, submit (and pledge as collateral) additional Oil and Gas Properties owned by the Borrowers for consideration in connection with the determination of the Borrowing Base which the Lender deems sufficient in its sole

 

 

discretion to eliminate such excess, or (D) within ninety (90) days following the delivery of the Election Notice, eliminate such excess through a combination of prepayments and submission of additional Oil and Gas Properties as set forth in subclauses (A) and (C) above.  The Borrowers shall be obligated to deposit any such cash collateral amount within five (5) days following its receipt of the New Borrowing Base Notice in accordance with Section 2.05(d) or the date the adjustment occurs; provided that all payments required to be made pursuant to this Section 3.03(c)(ii) must be made on or prior to the Termination Date.

 

 

(iii)    Upon any adjustments to the Borrowing Base pursuant to Section 9.12, if there is a Borrowing Base Deficiency, then the Borrowers shall (A) prepay the Borrowings in an aggregate principal amount equal to such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Lender an amount equal to such excess to be held as cash collateral as provided in this Agreement. The Borrowers shall be obligated to make such prepayment and/or deposit of cash collateral on the date it receives cash proceeds as a result of such disposition or such incurrence of Debt; provided that all payments required to be made pursuant to this Section 3.03(c)(iii) must be made on or prior to the Termination Date.

 

(iv)    Each prepayment of Borrowings pursuant to this Section 3.03(c) shall be applied ratably to the Loans included in the prepaid Borrowings. Prepayments pursuant to this Section 3.03(c) shall be accompanied by accrued interest to the extent required by Section 3.02.

 

(d)    No Premium or Penalty. Prepayments permitted or required under this Section 3.03 shall be without premium or penalty.

 

Section 3.04    Fees.

 

(a)    Non-Use Fees. The Borrowers agree to pay to the Lender a commitment fee, which shall accrue at the applicable Commitment Fee Rate on the average daily amount of the unused amount of the Commitment during the period from and including the date of this Agreement to but excluding the Termination Date. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the Termination Date, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

 

(b)    Commitment Fee. The Borrowers further agree to pay a non-refundable fee for Lender’s commitment to extend Borrower the loan, equal to one half of one percent (0.50%) of the Commitment or $50,000.00.

 

 

(c)    Incremental Increase to Borrowing Base. The Borrowers further agree to pay a fee to the Lender at any time the Borrowing Base is increased, with the agreement of the Borrowers, above the highest Borrowing Base previously in effect, equal to one half of one percent (0.50%) of such increased Borrowing Base.

 

(d)    Set Up Fee. The Borrowers agree to pay to the Lender on or before the Closing Date a one-time set up fee in the amount of $50,000.00.

 

(e)    Late Fee. To the extent any principal and interest due under any Loan Document is not paid within 15 calendar days of the due date therefore, and, to the extent that the following described fee is deemed to constitute interest, in addition to any interest or other fees and charges due hereunder or under the applicable Loan Document, Borrowers shall pay a late fee equal to $50. Borrowers agree that the charges set forth herein are reasonable compensation to Lender for the acceptance and handling of such late payments.

 

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

 

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

 

(a)    Payments by the Borrowers. The Borrowers shall make each payment required to be made by it hereunder (whether of principal, interest, fees or of amounts payable under Section 5.01, Section 5.03 or otherwise) prior to 12:00 noon, Oklahoma City, Oklahoma time, on the date when due, in dollars that constitute immediately available funds, without defense, deduction, recoupment, set-off or counterclaim. Fees, once paid, shall not be refundable under any circumstances absent manifest error (e.g., as a result of a clerical mistake). Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Lender at its offices specified in Section 12.01, except that payments pursuant to Section 5.01, Section 5.03 and Section 12.03 shall be made directly to the Persons entitled thereto. The Lender shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.

 

(b)    Application of Insufficient Payments. If at any time insufficient funds are received by and available to the Lender to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, and (ii) second, towards payment of principal then due hereunder.

 

Section 4.02    Disposition of Proceeds. The Security Instruments contain an assignment by each Borrower and/or the Guarantors unto and in favor of the Lender and Secured Swap Providers

 

 

of all of each Borrower’s or each Guarantor’s interest in and to production and all proceeds attributable thereto that may be produced from or allocated to the Mortgaged Property. The Security Instruments further provide in general for the application of such proceeds to the satisfaction of the Indebtedness and other obligations described therein and secured thereby. Notwithstanding the assignment contained in such Security Instruments, unless an Event of Default has occurred and is continuing, the Lender agrees that it will neither notify the purchaser or purchasers of such production nor take any other action to cause such proceeds to be remitted to the Lender, but the Lender will instead permit such proceeds to be paid to the Borrowers and their Subsidiaries.

 

ARTICLE V
TAXES; ILLEGALITY

 

Section 5.01 Capital Requirements.

 

 

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

 

(b)    Certificates. A certificate of Lender setting forth the amount or amounts necessary to compensate Lender or its holding company, as the case may be, as specified in Section 5.01(a) or Section 5.01(b) and reasonably detailed calculations therefor shall be delivered to the Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

 

(c)    Effect of Failure or Delay in Requesting Compensation. Failure or delay on the part of Lender to demand compensation pursuant to this Section 5.01 shall not constitute a waiver of Lender’s right to demand such compensation; provided that the Borrowers shall not be required to compensate Lender pursuant to this Section 5.01 for any increased costs or reductions incurred more than one hundred eighty (180) days prior to the date that Lender notifies the Borrowers of the Change in Law giving rise to such increased costs or reductions and of Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

 

Section 5.02    RESERVED.

 

Section 5.03    Taxes.

 

 

(a)    Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrowers or any Guarantor under any Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if the Borrowers or any Guarantor shall be required to deduct any Indemnified Taxes or 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 5.03(a)), Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall or the Borrowers shall cause such Guarantor to make such deductions and (iii) the Borrowers shall or the Borrowers shall cause such Guarantor to pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

 

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

 

(c)    Indemnification by the Borrowers. The Borrowers shall indemnify Lender, within thirty (30) days after written demand therefor, for the full amount of any Indemnified Taxes paid by Lender on or with respect to any payment by or on account of any obligation of the Borrowers hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 5.03). A certificate of Lender as to the amount of such payment or liability under this Section 5.03 shall be delivered to the Borrowers and shall be conclusive absent manifest error.

 

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

 

(e)    FATCA. If a payment made to Lender under this Agreement would be subject to United States federal withholding tax imposed by FATCA if Lender fails to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), Lender shall deliver to the Borrowers, at the time or times prescribed by law and at such time or times reasonably requested by the Borrowers or the Lender, such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrowers or the Lender as may be necessary for the Borrowers and the Lender to comply with its obligations under FATCA, to determine that Lender has complied with Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 5.03(e), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

 

(f)    Tax Refunds. If Lender determines, in its reasonable discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the

 

 

Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section 5.03, it shall pay over such refund to the Borrowers (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section 5.03 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrowers, upon the request of Lender, agrees to repay the amount paid over to the Borrowers or either Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Lender in the event such Agent or Lender is required to repay such refund to such Governmental Authority. This Section 5.03 shall not be construed to require Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrowers or any other Person.

 

Section 5.04    Mitigation Obligations.

 

(a)    Designation of Different Lending Office. If Lender requests compensation under Section 5.01, or if the Borrowers are required to pay any additional amount to Lender or any Governmental Authority for the account of Lender pursuant to Section 5.03, then 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 Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 5.01 or Section 5.03, as the case may be, in the future and (ii) would not subject Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to Lender. Each Borrower hereby agrees to be jointly and severally responsible for and pay all reasonable, out-of-pocket costs and expenses incurred by Lender in connection with any such designation or assignment.

 

(b)    RESERVED.

 

ARTICLE VI
CONDITIONS PRECEDENT

 

Section 6.01    Effective Date; Initial Loans. This Agreement, and the obligations of the Lender to make the initial Loans, shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 12.02):

 

(a)    The Lender shall have received all fees and other amounts due and payable on or prior to the Effective Date (by virtue of “net funding”), including, to the extent invoiced and then due, reimbursement or payment of all reasonable, out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder.

 

(b)    Lender shall have received a certificate of the Secretary or an Assistant Secretary or a manager or other responsible officer of Energy 12 LP on its own behalf and as the owner of Energy 12 Operating, as applicable, setting forth (i) resolutions or consents of its members, board of managers or board of directors (or comparable authority) with respect to the

 

 

authorization of each Borrower to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of Energy 12 LP (y) who are authorized to sign the Loan Documents to which the Borrowers are a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of such authorized officers, and (iv) the articles or certificate of organization, regulations or comparable charter documents of each Borrower, certified as being true and complete. The Lender may conclusively rely on such certificate until the Lender receives notice in writing from the Borrowers to the contrary.

 

(c)    Lender shall have received certificates of the appropriate State agencies with respect to the existence, qualification and good standing of each Borrower.

 

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

 

(e)    Lender shall have received a duly executed Note payable to the order of Lender in a principal amount equal to the Maximum Credit Amount dated as of the date hereof.

 

(f)    Lender shall have received from each party thereto duly executed counterparts (in such number as may be requested by the Lender) of the applicable Security Instruments. In connection with the execution and delivery of the Security Instruments, Lender shall be reasonably satisfied that the Security Instruments create first priority, perfected Liens (subject only to Excepted Liens identified in clauses (a) through (d) and clauses (f) and (g)of the definition thereof, but subject to the proviso at the end of such definition) on at least 80% of the PV-9 of the proved Oil and Gas Properties evaluated in the Initial Reserve Report.

 

(g)    Lender shall have received opinions of special counsel to the Borrowers, and, as applicable and necessary (as determined by the Lender in its reasonable discretion), opinions of Oklahoma counsel, in each case, in a form reasonably acceptable to Lender and its counsel.

 

(h)    Lender shall have received a certificate of insurance coverage of the Borrowers evidencing that the Borrowers are carrying insurance in accordance with Section 7.11.

 

(i)    Lender and/or its counsel shall have received title information as they may reasonably require setting forth the status of title to at least 80% of the PV-9 of the proved Oil and Gas Properties evaluated in the Initial Reserve Report.

 

(j)    Lender shall be reasonably satisfied with the environmental condition of the Oil and Gas Properties of the Borrowers and the Guarantor.

 

(k)    Lender shall have received the Initial Reserve Report accompanied by a certificate covering the matters described in Section 8.12(c).

 

 

(l)    Lender shall have received appropriate UCC search certificates reflecting no Liens encumbering the Properties of each Borrower in each jurisdiction requested by Lender, other than Liens permitted by Section 9.03.

 

(m)    Lender shall have received a compliance certificate which shall be substantially in the form of Exhibit C, duly and properly executed by a Responsible Officer.

 

(n)    Lender shall have received a certificate of a Responsible Officer of the Borrowers certifying that the Borrowers have (i) received all consents and approvals required by Section 7.03 and (ii) no other Debt in respect of borrowed money.

 

(o)    Lender shall have received the financial statements referred to in Section 7.04(a).

 

(p)    Lender shall have received such other documents as Lender or its special counsel may reasonably request.

 

The Lender shall notify the Borrowers of the Effective Date, and such notice shall be conclusive and binding.

 

Section 6.02    Each Credit Event. The obligation of Lender to make a Loan on the occasion of any Borrowing (including the initial funding) is subject to the satisfaction of the following conditions:

 

(a)    At the time of and immediately after giving effect to such Borrowing, no Default or Event of Default shall have occurred and be continuing.

 

(b)    At the time of and immediately after giving effect to such Borrowing no event, development or condition that has or would reasonably be expected to have a Material Adverse Effect shall have occurred.

 

(c)    The representations and warranties of the Borrowers and the Guarantors set forth in this Agreement and in the other Loan Documents shall be true and correct, in all material respects, on and as of the date of such Borrowing, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, on and as of the date of such Borrowing, such representations and warranties shall continue to be true and correct, in all material respects, as of such specified earlier date.

 

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

 

 

(e)    The receipt by Lender of a Borrowing Request in accordance with Section 2.03.

 

Each request for a Borrowing shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in Section 6.02(a) through (d).

 

ARTICLE VII
REPRESENTATIONS AND WARRANTIES

 

Each Borrower represents and warrants to the Lender that as of the date hereof and in connection with each Borrowing Request as required pursuant to Section 6.02 above:

 

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

 

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

 

Section 7.03    Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other third Person (including shareholders or any class of directors, whether interested or disinterested, of each Borrower or any other Person), nor is any such consent, approval, registration, filing or other action necessary for the validity or enforceability of any Loan Document or the consummation of the transactions contemplated thereby, except such as have been obtained or made and are in full force and effect other than (i) the recording and filing of the Security Instruments as required by this Agreement and (ii) those third party approvals or consents which, if not made or obtained, would not cause a Default hereunder, could not reasonably be expected to have a Material Adverse Effect or do not have an adverse effect on the enforceability of the Loan Documents, (b)

 

 

will not violate the charter, regulations, by-laws or other organizational documents of the Borrowers or any Subsidiary of the Borrowers, (c) will not violate, in any material respect, any applicable law, regulation or any order of any Governmental Authority, (d) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrowers or any Subsidiary or its Properties, or give rise to a right thereunder to require any payment to be made by the Borrowers or such Subsidiary and (e) will not result in the creation or imposition of any Lien on any Property of the Borrowers or any Subsidiary (other than the Liens created by the Loan Documents).

 

Section 7.04    Financial Condition; No Material Adverse Change.

 

(a)    The Borrowers have heretofore furnished to the Lender a pro forma balance sheet as of the Effective Date, and such other supporting financial information as the Lender has reasonably requested, and such balance sheet and other information does not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading.

 

(b)    Since the date of the last delivery of financial statements pursuant to Section 8.01, (i) there has been no event, development or circumstance that has had or would reasonably be expected to have a Material Adverse Effect and (ii) the business of each Borrower and its Subsidiaries has been conducted only in the ordinary course consistent with past business practices.

 

(c)    Except as set forth on Section 7.19, on the most recent financial statement of the Borrowers delivered pursuant to Section 8.01(a) or (b), or in a certificate delivered pursuant to Section 8.01(d), neither the Borrowers nor any Subsidiary has any material Debt (other than the Obligations) or any contingent liabilities, off-balance sheet liabilities or partnerships, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments.

 

(d)    Except as set forth on Schedule 7.04, there are no actions, suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrowers, threatened in writing against or affecting the Borrowers or any Subsidiary (i) that is not fully covered by insurance (except for normal deductibles) and as to which there is a reasonable possibility of an adverse determination that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve any Loan Document or the Transactions.

 

(e)    Except as could not reasonably be expected to have a Material Adverse Effect (or with respect to (iii), (iv) and (v) below, where the failure to take such actions could not be reasonably expected to have a Material Adverse Effect) and to the Borrowers’ actual knowledge:

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

(vii)    to the knowledge of the Borrowers, neither a Borrower nor any Subsidiary has any known contingent liability or Remedial Work in connection with any release or threatened release of any oil, hazardous substance, solid waste or oil and gas waste into the environment.

 

Section 7.05    Compliance with the Laws and Agreements; No Defaults.

 

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

 

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

 

Section 7.06    Investment Company Act. Neither a Borrower nor any Subsidiary is an “investment company” or a company “controlled” by an “investment company,” within the meaning of, or subject to regulation under, the Investment Company Act of 1940, as amended.

 

Section 7.07    Public Utility Holding Company Act. Neither a Borrower nor any Subsidiary is a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” or a “public-utility company” within the meaning of, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended.

 

Section 7.08    Taxes. Each of the Borrowers and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrowers or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. The charges, accruals and reserves on the books of each of the Borrowers and its Subsidiaries in respect of Taxes and other governmental charges are, in the reasonable opinion of the Borrowers, adequate. To each Borrower’s knowledge, no Tax Lien has been filed and, to the knowledge of each Borrower, no claim is being asserted with respect to any such Tax or other such governmental charge, in each case, which could reasonably be expected to result in a Material Adverse Effect.

 

 

Section 7.09    ERISA. Except for such matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect:

 

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

 

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

 

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

 

(d)    No liability to the PBGC (other than for the payment of current premiums which are not past due) by a Borrower, any Subsidiary or any ERISA Affiliate has been or is reasonably expected by a Borrower, any Subsidiary or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred.

 

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

 

(f)    The actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Borrowers’ most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA.

 

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

 

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

 

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

 

 

Section 7.10    Disclosure; No Material Misstatements. The Borrowers have disclosed to Lender all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. Taken as a whole, none of the other reports, financial statements, certificates or other written information furnished by or on behalf of the Borrowers or any Subsidiary to Lender or any of its Affiliates in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or under any other Loan Document (as modified or supplemented by other information so furnished) contain material misstatements of fact or omit to state material facts necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that (a) with respect to projected financial information, pro forma financial information, estimated financial information, prospect information, geological and geophysical data, engineering projections and other projected or estimated information and any information of a general economic nature or general industry nature, each Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time (it being recognized by the Lender that projections are not to be viewed as facts and that the actual results during the period or periods covered by such projections may vary significantly from such projections and that no Borrower makes any representation that such projections will be realized) and (b) as to statements, information and reports supplied by third parties, each Borrower represents only that it is not aware of any material misstatement or omission therein and it has a good faith belief that such statements, information and reports are based on accurate information to the extent provided by a Borrower. To the knowledge of each Borrower, there is no fact peculiar to a Borrower or any Subsidiary which would reasonably be expected to have a Material Adverse Effect or in the future is reasonably likely to have a Material Adverse Effect and which has not been set forth in this Agreement or the Loan Documents or the other documents, certificates and statements furnished to Lender by or on behalf of the Borrowers or any Subsidiary prior to, or on, the date hereof in connection with the transactions contemplated hereby. To the knowledge of the Borrowers, there are no statements or conclusions in any Reserve Report which are based upon or include materially misleading information or fail to take into account material information regarding the matters reported therein, it being understood that projections concerning volumes attributable to the Oil and Gas Properties and production and cost estimates contained in each Reserve Report are necessarily based upon professional opinions, estimates and projections and that the Borrowers and the Subsidiaries do not warrant that such opinions, estimates and projections will ultimately prove to have been accurate.

 

Section 7.11    Insurance. The Borrowers have, and has caused all its Subsidiaries to have, (a) all insurance policies sufficient for the compliance by each of them with all material Governmental Requirements and all material agreements and (b) insurance coverage in at least such amounts and against such risk (including, without limitation, public liability) that are usually insured against by companies similarly situated and engaged in the same or a similar business for the assets and operations of each Borrower and its Subsidiaries. Lender has been named as additional insureds in respect of such liability insurance policies and Lender has been named as loss payee with respect to Property loss insurance.

 

 

Section 7.12    Restriction on Liens. Neither the Borrowers nor any of its Subsidiaries is a party to any material agreement or arrangement (other than Capital Leases creating Liens permitted by Section 9.03(c), but then only on the Property subject of such Capital Lease), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to the Lender on or in respect of their Properties to secure the Indebtedness and the Loan Documents.

 

Section 7.13    Subsidiaries. Except as set forth on Schedule 7.13, (a) the Borrowers have no Subsidiaries, (b) each Subsidiary is a Wholly-Owned Subsidiary and (c) neither a Borrower nor any Subsidiary has any Foreign Subsidiaries.

 

Section 7.14    Location of Business and Offices. The Borrowers’ jurisdiction of organization is Delaware, and the name of each Borrower as listed in the public records of Delaware is (i) Energy Resources 12 Operating Company, LLC and (ii) Energy Resources 12, L.P. (or, in each case, as set forth in a notice delivered to the Lender pursuant to Section 8.01(h) in accordance with Section 12.01). Each Borrower’s principal place of business is located at the address specified in Section 12.01 (or as set forth in a notice delivered pursuant to Section 8.01(h) and Section 12.01(c)). Each Subsidiary’s jurisdiction of organization, name as listed in the public records of its jurisdiction of organization, organizational identification number in its jurisdiction of organization, and the location of its principal place of business is stated on Schedule 7.15 (or as set forth in a notice delivered pursuant to Section 8.01(h)).

 

Section 7.15    Properties; Titles, Etc.

 

(a)    Except as disclosed in Schedule 7.15 and subject to Permitted Encumbrances (as defined in the Security Instruments), each of the Borrowers and its Subsidiaries has defensible title in all material respects to the material proved Oil and Gas Properties evaluated in the most recently delivered Reserve Report (excluding, to the extent this representation and warranty is deemed to be made after the Effective Date, any such Oil and Gas Properties sold or transferred in compliance with Section 9.12) and good title in all material respects to all its personal Properties, in each case, free and clear of all Liens except Liens permitted by Section 9.03. After giving full effect to the Excepted Liens, each Borrower or its Subsidiary specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and, except as otherwise provided by statute, regulation, or customary provisions in any applicable joint operating agreement, the ownership of such Properties shall not in any material respect obligate a Borrower or such Subsidiary to bear the costs and expenses relating to the maintenance, development and operations of each such Property in an amount in excess of the working interest of each Property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate increase in a Borrower’s or such Subsidiary’s net revenue interest in such Property.

 

(b)    All material leases and agreements reasonably necessary for the conduct of the business of the Borrowers and its Subsidiaries are valid and subsisting, in full force and effect, and there exists no default or event or circumstance which with the giving of notice or the passage

 

 

of time or both would give rise to a default under any such lease or leases, which would reasonably be expected to result in a Material Adverse Effect.

 

(c)    The rights and Properties presently owned, leased or licensed by a Borrower and its Subsidiaries including, without limitation, all easements and rights of way, include all rights and Properties reasonably necessary to permit each Borrower and its Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the date hereof.

 

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

 

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

 

Section 7.16    Maintenance of Properties. Except for such acts or failures to act as could not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties of the Borrowers and the Guarantor (and Properties unitized therewith) have, to the best of their knowledge, been maintained, operated and developed in conformity with (i) standards customary in the industry where such Oil and Gas Properties are located, (ii) all Governmental Requirements and (iii) the material provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties of the Borrowers and the Guarantor. Specifically in connection with the foregoing, except for those as could not be reasonably expected to have a Material Adverse Effect, (A) after the Effective Date, no Oil and Gas Property of the Borrowers and the Guarantor is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) prior to the Effective Date and (B) to the knowledge of the Borrowers, none of the wells comprising a part of the Oil and Gas Properties of the Borrowers and the Guarantor (or Properties unitized therewith) is deviated from the vertical more than the maximum permitted by Governmental Requirements, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties of the Borrowers and the Guarantor (or in the case of wells located on Properties unitized therewith, such unitized Properties). All pipelines, wells, gas processing plants, platforms and other material improvements, fixtures and

 

 

equipment owned in whole or in part by the Borrowers or any of its Subsidiaries that are necessary to conduct normal operations are being maintained in a state adequate to conduct normal operations, and with respect to such of the foregoing that are operated by the Borrowers or any of its Subsidiaries, in a manner consistent with the Borrowers’ or its Subsidiaries’ past practices (other than those the failure of which to maintain in accordance with this Section 7.16 could not reasonably be expect to have a Material Adverse Effect).

 

Section 7.17    Gas Imbalances, Prepayments. As of the Effective Date, except as set forth on Schedule 7.17 or on the most recent certificate delivered pursuant to Section 8.12(c), on a net basis there are no gas imbalances, take or pay or other prepayments which would require the Borrowers or any of its Subsidiaries to deliver Hydrocarbons produced from the Oil and Gas Properties of the Borrowers and the Guarantor at some future time without then or thereafter receiving full payment therefor exceeding 50 mmcf equivalent in the aggregate.

 

Section 7.18    Marketing of Production. Except for contracts listed and in effect on the date hereof on Schedule 7.18, and thereafter either disclosed in writing to Lender or included in the most recently delivered Reserve Report (with respect to all of which contracts each Borrower represents that it or its Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject Property’s delivery capacity), no material agreements exist which are not cancelable on sixty (60) days’ notice or less without penalty or detriment for the sale of production from each Borrower’s or its Subsidiaries’ Hydrocarbons (including, without limitation, calls on or other rights to purchase, production, whether or not the same are currently being exercised) that (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 from the date hereof.

 

Section 7.19    Swap Agreements and Qualified ECP Counterparty. Schedule 7.19, as of the date hereof, and after the date hereof, each report required to be delivered by the Borrowers pursuant to Section 8.01(d), sets forth, a true and complete list of all Swap Agreements of the Borrowers and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement. Either Borrower is a Qualified ECP Counterparty.

 

Section 7.20    Use of Loans .

 

(a)    Proceeds of the Loans shall be used to provide working capital for exploration and production, fund capital expenditures of the Borrowers and its Subsidiaries associated with the development of the Bakken Field acreage. The Borrowers and their Subsidiaries are not engaged principally, or as one of its or their important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board). No part of the proceeds of any Loan will be used for any purpose which violates the provisions of Regulations T, U or X of the Board.

 

 

(b)    The Borrowers will not request any Borrowing, and the Borrowers shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto.

 

Section 7.21    Solvency. Before and after giving effect to the transactions contemplated hereby, (a) the aggregate assets, at a fair valuation, of the Borrowers and the Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrowers and the Guarantors on a consolidated basis, as the Debt becomes absolute and matures, (b) each of the Borrowers and the Guarantors will not have incurred or intended to incur, and will not believe that it will incur, Debt beyond its ability to pay or refinance such Debt as such Debt becomes absolute and matures and (c) each of the Borrowers and the Guarantors will not have (and will have no reason to believe that it will have thereafter) unreasonably small capital for the conduct of its business.

 

Section 7.22    Non-Operated Oil and Gas Properties. To the extent relating to any Oil and Gas Properties of the Borrowers and the Guarantor of Borrowers or any of its Subsidiaries that is not operated by Borrowers or any of its Subsidiaries, the representations and warranties set forth in this Article 7 are hereby qualified so that such representations and warranties are made to Borrowers’ knowledge.

 

ARTICLE VIII
AFFIRMATIVE COVENANTS

 

Until the Commitment has expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents shall have been paid in full, each Borrower covenants and agrees with the Lender that:

 

Section 8.01    Financial Statements; Other Information. The Borrowers will furnish to the Lender:

 

(a)    Annual Financial Statements. As soon as available, but in any event in accordance with then applicable law and not later than ninety (90) days after the end of each fiscal year of the Borrowers, the audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year of Equity 12 LP, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Ernst & Young LLP or another independent public accountants proposed by the Borrowers and approved by Lender (such approval shall not be unreasonably withheld, conditioned or delayed) (without a “going concern” or like qualification or exception and without any qualification other than a qualification, exception or emphasis as a result of (x) an impending debt maturity within twelve (12) months of the Loans or (y) any potential inability to satisfy any financial covenant on

 

 

a future date or in a future period) or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial position and results of operations of the Consolidated Borrower Entities on a consolidated basis in accordance with GAAP consistently applied (except for changes in accounting estimate and accounting principles permitted by GAAP).

 

(b)    Quarterly Financial Statements. As soon as available, but in any event in accordance with then applicable law and not later than sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrowers, the consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter of Energy 12 LP and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial position and results of operations of Energy 12 LP and its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes and changes in accounting estimate and accounting principles permitted by GAAP.

 

(c)    Certificate of Financial Officer – Compliance. Concurrently with any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer in substantially the form of Exhibit C hereto (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 9.01 and (iii) stating whether any change in accounting principle under GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 7.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate.

 

(d)    Certificate of Financial Officer – Swap Agreements. Concurrently with the delivery of the financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer, in form and substance reasonably satisfactory to Lender, setting forth as of a recent date, a true and complete list of all Swap Agreements of the Borrowers and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark-to-market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.19, any margin required or supplied under any credit support document, and the counterparty to each such agreement.

 

(e)    Other Accounting Reports. Promptly upon receipt thereof, subject to any confidentiality obligations explicitly prohibiting the delivery thereof, a copy of each other report (except standard and customary correspondence) submitted to the Borrowers or any of its Subsidiaries by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrowers or any such Subsidiary, and a copy of any response by the Borrowers or any such Subsidiary, or the board of managers or board of directors (or comparable authority) of the Borrowers or any such Subsidiary, to such report.

 

 

(f)    Notice of Sales of Oil and Gas Properties. In the event a Borrower or any Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil and Gas Properties of the Borrowers and the Guarantor or any Equity Interests in any Subsidiary of a Borrower in accordance with Section 9.12(d) or Section 9.12(e), prior written notice of such disposition, the price thereof and the anticipated date of closing; provided, that, for any sale in accordance with Section 9.12(e) the Borrowers shall comply with the notice requirements set forth therein.

 

(g)    Notice of Casualty Events. Prompt written notice, and in any event within five (5) Business Days of a Borrower obtaining knowledge of the occurrence of any Casualty Event or the commencement of any action or proceeding that would reasonably be expected to result in a Casualty Event.

 

(h)    Information Regarding Borrowers and Guarantors. Prompt written notice (and in any event within ten (10) Business Days prior thereto) of any change (i) in a Borrower or any Guarantor’s name or in any trade name used to identify such Person in the conduct of its business or in the ownership of its Properties, (ii) in the location of a Borrower or any Guarantor’s chief executive office or principal place of business, (iii) in a Borrower or any Guarantor’s identity or corporate structure or in the jurisdiction in which such Person is incorporated or formed, and (iv) in a Borrower or any Guarantor’s jurisdiction of organization or such Person’s organizational identification number in such jurisdiction of organization.

 

(i)    Budget and Financial Projections. Within thirty (30) days after the date the year-end Reserve Report is due (beginning with the fiscal year ending on or about December 31, 2020) of, a reasonably detailed consolidated budget and financial projections for the fiscal year following the fiscal year that has most recently ended (including a projected consolidated balance sheet of the Consolidated Borrower Entities as of the end of the following fiscal year, the related consolidated statements of projected cash flow and projected income and a summary of the material underlying assumptions applicable thereto) (collectively, the “Budget”), which Budget shall in each case be accompanied by a certificate of a Responsible Officer stating that such Budget has been prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed to be reasonable at the time of preparation of such Budget, it being understood that actual results may vary from such Budget. Notwithstanding anything herein to the contrary, Lender recognizes that no Borrower is an operator of any Property and, accordingly, any budget is provided in part based upon information supplied, from time to time, by the operator(s) of the Property.

 

(j)    Production Report. (i) Concurrently with the delivery of each quarterly financial statement pursuant to Section 8.01(b) hereof and (ii) within sixty (60) days after the end of the last fiscal quarter of the fiscal year, a report setting forth, for the twelve (12) month period ending the preceding quarter-end, respectively, the volume of production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such twelve (12) month period from the Oil and Gas Properties of the Borrowers and the Guarantor.

 

 

(k)    Lease Operating Statements. Concurrently with the delivery of the financial statements under Section 8.01(a) or Section 8.01(b) hereof, a lease operating statement setting forth, for each such quarterly period, the volume of production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such quarterly period from the Oil and Gas Properties of the Borrowers and the Guarantor, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto and incurred for each such period.

 

(l)    Notices of Certain Changes. Promptly, but in any event within five (5) Business Days after the execution thereof, copies of any amendment, modification or supplement to the certificate or articles of organization, regulations, any preferred stock designation or any other organic document of a Borrower or any Subsidiary.

 

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

 

Section 8.02    Notices of Material Events. The Borrowers will furnish to Lender prompt written notice of the following:

 

(a)    the occurrence of any Default;

 

(b)    the filing or commencement of, or the threat in writing of, any action, suit, proceeding, investigation or arbitration by or before any arbitrator or Governmental Authority against a Borrower or any Affiliate thereof not previously disclosed in writing to the Lender or any material adverse development in any action, suit, proceeding, investigation or arbitration previously disclosed to the Lender that, if adversely determined and not reasonably expected to be fully covered by insurance (subject to normal deductibles), would reasonably be expected to result in liability in excess of $250,000;

 

(c)    the occurrence of any ERISA Event that when taken together with all other ERISA Events that have occurred that would reasonably be expected to result in a Material Adverse Effect; and

 

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

 

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

 

Section 8.03    Existence; Conduct of Business. The Borrowers will, and will cause each Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force

 

 

and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business and maintain, if necessary, its qualification to do business in each other jurisdiction in which its Oil and Gas Properties are located or the ownership of its Properties requires such qualification, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect; provided, that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 9.11.

 

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

 

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

 

Section 8.06    Operation and Maintenance of Properties. Except, in each case, where the failure to comply could not reasonably be expected to have a Material Adverse Effect, the Borrowers, at their own joint and several expense, will, and will cause each Subsidiary to:

 

(a)    operate its Oil and Gas Properties and other material Properties (to the extent a Borrower operates any Oil and Gas Properties), or cause such Oil and Gas Properties and other material Properties to be operated in accordance with the practices of the industry in the areas in which the Borrowers and its Subsidiaries operate and in compliance, in all material respects, with all applicable contracts and agreements and in compliance, in all material respects, with all applicable Governmental Requirements, including, without limitation, applicable pro ration requirements and Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom, except, in each case, where the failure to comply would not reasonably be expected to result in a Material Adverse Effect.

 

(b)    To the extent a Borrower operates any Oil and Gas Properties, preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear, casualty and condemnation excepted) all of its material producing Oil and Gas Properties and other material Properties, including, without limitation, all equipment, machinery and facilities.

 

 

(c)    promptly pay and discharge, or use commercially reasonable efforts to cause to be paid and discharged, all material delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to its proved Oil and Gas Properties and will do all other things necessary, in accordance with industry standards in the areas in which a Borrower and its Subsidiaries operate, to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder.

 

(d)    To the extent a Borrower operates any Oil and Gas Properties, promptly perform or make commercially reasonable efforts to cause to be performed, in accordance with industry standards in the areas in which the Borrowers and their Subsidiaries operate, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its proved Oil and Gas Properties and other material Properties, except to the extent a portion of such Properties is undeveloped or is no longer capable of producing Hydrocarbons in economically reasonable volumes.

 

(e)    To the extent a Borrower operates any Oil and Gas Properties, operate its Oil and Gas Properties and other material Properties or cause or make reasonable and customary efforts to cause such Oil and Gas Properties and other material Properties to be operated in accordance with the practices of the industry in the areas in which the Borrowers and their Subsidiaries operate and in material compliance with all applicable contracts and agreements and in compliance in all material respects with all Governmental Requirements.

 

(f)    to the extent neither Borrower is the operator of any Property, the Borrowers shall use reasonable efforts to cause the operator to comply with this Section 8.06 .

 

Section 8.07    Insurance. The Borrowers will, and will cause each Subsidiary to, maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations; provided, that the insurance carried by the Borrowers and the Guarantor as of the Effective Date shall be deemed sufficient to comply with the covenant set forth in this Section 8.07. The loss payable clauses or provisions in said insurance policy or policies insuring any of the collateral for the Loans shall be endorsed in favor of and made payable to Lender as its interests may appear and such policies shall name the Lender as “additional insureds” and, to the extent the insurer will agree to do so, provide that the insurer will endeavor to give at least thirty (30) days prior notice of any cancellation to Lender.

 

Section 8.08    Books and Records; Inspection Rights. The Borrowers will, and will cause each Subsidiary to, keep proper books of record in accordance with GAAP and account in which full, true and correct entries (in all material respects) are made of all dealings and transactions in relation to its business and activities (subject to customary closing processes and entries for accounting months not yet closed). The Borrowers will, and will cause each Subsidiary to, permit any representatives designated by the Lender, upon reasonable prior notice, to visit and inspect its Properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times

 

 

during normal business hours and as often as reasonably requested on an individual and aggregate basis; provided, that excluding any such visits and inspections during the continuation of an Event of Default, the Lender shall not exercise such rights more often than one (1) time during any calendar year and only one (1) such time per calendar year shall be at the Borrowers’ joint and several expense unless an Event of Default has occurred and is continuing; provided further, that when an Event of Default has occurred and is continuing, Lender (or any of its representatives or independent contractors) may do any of the foregoing, during normal business hours and upon reasonable advance notice, including discussions with the Borrowers’ independent accountants. Lender shall give the Borrowers the opportunity to participate in any discussions with the Borrowers’ independent public accountant(s). Notwithstanding anything to the contrary in this Section 8.08, none of the Borrowers nor any Subsidiary shall be required to disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, (ii) in respect of which disclosure to the Lender (or its respective representatives or contractors) is prohibited by any applicable law or any binding agreement or (iii) is subject to attorney-client or similar privilege or constitutes attorney work-product.

 

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

 

Section 8.10    Environmental Matters.

 

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

 

 

from any Borrower’s or its Subsidiaries’ Properties, which failure to commence and diligently prosecute to completion would reasonably be expected to have a Material Adverse Effect; and (v) establish and implement, and shall cause each Subsidiary to establish and implement, such procedures as may be necessary to continuously determine and assure that the Borrowers’ and their Subsidiaries’ obligations under this Section 8.10(a) are timely and fully satisfied, which failure to establish and implement would reasonably be expected to have a Material Adverse Effect

 

(b)    The Borrowers will promptly, but in no event later than five (5) Business Days of any Borrower’s actual knowledge of the occurrence of a triggering event, notify the Lender in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any landowner or other third party against a Borrower or its Subsidiaries or their Properties of which the Borrowers have knowledge in connection with any applicable Environmental Laws (excluding routine testing and corrective action) if the Borrowers reasonably anticipate that such action would reasonably be expected to result in a Material Adverse Effect to the extent any liability from such action is not reasonably expected to be fully covered by insurance (subject to normal deductibles).

 

Section 8.11    Further Assurances.

 

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

 

(b)    Each Borrower hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Mortgaged Property without the signature of the Borrowers or any other Guarantor where permitted by law. A carbon, photographic or other reproduction of the Security Instruments or any financing statement covering the Mortgaged Property or any part thereof shall be sufficient as a financing statement where permitted by law.

 

Section 8.12    Reserve Reports.

 

(a)    On or before February 1^st and August 1^st of each year, after the First Redetermination Date, the Borrowers shall furnish to the Lender a Reserve Report. The Reserve Report as of January 1 of each year and the Reserve Report delivered in connection with the first redetermination shall be prepared by one or more Approved Petroleum Engineers, and the

 

 

August 1 Reserve Report of each year shall also be prepared by one or more Approved Petroleum Engineers,. In each case, the chief engineer of the Borrowers shall certify that to his knowledge, such Reserve Report is in all material respects based on information that was prepared in good faith based upon assumptions believed to be reasonable at the time and to have been prepared in accordance with the procedures used in the immediately preceding Reserve Report.

 

(b)    In the event of an Interim Redetermination, except in connection with the first redetermination, the Borrowers shall furnish to the Lender a Reserve Report prepared by or under the supervision of the chief engineer of the Borrowers who shall certify that to his knowledge such Reserve Report to be based in all material respects on information that was prepared in good faith based upon assumptions believed to be reasonable at the time and to have been prepared in all material respects in accordance with the procedures used in the immediately preceding Reserve Report except that the Properties covered by such report may, in the discretion of the Borrowers, be limited to the proved Oil and Gas Properties acquired since the last redetermination of the Borrowing Base. For any Interim Redetermination requested by the Lender or the Borrowers pursuant to Section 2.05(b)(ii), the Borrowers shall provide such Reserve Report with an “as of” date as required by the Lender as soon as possible, but in any event no later than seven (7) Business Days following the receipt of such request.

 

(c)    With the delivery of each Reserve Report, the Borrowers shall provide to the Lender a certificate from a Responsible Officer certifying that to his knowledge, after reasonable investigation, in all material respects: (i) the information contained in the Reserve Report and any other information delivered in connection therewith is based on information that was prepared in good faith based upon assumptions believed to be reasonable at the time, (ii) a Borrower owns defensible title to the proved Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section 9.03, (iii) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 7.17 with respect to its Oil and Gas Properties evaluated in such Reserve Report which would require the Borrowers or any Subsidiary to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) none of their proved Oil and Gas Properties have been sold since the date of the last Borrowing Base determination except as set forth on an exhibit to the certificate, which certificate shall list all of its proved Oil and Gas Properties sold and in such detail as reasonably required by the Lender, (v) attached to the certificate is a list of all marketing agreements entered into subsequent to the later of the date hereof or the most recently delivered Reserve Report which the Borrowers would reasonably be expected to have been obligated to list on Schedule 7.18 had such agreement been in effect on the date hereof and (vi) attached thereto is a schedule of the proved Oil and Gas Properties evaluated by such Reserve Report that are Mortgaged Properties and demonstrating the percentage of the Borrowing Base that the value of such Mortgaged Properties represent.

 

 

Section 8.13    Title Information.

 

 

(a)    On or before the delivery to the Lender of each Reserve Report required by Section 8.12(a), the Borrower will deliver title information in form and substance reasonably acceptable to the Lender covering enough of the proved Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that the Lender shall have received together with title information previously delivered, reasonably satisfactory title information on at least 80% of the PV-9 of the proved Oil and Gas Properties evaluated by such Reserve Report.

 

(b)    If the Borrowers have provided title information for additional Properties under Section 8.13(a), the Borrower shall, within sixty (60) days of notice from the Lender that title defects or exceptions exist with respect to such additional Properties, either (i) cure any such title defects or exceptions (including defects or exceptions as to priority) which are not permitted by Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged Properties with no title defects or exceptions except for Excepted Liens (other than Excepted Liens described in clauses (e), (h) and (i) of such definition) having an equivalent value or (iii) deliver title information in form and substance reasonably acceptable to the Lender so that they shall have received, together with title information previously delivered, satisfactory title information on at least 80% of the PV-9 of the Oil and Gas Properties evaluated by such Reserve Report.

 

(c)    If the Borrowers are unable to cure any title defect requested to be cured within the 60-day period or the Borrower does not comply with the requirements to provide reasonably acceptable title information covering 80% of the PV-9 of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default, but instead the Lender shall have the right to exercise the following remedy in their sole discretion from time to time, and any failure to so exercise this remedy at any time shall not be a waiver as to future exercise of the remedy by the Lender. To the extent that the Lender is not satisfied with title to any Mortgaged Property after the 60-day period has elapsed, such unacceptable Mortgaged Property shall not count towards the 80% requirement, and the Lender may send a notice to the Borrowers that the then outstanding Borrowing Base shall be reduced by an amount as determined by the Lender to cause the Borrowers to be in compliance with the requirement to provide reasonably acceptable title information on 80% of the PV-9 of the Oil and Gas Properties of the Borrowers and the Guarantor. This new Borrowing Base shall become effective immediately after receipt of such notice.

 

Section 8.14    Additional Collateral; Additional Guarantors.

 

(a)    In connection with each redetermination of the Borrowing Base, the Borrowers shall review the Reserve Report and the list of current Mortgaged Properties (as described in Section 8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at least 80% of the PV-9 of the proved Oil and Gas Properties evaluated in the most recently completed Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production. In the event that the Mortgaged Properties do not represent at least 80% of such PV-9 as determined in the commercially reasonable discretion of the Lender, then the Borrowers shall, and shall cause its Subsidiaries to, grant, within thirty (30) days of the delivery

 

 

of the certificate required under Section 8.12(c), to the Lender as security for the Obligations a first-priority Lien interest (subject only to Excepted Liens identified in clauses (a) through (d) and clauses (f) and (g) of the definition thereof, but subject to the proviso at the end of such definition) on additional proved Oil and Gas Properties not already subject to a Lien of the Security Instruments such that after giving effect thereto, the Mortgaged Properties will represent at least 80% of such PV-9. All such Liens will be created and perfected by and in accordance with the provisions of mortgages, deeds of trust, security agreements and financing statements or other Security Instruments, all in form and substance reasonably satisfactory to the Lender and in sufficient executed (and acknowledged where necessary) counterparts for recording purposes.

 

(b)    The Borrowers shall promptly cause each Domestic Subsidiary to guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection with any such guaranty, the Borrowers shall, or shall cause such Domestic Subsidiary to, (i) execute and deliver a supplement to the Guaranty Agreement executed by such Domestic Subsidiary, (ii) pledge all of the Equity Interests of such Domestic Subsidiary (including, without limitation, delivery of original stock certificates or other certificates evidencing the Equity Interests of such Domestic Subsidiary, together with an appropriate undated stock powers for each certificate duly executed in blank by the registered owner thereof) and (iii) execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Lender.

 

(c)    The Borrowers absolutely, unconditionally and irrevocably undertake to provide such funds or other support as may be needed from time to time to each other Credit Party in order for such Credit Party to honor its obligations under the Guaranty Agreement with respect to Swap Agreements. The obligations of the Borrowers under this subsection (c) shall remain in full force and effect until all Indebtedness is paid in full to the Lender and all of the Commitment is terminated. The parties intend that this subsection (c) constitute, and this subsection (c) shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each other Credit Party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

Section 8.15    ERISA Compliance. Except as could not reasonably be expected to result in liability to any of the Consolidated Borrower Entities of less than (i) $500,000 or (ii) 5% of the Borrowing Base then in effect, individually or in the aggregate, the Borrowers will promptly furnish and will cause Energy 12 LP and any ERISA Affiliate to promptly furnish to the Lender (a) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan or any trust created thereunder, (b) promptly upon becoming aware of the occurrence of any ERISA Event or of any “prohibited transaction,” as described in section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by the President or the principal Financial Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature thereof, what action the Borrowers, the Subsidiary or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (c) promptly upon receipt thereof, copies of any notice of the PBGC’s intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a

 

 

Multiemployer Plan) except as could not reasonably be expected to result in liability to the Borrowers and its Subsidiaries of less than (i) $500,000 or (ii) 5% of the Borrowing Base then in effect, individually or in the aggregate, the Borrowers will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA.

 

Section 8.16    Commodity Exchange Act Keepwell Provisions. Each Borrower hereby guarantees the payment and performance of all Indebtedness of each Credit Party (other than the Borrowers) and absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each Credit Party (other than the Borrowers) in order for such Credit Party to honor its obligations under the Guaranty Agreement including obligations with respect to Swap Agreements (provided, however, that the Borrowers shall only be liable under this Section 8.16 for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 8.16, or otherwise under this Agreement or any Loan Document, as it relates to such other Credit Parties, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations of the Borrowers under this Section 8.16 shall remain in full force and effect until all Indebtedness is paid in full to the Lender, and all of the Commitment is terminated. The Borrowers intend that this Section 8.16 constitute, and this Section 8.16 shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each other Credit Party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

Section 8.17    Anti-Corruption Laws and Sanctions. Each Credit Party has implemented and maintains in effect policies and procedures, as such Credit Party deems appropriate in light of its business and international activities (if any) designed to ensure compliance by such Credit Party, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and such Credit Party, its Subsidiaries and their respective officers and employees and to the knowledge of such Credit Party its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) any Credit Party, any Subsidiary or any of their respective directors, officers or employees, or (b) to the knowledge of any such Credit Party or Subsidiary, any agent of such Credit Party or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing, use of proceeds, Transaction or other transaction contemplated by this Agreement or the other Loan Documents will violate Anti-Corruption Laws or applicable Sanctions.

 

Section 8.18    Deposit Accounts. Each Borrower will maintain its principal depository accounts with Lender, including for the maintenance of any Deposit Account for the primary operation of its business.

 

 

ARTICLE IX
NEGATIVE COVENANTS

 

Until the Commitment has expired or terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents have been paid in full, each Borrower covenants and agrees with the Lender that:

 

Section 9.01    Financial Covenants.

 

(a)    Current Ratio. Commencing with the fiscal quarter ending June 30, 2024, the Borrowers will not permit, as of the last day of any fiscal quarter, the ratio (as adjusted for any gains and losses from hedging activities of the Consolidated Borrower Entities) of (i) the consolidated current assets (as defined by GAAP) of the Consolidated Borrower Entities to (ii) the consolidated current liabilities (as defined by GAAP) of the Consolidated Borrower Entities less and except all Loans outstanding under this Agreement due to a maturity in less than twelve (12) months, to be less than 1.0 to 1.0.

 

(b)    Debt Service Coverage Ratio. Assuming satisfaction of current debt, the Borrowers will not permit, as of the last day of any fiscal quarter beginning with the quarter ending June 30, 2024 and each quarter end thereafter, the Debt Service Coverage Ratio to be less than 1.20 to 1.0.

 

Section 9.02    Debt. The Borrowers will not, and will not permit any Subsidiary to, incur, create, assume or suffer to exist any Debt, except:

 

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

 

(b)    Debt of the Consolidated Borrower Entities existing on the date hereof that is reflected in the Financial Statements.

 

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

 

(d)    Debt under Capital Leases or non-recourse purchase money Debt not to exceed at any one time outstanding the greater of (i) $250,000 or (ii) 5% of the Borrowing Base then in effect.

 

(e)    Debt associated with worker’s compensation claims, performance, bid, surety or similar bonds or surety obligations required by Governmental Requirements or third

 

 

parties in connection with the operation of, or the provision for the abandonment or remediation of, the Oil and Gas Properties of the Borrower and the Guarantor.

 

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

 

(g)    endorsements of negotiable instruments for payment or collection in the ordinary course of business.

 

(h)    any guarantee of any Debt permitted to be incurred in this Agreement.

 

(i)    Debt associated with the financing of insurance premiums in the ordinary course of business; provided, that such Debt does not exceed the amount of the unpaid cost of, and shall be incurred only to defer the cost of, the underlying policy;

 

(j)    other Debt not to exceed $250,000 in the aggregate at any one time outstanding.

 

Section 9.03    Liens. The Borrowers will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except:

 

(a)    Liens securing the payment of any Indebtedness.

 

(b)    Excepted Liens.

 

(c)    Liens securing Capital Leases or purchase money Debt permitted by Section 9.02(d) but only on the Property under lease.

 

(d)    Liens attaching to cash earnest money deposits made by any Borrower or its Subsidiary or other escrowed amounts in connection with an actual or anticipated acquisition by a Borrower or its Subsidiary permitted under Section 9.05 in an aggregate amount not to exceed at any time outstanding the greater of (i) $500,000 or (ii) 5% of the Borrowing Base then in effect.

 

(e)    Liens securing Indebtedness permitted under Section 9.02(i), provided, that such Liens do not attach or otherwise extend to any Property of any Subsidiary other than the proceeds of insurance policies the premiums of which are financed by such Indebtedness.

 

 

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

 

Section 9.04    Intentionally Omitted

 

Section 9.05    Investments, Loans and Advances. The Borrowers will not, and will not permit any Subsidiary to, make or permit to remain outstanding any Investments in or to any Person, except that the foregoing restriction shall not apply to:

 

(a)    Investments reflected in the Financial Statements or which are disclosed to the Lender in Schedule 9.05.

 

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

 

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

 

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

 

(e)    deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $100,000,000 (as of the date of such bank or trust company’s most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or Moody’s, respectively or, in the case of any Foreign Subsidiary, a bank organized in a jurisdiction in which the Foreign Subsidiary conducts operations having assets in excess of $500,000,000 (or its equivalent in another currency).

 

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

 

(g)    Investments (i) made by a Borrower in or to any Subsidiary, and (ii) made by any Subsidiary in or to a Borrower or any other Subsidiary.

 

(h)    subject to the limits in Section 9.06, Investments in direct ownership interests in additional Oil and Gas Properties, gas gathering, marketing, processing and transportation systems and all other assets contemplated by the permitted business of Borrowers and its Subsidiaries located within the geographic boundaries of the United States of America including the outer continental shelf thereof.

 

(i)    entry into operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual

 

 

interest agreements, production sharing agreements or other similar or customary agreements, transactions, properties, interests or arrangements, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the oil and gas business, excluding, however, Investments in other Persons; provided, however, that none of the foregoing shall involve the incurrence of any Debt not permitted by Section 9.02.

 

(j)    repurchase agreements of a commercial bank in the United States and Canada if the commercial paper of such bank or of the bank holding company of which such bank is a wholly owned subsidiary is rated in the highest rating categories of S&P, Moody’s, or any other rating agency satisfactory to the Lender, that are fully secured by securities described in Section 9.05(c).

 

(k)    Investments arising from the endorsement of financial instruments in the ordinary course of business.

 

(l)    Swap Agreements permitted under Section 9.19.

 

(m)    other Investments not to exceed $1,000,000 in the aggregate at any time.

 

Section 9.06    Nature of Business; International Operations. The Borrowers will not, and will not permit any Subsidiary to, allow any material change to be made in the character of its business as an independent oil and gas exploration and production company. The Borrowers will not, and will not permit any Subsidiary to conduct marketing and trading of Hydrocarbons, except that the Borrowers and each Subsidiary may market its own Hydrocarbon production. From and after the date hereof, the Borrowers and its Subsidiaries will not acquire or make any other expenditure (whether such expenditure is capital, operating or otherwise) in or related to, any Oil and Gas Properties not located within the geographical boundaries of the United States including the outer continental shelf thereof.

 

Section 9.07    Limitation on Leases. The Borrowers will not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal but excluding (i) Capital Leases, (ii) leases of Hydrocarbon Interests, (iii) leases of corporate and field office space utilized by any Borrower and its Subsidiaries in the ordinary course of business and (iv) leases of automobiles, compression or other oilfield equipment leased in the ordinary course of business), under leases or lease agreements which would cause the aggregate amount of all payments made by the Borrowers and the Subsidiaries pursuant to all such leases or lease agreements, including, without limitation, any residual payments at the end of any lease, to exceed the greater of (i) $500,000 or (ii) 5% of the Borrowing Base then in effect (net of any sub-leases) in any period of twelve consecutive calendar months during the life of such leases.

 

Section 9.08    Proceeds of Note/Loans. The Borrowers will not permit the Loans or the proceeds of the Note to be used for any purpose other than those permitted by Section 7.20. Neither the Borrowers nor any Person acting on behalf of the Borrowers have taken or will take any action

 

 

which might cause any of the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. If requested by the Lender, the Borrowers will furnish to the Lender a statement to the foregoing effect in conformity with the requirements of FR Form U‑1 or such other form referred to in Regulation U, Regulation T or Regulation X of the Board, as the case may be.

 

Section 9.09    ERISA Compliance. Except as could not reasonably be expected to result in a Material Adverse Effect, the Borrowers and the Subsidiaries will not at any time:

 

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

 

(b)    terminate, or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which would reasonably be expected to result in any liability of the Borrowers, a Subsidiary or any ERISA Affiliate to the PBGC.

 

(c)    fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrowers, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto if such failure would reasonably be expected to have a Material Adverse Effect.

 

(d)    permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan which is reasonably expected to result in a Material Adverse Effect.

 

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

 

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

 

(g)    acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrowers or a Subsidiary or with respect to any ERISA Affiliate of the Borrowers or a Subsidiary if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such

 

 

acquisition has sponsored, maintained, or contributed to, (i) any Multiemployer Plan, or (ii) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by any amount in excess of $500,000.

 

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

 

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

 

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

 

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

 

Section 9.11    Mergers, Etc.

 

Neither a Borrower nor any Subsidiary will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person (any such transaction, a “consolidation”) or divide; provided, that any Subsidiary may participate in a consolidation with a Borrower (provided, that a Borrower shall be the continuing or surviving entity) or any other Subsidiary that is a Domestic Subsidiary (provided that if one of such parties to the consolidation is a Foreign Subsidiary, such Domestic Subsidiary shall be the continuing or surviving Person) and if one of such Subsidiaries is a Wholly-Owned Subsidiary, then the surviving Person shall be a Wholly-Owned Subsidiary.

 

Section 9.12    Sale of Properties. The Borrowers will not, and will not permit any Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any Oil and Gas Properties containing proved reserves constituting a portion of the Borrowing Base except for:

 

(a)         the sale of Hydrocarbons in the ordinary course of business;

 

 

(b)         farmouts, sales or other dispositions (including, asset swaps) of undeveloped acreage and assignments in connection with such transactions;

 

(c)         the sale or transfer of equipment in the ordinary course of business or that is no longer necessary for the business of the Borrowers or such Subsidiary or is replaced by equipment of at least comparable value and use;

 

 

(d)         the sale or other disposition of any Oil and Gas Properties of the Borrowers and the Guarantor; provided, that:

 

(i)         no Event of Default has occurred and is continuing;

 

(ii)         there is no Borrowing Base Deficiency at the time of such sale or disposition;

 

(iii)         the aggregate value (which, for purposes hereof, shall mean the value the Lender attributes to such Oil and Gas Property for purposes of the most recent redetermination of the Borrowing Base) of such Oil and Gas Properties sold or disposed of pursuant to this Section 9.12(d) in any period between Scheduled Redeterminations shall not exceed five percent (5%) of the Borrowing Base then in effect; and

 

(iv)         no sale or other disposition shall be permitted pursuant to this clause (d) unless all mandatory prepayments required by Section 3.04(c)(iii) are made concurrently therewith.

 

(e)          the sale or other disposition (including Casualty Events) of any Oil and Gas Properties of the Borrowers and the Guarantor or any interest therein (including any Equity Interest in any Credit Party that owns Oil and Gas Property, but excluding transfers of interests in Energy 12 LP by limited partners thereof that do not result in a change in the managers of Energy 12 Operating); provided, that:

 

(i)    no Event of Default has occurred and is continuing;

 

(ii)    Borrowers shall have provided the Lender no less than ten (10) days written notice prior to the date of such sale setting forth the terms of the sale and, during such ten (10) day period, Lender may, if so desired, redetermine the Borrowing Base, other than with respect to any sale or disposition of Equity Interests due to death or incapacity;

 

(iii)    75% of the consideration received in respect of such sale or other disposition of any such Oil and Gas Property (or such Equity Interest), if any, shall be cash;

 

 

(iv)    the net cash proceeds from such sale, conveyance, exchange, lease or other disposition, if any, shall be sufficient to cover any resulting Borrowing Base Deficiency;

 

(v)    (other than in respect of Casualty Events) the consideration received in respect of a sale or other disposition of such Oil and Gas Property or interest therein (or such Equity Interest), if any, shall be equal to or greater than the fair market value of such Oil and Gas Property or interest therein (or such Equity Interest) subject of such sale or other disposition (as reasonably determined by a Responsible Officer of the Borrowers and, if requested by the Lender, the Borrowers shall deliver a certificate of a Responsible Officer of the Borrowers certifying to the foregoing);

 

(iv)         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 by the Lender in the most recently redetermined Borrowing Base;

 

(v)         if requested by Lender, Borrowers, or any applicable Borrower, shall grant a Lien and security interest in any Equity Interests received by such Borrowers or Borrower (or any Subsidiary) as part of the compensation; and

 

(vi)          no sale or other disposition shall be permitted pursuant to this clause (e) unless all mandatory prepayments required by Section 3.03(c)(iii) are made concurrently therewith.

 

(f)         seismic, geologic or other data and license rights in the ordinary course of business so long as such disposition is not adverse to the Lender and does not impair a Borrower’s or any Subsidiary’s operation of the Oil and Gas Properties of the Borrowers and the Guarantor;

 

(g)         transfers of Properties from any Credit Party to the Borrowers or any Borrower or any other Credit Party;

 

(h)         sale of any undeveloped Oil and Gas Properties;

 

(i)         dispositions consisting of any compulsory pooling or unitization ordered by a Governmental Authority with jurisdiction over each Borrower’s or any of its Subsidiaries’ Properties; and

 

(j)         distributions and dispositions permitted under Section 9.04 or Section 9.10.

 

Section 9.13    Environmental Matters. The Borrowers will not, and will not permit any Subsidiary to, cause or knowingly permit any of its Property to be in violation of, or do anything or knowingly permit anything to be done which will subject any such Property to any Remedial Work (other than Remedial Work done in the ordinary course of business) under any applicable Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations would reasonably be expected to have a Material Adverse Effect.

 

 

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

 

Section 9.15    Subsidiaries. The Borrowers will not, and will not permit any Subsidiary to, create or acquire any additional Subsidiary unless the Borrowers give prior written notice to the Lender of such creation or acquisition and complies with Section 8.14(b). The Borrowers will not, and will not permit any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in any Subsidiary. Neither a Borrower nor any Subsidiary shall have any Foreign Subsidiaries.

 

Section 9.16    Subsidiary Indebtedness and Preferred Stock. The Borrowers will not and will not permit any Subsidiary to, issue preferred stock or create, incur or assume any Debt, except for Debt permitted under Section 9.02.

 

Section 9.17    Negative Pledge Agreements. The Borrowers will not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any contract, agreement or understanding which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property in favor of the Lender or restricts any Subsidiary from paying dividends or making distributions to a Borrower or any Guarantor, or which requires the consent of or notice to other Persons in connection therewith; provided, however, that the preceding restrictions will not apply to encumbrances or restrictions arising under or by reason of (a) this Agreement or the Security Instruments, (b) any leases or licenses or similar contracts as they affect any Property or Lien subject to a lease or license, (c) any contract, agreement or understanding creating Liens on Capital Leases permitted by Section 9.03(c) (but only to the extent related to the Property on which such Liens were created), (d) agreements or arrangements evidencing or related to secured Debt permitted by this Agreement to the extent such restrictions applies only to the property securing such Debt, (e) agreements and understandings contained in joint venture agreements or other similar agreements entered into in the ordinary course of business in respect to the distribution or disposition of assets of such joint venture, (f) customary restrictions and conditions with respect to the sale or disposition of Property permitted under Section 9.12 pending the consummation of such sale or disposition, (g) any restriction with respect to a Subsidiary imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the equity or Property of such Subsidiary (or the Property that is subject to such restriction) pending the closing of such sale or disposition, (h) any restriction imposed by any governmental requirement, (i) customary provisions in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business, which limitation is applicable only to the assets that are the subject of such agreements, (j) encumbrances or restrictions on the use of cash or other deposits imposed by customers under contracts entered into in the ordinary course of business and (k) customary provisions restricting subletting or assignment of any lease governing a leasehold interest (other than any Oil and Gas Property) of the Borrower or any Subsidiary.

 

 

Section 9.18    Take-or-Pay or Other Prepayments. The Borrowers will not allow take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrowers or any Subsidiary which would require the Borrowers and their Subsidiaries to deliver Hydrocarbons produced on its Oil and Gas Properties at some future time without then or thereafter receiving full payment therefore in an aggregate amount, in excess of five percent (5%) or more of the total value of proven Oil and Gas Properties reflected in the Initial Reserve Report or the most recent Reserve Report delivered pursuant to Section 8.12, as the case may be.

 

Section 9.19    Intentionally Omitted. Non-Qualified ECP Guarantors. The Borrowers shall not permit any Credit Party that is not a Qualified ECP Guarantor to own, at any time, any Oil and Gas Properties or any Equity Interests in any Subsidiaries.

 

ARTICLE X
EVENTS OF DEFAULT; REMEDIES

 

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

 

(a)    the Borrowers shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof, by acceleration or otherwise.

 

(b)    the Borrowers shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in Section 10.01(a)) payable under any Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five (5) Business Days.

 

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

 

(d)    a Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 8.01, Section 8.02, Section 8.03, Section 8.07, Section 8.15 or in Article IX.

 

(e)    a Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any other Loan Document, and such failure shall continue unremedied for a period of either: (i) thirty (30) days after the earlier to occur of (i) notice thereof from the Lender to the Borrowers or (ii) a Responsible Officer of the Borrowers or such Subsidiary otherwise becoming aware of such default (the “Initial Grace Period”); or (ii) sixty (60) days if (A) Borrower immediately commences and diligently pursues

 

 

the cure of such default and delivers (prior to the end of the Initial Grace Period) to Lender a written request for more time, and (B) Lender reasonably determines that the default cannot be cured within the Initial Grace Period but can be cured within ninety (90) days after the default.

 

(f)    a Borrower or any Subsidiary shall fail to observe any covenant, term, condition or agreement in respect of any Material Indebtedness the effect of which failure or other event or condition is to cause, with the giving of notice, if required, such Material Indebtedness to become due prior to its stated maturity or any such Material Indebtedness is declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption, as a mandatory prepayment or otherwise as a result of the voluntary sale or transfer of the property or assets securing such Material Indebtedness to the extent such sale or transfer is permitted by Section 9.12), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Indebtedness shall be required to be made, in each case prior to the stated maturity thereof.

 

(g)    [RESERVED]

 

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

 

(i)    a Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 10.01(h), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for a Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing.

 

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

 

(k)    one or more final and nonappealable judgments for the payment of money in an aggregate amount in excess of $250,000 (to the extent not covered by independent third-party insurance provided by a reputable and creditworthy insurer that does not dispute coverage and is not subject to an insolvency proceeding) shall be rendered against a Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of

 

 

sixty (60) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of a Borrower or any Subsidiary to enforce any such judgment.

 

(l)    the Loan Documents after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms against the Borrowers or a Guarantor party thereto or shall be repudiated, or cease to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, except (i) to the extent permitted by the terms of this Agreement, or the Borrowers or any Subsidiary or any of their Affiliates shall so state in writing, (ii) as a result of a sale, disposition, or transfer of the applicable Property to a Person that is not a Credit Party in a transaction not prohibited by the Loan Documents, (iii) as a result of the Lender’s failure to (A) maintain possession of any stock certificates, promissory notes or other instruments delivered to it under the Security Instruments or (B) file Uniform Commercial Code continuation statements, (iv) as to Collateral consisting of real estate to the extent that (y) such losses are covered by Lender’s title insurance policy or (z) such deficiency arose through no fault of any Credit Party and such deficiency is corrected with reasonable diligence upon obtaining actual knowledge thereof and/or (v) as a result of acts or omissions of Lender.

 

(m)    an ERISA Event shall have occurred that when taken together with all other ERISA Events that have occurred, would reasonably be expected to result in a Material Adverse Effect.

 

(n)    a Change in Control shall occur.

 

Section 10.02    Remedies.

 

(a)    In the case of an Event of Default other than one described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter during the continuance of such Event of Default, Lender may, by notice to the Borrowers, take either or both of the following actions, at the same or different times: (i) terminate the Commitment, and thereupon the Commitment shall terminate immediately, and (ii) declare the Note and the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers and the Guarantors accrued hereunder and under the Note and the other Loan Documents shall become due and payable immediately, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by each Borrower and each Guarantor; and in case of an Event of Default described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), the Commitment shall automatically terminate and the Note and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and the other obligations of the Borrowers and the Guarantors accrued hereunder and under the Note and the other Loan

 

 

Documents, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower and each Guarantor.

 

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

 

(c)    All proceeds realized from the liquidation or other disposition of collateral or otherwise received after maturity of the Loans or the Note, whether by acceleration or otherwise, shall be applied: first, to reimbursement of reasonable, out of pocket expenses and indemnities provided for in this Agreement and the Security Instruments; second, to accrued interest on the Loans; third, to fees set forth in this Agreement and the Security Instruments; fourth, pro rata to principal outstanding on the Loans and Indebtedness referred to in clause (b) of the definition of Indebtedness owing to Lender or an Affiliate of Lender; fifth, to any other Indebtedness; and any excess shall be paid to the Borrowers or as otherwise required by any Governmental Requirement. Notwithstanding the foregoing, amounts received from the Borrowers or any Guarantor that is not an “eligible contract participant” under the Commodity Exchange Act shall not be applied to any Excluded Swap Obligations (it being understood, that in the event that any amount is applied to Indebtedness other than Excluded Swap Obligations as a result of this clause, the Lender shall make such adjustments as it determines are appropriate to distributions pursuant to clause fourth above from amounts received from “eligible contract participants” under the Commodity Exchange Act to ensure, as nearly as possible, that the proportional aggregate recoveries with respect to Indebtedness described in clause fourth above by the holders of any Excluded Swap Obligations are the same as the proportional aggregate recoveries with respect to other Indebtedness pursuant to clause fourth above).

 

ARTICLE XI
[RESERVED]

 

ARTICLE XII
MISCELLANEOUS

 

Section 12.01    Notices.

 

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

 

(i)    if to the Borrowers, to each at 814 E. Main St., Richmond, VA 23219, Attention: David McKenney, Chief Financial Officer; e-mail to: ***@***; and

 

(ii)    if to Lender, to it at BancFirst, 100 North Broadway, 4^th Floor, Oklahoma City, Oklahoma 73102, Attention: Heather Healey Whiteside; e-mail Heather.Healey@BancFirst.bank.

 

 

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

 

(c)    Any party hereto may change its address or e-mail for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

 

Section 12.02    Waivers; Amendments.

 

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

 

(b)    Neither this Agreement nor any provision hereof nor any Security Instrument nor any provision thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrowers and the Lender.

 

Section 12.03    Expenses, Indemnity; Damage Waiver.

 

(a)    The Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by Lender and its Affiliates, including, without limitation, the reasonable fees, charges and disbursements of counsel and other outside consultants for the Lender, the reasonable travel, photocopy, mailing, courier, telephone and other similar expenses, and the cost of environmental audits and surveys and appraisals, the preparation, negotiation, execution, delivery and administration (both before and after the execution hereof and including advice of counsel to the Lender as to the rights and duties of the Lender with respect thereto) of this Agreement and the

 

 

other Loan Documents and any amendments, modifications or waivers of or consents related to the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket costs, expenses, Taxes, assessments and other charges incurred by Lender in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement or any Security Instrument or any other document referred to therein, (iii) all reasonable out-of-pocket expenses incurred by Lender, including the fees, charges and disbursements of any counsel for Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this Section 12.03, or in connection with the Loans made hereunder, including, without limitation, all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

 

(b)    THE BORROWERS SHALL JOINTLY AND SEVERALLY INDEMNIFY LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL ACTUAL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED REASONABLE OUT-OF-POCKET EXPENSES, INCLUDING THE REASONABLE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE OF A BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF A BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY LOAN OR THE USE OF THE PROCEEDS THEREFROM (v) THE OPERATIONS OF THE BUSINESS OF THE BORROWERS AND ITS SUBSIDIARIES BY A BORROWER AND ITS SUBSIDIARIES, (vi) ANY ASSERTION THAT THE LENDER WAS NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (vii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWERS OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (viii) THE BREACH OR NON-COMPLIANCE BY THE BORROWERS OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWERS OR ANY SUBSIDIARY, (ix) THE PAST OWNERSHIP BY THE

 

 

BORROWERS OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (x) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWERS OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWERS OR ANY OF ITS SUBSIDIARIES, (xi) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWERS OR ANY OF ITS SUBSIDIARIES, OR (xii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiii) ANY ACTUAL CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES (A) ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF AN INDEMNITEE, OR (B) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE). THIS SECTION 12.03(b) SHALL NOT APPLY WITH RESPECT TO TAXES OTHER THAN ANY TAXES THAT REPRESENT LOSSES, CLAIMS, DAMAGES, PENALTIES, LIABILITIES AND RELATED EXPENSES FROM ANY NONTAX CLAIM.

 

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

 

 

(d)    All amounts due under this Section 12.03 shall be payable not later than five (5) days after written demand therefor.

 

(e)    Notwithstanding any other provisions of this Section 12.03, no transfer or assignment of the interests or obligations of Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrowers and the Guarantors to file a registration statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.

 

Section 12.04    Successors and Assigns.

 

(a)    The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrowers may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of Lender (and any attempted assignment or transfer by the Borrowers without such consent shall be null and void).

 

Section 12.05    Survival; Revival; Reinstatement.

 

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

 

(b)    To the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Lender’s Liens, security interests, rights, powers and remedies under this Agreement and each Loan Document shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and the Borrowers shall take such action as may be reasonably requested by the Lender to effect such reinstatement.

 

 

Section 12.06    Counterparts; Integration; Effectiveness.

 

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

 

(b)    This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Lender constitute the entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof and thereof. This Agreement and the other Loan Documents represent the final agreement among the parties hereto and thereto and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties.

 

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

 

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

 

Section 12.08    Right of Setoff. If an Event of Default shall have occurred and be continuing, Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations (of whatsoever kind, including, without limitations obligations under Swap Agreements) at any time owing by Lender or Affiliate to or for the credit or the account of the Borrowers or any Subsidiary against any of and all the obligations of the Borrowers or any Subsidiary owed to Lender now or hereafter existing under this Agreement or any other Loan Document, irrespective of whether or not Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 12.08 are in addition to other rights and remedies (including other rights of setoff) which Lender or its Affiliates may have.

 

Section 12.09    Governing Law; Jurisdiction; Consent to Service of Process.

 

 

(a)    This Agreement and the Note shall be governed by, and construed in accordance with, the laws of the State of OKLAHOMA.

 

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

 

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

 

(D)   EACH PARTY HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED

 

 

HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.

 

Section 12.10    Commercially Reasonable Efforts. Notwithstanding anything to the contrary contained in this Agreement, neither a Borrower nor any Subsidiary shall be in breach, or deemed to be in breach, of any covenant, agreement or obligation in this Agreement relating to the operation of or access to any Oil and Gas Property that is not operated by a Borrower or any Subsidiary, so long as each Borrower or such Subsidiary, as the case may be, has used commercially reasonable efforts under the circumstances to cause the operator thereof to perform or not to perform, as applicable, such covenant, agreement or obligation.

 

Section 12.12    Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

 

Section 12.13    Exculpation Provisions. Each of the parties hereto specifically agrees that it has a duty to read this Agreement and the other Loan Documents and agrees that it is charged with notice and knowledge of the terms of this Agreement and the other Loan Documents; that it has in fact read this Agreement and is fully informed and has full notice and knowledge of the terms and conditions of this Agreement; that it has been represented by independent legal counsel of its choice throughout the negotiations preceding its execution of this Agreement and the other Loan Documents; and has received the advice of its attorney in entering into this Agreement and the other Loan Documents; and that it recognizes that certain of the terms of this Agreement and the other Loan Documents may result, subject to the terms hereof and thereof and applicable law, in one party assuming the liability inherent in some aspects of the transaction and relieving the other party of its responsibility for such liability. Each party hereto agrees and covenants that it will not contest the validity or enforceability of any exculpatory provision of this Agreement and the other loan documents on the basis that the party had no notice or knowledge of such provision or that the provision is not “conspicuous.”

 

Section 12.14    No Third Party Beneficiaries. This Agreement, the other Loan Documents, and the agreement of the Lender to make Loans are solely for the benefit of the Borrowers, and no other Person (including, without limitation, any Subsidiary of a Borrower, any obligor, contractor, subcontractor, supplier or materialmen) shall have any rights, claims, remedies or privileges hereunder or under any other Loan Document against the Lender for any reason whatsoever. There are no third party beneficiaries.

 

Section 12.15    US Patriot Act Notice. Lender hereby notifies the Borrowers that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107‑56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies the Borrowers, which information includes the name and address of the Borrowers and other information that will allow Lender to identify the Borrowers in accordance with the Patriot Act.

 

 

Section 12.16    Flood Insurance Regulations. Notwithstanding anything in this Agreement or any other Loan Document to the contrary, (a) in no event shall the defined term “Mortgaged Property” or any similar defined term describing any interest in any asset or property pledged by a Borrower or any Guarantor pursuant to this Agreement or any other Loan Document to secure the Indebtedness include any Buildings (as defined in the applicable Flood Insurance Regulations) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulations) and (b) no Building or Manufactured (Mobile) Home shall be subject to any Lien created by this Agreement or any Loan Document. As used herein, “Flood Insurance Regulations” means (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statute thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC § 4001, et seq.), as the same may be amended or recodified from time to time, and (iv) the Flood Insurance Reform Act of 2004 and any regulations promulgated thereunder.

 

Section 12.17    Multiple Borrowers. Unless the context clearly indicates otherwise, all references to "Borrower" or "Borrowers" is intended to refer to either or any Borrower. Each Borrower is jointly and severally liable for the Indebtedness. Lender may sue any Borrower, jointly or individually, without impairing Lender's rights against any Borrower under this Agreement or any other Loan Document. Lender may compromise with any Borrower or any other Person for any sum Lender sees fit. Lender may release any Borrower or any other Person from any liability for the Indebtedness without impairing Lender’s right to demand and collect the balance of the Indebtedness from any Borrower or other Person.

 

[Signatures Begin Next Page]

 

 

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

 

BORROWERS:	ENERGY RESOURCES 12 OPERATING
	COMPANY, LLC, a Delaware limited liability company
		By: ENERGY RESOURCES 12, L.P., a
		Delaware limited partnership
		Title: Sole Member
			By: ENERGY RESOURCES 12
			GP, LLC, a Delaware limited
			liability company
			Title: General Partner
			By: /s/ David McKenney
			David McKenney,
			Manager/Chief Financial
			Officer
	ENERGY RESOURCES 12, L.P.
	By: ENERGY RESOURCES 12 GP, LLC, a
	Delaware limited liability company
	Title: General Partner
	By: /s/ David McKenney
	David McKenney, Manager/Chief Financial       Officer

 

 

 

 

LENDER:	BANCFIRST, Lender
	By: /s/ Heather Healey Whiteside
	Heather Healey Whiteside, Vice President

 

 

 

 

 

 

EXHIBIT A
FORM OF NOTE

 

$20,000,000.00

May 2, 2024

 

FOR VALUE RECEIVED, ENERGY RESOURCES 12 OPERATING COMPANY, LLC, a Delaware limited liability company (“Energy 12 Operating”) and ENERGY RESOURCES 12, L.P., a Delaware limited partnership (“Energy 12 LP”; Energy 12 Operating and Energy 12 LP are jointly, severally and collectively referred to herein as the “Borrowers” and each individually as a “Borrower”) hereby jointly and severally promise to pay to the order of BANCFIRST (the “Lender”), at the principal office of BANCFIRST, at 100 North Broadway, Fourth Floor, Oklahoma City, Oklahoma 73102, the principal sum of Twenty Million and No/100 Dollars ($20,000,000.00) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Lender to the Borrower under the Credit Agreement, as hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.

 

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

 

This Note is the Note referred to in the Credit Agreement, dated as of May 2, 2024, among the Borrower and Lender , and evidences Loans made by the Lender thereunder (such Credit Agreement as the same may be amended, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement.

 

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

 

 

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

 

	ENERGY RESOURCES 12 OPERATING
	COMPANY, LLC, a Delaware limited liability company
		By: ENERGY RESOURCES 12, L.P., a
		Delaware limited partnership
		Title: Sole Member
			By: ENERGY RESOURCES 12
			GP, LLC, a Delaware limited
			liability company
			Title: General Partner
			By: /s/
			David McKenney, Manager
			and Director
	ENERGY RESOURCES 12, L.P.
	By: ENERGY RESOURCES 12 GP, LLC, a
	Delaware limited liability company
	Title: General Partner
	By: /s/
	David McKenney, Manager and Director

 

 

EXHIBIT B
FORM OF BORROWING REQUEST

 

[                   ], 20[   ]

 

ENERGY RESOURCES 12 OPERATING COMPANY, LLC, a Delaware limited liability company ( “Energy 12 Operating”) and ENERGY RESOURCES 12, L.P., a Delaware limited partnership (“Energy 12 LP”; Energy 12 Operating and Energy 12 LP are jointly, severally and collectively referred to herein as the “Borrowers” and each individually as a “Borrower”), pursuant to Section 2.03 of the Credit Agreement dated as of May 2, 2024 (together with all amendments, restatements, supplements or other modifications thereto, the “Credit Agreement”), among the Borrowers, BancFirst, as the lender (the “Lender”) which are or become parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Credit Agreement), hereby requests a Borrowing as follows:

 

(i)         Aggregate amount of the requested Borrowing is $[                   ];

 

(ii)         Date of such Borrowing is [                   ], 20[   ];

 

(iii)         Amount of Borrowing Base in effect on the date hereof is $[                   ];

 

(iv)         Total Credit Exposures on the date hereof (i.e., outstanding principal amount of Loans) is $[                   ]; and

 

(v)         Pro forma total Credit Exposures (giving effect to the requested Borrowing) is $[                   ]; and

 

(vi)         Location and number of the Borrowers’ account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04 of the Credit Agreement, is as follows:

 

[________________________]
[________________________]
[________________________]
[________________________]
[________________________]

 

The undersigned certifies that he/she is the [                ] of the Borrowers, and that as such he/she is authorized to execute this certificate on behalf of the Borrowers. The undersigned further certifies, represents and warrants on behalf of the Borrowers that the Borrowers are entitled to receive the requested Borrowing under the terms and conditions of the Credit Agreement.

 

 

	ENERGY RESOURCES 12 OPERATING
	COMPANY, LLC
		By: ENERGY RESOURCES 12, L.P., a
		Delaware limited partnership
		Title: Sole Member
			By: ENERGY RESOURCES 12
			GP, LLC, a Delaware limited
			liability company
			Title: General Partner
			By:
			,
	ENERGY RESOURCES 12, L.P.
	By: Energy Resources 12 GP, LLC,
	Title: General Partner
	By:
	,

 

 

EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE

 

The undersigned hereby certifies that he/she is the [          ] of ENERGY RESOURCES 12 OPERATING COMPANY, LLC, a Delaware limited liability company ( “Energy 12 Operating”) and ENERGY RESOURCES 12, L.P., a Delaware limited partnership (“Energy 12 LP”; Energy 12 Operating and Energy 12 LP are jointly, severally and collectively referred to herein as the “Borrowers” and each individually as a “Borrower”), and that as such he/she is authorized to execute this certificate on behalf of the Borrower. With reference to the Credit Agreement dated as of May 2, 2024 (together with all amendments, restatements, supplements or other modifications thereto being the “Agreement”), among the Borrowers and BancFirst, as the lender (the “Lender”) which are or become a party thereto, the undersigned represents and warrants to the best of his/her knowledge after reasonable enquiry as follows (each capitalized term used herein having the same meaning given to it in the Agreement unless otherwise specified):

 

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

 

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

 

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

 

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

 

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

 

EXECUTED AND DELIVERED this [          ] day of [          ].

 

 

	ENERGY RESOURCES 12 OPERATING
	COMPANY, LLC
		By: ENERGY RESOURCES 12, L.P., a
		Delaware limited partnership
		Title: Sole Member
			By: ENERGY RESOURCES 12
			GP, LLC, a Delaware limited
			liability company
			Title: General Partner
			By:
			,
	ENERGY RESOURCES 12, L.P.
	By: Energy Resources 12 GP, LLC,
	Title: General Partner
	By:
	,

 

 

EXHIBIT D
FORM OF GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT (this “Guaranty”) is dated as of the 2nd day of May, 2024, by ENERGY RESOURCES 12 GP, LLC, a Delaware limited liability company (“Guarantor”), in favor of BANCFIRST as Lender (as defined in the Credit Agreement), and, in the case of any Swap Agreement (as defined in the Credit Agreement), any Secured Swap Provider (as defined in the Credit Agreement), and its successors and assigns as permitted pursuant to the Credit Agreement (Lender and any Secured Swap Provider, and each of their successors and assigns are collectively referred to herein as “Beneficiaries”).

 

W I T N E S S E T H:

 

WHEREAS, ENERGY RESOURCES 12 OPERATING COMPANY, LLC, a Delaware limited liability company (“Energy 12 Operating”) and ENERGY RESOURCES 12, L.P., a Delaware limited partnership (“Energy 12 LP”; Energy 12 Operating and Energy 12 LP are jointly, severally and collectively referred to herein as the “Borrowers” and each individually as a “Borrower”) and BancFirst (“Lender”) are parties to that certain Credit Agreement (as amended, the “Credit Agreement”) dated as of May 2, 2024, pursuant to which Lender has made a revolving credit loan to Borrowers (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and

 

WHEREAS, Lender has required, as a condition to extending credit under the Credit Agreement, that Guarantor execute and deliver this Guaranty; and

 

WHEREAS, Guarantor has determined that valuable benefits will be derived by it as a result of the Credit Agreement and the extension of credit made (and to be made) by Lender thereunder; and

 

WHEREAS, Guarantor has further determined that the benefits accruing to it from the Credit Agreement exceed Guarantor’s anticipated liability under this Guaranty.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Guarantor hereby covenants and agrees as follows:

 

1.    Guarantor hereby absolutely and unconditionally guarantees the prompt, complete and full payment when due, no matter how such shall become due, of the Indebtedness, and further guarantees that Borrowers will properly and timely perform the Indebtedness and other obligations and liabilities of Borrowers under the Credit Agreement, Note and other Loan Documents. Notwithstanding any contrary provision in this Guaranty, however, Guarantor’s maximum liability under this Guaranty is limited, to the extent, if any, required so that its liability is not subject to avoidance under applicable Debtor Relief Laws (as such term is defined in Paragraph 8 hereof).

 

 

2.    If Guarantor is or becomes liable for any indebtedness owing by Borrowers to any Beneficiary by endorsement or otherwise than under this Guaranty, such liability shall not be in any manner impaired or affected hereby, and the rights of Beneficiaries hereunder shall be cumulative of any and all other rights that Beneficiaries may ever have against Guarantor. The exercise by any Beneficiary of any right or remedy hereunder or under any other instrument, at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

 

3.    In the event of default by Borrowers in payment of the Indebtedness, or any part thereof, when such Indebtedness become due, either by its terms or as the result of the exercise of any power to accelerate, past any applicable grace or cure period, Guarantor shall, within thirty (30) days of Beneficiaries’ demand, and without further notice of dishonor and without any notice having been given to Guarantor previous to such demand of the acceptance by Beneficiaries of this Guaranty, and without any notice having been given to such Guarantor previous to such demand of the creating or incurring of such Indebtedness, pay the amount due thereon to Beneficiaries at Lender’s office as set forth in the Credit Agreement, and it shall not be necessary for any Beneficiary, in order to enforce such payment by Guarantor, first, to institute suit or exhaust its remedies against Borrowers or others liable on such Indebtedness, to have Borrowers joined with Guarantor in any suit brought under this Guaranty or to enforce its rights against any security which shall ever have been given to secure such indebtedness; provided, however, that in the event any Beneficiary elects to enforce and/or exercise any remedies it may possess with respect to any security for the Indebtedness prior to demanding payment from Guarantor, Guarantor shall nevertheless be obligated hereunder for any and all sums still owing to Beneficiaries on the Indebtedness and not repaid or recovered incident to the exercise of such remedies.

 

4.    Notice to Guarantor of the acceptance of this Guaranty and of the making, renewing or assignment of the Indebtedness and each item thereof, are hereby expressly waived by Guarantor.

 

5.    Each payment on the Indebtedness shall be deemed to have been made by Borrowers unless express written notice is given to Lender at the time of such payment that such payment is made by Guarantor as specified in such notice.

 

6.    If all or any part of the Indebtedness at any time is secured, Guarantor agrees that Lender may at any time and from time to time, at their discretion and with or without valuable consideration, allow substitution or withdrawal of collateral or other security and release collateral or other security or compromise or settle any amount due or owing under the Credit Agreement or amend or modify in whole or in part the Credit Agreement or any Loan Document executed in connection with same without impairing or diminishing the Indebtedness of Guarantor hereunder. Guarantor further agrees that if any Borrower executes in favor of any Beneficiary any collateral agreement, mortgage or other security instrument, the exercise by any Beneficiary of any right or remedy thereby conferred on such Beneficiary shall be wholly discretionary with such Beneficiary, and that the exercise or failure to exercise any such right or remedy shall in no way impair or

 

 

diminish the obligation of Guarantor hereunder. Guarantor further agrees that Beneficiaries and Lender shall not be liable for their failure to use diligence in the collection of the Indebtedness or in preserving the liability of any person liable for the Indebtedness, and Guarantor hereby waives presentment for payment, notice of nonpayment, protest and notice thereof (including, notice of acceleration), and diligence in bringing suits against any Person liable on the Indebtedness, or any part thereof.

 

7.    Guarantor agrees that Beneficiaries, in their discretion, may (a) bring suit against all guarantors (including, without limitation, Guarantor hereunder) of the Indebtedness jointly and severally or against any one or more of them, (b) compound or settle with any one or more of such guarantors for such consideration as Beneficiaries may deem proper, and (c) release one or more of such guarantors from liability hereunder, and that no such action shall impair the rights of Beneficiaries to collect the Indebtedness (or the unpaid balance thereof) from other such guarantors of the Indebtedness, or any of them, not so sued, settled with or released. Guarantor agrees, however, that nothing contained in this paragraph, and no action by Beneficiaries permitted under this paragraph, shall in any way affect or impair the rights or Indebtedness of such Guarantors among themselves.

 

8.    Guarantor represents and warrants to each Lender that (a) Guarantor is a corporation, limited liability company or partnership duly organized and validly existing under the laws of the jurisdiction of its incorporation or formation; (b) Guarantor possesses all requisite authority and power to authorize, execute, deliver and comply with the terms of this Guaranty; (c) this Guaranty has been duly authorized and approved by all necessary action on the part of Guarantor and constitutes a valid and binding obligation of Guarantor enforceable in accordance with its terms, except as (1) the enforcement thereof may be limited by applicable Debtor Relief Laws, and (2) the availability of equitable remedies may be limited by equitable principles of general applicability; and (d) no approval or consent of any court or governmental entity is required for the authorization, execution, delivery or compliance with this Guaranty which has not been obtained (and copies thereof delivered to Lender). As used in this Guaranty, the term “Debtor Relief Laws” means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments or similar debtor relief laws from time to time in effect affecting the rights of creditors generally (including, to the extent applicable, the rights and remedies of creditors of a “financial company” as such term is defined in Section 201 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) or for providing for the relief of debtors.

 

9.    Guarantor covenants and agrees that until the Indebtedness is paid and performed in full, except as otherwise provided in the Credit Agreement or unless Lender gives its prior written consent to any deviation therefrom, it will (a) at all times maintain its existence and authority to transact business in any state or jurisdiction where Guarantor has assets and operations, except where the failure to maintain such existence or authority would not have a Material Adverse Effect, (b) promptly deliver to Lender such information respecting its business affairs, assets and

 

 

liabilities as Lender may reasonably request, and (c) duly and punctually observe and perform all covenants applicable to Guarantor under the Credit Agreement and the other Loan Documents.

 

10.    This Guaranty is for the benefit of Lender, Secured Swap Providers, their successors and assigns, and in the event of an assignment by Lender or Secured Swap Providers (or their successors or assigns) of the Indebtedness, or any part thereof, the rights and benefits hereunder, to the extent applicable to the Indebtedness so assigned, may be transferred with such Indebtedness. This Guaranty is binding upon Guarantor and its successors and assigns.

 

11.    No modification, consent, amendment or waiver of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same shall be in writing and signed by the Lender, and then shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Guarantor in any case shall, of itself, entitle Guarantor to any other or further notice or demand in similar or other circumstances. No delay or omission by Lender in exercising any power or right hereunder shall impair any such right or power or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such power preclude other or further exercise thereof, or the exercise of any other right or power hereunder. All rights and remedies of Lender hereunder are cumulative of each other and of every other right or remedy which Lender may otherwise have at law or in equity or under any other contract or document, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.

 

12.    No provision herein or in any promissory note, instrument or any other Loan Document executed by Borrowers or any Borrower or Guarantor evidencing the Indebtedness shall require the payment or permit the collection of interest in excess of the Highest Lawful Rate. If any excess of interest in such respect is provided for herein or in any such promissory note, instrument, or any other Loan Document, the provisions of this paragraph shall govern, and neither a Borrower nor Guarantor shall be obligated to pay the amount of such interest to the extent that it is in excess of the amount permitted by law. The intention of the parties being to conform strictly to any applicable federal or state usury laws now in force, all promissory notes, instruments and other Loan Documents executed by Borrowers or any Borrower or Guarantor evidencing the Indebtedness shall be held subject to reduction to the amount allowed under said usury laws as now or hereafter construed by the courts having jurisdiction.

 

13.    If Guarantor should breach or fail to perform any provision of this Guaranty, Guarantor agrees to pay Beneficiaries all reasonable out-of-pocket costs and expenses (including court costs and reasonable attorney’s fees) incurred by Beneficiaries in the enforcement hereof.

 

14.         (a) The liability of Guarantor under this Guaranty shall in no manner be impaired, affected or released by the insolvency, bankruptcy, making of an assignment for the benefit of creditors, arrangement, compensation, composition or readjustment of a Borrower, or any proceedings affecting the status, existence or assets of Borrower or other similar proceedings instituted by or against a Borrower and affecting the assets of a Borrower.

 

 

(b)    Guarantor acknowledges and agrees that any interest on any portion of the Indebtedness which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Indebtedness ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Indebtedness if said proceedings had not been commenced) shall be included in the Indebtedness because it is the intention of Guarantor and Lender that the Indebtedness which is guaranteed by Guarantor pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve either Borrower of any portion of such Indebtedness. Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Beneficiaries or Lender, or allow the claim of Beneficiaries or Lender in respect of, any such interest accruing after the date on which such proceeding is commenced.

 

(c)    In the event that all or any portion of the Indebtedness is paid by Borrowers, the obligations of Guarantor hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from Lender or any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Indebtedness for all purposes under this Guaranty.

 

15.    Guarantor understands and agrees that any amounts of Guarantor on account with Lender may, if an Event of Default shall have occurred and be continuing, be offset to satisfy the obligations of Guarantor hereunder.

 

16.    Guarantor hereby subordinates and makes inferior any and all indebtedness now or at any time hereafter owed by any Borrower to Guarantor to the Indebtedness evidenced by the Credit Agreement and agrees if an Event of Default shall have occurred and be continuing, not to permit any such Borrower to repay, or to accept payment from any such Borrower of, such indebtedness or any part thereof without the prior written consent of Lender.

 

17.    During the period that Lender has any commitment to lend under the Loan Documents, or any amount payable under any Note remains unpaid, and throughout any additional preferential period subsequent thereto, Guarantor hereby waives any and all rights of subrogation to which Guarantor may otherwise be entitled against Borrowers (or either one of them), or any other guarantor of the Indebtedness, as a result of any payment made by Guarantor pursuant to this Guaranty.

 

18.    If any provision of this Guaranty is held to be illegal, invalid, or unenforceable, such provision shall be fully severable, this Guaranty shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this

 

 

Guaranty a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable.

 

19.       (a) Except to the extent required for the exercise of the remedies provided in the other security instruments, Guarantor hereby irrevocably submits to the nonexclusive jurisdiction of any Oklahoma state or federal court over any action or proceeding arising out of or relating to this Guaranty or any other Loan Document, and Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Oklahoma state or federal court. Guarantor hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any Litigation arising out of or in connection with this Guaranty or any of the Loan Documents brought in district courts of Oklahoma County, Oklahoma, or in the United States District Court for the Western District of Oklahoma. Guarantor hereby irrevocably waives any claim that any Litigation brought in any such court has been brought in an inconvenient forum. Guarantor hereby irrevocably consents to the service of process out of any of the aforementioned courts in any such Litigation by the delivery of copies thereof by Federal Express or other nationally recognized overnight delivery service, to Guarantor’s office c/o ENERGY RESOURCES 12 OPERATING COMPANY, LLC, at 41 Madison Avenue, 25^th Floor, New York, NY 10013, Attn: Borja Madrid. Guarantor irrevocably agrees that any legal proceeding against Lender shall be brought in the district courts of Oklahoma County, Oklahoma, or in the United States District Court for the Western District of Oklahoma. Nothing herein shall affect the right of Lender to commence legal proceedings or otherwise proceed against Guarantor in any jurisdiction or to serve process in any manner permitted by applicable law. As used herein, the term “Litigation” means any proceeding, claim, lawsuit or investigation (1) conducted or threatened by or before any court or governmental department, commission, board, bureau, agency or instrumentality of the United States or of any state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereafter constituted or existing, or (2) pending before any public or private arbitration board or panel.

 

(b)    Nothing in this Paragraph 19 shall affect any right of Lender to serve legal process in any other manner permitted by law or affect the right of Lender to bring any action or proceeding against Guarantor in the courts of any other jurisdictions.

 

(c)    To the extent that Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Guarantor hereby irrevocably waives such immunity in respect of its obligations under this Guaranty and the other Loan Documents.

 

20.    Each Guarantor that is a Qualified ECP Counterparty hereby guarantees the payment and performance of all Indebtedness of each Credit Party and absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time to each Credit Party in order for such Credit Party to honor its obligations under this Guaranty

 

 

including obligations with respect to Swap Agreements (provided, however, that each such Guarantor shall only be liable under this Paragraph 20 for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Paragraph 20, or otherwise under this Guaranty or any Loan Document, as it relates to such other Credit Parties, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations of each such Guarantor under this Paragraph 20 shall remain in full force and effect until all Indebtedness is paid in full to the Lender and all other Secured Parties, and all of the Lender’s Commitments are terminated. The parties intend that this Paragraph 20 constitute, and this Paragraph 20 shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each other Credit Party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

21.    THIS GUARANTY AND THE OTHER LOAN DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG LENDER AND GUARANTOR AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF LENDER AND GUARANTOR. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG LENDER AND GUARANTOR.

 

22.    GUARANTOR, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RIGHT TO A JURY TRIAL, IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS.

 

23.    THIS GUARANTY AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA.

 

EXECUTED and effective as of the date first above written.

 

GUARANTOR:

 

ENERGY RESOURCES 12 GP, LLC a Delaware limited liability company

 

By:         _________________________

David McKenney, Manager and Director

 

 

SCHEDULE  7.04

LITIGATION

 

NONE

 

 

 

 

 

SCHEDULE 7.13

SUBSIDIARIES AND PARTNERSHIPS

 

1.         Energy Resources 12 Management, LLC

 

 

 

 

 

SCHEDULE 7.15

PROPERTIES

 

NONE

 

 

 

 

 

SCHEDULE 7.17

GAS IMBALANCES

 

NONE

 

 

 

 

 

SCHEDULE 7.18

MARKETING CONTRACTS

 

NONE

 

 

 

 

 

SCHEDULE 7.19

SWAP AGREEMENTS

 

NONE

 

 

 

 

 

SCHEDULE 9.05

INVESTMENTS

 

NONE