295

295
-5Reorganized Common Stock on a post-dilution basis.
10.
GOVERNANCE/
MANAGEMENT /
CRO
The governance and management of the Company during the RSA Effective
Period (including with respect to the appointment of a chief restructuring officer),
and of the Reorganized Company shall thereafter be as set out in Annex A hereto.
11.
CONDITIONS
PRECEDENT TO
IMPLEMENTATION
The conditions precedent to the implementation of Plan will be set forth in the
Plan and will include, without limitation, the following:
1. No change of control payments will be made to any of the Company's
employees in connection with implementation of the Restructuring
and/or the termination or amendment of any of their employment
agreements. The existing employment agreements for employees
subject to the KERP will be amended, revised or replaced on terms that
are consistent with the KERP and otherwise in form and substance
acceptable to the New Board, the Requisite Consenting Creditors and the
Plan Sponsor;
2. The fees payable to the Principal Company Financial Advisor in
connection with the negotiation and implementation of the
Restructuring, and such other services as described in the engagement
agreement dated as of December 17, 2015 between the Principal
Company Financial Advisor and the Company, will be paid subject to
and in accordance with the amendment, dated as of April 18, 2016, to
the terms of the Principal Company Financial Advisor's engagement
agreement with the Company, which amendment was provided to the
Requisite Consenting Creditors and the Plan Sponsor
contemporaneously herewith.
Other than with respect to those
provisions that are amended in the amendment dated as of April 18,
2016, all other terms and conditions of the Principal Company Financial
Advisor's engagement agreement with the Company dated as of
December 17, 2015 remain binding;
3. The Canadian Court shall have entered the Plan Approval Order, which
shall provide, inter alia, that (i) all common shares of Pacific shall have
been canceled or otherwise significantly diluted to a nominal amount in
accordance with this Recapitalization Term Sheet, and (ii) any and all
other equity claims and equity interests (as such terms are defined in the
CCAA) of Pacific shall have been canceled, extinguished and forever
barred, in each case with no consideration provided to holders of such
common shares or equity claims; and
4. Upon the Plan Effective Date, the Reorganized Company Stock will be
publicly listed and traded on the Toronto Stock Exchange or, if such
listing is not available as a consequence of listing requirements, on the
TSX-V, provided that if neither such listing is available to the
Reorganized Company as a consequence of the listing requirements of
such exchanges, on such other stock exchange as is acceptable to
Pacific, the Requisite Consenting Creditors and the Plan Sponsor
(having regard to the listing requirements of the other stock exchanges
and the liquidity provided thereby).
1.
GOVERNING LAW
New York.
Error! Unknown document property name.
296
ANNEX A
Governance
•
•
CRO: Management. During the RSA Effective Period, the Parties to the RSA shall take all steps
reasonably necessary or appropriate to effectuate the following:
o
CRO Appointment. An empowered chief restructuring officer (the "CRO") with enhanced
authority and new deputy chief financial officer (the "Deputy CFO") shall be appointed, each
acceptable to Requisite Consenting Creditors, the Plan Sponsor and the Independent Committee,
prior to May 6, 2016 (with a five business day cure period thereafter), or such later date as the
Requisite Consenting Creditors, the Plan Sponsor and the Independent Committee may agree.
Such CRO will report to the Independent Committee of the Company's current board of directors
(the "Board of Directors") and will be authorized to provide information directly to the Consenting
Creditors (or their advisors) and the Plan Sponsor. The existing CFO and the Deputy CFO shall
report to the CRO.
o
Selection Process for CRO. The CRO shall be selected by the Independent Committee, the Plan
Sponsor and the Requisite Consenting Creditors. Zolfo Cooper Management LLC shall be
eligible for this appointment. The Deputy CFO shall be selected via a pitch process, conducted by
a working group composed of the Plan Sponsor and an agreed-upon subset of the Ad Hoc
Noteholder Committee, the Ad Hoc Lender Committee and the Independent Committee advisors.
o
Prerequisites for CRO and Deputy CFO. The CRO and Deputy CFO must be present in Bogota
five (5) days per week (subject to having to attend meetings concerning Pacific matters that are
scheduled outside of Bogota). The CRO and/or its team should include individuals with Spanishlanguage skills and relevant oil and gas experience.
o
DIP Budget. As soon as practical after his appointment, the CRO shall review the Cash Flow
Projections (as defined in the DIP/Exit Note Term Sheet) and provide comments to the Requisite
Consenting Creditors (or their advisors), the Plan Sponsor, and the Independent Committee.
o
CRO Powers. The mandate of the CRO shall include a full assessment of key company processes,
organizational structure, systems, controls, risks and certain positions at the Company, as agreed
by the Plan Sponsor and Requisite Consenting Creditors (or their advisors). The CRO is also
empowered to retain a leading international executive search firm to assist in such assessment.
New Board Composition; Reorganized Company Management; Shareholder Rights
o
Size of Reorganized Company's Board of Directors. The Reorganized Company's board of
directors (the "New Board") shall be composed of seven members upon the Plan Effective Date.
o
New Board Composition. The New Board shall be initially comprised as follows: (i) three
nominees selected by the Plan Sponsor, one of which may be chosen to serve as the chairman of
the New Board; (ii) two independent nominees that are jointly selected by the Plan Sponsor and
the Requisite Consenting Creditors; (iii) one independent individual proposed by the Requisite
Consenting Noteholders and that is reasonably acceptable to the Requisite Consenting Lenders
(the "RCN Proposed Director"); and (iv) one independent individual proposed by the Requisite
Consenting Lenders and that is reasonably acceptable to the Requisite Consenting Noteholders
(the "RCL Proposed Director"). A majority of the New Board shall nominate directors for reelection at the end of the New Board's term, including directors then in office (if they consent to
election). The Articles or by-laws of the Reorganized Company shall contain provisions (A)
requiring that the Board be comprised of a majority of "Independent Directors" (to be defined in
the Articles or by-laws as directors who are independent of the Reorganized Company and
independent of the Plan Sponsor), and (B) requiring the Plan Sponsor to vote all of its shares in
favour of the RCN Proposed Director and the RCL Proposed Director (if they consent to election)
at the two annual meetings of shareholders immediately following the Plan Effective Date (i.e., in
2017 and 2018), both of which provisions shall fall away if the Plan Sponsor owns less than 10%
of the outstanding Reorganized Common Stock. The requirement in (A) shall fall away on the
date of the Company's annual meeting in 2019.
Error! Unknown document property name.
297
-2o
Reorganized Company Management. Certain positions of the Reorganized Company in place on
the Plan Effective Date (as agreed by the Plan Sponsor and Requisite Consenting Creditors) shall
be affirmed by a supermajority of six members of the New Board in the case of certain members
of senior management, and, with respect to the remaining positions, by four members of the New
Board, including one nominee from the Plan Sponsor and either the RCN Proposed Director or the
RCL Proposed Director. If the requisite majority does not affirm such management, then such
management shall remain in their respective positions, but a search firm (paid on a fixed fee basis)
shall assess potential alternative management, including existing management. Following the
results of the search process, a vote of only four members of the New Board shall be required to
select any person for a position that was not affirmed by the requisite votes, provided that the four
members needed to carry an affirmative vote must include one nominee from the Plan Sponsor
and either the RCN Proposed Director or the RCL Proposed Director.
o
Negative Control Rights. A majority of the New Board, including (a) at least one of the RCN
Proposed Director or the RCL Proposed Director (for so long as those individuals are directors), or
after such time as either one of the RCN Proposed Director or the RCL Proposed Director ceases
to be a director for any reason, at least two Independent Directors, and (b) (except with respect to a
related party transaction involving the Plan Sponsor) at least one of the three directors initially
chosen by the Plan Sponsor (or if they are no longer directors, any one director who is an
employee of the Plan Sponsor) shall be required to approve any of the following: incurring new
funded debt; compensation plans/MIP; related party transactions; stock buybacks; equity raises;
changes to capital structure; rights offerings; material changes to development and the business
plan; material asset sales; material amendments to governing documents; and changes to the size
of the New Board or method of appointment; provided that any vote in favor of any rights offering
shall also require the affirmative vote of each of the RCN Proposed Director and the RCL
Proposed Director, in each case for so long as such directors are on the New Board. The
requirements set forth in this provision shall fall away on the date of the Company's annual
meeting of shareholders in 2019.
o
Shareholder Rights Plan. The Reorganized Company shall adopt a customary shareholder rights
plan on the Plan Effective Date with a trigger for an "Acquiring Person" being set at 20% or more
of the outstanding Reorganized Company Stock (the Plan Sponsor shall be grandfathered), such
that offers to acquire the Reorganized Common Stock made by an Acquiring Person (or that, if
completed, would result in the offeror becoming an Acquiring Person) must be made to all
shareholders on the same terms. Termination, amendments or waivers under the shareholder
rights plan would require approval by a majority of the Independent Directors.
Error! Unknown document property name.
Z9
SCHEDULE "D"
SECURITY DOCUMENTS
Colombia
1. Guarantee Trust Agreement establishing a fiducia in favour of the DIP Collateral Agent into which all
Colombian assets of the Note Parties will be transferred, other than such contractual rights which require
counterparty consent. The Guarantee Trust Agreement will be registered before the Movables Guarantees
Registry (Registro de Garantias Mobiliarias) managed by the Confederation of Chambers of Commerce
(Confederation de Cantatas de Comercio — Confecamaras) (the "MGR"). This will include, among other
things, accounts in the name of the fiduciaria into which all Colombian receivables will be directed.
2. Commercial Establishment Pledge Agreement over all present and future movable assets which will be
registered before the MGR.
3. Conditional Assignment of Economic Rights under Contracts which will be registered before the MGR.
4. Account Control Agreements (or local equivalents) over all accounts of the Note Parties. The Account
Control Agreements will be registered before the MGR.
5. Share pledge agreements over the shares or Agrocascada S.A.S. and any other Note Party formed under
Colombian law, which share pledge agreements will be registered before the MGR and in the relevant Note
Party's stock-ledger.
Canada
1. General security agreement over all Canadian assets of each applicable Note Party which will be registered
in the personal property security registries of British Columbia, Ontario and any other province in which
Canadian assets of a Note Party are located.
2. The parties will establish one or more Cash Collateral Accounts which shall be subject to a sole-dominion
account control agreement in favour of the DIP Collateral Agent.
3. Springing-dominion account control agreements will be entered in respect of all other Canadian bank
accounts.
Other jurisdictions
1. Equity pledge agreements in each jurisdiction (other than Canada and Colombia) in which a Note Party is
organized (Switzerland, Netherlands, Luxembourg, Panama, Barbados, Peru, Bermuda and British Virgin
Islands).
2. Springing-dominion account control agreements will be entered into in each jurisdiction in which
jurisdiction outside of Canada in which the Note Parties have material bank accounts to which receivables
are deposited (e.g. proceeds of foreign crude oil sales).
3. Additional security documents as reasonably required in each jurisdiction in which a Note Party has
material assets (if any), including, without limitation specific pledge agreements over all equity interests,
notes and other interests and investments held in any subsidiaries of the Note Parties (including joint
ventures and non-wholly owned subsidiaries) .
"Initial Collateral" means (i) all Collateral owned by any Note Party located in Canada and the United States, (ii)
all Collateral located in Colombia owned by each of Meta Petroleum AG (including its Colombian Branch), Pacific
Stratus Energy Colombia Corp. (including its Colombian branch), Grupo C&C Energia (Barbados) Ltd. (including
its Colombian branch), Petrominerales Colombia Corp. (including its Colombian branch) and Agro Cascada S.A.S.,
(iii) all Collateral owned by each entity in item (ii) located in its jurisdiction of organization, (iv) an assignment of
299
-2all intercompany debt owed by or owing to each entity in item (ii) validly perfected in Colombia and in such entity's
jurisdiction of organization (v) a pledge of the stock or other equity interests in each entity in item (ii), (vi) a pledge
of the stock or other equity interests in each of Pacific E&P Holdings Corp. and Pacific E&P International Holdings,
S.a.r.1., Pacific Infrastructure Ventures Inc., Pacinfra Holding Ltd., Pacific Midstream Holding Corp. and Pacific
Midstream Ltd. and (vii) a pledge of stock of, and a pledge of all assets of, any direct or indirect wholly-owned
subsidiary of the Issuer holding material cash deposits or intercompany claims.
"Subsequent Collateral" means all Collateral other than the Initial Collateral.
'3clo
SCHEDULE I
DIP/EXIT NOTE PURCHASER
DIP NOTE
FACILITY
COMMITMENT
EXIT FACILITY
COMMITMENT
[NAMES REDACTED]
TOTAL:
6558227
US$250,000,000
US$250,000,000
This is Exhibit "M" referred to in the
Affidavit of Peter Volk
sworn before me, this 27th day
of April, 2016
A Commissioner for taking Affidavits
CAN_DMS: \65405557\1
E02
EXECUTION VERSION
SECURED DIP AND EXIT FINANCING FACILITY — SUMMARY TERM SHEET (the "Term Sheet")
U.S. $500 million secured term note facility (the "DIP Note Issuance")
1.
CONFIDENTIALITY
The Issuer (as defined below) agrees that it shall not disclose this Term Sheet or the
substance of the financing arrangements proposed herein to any person without the
prior written consent of the DIP Note Purchasers (as defined below), except to (i) the
Issuer's and the other Note Parties' directors, senior officers, professional advisors and
(ii) the DIP LC Lenders and their professional advisors and (iii) the professional
advisors of Bank of America, N.A., as agent under that certain Revolving Credit and
Guaranty Agreement dated as of April 30, 2014 among Pacific, Bank of America, N.A.
as administrative agent, and the lenders and guarantors party thereto, on a confidential
basis, in each case unless required to be disclosed by law or by a regulatory authority
(including a stock exchange on which the Issuer's shares are listed). Additionally, this
Term Sheet may be disclosed to the extent required to be filed with a court in
connection with any Restructuring Proceedings (as defined below).
2.
SUBJECT TO
DEFINITIVE
DOCUMENTATION
$500 million of debtor-in-possession senior secured notes (the "DIP Notes") will be
issued pursuant to an indenture (the "Indenture") and a note purchase agreement (the
"NPA" and together with the Indenture, collectively, the "DIP Note Agreement").
The offer of debtor-in possession financing contemplated herein is subject to the
execution of the DIP Note Agreement and other definitive documents related thereto
(collectively, the "DIP Note Documents"). The DIP Notes will be issued in two
separate series: (i) senior secured notes in a principal face amount of $250 million
(defined below) (the "Creditor DIP Notes") and (ii) senior secured notes in a principal
face amount of $250 million, to be issued to the Plan Sponsor (the "Plan Sponsor
Notes") and which, on the Exit Date, the Plan Sponsor may exchange for 16.8% of the
Reorganized Common Stock (as defined in the Recapitalization Term Sheet and
subject to dilution pursuant to the Management Incentive Plan (as described in the
Recapitalization Term Sheet)), failing which exercise the Plan Sponsor Notes will be
mandatorily exchanged for 16.8% of the Reorganized Common Stock (subject to
dilution pursuant to the Management Incentive Plan).
The DIP Notes shall be centrally held through DTC and/or Euroclear or a similar
indirect holding system, and (i) the Issuer shall use commercially reasonable best
efforts to obtain a rating within 10 business days after the Exit Date, (ii) on or prior to
the Exit Date, the Issuer shall have prepared a draft prospectus (subject to the inclusion
of such additional information, including additional financial information and pro
forma statements reflecting the reorganization of the Issuer that was not reasonably
available for inclusion therein prior to the Exit Date, as may be required by the
competent authority of the Euro MIT) for the purpose of applying for the listing of the
Exit Notes on the Official List of the Luxembourg Stock Exchange); (iii) no later than
10 business days after the later of the Exit Date or the availability of the additional
required information as set out in item (ii), the Issuer shall have applied for the listing
of the Exit Notes on the Official List of the Luxembourg Stock Exchange and to trade
them on the Euro MTF Market of such exchange and (iv) the Issuer will use its
commercially reasonable best efforts to obtain and maintain such listing of the Exit
Notes on the Official List of the Luxembourg Stock Exchange, failing which, it will
use its commercially reasonable best efforts to promptly obtain and maintain an
alternative listing of the Exit Notes on an equivalent unregulated stock exchange
acceptable to the holders of the Exit Notes.
The Indenture shall be based on the form of indenture dated as of September 19, 2014
between Pacific Rubiales Energy Corp. (as predecessor to Pacific (as defined below),
as issuer and The Bank of New York Mellon, as trustee (the "Form of Indenture")
subject to such changes, which will be substantial, as are required to give effect to this
Term Sheet and having regard to the Note Parties' financial situation, the Restructuring
Proceedings and the secured nature of the DIP Notes and such other changes as the
DIP Note Purchasers may reasonably require. The covenants in the Indenture shall
-2contain such thresholds, limitations, qualifications and baskets as may be acceptable to
the DIP Note Purchasers.
The Indenture shall govern the DIP Notes and may be amended and restated or
otherwise replaced (such amended, restated or replaced Indenture being, the
"Amended Indenture") and the Amended Indenture shall thereafter govern the Exit
Notes (as defined in Schedule "A") provided that those terms of the DIP Note
Agreement relating to the Restructuring Proceedings (as defined below) and other
matters and covenants relating specifically thereto shall not apply following the
completion of, and emergence of the Reorganized Company (as defined in the
Recapitalization Term Sheet (as defined below)) from, the Restructuring Proceedings
and, to the extent reasonably practicable and acceptable to the DIP Note Purchasers,
such matters and covenants shall be contained in the NPA.
3.
DIP LC FACILITY
AND HEDGING
An additional second-lien secured letter of credit facility in an amount of up to $134
million on terms and conditions acceptable to the DIP Note Purchasers (the "DIP LC
Facility") may be provided by certain of the existing bank lenders (collectively,
together with their successors and assigns, the "DIP LC Lenders").
A secured first-lien hedging facility with respect to up to 60% of the production of the
Issuer and its affiliates, or such other amount to be agreed by the DIP Note Purchasers
(the "Hedging Facility") may be provided by a bank acceptable to the DIP Note
Purchasers) (the "Hedge Provider").
4.
ISSUER
Pacific Exploration & Production Corporation ("Pacific" or the "Issuer").
5.
GUARANTORS
Meta Petroleum AG, Pacific E&P Holdings Corp., Pacific E&P International Holdings,
S.a.r.1., Pacific Global Capital, S.A., Pacific Stratus International Energy Ltd., Pacific
Guatemala Energy Corp., Pacific Rubiales Guatemala, S.A., Pacific Rubiales PNG
Limited, Pacific Brasil Exploracao e Producao de Oleo e Gas Ltda., Pacific Stratus
Energy S.A., Pacific Marketing International Corp., Pacific Stratus Energy Colombia
Corp., Pacific Off Shore Peru S.R.L., Pacific Stratus Energy del Peru S.A.,
Petrominerales Peru Ltd., Petro International Ltd., Petrominerales Bermuda Ltd.,
Petrominerales Colombia Corp., C&C Energia Holding SRL, Grupo C&C Energia
(Barbados) Ltd., PRE Corporate Services Corp., PRE-PSIE Cooperatief U.A., Pacific
Midstream Holding Corp., Pacinfra Holding Ltd., Major International Oil S.A. and
Agro Cascada S.A.S., and any other wholly owned subsidiaries of the Issuer as may be
reasonably required by the DIP Note Purchasers (collectively the "Guarantors"). To
the extent permitted by applicable law, all obligations of the Issuer will be
unconditionally guaranteed jointly and severally by the Guarantors and the obligations
of each Issuer will be guaranteed by the other Issuer. Notwithstanding the foregoing,
the Issuer agrees that, to the extent required by the DIP Note Purchasers and permitted
under Swiss law, Meta Petroleum AG agrees to (i) borrow money from another Note
Party pursuant to secured intercompany notes in an amount to be agreed with the DIP
Note Purchasers (which secured intercompany notes shall be pledged to the DIP
Collateral Agent), (ii) to the extent the structure described in clause (i) is not
reasonably practicable, to become a co-issuer of the DIP Notes and/or (iii) otherwise
structure its affairs and obligations under the DIP Notes in a manner reasonably
satisfactory to the DIP Note Purchasers.
The Issuer and the Guarantors are collectively referred to herein as the "Note Parties"
and each a "Note Party".
6.
DIP NOTE
PURCHASERS
The entire amount of the Plan Sponsor Notes will be purchased by funds managed or
administered by The Catalyst Capital Group Inc. (together with its successors and
permitted assigns, the "Plan Sponsor") and the entire amount of the Creditor DIP
Notes will be purchased by the parties listed in confidential Schedule "B" attached
hereto (or funds managed or administered by such parties) (each such party together
with its successors and assigns, and in the case of the Plan Sponsor, successors and
permitted assigns, a "DIP Note Purchaser", and collectively the "DIP Note
Purchasers" and together with the DIP LC Lenders and the Hedge Provider,
301
-3collectively, the "DIP Providers").
7.
DIP COLLATERAL
AGENT
A financial institution acceptable to the DIP Providers and reasonably acceptable to the
Issuer will act as collateral agent for and on behalf of the DIP Providers under the DIP
Note Agreement, the Hedging Facility (if any) and the DIP LC Agreement (if any), as
applicable (in such capacity, the "DIP Collateral Agent").
8.
COLLATERAL
AGENCY AND
INTERCREDITOR
AGREEMENT
The DIP Providers will enter into a collateral agency and intercreditor agreement (the
"Intercreditor Agreement") pursuant to which they shall agree among other things
that the DIP Note Obligations (as defined below) and the obligations under the
Hedging Facility (the "Hedging Obligations") (if any) shall be secured pail passu on
a first-lien basis and the DIP LC Obligations (as defined below) (if any) shall be
secured on a second-lien basis. Pursuant to the Intercreditor Agreement, (i) if there is a
Hedging Facility, the Hedge Provider will agree to limit setoff rights provided that it
may have priority with respect to monthly payments under the Hedging Facility to the
extent agreed by the DIP Note Purchasers, in priority to the DIP Note Obligations and
the DIP LC Obligations and (ii) if there is a DIP LC Facility, the DIP LC Lenders will
not be permitted to cause the DIP Collateral Agent to enforce the security or otherwise
take action with respect to the DIP Collateral except (x) if the DIP Note Obligations
have been paid in full or (y) following the completion of a 90-day standstill period
following the failure by the Issuer to pay any principal, interest or fees payable in
accordance with the terms of the DIP LC Facility; provided that, following
commencement of enforcement, the DIP Collateral Agent shall be instructed in
accordance with the Intercreditor Agreement. The Borrower shall have the right to
enter into one or more letter of credit facilities with financial institutions that are
secured on a pari passu basis with the DIP LC Obligations up to a total aggregate
amount of $200 million (including the DIP LC Obligations).
9.
SEPARATE RIGHTS
AND OBLIGATIONS
The obligations of each DIP Note Purchaser under the DIP Note Agreement shall be
several (and not joint and several). No DIP Note Purchaser (other than the Plan
Sponsor as provided in item (ii) below) shall be responsible for the obligations of any
other DIP Note Purchaser under the DIP Note Agreement, and the failure by any DIP
Note Purchaser (other than the Plan Sponsor) to perform its obligations under the DIP
Note Agreement (each a "Defaulting DIP Note Purchaser") shall not affect the
obligations of any other party under the DIP Note Agreement, provided that, in the
event of any such failure, (i) the DIP Note Purchasers (other than the Plan Sponsor)
shall have the right, at their option and in their sole discretion, on a pro rata basis in
accordance with their respective DIP Note Purchase Commitments (or in such other
proportions as they may agree), to perform such Defaulting DIP Note Purchaser's
obligations and to acquire any such Defaulting DIP Note Purchaser's previously
purchased Creditor DIP Notes (in which case all rights (including all interest and fees,
including the Break Fee) and obligations (including the commitment to with respect to
the Exit Notes), allocable to such Defaulting DIP Note Purchaser with respect to such
obligations and Creditor DIP Notes shall accrue to the applicable DIP Note Purchasers
(other than the Plan Sponsor) in accordance with their pro rata share of the Creditor
DIP Notes so acquired) and (ii) in the event that the entirety of the Defaulting DIP
Note Purchaser's obligations and Creditor DIP Notes are not performed and/or
purchased by the DIP Note Purchasers other than the Plan Sponsor prior to close of
business on the business day following the date on which such performance and/or
purchase was to occur, then the Plan Sponsor shall perform such remaining obligations
of the Defaulting Note Purchaser and to acquire any remaining previously purchased
Creditor DIP Notes of such Defaulting DIP Note Purchaser, in which case all rights
(including all interest and fees, including the Break Fee) and obligations (including
with respect to the Exit Notes), allocable to such Defaulting DIP Note Purchaser with
respect to such obligations and Creditor DIP Notes shall become rights and obligations
of the Plan Sponsor.
c)S
-410.
RESTRUCTURING
PROCEEDINGS
Pacific and certain other Note Parties and their applicable subsidiaries (as agreed
between Pacific and the DIP Note Purchasers) will implement the restructuring
contemplated by the Recapitalization Term Sheet attached hereto as Schedule "C" (the
"Recapitalization Term Sheet") through a plan of reorganization, which shall be
consistent with the terms of the Recapitalization Term Sheet and the RSA (as defined
in the Recapitalization Term Sheet) (as it may be amended or supplemented from time
to time in accordance with the terms of the RSA, the "Plan") to be implemented
pursuant to (i) a main Canadian proceeding (the "Canadian Proceeding") to be
commenced under the Companies' Creditors Arrangement Act (Canada) (the
"CCAA"), in the Ontario Superior Court of Justice (Commercial List) in Toronto (the
"Canadian Court"), (ii) an ancillary proceeding (and not, without the consent of the
DIP Note Purchasers, a main proceeding under Ley 1116 of 2006 in Colombia ("Law
1116")) to be commenced in Colombia (the "Colombian Proceeding") in the court
seized of jurisdiction in such Colombian Proceeding (the "Colombian Court") and
(iii) a proceeding (the "U.S. Proceeding" and together with the Colombian
Proceeding, collectively, the "Ancillary Proceedings", and together with the Canadian
Proceeding, collectively, the "Restructuring Proceedings") under chapter 15 of title
11 of the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of New York (the "U.S. Court" and,
together with the Colombian Court, the "Ancillary Insolvency Courts" and, together
with the Canadian Court, the "Insolvency Courts").
11.
PURPOSE AND
PERMITTED
PAYMENTS
The Issuer shall use proceeds of the purchase of the DIP Notes and Equity Warrants
solely for the following purposes and in the following order, in each case in
accordance with the Cash Flow Projection (as defined below):
(a)
to pay the financial advisory fees and expenses and the legal fees and
expenses of (i) a single counsel in each relevant jurisdiction for the Plan
Sponsor, (ii) a single counsel in each relevant jurisdiction for each of the DIP
Note Purchasers (other than the Plan Sponsor), as a group, the DIP LC
Lenders (as a group) and the Hedging Provider (provided that for the purposes
of local security in jurisdictions outside of Canada, Colombia and the United
States, all DIP Providers (other than the Plan Sponsor) shall use a single
common counsel), (iii) a single counsel in each relevant jurisdiction for the
prepetition holders of Notes (as defined in the RSA), as a group, (iv) a single
counsel in each relevant jurisdiction for the holders of Bank Debt (as defined
in the RSA), as a group, and (v) counsel for PricewaterhouseCoopers Inc. (the
"Monitor"); and
-5(b)
12.
13.
COMMITMENT AND
AVAILABILITY OF
DIP NOTES
EXIT NOTES AND
to fund the Note Parties' (and certain permitted subsidiaries that are not Note
Parties subject to an aggregate threshold to be agreed by the DIP Note
Purchasers) immediate funding requirements during the Restructuring
Proceedings, including funding of (i) professional fees and expenses payable
in accordance with the RSA (as defined in the Recapitalization Term Sheet),
(ii) Pacific's key employee retention plan as approved by Pacific's board and
accepted by the DIP Note Purchasers (the "KERP"), (iii) working capital and
(iv) other general corporate purposes of the Note Parties (and certain
permitted subsidiaries that are not Note Parties subject to an aggregate
threshold to be agreed by the DIP Note Purchasers), in each case in
accordance with the Cash Flow Projection and the DIP Note Agreement.
For greater certainty, the Issuer may not use the proceeds of the purchase of the DIP
Notes and the Equity Warrants to pay any pre-filing obligations of the Issuer or any
other Note Parties (or their respective subsidiaries or affiliates) without the prior
written consent of the DIP Note Purchasers; it being agreed that such consent will not
be needed for the Note Parties (and certain permitted subsidiaries that are not Note
Parties subject to an aggregate threshold to be agreed by the DIP Note Purchasers) to
pay (i) amounts due to trade creditors in the ordinary course of business, (ii) amounts
owing or permitted under the KERP and (iii) taxes, accrued payroll and other ordinary
course liabilities, provided in each case that such amounts are included in the Cash
Flow Projection.
The DIP Note Purchasers will purchase DIP Notes in an aggregate principal amount of
$500 million (the "DIP Note Issuance Amount") and Equity Warrants (as defined
below), subject to the conditions precedent set out in Section 25, provided that the DIP
Note Purchase Commitments and all other obligations of the DIP Note Purchasers
under the DIP Note Documents shall terminate if such conditions precedent are not
met or waived in accordance with Section 25 on or before June 15, 2016. The proceeds
of the DIP Notes and the Equity Warrants in an aggregate amount (net of 01D) of $480
million shall be funded on the Closing Date to the Issuer's Cash Collateral Account
and amounts from the Cash Collateral Accounts may be released as follows:
(a)
an amount of up to $288 million of the proceeds of the purchase of the DIP
Notes and the Equity Warrants plus any additional amounts deposited into the
Cash Collateral Accounts (such amount being the "Initial Amount") may be
released from the Cash Collateral Accounts on a weekly basis on the first
business day of each week in an amount (if A is greater than B) equal to A
minus B where A is $100 million and B is the amount of Unrestricted
Operating Cash (as defined below) as at the last business day of the
immediately preceding week (such amount being the "Required Release
Amount"), all such amounts and calculations to be reviewed by the CRO (as
defined below) and certified by the Issuer to the DIP Collateral Agent prior to
any such release from the Cash Collateral Accounts; and
(b)
an amount of up to $192 million of the proceeds of the purchase of the DIP
Notes and the Equity Warrants (the "Subsequent Amount") may, following
the release in full of the Initial Amount, be released from the Issuer's Cash
Collateral Account following satisfaction of the additional conditions
precedent set out in Section 26 on a weekly basis on the first business day of
each week in an amount equal to the Required Release Amount for such
week, all such amounts and calculations to be reviewed by the CRO and
certified by the Issuer to the DIP Collateral Agent prior to any such release
from the Issuer's Cash Collateral Account,
provided that, any amount remaining in the Cash Collateral Accounts on the
Exit Date shall be automatically released to the Note Parties and be used to
fund the Note Parties' working capital and general corporate purposes.
By committing to provide its portion of the DIP Note Purchase Commitments (as
3 0-1
-6THE PLAN
SPONSOR EQUITY
defined below), each DIP Note Purchaser (other than the Plan Sponsor) concurrently
commits to its pro rata share of the Exit Notes equal to its pro rata share of the
aggregate amount of the Creditor DIP Notes. On the Exit Date, all outstanding Creditor
DIP Notes will be amended, restated or replaced pursuant to the Amended Indenture
and shall thereafter be evidenced by the Exit Notes. See Schedule "A" for terms and
conditions of Exit Notes.
By committing to provide its portion of the DIP Note Purchase Commitments, the Plan
Sponsor concurrently commits that, on the Exit Date, it may exercise its right,
conferred on it under the terms of the Plan Sponsor Notes, to exchange the Plan
Sponsor Notes for 16.8% of the Reorganized Common Stock (subject to dilution
pursuant to the Management Incentive Plan), failing which exercise the Plan Sponsor
Notes will be mandatorily exchanged for 16.8% of the Reorganized Common Stock
(subject to dilution pursuant to the Management Incentive Plan).
14.
DIP NOTE
PURCHASER
COMMITMENTS
The respective commitment of each DIP Note Purchaser to purchase the DIP Notes is
the amount set opposite its name in Schedule "B" hereto, in each case to the extent not
transferred in accordance with the DIP Note Agreement (the "DIP Note Purchase
Commitments").
15.
MATURITY DATE
AND REPAYMENT
The outstanding obligations (including the principal amount of the DIP Notes and all
accrued interest and fees thereon) under the DIP Notes and the DIP Note Documents
(the "DIP Note Obligations") shall be repayable in full on the earliest to occur of the
following dates (the "DIP Maturity Date"):
the date on which a demand by the DIP Note Purchasers is made following
(a)
the occurrence of any Event of Default (as defined below) which is
continuing;
(b)
the date that a restructuring, refinancing or sale transaction (with respect to a
material amount of stock or assets of the Borrower and any of its
subsidiaries), other than the Plan and other than any Permitted Asset
Disposition, (each, a "Transaction") is approved by the applicable court or
consummated without the requisite consent of the DIP Note Purchasers;
(c)
the date on which any stay of proceedings ordered pursuant to one or more of
the Restructuring Proceedings expires without being extended or on which
one or more of the Restructuring Proceedings are terminated or converted to a
liquidation proceeding; and
the date that is six (6) months following the Closing Date (as defined below),
or such later date as may be agreed by the DIP Note Purchasers in their sole
discretion (the "Outside Date"),
provided that, if none of the foregoing events have occurred on or prior to the date on
which the Plan is implemented, then on the date on which the Plan is implemented (the
"Exit Date"): (i) the Creditor DIP Notes will be governed by the Amended Indenture
and thereafter be evidenced by the Exit Notes until the Exit Maturity Date (as defined
in Schedule "A") and (ii) the Plan Sponsor may exercise its rights conferred on it under
the Plan Sponsor Notes to exchange the Plan Sponsor Notes for 16.8% of the
Reorganized Common Stock (subject to dilution pursuant to the Management Incentive
Plan), failing which exercise the Plan Sponsor Notes will be mandatorily exchanged
for 16.8% of the Reorganized Common Stock (subject to dilution pursuant to the
Management Incentive Plan).
For greater certainty, in the event that the Exit Date has not occurred on or prior to the
DIP Maturity Date, the Equity Warrants (as defined below) will automatically expire
and the Break Fee and all other DIP Note Obligations shall become immediately due
and payable to the holders of the DIP Notes.
(d)
-716.
ASSET
DISPOSITIONS
Except for Permitted Asset Dispositions, Note Parties may not sell, assign, transfer or
otherwise dispose of any material property or assets (except the sale of hydrocarbons
in the ordinary course of business) without the prior consent of the DIP Note
Purchasers and provided that all proceeds of any sale, assignment, transfer or
disposition shall be deposited in the Cash Collateral Accounts (as defined below)
which shall be subject to an account control agreement in favour of the DIP Collateral
Agent for and on behalf of the DIP Providers and proceeds from which shall be
disbursed in accordance with the procedure described in Section 12.
"Permitted Asset Dispositions" means the following: (i) the sale of nearly 87 km of
pipes that were going to be used to build La Creciente pipeline which pipes are owned
by the Colombian branch of Pacific Stratus Energy Colombia Corp. and stored in the
La Creciente field in Colombia, (ii) the sale of tax refunds or credits (including Titulos
de Devolucion de Impuestos Nacionales) and (iii) the sale of any equity interest in
Pacific Infrastructure Ventures Inc. or the sale of the oil terminal and the dry cargo
business by Pacific Infrastructure Ventures Inc. (the "Port Facility Sale"), provided
that, the proceeds of each such sale shall be no less than the amount set out in respect
thereof in the Cash Flow Projection and provided further that prior to the
consummation of each such sale:
(a)
the relevant Note Party consummating such transaction delivers to the DIP
Note Purchasers' advisors (and/or Restricted DIP Note Purchasers) an
officer's certificate certifying that such transaction is with a party that deals at
arm's length with the relevant Note Party; and
(b)
in the case of item (iii), the relevant Note Party consummating such
transaction delivers to the DIP Note Purchasers' advisors (and/or Restricted
DIP Note Purchasers) with respect to any such transaction, a resolution of the
board of directors of such Note Party, set forth in an officer's certificate,
stating that such transaction complies with this covenant and that such
transaction has been approved by Pacific's independent committee of
directors.
17.
OPTIONAL
REDEMPTION
Prior to the Exit Date, if the Company (as defined in the RSA) has terminated the RSA
pursuant to Section 5.06(a) thereof, then the DIP Notes may be redeemed in whole by
the Issuer on three (3) business days' prior written notice, subject to the concurrent
payment of all interest payable through the then-current Outside Date on the amounts
so prepaid and payment of the Break Fee. Upon any such optional redemption and the
payment of the Break Fee, (i) all rights and obligations of the DIP Note Purchasers
(other than the Plan Sponsor) in respect of the Exit Notes, (ii) all rights and obligations
of the Plan Sponsor to exchange the Plan Sponsor Notes into 16.8% of the
Reorganized Common Stock (subject to dilution pursuant to the Management Incentive
Plan), and (iii) all rights of the DIP Note Purchasers to receive Reorganized Common
Stock pursuant to the exercise of the Equity Warrants shall be automatically cancelled.
Following the Exit Date, the Exit Notes may be redeemed subject to the redemption
premiums set out in Schedule "A".
18.
INTEREST AND
DEFAULT
INTEREST
Interest shall be payable in cash on the aggregate amount of outstanding UT Notes
from the Closing Date at a rate equal to 12% per annum, compounded monthly and
payable monthly in arrears in cash on the last business day of each month. Upon the
occurrence and during the continuation of an Event of Default, all overdue amounts
shall bear interest at the applicable interest rate plus 2% per annum payable on demand
in arrears in cash. All interest shall be computed on the basis of a 360-day year of
twelve 30-day months, provided that, whenever any interest is calculated on the basis
of a period of time other than a calendar year, the annual rate of interest to which each
rate of interest determined pursuant to such calculation is equivalent for the purposes
of the Interest Act (Canada) is such rate as so determined multiplied by the actual
number of days in the calendar year in which the same is to be ascertained and divided
by the number of days used in the basis for such determination.
(DI
-814.
ORIGINAL ISSUE
DISCOUNT
In consideration of the DIP Note Purchasers purchasing the DIP Notes and the Equity
Warrants, each DIP Note shall be issued with an original issue discount of 4%.
20.
BREAK FEE
Following the execution of the Commitment Letter, a break fee equal to 5% of the DIP
Note Issuance Amount (the "Break Fee") shall be payable to the DIP Note Purchasers
in cash in the event that (i) the DIP Note Issuance does not occur or (ii) the Plan
(including the Equity Warrants) and the recapitalization contemplated by the
Recapitalization Term Sheet is not fully consummated, on or before the DIP Maturity
Date. 60% of the Break Fee shall be payable to the Plan Sponsor and 40% of the
Break Fee shall be payable to the DIP Note Purchasers (other than the Plan Sponsor),
provided that the Plan Sponsor shall be entitled to its pro rata portion of such 40% of
the Break Fee to the extent it purchases Creditor DIP Notes originally committed or
held by another DIP Note Purchaser.
21.
WARRANTS FOR
EQUITY ISSUANCE
ON EXIT DATE
Pacific shall issue warrants on the Closing Date to the DIP Note Purchasers (the
"Equity Warrants") exercisable in the aggregate into 25% of the total outstanding
equity interests of the Reorganized Company (as defined in the Recapitalization Term
Sheet) outstanding on the Exit Date on a fully diluted basis, subject to dilution from the
Management Incentive Plan (as defined in the Recapitalization Term Sheet). The
Equity Warrants shall be issued at a nominal strike price and shall be exercisable on
the Exit Date. Each DIP Note Purchaser shall be entitled to its pro rata share of the
Equity Warrants based on its share of the aggregate DIP Note Purchase Commitments,
which Equity Warrants shall be issued to each DIP Note Purchaser as a unit together
with its DIP Notes. In the event that the Plan is not consummated on or before the DiP
Maturity Date, the Equity Warrants shall automatically expire. The Equity Warrants
shall be detachable from the DIP Notes and shall be transferable and assignable either
together with or separate from the DIP Notes, in accordance with Section 35. A
portion of the subscription price of the DIP Notes will be allocated to the purchase of
the Equity Warrants equal to the fair market value of the Equity Warrants.
22.
CASH FLOW
PROJECTIONS /
VARIANCE
Pacific shall prepare a cash flow projection which shall be in form and substance
satisfactory to the CRO, the DIP Note Purchasers and their advisors (the "Cash Flow
Projection"), reflecting the projected cash requirements (including, without limitation,
with respect to projected payment of professional expenses on an advisor by advisor
basis (but aggregating legal advisors for jurisdictions outside of the United States and
Canada) of Pacific and its direct and indirect subsidiaries for the period commencing
with the date on which the Canadian Proceeding is to be commenced (the
"Commencement Date") and ending with the Outside Date. Pacific shall prepare and
present to the financial advisors to the DIP Note Purchasers (and to any DIP Note
Purchaser that has agreed to receive material non-public information on a restricted
basis pursuant to a non-disclosure agreement substantially in the form of the nondisclosure agreements in place between the company and certain of its existing
noteholders on the date hereof, (each a "Restricted DIP Note Purchaser")) a
cumulative variance report in form and substance satisfactory to the DIP Note
Purchasers' financial advisors (each, a "Variance Report") as at the end of each four
week period set out in the Cash Flow Projection, in each case, in respect of the period
beginning on the Commencement Date and ending on the last day of the applicable
cumulative period (each such period being a "Test Period"), which Variance Report
shall show the line-by-line variance between the projected cash flows set out in the
Cash Flow Projection in respect of the relevant Test Period and actual cash flows
during such Test Period. Each Variance Report shall be prepared and presented to the
Restricted DIP Note Purchasers by no later than the last business day of the week
following the end of the relevant Test Period and shall be reviewed by the CRO and
shall include a certification from a senior officer of the Issuer that the actual cash flows
are within the permitted variances set out in Section 30 below.
The Cash Flow Projection shall be publicly disclosed on or prior to the Closing Date
and all Variance Reports shall be publicly disclosed on or prior to the Exit Date.
-923.
DIP SECURITY AND
PRIORITY
Subject to the Intercreditor Agreement, the DIP Note Obligations, the Hedging
Obligations and the obligations under the DIP LC Facility (the "DIP LC Obligations"
and together with the DIP Note Obligations and the Hedging Obligations, collectively,
the "DIP Obligations") shall be secured by first-priority security interests
(collectively, the "DIP Liens") over all of the present and future property and assets,
real and personal, of each Note Party, including, but not limited to all equity interests
owned by any such Note Party in material subsidiaries and joint ventures, machinery
and equipment, inventory and other goods, accounts receivable, material fee-owned
real estate, leases, licenses, concessions, fixtures, bank accounts (subject to certain
customary exceptions), intangibles (including rights under exploration and production
contracts, concessions and hedge agreements), financial assets, investment property,
license rights, patents, trademarks, trade names, copyrights, chattel paper, insurance
proceeds, documents, instruments, indemnification rights, tax refunds, tax credits
(including Titulos de DevoluciOn de Impuestos Nacionales), cash, any avoidance
actions available to the Note Parties' bankruptcy estates pursuant to the Bankruptcy
and Insolvency Act (Canada), the CCAA or otherwise (collectively, the "Collateral"),
in each case, perfected pursuant to court orders and security documentation governed
under the laws of applicable jurisdictions satisfactory to the DIP Note Purchasers. The
security shall consist of the security documents set out in Schedule "D" hereto and
such additional security documents as the DIP Note Purchasers (or their counsel) may
reasonably request.
All security will be granted in favour of the DIP Collateral Agent for and on behalf of
the DIP Providers, subject to the Intercreditor Agreement.
The DIP Liens shall be given effect as follows, in each case subject to the provisions of
the Intercreditor Agreement:
(a)
with respect to the Issuer and each guarantor under its existing Notes (as
defined in the RSA) and any other direct or indirect subsidiaries of the Issuer
as the Issuer and the DIP Note Purchasers may agree (the "Filing Parties") by
a superpriority charge pursuant to the terms of an order in the Canadian
Proceeding approving the DIP Obligations and the DIP Liens (the "DIP
Order"), which shall provide that the DIP Liens and the DIP Obligations rank
only behind administrative charges (the "Administrative Charges"), rank
part passu with the passive and silent KERP charge (the "KERP Charge")
and shall rank ahead of the passive and silent directors' and officers' charge
(the "D&O Charge") (provided that the KERP Charge and the D&O Charge
shall rank ahead of the DIP LC Obligations), in each case in amounts
approved by the DIP Note Purchasers; provided that the DIP Liens shall
constitute junior perfected liens on, and security interests in, all Collateral of
the Note Parties, wherever located, that is subject to an existing valid,
perfected, enforceable and unavoidable lien or security interest on the date of
such order, in each case, that is expressly permitted to be senior to the DIP
Liens pursuant to the DIP Order and the DIP Note Documents;
(b)
by such priority or recognition status as may be required by the DIP Note
Purchasers in their reasonable discretion in the Ancillary Proceedings
pursuant to an order of the applicable Ancillary Court, as applicable (each
such order being an "Ancillary Priority Order" and together with the DIP
Order, collectively, the "DIP Priority Orders"); and
(c)
by such security documents, filings and registrations as may be necessary or
desirable in any relevant jurisdiction, the DIP Liens shall constitute firstpriority perfected liens on, and security interests in, all Collateral of the Note
Parties, wherever located.
The DIP Note Purchasers may, in their sole discretion, require the execution, filing, or
recording of any mortgages, security agreements, pledge agreements, control
agreements, financing statements or other agreements or instruments, or the taking of
- 10 any action to obtain possession or control of any Collateral in order to obtain a lien on
such Collateral; provided, that the local grant of security and perfection of Collateral of
any Note Party may be excluded to the extent that the DIP Note Purchasers reasonably
determine that the costs of obtaining a security interest in or perfection of such assets
outside of the Restructuring Proceedings is excessive in relation to the value to the DIP
Note Purchasers of the DIP Liens to be afforded thereby.
The security granted by the Note Parties shall contain certain exclusions from
Collateral (including exclusions from the Initial Collateral and the Subsequent
Collateral as set out in Schedule "D") as shall be reasonably agreed between the Note
Parties and the DIP Note Purchasers (or their counsel).
24.
CASH
MANAGEMENT
The Note Parties shall maintain a cash management system reasonably satisfactory to
the DIP Note Purchasers which shall include the direct payment of, or daily transfer of,
cash proceeds of all receivables (including cash proceeds of intercompany receivables)
and the deposit of all cash into bank accounts which are subject to springing-dominion
control agreements (or local equivalents) in favour of the DIP Collateral Agent.
All receivables owing to any Colombian Note Party or the Colombian branch of any
Note Party shall be assigned to a trust (fiducia) to be established in favour of the DIP
Collateral Agent. Similar arrangements with respect to receivables shall be
implemented in other foreign jurisdictions where a similar trust structure is available.
All (i) in the case of the Issuer, net proceeds of the purchase of DIP Notes and Equity
Warrants, (ii) all Unrestricted Operating Cash (as defined below) in excess of $100
million as at the last business day of any week and (iii) all extraordinary receipts
(including receipts from asset sales, tax credits or refunds, casualty events or the
repayment of any intercompany loans or dividends received from the net cash proceeds
of any sale of Collateral), with exceptions to be agreed to permit ordinary course
payments and cash management by the Note Parties and giving due consideration to
mitigation of foreign exchange costs, shall be deposited into one or more bank
accounts located in Canada in the name of the applicable Note Party that is the
recipient of such proceeds, except in the case of Meta Petroleum AG and/or Pacific
E&P Holdings Corp. to the extent not permitted by Swiss law, (each a "Cash
Collateral Account" and collectively, the "Cash Collateral Accounts"), which Cash
Collateral Accounts shall be subject to sole-dominion control agreements in favor of
the DIP Collateral Agent to be released in accordance with Section 12.
"Unrestricted Operating Cash" means an amount equal to the amount of (i) all cash
of the Issuer and its subsidiaries (ii) less the amount of cash or cash equivalents
deposited in the Cash Collateral Accounts, (iii) less, to the extent included in clause (i)
above, the Joint Venture Cash (as defined below), (iv) less, to the extent included in
clause (i) above, Non-Wholly Owned Subsidiary Cash and (v) less, to the extent
included in clause (i) above, any Restricted Cash (as defined below) (up to a maximum
amount of such Restricted Cash of $70 million).
"Joint Venture Cash" means all cash and cash equivalents held in any accounts
required under joint venture agreements or joint operating agreements.
"Non-Wholly Owned Subsidiary Cash" means all cash and cash equivalents held in
accounts of the Issuer's non-wholly owned subsidiaries.
"Restricted Cash" means cash or cash equivalents that would appear as "restricted"
on the consolidated balance sheet of the Issuer and its direct or indirect subsidiaries.
3'2
25. CONDITIONS
PRECEDENT TO
PURCHASE OF DIP
NOTES
The purchase of the DIP Notes from the Issuer shall be conditional on, and shall be
completed by the DIP Note Purchasers by no later than 2 business days following (or,
with respect to those conditions that by their nature are to be satisfied on the Closing
Date, on the business day of), the satisfaction of conditions precedent to borrowing
customary and usual for financings in such circumstances and to be agreed upon by the
DIP Note Purchasers and the Note Parties, which conditions precedent shall include,
without limitation, the following conditions precedent to be satisfied on or prior to the
purchase of the DIP Notes (the date on which all such conditions are satisfied being the
"Closing Date"), each of which conditions shall be for the sole benefit of the DIP Note
Purchasers and may be waived by holders of not less than 75% of the aggregate DIP
Note Purchase Commitments as of the Closing Date, provided that if such conditions
are not met or waived on or before June 15, 2016, the DIP Note Purchase
Commitments and all other obligations of the DIP Note Purchasers under the DIP Note
Documents shall terminate:
(a)
The applicable Note Parties shall have commenced the Restructuring
Proceedings.
(b)
The Canadian Court shall have granted an initial order (which shall include
the DIP Order) in respect of the Filing Parties, in form and substance
satisfactory to the DIP Note Purchasers (the "Initial Canadian Order").
(c)
The Colombian Court shall have granted a recognition order in respect of the
relevant Note Parties, in form and substance satisfactory to the DIP Note
Purchasers (the "Initial Colombian Order" and together with the Initial
Canadian Order, the "Initial Orders")).
(d)
The Insolvency Courts, as applicable, shall have granted the DIP Priority
Orders.
(e)
If required, the Superintendencia de Sociedades (the "Superintendencia")
shall have approved the granting of the DIP Liens under Colombian law.
(I)
Each Colombian Note Party and each Note Party with a Colombian branch
shall have amended its bylaws to provide that the incurrence of any additional
indebtedness (other than under the DIP Note Issuance, the Hedging Facility
(if applicable), the DIP LC Facility (if applicable), the Exit Notes and the Exit
LC Facility (as defined below) (if applicable), and guarantees thereof as
contemplated herein) by such Note Party (or its Colombian branch) shall
require the prior approval of the DIP Note Purchasers.
(g)
Pacific shall have entered into the RSA (as defined in the Recapitalization
Term Sheet) in support of the Plan in form and substance acceptable to the
DIP Note Purchasers in their sole discretion with holders of not less than
45% of all Company Claims (as defined in the RSA).
(h)
The DIP Note Agreement, each of the other DIP Note Documents (other than
the security documents in respect of the Subsequent Collateral (as set out on
Schedule "D") and all other documentation relating to the DIP Note Issuance
shall be in form and substance consistent with this Term Sheet and otherwise
satisfactory to the DIP Note Purchasers in their sole discretion and shall have
been executed and delivered by each Note Party party thereto and shall
constitute valid and enforceable obligations of each of the Note Parties, as
confirmed pursuant to the Initial Orders and the DIP Priority Orders.
(i)
If applicable, the Hedging Facility and/or the DIP LC Facility and all
documents relating thereto shall be in form and substance satisfactory to the
DIP Note Purchasers and the Company and shall have been executed and
delivered by each Note Party party thereto and shall constitute valid and
enforceable obligations of each of the Note Parties as confirmed pursuant to
the Initial Orders and the DIP Priority Orders.
- 12 All "first day orders" entered in each Restructuring Proceeding at the time of
commencement of the Restructuring Proceedings shall be satisfactory in form
and substance to the DIP Note Purchasers in their sole discretion.
(k)
The Note Parties shall have obtained all governmental (including any required
consents from the Superintendencia (if any)), regulatory and third party
approvals required to be obtained in any other relevant jurisdiction to enable
the DIP Collateral Agent to obtain the DIP Liens (excluding any consents in
respect of joint operating agreements and concessions).
The DIP Collateral Agent shall have a valid and perfected security interest in
the Initial Collateral (as set out Schedule "D"), with the priority described
herein, for the benefit of the DIP Providers.
(m)
The purchase of the DIP Notes shall not violate any requirement of law and
shall not be enjoined, temporarily, preliminarily or permanently.
(n)
All fees and expenses required to be paid to (i) the financial advisors to the
DIP Providers, (ii) a single counsel in each relevant jurisdiction for the Plan
Sponsor, (iii) a single counsel in each relevant jurisdiction for each of the DIP
Note Purchasers (other than the Plan Sponsor), as a group, the DIP LC
Lenders (as a group) and the Hedging Provider (provided that for the purposes
of local security in jurisdictions outside of Canada, Colombia and the United
States, all DIP Providers (other than the Plan Sponsor) shall use a single
common counsel), (iv) a single counsel in each relevant jurisdiction for the
prepetition holders of Notes (as defined in the RSA), as a group, (v) a single
counsel in each relevant jurisdiction for the holders of Bank Debt (as defined
in the RSA), as a group, and (vi) counsel for the Monitor, incurred on or
before the Closing Date shall have been paid (including as a deduction from
the proceeds of the purchase of the DIP Notes and the Equity Warrants prior
to disbursement to the Issuer).
(o)
The DIP Note Purchasers shall have received customary legal opinions of (i)
Garrigues, Colombian counsel to the Note Parties, (ii) Norton Rose Fulbright
Canada LLP, Canadian counsel to the Note Parties, and (iii) such other local
counsel opinions requested by the DIP Note Purchasers, in each case
addressing such matters as the DIP Note Purchasers shall request, including,
without limitation, the enforceability of all DIP Note Documents and the
validity and perfection of all security interests in the Initial Collateral.
(p)
There shall exist no default or Event of Default under the DIP Note
Documents and the representations and warranties of the Note Parties therein
shall be true and correct in all respects (other than any such representation and
warranty that by its terms refers to a specified earlier date which shall be true
and correct in all material respects or, with respect to representations and
warranties qualified by materiality, in all respects, as of such earlier date).
(q)
Since April 6, 2016, there shall not have occurred any change, development,
effect, event, circumstance, fact or occurrence that individually or in the
aggregate with other such changes, developments, effects, events,
circumstances, facts or occurrences, (a) is or would reasonably be expected to
be material and adverse to the business, financial condition, properties, assets
(tangible or intangible), liabilities (including any contingent liabilities), or
results of operations of the Note Parties or (b) prevents or materially
adversely affects the ability of the Note Parties to timely perform their
obligations under the DIP Note Documents, in each case other than any
change, development, effect, event, circumstance, fact or occurrence resulting
from (i) the effect of any change in the United States or foreign economies or
securities, commodities or financial markets, (ii) the effect of any action taken
by DIP Note Purchasers or their affiliates with respect to the DIP Note
- 13 Documents or with respect to the Note Parties (including through such
persons' participation in the Restructuring Proceedings), (iii) any effect
resulting from the filing or public announcement of the Restructuring
Proceedings; or (iv) developments in the oil and gas exploration, development
and/or production industry or industries (including actual or expected industry
wide changes in oil, gas or other commodity prices); provided, however, that
with respect to clauses (i), (ii) or (iv), such changes, developments, effects,
events, circumstances, facts or occurrences shall be taken into account to the
extent they disproportionately and adversely affect Pacific and its
subsidiaries, taken as a whole, compared to other companies operating in the
industries and regions in which Pacific and its subsidiaries operate (each a
"Material Adverse Change").
26.
CONDITIONS
PRECEDENT TO
RELEASE OF
SUBSEQUENT
AMOUNT
(r)
Other than as disclosed in Pacific's 2015 annual financial statements, there
shall exist no unstayed action, suit, investigation, litigation or proceeding
pending or threatened in writing in any court or before any arbitrator or
governmental authority (other than the Restructuring Proceedings) that could
reasonably be expected to have a material adverse effect with respect to the
Note Parties and their subsidiaries taken as a whole.
(s)
The Cash Flow Projection shall have been delivered to the DIP Note
Purchasers in form and substance satisfactory to the DIP Note Purchasers and
shall have been publicly disclosed.
(t)
There shall not have occurred any payment, prepayment, redemption,
purchase or exchange of any prepetition indebtedness or equity, or
amendment or modification of any of the terms of any such prepetition
indebtedness or equity, except as expressly provided for in the Cash Flow
Projection.
(u)
Pacific shall have appointed a chief restructuring officer whose mandate shall
include a full assessment of key company processes, organizational structure,
systems, controls, risks and certain positions at the Issuer, as agreed by the
DIP Note Purchasers and who shall also be empowered to retain a leading
international executive search firm to assist in such assessment (the "CRO").
(v)
The Note Parties shall have established a cash management system
satisfactory to the DIP Note Purchasers (including establishment of the Cash
Collateral Account), and all material accounts of the Note Parties (including
the Cash Collateral Account) shall be subject to control agreements in favour
of the DIP Collateral Agent, in form and substance reasonably satisfactory to
the DIP Note Purchasers), consistent with the terms of this Term Sheet.
(w)
The DIP Note Purchasers shall be satisfied in their sole discretion that no
additional insolvency proceedings are required or advisable to ensure that the
Collateral is perfected on a first priority basis in connection with the
Restructuring Proceedings.
(x)
The Note Parties shall have completed reasonable "know your client"
procedures to the satisfaction of the DIP Note Purchasers.
(y)
The Note Parties shall have appointed agents for service of process in New
York.
The availability of the Subsequent Amount to the Issuer from its Cash Collateral
Account to be drawn in accordance with the Cash Flow Projections as set out in
Section 12 shall be conditional on the continuing satisfaction of the conditions
precedent set out in Section 25 above, as well as satisfaction of the following
additional conditions precedent, each of which must be met on or before June 30, 2016
(or such later date as the DIP Note Purchasers may agree in their sole discretion):
315
- 14 (a)
The DIP Collateral Agent shall have a valid and perfected security interest in
the Subsequent Collateral (as set out Schedule "D") with the priority
described herein, for the benefit of the DIP Providers (other than Collateral
which is not of material value, provided that the Issuer and the relevant Note
Parties shall continue to use their commercially reasonable efforts to provide
such valid and perfected security interest in such Collateral in favour of the
DIP Collateral Agent).
(b)
The DIP Note Purchasers shall have received customary legal opinions of
such local counsel as may be requested by the DIP Note Purchasers, in each
case addressing such matters as the DIP Note Purchasers shall request,
including, without limitation, the enforceability of all DIP Note Documents
and the validity and perfection of all security interests in the Subsequent
Collateral (as set out on Schedule "D").
(c)
The U.S. Court shall have granted a recognition order under chapter 15 of title
11 of the United Stated Code (the "Chapter 15 Order").
(d)
The Initial Orders, the Chapter 15 Order and the DIP Priority Orders issued
by the Insolvency Courts, as applicable, shall remain in full force and effect
and shall not have been stayed, reversed, vacated, rescinded, modified or
amended in any respect (except as may be acceptable to the DIP Note
Purchasers), and shall be final orders and any applicable appeal period in
respect thereof shall have expired or, if an appeal was filed, that such appeal
shall have been dismissed on a final basis without further appeal (the "Final
Orders").
27. REPRESENTATIONS The DIP Note Agreement will contain representations and warranties customary and
usual for financings in such circumstances, subject to thresholds, limitations,
AND WARRANTIES
exclusions and qualifications as may be reasonably agreed between the DIP Note
Purchasers and the Note Parties, having regard to the Note Parties and their
circumstances including without limitation:
28.
AFFIRMATIVE
(a)
a representation and warranty that each Note Party has disclosed to the DIP
Note Purchasers all existing material liabilities, including trade creditors,
pension liabilities, employee liabilities, and tax liabilities;
(b)
a representation that no Note Party is, or will be, after giving effect to the DIP
Note Issuance and the transactions contemplated hereunder, an "investment
company" for the purposes of the Investment Company Act of 1940;
(c)
a representation and warranty from the Plan Sponsor that no existing director
or officer of any Note Party nor any of the parties disclosed as principal
holders of voting shares on page 35 of the Issuer's information circular dated
June 10, 2015, nor any person or entity known to the Plan Sponsor to be
acting on behalf of any of the foregoing, is a direct or indirect investor in or
limited partner of the Plan Sponsor or any fund managed by it; and
(d)
a representation that the factual statements contained in all certificates and
documents furnished to the DIP Note Purchasers, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make such statements not misleading in light of the
circumstances in which they were made; provided, that with respect to
projected, estimated or pro forma financial information, the representation
shall be limited to the fact that such information has been prepared in good
faith based upon assumptions believed by the Issuer or the relevant Note Party
to be reasonable at the time made, it being understood that no assurance can
be given that any such assumption or the results of such projections will be
realized.
The DIP Note Agreement will contain affirmative covenants which are customary and
- 15 COVENANTS
29. NEGATIVE
COVENANTS
usual for financings in such circumstances, subject to thresholds, limitations,
exclusions and qualifications as may be reasonably agreed by the DIP Note Purchasers
and the Note Parties, having regard to the Note Parties and their circumstances,
including without limitation:
(a)
delivery of Variance Reports in accordance with Section 22.
(b)
delivery to the DIP Note Purchasers' advisors (and any Restricted DIP Note
Purchasers) of weekly reports by the Chief Financial Officer with respect to
revenues, operating expenses, asset sales, cost savings, key hires, and other
matters reasonably requested by DIP Note Purchasers' advisors;
(c)
delivery to counsel to the DIP Note Purchasers, as soon as practicable in
advance of the commencement of the Canadian Proceeding or filing with the
Canadian Court, as the case may be, of drafts of the Initial Orders, the Chapter
15 Order, the DIP Priority Orders, Plan, Plan Approval Order, and all other
proposed orders, motions, pleadings, and other documents filed in or related
to the Restructuring Proceedings, and not filing any such document with the
Insolvency Courts without obtaining prior approval thereof from such
counsel;
(d)
provide access to the DIP Note Purchasers' advisors (and any Restricted DIP
Note Purchasers) and the CRO to information (including historical
information and books and records) and personnel and facilitate (i) regularly
scheduled meetings as mutually agreed with senior management, the Chief
Financial Officer, and other company advisors and the DIP Note Purchasers'
advisors (and any Restricted DIP Note Purchasers) who shall be provided
with access to all information they shall reasonably request and (ii) such
additional meetings as the DIP Note Purchasers (or their advisors) shall
reasonably request;
(e)
compliance in all material respects with applicable laws (including without
limitation, the CCAA, the Bankruptcy Code, ERISA (or its equivalent), and
environmental laws), payment of taxes, maintenance of all necessary licenses
and permits and trade names, trademarks, patents, preserve corporate
existence, and maintenance of appropriate and adequate insurance coverage;
(f)
maintenance of a cash management system acceptable in all respects to the
DIP Note Purchasers;
(g)
maintenance of a minimum amount of Unrestricted Operating Cash together
with the amount of cash deposited in the Cash Collateral Accounts of at least
(i) $200 million at any time prior to the completion of the Port Facility Sale
(in whole or in part) and (ii) $200 million plus the net cash proceeds of the
Port Facility Sale (in whole or in part) at any time following the completion of
the Port Facility Sale (in whole or in part).
(h)
compliance with certain material contracts subject to a materiality threshold to
be agreed in the DIP Note Agreement ("Material Contracts"); and
(i)
The Issuer and any applicable Note Parties shall achieve the milestones set
out in the RSA as in effect on the date of this Term Sheet, without amendment
(each a "Milestone" and collectively the "Milestones").
The DIP Note Agreement will contain negative covenants which are customary and
usual for financings in such circumstances subject to thresholds, limitations, exclusions
and qualifications as may be reasonably agreed by the DIP Note Purchasers and the
Note Parties, having regard to the Note Parties and their circumstances, including
without limitation:
(a)
the commencement or imposition of any insolvency proceeding by or against
any of the Note Parties, or any other affiliate thereof, other than the
?XI
- 16 Restructuring Proceedings;
(b)
creating or permitting to exist any lien or encumbrance on any Collateral,
other than liens securing the DIP Notes and any permitted lien reasonably
agreed by the DIP Note Purchasers in the DIP Note Documents;
(c)
creating or permitting to exist any other superpriority claim that is pan passu
with or senior to the claims of the DIP Note Purchasers, except as provided
herein;
(d)
except for the Permitted Asset Dispositions and the sale of hydrocarbons in
the ordinary course of business, disposing of assets having a value in excess
of $5,000,000;
(e)
modifying or altering (i) in any material manner the nature and type of its
business or the manner in which such business is conducted or (ii) its
organizational documents, except as required herein or by the CCAA, the
Bankruptcy Code and applicable law in any ancillary jurisdiction, as
applicable;
(f)
paying, prepaying, redeeming, purchasing, or exchanging any prepetition
indebtedness or equity, or amending or modifying any of the terms of any
such prepetition indebtedness or equity, except as expressly provided for in
the Cash Flow Projection, the Plan or pursuant to "first day" or other orders
entered in form and substance acceptable to the DIP Note Purchasers or their
counsel in their sole discretion;
(g)
asserting any right of subrogation or contribution against any of other Note
Party until all borrowings under the DIP Notes are paid in full in cash and
terminated;
(h)
merging or consolidating with any other person, changing the corporate
structure, or creating or acquiring new subsidiaries, giving a negative pledge
on any asset in favor of any person other than the DIP Providers; or
permitting to exist any consensual encumbrance on the ability of any domestic
or foreign subsidiary to make loans, pay dividends or other distributions to the
Note Parties;
(i)
incurring or assuming any additional debt or contingent obligations or giving
any guarantee other than (i) the Hedging Facility (if any), (ii) letters of credit
secured on a second lien basis (including the DIP LC Facility) in an aggregate
amount not to exceed $200 million, which letters of credit may be secured by
the Collateral on a pan passu basis with the liens securing the DIP LC
Facility (provided that each financial institution providing any such letters of
credit on a pan passu basis with the liens securing the DIP LC Facility shall
become a party to the Intercreditor Agreement on terms, including with
respect to the exercise of remedies, reasonably satisfactory to the DIP Note
Purchasers), (iii) unsecured letters of credit and (iv) cash collateralized letters
of credit outstanding as of the Closing Date and unsecured or cashcollateralized renewals or extensions thereof and additional unsecured letters
of credit),;
making any loan, advance, capital contribution, or acquisition, forming any
joint venture or partnership, or making any other investment in any subsidiary
or other person, subject to exceptions as may be agreed to in the DIP Note
Documents;
(k)
making or committing to make any payment in respect of warrants, options,
repurchases of stock, dividends, earn-out payments, contingent payments, or
any other distributions;
(1)
making, committing to make, or permitting to be made any payment to any
31g
- 17 executive officer or director of any Note Party, or any entity beneficially
owned or controlled by them or related to them, including parties described in
the related party note to Pacific's financial statements, or any subsidiary
thereof, other than normal course remuneration and amounts owing or
permitted under the KERP and any other amounts included in the Cash Flow
Projection and specifically identified as payments to a related party;
30.
EVENTS OF
DEFAULT
(m)
without the prior consent of the DIP Note Purchasers or their counsel, making
or permitting to be made any change to the Initial Orders, the Chapter 15
Order or the DIP Priority Orders or any other order of the Insolvency Courts
with respect to the DIP Notes or the charges or security therefor; or
(n)
permitting any change in ownership or control of any Note Party, or any
subsidiary thereof, or any change in accounting treatment or reporting
practices, except as may be required by U.S. generally accepted accounting
principles and as otherwise permitted by the DIP Note Documents.
The DIP Note Agreement will contain events of default (each an "Event of Default")
customary and usual for financings in such circumstances subject to thresholds,
limitations, exclusions and qualifications as may be reasonably agreed by the DIP Note
Purchasers and the Note Parties, having regard to the Note Parties and their
circumstances, including without limitation:
(a)
failure by the Issuer to pay any principal, interest or fees payable pursuant to
the DIP Note Documents
(b)
failure by any Note Party to comply with any terms, conditions, covenants or
obligations contained in the DIP Note Documents;
(c)
any Note Party shall incur indebtedness to any other Note Party that is not
unsecured and expressly subordinated to the DIP Obligations and evidenced
by a note (which can be a master note) in the form and substance satisfactory
to the DIP Note Purchasers, which note shall be assigned by way of security
and delivered to the DIP Collateral Agent together with an allonge executed
in blank in respect of such note (including any master note);
(d)
the entry of an order (i) terminating, dismissing, staying, vacating or
amending in a manner adverse to the DIP Note Purchasers (as determined in
their sole discretion) any of the Initial Orders, the Chapter 15 Order, the DIP
Priority Orders or the Plan, or dismissing any of the Restructuring
Proceedings or (ii) converting any of the Restructuring Proceedings into
receivership, bankruptcy, liquidation, asset sale, distribution, or similar
proceedings in any jurisdiction, without the prior written consent of the DIP
Note Purchasers;
(e)
the filing of any pleading by any Note Party seeking, or otherwise consenting
to, any of the matters set forth in clause (d) above or the granting of any other
relief that if granted would give rise to an Event of Default;
(f)
the Initial Orders, the Chapter 15 Order and the DIP Priority Orders shall not
have become Final Orders on or before June 30, 2016 (or such later date as
agreed to by the DIP Note Purchasers), or there shall be a breach by any Note
Party of any provisions of the Initial Orders, the Chapter 15 Order or the DIP
Priority Orders (prior to such orders becoming Final Orders), or the Final
Orders shall cease to be in full force and effect or shall have been reversed,
modified, amended, stayed, vacated or subject to stay pending appeal, in the
case of any modification or amendment, without the prior written consent of
the DIP Note Purchasers;
(g)
if the requisite majority of creditors in each relevant jurisdiction do not vote in
favour of the Plan, or the Plan is amended in a manner not acceptable to the
DIP Note Purchasers, or the RSA is terminated with respect to the Company
- 18 (as defined in the RSA) or becomes unenforceable;
(h)
the Note Parties shall fail to meet any Milestone on the date set out therefor;
the appointment of any receiver, receiver-manager, interim receiver, monitor
(other than the monitor in connection with the Canadian Proceeding and the
Superintendencia), liquidator, assignee, custodian, trustee, sequestrator or
other similar entity in respect of the Note Parties (or any of their subsidiaries)
or all or any part of their respective property, assets or undertaking other than
as approved by the DIP Note Purchasers;
(j)
the entry of (i) an order in the Restructuring Proceedings charging any
Collateral (other than the DIP Liens) under which any person takes action
against the Collateral or that becomes a final non-appealable order, or the
commencement of other actions or entry of other orders that are adverse to the
DIP Collateral Agent or the DIP Note Purchasers or their respective rights and
remedies under the DIP Note Documents in any of the Restructuring
Proceedings or inconsistent with the DIP Note Documents, the Initial Orders,
the Chapter 15 Order or the DIP Priority Orders, (ii) one or more final
judgments, writs of execution, garnishment or attachment representing a claim
against any Note Party or the Collateral that is not released, bonded, satisfied,
discharged, vacated, stayed or accepted for payment by an insurer within
thirty (30) days after their entry, commencement or levy, (iii) an order
granting relief from any stay of proceeding (including, without limitation, the
automatic stay) so as to allow a third party to proceed with foreclosure (or
granting of a deed in lieu of foreclosure) or other enforcement action against
any asset or (iv) any post-petition judgment against any Note Party, in each
case with a value in excess of $5 million (to the extent not covered by
insurance), in each case, other than by or in respect of an Affected Creditor
(as defined in the Recapitalization Term Sheet);
(k)
the commencement of any bankruptcy, insolvency, restructuring,
reorganization or similar proceedings in any jurisdiction (other than the
Restructuring Proceedings) without the prior written consent of the DIP Note
Purchasers, except to the extent that Meta Petroleum AG or Pacific E&P
Holding Corp., respectively, file for insolvency proceedings pursuant to sec.
293 et seq. of the Swiss Debt Enforcement and Bankruptcy Act, which filing
may be commenced by the board of directors of either company acting
reasonably and after consultation with the DIP Note Purchasers;
(1)
any DIP Lien shall cease to be (or shall be asserted by any Note Party not to
be) valid, perfected (if applicable) and enforceable in all respects in any
Restructuring Proceeding or to have the priority contemplated under the DIP
Priority Orders and the Final Orders whether or not such DIP Lien is created
pursuant to such DIP Priority Orders or Final Orders or pursuant to applicable
security documents in each relevant jurisdiction;
(m)
(i) except as set out in the DIP Order, the existence of any claims, liens or
charges, or the entry of any order of any court authorizing any claims, liens or
charges on any Collateral, other than the DIP Liens or as otherwise permitted
under the applicable DIP Note Documents or (ii) the granting of superpriority,
priority or administrative claim status to any claim in the Restructuring
Proceedings pan passu with or senior to the ranking of the DIP Obligations
(other than the Administrative Charge and the KERP Charge) established
under the DIP Priority Orders;
(n)
the Note Parties or any of their subsidiaries, shall obtain court authorization to
commence, or shall commence, join in, assist or otherwise participate as an
adverse party in any suit or other proceeding against the DIP Collateral Agent
or any of the DIP Note Purchasers relating to the DIP Note Issuance;
?20
- 19 (o)
a Transaction or a plan of arrangement or compromise (other than the Plan)
shall be confirmed in any of the Restructuring Proceedings that has not been
previously consented to in writing by the DIP Note Purchasers, or the Note
Parties shall seek to approve or consummate any Transaction or a plan of
arrangement or compromise which does not have the prior consent of the DIP
Note Purchasers;
(p)
the filing of any motion by the Note Parties or their subsidiaries in any of the
Restructuring Proceedings seeking authority to consummate, or support the
consummation of, a sale of assets of the Note Parties or the Collateral having
a value in excess of $5 million outside the ordinary course of business except
for the Permitted Asset Dispositions or unless otherwise permitted under the
DIP Note Documents or consented to by the DIP Note Purchasers;
(q)
the cessation of all or any material part of the business operations of the Note
Parties and their subsidiaries (other than the Piriri Rubiales contracts);
(r)
any Note Party shall make any payment of principal or interest on account of
any prepetition indebtedness other than (i) amounts due to trade creditors in
the ordinary course of business and (ii) permitted termination and severance
payments due to employees and amounts owing under the KERP, and (iii)
taxes, accrued payroll and other ordinary course liabilities, provided in each
case that such amounts are included in the Cash Flow Projection;
(s)
the existence of a cumulative adverse variance of 125% or more in total
disbursements (exclusive of joint-venture funding and professional fees paid
during such period) on an aggregate basis from the projected amount of such
disbursements set out in the Cash Flow Projection in respect of any Test
Period;
(t)
the existence of a cumulative adverse variance of 130% or more in total
disbursements on an aggregate basis in respect of joint-venture funding from
the projected amount of such joint venture funding set out in the Cash Flow
Projection in respect of any Test Period;
(u)
the existence of a cumulative adverse variance of 125% or more in total
disbursements on an aggregate basis in respect of professional fees (other than
professional fees of the advisors to the DIP Providers and the prepetition
holders of Notes and Bank Debt) from the projected amount of such
professional fees set out in the Cash Flow Projection in respect of any Test
Period; or
(v)
the Issuer or any of its direct or indirect subsidiaries or affiliates (or any
branch thereof) shall be declared subject to (either voluntarily or
involuntarily) (a) main insolvency proceedings under Law 1116 or (b)
proceedings under chapter 11 of the Bankruptcy Code and, only if such
proceeding is an involuntary insolvency proceeding, it is not dismissed within
ten (10) calendar days of such declaration, in each case without the consent of
the DIP Note Purchasers.
31.
REMEDIES
Upon the occurrence and during the continuance of any Event of Default, the DIP
Collateral Agent, acting at the direction of the DIP Note Purchasers, shall be free to
exercise all rights, accelerate the DIP Note Obligations and to take action with respect
to the Collateral, following an order of the Canadian Court upon five days' notice to
the Note Parties.
32.
EXPENSES AND
INDEMNITY
The Issuer will reimburse the DIP Collateral Agent and the DIP Providers for the fees
and expenses of (i) their financial advisors, (ii) a single counsel in each relevant
jurisdiction for the Plan Sponsor, (iii) a single counsel in each relevant jurisdiction for
each of the DIP Note Purchasers (other than the Plan Sponsor), as a group, the DIP LC
Lenders (as a group) and the Hedging Provider (provided that for the purposes of local
7
- 20 security in jurisdictions outside of Canada, Colombia and the United States, all DIP
Providers (other than the Plan Sponsor) shall use a single common counsel), (iv) a
single counsel in each relevant jurisdiction for the prepetition holders of Notes, as a
group and (v) a counsel in each relevant jurisdiction for the holders of Bank Debt, as a
group, all on a full indemnity basis. The Issuer will reimburse the Monitor for the fees
and expenses of its counsel (on a full indemnity basis). All such fees, disbursements
and expenses shall be included in the DIP Obligations and secured by the DIP Liens.
The Issuer agrees to indemnify and hold harmless the DIP Collateral Agent, the trustee
under the Indenture, the Amended Indenture and the warrant indenture and any
common depositary in respect thereof, and any other similar service provider (together
with their respective partners, members directors, agents and employees, each, an
"Indemnified Party") in connection with the DIP Notes and the Equity Warrants, in
each case against any and all losses, claims, damages or liabilities to any such person
in connection with the DIP Notes or as a result of any transactions contemplated under
by the DIP Note Issuance, the Plan and the Restructuring Proceedings (whether or not
such investigation, litigation, claim or proceeding is brought by the Issuer, its equity
holders or creditors or any other party and whether or not any such Indemnified Party
is otherwise a party thereto), except to the extent that such loss, claim, damage or
liability has been found by a final, non-appealable judgment of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of such
Indemnified Party in performing its obligations under the relevant documents to which
it is a party. The foregoing indemnity shall have the benefit of the DIP Liens and any
court order made in respect thereof.
33. FURTHER
ASSURANCES
The Note Parties shall, from time to time do, execute and deliver, or cause to be done,
executed and delivered, all such further acts, documents (including, without limitation,
certificates, declarations, affidavits, reports and opinions) and things as the DIP Note
Purchasers may reasonably request for the purpose of giving effect to this Term Sheet,
the DIP Note Documents and the DIP Liens.
34.
ACTIONS BY DIP
NOTE PURCHASERS
Except as otherwise specifically set out in Section 25, any actions taken or not taken,
or consents, approvals, amendments or waivers provided, by the DIP Note Purchasers
under the DIP Note Documents may be taken, delivered or provided upon the direction
of DIP Note Purchasers who hold DIP Note Purchase Commitments in an aggregate
principal amount greater than 66 2/3% of the aggregate principal amount of all DIP
Note Purchase Commitments.
Notwithstanding the foregoing, without the consent of each DIP Note Purchaser, no
consent, approval, amendment or waiver shall be made to the extent it has the effect of
(A) extending the Outside Date past the one-year anniversary of the Closing Date, (B)
amending the time for payment of any DIP Obligations (including any interest or fees),
(C) waiving payment of any interest, fees or other amounts owing under the DIP Notes
or the issuance of the Equity Warrants (other than a waiver of default interest), (D)
decreasing the amount of principal, interest or fees payable in respect of the DIP Notes,
(E) decreasing the amount, or amending the economic terms of, the Equity Warrants
required to be issued hereunder, (F) decreasing the interest rate on the Exit Notes or
(G) altering the call protection of the Exit Notes or extending the Exit Maturity Date.
In addition to the foregoing requirements, no (i) increase in the principal amount of
DIP Notes, (ii) increase in interest or fees payable in respect of the DIP Notes, (iii)
increase in the amount of Reorganized Common Stock issued pursuant to the exercise
of Equity Warrants or (iv) increase in the number of Equity Warrants issued pursuant
to the DIP Note Documents, shall be permitted without the consent of the Issuer and
the requisite majority of the DIP Note Purchasers plus the consent of either (A) the
Requisite Consenting Creditors (as defined in the RSA) or (B) approval of the
Canadian Court.
35.
TRANSFER
The Note Parties may not transfer or assign their rights or obligations under the DIP
Note Documents (including the Equity Warrants).
3 2
- 21 Each DIP Note Purchaser other than the Plan Sponsor may transfer its DIP Notes
and/or its Equity Warrants (together or separately) and all of its rights and obligations
relating thereto without the consent of the Note Parties or any other party, provided
that, no DIP Note Purchaser (other than the Plan Sponsor) may, to the extent known to
the individual making such transfer, transfer its DIP Notes to any of the parties
disclosed as principal holders of the Issuer's voting shares on page 35 of the Issuer's
information circular dated June 10, 2015, nor to any person or entity known to the
individual making such transfer to be acting on behalf of any of the foregoing. The
Plan Sponsor may not transfer its DIP Notes or its Equity Warrants without the prior
consent of holders of not less than 75% of the aggregate DIP Notes held by DIP Note
Purchasers other than the Plan Sponsor, other than to its affiliates and funds managed
or administered by it.
36.
CURRENCY
The DIP Notes shall be issued in United States Dollars and all DIP Note Obligations
shall be repaid by the Note Parties in United States Dollars. All references to dollar
amounts in this Term Sheet are references to United States Dollars unless otherwise
indicated.
37.
GOVERNING LAW
This Term Sheet, the Commitment Letter in respect hereof and the DIP Note
Documents (other than local law guarantee and security documents) shall be governed
by the laws of the State of New York.
6542743
SCHEDULE "A"
EXIT NOTES TERM SHEET
1.
EXIT ISSUER
The Reorganized Company (as defined in the Recapitalization Term Sheet) (the
"Exit Issuer")
2.
GUARANTORS
Same as under the DIP Notes.
3.
EXIT NOTE
PURCHASERS
DIP Note Purchasers other than the Plan Sponsor (the "Exit Note Purchasers").
4.
EXIT
COLLATERAL
AGENT
Same as DIP Collateral Agent.
5.
EXIT FINANCING
AND EQUITY
CONVERSION
The Creditor DIP Notes shall become evidenced by the Exit Notes (the "Exit
Notes") and shall be governed by the Amended Indenture. On the Exit Date, the
Plan Sponsor may exercise its rights conferred on it under the Plan Sponsor Notes
to exchange the Plan Sponsor Notes for 16.8% of the Reorganized Common Stock
(subject to dilution pursuant to the Management Incentive Plan), failing which
exercise the Plan Sponsor Notes will be mandatorily exchanged for 16.8% of the
Reorganized Common Stock (subject to dilution pursuant to the Management
Incentive Plan). The DIP LC Facility (if any) will become a two (2) year facility
(starting as of the Closing Date) on terms and conditions acceptable to the DIP
Note Purchasers (the "Exit LC Facility").
6.
CONDITIONS
PRECEDENT TO
EXIT NOTES
The Exit Notes will be subject to customary and usual conditions precedent,
including (i) maintenance of a minimum amount of Unrestricted Operating Cash
together with the amount of cash deposited in the Cash Collateral Accounts of at
least (A) $200 million at any time prior to the completion of the Port Facility Sale
(in whole or in part) and (B) $200 million plus the net cash proceeds of the Port
Facility Sale (in whole or in part) at any time following the completion of the Port
Facility Sale (in whole or in part), (ii) achievement (or waiver in accordance with
the DIP Note Documents) of each Milestone required to be achieved on or prior to
the Exit Date and (iii) the implementation of the Plan (including satisfaction of all
conditions precedent thereto) or such other plan as has been consented to by the
Plan Sponsor and the Exit Note Purchasers.
7.
DEFINITIVE
DOCUMENTATION
The Exit Notes shall be governed by the Amended Indenture, and (i) the
Reorganized Company shall use its commercially reasonable best efforts to obtain
a rating within 10 business days after the Exit Date, (ii) on or prior to the Exit Date,
the Company shall have prepared a draft prospectus (subject to the inclusion of
such additional information, including additional financial information and pro
forma statements reflecting the reorganization of the Company that was not
reasonably available for inclusion therein prior to the Exit Date, as may be required
by the competent authority of the Euro MTF) for the purpose of applying for the
listing of the Exit Notes on the Official List of the Luxembourg Stock Exchange);
(iii) no later than 10 business days after the later of the Exit Date or the availability
of the additional required information as set out in item (ii), the Reorganized
Company shall have applied for the listing of the Exit Notes on the Official List of
the Luxembourg Stock Exchange and to trade them on the Euro MTF Market of
such exchange, (iv) the Reorganized Company will use its commercially
reasonable best efforts to obtain and maintain such listing of the Exit Notes on the
Official List of the Luxembourg Stock Exchange, failing which, it will use its
commercially reasonable best efforts to promptly obtain and maintain an
alternative listing of the Exit Notes on an equivalent unregulated stock exchange
32 LI
-2acceptable to the holders of the Exit Notes and (v) certain terms of the documents
with respect to the Restructuring Proceedings shall not apply following the
completion of, and emergence of the Reorganized Company from, the
Restructuring Proceedings.
The Amended Indenture shall govern the Exit Notes provided that those terms of
the DIP Note Agreement relating to the Restructuring Proceedings and other
matters and covenants relating specifically thereto shall not apply following the
completion of, and emergence of the Reorganized Company (as defined in the
Recapitalization Term Sheet) from, the Restructuring Proceedings.
8.
INTEREST AND
DEFAULT
INTEREST
9.
EXIT MATURITY
DATE
Interest shall be payable in cash on the aggregate amount of outstanding
obligations under the Exit Notes at a rate equal to 10% per annum, compounded
monthly and payable monthly in arrears in cash on the last business day of each
month. Upon the occurrence and during the continuation of an Event of Default,
all amounts shall bear interest at the applicable interest rate plus 2% per annum
payable on demand in arrears in cash.
On and after the Exit Date, for a period of not less than two (2) years following the
Exit Date (or such longer period as may be agreed by each of the Exit Note
Purchasers in its sole discretion), to the extent that the Company's Unrestricted
Operating Cash (to be defined in the Amended Indenture) is less than $150 million,
at the Company's election, it shall have the option to make "payments-in-kind"
with respect to any interest payment owed on the principal amount of the Exit
Notes; provided that any such "payment-in-kind" interest shall be at a rate of
14% per annum.
The Exit Notes will mature five years after the Exit Date (the "Exit Maturity
Date"), provided that the Exit Issuer may redeem at any time following the third
anniversary of the Exit Date, subject to the following redemption premiums:
(a) following the third anniversary of the Exit Date up to and including the
fourth anniversary of the Exit Date, 105% of the aggregate principal
amount of the Exit Notes; and
(b) following the fourth anniversary of the Exit Date up to and including the
fifth anniversary of the Exit Date, 102.5% of the aggregate principal
amount of the Exit Notes.
10.
SECURITY
The DIP Liens shall continue to secure the obligations under the Exit Notes and
any outstanding hedging contracts under the Hedging Facility (if any) on the Exit
Date until expiry thereof, and the refinanced DIP LC Facility (if any) which shall
continue to rank second behind the Exit Notes.
11.
REPRESENTATION
S AND
WARRANTIES
Same as DIP Note Documents, subject to such amendments as may be agreed and
provided that certain terms of the DIP Note Documents with respect to the
Restructuring Proceedings shall not apply following the completion of, and
emergence of the Reorganized Company from, the Restructuring Proceedings.
12.
AFFIRMATIVE,
NEGATIVE AND
FINANCIAL
COVENANTS
Same as DIP Note Documents, subject to such amendments as may be agreed and
provided that (i) certain terms of the DIP Note Documents with respect to the
Restructuring Proceedings shall not apply following the completion of, and
emergence of the Reorganized Company from, the Restructuring Proceedings and
(ii) the Exit Notes shall contain restrictions on incurrence of debt and liens
(permitting the funded debt set out in Section 13 below) on terms to be agreed
between the Issuer and the DIP Note Purchasers and (iii) the Amended Indenture
shall permit the Note Parties to merge, amalgamate, consolidate, wind-up into or
transfer assets to any other Note Party on terms and conditions to be reasonably
agreed between the DIP Note Purchasers (including the Plan Sponsor) and the
-3Reorganized Company.
13.
OTHER FUNDED
DEBT
After the Exit Date, in addition to the Exit Notes and the Exit LC Facility, the
Note Parties will not be permitted to incur any indebtedness that ranks senior to
or pari passu with the Exit Notes but shall be entitled to incur (i) unsecured
hedging obligations (subject to the DIP Liens continuing to secure the outstanding
hedging contracts under the Hedging Facility (if any) on the Exit Date until
expiry thereof), (ii) unsecured letters of credit, (iii) letters of credit secured on a
second lien basis (including the Exit LC Facility) in an aggregate amount not to
exceed $200 million , which letters of credit may be secured by the Collateral on
a pan passu basis with the liens securing the Exit LC Facility (provided that each
financial institution providing any such letters of credit on a pan passu basis with
the liens securing the Exit LC Facility shall become a party to the Intercreditor
Agreement on terms, including with respect to the exercise of remedies,
reasonably satisfactory to the Exit Note Purchasers), (iv) cash collateralized
letters of credit outstanding as of the Closing Date and unsecured or cashcollateralized renewals or extensions thereof and (v) unsecured debt with a
maturity date that is at least 90 days following the maturity of the Exit Notes.
14.
EVENTS OF
DEFAULT
Same as DIP Note Documents, subject to such amendments as may be agreed and
provided that certain terms of the DIP Note Documents with respect to the
Restructuring Proceedings and the Plan shall not apply following the completion
of, and emergence of the Reorganized Company from, the Restructuring
Proceedings.
15.
ACTIONS BY EXIT
NOTE
PURCHASERS
16.
Any actions taken or not taken, or consents, approvals, amendments or waivers
provided, by the Exit Note Purchasers under the Amended Indenture may be taken,
delivered or provided upon the direction of Exit Note Purchasers who hold Exit
Notes in an aggregate principal amount greater than 66 2/3% of the aggregate
principal amount of all Exit Notes.
Notwithstanding the foregoing, without the consent of each Exit Note Purchaser,
no consent, approval, amendment or waiver shall be made to the extent it has the
effect of (A) increasing the amount of the Exit Notes, (B) amending the time for
payment of any obligations under the Exit Notes (including any interest or fees),
(C) waiving payment of any interest, fees or other amounts owing under the Exit
Notes (other than a waiver of default interest), (D) decreasing the interest rate on
the Exit Notes, (E) amending any provision with respect to the payment of interest
"in-kind" or (F) altering the call protection of the Exit Notes or extending the Exit
Maturity Date.
GOVERNING LAW New York.
?„2
This is Exhibit "N" referred to in the
Affidavit of Peter Volk
sworn before me, this 27th day
of April, 2016
A Commissioner for taking Affidavits
CAN DMS: \65405557\1
227
EXECUTION DRAFT
PERSONAL AND CONFIDENTIAL
April 20, 2016
Pacific Exploration and Production Corporation
333 Bay Street, Suite 1100
Toronto, Ontario
Attention: Lazard Freres & Co. LLC
Commitment Letter re: DIP/Exit LC Facility
Ladies and Gentlemen:
Each of the institutions identified on the signature pages hereto (together with their respective
affiliates or permitted designees, the "DIP/Exit LC Lender" or "we" or "us") are pleased to
confirm the arrangements under which the DIP/Exit LC Lenders commit to provide Pacific
Exploration and Production Corporation (the "Company" or "you") with a debtor-in-possession
letter of credit facility in an aggregate face amount of up to US$134 million (the "DIP/Exit LC
Facility") on the terms and subject to the conditions set forth in this letter, in the respective
commitment amounts (each, a "Commitment") set out on Schedule I, subject to the conditions
set forth in this letter, the terms attached as Annex A and on the terms and conditions
substantially in the form of the term sheet set out on Annex B hereto (the "Term Sheet" and
together with this letter and Annex A, collectively, this "Commitment Letter"). Each of the
DIP/Exit LC Lenders understands that the Company would like to arrange the DIP/Exit LC
Facility to permit the Company to use letters of credit to replace, extend or renew certain
prepetition letters of credit.
1.
Commitments.
Each of the DIP/Exit LC Lenders, on behalf of itself or its affiliates or permitted designees, as
applicable, is pleased to advise you of its several, but not joint, commitment to provide the
principal amount of the DIP/Exit LC Facility set forth opposite its name on Schedule I attached
hereto on the terms and subject to the conditions contained in this Commitment Letter. The date
of satisfaction of all conditions in Section 2 is referred to as the "Effective Date".
2.
Conditions Precedent.
The commitment of each DIP/Exit LC Lender in respect of the DIP/Exit LC Facility is subject to
(i) the satisfaction of the conditions precedent set forth in the Term Sheet with respect to the
effectiveness of the DIP/Exit LC Facility and (ii) the commitment and concurrent purchase of an
amount of not less than US$500,000,000 of DIP Notes by the DIP Note Purchasers substantially
on the terms and conditions set out in the term sheet attached to the commitment letter dated as
of the date hereof provided by the DIP Note Purchasers.
-2
3.
Indemnification and Related Matters.
The Company agrees to the provisions with respect to the indemnity and other matters set forth
in Annex A, which is incorporated by reference into this Commitment Letter and to reimburse
the DIP/Exit LC Lenders for all reasonable and documented out-of-pocket fees and expenses
(including reasonable and documented out-of-pocket fees and expenses of one legal counsel to
each DIP/Exit LC Lender (and, if reasonably necessary, of one local counsel in each relevant
material jurisdiction to each such person) and the financial advisor to the DIP/Exit LC
Lenders); provided that such reimbursement will not be duplicative of any expense
reimbursement pursuant to DIP LC Documents (as defined in the Term Sheet).
4.
Information.
You represent, warrant and covenant that (a) all financial projections concerning the Company
and its subsidiaries that have been or are hereafter made available to any DIP/Exit LC Lender by
you or any of your representatives (or on your or their behalf) (the "Projections") have been or
will be prepared in good faith based upon assumptions believed to be reasonable at the time
prepared (it being understood that any such Projections are subject to uncertainties and
contingencies, some of which are beyond your control, that no assurance can be given that any
particular Projections will be realized, that actual results may differ and that such differences
could be material) and (b) all written factual information concerning you and your subsidiaries,
other than Projections, other forward-looking information and information of a general economic
or industry-specific nature, which has been or is hereafter made available to any DIP/Exit LC
Lender by you or any of your representatives (or on your or their behalf) in connection with any
aspect of the transactions contemplated hereby (the "Information"), as and when furnished, is
and will be complete and correct in all material respects, when taken as a whole, and does not
and will not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein, in light of the circumstances under which
such statements are made, not materially misleading. You agree to furnish us with further and
supplemental Information from time to time until the date of the Effective Date so that the
representation, warranty and covenant in the immediately preceding sentence are correct on the
Effective Date as if the Information were being furnished, and such representation, warranty and
covenant were being made, on such date. In issuing this commitment, each DIP/Exit LC Lender
is and will be using and relying on the Information without independent verification thereof.
5.
Assignments.
This Commitment Letter may not be assigned by the Company (and any purported assignment
without consent of the DIP/Exit LC Lenders will be null and void), and is intended to be solely
for the benefit of the DIP/Exit LC Lenders and the other parties hereto and, except as set forth in
Annex A hereto, is not intended to confer any benefits upon, or create any rights in favor of, any
person other than the parties hereto. Each DIP/Exit LC Lender may assign its commitments and
agreements hereunder, in whole or in part, at any time prior to the Effective Date, with consent
of the relevant beneficiary (i) to any affiliate of such DIP/Exit LC Lender and (ii) to any other
person with, in the case of this clause (ii), the consent of the Company (such consent not to be
unreasonably withheld). This Commitment Letter may not be amended nor any term or
provision hereof or thereof waived or otherwise modified except by an instrument in writing
signed by each of the parties hereto, and any term or provision hereof may be amended or
9
-3waived only by a written agreement executed and delivered by all parties hereto; provided that
any DIP/Exit LC Lender may increase its commitment in a writing signed by such DIP/Exit LC
Lender and the Company; provided, further, that the Commitment of any DIP/Exit LC Lender set
forth in Schedule I shall be automatically and permanently reduced in the event that any such
letter of credit issued by such DIP/Exit LC Lender is drawn, expires or is terminated prior to the
Effective Date.
6.
Confidentiality.
Please note that this Commitment Letter and any written communications provided by, or oral
discussions with, any DIP/Exit LC Lender in connection with the transactions contemplated
hereunder are exclusively for the information of the Company and its subsidiaries and may not
be disclosed by the Company to any third party or circulated or referred to publicly without the
DIP/Exit LC Lenders' prior written consent except pursuant to a subpoena or order issued by a
court of competent jurisdiction or by a judicial, administrative or legislative body or committee
(in which case, to the extent permitted by applicable law, you agree to inform us promptly
thereof and, unless specifically required to do so by applicable law, you agree not to disclose the
identity of any DIP/Exit LC Lender or its individual Commitment and to redact Schedule I
hereto as part of any distribution or filing of this Commitment Letter permitted under this
Section 6, unless specifically required to provide an unredacted copy of Schedule I by applicable
law). We hereby consent to your disclosure of (i) this Commitment Letter and such
communications and discussions to the Company's officers, directors, employees, affiliates,
controlling persons, members, partners, attorneys, accountants, representatives, agents and other
advisors who are directly involved in the consideration of the DIP/Exit LC Facility and who have
been informed by you of the confidential nature of such advice and the Commitment Letter and
who have agreed to treat such information confidentially, (ii) this Commitment Letter to the
extent required to be filed with the court in any Restructuring Proceeding (as defined in the Term
Sheet) but, unless otherwise required by applicable law, without disclosing the identity of any
DIP/Exit LC Lender or its Commitment and (iii) this Commitment Letter as required by
applicable law, compulsory legal process or by a regulatory authority (including a stock
exchange on which the Company's shares are listed) (in which case, to the extent permitted by
applicable law, you agree to inform us promptly thereof) provided that, unless specifically
required to do so by applicable law, you agree not to disclose the identity of any DIP/Exit LC
Lender or its individual Commitment and (iv) the terms and conditions of this Commitment
Letter in such other public disclosures as you are required to make in connection with the
Restructuring Proceeding (as defined in the Term Sheet) but in each case, unless specifically
required to do so by applicable law, without disclosing the identity of any DIP/Exit LC Lender or
its individual Commitment.
The DIP/Exit LC Lenders agree to keep non-public information provided to them by the
Company and its subsidiaries confidential and to not disclose such information to third
parties; provided, that, notwithstanding the foregoing, the DIP Exit LC Lenders shall not be
restricted from disclosing any such non-public information (a) to the DIP Note Purchasers (as
defined in the Term Sheet) or their respective advisors (in each case, provided such DIP Note
Purchasers have been advised of the confidential nature of the non-public information and their
obligations to treat such non-public information as confidential and not to disclose such
information to third parties, (b) pursuant to the order of any court or administrative agency or
otherwise as required by applicable law or regulation or as requested by a governmental
U
-4authority (in which case we, to the extent permitted by law, agree to inform you promptly
thereof), (c) upon the request or demand of any regulatory authority having jurisdiction over
such DIP/Exit LC Lender or any of its affiliates, (d) to the extent that such information becomes
publicly available other than by reason of disclosure by any DIP/Exit LC Lender in violation of
this paragraph, (e) to the extent that such information is received by any DIP/Exit LC Lender
from a third party that is not, in each case to such DIP/Exit LC Lender's knowledge, (i) in such
third party's possession illegally or (ii) subject to confidetiality obligations to you, or your
subsidiaries, (f) to the extent that such information is independently developed by any DIP/Exit
LC Lender, (g) to any of the DIP/Exit LC Lender's affiliates and any of their respective
employees, legal counsel, independent auditors and other experts or agents who need to know
such information in connection with the DIP/Exit LC Facility and are informed of the
confidential nature of such information, (h) to prospective DIP/Exit LC Lenders, participants or
assignees of obligations under the DIP/Exit LC Facility, in each case who agree to be bound by
the terms of this paragraph (or language substantially similar to this paragraph) or (i) for the
purposes of establishing any appropriate defense or in connection with the exercise of any rights
or remedies. The Commitment Parties' obligations under this paragraph shall automatically
terminate and be superseded by the confidentiality provisions to the extent covered in the
definitive documentation for the DIP/Exit LC Facility upon the execution and delivery thereof
and shall in any event automatically terminate two years following the date of this Commitment
Letter.
7.
Absence of Fiduciary Relationship.
Each DIP/Exit LC Lender may have economic interests that conflict with those of the Company,
its equity holders and/or its affiliates. You agree that each DIP/Exit LC Lender will act under
this Commitment Letter as unaffiliated entity with no duties to the Company whatsoever and that
nothing in this Commitment Letter or otherwise will be deemed to create an advisory, fiduciary
or agency relationship or fiduciary or other implied duty between any DIP/Exit LC Lender and
the Company, its equity holders or its affiliates. You acknowledge and agree that the
transactions contemplated by this Commitment Letter (including the exercise of rights and
remedies hereunder and thereunder) are arm's-length commercial transactions between the
DIP/Exit LC Lenders, on the one hand, and the Company, on the other, and in connection
therewith and with the process leading thereto, (i) no DIP/Exit LC Lender has assumed an
advisory or fiduciary responsibility in favor of the Company, its equity holders or its affiliates
with respect to the transactions contemplated hereby (or the exercise of rights or remedies with
respect thereto) or the process leading thereto or any other obligation to the Company except the
obligations expressly set forth in this Commitment Letter and (ii) each DIP/Exit LC Lender is
acting solely as a principal and not as the agent or fiduciary of the Company, its management,
equity holders, affiliates, creditors or any other person. The Company acknowledges and agrees
that the Company has consulted its own legal and financial advisors to the extent it deemed
appropriate and that it is responsible for making its own independent judgment with respect to
such transactions and the process leading thereto.
Each of the parties hereto (i) acknowledges that certain of the DIP/Exit LC Lenders and/or one or
more of their respective affiliates were, are, or may at any time be, holders of the Company's
existing equity, debt and other securities and financial instruments (including without limitation
senior unsecured notes issued by the Company and bank loans and other obligations of the
Company) (the "Existing Instruments") and (ii) agrees not to assert any claim it might allege
33\
-5based on any actual or potential conflicts of interest that might be asserted to arise out of the
DIP/Exit LC Lenders' role hereunder and under the DIP/Exit LC Facility, and the actions or
interests of any DIP/Exit LC Lender in its capacity as a holder of Existing Instruments. Each
party hereto acknowledges and agrees for itself and its subsidiaries that each DIP/Exit LC Lender
(a) will be acting for its own account as principal in connection with the Existing Instruments
and the DIP/Exit LC Facility, (b) will be under no obligation or duty as a result of its role in
connection with the transactions contemplated by this Commitment Letter or otherwise to take
any action or refrain from taking any action (including with respect to voting for or against any
requested amendments or actions), or exercising any rights or remedies, that any holder of
Existing Instruments may be entitled to take or exercise in respect of the Existing Instruments
and (c) may manage its exposure to the Existing Instruments without regard to its role hereunder
as a DIP/Exit LC Lender.
8.
Miscellaneous.
Each DIP/Exit LC Lender's commitments hereunder will terminate upon the first to occur of (i) a
breach by the Company of any term or condition of this Commitment Letter and (ii) June 15,
2016, unless prior to such time the closing of the DIP/Exit LC Facility, on the terms and subject
to the conditions contained herein and in the DIP LC Documents (as defined in the Term Sheet),
has been consummated. In the event of any termination pursuant to this paragraph, this
Commitment Letter, and the DIP/Exit LC Lenders' agreement to perform the services described
herein and in the Term Sheet, shall automatically terminate without further action or notice and
without further obligation to the Company unless the DIP/Exit LC Lenders shall, in their
discretion, agree to an extension in writing.
The provisions set forth under Section 3 (including Annex A), Section 6 and this Section 8 will
remain in full force and effect regardless of whether the DIP LC Documents (as defined in the
Term Sheet) are executed and delivered. The provisions set forth under Sections 3 (including
Annex A) Section 6 and this Section 8 will remain in full force and effect notwithstanding the
expiration or termination of this Commitment Letter or the commitments and agreements of the
DIP/Exit LC Lenders hereunder.
THIS COMMITMENT LETTER IS TO BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
All actions and claims arising out of or relating to this Commitment Letter shall be heard and
determined in the Canadian Court, the U.S. Court or any federal or state court sitting in the
Borough of Manhattan, the city of New York (collectively, the "Chosen Courts"). Consistent
with the preceding sentence, the parties hereby (i) irrevocably submit to the exclusive
jurisdiction of the Chosen Courts, (ii) waive any objection to laying of venue in any such action
or proceeding in the Chosen Courts, and (iii) waive any objection that the Chosen Courts are an
inconvenient forum or do not have jurisdiction over any party; provided, however, that each of
the parties hereby agrees that, for the duration of any Restructuring Proceeding (as defined in the
Term Sheet), the Canadian Court (as defined in the Term Sheet) shall have exclusive jurisdiction
of all matters relating to the enforcement of this Commitment Letter. The foregoing shall not
limit the rights of any party to introduce this Commitment Letter in any court in any jurisdiction
"S2
-6in order to prosecute or defend against a cause of action that has been brought against it or any of
its affiliates or representatives in such court.
EACH PARTY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS COMMITMENT
LETTER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
This Commitment Letter may be executed in any number of counterparts, each of which when
executed will be an original, and all of which, when taken together, will constitute one
agreement. Delivery of an executed counterpart of a signature page of this Commitment Letter
by facsimile transmission or electronic transmission (in pdf format) will be effective as delivery
of a manually executed counterpart hereof. This Commitment Letter (which is subject to the
Term Sheet) is the only agreement that has been entered into among the parties hereto with
respect to the DIP/Exit LC Facility and sets forth the entire understanding of the parties with
respect thereto and supersedes any prior written or oral agreements among the parties hereto with
respect to the DIP/Exit LC Facility.
Please confirm that the foregoing is in accordance with your understanding by signing and
returning to Goodmans LLP on behalf of the DIP/Exit LC Lenders the enclosed copy of this
Commitment Letter on or before the close of business on April 20, 2016, whereupon this
Commitment Letter will become binding agreements between us.
If this Commitment Letter has not been signed and returned as described in the preceding
sentence by such date, this offer will teiminate on such date. We look forward to working with
you on this transaction.
[Remainder of page intentionally left blank]
z,;3
Sincerely,
[REDACTED],
as DIP/Exit LC Lenders
By:
Name:
Title:
ACCEPTED AND AGREED AS OF APRIL 16, 2016:
PACIFIC EXPLORA
& PRODUCTION
CORPORATION
By:
Name: Peter lk
Title: Ge ra1Counsel
5
ANNEX A
In the event that any DIP/Exit LC Lender, its affiliates or any DIP/Exit LC Lender's and such
affiliates' partners, officers, members, directors, agents, employees, advisors or controlling
persons (if any) (each, an "Indemnified Person") becomes involved in any capacity in any
action, proceeding or investigation brought by or against any person, including equity holders,
partners, members or other shareholders of the Company in connection with or as a result of
either this arrangement or any matter referred to in this Commitment Letter, the Company agrees
to periodically reimburse such Indemnified Person for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection therewith to the
extent such Indemnified Person would otherwise be entitled to indemnification hereunder. The
Company also agrees to indemnify and hold harmless each Indemnified Person against any and
all losses, claims, damages or liabilities to any such Indemnified Person in connection with or as
a result of the Commitment Letter or the transactions contemplated thereunder or any use made
or proposed to be made with the proceeds thereof (whether or not such investigation, litigation,
claim or proceeding (each of the foregoing, a "Proceeding")] is brought by you, your equity
holders or creditors or an Indemnified Person and whether or not any such Indemnified Person is
otherwise a party thereto), (IN ALL CASES, WHETHER OR NOT CAUSED OR ARISING, IN
WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY OR SOLE
NEGLIGENCE OF THE INDEMNIFIED PARTY) except to the extent that such loss, claim,
damage or liability (i) has been found by a final, non-appealable judgment of a court of
competent jurisdiction to have resulted from (a) the, gross negligence or willful misconduct of
such Indemnified Person in performing its obligations under the Commitment Letter or (b) a
material breach of the obligations of such Indemnified Person under the Commitment Letter or
(ii) the result of any Proceeding that is not the result of an act or omission by the Company or
any of its affiliates and that is brought by an Indemnified Person against any other Indemnified
Person.
You agree that no Indemnified Person shall have any liability (whether direct or indirect, in
contract, tort or otherwise) to the Company for or in connection with the transactions
contemplated by the Commitment Letter, except to the extent such liability is found by a final,
non-appealable judgment of a court of competent jurisdiction to have resulted from (a) the gross
negligence or willful misconduct of such Indemnified Person or (b) a material breach of the
obligations of such Indemnified Person under the Commitment Letter.
In no event will any Indemnified Person be liable on any theory of liability for any indirect,
consequential, special or punitive damages (including, without limitation, any loss of profits,
business or anticipated savings) in connection with or as a result of such Indemnified Person's
activities related to the Commitment Letter. Notwithstanding any other provision of this Commitment
Letter, no Indemnified Party shall be liable for any damages arising from the use by others of information
or other materials obtained through electronic telecommunications or other information transmission
systems, other than for direct or actual damages resulting from the gross negligence or willful misconduct
of such Indemnified Party as determined by a final and nonappealable judgment of a court of competent
jurisdiction. The provisions of this Annex A will survive any termination or completion of
the arrangement contemplated by the Commitment Letter and the occurrence of the
effective date of any plan of reorganization and any discharge of the Company.
EXECUTION DRAFT
Strictly Private and Confidential
SECURED DIP AND EXIT FINANCING FACILITY — SUMMARY TERM SHEET (the "Term Sheet")
USD $133.23 million letter of credit facility (the "DIP LC Facility")
I.
CONFIDENTIALITY The Borrower (as defined below) agrees that it shall not disclose this Term Sheet or the
substance of the financing arrangements proposed herein to any person without the
prior written consent of the DIP LC Issuers (as defined below), except to (i) the
Borrower's and the other Loan Parties' directors, senior officers, and professional
advisors, (ii) the DIP LC Lenders and their professional advisors, and (iii) the
professional advisors of the DIP Note Purchasers (as defined below) and of Bank of
America, N.A., as agent under that certain Revolving Credit and Guaranty Agreement
dated as of April 30, 2014 among Pacific, Bank of America, N.A., as administrative
agent, and the lenders and guarantors party thereto, on a confidential basis, in each case
unless required to be disclosed by law or by a regulatory authority (including a stock
exchange on which the Borrower's shares are listed). Additionally, this Term Sheet
may be disclosed to the extent required to be filed with a court in connection with any
Restructuring Proceedings (as defined below).
2.
SUBJECT TO
DEFINITIVE
DOCUMENTATION
The financing will be provided through the renewal or extension of letters of credit
listed in confidential Schedule B hereto (or letters of credit issued, renewed or
extended by the DIP LC Issuers as renewals, replacements or extension of such letters
of credit) for the benefit of the Borrower and its subsidiaries (the "DIP LCs") in an
aggregate face amount of up to $133,229,611.65 at any time outstanding pursuant to a
debtor-in-possession revolving credit agreement (the "DIP LC Agreement"). The
debtor-in-possession financing contemplated herein would be subject to the execution
of the DIP LC Agreement and other definitive documents (collectively, the "DIP LC
Documents"). Letters of credit will be renewed or extended by the DIP LC Issuers (as
defined below), whose commitment will be several and not joint. Certain letters of
credit issued by the DIP LC Issuers that are scheduled to expire within the term of the
DIP LC Facility (the "Renewal LCs") will be deemed to be DIP LCs on and after the
Closing Date (as defined below). No DIP LC Issuer will be required to backstop
drawing on DIP LCs of any other DIP LC Issuer. Each DIP LC Issuer will, at its sole
discretion, be entitled to assign its DIP LCs to or account for its DIP LCs in the books
and records of an affiliate.
The DIP LC Documents shall govern the DIP LCs and may be amended and restated
or otherwise replaced (such amended, restated or replaced DIP LC Documents being
the "Amended DIP LC Documents") and the Amended DIP LC Documents shall
thereafter govern the DIP LCs and Exit LCs (as defined in Schedule "A"), provided
that those terms of the DIP LC Agreement relating to the Restructuring Proceedings
(as defined below) and other matters and covenants relating specifically thereto shall
not apply following the completion of, and emergence of the Reorganized Company
(as defined in the Recapitalization Term Sheet (as defined below)) from, the
Restructuring Proceedings and, to the extent reasonably practicable and acceptable to
the DIP LC Issuers, such matters and covenants shall be contained in the DIP LC
Documents.
"DIP LC Issuer" means those banks listed on confidential Schedule B hereto and any
other person that shall have become a party to the DIP LC Agreement pursuant to an
assignment and acceptance, other than any such person that ceases to be a party to the
DIP LC Agreement pursuant to an assignment and acceptance, together with, in each
case, any affiliate of any such person through which such person elects, by notice to
the DIP Agent and the Borrower, to make any DIP LCs available to the Borrower,
provided that, for all purposes of voting or consenting with respect to (a) any
amendment, supplementation or modification of any DIP LC Document, (b) any
waiver of any requirements of any DIP LC Document or any default or Event of
Default and its consequences, or (c) any other matter as to which a DIP LC Issuer may
-2vote or consent pursuant to the DIP LC Agreement, the DIP LC Issuer making such
election shall be deemed the "person" rather than such affiliate, which shall not be
entitled to vote or consent.
An additional first-lien note facility in an amount of up to $500 million (the "DIP Note
Facility" and together with the DIP LC Facility, collectively, the "DIP Facilities")
will be provided by a group of existing bond holders and/or lenders and one or more
affiliates of The Catalyst Capital Group Inc. (the "Plan Sponsor") (the "DIP Note
Purchasers" and together with the DIP LC Issuers, collectively, the "DIP Providers")
pursuant to a note purchase agreement (the "DIP Note Purchase Agreement"),
existing lenders and the Plan Sponsor.
To the extent applicable, a first-lien hedging facility with respect to up to 60% of the
production of the Borrower and its affiliates, or such other amount to be agreed by the
DIP LC Issuers (the "Hedging Facility") may be provided by a bank or banks.
3.
DIP BORROWER
Pacific Exploration & Production Corporation ("the "Borrower" or "Pacific").
4.
GUARANTORS
Meta Petroleum AG, Pacific Stratus Energy Colombia Corp., Grupo C&C Energia
(Barbados) Ltd., Petrominerales Colombia Corp., Agro Cascada S.A.S., Pacific E&P
Holdings Corp., Pacific E&P International Holdings, S.a r.1., Pacinfra Holding Ltd.,
Pacific Midstream Holding Corp., all other guarantors of the DIP Note Facility, and
any other wholly owned subsidiaries of the Borrower as may be reasonably required by
the DIP LC Issuers (collectively the "Guarantors"). To the extent permitted by
applicable law, all obligations of the Borrower will be unconditionally guaranteed
jointly and severally by the Guarantors and the obligations of each Borrower will be
guaranteed by the other Borrower. Notwithstanding the foregoing, the Borrower agrees
that, to the extent required by the DIP LC Issuers and permitted under Swiss law, Meta
Petroleum AG agrees to (i) borrow money from another Loan Party pursuant to
secured intercompany notes in an amount to be agreed with the DIP LC Issuers (which
secured intercompany notes shall be pledged to the DIP Collateral Agent), (ii) to the
extent the structure described in clause (i) is not reasonably practicable, to become a
co-borrower under DIP LC Facility and/or (iii) otherwise structure its affairs and
obligations with respect to the DIP LCs in a manner reasonably satisfactory to the DIP
LC Issuers.
The Borrower and the Guarantors are collectively referred to herein as the "Loan
Parties" and each a "Loan Party".
5.
DIP
ADMINISTRATIVE
AGENT
A financial institution acceptable to the DIP LC Issuers shall act as administrative
agent under the DIP LC Documents (the "DIP Agent") and shall be paid a customary
agency fee. Each DIP LC Issuer shall report to the DIP Agent periodically regarding its
outstanding DIP LCs.
6.
DIP COLLATERAL
AGENT
A financial institution acceptable to the DIP Providers and reasonably acceptable to the
Borrower will act as collateral agent for and on behalf of the DIP Providers under the
DIP Note Agreement, the Hedging Facility (if any) and the DIP LC Agreement, as
applicable (in such capacity, the "DIP Collateral Agent").
6.
COLLATERAL
AGENCY AND
INTERCREDITOR
AGREEMENT
The DIP Providers will enter into a collateral agency and intercreditor agreement (the
"Intercreditor Agreement") pursuant to which they shall agree among other things
that the DIP Note Obligations (as defined below) and the obligations under the
Hedging Facility (if any) (the "Hedging Obligations") shall be secured on a first-lien
basis and the DIP LC Obligations (as defined below) shall be secured on a second-lien
basis.
Pursuant to the Intercreditor Agreement, (i) if there is a Hedging Facility, the Hedge
Provider will agree to limit setoff rights provided that it may have priority with respect
to monthly payments under the Hedging Facility to the extent agreed by the D11' Note
Purchasers, in priority to the DIP Note Obligations and the DIP LC Obligations and
(ii) the DIP LC Issuers will not be permitted to cause the DIP Collateral Agent to
enforce the security or otherwise take action with respect to the DIP Collateral except
-3(x) if the DIP Note Obligations have been paid in full or (y) following the completion
of a 90-day standstill period following the occurrence of any Event of Default of the
type described in clause (a) of Section 25; provided that, following commencement of
enforcement, the DIP Collateral Agent shall be instructed in accordance with the
Intercreditor Agreement. The Borrower shall have the right to enter into one or more
letter of credit facilities (each, a "Replacement LC Facility") with financial
institutions that are secured on a pari passu basis with the DIP LC Obligations;
provided that each financial institution providing any Replacement LC Facility that is
secured on a pari passu basis with the DIP LC Obligations shall become a party to the
Intercreditor Agreement in a manner (including with respect to provisions controlling
the exercise of remedies) reasonably satisfactory to the DIP LC Issuers; provided,
further, that the total amount of commitments under the DIP LC Facility and any
secured Replacement LC Facilities shall not exceed $200 million at any time.
8.
SEPARATE RIGHTS
AND OBLIGATIONS
The obligations of each DIP LC Issuer under the DIP LC Agreement shall be several
(and not joint and several). No DIP LC Issuer shall be responsible for the obligations
of any other DIP LC Issuer under the DIP LC Agreement, and the failure by any DIP
LC Issuer to perform its obligations under the DIP LC Agreement shall not affect the
obligations of any other DIP LC Issuer under the DIP LC Agreement. In the event
that, despite its obligations under the DIP LC Agreement, any DIP LC Issuer fails to
replace, extend or renew the prepetition letters of credit for the benefit of the Borrower
(the "Prepetition LCs") issued by such DIP LC Issuer, such DIP LC Issuer shall
become subject to customary "defaulting lender" provisions, including loss of secured
status under the DIP LC Documents, including for any drawing with respect to each
Prepetition LC and each DIP LC issued, renewed or extended by such DIP LC Issuer,
and no fee payments or payments of interest on any drawing with respect to each
Prepetition LC and each DIP LC issued, renewed or extended by such DIP LC Issuer
shall be paid to such DIP LC Issuer until such DIP LC Issuer shall have renewed or
extended each of its applicable Prepetition LCs under the DIP LC Agreement;
provided that, notwithstanding the foregoing, if, prior to such DIP LC Issuer having
renewed or extended each of its Prepetition LCs under the DIP LC Agreement, a
drawing with respect to any of the Prepetition LCs issued by such DIP LC Issuer shall
have been made, the renewal or extension of the Prepetition LCs issued by such DIP
LC Issuer shall not cure its default and such DIP LC Issuer shall remain subject to the
"defaulting lender" provisions set forth above.
-49.
RESTRUCTURING
PROCEEDINGS
Pacific and certain other Loan Parties and their applicable subsidiaries (as agreed
between Pacific and the DIP LC Issuers) will implement the restructuring
contemplated by the Recapitalization Term Sheet attached hereto as Schedule "C" (the
"Recapitalization Term Sheet") through a plan of reorganization, which shall be
consistent with the terms of the Recapitalization Term Sheet and the RSA (as defined
in the Recapitalization Term Sheet) (as it may be amended or supplemented from time
to time in accordance with the terms of the RSA, the "Plan") to be implemented
pursuant to (i) a main Canadian proceeding (the "Canadian Proceeding") to be
commenced under the Companies' Creditors Arrangement Act (Canada) (the
"CCAA") in the Ontario Superior Court of Justice (Commercial List) in Toronto (the
"Canadian Court"), (ii) an ancillary proceeding (and not, without the consent of the
DIP LC Issuers, a main proceeding under Ley 1116 of 2006 in Colombia ("Law
1116")) to be commenced in Colombia (the "Colombian Proceeding") in the court
seized of jurisdiction in such Colombian Proceeding (the "Colombian Court") and
(iii) a proceeding (the "U.S. Proceeding" and, together with the Colombian
Proceeding, collectively, the "Ancillary Proceedings," and together with the Canadian
Proceeding, collectively, the "Restructuring Proceedings") under chapter 15 of title
11 of the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of New York (the "U.S. Court," and
together with the Colombian Court, the "Ancillary Insolvency Courts" and, together
with the Canadian Court, the "Insolvency Courts").
10.
PURPOSE
The Borrower shall use the Renewal LCs and DIP LCs renewed or extended under the
DIP LC Facility solely for general corporate purposes of the Borrower and its
subsidiaries and, in the case of DIP LCs renewed or extended after the Closing Date,
only to replace, extend or renew prepetition letters of credit renewed or extended by
the DIP LC Issuers.
13.
COMMITMENT AND
AVAILABILITY OF
DIP LCS
Each issuance, renewal, extension or amendment of a DIP LC shall be subject to the
applicable conditions precedent set out below. Each DIP LC Issuer's obligation to
renew or extend DIP LCs is referred to as its "DIP LC Commitment."
14.
EXIT FACILITY
By committing to provide its DIP LC Commitment, each DIP LC Issuer concurrently
commits to provide its pro rata share of the Exit LC Facility equal to its pro rata share
of the aggregate amount of the DIP LC Facility. On the Exit Date, all outstanding DIP
LCs will automatically become Exit LCs (as defined in Schedule "A"). See Schedule
"A" for terms and conditions of Exit LCs.
11.
DIP LC
COMMITMENTS
The DIP LC Commitment of each DIP LC Issuer is the amount set opposite its name in
Schedule "B" hereto, in each case to the extent not cancelled, reduced or transferred in
accordance with the DIP LC Agreement.
In the event that any DIP LC is drawn (an "LC Draw"), the Borrower shall be
obligated to reimburse the relevant DIP LC Issuer within 2 business days of such
drawing. In the event the Borrower does not reimburse an LC Draw, such
unreimbursed LC Draw shall be deemed to create an "LC Advance" owed by the
Borrower to the applicable DIP LC Issuer under the DIP LC Documents, but the
failure to reimburse any LC Draw and the creation of an LC Advance in respect thereof
shall not independently constitute an Event of Default under the DIP LC Documents.
The DIP LC Commitments of each DIP LC Issuer shall be automatically and
permanently reduced by the aggregate amount of any reduction in the full amount of
DIP LCs outstanding and issued by such DIP LC Issuer from time to time.
12.
MATURITY DATE
AND REPAYMENT
The outstanding obligations (including the obligation to cash-collateralize undrawn
DIP LCs) under the DIP LC Facility and the DIP LC Documents (the "DIP LC
Obligations") shall be repayable in full on the earliest to occur of the following dates
(the "DIP Maturity Date"):
the date on which a demand is made by two or more DIP LC Issuers that
(a)
collectively hold a majority of the face amount of the outstanding DIP LCs
3
-5(or, in the event that there is only one DIP LC Issuer, such DIP LC Issuer)
following the occurrence of any Event of Default (as defined below) which is
continuing;
(b)
the date that a restructuring, refinancing or sale transaction (with respect to a
material amount of stock or assets of the Borrower and any of its
subsidiaries), other than the Plan and other than any Permitted Asset
Disposition (each, a "Transaction"), is approved by the applicable court or
consummated without the requisite consent of the DIP LC Issuers;
(c)
the date on which any stay of proceedings ordered pursuant to one or more of
the Restructuring Proceedings expires without being extended or on which
one or more of the Restructuring Proceedings are terminated or converted to a
liquidation proceeding; and
the date that is six (6) months following the Closing Date (as defined below),
or such later date as may be agreed by the DIP LC Issuers in their sole
discretion (the "Outside Date"),
provided that, if none of the foregoing events have occurred on or prior to the date on
which the Plan is implemented, then on the date on which the Plan is implemented (the
"Exit Date"), the DIP LC Commitments and the DIP LCs then outstanding shall
remain outstanding as Exit LCs until the Exit Maturity Date (as defined in Schedule
(d)
C<A11)
.
For greater certainty, in the event that the Exit Date has not occurred on or prior to the
DIP Maturity Date, all other DIP LC Obligations shall become immediately due and
payable to the respective issuers of the DIP LCs.
15. ASSET
DISPOSITIONS
Except for Permitted Asset Dispositions, the Loan Parties may not sell, assign, transfer
or otherwise dispose of any material property or assets (except the sale of
hydrocarbons in the ordinary course of business) without the prior consent of the DIP
LC Issuers and provided that all proceeds of any sale, assignment, transfer or
disposition shall be deposited in the Cash Collateral Account (as defined below) which
shall be subject to an account control agreement in favour of the DIP Collateral Agent
for and on behalf of the DIP Providers and proceeds from which shall be disbursed in
accordance with the procedure described in the DIP Note Term Sheet.
"Permitted Asset Dispositions" means the following: (i) the sale of nearly 87 km of
pipes that were going to be used to build La Creciente pipeline, which pipes are owned
by the Colombian branch of Pacific Stratus Energy Colombia Corp. and stored in the
La Creciente field in Colombia, (ii) the sale of tax refunds or credits (including Titulos
de Devolucion de Impuestos Nacionales) and (iii) the sale of any equity interest in
Pacific Infrastructure Ventures Inc. or the sale of the oil terminal and the dry cargo
business by Pacific Infrastructure Ventures Inc. (the "Port Facility Sale"), provided
that, other than in the case of clause (i) above, the proceeds of each such sale shall be
no less than the amount set out in respect thereof in the Cash Flow Projection and
provided further that, prior to the consummation of each such sale:
(a) the relevant Loan Party consummating such transaction delivers to the DIP LC
Issuers' advisors (and/or Restricted DIP LC Issuers) an officer's certificate certifying
that such transaction is with a party that deals at arm's length with the relevant Loan
Party; and
(b) in the case of item (iii), the relevant Loan Party consummating such transaction
delivers to the DIP LC Issuers' advisors (and/or Restricted DIP LC Issuers) with
respect to any such transaction , a resolution of the board of directors of such Loan
Party, set forth in an officer's certificate, stating that such transaction complies with
this covenant and that such transaction has been approved by Pacific's independent
committee of directors.
1
94
-616.
PREPAYMENT
The DIP LC Commitments may be reduced by the Company at any time on 3 business
days' prior notice, but may not be reduced to an amount less than the aggregate amount
of outstanding DIP LCs at such time, unless such DIP LCs are cancelled or cash
collateralized.
In the event that any amount of the DIP Notes are voluntarily prepaid or refinanced
(other than the DIP Notes issued to the Plan Sponsor, which shall not be repaid,
prepaid, redeemed, repurchased or refinanced prior to the Exit Date except pursuant to
Section 17 of the DIP Note Term Sheet), the Borrower shall concurrently refinance or
cash-collateralize the DIP LCs outstanding at such time on a pro rata basis with the
DIP Notes prepaid or refinanced at such time according to each DIP LC Issuer's pro
rata share of the DIP LC Facility.
17.
INTEREST AND
DEFAULT
INTEREST
Interest shall be payable in cash on the aggregate amount of outstanding LC Draws and
LC Advances under the DIP LC Facility at a rate equal to 8% per annum. The DIP LC
Issuers shall also receive an amount equal to 5% per annum, compounded monthly and
payable monthly in arrears, calculated on the undrawn portion of outstanding DIP LCs,
as a fee for their risk of drawing (the "LC Fee"). The DIP LC Issuers shall also
receive standard administrative and processing fees in accordance with their customary
policies and procedures. Any advance interest or fees paid to any DIP LC Issuer by any
Loan Party prior to the Closing Date with respect to Prepetition LCs shall be credited
against the LC Fee payable to such DIP LC Issuer on and after the Closing Date.
Upon the occurrence and during the continuation of an Event of Default and for so
long as any LC Advance shall be outstanding, all amounts shall bear interest at the
applicable interest rate plus 2% per annum and the LC Fee shall increase by 2% per
annum, in each case payable on demand in arrears in cash. All computations of
interest shall be made on the basis of a year of 365 or 366 days, as the case may be,
taking into account the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
18.
CASH FLOW
PROJECTIONS /
VARIANCE
Pacific shall prepare a cash flow projection which shall be in form and substance
satisfactory to the CRO, the DIP LC Issuers and their advisors (the "Cash Flow
Projection"), reflecting the projected cash requirements (including, without limitation,
with respect to projected payment of professional expenses on an advisor by advisor
basis, but aggregating legal advisors for jurisdictions outside of the United States and
Canada)) of Pacific and its direct and indirect subsidiaries for the period commencing
with the date on which the Canadian Proceeding is to be commenced (the
"Commencement Date") and ending with the Outside Date. Pacific shall prepare and
present to the financial advisors to the DIP LC Issuers (and to any DIP LC Issuer that
has agreed to receive material non-public information on a restricted basis pursuant to
a non-disclosure agreement substantially in the form of the non-disclosure agreements
in place between the company and certain of its existing lenders on the date hereof,
(each a "Restricted DIP LC Issuer")) a cumulative variance report in form and
substance satisfactory to the DIP LC Issuers' financial advisors (each, a "Variance
Report") as at the end of each four week period set out in the Cash Flow Projection, in
each case, in respect of the period beginning on the Commencement Date and ending
on the last day of the applicable cumulative period (each such period being a "Test
Period"), which Variance Report shall show the line-by-line variance between the
projected cash flows set out in the Cash Flow Projection in respect of the relevant Test
Period and actual cash flows during such Test Period. Each Variance Report shall be
prepared and presented to the DIP LC Issuers by no later than the last business day of
the week following the end of the relevant Test Period and shall be reviewed by the
CRO and shall include a certification from a senior officer of the Borrower that the
actual cash flows are within the permitted variances set out below.
The Cash Flow Projection shall be publicly disclosed on or prior to the Closing Date
and all Variance Reports shall be publicly disclosed on or prior to the Exit Date.
In connection with the delivery of each Variance Report, the Loan Parties shall
provide an updated schedule listing all DIP LCs then outstanding, which schedule shall
F42
-7include the face amount of each such DIP LC, the name of the beneficiary with respect
to such DIP LC, the expiration date of such DIP LC and any reduction in the face
amount of, and any LC Draw or LC Advance with respect to, such DIP LC that, in
each case, shall have occurred during the applicable Test Period.
19.
DIP SECURITY AND Subject to the Intercreditor Agreement, the DIP Note Obligations, the Hedging
Obligations and the obligations under the DIP LC Facility (the "DIP LC Obligations"
PRIORITY
and together with the DIP Note Obligations and the Hedging Obligations, collectively,
the "DIP Obligations") shall be secured by first-priority security interests
(collectively, the "DIP Liens") over all of the present and future property and assets,
real and personal, of each Loan Party, including, but not limited to all equity interests
owned by any such Loan Party in material subsidiaries and joint ventures, machinery
and equipment, inventory and other goods, accounts receivable, material fee-owned
real estate, leases, licenses, concessions, fixtures, bank accounts (subject to certain
customary exceptions), intangibles (including rights under exploration and production
contracts, concessions and hedge agreements), financial assets, investment property,
license rights, patents, trademarks, trade names, copyrights, chattel paper, insurance
proceeds, documents, instruments, indemnification rights, tax refunds, tax credits
(including Titulos de Devolucion de Impuestos Nacionales), cash, any avoidance
actions available to the Loan Parties' bankruptcy estates pursuant to the Bankruptcy
and Insolvency Act (Canada), the CCAA or otherwise (collectively, the "Collateral"),
in each case, perfected pursuant to court orders and security documentation governed
under the laws of applicable jurisdictions satisfactory to the DIP Providers; provided
that there shall be the same DIP Liens and Collateral and DIP Order for the DIP Note
Obligations and the DEP LC Obligations and accordingly, to the extent that the DIP
Note Purchasers agree to amend or waive the description of DIP Liens and/or
Collateral and/or the DIP Priority Orders and/or the provisions of (a), (b) and (c)
below, then corresponding amendments and waivers will be made to such provisions in
this term sheet and Schedule "D". The security shall consist of the security documents
set out in Schedule "D" hereto and such additional security documents as the DIP Note
Purchasers (or their counsel) may reasonably request.
All security will be granted in favour of the DIP Collateral Agent for and on behalf of
the DIP Providers, subject to the Intercreditor Agreement.
The DIP Liens shall be given effect as follows, in each case subject to the provisions of
the Intercreditor Agreement:
(a)
with respect to the Borrower and each guarantor under its existing Notes and
Bank Debt (as defined in the RSA) and any other direct or indirect
subsidiaries of the Borrower as the Borrower and the DIP LC Issuers may
reasonably require (the "Filing Parties"), by a superpriority charge pursuant
to the terms of an order in the Canadian Proceeding approving the DIP
Obligations and the DIP Liens (the "DIP Order"), which shall provide that
the DIP Liens and the DIP Obligations rank only behind administrative
charges (the "Administrative Charges"), behind the passive and silent KERP
(as defined below) charge and the directors' and officers' charge (the "D&O
Charge") in amounts approved by the DIP Note Purchasers; provided that the
DIP Liens shall constitute junior perfected liens on, and security interests in,
all Collateral of the Loan Parties, wherever located, that is subject to an
existing valid, perfected, enforceable and unavoidable lien or security interest
on the date of such order, in each case, that is expressly permitted to be senior
to the DIP Liens pursuant to the DIP Order and the DIP LC Documents;
(b)
by such priority or recognition status as may be required by the DIP LC
Issuers in their reasonable discretion in the Ancillary Proceedings pursuant to
an order of the applicable Ancillary Court, as applicable (each such order
being an "Ancillary Priority Order" and together with the DIP Order,
collectively, the "DIP Priority Orders"); and
-8(c)
20. CONDITIONS
PRECEDENT TO
EFFECTIVENESS
AND INITIAL
UTILIZATION OF
DIP LC FACILITY
by such security documents, filings and registrations as may be necessary or
desirable in any relevant jurisdiction, the DIP Liens shall constitute firstpriority perfected liens on, and security interests in, all Collateral of the Loan
Parties, wherever located.
The DIP Note Purchasers may, in their sole discretion, require the execution, filing, or
recording of any mortgages, security agreements, pledge agreements, control
agreements, financing statements or other agreements or instruments, or the taking of
any action to obtain possession or control of any Collateral in order to obtain a lien on
such Collateral; provided, that the local grant of security and perfection of Collateral of
any Loan Party may be excluded to the extent that the DIP Note Purchasers reasonably
determine that the costs of obtaining a security interest in or perfection of such assets
outside of the Restructuring Proceedings is excessive in relation to the value to the DIP
Note Purchasers of the DIP Liens to be afforded thereby.
The security granted by the Loan Parties shall contain certain exclusions from
Collateral, which shall be the same exclusions as are agreed between the Loan Parties
and the DIP Note Purchasers..
The effectiveness of the obligation of the DIP LC Issuers to renew or extend DIP LCs
shall be conditional on, and shall be completed by the DIP LC Issuers by no later than
2 business days following (or, with respect to those conditions that by their nature are
to be satisfied on the Closing Date, on the business day of), the satisfaction of
conditions precedent to borrowing customary and usual for financings in such
circumstances and to be agreed upon by the DIP LC Issuers and the Loan Parties,
which conditions precedent shall include, without limitation, the following conditions
precedent to be satisfied on or prior to the effectiveness of the obligations of the DIP
LC Issuers to renew or extend DIP LCs (the date on which all such conditions are
satisfied being the "Closing Date", from and after which time the Renewal LCs shall
be deemed to be DIP LCs) and each of which conditions shall be for the sole benefit of
the DIP LC Issuers and may be waived by two or more DIP LC Issuers that
collectively hold a majority of the DIP LC Commitments (or, in the event that there is
only one DIP LC Issuer, such DIP LC Issuer) as of the Closing Date; provided that if
such conditions are not met or waived on or before June 15, 2016, the DIP LC
Commitments and all other obligations of the DIP LC Issuers under the DIP LC
Documents shall terminate; and provided, further, that, with respect to the conditions
precedent in clauses (f), (k), (1), (v) and (w), if the corresponding condition precedent
in the DIP Note Term Sheet is satisfied or waived, then such condition precedent shall
be automatically deemed satisfied or waived under this term sheet.
(a)
The applicable Loan Parties shall have commenced the Restructuring
Proceedings.
(b)
The Canadian Court shall have granted an initial order (which shall include
the DIP Order) in respect of the Filing Parties, in form and substance
satisfactory to the DIP LC Issuers (the "Initial Canadian Order").
(c)
The Colombian Court shall have granted a recognition order in respect of the
relevant Loan Parties, in form and substance satisfactory to the DIP LC
Issuers (each an "Initial Colombian Order" and together with the Initial
Canadian Order, the "Initial Orders").
(d)
The Insolvency Courts, as applicable, shall have granted the DIP Priority
Orders.
(e)
If required, the Superintendencia de Sociedades (the "Superintendencia")
shall have approved the granting of the DIP Liens under Colombian law.
(f)
Each Colombian Loan Party and each Loan Party with a Colombian branch
shall have amended its bylaws to provide that the incurrence of any additional
indebtedness (other than under the issuance of the DIP Note Facility, the
-9Hedging Facility (if applicable), the DIP LC Facility, the Exit Note Facility
and the Exit LC Facility and guarantees thereof as contemplated herein) by
such Loan Party (or its Colombian branch) shall require the prior approval of
the DIP LC Issuers.
(g)
Pacific shall have entered into the RSA (as defined in the Recapitalization
Term Sheet) in support of the Plan in form and substance acceptable to the
DIP LC Issuers in their sole discretion with holders of not less than 45% of all
Company Claims (as defined in the RSA).
(h)
The DIP LC Agreement, each of the other DIP LC Documents (other than the
security documents in respect of the Subsequent Collateral (as set out on
Schedule "D")) and all other documentation relating to the DIP LC Facility
shall be in form and substance consistent with this Term Sheet and otherwise
satisfactory to the DIP LC Issuers in their sole discretion and shall have been
executed and delivered by each Loan Party party thereto and shall constitute
valid and enforceable obligations of each of the Loan Parties, as confirmed
pursuant to the Initial Orders and the DIP Priority Orders.
(i)
If applicable, the Hedging Facility and/or the DIP Note Facility and all
documents relating thereto shall be in form and substance satisfactory to the
DIP LC Issuers and shall have been executed and delivered by each Loan
Party party thereto and shall constitute valid and enforceable obligations of
each of the Loan Parties as confirmed pursuant to the Initial Orders and the
DIP Priority Orders.
(j)
All "first day orders" entered in each Restructuring Proceeding at the time of
commencement of the Restructuring Proceedings shall be reasonably
satisfactory in form and substance to the DIP LC Issuers in their sole
discretion.
(k)
The Loan Parties shall have obtained all governmental (including any
required consents from the Superintendencia (if any)), regulatory and third
party approvals required to be obtained in any other relevant jurisdiction to
enable the DIP Collateral Agent to obtain the DIP Liens (excluding any
consents in respect of joint operating agreements and concessions).
The DIP Collateral Agent shall have a valid and perfected security interest in
the Initial Collateral (as set out in Schedule "D"), with the priority described
herein, for the benefit of the DIP Providers.
The DIP LC Facility shall not violate any requirement of law and shall not be
enjoined, temporarily, preliminarily or permanently.
All fees and expenses required to be paid to (i) the financial advisors to the
DIP Providers, (ii) a single counsel in each relevant jurisdiction for the Plan
Sponsor, (iii) a single counsel in each relevant jurisdiction for each of the DIP
Note Purchasers (other than the Plan Sponsor) as a group, the DIP LC Issuers
as a group, and the Hedging Provider (provided that for the purposes of local
security in jurisdictions outside of Canada, Colombia and the United States,
all DIP Providers (other than the Plan Sponsor) shall use a single common
counsel), (iv) a single counsel in each relevant jurisdiction for the prepetition
holders of Notes (as defined in the RSA), as a group, (v) a single counsel in
each relevant jurisdiction for each administrative agent with respect to Bank
Debt (as defined in the RSA), and (vi) counsel for the Monitor, incurred on or
before the Closing Date shall have been paid.
(o)
The DIP LC Issuers shall have received customary legal opinions of (i)
Garrigues, Colombian counsel to the Loan Parties, (ii) Norton Rose Fulbright
Canada LLP, Canadian counsel to the Loan Parties, and (iii) such other local
counsel opinions requested by the DIP LC Issuers, in each case addressing
q5
- 10 such matters as the DIP LC Issuers shall request, including, without
limitation, the enforceability of all DIP LC Documents and the validity and
perfection of all security interests in the Initial Collateral.
(p)
There shall exist no default or Event of Default (other than under section
25(a)) under the DIP LC Documents and the representations and warranties of
the Loan Parties therein shall be true and correct in all respects (other than
any such representation and warranty that by its terms refers to a specified
earlier date which shall be true and correct in all material respects or, with
respect to representations and warranties qualified by materiality, in all
respects, as of such earlier date)
(q)
Since April 6, 2016, there shall not have occurred any change, development,
effect, event, circumstance, fact or occurrence that individually or in the
aggregate with other such changes, developments, effects, events,
circumstances, facts or occurrences, (a) is or would reasonably be expected to
be material and adverse to the business, financial condition, properties, assets
(tangible or intangible), liabilities (including any contingent liabilities), or
results of operations of the Loan Parties or (b) prevents or materially
adversely affects the ability of the Loan Parties to timely perform their
obligations under the DIP LC Documents, in each case other than any change,
development, effect, event, circumstance, fact or occurrence resulting from
(i) the effect of any change in the United States or foreign economies or
securities, commodities or financial markets, (ii) the effect of any action taken
by DIP LC Issuers or their affiliates with respect to the DIP LC Documents or
with respect to the Loan Parties (including through such persons' participation
in the Restructuring Proceedings), (iii) any effect resulting from the filing or
public announcement of the Restructuring Proceedings; or (iv) developments
in the oil and gas exploration, development and/or production industry or
industries (including actual or expected industry wide changes in oil, gas or
other commodity prices); provided, however, that with respect to clauses (i),
(ii) or (iv), such changes, developments, effects, events, circumstances, facts
or occurrences shall be taken into account to the extent they
disproportionately and adversely affect Pacific and its subsidiaries, taken as a
whole, compared to other companies operating in the industries and regions in
which Pacific and its subsidiaries operate (each a "Material Adverse
Change").
(r)
Other than as disclosed in Pacific's 2015 annual financial statements, there
shall exist no unstayed action, suit, investigation, litigation or proceeding
pending or threatened in writing in any court or before any arbitrator or
governmental authority (other than the Restructuring Proceedings) that could
reasonably be expected to have a material adverse effect with respect to the
Loan Parties and their subsidiaries taken as a whole.
(s)
The Cash Flow Projection shall have been delivered to the DIP LC Issuers in
form and substance satisfactory to the DIP LC Issuers and shall have been
publicly disclosed.
(t)
There shall not have occurred any payment, prepayment, redemption,
purchase or exchange of any prepetition indebtedness or equity, or
amendment or modification of any of the terms of any such prepetition
indebtedness or equity, except as expressly provided for in the Cash Flow
Projection.
(u)
The Borrower shall have appointed a chief restructuring officer whose
mandate shall include a full assessment of key company processes,
organizational structure, systems, controls, risks and the certain positions at
the Borrower, as agreed by the DIP LC Issuers and who shall also be
empowered to retain a leading international executive search firm to assist in
such assessment.
21. CONDITIONS
PRECEDENT TO
ALL DIP LC
REQUESTS
(v)
The Loan Parties shall have established a cash management system
satisfactory to the DIP LC Issuers (including establishment of the Cash
Collateral Account), and all material accounts of the Loan Parties (including
the Cash Collateral Account) shall be subject to control agreements in favour
of the DIP Collateral Agent, in form and substance reasonably satisfactory to
the DIP LC Issuers), consistent with the terms of this Term Sheet.
(w)
The DIP LC Issuers shall be satisfied in their sole discretion that no additional
insolvency proceedings are required or advisable to ensure that the Collateral
is perfected on a first priority basis in connection with the Restructuring
Proceedings.
(x)
The Loan Parties shall have completed reasonable "know your client"
procedures to the satisfaction of the DIP LC Issuers.
(y)
The Loan Parties shall have appointed agents for service of process in New
York.
The renewal or extension of DIP LCs shall be conditional on the continuing
satisfaction of the conditions precedent set out in Section 20 above, as well as
satisfaction of the following additional conditions precedent:
(a)
(b)
22. REPRESENTATIONS
AND WARRANTIES
No Default or Event of Default (as defined in the DIP LC Agreement) shall
have occurred and be continuing.
The representations and warranties described in Section 22 below continue to
be true in all material respects.
The DIP LC Agreement will contain representations and warranties customary and
usual for financings in such circumstances, subject to thresholds, limitations,
exclusions and qualifications as may be reasonably agreed between the DIP LC Issuers
and the Loan Parties, having regard to the Loan Parties and their circumstances
including without limitation:
(a)
a representation and warranty that each Loan Party has disclosed to the DIP
LC Issuers all existing material liabilities, including liabilities to trade
creditors, pension liabilities, employee liabilities, and tax liabilities;
(b)
a representation that no Loan Party is, or will be, after giving effect to the DIP
LC Facility and the transactions contemplated hereunder, an "investment
company" for the purposes of the Investment Company Act of 1940;
(c)
a representation and warranty from the Plan Sponsor (which may be provided
in a side letter to the DIP LC Agreement) that no existing director or officer of
any Loan Party nor any of the parties disclosed as principal holders of voting
shares on page 35 of the Issuer's information circular dated June 10, 2015, nor
any person or entity known to the Plan Sponsor to be acting on behalf of any
of the foregoing, is a direct or indirect investor in or limited partner of the
Plan Sponsor or any fund managed by it; and
(d)
a representation that the factual statements contained in all certificates and
documents furnished to the DIP LC Issuers, taken as a whole, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make such statements not misleading in light of the
circumstances in which they were made; provided, that with respect to
projected, estimated or pro forma financial information, the representation
shall be limited to the fact that such information has been prepared in good
faith based upon assumptions believed by the Borrower or the relevant Loan
Party to be reasonable at the time made, it being understood that no assurance
can be given that any such assumption or the results of such projections will
- 12 be realized.
23. AFFIRMATIVE
COVENANTS
The DIP LC Agreement will contain affirmative covenants which are customary and
usual for financings in such circumstances, subject to thresholds, limitations,
exclusions and qualifications as may be reasonably agreed by the DIP LC Issuers and
the Loan Parties, having regard to the Loan Parties and their circumstances, including
without limitation:
(a)
delivery of Variance Reports in accordance with Section 18;
(b)
delivery to the DIP LC Issuers' advisors (and any Restricted DIP LC Issuers)
of weekly reports by the Chief Financial Officer with respect to revenues,
operating expenses, asset sales, cost savings, key hires, and other matters
reasonably requested by DIP LC Issuers' advisors;
(c)
delivery to counsel to the DIP LC Issuers, as soon as practicable in advance of
the commencement of the Canadian Proceeding or filing with the Canadian
Court, as the case may be, of drafts of the Initial Orders, the Chapter 15
Order, the DIP Priority Orders, Plan, Plan Approval Order, and all other
proposed orders, motions, pleadings, and other documents filed in or related
to the Restructuring Proceedings, and not filing any such document with the
Insolvency Courts without obtaining prior approval thereof from such
counsel;
(d)
provide access to the DIP LC Issuers' advisors (and any Restricted DIP LC
Issuers) and the CRO to information (including historical information and
books and records) and personnel and facilitate (i) regularly scheduled
meetings as mutually agreed with senior management, the Chief Financial
Officer, and other company advisors and the DIP LC Issuers' advisors (and
any Restricted DIP LC Issuers) who shall be provided with access to all
information they shall reasonably request and (ii) such additional meetings as
the DIP LC Issuers (or their advisors) shall reasonably request;
(e)
compliance in all material respects with applicable laws (including without
limitation, the CCAA, the Bankruptcy Code, ERISA (or its equivalent), and
environmental laws), payment of taxes, maintenance of all necessary licenses
and permits and trade names, trademarks, patents, preserve corporate
existence, and maintenance of appropriate and adequate insurance coverage;
(f)
maintenance of a cash management system acceptable in all respects to the
DIP Note Purchasers (or, if the DIP Notes have been repaid in full, then
acceptable in all respects to the DIP LC Issuers);
(g)
maintenance of a minimum amount of Unrestricted Operating Cash (as
defined in the DIP Note Term Sheet) together with the amount of cash
deposited in the Cash Collateral Accounts (as defined on Schedule "D") of at
least (i) $200 million at any time prior to the completion of the Port Facility
Sale (in whole or in part) and (ii) $200 million plus the net cash proceeds of
the Port Facility Sale (in whole or in part) at any time following the
completion of the Port Facility Sale (in whole or in part).
(h)
except as otherwise agreed by the DIP Note Purchasers, compliance with
certain material contracts subject to a materiality threshold to be agreed in the
DIP LC Agreement ("Material Contracts").
(i)
The Borrower and any applicable Loan Parties shall achieve the milestones
set out in the RSA as in effect on the date of this Term Sheet, without
amendment (each a "Milestone" and collectively the "Milestones"); provided
that, to the extent that the DIP Note Purchaser agree to an extension of the
milestones under the DIP Note Facility, the corresponding Milestone shall be
extended automatically.
- 13 24. NEGATIVE
COVENANTS
The DIP LC Agreement will contain negative covenants which are customary and
usual for financings in such circumstances subject to thresholds, limitations, exclusions
and qualifications as may be reasonably agreed by the DIP LC Issuers and the Loan
Parties, having regard to the Loan Parties and their circumstances, including without
limitation:
(a)
the commencement or imposition of any insolvency proceeding by or against
any of the Loan Parties, or any other affiliate thereof, other than the
Restructuring Proceedings, except to the extent that Meta Petroleum AG or
Pacific E&P Holding Corp., respectively, file for insolvency proceedings
pursuant to sec. 293 et seq. of the Swiss Debt Enforcement and Bankruptcy
Act, which filing may be commenced by the board of directors of either
company acting reasonably and after consultation with the DIP LC Issuers;
(b)
creating or permitting to exist any lien or encumbrance on any Collateral,
other than liens securing the DIP LC Facility and any permitted lien
reasonably agreed by the DIP LC Issuers in the DIP LC Documents;
(c)
creating or permitting to exist any other superpriority claim that is pari passu
with or senior to the claims of the DIP LC Issuers, except as provided herein;
(d)
except for the Permitted Asset Dispositions and the sale of hydrocarbons in
the ordinary course of business, disposing of assets having a value in excess
of $5,000,000;
(e)
modifying or altering (i) in any material manner the nature and type of its
business or the manner in which such business is conducted or (ii) its
organizational documents, except as required herein or by the CCAA, the
Bankruptcy Code and applicable law in any ancillary jurisdiction, as
applicable;
(.0
paying, prepaying, redeeming, purchasing, or exchanging any prepetition
indebtedness or equity, or amending or modifying any of the terms of any
such prepetition indebtedness or equity, except as expressly provided for in
the Cash Flow Projection, the Plan or pursuant to "first day" or other orders
entered in form and substance acceptable to the DIP LC Issuers or their
counsel in their sole discretion;
(g)
asserting any right of subrogation or contribution against any of other Loan
Party until all LC Draws and LC Advances are paid in full in cash and
terminated;
(h)
merging or consolidating with any other person, changing the corporate
structure, or creating or acquiring new subsidiaries, giving a negative pledge
on any asset in favor of any person other than the DIP Providers; or
permitting to exist any consensual encumbrance on the ability of any domestic
or foreign subsidiary to make loans, pay dividends or other distributions to the
Loan Parties;
incur any indebtedness or giving any guarantee other than (i) unsecured
hedging obligations (subject to the DIP Liens continuing to secure the
outstanding hedging contracts under the Hedging Facility (if any)),
(ii) unsecured letters of credit; (iii) cash-collateralized letters of credit
outstanding as of the Closing Date and unsecured or cash-collateralized
renewals or extensions thereof; and (iv) secured Replacement LC Facilities or
other secured letters of credit in an aggregate amount not to exceed $200
million, which letter of credit obligations may be secured by the Collateral on
a pari passu basis with the liens securing the DIP LC Facility (provided that
each financial institution providing any Replacement LC Facility secured by
the Collateral on a pari passu basis with the liens securing the DIP LC Facility
shall become a party to the Intercreditor Agreement in a manner, including
(i)
- 14 with respect to provisions controlling the exercise of remedies, reasonably
satisfactory to the DIP LC Issuers).
25.
EVENTS OF
DEFAULT
(j)
making any loan, advance, capital contribution, or acquisition, forming any
joint venture or partnership, or making any other investment in any subsidiary
or other person, subject to exceptions as may be agreed to in the DIP LC
Documents;
(k)
making or committing to make any payment in respect of warrants, options,
repurchases of stock, dividends, earn-out payments, contingent payments, or
any other distributions;
(1)
making, committing to make, or permitting to be made any payment to any
executive officer or director of any Loan Party, or any entity beneficially
owned or controlled by them or related to them, including parties described in
the related party note to Pacific's financial statements, or any subsidiary
thereof, other than normal course remuneration and amounts owing or
permitted under the KERP and any other amounts included in the Cash Flow
Projection and specifically identified as payments to a related party;
(m)
without the prior consent of the DIP LC Issuers or their counsel, making or
permitting to be made any change to the Initial Orders the Chapter 15 Order,
or the DIP Priority Orders or any other order of the Insolvency Courts with
respect to the DIP LCs or the charges or security therefor; or
(n)
permitting any change in ownership or control of any Loan Party, or any
subsidiary thereof, or any change in accounting treatment or reporting
practices, except as may be required by U.S. generally accepted accounting
principles and as otherwise permitted by the DIP LC Documents.
The DIP LC Agreement will contain events of default (each an "Event of Default")
customary and usual for financings in such circumstances subject to thresholds,
limitations, exclusions and qualifications as may be reasonably agreed by the DIP LC
Issuers and the Loan Parties, having regard to the Loan Parties and their circumstances,
including, without limitation:
(a)
failure by the Borrower to pay any principal, interest or fees payable pursuant
to the DIP LC Documents
(b)
failure by any Loan Party to comply with any terms, conditions, covenants or
obligations contained in the DIP LC Documents;
(c)
except with the consent of the DIP Note Purchasers, any Loan Party shall
incur indebtedness to any other Loan Party that is not unsecured and expressly
subordinated to the DIP Obligations and evidenced by a note (which can be a
master note) in the form and substance satisfactory to the DIP LC Issuers,
which note shall be assigned by way of security and delivered to the DIP
Collateral Agent together with an allonge executed in blank in respect of such
note (including any master note);
(d)
the entry of an order (i) terminating, dismissing, staying, vacating or
amending in a manner adverse to the DIP LC Issuers (as determined in their
sole discretion) any of the Initial Orders, the Chapter 15 Order, the DIP
Priority Orders or the Plan, or dismissing any of the Restructuring
Proceedings or (ii) converting any of the Restructuring Proceedings into
receivership, bankruptcy, liquidation, asset sale, distribution, or similar
proceedings in any jurisdiction, without the prior written consent of the DIP
LC Issuers;
(e)
the filing of any pleading by any Loan Party seeking, or otherwise consenting
to, any of the matters set forth in clause (d) above or the granting of any other
relief that if granted would give rise to an Event of Default;
-S5
- 15 (f)
the Initial Orders, the Chapter 15 Order and the DIP Priority Orders shall not
have become Final Orders on or before June 30, 2016 (or such later date as
agreed to by the DIP LC Issuers), or there shall be a breach by any Loan Party
of any provisions of the Initial Orders or the DIP Priority Orders (prior to
such orders becoming Final Orders), or the Final Orders shall cease to be in
full force and effect or shall have been reversed, modified, amended, stayed,
vacated or subject to stay pending appeal, in the case of any modification or
amendment, without the prior written consent of the DIP LC Issuers;
(g)
if the requisite majority of creditors in each relevant jurisdiction do not vote in
favour of the Plan, or the Plan is amended in a manner not acceptable to the
DIP LC Issuers, or the RSA is terminated with respect to the Company (as
defined in the RSA) or becomes unenforceable;
(h)
the Loan Parties shall fail to meet any Milestone on the date set out therefor;
the appointment of any receiver, receiver-manager, interim receiver, monitor
(other than the monitor in connection with the Canadian Proceeding and the
Superintendencia), liquidator, assignee, custodian, trustee, sequestrator or
other similar entity in respect of the Loan Parties (or any of their subsidiaries)
or all or any part of their respective property, assets or undertaking other than
as approved by the DIP LC Issuers;
(j)
the entry of (i) an order in the Restructuring Proceedings charging any
Collateral (other than the DIP Liens) under which any person takes action
against the Collateral or that becomes a final non-appealable order, or the
commencement of other actions or entry of other orders that are adverse to the
DIP Collateral Agent or the DIP LC Issuers or their respective rights and
remedies under the DIP LC Documents in any of the Restructuring
Proceedings or inconsistent with the DIP LC Documents, the Initial Orders or
the DIP Priority Orders, (ii) one or more final judgments, writs of execution,
garnishment or attachment representing a claim against any Loan Party or the
Collateral that is not released, bonded, satisfied, discharged, vacated, stayed
or accepted for payment by an insurer within thirty (30) days after their entry,
commencement or levy, (iii) an order granting relief from any stay of
proceeding (including, without limitation, the automatic stay) so as to allow a
third party to proceed with foreclosure (or granting of a deed in lieu of
foreclosure) or other enforcement action against any asset or (iv) any postpetition judgment against any Loan Party, in each case with a value in excess
of $5 million (to the extent not covered by insurance), in each case, other than
by or in respect of an Affected Creditor (as defined in the Recapitalization
Term Sheet);
(k)
the commencement of any bankruptcy, insolvency, restructuring,
reorganization or similar proceedings in any jurisdiction (other than the
Restructuring Proceedings) without the prior written consent of the DIP LC
Issuers, except to the extent that Meta Petroleum AG or Pacific E&P Holding
Corp., respectively, file for insolvency proceedings pursuant to sec. 293
et seq. of the Swiss Debt Enforcement and Bankruptcy Act, which filing may
be commenced by the board of directors of either company acting reasonably
and after consultation with the DIP LC Issuers;
(1)
any DIP Lien shall cease to be (or shall be asserted by any Loan Party not to
be) valid, perfected (if applicable) and enforceable in all respects in any
Restructuring Proceeding or to have the priority contemplated under the DIP
Priority Orders and the Final Orders whether or not such DIP Lien is created
pursuant to such DIP Priority Orders or Final Orders or pursuant to applicable
security documents in each relevant jurisdiction;
(in)
(i) except as set out in the DIP Order, the existence of any claims, liens or
- 16 charges, or the entry of any order of any court authorizing any claims, liens or
charges on any Collateral, other than the DIP Liens or as otherwise permitted
under the applicable DIP LC Documents or (ii) the granting of superpriority,
priority or administrative claim status to any claim in the Restructuring
Proceedings pari passu with or senior to the ranking of the DIP Obligations
(other than the Administrative Charge and the KERP Charge) established
under the DIP Priority Orders;
(n)
the Loan Parties or any of their subsidiaries, shall obtain court authorization to
commence, or shall commence, join in, assist or otherwise participate as an
adverse party in any suit or other proceeding against the DIP Collateral Agent
or any of the DIP LC Issuers relating to the DIP LC Facility;
(0)
a Transaction or a plan of arrangement or compromise(other than the Plan)
shall be confirmed in any of the Restructuring Proceedings that has not been
previously consented to in writing by the DIP Providers or the Loan Parties
shall seek to approve or consummate any Transaction or a plan of
arrangement or compromise which does not have the prior consent of the DIP
LC Issuers;
the filing of any motion by the Loan Parties or their subsidiaries in any of the
Restructuring Proceedings seeking authority to consummate, or support the
consummation of, a sale of assets of the Loan Parties or the Collateral having
a value in excess of $5 million outside the ordinary course of business except
for the Permitted Asset Dispositions or unless otherwise permitted under the
DIP LC Documents or consented to by the DIP LC Issuers;
(q)
the cessation of all or any material part of the business operations of the Loan
Parties and their subsidiaries (other than the Piriri Rubiales contracts);
(r)
any Loan Party shall make any payment of principal or interest on account of
any prepetition indebtedness other than (i) amounts due to trade creditors in
the ordinary course of business and (ii) permitted termination and severance
payments due to employees and amounts owing under the KERP, and (iii)
taxes, accrued payroll and other ordinary course liabilities, provided in each
case that such amounts are included in the Cash Flow Projection;
(s)
the existence of a cumulative adverse variance of 125% or more in total
disbursements (exclusive of joint-venture funding and professional fees paid
during such period) on an aggregate basis from the projected amount of such
disbursements set out in the Cash Flow Projection in respect of any Test
Period;
(t)
the existence of a cumulative adverse variance of 130% or more in total
disbursements on an aggregate basis in respect of joint-venture funding from
the projected amount of such joint venture funding set out in the Cash Flow
Projection in respect of any Test Period;
(u)
the existence of a cumulative adverse variance of 125% or more in total
disbursements on an aggregate basis in respect of professional fees (other than
professional fees of the advisors to the DIP Providers and the prepetition
holders of Notes and Bank Debt) from the projected amount of such
professional fees set out in the Cash Flow Projection in respect of any Test
Period; or
(v)
the Borrower or any of its direct or indirect subsidiaries or affiliates (or any
branch thereof) shall be declared subject to (either voluntarily or
involuntarily) (a) main insolvency proceedings under Law 1116 or
(b) proceedings under chapter 11 of the Bankruptcy Code, and, only if such
proceeding is an involuntary insolvency proceeding, it is not dismissed within
ten (10) calendar days of such declaration, in each case without the consent of
2
- 17 the DIP LC Issuers.
26.
REMEDIES
Upon the occurrence and during the continuance of any Event of Default, the DIP LC
Issuers shall not be required to issue, renew or extend DIP LCs and, subject to the
Intercreditor Agreement, the DIP Collateral Agent, acting at the direction of the DIP
LC Issuers, shall be free to exercise all rights, accelerate the DIP LC Obligations and
to take action with respect to the Collateral, following an order of the Canadian Court
upon five days' notice to the Loan Parties.
27.
EXPENSES AND
INDEMNITY
The Borrower will reimburse the DIP Collateral Agent and the DIP Providers for the
fees and expenses of (i) their financial advisors, (ii) a single counsel in each relevant
jurisdiction for the Plan Sponsor, (iii) a single counsel in each relevant jurisdiction for
each of the DIP Note Purchasers (other than the Plan Sponsor) as a group, the DIP LC
Issuers (as a group with respect to fees and expenses accrued before the Closing Date,
and each DIP LC Issuer individually with respect to fees and expenses accrued on or
after the Closing Date), and the Hedging Provider (provided that for the purposes of
local security in jurisdictions outside of Canada, Colombia and the United States, all
DIP Providers (other than the Plan Sponsor) shall use a single common counsel), (iv) a
single counsel in each relevant jurisdiction for the prepetition holders of Notes, as a
group, (v) counsel in each relevant jurisdiction for each administrative agent with
respect to the Bank Debt on a full indemnity basis. The Issuer will reimburse the
Monitor for the fees and expenses of its counsel (on a full indemnity basis). All such
fees, disbursements and expenses shall be included in the DIP Obligations and secured
by the DIP Liens.
The Borrower agrees to indemnify and hold harmless the DIP Collateral Agent and the
DIP Agent, and any other similar service provider (together with their respective
partners, members directors, agents and employees, each, an "Indemnified Party") in
connection with the DIP LCs, in each case against any and all losses, claims, damages
or liabilities to any such person in connection with the DIP LCs or as a result of any
transactions contemplated under by the DIP LC Facility, the Plan and the Restructuring
Proceedings (whether or not such investigation, litigation, claim or proceeding is
brought by the Borrower, its equity holders or creditors or any other party and whether
or not any such Indemnified Party is otherwise a party thereto), except to the extent
that such loss, claim, damage or liability has been found by a final, non-appealable
judgment of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of such Indemnified Party in performing its
obligations under the relevant documents to which it is a party. The foregoing
indemnity shall have the benefit of the DIP Liens and any court order made in respect
thereof
28.
FURTHER
ASSURANCES
The Loan Parties shall, from time to time do, execute and deliver, or cause to be done,
executed and delivered, all such further acts, documents (including, without limitation,
certificates, declarations, affidavits, reports and opinions) and things as the DIP LC
Issuers may reasonably request for the purpose of giving effect to this Term Sheet, the
DIP LC Documents and the DIP Liens.
29.
ACTIONS BY DIP LC
ISSUERS
Any actions taken or not taken, or consents, approvals, amendments or waivers
provided, by the DIP LC Issuers under the DIP LC Documents must be taken,
delivered or provided by two or more DIP LC Issuers that collectively hold a majority
of the face amount of the outstanding DIP LCs (or, in the event that there is only one
DIP LC Issuer, such DIP LC Issuer).
Notwithstanding the foregoing, (i) without the consent of each DIP LC Issuer, no
consent, approval, amendment or waiver shall be made to the extent such consent,
approval, amendment or waiver has the effect of (A) extending the Outside Date past
the one-year anniversary of the Closing Date, (B) increasing the amount of principal,
interest or fees payable in respect of any DIP LCs, unless the principal, interest and
fees payable in respect of all DIP LCs are so increased by an equivalent or ratable
amount, as applicable, (C) changing any of the voting thresholds, or (D) releasing the
3
- 18 DIP Liens on all or substantially all of the Collateral or all or substantially all of the
Guarantors (other than in connection with any sale of Collateral or of the relevant
Guarantor permitted by the DIP LC Documents), and (ii) any consent, approval,
amendment or waiver that has the sole effect of (A) reducing the principal, interest or
fees payable in respect of any DIP LC, (B) increasing the DIP LC Commitment of any
DIP LC Issuer, (C) amending the time for payment of any DIP LC Obligation
(including any interest and fees), or (D) waiving payment of any interest, fees or other
amounts owing under the DIP LC Documents shall, in each case, only require the
consent of the DIP LC Issuers directly and adversely affected thereby.
30.
TRANSFER
The Loan Parties may not transfer or assign their rights or obligations under the DIP
LC Documents.
Each DIP LC Issuer may assign its DIP LC Commitments (with consent of the relevant
beneficiary), and/or its DIP LC Advances and all of its rights and obligations relating
thereto without the consent of the Loan Parties or any other party to another financial
institution capable of providing letters of credit. Each DIP LC Issuer may, at its
option, make any DIP LC Commitment or LC Advance available to any Loan Party by
causing any foreign or domestic branch or affiliate of such DIP LC Issuer to make such
DIP LC Commitment or LC Advance, subject to customary obligations to mitigate
costs incurred by the Loan Parties; provided that any exercise of such option shall not
affect the obligation of such Loan Party to repay such LC Advance in according with
the terms of the DIP LC Agreement.
31.
CURRENCY
The DIP LCs shall be denominated in United States Dollars and all DIP LC
Obligations shall be repaid by the Loan Parties in United States Dollars. All references
to dollar amounts in this Term Sheet are references to United States Dollars unless
otherwise indicated.
32.
GOVERNING LAW
This Term Sheet, the Commitment Letter in respect hereof and the DIP LC Documents
(other than local law guarantee and security documents) shall be governed by the laws
of the State of New York.
SCHEDULE "A"
EXIT LC FACILITY TERM SHEET
1.
EXIT BORROWER
The Reorganized Company (as defined in the Recapitalization Term Sheet) (the
"Exit Borrower")
2.
GUARANTORS
Same as under the DIP LC Facility.
3.
EXIT LC ISSUERS
DIP LC Issuers (the "Exit LC Issuers").
4.
EXIT COLLATERAL
AGENT
Same as DIP Collateral Agent.
5.
EXIT LC FACILITY
The financing will be provided through the renewal or extension of letters of
credit (the "Exit LCs") in an aggregate face amount of up to $133,229,611.65 at
any time outstanding pursuant to a revolving credit agreement (the "Exit LC
Agreement") (the "Exit LC Facility"). Each Exit LC Issuer's obligation to renew
or extend Exit LCs is referred to as its "Exit LC Commitment."
33.
PURPOSE
The Exit Borrower shall use the Exit LCs renewed or extended under the Exit LC
Facility solely to replace, extend or renew prepetition letters of credit issued,
renewed or extended by the Exit LC Issuers.
34.
CONDITIONS
PRECEDENT TO
EXIT LC FACILITY
The effectiveness of the Exit LC Facility will be subject to customary and usual
conditions precedent, including (i) maintenance of a minimum amount of
Unrestricted Operating Cash (as defined in the DIP Note Term Sheet) together
with the amount of cash deposited in the Cash Collateral Accounts (as defined on
Schedule "D") of at least (A) $200 million at any time prior to the completion of
the Port Facility Sale (in whole or in part) and (B) $200 million plus the net cash
proceeds of the Port Facility Sale (in whole or in part) at any time following the
completion of the Port Facility Sale (in whole or in part), (ii) achievement (or
waiver in accordance with the DIP LC Documents) of each Milestone required to
be achieved on or prior to the Exit Date and (iii) the implementation of the Plan
(including satisfaction of all conditions precedent thereto) or such other plan as
has been consented to by the Exit LC Issuers.
35.
DEFINITIVE
DOCUMENTATION
The DIP LC Facility shall automatically become the Exit LC Facility (including
that on the Exit Date the DIP LCs shall be rolled into Exit LCs), provided that
certain terms of the documents with respect to the Restructuring Proceedings and
other matters and covenants relating specifically thereto shall not apply following
the completion of, and emergence of the Reorganized Company (as defined in the
Recapitalization Term Sheet) from, the Restructuring Proceedings.
36.
INTEREST AND
DEFAULT INTEREST
Interest shall be payable in cash on the aggregate amount of outstanding LC
Draws and LC Advances under the Exit LC Facility at a rate equal to 8% per
annum. The Exit LC Issuers shall also receive an amount equal to 5% per annum,
compounded monthly and payable monthly in arrears in cash on the last business
day of each month, calculated on the undrawn portion of outstanding Exit LCs, as
a fee for their risk of drawing (the "LC Fee"). The Exit LC Issuers shall also
receive standard administrative and processing fees in accordance with their
customary policies and procedures. Any advance interest or fees paid to any Exit
LC Issuer by any Loan Party prior to the Closing Date with respect to Exit LCs
shall be credited against the LC Fee payable to such Exit LC Issuer.
Upon the occurrence and during the continuation of an Event of Default, all
amounts shall bear interest at the applicable interest rate plus 2% per annum and
3SS
-2the LC Fee shall increase by 2% per annum, in each case payable on demand in
arrears in cash. All computations of interest shall be made on the basis of a year
of 365 or 366 days, as the case may be, taking into account the actual number of
days (including the first day but excluding the last day) occurring in the period for
which such interest is payable.
10.
EXIT MATURITY
DATE
The Exit LC Facility will mature two (2) years after the Closing Date (the "Exit
LC Facility Maturity Date"). No Exit LC Issuer shall be required to renew any
Exit LC to any date following the date that is 10 business days prior to the Exit
LC Facility Maturity Date (the "Exit LC Outside Date").
The Exit LC Commitments of each Exit LC Issuer shall be automatically and
permanently reduced by the aggregate amount of any reduction in the full amount
of Exit LCs outstanding and issued by such Exit LC Issuer from time to time.
Voluntary prepayments of the Exit Notes must be accompanied by pro rata
refinancing or cash collateralization of the Exit LCs outstanding at such time.
11.
SECURITY
The DIP Liens shall continue to secure the obligations under the Exit Notes and
any outstanding hedging contracts under the Hedging Facility (if any) on the
Exit Date until the expiry thereof and the refinanced DIP LC Facility which shall
continue to rank second behind the Exit Notes and Hedging Facility, if
applicable.
12.
REPRESENTATIONS Same as DIP LC Documents, subject to such amendments as may be agreed and
provided that certain terms of the DIP LC Documents with respect to the
AND WARRANTIES
Restructuring Proceedings shall not apply following the completion of, and
emergence of the Reorganized Company from, the Restructuring Proceedings.
13.
AFFIRMATIVE,
NEGATIVE AND
FINANCIAL
COVENANTS
Same as DIP LC Documents, subject to such amendments as may be agreed and
provided that (i) certain terms of the DIP LC Documents with respect to the
Restructuring Proceedings shall not apply following the completion of, and
emergence of the Reorganized Company from, the Restructuring Proceedings,
(ii) the Exit LC Agreement shall contain restrictions on incurrence of debt and
liens (permitting the funded debt set out in Section 13 below) on terms to be
agreed between the Borrower and the DIP LC Issuers and (iii) the Exit LC Facility
shall permit the Loan Parties to merge, amalgamate, consolidate, wind-up into or
transfer assets to any other Loan Party on terms and conditions to be reasonably
agreed between the DIP LC Issuers and the Reorganized Company.
14.
OTHER FUNDED
DEBT
After the Exit Date, in addition to the Exit Notes and the Exit LC Facility, the
Loan Parties will not be permitted to incur any indebtedness that ranks senior to
or pari passu with the Exit LCs but shall be entitled to incur (i) unsecured
hedging obligations (subject to the DIP Liens continuing to secure the
outstanding hedging contracts under the Hedging Facility (if any) on the Exit
Date until expiry thereof), (ii) unsecured letters of credit; (iii) cash-collateralized
letters of credit outstanding as of the Closing Date and unsecured or cashcollateralized renewals or extensions thereof, (iv) secured Replacement LC
Facilities or other secured letters of credit in an aggregate amount not to exceed
$200 million, which letter of credit obligations may be secured by the Collateral
on a pari passu basis with the liens securing the Exit LC Facility (provided that
each financial institution providing any Replacement LC Facility secured by the
Collateral on a pari passu basis with the liens securing the Exit LC Facility shall
become a party to the Intercreditor Agreement in a manner, including with
respect to provisions controlling the exercise of remedies, reasonably
satisfactory to the Exit LC Issuers) and (v) unsecured debt with a maturity date
that is at least 90 days following the Exit LC Facility Maturity Date.
15.
EVENTS OF
Same as DIP LC Documents, subject to such amendments as may be agreed and
provided that certain terms of the DIP LC Documents with respect to the
-3-
16.
DEFAULT
Restructuring Proceedings and the Plan shall not apply following the completion
of, and emergence of the Reorganized Company from, the Restructuring
Proceedings.
GOVERNING LAW
New York.
2 7
SCHEDULE "B"
DIP LC ISSUERS AND COMMITMENTS
STRICTLY CONFIDENTIAL
[Attached]
DIP LC ISSUERS AND COMMITMENTS REDACTED
SCHEDULE "C"
RECAPITALIZATION TERM SHEET
[Attached]
3 V.)
EXECUTION VERSION
PACIFIC EXPLORATION & PRODUCTION CORP.
RECAPITALIZATION — SUMMARY OF TERMS
All dollar amounts are in US dollars.
This recapitalization and fmancing term sheet (the "Recapitalization Term Sheet"), which is attached as Exhibit A
to that certain Restructuring Support Agreement, dated as of April 20, 2016 (the "RSA")1 by and among the
Company, the Consenting Creditors and the Plan Sponsor, summarizes certain principal terms and conditions of a
proposed restructuring plan and related financing facilities of Pacific Exploration & Production Corp. ("Pacific")
and certain of its direct and indirect affiliates and subsidiaries that are Parties to the RSA (each, including Pacific, a
"Company Party" and collectively, the "Company").
Pacific, the Company Parties that are Guarantors (as defined in the Note Indentures and/or the Credit Facilities) (the
"Guarantor Debtors"), and any other direct or indirect subsidiaries of Pacific as the Company, the Requisite
Consenting Creditors and the Plan Sponsor may agree (the "Additional Debtors" and, together with Pacific and the
Guarantor Debtors, the "Debtors") will implement the Restructuring through a prearranged plan of reorganization,
which shall be consistent with the terms of this Recapitalization Term Sheet and the RSA (as it may be amended or
supplemented from time to time in accordance with the terms of the RSA, the "Plan") to be filed by the Debtors in
(i) a proceeding to be commenced under the Companies' Creditors Arrangement Act (the "CCAA") in the Ontario
Superior Court of Justice (Commercial List) (the "Canadian Court"), (ii) an ancillary proceeding, or such other
proceeding, acceptable to the Company, the Requisite Consenting Creditors and the Plan Sponsor to be commenced
under Ley 1116 of 2006 in Colombia ("Law 1116") in the court seized of jurisdiction in a Colombian proceeding
under Law 1116 (the "Colombian Court"), and (iii) a proceeding under chapter 15 of title 11 of the United States
Code (the "Bankruptcy Code" and, together with the CCAA and Law 1116, the "Insolvency Laws") in the United
States Bankruptcy Court for the Southern District of New York (the "U.S. Court" and, together with the Canadian
Court and the Colombian Court, the "Insolvency Courts"). If the Company, the Requisite Consenting Creditors
and the Plan Sponsor agree (each acting in their sole discretion), the Restructuring may be implemented through a
Plan filed in a proceeding to be commenced under chapter 11 of the Bankruptcy Code before the U.S. Court, with
such other appropriate proceedings before each of the Canadian Court and the Colombian Court as agreed by the
Company, Requisite Consenting Creditors and the Plan Sponsor, and the Parties to the RSA shall thereafter
negotiate in good faith to promptly effectuate such modifications to the RSA and to the Definitive Documents as are
reasonably necessary to implement the Restructuring in such manner.
The governing documents with respect to the Restructuring will contain terms and conditions that are dependent on
each other, including those described in the RSA, this Recapitalization Term Sheet and the secured DIP and exit
financing facility term sheet (the "DIP/Exit Note Term Sheet") and secured DIP and exit L/C facility term sheet
(the "DIP/Exit LC Term Sheet" and, together with the DIP/Exit Note Term Sheet, the "DIP/Exit Term Sheets").
This Recapitalization Term Sheet and the DIP/Exit Term Sheets do not include a description of all of the terms,
conditions, and other provisions that are to be contained in the definitive documentation governing the
Restructuring, which remain subject to discussion and negotiation in accordance with the RSA. The Restructuring
will not contain any material terms or conditions that are inconsistent in any material respect with this
Recapitalization Term Sheet, the DIP/Exit Term Sheets or the RSA, except with the express written consent of the
Company, the Requisite Consenting Creditors and the Plan Sponsor. This Recapitalization Term Sheet is entitled to
protection from any use or disclosure to any party or person pursuant to Federal Rule of Evidence 408 and similar
laws and regulations in effect in any relevant jurisdiction.
1.
THE REORGANIZED A reorganized Pacific, which shall be re-listed on a stock exchange as of the Plan
Effective Date, which shall be reorganized in a manner acceptable to Pacific, the
COMPANY
Requisite Consenting Creditors and the Plan Sponsor, each in their sole
discretion, with respect to jurisdiction of formation, tax attributes, withholding
tax exemptions and other related matters (the "Reorganized Company").
2.
In accordance with and subject to the terms and conditions of the DIP/Exit Term
DIP/EXIT
FINANCING/EQUITY Sheets, up to $634 million secured financing (the "DIP Financing") to be
provided by way of (i) senior secured first-lien notes (the "DIP Notes") in an
I
Capitalized terms used and not defined herein shall have the meanings ascribed to such terms in the RSA.
Yo
-2-
3.
PURCHASE
amount of up to (x) $250 million to be provided by certain funds managed or
administered by the Plan Sponsor and (y) $250 million to be provided by certain
of the Consenting Noteholders (together with the Plan Sponsor, the "DIP Note
Purchasers") and (ii) if agreed by the Requisite Consenting Creditors, the Plan
Sponsor and the Company, a secured second-lien letter of credit facility in an
amount of up to $134 million (the "DIP LC Facility") provided by certain of the
Consenting Lenders (the "DIP LC Lenders").
Upon consummation of the Restructuring, (i) the $250 million of the DIP Notes
purchased by the DIP Note Purchasers other than the Plan Sponsor (the
"Creditor DIP Notes") will remain outstanding as $250 million of exit notes (on
the terms set out in Schedule A of the DIP/Exit Note Term Sheet), (ii) the Plan
Sponsor may exercise its rights in respect of the $250 million of the DIP Notes
purchased by the Plan Sponsor (the "Plan Sponsor Notes") to exchange such
notes pursuant to the terms of the Plan Sponsor Notes for 16.8% of the
Reorganized Common Stock (as defined below), failing which exercise, the Plan
Sponsor Notes will be mandatorily exchanged for 16.8% of the Reorganized
Common Stock, and (iii) the DIP LC Facility will continue to run until two (2)
years following the inception of the DIP LC Facility on the terms set out in
Schedule A attached to the DIP/Exit LC Term Sheet.
As part of the Plan, the Plan Sponsor shall be obligated to subscribe for, with
effect as at the Plan Effective Date, at least $200 million or such larger amount as
the Plan Sponsor may agree (the "Maximum Threshold") of the Reorganized
Common Stock (but, for greater certainty, such amount and subscription
obligation shall not exceed the aggregate amount required, if any, to complete the
Cash Out Offer (as defined below)) to enable the Company to offer Affected
Creditors (as defined below) the option to elect to receive cash in lieu of
Reorganized Common Stock from the Affected Creditor Equity Pool (as defined
below) and the purchase price for the cash election, and the subscription price
payable by the Plan Sponsor, shall both be based on an implied equity valuation
of the Reorganized Company of at least $800 million (i.e., 25% of the
Reorganized Common Stock for $200 million) in a manner reasonably
satisfactory to the Plan Sponsor and (solely relating to mechanics and not as to
pricing) the Requisite Consenting Creditors (the "Cash Out Offer"). Affected
Creditors may determine, in their sole discretion, whether to elect to receive cash
under the Cash Out Offer and, for the avoidance of doubt, consummation of the
Restructuring shall not be subject to any minimum level of participation. If
Affected Creditors elect to receive cash under the Cash Out Offer in excess of the
Maximum Threshold, then such cash participation will be allocated on a pro rata
basis among such Affected Creditors or the Plan Sponsor may, in its sole
discretion, elect to increase the Maximum Threshold. If Consenting Creditors
who are parties to the RSA at the date hereof wish to participate as subscribers in
the Cash Out Offer on the same basis as the Plan Sponsor, the Plan Sponsor will
allow them to do so. In addition, if agreed by the Requisite Consenting Creditors,
the Plan Sponsor and the Company, the Cash Out Offer will be implemented by
way of a modified Dutch auction process.
AFFECTED
CREDITORS
The affected creditors (the "Affected Creditors") in the Restructuring are
comprised of the following:
1. Holders of Note Claims (approximately $4.1 billion outstanding
principal amount, plus accrued interest, fees and other claims and
obligations arising thereunder);
2. Holders of Bank Debt Claims (approximately $1.2 billion outstanding
principal amount, plus accrued interest, fees, and other claims and
obligations arising thereunder); and
Error! Unknown document property name.
-33. Pacific shall promptly commence a claims process for creditors of
Pacific holding unknown, unreported, contingent or contested claims
(the "Other Unsecured Claims"). The holders of such Other Unsecured
Claims of Pacific may be treated as Affected Creditors, together with
any holders of restructuring claims that may arise, such as, for example,
from the repudiation of any contracts (e.g., leases) with Pacific. If the
Company, the Requisite Consenting Creditors and the Plan Sponsor
agree, some or all of the other Debtors shall commence a similar process
to address claims that are unknown, unreported, contingent or contested,
and, in such event, holders of such claims may be treated as Affected
Creditors. The form and substance of each process shall be acceptable to
the Company, the Requisite Consenting Creditors and the Plan Sponsor.
4.
TREATMENT OF
CREDITORS
Each Affected Creditor shall receive its pro rata share of Reorganized Common
Stock (as defined below) from the Affected Creditor Equity Pool (as defined
below), provided, however, that the Plan may provide, with the consent of the
Requisite Consenting Creditors and the Plan Sponsor, that holders of Other
Unsecured Claims shall instead receive the cash equivalent of the Reorganized
Common Stock attributed to the Affected Creditor Equity Pool that would
otherwise be distributed to such creditors; provided further, however, (i) that
Affected Creditors may elect, in their sole discretion, to participate in the Cash
Out Offer, and (ii) the pro rata share of the Reorganized Common Stock from the
Affected Creditor Equity Pool that is allocated to holders of Note Claims shall be
reduced by the Early Consent Consideration (as defined below).
5.
TREATMENT OF
EXISTING EQUITY
All existing equity interests of Pacific shall be canceled, otherwise extinguished,
or significantly diluted in an amount satisfactory to the Plan Sponsor and the
Requisite Consenting Creditors (such that, following the Restructuring, such
equity interests (and associated voting power) will constitute in the aggregate
only a nominal amount of Reorganized Common Stock).
6.
EQUITY
ALLOCATION
100% of the common equity interests of the Reorganized Company (the
"Reorganized Common Stock") shall be distributed as follows, in each case in
accordance with each holder's pro rata share of the relevant categories of claims
(in each case subject to dilution on a pro rata basis arising from the New
The allocations of
Management Incentive Plan (as described below)).
Reorganized Common Stock set forth below do not include or otherwise take into
account the Cash Out Offer or the Early Consent Consideration (as defined
below).
1. Plan Sponsor: (a) warrants at a nominal strike price issued together
with the Plan Sponsor Notes and exercisable into 12.5% of the
Reorganized Common Stock on and only on the Plan Effective Date, on
a fully diluted basis; and (b) 16.8% of the Reorganized Common Stock
pursuant to the exchange of the Plan Sponsor Notes on and only on the
Plan Effective Date, on a fully diluted basis.
2. DIP Note Purchasers other than the Plan Sponsor: warrants at a
nominal strike price issued together with the Creditor DIP Notes and
exercisable into 12.5% of the Reorganized Common Stock on and only
on the Plan Effective Date, on a fully diluted basis.
3. Affected Creditors: 58.2% of the Reorganized Common Stock on the
Plan Effective Date, on a fully diluted basis (the "Affected Creditor
Equity Pool").
Error! Unknown document property name.
-47.
EARLY CONSENT
CONSIDERATION
Each holder of a Note Claim that, on or before 5:00 p.m. Toronto / New York
time on April 29, 2016 (the "Consent Date"), executes (i) (x) the RSA or (y) a
Joinder Agreement substantially in the form attached to the RSA (such holders,
the "Early Consent Consideration Noteholders") and (ii) votes in favor of the
Plan shall receive its pro rata share (based on the aggregate amount of Note
Claims held by all Early Consent Consideration Noteholders as of the Consent
Date) of the early consent consideration, which shall equal, in the
aggregate, 2.2% of the Reorganized Common Stock (the "Early Consent
Consideration"). The Early Consent Consideration shall be payable subject to,
and only upon, consummation of the Plan. If, after the Consent Date, an Early
Consent Consideration Noteholder shall Transfer (as defined in the RSA), in a
manner consistent with the RSA, any Note Claims that are entitled to the Early
Consent Consideration, the transferee thereof shall be deemed to be an Early
Consent Consideration Noteholder and entitled to that portion of the Early
Consent Consideration attributable to such transferred Note Claims, subject to the
terms and conditions set forth herein. For the avoidance of doubt, the Early
Consent Consideration shall not be earned or payable if the Plan Effective Date
does not occur and no Early Consent Consideration Noteholder shall be entitled
to the Early Consent Consideration if it terminates its obligations under the RSA
prior to the Plan Effective Date. For greater certainty, holders of Bank Debt
Claims shall not be entitled to the Early Consent Consideration on account of
their Bank Debt Claims and the distribution of the Early Consent Consideration
to the Early Consent Consideration Noteholders shall not reduce or otherwise
affect the portion of the Affected Creditor Equity Pool allocated to holders of
Bank Debt Claims.
8.
KERP
The Company shall enter into a key employee retention plan ("KERP") in
substantially the form approved by the Independent Committee of Pacific's Board
of Directors (the "Independent Committee"), the Plan Sponsor and the
Requisite Consenting Creditors as of April 18, 2016. Other than as permitted
pursuant to the KERP, no severance or termination payments will be made to any
of the Company's employees who are participants in the KERP in connection
with the implementation of the Restructuring and/or termination or amendment of
any of their employment agreements prior to the Plan Effective Date. The
applicable Debtors will request approval of the KERP by the Canadian Court
upon filing of the CCAA proceeding and each of the Plan Sponsor and the
Consenting Creditors shall consent to the approval of the KERP by the Canadian
Court and the granting of a court-ordered passive, silent charge to support the
KERP, with a ranking that is junior to the Administration Charge, pari passe with
any charges securing the DIP Facilities (subject to the intercreditor arrangements
agreed between the beneficiaries thereof), and senior to any D&O charges (which
will also be passive, silent charges); provided that the D&O charge shall only
apply to actions taken following commencement of or relating to the
Restructuring.
9.
NEW MANAGEMENT All terms and conditions of the New Management Incentive Plan, including the
form, amount, allocation and vesting of grants, shall be determined by the Board
INCENTIVE PLAN
of Directors of the Reorganized Company, as selected by the Requisite
Consenting Noteholders, the Requisite Consenting Lenders and the Plan Sponsor
pursuant to the new governance procedures set out in Annex A hereto. Any
Reorganized Common Stock granted pursuant to the New Management Incentive
Plan shall vest over a three-year period, and the Reorganized Company shall not
issue Reorganized Common Stock (or instruments that may under any
circumstance be converted into Reorganized Common Stock) pursuant to the
New Management Incentive Plan in an amount that exceeds 10% of the
Error! Unknown document property name.
-5Reorganized Common Stock on a post-dilution basis.
10.
GOVERNANCE /
MANAGEMENT/
CRO
The governance and management of the Company during the RSA Effective
Period (including with respect to the appointment of a chief restructuring officer),
and of the Reorganized Company shall thereafter be as set out in Annex A hereto.
11.
CONDITIONS
PRECEDENT TO
IMPLEMENTATION
The conditions precedent to the implementation of Plan will be set forth in the
Plan and will include, without limitation, the following:
1. No change of control payments will be made to any of the Company's
employees in connection with implementation of the Restructuring
and/or the termination or amendment of any of their employment
agreements. The existing employment agreements for employees
subject to the KERP will be amended, revised or replaced on terms that
are consistent with the KERP and otherwise in form and substance
acceptable to the New Board, the Requisite Consenting Creditors and the
Plan Sponsor;
The fees payable to the Principal Company Financial Advisor in
connection with the negotiation and implementation of the
Restructuring, and such other services as described in the engagement
agreement dated as of December 17, 2015 between the Principal
Company Financial Advisor and the Company, will be paid subject to
and in accordance with the amendment, dated as of April 18, 2016, to
the terms of the Principal Company Financial Advisor's engagement
agreement with the Company, which amendment was provided to the
Requisite Consenting Creditors and the Plan Sponsor
Other than with respect to those
contemporaneously herewith.
provisions that are amended in the amendment dated as of April 18,
2016, all other terms and conditions of the Principal Company Financial
Advisor's engagement agreement with the Company dated as of
December 17, 2015 remain binding;
3. The Canadian Court shall have entered the Plan Approval Order, which
shall provide, inter alia, that (i) all common shares of Pacific shall have
been canceled or otherwise significantly diluted to a nominal amount in
accordance with this Recapitalization Term Sheet, and (ii) any and all
other equity claims and equity interests (as such terms are defined in the
CCAA) of Pacific shall have been canceled, extinguished and forever
barred, in each case with no consideration provided to holders of such
common shares or equity claims; and
4. Upon the Plan Effective Date, the Reorganized Company Stock will be
publicly listed and traded on the Toronto Stock Exchange or, if such
listing is not available as a consequence of listing requirements, on the
TSX-V, provided that if neither such listing is available to the
Reorganized Company as a consequence of the listing requirements of
such exchanges, on such other stock exchange as is acceptable to
Pacific, the Requisite Consenting Creditors and the Plan Sponsor
(having regard to the listing requirements of the other stock exchanges
and the liquidity provided thereby).
10.
GOVERNING LAW
New York.
Error! Unknown document property name.
3
ANNEX A
Governance
•
•
CRO; Management. During the RSA Effective Period, the Parties to the RSA shall take all steps
reasonably necessary or appropriate to effectuate the following:
o
CRO Appointment. An empowered chief restructuring officer (the "CRO") with enhanced
authority and new deputy chief financial officer (the "Deputy CFO") shall be appointed, each
acceptable to Requisite Consenting Creditors, the Plan Sponsor and the Independent Committee,
prior to May 6, 2016 (with a five business day cure period thereafter), or such later date as the
Requisite Consenting Creditors, the Plan Sponsor and the Independent Committee may agree.
Such CRO will report to the Independent Committee of the Company's current board of directors
(the "Board of Directors") and will be authorized to provide information directly to the Consenting
Creditors (or their advisors) and the Plan Sponsor. The existing CFO and the Deputy CFO shall
report to the CRO.
o
Selection Process for CRO. The CRO shall be selected by the Independent Committee, the Plan
Sponsor and the Requisite Consenting Creditors. Zolfo Cooper Management LLC shall be
eligible for this appointment. The Deputy CFO shall be selected via a pitch process, conducted by
a working group composed of the Plan Sponsor and an agreed-upon subset of the Ad Hoc
Noteholder Committee, the Ad Hoc Lender Committee and the Independent Committee advisors.
o
Prerequisites for CRO and Deputy CFO. The CRO and Deputy CFO must be present in Bogota
five (5) days per week (subject to having to attend meetings concerning Pacific matters that are
scheduled outside of Bogota). The CRO and/or its team should include individuals with Spanishlanguage skills and relevant oil and gas experience.
o
DIP Budget. As soon as practical after his appointment, the CRO shall review the Cash Flow
Projections (as defined in the DIP/Exit Note Term Sheet) and provide comments to the Requisite
Consenting Creditors (or their advisors), the Plan Sponsor, and the Independent Committee.
o
CRO Powers. The mandate of the CRO shall include a full assessment of key company processes,
organizational structure, systems, controls, risks and certain positions at the Company, as agreed
by the Plan Sponsor and Requisite Consenting Creditors (or their advisors). The CRO is also
empowered to retain a leading international executive search firm to assist in such assessment.
New Board Composition; Reorganized Company Management; Shareholder Rights
o
Size of Reorganized Company's Board of Directors. The Reorganized Company's board of
directors (the "New Board") shall be composed of seven members upon the Plan Effective Date.
o
New Board Composition. The New Board shall be initially comprised as follows: (i) three
nominees selected by the Plan Sponsor, one of which may be chosen to serve as the chairman of
the New Board; (ii) two independent nominees that are jointly selected by the Plan Sponsor and
the Requisite Consenting Creditors; (iii) one independent individual proposed by the Requisite
Consenting Noteholders and that is reasonably acceptable to the Requisite Consenting Lenders
(the "RCN Proposed Director"); and (iv) one independent individual proposed by the Requisite
Consenting Lenders and that is reasonably acceptable to the Requisite Consenting Noteholders
(the "RCL Proposed Director"). A majority of the New Board shall nominate directors for reelection at the end of the New Board's term, including directors then in office (if they consent to
election). The Articles or by-laws of the Reorganized Company shall contain provisions (A)
requiring that the Board be comprised of a majority of "Independent Directors" (to be defined in
the Articles or by-laws as directors who are independent of the Reorganized Company and
independent of the Plan Sponsor), and (B) requiring the Plan Sponsor to vote all of its shares in
favour of the RCN Proposed Director and the RCL Proposed Director (if they consent to election)
at the two annual meetings of shareholders immediately following the Plan Effective Date (i.e., in
2017 and 2018), both of which provisions shall fall away if the Plan Sponsor owns less than 10%
of the outstanding Reorganized Common Stock. The requirement in (A) shall fall away on the
date of the Company's annual meeting in 2019.
Error! Unknown document property name.
-2o
Reorganized Company Management. Certain positions of the Reorganized Company in place on
the Plan Effective Date (as agreed by the Plan Sponsor and Requisite Consenting Creditors) shall
be affirmed by a supermajority of six members of the New Board in the case of certain members
of senior management, and, with respect to the remaining positions, by four members of the New
Board, including one nominee from the Plan Sponsor and either the RCN Proposed Director or the
RCL Proposed Director. If the requisite majority does not affirm such management, then such
management shall remain in their respective positions, but a search firm (paid on a fixed fee basis)
shall assess potential alternative management, including existing management. Following the
results of the search process, a vote of only four members of the New Board shall be required to
select any person for a position that was not affirmed by the requisite votes, provided that the four
members needed to carry an affirmative vote must include one nominee from the Plan Sponsor
and either the RCN Proposed Director or the RCL Proposed Director.
o
Negative Control Rights. A majority of the New Board, including (a) at least one of the RCN
Proposed Director or the RCL Proposed Director (for so long as those individuals are directors), or
after such time as either one of the RCN Proposed Director or the RCL Proposed Director ceases
to be a director for any reason, at least two Independent Directors, and (b) (except with respect to a
related party transaction involving the Plan Sponsor) at least one of the three directors initially
chosen by the Plan Sponsor (or if they are no longer directors, any one director who is an
employee of the Plan Sponsor) shall be required to approve any of the following: incurring new
funded debt; compensation plans/MIP; related party transactions; stock buybacks; equity raises;
changes to capital structure; rights offerings; material changes to development and the business
plan; material asset sales; material amendments to governing documents; and changes to the size
of the New Board or method of appointment; provided that any vote in favor of any rights offering
shall also require the affirmative vote of each of the RCN Proposed Director and the RCL
Proposed Director, in each case for so long as such directors are on the New Board. The
requirements set forth in this provision shall fall away on the date of the Company's annual
meeting of shareholders in 2019.
o
Shareholder Rights Plan. The Reorganized Company shall adopt a customary shareholder rights
plan on the Plan Effective Date with a trigger for an "Acquiring Person" being set at 20% or more
of the outstanding Reorganized Company Stock (the Plan Sponsor shall be grandfathered), such
that offers to acquire the Reorganized Common Stock made by an Acquiring Person (or that, if
completed, would result in the offeror becoming an Acquiring Person) must be made to all
shareholders on the same terms. Termination, amendments or waivers under the shareholder
rights plan would require approval by a majority of the Independent Directors.
Error! Unknown document property name.
SCHEDULE "D"
SECURITY DOCUMENTS
Colombia
I.
Guarantee Trust Agreement establishing a fiducia in favour of the DIP Collateral Agent into which all
Colombian assets of the Loan Parties will be transferred, other than such contractual rights which require
counterparty consent. The Guarantee Trust Agreement will be registered before the Movables Guarantees
Registry (Registro de Garantias Mobiliarias) managed by the Confederation of Chambers of Commerce
(Confederacion de Camaras de Comercio — Confecamaras) (the "MGR"). This will include, among other
things, accounts in the name of the fiduciaria into which all Colombian receivables will be directed.
2. Commercial Establishment Pledge Agreement over all present and future movable assets which will be
registered before the MGR.
3. Conditional Assignment of Economic Rights under Contracts which will be registered before the MGR.
4.
Account Control Agreements (or local equivalents) over all accounts of the Loan Parties. The Account
Control Agreements will be registered before the MGR.
5. Share pledge agreements over the shares or Agrocascada S.A.S. and any other Loan Party formed under
Colombian law, which share pledge agreements will be registered before the MGR and in the relevant Loan
Party's stock-ledger.
Canada
1.
General security agreement over all Canadian assets of each applicable Loan Party which will be registered
in the personal property security registries of British Columbia, Ontario and any other province in which
Canadian assets of a Loan Party are located.
The parties will establish one or more cash collateral accounts which shall be subject to a sole-dominion
account control agreement in favour of the DIP Collateral Agent (each such account, a "Cash Collateral
Account" and, collectively, the "Cash Collateral Accounts").
3. Springing-dominion account control agreements will be entered in respect of all other Canadian bank
accounts.
Other jurisdictions
1. Equity pledge agreements in each jurisdiction (other than Canada and Colombia) in which a Loan Party is
organized (Switzerland, Netherlands, Luxembourg, Panama, Barbados, Peru, Bermuda and British Virgin
Islands).
2. Springing-dominion account control agreements will be entered into in each jurisdiction in which
jurisdiction outside of Canada in which the Loan Parties have material bank accounts to which receivables
are deposited (e.g. proceeds of foreign crude oil sales).
Additional security documents as reasonably required in each jurisdiction in which a Loan Party has
material assets (if any), including, without limitation specific pledge agreements over all equity interests,
notes and other interests and investments held in any subsidiaries of the Loan Parties (including joint
ventures and non-wholly owned subsidiaries) .
"Initial Collateral" means (i) all Collateral owned by any Loan Party located in Canada and the United States, (ii)
all Collateral located in Colombia owned by each of Meta Petroleum AG (including its Colombian Branch), Pacific
Stratus Energy Colombia Corp. (including its Colombian branch), Grupo C&C Energia (Barbados) Ltd. (including
-2its Colombian branch), Petrominerales Colombia Corp. (including its Colombian branch) and Agro Cascada S.A.S.,
(iii) all Collateral owned by each entity in item (ii) located in its jurisdiction of organization, (iv) an assignment of
all intercompany debt owed by or owing to each entity in item (ii) validly perfected in Colombia and in such entity's
jurisdiction of organization, (v) a pledge of the stock or other equity interests in each entity in item (ii), (vi) a pledge
of the stock or other equity interests in each of Pacific E&P Holdings Corp. and Pacific E&P International Holdings,
S.a r.l., Pacific Infrastructure Ventures Inc., Pacinfra Holding Ltd., Pacific Midstream Holding Corp. and Pacific
Midstream Ltd. and (vii) a pledge of stock of, and a pledge of all assets of, any direct or indirect wholly-owned
subsidiary of the Issuer holding material cash deposits or intercompany claims.
"Subsequent Collateral" means all Collateral other than the Initial Collateral.
SCHEDULE I
DIP/EXIT LC
FACILITY
COMMITMENT
LC LENDER
[Schedule Redacted]
TOTAL:
ANNEX B
DIP/EXIT LC FACILITY TERM SHEET
See attached.
This is Exhibit "0" referred to in the
Affidavit of Peter Volk
sworn before me, this 27th day
of April, 2016
A Commissioner for taking Affidavits
CAN_DMS: \65405557\1
EXECUTION DRAFT
Strictly Private and Confidential
SECURED DIP AND EXIT FINANCING FACILITY — SUMMARY TERM SHEET (the "Term Sheet")
USD $133.23 million letter of credit facility (the "DIP LC Facility")
1.
CONFIDENTIALITY The Borrower (as defined below) agrees that it shall not disclose this Term Sheet or the
substance of the financing arrangements proposed herein to any person without the
prior written consent of the DIP LC Issuers (as defined below), except to (i) the
Borrower's and the other Loan Parties' directors, senior officers, and professional
advisors, (ii) the DIP LC Lenders and their professional advisors, and (iii) the
professional advisors of the DIP Note Purchasers (as defined below) and of Bank of
America, N.A., as agent under that certain Revolving Credit and Guaranty Agreement
dated as of April 30, 2014 among Pacific, Bank of America, N.A., as administrative
agent, and the lenders and guarantors party thereto, on a confidential basis, in each case
unless required to be disclosed by law or by a regulatory authority (including a stock
exchange on which the Borrower's shares are listed). Additionally, this Term Sheet
may be disclosed to the extent required to be filed with a court in connection with any
Restructuring Proceedings (as defined below).
2.
SUBJECT TO
DEFINITIVE
DOCUMENTATION
The financing will be provided through the renewal or extension of letters of credit
listed in confidential Schedule B hereto (or letters of credit issued, renewed or
extended by the DIP LC Issuers as renewals, replacements or extension of such letters
of credit) for the benefit of the Borrower and its subsidiaries (the "DIP LCs") in an
aggregate face amount of up to $133,229,611.65 at any time outstanding pursuant to a
debtor-in-possession revolving credit agreement (the "DIP LC Agreement"). The
debtor-in-possession financing contemplated herein would be subject to the execution
of the DIP LC Agreement and other definitive documents (collectively, the "DIP LC
Documents"). Letters of credit will be renewed or extended by the DIP LC Issuers (as
defined below), whose commitment will be several and not joint. Certain letters of
credit issued by the DIP LC Issuers that are scheduled to expire within the term of the
DIP LC Facility (the "Renewal LCs") will be deemed to be DIP LCs on and after the
Closing Date (as defined below). No DIP LC Issuer will be required to backstop
drawing on DIP LCs of any other DIP LC Issuer. Each DIP LC Issuer will, at its sole
discretion, be entitled to assign its DIP LCs to or account for its DIP LCs in the books
and records of an affiliate.
The DIP LC Documents shall govern the DIP LCs and may be amended and restated
or otherwise replaced (such amended, restated or replaced DIP LC Documents being
the "Amended DIP LC Documents") and the Amended DIP LC Documents shall
thereafter govern the DIP LCs and Exit LCs (as defined in Schedule "A"), provided
that those terms of the DIP LC Agreement relating to the Restructuring Proceedings
(as defined below) and other matters and covenants relating specifically thereto shall
not apply following the completion of, and emergence of the Reorganized Company
(as defined in the Recapitalization Term Sheet (as defined below)) from, the
Restructuring Proceedings and, to the extent reasonably practicable and acceptable to
the DIP LC Issuers, such matters and covenants shall be contained in the DIP LC
Documents.
"DIP LC Issuer" means those banks listed on confidential Schedule B hereto and any
other person that shall have become a party to the DIP LC Agreement pursuant to an
assignment and acceptance, other than any such person that ceases to be a party to the
DIP LC Agreement pursuant to an assignment and acceptance, together with, in each
case, any affiliate of any such person through which such person elects, by notice to
the DIP Agent and the Borrower, to make any DIP LCs available to the Borrower,
provided that, for all purposes of voting or consenting with respect to (a) any
amendment, supplementation or modification of any DIP LC Document, (b) any
waiver of any requirements of any DIP LC Document or any default or Event of
Default and its consequences, or (c) any other matter as to which a DIP LC Issuer may
-2vote or consent pursuant to the DIP LC Agreement, the DIP LC Issuer making such
election shall be deemed the "person" rather than such affiliate, which shall not be
entitled to vote or consent.
An additional first-lien note facility in an amount of up to $500 million (the "DIP Note
Facility" and together with the DIP LC Facility, collectively, the "DIP Facilities")
will be provided by a group of existing bond holders and/or lenders and one or more
affiliates of The Catalyst Capital Group Inc. (the "Plan Sponsor") (the "DIP Note
Purchasers" and together with the DIP LC Issuers, collectively, the "DIP Providers")
pursuant to a note purchase agreement (the "DIP Note Purchase Agreement"),
existing lenders and the Plan Sponsor.
To the extent applicable, a first-lien hedging facility with respect to up to 60% of the
production of the Borrower and its affiliates, or such other amount to be agreed by the
DIP LC Issuers (the "Hedging Facility") may be provided by a bank or banks.
3.
DIP BORROWER
Pacific Exploration & Production Corporation ("the "Borrower" or "Pacific").
4.
GUARANTORS
Meta Petroleum AG, Pacific Stratus Energy Colombia Corp., Grupo C&C Energia
(Barbados) Ltd., Petrominerales Colombia Corp., Agro Cascada S.A.S., Pacific E&P
Holdings Corp., Pacific E&P International Holdings, S.a r.1., Pacinfra Holding Ltd.,
Pacific Midstream Holding Corp., all other guarantors of the DIP Note Facility, and
any other wholly owned subsidiaries of the Borrower as may be reasonably required by
the DIP LC Issuers (collectively the "Guarantors"). To the extent permitted by
applicable law, all obligations of the Borrower will be unconditionally guaranteed
jointly and severally by the Guarantors and the obligations of each Borrower will be
guaranteed by the other Borrower. Notwithstanding the foregoing, the Borrower agrees
that, to the extent required by the DIP LC Issuers and permitted under Swiss law, Meta
Petroleum AG agrees to (i) borrow money from another Loan Party pursuant to
secured intercompany notes in an amount to be agreed with the DIP LC Issuers (which
secured intercompany notes shall be pledged to the DIP Collateral Agent), (ii) to the
extent the structure described in clause (i) is not reasonably practicable, to become a
co-borrower under DIP LC Facility and/or (iii) otherwise structure its affairs and
obligations with respect to the DIP LCs in a manner reasonably satisfactory to the DIP
LC Issuers.
The Borrower and the Guarantors are collectively referred to herein as the "Loan
Parties" and each a "Loan Party".
5.
DIP
ADMINISTRATIVE
AGENT
A financial institution acceptable to the DIP LC Issuers shall act as administrative
agent under the DIP LC Documents (the "DIP Agent") and shall be paid a customary
agency fee. Each DIP LC Issuer shall report to the DIP Agent periodically regarding its
outstanding DIP LCs.
6.
DIP COLLATERAL
AGENT
A financial institution acceptable to the DIP Providers and reasonably acceptable to the
Borrower will act as collateral agent for and on behalf of the DIP Providers under the
DIP Note Agreement, the Hedging Facility (if any) and the DIP LC Agreement, as
applicable (in such capacity, the "DIP Collateral Agent").
3.
COLLATERAL
AGENCY AND
INTERCREDITOR
AGREEMENT
The DIP Providers will enter into a collateral agency and intercreditor agreement (the
"Intercreditor Agreement") pursuant to which they shall agree among other things
that the DIP Note Obligations (as defined below) and the obligations under the
Hedging Facility (if any) (the "Hedging Obligations") shall be secured on a first-lien
basis and the DIP LC Obligations (as defined below) shall be secured on a second-lien
basis.
Pursuant to the Intercreditor Agreement, (i) if there is a Hedging Facility, the Hedge
Provider will agree to limit setoff rights provided that it may have priority with respect
to monthly payments under the Hedging Facility to the extent agreed by the DIP Note
Purchasers, in priority to the DIP Note Obligations and the DIP LC Obligations and
(ii) the DIP LC Issuers will not be permitted to cause the DIP Collateral Agent to
enforce the security or otherwise take action with respect to the DIP Collateral except
-3(x) if the DIP Note Obligations have been paid in full or (y) following the completion
of a 90-day standstill period following the occurrence of any Event of Default of the
type described in clause (a) of Section 25; provided that, following commencement of
enforcement, the DIP Collateral Agent shall be instructed in accordance with the
Intercreditor Agreement. The Borrower shall have the right to enter into one or more
letter of credit facilities (each, a "Replacement LC Facility") with financial
institutions that are secured on a pari passu basis with the DIP LC Obligations;
provided that each financial institution providing any Replacement LC Facility that is
secured on a pari passu basis with the DIP LC Obligations shall become a party to the
Intercreditor Agreement in a manner (including with respect to provisions controlling
the exercise of remedies) reasonably satisfactory to the DIP LC Issuers; provided,
further, that the total amount of commitments under the DIP LC Facility and any
secured Replacement LC Facilities shall not exceed $200 million at any time.
8.
SEPARATE RIGHTS
AND OBLIGATIONS
The obligations of each DIP LC Issuer under the DIP LC Agreement shall be several
(and not joint and several). No DIP LC Issuer shall be responsible for the obligations
of any other DIP LC Issuer under the DIP LC Agreement, and the failure by any DIP
LC Issuer to perform its obligations under the DIP LC Agreement shall not affect the
obligations of any other DIP LC Issuer under the DIP LC Agreement. In the event
that, despite its obligations under the DIP LC Agreement, any DIP LC Issuer fails to
replace, extend or renew the prepetition letters of credit for the benefit of the Borrower
(the "Prepetition LCs") issued by such DIP LC Issuer, such DIP LC Issuer shall
become subject to customary "defaulting lender" provisions, including loss of secured
status under the DIP LC Documents, including for any drawing with respect to each
Prepetition LC and each DIP LC issued, renewed or extended by such DIP LC Issuer,
and no fee payments or payments of interest on any drawing with respect to each
Prepetition LC and each DIP LC issued, renewed or extended by such DIP LC Issuer
shall be paid to such DIP LC Issuer until such DIP LC Issuer shall have renewed or
extended each of its applicable Prepetition LCs under the DIP LC Agreement;
provided that, notwithstanding the foregoing, if, prior to such DIP LC Issuer having
renewed or extended each of its Prepetition LCs under the DIP LC Agreement, a
drawing with respect to any of the Prepetition LCs issued by such DIP LC Issuer shall
have been made, the renewal or extension of the Prepetition LCs issued by such DIP
LC Issuer shall not cure its default and such DIP LC Issuer shall remain subject to the
"defaulting lender" provisions set forth above.
-49.
RESTRUCTURING
PROCEEDINGS
Pacific and certain other Loan Parties and their applicable subsidiaries (as agreed
between Pacific and the DIP LC Issuers) will implement the restructuring
contemplated by the Recapitalization Term Sheet attached hereto as Schedule "C" (the
"Recapitalization Term Sheet") through a plan of reorganization, which shall be
consistent with the terms of the Recapitalization Term Sheet and the RSA (as defined
in the Recapitalization Term Sheet) (as it may be amended or supplemented from time
to time in accordance with the terms of the RSA, the "Plan") to be implemented
pursuant to (i) a main Canadian proceeding (the "Canadian Proceeding") to be
commenced under the Companies' Creditors Arrangement Act (Canada) (the
"CCAA") in the Ontario Superior Court of Justice (Commercial List) in Toronto (the
"Canadian Court"), (ii) an ancillary proceeding (and not, without the consent of the
DIP LC Issuers, a main proceeding under Ley 1116 of 2006 in Colombia ("Law
1116")) to be commenced in Colombia (the "Colombian Proceeding") in the court
seized of jurisdiction in such Colombian Proceeding (the "Colombian Court") and
(iii) a proceeding (the "U.S. Proceeding" and, together with the Colombian
Proceeding, collectively, the "Ancillary Proceedings," and together with the Canadian
Proceeding, collectively, the "Restructuring Proceedings") under chapter 15 of title
11 of the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of New York (the "U.S. Court," and
together with the Colombian Court, the "Ancillary Insolvency Courts" and, together
with the Canadian Court, the "Insolvency Courts").
10.
PURPOSE
The Borrower shall use the Renewal LCs and DIP LCs renewed or extended under the
DIP LC Facility solely for general corporate purposes of the Borrower and its
subsidiaries and, in the case of DIP LCs renewed or extended after the Closing Date,
only to replace, extend or renew prepetition letters of credit renewed or extended by
the DIP LC Issuers.
13.
COMMITMENT AND
AVAILABILITY OF
DIP LCS
Each issuance, renewal, extension or amendment of a DIP LC shall be subject to the
applicable conditions precedent set out below. Each DIP LC Issuer's obligation to
renew or extend DIP LCs is referred to as its "DIP LC Commitment."
14.
EXIT FACILITY
By committing to provide its DIP LC Commitment, each DIP LC Issuer concurrently
commits to provide its pro rata share of the Exit LC Facility equal to its pro rata share
of the aggregate amount of the DIP LC Facility. On the Exit Date, all outstanding DIP
LCs will automatically become Exit LCs (as defined in Schedule "A"). See Schedule
"A" for terms and conditions of Exit LCs.
11.
DIP LC
COMMITMENTS
The DIP LC Commitment of each DIP LC Issuer is the amount set opposite its name in
Schedule "B" hereto, in each case to the extent not cancelled, reduced or transferred in
accordance with the DIP LC Agreement.
In the event that any DIP LC is drawn (an "LC Draw"), the Borrower shall be
obligated to reimburse the relevant DIP LC Issuer within 2 business days of such
drawing. In the event the Borrower does not reimburse an LC Draw, such
unreimbursed LC Draw shall be deemed to create an "LC Advance" owed by the
Borrower to the applicable DIP LC Issuer under the DIP LC Documents, but the
failure to reimburse any LC Draw and the creation of an LC Advance in respect thereof
shall not independently constitute an Event of Default under the DIP LC Documents.
The DIP LC Commitments of each DIP LC Issuer shall be automatically and
permanently reduced by the aggregate amount of any reduction in the full amount of
DIP LCs outstanding and issued by such DIP LC Issuer from time to time.
12.
MATURITY DATE
AND REPAYMENT
The outstanding obligations (including the obligation to cash-collateralize undrawn
DIP LCs) under the DIP LC Facility and the DIP LC Documents (the "DIP LC
Obligations") shall be repayable in full on the earliest to occur of the following dates
(the "DIP Maturity Date"):
the date on which a demand is made by two or more DIP LC Issuers that
(a)
collectively hold a majority of the face amount of the outstanding DIP LCs
-5(or, in the event that there is only one DIP LC Issuer, such DIP LC Issuer)
following the occurrence of any Event of Default (as defined below) which is
continuing;
(b)
the date that a restructuring, refinancing or sale transaction (with respect to a
material amount of stock or assets of the Borrower and any of its
subsidiaries), other than the Plan and other than any Permitted Asset
Disposition (each, a "Transaction"), is approved by the applicable court or
consummated without the requisite consent of the DIP LC Issuers;
(c)
the date on which any stay of proceedings ordered pursuant to one or more of
the Restructuring Proceedings expires without being extended or on which
one or more of the Restructuring Proceedings are terminated or converted to a
liquidation proceeding; and
(d)
the date that is six (6) months following the Closing Date (as defined below),
or such later date as may be agreed by the DIP LC Issuers in their sole
discretion (the "Outside Date"),
provided that, if none of the foregoing events have occurred on or prior to the date on
which the Plan is implemented, then on the date on which the Plan is implemented (the
"Exit Date"), the DIP LC Commitments and the DIP LCs then outstanding shall
remain outstanding as Exit LCs until the Exit Maturity Date (as defined in Schedule
"A").
For greater certainty, in the event that the Exit Date has not occurred on or prior to the
DIP Maturity Date, all other DIP LC Obligations shall become immediately due and
payable to the respective issuers of the DIP LCs.
15. ASSET
DISPOSITIONS
Except for Permitted Asset Dispositions, the Loan Parties may not sell, assign, transfer
or otherwise dispose of any material property or assets (except the sale of
hydrocarbons in the ordinary course of business) without the prior consent of the DIP
LC Issuers and provided that all proceeds of any sale, assignment, transfer or
disposition shall be deposited in the Cash Collateral Account (as defined below) which
shall be subject to an account control agreement in favour of the DIP Collateral Agent
for and on behalf of the DIP Providers and proceeds from which shall be disbursed in
accordance with the procedure described in the DIP Note Term Sheet.
"Permitted Asset Dispositions" means the following: (i) the sale of nearly 87 km of
pipes that were going to be used to build La Creciente pipeline, which pipes are owned
by the Colombian branch of Pacific Stratus Energy Colombia Corp. and stored in the
La Creciente field in Colombia, (ii) the sale of tax refunds or credits (including Titulos
de Devolucion de Impuestos Nacionales) and (iii) the sale of any equity interest in
Pacific Infrastructure Ventures Inc. or the sale of the oil terminal and the dry cargo
business by Pacific Infrastructure Ventures Inc. (the "Port Facility Sale"), provided
that, other than in the case of clause (i) above, the proceeds of each such sale shall be
no less than the amount set out in respect thereof in the Cash Flow Projection and
provided further that, prior to the consummation of each such sale:
(a) the relevant Loan Party consummating such transaction delivers to the DIP LC
Issuers' advisors (and/or Restricted DIP LC Issuers) an officer's certificate certifying
that such transaction is with a party that deals at arm's length with the relevant Loan
Party; and
(b) in the case of item (iii), the relevant Loan Party consummating such transaction
delivers to the DIP LC Issuers' advisors (and/or Restricted DIP LC Issuers) with
respect to any such transaction , a resolution of the board of directors of such Loan
Party, set forth in an officer's certificate, stating that such transaction complies with
this covenant and that such transaction has been approved by Pacific's independent
committee of directors.
7,17
-616.
PREPAYMENT
The DIP LC Commitments may be reduced by the Company at any time on 3 business
days' prior notice, but may not be reduced to an amount less than the aggregate amount
of outstanding DIP LCs at such time, unless such DIP LCs are cancelled or cash
collateralized.
In the event that any amount of the DIP Notes are voluntarily prepaid or refinanced
(other than the DIP Notes issued to the Plan Sponsor, which shall not be repaid,
prepaid, redeemed, repurchased or refinanced prior to the Exit Date except pursuant to
Section 17 of the DIP Note Term Sheet), the Borrower shall concurrently refinance or
cash-collateralize the DIP LCs outstanding at such time on a pro rata basis with the
DIP Notes prepaid or refinanced at such time according to each DIP LC Issuer's pro
rata share of the DIP LC Facility.
17.
INTEREST AND
DEFAULT
INTEREST
Interest shall be payable in cash on the aggregate amount of outstanding LC Draws and
LC Advances under the DIP LC Facility at a rate equal to 8% per annum. The DIP LC
Issuers shall also receive an amount equal to 5% per annum, compounded monthly and
payable monthly in arrears, calculated on the undrawn portion of outstanding DIP LCs,
as a fee for their risk of drawing (the "LC Fee"). The DIP LC Issuers shall also
receive standard administrative and processing fees in accordance with their customary
policies and procedures. Any advance interest or fees paid to any DIP LC Issuer by any
Loan Party prior to the Closing Date with respect to Prepetition LCs shall be credited
against the LC Fee payable to such DIP LC Issuer on and after the Closing Date.
Upon the occurrence and during the continuation of an Event of Default and for so
long as any LC Advance shall be outstanding, all amounts shall bear interest at the
applicable interest rate plus 2% per annum and the LC Fee shall increase by 2% per
annum, in each case payable on demand in arrears in cash. All computations of
interest shall be made on the basis of a year of 365 or 366 days, as the case may be,
taking into account the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
18.
CASH FLOW
PROJECTIONS /
VARIANCE
Pacific shall prepare a cash flow projection which shall be in form and substance
satisfactory to the CRO, the DIP LC Issuers and their advisors (the "Cash Flow
Projection"), reflecting the projected cash requirements (including, without limitation,
with respect to projected payment of professional expenses on an advisor by advisor
basis, but aggregating legal advisors for jurisdictions outside of the United States and
Canada)) of Pacific and its direct and indirect subsidiaries for the period commencing
with the date on which the Canadian Proceeding is to be commenced (the
"Commencement Date") and ending with the Outside Date. Pacific shall prepare and
present to the financial advisors to the DIP LC Issuers (and to any DIP LC Issuer that
has agreed to receive material non-public information on a restricted basis pursuant to
a non-disclosure agreement substantially in the form of the non-disclosure agreements
in place between the company and certain of its existing lenders on the date hereof,
(each a "Restricted DIP LC Issuer")) a cumulative variance report in form and
substance satisfactory to the DIP LC Issuers' financial advisors (each, a "Variance
Report") as at the end of each four week period set out in the Cash Flow Projection, in
each case, in respect of the period beginning on the Commencement Date and ending
on the last day of the applicable cumulative period (each such period being a "Test
Period"), which Variance Report shall show the line-by-line variance between the
projected cash flows set out in the Cash Flow Projection in respect of the relevant Test
Period and actual cash flows during such Test Period. Each Variance Report shall be
prepared and presented to the DIP LC Issuers by no later than the last business day of
the week following the end of the relevant Test Period and shall be reviewed by the
CRO and shall include a certification from a senior officer of the Borrower that the
actual cash flows are within the permitted variances set out below.
The Cash Flow Projection shall be publicly disclosed on or prior to the Closing Date
and all Variance Reports shall be publicly disclosed on or prior to the Exit Date.
In connection with the delivery of each Variance Report, the Loan Parties shall
provide an updated schedule listing all DIP LCs then outstanding, which schedule shall
272
-7include the face amount of each such DIP LC, the name of the beneficiary with respect
to such DIP LC, the expiration date of such DIP LC and any reduction in the face
amount of, and any LC Draw or LC Advance with respect to, such DIP LC that, in
each case, shall have occurred during the applicable Test Period.
19.
DIP SECURITY AND
PRIORITY
Subject to the Intercreditor Agreement, the DIP Note Obligations, the Hedging
Obligations and the obligations under the DIP LC Facility (the "DIP LC Obligations"
and together with the DIP Note Obligations and the Hedging Obligations, collectively,
the "DIP Obligations") shall be secured by first-priority security interests
(collectively, the "DIP Liens") over all of the present and future property and assets,
real and personal, of each Loan Party, including, but not limited to all equity interests
owned by any such Loan Party in material subsidiaries and joint ventures, machinery
and equipment, inventory and other goods, accounts receivable, material fee-owned
real estate, leases, licenses, concessions, fixtures, bank accounts (subject to certain
customary exceptions), intangibles (including rights under exploration and production
contracts, concessions and hedge agreements), financial assets, investment property,
license rights, patents, trademarks, trade names, copyrights, chattel paper, insurance
proceeds, documents, instruments, indemnification rights, tax refunds, tax credits
(including Titulos de Devolution de Impuestos Nacionales), cash, any avoidance
actions available to the Loan Parties' bankruptcy estates pursuant to the Bankruptcy
and Insolvency Act (Canada), the CCAA or otherwise (collectively, the "Collateral"),
in each case, perfected pursuant to court orders and security documentation governed
under the laws of applicable jurisdictions satisfactory to the DIP Providers; provided
that there shall be the same DIP Liens and Collateral and DIP Order for the DIP Note
Obligations and the DIP LC Obligations and accordingly, to the extent that the DIP
Note Purchasers agree to amend or waive the description of DIP Liens and/or
Collateral and/or the DIP Priority Orders and/or the provisions of (a), (b) and (c)
below, then corresponding amendments and waivers will be made to such provisions in
this term sheet and Schedule "D". The security shall consist of the security documents
set out in Schedule "D" hereto and such additional security documents as the DIP Note
Purchasers (or their counsel) may reasonably request.
All security will be granted in favour of the DIP Collateral Agent for and on behalf of
the DIP Providers, subject to the Intercreditor Agreement.
The DIP Liens shall be given effect as follows, in each case subject to the provisions of
the Intercreditor Agreement:
(a)
with respect to the Borrower and each guarantor under its existing Notes and
Bank Debt (as defined in the RSA) and any other direct or indirect
subsidiaries of the Borrower as the Borrower and the DIP LC Issuers may
reasonably require (the "Filing Parties"), by a superpriority charge pursuant
to the terms of an order in the Canadian Proceeding approving the DIP
Obligations and the DIP Liens (the "DIP Order"), which shall provide that
the DIP Liens and the DIP Obligations rank only behind administrative
charges (the "Administrative Charges"), behind the passive and silent KERP
(as defined below) charge and the directors' and officers' charge (the "D&O
Charge") in amounts approved by the DIP Note Purchasers; provided that the
DIP Liens shall constitute junior perfected liens on, and security interests in,
all Collateral of the Loan Parties, wherever located, that is subject to an
existing valid, perfected, enforceable and unavoidable lien or security interest
on the date of such order, in each case, that is expressly permitted to be senior
to the DIP Liens pursuant to the DIP Order and the DIP LC Documents;
(b)
by such priority or recognition status as may be required by the DIP LC
Issuers in their reasonable discretion in the Ancillary Proceedings pursuant to
an order of the applicable Ancillary Court, as applicable (each such order
being an "Ancillary Priority Order" and together with the DIP Order,
collectively, the "DIP Priority Orders"); and
-8(c)
20. CONDITIONS
PRECEDENT TO
EFFECTIVENESS
AND INITIAL
UTILIZATION OF
DIP LC FACILITY
by such security documents, filings and registrations as may be necessary or
desirable in any relevant jurisdiction, the DIP Liens shall constitute firstpriority perfected liens on, and security interests in, all Collateral of the Loan
Parties, wherever located.
The DIP Note Purchasers may, in their sole discretion, require the execution, filing, or
recording of any mortgages, security agreements, pledge agreements, control
agreements, financing statements or other agreements or instruments, or the taking of
any action to obtain possession or control of any Collateral in order to obtain a lien on
such Collateral; provided, that the local grant of security and perfection of Collateral of
any Loan Party may be excluded to the extent that the DIP Note Purchasers reasonably
determine that the costs of obtaining a security interest in or perfection of such assets
outside of the Restructuring Proceedings is excessive in relation to the value to the DIP
Note Purchasers of the DIP Liens to be afforded thereby.
The security granted by the Loan Parties shall contain certain exclusions from
Collateral, which shall be the same exclusions as are agreed between the Loan Parties
and the DIP Note Purchasers..
The effectiveness of the obligation of the DIP LC Issuers to renew or extend DIP LCs
shall be conditional on, and shall be completed by the DIP LC Issuers by no later than
2 business days following (or, with respect to those conditions that by their nature are
to be satisfied on the Closing Date, on the business day of), the satisfaction of
conditions precedent to borrowing customary and usual for financings in such
circumstances and to be agreed upon by the DIP LC Issuers and the Loan Parties,
which conditions precedent shall include, without limitation, the following conditions
precedent to be satisfied on or prior to the effectiveness of the obligations of the DIP
LC Issuers to renew or extend DIP LCs (the date on which all such conditions are
satisfied being the "Closing Date", from and after which time the Renewal LCs shall
be deemed to be DIP LCs) and each of which conditions shall be for the sole benefit of
the DIP LC Issuers and may be waived by two or more DIP LC Issuers that
collectively hold a majority of the DIP LC Commitments (or, in the event that there is
only one DIP LC Issuer, such DIP LC Issuer) as of the Closing Date; provided that if
such conditions are not met or waived on or before June 15, 2016, the DIP LC
Commitments and all other obligations of the DIP LC Issuers under the DIP LC
Documents shall terminate; and provided, further, that, with respect to the conditions
precedent in clauses (f), (k), (I), (v) and (w), if the corresponding condition precedent
in the DIP Note Term Sheet is satisfied or waived, then such condition precedent shall
be automatically deemed satisfied or waived under this term sheet.
(a)
The applicable Loan Parties shall have commenced the Restructuring
Proceedings.
(b)
The Canadian Court shall have granted an initial order (which shall include
the DIP Order) in respect of the Filing Parties, in form and substance
satisfactory to the DIP LC Issuers (the "Initial Canadian Order").
(c)
The Colombian Court shall have granted a recognition order in respect of the
relevant Loan Parties, in form and substance satisfactory to the DIP LC
Issuers (each an "Initial Colombian Order" and together with the Initial
Canadian Order, the "Initial Orders").
(d)
The Insolvency Courts, as applicable, shall have granted the DIP Priority
Orders.
(e)
If required, the Superintendencia de Sociedades (the "Superintendencia")
shall have approved the granting of the DIP Liens under Colombian law.
(f)
Each Colombian Loan Party and each Loan Party with a Colombian branch
shall have amended its bylaws to provide that the incurrence of any additional
indebtedness (other than under the issuance of the DIP Note Facility, the
-9Hedging Facility (if applicable), the DIP LC Facility, the Exit Note Facility
and the Exit LC Facility and guarantees thereof as contemplated herein) by
such Loan Party (or its Colombian branch) shall require the prior approval of
the DIP LC Issuers.
(g)
Pacific shall have entered into the RSA (as defined in the Recapitalization
Tenn Sheet) in support of the Plan in form and substance acceptable to the
DIP LC Issuers in their sole discretion with holders of not less than 45% of all
Company Claims (as defined in the RSA).
(h)
The DIP LC Agreement, each of the other DIP LC Documents (other than the
security documents in respect of the Subsequent Collateral (as set out on
Schedule "D")) and all other documentation relating to the DIP LC Facility
shall be in form and substance consistent with this Term Sheet and otherwise
satisfactory to the DIP LC Issuers in their sole discretion and shall have been
executed and delivered by each Loan Party party thereto and shall constitute
valid and enforceable obligations of each of the Loan Parties, as confirmed
pursuant to the Initial Orders and the DIP Priority Orders.
(I)
If applicable, the Hedging Facility and/or the DIP Note Facility and all
documents relating thereto shall be in form and substance satisfactory to the
DIP LC Issuers and shall have been executed and delivered by each Loan
Party party thereto and shall constitute valid and enforceable obligations of
each of the Loan Parties as confirmed pursuant to the Initial Orders and the
DIP Priority Orders.
All "first day orders" entered in each Restructuring Proceeding at the time of
commencement of the Restructuring Proceedings shall be reasonably
satisfactory in form and substance to the DIP LC Issuers in their sole
discretion.
(k)
The Loan Parties shall have obtained all governmental (including any
required consents from the Superintendencia (if any)), regulatory and third
party approvals required to be obtained in any other relevant jurisdiction to
enable the DIP Collateral Agent to obtain the DIP Liens (excluding any
consents in respect of joint operating agreements and concessions).
(I)
The DIP Collateral Agent shall have a valid and perfected security interest in
the Initial Collateral (as set out in Schedule "D"), with the priority described
herein, for the benefit of the DIP Providers.
(m)
The DIP LC Facility shall not violate any requirement of law and shall not be
enjoined, temporarily, preliminarily or permanently.
(n)
All fees and expenses required to be paid to (i) the financial advisors to the
DIP Providers, (ii) a single counsel in each relevant jurisdiction for the Plan
Sponsor, (iii) a single counsel in each relevant jurisdiction for each of the DIP
Note Purchasers (other than the Plan Sponsor) as a group, the DIP LC Issuers
as a group, and the Hedging Provider (provided that for the purposes of local
security in jurisdictions outside of Canada, Colombia and the United States,
all DIP Providers (other than the Plan Sponsor) shall use a single common
counsel), (iv) a single counsel in each relevant jurisdiction for the prepetition
holders of Notes (as defined in the RSA), as a group, (v) a single counsel in
each relevant jurisdiction for each administrative agent with respect to Bank
Debt (as defined in the RSA), and (vi) counsel for the Monitor, incurred on or
before the Closing Date shall have been paid.
(o)
The DIP LC Issuers shall have received customary legal opinions of (i)
Garrigues, Colombian counsel to the Loan Parties, (ii) Norton Rose Fulbright
Canada LLP, Canadian counsel to the Loan Parties, and (iii) such other local
counsel opinions requested by the DIP LC Issuers, in each case addressing
- 10 such matters as the DIP LC Issuers shall request, including, without
limitation, the enforceability of all DIP LC Documents and the validity and
perfection of all security interests in the Initial Collateral.
(p)
There shall exist no default or Event of Default (other than under section
25(a)) under the DIP LC Documents and the representations and warranties of
the Loan Parties therein shall be true and correct in all respects (other than
any such representation and warranty that by its terms refers to a specified
earlier date which shall be true and correct in all material respects or, with
respect to representations and warranties qualified by materiality, in all
respects, as of such earlier date)
(q)
Since April 6, 2016, there shall not have occurred any change, development,
effect, event, circumstance, fact or occurrence that individually or in the
aggregate with other such changes, developments, effects, events,
circumstances, facts or occurrences, (a) is or would reasonably be expected to
be material and adverse to the business, financial condition, properties, assets
(tangible or intangible), liabilities (including any contingent liabilities), or
results of operations of the Loan Parties or (b) prevents or materially
adversely affects the ability of the Loan Parties to timely perform their
obligations under the DIP LC Documents, in each case other than any change,
development, effect, event, circumstance, fact or occurrence resulting from
(i) the effect of any change in the United States or foreign economies or
securities, commodities or financial markets, (ii) the effect of any action taken
by DIP LC Issuers or their affiliates with respect to the DIP LC Documents or
with respect to the Loan Parties (including through such persons' participation
in the Restructuring Proceedings), (iii) any effect resulting from the filing or
public announcement of the Restructuring Proceedings; or (iv) developments
in the oil and gas exploration, development and/or production industry or
industries (including actual or expected industry wide changes in oil, gas or
other commodity prices); provided, however, that with respect to clauses (i),
(ii) or (iv), such changes, developments, effects, events, circumstances, facts
or occurrences shall be taken into account to the extent they
disproportionately and adversely affect Pacific and its subsidiaries, taken as a
whole, compared to other companies operating in the industries and regions in
which Pacific and its subsidiaries operate (each a "Material Adverse
Change").
(r)
Other than as disclosed in Pacific's 2015 annual financial statements, there
shall exist no unstayed action, suit, investigation, litigation or proceeding
pending or threatened in writing in any court or before any arbitrator or
governmental authority (other than the Restructuring Proceedings) that could
reasonably be expected to have a material adverse effect with respect to the
Loan Parties and their subsidiaries taken as a whole.
(s)
The Cash Flow Projection shall have been delivered to the DIP LC Issuers in
form and substance satisfactory to the DIP LC Issuers and shall have been
publicly disclosed.
(t)
There shall not have occurred any payment, prepayment, redemption,
purchase or exchange of any prepetition indebtedness or equity, or
amendment or modification of any of the terms of any such prepetition
indebtedness or equity, except as expressly provided for in the Cash Flow
Projection.
(u)
The Borrower shall have appointed a chief restructuring officer whose
mandate shall include a full assessment of key company processes,
organizational structure, systems, controls, risks and the certain positions at
the Borrower, as agreed by the DIP LC Issuers and who shall also be
empowered to retain a leading international executive search firm to assist in
such assessment.
21. CONDITIONS
PRECEDENT TO
ALL DIP LC
REQUESTS
(v)
The Loan Parties shall have established a cash management system
satisfactory to the DIP LC Issuers (including establishment of the Cash
Collateral Account), and all material accounts of the Loan Parties (including
the Cash Collateral Account) shall be subject to control agreements in favour
of the DIP Collateral Agent, in form and substance reasonably satisfactory to
the DIP LC Issuers), consistent with the terms of this Term Sheet.
(w)
The DIP LC Issuers shall be satisfied in their sole discretion that no additional
insolvency proceedings are required or advisable to ensure that the Collateral
is perfected on a first priority basis in connection with the Restructuring
Proceedings.
(x)
The Loan Parties shall have completed reasonable "know your client"
procedures to the satisfaction of the DIP LC Issuers.
(y)
The Loan Parties shall have appointed agents for service of process in New
York.
The renewal or extension of DIP LCs shall be conditional on the continuing
satisfaction of the conditions precedent set out in Section 20 above, as well as
satisfaction of the following additional conditions precedent:
(a)
(b)
No Default or Event of Default (as defined in the DIP LC Agreement) shall
have occurred and be continuing.
The representations and warranties described in Section 22 below continue to
be true in all material respects.
22. REPRESENTATIONS The DIP LC Agreement will contain representations and warranties customary and
usual for financings in such circumstances, subject to thresholds, limitations,
AND WARRANTIES
exclusions and qualifications as may be reasonably agreed between the DIP LC Issuers
and the Loan Parties, having regard to the Loan Parties and their circumstances
including without limitation:
(a)
a representation and warranty that each Loan Party has disclosed to the DIP
LC Issuers all existing material liabilities, including liabilities to trade
creditors, pension liabilities, employee liabilities, and tax liabilities;
(b)
a representation that no Loan Party is, or will be, after giving effect to the DIP
LC Facility and the transactions contemplated hereunder, an "investment
company" for the purposes of the Investment Company Act of 1940;
(c)
a representation and warranty from the Plan Sponsor (which may be provided
in a side letter to the DIP LC Agreement) that no existing director or officer of
any Loan Party nor any of the parties disclosed as principal holders of voting
shares on page 35 of the Issuer's information circular dated June 10, 2015, nor
any person or entity known to the Plan Sponsor to be acting on behalf of any
of the foregoing, is a direct or indirect investor in or limited partner of the
Plan Sponsor or any fund managed by it; and
(d)
a representation that the factual statements contained in all certificates and
documents furnished to the DM LC Issuers, taken as a whole, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make such statements not misleading in light of the
circumstances in which they were made; provided, that with respect to
projected, estimated or pro forma financial information, the representation
shall be limited to the fact that such information has been prepared in good
faith based upon assumptions believed by the Borrower or the relevant Loan
Party to be reasonable at the time made, it being understood that no assurance
can be given that any such assumption or the results of such projections will
be realized.
23. AFFIRMATIVE
COVENANTS
The DIP LC Agreement will contain affirmative covenants which are customary and
usual for financings in such circumstances, subject to thresholds, limitations,
exclusions and qualifications as may be reasonably agreed by the DIP LC Issuers and
the Loan Parties, having regard to the Loan Parties and their circumstances, including
without limitation:
(a)
delivery of Variance Reports in accordance with Section 18;
(b)
delivery to the DIP LC Issuers' advisors (and any Restricted DIP LC Issuers)
of weekly reports by the Chief Financial Officer with respect to revenues,
operating expenses, asset sales, cost savings, key hires, and other matters
reasonably requested by DIP LC Issuers' advisors;
(c)
delivery to counsel to the DIP LC Issuers, as soon as practicable in advance of
the commencement of the Canadian Proceeding or filing with the Canadian
Court, as the case may be, of drafts of the Initial Orders, the Chapter 15
Order, the DIP Priority Orders, Plan, Plan Approval Order, and all other
proposed orders, motions, pleadings, and other documents filed in or related
to the Restructuring Proceedings, and not filing any such document with the
Insolvency Courts without obtaining prior approval thereof from such
counsel;
(d)
provide access to the DIP LC Issuers' advisors (and any Restricted DIP LC
Issuers) and the CRO to information (including historical information and
books and records) and personnel and facilitate (i) regularly scheduled
meetings as mutually agreed with senior management, the Chief Financial
Officer, and other company advisors and the DIP LC Issuers' advisors (and
any Restricted DIP LC Issuers) who shall be provided with access to all
information they shall reasonably request and (ii) such additional meetings as
the DIP LC Issuers (or their advisors) shall reasonably request;
(e)
compliance in all material respects with applicable laws (including without
limitation, the CCAA, the Bankruptcy Code, ERISA (or its equivalent), and
environmental laws), payment of taxes, maintenance of all necessary licenses
and permits and trade names, trademarks, patents, preserve corporate
existence, and maintenance of appropriate and adequate insurance coverage;
(I)
maintenance of a cash management system acceptable in all respects to the
DIP Note Purchasers (or, if the DIP Notes have been repaid in full, then
acceptable in all respects to the DIP LC Issuers);
(g)
maintenance of a minimum amount of Unrestricted Operating Cash (as
defined in the DIP Note Term Sheet) together with the amount of cash
deposited in the Cash Collateral Accounts (as defined on Schedule "D") of at
least (i) $200 million at any time prior to the completion of the Port Facility
Sale (in whole or in part) and (ii) $200 million plus the net cash proceeds of
the Port Facility Sale (in whole or in part) at any time following the
completion of the Port Facility Sale (in whole or in part).
(h)
except as otherwise agreed by the DIP Note Purchasers, compliance with
certain material contracts subject to a materiality threshold to be agreed in the
DIP LC Agreement ("Material Contracts").
(i)
The Borrower and any applicable Loan Parties shall achieve the milestones
set out in the RSA as in effect on the date of this Term Sheet, without
amendment (each a "Milestone" and collectively the "Milestones"); provided
that, to the extent that the DIP Note Purchaser agree to an extension of the
milestones under the DIP Note Facility, the corresponding Milestone shall be
extended automatically.
- 13 24. NEGATIVE
COVENANTS
The DIP LC Agreement will contain negative covenants which are customary and
usual for financings in such circumstances subject to thresholds, limitations, exclusions
and qualifications as may be reasonably agreed by the DIP LC Issuers and the Loan
Parties, having regard to the Loan Parties and their circumstances, including without
limitation:
(a)
the commencement or imposition of any insolvency proceeding by or against
any of the Loan Parties, or any other affiliate thereof, other than the
Restructuring Proceedings, except to the extent that Meta Petroleum AG or
Pacific E&P Holding Corp., respectively, file for insolvency proceedings
pursuant to sec. 293 et seq. of the Swiss Debt Enforcement and Bankruptcy
Act, which filing may be commenced by the board of directors of either
company acting reasonably and after consultation with the DIP LC Issuers;
(b)
creating or permitting to exist any lien or encumbrance on any Collateral,
other than liens securing the DIP LC Facility and any permitted lien
reasonably agreed by the DIP LC Issuers in the DIP LC Documents;
(c)
creating or permitting to exist any other superpriority claim that is pan passu
with or senior to the claims of the DIP LC Issuers, except as provided herein;
(d)
except for the Permitted Asset Dispositions and the sale of hydrocarbons in
the ordinary course of business, disposing of assets having a value in excess
of $5,000,000;
(e)
modifying or altering (i) in any material manner the nature and type of its
business or the manner in which such business is conducted or (ii) its
organizational documents, except as required herein or by the CCAA, the
Bankruptcy Code and applicable law in any ancillary jurisdiction, as
applicable;
paying, prepaying, redeeming, purchasing, or exchanging any prepetition
indebtedness or equity, or amending or modifying any of the terms of any
such prepetition indebtedness or equity, except as expressly provided for in
the Cash Flow Projection, the Plan or pursuant to "first day" or other orders
entered in form and substance acceptable to the DIP LC Issuers or their
counsel in their sole discretion;
(g)
asserting any right of subrogation or contribution against any of other Loan
Party until all LC Draws and LC Advances are paid in full in cash and
terminated;
(h)
merging or consolidating with any other person, changing the corporate
structure, or creating or acquiring new subsidiaries, giving a negative pledge
on any asset in favor of any person other than the DIP Providers; or
permitting to exist any consensual encumbrance on the ability of any domestic
or foreign subsidiary to make loans, pay dividends or other distributions to the
Loan Parties;
incur any indebtedness or giving any guarantee other than (i) unsecured
hedging obligations (subject to the DIP Liens continuing to secure the
outstanding hedging contracts under the Hedging Facility (if any)),
(ii) unsecured letters of credit; (iii) cash-collateralized letters of credit
outstanding as of the Closing Date and unsecured or cash-collateralized
renewals or extensions thereof; and (iv) secured Replacement LC Facilities or
other secured letters of credit in an aggregate amount not to exceed $200
million, which letter of credit obligations may be secured by the Collateral on
a pari passu basis with the liens securing the DIP LC Facility (provided that
each financial institution providing any Replacement LC Facility secured by
the Collateral on a pari passu basis with the liens securing the DIP LC Facility
shall become a party to the Intercreditor Agreement in a manner, including
(i)