SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12311
------------------------
MONTEREY RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0511993
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5201 TRUXTUN AVENUE
BAKERSFIELD, CALIFORNIA 93309
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 322-3992
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 3, 1997 was approximately $144.8 million.
Shares of Common Stock outstanding at March 3, 1997 -- 54,769,499.
DOCUMENTS INCORPORATED BY REFERENCE:
PROXY STATEMENT DATED MARCH 24, 1997 .......... PART III
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
Items 1 and 2. Business and
Properties........................... 1
General................... 1
Reserves.................. 2
Strategy.................. 3
Development Activities.... 4
Significant Producing
Properties........................... 5
Development, Exploration
and Acquisition Activities........... 6
Drilling Activities....... 7
Producing Wells........... 7
Acreage................... 7
Current Markets for Oil
and Gas.............................. 7
Customers................. 8
Relationship Between the
Company and SFR...................... 9
Other Business Matters.... 11
Item 3. Legal Proceedings.......... 15
Item 4. Submission of Matters to a
Vote of Security Holders............. 16
Executive Officers of
Monterey............................. 16
PART II
Item 5. Market for Registrant's
Common Equity and Related
Stockholder Matters................ 16
Item 6. Selected Financial Data.... 18
Item 7. Management's Discussion and
Analysis of Financial
Condition and Results Of
Operations................. 20
Item 8. Financial Statements and
Supplementary Data................. 25
Item 9. Changes in and
Disagreements with
Accountants on Accounting
and Financial Disclosure... 26
PART III
Item 10. Directors and Executive
Officers of the Registrant......... 26
Item 11. Executive Compensation..... 26
Item 12. Security Ownership of
Certain Beneficial Owners and
Management......................... 26
Item 13. Certain Relationships and
Related Transactions............... 26
PART IV
Item 14. Exhibits, Financial
Statement Schedules and
Reports on Form 8-K........ 26
Signatures........................... 49
i
<PAGE>
<PAGE>
PART I
CERTAIN DEFINITIONS
As used herein, the following terms have the specific meanings set out:
"Bbl" means barrel, "MBbl" means thousand barrels, "MMBbl" means million
barrels, "Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf"
means billion cubic feet, "BOE" means barrel of oil equivalent, "MBOE" means
thousand barrels of oil equivalent, and "MMBOE" means million barrels of oil
equivalent. Natural gas volumes are converted to barrels of oil equivalent using
the ratio of 6.0 Mcf of natural gas to 1.0 barrel of crude oil. Unless otherwise
indicated, natural gas volumes are stated at the legal pressure base of the
state or area in which the reserves are located and at 60 degrees Fahrenheit.
"Improved recovery", "enhanced oil recovery" and "EOR" include all methods of
supplementing natural reservoir forces and energy, or otherwise increasing
ultimate recovery from a reservoir, and include waterfloods, thermal techniques
(including cyclic steam, steam flood and in situ combustion operations) and CO2
(carbon dioxide) injection. "Heavy oil" or "heavy crude" is low gravity, high
viscosity crude oil. "Working interest" means an operating interest which gives
the owner the right to drill, produce and conduct operating activities on a
property and to a share of production and requires the owner to bear a
proportionate share of related expenses. "Net revenue interest" means the
percentage of production to which the owner of a working interest is entitled.
"Net acres" and "net wells" refer to the sum of the fractional working interests
owned in gross acres and gross wells, respectively. Unless otherwise indicated,
references to "reserves" means net proved reserves and references to "wells"
means gross wells.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
Monterey Resources, Inc. (the "Company" or "Monterey") is an independent
oil and gas company engaged in the production, development and acquisition of
oil and natural gas in the State of California. The Company was formed in 1996
to own the properties and conduct the business of the Western Division of Santa
Fe Energy Resources, Inc. (the "Western Division"). At December 31, 1996, Santa
Fe Energy Resources, Inc. ("SFR") owned 82.8% of the Company's outstanding
common stock. SFR has announced that, subject to certain conditions, it intends
to distribute pro rata to its common shareholders all of the shares of the
Company's common stock that it owns by means of a tax-free distribution (the
"Spin Off"). See " -- Relationship Between the Company and SFR".
The discussions included herein with respect to the years ended December
31, 1995 and prior relate to the operations of the Western Division. The
discussions with respect to the year ended December 31, 1996 relate to the
operations of the Western Division for January through October and the
operations of the Company for November and December.
In November 1996, prior to the initial public offering (the "IPO")
discussed below, pursuant to a Contribution and Conveyance Agreement (the
"Contribution Agreement") (i) SFR contributed to the Company substantially all
of the assets and properties of the Western Division, subject to the retention
by SFR of a $30.0 million production payment; (ii) the Company assumed all
obligations and liabilities of SFR associated with or allocated to the assets
and properties of the Western Division, including $245.0 million of indebtedness
in respect of SFR's 10.23% Series E Notes due 1997, 10.27% Series F Notes due
1998 and 10.61% Series G Notes due 2005 (the "Series E Notes", "Series F Notes"
and "Series G Notes", respectively, and the "SFR Senior Notes", collectively);
(iii) the Company agreed to purchase from SFR an $8.3 million promissory note
receivable related to the sale to a third party of certain surface acreage
located in Orange County, California, and (iv) Monterey agreed to pay certain
investment advisory fees which approximate $3.5 million on behalf of SFR,
payable only upon the occurrence of the Spin Off. Also prior to the IPO, the
Company and SFR entered into a $75.0 million revolving credit facility with a
group of banks (the "Credit Facility") and borrowed $16.0 million which was
retained by SFR.
In November 1996 the Company sold 9,335,000 shares of its common stock for
total consideration of $123.6 million (after deducting underwriting discounts of
$9.1 million and other costs of $2.6 million). The
1
<PAGE>
proceeds from the IPO were used in part to (i) repay the Series E Notes and
Series F Notes ($70.0 million) and pay a prepayment penalty thereon of $2.5
million; (ii) retire the Production Payment ($30.0 million); (iii) repay the
$16.0 million outstanding under the Credit Facility; and (iv) pay a $2.0 million
fee with respect to a supplement to the indenture relating to SFR's 11% Senior
Subordinated Debentures due 2004 to permit the IPO and the Spin Off to proceed
without the occurrence of a breach or default under such indenture. Subsequent
to the IPO, the Company issued $175.0 million in aggregate principal amount of
10.61% Senior Notes due 2005 (the "Senior Notes") to holders of the Series G
Notes in exchange for the cancellation of such notes and paid a $1.3 million
consent fee in connection therewith. In December 1996 the Company purchased the
previously mentioned $8.3 million note receivable from SFR for cash.
At December 31, 1996 the Company had net proved reserves of approximately
218 MMBOE with a pre-tax net present value, discounted at 10%, of approximately
$1.05 billion ($680.7 million after tax), according to estimates prepared by
Ryder Scott. In 1996, the Company's operations generated total revenues of
approximately $292.9 million and net income of approximately $50.3 million.
During the year ended December 31, 1996, the Company's average production was
approximately 47.4 MBOE per day, resulting in a reserve-to-production ratio of
12.6 years.
The Company owns and operates properties in four major oil producing fields
located in the San Joaquin Valley of California: Midway-Sunset, Kern River,
South Belridge and Coalinga. These fields are among the most prolific oil fields
in the United States, particularly the Midway-Sunset, Kern River, and South
Belridge fields which are the three largest producing oil fields in the lower 48
states. The Midway-Sunset field accounted for approximately 75% of the Company's
total proved reserves at December 31, 1996 and 74% of its average daily
production for 1996. An additional 18% of the Company's total proved reserves as
of December 31, 1996, and 21% of its average daily production for 1996 were
attributable to the Kern River, South Belridge and Coalinga fields. The Company
initiated production from the San Joaquin Valley fields in 1905 and nearly all
of the reserves in these fields have been characterized by low gravity and high
viscosity or "heavy" oil, the production of which depends primarily on thermally
enhanced recovery techniques. The Company holds an interest in approximately
16,000 gross acres in these fields with an average working interest in these
properties of approximately 99%.
RESERVES
The table set forth below demonstrates the growth in the Company's proved
reserve base, as estimated by Ryder Scott Company, independent petroleum
engineers:
<TABLE>
<CAPTION>
INCREASES (DECREASES)
-----------------------------------------------------------------
BALANCE NET
AT REVISION EXTENSIONS, PURCHASES BALANCE
BEGINNING OF DISCOVERIES (SALES) OF AT END
OF PREVIOUS IMPROVED AND MINERALS OF
PERIOD ESTIMATES RECOVERY ADDITIONS IN PLACE PRODUCTION PERIOD
--------- --------- -------- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES AT DECEMBER 31, 1994:
Oil and Condensate (MMBbls)....... 183.6 9.9 12.6 -- 0.2 (15.1) 191.2
Gas (Bcf)......................... 11.8 2.9 -- -- 0.1 (1.4) 13.4
Oil Equivalent (MMBOE)............ 185.6 10.4 12.6 -- 0.2 (15.3) 193.5
PROVED RESERVES AT DECEMBER 31, 1995:
Oil and Condensate (MMBbls)....... 191.2 9.7 13.7 -- 0.1 (15.2) 199.5
Gas (Bcf)......................... 13.4 0.9 -- -- -- (1.9) 12.4
Oil Equivalent (MMBOE)............ 193.5 9.8 13.7 -- 0.1 (15.5) 201.6
PROVED RESERVES AT DECEMBER 31, 1996:
Oil and Condensate (MMBbls)....... 199.5 12.0 14.4 -- 7.6 (17.1) 216.4
Gas (Bcf)......................... 12.4 1.1 -- -- -- (1.3) 12.2
Oil Equivalent (MMBOE)............ 201.6 12.1 14.4 -- 7.6 (17.3) 218.4
</TABLE>
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
PROVED DEVELOPED RESERVES (MMBOE).... 172.6 158.6 141.8
2
<PAGE>
In 1996 the Company began to implement its plan to accelerate growth in
both production and reserves by increasing its investment in development
opportunities on its existing properties and tactical acquisitions to $52.2
million, an increase of $17.3 million above the $34.9 million per year average
of the previous four years. The 1996 investment program added 34.2 MMBOE of
proved reserves at a cost of $1.53 per BOE. Reserve additions were 197% of the
Company's 1996 production of 17.3 MMBOE. During the five years ended December
31, 1996, the Company spent a total of $172.9 million (an average of $34.6
million per year) on development activities on its properties. Cumulative
production from the Company's properties during the same five-year period
exceeded 79.8 MMBOE while additions to proved reserves exceeded 111.4 MMBOE
(yielding 31.6 MMBOE net additions after production.)
Based on reservoir engineering studies prepared by Ryder Scott, the Company
believes that it can continue to make significant additions to proved reserves
on its properties through additional EOR and development projects, and the
Company has developed a large inventory of such projects from which it expects
to make such additions. The Company anticipates spending approximately $70.9
million during 1997 on additional development projects on its properties.
Because the actual amounts expended in the future and the results therefrom will
be influenced by numerous factors, including many beyond the Company's control,
and due to the inherent uncertainty of reservoir engineering studies, no
assurances can be given as to the amounts that will be expended or, if expended,
that the results therefrom will be consistent with the Company's prior
experience or expectations.
During 1996 SFR filed Energy Information Administration Form 23 which
reported natural gas and oil reserves for the year 1995. The reserve estimates
reported on Form 23 are not comparable with the reserve estimates reported
herein because Form 23 requires that reserves be reported on a gross operated
basis rather than on a net interest basis. On an equivalent barrel basis, the
reserve estimates for the year 1995 contained in such report and those reported
herein for the year 1995 do not differ by more than five percent.
STRATEGY
The Company's strategy is to efficiently and consistently increase its
production rates and proved reserves while maximizing total return to
stockholders. The Company intends to achieve its objectives by developing its
existing fields through the deployment of advanced production techniques, by
pursuing reserve acquisition opportunities which are consistent with its
geographic and operational strengths, and by maintaining a dividend policy that
will provide a significant current return to stockholders. Key elements of the
Company's production and reserve growth strategy include:
AGGRESSIVE EXPLOITATION OF ITS LARGE DEVELOPMENT INVENTORY. During 1996 the
Company completed 317 well operations (which include development and injection
wells, workovers, and recompletions) on relatively low risk development and
infill drilling opportunities at a cost of $48.7 million, adding 26.6 MMBOE at a
finding and development cost of $1.83 per BOE. This activity level compares with
an average of 222 well operations per year over the previous four years. The
Company expects to complete more than 380 well operations in 1997 with budgeted
capital expenditures of approximately $71 million. The Company believes that its
sizable project inventory will allow it to continue to increase its production
and reserves over the next several years.
INCREASED HORIZONTAL DRILLING. In order to increase production and ultimate
reserve recovery on its existing properties, the Company began utilizing
horizontal drilling in 1995 and expanded its use in 1996. As of December 31,
1996 the Company had a total of eight horizontal wells on production, including
seven wells that were drilled in 1996. These wells, which are all in the
Midway-Sunset field and incorporate several methods of steam assisted gravity
drainage, are currently producing at rates ranging from 20 to 200 Bbls per day
per well compared to a range of 5 to 25 Bbls per day for the typical vertical
wells. Performance of both vertical and horizontal wells are directly related to
the temperature of the formation in the immediate wellbore area with the higher
performance being exhibited by the wells that are hotter due to steam input to
the formation. The Company expects to complete 45 additional horizontal wells by
the end of 1997 at an expected capital cost of approximately $20 million,
although the actual number of horizontal wells drilled could be increased or
decreased based upon the results realized from the horizontal wells
3
<PAGE>
completed. The Company believes that this technology represents a significant
opportunity for more cost effective development, increased reserves and
increased production and total recovery rates from its properties.
LOW COST PRODUCER. The Company believes that its finding costs and
producing costs are among the lowest for heavy crude producers in the United
States. Due to the reservoir characteristics of the Company's producing
properties and the extensive development activities conducted to date thereon,
such properties are well suited to low cost development and exploitation
drilling. For example, the Company's average finding cost for the three years
ended December 31, 1996 was $1.58 per BOE. In addition, continuing cost control
efforts have contributed to the reduction of its non-fuel production and
operating costs from $3.56 per BOE in 1995 to $3.53 per BOE in 1996. This
reduction continues a long-term trend in which the Company has reduced non-fuel
production and operating expenses about 20% since 1992. The 1996 fuel-related
costs were $2.69 per BOE, up from $1.98 per BOE in 1995, largely due to higher
natural gas prices. The Company plans to continue to pursue operational
efficiencies, including facilities upgrades and process consolidations with
adjoining producers, to further reduce both finding and producing costs.
APPLICATION OF ADVANCED TECHNOLOGIES. The Company will continue to utilize
its growing technology base, including increasing use of 3-D seismic surveys,
waterfloods, thermal EOR techniques including applications to substantial
deposits of heavy oil in Diatomite formations on its Midway-Sunset properties,
new fracturing techniques and reservoir modeling. The Company believes that 3-D
seismic techniques may identify significant additional reserves. As part of a
joint venture with Chevron U.S.A., Inc., the Company began 3-D seismic data
acquisition in late 1996 on a large acreage block that includes a portion of its
Midway-Sunset properties. The Company has extensive experience with EOR
techniques which it has improved over time and has conducted various types of
steam and in situ combustion operations on its properties since the 1960s. The
Company is currently focusing on efficient reservoir heat management techniques,
which are intended to optimize recoveries and minimize fuel costs. Technologies
as diverse as down-hole steam generation and microbial production enhancement
are part of the Company's ongoing pursuit of better technology. The Company
believes that its expertise in utilizing advanced technologies will allow it to
identify and recover additional reserves in its existing properties.
DEVELOPMENT ACTIVITIES
The Company is engaged in development activities primarily through the
application of thermal EOR techniques on its heavy oil properties in the San
Joaquin Valley. Thermal EOR operations involve the injection of steam into a
reservoir to raise the temperature and reduce the viscosity of heavy oil,
facilitating the flow of the oil into producing wellbores. The Company has
conducted thermal EOR projects in the San Joaquin Valley since the mid-1960s and
employs two principal techniques: cyclic steam stimulation, which involves the
injection of steam through a wellbore for a period of days or weeks after which
the same wellbore is used to produce oil, typically for a period of months; and
steam flooding, a process by which steam is injected into the center of a well
pattern and oil is produced from surrounding producing wells. In addition, the
Company has begun to utilize horizontal drilling in conjunction with the steam
projects already deployed. Based on results to date the Company believes that
horizontal wells can achieve production rates up to 10 times greater than the
typical vertical well and drain portions of reservoirs that cannot be
economically drained by vertical wells. The Company also employs a third
technique, referred to as in situ combustion, in which air is injected into a
dedicated wellbore, a combustion zone is established within a reservoir to heat
the oil and reduce its viscosity and oil is produced from surrounding wellbores.
In addition to these thermal techniques, the Company has extensive experience in
the use of waterfloods, which involves the injection of water into a reservoir
to drive hydrocarbons into producing wellbores.
In 1996 the Company spent $48.7 million in development work including the
drilling of vertical infill and step-out wells and seven horizontal wells, the
addition of 39 steamflood patterns and the expansion of key facilities to serve
increased production and steam volumes. The majority of the 1996 development
activity was focused at Midway-Sunset and Kern River and resulted in a combined
net oil production increase from December 31, 1995 to December 31, 1996 of 4.3
MBbls per day. Development work was also done in 1996 in the Coalinga, South
Belridge and Beta fields.
4
<PAGE>
SIGNIFICANT PRODUCING PROPERTIES
The Company's production and reserves are concentrated in four giant fields
in California's San Joaquin Valley. These fields, Midway-Sunset, Kern River,
South Belridge and Coalinga account for 95% of the Company's net production and
93% of the Company's proved reserves. The Company's properties in these fields
are generally highly concentrated and equipped with an efficient centralized
infrastructure.
MIDWAY-SUNSET. The Company owns and operates a 100% working interest (96%
average net revenue interest) in over 13,000 gross acres and 2,300 producing
wells in the Midway-Sunset field. The Midway-Sunset field is the largest
producing oil field in the lower 48 states and the Company is currently the
largest producer in the field and has operated there continuously since 1905.
Substantially all of the oil produced from the Midway-Sunset field is heavy
crude oil located in the Pleistocene and Miocene reservoirs at depths of less
than 2,000 feet. Producing formations include (in order of increasing depth) the
Tulare and Etchegoin formations as well as the Potter, Spellacy and Diatomite
horizons of the Monterey formation.
During 1996, the Company's properties at Midway-Sunset produced at record
levels averaging 35.1 MBbls per day for the year, an increase of 2.5 MBbls per
day over the average for 1995, and accounted for 74% of the Company's 1996 crude
production. Total December 31, 1996 proved reserves for the Company's
Midway-Sunset properties were approximately 164.5 MMBOE, representing
approximately 75% of the Company's total proved reserves. The Company's
investment in development drilling, cyclic steam injection, steamflood, in situ
combustion and horizontal drilling in Midway-Sunset was approximately $35
million in 1996 compared to an average of $23 million per year over the previous
four years and production has increased from approximately 29.5 MBbls per day in
1992 to over 35.8 MBbls per day in December 1996.
Despite record levels of production, the Company believes, based on
reservoir engineering studies prepared by Ryder Scott, that it can continue to
make significant additions to its proved reserves in this field through
additional EOR and development projects. While most of the Company's EOR efforts
in this field have concentrated on the Potter horizon, the Company believes that
these techniques may generate similar production and reserve additions in each
of the Spellacy, Tulare and Diatomite horizons. The Company has identified in
excess of 1,300 well operations that could be undertaken in the field and
anticipates completing 300 of these operations (including 40 horizontal wells)
in 1997 at an estimated capital cost of $51.0 million.
KERN RIVER. The Company owns and operates a 100% working interest (91%
average net revenue interest) in four properties in the Kern River field. The
Kern River field is the second largest producing oil field in the lower 48
states and the Company has operated there continuously since 1905. Most of the
oil produced from the field is heavy crude oil produced from Plio-Pleistocene
reservoirs at depths of less than 1,000 feet. During 1996, the Kern River field
accounted for approximately 11% of the Company's total crude production. As of
December 31, 1996, the Company's total proved reserves in the Kern River field
were approximately 19.1 MMBOE, or approximately 9% of its total proved reserves.
The Company's production from the Kern River field has increased from
approximately 2 MBbls per day in 1990 to approximately 5 MBbls per day in 1996.
Capital expenditures over the same period of time have increased from $2.0
million in 1991 to $6.0 million in 1996.
As with the Midway-Sunset field, management believes, based on engineering
studies prepared by Ryder Scott, that the Company can continue to make
significant additions to its proved reserves in the Kern River field through
additional thermal development projects. The Company has identified 94 well
operations (including 4 horizontal wells) that could be undertaken in the field
and anticipates completing 22 of these operations in 1997 at an estimated
capital cost of $3.0 million.
SOUTH BELRIDGE. The Company has a 46% average working interest (40% average
net revenue interest) in its properties in the South Belridge field, which is
located 15 miles north of the Midway-Sunset field. The Company acquired
interests in the South Belridge field in 1987 and expanded its holdings in 1991.
The South Belridge field is the third highest producing oil field in the lower
48 states. The field produces both heavy and light crude from Tulare, Etchegoin
and Diatomite formations equivalent to those
5
<PAGE>
found in the Midway-Sunset field, generally at depths of less than 2,000 feet.
During 1996, the South Belridge field accounted for approximately 5% of the
Company's total crude production. As of December 31, 1996, the Company's total
proved reserves in the South Belridge field were approximately 13.8 MMBOE, or
approximately 6% of its total proved reserves.
The Company has identified 106 additional drilling and remediation projects
(including one horizontal well) in the South Belridge field and anticipates
completing 48 of the projects by the end of 1997 at an estimated cost of
approximately $6.0 million.
COALINGA. The Company has a 100% average working interest (84% average net
revenue interest) in its properties in the Coalinga field which is located 55
miles southwest of Fresno, California. During 1996, the Coalinga field accounted
for approximately 5% of the Company's crude production. As of December 31, 1996,
the Company's total proved reserves in the Coalinga field were approximately 5.6
MMBOE, or approximately 3% of its total proved reserves.
The Company acquired its interest in the Coalinga field in 1977. The
Company has identified 167 additional drilling and remediation projects
(including two horizontal wells) in the Coalinga field and anticipates
completing 32 of the projects by the end of 1997 at an estimated cost of
approximately $4.0 million.
LA BASIN. The Company has an average 30% working interest (24% average net
revenue interest) in four producing properties in Los Angeles and Orange
Counties and the Federal Outer Continental Shelf in southern California (the "LA
Basin"). During 1996, the Company's LA Basin properties accounted for
approximately 5% of the Company's total crude production. As of December 31,
1996, the Company's total proved reserves in the LA Basin were approximately
14.7 MMBOE, or approximately 7% of its total proved reserves.
DEVELOPMENT, EXPLORATION AND ACQUISITION ACTIVITIES
The following table shows the Company's total oil and gas development,
exploration and acquisition expenditures (including capitalized interest and
allocated exploratory support costs), whether capitalized or charged to expense,
since the beginning of 1992 through December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Development costs(1).................... $ 47.1 $ 47.7 $ 22.7 $ 38.4 $ 17.0
Exploration costs....................... 1.6 2.6 1.4 1.7 2.8
Acquisition costs:
Unproved leasehold.................... 0.1 0.1 -- -- --
Proved properties..................... 3.4 1.3 -- 3.6 0.1
--------- --------- --------- --------- ---------
Total costs................... $ 52.2 $ 51.7 $ 24.1 $ 43.7 $ 19.9
========= ========= ========= ========= =========
</TABLE>
- ------------
(1) Development expenditures include costs of EOR projects, infill drilling and
primary development drilling of offset wells.
The Company continually evaluates acquisitions of producing and
non-producing oil and gas properties that would add to its reserve base and
present additional development opportunities at attractive prices. From 1994
through 1996, the Company spent approximately $4.7 million to purchase an
estimated 7.9 MMBOE of proved oil and gas reserves in California. Although the
Company may pursue opportunities in other areas, the Company plans to focus
primarily on areas contiguous with, or in close proximity to, its existing
operations. Future acquisitions will depend upon, among other things, the
availability of opportunities to purchase reserves that would complement the
Company's existing properties and that would meet or exceed the Company's
economic criteria with respect to, among other things, cost of reserve
additions, the availability of funding on acceptable terms and other projects to
which the Company may be committed that
6
<PAGE>
would compete with the personal or capital resources required to be dedicated to
a particular acquisition opportunity.
DRILLING ACTIVITIES
The table below sets forth, for the periods indicated, the number of wells
drilled in which the Company had an economic interest. As of December 31, 1996,
no wells were in progress.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Development wells:
Completed.......................... 224 215.2 224 209.2 78 70.2
Dry holes.......................... 3 3.0 -- -- 1 1.0
----- ----- ----- ----- ----- -----
Total......................... 227 218.2 224 209.2 79 71.2
Exploration wells:
Dry holes.......................... 1 0.4 3 3.0 -- --
----- ----- ----- ----- ----- -----
Total................................... 228 218.6 227 212.2 79 71.2
===== ===== ===== ===== ===== =====
</TABLE>
PRODUCING WELLS
The following table sets forth the Company's ownership in producing wells
at December 31, 1996:
TOTAL PRODUCING
WELLS
----------------
GROSS NET
----- -------
Oil..................................... 5,639 5,102.7
Natural gas............................. 2 0.2
----- -------
Total......................... 5,641 5,102.9
===== =======
ACREAGE
The following table summarizes the Company's developed and undeveloped fee
and leasehold acreage at December 31, 1996. Excluded from such information is
acreage in which the Company's interest is limited to royalty, overriding
royalty and other similar interests.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
---------------- -------------- ----------------
FIELD GROSS NET GROSS NET GROSS NET
- ---------------------------------------- ------ ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Midway-Sunset........................... 12,795 12,787 320 320 13,115 13,107
Kern River.............................. 755 755 -- -- 755 755
South Belridge.......................... 919 710 -- -- 919 710
Coalinga................................ 1,474 1,474 -- -- 1,474 1,474
LA Basin................................ 1,244 1,241 229 229 1,473 1,470
Other................................... 19,809 4,603 6,053 6,053 25,862 10,656
------ ------ ----- ----- ------ ------
Total......................... 36,996 21,570 6,602 6,602 43,598 28,172
====== ====== ===== ===== ====== ======
</TABLE>
CURRENT MARKETS FOR OIL AND GAS
The Company's profitability is determined in large part by the difference
between the prices received for the oil and natural gas that it produces and the
costs of finding, developing and producing such reserves. Prices for oil and
natural gas have been subject to wide fluctuations, which continue to reflect
imbalances in supply and demand as well as other market conditions and the world
political situation as it affects OPEC,
7
<PAGE>
the Middle East, the former Soviet Union and other producing countries.
Moreover, the price of oil and natural gas may be affected by the price and
availability of alternative sources of energy, weather conditions and the
general state of the economy. Even relatively modest changes in oil and natural
gas prices may significantly change the Company's revenues, results of
operations, cash flows and proved reserves. Based on operating results for 1996,
the Company estimates that on an annualized basis a $1.00 per barrel increase
(or decrease) in its average crude oil sales price would result in a $17.1
million increase (or decrease) in income from operations, a $10.1 million
increase (or decrease) in net income and a $12.2 million increase (or decrease)
in cash flow from operating activities. Because the Company is a relatively
small producer of natural gas, it consumes more gas in its EOR operations than
it produces. As a result, an increase in natural gas prices adversely affects
the Company's results of operations. Based on operating results for 1996, the
Company estimates that on an annualized basis a $0.10 per Mcf increase (or
decrease) in the average domestic natural gas sales price would result in a $1.6
million decrease (or increase) in income from operations, a $1.0 million
decrease (or increase) in net income and a $1.2 million decrease (or increase)
in cash flow from operating activities. The foregoing estimates do not give
effect to changes in any other factors, such as the effect of depreciation and
depletion that would result from a change in oil and natural gas prices.
The market for heavy crude oil produced in California differs substantially
from the remainder of the domestic crude oil market, due principally to the
transportation and refining requirements associated with heavy crude. Although
the prices realized for heavy crude oil are generally lower than those realized
from the sale of light crude oil, several economic trends have favorably
affected the market for the Company's production in recent years. See "--
Strategy". In addition to the current favorable economic trends in California
heavy crude prices, the Company has facilities in place that it believes will
allow it to adapt to changes in pricing trends to a greater extent than many of
its competitors. For example, the Company owns and operates a large gathering,
blending and transportation system on its properties in the San Joaquin Valley.
At this terminal up to 30 MBbls of heavy oil per day can be mixed or blended
with lighter grades, a capability which enables the Company to upgrade the
majority of its heavy oil into a lighter crude which can be sold at a higher
price. The terminal also directly connects the Company's production with five
major pipelines serving refineries throughout California and gives the Company
the ability to meet the product specifications of multiple pipelines and inter-
and intra-state markets.
From time to time the Company has hedged a portion of its oil and natural
gas production to manage its exposure to volatility in prices of oil and natural
gas. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General" for a discussion of the Company's hedging
activities.
CUSTOMERS
During 1996, affiliates of Shell Oil Company ("Shell") and Celeron
Corporation ("Celeron") accounted for approximately 35% and 22%, respectively,
of the Company's crude oil and liquids sales (which with respect to certain
properties includes royalty and working interest owners' share of production).
The Company has sales contracts with several customers, including Shell and
Celeron, which generally provide for sales of the Company's crude oil and
liquids at market responsive prices and are cancellable by either party thereto
upon short notice (generally 60 days or less). Because the Company's markets are
characterized by a number of potential customers who are willing to purchase the
Company's crude oil and liquids at market responsive prices, the Company does
not believe that the loss or cancellation of its contracts with Shell or Celeron
would have a material adverse effect on its financial condition or results of
operations. No other individual customer accounted for more than 10% of the
Company's crude oil and liquids revenues during 1996. Substantially all of the
Company's oil production is currently sold at market prices that approximate
posted field prices. Availability of a ready market for the Company's oil
production depends on numerous factors, including the level of consumer demand,
the level of worldwide oil production, the cost and availability of alternative
fuels, the availability of refining capacity, the cost of and proximity of
pipelines and other transportation facilities, regulation by state and federal
authorities and the cost of complying with applicable environmental regulations.
8
<PAGE>
RELATIONSHIP BETWEEN THE COMPANY AND SFR
OWNERSHIP OF COMMON STOCK. As of December 31, 1996, SFR owned 82.8% of the
Company's outstanding shares of common stock. Through its ability to elect all
directors of the Company, SFR has the ability to control all matters affecting
the Company, including any determination with respect to acquisition or
disposition of Company assets, future issuance of common stock or other
securities of the Company, any dividends payable on its common stock, and the
Company's exploration, development, capital, operating and acquisition budgets.
Pursuant to Rule 144 promulgated under the Securities Act, SFR may not,
prior to the expiration in August 1998 of the two year holding period required
by Rule 144, sell any of the shares of the Company's common stock it owns
without registration under the Securities Act. The SEC has approved revisions to
Rule 144 which, when effective, will shorten the holding period to one year. The
Company has agreed that upon the request of SFR, the Company will register under
the Securities Act and applicable state securities laws the sale of the shares
of common stock owned by SFR which SFR requests to be registered.
INTENDED SPIN OFF. SFR has announced that it intends to distribute pro rata
to its common stockholders all of the shares of the Company's common stock that
it owns by means of a tax-free distribution. SFR's final determination to
proceed will require a declaration of the Spin Off by SFR's board of directors.
Such a declaration is not expected to be made until certain conditions, many of
which are beyond the control of SFR, are satisfied, including: (i) receipt by
SFR of a ruling from the Internal Revenue Service as to the tax-free nature of
the Spin Off; (ii) approval of the Spin Off by SFR's stockholders; (iii) the
redemption or conversion of all or a substantial portion of the shares of each
outstanding series of SFR preferred stock; and (iv) the absence of any future
change in market or economic conditions (including developments in the capital
markets) or SFR's or the Company's business and financial condition that causes
SFR's board to conclude that the Spin Off is not in the best interests of SFR's
stockholders. The Company has been advised by SFR that it does not expect the
Spin Off to occur prior to August 1997. If SFR consummates the Spin Off, the
increased shares available in the market may have an adverse effect on the
market price of the Common Stock. The Company has been advised by SFR that as of
December 31, 1996, SFR had approximately 38,500 common stockholders of record.
The Company has agreed to indemnify SFR if at any time during the one-year
period after the Spin Off (or if certain tax legislation is enacted and is
applicable to the Spin Off, such longer period as is required for the Spin Off
to be tax-free to SFR) (the "Restricted Period"), the Company takes certain
actions the effects of which result in the Spin Off being taxable to SFR.
SPIN OFF TAX INDEMNITY AGREEMENT. To protect SFR from Federal and state
income taxes, penalties, interest and additions to tax that would be incurred by
it if the Spin Off by SFR were determined to be a taxable event, the Company and
SFR have entered into an agreement under which the Company has agreed to
indemnify SFR with respect to tax liabilities resulting primarily from actions
taken by the Company at any time during the Restricted Period. The Company has
also agreed that, unless it obtains an opinion of counsel or a supplemental
ruling from the Internal Revenue Service that such action will not adversely
affect the qualification of the Spin Off as tax-free, the Company will not merge
or consolidate with another corporation, liquidate or partially liquidate, sell
or transfer all or substantially all of its assets or redeem or otherwise
repurchase any of its stock or issue additional shares of the Company's capital
stock during such Restricted Period. The Company's obligations under this
agreement could possibly deter offers or other efforts by third parties to
obtain control of the Company during such Restricted Period, which could deprive
the Company's stockholders of opportunities to sell their shares of Common Stock
at prices higher than prevailing market prices.
The Company has retained the right to contest, at its expense, any
determination by taxing authorities that the Spin Off has failed to qualify as
tax-free by reason of an action by the Company; provided, however, that if SFR
reasonably perceives, either at the commencement or during the course of any
proceeding challenging the tax-free nature of the Spin Off, that the Company
could not pay the indemnified amounts if the taxing authorities were successful
and the Company fails to furnish a guarantee or performance bond satisfactory to
SFR in an amount equal to the indemnified liability being asserted by the
9
<PAGE>
taxing authority, SFR may assume the defense of any such challenge, at the
Company's expense, and may compromise, concede, or settle the taxing
authorities' claim. SFR's assumption of the conduct of such defense would not
relieve the Company of its financial responsibility to SFR under this agreement.
The indemnity agreement will apply if the Spin Off occurs prior to December 31,
1997.
The Company believes that if the Company is required to make payments
pursuant to such agreement, the amount that the Company would pay to SFR would
have a material adverse effect on the Company's financial condition. The actions
for which the Company is required to indemnify SFR pursuant to this agreement
are within the Company's control, and the Company has no intention of taking any
actions during the Restricted Period that would have such an effect.
The Spin Off Tax Indemnity Agreement also contains provisions covering
certain other tax matters between SFR and the Company. Under the tax sharing
agreements and arrangements between SFR and Santa Fe Pacific Corporation
("SFP"), the former parent company of SFR, SFR and its subsidiaries receive
benefits from and are responsible for liabilities directly attributable to audit
adjustments for California franchise taxes with respect to all California
properties or operations owned or conducted by SFR and its subsidiaries prior to
the spin off of SFR by SFP. The Company now owns substantially all of the
California properties and operations that would relate to such audit matters.
Accordingly, the Company will receive the benefits and be responsible for the
obligations attributable to California franchise tax liabilities under SFR's
agreements with SFP for any of the tax years ending on or after December 31,
1984 (the years for which the audits have not been conducted by California). SFR
prepares and files all consolidated Federal, combined state and local income and
franchise tax returns required to be filed while the Company is a member of
SFR's affiliated group and the Company will not be compensated for the carryback
after Spin Off to SFR's affiliated group of any Company tax items realized after
the Company ceases to be a member of SFR's affiliated group. The Company will
not be compensated for such carryback both because it is anticipated that the
Company will make the necessary election to forego any such carryback and
because management of both SFR and the Company desire to minimize, to the extent
possible, continuing relationships and obligations between the two companies.
SERVICES AGREEMENT. SFR provides various administrative and financial
services to the Company, including administration of certain employee benefit
plans, access to telecommunications, corporate legal assistance and certain
other corporate staff and support services. The Company and SFR have entered
into a Services Agreement to formalize this existing arrangement. The agreement
is intended to be flexible (for example, on short notice the Company may take
responsibility for some or all of the services currently being provided by SFR)
and may be easily terminated by either party on 30 days' notice. As a result, no
assurance is given that this service arrangement will be maintained for any
specific period in the future. Whether SFR continues to provide some or all of
these services will depend on many factors, including the continuing agreement
of the parties on the appropriate amounts of compensation and reimbursement, the
ability of the Company to provide the services for itself and the continued
willingness of SFR to provide the services. The agreement provides that the
Company will pay SFR a monthly fee for certain listed services at specified
rates. The total monthly fee for all listed services is $120,000. Because the
Services Agreement was not the result of arm's-length negotiations, the costs
charged thereunder may exceed costs otherwise available from an unaffiliated
third party. Payments to SFR thereunder are expected to decline as the Company
assumes full responsibility during 1997 for each of the services covered by such
agreement.
TAX ALLOCATION AGREEMENT. The Company will continue to be included in the
consolidated Federal income tax return filed by SFR as the common parent for
itself and its subsidiaries. Consistent therewith and pursuant to the Tax
Allocation Agreement, the Company has agreed to pay to SFR an amount
approximating the Federal tax liability and state and local tax liability it
would have paid if it and its subsidiaries were a separate consolidated group.
This amount will be payable regardless of whether the SFR consolidated group, as
a whole, has any current Federal, state or local tax liability. In determining
amounts payable to SFR in accordance with the foregoing formula, the Company and
its subsidiaries may take into account only their losses and credits (including
carryforwards) to reduce amounts they would owe if they were a separate
consolidated group. Such amounts must first be used by the SFR consolidated
group. Any
10
<PAGE>
of the Company's carryforwards not used by the SFR consolidated group will be
available for use by the Company if it leaves the SFR consolidated group. If the
Company or its subsidiaries cease to be members of the SFR consolidated group,
the Tax Allocation Agreement will continue to apply to prior periods, and
additional payments to or receipts from SFR could be required if there is an
audit or similar adjustment subsequently made that impacts the computation of
amounts to be paid or received from SFR as described above. In addition, if the
Company and its subsidiaries cease to be members of the SFR consolidated group,
they will not be entitled to any compensation or reimbursement with respect to
any tax refund, benefit or other similar item realized by the SFR group after
the Company leaves the SFR group or with respect to any carryforwards not used
by the Company prior to the Company leaving the SFR group.
REGISTRATION RIGHTS AND INDEMNIFICATION AGREEMENT. The Company has entered
into a Registration Rights and Indemnification Agreement with SFR pursuant to
which SFR has the right to require the Company to effect three registrations
under the Securities Act of all or any part of the Common Stock owned by SFR and
to bear the expenses of such registration. In addition, the Registration Rights
and Indemnification Agreement gives SFR the right to include its shares of
Common Stock in any registration of shares of Common Stock initiated by the
Company. The Registration Rights and Indemnification Agreement also contains
provisions whereby the Company and SFR agree to indemnify each other and their
respective subsidiaries as well as their respective directors, officers,
employees, agents and representatives for certain costs and liabilities relating
to violations of Federal and state securities laws in connection with any such
registration of shares of common stock owned by SFR.
CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. The nature of the
respective businesses of the Company and SFR is such as to give rise to
conflicts of interest between the two companies. Conflicts could arise, for
example, with respect to allocation of capital, dividends, incurrence of
indebtedness, tax matters, financial commitments, registration rights,
administration of benefit plans, service arrangements, potential acquisitions of
businesses or oil and gas properties and other corporate opportunities, the
issuance and sale of capital stock of the Company and the election of directors.
SFR has advised the Company that it does not currently intend to engage in
the exploration, development and production of oil and gas in California except
through its ownership of common stock of the Company, nor does it currently
intend to compete with the Company in the acquisition of California oil and gas
properties. Circumstances may arise in the future, however, that would cause SFR
to engage in the exploration, development and production of oil and gas in
competition with the Company. Although SFR has no current intention to do so,
there can be no assurances that it will not engage in the oil and gas
exploration, development and production business in competition with the
Company.
The Company and SFR and its affiliates have in the past entered into
intercompany transactions and agreements incident to their respective
businesses, and the Company and SFR may be expected to enter into transactions
and agreements from time to time in the future. The Company intends that the
terms of any future transactions and agreements between the Company and SFR will
be on terms at least as favorable to the Company as it could obtain from third
parties.
OTHER BUSINESS MATTERS
COMPETITION
The Company faces competition in all aspects of its business, including,
but not limited to, acquiring reserves, leases and licenses; obtaining goods,
services and labor needed to conduct its operations and manage the Company; and
marketing its oil and gas. The Company's competitors include multinational
energy companies, other independent producers, oil and gas syndication programs
and individual producers and operators. Many competitors have greater financial
and other resources than the Company and ready access to more favorable markets
for their production. The Company believes that the well-defined nature of the
reservoirs in its long-lived oil fields, its expertise in EOR methods, its
extensive fee and leasehold acreage position, its regional focus, its active
development position and its experienced management may give it a competitive
advantage over some other producers, and management believes that the Company
effectively competes in its markets. Availability of a ready market for the
Company's oil and gas production depends on numerous factors, including the
level of consumer demand, the extent of worldwide oil
11
<PAGE>
production, the cost and availability of alternative fuels, the cost of and
proximity of pipelines and other transportation facilities, regulation by state
and Federal authorities and the cost of complying with applicable environmental
regulations.
REGULATION OF CRUDE OIL AND NATURAL GAS PRODUCTION
The petroleum industry is subject to various types of regulation, including
regulation by state and Federal agencies. State and Federal legislation
affecting the oil and gas industry is under constant review for amendment or
expansion, frequently increasing the regulatory burden. Also, numerous
departments and agencies, both Federal and state, are authorized by statute to
issue and have issued rules and regulations binding on the oil and gas industry
and its individual members, compliance with which is often difficult and costly
and which may carry substantial penalties for non-compliance. California
statutes and regulations require permits for drilling operations, drilling bonds
and reports concerning operations. The Company does not appear to be affected by
these burdens to any greater or lesser extent than other companies in the
industry with similar types and amounts of production. Set forth below is a
general description of certain Federal and state regulations which have an
effect on the Company's operations.
A portion of the Company's oil and gas leases are granted by the federal
government and administered by the Bureau of Land Management ("BLM") and the
Minerals Management Service ("MMS"), both of which are Federal agencies. Such
leases are issued through competitive bidding, contain relatively standardized
terms and require compliance with detailed BLM and MMS regulations and orders
(which are subject to change by the BLM and the MMS).
Federal legislation and regulatory controls in the United States have
historically affected the price of the natural gas produced and consumed by the
Company. Proposals and proceedings that might affect the natural gas industry
are considered from time to time by Congress, the FERC, state regulatory bodies
and the courts. The Company cannot predict when or if any such proposals might
become effective, or their effect, if any, on the Company's financial condition
or results of operations.
Sales of crude oil, condensate and gas liquids by the Company are not
regulated and are made at market prices. The price the Company receives from the
sale of these products is, however, affected by the cost of transporting the
products to market. The Company transports its products on both interstate and
intrastate pipelines. Transportation rates on these pipelines are regulated by
the FERC and the California Public Utility Commission, respectively. The Company
is not able to predict what effect, if any, these rules and regulations of these
two agencies will have on its business.
ENVIRONMENTAL REGULATION
GENERAL. The Company's operations are subject to Federal, state and local
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Environmental laws and
regulations carry substantial penalties for failure to comply. These laws and
regulations may require the acquisition of a permit before drilling commences,
restrict the types, quantities and concentration of various substances that can
be released into the environment in connection with drilling and production
activities, limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas, and impose substantial
liabilities for pollution resulting from the Company's operations. State laws
often require some form of remedial action to prevent pollution from former
operations, such as pit closure and plugging abandoned wells.
These laws and regulations increase the Company's cost of doing business
and consequently affect its profitability. The Company anticipates that it will
expend significant resources, both financial and managerial, to comply with
environmental regulations and permitting requirements in order to comply with
stricter industry and regulatory environmental and health and safety standards
such as those described below. The Company estimates that capital expenditures
necessary for foreseeable environmental control facilities are within normal
provisions for maintenance capital expenditures. Although the Company believes
that its operations and facilities are in compliance in all material respects
with applicable environmental regulations, risks of substantial costs and
liabilities are inherent in oil and gas operations and there can be no assurance
that significant cost and liabilities will not be incurred in the future.
12
<PAGE>
Other developments, such as increasingly strict environmental laws and
regulations and enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from the
Company's operations, could result in substantial costs and liabilities in the
future. Currently, the Company does not believe that such costs will have a
material adverse effect on its financial condition or results of operations.
SOLID AND HAZARDOUS WASTE. The Company currently owns or leases numerous
properties that have been used for production of oil and gas for many years.
Although the Company has utilized operating and disposal practices that were
standard in the industry at the time, hydrocarbons or other wastes may have been
disposed or released on or under these properties. The Company could be required
to remove or remediate previously disposed wastes and any related contamination
or to perform remedial plugging operations to prevent future contamination.
SUPERFUND. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes joint and
several liability, without regard to fault or the legality of the original
conduct, on certain classes of persons that contributed to the release of a
"hazardous substance" into the environment. These persons include the owner or
operator of a site and companies that disposed or arranged for the disposal of
the hazardous substance found at a site. CERCLA also authorizes the
Environmental Protection Agency (the "EPA") and, in some cases, third parties to
take actions in response to threats to the public health or the environment and
to seek to recover from the responsible classes of persons the costs they incur.
In the course of its operations, the Company has generated and will generate
wastes that may fall within CERCLA's definition of "hazardous substances". The
Company may be responsible under CERCLA for all or part of the costs to clean up
sites at which such wastes have been disposed. Certain properties owned or used
by the Company or its predecessors have been investigated under state and
Federal Superfund statutes, and the Company has been and could be named a
potentially responsible party ("PRP") for the cleanup of some of these sites.
The Company has been identified as one of over 250 PRPs at a Superfund site
in Los Angeles County, California (the "OII Site"). The OII Site was operated by
a third party as a waste disposal facility from 1948 until 1983. The EPA is
requiring the PRPs to undertake remediation of the OII Site in several phases,
which include site monitoring and leachate control, gas control and final
remediation. In 1989 the EPA and a group of PRPs that includes the Company
entered into a consent decree covering the site monitoring and leachate control
phases of remediation. The Company was a member of the group Coalition
Undertaking Remediation Efforts ("CURE") which was responsible for constructing
and operating the leachate treatment plant. This phase is now complete and the
Company's share of costs with respect to this phase was $0.9 million. Another
consent decree provides for the predesign, design and construction of a gas
plant to harness and market methane gas emissions. The Company is a member of
the New CURE group which is responsible for the gas plant construction and
operation and landfill cover. Currently, New CURE is in the design stage of the
gas plant. The Company's share of costs of this phase is expected to be $1.9
million and such costs have been provided for in the Company's financial
statements. Pursuant to consent decrees settling lawsuits against the
municipalities and transporters involved with the OII site but not named by the
EPA as PRPs, such parties are required to pay approximately $84 million, of
which approximately $76 million will be credited against future remediation
expenses. The EPA and the PRPs are currently negotiating the final closure
requirements. After taking into consideration the credits from the
municipalities and transporters, the Company estimates that its share of the
final costs of the closure will be approximately $0.8 million, which amount has
been provided for by the Company. The Company has entered into a Joint Defense
Agreement with the other PRPs to defend against a lawsuit filed September 7,
1994 by 95 homeowners alleging, among other things, nuisance, trespass, strict
liability and infliction of emotional distress. A second lawsuit has been filed
by 33 additional homeowners against the Company and the other PRPs alleging
similar damages and wrongful death. The Company has entered into a Joint Defense
Agreement with the other PRPs and is not able to estimate costs or potential
liability.
In 1994 the Company received a request from the EPA for information
pursuant to Section 104(e) of CERCLA and a letter ordering the Company and seven
other PRPs to negotiate with the EPA regarding implementation of a remedial plan
for a site located in Santa Fe Springs, California (the "Santa Fe Springs
Site"). The Company owned the property on which the Santa Fe Springs Site is
located from 1921 to 1932.
13
<PAGE>
During that time the property was leased to another company and in 1932 the
property was sold to that company. During the time the other company leased or
owned the property and for a period thereafter, hazardous wastes were allegedly
disposed at the Santa Fe Springs Site. The EPA estimates that the total past and
future costs for remediation will approximate $8 million. The Company filed its
response to the Section 104(e) order setting forth its position and defenses
based on the fact that the other company was the lessee and operator of the site
during the time the Company was the owner of the property. However, the Company
has also given its Notice of Intent to comply with the EPA's order to prepare a
remediation design plan. The PRPs estimate the total cost to complete the final
remediation to be $3 million and the Company has provided $250,000 for such
costs in its financial statements.
In 1995 the Company and 12 other companies received notice that they have
been identified as PRPs by the California Department of Toxic Substances Control
(the "DTSC") as having generated and/or transported hazardous waste to the
Environmental Protection Corporation ("EPC") Eastside Landfill during its
fourteen-year operation from 1971 to 1985 (the "Eastside Site"). EPC has since
liquidated all assets and placed the proceeds in trust (the "EPC Trust") for
closure and post-closure activities. However, these monies may not be sufficient
to close the site. The PRPs have entered into an agreement with the DTSC to
characterize the contamination at the site and prepare a focused remedial
investigation and feasibility study. The DTSC has agreed to implement reasonable
measures to bring new PRPs into the agreement. The DTSC will address subsequent
phases of the cleanup, including remedial design and implementation in a
separate order agreement. The cost of the remedial investigation and feasibility
study for the Eastside Site is estimated to be $0.8 million, the cost of which
will be shared by the PRPs and the EPC Trust. The ultimate costs of subsequent
phases will not be known until the remedial investigation and feasibility study
is completed and a remediation plan is accepted by the DTSC. The Company
currently estimates final remediation could cost $2 million to $6 million and
believes the monies in the EPC Trust will be sufficient to fund the lower end of
this range of costs. The Company has provided $80,000 in its financial
statements for its share of costs related to this site.
Pursuant to the Contribution Agreement, the Company agreed to indemnify and
hold harmless SFR from and against any costs incurred in the future relating to
environmental liabilities of the Western Division assets (other than the assets
retained by SFR), including any costs or expenses incurred at any of the OII
Site, the Santa Fe Springs Site and the Eastside Site, and any costs or
liabilities that may arise in the future that are attributable to laws, rules or
regulations in respect of any property or interest therein located in California
and formerly owned or operated by the Western Division or its predecessors. SFR
agreed to indemnify the Company from and against any costs relating to
environmental liabilities of any assets or operations of SFR (whether or not
currently owned or operated by SFR) to the extent not attributable to the
Western Division (other than the assets retained by SFR).
AIR EMISSIONS. The operations of the Company are subject to Federal, state
and local regulations for the control of emissions from sources of air
pollution. The Company's properties have been and may in the future be the
subject of administrative enforcement actions for failure to comply with air
regulations or permits. These administrative actions are generally resolved by
payment of a monetary penalty and correction of any identified deficiencies.
Alternatively, regulatory agencies may require the Company to forego
construction or operation of certain air emission sources, although the Company
believes that in the latter cases it would have enough permitted or permitable
capacity to continue its operations without a material adverse effect on any
particular producing field.
OTHER. The Company is subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and comparable state statutes. The
OSHA hazard communication standard, the EPA community right-to-know regulations
under Title III of the Federal Superfund Amendment and Reauthorization Act and
similar state statutes require the Company to organize information about
hazardous materials used or produced in its operations. Certain of this
information must be provided to employees, Federal, state and local governmental
authorities and local citizens.
The Company's facilities in California are also subject to California
Proposition 65, which was adopted in 1986 to address discharges and releases of,
or exposures to, toxic chemicals in the environment. Proposition 65 makes it
illegal to knowingly discharge a listed chemical if the chemical will pass (or
probably will pass) into any source of drinking water. It also prohibits
companies from knowingly and
14
<PAGE>
intentionally exposing any individual to such chemicals through ingestion,
inhalation or other exposure pathways without first giving a clear and
reasonable warning.
EMPLOYEES
At March 1, 1997 the Company had 326 employees, 176 of whom are covered by
a collective bargaining agreement, the current term of which expires on January
31, 1999. The Company believes that its relations with its employees are
satisfactory. The Company's hourly employees are represented by the Oil,
Chemical and Atomic Workers Union.
ITEM 3. LEGAL PROCEEDINGS
The Company and other related companies are defendants in several lawsuits
and named parties in certain governmental proceedings arising in the ordinary
course of business. In addition, in 1996 the MMS announced that it would seek to
recover additional royalties for past production from producers on certain
Federal leases. Because the Company's operations include Federal lease sites in
California, the Company may be required to pay such "back royalties" but does
not believe that any amounts so paid would have a material impact on its
financial condition or results of operations. For a description of certain
proceedings in which the Company is involved, see Items 1 and 2 "Business and
Properties. -- Other Business Matters -- Environmental Regulation". While the
outcome of lawsuits or other proceedings against the Company cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the business, financial condition, liquidity or results of
operations of the Company.
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF MONTEREY
R. Graham Whaling, 42. Chairman and Chief Executive Officer since November
1996. Mr. Whaling was Senior Vice President and Chief Financial Officer of SFR
from January 1995 until November 1996. Prior to that time he was with CS First
Boston Corporation, an investment banking firm, as Vice President, Corporate
Finance from 1991 to 1994 and Director, Corporate Finance from 1994 to 1995.
Prior to joining First Boston, Mr. Whaling served as a petroleum engineer for
Sun Oil Company and petroleum reservoir consulting engineer for Ryder Scott.
David B. Kilpatrick, 46. President and Chief Operating Officer since
November 1996. Mr. Kilpatrick was Division Manager -- Production for SFR's
Western Division from January 1990 until November 1996.
Gerald R. Carman, 32. Vice President, Chief Financial Officer and
Treasurer. Mr. Carman was Treasurer of SFR from January 1995 until December
1996. Prior to 1995, Mr. Carman was Director of Corporate Planning and Manager
of Tax Planning for SFR.
C. Ed Hall, 54. Vice President -- Public Affairs since November 1996. Mr.
Hall was Vice President -- Public Affairs of SFR from March 1991 until November
1996.
Jeffrey B. Williams, 51. Vice President -- Development since November 1996.
Mr. Williams was Corporate Production Manager of SFR from July 1996 until
November 1996. Prior to that time, Mr. Williams was employed by SFR as Regional,
Corporate or Division Production Manager, a position he assumed in 1983.
Lou E. Shuflin, 42. Director -- Administration since November 1996. Mr.
Shuflin was Manager -- Strategic Analysis of SFR from September 1994 until
November 1996. Mr. Shuflin also served as SFR's Corporate Manager -- Production
from May 1993 to August 1993 and District Manager -- Production beginning in
1987.
Terry L. Anderson, 49. General Counsel and Secretary since November 1996.
Mr. Anderson was Manager -- Business Development of SFR from December 1994 until
November 1996. Prior to that time and beginning in 1988, Mr. Anderson was Senior
Counsel of SFR.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Monterey's common stock is listed on the New York Stock Exchange and trades
under the symbol MRC. The following table sets forth information as to the last
sales price per share of Monterey's common stock as quoted on the Consolidated
Tape System.
LOW HIGH
--- ----
1996
4th Quarter (since November
14)............................ 15 5/8 16 3/4
16
<PAGE>
The Company currently intends to pay to its stockholders a quarterly
dividend of $0.15 per share of Common Stock ($0.60 annually). The first dividend
has been declared, and will be paid in April 1997, consisting of a prorated
dividend of $0.22 in respect of the Company's first partial quarter ended
December 31, 1996 and for its first full quarter of operations ending March 31,
1997. Although the Company currently intends to pay quarterly dividends, the
determination of the amount of future cash dividends, if any, to be declared and
paid will depend upon declaration by the Company's board of directors and upon
the Company's financial condition, earnings and funds from operations, the level
of its capital and exploration expenditures, dividend restrictions contained in
the Credit Facility and the Senior Notes, future business prospects and such
other matters as the Company's directors deem relevant. For a description of
certain restrictions on the Company's ability to pay dividends, see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
At December 31, 1996 the Company had approximately 25 shareholders of
record.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(IN MILLIONS OF DOLLARS, EXCEPT AS NOTED)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
INCOME STATEMENT DATA
Revenues........................... 292.9 218.7 191.9 199.5 226.4
--------- --------- --------- --------- ---------
Costs and Expenses
Production and operating...... 107.8 86.1 87.4 101.7 106.3
Cost of crude oil purchased... 20.8 6.5 11.7 11.1 9.9
Exploration, including dry
hole costs................. 1.7 2.4 1.4 1.7 2.7
Depletion, depreciation and
amortization............... 37.4 32.4 32.0 41.2 44.0
Impairment of oil and gas
properties................. -- -- -- 49.1 --
General and administrative.... 8.9 7.3 7.8 9.2 8.8
Taxes (other than income)..... 9.4 7.9 8.7 8.4 8.9
Restructuring charges......... -- -- 1.1 11.9 --
Loss (gain) on disposition of
oil and gas properties..... -- -- (0.3) 0.1 0.3
--------- --------- --------- --------- ---------
186.0 142.6 149.8 234.4 180.9
--------- --------- --------- --------- ---------
Income (Loss) from Operations...... 106.9 76.1 42.1 (34.9) 45.5
Interest income............... 0.1 -- -- 0.2 0.2
Interest expense.............. (25.0) (25.8) (26.4) (27.2) (27.6)
Interest capitalized.......... 1.1 0.7 0.6 0.3 0.1
Other income (expense)........ -- (0.6) (0.1) (0.4) 0.4
--------- --------- --------- --------- ---------
Income (Loss) Before Income Taxes
and Extraordinary Items.......... 83.1 50.4 16.2 (62.0) 18.6
Income taxes benefit
(expense).................. (28.3) (16.0) (4.7) 26.9 (6.1)
--------- --------- --------- --------- ---------
Income (Loss) Before Extraordinary
Items............................ 54.8 34.4 11.5 (35.1) 12.5
Extraordinary items........... (4.5) -- -- -- --
--------- --------- --------- --------- ---------
Net Income (Loss).................. 50.3 34.4 11.5 (35.1) 12.5
========= ========= ========= ========= =========
Pro Forma per share data (in
dollars, except share data) (2)
Income (loss) before
extraordinary items........ 1.00 0.63 0.21 (0.64) 0.22
Net income (loss)............. 0.92 0.63 0.21 (0.64) 0.22
Number of shares used in
computing per share amounts
(in millions).............. 54.8 54.8 54.8 54.8 54.8
STATEMENT OF CASH FLOWS DATA
Net cash provided by operating
activities....................... 86.3 75.7 45.5 47.5 59.0
Net cash used in investing
activities....................... 54.6 54.2 18.2 18.2 17.4
Net cash used in financing
activities....................... 22.4 21.5 27.3 29.3 41.6
BALANCE SHEET DATA (AT PERIOD END)
Properties and equipment, net...... 379.0 367.3 349.5 356.3 445.5
Total assets....................... 447.2 391.3 376.1 387.3 476.2
Long-term debt..................... 175.0 245.0 245.0 257.6 263.0
Shareholders' Equity and Division
Equity........................... 176.7 45.0 32.1 35.3 93.5
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(IN MILLIONS OF DOLLARS, EXCEPT AS NOTED)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
AVERAGE DAILY PRODUCTION
Crude oil and liquids
(MBbls/day)...................... 46.8 41.8 41.3 42.5 42.0
Natural gas (MMcf/day)............. 3.5 5.3 3.8 6.4 7.1
Total production (MBOE/day)........ 47.4 42.7 41.9 43.6 43.2
AVERAGE SALES PRICES
Crude oil and liquids ($/Bbl)
Unhedged...................... 16.00 13.79 11.77 11.77 13.22
Hedged........................ 15.82 13.79 11.77 11.77 13.78
Natural Gas ($/Mcf realized)....... 1.03 0.98 1.14 1.59 1.57
PROVED RESERVES AT YEAR-END
Crude oil, condensate and natural
gas liquids
(MMBbls)......................... 216.4 199.5 191.2 183.6 190.3
Natural gas (Bcf).................. 12.2 12.4 13.4 11.8 18.8
Proved reserves (MMBOE)............ 218.4 201.6 193.5 185.6 193.4
Proved developed reserves
(MMBOE).......................... 172.6 158.6 141.8 142.3 157.6
PRESENT VALUE OF PROVED RESERVES AT
YEAR-END
Before income taxes................ 1,047.8 654.4 553.8 167.1 383.2
After income taxes................. 680.7 426.4 366.1 143.0 275.4
PRODUCTION COSTS PER BOE (including
related production, severance and
ad valorem taxes) (in dollars)..... 6.64 5.98 6.19 6.85 7.23
</TABLE>
- ------------
(1) Reflects the operations of the Western Division for the years 1992 through
1995. The year 1996 reflects the operations of the Western Division for
January through October and the Company for November and December.
(2) Common shares outstanding at November 19, 1996, the closing date of the
Company's IPO, have been included in the pro forma net income per share
calculation as if such shares were outstanding for all periods prior to
November 19, 1996.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The discussion presented herein relates to the operations of the Western
Division for the years ended December 31, 1995 and prior. The discussion with
respect to 1996 relates to the operations of the Western Division for January
through October and the Company for November and December.
As an independent oil and gas producer, the Company's results of operations
are dependent upon the difference between the prices received for oil and gas
and the costs of finding and producing such resources. The Company produces most
of its oil and gas from long-lived fields in the San Joaquin Valley of
California utilizing various EOR methods. The market price of heavy (i.e., low
gravity, high viscosity) and sour (i.e., high sulfur content) crude oils
produced in these fields is lower than sweeter, light (i.e., low sulfur and low
viscosity) crude oils, reflecting higher transportation and refining costs. In
addition, the lifting costs of heavy crude oils are generally higher than the
lifting costs of light crude oils. As a result, even relatively modest changes
in crude oil prices may significantly affect the Company's revenues, results of
operations, cash flows and proved reserves. In addition, prolonged periods of
high or low oil prices may have a material effect on the Company's financial
condition and results of operations.
The average realized sales price of the Company's crude oil and liquids for
1996 was $15.82 per barrel, or approximately 77% of the average posted price of
$20.44 per barrel for West Texas Intermediate ("WTI") crude oil (an industry
posted price generally indicative of prices for sweeter light crude oil).
Crude oil prices are subject to significant changes in response to
fluctuations in the domestic and world supply and demand and other market
conditions, as well as the world political situation as it relates to OPEC, the
Middle East and various producing countries. Since the beginning of 1994, the
average sales price (unhedged) received by the Company ranged from a low of
$8.80 per barrel for the first quarter of 1994 to a high of $17.29 per barrel in
the fourth quarter of 1996. Based on operating results for 1996, the Company
estimates that a $1.00 per barrel increase or decrease in its average crude oil
sales price would result in a corresponding $17.1 million change in income from
operations and a $12.2 million change in cash flow from operating activities.
The foregoing estimates do not give effect to changes in any other factors, such
as the effect of hedging or depreciation and depletion, that would result from a
change in oil prices.
The price of natural gas fluctuates due to supply and demand, which may be
affected by weather conditions, the level of natural gas in storage and other
economic factors. Increases in the price of natural gas adversely impact the
Company's results of operations because the natural gas consumed in the
Company's EOR operations exceeds the amount of natural gas produced by the
Company. Based on operating results for 1996, the Company estimates that a $0.10
per Mcf increase (or decrease) in the average domestic natural gas sales price
would result in a $1.6 million decrease (or increase) in income from operations
and a $1.2 million decrease (or increase) in cash flow from operating
activities. The foregoing estimates do not give effect to changes in any other
factors, such as depletion and depreciation, that would result from a change in
natural gas prices.
In February 1996 the Bureau of Land Management ("BLM") of the United
States Department of the Interior (which oversees the Company's leases of
Federal lands) agreed, effective as of June 1, 1996, to reduce the royalties
payable on any Federal lease that produces crude oil with a weighted average API
gravity of less than 20 degrees. The reduced royalty rates are based upon the
weighted average API gravity of the heavy oil produced from the subject Federal
leases and are as low as 3.9%, compared to 12.5% before the reduction. The
reduced royalty rates continue in effect for 12-month periods, after which the
operator can establish a new reduced rate for continued heavy oil production by
submitting an application. As a result of this program, the Company's royalty
rate on its Federal leases has been reduced from 12.5% to an average of 4.8%,
resulting in a net increase in the production attributable to the Company's net
revenue interests in such leases of approximately 1.6 MBbls per day. During the
period that such royalty reduction is in effect, the Company (and other working
interests owners, if any) will bear all of the thermal EOR costs to produce the
heavy oil from such properties. The royalty reduction will be terminated upon
the first to occur
20
<PAGE>
of (i) the determination by the BLM that the WTI average oil price (as adjusted
for inflation) has remained above $24 per barrel for six consecutive months and
(ii) such time after September 10, 1999, as the Secretary of the Interior
determines that the heavy oil royalty rate reduction has not produced the
intended results (i.e., to reduce the loss of otherwise recoverable reserves).
The Company's 1996 and 1995 financial statements include the impact of oil
and gas hedging losses which were allocated by SFR. SFR from time to time enters
into such transactions in order to reduce exposure to fluctuations in market
prices of oil and natural gas. Oil hedging losses were allocated to the Company
based upon relative hedged volumes and were recognized as a reduction of oil
revenues in the period in which the hedged production was sold. Such amounts
totaled $3.1 million and $0.1 million in 1996 and 1995, respectively. Currently
the Company has no oil hedges in place and, going forward, the Company does not
expect to hedge a substantial portion of its oil production.
Additionally, during the first six months of 1996, SFR hedged 20 MMcf per
day of the natural gas purchased for use in the Company's steam generation
operations. Such hedges, which terminated at the end of the second quarter,
resulted in a $3.2 million increase in the Company's production and operating
costs. While the Company currently has no natural gas hedges in place, the
Company's management may determine that such arrangements are appropriate in the
future in order to reduce the Company's exposure to increase in gas prices.
21
<PAGE>
RESULTS OF OPERATIONS
The following table reflects certain components of the Company's revenues
(expressed in millions of dollars) and expenses (expressed in dollars per BOE)
for the periods indicated:
YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
REVENUES:
Crude oil and liquids:
Average realized sales prices
($/Bbl)
Unhedged...................... 16.00 13.79 11.77
Hedged........................ 15.82 13.79 11.77
Sales volumes (MBbls/d)......... 46.8 41.8 41.3
Revenues ($ Millions)
Sales......................... 274.0 210.2 177.5
Hedging....................... (3.1) -- --
Net profits payments.......... (1.0) (0.8) (0.4)
--------- --------- ---------
Total...................... 269.9 209.4 177.1
========= ========= =========
Natural Gas:
Average realized sales prices
($/Mcf)........................ 1.03 0.98 1.14
Sales volumes (MMcf/d).......... 3.5 5.3 3.8
Revenues ($ Millions)........... 1.3 1.9 1.6
EXPENSES PER BOE:
Production and operating expenses:
Steam generation................ 2.69(1) 1.98 2.16
Lease operating................. 3.53 3.56 3.55
Total...................... 6.22(1) 5.54 5.71
Exploration, including dry holes..... 0.10 0.15 0.09
Depletion, depreciation and
amortization......................... 2.16 2.08 2.09
General and administrative........... 0.44 0.47 0.51
Taxes (other than income)............ 0.54 0.51 0.56
Interest, net........................ 1.38 1.61 1.68
- ------------
(1) Includes $0.18 per BOE loss on hedging, see "-- General". The hedging
transactions which generated these losses expired on June 30, 1996.
Excluding such hedging losses, historical steam generation costs would have
been $2.51 per BOE and historical total production costs would have been
$6.04 per BOE.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues for 1996 of $293 million were 34% higher than the $219 million
reported for 1995. The variance primarily reflects greater sales volumes ($29
million) and higher sales prices ($31 million). An increase in the sales of
crude oil purchased ($14 million) accounted for most of the remaining difference
and represents purchases of higher gravity third-party crude blended with the
Company's heavy production to enhance the available transportation and marketing
opportunities. Such activity varies directly with market conditions.
Costs and expenses totaled $186 million for the year and were 30% higher
than the $143 million reported for 1995. Production and operating costs were
higher due to greater production volumes and included fuel cost increases ($13
million) and allocated steam fuel hedging losses ($3 million). The cost of
third-party crude oil purchases increased due to greater marketing activity ($14
million) and general and administrative expenses include a non-recurring charge
of $1.3 million for employee relocation and other transition costs directly
related to the November 1996 IPO of the Company's common stock.
22
<PAGE>
Income taxes for the year were $28 million, up 75% over the $16 million
reported in 1995. In addition to a greater level of pre-tax income the Company's
effective tax rate was 34% in 1996 compared with 32% in 1995, reflecting
primarily the amount of EOR credits available to the Company relative to pre-tax
income.
Extraordinary items in 1996 consisted of the after-tax costs of early
extinguishment of debt assumed in connection with the November 1996 IPO.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues for 1995 of $219 million were 14% higher than the $192 million
reported in 1994. The increase primarily reflects the effects of increased sales
prices ($30 million) and increased sales volumes ($2 million), partially offset
by decreased sales of crude oil purchased ($5 million).
Costs and expenses totaled $143 million in 1995, a decrease of 5% compared
to $150 million in 1994. Costs of crude oil purchased decreased $5 million due
to less marketing activity, and exploration costs for 1995 include $1 million
related to the drilling of two dry exploratory wells. Costs and expenses for
1994 included $1 million in restructuring costs related to SFR's 1993 corporate
restructuring program. Although other 1995 costs showed no significant change
from the 1994 levels, steam generation costs and general and administrative
costs declined $0.18 per BOE and $0.11 per BOE, respectively.
Income taxes in 1995 were $16 million, an increase of 220% compared to $5
million in 1994 and primarily reflect higher pre-tax income. The Company's
effective tax rate in 1995 of 32% was up from 29% in 1994, primarily reflecting
the amount of EOR credits generated relative to the level of pre-tax income.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues for 1994 of $192 million were 4% lower than the $200 million
reported in 1993. Revenues for 1993 included crude oil and liquids revenues of
$13 million (2.5 MBbls per day) and natural gas revenues of $2 million (2.3 MMcf
per day) attributable to certain producing properties which were sold to Vintage
Petroleum, Inc. ("Vintage") in the fourth quarter of 1993. Crude oil and
liquids revenues from other properties increased $6 million primarily reflecting
the effects of increased sales volumes.
Costs and expenses totaled $150 million in 1994, a decrease of 36% compared
to $234 million in 1993. Costs and expenses in 1993 included impairments of oil
and gas properties of $49 million with regard to two properties in the LA Basin
and restructuring charges of $11.9 million. The restructuring charges were
incurred in the fourth quarter of 1993 as a result of the adoption by SFR of a
corporate restructuring program which included, among other things, (i) the
concentration of capital spending in SFR's core operating areas (one of which is
the San Joaquin Valley of California); (ii) the disposition of non-core assets;
and (iii) an evaluation of SFR's cost structures. As a result of the program,
certain of the Company's producing properties were sold to Vintage and the
Company's salaried work force was reduced. In implementing the corporate
restructuring program, the Company recorded restructuring charges of $11.9
million in 1993, comprised of losses on property dispositions of $11.3 million
and accruals for certain personnel benefits and related costs of $0.6 million.
Also, costs and expenses in 1993 included $9 million of production and operating
costs, $4 million in DD&A and $0.4 million of taxes (other than income) related
to certain producing properties sold to Vintage in the fourth quarter of 1993.
The remainder of the decrease in DD&A was primarily attributable to the effect
of the impairments taken in 1993. General and administrative expense was lower
in 1994, primarily reflecting the effect of the 1993 corporate restructuring
program.
Income taxes in 1994 were $5 million, compared to a $27 million benefit in
1993 attributable to the net loss of $62 million incurred in that year. The
Company's effective tax rate in 1994 was 29%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operating activities is a function of the
volumes of oil and gas produced from the Company's properties and the sales
prices received therefor. Since crude oil and natural gas are depleting assets,
unless the Company replaces the oil and gas produced from its properties, the
23
<PAGE>
Company's assets will be depleted over time and its ability to incur debt at
constant or declining prices will be reduced. The Company increased its proved
reserves (net of production and sales) by approximately 17% from December 31,
1991 to December 31, 1996; however, no assurances can be given that similar
increases will occur in the future. Historically, the Company has funded
development and exploration expenditures and working capital requirements
primarily from cash provided by operating activities; however, the future levels
of operating cash flows, which are significantly affected by oil and gas prices,
may limit the cash available for future exploration, development and acquisition
activities. Net cash provided by operating activities and net proceeds from
sales of properties totaled $86.4 million in 1996; net cash used for capital
expenditures and producing property acquisitions in such period totaled $46.4
million. The Company intends to continue to meet its short-term (through 1997)
and long-term (the foreseeable future after 1997) liquidity needs with cash
provided by operating activities, supplemented from time to time with borrowings
under the Credit Facility and, if appropriate, debt and equity financing.
The Company expects to increase its capital expenditures (including
acquisitions) from an average of $35.8 million per year over the five-year
period ended December 31, 1996 to approximately $70.2 million in 1997. However,
the actual amount expended by the Company in 1997 will be based upon numerous
factors, the majority of which are outside its control, including, without
limitation, prevailing oil and natural gas prices and the outlook therefor and
the availability of funds. The Company intends to fund such future capital
expenditures with cash provided by operating activities and borrowings under the
Credit Facility.
In November 1996 the Company issued the Senior Notes which were exchanged
for $175.0 million of Series G Notes previously issued by SFR. The Senior Notes
bear interest at 10.61% per annum and mature $25 million per year in each of the
years 1999 through 2005.
Effective November 13, 1996 the Company entered into the Credit Facility
which matures November 13, 2000. The Credit Facility permits the Company to
obtain revolving credit loans and issue letters of credit in an aggregate amount
of up to $75.0 million, with the aggregate amount of letters of credit
outstanding at any time limited to $15.0 million. Borrowings are unsecured and
interest rates are tied to the bank's prime rate or eurodollar rate, at the
option of the Company.
The Credit Facility and Senior Notes include covenants that restrict the
Company's ability to take certain actions, including the ability to incur
additional indebtedness and to pay dividends on capital stock. To the extent
that the Company is restricted from incurring additional indebtedness under the
Senior Notes or the Credit Facility, the cash available for use in its
operations may be reduced. Under the most restrictive of these covenants, at
December 31, 1996, the Company could incur up to $253.4 million of additional
indebtedness, or incur a lesser amount and pay dividends of up to $61.7 million.
The Company's ability to pay dividends is limited by provisions in the Credit
Facility and the Senior Notes prohibiting the payment of more than $31.0 million
in dividends to SFR in any fiscal year prior to the Spin Off.
At December 31, 1996, the Company had $2.3 million of outstanding letters
of credit.
DIVIDENDS
The Company currently intends to pay to its stockholders a quarterly
dividend of $0.15 per share of common stock ($0.60 annually). The first dividend
has been declared and will be paid in April 1997, consisting of a prorated
dividend of $0.22 in respect of the Company's first partial quarter ended
December 31, 1996 and for its first full quarter of operations ending March 31,
1997. Although the Company currently intends to pay quarterly dividends, the
determination of the amount of future cash dividends, if any, to be declared and
paid will depend upon declaration by the Company's board of directors and upon
the Company's financial condition, earnings and funds from operations, the level
of its capital and exploration expenditures, dividend restrictions contained in
the Credit Facility and the Senior Notes as described in " -- Liquidity and
Capital Resources," future business prospects and such other matters as the
Company's directors deem relevant.
24
<PAGE>
ENVIRONMENTAL MATTERS
Almost all phases of the Company's oil and gas operations are subject to
stringent environmental regulation by governmental authorities. Such regulation
has increased the costs of planning, designing, drilling, installing, operating
and abandoning oil and gas wells and other facilities. The Company has expended
significant financial and managerial resources to comply with such regulations.
These efforts include both Company employees responsible for environmental
compliance and paid consultants who have evaluated known sites for which the
Company may face environmental liability and who monitor the Company's
properties and waste handling and disposal practices. All oilfield wastes are
disposed of at facilities authorized to accept such wastes. Although the Company
believes its operations and facilities are in general compliance with applicable
environmental regulations, risks of substantial costs and liabilities are
inherent in oil and gas operations. It is possible that other developments, such
as increasingly strict environmental laws, regulations and enforcement policies
or claims for damages to property, employees, other persons and the environment
resulting from the Company's operations, could result in significant costs and
liabilities in the future. As it has done in the past, the Company intends to
fund its cost of environmental compliance from operating cash flows.
The Company has been named as a PRP with respect to certain Superfund
sites. See Items 1 and 2 "Business and Properties -- Environmental
Regulation -- Superfund."
INTERCOMPANY AGREEMENTS
The Company has entered into certain agreements with SFR, see Items 1 and 2
"Business and Properties -- Relationship Between the Company and SFR."
FORWARD-LOOKING STATEMENTS
In its discussion and analysis of financial condition and results of
operations, the Company has included certain statements (other than statements
of historical fact) that constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used herein, the words "budget,"
"budgeted," "anticipates," "expects," "believes," "seeks," "goals,"
"intends", "plans" or "projects" and similar expressions are intended to
identify forward-looking statements. It is important to note that the Company's
actual results could differ materially from those projected by such
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable and such forward-
looking statements are based upon the best data available at the time this
report is filed with the Securities and Exchange Commission, no assurance can be
given that such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements include, but are not limited to, the following:
production variances from expectations, volatility of oil and gas prices,
environmental risks, uncertainties about estimates of reserves, competition,
government regulation or action, litigation, drilling and operations
performance, labor disputes, and the ability of the Company to implement its
business strategy. All such forward-looking statements in this document are
expressly qualified in their entirety by the cautionary statements in this
paragraph.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Audited Financial Statements
Report of Independent
Accountants.................. 27
Statement of Operations for
the years ended December
31, 1996, 1995 and 1994.... 28
Balance Sheet as of
December 31, 1996 and
1995....................... 29
Statement of Cash Flows for
the years ended December
31, 1996, 1995 and 1994.... 30
Statement of Division
Equity and Shareholders'
Equity for the years ended
December 31, 1996, 1995 and
1994....................... 31
Notes to Financial
Statements................... 32
Unaudited Financial Information
Supplemental Information to
Financial Statements......... 44
25
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except for the portion of Item 10 relating to Executive Officers of the
Registrant which is included in Part 1 of this Report, the information called
for by Items 10 through 13 is incorporated by reference from the Company's
Notice of Annual Meeting and Proxy Statement dated March 24, 1997, which meeting
involves the election of directors, in accordance with General Instruction G to
the Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
PAGE
1. Financial Statements:
Report of Independent
Accountants............
27
Statement of
Operations for the
years ended December
31, 1996, 1995 and
1994...................
28
Balance Sheet as of
December 31, 1996 and
1995...................
29
Statement of Cash
Flows for the years
ended December 31,
1996, 1995
and 1994............
30
Statement of Division
Equity and
Shareholders' Equity
for the years ended
December 31, 1996,
1995 and 1994..........
31
Notes to Financial
Statements.............
32
2. Financial Statement
Schedules:
All schedules have been
omitted because they
are not applicable or
the required
information is
presented in the
financial statements or
the notes to financial
statements.
3. Exhibits:
See Index to Exhibits on page 50 for a description of the exhibits
filed as a part of this report.
(b) Reports on Form 8-K
None
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Monterey Resources, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) on page 26 present fairly, in all material respects, the financial
position of Monterey Resources, Inc. at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
February 20, 1997
27
<PAGE>
MONTEREY RESOURCES, INC.
STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Revenues
Sales of crude oil and liquids
produced...................... $ 269.9 $ 209.4 $ 177.1
Sales of natural gas produced... 1.3 1.9 1.6
Sales of crude oil purchased.... 21.1 6.6 11.9
Other........................... 0.6 0.8 1.3
--------- --------- ---------
292.9 218.7 191.9
--------- --------- ---------
Costs and Expenses
Production and operating........ 107.8 86.1 87.4
Cost of crude oil purchased..... 20.8 6.5 11.7
Exploration, including dry hole
costs......................... 1.7 2.4 1.4
Depletion, depreciation and
amortization.................. 37.4 32.4 32.0
General and administrative...... 8.9 7.3 7.8
Taxes (other than income)....... 9.4 7.9 8.7
Restructuring charges........... -- -- 1.1
Loss (gain) on disposition of
properties.................... -- -- (0.3)
--------- --------- ---------
186.0 142.6 149.8
--------- --------- ---------
Income from Operations............... 106.9 76.1 42.1
Interest income................. 0.1 -- --
Interest expense................ (25.0) (25.8) (26.4)
Interest capitalized............ 1.1 0.7 0.6
Other income (expense).......... -- (0.6) (0.1)
--------- --------- ---------
Income Before Income Taxes and
Extraordinary Items................ 83.1 50.4 16.2
Income taxes.................... (28.3) (16.0) (4.7)
--------- --------- ---------
Income Before Extraordinary Items.... 54.8 34.4 11.5
Extraordinary items............. (4.5) -- --
--------- --------- ---------
Net Income........................... $ 50.3 $ 34.4 $ 11.5
========= ========= =========
Pro forma Per Share Data
Income Before Extraordinary
Items......................... $ 1.00 $ 0.63 $ 0.21
Extraordinary items............. (0.08) -- --
--------- --------- ---------
Net Income...................... $ 0.92 $ 0.63 $ 0.21
========= ========= =========
Number of shares used in computing
per share amounts (in millions).... 54.8 54.8 54.8
========= ========= =========
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
MONTEREY RESOURCES, INC.
BALANCE SHEET
(IN MILLIONS OF DOLLARS)
DECEMBER 31,
------------------
1996 1995
------- -------
ASSETS
Current Assets
Cash and cash equivalents.......... $ 9.3 $ --
Accounts receivable................ 46.4 20.6
Inventories........................ 1.7 1.4
Other current assets............... 9.3 0.6
------- -------
66.7 22.6
------- -------
Properties and Equipment, at cost
Oil and gas (on the basis of
successful efforts accounting).... 1,016.1 970.8
Other.............................. 14.2 20.0
------- -------
1,030.3 990.8
Accumulated depletion, depreciation
and amortization.................. (651.3) (623.5)
------- -------
379.0 367.3
------- -------
Other Assets............................ 1.5 1.4
------- -------
$ 447.2 $ 391.3
======= =======
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable................... $ 34.2 $ 8.3
Interest payable................... 4.7 6.4
Taxes payable...................... 5.8 2.0
Accrued employee benefits.......... 1.1 2.7
Other current liabilities.......... 3.0 1.5
------- -------
48.8 20.9
------- -------
Long-Term Debt.......................... 175.0 245.0
------- -------
Other Long-Term Obligations............. 3.5 5.7
------- -------
Deferred Income Taxes................... 43.2 74.7
------- -------
Commitments and Contingencies (Note
11)................................... -- --
------- -------
Shareholders' Equity
Preferred stock, $0.01 par value,
25,000,000 shares authorized, no
shares issued or outstanding..... -- --
Common stock, $0.01 par value,
100,000,000 shares authorized,
54,757,499 shares issued and
outstanding....................... 0.5 --
Paid-in capital.................... 170.8 --
Unamortized restricted stock
awards............................ (1.0) --
Retained earnings.................. 6.4 --
Division equity.................... -- 45.0
------- -------
176.7 45.0
------- -------
$ 447.2 $ 391.3
======= =======
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
MONTEREY RESOURCES, INC.
STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Operating Activities:
Net income......................... $ 50.3 $ 34.4 $ 11.5
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation, depletion and
amortization................... 37.4 32.4 32.0
Deferred income taxes........... 4.2 7.7 4.7
Net loss (gain) on disposition
of properties.................. -- -- (0.3)
Exploratory dry hole costs...... 0.3 1.0 --
Other........................... -- (0.2) (0.1)
Changes in operating assets and
liabilities
Decrease (increase) in
accounts receivable.......... (25.8) 2.0 (5.5)
Decrease (increase) in other
current assets............... (0.3) 0.5 0.5
Increase (decrease) in
accounts payable............. 17.6 (2.8) (3.5)
Increase (decrease) in
interest payable............. (1.8) -- --
Increase (decrease) in other
current liabilities.......... 5.8 (2.8) 4.9
Net change in other assets and
liabilities.................. (1.4) 3.5 1.3
--------- --------- ---------
Net Cash Provided by Operating
Activities......................... 86.3 75.7 45.5
--------- --------- ---------
Investing Activities:
Capital expenditures, including
exploratory dry hole costs...... (43.0) (52.9) (27.3)
Acquisition of producing
properties...................... (3.4) (1.3) --
Proceeds from sales of
properties...................... 0.1 -- 9.1
Other investing activities......... (8.3) -- --
--------- --------- ---------
Net Cash Used in Investing
Activities......................... (54.6) (54.2) (18.2)
--------- --------- ---------
Financing Activities:
Net proceeds from issuance of
common stock
Initial public offering....... 123.6 -- --
Issued to parent.............. 0.4 -- --
Principal payments on long-term
borrowings...................... (70.0) -- (12.6)
Settlement of production payment... (30.0) -- --
Net change in revolving credit
agreement....................... (16.0) -- --
Dividends to parent................ (30.4) (21.5) (14.7)
--------- --------- ---------
Net Cash Used in Financing
Activities......................... (22.4) (21.5) (27.3)
--------- --------- ---------
Net Increase in Cash and Cash
Equivalents........................ 9.3 -- --
Cash and Cash Equivalents at
Beginning of Period................ -- -- --
--------- --------- ---------
Cash and Cash Equivalents at End of
Period............................. $ 9.3 $ -- $ --
========= ========= =========
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
MONTEREY RESOURCES, INC.
STATEMENT OF DIVISION EQUITY AND SHAREHOLDERS' EQUITY
(SHARES AND DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
TOTAL
DIVISION
COMMON STOCK UNAMORTIZED EQUITY AND
DIVISION ---------------- PAID-IN RESTRICTED RETAINED SHAREHOLDERS'
EQUITY SHARES AMOUNT CAPITAL STOCK AWARDS EARNINGS EQUITY
-------- ------ ------ ------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............ $ 35.3 -- $-- $ -- $-- $-- $ 35.3
Net income.............................. 11.5 -- -- -- -- -- 11.5
Dividends to parent..................... (14.7) -- -- -- -- -- (14.7)
-------- ------ ------ ------- ------------ --------- --------------
Balance at December 31, 1994............ 32.1 -- -- -- -- -- 32.1
Net income.............................. 34.4 -- -- -- -- -- 34.4
Dividends to parent..................... (21.5) -- -- -- -- -- (21.5)
-------- ------ ------ ------- ------------ --------- --------------
Balance at December 31, 1995............ 45.0 -- -- -- -- -- 45.0
Net income.............................. 43.9 -- -- -- -- 6.4 50.3
Dividends to parent..................... (30.4) -- -- -- -- -- (30.4)
Issuance of common stock:
Net assets contributed at book
value............................ (58.5) 45.4 0.4 22.4 -- -- (35.7)
Step-up in tax basis of certain
assets........................... -- -- -- 23.9 -- -- 23.9
Initial public offering............ -- 9.3 0.1 123.5 -- -- 123.6
Employee stock compensation........ -- 0.1 -- 1.0 (1.0) -- --
-------- ------ ------ ------- ------------ --------- --------------
Balance at December 31, 1996............ $ -- 54.8 $ 0.5 $ 170.8 $ (1.0) $ 6.4 $176.7
======== ====== ====== ======= ============ ========= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
Monterey Resources, Inc. (the "Company" or "Monterey") was formed in
1996 to assume the operations of Santa Fe Energy Resources, Inc.'s ("SFR")
Western Division (the "Western Division") which conducted SFR's operations in
the state of California. The Company's financial statements include (i) the
operations of the Western Division for the years ended December 31, 1994 and
1995, and for the period January 1, 1996 through October 31, 1996, and (ii) the
operations of the Company for the two months ended December 31, 1996. The
financial statements for these periods are presented as if the Western Division
existed as a entity separate from SFR and include the historical assets,
liabilities, revenues and expenses that are directly related to the Company's
operations, and include allocations from certain SFR income statement and
balance sheet accounts. Such allocations are considered reasonable by management
and are discussed further in Note 4. Certain prior period amounts have been
reclassified to conform to current presentation.
In November 1996, prior to the initial public offering (the "IPO")
discussed below, pursuant to a contribution and conveyance agreement, among
other things: (i) SFR contributed to Monterey substantially all of the assets
and properties of the Western Division, subject to the retention by SFR of a
$30.0 million production payment; (ii) the Company assumed all obligations and
liabilities of SFR associated with or allocated to the assets and properties of
the Western Division, including $245.0 million of indebtedness in respect of
SFR's 10.23% Series E Notes due 1997, 10.27% Series F Notes due 1998 and 10.61%
Series G Notes due 2005 (the "Series E Notes", "Series F Notes" and "Series
G Notes", respectively); (iii) Monterey agreed to purchase from SFR an $8.3
million promissory note receivable, which bears interest at prime plus 2%,
compounded quarterly, related to the sale to a third party of certain surface
acreage located in Orange County, California and secured by a Deed of Trust
thereon, and (iv) Monterey agreed to pay certain investment advisory fees which
approximate $3.5 million on behalf of SFR, payable only upon the occurrence of
the Spin Off (See Note 3). Also prior to the IPO, Monterey and SFR entered into
a $75.0 million revolving credit facility with a group of banks (the "Credit
Facility") and borrowed $16.0 million which was retained by SFR.
In exchange for the net assets contributed, the Company issued 45,350,000
shares of its common stock to SFR. The transfer of assets resulted in a step-up
in the tax basis of certain transferred assets, and the Company recorded a $23.9
million deferred tax asset related to the step-up as a credit to paid-in
capital.
In November 1996 Monterey completed its IPO, selling 9,335,000 shares of
its common stock for total consideration of $123.6 million (after deducting
underwriting discounts of $9.1 million and other costs of $2.6 million). The
proceeds from the IPO were used in part to (i) repay the Series E Notes and the
Series F Notes ($70.0 million) and pay a prepayment penalty thereon of $2.5
million; (ii) retire the production payment ($30.0 million); (iii) repay the
$16.0 million outstanding under the Credit Facility; and (iv) pay a $2.0 million
fee with respect to a supplement to the indenture relating to SFR's 11% Senior
Subordinated Debentures due 2004 to permit the IPO and the Spin Off (as defined
in Note 3) to proceed without the occurrence of a breach or default under such
indenture. Subsequent to the IPO, Monterey issued $175.0 million in aggregate
principal amount of 10.61% Senior Notes due 2005 (the "Senior Notes") to
holders of the Series G Notes in exchange for the cancellation of such notes and
paid a $1.3 million consent fee in connection therewith. In December 1996 the
Company purchased the previously mentioned $8.3 million note receivable, which
bears interest at prime plus 2% and matures on June 30, 1997, from SFR for cash.
The costs and expenses relating to the early extinguishment of debt assumed
in the IPO as discussed above, and $1.0 million of related transaction costs,
are reflected in the Statement of Operations as an extraordinary item, net of
$2.3 million in income taxes.
At December 31, 1996, SFR owned 82.8% of the Company's outstanding common
stock. SFR has announced that it intends to distribute pro rata to its common
shareholders all of the shares of the Company's common stock that it owns by
means of a tax-free distribution. See Note 3.
32
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OIL AND GAS OPERATIONS
The Company follows the successful efforts method of accounting for its oil
and gas exploration and production activities. Costs (both tangible and
intangible) of productive wells and development dry holes, as well as the cost
of prospective acreage, are capitalized. The costs of drilling and equipping
exploratory wells which do not find proved reserves are expensed upon
determination that the well does not justify commercial development. Other
exploratory costs, including geological and geophysical costs and delay rentals,
are charged to expense as incurred.
Depletion and depreciation of proved properties are computed on an
individual field basis using the unit-of-production method based upon proved oil
and gas reserves attributable to the field. Certain other oil and gas properties
are depreciated or amortized on a straight-line basis.
In the fourth quarter of 1995 the Company changed its impairment policy to
conform to the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". In accordance with the provisions of SFAS
No. 121 individual proved properties are reviewed periodically to determine if
the carrying value of the property exceeds the expected undiscounted future net
cash flows from the operation of the property. Based on this review and the
continuing evaluation of development plans, economics and other factors, as
appropriate, the Company records impairment (additional depletion and
depreciation) to the extent that the carrying value of the property exceeds the
fair value, based on discounted future net cash flows. No impairments were
recorded in connection with the adoption of SFAS No. 121.
The Company provides for future abandonment and site restoration costs with
respect to certain of its oil and gas properties. The Company estimates that
with respect to these properties such future costs total approximately $19.1
million and such amount is being accrued using unit-of-production rates over the
expected life of the properties. At December 31, 1996 and 1995, Accumulated
Depletion, Depreciation and Amortization includes $6.2 million and $4.8 million,
respectively, of such costs.
The value of undeveloped acreage is aggregated and the portion of such
costs estimated to be nonproductive, based on historical experience, is
amortized to expense over the average holding period. Additional amortization
may be recognized based upon periodic assessment of prospect evaluation results.
The cost of properties determined to be productive is transferred to proved
properties; the cost of properties determined to be nonproductive is charged to
accumulated amortization.
Maintenance and repairs are expensed as incurred; major renewals and
improvements are capitalized. Gains and losses arising from sales of properties
are included in income currently.
The Company's financial statements reflect its proportionate interest in
the revenues, costs, expenses and capital with respect to properties in which
its ownership is less than 100%.
REVENUE RECOGNITION
Revenues from the sale of crude oil and liquids produced are generally
recognized upon the passage of title (generally when the crude oil and liquids
leave the field), net of royalties and net profits interests. Revenues from
sales of crude oil purchased relate to the sales of low viscosity crude oil
purchased and blended with certain of the Company's high viscosity, low gravity
crude oil production, either to facilitate pipeline transportation or to realize
higher marketing margins. The cost to purchase such crude oil is reflected as an
expense. Revenues from natural gas production are generally recorded using the
entitlement method, net of royalties and net profits interests.
From time to time a portion of the Company's oil sales have been hedged.
See Note 11 -- Commitments and Contingencies -- Hedging.
33
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts Receivable relates primarily to sales of oil and gas and amounts
due from joint interest partners for expenditures made by the Company on behalf
of such partners. The Company reviews the financial condition of potential
purchasers and partners prior to signing sales or joint interest agreements.
INVENTORIES
Inventories are valued at the lower of cost (average price or first-in,
first-out) or market. Crude oil inventories at December 31, 1996 and 1995 were
$0.9 million and $0.8 million, respectively, and materials and supplies
inventories at such dates were $0.8 million and $0.6 million, respectively.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures relating to current operations are expensed or
capitalized, as appropriate, depending on whether such expenditures provide
future economic benefits. Liabilities are recognized when the expenditures are
considered probable and can be reasonably estimated. Measurement of liabilities
is based on currently enacted laws and regulations, existing technology and
undiscounted site-specific costs. Generally, such recognition coincides with the
Company's commitment to a formal plan of action.
INCOME TAXES
The Company is included in the consolidated tax return of SFR and records a
provision for income taxes under the terms of the Tax Allocation Agreement with
SFR (See Note 12). The Company follows the asset and liability approach to
accounting for income taxes. Deferred tax assets and liabilities are determined
using the tax rate for the period in which those amounts are expected to be
received or paid, based on a scheduling of temporary differences between the tax
bases of assets and liabilities and their reported amounts. Under this method of
accounting for income taxes, any future changes in income tax rates will affect
deferred income tax balances and financial results.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities and the
periods in which certain items of revenue and expense are included. Actual
results may differ from such estimates.
PRO FORMA PER SHARE DATA
Common shares outstanding at November 19, 1996, the closing date of the
Company's IPO, have been included in the pro forma per share calculations as if
such shares were outstanding for all periods prior to November 19, 1996.
34
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INTENDED SPIN OFF
SFR has announced that it intends to distribute pro rata to its common
shareholders all of the shares of the Company's common stock it owns by means of
a tax-free distribution (the "Spin Off"). SFR's final determination to proceed
will require a declaration of the Spin Off by SFR's board of directors. Such a
declaration is not expected to be made until certain conditions, many of which
are beyond the control of SFR, are satisfied, including: (i) receipt by SFR of a
ruling from the Internal Revenue Service as to the tax-free nature of the Spin
Off, (ii) approval of the Spin Off by SFR's stockholders; (iii) the absence of
any future change in future market or economic conditions (including
developments in the capital markets) or SFR's or the Company's business and
financial condition that causes SFR's board to conclude that the Spin Off is not
in the best interests of SFR's shareholders. The Company has been advised by SFR
that it does not expect the Spin Off to occur prior to August 1997. If SFR
consummates the Spin Off, the increased shares available in the marketplace may
have an adverse effect on the market price of the Company's common stock.
Monterey has been advised by SFR that as of December 31, 1996, SFR had
approximately 38,500 shareholders of record.
Pursuant to the terms of a letter agreement dated as of June 13, 1996, a
fee will be payable by the Company to Chase Securities Inc. and Petrie Parkman &
Co., Inc. upon consummation of the Spin Off. The total amount of such fee is
equal to the product of (a) the sum of the market value of the shares of the
Company's common stock distributed in the Spin Off (based upon the average
closing price of the Company's common stock during the ten trading days after
the Spin Off) PLUS the aggregate principal amount of long-term indebtedness
assumed by the Company in connection with the Spin Off (which totalled $175.0
million) TIMES (b) 0.5%, LESS $1.0 million. If the market value of the Company's
common stock at the time of the Spin Off is $16.00 per share, the Company
estimates the total fee payable would be approximately $3.5 million, of which
$1.75 million would be payable to each of Chase Securities and Petrie Parkman.
In addition, a fee of $400,000 will be payable to GKH Partners, L.P., of which
$200,000 will be payable by each of the Company and SFR. One of the Company's
directors is associated with GKH Partners.
(4) RELATED-PARTY TRANSACTIONS
The financial statements for Western Division for each of the periods
presented include certain allocations from SFR income statement and balance
sheet accounts, which are considered reasonable and necessary by management to
properly reflect the actual costs incurred of the Western Division's operations.
The Western Division's results of operations include corporate overhead
allocations as follows: (i) production and operating expense includes $2.4
million in 1996, $1.9 million in 1995 and $3.0 million in 1994; (ii) exploration
expense includes $0.3 million in 1996, $0.5 million in 1995 and $0.5 million in
1994; and (iii) general and administrative expense includes $5.3 million in
1996, $6.4 million in 1995 and $7.9 million in 1994. If the Western Division had
been a separate, unaffiliated entity, the Company estimates that general and
administrative expense would have been higher by $0.6 million, $2.1 million and
$1.2 million in 1996, 1995 and 1994, respectively. SFR provided cash management
services to the Western Division through a centralized treasury system and
therefore all intercompany accounts were settled daily and no cash balances were
maintained by the Western Division. All cash generated from the Western
Division's operations, after considering revenues and deductions for expenses
(including corporate allocations), capital expenditures and working capital
requirements, were deemed to be cash dividends to SFR.
SFR provides various administrative and financial services to the Company,
including administration of certain employee benefits plans, access to
telecommunications, corporate legal assistance and certain other corporate staff
and support services. The Company and SFR have entered into a Services Agreement
under which the Company pays a fee of $120,000 per month for such services until
such time as the
35
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company assumes full responsibility during 1997 for each of the services covered
by the agreement. General and administrative expense for 1996 includes $240,000
of such costs.
See Note 1 for a discussion of the Company's purchase of an $8.3 million
promissory note from SFR, Note 3 for discussion of advisory fees payable upon
consummation of the Spin Off to an affiliate of one of the Company's directors
and Note 10 for discussion of the participation of certain of the Company's
employees in SFR's employee benefit and pension plans.
(5) CASH FLOWS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
The Company made interest payments of $26.8 million, $25.8 million and
$26.3 million in 1996, 1995 and 1994, respectively.
(6) FINANCING AND DEBT
Long-Term Debt at December 31, 1996 and 1995 consisted of (in millions of
dollars):
DECEMBER 31,
--------------------------------------------
1996 1995
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
Senior Notes..................... -- 175.0 -- --
SFR Series E & F Notes........... -- -- -- 70.0
SFR Series G Notes............... -- -- -- 175.0
------- --------- ------- ---------
-- 175.0 -- 245.0
======= ========= ======= =========
In November 1996 the Company issued the Senior Notes which were exchanged
for $175.0 million of senior notes previously issued by SFR. The Senior Notes
bear interest at 10.61% per annum and mature $25 million per year in each of the
years 1999 through 2005.
Effective November 13, 1996 the Company entered into the Credit Facility
which matures November 13, 2000. The Credit Facility permits the Company to
obtain revolving credit loans and issue letters of credit up to an aggregate
amount of up to $75.0 million, with the aggregate amount of letters of credit
outstanding at any time limited to $15.0 million. Borrowings are unsecured and
interest rates are tied to the bank's prime rate or eurodollar rate, at the
option of the Company.
The Credit Facility and Senior Notes include covenants that restrict the
Company's ability to take certain actions, including the ability to incur
additional indebtedness and to pay dividends on capital stock. Under the most
restrictive of these covenants, at December 31, 1996, the Company could incur up
to $253.4 million of additional indebtedness, or incur a lesser amount and pay
dividends of up to $61.7 million. The Company's ability to pay dividends is
limited by provisions in the Credit Facility and the Senior Notes prohibiting
the payment of more than $31.0 million in dividends to SFR in any fiscal year
prior to the Spin Off.
At December 31, 1996, the Company had $2.3 million of outstanding letters
of credit.
In 1994 the Company retired the $12.6 million outstanding balance of a term
loan which the Company had incurred in 1991 in connection with the purchase of
certain producing properties.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosure About Fair Value of Financial Instruments"
requires the disclosure, to the extent practicable, of the fair value of
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial instruments disclosed herein is not
representative of the
36
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences, if any, of realization or settlement. The
following table reflects the financial instruments for which the fair value
differs from the carrying amount of such financial instrument in the Company's
December 31, 1996 and 1995 balance sheets (in millions of dollars):
1996 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
Long-Term Debt................... 175.0 199.9 245.0 267.9
The fair value of the Company's long-term debt is based upon current
borrowing rates available for financings with similar terms and maturities.
(8) SEGMENT INFORMATION
The principal business of the Company consists of the acquisition,
exploration and development of oil and gas properties and the production and
sale of crude oil and liquids and natural gas. All such operations are located
in the United States.
Crude oil and liquids accounted for about 99% of revenues in 1996, 1995 and
1994. The following table (which, with respect to certain properties, includes
royalty and working interest owners' share of production) reflects sales to
crude oil purchasers who accounted for more than 10% of the Company's crude oil
and liquids revenues (in millions of dollars):
YEAR ENDED
DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Shell Oil Company.................... 35 44 42
Celeron Corporation.................. 22 28 31
(9) SHAREHOLDERS' EQUITY
COMMON STOCK
In a public offering in November 1996 the Company issued 9,335,000 shares
of common stock. The issue price was $14.50 per share and the Company received
total proceeds of $123.6 million, after deducting underwriting costs of $9.1
million and other costs of $2.6 million. Immediately prior to the IPO the
Company issued 45,350,000 shares to SFR in exchange for the net assets of the
Western Division.
The Company currently intends to pay to its stockholders a quarterly
dividend of $0.15 per share of common stock ($0.60 annually). The first dividend
has been declared and will be paid in April 1997, consisting of a pro rated
dividend of $0.22 in respect of the Company's first partial quarter ended
December 31, 1996, and for its first full quarter of operations ending March 31,
1997.
1996 INCENTIVE STOCK COMPENSATION PLAN
Under the terms of the Monterey Resources, Inc. 1996 Incentive Stock
Compensation Plan (the "Plan") the Company may grant options and awards with
respect to no more than 3,000,000 shares of common stock to officers, directors
and key employees. Up to 500,000 of such shares may be issued as Restricted
Stock. During 1996, the Company granted options on 248,500 shares at an average
exercise price of $14.59 per share, with each option granted having an average
fair value of $7.77 per share. The grants, which were awarded at the market
price at the date of the grant, have a ten-year term and vest 20% per year over
five years. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: (i) expected dividend yield -- 0%; (ii) expected stock price
volatility -- 24%; (iii) risk-free interest rate -- 6.4%; (iv) expected life of
options -- 10 years.
37
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1996 the Company also issued 72,499 restricted shares in accordance
with the terms of the plan, which vest over a five-year period from the date of
grant.
Notwithstanding anything in the Plan or any Award agreement to the
contrary, generally no 1996 Award shall become exercisable or payable (even if
vested) prior to the first anniversary of the date the Company is spun off by
SFR, or during any such additional period, if any, as may be recommended by
counsel to the Company as necessary or helpful to the tax-free status of the
Spin Off.
In October 1995 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123"), which established financial accounting and
reporting standards for stock-based employee compensation plans. FAS 123
encourages companies to adopt a fair value based method of accounting for such
plans but continues to allow the use of the intrinsic value method prescribed
for Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25"). The Company has elected to continue to account for
stock-based compensation in accordance with APB 25. If the Company had elected
to recognize compensation costs based on the fair value of options granted as
prescribed by FAS 123, net income and the related per share amounts would have
been unchanged.
During the initial phase-in period, the effects of applying FAS 123 for
recognizing compensation cost on a pro forma basis may not be representative of
the effects on reported earnings for future periods since the options granted
vest over several periods and additional awards will be made in future periods.
(10) PENSION AND OTHER EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company sponsors a pension plan covering certain hourly-rated employees
in California (the "Hourly Plan"). The Hourly Plan provides benefits that are
based on a stated amount for each year of service. The Company annually
contributes amounts which are actuarially determined to provide the Hourly Plan
with sufficient assets to meet future benefit payment requirements.
The following table sets forth the funded status of the Hourly Plan at
December 31, 1996 and 1995 (in millions of dollars):
1996 1995
--------- ---------
Plan assets at fair value, primarily
invested in fixed-rate
securities......................... 9.5 8.7
Actuarial present value of projected
benefit obligations
Accumulated benefit obligations
Vested.......................... (10.9) (10.4)
Nonvested....................... (0.4) (0.4)
--------- ---------
Excess of projected benefit
obligation over plan assets........ (1.8) (2.1)
Unrecognized net (gain) loss from
past experience different from that
assumed and effects of changes in
assumptions........................ (0.4) (0.3)
Unrecognized prior service cost...... 0.4 0.4
Unrecognized net obligation.......... 1.0 1.2
Additional minimum liability......... (1.1) (1.3)
--------- ---------
Accrued pension liability............ (1.9) (2.1)
========= =========
Major assumptions at year-end
Discount rate................... 7.50% 7.50%
Expected long-term rate of
return on plan assets........... 8.50% 8.50%
38
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of pension expense for the
Hourly Plan for 1996, 1995 and 1994 (in millions of dollars):
YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Service cost............................ 0.2 0.2 0.2
Interest cost........................... 0.8 0.8 0.8
Return on plan assets................... (0.9) (1.4) (0.4)
Net amortization and deferral........... 0.4 0.9 --
--------- --------- ---------
0.5 0.5 0.6
========= ========= =========
The Company's salaried personnel participate in the SFR defined benefit
retirement plan (the "SFR Plan") and a nonqualified supplemental retirement
plan (the "Supplemental Plan"). The Supplemental Plan will pay benefits to
participants in the SFR Plan in those instances where the SFR Plan formula
produces a benefit in excess of limits established by ERISA and the Tax Reform
Act of 1986. Benefits payable under the SFR Plan are based on years of service
and compensation during the five highest paid years of service during the ten
years immediately preceding retirement. SFR's funding policy is to contribute
annually not less than the minimum required by ERISA and not more than the
maximum amount deductible for income tax purposes. The Company has been
allocated its proportionate share of the expense associated with such plans. The
Company's share of such expenses totaled $0.4 million, $0.2 million and $0.2
million in 1996, 1995, and 1994 respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
SFR provides healthcare and life insurance benefits for substantially all
employees who retire under the provisions of a SFR-sponsored retirement plan and
their dependents. Participation in the plans is voluntary and requires a monthly
contribution by the employee. Effective January 1, 1993 SFR adopted the
provisions of SFAS No. 106 -- "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Statement requires the accrual, during the
years the employee renders service, of the expected cost of providing
postretirement benefits to the employee and the employee's beneficiaries and
covered dependents. The Company has been allocated its proportionate share of
SFR's expense with respect to such benefits. The Company's share of such expense
totaled $0.2 million in 1996 and $0.1 million in each of 1995 and 1994.
SAVINGS PLAN
SFR has a savings plan available to substantially all salaried employees
and intended to qualify as a deferred compensation plan under Section 401(k) of
the Internal Revenue Code (the "401(k) Plan"). SFR will match employee
contributions for an amount up to 4% of each employee's base salary. In
addition, if at the end of each fiscal year SFR's performance for such year has
exceeded certain predetermined criteria, each participant will receive an
additional matching contribution equal to 50% of the regular matching
contribution. The Company has been allocated its proportionate share of
contributions to the 401(k) Plan, which are charged to expense. The Company's
share of such contributions totaled $0.3 million in 1996 and $0.2 million in
each of 1995 and 1994.
(11) COMMITMENTS AND CONTINGENCIES
HEDGING
The Company's 1996 and 1995 financial statements include the impact of oil
and gas hedging losses which were allocated by SFR. SFR from time to time enters
into such transactions in order to reduce exposure to fluctuations in market
prices of oil and natural gas. Oil hedging losses were allocated to the
39
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company based upon relative production volumes and were recognized as a
reduction of oil revenues in the period in which the hedged production was sold.
Such amounts totaled $3.1 million and $0.1 million in 1996 and 1995,
respectively. Currently the Company has no oil hedges in place and, going
forward, the Company does not expect to hedge a substantial portion of its oil
production.
Additionally, during the first six months of 1996, SFR hedged 20 MMcf per
day of the natural gas purchased for use in the Company's steam generation
operations. Such hedges, which terminated at the end of the second quarter,
resulted in a $3.2 million increase in the Company's production and operating
costs. While the Company currently has no natural gas hedges in place, the
Company's management may determine that such arrangements are appropriate in the
future in order to reduce the Company's exposure to increases in gas prices.
SPIN OFF TAX INDEMNITY AGREEMENT.
To protect SFR from Federal and state income taxes, penalties, interest and
additions to tax that would be incurred by it if the Spin Off by SFR were
determined to be a taxable event, the Company and SFR have entered into an
agreement under which the Company has agreed to indemnify SFR with respect to
tax liabilities resulting primarily from actions taken by the Company at any
time during the one-year period after the Spin Off (or if certain tax
legislation is enacted and is applicable to the Spin Off, such longer period as
is required for the Spin Off to be tax free to SFR) (the "Restricted Period").
The Company has also agreed that, unless it obtains an opinion of counsel or a
supplemental ruling from the Internal Revenue Service that such action will not
adversely affect the qualification of the Spin Off as tax-free, the Company will
not merge or consolidate with another corporation, liquidate or partially
liquidate, sell or transfer all or substantially all of its assets or redeem or
otherwise repurchase any of its stock or issue additional shares of the
Company's capital stock during such Restricted Period. The Company's obligations
under this agreement could possibly deter offers or other efforts by third
parties to obtain control of the Company during such Restricted Period, which
could deprive the Company's stockholders of opportunities to sell their shares
of Common Stock at prices higher than prevailing market prices.
The indemnity agreement will apply if the Spin Off occurs prior to December
31, 1997. The Company believes that if the Company is required to make payments
pursuant to such agreement, the amount that the Company would pay to SFR would
have a material adverse effect on the Company's financial condition. The actions
for which the Company is required to indemnify SFR pursuant to this agreement
are within the Company's control, and the Company has no intention of taking any
actions during the Restricted Period that would have such effect.
ENVIRONMENTAL REGULATION
Federal, state and local laws and regulations relating to environmental
quality control affect the Company in all of its oil and gas operations. Set
forth below are descriptions of three sites for which the Company has been
identified as a potentially responsible party ("PRP") and for which the
Company may be held jointly and severally liable with other PRPs.
The Company has been identified as one of over 250 PRPs at a superfund site
in Los Angeles County, California (the "OII site"). The site was operated by a
third party as a waste disposal facility from 1948 until 1983. The Environmental
Protection Agency ("EPA") is requiring the PRPs to undertake remediation of
the site in several phases, which include site monitoring and leachate control,
gas control and final remediation. In November 1988 the EPA and a group of PRPs
that includes the Company entered into a consent decree covering the site
monitoring and leachate control phases of remediation. The Company was a member
of the group Coalition Undertaking Remediation Efforts ("CURE") which was
responsible for constructing and operating the leachate treatment plant. This
phase is now complete and the Company's share of costs with respect to this
phase was $1.6 million ($0.9 million after recoveries from working interest
participants in the unit in which the wastes were generated). Another consent
decree provides for
40
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the predesign, design and construction of a gas plant to harness and market
methane gas emissions. The Company is a member of the New CURE group which is
responsible for the gas plant construction and operation and landfill cover.
Currently, New CURE is in the design stage of the gas plant. The Company's share
of costs of this phase is expected to be $1.9 million and such costs have been
provided for in the financial statements. Pursuant to consent decrees settling
lawsuits against the municipalities and transporters not named by the EPA as
PRPs, such parties are required to pay approximately $84 million of which
approximately $76 million will be credited against future expenses. The EPA and
the PRPs are currently negotiating the final closure requirements. After taking
into consideration the credits from the municipalities and transporters, the
Company estimates that its share of final costs of the closure will be
approximately $0.8 million which amount has been provided for by the Company in
its financial statements. The Company has entered into a Joint Defense Agreement
with the other PRPs to defend against a lawsuit filed in September 1994 by
ninety-five homeowners alleging, among other things, nuisance, trespass, strict
liability and infliction of emotional distress. A second lawsuit has been filed
by thirty-three additional homeowners and the Company and the other PRPs have
entered into a Joint Defense Agreement. At this stage of the lawsuit the Company
is not able to estimate costs or potential liability.
In 1994 the Company received a request from the EPA for information
pursuant to Section 104(e) of CERCLA and a letter ordering the Company and seven
other PRPs to negotiate with the EPA regarding implementation of a remedial plan
for a site located in Santa Fe Springs, California (the "Santa Fe Springs
Site"). The Company owned the property on which the site is located from 1921
to 1932. During that time the property was leased to another company and in 1932
the property was sold to that company. During the time the other company leased
or owned the property and for a period thereafter, hazardous wastes were
allegedly disposed at the site. Total past and future costs for remediation are
estimated to be approximately $8.0 million. The Company filed its response to
the Section 104(e) order setting forth its position and defenses based on the
fact that the other company was the lessee and operator of the site during the
time the Company was the owner of the property. However, the Company has also
given its Notice of Intent to comply with the EPA's order to prepare a
remediation design plan. The PRPs estimate total cost to complete this final
remediation to be $3 million and the Company has provided $250,000 for such
costs in its financial statements.
In 1995 the Company and twelve other companies received notice that they
have been identified as PRPs by the California Department of Toxic Substances
Control (the "DTSC") as having generated and/or transported hazardous waste to
the Environmental Protection Corporation ("EPC") Eastside Landfill during its
fourteen-year operation from 1971 to 1985 (the "Eastside Site"). EPC has since
liquidated all assets and placed the proceeds in trust (the "EPC Trust") for
closure and post-closure activities. However, these monies may not be sufficient
to close the site. The PRPs have entered into an enforceable agreement with the
DTSC to characterize the contamination at the site and prepare a focused
remedial investigation and feasibility study. The DTSC has agreed to implement
reasonable measures to bring new PRPs into the agreement. The DTSC will address
subsequent phases of the cleanup, including remedial design and implementation
in a separate order agreement. The cost of the remedial investigation and
feasibility study is estimated to be $0.8 million, the cost of which will be
shared by the PRPs and the EPC Trust. The ultimate costs of subsequent phases
will not be known until the remedial investigation and feasibility study is
completed and a remediation plan is accepted by the DTSC. The Company currently
estimates final remediation could cost $2 million to $6 million and believes the
monies in the EPC Trust will be sufficient to fund the lower end of this range
of costs. The Company has provided $80,000 in its financial statements for its
share of costs related to this site.
Pursuant to the Contribution Agreement, the Company agreed to indemnify and
hold harmless SFR from and against any costs incurred in the future relating to
environmental liabilities of the Western Division assets (other than the assets
retained by SFR), including any costs or expenses incurred at any of
41
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the OII Site, the Santa Fe Springs Site and the Eastside Site, and any costs or
liabilities that may arise in the future that are attributable to laws, rules or
regulations in respect of any property or interest therein located in California
and formerly owned or operated by the Western Division or its predecessors. SFR
agreed to indemnify the Company from and against any costs relating to
environmental liabilities of any assets or operations of SFR (whether or not
currently owned or operated by SFR) to the extent not attributable to the
Western Division (other than the assets retained by SFR).
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements ("Employment
Agreements") with eight key employees. The initial term of seven of the
agreements expire on December 31, 1998; however, beginning January 1, 1998 and
on each January 1 thereafter the term of the agreements will automatically be
extended for additional one-year periods, unless by September 30 of the
preceding year the Company gives notice that the agreement will not be so
extended. The term of each is automatically extended for a period of two years
following a Change in Control (as defined herein). The other employment
agreement has an initial term which expires on December 31, 1999, is
automatically extended for one-year periods beginning January 1, 1999 and is
automatically extended for a three-year period following a Change in Control.
In the event that following a change in control employment is terminated
for reasons specified in the Employment Agreements, the agreements provide for
(i) payment of certain amounts to the employee based on the employee's salary
and bonus under the Company's Incentive Compensation Plan; (ii) payout of
nonvested restricted stock, phantom units, stock options, if any, and (iii)
continuation of certain insurance benefits for a period of up to 24 to 36
months. The payments and benefits are payable pursuant to the Employment
Agreements only to the extent they are not paid out under the terms of any other
plan of the Company. In addition, payments and benefits under certain employment
agreements are subject to further limitation based on certain provisions of the
Internal Revenue Code.
OPERATING LEASES
The Company has noncancellable agreements with terms ranging from one to
six years to lease office space and equipment. Minimum rental payments due under
the terms of these agreements are: 1997 -- $1.7 million, 1998 -- $1.5 million,
1999 -- $1.4 million, 2000 -- $1.2 million, 2001 -- $1.2 million and $5.5
million thereafter. Rental payments made under the terms of noncancellable
agreements totaled $1.3 million in 1996, $0.8 million in 1995 and $0.9 million
in 1994.
OTHER MATTERS
The Company has certain long-term contracts ranging up to eleven years for
the supply and transportation of approximately 20 million cubic feet per day of
natural gas to the Company's operations in Kern County, California. In the
aggregate, these contracts involve a minimum commitment on the part of the
Company of approximately $18.6 million per year (based on prices equal to 102%
of the applicable index and transportation charges in effect for December 1996).
There are other claims and actions, including certain other environmental
matters, pending against the Company. While the outcome of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
does not expect these matters to have a material adverse effect on the business,
financial condition or liquidity of the Company.
(12) INCOME TAXES
Monterey is included in the consolidated tax returns of SFR, and pursuant
to the Tax Allocation Agreement, the Company pays to SFR an amount approximating
the federal, state and local tax liability it would have paid if it was an
unaffiliated company. Accordingly, the amounts reflected in the financial
42
<PAGE>
MONTEREY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
statements, for all periods presented, have been prepared as if Monterey was not
a member of SFR's consolidated group.
During 1995 SFR elected for federal income tax purposes to capitalize,
rather than expense, intangible drilling costs attributable to the Company's
operations (which aggregated $23 million and $22 million in 1996 and 1995,
respectively). Current federal tax expense includes $5.8 million and $7.0
million in 1996 and 1995, respectively, as a result of such election. After the
Company ceases to be a member of SFR's consolidated group, it intends to elect
to expense such costs thereafter incurred.
The Company's income tax expense for the years ended December 31, 1996,
1995 and 1994 is presented below. Such amounts for 1996 include a current and
deferred tax benefit of $2.2 million and $0.1 million, respectively, related to
the Company's extraordinary debt extinguishment costs.
1996 1995 1994
---- ---- ----
Current
U.S. federal.................... 15.7 5.0 --
State........................... 6.1 3.3 --
---- ---- ----
21.8 8.3 --
---- ---- ----
Deferred
U.S. federal.................... 3.7 6.4 3.0
State........................... 0.4 1.3 1.7
---- ---- ----
4.1 7.7 4.7
---- ---- ----
25.9 16.0 4.7
==== ==== ====
The Company's deferred income tax liabilities (assets) at December 31, 1996
and 1995 are composed of the following differences between financial and tax
reporting (in millions of dollars):
1996 1995
---- -----
Capitalized costs and write-offs..... 40.8 72.4
State deferred liability............. 10.1 17.0
---- -----
Gross deferred liabilities........... 50.9 89.4
---- -----
Accruals not currently deductible for
tax purposes......................... (5.8) (7.3)
EOR credit carryforwards............. (1.9) (4.6)
AMT credit carryforwards............. -- (2.8)
---- -----
Gross deferred assets................ (7.7) (14.7)
---- -----
Deferred tax liability............... 43.2 74.7
==== =====
A reconciliation of the Company's U.S. income tax expense computed by
applying the statutory U.S. federal income tax rate to the Company's income
before income taxes for the years ended December 31, 1996, 1995 and 1994 is
presented in the following table (in millions of dollars):
1996 1995 1994
--------- --------- ---------
U.S. federal income taxes at statutory
rate.................................. 26.7 17.6 5.7
Increase (reduction) resulting from:
State income taxes, net of federal
effect........................... 4.2 3.0 1.1
Enhanced oil recovery credit....... (5.2) (4.2) (2.5)
Permanent differences.............. 0.2 (0.2) (0.2)
Other.............................. -- (0.2) 0.6
--------- --------- ---------
25.9 16.0 4.7
========= ========= =========
43
<PAGE>
MONTEREY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
FINANCIAL STATEMENTS (UNAUDITED)
OIL AND GAS RESERVES AND RELATED FINANCIAL DATA
Information with respect to the Company's oil and gas producing activities,
all of which are located in the United States, is presented in the following
tables. Reserve quantities as well as certain information regarding future
production and discounted cash flows were determined by independent petroleum
consultants, Ryder Scott Company.
OIL AND GAS RESERVES
The following table sets forth the Company's net proved oil and gas
reserves at December 31, 1996, 1995, 1994 and 1993 and the changes in net proved
oil and gas reserves for the years ended December 31, 1996, 1995 and 1994.
CRUDE OIL NATURAL
AND LIQUIDS GAS
(MMBBLS) (BCF)
----------- -------
Proved reserves at December 31, 1993.... 183.6 11.8
Revisions of previous estimates.... 9.9 2.9
Improved recovery techniques....... 12.6 --
Purchases of minerals-in-place..... 0.2 0.1
Production......................... (15.1) (1.4)
----------- -------
Proved reserves at December 31, 1994.... 191.2 13.4
Revisions of previous estimates.... 9.7 0.9
Improved recovery techniques....... 13.7 --
Purchases of minerals-in-place..... 0.1 --
Production......................... (15.2) (1.9)
----------- -------
Proved reserves at December 31, 1995.... 199.5 12.4
Revisions of previous estimates.... 12.0 1.1
Improved recovery techniques....... 14.4 --
Purchases of minerals-in-place..... 7.6 --
Production......................... (17.1) (1.3)
----------- -------
Proved reserves at December 31, 1996.... 216.4 12.2
=========== =======
CRUDE OIL NATURAL
AND LIQUIDS GAS
(MMBBLS) (BCF)
----------- -------
Proved developed reserves at December
31:
1996............................... 171.0 9.5
1995............................... 157.1 9.2
1994............................... 140.2 9.4
1993............................... 140.8 9.0
Proved reserves are estimated quantities of crude oil and natural gas which
geological and engineering data indicate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves which can be
expected to be recovered through existing wells with existing equipment and
operating methods.
44
<PAGE>
MONTEREY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
ESTIMATED PRESENT VALUE OF FUTURE NET CASH FLOWS
Estimated future net cash flows from the Company's proved oil and gas
reserves at December 31, 1996, 1995 and 1994 are presented in the following
table (in millions of dollars, except as noted):
1996 1995 1994
---------- ---------- ----------
Future cash inflows..................... 4,169.3 2,763.0 2,428.5
Future production costs................. (2,178.0) (1,383.6) (1,219.9)
Future development costs................ (170.6) (170.0) (167.9)
Future income tax expenses.............. (638.4) (421.5) (352.7)
---------- ---------- ----------
Net future cash flows................. 1,182.3 787.9 688.0
Discount at 10% for timing of cash
flows................................. (501.6) (361.5) (321.9)
---------- ---------- ----------
Present value of future net cash flows
from proved reserves (standardized
measure).............................. 680.7 426.4 366.1
========== ========== ==========
Present value of pretax future net cash
flows from proved reserves............ 1,047.8 654.4 553.8
========== ========== ==========
Average sales prices
Oil ($/Barrel)........................ 19.19 13.78 12.62
Natural gas ($/Mcf)................... 1.38 0.98 1.07
The following table sets forth the changes in the present value of
estimated future net cash flows from proved reserves during 1996, 1995 and 1994
(in millions of dollars):
1996 1995 1994
---------- ---------- ----------
Balance at beginning of year............ 426.4 366.1 143.0
---------- ---------- ----------
Increase (decrease) due to:
Sales of oil and gas, net of
production costs................... (155.9) (119.2) (85.0)
Net changes in prices and production
costs.............................. 265.8 89.9 405.3
Extensions, discoveries and improved
recovery........................... 66.6 39.6 25.6
Purchases of minerals-in-place........ 40.8 0.8 0.6
Sales of minerals-in-place............ (0.4) -- --
Development costs incurred............ 50.5 49.1 22.7
Changes in estimated volumes.......... 79.8 8.8 20.1
Changes in estimated development
costs.............................. (20.8) (24.8) (22.7)
Interest factor -- accretion of
discount........................... 66.9 56.5 20.0
Income taxes.......................... (139.0) (40.4) (163.5)
---------- ---------- ----------
254.3 60.3 223.1
---------- ---------- ----------
680.7 426.4 366.1
========== ========== ==========
Estimated future cash flows represent an estimate of future net cash flows
from the production of proved reserves using estimated sales prices and
estimates of the production costs, ad valorem and production taxes, and future
development costs necessary to produce such reserves. No deduction has been made
for depletion, depreciation or any indirect costs such as general corporate
overhead or interest expense.
The sales prices used in the calculation of estimated future net cash flows
are based on the prices in effect at year end. Such prices have been held
constant except for known and determinable escalations.
45
<PAGE>
MONTEREY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Operating costs and ad valorem and production taxes are estimated based on
current costs with respect to producing oil and gas properties. Future
development costs are based on the best estimate of such costs assuming current
economic and operating conditions.
Income tax expense is computed based on applying the appropriate statutory
tax rate to the excess of future cash inflows less future production and
development costs over the current tax basis of the properties involved. While
applicable investment tax credits and other permanent differences are considered
in computing taxes, no recognition is given to tax benefits applicable to future
exploration costs or the activities of the Company that are unrelated to oil and
gas producing activities.
The information presented with respect to estimated future net revenues and
cash flows and the present value thereof is not intended to represent the fair
value of oil and gas reserves. Actual future sales prices and production and
development costs may vary significantly from those in effect at year-end and
actual future production may not occur in the periods or amounts projected. This
information is presented to allow a reasonable comparison of reserve values
prepared using standardized measurement criteria and should be used only for
that purpose.
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
The following table includes all costs incurred, whether capitalized or
charged to expense at the time incurred (in millions of dollars):
1996 1995 1994
--------- --------- ---------
Property acquisition costs
Unproved........................... 0.1 0.1 --
Proved............................. 3.4 1.3 --
Exploration costs.................... 1.6 2.5 1.4
Development costs.................... 47.1 47.8 22.7
--------- --------- ---------
52.2 51.7 24.1
========= ========= =========
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
The following table sets forth information concerning capitalized costs at
December 31, 1996 and 1995 related to the Company's oil and gas operations (in
millions of dollars):
1996 1995
--------- ---------
Oil and gas properties
Unproved........................... 0.4 0.4
Proved............................. 1,006.2 960.7
Other.............................. 9.6 9.7
Accumulated amortization of unproved
properties......................... (0.2) (0.1)
Accumulated depletion and
depreciation of proved
properties......................... (643.3) (614.8)
Accumulated depreciation of other oil
and gas properties................. (3.5) (3.4)
--------- ---------
369.2 352.5
========= =========
46
<PAGE>
MONTEREY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The following table sets forth the Company's results of operations from oil
and gas producing activities for the years ended December 31, 1996, 1995 and
1994 (in millions of dollars):
1996 1995 1994
--------- --------- ---------
Revenues................................ 292.9 218.7 191.9
Production costs:
Production and operating costs..... (107.8) (86.1) (87.4)
Taxes (other than income).......... (8.2) (6.8) (7.6)
Cost of crude oil purchases............. (20.8) (6.5) (11.7)
Exploration, including dry hole costs... (1.7) (2.4) (1.4)
Depletion, depreciation and
amortization.......................... (36.1) (31.1) (31.1)
Restructuring charges................... -- -- (1.1)
Gain (loss) on disposition of
properties............................ -- -- 0.3
--------- --------- ---------
118.3 85.8 51.9
Income taxes............................ (48.4) (35.1) (21.2)
--------- --------- ---------
69.9 50.7 30.7
========= ========= =========
Income taxes are computed by applying the appropriate statutory rate to the
results of operations before income taxes. Applicable tax credits and allowances
related to oil and gas producing activities have been taken into account in
computing income tax expenses. No deduction has been made for indirect cost such
as corporate overhead or interest expense.
47
<PAGE>
MONTEREY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SUMMARIZED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1ST QTR 2ND QTR 3RD QTR 4TH QTR YEAR
-------- -------- -------- -------- -----
(IN MILLIONS OF DOLLARS, EXCEPT AS NOTED)
1996
<S> <C> <C> <C> <C> <C>
Revenues........................ 59.7 68.4 76.9 87.9 292.9
Gross profit (a)................ 24.4 30.2 26.3 34.9 115.8
Income from operations.......... 22.5 28.2 24.4 31.8 106.9
Income before extraordinary
items......................... 16.2 8.0 11.7 18.9 54.8
Extraordinary items............. -- -- -- (4.5) (4.5)
Net income...................... 16.2 8.0 11.7 14.4 50.3
Pro forma per share data (b)
Income before extraordinary
items................... 0.30 0.15 0.21 0.34 1.00
Extraordinary items........ -- -- -- (0.08) (0.08)
Net income................. 0.30 0.15 0.21 0.26 0.92
Number of shares used in
computing per share amounts
(in millions)................. 54.8 54.8 54.8 54.8 54.8
1995
Revenues........................ 51.0 57.2 56.8 53.7 218.7
Gross profit (a)................ 15.8 24.9 23.1 19.6 83.4
Income from operations.......... 13.8 23.2 21.3 17.8 76.1
Net income...................... 7.5 9.1 9.8 8.0 34.4
Pro forma net income per share
(b)........................... 0.14 0.17 0.18 0.14 0.63
Number of shares used in
computing per share amounts
(in millions)................. 54.8 54.8 54.8 54.8 54.8
</TABLE>
- ------------
(a) Revenues less operating expenses other than general and administrative.
(b) Common shares outstanding at November 13, 1996, the closing date of the
Company's IPO, have been included in the pro forma per share calculations as
if such shares were outstanding for all periods prior to November 13, 1996.
48
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MONTEREY RESOURCES, INC.
By R. GRAHAM WHALING
R. GRAHAM WHALING
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Dated: March 7, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIGNATURE AND TITLE
-------------------
R. GRAHAM WHALING By: R. GRAHAM WHALING
Chairman of the Board and R. GRAHAM WHALING
Chief Executive Officer CHAIRMAN OF THE BOARD
(PRINCIPAL EXECUTIVE OFFICER) AND CHIEF EXECUTIVE OFFICER
ATTORNEY-IN-FACT
GERALD R. CARMAN By: GERALD R. CARMAN
Vice President, Chief Financial Officer GERALD R. CARMAN
and Treasurer VICE PRESIDENT, CHIEF FINANCIAL
(PRINCIPAL FINANCIAL OFFICER AND OFFICER AND TREASURER
PRINCIPAL ACCOUNTING OFFICER)
DIRECTORS
James L. Payne
Hugh L. Boyt
Craig A. Huff
Michael A. Morphy
Robert F. Vagt
Robert J. Wasielewski
</TABLE>
Dated: March 7, 1997
49
<PAGE>
INDEX TO EXHIBITS
A. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------
3.1* -- Amended and Restated Certificate of
Incorporation (incorporated by
reference to Exhibit 3.1 of the Form
S-1 Registration Statement of
Monterey Resources, Inc. ("MRI")
Commission File No. 333-12201 (the
"Registration Statement").
3.2* -- Amended and Restated Bylaws
(incorporated by reference to Exhibit
3.2 of the Registration Statement).
10.1 -- Conveyance and Contribution Agreement
between MRI and SFR.
10.2 -- Agreement for the Allocation of
Consolidated Federal Income Tax
Liability and State and Local Taxes
among the members of the SFER
affiliated group.
10.3 -- Agreement Concerning Taxes and Tax
Indemnification Upon Spin Off,
between MRI and SFR.
10.4 -- Corporate Services Agreement between
MRI and SFR.
10.5 -- Registration Rights and
Indemnification Agreement between MRI
and SFR.
10.6 -- MRI Incentive Compensation Plan.
10.7 -- MRI Incentive Stock Compensation Plan
for Key Employees.
10.8 -- MRI Incentive Stock Compensation Plan
for Nonexecutive Employees.
10.9 -- MRI Severance Program.
10.10 -- MRI Savings Investment Plan.
10.11 -- MRI Deferred Compensation Plan.
10.12 -- MRI Employee Stock Ownership Plan.
10.13 -- Employment Agreement between MRI and
R. Graham Whaling.
10.14* -- Form of Employment Agreement between
MRI and certain executive officers
(incorporated by reference to Exhibit
10.14 of the Registration Statement).
10.15 -- Note Agreement dated November 19,
1996 for $175,000,000, 10.61% Senior
Notes due 2005.
10.16 -- Credit Agreement, dated November 13,
1996 for up to $75 million, among
MRI, the Banks signatory thereto and
Chase Manhattan Bank as
Administrative Agent.
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Ryder Scott Company.
24.1 -- Powers of Attorney.
- ------------
* Incorporated by reference.
50
EXHIBIT 10.1
CONVEYANCE AND CONTRIBUTION AGREEMENT
This Conveyance and Contribution Agreement (this "Agreement"),
dated effective 7:00 a.m., Pacific Time, November 1, 1996 (the "Effective
Date"), is from Santa Fe Energy Resources, Inc., a Delaware corporation ("Santa
Fe"), having its principal office at 1616 S. Voss Road, Houston, Texas 77057 to
Monterey Resources, Inc., a Delaware corporation ("Monterey"), having its
principal office at 5201 Truxtun Avenue, Suite No. 100, Bakersfield, California
93309. Santa Fe and Monterey are hereinafter sometimes referred to individually
as a "Party" and collectively as the "Parties."
RECITAL
Santa Fe is executing and delivering this Agreement to convey
and contribute all property and other assets to Monterey that are held by Santa
Fe in its Western Division in the State of California, other than certain
excluded assets, as more fully described herein, and to perform certain other
acts in connection with such conveyance and contribution. Monterey is
executing this Agreement in performance of its obligations to assume certain
liabilities of Santa Fe with respect to such property and assets and to
undertake certain other obligations in connection with such conveyance and
contribution.
NOW, THEREFORE, for valuable consideration, the Parties agree
and grant as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. The following definitions shall apply
to the following terms when used in this Agreement:
"Agreement" is defined in the introductory paragraph of this
instrument.
"Ancillary Agreements" means the Spin-Off Tax Indemnity
Agreement, Corporate Services Agreement, Tax Allocation Agreement, and
Registration Rights and Indemnification Agreement, all between Monterey and
Santa Fe and dated of even date herewith.
"Assistance Costs" is defined in Section 3.11(d).
"Assumed Liabilities" means (a) the liabilities, obligations,
and other matters of Santa Fe described in Exhibit A, and (b) all other
liabilities, losses, costs, expenses, fines, penalties, payments, and other
obligations of Santa Fe relating to or arising out of the Subject Assets or the
Conveyance and Contribution Agreement
Page 1
<PAGE>
Business, whether accrued, contingent, known or unknown, and whether or not
reflected on the books and records of Santa Fe on the date of this Agreement,
excluding, however, (x) the Retained Liabilities and (y) obligations and
liabilities of Santa Fe under the Ancillary Agreements.
"Business" means all of the business activities now or
heretofore conducted by Santa Fe, its affiliates, and its and their
predecessors in interest, in the Business Area, including the oil and gas
exploration, development, and production business of Santa Fe and the
businesses and operations identified in Exhibit B.
"Business Area" means the State of California and all lands
lying in federal or state waters seaward of the west coast of the State of
California.
"Excluded Assets" means the following assets:
(a) The assets described in Exhibit C, and all rights,
privileges and benefits pertaining to the assets described in Exhibit
C;
(b) All of Santa Fe's right, title and interest in and to
all non-proprietary seismic, geological, geophysical and similar data
and computer software related to the Subject Assets, to the extent
Santa Fe is contractually prohibited by unaffiliated third parties
from transferring such data and software;
(c) All proprietary computer software (including, without
limitation, tapes, data, and program documentation) and other
intellectual property that is used in, or useful to, Santa Fe's
retained businesses and operations;
(d) Except as provided in Section 3.11, all of Santa Fe's
rights under all policies or agreements of insurance or indemnity; and
(e) All cash, proceeds, income, or revenues accruing with
respect to the other Excluded Assets described above.
"Insurance Administration" means, for each Policy,
the accounting for premiums, retrospectively-rated premiums, defense costs,
indemnity payments, deductibles, and retentions as appropriate under each
Policy, and the distribution of Insurance Proceeds under each Policy.
"Insurance Proceeds" means, for each Policy, those monies (i)
received by an insured from an insurance carrier or (ii) paid by an insurance
carrier on behalf of the insured, in either case, net of any applicable premium
adjustment, retrospectively-rated premium, deductible, retention, cost or
reserve paid or held by or for the benefit of such insured.
Conveyance and Contribution Agreement
Page 2
<PAGE>
"Insured Claims" means, for a Policy, those claims, losses,
liabilities, costs, and expenses that, individually or in the aggregate, are
covered by such Policy, whether or not subject to deductibles, co-insurance,
uncollectability or retrospectively-rated premium adjustments, but only to the
extent that such claims, losses, liabilities, costs, and expenses are within
the limits of such Policy.
"IPO Date" means the closing date for the initial public
offering of the common stock of Monterey.
"New Credit Facility" means the note agreement described in
item 4 in EXHIBIT A.
"Olinda Property" is defined in Section 3.14.
"Party" and "Parties" are defined in the introductory
paragraph of this Agreement.
"Perpetuities Period" means that period of time commencing on
the date of this Agreement and ending 21 years after the death of the last to
die of all descendants of Joseph P. Kennedy, father of our late President, John
F. Kennedy, who are living on the date of this Agreement.
"Person" means an individual, a corporation, a partnership, a
trust, an unincorporated organization, an association or any other entity.
"Policies" means insurance policies and contracts of indemnity
described in Exhibit G.
"Restriction" is defined in Section 3.5.
"Retained Liabilities" means (a) the liabilities, obligations,
and matters of Santa Fe described in Exhibit J and (b) all losses, costs,
expenses, fines, penalties, payments, and other obligations related to the
Excluded Assets.
"Santa Fe Group" is defined in Section 3.4(a).
"Santa Fe Liabilities" means all liabilities, costs, expenses,
fines, penalties, payments, and obligations of Santa Fe, other than the Assumed
Liabilities.
"Series G Notes" means the senior notes described in item 3 in
EXHIBIT A.
"Specific Conveyances" is defined in Section 3.6.
Conveyance and Contribution Agreement
Page 3
<PAGE>
"Spin-Off" means the sale, distribution, or other disposition
of the remaining shares of common stock held by Santa Fe after the IPO Date in
a single transaction or series of transactions.
"Spin-Off Date" means the date on which the Spin-Off occurs.
"Subject Assets" means all of the assets owned by Santa Fe in
the Business Area or used or held for use by Santa Fe solely to conduct the
Business, on the Effective Date, including the following assets:
(a) All right, title, and interest of Santa Fe in and to
the plots, pieces, and parcels of land, surface estates, and fee
interests of Santa Fe in the Business Area, including those described
in Exhibit D (collectively, the "Lands");
(b) All right, title, and interest of Santa Fe in and to
(i) the estates created by the oil and gas leases (and the undivided
interests therein), operating rights mineral servitudes, and fee,
mineral, royalty, and overriding interests of Santa Fe in the Business
Area, including those described in, or created by the instruments
described in, EXHIBIT D and (ii) the easements, permits, licenses,
rights-of-way, surface leases, and other surface rights held by Santa
Fe in the Business Area, including those described in, or created by
the instruments described in, EXHIBIT D (collectively, the "Oil and Gas
Interests");
(c) All right, title, and interest of Santa Fe in all
presently existing and valid unitization, pooling and communitization
agreements, declarations and orders and production sharing agreements,
and the properties covered and the units created thereby (including,
but not limited to, all units formed under orders, regulations, rules,
or other official acts of any federal, state, or other governmental
agency having jurisdiction), to the extent attributable to any of the
Lands or the Oil and Gas Interests;
(d) All right, title, and interest of Santa Fe in
existing and valid oil, casinghead gas and gas sales, purchase,
exchange, transportation and processing contracts, operating
agreements, joint venture agreements, partnership agreements,
participation agreements, exploration agreements, farmin and farmout
agreements, acreage contribution agreements, bidding agreements,
option agreements, purchase and sale agreements, advance payment
agreements, and all other contracts to the extent attributable to any
of the Lands or the Oil and Gas Interests or the Business, including
those contracts, agreements, and instruments set forth on Exhibit E;
(e) All right, title, and interest of Santa Fe in all
improvements, easements, permits, licenses, rights-of-way, surface
leases, and other surface rights, including any wells, wellbores,
casing, tubing, tanks, buildings, fixtures, compression and steam
generation facilities, pipelines, gathering systems, lines and other
appurtenances, easements and facilities, production platforms,
drilling platforms, docks, shore facilities and bases, radio and
microwave equipment (and associated licenses), and vessels to the
extent located in, on or
Conveyance and Contribution Agreement
Page 4
<PAGE>
under any of the Lands or Oil and Gas Interests or used or held for use
as a part of the Business as presently conducted;
(f) All right, title, and interest of Santa Fe in all
seismic, geological, geophysical and similar data related to the
Subject Assets, all lease files, land files, legal files, well files,
gas and oil sales contract files, division order files, abstracts,
title opinions, land surveys, computer software (including tapes, data
and program documentation), and all other books, records, files, and
accounting records to the extent attributable to or used in the
exploration, development, maintenance, or operation of any of the
Subject Assets described in subsections (a), (b), (c), (d), and (e)
above or the Business (collectively, the "Records");
(g) All of the following:
(i) All right, title, and interest of Santa Fe in
and to all inventories of oil, gas and other petroleum
products, tubular goods, supplies and tools, in each case to
the extent produced from or held for use on the Subject Assets
described in subsections (a), (b), (c), (d), and (e) above;
and
(ii) All right, title, and interest of Santa Fe in
all personal property to the extent used or held for use in
connection with the exploration, development, operation, or
maintenance of the Subject Assets described in subsections
(a), (b), (c), (d), and (e) above, including office furniture
and equipment, computer hardware, leasehold interests therein;
(h) All right, title, and interest of Santa Fe in and to
all governmental permits, licenses, franchises, registrations, and
similar rights relating to the Business or the Subject Assets;
(i) All right, title, and interest of Santa Fe in and to
all automobiles, trucks, trailers, other vehicles, and similar assets
used in connection with the Business, including leasehold interests
therein;
(j) Cash, cash equivalents, accounts receivable,
goodwill, claims, causes of action and choses in action relating to
the Subject Assets and the Business;
(k) All right, title, and interest of Santa Fe in and to
the stock certificates partnership interests, contract rights, and
other intangible interests described in Exhibit F;
(l) All of Santa Fe's right, title, and interest in and
to any patents, trade secrets, copyrights, or other intellectual
property rights that relate solely to the Subject Assets; and
Conveyance and Contribution Agreement
Page 5
<PAGE>
(m) All rights, benefits, privileges and appurtenances
pertaining to any of the foregoing;
less and except, however, the Excluded Assets.
"Title Policy" is defined in Section 3.1.
"Uninsured Retentions" is defined in Section 3.11(f).
ARTICLE 2
CONTRIBUTION AND CONVEYANCE OF SUBJECT ASSETS
TO MONTEREY
2.1 Contribution and Conveyance of Subject Assets. Santa
Fe hereby grants, conveys, assigns, transfers, contributes, and delivers unto
Monterey, its successors and assigns, forever, all of its right, title, and
interest in and to the Subject Assets, subject, however, to the terms and
conditions stated in this Agreement.
TO HAVE AND TO HOLD the above described interests in the
Subject Assets unto Monterey, its successors and assigns, forever, subject,
however, to the terms and conditions stated in this Agreement.
2.2 Assumption of Certain Liabilities by Monterey.
Monterey hereby assumes and agrees to pay, perform, and discharge the Assumed
Liabilities, to the full extent that Santa Fe has been or would be obligated to
pay, perform, and discharge the Assumed Liabilities.
2.3 Reservation of Production Payment. Santa Fe hereby
reserves and retains unto Santa Fe, its successors and assigns, as a production
payment, a variable undivided interest in and to certain of the Subject Assets,
as more particularly provided in the Reservation of Production Payment attached
hereto as Exhibit I.
ARTICLE 3
OTHER PROVISIONS
3.1 Real Property Covered by Title Policies. With
respect to any Subject Asset that (a) constitutes real property or an interest
in real property, and (b) is covered by a policy of title insurance that is in
favor of, or otherwise provides protection in its capacity as owner to, Santa
Fe (a "Title Policy"), the following provisions shall apply:
Conveyance and Contribution Agreement
Page 6
<PAGE>
(i) Santa Fe binds itself and its successors and assigns
to warrant and forever defend all and singular such Subject Asset to
Monterey, its successors and assigns, against every person whomsoever
lawfully claiming or to claim the same or any part thereof; subject,
however, to the matters set forth in paragraph (ii) below.
(ii) The contribution and conveyance of such Subject Asset
made by Section 2.1 is made expressly subject to (A) those matters
excluded or excepted from coverage under the applicable Title Policy
and (B) all recorded and unrecorded liens, charges, encumbrances,
contracts, agreements, instruments, obligations, defects and
irregularities affecting such Subject Asset that have accrued or arisen
since the effective date of the applicable Title Policy.
(iii) The sole remedy for breach of the warranty contained
in this Section 3.1 shall be recovery of damages limited to the
amount, if any, recovered by Monterey or Santa Fe under the applicable
Title Policy.
(iv) Monterey hereby expressly waives and disclaims any
remedies and damages, other than those provided for in paragraph (iii)
above, that may be available under applicable law for breach of the
warranty contained in this Section 3.1, including, without limitation,
consequential damages, incidental damages, punitive damages, attorneys
fees, and court costs.
(v) Santa Fe and Monterey acknowledge that the warranty
contained in this Section 3.1 would not have been granted had Santa Fe
not also been able to limit the remedies available for breach of the
warranty. Santa Fe and Monterey therefore adopt the following
procedure for ensuring that their mutual intent with regard to such
warranty be respected. If a court having jurisdiction over a Subject
Asset subject to this Section 3.1 should determine that the limitation
and waiver of remedies provided for herein are, under applicable law
with respect to such Subject Asset, unenforceable, then (A) the
warranty provided for in this Section 3.1 shall automatically be
waived, negated, and disclaimed for such Subject Asset; (B) such
Subject Asset shall automatically be deemed to have been conveyed to
Monterey subject to the matters set forth in Section 3.2 and in the
manner described in Section 3.3; and (C) Monterey shall execute and
deliver or cause to be delivered such instruments as may be necessary
to evidence the effect of this paragraph (v).
3.2 Encumbrances. Except as provided in Section 3.1, the
contributions and conveyances made by Section 2.1 are made expressly subject to
all recorded and unrecorded liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects, and irregularities affecting the
Subject Assets.
Conveyance and Contribution Agreement
Page 7
<PAGE>
3.3 Disclaimer of Warranties; Subrogation.
(a) No Warranty of Title. Except as provided in Section
3.1, the contributions and conveyances made by Section 2.1 are made without
warranty of title, express, implied or statutory, and without recourse even as
to the return of the purchase price, but with full substitution and subrogation
of Monterey, and all persons claiming by, through and under Monterey, to the
extent assignable, in and to all covenants and warranties by Santa Fe's
predecessors in title and with full subrogation of all rights accruing under the
statutes of limitation or prescription under the laws of various states in which
the Subject Assets are located and all rights of actions of warranty against all
former owners of the Subject Assets.
(b) Disclaimer. Monterey and Santa Fe agree that, to the
extent required by applicable law to be operative, the disclaimers of certain
warranties contained in this paragraph are "conspicuous" disclaimers for the
purposes of any applicable law, rule, or order. Except as provided in Section
3.1, the Subject Assets are assigned to Monterey without recourse (even as to
the return of the purchase price), covenant or warranty of any kind, express,
implied, or statutory. WITHOUT LIMITATION OF THE GENERALITY OF THE IMMEDIATELY
PRECEDING SENTENCE, SANTA FE HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY
REPRESENTATION OR WARRANTY, EXPRESSED, IMPLIED, AT COMMON LAW, BY STATUTE OR
OTHERWISE, RELATING TO (A) THE CONDITION OF THE SUBJECT ASSETS (INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY, OF
FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS), OR (B) ANY INFRINGEMENT BY SANTA FE OR ANY OF ITS AFFILIATES OF ANY
PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY; IT BEING THE INTENTION OF SANTA
FE AND MONTEREY THAT THE SUBJECT ASSETS ARE TO BE CONVEYED IN THEIR PRESENT
CONDITION AND STATE OF REPAIR.
(c) No Implied Warranties. Any covenants implied by
statute or law by the use of the words "grant", "convey", "assign", "transfer",
"contribute", or "deliver", or any other words used in this Agreement (except
those in Section 3.1), are hereby expressly disclaimed, waived, and negated.
3.4 Indemnification.
(a) Monterey's Indemnity. MONTEREY AGREES TO PROTECT,
DEFEND, INDEMNIFY, AND HOLD HARMLESS SANTA FE AND ITS OFFICERS, DIRECTORS,
EMPLOYEES, AND REPRESENTATIVES (COLLECTIVELY, "SANTA FE GROUP") FROM AND AGAINST
ALL CLAIMS, COSTS, EXPENSES, LIABILITIES (INCLUDING ATTORNEYS' FEES, COURT COSTS
AND OTHER COSTS OF SUIT), LOSSES, DAMAGES, PENALTIES, AND FINES RELATING TO OR
ARISING OUT OF THE SUBJECT ASSETS OR THE ASSUMED LIABILITIES, WHETHER
ATTRIBUTABLE TO
Conveyance and Contribution Agreement
Page 8
<PAGE>
PERIODS BEFORE OR AFTER THE EFFECTIVE DATE, AND WHETHER OR NOT ATTRIBUTABLE TO
THE SOLE, JOINT, AND/OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT
OF SANTA FE, ITS PREDECESSORS, AND ITS AND THEIR EMPLOYEES, REPRESENTATIVES,
OFFICERS, OR DIRECTORS.
(b) Santa Fe's Indemnity. SANTA FE AGREES TO PROTECT,
DEFEND, INDEMNIFY, AND HOLD HARMLESS MONTEREY AND ITS OFFICERS, DIRECTORS,
EMPLOYEES, AND REPRESENTATIVES FROM AND AGAINST ALL CLAIMS, COSTS, EXPENSES,
LIABILITIES (INCLUDING ATTORNEYS' FEES, COURT COSTS, AND OTHER COSTS OF SUIT),
LOSSES, DAMAGES, PENALTIES, AND FINES RELATING TO OR ARISING OUT OF THE EXCLUDED
ASSETS OR THE RETAINED LIABILITIES, WHETHER ATTRIBUTABLE TO PERIODS BEFORE OR
AFTER THE EFFECTIVE DATE, AND WHETHER OR NOT ATTRIBUTABLE TO
Conveyance and Contribution Agreement
Page 9
<PAGE>
THE SOLE, JOINT, AND/OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT
OF MONTEREY AND ITS EMPLOYEES, REPRESENTATIVES, OFFICERS, OR DIRECTORS.
3.5 Restrictions on Conveyance. Santa Fe and Monterey
acknowledge that (a) there may exist certain prohibitions against the
conveyance or assignment of certain of the Subject Assets without the consent
of third parties (including governmental agencies); and (b) certain of the
Subject Assets may be incapable of being conveyed or assigned to Monterey prior
to the execution, acknowledgment, and/or delivery of Specific Conveyances.
Both types of impediments to conveyance or assignment are referred to herein as
a "Restriction." Any provisions of this Agreement to the contrary
notwithstanding, the following provisions shall apply to all Subject Assets
burdened by a Restriction:
(i) The conveyance or assignment to Monterey shall not
become effective unless and until such time as the Restriction is
satisfied.
(ii) Santa Fe and Monterey shall each use their reasonable
efforts to cause the Restriction to be satisfied.
(iii) When and if the Restriction is satisfied, the
conveyance or assignment to Monterey shall become automatically
effective as to such Subject Asset as of the date of this Agreement.
(iv) If (A) any of the Subject Assets burdened by a
Restriction constitutes real property or an interest in real property,
and (B) such Restriction is not satisfied within the Perpetuities
Period, then the conveyance or assignment to Monterey of such Subject
Asset shall be null and void.
Conveyance and Contribution Agreement
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3.6 Further Assurances. Without further consideration,
Santa Fe and Monterey agree to take all such further actions and execute,
acknowledge, and deliver all such further documents that are necessary or
useful in carrying out the purposes of this Agreement. So long as not
prohibited by applicable laws so to do:
(a) Santa Fe agrees to execute, acknowledge, and deliver
to Monterey and, if applicable, record in the official property records of the
applicable jurisdiction, all such additional deeds, conveyances, assignments,
bills of sale, motor vehicle titles, and other documents (the "Specific
Conveyances"), and to do all such further acts and things as may be necessary
more fully and effectively to grant, convey, assign, transfer, contribute, and
deliver to Monterey the interests in the Subject Assets contributed and conveyed
by this Agreement or intended so to be. The Specific Conveyances (i) shall
evidence and perfect the conveyance made by this Agreement and shall not
constitute any additional conveyance of the Subject Assets or interests therein;
(ii) are not intended to modify, and shall not modify, any of the terms,
covenants and conditions herein set forth; and (iii) are not intended to create
and shall not create any additional covenants or warranties of or by Santa Fe to
Monterey. To the extent that the Specific Conveyances purport to create any
additional covenants or warranties, Monterey hereby expressly waives such
additional covenants or warranties.
(b) Santa Fe agrees to execute, acknowledge, and deliver
to Monterey and, if applicable, record in the official property records of the
applicable jurisdiction, substantially all of the Specific Conveyances within
120 days after the date of this Agreement.
(c) Santa Fe represents to Monterey that all Specific
Conveyances for Subject Assets that constitute real property or interests in
real property shall conform as to form in all material respects with all
applicable laws of the states in which such Subject Assets are located
governing the conveyance of such assets, including all applicable recording,
filing and registration laws and regulations.
(d) Monterey agrees to execute and deliver or cause to be
delivered such other instruments as may be reasonably required to assume and
take responsibility more effectively for the Assumed Liabilities and the other
obligations and liabilities that Monterey has assumed or undertaken pursuant to
this Agreement.
3.7 Assets Intended to be Conveyed. Santa Fe and Monterey
acknowledge that the assets intended to be conveyed by this Agreement are all of
the assets and properties held by the Western Division of Santa Fe in the
Business Area or used or held for use by Santa Fe solely to conduct the
Business, on the Effective Date, other than the Excluded Assets. If this
Agreement erroneously fails to convey all such assets and properties, or
erroneously conveys an asset other than such assets or properties, Santa Fe
and Monterey shall execute such corrective documents and take such other
actions as are necessary to correct the error.
Conveyance and Contribution Agreement
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3.8 Property Taxes and Transfer Fees. All (i) sales, use,
recording, and other similar property transfer fees and charges incurred in
transferring the Subject Assets to Monterey and (ii) ad valorem and property
taxes for the Subject Assets shall be the responsibility of and paid by
Monterey.
3.9 Finance Matters.
(a) Cash Management. Monterey will establish its own
cash management system which is to be separate and distinct from the cash
management system maintained by Santa Fe, and such system will be operational
prior to or shortly after the Effective Date. Santa Fe further acknowledges
and agrees that after Monterey's cash management system is established and
operational, Santa Fe shall transfer to Monterey all funds, if any, in Santa
Fe's cash management system attributable to the Subject Assets or the Business,
which transfer shall be effected by wire transfer of immediately available funds
to such account as Monterey may designate. Santa Fe shall transfer such funds to
Monterey upon notification from Monterey that its cash management system is
operational together with wire transfer instructions. Any funds received in
Santa Fe's cash management system subsequent to such transfer that are
attributable to the Business shall be promptly (but in no event more than 30
days after receipt) delivered to Monterey by Santa Fe, and any funds received in
Monterey's cash management system subsequent to such transfer that are
attributable to Santa Fe or its other subsidiaries shall be promptly (but in no
event more than 30 days after receipt) delivered to Santa Fe by Monterey. The
Parties shall make appropriate adjustments for late deposits, checks returned
for not sufficient funds and other post-Effective Date transactions that occur
after the transfer as shall be reasonable under the circumstances consistent
with the purpose and intent of this Agreement.
(b) Settlement of Intercompany Accounts. The Parties
agree that the net balance of all intercompany accounts owed by Santa Fe to
Monterey, or owed by Monterey to Santa Fe, in each case as of the Effective
Date, shall be paid by Santa Fe or Monterey, as appropriate, as promptly as
reasonably practicable after the Effective Date (but in no event more than 30
days after receipt). All transactions contemplated in this Section 3.9 shall
be subject to audit by the Parties, and any dispute with respect to any such
transactions thereunder shall be resolved by Price Waterhouse LLP (or another
nationally recognized accounting firm acceptable to the Parties) whose decision
shall be final and nonappealable.
3.11 Insurance Matters.
(a) Existing Surety Bonds. Santa Fe shall continue to
maintain, and not to cancel, those surety and indemnity bonds currently
maintained by or for the benefit of the Subject Assets until the earlier of (i)
the expiration or renewal date therefor next following the IPO Date or (ii) one
year after the IPO Date. Santa Fe shall give Monterey at least 15 days'
advance notice of the expiration or renewal of each such surety and indemnity
bond. If Monterey decides not to renew any bond, Monterey agrees to provide
appropriate documentation to Santa Fe to allow Santa Fe to cancel
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such bonds. Monterey shall indemnify and hold harmless Santa Fe from and against
any expense or loss incurred by Santa Fe after the IPO Date as a result of
maintaining such surety bonds. After the IPO Date, Monterey shall be responsible
for obtaining its own surety and indemnity bonds as may be necessary for its
operations, subject to the preceding sentences with respect to existing bonds.
Santa Fe shall have the right at any time or from time to time, in Santa Fe's
sole discretion, to require that Monterey provide collateral security in favor
of Santa Fe of the same kind that any surety providing a bond or indemnity
agreement for the benefit of Monterey advised Santa Fe it will or might require
under any applicable indemnity agreement or bond.
(b) Policies and Rights Prior to Spin-Off. Prior to the
Spin-Off Date, Monterey shall be entitled to any and all rights of an insured
party under each of the Policies, specifically including rights of indemnity
and the right to be defended by or at the expense of the insurer, with respect
to all injuries, losses, liabilities, damages, and expenses incurred or claimed
to have been incurred prior to the Spin-Off Date (to the extent covered) by any
party in connection with the conduct of the Business. Nothing in this clause
shall be deemed to constitute (or to reflect) the assignment of the Policies,
or any of them, to Monterey. From and after the Spin-Off Date (or earlier upon
mutual agreement), Monterey agrees that it shall be responsible for obtaining
and maintaining, on such terms as Monterey determines to be appropriate,
insurance policies for injuries, claims, liabilities, losses, costs, and
expenses arising with respect to occurrences after the Spin-Off Date.
(c) Administration and Costs. Santa Fe shall be
responsible for (i) the Insurance Administration of the Policies, (ii) the
processing and management of claims under the Policies, and (iii) the
collection and distribution of Insurance Proceeds under the Policies; provided,
that, Monterey shall be required to give notice of any claim or potential claim
to Santa Fe in sufficient time for Santa Fe to notify the insurance carrier of
the Policy. For the period prior to the Spin-Off Date, Monterey shall pay
Santa Fe the portion of the cost of the Policies that is properly allocable to
the Assumed Liabilities. Monterey shall pay such amounts within 15 days of
receiving Santa Fe's invoice.
(d) Claims After the Spin-Off Date. The Policies will
automatically cease and terminate with respect to the Business on the Spin-Off
Date for any occurrences after the Spin-Off Date. For each Insured Claim
asserted or arising after the Spin-Off Date that relates to occurrences prior to
the Spin-Off Date in connection with the Business, Santa Fe shall at the time
such claim is asserted be deemed to transfer, without need of further
documentation, to Monterey any and all rights of an insured party under the
applicable Policy with respect to such Insured Claim, specifically including
rights of indemnity and the right to be defended by or at the expense of the
insurer. The preceding sentence shall not, however, be deemed to constitute (or
to reflect) the assignment of any of the Policies to Monterey. Monterey shall
have the right to assert a claim under a Policy relating to an occurrence prior
to the Spin-Off Date in accordance with the terms of such Policy. Santa Fe
agrees not to amend, cancel, or terminate any Policy in a manner that materially
and adversely affects Monterey's right to assert a claim thereunder that relates
to an occurrence prior to the Spin-Off Date. Additionally, after the Spin-Off
Date, Santa Fe shall, to the extent reasonably practicable,
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assist Monterey in the recovery of any amounts to which Monterey is validly
entitled under any of the Policies on account of Insured Claims. Notwithstanding
the foregoing, Santa Fe does not assume any liability and shall not incur any
liability to Monterey or its affiliates in agreeing to transfer its rights under
any Policy or to provide such action or assistance and shall promptly be
advanced, or reimbursed, if applicable, for all reasonable costs and expenses
incurred after the Spin-Off Date in transferring such rights or in providing
such action or assistance requested by Monterey ("Assistance Costs"). Assistance
Costs include employee salaries and out-of-pocket expenses, attorneys' fees,
adjuster fees, surveyor fees, brokerage fees, travel expenses, communication
expenses and other similar costs and expenses incurred.
(e) Insurance Application to Assumed Liabilities.If and to
the extent Santa Fe receives Insurance Proceeds that relate to Assumed
Liabilities, Santa Fe may directly apply such Insurance Proceeds to such Assumed
Liabilities without distribution to Monterey. To the extent Santa Fe is paid by
or reimbursed from, the Policies for such Assumed Liabilities, Monterey shall be
relieved of its indemnification obligations that would otherwise apply under
Sections 3.4(a) for such Assumed Liabilities, provided, that, this subsection
(e) shall not apply to any amounts attributable to Uninsured Retentions
or Assistance Costs for which Monterey shall remain obligated to pay in full.
(f) Uninsured Retentions. Monterey recognizes that the
Policies are subject to various deductibles, self-insured retentions,
retentions under retrospective premium rating plans and similar charges, which
may not be reinsured by or collectible from commercial insurance markets. All
amounts incurred or payable by Santa Fe or its affiliates, attributable to such
deductibles, retentions, plans or non-reinsured or non-collectible insurance,
after giving effect to maximum premium provisions and stop loss provisions on a
first come first served basis ("Uninsured Retentions") shall not be considered
as insured losses or claims, or insurance proceeds, within the meaning of this
Agreement and notwithstanding anything to the contrary shall be and remain the
obligation of Monterey to the extent arising out of the Subject Assets, the
Business, or the Assumed Liabilities. Monterey shall reimburse Santa Fe for
all amounts incurred or paid by Santa Fe or its affiliates for such Uninsured
Retentions to the extent arising out of Assumed Liabilities.
3.12 Delivery of Release. At the closing of the initial
public offering of Monterey, Monterey shall execute and deliver to Santa Fe a
release (in a form acceptable to Santa Fe) that releases any and all rights
Monterey may have to seek contribution or reimbursement for amounts borrowed by
Santa Fe under the $75 million Credit Facility between Santa Fe and Monterey,
as borrowers, and The Chase Manhattan Bank, as agent for the lenders that are
parties to the Credit Facility.
3.13 Transaction Costs. Monterey shall pay and reimburse
Santa Fe for all out-of pocket costs and expenses incurred by Santa Fe in
connection with the conveyance of the Subject Assets to Monterey, the initial
public offering of Monterey, and the Spin-Off, including those incurred for (i)
the consent solicitation of the holders of Santa Fe's 11% Senior Subordinated
Debentures due 2004 in connection with certain amendments to such debentures,
(ii) the exchange of the Series G Notes for the New Credit Facility, and (iii)
pursuit by Santa Fe of a ruling from the Internal Revenue Service regarding the
tax-free nature of the Spin-Off, including, in each case, all legal, accounting,
printing, underwriting, engraving, consulting, and other third party charges and
expenses.
3.14 Olinda Property.
(a) Purchase and Sale Agreement. Santa Fe is a party to
that certain Agreement for Purchase and Sale of Real Property and Escrow
Instructions with CWC, Inc., a California corporation, dba SUNCAL COMPANIES
("Buyer"), dated August 19, 1996, as amended (the "Olinda Purchase Agreement"),
pursuant to which Buyer agreed to buy and Santa Fe agreed to sell certain real
property and other rights and interests in Orange County, California
(the "Olinda Property") as more particularly described in the Olinda Purchase
Agreement.
(b) Transfer of Notes to Monterey. If the Close of Escrow
(as defined in the Olinda Purchase Agreement) occurs on or before August 1,
1997, Monterey shall purchase, and Santa Fe shall sell, any promissory notes
given by the Buyer as consideration for purchase of the Olinda Property
(collectively, the "Notes") along with all liens, security interests, and other
rights securing repayment of the Notes by Buyer (collectively, the "Property
Liens"), for a purchase price equal to the aggregate face value of the Notes
(the "Note Purchase Price") if the total face value of the Notes does not exceed
$10,000,000. The closing of the purchase and sale of the Notes shall occur in
the offices of Santa Fe within 10 business days of the date of the Close of
Escrow. At the closing, Monterey shall wire transfer the Note Purchase Price to
Santa Fe in immediately available funds and assume all obligations in connection
with the Olinda Property and the Notes, the Property Liens, and Santa Fe's
remaining rights under the Olinda Purchase Agreement shall be assigned to
Monterey without any warranties or representations by Santa Fe. On and after
such closing, the defined term "Subject Assets" shall be deemed to include, and
the defined term "Excluded Assets" shall be deemed to exclude, the Olinda
Property for all purposes under this Agreement.
(c) Transfer of Property to Monterey. If the Close of
Escrow fails to occur on or before August 1, 1997, Monterey shall purchase, and
Santa Fe shall sell, the Olinda Property for a purchase price of $23,000,000
(the "Property Purchase Price") on the terms provided in this Agreement. The
closing of the purchase and sale of the Olinda Property shall occur in the the
offices of Santa Fe on or before August 15, 1997. At the closing, Monterey shall
wire transfer the Property Purchase Price to Santa Fe in immediately available
funds and the Olinda Property shall be conveyed and transferred to Monterey by a
Specific Conveyance as provided herein and Santa Fe's remaining rights under the
Olinda Purchase Agreement shall be assigned to Monterey. On and after such
closing, the defined term "Subject Assets" shall be deemed to include, and the
defined term "Excluded Assets" shall be deemed to exclude, the Olinda Property
for all purposes under this Agreement.
Conveyance and Contribution Agreement
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3.15 Successors and Assigns. This Agreement shall bind
and inure to the benefit of the parties hereto and their respective successors
and assigns. Nothing in this Agreement is intended to confer upon any other
person any benefits, rights, or remedies.
3.16 Articles, Sections and Exhibits. Except to the
extent otherwise stated in this Agreement, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement, and references to
"Exhibits" are to Exhibits attached to this Agreement, which are made parts
hereof for all purposes.
3.17 Governing Law. THIS AGREEMENT AND THE LEGAL
RELATIONS BETWEEN THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS THAT MIGHT REQUIRE OR PERMIT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION.
3.18 Deed; Bill of Sale; Assignment. To the extent
required by applicable law, this Agreement shall also constitute a "deed,"
"bill of sale" or "assignment" of the Subject Assets.
3.19 Construction of Agreement. In construing this
Agreement, the following principles shall be followed:
(i) no consideration shall be given to the captions of
the articles, sections, subsections, or clauses, which are inserted
for convenience in locating the provisions of this Agreement and not
as an aid in its construction;
(ii) no consideration shall be given to the fact or
presumption that one party had a greater or lesser hand in drafting
this Agreement;
(iii) the word "includes" and its syntactical variants
means "includes, but is not limited to" and corresponding syntactical
variant expressions;
(iv) a defined term has its defined meaning throughout
this Agreement, regardless of whether it appears before or after the
place in this Agreement where it is defined;
(v) the plural shall be deemed to include the singular,
and vice versa; and
(vi) each exhibit, attachment, and schedule to this
Agreement is a part of this Agreement, but if there is any conflict or
inconsistency between the main body of this Agreement and any exhibit,
attachment, or schedule, the provisions of the main body of this
Agreement shall prevail.
Conveyance and Contribution Agreement
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3.20 Counterparts. This Agreement may be executed in any
number of counterparts, and each counterpart hereof shall be deemed to be an
original instrument, but all such counterparts shall constitute but one
instrument.
3.21 Survival. This Agreement shall survive the execution
and delivery of the Specific Conveyances.
3.22 Integrated Agreement. This Agreement is the final,
complete, and exclusive expression of the agreements of the Parties with
respect to the matters covered by this Agreement.
3.23 Severability. If any provision of this Agreement is
held to be unenforceable or invalid, the remaining provisions shall remain in
full force and effect.
Conveyance and Contribution Agreement
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<PAGE>
EXECUTED by the Parties as of the Effective Date.
Santa Fe:
SANTA FE ENERGY RESOURCES, INC.
By:/s/ J.L.BRIDWELL
Name: J.L. Bridwell
Title: Sr. Vice President, Exploration
Monterey:
MONTEREY RESOURCES, INC.
By:/s/ R. GRAHAM WHALING
Name: R. Graham Whaling
Title: Chief Executive Officer
Conveyance and Contribution Agreement
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LIST OF EXHIBITS
Exhibit A - Assumed Liabilities
Exhibit B - Businesses
Exhibit C - Excluded Assets
Exhibit D-1 - Surface Interests
Exhibit D-2 - Fee Simple Interests
Exhibit E-1 - Leasehold Interests
Exhibit E-2 - Mineral Interests
Exhibit F - Contracts
Exhibit G - Personal Property
Exhibit H - Certain Intangible Property Rights
Exhibit I - Insurance Policies
Exhibit J - Reservation of Production Payment
List of Exhibits to
Conveyance and Contribution Agreement
Page 18
EXHIBIT 10.2
AGREEMENT FOR THE ALLOCATION OF
THE CONSOLIDATED FEDERAL INCOME TAX LIABILITY
AND STATE AND LOCAL TAXES
AMONG THE MEMBERS OF THE
SANTA FE ENERGY RESOURCES, INC.
AFFILIATED GROUP
This AGREEMENT, dated as of November 19, 1996, is by and
between Santa Fe Energy Resources, Inc., a Delaware corporation ("SFER") and
the members of SFER's consolidated group identified below.
R E C I T A L S
WHEREAS, Santa Fe Energy Resources, Inc. ("SFER") and its
respective subsidiaries constitute an affiliated group for federal income tax
purposes (the "SFER Group");
WHEREAS, the SFER Group has filed a consolidated federal
income tax return for the taxable years ending December 31, 1990, 1991, 1992,
1993, 1994 and 1995, and intends to file a consolidated federal income tax
return for subsequent years; and
WHEREAS, it is the desire of the parties hereto that the
federal income tax liability of the SFER Group be allocated for all purposes
as herein provided,
WHEREAS, Monterey Resources, Inc. ("Monterey") and those
subsidiaries of Monterey which are signatory hereto ("Monterey Subsidiaries")
are members of a group of corporations of which SFER is the common parent and
which file certain consolidated, combined or unitary state or local tax
returns; and
WHEREAS, the parties desire to set forth their agreement with
regard to the sharing of the burden of taxes due with respect to such returns
effective immediately as to estimated taxes and tax returns filed for periods
including the date hereof;
NOW, THEREFORE, in consideration of the premises and the
mutual undertakings and covenants herein contained, the parties hereto agree as
follows:
<PAGE>
Article 1 - Definitions
For purposes of this Agreement:
1.1 "Affiliated group" means an affiliated group as
defined in section 1504(a) of the Code.
1.2 "Code" means the Internal Revenue Code of 1986, as
amended and in effect from time to time, or any law which may be a successor
thereto. A reference to any section of the Code means such section as in
effect from time to time and any comparable provision of the Code or any
successor law.
1.3 "Consolidated return year" means a taxable year to
which this Agreement applies and for which a consolidated federal income tax
return is filed or required to be filed by the SFER Group.
1.4 "Consolidated tax liability" means, with respect to
any consolidated return year, the consolidated federal income tax (including
alternative minimum tax and environmental tax) liability of the SFER Group.
1.5 "Member" means, with respect to any consolidated
return year, an includible corporation (as defined in section 1504(b) of the
Code) in the SFER Group.
1.6 "Monterey Company" means Monterey and the Monterey
Subsidiaries.
1.7 "Parent" means any Member that directly owns stock
that possesses more than 50 percent of the total voting power of the stock of
another Member. If any Member other than SFER has no Parent as defined in the
previous sentence (e.g., if all of the stock of such Member is owned in equal
shares by two other Members), the Chief Financial Officer of SFER shall
designate a Parent for such Member.
1.8 "Regulation" or "Treas. Reg." means a regulation in
effect from time to time under the Code. A reference to any section of the
Regulations means such section as in effect from time to time and any
comparable regulation under the Code or any successor law.
1.9 "Separate return tax liability" means the tax
liability described in Article 2.1.
1.10 "Separate Returns" shall mean each return of Separate
Taxes of an Monterey Company to the appropriate jurisdiction.
1.11 "Separate Taxes" means state and local taxes imposed
on any Monterey Company other than SFER Combined Taxes.
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<PAGE>
1.12 "Subgroup" means a Parent (other than SFER), its
Subsidiaries, and all corporations as to which its relationship is that of
Parent as set forth in Article 1.7.
1.13 "Subsidiary" means, with respect to any Parent, a
Member, the majority of whose voting stock is owned directly by such Parent or
for which such Parent has been designated the Parent by the Chief Financial
Officer of SFER.
1.14 "SFER Combined Return" shall mean each consolidated,
combined or unitary return of SFER Combined Taxes to the appropriate
jurisdiction.
1.15 "SFER Combined Taxes" means state or local taxes for
which liability is computed on a consolidated, combined or unitary basis among
one or more of the SFER Companies and one or more of the Monterey Companies.
1.16 "SFER Company" means SFER and each of its direct or
indirect subsidiaries other than a Monterey Company.
Article 2 - Separate Return Tax Liability
2.1 For each consolidated return year, each Member shall
compute its separate return tax liability for the portion of the year in which
it is a Member. "Separate return tax liability" means, with respect to any
consolidated return year, the federal income tax liability (including
alternative minimum tax and environmental tax) which (1) in the case of a
Member that is not a Parent, is computed as if the Member had filed a separate
federal income tax return and (2) in the case of a Parent, is computed as if
the Parent had filed a consolidated federal income return with the Members of
its Subgroup. In computing separate return tax liability, each Member or
Parent, as the case may be, shall follow the tax elections and other tax
positions adopted or prescribed by SFER and shall take into account the
adjustments and modifications set forth in Article 2.2.
2.2 In computing separate return tax liability, each
Member shall take into account the following adjustments and modifications:
(a) Dividends from any Member of the SFER Group shall be
eliminated;
(b) Gains or losses on intercompany transactions and
intercompany distributions between any Members of the
SFER Group shall be deferred and recognized pursuant
to Treas. Reg. Sections 1.1502-13 and Code section
267 and the regulations thereunder regardless of
whether both Members involved are included in the
hypothetical separate return of the Member or Parent;
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<PAGE>
(c) All carryforwards of tax credits, net operating
losses, capital losses, charitable contributions and
other similar items shall be determined under Article
3;
(d) No carrybacks of credits, deductions, losses or
similar items shall be taken into account;
(e) Any credits, deductions or other items of any Member
that are limited or otherwise adjusted when its
Parent takes such items into account in computing its
separate return liability shall be adjusted as
provided in Article 4;
(f) All ordinary income shall be subject to tax at the
highest effective tax rate applicable to taxable
ordinary income of corporations and all capital gains
shall be subject to tax at the highest effective tax
rate applicable to capital gains of corporations;
(g) Any exemption or similar item that must be prorated
or apportioned among the component Members of a
controlled group of corporations (e.g., the $40,000
exemption in section 55(d)(2) of the Code, the
$25,000 limitation in section 38(c)(1)(B) of the
Code, and the $2,000,000 amount in section 59A(a)(2))
shall not be taken into account; and
(h) Other adjustments specified by the senior tax officer
of SFER ("Tax Officer") which, in its reasonable
judgement, will result in each member incurring a fair
and reasonable share of the SFER Group's consolidated
federal income tax liability.
2.3 Each Member (other than SFER) shall pay its separate
return tax liability to its Parent on or before the due date (without
extensions) of the SFER consolidated federal income tax return for the
appropriate consolidated return year. Such payment shall be reduced by the
estimated tax payments made by such Member pursuant to Article 5. For
administrative or other reasons, a Parent may direct or allow such payment to
be made after the prescribed date. If all relevant information necessary to
determine the amount of the payment is not available by that date, the payment
shall be based on estimates, and adjustments shall be made when sufficient
information is available or as soon as practicable after the SFER consolidated
federal income tax return for the appropriate consolidated return year is
filed.
Article 3 - Carryforwards
3.1 The adjustment to separate return tax liability
specified in Article 2.2(c) shall be determined as provided in this Article.
3.2 In computing separate return tax liability for the
first consolidated return year to which this Agreement applies to a Member,
such Member shall have available as a carryforward
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<PAGE>
only the following items: carryforwards of credits, deductions and other
similar items that would be available to the Member if the Member were not a
Member of the SFER Group; but only to the extent that the Member previously has
not been compensated or has not received benefit for such item. Any such
available carryforward shall be utilized in the order and according to the
priorities designated in the Code and regulations. For subsequent consolidated
return years, a Member's available carryforwards shall be increased by
carryforwards generated in consolidated return years and shall be reduced by
carryforwards used by the Member in previous consolidated return years and
carryforwards that have expired according to the restrictions and limitations
of the Code.
3.3 In computing separate return tax liability, a Parent
may take into account, to the extent allowable under the Code and regulations,
only carryforwards available to itself under the principles of Article 3.2,
carryforwards described in Article 3.2 that are available to the Members of its
Subgroup and carryforwards generated by Members of its Subgroup during
consolidated return years to which this Agreement applies. Nothing in this
provision shall be construed as allowing a Parent to take into account any item
more than once.
3.4 If a Member uses an available carryforward in
computing its separate return tax liability, but the item has not yet been used
in the current year by its Parent in computing the Parent's separate return tax
liability or as a carryback by its Parent pursuant to Article 6, either as a
result of limitations specified in the Code or regulations or as a result of a
limitation placed on such Parent by its Parent pursuant to Article 4, the
Member's separate return tax liability shall be increased by the difference
between the tax liability computed with and without the limited carryforward.
The limited carryforward shall no longer be available as a carryforward to the
Member, but it shall be available to the Member's Parent as a carryforward to
subsequent years. Upon the use of such carryforward by the Member's Parent in
a subsequent year, the Member's separate return tax liability shall also be
reduced by the separate return tax savings realized by the Parent as a result
of the use of the carryforward. If such reduction in the Member's separate
return tax liability exceeds the Member's separate return tax liability before
the reduction, the difference shall be paid by the Parent to the Member at the
time specified in Article 2.3.
3.5 If a carryforward expires prior to its use by a
Member or by the Member's Parent in computing separate return tax liability,
the Member that generated the carryforward shall not be compensated for the
item. If a Member ceases to be a Member of the SFER Group prior to the
Member's or its Parent's use of a carryforward, the Member shall not be
entitled to compensation for the carryforward regardless of whether the item
was used by any other Member of the SFER Group.
Article 4 - Adjustments for Limitations
4.1 The adjustment to separate return tax liability
specified in Article 2.2(e) shall be determined as provided in this Article.
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4.2 If any item generated in the current year and
utilized on a separate return basis in the current year by a Parent's
Subsidiary (regardless of whether the item was generated by the Subsidiary
itself or a Member of the Subsidiary's Subgroup) cannot be used by the Parent
either currently in the Parent's computation of its separate return tax
liability or as a carryback pursuant to Article 6, the Subsidiary's separate
return tax liability shall be increased by the adjustment specified in Article
4.3.
4.3 The adjustment referred to in Article 4.2 shall equal
the increase in the Subsidiary's separate return tax liability that would arise
if the item on the Subsidiary's return were reduced by the amount not usable by
the Parent that would be allocable to the Subsidiary and Members of its
Subgroup under the principles of the Code and the Regulations. That is, in
most cases, the unused item would be allocated between the Parent and its
Subsidiaries according to the relative proportion of the total of such items
generated by the Parent and each Subsidiary's Subgroup. Where the Code does
not provide a method of allocating such item, the allocation method shall be
determined by the Tax Officer. The amount reallocated to the Subsidiary shall
not be allowed as a carryforward to the Subsidiary.
4.4 After an adjustment is made under Article 4.2 to any
Subsidiary, such Subsidiary shall then make a similar adjustment with respect
to its Subsidiaries under the principles of this Article. If such adjustment
is made, the Subsidiary shall promptly compensate its Subsidiaries when it
receives a benefit from its Parent under Article 4.5 upon the Parent's use of
the item as a carryforward.
4.5 When a Parent uses an item referred to in Article 4.2
as a carryforward, the Subsidiary's separate return tax liability for the
carryforward year shall be reduced by the separate return tax savings realized
by the Parent. If such reduction exceeds the Subsidiary's separate return tax
liability before the reduction, the difference shall be paid by the Parent to
the Subsidiary at the time specified in Article 2.3. If a Member ceases to be
a Member of the SFER Group prior to its Parent's use of an item covered by this
Article, the Member shall not be entitled to compensation for such item
regardless of whether the item was used by any other Member of the SFER Group.
Article 5 - Estimated Tax Payments
5.1 Each Member shall pay to its Parent quarterly
installments of estimated tax. The amount of such payments for the first,
second, third and fourth installments shall cumulatively equal 25 percent, 50
percent, 75 percent and 100 percent, respectively, of the estimated full-year
separate return tax liability (including the minimum tax and environmental tax),
as adjusted under Article 5.2. Settlement for such payment shall be made on or
before, or as soon as practicable after, the due date of the applicable
estimated tax payment to be paid by SFER.
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5.2 The computation of separate return tax liability for
purposes of Article 5.1 shall be based on the most recent update of the current
year profit plan. The following additional adjustments to separate return
tax liability shall be made for estimated tax purposes:
(a) Carryforwards of credits (except the minimum tax
credit), losses, and deductions and currently
generated credits shall be taken into account only to
the extent permitted by the Member's Parent according
to the Parent's estimate as to the amount of such
credits that were previously utilized or will be
utilized by the Parent in computing its separate
return tax liability, or, where SFER is the Parent,
according to SFER's estimate as to the amount of such
credits that were previously utilized or will be
utilized on a consolidated basis in the current year;
and
(b) Other adjustments specified by the Tax Officer shall
be taken into account.
5.3 Interest and penalties imposed on the SFER Group as a
result of the underpayment of estimated tax shall be allocated to the Members
to which the underpayment is attributable and shall be paid to SFER by such
Members. For purposes of all such allocations of interest and underpayment
penalties, the Chief Financial Officer of SFER shall determine to which Member
or Members the underpayment is attributable. Such determination of the Chief
Financial Officer shall be final. A payment of such interest and penalties
shall not be considered a payment of estimated tax.
Article 6 - Carrybacks
6.1 Any item that (a) cannot be used by a Member in
computing separate return tax liability for the year in which the item is
generated but (b) can be carried back by the Member on a separate return basis,
shall be treated for purposes of this Agreement as provided in this Article.
6.2 If the item referred to in Article 6.1 is actually
carried back to a previous year (e.g., if Form 1139 or 1120X is filed with the
Internal Revenue Service), whether the return was filed by the SFER Group, the
common Parent of the affiliated group of which the Member was an includible
corporation in such previous year, or the Member itself, the item shall not be
used by any Member of the SFER Group in computing separate return tax
liability. The Member that generated the item shall be entitled to any refund
(including interest) received by any Member of the SFER Group from the Internal
Revenue Service as a result of the carryback. If the item results in a refund
to a corporation that is not a party to this Agreement, the right of the Member
that generated the carryback to receive such refund shall depend on the
Member's tax allocation or other agreement with the refund recipient.
6.3 If the item referred to in Article 6.1 is not
actually carried back, the Member shall be entitled to receive from its Parent
the reduction in the Parent's separate return tax liability resulting from the
current use of the item or the future use of the item as a carryforward. The
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payment for this item shall be made at the time specified in Article 2.3 for
the year in which the item is used by the Member's Parent in computing separate
return tax liability.
Article 7 - Adjustments
7.1 If any adjustment in consolidated tax liability is
made as a result of an audit by the Internal Revenue Service, the granting of a
claim for refund, a final decision by a court, the carryback or carryforward of
a loss, deduction or credit or any other similar circumstance, the tax refund
or liability resulting therefrom shall be allocated in accordance with the
principles of this Agreement as if such adjustments had been taken into account
in the year to which they relate.
7.2 Any interest and penalties paid by SFER with respect
to the adjustments referred to above shall be allocated at or near the time of
payment to the Members that generated the items giving rise to the adjustments.
In the case of penalties and other items that are computed by reference to a
consolidated deficiency (e.g., the negligence penalty imposed under section
6653 of the Code), the Chief Financial Officer of SFER, upon the advice of the
Tax Officer, shall have authority to allocate all or part of the liability for
such item (including the interest thereon) to the Member or Members whose
action or inaction resulted in the imposition of the penalty or similar item.
7.3 Interest received by SFER with respect to such
adjustments shall be allocated to its appropriate Subsidiaries according to the
principles of this Agreement and shall be paid by SFER to its Subsidiaries and
by such Subsidiaries to their Subsidiaries and so on only after the underlying
items could properly have been used by the Subsidiaries in computing their
respective separate return tax liabilities.
7.4 The allocations under Articles 7.2 and 7.3 shall,
when appropriate, take into account the offsetting effects of positive and
negative adjustments. For example, if a $100 deficiency attributable to one
Member is offset by a $60 overpayment of another Member so that the SFER Group
pays interest only on a net $40 deficiency, the interest paid by the deficiency
Member under Article 7.2 shall be based on a deficiency of $100 and an interest
receipt based on an overpayment of $60 shall be allocated to the overpayment
Member under Article 7.3. The Tax Officer of SFER shall determine when it is
appropriate to make such offsetting adjustments for interest paid and received.
7.5 (a) Any direct out-of-pocket expenses (e.g., travel
expenses, attorneys' fees, experts' fees, etc.) incurred by the SFER Group in
connection with proposed or actual adjustments of the type contemplated in this
Article; and (b) that portion of the SFER Group's legal, accounting,
secretarial, bookkeeping, data processing, salaries, fees and all other
expenses allocable to such proposed or actual adjustments or otherwise incurred
by the SFER Group in connection with such proposed or actual adjustments shall
be borne by the Members to which the adjustments relate. SFER shall determine
the expenses that are allocable to such proposed or actual adjustments in any
reasonable manner determined by SFER in its sole discretion. In cases where such
expenses relate to more than one
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Member, the Chief Financial Officer of SFER shall determine how such expenses
shall be allocated to the appropriate Members.
Article 8 - State and Local Taxes
8.1 SEPARATE RETURNS.
A. Responsibility. After consultation with SFER and the
senior tax officer of SFER ("Tax Officer") Monterey and each Monterey
Subsidiary shall be solely responsible for the preparation of all Separate
Returns and the payment of all Separate Taxes. Accordingly, Monterey or the
appropriate Monterey Subsidiary shall be entitled to the benefit of all refunds
of such Separate Taxes, and SFER shall not have any obligations with respect to
such Separate Taxes.
B. Consultation. Monterey or the appropriate Monterey
Subsidiary shall provide SFER with all information necessary to keep SFER
apprised of all matters pertaining to the Separate Returns of the Monterey
Companies and shall consult with SFER and keep SFER fully advised as to the
resolution of disputes with taxing authorities concerning such Separate Taxes,
including any matters relating to audits in connection with Separate Returns of
the Monterey Companies. The decision of the Tax Officer will be determinative
of any position the Monterey Companies takes with respect to matters affecting
such returns as well as any audits thereof.
8.2 SFER COMBINED RETURNS.
A. Payment to SFER. For each year in which any Monterey
Company is included in any SFER Combined Return, each Monterey Company included
in such return shall pay to SFER an amount equal to the Separate Taxes that
would have been incurred by such Monterey Company if it had filed a Separate
Return with respect to such jurisdiction less any payments theretofore made
pursuant to paragraph B hereof.
B. Estimated Payments. Each Monterey Company shall pay
to SFER quarterly installments of the amounts estimated to be due SFER pursuant
to paragraph A of Article 8.2. Such estimated payments shall be determined on
such basis and made at such times as SFER and Monterey may mutually agree or,
absent such agreement, as if the Monterey Companies were filing Separate
Returns in the applicable jurisdictions.
C. Adjustments. If, as a result of the adjustment of
the separate taxable income of a Monterey Company, the amount due SFER by such
Monterey Company included in such return shall be redetermined, such Monterey
Company shall remit to SFER or SFER shall refund to such Monterey Company the
amount of the resulting underpayment or overpayment, as the case may be,
together with interest at the statutory rate provided by the jurisdiction in
which such adjustment arose.
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D. Utilization of Losses. No Monterey Companies shall
be entitled to reimbursement from SFER for any losses or credits which are
includable in an SFER Combined Return unless such losses or credits result in a
"current benefit" to SFER or any SFER Company, in which case such Monterey
Company shall be entitled to receive from SFER the amount of such benefit. For
the purposes hereof, a "current benefit" shall be the difference in the SFER
Combined Tax determined with and without utilization of the loss or credit
attributable to the affected Monterey Company.
8.3 Termination. The provisions of this Article 8 shall
terminate as to a Monterey Company with respect to each jurisdiction upon such
corporation's ceasing to be eligible for inclusion in the SFER Combined Return
for such jurisdiction, but shall continue to apply with respect to any period
in which the income of such Monterey Company is included in the SFER Combined
Return. SFER and the terminating Monterey Company shall be liable for the
payments, adjustments and reimbursements required under Article 8.2 with
respect to such periods.
Article 9- Indemnification by SFER
9.1 Provided that each Monterey Company has paid its
Separate Return Tax Liability pursuant to Article 2 (after taking into account
any adjustments thereto pursuant to Article 7), its Separate Taxes pursuant to
Section 8.1 hereof, and its share of combined return state and local tax
liabilities pursuant to Section 8.2, hereof, SFER shall indemnify and hold
harmless each Monterey Company against any of the following items to the extent
not attributable to the Monterey Company under the principles of this agreement:
(i) any and all income and franchise tax liabilities (including without
limitation, any joint and severable liability for taxes of SFER or any other
member of the SFER Group pursuant to Treasury Regulation Section 1.1502-6 or any
similar provision of state or local tax law), (ii) any interest and penalties
with respect thereto, (iii) any liabilities arising under any tax sharing
agreements or arrangements that SFER or any member of the SFER Group may have
with Santa Fe Pacific Corporation, and (iv) any and all costs, expenses or fees
incurred in connection with the assessment or collection of such taxes, interest
or penalties.
Article 10 - Miscellaneous Provisions
10.1 Each Member shall be required to make tax elections
and adopt tax provisions adopted or prescribed by SFER.
10.2 It is understood and acknowledged that, in accordance
with Treas. Reg. Section 1.1502-77, SFER will be the agent for all Members of
the SFER Group with respect to all matters referred to therein and SFER has the
power, without the consent of any Member, to exercise the authority with
respect to the matters set forth therein, including, without limitation, making
or revoking any elections. SFER shall have authority to compromise or concede
any tax issues for any consolidated return year. In addition, it is
acknowledged and agreed that SFER has the power and authority to make all
decisions and take any actions with respect to all matters affecting Separate
Returns or Combined Returns or any other matter affecting state or local taxes.
Notwithstanding
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anything in this Agreement to the contrary, SFER's control of any contest or
proceeding involving any issue or adjustment (a "Monterey Issue") that could
affect the liability of Monterey or any Monterey Company under this Agreement
shall be subject to the following terms: (i) SFER will diligently and reasonably
contest each Monterey Issue, without regard to the indemnification provided
herein, and not settle, compromise or concede any Monterey Issues, unless the
aggregate amounts for which Monterey would be liable to SFER under this
Agreement as a result of all such concessions, settlements or compromises for
the particular tax year does not exceed $100,000; and (ii) SFER will consult
with Monterey as to the conduct of the contest of each Monterey Issue, will
provide Monterey with copies of all protests, pleadings, briefs, filings,
correspondence and similar materials relative to the contest of each Monterey
Issue and will arrange for a representative of Monterey to be present at (but
not to participate in) all meetings with the relevant taxing authorities and all
hearings before any court.
10.3 If for any reason the application of this Agreement
results in an inequitable and unintended allocation (e.g., if a Parent that
realizes a benefit from an item generated by a Subsidiary in one year is not
the same Parent that realizes the detriment when the item is used by the
Subsidiary in a different year), the Tax Officer shall have the authority to
reallocate items to eliminate or reduce the inequity, provided such
reallocation is based on the principles of this Agreement.
10.4 If a Member ceases to be a Member of the SFER Group,
this Agreement shall apply with respect to any period in which the income of
the terminating Member is included in the SFER consolidated federal income tax
return. The terminating Member shall remain liable to SFER for payments
required under this Agreement, including, but not limited to, payments of tax
and estimated tax for periods in which the Member's income is included in the
SFER consolidated return and payments attributable to adjustments referred to in
Article 7.1 and to interest and penalties referred to in Articles 5.3 and 7.2.
Additionally, the terminating Member shall cooperate and provide reasonable
access to books, records and other information needed in connection with audits,
administrative proceedings, litigation and other similar matters related to
periods in which the Member was a Member of the SFER Group. A Member that ceases
to be a Member of the SFER Group shall not be entitled to any compensation or
reimbursement with respect to any tax refund, benefit or other similar item
realized by the SFER Group after the Member leaves the SFER Group or with
respect to any carryforward not used by the Member or its Parent prior to the
Member leaving the SFER Group. Federal income taxes will be calculated for the
taxable period of termination on the basis of allocations made in accordance
with Treasury Regulation Section 1.1502-76(b)(2)(i) or (ii), as SFER determines.
State or local taxes will be calculated for such period using such reasonable
method as will be determined by SFER.
10.5 If a Member acquires the assets of another Member in
a transaction described in section 381(a) of the Code, the acquiring Member
shall succeed to and assume all rights and liabilities of the acquired Member
under this Agreement.
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10.6 If any Member of the SFER Group has items of loss,
deduction or credit which are to be carried back from a taxable year for which
such Member is not included in a consolidated return filed by SFER to a
consolidated return year for which it was so included, such Member shall
promptly inform SFER of the carryback and assist SFER in filing a proper and
timely claim for any refund which may be available in respect of such items.
10.7 Each Member shall use the computer software, methods
and procedures designated by SFER for purposes of tax record maintenance and
tax return preparation.
10.8 SFER shall have authority to amend this Agreement
through a collateral agreement with any Member to take into account any special
facts and circumstances of such Member. The collateral agreement shall be
effective upon execution by all affected parties and need not be executed by
Members whose rights and liabilities under this Agreement are not affected by
the collateral agreement. Any such amendment (other than any amendment in the
Agreement Concerning Taxes And Tax Indemnification Upon Spin-off) shall be
consistent with the principles of this Agreement.
10.9 This Agreement may be unilaterally amended by SFER in
response to legislative or regulatory changes in the tax law, provided that any
such amendment is consistent with the overall general principles of this
Agreement.
10.10 Any matter not specifically covered by this Agreement
shall be handled in the manner determined by SFER in accordance with the
general principles of this Agreement. Any dispute concerning the
interpretation of this Agreement shall be settled by the Chief Executive
Officer, Chief Financial Officer and Tax Officer of SFER.
10.11 Any Member of the SFER Group may, in lieu of signing
and executing this Agreement, become a party to this Agreement by resolution of
its Board of Directors accepting the provisions of this Agreement.
10.12 This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
10.13 This Agreement shall be binding upon and inure to the
benefit of any successor to the parties hereto as if such successor had been a
party to this Agreement; provided, nothing in this Agreement is intended to
confer any rights or impose any obligations on any third parties.
10.14 This Agreement shall be governed by the laws of the
State of Texas and shall be construed in accordance with such laws.
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Article 11 - Effective Date and Transitional Rules
11.1 This Agreement shall become effective with respect to
the consolidated return year beginning January 1, 1996. Estimated tax payments
made by a Member for such year prior to the execution of this Agreement shall
be treated in the same manner as payments made pursuant to Article 5. The
termination of this Agreement shall not relieve any party of any obligation
arising hereunder.
11.2 This Agreement supersedes all previous tax allocation
agreements between SFER and the Members of its affiliated group, and other
federal income tax allocation agreements or arrangements between the parties to
this Agreement. Any unused carryovers from years subject to such other
agreements shall be allowed or taken into account only as provided in this
Agreement.
IN WITNESS WHEREOF, the, parties hereto have caused this Agreement to
be duly executed and attested.
SANTA FE ENERGY RESOURCES, INC.
By /s/ JAMES L. PAYNE
President
MONTEREY RESOURCES, INC.
By /s/ R. GRAHAM WHALING
Chief Executive Officer
SANTA FE ENERGY COMPANY OF ARGENTINA
By /s/ JAMES L. PAYNE
President
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SANTA FE ENERGY RESOURCES (DELAWARE) LTD.
By /s/ JAMES L. PAYNE
President
ADOBE OFFSHORE PIPELINE COMPANY
By /s/ JAMES L. PAYNE
President
SANTA FE PACIFIC FUELS COMPANY
By /s/ JAMES L. PAYNE
President
SANTA FE ENERGY RESOURCES OF BOLIVIA,INC.
By /s/ JAMES L. PAYNE
President
SECURITY PURCHASING, INC.
By /s/ JAMES L. PAYNE
President
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GULF COAST AMERICAN CORPORATION
By /s/ JAMES L. PAYNE
President
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EXHIBIT 10.3
AGREEMENT CONCERNING TAXES AND
TAX INDEMNIFICATION UPON SPIN-OFF
THIS AGREEMENT (this "Agreement"), dated as of November 19,
1996, is by and between SANTA FE ENERGY RESOURCES, INC. ("SFER"), a Delaware
corporation and MONTEREY RESOURCES, INC. ("Monterey"), a Delaware corporation
and those subsidiaries of Monterey signatory hereto (the "Monterey
Subsidiaries").
R E C I T A L S
WHEREAS, Monterey and the Monterey Subsidiaries are members of
an affiliated group of corporations within the meaning of Section 1504(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), of which SFER is
the common parent (the "SFER Group"), and which files consolidated federal
income tax returns as well as certain consolidated, combined or unitary state
tax returns;
WHEREAS, SFER owns shares of common stock, par value $0.01 per
share ("Common Stock"), of Monterey constituting "control" within the meaning
of Section 368(c) of the Code ("Control");
WHEREAS, SFER intends, subject to the satisfaction of certain
conditions, to distribute all or substantially all of its common stock to its
stockholders (the "Spin-Off");
WHEREAS, SFER, Monterey and the Monterey Subsidiaries are
parties to the AGREEMENT FOR THE ALLOCATION OF THE CONSOLIDATED FEDERAL INCOME
TAX LIABILITY AND STATE AND LOCAL TAXES AMONG THE MEMBERS OF THE SANTA FE
ENERGY RESOURCES, INC. AFFILIATED GROUP (the "Tax Sharing Agreement"); and
<PAGE>
WHEREAS, the parties desire to set forth their agreements with
regard to their respective liabilities for federal, state and local taxes as
well as their agreements if Monterey and the Monterey Subsidiaries cease to be
members of the SFER Group and with respect to the indemnification of SFER as
hereinafter provided in the event the Spin- Off fails to qualify under Section
355 of the Code due to actions by Monterey after the Spin-Off;
NOW, THEREFORE, in consideration for the premises and mutual
undertakings contained herein and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by the parties, it
is agreed as follows:
1. DEFINITIONS.
For all purposes of this Agreement, the terms defined in this
Section 1 shall have the meanings assigned to them in this Section 1.
"Code" shall have the meaning specified in the preamble hereof.
"Disaffiliation" means the Monterey Companies ceasing to be members of
the SFER Group.
"Disaffiliation Date" means the date Disaffiliation shall occur as
determined in conformity with Treasury Regulation Section 1.1502-76(b).
"Indemnified Liability" shall have the meaning specified in Paragraph
C(2) of Section 9 hereof.
"Indemnity Amount" shall have the meaning specified in Paragraph C(5)
of Section 9 hereof.
"Monterey Companies" means Monterey, the Monterey Subsidiaries, their
respective divisions and their successors and assigns.
"Prohibited Act" shall have the meaning specified in Paragraph B of
Section 9 hereof.
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"Restricted Period" means the one-year period commencing with the
Spin-Off; provided that, if legislation similar to Section 9522 of the Revenue
Reconciliation Bill of 1996 as released by President Clinton on March 19, 1996
is enacted with an effective date such that the legislation would apply to the
Spin-off, the Restricted Period shall not end prior to the end of the period
specified in such legislation during which some percentage of ownership of SFER
and/or Monterey must be maintained by the shareholders of SFER prior to the
Spin-off in order for the Spin-off to be tax free to SFER under Section 355 of
the Code.
"Return" shall mean any SFER Consolidated Return and any State and
Local Return.
"Santa Fe Pacific Tax Indemnity Agreement" means that agreement dated
April 20, 1990, by and between Santa Fe Pacific Corporation ("SFP"), and SFER,
pursuant to which SFER agreed to indemnify SFP against certain tax liabilities
incurred by SFP in the event actions taken by SFER caused such tax liabilities.
"SFER Consolidated Return" means any consolidated federal income tax
return of the SFER Group which includes one or more of the Monterey Companies.
"SFER Consolidated Return Year" means any taxable period of the SFER
Group ending on or before the Disaffiliation Date.
"SFER Group" shall have the meaning specified in the preamble hereof.
"SFER Subsidiary" means any corporation (other than a Monterey
Company) the stock of which is owned directly or indirectly by SFER and which
joins SFER in the filing of State and Local Returns.
"Spin-Off" shall have the meaning specified in the Preamble hereto.
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"State and Local Returns" shall have the meaning specified in
Paragraph B of Section 3 hereof.
"Tax Sharing Agreement" shall have the meaning specified in the
preamble hereof.
2. TAX SHARING AGREEMENT TO CONTINUE IN EFFECT.
Except to the extent modified or supplemented herein, the Tax Sharing
Agreement, including Article 9.4 thereof, shall continue in full force and
effect. Consequently, for example, for taxable periods ending on or before the
Disaffiliation Date, payments to SFER or any Monterey Company, as the case may
be, shall continue to be made in accordance with the Tax Sharing Agreement.
The provisions of the Tax Sharing Agreement shall fix the rights and
obligations of the parties as to the matters covered thereby whether or not
followed for federal income tax or other purposes by the SFER Group including
but not limited to the computation of earnings and profits for federal income
tax purposes.
3. TAX RETURN FILING.
A. Federal Returns. If at any time and from time to
time SFER so elects, Monterey and each Monterey Subsidiary agree to continue to
join in the filing of consolidated federal income tax returns for the SFER
Group for the calendar year 1996 and for any subsequent taxable periods of SFER
ending before, on or after the Disaffiliation Date for which the SFER Group is
eligible to file a consolidated federal income tax return including any
Monterey Company with respect to pre-Disaffiliation operations. SFER shall
continue to prepare and file all consolidated federal income tax returns which
are required to be filed by the SFER Group for all such taxable periods and pay
all taxes due thereon. Such returns shall include all income, gains, losses,
deductions and credits of the Monterey Companies. SFER will make all decisions
relating to the
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preparation and filing of such returns. Monterey and each Monterey Subsidiary
further agree to file, or join in the filing of such authorizations, elections,
consents and other documents and take such other actions as may be necessary or
appropriate in the opinion of SFER to carry out the purposes and intent of this
Paragraph A of Section 3.
Monterey shall furnish SFER at least forty-five (45) days
before such return is due (with extensions) with its completed section of each
year's consolidated federal income tax return, prepared in accordance with
instructions from SFER, on the Price Waterhouse Domestic Tax Management System
("DTMS"). Monterey shall also furnish DTMS work papers and such other
information and documentation as is requested by SFER. Such information shall
have been reviewed and approved by Monterey's auditors prior to its submission
to SFER.
B. State and Local Returns. For the calendar year 1996
and for any subsequent taxable periods ending before, on or after the
Disaffiliation Date, SFER will prepare and file all combined, consolidated or
unitary state or local income or franchise tax returns (herein "State and Local
Returns") which are required to be filed and which include the
pre-Disaffiliation operations of any Monterey Company and SFER or any SFER
Subsidiary. SFER will pay all taxes due on such returns. SFER will timely
advise Monterey of the inclusion of any Monterey Companies in any State and
Local Returns and the states and localities in which such returns will be
filed. Each of the Monterey Companies whose tax information is included in any
State and Local Return will evidence its agreement to be included in such
return on the appropriate form and take such other action as may be
appropriate, in the opinion of SFER, to carry out the purposes and intent of
this Paragraph B of Section 3. Monterey shall furnish SFER with a final copy
of the information necessary for SFER
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to complete such combined, consolidated or unitary returns at least forty-five
(45) days before such returns are due (with extensions).
4. CARRYOVERS OF MONTEREY TAX BENEFITS.
SFER shall notify Monterey, after Disaffiliation, of any
consolidated carryover item which may be partially or totally attributed to and
carried over by a Monterey Company and will notify such Monterey Company of
subsequent adjustments which may affect such carryover item. Notwithstanding
any other provision of this Agreement or the Tax Sharing Agreement, neither
Monterey nor any Monterey Subsidiary will be reimbursed for any state, federal
or local deduction, credit or other tax item, including but not limited to a
net operating loss deduction or an enhanced oil recovery credit as defined in
Section 48 of the Code attributable to a post-Disaffiliation year that is
carried back to a pre-Disaffiliation year; provided, however, that neither the
foregoing provision nor any other provision of this Agreement shall be
construed so as to limit in any way the right or ability of Monterey or any
Monterey Subsidiary to make the election under Section 172(b)(3) of the Code or
under similar provisions of applicable state or local law.
5. AUDIT ADJUSTMENTS.
A. General. Pursuant to Article 9.4 of the Tax Sharing
Agreement, if a Monterey Company ceases to be a member of the SFER Group, the
Tax Sharing Agreement shall apply with respect to any period in which the
income of the terminating member is included in the SFER Consolidated Return or
State and Local Returns. The terminating member shall remain liable to SFER
for payments required under the Tax Sharing Agreement, including but not
limited to, payments of tax and estimated tax for periods in which the member's
income is included in the SFER Consolidated Return and State and Local Returns
and payments attributable to adjustments
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referred to in Article 7.1 of the Tax Sharing Agreement and to interest and
penalties referred to in Articles 5.3 and 7.2 of the Tax Sharing Agreement.
Additionally, the terminating member shall cooperate and provide reasonable
access to books, records and other information needed in connection with
audits, administrative proceedings, litigation and other similar matters
related to periods in which the member was a member of the SFER Group.
However, Article 9.4 of the Tax Sharing Agreement is hereby modified so that a
Monterey Company that ceases to be a member of the SFER Group shall be entitled
to compensation or reimbursement with respect to any tax refunds, overpayment,
benefit or other similar item attributable to such member that is realized by
the SFER group after such member leaves the SFER Group. Any such payments or
reimbursements shall be made in accordance with Article 7.1, Article 7.3 and
Article 8.2(C) of the Tax Sharing Agreement. Notwithstanding the foregoing,
Monterey and the Monterey Subsidiaries will not be required under the Tax
Sharing Agreement to pay more on a combined or consolidated basis than that
which they would have been required to pay had Monterey or the Monterey
Subsidiaries filed combined or consolidated State and Local Returns with
Monterey as the common parent. If for any period in which a Monterey Company
was included in the State and Local Returns there is a final determination that
any Monterey Company should not have been included in one or more of such
returns, SFER shall refund to such Monterey Company any sums paid by such
Monterey Company to the SFER Group with respect to such returns which are not
credited against such Monterey Company's separate state or local tax liability
as well as any interest that the SFER Group receives from a state or local
government with respect to sums paid by such Monterey Company to the SFER Group
with respect to such returns which are credited against the SFER Group's
separate state or local tax liability, and such Monterey Company shall have no
further rights or obligations with
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respect to such State and Local Returns, including the right to compensation,
reimbursement or refund with respect to such returns.
B. Adjustments to California Franchise Tax Liability
Under Prior Agreements With Santa Fe Pacific Corporation. With respect to all
tax sharing agreements and arrangements with Santa Fe Pacific Corporation,
Monterey will receive all benefits and be responsible for all liabilities
directly attributable to California Franchise Tax liabilities for taxable years
ending on or after December 31, 1984 (including, but not limited to benefits
and payments attributable to federal and state audit adjustments, including the
California combined return issue with Santa Fe Pacific Corporation), except
that any benefit accruing to or received by Monterey as a result of Federal
audit adjustments with respect to the SFER Group shall be paid by Monterey to
SFER.
6. CONTEST.
If an audit adjustment is proposed or any other claim is made
by any taxing authority with respect to a tax liability of Monterey or a
Monterey Subsidiary with regard to an SFER Consolidated Return or a State and
Local Tax Return, SFER shall promptly notify Monterey of such proposed
adjustment or claim (unless Monterey previously was notified directly by the
relevant tax authority). Notwithstanding anything in the Tax Sharing Agreement
to the contrary, if Monterey so requests and at Monterey's expense, SFER shall
contest or shall permit the relevant Monterey Company to contest (in which case
the relevant Monterey Company shall have the right and power to control or
settle such claim or proceeding), such claim on audit or in a related
administrative or judicial proceeding or by appropriate claim for refund or
credit of taxes, subject, however, to SFER's right to control the prosecution
of any such audit or refund claim or related administrative or judicial
proceeding with respect to those matters which could affect SFER's tax
liability, including its
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liability under this Agreement; and, where deemed necessary by SFER, the
relevant entity shall authorize by appropriate powers of attorney such persons
as SFER shall designate to represent such entity with respect to such audit or
refund claim or related administrative or judicial proceeding. Notwithstanding
anything in this Section 6 or in the Tax Sharing Agreement to the contrary,
SFER's control of any contest or proceeding involving any issue or adjustment
(a "Monterey Issue") that could affect the liability of Monterey or any
Monterey Company under the Tax Sharing Agreement or under this Agreement shall
be subject to the following terms: (i) SFER will diligently contest each
Monterey Issue, without regard to the indemnification provided herein or in the
Tax Sharing Agreement; (ii) SFER will consult with Monterey as to the conduct
of the contest of each Monterey Issue, will provide Monterey with copies of all
protests, pleadings, briefs, filings, correspondence and similar materials
relative to the contest of each Monterey Issue and will arrange for a
representative of Monterey to be present at (but not to participate in) all
meetings with the relevant taxing authorities and all hearings before any
court; and (iii) neither SFER nor any other member of the SFER Group will
settle, compromise or concede any Monterey Issue, unless Monterey has consented
to such settlement, compromise or concession or unless the aggregate amounts
for which Monterey would be liable to SFER under this Agreement and the Tax
Sharing Agreement as a result of all such concessions, settlements or
compromises for the particular tax year does not exceed $100,000.
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7. ALLOCATION; INFORMATION AND COOPERATION; DISPUTE RESOLUTION.
A. Allocation. Federal income taxes will be calculated
for the taxable period ending on the Disaffiliation Date on the basis of
allocations made in accordance with the Tax Sharing Agreement. State or local
taxes will be calculated for such period in accordance with the Tax Sharing
Agreement with regard to the allocation of state and local tax liabilities
where combined, consolidated or unitary State and Local Tax Returns are filed.
B. Information and Cooperation. From and after the
Disaffiliation Date, Monterey shall deliver to SFER, as soon as practical after
SFER's request, such information and data concerning the pre-Disaffiliation
operations of Monterey and the Monterey Subsidiaries, and make available such
knowledgeable employees of Monterey or the Monterey Subsidiaries, as SFER may
reasonably request, including providing the information and data required by
SFER's customary internal tax and accounting procedures, in order to enable
SFER to complete and file all tax forms or reports that it may be required to
file with respect to the activities of Monterey and the Monterey Subsidiaries
for taxable periods ending on, prior to or including the Disaffiliation Date,
to respond to audits by any taxing authorities with respect to such activities,
to prosecute or defend claims for taxes on any administrative or judicial
proceeding and to otherwise enable SFER to satisfy its accounting and tax
requirements. From and after the Disaffiliation Date, SFER shall deliver to
Monterey as soon as practical after Monterey's request, such information and
data concerning any tax attributes which were allocated to Monterey or the
Monterey Subsidiaries that is reasonably necessary in order to enable Monterey
to complete and file all tax forms or reports that it may be required to file
with respect to such activities of Monterey and the Monterey Subsidiaries from
and
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after the Disaffiliation Date, to respond to audits by any tax authorities with
respect to such activities, to prosecute or defend claims for taxes in any
administrative or judicial proceeding and to otherwise enable Monterey to
satisfy its accounting and tax requirements. SFER shall make available to
Monterey such of its knowledgeable employees for such purposes. In addition,
Monterey agrees, at SFER's request, to furnish an executed Power of Attorney to
enable SFER to conduct any Federal, State and local tax matters covering any
period for which Monterey was included in SFER's returns.
C. Dispute Resolution. Notwithstanding Section 10.10 of
the Tax Sharing Agreement, any dispute involving the interpretation of the Tax
Sharing Agreement shall be resolved in a manner, and by applying principles,
consistent with Section 9.D(8) of this Agreement.
8. PAYMENTS.
Payments with respect to federal income taxes shall be made in
accordance with the Tax Sharing Agreement. Any interest or penalties for
underpayment of estimated taxes which are allocated to a Monterey Company shall
be paid not later than 30 days after billing by SFER. Monterey shall pay the
portion of the taxes shown on each State and Local Tax Return which is
allocable to the Monterey Companies in accordance with the Tax Sharing
Agreement no later than 30 days after such return is filed. All payments in
excess of $50,000 to be made hereunder shall be made in immediately available
funds. All payments not made when due hereunder or under the Tax Sharing
Agreement shall bear interest from the due date until paid at a rate per annum
equal to one (1) percentage point above the monthly average of the daily
Effective Federal Funds Rate as stated by The Federal Reserve Bank of New York.
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9. SPIN-OFF TAX INDEMNIFICATION.
Notwithstanding anything herein or in the Tax Sharing
Agreement (including, without limitation, Article 9 of the Tax Sharing
Agreement) to the Contrary, the provisions of this Section 9 shall govern all
matters among the parties hereto related to an Indemnified Liability and an
Indemnified Amount.
A. Continued Conduct of Business. During the Restricted
Period, Monterey agrees that it will not cease the active conduct of its trade
or business within the meaning of Section 355(b) of the Code.
B. Opinion Requirement for Major Transactions Undertaken
by Monterey During the Restricted Period. Monterey agrees that during the
Restricted Period it will not (i) merge or consolidate with or into any other
corporation, (ii) liquidate or partially liquidate (within the meaning of such
terms as defined in Section 346 and Section 302, respectively, of the Code),
(iii) sell or transfer all or substantially all its assets (within the meaning
of Rev. Proc. 77-37, 1977 - 2 C.B. 568) in a single transaction or series of
related transactions, (iv) redeem or otherwise repurchase any of Monterey's
capital stock, or (v) except in connection with any transaction or transactions
which, in the aggregate, would not have the effect, if treated as occurring
before the Spin-Off, of reducing SFER's ownership to less than Control as of
the date of the Spin-Off, issue additional shares of Monterey's capital stock
(actions (i), (ii), (iii), (iv) and (v) are referred to as the "Prohibited
Acts"), unless Monterey first obtains, and permits SFER to review, an opinion
of Andrews & Kurth L.L.P. or other law firm of similar repute, or a
supplemental ruling from the Internal Revenue Service, that such transaction,
and any transaction related thereto, will not affect the qualification of the
Spin-Off under Section 355 of the Code.
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C. Indemnification.
(1) Indemnity. If during the Restricted Period
(A) Monterey takes any action or enters
into any agreement to take any action, including,
without limitation, any Prohibited Act or ceasing to
actively conduct its trade or business within the
meaning of Section 355 of the Code, and the Spin-Off
shall fail to qualify under Section 355 of the Code
primarily as a result of such action or actions; or
(B) Monterey amends the Monterey
Shareholder Rights Plan dated of even date herewith
(the "Rights Plan"), or redeems any outstanding
preferred share purchase rights (the "Rights") issued
pursuant to the Rights Plan, and the Spin-Off shall
fail to qualify under Section 355 of the Code
primarily as a result of any person thereafter, but
within the Restricted Period, acquiring stock of
Monterey which acquisition would have caused the
Rights to become exercisable had the Rights remained
outstanding under the Rights Plan as originally
adopted;
then Monterey shall indemnify and hold harmless SFER and each member
of the SFER Group against any and all federal, state and local taxes,
interest, penalties and additions to tax imposed upon or incurred by
the SFER Group or any member thereof or any stockholder of SFER or
Monterey as a result of the failure of the Spin-Off to so qualify to
the extent provided herein. SFER and each other member of the SFER
Group shall be indemnified and held harmless under this Paragraph C(1)
without regard to the fact that SFER or any other member of the SFER
Group may have reviewed an opinion or supplemental ruling pertaining
to the action pursuant to Paragraph B of Section 9.
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(2) Indemnified Liability. For purposes of this
Agreement, the term "Indemnified Liability" means any liability
imposed upon or incurred by the SFER Group or any member of the SFER
Group for which SFER or any other member of the SFER Group is
indemnified and held harmless under Paragraph C(1) of this Section 9,
but shall not refer to the amount of such liability.
(3) Amount of Indemnified Liability for Income
Taxes. The amount of an Indemnified Liability for a federal or state
tax incurred by the SFER Group or any member thereof based on or
determined with reference to income shall be deemed to be the amount
of tax computed by multiplying (i) the taxing jurisdiction's highest
effective tax rate applicable to taxable income of corporations such
as SFER of the character subject to tax as a result of the failure of
the Spin-Off to qualify under Section 355 of the Code for the taxable
period in which the Spin-Off occurs, times (ii) the gain or income of
the SFER Group or member thereof which is subject to tax in the taxing
jurisdiction as a result of the failure of the Spin-Off to qualify
under Section 355 of the Code, and, (iii) in the case of a state,
times the percentage representing the extent to which such gain or
income is apportioned or allocated to such state; provided, however,
that in the case of a state tax determined as a percentage of federal
income tax liability, the amount of Indemnified Liability shall be
deemed to be the amount of tax computed by multiplying (i) that
state's highest effective rate applicable to the taxable income of
corporations such as SFER of the character subject to tax as a result
of the failure of the Spin-Off to qualify under Section 355 of the
Code for taxable period in which the Spin- Off occurs, times (ii) the
amount of deemed federal income tax (whether or not incurred) imposed
upon the SFER Group or any member thereof from the
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failure of the Spin-Off to qualify under Section 355 of the Code
computed in accordance with this Paragraph C(3), times (iii) the
percentage representing the extent to which the gain or income
required to be recognized on the Spin-Off is apportioned to such
state.
(4) Indemnity Reduced By Income Tax Benefits From
Indemnified Liability. If an Indemnified Liability is of a type that
constitutes a deduction from income in any taxable period in
determining the SFER Group's or any of its member's liability for a
federal or state tax based upon or determined with reference to
income, the amount that Monterey would otherwise be required to pay as
indemnification for such Indemnified Liability shall be reduced by the
aggregate deemed reduction, on account of such deduction of the
Indemnified Liability, in the tax liability of the SFER Group or any
member to all taxing jurisdictions over all taxable periods in which
the Indemnified Liability is deductible. The deemed reduction in tax
liability to a taxing jurisdiction for any taxable period in which all
or a portion of the Indemnified Liability is deductible shall be
deemed to be the amount computed by multiplying (i) such taxing
jurisdiction's highest effective tax rate applicable to the taxable
income of corporations such as SFER of the character against which the
Indemnified Liability is deductible, times (ii) the portion of the
Indemnified Liability that constitutes a deduction in such taxing
jurisdiction in such taxable period, and, (iii) in the case of a
state, times the percentage representing the extent to which the
deduction for the Indemnified Liability is apportioned or allocated to
such state; provided, however, that in the case of a state tax
determined as a percentage of federal income tax liability, the amount
of deemed reduction in tax lability to such state for any taxable
period in which all or a portion of the Indemnified Liability is
deductible shall be deemed to be the amount computed by
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multiplying (i) such state's highest effective rate applicable to the
taxable income of corporations such as SFER in such taxable period of
such character against which the Indemnified Liability is deductible,
times (ii) the deemed reduction in federal income tax in such taxable
period resulting from the deductibility of the Indemnified Liability
computed in accordance with this Paragraph C(4), times (iii) the
percentage representing the extent to which the deduction for the
Indemnified Liability is apportioned or allocated to such state. The
amount of such reduction in Monterey's liability shall be unaffected
by any interest paid to the SFER Group, or any member thereof, by a
taxing authority by reason of any such deduction.
(5) Indemnity Amount. With respect to any
Indemnified Liability, the amount which Monterey shall pay to or on
behalf of SFER as indemnification (the "Indemnity Amount") shall be
the sum of (i) the amount of the Indemnified Liability, as determined
and adjusted under Paragraphs C(3) and C(4) of Section 9, (ii) any
penalties and interest imposed with respect to the Indemnified
Liability and (iii) an amount such that when the sum of the amounts
set forth in clauses (i), (ii) and this clause (iii) of this Paragraph
C(5) are reduced by federal, state and local taxes imposed as a result
of the receipt of such sum, the reduced amount is equal to the sum of
the amounts set forth in clauses (i) and (ii) of this Paragraph C(5).
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D. Procedural Matters.
(1) Notice. If either Monterey or SFER receives
any written notice of deficiency, claim or adjustment or any other
written communication from a taxing authority that may result in an
Indemnified Liability, the party receiving such notice or
communication shall promptly give written notice thereof to the other
party, provided that any delay by SFER in so notifying Monterey shall
not relieve Monterey of any liability to SFER hereunder except to the
extent Monterey is materially and adversely prejudiced by such delay.
SFER undertakes and agrees that from and after such time as SFER
obtains knowledge that any representative of a taxing authority has
begun to investigate or inquire into the Spin-Off (whether or not such
investigation or inquiry is a formal or informal investigation or
inquiry), SFER shall (i) notify Monterey thereof, provided that any
delay by SFER in so notifying Monterey shall not relieve Monterey of
any liability to SFER hereunder except to the extent Monterey is
materially and adversely prejudiced by such delay, (ii) consult with
Monterey from time to time as to the conduct of such investigation or
inquiry, (iii) provide Monterey with copies of all correspondence
between SFER or its representatives and such taxing authority or any
representative thereof pertaining to such investigation or inquiry and
(iv) arrange for a representative of Monterey to be present at (but
not participate in, except as otherwise provided in Section 9.D(3)
below) all meetings with such taxing authority or any representative
thereof pertaining to such investigation or inquiry.
(2) Written Acknowledgment Promptly upon receipt
of notice as provided in Paragraph D(1) of this Section 9, Monterey
shall confirm in writing to SFER that
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the liability asserted in the notice of deficiency, claim or
adjustment or other written communication would, if imposed upon or
incurred by the SFER Group or any member thereof, be an Indemnified
Liability, unless Monterey believes in good faith that such liability
would not be an Indemnified Liability in which case Monterey shall set
forth in writing to SFER the grounds for such belief.
(3) Tax Proceedings Controlled by Monterey. Any
tax proceeding that may result in an Indemnified Liability, which is
acknowledged as such by Monterey, shall be conducted in accordance
with this Paragraph D(3).
Promptly upon Monterey's written acknowledgment that
the asserted liability is an Indemnified Liability, Monterey shall
assume and direct the defense or settlement of the proceeding. If the
Indemnified Liability is grouped with other unrelated asserted
liabilities or issues in the proceeding, SFER and Monterey shall use
their respective best efforts to cause the Indemnified Liability to be
the subject of a separate proceeding. If such severance is not
possible, Monterey shall assume and direct and be responsible only for
the matters relating to the Indemnified Liability.
Upon request, during the course of the tax
proceedings, Monterey shall from time to time furnish SFER with
evidence reasonably satisfactory to SFER of its ability to pay the
full amount of the Indemnified Liability. If at any time during such
tax proceedings SFER reasonably determines, after due investigation,
that Monterey could not pay the full amount of the Indemnified
Liability, if required, then Monterey shall be required to furnish a
guarantee or performance bond satisfactory to SFER in an amount equal
to the amount of the Indemnified Liability asserted by the taxing
authority. If Monterey fails to furnish such
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guarantee or bond, SFER may assume control of the tax proceedings in
accordance with Paragraph D(4) of this Section 9.
Monterey shall pay all expenses related to the
Indemnified Liability, including but not limited to fees for
attorneys, accountants, expert witnesses or other consultants retained
by it. To the extent that any such expenses have been or are paid by
SFER or any member of the SFER Group, Monterey shall promptly
reimburse SFER or such member therefor.
SFER shall not pay (unless otherwise required by a
proper notice of levy and after prompt notification to Monterey of
SFER's receipt of notice and demand for payment), settle, compromise
or concede any portion of the Indemnified Liability without the
written consent of Monterey. SFER shall, at Monterey's sole cost
(including but not limited to any reasonable out-of-pocket costs
incurred by SFER), take such action as Monterey may reasonably request
(including but not limited to the execution of powers of attorney for
one or more persons designated by Monterey and the filing of a
petition, complaint, amended return or claim for refund) in contesting
the Indemnified Liability. Monterey shall, on a timely basis, keep
SFER informed of all developments in the proceeding and provide SFER
with copies of all pleadings, briefs, orders, and other written papers
pertaining thereto.
Subject to satisfaction of the conditions herein set
forth, Monterey may direct SFER to settle the Indemnified Liability on
such terms and for such amount as Monterey may direct. SFER may
condition such settlement on receipt, prior to the settlement, from
Monterey of the Indemnity Amount less any amounts to be paid directly
by Monterey to the taxing authority. Monterey may direct SFER, at
Monterey's expense, to pay an asserted
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deficiency for the Indemnified Liability out of funds provided by
Monterey, and to file a claim for refund.
(4) Tax Proceedings Controlled by SFER. Should
Monterey not provide SFER with the confirmation contemplated by
Paragraph D(2) of this Section 9 within thirty (30) days following
receipt of notice provided in Paragraph D(1) of this Section 9 or,
following such confirmation, should Monterey fail within thirty (30)
days following request therefor to furnish to SFER evidence of its
ability to pay the full amount of the Indemnified Liability, or should
SFER reasonably believe after due investigation that Monterey could
not pay the full amount of the Indemnified Liability if required and
Monterey fails to furnish a guarantee or performance bond satisfactory
to SFER in an amount equal to the amount of the Indemnified Liability
then being asserted by the taxing authority, then SFER may assume
control of the tax proceeding upon the following terms: (i) SFER will
diligently defend against the claim of any taxing authority that the
Spin- Off resulted in taxable income to it or any other member of the
SFER Group, without regard to the indemnification provided herein,
including the pursuit of the appeal of any adverse determinations to
the appropriate tribunal (unless advised in writing by independent
outside counsel at Monterey's sole cost in its reasonable judgment
that SFER or such other member of the SFER Group would not prevail
upon any such appeal) and shall employ such resources, including
independent counsel, in conducting such defense as are reasonably
commensurate to the nature and magnitude of the claim; (ii) SFER will
consult with Monterey as to the conduct of all proceedings, will
provide Monterey with copies of all protests, pleadings, briefs,
filings, correspondence and similar materials relative to the
proceedings and will arrange for a
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representative of Monterey to be present at (but not to participate
in) all meetings with the relevant taxing authorities and all hearings
before any court; and (iii) neither SFER nor any other member of the
SFER Group will settle, compromise or concede any claim that would
result in an Indemnified Liability unless SFER has made the
determination, and has been so advised in writing by independent
outside counsel at Monterey's sole cost, that such settlement is fair
to Monterey and its stockholders and is reasonable in the
circumstance. Subject to the above, any such tax proceeding shall be
controlled and directed exclusively by SFER and may be contested,
defended, paid, settled, compromised or conceded by SFER and any
related expenses incurred by SFER or any member of the SFER Group,
including but not limited to, fees for attorneys, accountants, expert
witnesses or other consultants shall be reimbursed by Monterey, if
Monterey admits or is found to have incorrectly failed to acknowledge
the asserted liability as an Indemnified Liability as provided in
Paragraph D(2) of this Section 9; provided, however, that if after
SFER's assumption of control of the proceedings, Monterey acknowledges
in writing that the asserted liability is an Indemnified Liability or
demonstrates its ability to pay the full amount of the Indemnified
Liability if required, Monterey shall (if practical and upon its
request) promptly assume and direct a proceeding which shall
thenceforth be conducted in accordance with Paragraph D(3) of this
Section 9, provided further however, that SFER will not be required to
pursue the claim in the federal district court, Court of Claims or any
state court if as a prerequisite to such Court's jurisdiction, it is
required to pay the asserted liability unless the funds necessary to
invoke such jurisdiction are provided by Monterey at no cost to SFER.
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(5) Time and Manner of Payment. Unless otherwise
agreed in writing, Monterey shall pay to SFER the Indemnity Amount
(less any amount paid directly by Monterey to the taxing authority or
made available to SFER under Paragraph D(4) of this Section 9) within
seven (7) business days after the date payment of the Indemnified
Liability is made to the taxing authority. Such payment shall be paid
by Monterey to SFER by wire transfer of immediately available funds to
an account designated by SFER by written notice to Monterey prior to
the due date of such payment. If Monterey delays making payment
beyond the due date hereunder, Monterey shall pay interest to SFER on
the amount unpaid at the rate of one (1) percentage point above the
monthly average of the daily Effective Federal Funds Rate, as stated
by The Federal Reserve Bank of New York for each day and the actual
number of days for which any amount due hereunder is unpaid; provided,
however, that this provision for interest shall not be construed to
give Monterey the right to defer payment beyond the due date
hereunder.
(6) Refund of Amounts Paid by Monterey. Should
SFER or any other member of the SFER Group receive a refund in respect
of amounts paid by Monterey to any taxing authority on SFER's behalf
or paid by Monterey to SFER for payment to a taxing authority, or
should any such amounts that would otherwise be refundable to SFER be
applied or credited by the taxing authority to obligations of SFER or
any other member of the SFER Group unrelated to the Spinoff, then SFER
shall, promptly following receipt (or notification of credit), remit
such refund (including any statutory interest that is included in such
refund or credited amount), together with interest thereon, which
interest shall be paid at the rate of one (1) percentage point above
the monthly average of the daily Effective
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Federal Funds Rate, as stated by The Federal Reserve Bank of New York
for each day and the actual number of days commencing on the date such
refund is received (or credit applied); provided, however, that the
provision for interest herein shall not be construed to give SFER the
right to defer payment to Monterey of any refund proceeds hereunder.
(7) Cooperation. SFER and Monterey shall
cooperate with one another in a timely manner in any administrative or
judicial proceeding involving any matter that may result in an
Indemnified Liability. SFER and Monterey agree that such cooperation
shall include, without limitation, making available to the other
party, during normal business hours, all books, records and
information, officers and employees (without substantial interruption
of employment) necessary or useful in connection with any such
judicial or administrative proceeding. The party requesting or
otherwise entitled to any books, records, information, officers or
employees pursuant to this Paragraph D(7) of this Section 9 shall bear
all reasonable out-of-pocket costs and expenses (except reimbursement
of salaries, employee benefits and general overhead) incurred in
connection with providing such books, records, information, officers
or employees.
(8) Dispute Resolution. In an effort to resolve
informally and amicably any claim or controversy arising out of or
related to the interpretation or performance of this Section 9
without resorting to litigation, each party shall first notify the
other in writing of its position with respect to any difference or
dispute hereunder that requires resolution. SFER and Monterey shall
each designate an employee to investigate, discuss and seek to settle
the matter between them. If the two are unable to settle the matter
within 30 days after the latest such notification (or, if one party
gives such notification and the other party fails
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to do so within 15 days after receipt of such notification, within 30
days after such notification), the matter shall be submitted to a
senior officer of each of SFER and Monterey for consideration. If
settlement cannot be reached through their efforts within an
additional 30 days, or such longer time period as they shall agree
upon, the parties shall consider arbitration or other alternative
means to resolve the dispute; provided, however, that the parties
hereby agree that any disputes concerning the calculation of amounts
(e.g., an Indemnity Amount) or a similar accounting matter shall be
resolved by a nationally recognized public accounting firm selected by
the parties, whose fees and expenses shall be shared equally by SFER
and Monterey. With respect to any dispute concerning other matters,
if they are unable to agree on an alternative dispute resolution
mechanism, either party may initiate legal proceedings to resolve such
matter.
10. SANTA FE PACIFIC TAX INDEMNITY AGREEMENT.
SFER agrees to indemnify and hold harmless, on an after tax
basis, the Monterey Companies from liabilities, if any, (including, without
limitation, costs, expenses, fees, or indemnity payments) incurred under the
Santa Fe Pacific Tax Indemnity Agreement.
11. NOTICES.
Any notice, request, instruction or other document to be given
under this Agreement by any party to another party shall be in writing, and
shall be deemed to have been duly given or delivered when delivered personally,
or telecopied (receipt confirmed, with a copy sent by certified or registered
mail as set forth in this Agreement) or, upon receipt (as indicated by return
receipt), when sent by certified or registered mail, postage prepaid, return
receipt requested, or by Federal Express or other overnight delivery service,
to the address of the party set forth below or to such
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address as the party to whom notice is to be given may provide in a written
notice to the other party to this Agreement:
If to SFER, to:
Santa Fe Energy Resources, Inc.
1616 South Voss Road
Suite No. 1000
Houston, Texas 77057
Telecopier No.: (713) 507-5341
Telephone No.: (713) 507-5000
Attention: James L. Payne, President
and
David L. Hicks, Esq., General Counsel
If to Monterey to:
Monterey Resources, Inc.
5201 Truxtun Avenue
Suite 100
Bakersfield, CA 93309
Telecopier No.: (805) 633-3191
Telephone No.: (805) 322-3992
Attention: R. Graham Whaling, CEO
and
Terry Anderson, Esq., General Counsel
12. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit
of any successor to the parties hereto as if such successor had been a party to
this agreement; provided, nothing in this agreement is intended to confer any
rights or impose any obligations on any third parties.
13. GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by and construed under the
laws of the State of Texas as applied to agreements made and to be performed in
the State of Texas without regard to the conflict of laws principles thereof.
Each of the parties consents to personal jurisdiction in respect of any action
arising under or in connection with this Agreement instituted in the United
States
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District Court for the Southern District of Texas, and to service of process
upon it in any manner permitted under the laws of the State of Texas.
14. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
15. TITLES AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
16. AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of each of the parties.
17. SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms to the fullest extent permitted by law.
18. FURTHER ASSURANCE.
Each of the parties shall, without further consideration, use
reasonable efforts to execute and deliver such additional documents and take
such other action, as the other parties, or any of them may reasonably request
to carry out the intent of this Agreement and the transactions contemplated by
this Agreement.
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19. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and understanding
of the parties in respect of the actions and transactions contemplated by this
Agreement. There are no restrictions, promises, inducements, representations,
warranties, covenants or undertakings, other than those expressly set forth or
referred to in this Agreement.
20. SPECIFIC PERFORMANCE.
Each of the parties acknowledges and agrees that in the event
of any breach of this Agreement, the non- breaching party or parties would be
irreparably harmed and could not be made whole by monetary damages. It is
accordingly agreed that the parties will waive the defense in any action for
specific performance that a remedy at law would be adequate and that the
parties, in addition to any other remedy to which they may be entitled at law
or in equity, shall be entitled to compel specific performance of this
Agreement in any action instituted in any court of the United States or any
state thereof having jurisdiction for such action.
21. PARTIES IN INTEREST.
Neither party may assign its rights or delegate any of its
duties under this Agreement (except to another person acquiring substantially
all of the assets of such party by purchase, merger, consolidation or
otherwise) without the prior written consent of the other. This Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto
and, except as otherwise prohibited, their respective successors and assigns.
Nothing contained in this Agreement, express or implied, is intended to confer
upon any other person or entity any benefits, rights or remedies; provided,
however, that other members of the SFER Group shall be deemed third party
beneficiaries of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed by their respective duly authorized officers as of the date
first above written.
SANTA FE ENERGY RESOURCES, INC.
/s/ J. L. PAYNE
By: J. L. Payne
Its: President
MONTEREY RESOURCES, INC.
/s/ R.G. WHALING
By: R.G. Whaling
Its: Chief Executive Officer
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EXHIBIT 10.4
CORPORATE SERVICES AGREEMENT
THIS CORPORATE SERVICES AGREEMENT (the "Agreement") is
effective as of November 19, 1996 (the "Effective Date"), and is entered into by
and between SANTA FE ENERGY RESOURCES, INC., a Delaware corporation ("Santa
Fe"), and MONTEREY RESOURCES, INC., a Delaware corporation (the "Company").
R E C I T A L S:
WHEREAS, the Company was formed in August 1996 as a wholly
owned subsidiary of Santa Fe to own and operate substantially all of the assets
constituting the Western Division of Santa Fe, which is engaged in the oil and
gas business in California; and
WHEREAS, pursuant to a Conveyance and Contribution Agreement
effective as of the date hereof, Santa Fe has transfered to the Company
substantially all of the assets constituting the Western Division of Santa Fe
and the Company assumed the liabilities and obligations of Santa Fe associated
therewith or allocated thereto; and
WHEREAS, Santa Fe has historically provided to its operating
divisions and its subsidiaries, including the Company, certain specialized
corporate and administrative services more particularly described hereinafter;
and
WHEREAS, the Company proposes to offer up to, but not
including, twenty percent (20%) of its common stock for sale to the public; and
WHEREAS, Santa Fe is considering the distribution to its
shareholders of all of Santa Fe's common stock in the Company; and
WHEREAS, in view of the proposed public offering and potential
distribution of the Company's common stock, Santa Fe and the Company desire by
their execution of this Agreement to evidence their understanding with respect
to the terms and conditions upon which Santa Fe will, from and after the
Effective Date, provide certain services to the Company in connection with its
business and affairs.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the premises recited above
and the covenants, conditions, and agreements contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
<PAGE>
1. Term.
The initial term of this Agreement shall commence on the Effective
Date and shall continue thereafter for so long as Santa Fe and its wholly owned
corporate affiliates own more than 80% of the outstanding shares of the
Company's capital stock ordinarily entitled to vote in the election of
directors, and for 90 days thereafter, unless terminated sooner in accordance
with Section 20 below. Thereafter, the term shall be automatically extended
for successive periods of one (1) year each unless terminated sooner in
accordance with Section 20 below.
2. Services.
(a) Services by Santa Fe. During the Applicable Period (as defined
in Section 21 hereof), in consideration for the payments to be made by the
Company as described herein, Santa Fe agrees to provide to the Company certain
corporate and administrative services described below in this subparagraph (a)
(the "Services") to the extent such Services may be reasonably requested by the
Company from time to time during the Applicable Period.
(i) Advisory Management Services. Santa Fe shall provide
advisory management services to assist and advise the Company in the
conduct of its business.
(ii) Audit and Tax. Santa Fe shall assist the Company with
negotiating services for both internal and contract audit functions,
and shall provide the services necessary to provide required tax
information to the Company, arrange and coordinate external audits by
an independent accounting firm selected by the Company and prepare tax
returns, if any are required, and administer any tax matters or tax
reporting requirements of the Company to the extent required.
(iii) Data Processing and Personnel. Santa Fe shall provide
data processing and human resources services to the Company to the
extent required. Data processing services shall include, without
limitation (A) the maintenance of corporate records, such as corporate
minutes, and (B) the maintenance of business accounting and other
records, such as the Company's general ledger and financial
statements, accounts payable, invoicing and accounts receivable,
personnel, inventory and engineering design activities. Human
resources services shall include, without limitation, advice with
respect to the selection, employment, evaluation, counseling and
motivation, and termination of employees.
(iv) Financial Management. Santa Fe shall provide services
related to treasury and banking matters, including cash management
services, for the Company.
(v) Legal Services. Santa Fe shall provide or contract to
have provided legal services related to the operations of the Company.
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<PAGE>
(vi) Insurance. Santa Fe shall assist the Company in
obtaining director and officer liability insurance, either under Santa
Fe insurance policies if reasonably permitted by Santa Fe's insurers or
under separate policies arranged by Santa Fe.
(vii) SEC Filings. Santa Fe shall provide services necessary
to provide assistance in connection with the Company's obligation to
prepare any and all filings required to be made with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the
Securities Exchange Act of 1934 or the New York Stock Exchange or other
applicable securities exchange pursuant to the laws, rules and
regulations governing the same, and in the preparation and distribution
of all materials required to be delivered to the holders of securities,
including annual and quarterly reports and proxy statements, issued by
the Company pursuant to such laws or regulations. In connection
therewith, Santa Fe shall (i) provide the Company with investor
relation services and (ii) provide assistance in determining the impact
of new and proposed accounting standards.
(viii) Employee Benefit Plan Administration. Santa Fe shall
provide advice and administrative services in connection with any
employee benefit plans offered to the Company employees.
(ix) Governmental Reports. Santa Fe shall file various
reports on behalf of the Company with governmental agencies,
including, but not limited to, the Department of Energy (EIA 28) and
Department of Labor.
Santa Fe shall perform the Services with the same degree of care, skill and
prudence customarily exercised for its own operations. It is understood and
agreed that the Services will be substantially identical in nature and quality
to the Services performed by Santa Fe for the Western Division of Santa Fe
during the year prior to the Effective Date, except as required by the Company
becoming a public company following the initial public offering of common stock
of the Company.
(b) Contractors. Santa Fe may engage any third-party contractor
(foreign or domestic) to perform any Service (an "Outsourced Service");
provided, that Santa Fe shall remain responsible for the provision of the
Outsourced Service in accordance with this Agreement. The Company may not
terminate any such Outsourced Service except upon proper notice as provided in
any agreement between Santa Fe and the third-party contractor; provided,
however, that no agreement entered into by Santa Fe with a third-party
contractor after the Effective Date shall give to any such third-party
contractor a preferential right to provide the Company with Services following
the expiration of this Agreement.
(c) Cancellation or Reduction of Services. (i) General. The Company
may remove and terminate or reduce the level of any Service or Services and
Santa Fe may remove and terminate or reduce the level of any Service or Services
that are part of the Santa Fe Consolidated Program (as defined below), in each
case upon 30 days' prior written notice to the other party, subject to the
provisions of subparagraph (ii) below, subparagraph (b) above and Section 5(a)
hereof.
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<PAGE>
(ii) Consolidated Programs. The "Santa Fe Consolidated
Programs" are Santa Fe's consolidated pension, health and welfare plans ("Santa
Fe Consolidated Benefit Plans") and Santa Fe's consolidated treasury, accounting
and tax operations ("Santa Fe Consolidated Reporting").
(1) Removal by the Company. The Company may remove from
this Agreement a Service provided as part of the Santa Fe Consolidated Programs
only with the prior consent of Santa Fe (which shall not be unreasonably
withheld) and upon terms and conditions reasonably acceptable to Santa Fe
(including reimbursement of costs incurred by Santa Fe in effecting such
removal).
(2) Removal by Santa Fe. Santa Fe shall continue to
provide all services that are part of the Santa Fe Consolidated Programs until
either Santa Fe ceases providing such services for its consolidated group of
companies or the Company no longer participates in the applicable Santa Fe
Consolidated Program.
(iii) Should the Company terminate any Service being
provided hereunder or cease to be eligible to purchase certain Services from
Santa Fe's third-party providers (such as the inability of the Company to use
computer licenses or otherwise not qualify under certain agreements to purchase
equipment or Services as a result of the Company not being an "affiliate" of
Santa Fe as required by such agreement), Santa Fe shall have no liability to the
Company for Santa Fe's failure or inability to replace such terminated Services.
(d) Corporate Management. Except as provided below in this Section,
nothing in this Agreement delegates or assigns to Santa Fe any general right or
responsibility to set corporate policies for the Company or to make decisions or
take actions commonly reserved to corporate officers, directors or managers, and
nothing in this Agreement shall be construed to relieve the directors or
officers of the Company from the performance of their respective duties or to
limit the exercise of their powers in accordance with the charter or by-laws of
the Company or in accordance with any applicable statute or regulation. Santa Fe
shall perform all Services, including those associated with the Santa Fe
Consolidated Programs, in accordance with the policies, practices and standards
established by Santa Fe from time to time for such services, which shall not
unfairly discriminate against the Company, compared with other Santa Fe
subsidiaries. If the Company ever requests that Santa Fe change any such policy,
practice or standard, and Santa Fe fails or refuses to do so, that failure or
refusal shall also constitute "cause" for immediate termination of this
Agreement under Section 20(a) below.
(e) Other Activities of Santa Fe. The Company recognizes that Santa
Fe now renders and may continue to render management and other services to other
companies that may or may not have policies and conduct activities similar to
those of the Company. Santa Fe shall be free to render such advice and other
services, and the Company hereby consents thereto. Santa Fe shall not be
required to devote full time and attention to the performance of its duties
under this Agreement, but shall
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devote only so much of its time and attention as it deems reasonable or
necessary to perform the services required hereunder.
3. Transfer of Responsibility of Services.
(a) General. In addition to the specific Services covered by this
Agreement, Santa Fe shall on request assist the Company in assuming
responsibility for some or all of the specific Services to be performed by Santa
Fe under this Agreement. For example, on request Santa Fe shall provide
on-the-job training for the Company's agents and employees who are assigned to
assume responsibility for a Service. Santa Fe shall not be liable or responsible
to the Company in any way for the acts or omission of such agents or employees.
(b) Procedures for Transferring Services.
(i) Notices. Upon termination of this Agreement or upon
removal, termination or reduction of any Service from this Agreement,
the Party who is terminating the Agreement or removing, terminating or
reducing the Service shall, as part of the requisite Notice, identify
the Services, if any, to be transferred to the Company and propose
the procedures and timetable for such transfer.
(ii) Transfer. The Parties shall then promptly assign
sufficient personnel and resources to effect the transfer of
responsibility in an efficient and orderly manner, shall negotiate in
good faith to agree upon reasonable procedures and a timetable for the
transfer, and shall cause the transfer to occur in accordance with
those procedures and on the agreed timetable. The term of this
Agreement shall be deemed to have been extended with respect to the
affected Services, if any, until such transfer has been fully carried
out.
(iii) Information. Santa Fe shall deliver to the Company
copies of all books, records, accounts, documents, contracts, files,
data bases, and other information ("Information") reasonably requested
by the Company in connection with any Service provided hereunder or
reasonably necessary for the Company to assume responsibility for that
Service, including those maintained in electronic form. To the extent
Santa Fe lawfully may do so, Santa Fe shall also furnish the Company
with copies of the computer programs, operating systems, codes,
instructions, training materials, and manuals ("Related Materials")
necessary or useful to receive, store, update, manipulate, use, and
report the Information; and to the extent that Santa Fe may not
lawfully furnish such copies, Santa Fe shall assist the Company in
obtaining them from third parties.
(iv) Costs. In addition to the other sums Santa Fe is
entitled to be paid under this Agreement, the Company shall reimburse
Santa Fe for its reasonable out-of-pocket costs of transferring each
Service to the Company, including the costs of copying and transferring
Information. Notwithstanding the foregoing, Santa Fe shall not be
entitled to receive payment for any incremental cost increases to which
Santa Fe may become subject due to
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the transfer of the Service, including, but not limited to, health
and/or life insurance premiums and/or employee benefit or pension plan
contributions.
4. Payment for Services.
(a) Payments by the Company. The Company, in consideration for the
performance of the Services by or on behalf of Santa Fe, agrees to reimburse
Santa Fe, without duplication, for (i) the actual cost of any item purchased for
the Company, at the request of the Company, by Santa Fe ("Direct Costs"), (ii)
all reasonable expenses actually incurred by Santa Fe for Outsourced Services or
other contract services or utilities provided by any third party providers for
the Company under an agreement with such third party ("Outsourced Charges"),
(iii) reasonable out-of-pocket expenses incurred by Santa Fe employees in
providing Services hereunder, (iv) insurance premiums, funding contributions,
costs and expenses related to the Company's properties, employees, including
their continued participation in Santa Fe employee benefit plans and programs,
and operations, whether such insurance or funding is provided by third parties
or self-insurance programs, and (v) other expenses and Services in accordance
with the schedule or charges shown on Exhibit A attached hereto. If the
compensation for the Services does not include sales, use, excise, value added
or similar taxes, and if any such taxes are imposed on the Services, the Company
shall pay or reimburse Santa Fe for any such taxes.
5. Invoicing.
(a) Santa Fe shall invoice the Company for all Services, Direct
Costs and Outsourced Charges for each calendar month within 45 days following
the end of such calendar month, provided that any failure by Santa Fe to provide
an invoice within such time period shall not relieve the Company of its
obligation to pay an invoice received after such date. All invoices shall
reflect in reasonable detail a description of the Services performed, and the
aggregate amount reflected on any such invoice shall be due and payable within
30 days following the Company's receipt of the invoice.
(b) In the event of a dispute as to the propriety of invoiced
amounts, the Company shall pay all undisputed amounts on each invoice, but shall
be entitled to withhold payment of any amount in dispute and shall notify Santa
Fe within ten (10) business days from receipt of the disputed invoice of the
disputed amount and the reasons each such charge is disputed by the Company.
Santa Fe shall provide the Company with records relating to the disputed amount
so as to enable the parties to resolve the dispute.
(c) In the event the aggregate amount on any invoice is not
disputed and is not paid within 30 days following the Company's receipt of the
invoice, the unpaid amount thereof shall bear interest at the prime rate of
Chase Manhattan Bank, N.A. for the period such amount remains unpaid.
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(d) Any statement or payment not disputed in writing by either
party within two years of the date of such statement shall be considered final
and no longer subject to adjustment. Either party shall not be obligated to
pay for any charges for which statements for payment are submitted more than
two years after the termination of this Agreement.
6. The Company as Sole Beneficiary.
The Company acknowledges that the Services shall be provided only with
respect to the business of the Company and its Subsidiaries as currently
operated or as mutually agreed by the parties hereto. The Company shall not
request performance of any Services for the benefit of any entity other than the
Company and its Subsidiaries. The Company represents and agrees that the Company
will use the Services only in accordance with all applicable federal, state and
local laws and regulations and communications and common carrier tariffs, and in
accordance with the reasonable conditions, rules, regulations and specifications
which may be set forth in any manuals, materials, documents or instructions
furnished from time to time by Santa Fe to the Company. Santa Fe reserves the
right to take all actions, including termination of any particular Services,
that Santa Fe reasonably believes to be necessary to assure compliance with
applicable laws, regulations and tariffs. Santa Fe will notify the Company of
the reasons for any such termination of Services.
7. Limited Warranty, Limitation of Liability
Santa Fe represents that it will provide or cause the Services to be
provided to the Company with reasonable diligence. EXCEPT AS SET FORTH IN THE
IMMEDIATELY PRECEDING SENTENCE, ALL PRODUCTS OBTAINED FOR, AND SERVICES PROVIDED
TO, THE COMPANY ARE AS IS, WHERE IS, WITH ALL FAULTS. SANTA FE MAKES NO (AND
HEREBY DISCLAIMS AND NEGATES ANY AND ALL) REPRESENTATIONS AND WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE SERVICES PROVIDED TO OR PRODUCTS OBTAINED
FOR THE COMPANY. FURTHERMORE, THE COMPANY MAY NOT RELY UPON ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE MADE TO SANTA FE BY ANY PARTY (INCLUDING AN
AFFILIATE OF SANTA FE) PERFORMING SERVICES ON BEHALF OF SANTA FE HEREUNDER,
UNLESS SUCH PARTY MAKES AN EXPRESS WARRANTY TO THE COMPANY.
IT IS EXPRESSLY UNDERSTOOD BY THE COMPANY AND THE COMPANY AGREES THAT SANTA
FE SHALL HAVE NO LIABILITY FOR ANY DAMAGES ARISING OUT OF THE PERFORMANCE OR
NON-PERFORMANCE OF ANY SERVICES PROVIDED HEREUNDER BY SANTA FE OR ANY THIRD
PARTY PROVIDER UNLESS IN EACH CASE SUCH DAMAGES ARISE OUT OF THE GROSS
NEGLIGENCE OR INTENTIONAL MISCONDUCT ON THE PART OF SANTA FE. THE COMPANY AGREES
THAT THE REMUNERATION PAID TO SANTA FE HEREUNDER FOR THE SERVICES
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TO BE PERFORMED REFLECT THIS LIMITATION OF LIABILITY AND DISCLAIMER OF
WARRANTIES. IN NO EVENT SHALL SANTA FE BE LIABLE TO THE COMPANY OR ANY OTHER
PERSON FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM ANY
ERROR IN THE PERFORMANCE OF SERVICES OR FROM THE BREACH OF THIS AGREEMENT,
REGARDLESS OF THE FAULT OF SANTA FE, OR ANY THIRD PARTY PROVIDER OR WHETHER
SANTA FE, OR ANY THIRD PARTY PROVIDER OR WHETHER SANTA FE OR THE THIRD PARTY
PROVIDER ARE WHOLLY, CONCURRENTLY, PARTIALLY, OR SOLELY NEGLIGENT, UNLESS IN
EACH CASE SUCH DAMAGES ARISE OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF SANTA FE OR SUCH THIRD PARTY PROVIDER. TO THE EXTENT ANY THIRD PARTY PROVIDER
HAS LIMITED ITS LIABILITY TO SANTA FE FOR SERVICES UNDER AN OUTSOURCING OR OTHER
AGREEMENT, THE COMPANY AGREES TO BE BOUND BY SUCH LIMITATION OF LIABILITY FOR
ANY PRODUCT OR SERVICE PROVIDED TO THE COMPANY BY SUCH THIRD PARTY PROVIDER
UNDER SANTA FE'S AGREEMENT.
8. Force Majeure.
SANTA FE SHALL HAVE NO OBLIGATION TO PERFORM OR CAUSE THE
SERVICES TO BE PERFORMED IF ITS FAILURE TO DO SO IS CAUSED BY OR RESULTS FROM
ANY ACT OF GOD, GOVERNMENTAL ACTION, NATURAL DISASTER, STRIKE, FAILURE OF
ESSENTIAL EQUIPMENT OR ANY OTHER CAUSE OR CIRCUMSTANCE BEYOND THE CONTROL OF
SANTA FE OR, IF APPLICABLE, THIRD PARTY PROVIDERS OF SERVICES TO SANTA FE
("EVENT OF FORCE MAJEURE"). Santa Fe will notify the Company of any Event of
Force Majeure affecting its Services to the Company. Santa Fe agrees that
following any Event of Force Majeure, the Company shall have no obligation to
pay for the Services affected thereby and Santa Fe will use its reasonable best
efforts to restore such Services.
9. Liability and Indemnification.
(a) Liability of Santa Fe and Indemnitees. (i) Notwithstanding anything
to the contrary set forth in this Agreement, neither Santa Fe nor any Indemnitee
(as defined in Section 21 hereof) shall be liable, responsible or accountable in
damages or otherwise to the Company for any expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Company in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except to the extent such expenses, judgments, fines and amounts
arose out of the gross negligence or willful misconduct of Santa Fe or such
Indemnitee. Neither Santa Fe nor any Indemnitee shall be liable to the Company
for any action of any other employee or agent of the Company (acting in its
capacity as such).
(ii) Subject to its obligations and duties under this Agreement
set forth in Section 2, Santa Fe may exercise any powers granted to it by this
Agreement and perform any of the duties
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imposed upon it hereunder either directly, by or through its agents or by or
through third party contractors.
(iii) Any amendment, modification or repeal of this Section 9
or any provisions hereof shall be prospective only and shall not in any way
affect the limitations on the liability to the Company of the Indemnitees under
this Section 9 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal regardless of
when such claims may arise or be asserted.
(b) Indemnification.
(i) The Company shall indemnify and hold harmless Santa Fe and
each Indemnitee from and against any and all losses, claims, damages,
liabilities (joint or several) expenses (including legal fees and expenses),
judgments, fines, penalties, interest, settlements and other amounts arising
from any and all claims, demands, actions, suits or proceedings, whether civil,
criminal, administrative or investigative, in which Santa Fe or any Indemnitee
may be involved, or is threatened to be involved, as a party or otherwise, by
reason of its status or in connection with services rendered in connection with
the activities of the Company; except to the extent such expenses, judgments,
fines and amounts arose out of the gross negligence or willful misconduct of
Santa Fe or such Indemnitee and provided in each case that Santa Fe or the
Indemnitee acted in good faith and in a manner that Santa Fe or such Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Company and, with respect to any criminal proceeding, had no reasonable cause to
believe its conduct was unlawful.
(ii) Expenses (including legal fees and expenses) incurred by
Santa Fe or any Indemnitee who is entitled to indemnification pursuant to this
Section 9 in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Company prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the Company of an
undertaking by or on behalf of Santa Fe or such Indemnitee to repay such amount
if it shall be determined that Santa Fe or such Indemnitee is not entitled to be
indemnified as authorized in this Section 9.
(iii) The indemnification provided for by this Section 9 shall
be in addition to any other rights to which Santa Fe or an Indemnitee shall be
entitled under any agreement, as a matter of law, or otherwise, and shall
continue as to Santa Fe or any Indemnitee who has ceased to serve in such
capacity and shall inure to the benefit of the heirs, successors, assigns and
administrators of Santa Fe or the Indemnitee.
(iv) No amendment, modification or repeal of this Section 9 or
any provision hereof shall in any manner terminate, reduce or impair the right
of Santa Fe or any past, present or future Indemnitee to be indemnified by the
Company, nor the obligation of the Company to indemnify any such Indemnitee
under and in accordance with the provisions of this Section 9 as in effect
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immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
(c) Insurance. The Company may purchase and maintain (or shall
reimburse Santa Fe for the cost of) insurance, on behalf of Santa Fe and such
other Persons as Santa Fe shall reasonably determine, against any liability that
may be asserted against or expense that may be incurred by such Person in
connection with Services performed for or on behalf of the Company, regardless
of whether the Company has the obligation to indemnify such Person against such
liability under the provisions of this Agreement.
10. Severability.
In the event any portion of this Agreement shall be found by a court
of competent jurisdiction to be unenforceable, that portion of the Agreement
will be null and void and the remainder of the Agreement will be binding on the
parties as if the unenforceable provisions had never been contained herein.
11. Assignment.
Except for the ability of Santa Fe to cause one or more of the Services
to be performed by a third party provider, no party shall have the right to
assign its rights or obligations under this Agreement without the prior written
consent of the other party.
12. Entire Agreement, Supersedure.
This Agreement constitutes the entire agreement of the parties relating
to the performance of the Services by Santa Fe, and all prior or contemporaneous
written or oral agreements are merged herein.
13. Choice of Law.
THIS AGREEMENT SHALL BE SUBJECT TO AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS, EXCLUDING ANY CONFLICTS-OF- LAW RULE OR PRINCIPLE THAT MIGHT
REFER THE CONSTRUCTION OR INTERPRETATION OF THIS AGREEMENT TO THE LAWS OF
ANOTHER STATE.
14. Amendment or Modification.
This Agreement may be amended or modified from time to time only by a
written amendment signed by Santa Fe and the Company.
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15. Notices.
Any notice, request, instruction, correspondence or other document to
be given hereunder by any party to the other (herein collectively called
"Notice") shall be in writing and delivered personally or mailed, postage
prepaid, or by telegram or telecopier, as follows:
IF TO SANTA FE:
Santa Fe Energy Resources, Inc.
1616 South Voss Road
Suite No. 1000
Houston, Texas 77057
Attention: General Counsel
IF TO THE COMPANY:
Monterey Resources, Inc.
5201 Truxtun Avenue
Suite No. 100
Bakersfield, California 93309
Attention: General Counsel
Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telegram or telecopier shall be effective upon actual
receipt if received during the recipient's normal business hours, or at the
beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. Any party may change any address
to which Notice is to be given to it by giving Notice as provided above of such
change of address.
16. Further Assurances.
In connection with this Agreement and all transactions contemplated by
this Agreement, by execution of this Agreement each signatory party hereto
agrees to execute and deliver such additional documents and instruments as may
be required for Santa Fe to provide the Services hereunder and to perform such
other additional acts as may be necessary or appropriate to effectuate, carry
out and perform all of the terms, provisions, and conditions of this Agreement.
17. Acknowledgment Regarding Certain Provisions.
EACH OF THE PARTIES HERETO SPECIFICALLY ACKNOWLEDGES AND AGREES (A)
THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THAT IT IS CHARGED WITH NOTICE AND
KNOWLEDGE OF THE TERMS HEREOF, (B) THAT IT HAS IN FACT READ THIS AGREEMENT AND
IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND
EFFECTS OF
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<PAGE>
THIS AGREEMENT, AND (C) THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS
AGREEMENT PROVIDE FOR THE ASSUMPTION BY ONE PARTY OF, AND/OR RELEASE OF THE
OTHER PARTY FROM, CERTAIN LIABILITIES ATTRIBUTABLE TO THE MATTERS COVERED BY
THIS AGREEMENT THAT SUCH PARTY WOULD OTHERWISE BE RESPONSIBLE FOR UNDER THE LAW.
EACH PARTY HERETO FURTHER AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY SUCH PROVISIONS OF THIS AGREEMENT ON THE BASIS
THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT SUCH
PROVISIONS ARE NOT "CONSPICUOUS."
18. No Third Party Beneficiary.
The provisions of this Agreement are enforceable solely by the parties
to this Agreement, and no Assignee or other Person, other than pursuant to
Section 9 hereof, shall have the right, separate and apart from the Company or
Santa Fe, to enforce any provision of this Agreement or to compel any party to
this Agreement to comply with the terms of this Agreement.
19. Mediation.
Santa Fe and the Company agree to negotiate in good faith in an effort
to resolve any dispute related to this Agreement that may arise between the
parties. If the dispute cannot be resolved promptly by negotiation, then either
party may give the other party written notice that the dispute should be
submitted to mediation. Promptly thereafter, a mutually acceptable mediator
shall be chosen by the parties, who shall share the cost of mediation services
equally. If the dispute has not been resolved by mediation within 90 days after
the date of written notice requesting mediation, then either party may initiate
litigation and pursue any and all remedies at law or at equity that such party
is entitled to.
20. Termination.
This Agreement may be terminated prior to the expiration of the terms
described in Section 1 hereof as follows:
(a) By the Company. The Company shall have the right to terminate
this Agreement for "Cause" (as defined below and in Section 2(d)) in which case
no further payment shall be due Santa Fe pursuant to this Agreement, other than
obligations already accrued as of the Notice Date (as defined below). For
purposes of this Section 20(a), "Cause" shall mean the material failure by Santa
Fe to perform its obligations hereunder. In addition, the Company shall have the
right to terminate this Agreement without cause, for any reason, upon 90 days'
prior written notice.
(b) By Santa Fe. Santa Fe shall have the right to terminate this
Agreement upon any "Constructive Termination," which shall mean:
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(i) The failure by the Company to pay Charges in
accordance with this Agreement and such failure continues for 30 days
after written notice to the Company; or
(ii) Dissolution or liquidation of the Company for any
reason.
In addition, Santa Fe shall have the right to terminate this Agreement without
cause, for any reason, upon 90 days written notice.
(c) By Mutual Agreement. This Agreement may be terminated by
mutual agreement on the terms and dates stipulated in a writing signed by the
Company and Santa Fe.
(d) Notice of Termination. Termination of this Agreement pursuant
to this Section 20 shall be effected by giving written notice, signed by the
terminating party, to the other party and this Agreement shall terminate 30
days from the date on which such notice is delivered ("Notice Date"); provided,
that in the case of termination without cause by either party, this Agreement
shall terminate 90 days from the Notice Date; and provided further, that in the
case of a Constructive Termination described in Section 20(b), termination of
this Agreement shall automatically occur on the date of such event.
21. Definitions.
The following terms shall have the indicated meanings for the purposes
of this Agreement:
"Applicable Period" shall mean the period from the Effective
Date to the date that this Agreement is terminated in accordance with
Section 20.
"Indemnitee," except as otherwise noted, shall mean for
purposes of this Agreement (a) any Person who is or was an officer,
director, employee, agent or trustee of Santa Fe, or (b) any Person who
is or was serving at the request of Santa Fe as a director, officer,
employee, agent, fiduciary or trustee of another Person; provided, that
a Person shall not be an Indemnitee pursuant to this clause (b) by
reason of providing, on a fee-for-services basis, trustee, fiduciary or
custodial services.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed on their behalf by their duly authorized officers.
SANTA FE ENERGY RESOURCES, INC.
By: /s/ JAMES L. PAYNE
Name: James L. Payne
Title: Chief Executive Officer
MONTEREY RESOURCES, INC.
By: /s/ R. GRAHAM WHALING
Name: R. Graham Whaling
Title: Chief Executive Officer
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EXHIBIT 10.5
REGISTRATION RIGHTS AND INDEMNIFICATION AGREEMENT
This Registration Rights and Indemnification Agreement, dated
as of November 19, 1996 (this "Agreement"), is entered into by and between
Monterey Resources, Inc., a Delaware corporation (the "Company"), and Santa Fe
Energy Resources, Inc., a Delaware corporation ("Santa Fe").
W I T N E S S E T H
WHEREAS, the Company is a wholly owned subsidiary of Santa
Fe;
WHEREAS, the Company intends to issue shares of its Common
Stock, par value $0.01 per share ("Common Stock"), in a public offering
pursuant to a Registration Statement on Form S-1 (No. 333-12201), as amended
(the "Offering") and Santa Fe intends, after the Offering and subject to
certain conditions, to distribute its remaining interest in the Company to its
stockholders; and
WHEREAS, the Company has agreed to grant to Santa Fe certain
registration rights with respect to the Common Stock now owned by or issued to
Santa Fe during the term of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
(a) "Commercially Reasonable Efforts", when used with
respect to an obligation to be performed or term or provision to be
observed hereunder, shall mean such efforts as a prudent person
seeking the benefits of such performance or action would make, use,
apply or exercise to preserve, protect or advance its rights or
interests, provided that such efforts do not require such person to
incur a material financial cost or a substantial risk of material
liability unless such cost or liability (i) would customarily be
incurred in the course of performance or observance of the relevant
obligation, term, or provision, (ii) is caused by or results from the
wrongful act or negligence of the person whose performance or
observance is required hereunder or (iii) is not excessive or
unreasonable in view of the rights or interests to be preserved,
protected or advanced. Such efforts may include, without limitation,
(A) the expenditure of such funds and retention by such person of such
accountants, attorneys or other experts or advisors as may be
necessary or
<PAGE>
appropriate to effect the relevant action, (B) the undertaking of any
special audit or internal investigation that may be necessary or
appropriate to effect the relevant action and (C) the commencement,
termination or settlement of any action, suit or proceeding involving
such person to the extent necessary or appropriate to effect the
relevant action.
(b) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
(c) "Common Stock" shall have the meaning set forth in the
recitals of this Agreement.
(d) "Company" shall have the meaning set forth in the
initial paragraph of this Agreement.
(e) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any similar successor federal statute and the
rules and regulations thereunder, all as the same shall be in effect
from time to time.
(f) "Holder" shall mean Santa Fe and any holder of
Registrable Securities to whom the registration rights conferred by
this Agreement have been transferred in compliance with Section 9
hereof.
(g) "Initiating Holders" shall mean any Holder or Holders
who in the aggregate hold not less than 50% of the outstanding
Registrable Securities.
(h) "Liabilities" shall mean all debts, liabilities and
obligations, actual or contingent, liquidated or unliquidated, accrued
or unaccrued, known or unknown, whenever and however arising,
including all costs and expenses (including fees and disbursements of
counsel) relating thereto, and including without limitation debts,
liabilities and obligations arising in connection with any actual or
threatened claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory
or administrative agency or commission or any arbitration panel.
(i) The terms "register," "registered" and "registration"
shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and
applicable rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement.
(j) "Registrable Securities" shall mean (i) the shares of
Common Stock issued to Santa Fe, and (ii) any Common Stock issued as a
dividend or other distribution with respect to or in exchange for or
in replacement of such shares, provided, however, that Registrable
Securities shall not include any shares of Common Stock which have
previously been registered under the Securities Act, which have been
sold or otherwise transferred under Rule 144 or which may be sold
without restriction pursuant to Rule 144(k).
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(k) "Registration Expenses" shall mean all expenses
incurred in effecting any registration pursuant to this Agreement,
including, without limitation, all registration, qualification, and
filing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and expenses of
any regular or special audits incident to or required by any such
registration, but shall not include Selling Expenses (and shall not
include the compensation of regular employees of the Company, which
shall be paid in any event by the Company).
(l) "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from
time to time, or any similar successor rule that may be promulgated by
the Commission.
(m) "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from
time to time, or any similar successor rule that may be promulgated by
the Commission.
(n) "Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time
to time.
(o) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of
Registrable Securities and all fees and disbursements of counsel for
any Holder.
(p) "Taxes" shall mean any and all taxes (including
interest, penalties and additions to tax), fees and charges (including
sales, use, excise, value added, personal property and other taxes)
imposed by any federal, state or local or government tax authority in
the United States of America or by any foreign government or taxing
authority.
2. Demand Registration.
2.1 REQUEST FOR REGISTRATION. (a) If the Company shall
receive from Initiating Holders, at any time or times not earlier than 180 days
after the date of this Agreement, a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities,
representing the lesser of (i) 10% of the Company's then-outstanding shares of
Common Stock and (ii) the number of Registrable Securities held by such
Initiating Holders at the time of such request, but in no event fewer than
100,000 shares (subject to appropriate adjustment for any stock dividend, stock
split, combination, recapitalization, merger, consolidation, reorganization or
other occurrence affect the number of Registrable Securities then outstanding)
the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
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(ii) as soon as practicable, use Commercially Reasonable
Efforts to effect such registration (including, without limitation,
filing a registration statement and any appropriate pre-effective or
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance
with the Securities Act) so as to permit or facilitate the sale and
distribution of all or such portion of the Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within 20
days after such written notice from the Company is effective.
Each request for registration under this Section 2 shall specify the
amount of Registrable Securities proposed to be registered.
(b) The Company shall not be obligated to effect, or to
take any action to effect, any such registration pursuant to this Section 2:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process
in effecting such registration, qualification, or compliance, unless
the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act;
(ii) within 180 days after the consummation of the
Offering;
(iii) (A) prior to the expiration of a period of six months
after the Company has initiated any registration pursuant to this
Section 2.1, provided that a registration initiated pursuant to this
Section 2.1 and subsequently withdrawn by the Holders registering
shares therein shall not be counted as a requested registration
pursuant to this clause (ii) if (X) such withdrawal is based upon
material adverse information relating to the Company that is not known
by or available (upon request from the Company or otherwise) to the
Initiating Holders at the time of their request for registration
pursuant to this Section 2.1 or (Y) the Holders bear the Registration
Expenses for such registration;
(iv) during the period starting with the date 60 days
prior to the Company's good faith estimate of the date of filing of,
and ending on a date 180 days after the effective date of, a
Company-initiated registration, provided that the Company is in good
faith continuing to use all Commercially Reasonable Efforts to cause
such registration statement to become effective;
(v) if the Initiating Holders do not request that such
offering be firmly underwritten by underwriters selected by a majority
in interest of the Initiating Holders (subject to the consent of the
Company, which consent will not be unreasonably withheld);
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<PAGE>
(vi) if the Company and the Initiating Holders are unable
to obtain the commitment of the underwriters described in clause (iv)
above to firmly underwrite the offer;
(vii) if, within 14 days after its receipt of a written
request to effect such registration, the Company causes to be delivered
to the Initiating Holders an opinion of Andrews & Kurth L.L.P. or other
counsel reasonably acceptable to the Initiating Holders to the effect
that the proposed disposition of Registrable Securities by the
Initiating Holders will not require registration or qualification under
the Securities Act, it being specifically understood and agreed that
the Initiating Holders will promptly furnish to the Company and such
counsel all information such counsel may reasonably request in order to
enable such counsel to determine whether it would be able to render
such opinion; or
(viii) if the Company has effected three such registrations
pursuant to subparagraph 2.1(a) and such registrations have been
declared or ordered effective.
2.2 RIGHT TO DEFER REGISTRATION. Subject to the
provisions of Section 2.1(b), the Company shall use its Commercially Reasonable
Efforts to file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the request
or requests of the Initiating Holders; provided, however, that if (i) in the
good faith judgment of the Board of Directors of the Company, such registration
would be detrimental to the Company and the Board of Directors of the Company
concludes, as a result, that it is essential to defer the filing of such
registration statement at such time, and (ii) the Company shall furnish to such
Holders a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
detrimental to the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for the period during which such filing would be detrimental,
provided that (except as provided in Section 2.1(b)(iii) above) the Company may
not defer the filing for a period of more than 180 days after receipt of the
request of the Initiating Holders, and, provided further, that the Company
shall not defer its obligation in this manner more than once in any
twelve-month period.
2.3 UNDERWRITING. (a) The right of any Holder to
registration pursuant to Section 2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
(together with the Company and other holders of securities of the Company
exercising registration rights with respect to such registration) shall enter
into an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by a majority in interest of the
Initiating Holders, subject to the consent of the Company, which consent shall
not be unreasonably withheld.
(b) Notwithstanding any other provision of this
Section 2, if the representative of the underwriters advises the Initiating
Holders in writing that marketing factors require a limitation on the number of
shares to be underwritten, the number of shares to be included in the
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<PAGE>
underwriting or registration shall be allocated as set forth in Section 10
hereof. If a person who has requested inclusion in such registration as provided
above does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the underwriter or the
Initiating Holders. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall also be withdrawn from such registration.
If shares are so withdrawn from the registration and if the number of shares to
be included in such registration was previously reduced as a result of marketing
factors pursuant to this Section 2.3, then the Company shall offer to all
Holders who have retained rights to include securities in the registration the
right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among such Holders requesting additional inclusion in accordance with
Section 10 hereof.
3. Piggyback Registration.
3.1 NOTICE OF REGISTRATION. If the Company shall
determine to register any of its securities either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights (other than pursuant to Section 2 hereof), other than a
registration relating solely to employee benefit plans, a registration relating
solely to a Rule 145 transaction, a registration relating to a business
combination or a registration on any registration form that does not permit
secondary sales, the Company will:
(a) promptly give to each Holder written notice thereof;
and
(b) use Commercially Reasonable Efforts to include in
such registration (and any related qualification under blue sky laws
or other compliance), except as set forth in Section 3.2 below, and in
any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made by any Holder within
20 days after the written notice from the Company described in clause
(i) above is given. Such written request may specify all or a part of
a Holder's Registrable Securities.
3.2 RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 3 prior to the effectiveness of such registration whether or not
any Holder has elected to include Registrable Securities in such registration.
3.3 UNDERWRITING. (a) If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 3.1 above. In such event, the right of any
Holder to registration pursuant to this Section 3 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting (together with the Company and such other holders of securities of
the Company exercising registration rights with respect to such registration)
shall enter into an
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<PAGE>
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company or the security holders
initiating such registration, as the case may be.
(b) Notwithstanding any other provision of this Section 3,
if the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and underwriting. The
Company shall so advise all holders of securities requesting registration, and
the amount of securities that are entitled to be included in the registration
and underwriting shall be allocated first to the Company for securities being
sold for its own account and thereafter as set forth in Section 10 hereof. If
any person does not agree to the terms of any such underwriting, such person
shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
4. Expenses of Registration. All Registration Expenses
in any registration, qualification or compliance pursuant to Section 2 and
Section 3 shall be borne by the Company. All Selling Expenses relating to
securities so registered shall be borne by the holders of such securities pro
rata on the basis of the number of shares of securities so registered on their
behalf.
5. Registration Procedures. In the case of each
registration effected by the Company pursuant to this Agreement, the Company
will keep each Holder advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense (except, as
otherwise provided herein), the Company will use Commercially Reasonable
Efforts to:
(a) keep such registration effective for a period of 120
days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever
first occurs; provided, however, that such 120-day period shall be
extended for a period of time equal to the period after the
effectiveness of such registration that the Holder refrains from
selling any securities included in such registration at the request of
an underwriter of Common Stock (or other securities) of the Company;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement;
(c) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement
to the prospectus, as a Holder from time to time may reasonably
request;
(d) notify each seller of Registrable Securities covered
by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the
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Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances then existing,
not misleading, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances then
existing, not misleading;
(e) cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed;
(f) provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration
statement and a CUSIP number for all such Registrable Securities, in
each case not later than the effective date of such registration; and
(g) comply with all applicable rules and regulations of
the Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of
at least 12 months, but not more than 18 months, beginning with the
first month after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act.
In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 2 hereof, the Company will enter into an
underwriting agreement reasonably necessary to effect the offer and sale of
Common Stock, provided such underwriting agreement contains customary
underwriting provisions.
6. Indemnification.
(a) The Company will, with respect to any registration,
qualification or compliance undertaken pursuant to the rights granted
in this Agreement, indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, if Registrable
Securities of such Holder are included in the securities with respect
to which registration, qualification, or compliance has been effected
pursuant to this Agreement, against all expenses, claims, losses,
damages, and liabilities (or actions, proceedings, or settlements in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, offering circular, or other document filed by the Company
(including any related registration statement, notification, or the
like) incident to any such registration, qualification, or compliance,
or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make
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<PAGE>
the statements therein not misleading, or any violation by the Company
of the Securities Act or any rule or regulation thereunder applicable
to the Company and relating to action or inaction required by the
Company in connection with any such registration, qualification, or
compliance, and will reimburse each such Holder, each of its officers,
directors, partners and each person controlling such Holder, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage,
liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage,
liability, or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by
such Holder and stated to be specifically for use therein. It is agreed
that the indemnity agreement contained in this Section 6(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent
of the Company (which consent has not been unreasonably withheld).
(b) Each Holder (an "Indemnifying Holder") will, if
Registrable Securities held by the Indemnifying Holder are included in
the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its
directors, officers, partners, each person who controls the Company
within the meaning of Section 15 of the Securities Act, each other
such Holder (an "Indemnified Holder"), and each of their officers,
directors, and partners, and each person controlling such Indemnified
Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular, or
other document, or any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and
such Indemnified Holders, directors, officers, partners or control
persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to
the Company by the Indemnifying Holder and stated to be specifically
for use therein; provided, however, that the obligations of the
Indemnifying Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or
actions in respect thereof) if such settlement is effected without the
consent of such Holder (which consent shall not be unreasonably
withheld); and provided further that the liability of an Indemnifying
Holder pursuant to this Section 6(b) in connection with a registration
shall be limited to the net proceeds from the sale of the Registrable
Securities of such Indemnifying Holder pursuant to such registration.
(c) Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and, except as provided in
the following sentence, shall permit the Indemnifying Party to assume
the defense of such claim or any litigation resulting
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therefrom; provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld); provided further that the
Indemnified Party may participate in such defense at its own expense;
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement, to the extent such failure is not
materially prejudicial. After the Indemnifying Party assumes the
defense of such claim or litigation, the Indemnifying Party shall not
be liable to the Indemnified Party under this Section 6 for any legal
or other expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof, other than reasonable costs of
investigation, unless the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party
and the Indemnifying Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or
the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with
defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 6
is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage,
or expense referred to therein, then the Indemnifying Party, in lieu
of indemnifying such Indemnified Party hereunder, shall contribute to
the amount paid or payable by such Indemnified Party as a result of
such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other
relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such statement
or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall
control.
7. Information by Holder. Each Holder of Registrable
Securities shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in this Agreement.
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<PAGE>
8. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the Commission that may permit
the sale of the Restricted Securities to the public without registration, the
Company agrees to use its Commercially Reasonable Efforts to:
(a) make and keep public information regarding the
Company available as those terms are understood and defined in Rule
144 under the Securities Act, at all times from and after 90 days
following the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities
to the general public;
(b) file with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become
subject to such reporting requirements; and
(c) so long as a Holder owns any restricted Registrable
Securities, furnish to the Holder forthwith upon written request a
written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time from and after 90 days
following the effective date of the first registration statement filed
by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as a Holder may reasonably
request in availing itself of any rule or regulation of the Commission
allowing a Holder to sell any such securities without registration.
9. Transfer or Assignment of Registration Rights. The
rights to cause the Company to register securities granted to Santa Fe by the
Company under this Agreement may be transferred or assigned by Santa Fe only to
a transferee or assignee of Registrable Securities representing no less than
10% of the Company's then outstanding shares of Common Stock. Any transfer or
assignment of the registration rights granted under this Agreement shall be
conditioned upon (i) the Company's being given written notice at the time of or
within a reasonable time after said transfer or assignment, stating the name
and address of the transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned and
(ii) the assumption in writing by the transferee or assignee of the obligations
of a Holder under this Agreement.
10. Allocation of Registration Opportunities. In any
circumstance in which all of the Registrable Securities requested to be
included in a registration on behalf of the Holders cannot be so included as a
result of limitations of the aggregate number of shares of Registrable
Securities that may be so included, the number of shares of Registrable
Securities that may be so included shall be allocated among the Holders
requesting inclusion of shares pro rata on the basis of the number of shares of
Registrable Securities held by such Holders. The Company shall not limit the
number of Registrable Securities to be included in a registration pursuant to
this Agreement in order to include shares held by stockholders with no
registration rights or, with respect to
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<PAGE>
registrations under Section 2 hereof, in order to include in such registration
securities registered for the Company's own account or securities other than
Registrable Securities.
11. Delay of Registration. No Holder shall have any
right to take any action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
12. Termination of Registration Rights. The right of any Holder
to request registration or inclusion in any registration pursuant to Section 2
or 3 hereof shall terminate on such date as all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period.
13. Miscellaneous.
13.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN
ALL RESPECTS BY THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO
THE CONFLICTS OF LAW PRINCIPLES THEREOF.
13.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
13.3 ENTIRE AGREEMENT. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof.
13.4 NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand
or by messenger, including Federal Express or similar courier services,
addressed (a) if to a Holder, to such Holder c/o Santa Fe at 1616 South Voss,
Suite 1000, Houston, Texas 77057, Attention: President, or at such other
address as such Holder shall have furnished to the Company in writing, or (b)
if to the Company, to 5201 Truxtun, Suite 100, Bakersfield, California 93309,
Attention: Chief Executive Officer, or at such other address as the Company
shall have furnished to the Holders. Each such notice or other communication
shall for all purposes of this Agreement be treated as effective or having been
given when delivered if delivered personally, or, if sent by mail or courier,
at the earlier of its receipt or 48 hours after the same has been deposited in
a regularly maintained receptacle for the deposit of the United States mail,
addressed and mailed as aforesaid.
13.5 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which may be executed by less than all of the
Holders, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
-13-
<PAGE>
13.6 SEVERABILITY. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect such provision in any other jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
13.7 TITLES AND SUBTITLES. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
13.8 AMENDMENT. Except as expressly provided herein, this
Agreement may be amended only upon the written consent of the Company and the
Holders of at least seventy-five percent (75%) of the Registrable Securities
then subject to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed effective
as of the date first set forth above.
MONTEREY RESOURCES, INC.
By: /s/ R. GRAHAM WHALING
R. Graham Whaling,
Chief Executive Officer
SANTA FE ENERGY RESOURCES, INC.
By: /s/ JAMES L. PAYNE
James L. Payne,
Chief Executive Officer
-17-
EXHIBIT 10.6
MONTEREY RESOURCES, INC.
INCENTIVE COMPENSATION PLAN
I. OBJECTIVES
The objectives of the Incentive Compensation Plan (the "Plan") are:
-- To communicate and focus management's attention on
significant business goals.
-- To identify and reward superior performance.
-- To provide a competitive compensation package to
attract and retain high quality key employees.
The Plan is intended to encourage key management to achieve and
surpass Company, group and individual objectives through establishing
annual objectives, reviewing performance and awarding cash bonuses
based on the achievement of such objectives.
The purposes of the Plan are to achieve strong business performance,
equitable compensation and a staff of high quality, motivated key
employees.
II. ADMINISTRATION
The Plan shall be under the direction of the Compensation and Benefits
Committee ("Committee") of the Board of Directors of Monterey
Resources, Inc. (the "Company").
However, the responsibility for ensuring that administrative
procedures are established for Plan operation, that the Plan is
managed in a timely and effective manner and that periodic analyses of
the Plan's effectiveness are undertaken shall be the duty of a Plan
Administrator appointed by the Committee, who need not be a member of
the Committee. The Plan Administrator shall report his findings,
conclusions and recommendations regarding the Plan's operation and
effectiveness to the Committee from time to time.
The Committee shall have such discretionary authority to administer
the Plan, to construe and interpret the Plan, to decide all questions
of eligibility, to determine the amount, manner and time of payment of
any benefits hereunder and to make all other determinations deemed
necessary or advisable for the administration of the Plan. The
attached Administrative Guidelines have been adopted by the Committee
and may be changed at any time by the Committee in its discretion.
<PAGE>
III. ELIGIBILITY
Eligible employees under the Plan are those key employees of the
Company and its subsidiaries who may have a substantial impact on the
operating performance of the Company and its subsidiaries.
Employment positions eligible for participation in the Plan each Plan
Year, and the assigned levels of participation for such positions,
shall be determined by the Committee based upon the recommendation of
the Plan Administrator. However, the Committee may modify such
recommendations in any manner it deems appropriate.
IV. INCENTIVE OPPORTUNITIES
The incentive award opportunity with respect to an eligible employment
position shall be designed to reflect the overall impact of the
position on Company performance and to provide a total cash
compensation package for such position that is in line with key
competitors of the Company.
V. BASIS FOR DETERMINING THE INCENTIVE AWARD
The incentive award may be based upon a combination of Company,
operating unit and/or individual results, in the Committee's
discretion.
The combination of factors, and the respective weights, used in
determining the maximum award for an eligible position will be
established by the Committee on an annual basis. The maximum award
with respect to an eligible position shall be expressed as a
percentage (which shall not be less than 20% or more than 100%) of the
participant's base salary at the beginning of the Plan Year. The
percentage applicable to an eligible position shall be determined by
the Committee. A participant's basis of participation in the Plan
will be communicated to him in writing as early as possible in the
Plan Year. However, incentive awards may be increased by up to 25% at
the discretion of the Committee or reduced or eliminated in certain
instances pursuant to Article VII and/or VIII.
VI. PERFORMANCE OBJECTIVES
Performance objectives are intended to support the strategic mission
of the Company and shall be:
-- Specific and based upon measurable results,
-- Challenging, but attainable, and
-- Tailored to each position.
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<PAGE>
The basis and amount of the incentive award to be provided for
different levels of performance will be established at the beginning
of the Plan Year for each participating position. A performance
schedule for each specific objective shall be established by the
Committee to indicate the award payable at varying levels of
performance. Performance objectives may be revised at any time by the
Committee in light of unanticipated or extraordinary events.
Specific objectives will be based primarily on the Company's business
plans and competitive levels of performance. For any specific
performance objective, the award payable (as a percent of the maximum)
for a given level of performance will be consistent throughout the
Plan.
The Committee may assign objectives, based upon the recommendation of
the Plan Administrator, which are appropriate to the managerial impact
of each participant's position. As appropriate, the individual
objectives may include departmental, district or combined operating
unit performance objectives.
Performance objectives may include, among others:
-- Earnings per share,
-- Pre-tax Income and Cash Flow,
-- Operating Expenses Control,
-- Capital Spending Control,
-- Reserve Additions,
-- Reservoir Management,
-- Prospect Development, and
-- Land Management.
VII. PERFORMANCE
Performance will be reviewed at appropriate intervals as financial and
operating results are available. At the end of each Plan Year, the
determination of the achievement of the objectives for such Plan Year
and the payment of awards earned will occur as soon as practicable
after the compilation of the year-end financial and operating results.
All financial and operating results will be reviewed by the Controller
of the Company and the achievement of all individual objectives shall
be approved by the Chief Executive Officer of the Company prior to the
recommendation to the Committee of the payment of awards by the Plan
Administrator. The Committee has the authority to approve all awards
recommended for payment.
At the discretion of the Committee, incentive awards, either
individually or collectively, may be increased, decreased, or
completely eliminated at any time during a Plan Year or after the end
of the Plan Year but before payment on the basis of the following
considerations:
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<PAGE>
-- Company performance relative to its competitors,
-- Balancing of long-term versus short-term
considerations,
-- Handling of unforeseen opportunities and obstacles, or
-- Overall individual performance.
VIII. AWARD PAYMENTS
Payment of earned awards will be made as soon as possible after the
close of each Plan Year upon the approval of the Committee and may
include the receipt of a stock-based award under a stock plan of the
Company in lieu of cash under this Plan. Payments will be subject to
all applicable tax withholding requirements.
If a participant's employment terminates during a Plan Year, whether
voluntarily or involuntarily, the participant shall forfeit all rights
to any incentive award for the Plan Year, unless the Committee, in its
discretion, elects to pay all or a portion of the award. If a
participant voluntarily resigns after the Plan Year-end, but before
award payout, the participant shall be entitled to the incentive award
payment, if any, he would be eligible to receive pursuant to Article
VII.
In the discretion of the Committee and the election of the participant
- made irrevocably prior to the beginning of the applicable Plan Year
- all or a portion of an incentive award for a Plan Year may be
deferred until a future date or event. The methods of deferment and
subsequent payment shall be determined by the Committee.
IX. COMMUNICATIONS
The effectiveness of the Plan depends upon participants fully
understanding the purpose of the Plan, the performance objectives and
the administration of the Plan. It shall be the responsibility of the
Plan Administrator to ensure that all aspects of the Plan are
presented to and understood by the participants.
X. CHANGE IN CONTROL
A "Change in Control" shall be deemed to have occurred if:
(a) any "person," as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than any trustee or other fiduciary
holding securities under an employee benefit plan of Santa Fe
Energy Resources, Inc. ("SFER"), or any affiliate thereof, or
any company owned, directly or indirectly, by the stockholders
of SFER in substantially the same proportions as their
ownership of stock of SFER), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of SFER
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<PAGE>
representing 25% or more of the combined voting power of
SFER's then outstanding securities;
(b) during any period of two consecutive years (not including any
period prior to the effective date of this provision),
individuals who at the beginning of such period constitute the
Board of Directors of SFER, and any new director (other than a
director designated by a person who has entered into an
agreement with SFER to effect a transaction described in
clause (a), (c) or (d) of this definition) whose election by
the Board of Directors of SFER or nomination for election by
SFER's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute at least a
majority thereof;
(c) the stockholders of SFER approve a merger or consolidation of
SFER with any other company other than (i) a merger or
consolidation which would result in the voting securities of
SFER outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more
than 65% of the combined voting power of the voting securities
of SFER (or such surviving entity) outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of SFER
(or similar transaction) in which no "person" (as hereinabove
defined) acquires more than 25% of the combined voting power
of SFER's then outstanding securities; or
(d) the stockholders of SFER adopt a plan of complete liquidation
of SFER or approve an agreement for the sale or disposition by
the Company of all or substantially all of SFER's assets. For
purposes of this clause (d), the term "the sale or disposition
by SFER of all or substantially all of SFER's assets" shall
mean a sale or other disposition transaction or series of
related transactions involving assets of SFER or of any direct
or indirect subsidiary of SFER (including the stock of any
direct or indirect subsidiary of SFER) in which the value of
the assets or stock being sold or otherwise disposed of (as
measured by the purchase price being paid therefor or by such
other method as the Board of Directors of SFER determines is
appropriate in a case where there is no readily ascertainable
purchase price) constitutes more than two-thirds of the fair
market value of SFER (as hereinafter defined). For purposes
of the preceding sentence, the "fair market value of SFER"
shall be the aggregate market value of the outstanding shares
of common stock of SFER (on a fully diluted basis) plus the
aggregate market value of SFER's other outstanding equity
securities. The aggregate market value of the shares of common
stock of SFER shall be determined by multiplying the number of
shares of SFER's common stock (on a fully diluted basis)
outstanding on the date of the execution and delivery of a
definitive agreement with respect to the transaction or series
of related transactions (the
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<PAGE>
"Transaction Date") by the average closing price of the shares
of common stock of SFER for the ten trading days immediately
preceding the Transaction Date. The aggregate market value of
any other equity securities of SFER shall be determined in a
manner similar to that prescribed in the immediately preceding
sentence for determining the aggregate market value of the
shares of common stock of SFER or by such other method as the
Board of Directors of SFER shall determine is appropriate.
(e) If SFER ceases to own 80% of the combined voting power of the
then outstanding voting securities of the Company, the term
"Company" shall be substituted for SFER as used in this
definition of "Change in Control;" provided, however, as long
as SFER owns 35% or more of the combined voting power of the
voting securities of the Company, the above "Change in
Control" definition shall be applied separately with respect
to SFER and with respect to the Company as substituted for
SFER in the definition, and a Change in Control with respect
to either SFER or the Company in such situation shall be a
Change in Control for purposes of this Plan. Notwithstanding
anything herein to the contrary, a distribution by SFER to its
stockholders of its interest in such voting securities of the
Company shall not constitute a Change in Control.
In the event that a Change in Control occurs, the performance
objectives established pursuant to Section VI hereof for the year
during which the Change in Control occurred shall be deemed to have
been met in full at the maximum performance level so established, and
each participant shall be entitled to receive a bonus in respect of
the year in which such Change in Control occurs; provided, however,
that if a participant's employment is terminated prior to December 31
of such year, such participant shall be entitled to a prorated bonus,
the amount of which shall be determined by multiplying the bonus which
he would have been entitled had he remained employed until December 31
by a fraction, the numerator of which is the number of days in such
year through the date of the participant's termination of employment,
and the denominator of which is 365.
XI. TERMINATIONS OR AMENDMENT
The Plan may be terminated or amended at any time by the Board of
Directors of the Company.
XII. EFFECTIVE DATE
This Plan is effective as of January 1, 1997.
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<PAGE>
ATTACHMENT A
ADMINISTRATIVE GUIDELINES
1. An employee's participation in the Plan will be based upon the
calendar months in which the employee held a position eligible for
participation during a Plan Year.
2. The employee must be in an eligible position on the 1st day of the
month in order to participate in the Plan for that month.
3. Except as provided for in the Plan, an employee must be on the active
payroll on the last day of the Plan Year in order to participate for
any portion of that year.
4 If a participant transfers between eligible positions under the Plan
during the Plan Year, his/her participation will be based on full
months of participation in each position at the participation levels
established for each position.
5. New hires or employees who first assume an eligible position on
October 1st or later in a given Plan Year are not eligible for
participation in that Plan Year.
6. Nothing contained in these Administrative Guidelines will take
precedence over specific decisions rendered by the Committee
concerning eligibility, participation, or other Plan administration
policies and practices.
-7-
EXHIBIT 10.7
MONTEREY RESOURCES, INC.
1996 INCENTIVE STOCK COMPENSATION PLAN
FOR KEY EMPLOYEES
STATEMENT OF PURPOSE
One purpose of the Monterey Resources, Inc. 1996 Incentive
Stock Option Compensation Plan For Key Employees (the "Plan") is to encourage
superior performance by employees, by allowing the Board of Directors of
Monterey Resources, Inc. ("MRI") to award several forms of incentive
compensation to employees of the Company. By providing incentive compensation
commensurate and competitive with that provided by other companies, the Plan
should also assist MRI in attracting and retaining the services of qualified
and capable employees.
In order to further the identity of interest of employees with
the stockholders of MRI, all of the forms of compensation under the Plan
relate to MRI Common Stock. Employees' success in enhancing stockholder value
will translate directly into an enhanced benefit for the employee.
An additional purpose of the Plan is to encourage the
Directors to own shares of the Company's stock and thereby to align their
interests more closely with the interests of the other stockholders of MRI, to
encourage the highest level of Director performance by providing the Directors
with a direct interest in MRI's attainment of its financial goals, and to
provide a financial incentive that will help attract and retain the most
qualified Directors.
Notwithstanding anything in the Plan or any Award agreement to
the contrary, no Award shall become exercisable or payable (even if vested)
prior to the first anniversary of the date the Company is spunoff by Santa Fe
Energy Resources, Inc. (or during such additional period, if any, as may be
recommended by counsel to the Company as necessary or helpful to the tax-free
status of the spinoff); provided, however, the foregoing restriction shall not
apply to a Participant whose employment or Board membership terminates due to
death or Disability and such restriction shall also lapse upon a Change in
Control.
I. DEFINITIONS
Unless the context indicates otherwise, the following terms have the
meanings set forth below:
"Acceleration Date" means the earliest date on which any of
the following events shall first have occurred: (i) the acquisition
described in clause (a) of the definition of
<PAGE>
"Change in Control" contained in this Section I, (ii) the change in
the composition of the Board of Directors described in clause (b) of
such definition, or (iii) the stockholder approval or adoption
described in clause (c) or (d) of such definition.
"Award" means a grant of Options, Director Options, Restricted
Stock, Phantom Units, Bonus Stock or Stock Appreciation Rights
pursuant to the Plan.
"Board" means the Board of Directors of MRI.
"Bonus Stock" means Common Stock, which is not subject to a
Restricted Period, awarded by the Committee pursuant to the Plan.
"Cause" means (a) the willful and continued failure by the
Participant (other than a Director) to substantially perform his
duties with the Company (other than any such failure resulting from
his incapacity due to physical or mental illness), or (b) the willful
engaging by the Participant (other than a Director) in conduct which
is demonstrably and materially injurious to the Company, monetarily or
otherwise. For purposes of this definition, no act, or failure to
act, shall be deemed "willful" unless done, or omitted to be done, by
the Participant not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company.
A "Change in Control" shall be deemed to have occurred if:
(a) any "person," as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than any trustee
or other fiduciary holding securities under an
employee benefit plan of SFER or an affiliate, or any
company owned, directly or indirectly, by the
stockholders of SFER in substantially the same
proportions as their ownership of stock of SFER), is
or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of SFER representing 25% or
more of the combined voting power of SFER's then
outstanding securities;
(b) during any period of two consecutive years (not
including any period prior to the effective date of
this provision), individuals who at the beginning of
such period constitute the Board of Directors of
SFER, and any new director (other than a director
designated by a person who has entered into an
agreement with SFER to effect a transaction described
in clause (a), (c) or (d) of this definition) whose
election by the Board of Directors of SFER or
nomination for election by SFER's stockholders was
approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for
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<PAGE>
election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(c) the stockholders of SFER approve a merger or
consolidation of SFER with any other company other
than (i) a merger or consolidation which would result
in the voting securities of SFER outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity) more than 65% of the combined voting power of
the voting securities of SFER (or such surviving
entity) outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of SFER (or
similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the
combined voting power of SFER's then outstanding
securities; or
(d) the stockholders of SFER adopt a plan of complete
liquidation of SFER or approve an agreement for the
sale or disposition by SFER of all or substantially
all of SFER's assets. For purposes of this clause
(d), the term "the sale or disposition by SFER of all
or substantially all of SFER's assets" shall mean a
sale or other disposition transaction or series of
related transactions involving assets of SFER or of
any direct or indirect subsidiary of SFER (including
the stock of any direct or indirect subsidiary of
SFER) in which the value of the assets or stock being
sold or otherwise disposed of (as measured by the
purchase price being paid therefor or by such other
method as the Board of Directors of SFER determines
is appropriate in a case where there is no readily
ascertainable purchase price) constitutes more than
two-thirds of the fair market value of SFER (as
hereinafter defined). For purposes of the preceding
sentence, the "fair market value of SFER" shall be
the aggregate market value of the outstanding shares
of common stock of SFER (on a fully diluted basis)
plus the aggregate market value of SFER's other
outstanding equity securities. The aggregate market
value of the shares of common stock of SFER shall be
determined by multiplying the number of shares of
SFER's common stock (on a fully diluted basis)
outstanding on the date of the execution and delivery
of a definitive agreement with respect to the
transaction or series of related transactions (the
"Transaction Date") by the average closing price of
the shares of common stock of SFER for the ten
trading days immediately preceding the Transaction
Date. The aggregate market value of any other equity
securities of SFER shall be determined in a manner
similar to that prescribed in the immediately
preceding sentence for determining the aggregate
market value of the shares of common stock of SFER or
by such other method as the Board shall determine is
appropriate.
-3-
<PAGE>
(e) If SFER ceases to own 80% of the combined voting
power of the then outstanding voting securities of
the Company, the term "Company" shall be substituted
for SFER as used in this definition of "Change in
Control" and all other appropriate places; provided,
however, as long as SFER owns 35% or more of the
combined voting power of the voting securities of the
Company, the above "Change in Control" definition
shall be applied separately with respect to SFER and
with respect to the Company as substituted for SFER
in the definition, and a Change in Control with
respect to either SFER or the Company in such
situation shall be a Change in Control for purposes
of this Plan. Notwithstanding anything herein to the
contrary, a distribution by SFER to its stockholders
of its interest in such voting securities of the
Company shall not constitute a Change in Control.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation and Benefits Committee of
the Board.
"Common Stock" means the common stock, $0.01 par value, of MRI.
"Company" means collectively MRI, its parent and all companies
in which MRI owns, directly or indirectly, more than 50% of the voting
stock.
"Director" means a member of the Board who is not also an
employee of the Company.
"Director Option" means an option to purchase shares of Common
Stock granted pursuant to Section XVIII.
"Disability" means the inability of a Participant to continue
to perform the duties of his or her employment with the Company or as
a member of the Board, as the case may be, as determined by the
Committee.
"Dividend Equivalents" means, with respect to an Option or
Phantom Unit, an amount equal to the amount of any dividends that are
declared and become payable after the Grant Date for such Award and on
or before the date such Award is exercised, paid or forfeited, as the
case may be.
"Fair Market Value" means the average of high and low (or bid
and ask, if applicable) price per share of the Common Stock on the
applicable date (or if there are no transactions on that date, the
last preceding date on which there were transactions) in the principal
market in which the Common Stock is traded, as reported in The Wall
Street Journal, or the fair market value per share as determined by
the Committee in good faith, using any fair and reasonable means for
this purpose.
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"Grant Date" as used with respect to a particular Award means
the date as of which such Award is granted pursuant to the Plan.
"Option" means an option, other than a Director Option, to
purchase shares of Common Stock granted by the Committee pursuant to
the Plan, which may be designated as either an "Incentive Stock
Option" or a "Non-Qualified Stock Option."
"Incentive Stock Option" means an Option that is intended to
qualify as an Incentive Stock Option as described in Section 422 of
the Code.
"Non-Qualified Stock Option" means an Option granted pursuant
to the Plan, other than an Incentive Stock Option.
"Participant" means any key employee of the Company or
Director who has an Award outstanding under the Plan.
"Phantom Unit" means a right to receive upon the achievement
of specified performance goals a payment from the Company in an amount
equal to a specified percentage of the Fair Market Value of a share of
Common Stock on the date on which such right becomes payable.
"Plan" means the Monterey Resources, Inc. 1996 Incentive Stock
Compensation Plan for Key Employees as set forth herein and as may be
amended from time to time.
"Restricted Period" means the period of time for which
Restricted Stock and/or Phantom Units are subject to forfeiture
pursuant to the Plan or during which Options and Stock Appreciation
Rights are not exercisable.
"Restricted Stock" means Common Stock subject to a Restricted
Period which is granted pursuant to the Plan.
"Retirement" means an employee's leaving the employment of the
Company, other than for Cause, after attaining age 55 and completing
five years of service with the Company. With respect to a Director,
"Retirement" means ceasing to be a member of the Board on or after
reaching age 65.
"SFER" means Santa Fe Energy Resources, Inc.
"Stock Appreciation Right" means the right, granted by the
Committee pursuant to the Plan, to receive a payment equal to the
increase in the Fair Market Value of a share of Common Stock
subsequent to the Grant Date of such Award.
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II. STOCK AND PHANTOM UNITS SUBJECT TO THE PLAN
Subject to adjustment as provided in the Plan, the maximum aggregate
number of shares of Common Stock with respect to which Options,
Director Options, Restricted Stock, Bonus Stock, Phantom Units and
Stock Appreciation Rights may be granted from time to time under the
Plan is 3,000,000; provided, however, no more than 500,000 shares of
Common Stock shall be issued as Restricted Stock. The Common Stock
issued under the Plan may be either previously authorized but unissued
shares or treasury shares acquired by MRI. In the event that any
Award expires, lapses, is forfeited or otherwise terminates, any
shares of Common Stock allocable to the terminated portion of such
Award may again be made subject to an Award under the Plan. Further,
to the extent an Award is paid in cash, rather than in Common Stock,
or shares of Common Stock are tendered to the Company, or withheld by
the Company from an Award, as payment of the exercise price of an
Award or in satisfaction of any Company tax withholding obligation,
such shares of Common Stock may again be made subject to an Award
(other than Incentive Stock Options) under the Plan.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. The members of the
Committee shall not be eligible to participate in the Plan, except as
provided in Section XVIII. The Committee shall select from time to
time those employees to be granted Awards under the Plan. The
Committee shall also determine the terms and provisions of Awards,
which need not be identical. The Committee shall grant all Awards.
The Committee shall construe the Plan, prescribe and rescind rules and
regulations relating to the Plan and make all other determinations
deemed necessary or advisable for the administration of the Plan,
subject to the limitations of Section XXII.
IV. ELIGIBILITY
Subject to the discretion of the Committee, all officers and other key
employees of the Company who have responsibility for the growth and
profitability of the Company are eligible to receive Awards under the
Plan; provided, however, no employee may receive in any calendar year
an Award or Awards of Options and/or Stock Appreciation Rights with
respect to more than 1,000,000 shares of Common Stock. Directors
shall automatically participate in the Plan as provided in Section
XVIII.
V. OPTIONS
The Committee may, from time to time and subject to the provisions of
the Plan, grant Awards of Options to key employees of the Company to
purchase shares of Common Stock. Any Options granted may be
designated as either Incentive Stock Options or as Non-Qualified Stock
Options, or the Committee may designate a portion of an Award as
"Incentive Stock Options" and the remaining portion as "Non-Qualified
Stock Options." Any
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portion of an Award that is not designated as "Incentive Stock
Options" shall be "NonQualified Stock Options" and shall not be
subject to the requirements of Section VI of the Plan. The Committee
may grant replacement or substitution options (or Stock Appreciation
Rights) to affected employees in conjunction with any Company merger,
consolidation, purchase or acquisition of property or stock, spinoff
or other distribution of stock or property, reorganization, or partial
or complete liquidation, on such terms as the Committee deems
equitable.
The purchase price of the Common Stock subject to any Options shall be
determined by the Committee, but, except with respect to a replacement
Option, may not be less than 100% of the Fair Market Value of the
Common Stock on the Grant Date. Such price shall be subject to
adjustment as provided in Section XIII of the Plan.
The Committee may include in each agreement evidencing the Option
grant a provision stating that the Option granted therein may not be
exercised in whole or in part for such period(s) of time specified in
such agreement, and may further limit the exercisability of the Option
in such manner as the Committee deems appropriate, including, without
limitation, the achievement of performance goals. The Committee may,
in its discretion, at any time and from time-to-time accelerate the
exercisability of all or part of any Option.
The period of any Option, which is the time period during which the
Option may be exercised, shall be determined by the Committee and
shall not extend more than ten years after the Grant Date.
Each grant will specify the number of shares of Common Stock to which
it pertains and whether Dividend Equivalents are awarded with respect
to the Option, and, if awarded, the payment or crediting of such
Dividend Equivalents.
Options granted to a key employee who is an officer of the Company
may, in the discretion of the Committee, provide for an automatic
"reload" grant upon the exercise of the Option, with such terms and
conditions on any such reload grant as the Committee may choose,
provided, however, the option price may not be less than 100% of the
Fair Market Value per share on the Grant Date of the reload option and
its term may not exceed the remaining term for the exercised option.
Options shall not be transferable other than by will or the laws of
descent and distribution during the Participant's lifetime shall be
exercisable only by the Participant.
Termination for Cause, as defined in Section I, shall result in
forfeiture of all outstanding Options. Termination by the Company for
any reason other than Cause (including terminations pursuant to formal
severance programs sponsored by the Company or an affiliate), or
terminations by reason of death, Disability or Retirement, shall
result in a lapse
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of all or a proportion of the Restricted Period applicable to any
outstanding Award as set forth in Section XI.
A person electing to exercise an Option shall give written notice of
such election to the Company in such form as the Committee may
require. Upon exercise of an Option, the full option purchase price
for the shares with respect to which the Option is being exercised
shall be payable to the Company (i) in cash or by check payable and
acceptable to the Company or (ii) subject to the approval of the
Committee, (a) by tendering to the Company shares of Common Stock
owned by such person having an aggregate Fair Market Value as of the
date of exercise and tender that is not greater than the full option
purchase price for the shares with respect to which the Option is
being exercised and by paying any remaining amount of the option
purchase price as provided in (i) above (provided that the Committee
may, upon confirming that such person owns the number of additional
shares being tendered, authorize the issuance of a new certificate for
the number of shares being acquired pursuant to the exercise of the
Option less the number of shares being tendered upon the exercise and
return to such person (or not require surrender of) the certificate
for the shares being tendered upon the exercise) or (b) by such person
delivering to the Company a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay
the option purchase price and any withholding taxes; provided that in
the event such person chooses to pay the option purchase price and
withholding taxes as provided in (ii)(b) above, such person and the
broker shall comply with such procedures and enter into such
agreements of indemnity and other agreements as the Committee shall
prescribe as a condition of such payment procedure. Payment
instruments will be received subject to collection.
Notwithstanding any other provision in the Plan, if a Change in
Control occurs while unexercised Options, and Stock Appreciation
Rights relating thereto, remain outstanding under the Plan, then from
and after the Acceleration Date, all Options and Stock Appreciation
Rights shall be exercisable in full, whether or not otherwise
exercisable.
VI. INCENTIVE STOCK OPTIONS
An Option designated by the Committee as an "Incentive Stock Option"
is intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code and shall satisfy, in addition to
the conditions of Section V, the conditions set forth in this Section
VI.
The purchase price of the Common Stock subject to an Incentive Stock
Option shall be the greater of the Fair Market Value of the Common
Stock on the Grant Date or the "fair market value" of the Common Stock
as such term is used for purposes for Section 422(b)(4) of the Code.
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An Incentive Stock Option shall not be granted to an employee who, on
the Grant Date, owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of SFER, or of its
parent or subsidiary corporations.
VII. RESTRICTED STOCK
The Committee may, from time to time and subject to the provisions of
the Plan, grant Awards of Restricted Stock to employees of the
Company; provided, however, no employee may receive in any calendar
year Restricted Stock Awards with respect to more than 500,000 shares
of Common Stock.
The Committee shall, at the time shares of Restricted Stock are
granted, designate the Restricted Period and the performance goals, if
any, of the Company with respect to such Award. Such goals must be
achieved (and certified by the Committee) in order for a Participant
to receive the unrestricted shares of Common Stock at the designated
time.
With respect to any Restricted Stock Award that is intended to meet
the requirements of Section 162(m) of the Code, the performance goal
or goals for such Award shall be with respect to one or more of the
following: earnings per share; earnings before interest, taxes,
depreciation and amortization expenses ("EBITDA"); earnings before
interest and taxes ("EBIT"); EBITDA, EBIT or earnings before taxes and
unusual or nonrecurring items as measured either against the annual
budget or as a ratio to revenue; market share; sales; costs; return on
equity; operating cash flow; production volumes compared to plan or
prior years; reserves added; discretionary cash flow; return on net
capital employed and/or stock price performance. The goals can be
applied, where appropriate, with respect to an individual, a business
unit or the Company as a whole and need not be based on increases or
positive results, but can be based on maintaining the status quo or
limiting economic losses, for example. Which goals to use with
respect to such Award, the weighting of the goals if more than one is
used, and whether the goal is to be measured against a
Company-established budget or target, an index or a peer group of
companies, shall also be determined by the Committee at the time of
grant of the Award.
Each certificate representing Restricted Stock awarded under the Plan
shall be registered in the name of the Participant and, during the
Restricted Period, shall be left on deposit with the Company with a
stock power endorsed in blank. Participants shall have the right to
receive dividends paid on their Restricted Stock and to vote such
shares. Restricted Stock may not be sold, pledged, assigned,
transferred or encumbered during the Restricted Period other than by
will or the laws of descent and distribution.
Termination for Cause, as defined in Section I, shall result in
forfeiture of all outstanding Restricted Stock. Termination by the
Company for any reason other than Cause (including terminations
pursuant to formal severance programs sponsored by the Company or an
affiliate), or termination by reason of death, Disability or
Retirement, shall result in a lapse
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on all or a portion of the Restricted Period applicable to any
outstanding Award as set forth in Section XI.
Notwithstanding any other provisions in the Plan, if a Change in
Control occurs while any shares of Restricted Stock remain subject to
restrictions relating thereto, then from and after the Acceleration
Date, (1) all such restrictions and all Restricted Periods shall lapse
and (2) no later than the fifth day following the Acceleration Date,
any Restricted Stock theretofore granted a Participant shall be
delivered to the Participant.
VIII. STOCK APPRECIATION RIGHTS
The Committee may, from time to time and subject to the provisions of
the Plan, grant Awards of Stock Appreciation Rights to employees of
the Company subject to the limitation in Section II. An Award of
Stock Appreciation Rights, in the Committee's discretion, may or may
not be made in tandem with the grant of an Option, and need not be
granted at the same time as the Option grant to be made in tandem with
the Option grant.
The period of any Stock Appreciation Right, which is the time period
during which the Stock Appreciation Right may be exercised, shall be
determined by the Committee and shall not extend more than ten years
after the Grant Date or, if in tandem with an Option, the period of
such Option.
Stock Appreciation Rights shall not be transferable other than by will
or the laws of descent and distribution and during the Participant's
lifetime shall be exercisable only by the Participant.
Termination for Cause, as defined in Section I, shall result in
forfeiture of all outstanding Stock Appreciation Rights. Termination
by the Company for any reason other than Cause (including terminations
pursuant to formal severance programs sponsored by the Company or an
affiliated company), or termination by reason of death, Disability or
Retirement, shall result in a lapse on all or a portion of the
Restricted Period applicable to any outstanding Award as set forth in
Section XI.
Subject to any restrictions or conditions imposed by the Committee,
upon the exercise of a Stock Appreciation Right, the Company shall pay
the amount, if any, by which the Fair Market Value of a share of
Common Stock on the date of exercise exceeds the Fair Market Value of
a share of Common Stock on the Grant Date. The amount payable by the
Company upon the exercise of a Stock Appreciation Right may be paid in
cash or in shares of Common Stock or in any combination thereof as the
Committee, in its sole discretion, shall determine, but no fractional
shares shall be issuable pursuant to any Stock Appreciation Right.
A person electing to exercise a Stock Appreciation Right shall give
written notice of such election to the Company in such form as the
Committee may require. The exercise of Stock
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Appreciation Rights or Options granted in tandem will result in an
equal reduction in the number of corresponding Options or Stock
Appreciation Rights which were granted in tandem with such Stock
Appreciation Rights and Options.
The Change in Control provisions in Section V, concerning Options and
Stock Appreciation Rights granted in tandem with an Option, shall also
apply to Stock Appreciation Rights that are not granted in tandem with
Options.
IX. PHANTOM UNITS
The Committee may, from time to time and subject to the provisions of
the Plan, grant Awards of Phantom Units to employees of the Company;
provided, however, no employee may receive in any calendar year
Phantom Unit Awards with respect to more than 500,000 shares of Common
Stock. Each grant will specify the number of Phantom Units to which
it pertains and the payment or crediting of any Dividend Equivalents
with respect to such Phantom Units. Phantom Units may not be sold,
pledged, assigned, transferred or encumbered during the Restricted
Period, other than by will or the laws of descent and distribution.
The Committee shall, at the time Phantom Units are granted, designate
the Restricted Period and the performance goals, if any, of the
Company with respect to such Award. Such goals must be achieved (and
certified by the Committee) in order for a Participant to receive the
value of the Phantom Units at the designated time. To the extent
earned in accordance with this Section and the grant of such Award,
all such Phantom Units must be paid as soon as practicable following
the end of the Restricted Period in cash or in shares of Common Stock
or in any combination thereof as the Committee, in its sole discretion
shall determine, but no fractional shares shall be issuable pursuant
to any Phantom Unit.
With respect to any Phantom Unit Award that is intended to meet the
requirements of Section 162(m) of the Code, the performance goal or
goals for such Award shall be with respect to one or more of the
following: earnings per share; earnings before interest, taxes,
depreciation and amortization expenses ("EBITDA"); earnings before
interest and taxes ("EBIT"); EBITDA, EBIT or earnings before taxes and
unusual or nonrecurring items as measured either against the annual
budget or as a ratio to revenue; market share; sales; costs; return on
equity; operating cash flow; production volumes compared to plan or
prior years; reserves added; discretionary cash flow; return on net
capital employed and/or stock price performance. The goals can be
applied, where appropriate, with respect to an individual, a business
unit or the Company as a whole and need not be based on increases or
positive results, but can be based on maintaining the status quo or
limiting economic losses, for example. Which goals to use with
respect to such Award, the weighting of the goals if more than one is
used, and whether the goal is to be measured against a
Company-established budget or target, an index or a peer group of
companies, shall also be determined by the Committee at the time of
grant of the Award.
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At the discretion of the Committee, Phantom Units (other than those
intended to meet the requirements of Section 162(m) of the Code) may
at any time be converted into NonQualified Stock Options, Bonus Stock
or shares of Restricted Stock or any combination thereof having a
value, as determined in the good faith judgment of the Committee,
substantially equal to the value of the Phantom Units so converted.
Termination for Cause, as defined in Section I, shall result in
forfeiture of all outstanding Phantom Units. Termination by the
Company for any reason other than Cause (including terminations
pursuant to formal severance programs sponsored by the Company or an
affiliate), or termination by reason of death, Disability or
Retirement, shall result in a lapse on all or a proportion of the
Restricted Period applicable to any outstanding Award as set forth in
Section XI.
Notwithstanding any other provisions in the Plan, if a Change in
Control occurs while any Phantom Units remain outstanding, then from
and after the Acceleration Date, (1) all designated goals shall be
deemed to have been met and (2) no later than the fifth day following
the Acceleration Date, the full value of all such Phantom Units shall
be paid to the Participant in cash.
X. CONTINUED EMPLOYMENT
Participation in the Plan shall confer no rights to continued
employment with the Company, nor shall it restrict the rights of the
Company to terminate a Participant's employment relationship at any
time.
XI. TERMINATION OF EMPLOYMENT
In the event of a Participant's termination of employment with the
Company by reason of death, the Restricted Period shall lapse on all
of the Participant's outstanding Awards.
In the event of a Participant's termination of employment with the
Company by reason of Disability, Retirement or by the Company for any
reason other than Cause, a portion of all of the Participant's
outstanding Awards shall be immediately forfeited to the extent not
then otherwise vested. The portion of an Award forfeited shall be a
fraction, the denominator of which is the total number of months of
any Restricted Period applicable to the Award (rounded up to the
nearest whole month) and the numerator of which is the number of
months remaining in such Restricted Period (rounded up to the nearest
whole month) as of the termination of employment.
Unless the Committee directs the acceleration of the payment of that
portion of an Award of Phantom Units or Restricted Stock that is not
automatically forfeited as provided above upon the Participant's
termination of employment such Phantom Units and Restricted Stock
shall be payable or issued, as the case may be, at the end of the
Restricted Period applicable
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to such Awards, but only to the extent otherwise payable pursuant to
the Award Agreement evidencing such Phantom Units or Restricted Stock,
e.g., the goals, if any, for such Award are achieved. However, the
Committee shall not accelerate the payment of any Award intended to
qualify under Section 162(m). Any Awards not payable or earned at the
end of such Restricted Period, as provided above, shall be forfeited
at such time.
Phantom Units and Restricted Stock upon which the Restricted Period
lapse as provided above shall be paid or issued to the Participant or,
in the case of death prior to such payment or issuance, to the
Participant's designated beneficiary, or in the absence of such
designation, to the person to whom the Participant's rights pass by
will or the laws of descent and distribution.
Options and Stock Appreciation Rights which are or become exercisable
at the time of a Participant's termination of employment with the
Company (i) by reason of Disability or Retirement or by the Company
for any reason other than Cause, may be exercised by the Participant
within three years following such termination of employment and (ii)
for any reason other than Cause, death or a reason specified in (i),
may be exercised by the Participant within three months following such
termination, but, in either event, not after the expiration of the
period of the Option or Stock Appreciation Right. Options and Stock
Appreciation Rights which are or become exercisable at the time of a
Participant's termination of employment with the Company by reason of
death, may be exercised by the Participant's designated beneficiary,
or in the absence of such designation, by the person to whom the
Participant's rights pass by will or the laws of descent and
distribution at any time within three years after the Participant's
death but not after the expiration of the period of the Option or
Stock Appreciation Right. Options and Stock Appreciation Rights that
do not become exercisable as provided above, or that are not otherwise
vested, shall be immediately forfeited on termination.
In the event of a Participant's termination of employment with the
Company for any reason other than as provided above, all Awards not
otherwise vested or earned as of the date of such termination of
employment shall be immediately forfeited on termination.
Notwithstanding the foregoing however, the Committee may determine
that termination of employment by reasons of any other special
circumstances not set forth above shall not terminate an Award or a
portion thereof.
XII. AWARD AGREEMENT
Each person granted an Award pursuant to the Plan shall sign an Award
Agreement which signifies the offer of the Award by the Company and
the acceptance of the Award by the person in accordance with the terms
of the Award and the provisions of the Plan. Each Award Agreement
shall reflect the terms and conditions of the Award.
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XIII. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a change in the capitalization of MRI due to a stock
split, stock dividend, recapitalization, merger, consolidation,
combination, or similar event, the aggregate shares subject to the
Plan and the terms of any existing Awards shall be adjusted by the
Committee to reflect such change.
XIV. PARACHUTE TAX PROVISION
To the extent that the acceleration of vesting or any payment,
distribution or issuance made to a Participant under the Plan (a
"Benefit") would be subject to a golden parachute excise tax under
Section 4999(a) of the Code (a "Parachute Tax"), such acceleration of
the Participant's Awards shall be reduced to the extent necessary so
that no portion thereof shall be subject to the Parachute Tax, but
only if, by reason of such reduction, the Participant's net after tax
benefit shall exceed the net after tax benefit if such reduction were
not made. The Participant may direct which Awards shall not be
accelerated for this purpose.
XV. BONUS STOCK
The Committee may, from time to time and subject to the provision of
the Plan, grant Awards of Bonus Stock to employees of the Company. In
addition, the Committee shall have the authority to pay in shares of
Common Stock all or any portion of the cash amounts payable under any
other compensation program of the Company, but not exceeding $1
million with respect to any employee during any calendar year.
XVI. SECURITIES LAW AGREEMENT
If, at the time of the exercise of any Option, Director Option, or
Stock Appreciation Right or Award of Restricted Stock or Bonus Stock,
in the opinion of counsel for the Company, it is necessary or
desirable, in order to comply with any then applicable laws or
regulations relating to the sale of securities, for the individual
exercising the Option, Director Option, or Stock Appreciation Right or
receiving the Restricted Stock or Bonus Stock to agree to hold any
shares issued to the individual for investment and without intention
to resell or distribute the same and for the individual to agree to
dispose of such shares only in compliance with such laws and
regulations, the individual will, upon the request of the Company,
execute and deliver to the Company a further agreement to such effect.
XVII. WITHHOLDING FOR TAXES
Any cash payment under the Plan shall be reduced by any amounts
required to be withheld or paid with respect thereto under all present
or future federal, state and local taxes and other laws and
regulations that may be in effect as of the date of each such payment
("Tax Amounts"). Any issuance of Common Stock pursuant to the
exercise of an Option or other
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distribution of Common Stock under the Plan shall not be made until
appropriate arrangements have been made for the payment of any amounts
that may be required to be withheld or paid with respect thereto.
Such arrangements may, at the discretion of the Committee, include
allowing the Participant to tender to the Company shares of Common
Stock owned by the Participant, being part of the broker-cashless
exercise procedure; or to request the Company to withhold a portion of
the shares of Common Stock being acquired pursuant to the exercise or
otherwise distributed to the Participant, which have a Fair Market
Value per share as of the date of such Award exercise, tender or
withholding that is not greater than the sum of all Tax Amounts,
together with payment of any remaining portion of all Tax Amounts in
cash or by check payable and acceptable to the Company.
XVIII. AUTOMATIC DIRECTOR AWARDS
Each Director who serves in such capacity on the date of the closing
of the initial public offering of the Common Stock (the "IPO") shall
automatically receive, on such date, a Director Option for 10,000
shares of Common Stock. Each person who was a member of the Board on
the IPO date, did not qualify to receive the foregoing grant on the
IPO date, and is a Director on the date MRI is spunoff from SFER shall
receive a Director Option for 10,000 shares of Common Stock on such
spinoff date. Each Director who is elected or appointed to the Board
for the first time after the IPO date shall automatically receive, on
the date of his or her election or appointment, a Director Option for
10,000 shares of Common Stock. These Director Options shall be
subject to the limitations described in subparagraph 1. below.
On the date of the regular Annual Meeting of Stockholders of the
Company in each year that this Plan is in effect (commencing with the
Annual Meeting of Stockholders that follows the above initial grant
date), each Director who is serving on that day, including a Director
who was elected for the first time at such annual meeting, shall
automatically receive the following:
1. Director Options. A Director Option grant for 5,000 shares of
Common Stock. Each Director Option will be subject to all of
the limitations contained in the following provisions:
(a) Each Director Option shall become exercisable
(vested) on the earlier of (i) the first day that is
more than six months following its Grant Date or (ii)
an Acceleration Date occurring after the Grant Date;
provided that in no event shall any Director Option
be exercisable prior to the approval of this Plan by
the Company's stockholders.
(b) The option purchase price of each Director Option
shall be the Fair Market Value of the Common Stock on
its effective Grant Date.
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(c) Each Director Option that is vested may be exercised
in full at one time or in part from time to time by
giving written notice to the Company, stating the
number of shares of Common Stock with respect to
which the Director Option is being exercised,
accompanied by payment in full of the option purchase
price for such shares, which payment may be (i) in
cash by check acceptable to the Company, (ii) by the
transfer to the Company of shares of Common Stock
already-owned by the optionee having an aggregate
Fair Market Value at the date of exercise equal to
the aggregate option purchase price, (iii) from the
proceeds of a sale through a broker of some or all of
the shares to which such exercise relates, or (iv) by
a combination of such methods of payment.
(d) Each Director Option shall expire 10 years from the
Grant Date thereof, but shall be subject to earlier
termination as follows: (1) to the extent exercisable
as of the date a Director ceases to serve as a
director of the Company (the "Resignation Date"), the
Director Option may be exercised only within three
years of such Resignation Date by the optionee or the
optionee's legal representative or the person to whom
the Nonemployee Director's rights shall pass by will
or the laws of descent and distribution, as the case
may be, and to the extent not so exercised shall
terminate on the third anniversary of the Resignation
Date and (2) to the extent not exercisable as of the
Resignation Date, the Director Option shall terminate
on such Resignation Date.
2. Restricted Stock. A Restricted Stock Award for 1,000 shares
of Common Stock.
(a) The Restricted Period shall lapse on an Award of
Restricted Stock granted pursuant to this Section
XVIII upon the earlier of the date that is six months
and one day after the Grant Date, the Director's
death, Retirement, or Disability or the occurrence of
a Change in Control. If a Director ceases to be a
member of the Board during a Restricted Period for
any reason other than death, Disability or
Retirement, the Restricted Stock subject to such
Restricted Period shall be forfeited.
(b) Each certificate representing Restricted Stock
awarded hereunder shall be registered in the name of
the director and, during the Restricted Period, shall
be left on deposit with MRI with a stock power
endorsed in blank. Directors shall have the right to
receive dividends paid on their Restricted Stock and
to vote such shares. Restricted Stock may not be
sold, pledged, assigned, transferred or encumbered
during the Restricted Period other than by will or
the laws of descent and distribution.
In the event that the number of shares of Common Stock available for
Director Awards under this Plan is insufficient to make all automatic
Awards provided for in this Section XVIII on
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the applicable date, then all Directors who are entitled to a grant on
such date shall share ratably in the number of shares then available
for grant under this Plan (Restricted Stock Awards shall be made
first, then the Director Options), and shall have no right to receive
a grant with respect to the deficiencies in the number of available
shares and all future grants under this Section XVIII shall terminate.
Grants made pursuant to this Section XVIII shall be subject to all of
the terms and conditions of this Plan; however, if there is a conflict
between the terms and conditions of this Section XVIII and the terms
and conditions of any other Section, then the terms and conditions of
this Section XVIII shall control.
XIX. DESIGNATION OF BENEFICIARY
Each Participant to whom an Award has been made under this Plan may
designate a beneficiary or beneficiaries (which beneficiary may be an
entity other than a natural person) to exercise any rights or receive
any payment that under the terms of such Award may become exercisable
or payable on or after the Participant's death. At any time, and from
time to time, any such designation may be changed or canceled by the
Participant without the consent of any such beneficiary. Any such
designation, change or cancellation must be on a form provided for
that purpose by the Committee and shall not be effective until
received by the Committee. If no beneficiary has been named by a
deceased Participant, or the designated beneficiaries have predeceased
the Participant, the beneficiary shall be the Participant's estate.
If a Participant designates more than one beneficiary, any such
exercise or payment under this Plan shall be made in equal shares
unless the Participant has designated otherwise, in which case the
exercise or payment shall be made in the shares designated by the
Participant.
XX. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS
Anything in the Plan or any agreement entered into pursuant to the
Plan to the contrary notwithstanding, if, at any time specified herein
or therein for the making of any determination, the issuance or other
distribution of shares of Common Stock, the payment of consideration
to an employee as a result of the exercise of any Stock Appreciation
Right or Limited Right, or the payment of any Phantom Units, as the
case may be, any law, regulation or requirement of any governmental
authority having jurisdiction in the premises shall require either the
Company or the Participant (or the Participant's beneficiary), as the
case may be, to take any action in connection with any such
determination, the shares then to be issued or distributed, or such
payment, the issue or distribution of such shares or the making of
such determination or payment, as the case may be, shall be deferred
until such action shall have been taken.
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XXI. EFFECTIVE DATE AND DURATION OF PLAN
This Plan shall become effective upon its approval by the stockholders
of MRI. Unless previously terminated by the Board, the Plan shall
terminate on the tenth anniversary of its approval by the
stockholders; provided, however, that such termination shall not
terminate any Award then outstanding. No Awards shall be made
pursuant to this Plan after September 16, 2006.
XXII. TERMINATION AND AMENDMENT
The Board may suspend, terminate, modify or amend the Plan at such
times and in such manner as it deems appropriate, provided that any
amendment that would increase the number of shares available under the
Plan shall be subject to the approval of MRI's stockholders. No
suspension, termination, modification or amendment of the Plan may
terminate a Participant's existing Award or materially adversely
affect a Participant's rights under such Award.
XXIII. MISCELLANEOUS
(a) Nothing contained in the Plan shall be construed as conferring
upon any employee the right to continue in the employ of the Company.
(b) No person shall have any rights as a stockholder with respect
to shares covered by such person's Option, Director Option, Stock
Appreciation Rights or Restricted Stock award until the date of the
issuance of shares pursuant thereto. No adjustment will be made for
dividends or other distributions or rights for which the record date
is prior to the date of such issuance. An employee shall have no
rights as a stockholder with respect to any award of Phantom Units
under the Plan.
(c) Nothing contained in the Plan shall be construed as giving any
person, such person's beneficiaries or any other person any equity or
other interest of any kind in any assets of the Company or creating a
trust of any kind or a fiduciary relationship of any kind between the
Company and any such person.
(d) Nothing contained in the Plan shall be construed to prevent
the Company from taking any corporate action that is deemed by the
Company to be appropriate or in its best interest, whether or not such
action would have an adverse effect on the Plan or any award made
under the Plan. No employee, beneficiary or other person shall have
any claim against the Company as a result of any such action.
(e) No grantee nor any beneficiary thereof shall have the power or
right to sell, exchange, pledge, transfer, assign or otherwise
encumber or dispose of such grantee's or beneficiary's interest
arising under the Plan or in any Award received under the Plan; nor
shall such
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interest be subject to seizure for the payment of any grantee's or
beneficiary's debts, judgments, alimony, or separate maintenance or be
transferable by operation of law in the event of a grantee's or
beneficiary's bankruptcy or insolvency and to the extent any such
interest arising under the Plan or Award received under the Plan is
awarded to a spouse pursuant to any divorce proceeding, such interest
shall be deemed to be terminated and forfeited notwithstanding any
vesting provisions or other terms herein or in the agreement
evidencing such award.
(f) All rights and obligations under the Plan shall be governed
by, and the Plan shall be construed in accordance with, the laws of
the State of Delaware without regard to the principles of conflicts of
laws. Titles and headings to Sections herein are for purposes of
reference only, and shall in no way limit, define or otherwise affect
the meaning or interpretation of any provisions of the Plan.
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EXHIBIT 10.8
MONTEREY RESOURCES, INC.
1996 INCENTIVE STOCK COMPENSATION PLAN
FOR NONEXECUTIVE EMPLOYEES
STATEMENT OF PURPOSE
The purpose of the Monterey Resources, Inc. 1996 Incentive Stock
Compensation Plan For Nonexecutive Employees (the "Plan") is to encourage
superior performance by employees, by allowing the Board of Directors of
Monterey Resources, Inc. ("MRI") to award several forms of incentive
compensation to employees of the Company. By providing incentive compensation
commensurate and competitive with that provided by other companies, the Plan
should also assist MRI in attracting and retaining the services of qualified
and capable employees.
In order to further the identity of interest of employees with the
stockholders of MRI, all of the forms of compensation under the Plan relate to
MRI Common Stock. Employees' success in enhancing stockholder value will
translate directly into an enhanced benefit for the employee.
Notwithstanding anything in the Plan or any Award agreement to the
contrary, no Award shall become exercisable or payable (even if vested) prior
to the first anniversary of the date the Company is spunoff by Santa Fe Energy
Resources, Inc. (or during such additional period, if any, as may be
recommended by counsel to the Company as necessary or helpful to the tax-free
status of the spinoff); provided, however, the foregoing restriction shall not
apply to a Participant whose employment terminates due to death or Disability
and such restriction shall also lapse upon a Change in Control.
I. DEFINITIONS
Unless the context indicates otherwise, the following terms have the
meanings set forth below:
"Acceleration Date" means the earliest date on which any of
the following events shall first have occurred: (i) the acquisition
described in clause (a) of the definition of "Change in Control"
contained in this Section I, (ii) the change in the composition of the
Board of Directors described in clause (b) of such definition or (iii)
the stockholder approval or adoption described in clause (c) or (d) of
such definition.
"Award" means a grant of Options, Restricted Stock, Phantom
Units, Bonus Stock or Stock Appreciation Rights pursuant to the Plan.
"Board" means the Board of Directors of MRI.
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"Bonus Stock" means Common Stock, which is not subject to a
Restricted Period, awarded by the Committee pursuant to the Plan.
"Cause" means (a) the willful and continued failure by the
Participant to substantially perform his duties with the Company
(other than any such failure resulting from his incapacity due to
physical or mental illness), or (b) the willful engaging by the
Participant in conduct which is demonstrably and materially injurious
to the Company, monetarily or otherwise. For purposes of this
definition, no act, or failure to act, shall be deemed "willful"
unless done, or omitted to be done, by the Participant not in good
faith and without reasonable belief that his action or omission was in
the best interest of the Company.
A "Change in Control" shall be deemed to have occurred if:
(a) any "person," as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than any trustee
or other fiduciary holding securities under an
employee benefit plan of Santa Fe Energy Resources,
Inc. ("SFER") or any affiliate thereof, or any
company owned, directly or indirectly, by the
stockholders of SFER in substantially the same
proportions as their ownership of stock of SFER), is
or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of SFER representing 25% or
more of the combined voting power of SFER's then
outstanding securities;
(b) during any period of two consecutive years (not
including any period prior to the effective date of
this provision), individuals who at the beginning of
such period constitute the Board of Directors of
SFER, and any new director (other than a director
designated by a person who has entered into an
agreement with SFER to effect a transaction described
in clause (a), (c) or (d) of this definition) whose
election by the Board of Directors of SFER or
nomination for election by SFER's stockholders was
approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute at least
a majority thereof;
(c) the stockholders of SFER approve a merger or
consolidation of SFER with any other company other
than (i) a merger or consolidation which would result
in the voting securities of SFER outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity) more than 65% of the combined voting power of
the voting securities of SFER (or such surviving
entity) outstanding immediately after such merger or
consolidation, or (ii) a
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merger or consolidation effected to implement a
recapitalization of SFER (or similar transaction) in
which no "person" (as hereinabove defined) acquires
more than 25% of the combined voting power of SFER's
then outstanding securities; or
(d) the stockholders of SFER adopt a plan of complete
liquidation of SFER or approve an agreement for the
sale or disposition by SFER of all or substantially
all of SFER's assets. For purposes of this clause
(d), the term "the sale or disposition by SFER of all
or substantially all of SFER's assets" shall mean a
sale or other disposition transaction or series of
related transactions involving assets of SFER or of
any direct or indirect subsidiary of SFER (including
the stock of any direct or indirect subsidiary of
SFER) in which the value of the assets or stock being
sold or otherwise disposed of (as measured by the
purchase price being paid therefor or by such other
method as the Board of Directors of SFER determines
is appropriate in a case where there is no readily
ascertainable purchase price) constitutes more than
two-thirds of the fair market value of SFER (as
hereinafter defined). For purposes of the preceding
sentence, the "fair market value of SFER" shall be
the aggregate market value of the outstanding shares
of common stock of SFER (on a fully diluted basis)
plus the aggregate market value of SFER's other
outstanding equity securities. The aggregate market
value of the shares of common stock of SFER shall be
determined by multiplying the number of shares of
SFER's common stock (on a fully diluted basis)
outstanding on the date of the execution and delivery
of a definitive agreement with respect to the
transaction or series of related transactions (the
"Transaction Date") by the average closing price of
the shares of common stock of SFER for the ten
trading days immediately preceding the Transaction
Date. The aggregate market value of any other equity
securities of SFER shall be determined in a manner
similar to that prescribed in the immediately
preceding sentence for determining the aggregate
market value of the shares of common stock of SFER or
by such other method as the Board shall determine is
appropriate.
(e) If SFER ceases to own 80% of the combined voting
power of the then outstanding voting securities of
the Company, the term "Company" shall be substituted
for SFER as used in this definition of "Change in
Control" and all other appropriate places; provided,
however, as long as SFER owns 35% or more of the
combined voting power of the voting securities of the
Company, the above "Change in Control" definition
shall be applied separately with respect to SFER and
with respect to the Company as substituted for SFER
in the definition, and a Change in Control with
respect to either SFER or the Company in such
situation shall be a Change in Control for purposes
of this Plan. Notwithstanding anything herein to the
contrary, a distribution by
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SFER to its stockholders of its interest in such
voting securities of the Company shall not constitute
a Change in Control.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation and Benefits Committee of
the Board.
"Common Stock" means the common stock, $0.01 par value, of MRI.
"Company" means collectively MRI, its parent and all companies
in which MRI owns, directly or indirectly, more than 50% of the voting
stock.
"Disability" means the inability of a Participant to continue
to perform the duties of his or her employment with the Company as
determined by the Committee.
"Fair Market Value" means the average of high and low (or bid
and ask, if applicable) price per share of the Common Stock on the
applicable date (or if there are no transactions on that date, the
last preceding date on which there were transactions) in the principal
market in which the Common Stock is traded, as reported in The Wall
Street Journal, or the fair market value per share as determined by
the Committee, in good faith, using any fair and reasonable means for
this purpose.
"Grant Date" as used with respect to a particular Award means
the date as of which such Award is granted pursuant to the Plan.
"Option" means an option to purchase shares of Common Stock
granted by the Committee pursuant to the Plan, which shall be a
"Non-Qualified Stock Option."
"Limited Right" means a Stock Appreciation Right that is
exercisable only as set forth in Section XIV of the Plan.
"Non-Qualified Stock Option" means an Option granted pursuant
to the Plan, which is not an Incentive Stock Option within the meaning
of Code Section 422.
"Participant" means any eligible employee of the Company who
has an Award outstanding under the Plan.
"Phantom Unit" means a right to receive upon the achievement
of specified performance goals a payment from the Company in an amount
equal to a specified percentage of the Fair Market Value of a share of
Common Stock on the date on which such right becomes payable.
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"Plan" means the Monterey Resources, Inc. 1996 Incentive Stock
Compensation Plan For Nonexecutive Employees as set forth herein and
as may be amended from time to time.
"Related LSAR Option" means an Option outstanding under the
Plan with respect to which a Limited Right is granted pursuant to
Section XIV.
"Restricted Period" means the period of time for which
Restricted Stock and/or Phantom Units are subject to forfeiture
pursuant to the Plan or during which Options and Stock Appreciation
Rights are not exercisable.
"Restricted Stock" means Common Stock subject to a Restricted
Period which is granted pursuant to the Plan.
"Retirement" means an Employee's leaving the employment of the
Company, other than for Cause, after attaining age 55 and completing
five years of service with the Company.
"Stock Appreciation Right" means the right, granted by the
Committee pursuant to the Plan, to receive a payment equal to the
increase in the Fair Market Value of a share of Common Stock
subsequent to the Grant Date of such Award.
II. SHARES SUBJECT TO AWARDS UNDER THE PLAN
Subject to the adjustment as provided in the Plan, the maximum number
of shares of Common Stock with respect to which Options, Restricted
Stock, Bonus Stock, Phantom Units and Stock Appreciation Rights may be
granted under the Plan in any year is 500,000. The Common Stock
issued under the Plan may be either previously authorized but unissued
shares or treasury shares acquired by MRI.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. The members of the
Committee shall not be eligible to participate in the Plan. The
Committee shall select from time to time those employees to be granted
Awards under the Plan. The Committee shall also determine the terms
and provisions of Awards, which need not be identical. The Committee
shall grant all Awards. The Committee shall construe the Plan,
prescribe and rescind rules and regulations relating to the Plan and
make all other determinations deemed necessary or advisable for the
administration of the Plan, subject to the limitations of Section XX.
IV. ELIGIBILITY
Subject to the discretion of the Committee, all employees of the
Company who have responsibility for the growth and profitability of
the Company, but excluding any employee who is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934, as
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amended, as determined by the Committee, are eligible to receive
Awards under the Plan ("Eligible Employees").
V. OPTIONS
The Committee may, from time to time and subject to the provisions of
the Plan, grant Awards of Options to Eligible Employees of the Company
to purchase shares of Common Stock. The Committee may grant
replacement or substitution options (or Stock Appreciation Rights) to
affected employees in conjunction with any Company merger,
consolidation, purchase or acquisition of property or stock, spinoff
or other distribution of stock or property, reorganization, or partial
or complete liquidation, on such terms as the Committee deems
equitable. Any Options granted shall be designated as Non-Qualified
Stock Options.
The purchase price of the Common Stock subject to any Options shall be
determined by the Committee, but, except with respect to a replacement
Option, may not be less than the Fair Market Value of the Common Stock
on the Grant Date. Such price shall be subject to adjustment as
provided in Section XIII of the Plan.
The Committee may include in each agreement evidencing the Option
grant a provision stating that the Option granted therein may not be
exercised in whole or in part for such period(s) of time specified in
such agreement, and may further limit the exercisability of the Option
in such manner as the Committee deems appropriate, including, without
limitation, the achievement of performance goals. The Committee may,
in its discretion, at any time and from time-to-time accelerate the
exercisability of all or part of any Option.
The period of any Option, which is the time period during which the
Option may be exercised, shall be determined by the Committee and
shall not extend more than ten years after the Grant Date.
Options shall not be transferable other than by will or the laws of
descent and distribution and during the Participant's lifetime shall
be exercisable only by the Participant.
Termination for Cause, as defined in Section I, shall result in
forfeiture of all outstanding Options. Termination by the Company for
any reason other than Cause (including terminations pursuant to formal
severance programs sponsored by the Company or an affiliate), or
terminations by reason of death, Disability or Retirement, shall
result in a lapse of all or a proportion of the Restricted Period
applicable to any outstanding Award as set forth In Section XI.
A person electing to exercise an Option shall give written notice of
such election to the Company in such form as the Committee may
require. Upon exercise of an Option, the full option purchase price
for the shares with respect to which the Option is being exercised
shall be payable to the Company (i) in cash or by check payable and
acceptable to the Company
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or (ii) subject to the approval of the Committee, (a) by tendering to
the Company shares of Common Stock owned by such person having an
aggregate Fair Market Value as of the date of exercise and tender that
is not greater than the full option purchase price for the shares with
respect to which the Option is being exercised and by paying any
remaining amount of the option purchase price as provided in (i) above
(provided that the Committee may, upon confirming that such person
owns the number of additional shares being tendered, authorize the
issuance of a new certificate for the number of shares being acquired
pursuant to the exercise of the Option less the number of shares being
tendered upon the exercise and return to such person (or not require
surrender of) the certificate for the shares being tendered upon the
exercise) or (b) by such person delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the option purchase price; provided
that in the event such person chooses to pay the option purchase price
as provided in (ii)(b) above, such person and the broker shall comply
with such procedures and enter into such agreements of indemnity and
other agreements as the Committee shall prescribe as a condition of
such payment procedure. Payment instruments will be received subject
to collection.
Notwithstanding any other provision in the Plan, if a Change In
Control occurs while unexercised Options, and Stock Appreciation
Rights relating thereto, remain outstanding under the Plan, then from
and after the Acceleration Date, all Options and Stock Appreciation
Rights shall be exercisable in full, whether or not otherwise
exercisable.
VI. BONUS STOCK
The Committee may, from time to time and subject to the provision of
the Plan, grant Awards of Bonus Stock to Eligible Employees of the
Company. In addition, the Committee shall have the authority to pay
in shares of Common Stock all or any portion of the cash amounts
payable under any other compensation program of the Company.
VII. RESTRICTED STOCK
The Committee may, from time to time and subject to the provisions of
the Plan, grant Awards of Restricted Stock to Eligible Employees of
the Company.
Each certificate representing Restricted Stock awarded under the Plan
shall be registered in the name of the Participant and, during the
Restricted Period, shall be left on deposit with the Company with a
stock power endorsed in blank. Participants shall have the right to
receive dividends paid on their Restricted Stock and to vote such
shares. Restricted Stock may not be sold, pledged, assigned,
transferred or encumbered during the Restricted Period other than by
will or the laws of descent and distribution.
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Termination for Cause, as defined in Section I, shall result in
forfeiture of all outstanding Restricted Stock. Termination by the
Company for any reason other than Cause (including terminations
pursuant to formal severance programs sponsored by the Company or an
affiliate), or termination by reason of death, Disability or
Retirement, shall result in a lapse on all or a portion of the
Restricted Period applicable to any outstanding Award as set forth in
Section XI.
Notwithstanding any other provisions in the Plan, if a Change in
Control occurs while any shares of Restricted Stock remain subject to
restrictions relating thereto, then from and after the Acceleration
Date, (1) all such restrictions and all Restricted Periods shall lapse
and (2) no later than the fifth day following the Acceleration Date,
any Restricted Stock theretofore granted a Participant shall be
delivered to the Participant.
VIII. STOCK APPRECIATION RIGHTS
The Committee may, from time to time and subject to the provisions of
the Plan, grant Awards of Stock Appreciation Rights to Eligible
Employees of the Company subject to the limitation in Section II. An
Award of Stock Appreciation Rights, in the Committee's discretion, may
or may not be made in tandem with the grant of an Option, and need not
be granted at the same time as the Option grant to be made in tandem
with the Option grant.
The period of any Stock Appreciation Right, which is the time period
during which the Stock Appreciation Right may be exercised, shall be
determined by the Committee and shall not extend more than ten years
after the Grant Date or, if in tandem with an Option, the period of
such Option.
Stock Appreciation Rights shall not be transferable other than by will
or the laws of descent and distribution and during the Participant's
lifetime shall be exercisable only by the Participant.
Termination for Cause, as defined in Section I, shall result in
forfeiture of all outstanding Stock Appreciation Rights. Termination
by the Company for any reason other than Cause (including terminations
pursuant to formal severance programs sponsored by the Company or an
affiliated company), or termination by reason of death, Disability or
Retirement, shall result in a lapse on all or a portion of the
Restricted Period applicable to any outstanding Award as set forth in
Section XI.
Subject to any restrictions or conditions imposed by the Committee,
upon the exercise of a Stock Appreciation Right, the Company shall pay
the amount, if any, by which the Fair Market Value of a share of
Common Stock on the date of exercise exceeds the Fair Market Value of
a share of Common Stock on the Grant Date. The amount payable by the
Company upon the exercise of a Stock Appreciation Right may be paid in
cash or in shares of Common
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Stock or in any combination thereof as the Committee, in its sole
discretion, shall determine, but no fractional shares shall be
issuable pursuant to any Stock Appreciation Right.
A person electing to exercise a Stock Appreciation Right shall give
written notice of such election to the Company in such form as the
Committee may require. The exercise of Stock Appreciation Rights or
Options granted in tandem will result in an equal reduction in the
number of corresponding Options or Stock Appreciation Rights which
were granted in tandem with such Stock Appreciation Rights and
Options.
The Change in Control provisions in Section V, concerning Options and
Stock Appreciation Rights granted in tandem with an Option, shall also
apply to Stock Appreciation Rights that are not granted in tandem with
Options.
IX. PHANTOM UNITS
The Committee may, from time to time and subject to the provisions of
the Plan, grant Awards of Phantom Units to Eligible Employees of the
Company. Phantom Units may not be sold, pledged, assigned,
transferred or encumbered during the Restricted Period, other than by
will or the laws of descent and distribution.
The Committee shall, at the time Phantom Units are granted, designate
certain goals for the performance of the Company and the Restricted
Period over which the goals must be achieved. Such designated goals
must be achieved in order for a Participant to receive the full value
of the Phantom Units at the designated time. To the extent earned in
accordance with this Section and the grant of such Award, all such
Phantom Units must be paid as soon as practicable following the end of
the Restricted Period in cash or in shares of Common Stock or in any
combination thereof as the Committee, in its sole discretion shall
determine, but no fractional shares shall be issuable pursuant to any
Phantom Unit.
At the discretion of the Committee, Phantom Units may at any time be
converted into Non-Qualified Stock Options, Bonus Stock or shares of
Restricted Stock or any combination thereof having a value, as
determined in the good faith judgment of the Committee, substantially
equal to the value of the Phantom Units so converted.
Termination for Cause, as defined in Section I, shall result in
forfeiture of all outstanding Phantom Units. Termination by the
Company for any reason other than Cause (including terminations
pursuant to formal severance programs sponsored by the Company or an
affiliate), or termination by reason of death, Disability or
Retirement, shall result in a lapse on all or a proportion of the
Restricted Period applicable to any outstanding Award as set forth in
Section XI.
Notwithstanding any other provisions in the Plan, if a Change in
Control occurs while any Phantom Units remain outstanding, then from
and after the Acceleration Date, (1) all
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designated goals shall be deemed to have been met and (2) no later
than the fifth day following the Acceleration Date, the full value of
all such Phantom Units shall be paid to the Participant in cash.
X. CONTINUED EMPLOYMENT
Participation in the Plan shall confer no rights to continued
employment with the Company, nor shall it restrict the rights of the
Company to terminate a Participant's employment relationship at any
time.
XI. TERMINATION OF EMPLOYMENT
In the event of a Participant's termination of employment with the
Company by reason of death, the Restricted Period shall lapse on all
of the Participant's outstanding Awards.
In the event of a Participant's termination of employment with the
Company by reason of Disability, Retirement or by the Company for any
reason other than Cause, a portion of all of the Participant's
outstanding Awards shall be immediately forfeited to the extent not
then otherwise vested. The portion of an Award forfeited shall be a
fraction, the denominator of which is the total number of months of
any Restricted Period (determined at date of grant) applicable to the
Award (rounded up to the nearest whole month) and the numerator of
which is the number of months of such Restricted Period remaining
(rounded up to the nearest whole month) as of the termination of
employment.
Unless the Committee directs the acceleration of the payment of that
portion of an Award of Phantom Units or Restricted Stock that is not
automatically forfeited as provided above upon the Participant's
termination of employment, such Phantom Units and Restricted Stock
shall be payable or issued, as the case may be, at the end of the
Restricted Period applicable to such Awards, but only to the extent
otherwise payable pursuant to the Award Agreement evidencing such
Phantom Units or Restricted Stock, e.g., the goals, if any, for such
Award are achieved. Any such Awards not payable or earned at the end
of such Restricted Period, as provided above, shall be forfeited at
such time.
Phantom Units and Restricted Stock upon which the Restricted Period
lapse as provided above shall be paid or issued to the Participant or,
in the case of death prior to such payment or issuance, to the
Participant's designated beneficiary, or in the absence of such
designation, to the person to whom the Participant's rights pass by
will or the laws of descent and distribution.
Options and Stock Appreciation Rights which are or become exercisable
at the time of a Participant's termination of employment with the
Company (i) by reason of Disability or Retirement or by the Company
for any reason other than Cause, may be exercised by the Participant
within three years following such termination of employment and (ii)
for any
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reason other than Cause, death or a reason specified in (i), may be
exercised by the Participant within three months following such
termination, but, in either event, not after the expiration of the
period of the Option or Stock Appreciation Right. Options and Stock
Appreciation Rights which are or become exercisable at the time of a
Participant's termination of employment with the Company by reason of
death, may be exercised by the Participant's designated beneficiary,
or in the absence of such designation, by the person to whom the
Participant's rights pass by will or the laws of descent and
distribution at any time within three years after the Participant's
death but not after the expiration of the period of the Option or
Stock Appreciation Right. Options and Stock Appreciation Rights that
do not become exercisable as provided above, or that are not otherwise
vested, shall be immediately forfeited on termination.
In the event of a Participant's termination of employment with the
Company for any reason other than as provided above, all Awards not
otherwise vested or earned as of the date of such termination of
employment shall be immediately forfeited on termination.
Notwithstanding the foregoing however, the Committee may determine
that termination of employment by reasons of any other special
circumstances not set forth above shall not terminate an Award or a
portion thereof.
XII. AWARD AGREEMENT
Each employee granted an Award pursuant to the Plan shall sign an
Award Agreement which signifies the offer of the Award by the Company
and the acceptance of the Award by the employee in accordance with the
terms of the Award and the provisions of the Plan. Each Award
Agreement shall reflect the terms and conditions of the Award.
XIII. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a change in the capitalization of SFER due to a stock
split, stock dividend, recapitalization, merger, consolidation,
combination or similar event, the aggregate shares subject to the Plan
and the terms of any existing Awards shall be adjusted by the
Committee to reflect such change.
XIV. PARACHUTE TAX PROVISION
To the extent that the acceleration of vesting or any payment,
distribution or issuance made to a participant under the Plan (a
"Benefit") would be subject to a golden parachute excise tax under
Section 4999(a) of the Code (a "Parachute Tax") such acceleration of
the Participant's Awards shall be reduced to the extent necessary so
that no portion thereof shall be subject to the Parachute Tax, but
only if, by reason of such reduction, the Participant's net after tax
benefit shall exceed the net after tax benefit if such reduction were
not made. The Participant may direct which Awards shall not be
accelerated for this purpose.
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XV. EMPLOYEE'S AGREEMENT
If, at the time of the exercise of any Option or Stock Appreciation
Right or Award of Restricted Stock or Bonus Stock, in the opinion of
counsel for the Company, it is necessary or desirable, in order to
comply with any then applicable laws or regulations relating to the
sale of securities, for the individual exercising the Option or Stock
Appreciation Right or receiving the Restricted Stock or Bonus Stock to
agree to hold any shares issued to the individual for investment and
without intention to resell or distribute the same and for the
individual to agree to dispose of such shares only in compliance with
such laws and regulations, the individual will, upon the request of
the Company, execute and deliver to the Company a further agreement to
such effect.
XVI. WITHHOLDING FOR TAXES
Any cash payment under the Plan shall be reduced by any amounts
required to be withheld or paid with respect thereto under all present
or future federal, state and local taxes and other laws and
regulations that may be in effect as of the date of each such payment
("Tax Amounts"). Any issuance of Common Stock pursuant to the
exercise of an Option or other distribution of Common Stock under the
Plan shall not be made until appropriate arrangements have been made
for the payment of any amounts that may be required to be withheld or
paid with respect thereto. Such arrangements may, at the discretion
of the Committee, include allowing the Participant to tender to the
Company shares of Common Stock owned by the Participant, or to request
the Company to withhold a portion of the shares of Common Stock being
acquired pursuant to the exercise or otherwise distributed to the
Participant, which have a Fair Market Value per share as of the date
of such Award exercise, tender or withholding that is not greater than
the sum of all Tax Amounts, together with payment of any remaining
portion of all Tax Amounts in cash or by check payable and acceptable
to the Company.
XVII. DESIGNATION OF BENEFICIARY
Each Participant to whom an Award has been made under this Plan may
designate a beneficiary or beneficiaries (which beneficiary may be an
entity other than a natural person) to exercise any rights or receive
any payment that under the terms of such Award may become exercisable
or payable on or after the Participant's death. At any time, and from
time to time, any such designation may be changed or canceled by the
Participant without the consent of any such beneficiary. Any such
designation, change or cancellation must be on a form provided for
that purpose by the Committee and shall not be effective until
received by the Committee. If no beneficiary has been named by a
deceased Participant, or the designated beneficiaries have predeceased
the Participant, the beneficiary shall be the Participant's estate.
If a Participant designates more than one beneficiary, any such
exercise or payment under this Plan shall be made in equal shares
unless the Participant has
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designated otherwise, in which case the exercise or payment shall be
made in the shares designated by the Participant.
XVIII. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS
Anything in the Plan or any agreement entered into pursuant to the
Plan to the contrary notwithstanding, if, at any time specified herein
or therein for the making of any determination, the issuance or other
distribution of shares of Common Stock, the payment of consideration
to an employee as a result of the exercise of any Stock Appreciation
Right or Limited Right, or the payment of any Phantom Units, as the
case may be, any law, regulation or requirement of any governmental
authority having jurisdiction in the premises shall require either the
Company or the Participant (or the Participant's beneficiary), as the
case may be, to take any action in connection with any such
determination, the shares then to be issued or distributed, or such
payment, the issue or distribution of such shares or the making of
such determination or payment, as the case may be, shall be deferred
until such action shall have been taken.
XIX. EFFECTIVE DATE AND DURATION OF PLAN
This Plan shall become effective upon its approval by the Board of MRI
and shall continue until terminated by the Board.
XX. TERMINATION AND AMENDMENT
The Board may suspend, terminate, modify or amend the Plan at any time
or times; however, no suspension, termination, modification or
amendment of the Plan may terminate a Participant's existing Award or
materially adversely affect a Participant's rights under such Award.
XXI. MISCELLANEOUS
(a) Nothing contained in the Plan shall be construed as conferring
upon any employee the right to continue in the employ of the Company.
(b) An employee shall have no rights as a stockholder with respect
to shares covered by such employee's Option, Stock Appreciation Rights
or Restricted Stock award until the date of the issuance of shares to
the employee pursuant thereto. No adjustment will be made for
dividends or other distributions or rights for which the record date
is prior to the date of such issuance. An employee shall have no
rights as a stockholder with respect to any award of Phantom Units
under the Plan.
(c) Nothing contained in the Plan shall be construed as giving any
employee, such employee's beneficiaries or any other person any equity
or other interest of any kind in any
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assets of the Company or creating a trust of any kind or a fiduciary
relationship of any kind between the Company and any such person.
(d) Nothing contained in the Plan shall be construed to prevent
the Company from taking any corporate action that is deemed by the
Company to be appropriate or in its best interest, whether or not such
action would have an adverse effect on the Plan or any award made
under the Plan. No employee, beneficiary or other person shall have
any claim against the Company as a result of any such action.
(e) Neither an employee nor an employee's beneficiary shall have
the power or right to sell, exchange, pledge, transfer, assign or
otherwise encumber or dispose of such employee's or beneficiary's
interest arising under the Plan or in any Award received under the
Plan; nor shall such interest be subject to seizure for the payment of
an employee's or beneficiary's debts, judgments, alimony, or separate
maintenance or be transferable by operation of law in the event of an
employee's or beneficiary's bankruptcy or insolvency and to the extent
any such interest arising under the Plan or Award received under the
Plan is awarded to a spouse pursuant to any divorce proceeding, such
interest shall be deemed to be terminated and forfeited
notwithstanding any vesting provisions or other terms herein or in the
agreement evidencing such award.
(f) All rights and obligations under the Plan shall be governed
by, and the Plan shall be construed in accordance with, the laws of
the State of Delaware without regard to the principles of conflicts of
laws. Titles and headings to Sections herein are for purposes of
reference only, and shall in no way limit, define or otherwise affect
the meaning or interpretation of any provisions of the Plan.
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EXHIBIT 10.9
MONTEREY RESOURCES, INC.
SEVERANCE PROGRAM
This Severance Program (the "Program") is being adopted by Monterey
Resources, Inc. (the "Company") effective as of October 1, 1996. The Program
is designed, inter alia, to assure a degree of financial security to Eligible
Employees (as defined below) from the possible elimination of their jobs as a
result of a Change in Control (as defined below) and other appropriate events
and to provide benefits in connection with a limited program of terminations.
A. DEFINITIONS
1. "Acquiring Company" means any person or persons not affiliated
with or currently employed by SFER, the Company or its
Subsidiaries who become(s) the beneficial owner(s) of all or
substantially all of the stock of SFER, the Company or of 25%
or more of the fair market value of the assets of SFER, the
Company and its Subsidiaries in one or a series of related
transactions as a result of the execution of a definitive
purchase agreement with SFER, the Company or one of its
Subsidiaries.
2. "Base Salary" means the Eligible Employee's highest regular
rate of base salary during the 24-month period prior to the
date of termination of employment, excluding overtime, bonuses
and other compensation, computed on a weekly basis.
3. "Cause" means, with respect to termination of the employment of
an Eligible Employee by the Company or Subsidiary, (a) the
willful and continued failure by the Eligible Employee to
substantially perform his duties with the Company or Subsidiary
(other than any such failure resulting from his incapacity due
to physical or mental illness), (b) the willful engaging by the
Eligible Employee in conduct which is demonstrably and
materially injurious to the Company or Subsidiary, monetarily
or otherwise, or (c) the failure to relocate at the Company's
or Subsidiary's request to another locality of either the
Company or any Subsidiary in a substantially similar position
at substantially similar wages; provided, however, in no event
shall a failure to relocate in conjunction with or following a
Closing or Change in Control constitute Cause. For purposes of
this definition, no act, or failure to act, shall be deemed
"willful" unless done, or omitted to be done, by the Eligible
Employee not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company
or Subsidiary.
<PAGE>
4. A "Change in Control" shall be deemed to have occurred if:
a. any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than any trustee
or other fiduciary holding securities under an
employee benefit plan of SFER or an affiliate thereof,
or any company owned, directly or indirectly, by the
stockholders of SFER or an affiliate thereof in
substantially the same proportions as their ownership
of stock of SFER), is or becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined
voting power of SFER's then outstanding securities;
b. during any period of two consecutive years (not
including any period prior to the effective date of
this provision), individuals who at the beginning of
such period constitute the Board of Directors of SFER
(the "Board"), and any new director (other than a
director designated by a person who has entered into
an agreement with SFER to effect a transaction
described in clause (a), (c) or (d) of this
definition) whose election by the Board or nomination
for election by SFER's stockholders was approved by a
vote of at least two-thirds (2/3) of the Directors
then still in office who either were Directors at the
beginning of the period or whose election or
nomination for election was previously so approved
(hereinafter referred to as "Continuing Directors"),
cease for any reason to constitute at least a majority
thereof;
c. the stockholders of SFER approve a merger or
consolidation of SFER with any other company other
than (i) a merger or consolidation which would result
in the voting securities of SFER outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted
into voting securities of the surviving entity) more
than 65% of the combined voting power of the voting
securities of SFER (or such surviving entity)
outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of SFER (or
similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the
combined voting power of SFER's then outstanding
securities; or
d. the stockholders of SFER approve a plan of complete
liquidation of SFER or an agreement for the sale or
disposition by SFER or an agreement for the sale or
disposition by SFER of all or substantially all of
SFER's assets. For purposes of this clause (d), the
term "the sale or disposition by SFER of all or
substantially all of SFER's assets" shall mean a sale
or other disposition transaction or series of related
transaction involving assets of SFER or of any
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<PAGE>
Subsidiary of SFER (including the stock of any
Subsidiary of SFER) in which the value of the assets
or stock being sold or otherwise disposed of (as
measured by the purchase price being paid therefore or
by such other method as the Board determines is
appropriate in a case where there is no readily
ascertainable purchase price) constitutes more than
two-thirds of the fair market value of SFER (as
defined below). For purposes of the preceding
sentence, the "fair market value of SFER" shall be the
aggregate market value of the Company's outstanding
common stock of SFER (on a fully diluted basis) plus
the aggregate market value of SFER's other outstanding
equity securities. The aggregate market value of
SFER's common stock shall be determined by multiplying
the number of shares of SFER's common stock (on a
fully diluted basis) outstanding on the date of the
execution and delivery of a definitive agreement with
respect to the transaction or series of related
transactions (the "Transaction Date") by the average
closing price for SFER's common stock for the ten
trading days immediately preceding the Transaction
Date. The aggregate market value of any other equity
securities of SFER shall be determined in a manner
similar to that prescribed in the immediately
preceding sentence for determining the aggregate
market value of SFER's common stock or by such other
method as the Board shall determine is appropriate.
However, notwithstanding anything in this clause (d)
to the contrary, a spinoff or distribution of the
stock of a Subsidiary to those persons who were
stockholders of SFER immediately prior to such spinoff
or distribution in substantially the same proportion
as their ownership of SFER stock immediately prior to
such spinoff or distribution shall not constitute a
"sale or disposition by SFER of all or substantially
all of SFER's assets."
e. If SFER ceases to own 80% of the combined voting power
of the then outstanding voting securities of the
Company, the term "Company" shall be substituted for
SFER as used in this definition of "Change of Control"
and all other appropriate places; provided, however,
as long as SFER owns 35% or more of the combined
voting power of the voting securities of the Company,
the above "Change in Control" definition shall be
applied separately with respect to SFER and with
respect to the Company as substituted for SFER in the
definition, and a Change in Control with respect to
either SFER or the Company in such situation shall be
a Change in Control for purposes of this Plan.
Notwithstanding anything herein to the contrary, a
distribution by SFER to its stockholders of its
interest in such voting securities of the Company
shall not constitute a Change in Control.
5. "Closing" means the event or events whereby all, or
substantially all of the stock of SFER or the Company or 25% or
more of the assets of SFER or the Company are
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conveyed or transferred to an Acquiring Company in one or a
series of related transactions.
6. "Committee" shall mean a committee comprised of R. Graham
Whaling, David B. Kilpatrick, and Lou E. Shuflin to be the
administrator regarding the application of the Program.
Subject to paragraph B.1, the members of the Committee may be
changed from time to time by the Board.
7. "Company" means Monterey Resources, Inc. or any successor
company.
8. "Constructive Termination" shall mean the actual termination or
resignation of an Eligible Employee from the Company and its
participating Subsidiaries or from the Acquiring Company and
its affiliates, as the case may be, occurring in conjunction
with or within 24 months after a Change in Control or Closing,
whichever is applicable, due to any of the following events:
a. The assignment of any duties materially and adversely
inconsistent with the position in the Company or
Subsidiary, as the case may be, held immediately prior
to the Closing or Change in Control, or a significant
adverse alteration in the nature or status of the
Eligible Employee's responsibilities or the conditions
of employment from those in effect immediately prior
to the Closing or Change in Control;
b. A reduction of 25% or more in the Eligible Employee's
total compensation consisting of Base Salary and the
Company's Incentive Compensation Plan, except for
comparable percentage reductions in total compensation
similarly affecting all management personnel of the
Company or, if applicable, the Acquiring Company or
all management personnel of any person in control of
the Acquiring Company, if applicable;
c. The discharge of the Eligible Employee in conjunction
with or after a Closing or Change in Control for
failure to relocate to a location outside the
metropolitan area in which his office is located
immediately prior to the Closing or Change in Control;
d. The failure to pay to the Eligible Employee any
portion of current compensation or to pay to the
Eligible Employee any portion of an installment of
deferred compensation under any deferred compensation
program of the Company or Subsidiary within seven days
of the date such compensation is due;
e. A 25% reduction in the overall level of benefits under
the Company's group life insurance, medical, health,
accident, disability and pension plans after a
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<PAGE>
Closing or Change in Control, unless the employee is
compensated by an increase in Base Salary, or unless
there is a comparable percentage reduction affecting
all management employees of the Company or Acquiring
Company or persons in control of the Acquiring
Company, as the case may be; or
f. The failure to obtain a satisfactory agreement from an
Acquiring Company or any successor to the Company to
assume and agree to continue this Program.
9. "Credited Service" shall be the same as the "Service" for which
each employee is credited under the Company's 401(k) plan for
vesting purposes. A partial month of service shall be credited
as a full month.
10. "Eligible Employee" means any regular, full-time employee of
the Company or any of its participating Subsidiaries who (i) is
not a member of a unit that is covered by any collective
bargaining agreement with the Company or participating
Subsidiary, unless such bargaining agreement provides for the
participation of its members in this Program, and (ii) is
involuntarily terminated or constructively terminated, as
defined herein, from the Company or participating Subsidiary
other than for Cause, disability or death. Notwithstanding the
foregoing however, an Eligible Employee (i) who is offered, but
declines, a substantially comparable position, in the
metropolitan area in which his office is located, with either
the Company or a Subsidiary that has adopted this Program or
maintains its own formal severance program that covers at least
80% of its employees who would otherwise be Eligible Employees
hereunder if it adopted this Program, or (ii) who, after
commencement of payment or benefits under this Program, but
prior to having received the full amount of the Severance
Allowance or benefits for which he was qualified, obtains a
position with the Company or a Subsidiary (whether or not
substantially comparable to his former position) shall cease to
be an Eligible Employee and forfeit any right to any payment
and benefits or further payment and benefits hereunder.
Further, under no circumstances will an employee qualify as an
Eligible Employee if that employee is eligible to receive
benefits under any other formal severance program of the
Company or a Subsidiary; provided, however, the foregoing shall
not apply with respect to a termination that is in connection
with or following a Change in Control or Closing unless such
other program offers substantially comparable benefits.
11. "Severance Allowance" means the total Severance Allowance
available to an Eligible Employee pursuant to Section C1.
12. "SFER" means Santa Fe Energy Resources, Inc.
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13. "Subsidiary" means any corporation, partnership or other entity
of which, at the date of the Eligible Employee's termination of
employment, the Company owns (directly or indirectly) 50% or
more of the outstanding voting securities. A "participating
Subsidiary" means any Subsidiary that has adopted this Program
with the written consent of the Committee.
14. "Vacation" means the vacation amount as provided under the
Company's existing vacation policy. In the event an Eligible
Employee has a written agreement providing additional vacation
benefits, that agreement will govern.
B. IMPLEMENTATION AND AMENDMENT
1. Subject to amendment of the Program as provided below, this
Program shall continue in effect through December 31, 1996;
provided, however, that commencing on January 1, 1997, and each
January 1 thereafter, the Program shall automatically be
extended for one additional year unless, not later than
September 30 of the preceding year, the Board determines that
the Program shall not be so extended; and provided, further,
notwithstanding any provision herein to the contrary, that if a
Change in Control shall have occurred during the original or
extended term of this Program, this Program shall continue in
effect for a period of not less than 24 months beyond the month
in which such Change in Control occurred, during which time
Company is contractually bound to maintain the Program, and,
provided further the membership of the Committee cannot be
changed during the 24 months immediately following such Change
in Control, except with the written consent of a majority of
the members of the Committee.
2. The Company shall determine the date an Eligible Employee's
termination of employment will be effective. Unless such
termination was the result of Constructive Termination, the
Eligible Employee will agree to work until such date, or such
other date as is mutually agreed to by the Company and the
Eligible Employee. Failure to do so will result in forfeiture
of any Severance Allowance and other benefits due that Eligible
Employee under this Program.
3. No payments can be made under the terms of this Program unless
the Eligible Employee has first terminated employment from the
Company and its participating Subsidiaries or the Acquiring
Company and its affiliates, as the case may be. An Eligible
Employee's continued employment following a Closing or Change
in Control shall not be deemed to be consent to, or a waiver of
rights with respect to, any circumstance listed above for a
period of two years from the Closing or Change in Control.
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4. The adoption of this Program is entirely voluntary on the part
of the Company and is not intended nor shall it be construed as
creating a contract of employment between the Company or its
successors or any participating Subsidiary and any Eligible
Employee, nor be construed as a term of employment.
5. The Committee shall have the full discretionary authority to
administer the Program, to construe and interpret the Program,
to decide all questions of eligibility, to determine the
amount, manner and time of payment of any payments and benefits
hereunder and to make all other determinations deemed necessary
or advisable for the administration of the Program.
6. The Board, in its sole discretion, may amend the Program at any
time or times in such manner as it deems appropriate; provided,
however, no such amendment (or any part of an amendment, as the
case may be) made either (i) within six months prior to a
Change in Control or Closing or (ii) on or within 24 months
after a Change in Control or Closing shall be effective with
respect to any Eligible Employee to the extent such amendment
(or part thereof) would reduce the Severance Allowance or any
other benefit such Eligible Employee would have received under
the Program but for such amendment. Further, no amendment may
reduce or adversely affect any benefits already in pay status
under the Program at the date of such amendment. In addition,
the Committee may amend the Program, subject to the above
limitations; provided, however, that no such amendment by the
Committee may significantly increase the benefits or costs of
the Program.
C. SEVERANCE ALLOWANCE
1. The amount of Severance Allowance will be determined by the
following formula:
One week's Base Salary per 12 months of Credited
Service, plus one week's Base Salary per $4,000 of
annual Base Salary, plus one week's Base Salary for
each year of age above 40. The sum of the weeks and
fractional weeks will be rounded to the next highest
full week. One weeks' Base Salary will be computed by
dividing Base Salary by 52.
However, the minimum amount will be 8 weeks' Base
Salary and the maximum amount will be one year's Base
Salary.
a. The amount of the Severance Allowance shall be paid in
a lump sum as soon as practicable following
termination, unless the installment option is elected
by the Eligible Employee. Certain other benefits as
described in Section D, however, are continued for a
limited period as provided therein.
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b. At the election of the Eligible Employee (made prior
to termination), the amount of the Severance Allowance
shall be paid in equal monthly installments over a
period designated by the Eligible Employee, but not to
exceed 24 months, commencing after his or her date of
termination. Certain benefits as described in Section
D, however, are continued for a limited period as
provided therein.
2. If the terminated Eligible Employee is receiving a Severance
Allowance in monthly installments under option C1(b) and
subsequently accepts a job outside the Company's affiliated
group, the remaining balance will be paid in a lump sum at the
election of the Eligible Employee. Interest will not be paid
on any installment payments. Severance Allowance payments will
be subject to withholdings for all applicable taxes and
appropriate deductions for employee benefits.
3. In the event an Eligible Employee dies after the termination of
his employment and before having received the full amount of
the Severance Allowance for which the Eligible Employee was
qualified, the Eligible Employee's spouse or, if there is no
spouse, the beneficiary designated by the employee under the
Company-sponsored group term life insurance plan, may continue
to receive installment payments under C1(b) or in lieu thereof
may receive a lump sum payment of the remaining balance.
4. In no event shall the aggregate amounts paid pursuant to this
Program to any Eligible Employee exceed two times the Eligible
Employee's "annual compensation" (as defined in DOL Reg.
Section 2510.3-2(b)(2)) for the year immediately preceding
the termination of service.
5. Notwithstanding any other provisions of this Program to the
contrary, an Eligible Employee shall not be eligible to receive
a Severance Allowance or any other benefits under this Program
unless the Eligible Employee executes a release and waiver in a
form provided by the Company; provided, however, the foregoing
shall not apply to a termination of employment that is in
conjunction with or following a Change in Control. No
Severance Allowance or other benefits shall be due or payable
under this Program prior to the effectiveness of such release
and waiver, if applicable.
6. Further, and notwithstanding the foregoing provisions of this
Program, payments or benefits otherwise to be provided to an
Eligible Employee under this Program shall be reduced to the
extent necessary so that no portion thereof shall be subject to
the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), but only if, by reason
of such reduction, the Eligible Employee's net after tax
benefit shall exceed the net after tax benefit if such
reduction were not made.
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7. Notwithstanding the foregoing provisions of this Program, the
amount of any payment provided under this Program shall be
reduced by any similar payment made by the Company required by
any federal or state law with respect to such termination of
employment.
D. OTHER BENEFITS
All benefits under other employee welfare benefit plans maintained by
the Company and its Subsidiaries shall cease upon the date of
termination except as described below.
1. Whether the Severance Allowance is paid as a lump sum under
C1(a) or in installments under C1(b), effective on the day
following the date of termination, and for two years following
(the "Severance Period"), the Eligible Employee automatically
will continue to be covered by the group medical, dental and
employee life insurance plans in which he participates on the
date his employment terminates or in any successor plan thereto
for similarly situated active employees of the Company and its
affiliates; provided, however, that the amount of life
insurance shall not exceed two times the Eligible Employee's
annual base salary in effect on the date his employment
terminates (except in the case of an employee's "grandfathered"
benefit under a prior plan); and provided further, that the
Eligible Employee makes the employee contributions required, if
any, of similarly situated active employees for such coverage.
The Eligible Employee will be subject to any modifications to
these benefits that are generally applicable to such active
employees, but in no event shall the Company terminate such
benefits prior to the end of the Severance Period, except
should the Eligible Employee cease to make the employee
contributions as may be required hereunder. In the event there
cease to be any such active employees of the Company and its
affiliates during the Severance Period, the benefits shall
nonetheless continue for the remainder of the Severance Period
at the levels (and, if applicable, the active employee premium
cost) in effect immediately prior to such date. Any
contributory portion of an Eligible Employees "grandfathered"
life insurance benefit may be continued or terminated at the
Eligible Employee's choice. Medical and dental coverage will
be extended to include all eligible dependents during the
Severance Period, provided that such dependents were covered
under the Eligible Employee's medical and dental coverage on
the date of his termination.
2. Notwithstanding the above, coverage will cease when the
terminated Eligible Employee becomes covered under another
group health plan (other than one sponsored by the Company for
retirees) which does not contain any exclusion or limitation
with respect to any preexisting condition of such Eligible
Employee. If on the commencement of, during or immediately
following the end of the severance period provided hereunder
the terminated Eligible Employee is eligible and elects to
retire under the Retirement Plan, medical and life insurance
benefits will be provided to the retiree in accordance with the
terms of the Company's Group Health Benefits
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<PAGE>
and Group Life Insurance Plans, as described in the Company's
Options Plus Benefits Handbook or similar publications and
benefit plan documents automatically beginning as of the end of
the severance period provided hereunder.
3. If an Eligible Employee does not qualify for group health and
life insurance as a retiree under the Company's Group Health
Benefits Plan or Group Life Insurance Plan, a conversion
privilege for employee life insurance and medical benefits will
be provided within 31 days of the date coverage ceases. No
conversion privilege is available for dental benefits.
4. The group medical and dental benefits provided herein are for
the purpose, in part, of providing at employer expense (other
than the employee charge, if any, for HMO and Hospital
Association coverage) "continuation coverage" after termination
of employment as required under the Consolidated Omnibus Budget
Reconciliation Act ("COBRA"). To the extent that COBRA
requires any benefits or rights in addition to those provided
for by this Program, the Company shall comply with such law and
notify the Eligible Employee or other persons of such rights.
However, to the extent this Program provides any greater rights
or benefits than those required by COBRA, the Eligible
Employees shall receive such greater rights or benefits under
this Program.
5. The above "other" welfare benefits will be payable under such
other plans and programs.
6. Accrued and earned vacation will be paid in a lump sum,
following termination.
E. OUTPLACEMENT COUNSELING
The Company may (but shall not be obligated to) provide, at times and
places specified, outplacement counseling to Eligible Employees
designated by the Company as terminated. The Company will have sole
discretion in selection of the outside vendor and services to be
provided.
F. CLAIM REVIEW PROCEDURE
1. All inquiries concerning claims under the Program shall be
submitted to the Company and shall be addressed as follows: Mr.
L. D. Riggs, 5201 Truxtun, Suite 100, Bakersfield, California
93309.
In the event that any claim for benefits is denied in whole or
in part, the Company shall notify the claimant in writing of
such denial and shall advise the claimant of his or her right
to a review thereof. Such written notice shall set forth, in a
manner calculated to be understood by the claimant, specific
reasons for such denial, specific
-10-
<PAGE>
references to the Program provisions on which such denial is
based, a description of any information or material necessary
for the claimant to perfect his or her claim, an explanation of
why such material is necessary and an explanation of the
Program's review procedure. Such written notice shall be given
to the claimant within a reasonable period of time after the
claim is filed with the Company.
2. Any person or his or her duly authorized representative, whose
claim for benefits is denied in whole or in part may appeal
from such denial by submitting to the company a request for a
review of the claim within 60 days after receiving written
notice of such denial from the Company. The Company shall give
the claimant an opportunity to review pertinent documents in
preparing his or her request of review.
3. The request for review must be in writing and shall be
addressed as follows: Mr. L. D. Riggs, 5201 Truxtun, Suite
100, Bakersfield, California 93309. The request for review
shall set forth all of the grounds upon which it is based, all
facts and support thereof and any other matters which the
claimant deems pertinent. The Company may require the claimant
to submit such additional facts, documents or other material as
the Company may deem necessary or appropriate in making its
review.
4. The Company shall act upon each request for review within 60
days after receipt thereof unless special circumstances require
further time for processing, but in no event shall the decision
on review be rendered more than 120 days after the Company
receives the request for review.
5. The Company shall give written notice of its decision to the
claimant. In the event that the Company confirms the denial of
application for benefits in whole or in part, such notice shall
set forth, in a manner calculated to be understood by the
claimant, the specific reasons for such denial and specific
references to the Program provisions on which the decision is
based.
G. ERISA REQUIREMENTS
The following paragraphs contain specific information required by the
Employee Retirement Income Security Act of 1974 (ERISA):
The name of the plan is Monterey Resources, Inc. Severance
Program. The Sponsor of the Program is:
Monterey Resources, Inc.
5201 Truxtun, Suite 100
Bakersfield, California 93309
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<PAGE>
The Program is a welfare benefit severance plan under ERISA.
The Administrators of the Program are the members of the
Committee, which may be contacted as follows:
Monterey Severance Plan Committee
Monterey Resources, Inc.
5201 Truxtun, Suite 100
Bakersfield, California 93309
(805) 322-3992
Mr. Terry L. Anderson, General Counsel, Monterey Resources, Inc., 5201
Truxtun, Suite 100, Bakersfield, California 93309 is designated as
agent for legal process.] Service of legal process may also be made
upon written request to the Plan Administrator.
The Company's Tax Identification Number (TIN) assigned by the Internal
Revenue Service is 76-051993. The TIN for the Plan Administrator is
applied for. The Program's plan identification number is 5_____.
Severance Allowances are paid from the general assets of the Company.
The other benefits, if any, provided hereunder, i.e., continued
medical, dental or life insurance benefits, shall be payable under such
other plan or program. As a welfare benefits severance plan, the
benefits provided hereunder are not subject to the insurance provisions
of the Pension Benefit guaranty Corporation (PBGC).
You are entitled to certain rights and protections under the Employee
Retirement Income Security Act of 1974 (ERISA). ERISA provides that
all plan participants shall be entitled to:
Examine, without charge at the office of the Plan
Administrator, all plan documents and copies of all documents
filed by the plan with the U.S. Department of Labor, such as
detailed annual reports and plan descriptions.
Obtain copies of all plan documents and other plan information
upon written request to the Plan Administrator. A reasonable
charge may be made for the copies.
Receive a summary of the plan's annual report. The plan
administrator is required by law to furnish each Eligible
Employee with a copy of the summary annual report.
In addition to creating rights for plan participants, ERISA imposes
duties upon people who are responsible for the operation of the plan.
The people who operate your plan, called "fiduciaries" of the plan,
have the duty to do so prudently and in the interest of you and other
plan participants and beneficiaries. No one, including your employer
or any other person, may fire you or otherwise discriminate against you
in any way to prevent you from obtaining
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<PAGE>
a benefit or exercising you rights under ERISA. If your claim for a
benefit is denied in whole or in part, you must receive a written
explanation of the reason for the denial. You have a right to have the
plan review and reconsider your claim. Under ERISA, there are steps
you can take to enforce the above rights. For instance, if you request
materials from the plan and do not receive them within 30 days, you may
file suit in a federal court. In such a case, the court may require
the Plan Administrator to provide the materials and pay you up to $100
a day until you receive the materials, unless the materials were not
sent because of reasons beyond the control of the administrator. If
you have a claim for benefits which is denied or ignored, in whole or
in part, you may file suit in a state or federal court. If its should
happen that plan fiduciaries misuse the plan's money, or if you are
discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and
legal fees. If you are successful, the court may order the person you
have sued to pay these costs and fees. If you lose, the court may
order you to pay these costs and fees; for example, if its finds your
claim is frivolous.
If you have any questions about this statement or your rights under
ERISA, you should contact the Plan Administrator or the Area Office of the U.S.
Labor-Management Service Administration, Department of Labor.
-13-
EXHIBIT 10.10
8/30/96
MONTEREY RESOURCES, INC.
SAVINGS INVESTMENT PLAN
TABLE OF CONTENTS
PAGE
NO.
Section I Preamble . . . . . . . . . . . . . . . . . . . . . . I-1
Section II Definitions . . . . . . . . . . . . . . . . . . . . . II-1
Section III Employee Eligible to Participate . . . . . . . . . . III-1
Section IV Contributions . . . . . . . . . . . . . . . . . . . . IV-1
Section V Investment of Contributions . . . . . . . . . . . . . V-1
Section VI Vesting . . . . . . . . . . . . . . . . . . . . . . . VI-1
Section VII Withdrawals Prior to Termination of Employment . . . VII-1
Section VIII Distributions Other Than Withdrawals . . . . . . . .VIII-1
Section IX Death Benefits, Beneficiaries, Unclaimed Benefits . . IX-1
Section X Administration . . . . . . . . . . . . . . . . . . . X-1
Section XI Provisions Respecting the Company . . . . . . . . . . XI-1
Section XII Termination of Plan . . . . . . . . . . . . . . . . . XII-1
Section XIII Miscellaneous Provisions . . . . . . . . . . . . . .XIII-1
Section XIV Loans . . . . . . . . . . . . . . . . . . . . . . . . XIV-1
Attachment A Investment Funds
(i)
<PAGE>
SECTION I
PREAMBLE
1.1 Monterey Resources, Inc. (the "Company") hereby
establishes the Monterey Resources, Inc. Savings Investment Plan (the "Plan"),
to be effective as of the date the Company ceases to be a subsidiary of Santa
Fe Energy Resources, Inc. (the "Spinoff Date").
1.2 The effective date of the Plan for each Participating
Company shall be the date so specified in the resolution of that company which
adopts the Plan.
1.3 The Plan is established by spinning off the accounts
of all employees of the Company on the Spinoff Date under the Santa Fe Energy
Resources Savings Investment Plan (the "SFER Plan") as a separate plan and
continuing such spun-off plan as the Plan without interruption or change,
except as specifically provided herein.
I-1
<PAGE>
SECTION II
DEFINITIONS
When used in this Plan, the following terms shall have the
meanings set forth below unless a different meaning is plainly required by the
context:
2.1 "Accounts" shall mean a Participant's Deferred
Contributions Account, Employer Contributions Account, Rollover Account, and/or
Participant Contributions Account, if any.
2.2 "Affiliated Company" shall mean every corporation
(including the Company) which is a member of a controlled group of corporations
(within the meaning of Section 414(b) of the Code), which includes the Company.
"Affiliated Company" shall also mean any trade or business under common control
with an Affiliated Company within the meaning of Section 414(c) of the Code,
and any other entity required to be aggregated with the Company pursuant to
Section 414(m) or (o) of the Code. For purposes of Section 4.8, the
modification of Sections 414(b) and 414(c) of the Code by Section 415(h) of the
Code is incorporated.
2.3 "Annuity Starting Date" shall mean the first day of
the first period for which an amount is payable as an annuity, or in the case
of a benefit not payable in the form of an annuity, the first day on which all
events have occurred which entitle the Participant to such benefit.
2.4 "Beneficiary" shall mean any individual, trust or
other recipient entitled to receive benefits payable hereunder upon the death
of the Participant, as provided in Section 9.2 hereof.
2.5 "Break in Service" shall mean a 12 consecutive month
period during which an Employee remains unemployed by the Affiliated Companies,
which period shall commence with
II-1
<PAGE>
the date on which such Employee's employment with the Affiliated Companies is
terminated. The date on which employment is terminated shall be the earlier of
(1) the date on which the Employee quits, is discharged, retires or dies, or
(2) the first anniversary of the date on which a Leave of Absence commences;
provided, however, if an Employee is absent from service for more than 12
months due to her pregnancy, birth or adoption of his or her child or the
caring for such child following its birth or adoption, the 12-month period
following the first anniversary of the date such absence began shall not be
treated as a period of absence for Break in Service purposes. The Employee may
be required to furnish proof of the reason and duration of the absence. The
Plan shall be administered in accordance with the requirements of the Family
Medical Leave Act of 1993.
2.6 "Code" shall mean the Internal Revenue Code of 1986,
as amended.
2.7 "Company Stock" shall mean the common stock of the
Company.
2.8 "Compensation" shall mean the total of base salary or
base wages paid to a Participant by a Participating Company, and any elective
pre-tax salary deferrals made by the Participant with respect to the same under
this Plan and any plan which meets the requirements of Sections 125 and/or 129
of the Code, and shall exclude all other items of compensation including but
not limited to, overtime, bonuses, severance benefits, payments while on a
leave of absence other than for short-term illness, unused vacation pay,
business expense reimbursements, any income realized for federal income tax
purposes as a result of group life insurance, other employee benefit plans or
the grant or exercise of an option to acquire stock, payments made under any
long-term disability plan of a Participating Company, restricted stock, phantom
units and amounts deferred under a non-qualified salary deferral plan.
Compensation shall be determined in accordance with the rules of Section 414(q)
of the Code, except that the term "family" shall include only the
II-2
<PAGE>
Participant's spouse and any lineal descendants who have not attained the age
of 19 before the close of the Plan Year.
For purposes of determining the Average Contribution
Percentage, however, Compensation shall mean the Employee's total pay from the
Participating Companies for purposes of Section 415 of the Code, plus any
elective deferrals excluded from his gross income pursuant to Sections 125, 129
or 402(g) of the Code.
Notwithstanding anything herein to the contrary, the amount of
annual compensation deemed to be "Compensation" with respect to any particular
Participant shall not in any event exceed $150,000 during any Plan Year,
subject to cost-of-living adjustments made thereto by the Secretary of the
Treasury or his delegate.
2.9 "Computation Period" means a period of 12 consecutive
months commencing on the date on which the Employee first completes (or,
following a Break in Service, again completes) an Hour of Service, and each
anniversary of such date.
2.10 "Deferred Contributions" shall mean contributions
made on behalf of a Participant pursuant to his election pursuant to Section
4.1 hereof.
2.11 "Deferred Contributions Account" shall mean that
portion of a Participant's interest in this Plan which is attributable to
Deferred Contributions made on his behalf hereunder and, if applicable, his SFP
Plan Deferred Contributions Account transferred to this Plan.
2.12 "Eligible Class" shall mean an Employee of a
Participating Company other than (1) a nonresident alien with no U.S. source
income, (2) a "leased employee" within the meaning of Section 414(n) of the
Code, or (3) an Employee who is included in a bargaining unit that has a
II-3
<PAGE>
collective bargaining agreement with the Participating Company, unless the
agreement provides for participating in the Plan by an Employee in such unit.
2.13 "Employee" shall mean any person whose wages from an
Affiliated Company are subject to withholding under Section 3402 of the Code,
and shall also include any "leased employee" within the meaning of Section
414(n) of the Code, except as otherwise permitted by the Code and regulations.
2.14 "Employer" shall mean a Participating Company, or any
successor organization which shall assume the obligations of this Plan with
respect to its Employees.
2.15 "Employer Contributions Account" shall mean that
portion of a Participant's interest in this Plan which is attributable to
Employer contributions made at any time hereunder, other than Deferred
Contributions made on his behalf pursuant Section 4.1 hereof, and, if
applicable, shall include his SFER Plan Employer Contributions Account
transferred to this Plan.
2.16 "Entry Date" shall mean the first day of each month.
2.17 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
2.18 "Highly Compensated Employee" shall mean any Employee
who performs service for the Employer or an Affiliated Company during the
determination year and who, during the look-back year: (i) received
compensation from the Employer or an Affiliated Company in excess of $75,000
(as adjusted pursuant to section 415(d) of the Code); (ii) received
compensation from the Employer or an Affiliated Company in excess of $50,000
(as adjusted pursuant to section 415(d) of the Code) and was a member of the
top-paid group for such year; or (iii) was an officer of the Employer or an
Affiliated Company and received compensation during such year that is
II-4
<PAGE>
greater than 50% of the dollar limitation in effect under section 415(d)(1)(A)
of the Code. The term highly compensated employee also includes: (i)
employees who are both described in the preceding sentence if the term
'determination year' is substituted for the term 'look-back year' and the
employee is one of the 100 employees who received the most compensation from
the employer during the determination year; and (ii) employees who are 5%
owners at any time during the look-back year or determination year.
If no officer has satisfied the compensation requirement of
(iii) above during either a determination year or look-back year, the highest
paid officer for such year shall be treated as a highly compensated employee.
For this purpose, the determination year shall be the plan
year. The look-back year shall be the twelve-month period immediately
preceding the determination year.
A highly compensated former employee includes any employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the employer during the
determination year, and was a highly compensated active employee for either the
separation year or any determination year ending on or after the employee's
55th birthday.
If an Employee is, during a determination year or look-back
year, a family member of either a 5 percent owner who is an active or former
employee or a highly compensated employee who is one of the 10 most highly
compensated employees ranked on the basis of compensation paid by the Employer
or an Affiliated Company during such year, then the family member and the 5
percent owner or top-ten highly compensated employee shall be aggregated. In
such case, the family member and 5 percent owner or top-ten highly compensated
employee shall be treated as a single employee receiving compensation and plan
contributions or benefits equal to the sum of such
II-5
<PAGE>
compensation and contributions or benefits of the family member and 5 percent
owner or top-ten highly compensated employee. For purposes of this section,
family member includes the spouse, lineal ascendants and descendants.
The determination of who is a highly compensated employee,
including the determinations of the number and identity of employees in the
top-paid group, the top 100 employees, the number of employees treated as
officers and the compensation that is considered, will be made in accordance
with section 414(q) of the Code and the regulations thereunder.
2.19 "Hours of Service" shall mean each hour for which an
Employee is paid, or entitled to payment, for the performance of duties for an
Affiliated Company.
2.20 "Named Fiduciary" shall mean the Plan Administrator.
2.21 "Normal Retirement Date" shall mean the Valuation
Date on or next following a Participant's 65th birthday (the "Normal Retirement
Age").
2.22 "Participant" shall mean an Employee who meets the
eligibility requirements set forth in Section III hereof and who has taken all
of the steps required for participation by said Section III and a former
Employee who has an Account under the Plan. Participant shall also include an
Employee who makes a rollover contribution to the Plan pursuant to Section 4.2.
2.23 "Participant Contributions Account" shall mean, if
applicable, that portion of a Participant's interest in this Plan which is
attributable to his SFER Plan Participant Contributions Account transferred to
this Plan. Any portion thereof attributable to Participant after-tax
contributions made prior to 1987 shall be separately accounted for under the
Account.
2.24 "Participating Company" shall mean each Affiliated
Company which has adopted this Plan pursuant to Section XIII.
II-6
<PAGE>
2.25 "Plan" shall mean the Monterey Resources, Inc.
Savings Investment Plan as set forth herein and all subsequent amendments
thereto.
2.26 "Plan Administrator" shall mean the Employee Benefits
Committee of at least three persons appointed by the Chief Executive Officer of
the Company to serve as Plan Administrator.
2.27 "Plan Year" shall mean the calendar year, which shall
also be the limitation year for purposes of Section 415 of the Code.
2.28 "Qualified Joint and Survivor Annuity" shall mean an
immediate annuity for the life of the Participant with a survivor annuity of
50% for the life of his spouse, as his contingent annuitant, as described in
Option 2 in Section 8.1.
2.29 "Retirement" shall mean a Participant terminates his
employment with all Affiliated Companies at a time when he is eligible to
commence receiving a vested annuity benefit under any qualified defined benefit
plan maintained by an Affiliated Company.
2.30 "Rollover Account" shall mean that portion of a
Participant's interest in this Plan which is attributable to a qualified
rollover contribution (within the meaning of Section 402 of the Code) made to
the Plan by the Participant.
2.31 "Total Disability" shall mean a Participant's
eligibility for benefits under the Company's Long-Term Disability Plan. Total
Disability shall be deemed to exist only when a written application has been
filed with the Employer or its designee by or on behalf of such Participant and
when such Total Disability is certified to the Employer or its designee by a
licensed physician approved by the Employer or his designee.
II-7
<PAGE>
2.32 "Trustee" shall mean the trustee under any trust
agreement established between the Company and the Trustee for the purpose of
holding assets of the Plan.
2.33 "Valuation Date" shall mean each business day of the
Plan Year.
2.34 "Year of Service" shall mean a Computation Period
during which an Employee is employed or deemed to be employed by an Affiliated
Company for the full Computation Period; provided, however, if a termination of
employment of such Employee shall occur, followed by the completion of an Hour
of Service prior to incurring a Break in Service, then the period commencing
with such termination of employment and extending to the date he again
completes an Hour of Service shall be credited for determining the Employee's
Years of Service; provided further, however, if an Employee is absent from
service due to her pregnancy, birth or adoption of his or her child or the
caring for such child following its birth or adoption, the Employee shall be
credited with the period of such maternity/paternity absence but not in excess
of 12 months. The Employee may be required to furnish proof of the reason and
duration of such absence.
All Years of Service (and fractional parts thereof), whether
or not continuous, shall be aggregated on the basis that 365 days of service
equals one full Year of Service; provided, however, any Years of Service (or
parts thereof) completed prior to becoming vested shall be disregarded if the
Employee incurs five or more consecutive Breaks in Service.
Each Employee's service prior to the effective date of the
Plan shall be the amount shown by the Employer's records (or the SFER Plan) as
of that date. Further, prior service with a predecessor employer or an
acquired business before the date such entity or business became an Affiliated
Company shall not be credited under the Plan except to the extent the President
of the Company provides otherwise in a nondiscriminatory manner.
II-8
<PAGE>
The singular form of any word shall include the plural and the
masculine gender shall include the feminine wherever necessary for the proper
interpretation of this Plan.
II-9
<PAGE>
SECTION III
EMPLOYEES ELIGIBLE TO PARTICIPATE
3.1 Each Employee who is a Participant on the Spinoff
Date shall continue as a Participant as of that date. Each other Employee or
future Employee of a Participating Company shall be eligible to become a
Participant as of the first Entry Date on or immediately following the date he
completes an Hour of Service, or on any subsequent Entry Date, provided he is
in the Eligible Class on such Entry Date.
3.2 In the event a former Employee is rehired and again
becomes a member of the Eligible Class, or an Employee transfers into the
Eligible Class, he shall be eligible to participate in the Plan as of his date
of rehire or transfer into the Eligible Class, as the case may be, or as of any
future Entry Date thereafter, provided he is in the Eligible Class on such
future Entry Date.
3.3 Participating Companies shall notify all Employees in
the Eligible Class of their eligibility to participate and shall give them an
opportunity to become Participants.
3.4 To become a Participant, an Employee must meet the
above requirements of this Section and execute and deliver to the Participating
Company in accordance with procedures established by the Plan Administrator a
written election form indicating his desire to have a portion of his
Compensation contributed to the Plan as Deferred Contributions. He must
specify his chosen rate of Deferred Contributions and authorize the
Participating Company to make regular payroll reductions of such Deferred
Contributions. In addition, the Employee must make an investment election as
described in Section V hereof. No Employee shall become a Participant until he
has met the above requirements. Elections shall be processed by the
Participating Companies, in accordance
III-1
<PAGE>
with procedures established by the Plan Administrator, as soon as reasonably
practicable after their receipt.
III-2
<PAGE>
SECTION IV
CONTRIBUTIONS
4.1 Each Employee who is eligible to participate in the
Plan must, in order to participate, elect to have his Compensation reduced each
payroll period by either (x) a whole percentage (not to exceed 12%) or (y) a
dollar amount equal to the maximum dollar amount permitted by Section 402(g) of
the Code for such Plan Year divided by the number of payroll periods in the
Plan Year (or, upon a Participant's initial participation following his date of
hire or rehire, the number of payroll periods remaining in the Plan Year), but
not to exceed 12% of Compensation, and to have the amount by which his
Compensation is reduced contributed to the Plan by his Employer on his behalf
as before-tax Deferred Contributions. No contributions may be made by a
Participant unless he is in the Eligible Class.
4.2 An Employee who is in the Eligible Class but elects
not to make contributions pursuant to Section 4.1 shall be eligible to make a
rollover contribution (including in the form of a "direct" rollover) to the
Plan by wire transfer or by check acceptable to the Plan Administrator,
provided such contribution satisfies the requirements of Section 402(a) of the
Code as being a 'qualified rollover,' and the Employee satisfies such other
administrative requirements concerning such rollover contributions as may be
required, including designating the investment fund(s) for such contribution.
Rollover contributions are not subject to a Company matching contribution.
4.3 Election forms shall be distributed by the Plan
Administrator to all eligible Employees. All elections shall apply to
Compensation to be received after the election becomes effective. Any eligible
Employee who fails to return a properly completed election form in a timely
IV-1
<PAGE>
manner to the Plan Administrator shall be deemed to have elected to have all of
his Compensation included in his regular paycheck.
4.4 Participant Deferred Contributions shall be made by
means of payroll reductions and the amounts so withheld shall be paid as soon
as reasonably practicable without interest to the Trustee by the Participating
Companies and shall be credited to the Participant's Deferred Contributions
Account.
4.5 The Participating Companies shall make matching
Employer contributions to the Trustee hereunder on or as soon as reasonably
practicable following the end of each pay period in regard to their
Participants which shall be credited to the Participants' Employer
Contributions Accounts. The amount of the matching Employer contribution to be
made for any particular pay period with respect to any particular Participant
shall be equal to 100% of the Deferred Contributions, up to 4% of his
Compensation, actually made hereunder on behalf of such Participant for that
pay period.
In addition, the Company may, with respect to any Plan Year,
determine that an additional matching contribution (the "Employer Performance
Match Contribution") shall be made as of the end of such Plan Year to those
Participants who are Employees at the end of the Plan Year. The amount of such
Employer Performance Match Contribution made with respect to any Participant
shall equal the Bonus Percentage for such Plan Year multiplied by the aggregate
of the Employer matching contributions (as described in the immediately
preceding paragraph) made with respect to such Participant for such Plan Year,
with the Bonus Percentage being established by the Plan Administrator, in its
discretion, on a uniform basis for all affected Participants, but in no event
shall the Bonus Percentage for any Plan Year exceed 50%.
IV-2
<PAGE>
The Plan is intended to qualify as a profit sharing plan under
Section 401(a) of the Code; however, unless the Board directs, with respect to
any Plan Year, that contributions shall not be made in the absence of profits,
the above described contributions shall be made by the Employer in the absence
of current or accumulated earnings and profits provided the Plan will continue
to qualify as a profit sharing plan under Section 401(a)(27) of the Code. The
Employer matching contribution may be made in cash, Company Stock or any
contribution thereof as determined by the Company.
4.6 The Participant may elect to change his rate of
Deferred Contributions as of any payroll period (such changes shall be limited
to those percentages or amount described in Section 4.1) and may elect to
suspend his Deferred Contributions entirely as of any payroll period with each
such suspension being for three months. The Participant's election to suspend
or change his rate of contributions must be made by notice to the Participating
Company in the manner established by the Plan Administrator prior to the
processing cut-off date for such payroll period. If received after the cut-off
date, the election shall be processed by the Participating Company as soon as
reasonably practicable thereafter.
4.7 If the Participant elects to suspend his
contributions, he may elect to resume Deferred Contributions as of any payroll
period that is three or more months after the effective date of such
suspension. An election to resume contributions must notify the Participating
Company and/or the Administrator and such request will be processed as soon as
reasonably practicable after its receipt.
IV-3
<PAGE>
4.8 I. Excess Deferrals.
(a) A Participant's Deferred Contributions shall in no
event exceed $9,500 for the 1996 taxable year of the Participant.
This dollar limitation shall be adjusted annually for years after 1996
as provided in Code Section 415(d) pursuant to regulations. The
adjusted limitation shall be effective as of January 1 of each
calendar year.
(b) In the event that the dollar limitation provided for
in (a) is exceeded, the Plan Administrator shall direct the Trustee to
distribute such excess amount, and any income (or loss) allocable to
such amount (as provided in (d) below), to the Participant not later
than the first April 15 following the close of the Participant's
taxable year.
(c) In the event that a Participant is also a participant
in (1) another qualified cash or deferred arrangement (as defined in
Code Section 401(k)), (2) a simplified employee pension (as defined in
Code Section 408(k)), or (3) a salary reduction arrangement (within
the meaning of Code Section 3121(a)(5)(D)) and the elective deferrals,
as defined in Code Section 402(g)(3), made under such other
arrangement(s) and this Plan cumulatively exceed $9,500 (or such
amount adjusted annually as provided in Code Section 415(d) pursuant
to regulations) for such Participant's taxable year, the Participant
may, not later than March 1 following the close of his taxable year,
notify the Plan Administrator in writing of such excess and request
that his 401(k) contributions under this Plan be reduced by an amount
specified by the Participant. Such amount shall then be distributed
in the same manner as provided in (b).
(d) The income (or loss) allocable to returnable excess
deferrals for a Plan Year shall be determined by the Plan
Administrator in a reasonable manner and need not include
IV-4
<PAGE>
any gain or loss for the period between the end of the Plan Year and
the date of distribution. Income includes all earnings and
appreciation, including such items as interest, dividends, rent,
royalties, gains from the sale of property, appreciation in the value
of stocks, bonds, annuity and life insurance contracts, and other
property, without regard to whether such appreciation has been
realized.
Unless the Plan Administrator elects otherwise for a Plan
Year, the income (or loss) allocable to returnable contributions for
the Plan Year shall be determined by multiplying the income (or loss)
for the Plan Year allocable to employee contributions, matching
contributions, and amounts treated as matching contributions
(whichever is applicable) by a fraction. The numerator of the
fraction shall be the amount of returnable contributions made on
behalf of the employee for the Plan Year. The denominator of the
fraction shall be the total account balance of the employee
attributable to employee contributions, matching contributions and
amounts treated as matching contributions as of the end of the Plan
Year, reduced by the gain allocable to such total amount for the Plan
Year and increased by the loss allocable to such total amount for the
Plan Year.
II. Actual Deferral Percentage.
For purposes of this Section, Actual Deferral Percentage
("ADP") means, with respect to the Highly Compensated Employee group and
Non-Highly Compensated Employee group for a Plan Year, the average of the
ratios, calculated separately for each member in such group, of the amount of
Deferred Contributions allocated to each Participant's Deferred Contribution
Account (unreduced by distributions made pursuant to I(b) and (d) above) for
such Plan Year, to such Participant's Section 415 Compensation for such Plan
Year. In the case of a Highly Compensated
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<PAGE>
Employee who is either a 5% owner or one of the ten most highly compensated
employees, the ADP for the Family Member group (which is treated as one Highly
Compensated Employee) is the ADP determined by combining the elective
contributions, compensation and amounts treated as elective contributions of
all eligible Family Members. Except to the extent taken into account in the
preceding sentence, the contributions, compensation and amounts treated as
elective contributions of all Family Members are disregarded in determining the
ADP for the groups of Highly Compensated Employees and Non-Highly Compensated
Employees.
In the case of a Highly Compensated Employee whose ADP is
determined under the family aggregation rules, the ADP is reduced in accordance
with the "leveling" method described in the regulations and the excess
contributions for the family unit are allocated among the Family Members in
proportion to the contributions of each Family Member that have been combined.
For purposes of this Section 4.3, a Family Member is an Employee's spouse,
lineal ascendants or descendants or a spouse of such lineal ascendant or
descendent.
III. Actual Deferral Percentage Test.
(a) Maximum Annual Allocation: For each Plan Year, the
annual allocation derived from Deferred Contributions to a
Participant's Deferred Contribution Account shall satisfy one of the
following tests:
(1) The ADP for the Highly Compensated Employee
group shall not be more than the ADP of the Non-Highly
Compensated Employee group multiplied by 1.25, or
(2) The excess of the ADP for the Highly Compensated
Employee group over the ADP for the Non- Highly Compensated
Employee group shall not be more
IV-6
<PAGE>
than two percentage points. Additionally, the ADP for the
Highly Compensated Employee group shall not exceed the ADP for
the Non-Highly Compensated Employee group multiplied by two.
This alternative limitation test cannot be used to satisfy the
ADP test and the Actual Contribution Percentage test set forth
below except as otherwise provided by Treasury Regulation
Section 1.401(m)-2(b), the provisions of which are hereby
incorporated by reference.
(b) For the purposes of Sections II(a) and III, a Highly
Compensated Employee and a Non-Highly Compensated Employee shall
include any Employee eligible to make a Deferred Contribution, whether
or not such contribution was made.
(c) For the purposes of this Section, if two or more
plans which include cash or deferred arrangements are considered one
plan for the purposes of Code Section 401(a)(4) or 410(b), the cash or
deferred arrangements included in such plans shall be treated as one
arrangement. The aggregated plans must also satisfy Code Sections
401(a)(4) and 410(b) as though they were a single plan.
(d) For purposes of this Section, if a Highly Compensated
Employee is a member under two or more cash or deferred arrangements
of the Employer, all such cash or deferred arrangements (other than
those that may not be permissively aggregated as a single arrangement)
shall be treated as one cash or deferred arrangement for the purpose
of determining the deferral percentage with respect to such Highly
Compensated Employee.
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<PAGE>
IV. Adjustments As A Result of Actual Deferral Percentage
Test.
The amount of excess contributions for a Highly Compensated
Participant will be determined in the following manner: First, the actual
deferral ratio (ADR) of the Highly Compensated Participant with the highest ADR
is reduced to the extent the ADR of the Highly Compensated Participant with the
next highest ADR is reduced to the extent necessary to satisfy the actual
deferral percentage (ADP) test or cause such ratio to equal the ADR of the
Highly Compensated Participant with the next highest ratio. Second, this
process is repeated until the ADP test is satisfied. The amount of excess
contributions for a Highly Compensated Participant is then equal to the total
of elective and other contributions taken into account for the ADP test minus
the product of the employee's reduced deferral ratio as determined above and
the employee's compensation. In the case of a Highly Compensated Participant
whose ADR is determined under the family aggregation rules, the determination
of the amount of excess contributions shall be made as follows: The ADR is
reduced in accordance with the "leveling" method described above and the excess
contributions are allocated among the Family Members in proportion to the
contributions of each Family Member that have been combined.
The amount of excess contributions to be distributed shall be
reduced by excess deferrals previously distributed for the taxable year ending
in the same plan year and excess deferrals to be distributed for a taxable year
will be reduced by excess contributions previously distributed for the plan
year beginning in such taxable year. The distribution of excess contributions
will include the income allocable thereto. The income allocable to excess
contributions includes only income for the plan year for which the excess
contributions were made. Such correction shall be made on
IV-8
<PAGE>
or before the 15th day of the third month following the end of the Plan Year,
but in no event later than the close of the following Plan Year.
Nonelective contributions and Employer matching contributions
may be treated as elective contributions for purposes of the ADP test only if
(i) such contributions are nonforfeitable when made and are subject to the same
distribution restrictions that apply to elective contributions, (ii)
nonelective contributions and Employer matching contributions which may be
treated as elective contributions must satisfy these requirements without
regard to whether they are actually taken into account as elective
contributions, (iii) the amount of nonelective contributions, including those
qualified nonelective contributions treated as elective contributions for
purposes of the actual deferral percentage test, satisfies the requirements of
section 401(a)(4), (iv) the amount of nonelective contributions treated as
elective contributions for purposes of the actual deferral percentage test and
those qualified nonelective contributions treated as matching contributions for
purposes of the actual contribution percentage test, satisfies the requirement
of section 401(a)(4), and (v) the elective contribution is allocated to the
employees's account as of a date within that Plan Year, and (vi) the plan that
includes the cash or deferred arrangement and the plan or plans to which the
qualified nonelective contributions and qualified matching contributions are
made, could be aggregated for purposes of section 410(b) (other than the
average benefit percentage test).
In lieu of a corrective distribution, the Employer may make a
special contribution to the Employer Accounts of one or more groups of
Non-Highly Compensated Employees in a manner sufficient to satisfy one of the
tests set forth in Section III(a). Such contribution shall be fully vested,
separately accounted for and subject to the same restrictions on withdrawal as
apply to Deferred
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<PAGE>
Contributions, but no in-service hardship withdrawal shall be permitted with
respect to any such contribution.
V. Maximum Actual Contribution Percentage.
(a) The Actual Contribution Percentage ("ACP") for the
Highly Compensated Employee group shall not exceed the greater of:
(1) 125% of such percentage for the Non-Highly
Compensated Employee group; or
(2) the lesser of 200% of such percentage for the
Non-Highly Compensated Employee group, or such percentage for
the Non-Highly Compensated Employee group plus two percentage
points.
(b) For the purposes of this Section V and Section VI,
ACP for a Plan Year means, with respect to the Highly Compensated
Employee group and Non-Highly Compensated Employee group, the average
of the ratios (calculated separately for each member in each group)
of:
(1) the sum of the Employer matching
contributions contributed (and any employee after-tax
contributions) under the Plan on behalf of each such member
for such Plan Year; to
(2) the Participant's Section 415 Compensation
for such Plan Year.
(c) In the case of a Highly Compensated Employee who is
either a 5% owner or one of the ten most highly compensated employees,
the actual contribution ratio (ACR) for the family group (which is
treated as one Highly Compensated Employee) is the ACR determined by
combining the contributions and compensation of all eligible Family
IV-10
<PAGE>
Members. Except to the extent taken into account in the preceding
sentence, the contributions, compensation of all Family Members are
disregarded in determining the actual contribution percentages for the
groups of Highly Compensated Employees and Non-Highly Compensated
Employees. In all cases the determination and treatment of the ACP of
any participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
(d) For purposes of this Section, if two or more plans of
the Employer to which matching contributions, Employee contributions,
or elective deferrals are made are treated as one plan for purposes of
Code Section 410(b), such plans shall be treated as one plan for
purposes of this Section. In addition, if a Highly Compensated
Employee participates in two or more plans described in Code Section
401(a) or arrangements described in Code Section 401(k) which are
maintained by the Employer to which such contributions are made, all
such contributions shall be aggregated for purposes of this Section.
(e) For purposes hereof, Highly Compensated Employee and
Non-Highly Compensated Employee shall include any Employee eligible to
have matching contributions allocated to his account for the Plan
Year.
VI. Adjustments for Excessive ACP.
(a) In the event that the ACP for the Highly Compensated
Employee group exceeds the ACP for the Non-Highly Compensated Employee
group pursuant to Section V(a), the Plan Administrator (on or before
the 15th day of the third month following the end of the Plan Year,
but in no event later than the close of the following Plan Year) shall
direct the Trustee to proportionately distribute to the Highly
Compensated Employee group the
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<PAGE>
vested amount of "Excess Aggregate Contributions" (and any income
allocable to such contributions as provided in (d) of Section I and
forfeit such "Excess Aggregate Contributions" that are not vested
(including income or loss as determined under Section I). Employer
contributions and employee after-tax contributions shall be returned
pro rata as necessary to satisfy this Section. Such distribution or
forfeiture shall be made on behalf of the Highly Compensated Employee
group in the order of their ACP beginning with the highest of such
percentages. Forfeitures of "Excess Aggregate Contributions" shall
not be allocated to a Highly Compensated Employee whose contributions
are reduced pursuant to this Section.
In lieu of a corrective distribution, the Company may make a
special contribution to the Deferred Contribution Accounts of one or
more groups of Non-Highly Compensated Employees in a manner sufficient
to satisfy one of the tests set forth in Section V(a). Such
contribution shall be fully vested and subject to the same
restrictions on withdrawal as apply to Participant Deferred
Contributions but may not be withdrawn under the hardship rules.
(b) For the purposes of this Section, "Excess Aggregate
Contributions" means, with respect to any Plan Year, the excess of:
(1) the aggregate amount of contributions
pursuant to Sections VI(b)(1) and VI(c) actually made on
behalf of the Highly Compensated Employee group for such Plan
Year, over
(2) the maximum amount of such contributions
permitted under the limitations of Section VI(a).
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<PAGE>
(c) The amount of excess aggregate contributions for a
highly compensated employee under the Plan will be determined in the
following manner: First, the actual contribution ratio (ACR) of the
highly compensated employee with the highest ACR is reduced to the
extent necessary to satisfy the actual contribution percentage (ACP)
test or cause such ratio to equal the ACR of the highly compensated
employee with the next highest ratio. Second this process if repeated
until the ACP test is satisfied. The amount of excess aggregate
contributions for a highly compensated employee is then equal to the
total of employee, matching and other contributions taken into account
for the ACP test minus the product of the employee's contribution
ratio as determined above and the employee's compensation.
In the case of a highly compensated employee whose ACR is
determined under the family aggregation rules, the determination of
the amount of excess aggregate contributions shall be made as follows:
the ACR is reduced is accordance with the "leveling" method described
above and the excess aggregate contributions are allocated among the
family members in proportion to the contributions of each family
member that have been combined.
In the case of a highly compensated employee who is either a
5% owner or one of the ten most highly compensated employees and is
thereby subject to the family aggregation rules, the actual
contribution ratio (ACR) for the family group (which is treated as one
highly compensated employee) is the ACR determined by combining the
contributions and compensation of all eligible family members. Except
to the extent taken into account in the preceding sentence, the
contributions and compensation of all family members are
IV-13
<PAGE>
disregarded in determining the actual contribution percentages for the
groups of highly compensated employees and nonhighly compensated
employees.
The amount of excess aggregate contributions for a plan year
shall be determined only after first determining the excess
contributions that are treated as employee contributions due to
recharacterization.
(d) Notwithstanding anything in the Plan to the contrary,
an employer matching contribution may be distributed only if such
contribution is an excess aggregate contribution. It may not be
distributed merely because it relates to an excess deferral, an excess
contribution or an excess aggregate contribution that is distributed.
In such cases, when an election contribution is distributed to meet
the requirements of Code Section 401(k) the related matching
contribution shall be forfeited notwithstanding anything in the Plan
to the contrary.
To prevent the multiple use of the alternative methods of
compliance with the ADP test and the ACP test, the provision of
section 1.401(m)-2 of the regulations are hereby incorporated by
reference to determine if such multiple use exists. If, after the
applicable of such test, multiple use exists, the actual contributions
percentage shall be reduced as provided in section 1.401(m)-2(c) of
the regulations for all highly compensated employees in the Plan.
If the Plan Administrator determines that the limitations set
forth in this section (with or without restructuring) would be exceeded for the
Plan Year, then the Plan Administrator shall reduce to the Limitation
Percentage described in the foregoing table the percentage amount of Deferred
Contributions (or the total percentage amount of Employer matching
contributions) of each
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<PAGE>
eligible Highly Compensated Employee whose Deferred Contribution percentage is
more than the Limitation Percentage (or whose Employer matching contribution
percentage gives rise to a percentage in excess of the Limitation Percentage).
The Plan Administrator shall have the authority to establish a lower Limitation
Percentage if, in the discretion of the Plan Administrator, this would be
beneficial to the Plan by ensuring compliance with the safe-harbor provisions
of Sections 401(k)(3)(A) and 401(m)(2) of the Code. The reduced percentage for
each such Highly Compensated Employee shall be substituted for his actual
elected percentage and shall represent the percentage of his Compensation that
shall be paid into the Plan on his behalf. The amount of any reduction which
is necessary shall be included in the Participant's regular paycheck.
Notwithstanding the foregoing, in the event the Actual
Contribution Percentage is not satisfied at year-end, the Plan Administrator
(on or before the 15th day of the third month following the end of the Plan
Year, but in no event later than the close of the following Plan Year) shall
direct the Trustee to distribute to the Highly Compensated Employee group (or
forfeit, if nonvested), beginning with the Highly Compensated Employee with the
highest Average Contribution Percentage, the amount of "Excess Deferred
Contributions", as described in Section 401(k)(8)(B) of the Code, and/or
"Excess Aggregate Contributions", as described in Section 401(m)(6)(B) of the
Code, as the case may be, and any income (or loss) allocable to such excess
contributions as provided below, until the applicable test set forth above is
met.
Excess Aggregate Contributions shall be distributed from the
Participant Deferred Contribution Account and the Participant's Employer
Contribution Account (unless otherwise forfeitable under the terms of the Plan,
in which event such amount shall be forfeited from the Employer Contribution
Account) in proportion to the Deferred Contributions and Employer
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<PAGE>
Contributions allocated with respect to the Participant for the Plan Year.
Amounts of Employer Contributions forfeited by Highly Compensated Employees
under this Section 4.7 shall be treated as Annual Additions under Section 4.8
of the Plan and applied to reduce future Employer Contributions otherwise to be
made under the Plan.
The income (or loss) allocable to such excess contributions
shall equal the sum of the allocable gain (or loss) for the Plan Year and the
allocable gain (or loss) for the period between the end of the Plan Year and
the date of distribution (or forfeiture) as determined below. Income includes
all earnings and appreciation, including such items as interest, dividends,
rent, royalties, gains from the sale of property, appreciation in the value of
stocks, bonds, annuity and life insurance contracts, and other property,
without regard to whether such appreciation has been realized.
(1) The income (or loss) allocable to returnable
contributions (or forfeitable Employer matching amounts) for the Plan
Year is determined by multiplying the income (or loss) for the Plan
Year allocable to Participant contributions and Employer matching
contributions by a fraction, the numerator of which is the amount of
returnable contributions (or forfeitable matching amounts) made on
behalf of the Participant for the Plan Year and the denominator of
which is the total account balance of the Participant attributable to
Participant contributions and Employer matching contributions as of
the end of the Plan Year, reduced by the gain allocable to such total
amount for the Plan Year and increased by the loss allocable to such
total amount for the Plan Year.
(2) The allocable income (or loss) for the period between
the end of the Plan Year and distribution date is equal to 10% of the
income (or loss) allocable to returnable contributions (or forfeitable
Employer matching amounts) for the Plan Year (as calculated
IV-16
<PAGE>
under subparagraph (1) (above) multiplied by the number of calendar
months that have elapsed since the end of the Plan Year. For purposes
of determining the number of calendar months that have elapsed, a
distribution occurring on or before the fifteenth day of the month
will be treated as having been made on the last day of the preceding
month, and a distribution occurring after such fifteenth day will be
treated as having been made on the first day of the next month.
4.7 Notwithstanding anything contained herein to the
contrary, the total annual additions (as defined below) allocated to the
Accounts of a Participant for any Plan Year shall not exceed the lesser of (i)
$30,000, or, if greater, 1/4 of the dollar limitation in effect under Code
Section 415(b)(1)(A), or ((i) 25% of the Participant's Section 415 Compensation
(as defined below). Annual additions means the sum of the following amounts
credited to a Participants Accounts for the limitation year:
(a) employer contributions,
(b) employee contributions,
(c) forfeitures, and
(d) amounts allocated, after March 31, 1984, to an individual
medical account, as defined in section 415(1)(2) of the Code, which is
part of a pension or annuity plan maintained by the employer. Also
amounts derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are attributable
to post-retirement medical benefits, allocated to the separate account
of a key employee, as defined in section 419A(d)(3) of the Code, under
a welfare benefit fund, as defined in section 419(e) of the Code,
maintained by the employer shall be treated as annual additional.
IV-17
<PAGE>
Section 415 Compensation means wages, salaries, and fees for
professional services and other amounts received (without regard to whether or
not an amount is paid in cash) for personal services actually rendered by the
employee in the course of employment with the employer maintaining the plan to
the extent that the amounts are includable in gross income (including, but not
limited to, commissions paid salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums, tips, bonuses,
fringe benefits, reimbursements, and expense allowances), and excluding the
following:
(a) employer contributions to a plan of deferred
compensation which are not includable in the employee's gross income
for the taxable year in which contributed, or employer contributions
under a simplified employee pension plan to the extent such
contributions are deductible by the employee, or any distributions
from a plan of deferred compensation;
(b) amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property ) held by the
employee either becomes freely transferable or is no longer subject to
a substantial risk of forfeiture;
(c) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(d) other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity described in
section 403(b) of the Internal Revenue Code (whether or not the
amounts are actually excludable from the gross income of the
employee).
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<PAGE>
For purposes of applying these limitations, compensation for a
limitation year is the compensation actually paid or includable in the
employee's gross income during such limitation year.
If, as a result of the allocation of forfeitures, a reasonable
error in estimating a Participant's compensation, a reasonable error in
determining the amount of 401(k) contributions that may be made by a
Participant, or such other facts and circumstances as the Commissioner
approves, the annual additions exceed the applicable limitations set forth
above, the unmatched 401(k) contributions of the Participant (plus any income
thereon) shall first be returned to the extent necessary, then the Employer
contributions for the Plan Year beginning first with matching contributions
which cause the excess (and the income thereon) shall be placed in a suspense
account and used to reduce Employer contributions for that Participant for the
next Plan Year (and succeeding Plan Years, as necessary) if that Participant is
covered by the Plan as of the end of the Plan Year. If the Participant is not
covered by the Plan as of the end of the Plan Year, the amount in the suspense
account shall be reallocated the next Plan Year to the remaining Participants
as additional Employer contributions, subject to the limits of this Section.
Notwithstanding the foregoing, contributions with respect to
any Participant may be further reduced to the extent necessary, as determined
by the Plan Administrator, to prevent disqualification of the Plan under
Section 415 of the Code, which imposes additional limitations on the benefits
payable to Participants who also may be participating in another tax-qualified
pension, profit-sharing, savings or stock bonus plan maintained by an
Affiliated Company.
If a Participant is at any time a participant in both a
defined benefit plan and a defined contribution plan maintained by an
Affiliated Company, the sum of the "defined benefit plan
IV-19
<PAGE>
fraction" and the "defined contribution plan fraction" for any Plan Year may
not exceed 1.0 and, if necessary, the annual benefit of the defined benefit
plan will be reduced first so that the sum of the fractions will not exceed
1.0; in no event will the annual benefit be decreased below the amount of the
accrued benefit to date. If additional reductions are required for the sum of
the fractions to equal 1.0, the reductions will then be made to the annual
additions (as defined in Section 415 of the Code) of the defined contribution
plans. For the purposes of applying the foregoing limitations, all defined
benefit plans and all defined contribution plans, whether or not terminated, of
an Affiliated Company are to be treated as one defined benefit plan and one
defined contribution plan, respectively; however, if defined contribution plans
are combined (or the combined limit is exceeded) and the annual addition is
required to be reduced, the annual addition to such other defined contribution
plans shall be reduced first.
Further, the provisions of Section 415 of the Code that may
not be applied in more than one manner are hereby incorporated by reference and
shall control over any provision in the Plan in conflict therewith.
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<PAGE>
SECTION V
INVESTMENT OF CONTRIBUTIONS
5.1 For the purpose of investing contributions under this
Plan, the Company shall establish one or more trusts or enter into one or more
group annuity contracts with one or more insurers, or may establish a
combination of one or more trusts or insurance contracts. The Plan
Administrator shall have the responsibility for selecting the investment funds
offered hereunder and may, from time-to-time, select substitute funds,
establish additional funds, or delete funds for the purpose of investing
amounts derived from contributions hereunder. Until changed as provided above,
contributions to the Plan shall be invested in the Investment Funds on
Attachment A to the Plan.
The Plan Administrator shall obtain descriptions of the
investment choices available for the purpose of informing Participants with
respect thereto. To the extent the Plan gives a Participant investment
discretion with respect to this Accounts, the selection of investment choices
is the sole responsibility of each Participant, and no Employee or
representative of the Company or any Participating Company is authorized to
make any recommendation to any Participant with respect to his investment
choices. If elected by the Participants, 100% of the Plan's assets may be
invested in Company Stock.
5.2 Prior to the date the Employee becomes a Participant
hereunder, he must make an investment election which will apply to the
investment of all his Deferred Contributions. If a Participant wishes to
utilize more than one Fund, he shall notify the Company in such manner
established by the Plan Administrator.
V-1
<PAGE>
All Employer contributions made by a Participating Company on
behalf of a Participant shall be automatically invested 100% in the Company
Stock Fund; provided, however, a Participant may at any time thereafter
redirect the investment thereof into one or more of the other Investment Funds.
5.3 A Participant may change his investment election with
respect to his future Deferred Contributions to be made under the Plan as of
the next Valuation Date. Such change shall be limited to the investment
choices described in Attachment A. The Participant's election to change his
investment election may be made in any manner provided by the Plan
Administrator. Elections shall be processed as soon as reasonably practicable
after receipt.
5.4 The value of a Participant's Accounts which are held
in an Investment Fund that is a mutual fund shall be determined as of each
Valuation Date based on the published value of a unit in such mutual fund as of
the applicable Valuation Date.
5.5 The value of a Participant's Accounts which are held
in the Company Stock Fund maintained hereunder shall be determined as of each
Valuation Date and shall be based upon the reported price of the Company Stock
at the close of business on that day. Any interfund transfers, withdrawals or
distributions from a Participant's Accounts which are held in the Company Stock
Fund shall be effected by deducting the appropriate number of shares of Company
Stock allocated to the Participant from the Company Stock Fund as of such
Valuation Date. The value of such shares of Company Stock determined in
accordance with this section in the event of an interfund transfer, or the
amount to be paid to the Participant in the event of a cash distribution,
withdrawal or the purchase of an annuity shall be the value of the Company
Stock on the date the Participant's account was liquidated to effect such
transfer or withdrawal. In the event of a
V-2
<PAGE>
distribution in kind, the number of shares deducted shall be distributed, with
any fractional shares converted to cash at the value determined in accordance
with this section.
5.6 If not received in the form of an Employer matching
contribution, shares of Company Stock shall be purchased by the Trustee acting
independently as to when such purchases are made, the number of shares to be
purchased, the prices to be paid and if the Company elects not to sell Company
Stock to the Trustee at such time, the broker, if any, employed to effect the
purchases. The Trustee shall vote the shares of Company Stock held in the
Company Stock Fund for the respective Accounts of the Participants under the
Plan in accordance with the directions of such Participants, provided such
directions are received by the Trustee at least five days before the date set
for the meeting at which such shares are to be voted. The Trustee shall vote
shares of Company Stock for which it has not received timely instructions on a
particular matter, as well as any shares held by the Trustee pending allocation
to the Participant's Company Stock Accounts, in the Trustee's discretion.
5.7 A Participant may elect to transfer all or a portion
of the value of his Accounts from one Fund to another. The Participant's
election to transfer must be made in accordance with procedures established by
the Plan Administrator. Any such change shall be made operative as soon as
practicable after the date such election is received.
5.8 Each Participant (or, in the event of his death, his
Beneficiary) shall have the right, to the extent of the number of shares of
Company Stock allocated to his Accounts in the Company Stock Fund,
respectively, to instruct the Trustee in writing as to the manner in which to
respond to a tender offer or exchange offer with respect to such shares. The
Plan Administrator shall use its best efforts timely to distribute or cause to
be distributed to each present or former Participant
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(or Beneficiary thereof) such information as will be distributed to
stockholders of the Company in connection with any such tender offer or
exchange offer. Upon timely receipt of such instructions, the Trustee shall
respond as instructed with respect to shares of such stock. The instructions
received by the Trustee from Participants shall be held by the Trustee in
confidence and shall not be divulged or released to any person, including
officers or employees of the Company or any Affiliated Company. If the Trustee
shall not receive timely instructions from a Participant (or Beneficiary
thereof) as to the manner in which to respond to such tender offer or exchange
offer, such Participant (or Beneficiary) shall be deemed to have instructed the
Trustee not to tender or exchange the Company Stock.
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SECTION VI
VESTING
6.1 The Participant's interest in his Deferred
Contributions Account, Rollover Account and Participant Contributions Account
shall be 100% vested in him at all times.
6.2 The Participant's interest in his Employer
Contributions Account shall become 100% vested in him at the earliest of the
following dates:
(a) The date of the Participant's death while employed by
an Affiliated Company;
(b) The date the Participant incurs a Total Disability
while employed by an Affiliated Company;
(c) The Participant's attainment of his Normal Retirement
Age while employed by an Affiliated Company;
(d) The date of the Participant's Retirement; or
(e) The date of complete cessation of Employer
contributions hereunder.
6.3 Prior to the date that the Participant's interest in
his Employer Contributions Account becomes fully vested in accordance with
Section 6.2, the Participant shall have a vested interest therein (subject to
Section 8.5) as determined in accordance with the following schedule:
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Number of Years Vested
of Service Percentage
---------- ----------
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
6.4 In the event a Participant ceases to be in the
Eligible Class but remains an Employee, the Participant shall have a vested
interest determined in his Employer Contributions Account as if the Participant
had remained an Employee in the Eligible Class.
6.5 No amendment to the vesting provisions or merger of
another plan into this Plan shall deprive a Participant of his nonforfeitable
right accrued under this Plan or any other plan to the date of any such
amendment or merger.
In the event of an amendment to the Plan or the merger of
another plan into this Plan which directly or indirectly affects the
computation of a Participant's nonforfeitable percentage under this Plan or
another plan, each Participant with at least three Years of Service may
irrevocably elect to have his nonforfeitable percentage computed under this
Plan without regard to such amendment or merger.
Such election may be made in writing to the Plan Administrator
any time after the adoption of any such amendment or merger, provided, however,
that the election period shall end no earlier than the latest of 60 days
following the date the amendment or merger is adopted or effective or the date
the Participant is given written notification of the amendment or merger by the
Company or Plan Administrator.
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SECTION VII
WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT
7.1 Subject to the spousal consent requirements of
Section 7.5, a Participant who is an Employee may elect to withdraw an amount
equal to all or a specified portion of the value of (1) his Participant
Contributions Account, if any, and (2) provided he has previously withdrawn or
is currently withdrawing all of his Participant Contributions Account, his
Rollover Account, if any.
Each such withdrawal election must be made to the Company in
the manner established by the Plan Administrator and shall be processed as soon
as reasonably practicable. The total amount to be so withdrawn shall be that
specified in such notice and shall be made pro rata from the various Funds in
which such Account is invested. Amounts withdrawn from the Participant
Contributions Account shall be taken first from that portion of the Account
attributable to the Participant's pre-1987 contributions. Withdrawals shall be
payable only in cash, with the exception that a withdrawal from the Company
Stock Fund may be paid in cash or in whole shares (to the extent possible) as
elected by the Participant.
7.2 Subject to the spousal consent requirements of
Section 7.5, a Participant who is an Employee and who has previously withdrawn
or is currently withdrawing the maximum amount available (if any) to such
Participant under Section 7.1 may request a hardship withdrawal from his
Employer Contributions Account of an amount equal to a specified portion of (1)
the vested amount of his Employer Contributions Account and (2) provided the
Participant has previously withdrawn or is requesting to withdraw the maximum
amount permitted above with respect to his Employer Contributions Account, his
Deferred Contribution Account (but not including amounts
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representing income which is credited to a Participant's Deferred Contributions
Account after December 31, 1988).
The Participant's request to make a hardship withdrawal must
be made in writing to the Plan Administrator. The basis for the Plan
Administrator consenting to or refusing to consent to the Participant's
withdrawal request shall be that of demonstrated "hardship." For purposes of
this Section 7.2 a "hardship" will exist only if there is an "immediate and
heavy financial need" of the Participant (as defined below) and a withdrawal
under this Section is necessary to satisfy such financial need. A financial
need shall not fail to qualify as immediate and heavy merely because such need
was reasonably foreseeable or voluntarily incurred by the Participant.
A withdrawal request will be deemed to be made on account of
an "immediate and heavy financial need" of the Participant if the request is on
account of:
(1) Expenses for medical care described in Section 213(d)
of the Code incurred by the Participant, the Participant's spouse, or
any dependents of the Participant (as defined in Section 152 of the
Code) or necessary for such persons to obtain such medical care;
(2) Purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Payment of tuition, room and board expenses and
related educational fees for the next 12 months of post-secondary
education for the Participant, his spouse, children, or dependents;
(4) The need to prevent the eviction of the Participant
from his principal residence or foreclosure on the mortgage of the
Participant's principal residence; or
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(5) Other "safe-harbor" definitions of deemed immediate
and heavy financial needs with respect to 401(k) contributions
promulgated by the Commissioner of Internal Revenue through the
publication of revenue rulings, notices, and other documents of
general applicability.
Moreover, a withdrawal will not be treated as necessary to
satisfy an immediate and heavy financial need of a Participant unless all of
the following requirements are satisfied:
(1) The Participant states in writing that the requested
withdrawal is not in excess of the amount of the immediate and heavy
financial need of the Participant;
(2) If a withdrawal is to be made from the Participant's
Deferred Contributions Account, the Participant has obtained all
distributions, other than 401(k) hardship distributions, and all
nontaxable loans concurrently available under all plans maintained by
the Affiliated Companies;
(3) If a withdrawal is to be made from the Participant's
Deferred Contributions Account, the Participant's contributions under
the Plan and all other plans of the employers (other than welfare
benefit plans) will be suspended for 12 months after receipt of the
hardship withdrawal and the Participant may not elect Deferred
Contributions for the Participant's taxable year immediately following
the taxable year of the hardship withdrawal in excess of the
applicable limit under Section 402(g) of the Code for such taxable
year less the amount of such Participant's Deferred Contributions for
the taxable year of the hardship withdrawal; and
(4) If a withdrawal is to be made from the Participant's
Employer Contribution Account, but not his Deferred Contributions
Account, the Participant's contributions to the
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<PAGE>
Plan will be suspended for a period of six months, unless the
Participant's aggregate period of participation in the Plan at the
time of such withdrawal equals or exceeds 60 months.
Each such withdrawal shall be processed as soon as reasonably
practicable and shall be given effect as of the applicable Valuation Date. The
total amount to be so withdrawn shall be that specified in such written notice
(which, with respect to a hardship withdrawal, may include any amounts
necessary to pay any taxes or penalties reasonably anticipated to result from
the withdrawal) and such withdrawal shall be made pro rata from the respective
investment Funds in which such Account is invested. Withdrawals shall be
payable only in cash, with the exception that a withdrawal from the Company
Stock Fund may be paid in cash or in whole shares (to the extent possible), as
elected by the Participant.
7.3 Subject to the spousal consent requirements of
Section 7.5, a Participant who is an Employee and age 59-1/2 or older may elect
to withdraw an amount equal to all or a specified portion of his vested
Accounts. Any such withdrawal shall be taken from his Accounts in the
following order: Participant Contributions Account, Rollover Account, Deferred
Contributions Account and last, the Employer Contributions Account; however,
unless the Participant's aggregate period of participation in the Plan (and
SFER Plan) at the time of any withdrawal from the Employer Contributions
Account equals or exceeds 60 months, the Participant's contributions to the
Plan will be suspended for a period of six months.
Each such withdrawal shall be processed as soon as reasonably
practicable and shall be given effect as of the applicable Valuation Date. The
total amount to be so withdrawn shall be that specified in such notice and such
withdrawal shall be made pro rata from the respective investment Funds in which
such Account is invested. If the value of an Account, as of the actual
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<PAGE>
date of withdrawal, is lower than the value upon which the Participant shall
have based his withdrawal election, the total amount to be so withdrawn shall
be limited to the value of the Participant's vested interest in such Account as
of the date of such withdrawal. Withdrawals shall be payable only in cash,
with the exception that a withdrawal from the Company Stock Fund may be paid in
cash or in whole shares (to the extent possible), as elected by the
Participant.
7.4 Amounts withdrawn by a Participant may not be
returned to this Plan. If a Participant has an outstanding Plan loan pursuant
to Section XIV, no withdrawal shall be permitted which would reduce the
Participant's vested interest in his Accounts that are security for such loan
below the outstanding principal balance of the loan plus any interest to be
accrued with respect to such loan.
7.5 If the Participant is married as of the date of any
withdrawal, no withdrawal shall be permitted unless the Participant's spouse
consents to such distribution as provided in Section 8.4.
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<PAGE>
SECTION VIII
DISTRIBUTIONS OTHER THAN WITHDRAWALS
8.1 Upon the Participant's separation from service
(within the meaning of Section 401(k) of the Code), other than by death, the
Participant shall receive a distribution of the vested value of his Accounts on
or as soon as reasonably practical following the later of his termination date
or Normal Retirement Date. Payment of the Participant's benefits shall be
effected by purchasing an annuity contract with the Participant's vested
Account balances, which provides for a straight life annuity, if the
Participant is not married, or a Qualified Joint and Survivor Annuity, if the
Participant is married, from an insurance company selected by the Plan
Administrator, unless the Participant elects, as provided below, to receive his
Accounts in one of the optional forms of payment. Any annuity contract
distributed pursuant to the Plan shall be nontransferrable.
The optional forms of payment available under the Plan are:
Option 1: Life Annuity -- a level monthly benefit
payable to the Participant for his lifetime.
Option 2: Joint and Survivor Annuity -- a reduced level
monthly benefit payable to the Participant for his lifetime and
following the Participant's death, 50% (or, if elected by the
Participant 75% or 100%) of such reduced monthly benefit payable to
his designated contingent annuitant, if then living, for his lifetime.
Option 3: Certain and Continuous Annuity -- a reduced
level monthly benefit payable to the Participant for his lifetime,
combined with a period certain of 5, 10 or 15 years (as selected by
the Participant); if the Participant dies prior to the end of the
designated
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<PAGE>
period certain, such reduced monthly benefits shall continue to be
paid to the Participant's Beneficiary for the balance of such period
certain.
Option 4: Period Certain Installment -- a reduced level
monthly benefit paid to the Participant for a period certain of either
5, 10 or 15 years (as selected by the Participant) with payments
stopping at the end of the designated period certain; if the
Participant dies prior to the end of the designated period certain,
such reduced monthly benefits shall continue to be paid to the
Participant's Beneficiary for the balance of such period certain.
Option 5: Installment Refund Annuity -- a reduced level
monthly benefit payable to the Participant for his lifetime and in the
event of the death of the Participant prior to the receipt of an
amount equal to the net premium paid for such annuity contract, the
excess of the net premium over the amount received as of the
Participant's date of death will be paid to the Participant's
Beneficiary in a lump sum.
Option 6: Lump Sum -- all of the Participant's vested
Account balances paid in a single lump sum payment in cash; however,
an Account invested in the Company Stock Fund can be paid all in stock
or part in stock (whole shares only) and part in cash at the election
of the Participant.
Option 7: Combination -- a combination of Option 6 and
any one of Options 1 through 5.
The Plan Administrator shall furnish the Participants with general information
concerning the forms of payments available within a reasonable period prior to
their Annuity Starting Date. All optional annuity forms shall be the actuarial
equivalent of the single life annuity for the Participant.
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Upon the termination of his employment with all Affiliated
Companies prior to his Normal Retirement Date, a Participant may elect (subject
to Section 8.4 if married) in writing to receive a distribution of the vested
value of his Accounts in the automatic form or in any one of the optional
methods described above beginning as soon as reasonably practicable after a
specified Valuation Date preceding his Normal Retirement Date. Further, a
Participant who ceases to be an Employee may elect in writing to defer the
commencement of his benefits to any Valuation Date that is on or after his
Normal Retirement Date and before the April 1 following the calendar year in
which he reaches 70-1/2.
Notwithstanding the foregoing provisions of this Section 8.1
to the contrary however, if upon termination of employment with all Affiliated
Companies the vested value of the Participant's Accounts does not (and at the
time of any prior withdrawal did not) exceed $3,500, the payment of the
Participant's vested benefits shall be made automatically in a single lump sum
payment in cash and Company Stock to the extent then invested in the Company
Stock Fund under the Plan as soon as reasonably practicable following the date
of his termination of employment.
Unless the Participant elects otherwise, all distributions
shall be made or begin not later than the 60th day after the latest of the
close of the Plan Year in which (a) the Participant attains his Normal
Retirement Age, (b) occurs the 10th anniversary of the year in which the
Participant began participation in the Plan and (c) the Participant terminates
his employment with all Affiliated Companies.
Further, all distributions shall be made or commence by the
April 1 following the calendar year in which the Participant reaches age
70-1/2, regardless of whether the Participant has then terminated employment.
Such benefit shall be paid with respect to a terminated Participant in
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the applicable automatic annuity form described in Section 7.1, unless an
optional form is elected. With respect to a Participant who has not then
terminated employment, such required distribution shall be a single payment
based on the Participant's ending Account balances for the applicable
distribution year (as determined under Section 401(a)(9) of the Code) based on
his life expectancy (without a redetermination), less any withdrawals for such
year.
The provisions of Section 401(a)(9) of the Code, including
Reg. Section 1.401(a)(9)-2, are hereby incorporated by reference and shall
control over any Plan provision in conflict therewith.
8.2 The Plan Administrator shall furnish the following
information to the Participant within a reasonable period prior to the Annuity
Starting Date:
(a) a description or explanation, written in
non-technical language, of the terms and conditions of the Qualified
Joint and Survivor Annuity as well as the straight life annuity if not
married,
(b) the Participant's right to make, and the effect of,
an election to waive the automatic form of payment,
(c) the rights of the Participant's spouse concerning the
consent to any such election, and
(d) the right to make, and the effect of a revocation of
an election not to receive the automatic form.
8.3 If a Participant fails to make an election during the
election period, such Participant shall be deemed to have elected the Qualified
Joint and Survivor Annuity if he is married or the straight life annuity if he
is not married. The election period shall be the period of not more
VIII-4
<PAGE>
than 90 days and not less than 30 days prior to the Participant's Annuity
Starting Date. A Participant may revoke and remake his election any number of
times during the election period.
8.4 No election to waive the Qualified Joint and Survivor
Annuity made by a married Participant, other than an election of Option 2 with
his spouse as his contingent annuitant, shall be effective unless the
Participant's spouse consents in writing to such election, such election
designates a beneficiary (or a form of benefits) which may not be changed
without a new spousal consent and the spouse's consent acknowledges the effect
of such election on the spouse's right to benefits under the Plan and is
witnessed by a Plan representative or a notary public. The spousal consent
requirement shall not apply if it is established to the satisfaction of the
Plan Administrator that there is no spouse, the spouse cannot be located or due
to such other circumstances as may be permitted by Treasury regulations.
8.5 If the Participant's employment with all Affiliated
Companies is terminated prior to his being 100% vested in his Employer
Contributions Account, then that nonvested portion of his Employer
Contributions Account shall be forfeited as of the earlier of the date the
Participant receives a total distribution of his vested interest or the
Valuation Date coincident with or next following the date the Participant
incurs five consecutive Breaks in Service; however, if a Participant who incurs
a forfeiture again becomes an Employee prior to incurring five consecutive
Breaks in Service, he may reinstate the earlier forfeited amount (unadjusted
for any subsequent Trust earnings or losses) by repaying to the Plan in cash an
amount equal to the distribution prior to the earlier of incurring five
consecutive Breaks in Service or the fifth anniversary of the date he again
becomes an Employee. Any reinstated forfeited amounts shall be taken from
current forfeitures or special
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Employer contributions. Any amounts forfeited by Participants shall be used to
offset future Employer contributions under this Plan except as otherwise
provided in Section 12.3 hereof.
If either a distribution is made to a terminated Participant
from his Employer Contribution Account when he is less than 100% vested therein
and he is reemployed prior to incurring five consecutive Breaks in Service or a
withdrawal is made from the Employer Contribution Account pursuant to Section
7.2 or 7.3 by a Participant who is not 100% vested therein, the vested portion
of his Employer Contribution Account shall thereafter, until such time as he
may become 100% vested, be an amount ("X") determined by the formula: X = P
(AB + D) - D. For purposes of applying the formula: P is the vested
percentage at the relevant time; AB is the account balance at the relevant
time; and D is the amount of the distribution or withdrawal.
8.6 In addition to the foregoing distributions, all
Accounts of an affected Participant shall be distributed to him as soon as
administratively feasible after the disposition (1) of substantially all of the
assets (within the meaning of Code Section 409(d)(2) used by the Company or
Employer in the trade or business in which the Participant is employed if the
Participant continues employment with the corporation acquiring such assets, or
(2) of the Company's or an Employer's interest in a subsidiary (within the
meaning of Code Section 409(d)(3)) which employs the Participant if the
Participant continues employment with such subsidiary. However, an event shall
not be treated as described in (1) or (2) above unless the transferor
corporation continues to maintain the Plan after the disposition.
Further, all Accounts shall be distributed upon a termination
of the Plan without a "successor plan" as defined in Section 401(k) of the Code
and regulations thereunder.
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8.7 Direct Rollover Distributions. Notwithstanding any
provision of the Plan to the contrary that would otherwise limit a
distributee's election under this Section, a distributee may elect, at the time
and in the manner prescribed by the plan administrator, to have any portion of
an eligible rollover distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated beneficiary,
or for a specified period of ten years or more; any distribution to the extent
such distribution is required under section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
employer securities).
Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
Distributee: A distributee includes an employee or former
employee. In addition, the employee's or former employee's surviving spouse
and the employee's or former employee's
VIII-7
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spouse or former spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are distributees
with regard to the interest of the spouse or former spouse.
Direct rollover: A direct rollover is a payment by the plan
to the eligible retirement plan specified by the distributee.
8.8 30-Day Waiver. If a distribution is one to which
sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such
distribution may commence less than 30 days after the notice required under
section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
(1) the plan administrator clearly informs the
participant that the participant has a right to a period of at least
30 days after receiving the notice to consider the decision of whether
or not to elect a distribution (and, if applicable, a particular
distribution option), and
(2) the participant, after receiving the notice,
affirmatively elects a distribution.
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SECTION IX
DEATH BENEFITS, BENEFICIARIES, UNCLAIMED BENEFITS
9.1 Upon the death of a vested Participant prior to his
Annuity Starting Date, a deceased Participant's vested Account balances shall
be applied to the purchase of a single life annuity contract for his
Beneficiary from an insurance company selected by the Plan Administrator unless
the Beneficiary elects one of the optional forms (other than the Qualified
Joint and Survivor Annuity) provided in Section 8.1. However, the
Participant's entire vested interest under the Plan must be distributed to his
Beneficiary within five years of his date of death unless his Beneficiary is
his spouse, in which event such spouse may elect to receive such death benefit
over her life (or a period not extending beyond the spouse's life expectancy)
with the benefits commencing as of any date specified by the spouse but not
later than the date on which the Participant would have reached age 70-1/2 had
he lived. And, if the Beneficiary is the Participant's estate (or a nonperson
such as a trust), the form of distribution shall be a single lump sum payment
and not the purchase of a single life annuity contract.
9.2 Except as provided below, the Participant shall have
the unrestricted right to designate the Beneficiary to receive the death
benefits to which he is entitled under the Plan and to change any such
designation. Each such designation for death benefits shall be evidenced by a
written instrument filed with the Plan Administrator and signed by the
Participant. However, if a Participant is married and wishes to designate a
Beneficiary other than his spouse, he must submit his spouse's written consent,
executed and witnessed by a Plan representative or a notary public, which
consent must acknowledge the affect of the consent on the spouse's right to
benefits under the Plan and be specific as to the form of payment elected and
the other Beneficiary designated, if
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applicable. No change (other than a revocation) in such election may be made
by a married Participant without obtaining a new spousal consent as provided
below. If no such designation is on file with the Plan Administrator at the
time of the death of the Participant, or if for any reason such designation is
defective, then the Participant's spouse, if living, his children, if living,
or his estate, in that order of preference, shall be conclusively deemed to be
the Beneficiary designated to receive such benefit. A Participant's marriage
or divorce subsequent to making a written beneficiary designation shall
automatically revoke such prior designation.
The Plan Administrator shall provide each Participant, within
the applicable period for such Participant (as defined below), a written
explanation of the qualified preretirement survivor annuity provided in Section
9.1 above in such terms and in such a manner as would be comparable to the
explanation provided for meeting the requirements of Section 8.2 applicable to
a Qualified Joint and Survivor Annuity. The applicable period for a
Participant is whichever of the following periods ends last: (i) the period
beginning with the first day of the plan year in which the Participant attains
age 32 and ending with the close of the Plan Year preceding the Plan Year in
which the Participant attains age 35; or (ii) a reasonable period ending after
the individual becomes a Participant. Notwithstanding the foregoing, notice
must be provided within a reasonable period ending after separation of service
in case of a Participant who separates from service before attaining age 35.
Notwithstanding anything above in this Section 9.2 to the
contrary, a designation of a beneficiary other than the Participant's spouse by
a Participant who has not attained age 35 will not be valid unless the
Participant receives a written explanation of the qualified preretirement
survivor annuity provided by Section 9.1 in such terms as are comparable to the
explanation required
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under Section 8.2. Further, the qualified preretirement survivor annuity
coverage of Section 9.1 will be automatically reinstated, i.e., the
Participant's spouse will automatically again become his sole beneficiary
entitled to the annuity provided in Section 9.1, as of the first day of the
Plan Year in which the Participant attains age 35 unless a new beneficiary
designation is filed by the Participant on or after such date, which new
designation complies in full with the above requirements of this Section 9.2
concerning spousal consent.
9.3 If benefits remain to be paid at a time when the Plan
Administrator is unable to locate the Participant or his Beneficiary, the Plan
Administrator shall cause the Participant's benefits to be forfeited. However,
such benefit shall be reinstated if a subsequent claim is made for the same.
9.4 Notwithstanding the foregoing provisions of this
Section IX, if, upon the death of a Participant prior to his Annuity Starting
Date, the vested value of his Accounts does not exceed $3,500, the payment of
the Participant's benefits shall be made to his Beneficiary in a single lump
sum in cash and Company Stock to the extent then invested in the same under the
Plan as soon as reasonably practicable after the monthly Valuation Date on or
next following the date of the Participant's death.
9.5 Upon the death of a Participant on or after his
Annuity Starting Date, the death benefit payable under the Plan, if any, shall
be determined by the form (and the terms) of benefit payment elected by the
Participant, with the remaining portion, if any, distributed as rapidly as
under the method of distribution in effect on his date of death.
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SECTION X
ADMINISTRATION
10.1 The Plan shall be administered by the Plan
Administrator which shall also be the Named Fiduciary. The Plan Administrator
may delegate from time to time ministerial duties to employees of the
Participating Companies and, further, may delegate its fiduciary duties among
the members of the Plan Administrator. From time to time, the Chairman of the
Plan Administrator shall certify to the Trustee, the person or persons
designated by the Plan Administrator to give notifications, instructions or
advice to the Trustee. The Plan Administrator shall be entitled to rely upon
certificates of or communications from a Participating Company or from the
Trustee as to information pertinent to any calculation or determination under
the Plan. The Plan Administrator shall furnish to the Pension Committee of the
Board upon request appropriate reports with respect to the administration and
operation of the Plan and its trust.
10.2 Administrative Powers. The Plan Administrator shall
have full power and authority, within the limits provided by the Plan:
(a) To determine all questions arising concerning the
construction and interpretation of the Plan and in its administration,
including, but not by way of limitation, the determination of the
rights or eligibility under the Plan of Employees and Participants and
their Beneficiaries;
(b) To adopt such rules and regulations as it may deem
reasonably necessary for the proper and efficient administration of
the Plan consistent with its purposes;
(c) To enforce the Plan, in accordance with its terms; and
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(d) To do all other acts, in its judgment necessary or
desirable, for the proper and advantageous administration of the Plan.
The Plan Administrator shall act with or without a meeting by
the vote or concurrence of a majority of its members; but no member of the Plan
Administrator who is a Participant shall take part in any Plan Administrator
action or any matter that has particular reference to his own interest
hereunder. The Plan Administrator shall administer this Plan and discharge its
responsibilities hereunder in a uniform and nondiscriminatory manner as to all
Participants.
10.3 Information to be Provided to Participants and
Others. The Plan Administrator shall see that books of account are kept which
shall show all receipts and disbursements and a complete record of the
operation of the Plan, including records of the accounts of individual
Participants. At least once in each year, the Plan Administrator shall cause
to be furnished to each Participant a statement indicating on the basis of the
latest available information the status of the Participant's Account.
10.4 The Plan Administrator will direct the Trustee to
make investments pursuant to Section V hereof.
10.5 In any case where the provisions of this Plan require
the consent or approval by the Plan Administrator of an election or request
made by an Employee, Participant or Beneficiary in order to make such election
or request effective, the Plan Administrator shall act on such election or
request as promptly as shall be reasonable in the circumstances. In any case
where action by the Trustee is necessary in order to make operative an
effective election or request made by a Participant or Beneficiary, it shall be
the responsibility of the Plan Administrator to transmit such election or
request to the Trustee in writing and as promptly as shall be reasonable in the
circumstances. The
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<PAGE>
Trustee shall not be obliged to take action with respect to any particular
election or request unless the Trustee shall have received the election or
request in such form and detail as shall reasonably be required by the Trustee.
10.6 Employment of Advisors and Staff. The Plan
Administrator may employ accountants, legal counsel, consultants, and any other
persons or organizations it deems necessary or proper to assist it in the
performance of its duties under the Plan.
10.7 Fiduciary Duties. The Plan Administrator shall
discharge its duties solely in the interest of the Participants and
Beneficiaries and for the exclusive purpose of providing benefits to
Participants and their Beneficiaries. They shall discharge their duties with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with the like
aims.
10.8 Indemnification. Except as provided by law, the
Participating Companies, their directors, officers, employees and agents and
the Plan Administrator, or any of them, shall not incur any personal liability
for the breach of any responsibility, obligation or duty in connection with any
act done or omitted to be done in good faith in the management and
administration of the Plan and the investment and handling of the accounts and
shall be indemnified and held harmless by the Participating Companies from and
against any such personal liability including all expenses reasonably incurred
in its or their defense in case the Participating Companies fail to provide
such defense.
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<PAGE>
SECTION XI
PROVISIONS RESPECTING THE COMPANY
11.1 Amendment of Plan. This Plan may be amended at any
time and from time to time by the Chief Executive Officer of the Company or
resolution of the Board of Directors of the Company; however, the Chief
Executive Officer of the Company may not amend the Plan in any manner which
would increase the level of Participating Company contributions. The Plan, as
amended, shall apply to the Participants and Participating Companies, unless a
Participating Company elects to withdraw from the Plan. Such power of
amendment shall under no circumstances include the right to reinvest or
otherwise transfer any interest in or to the accounts, or any income therefrom,
to any Participating Company; nor shall the power of amendment include the
right, in any way or to any extent, to divest any Participant of the interest
in his Accounts to which he would be entitled if he had terminated his service
immediately before such amendment, eliminate any "protected benefit" except as
otherwise permitted by Treasury Regulations or impose any Employer or Plan
Administrator consent on the exercise of a Participant's elections under the
Plan other than as permitted by Treasury Regulations; provided further that the
rights, duties or responsibilities of the Trustee shall not be substantially
changed without its written consent. Neither shall such power of amendment be
exercised in any way which would or could give to any Participant or
Beneficiary any right or thing of exchangeable value in advance of the receipt
of distributions hereunder. There shall be no merger or consolidation of part
or all of the Plan with, or any transfer of part or all of its assets or
liabilities to, any other plan or trust ("Other Plan") unless, pursuant to the
terms of such merger, consolidation or transfer, each Participant and
Beneficiary in the Plan whose interests are so merged, consolidated or
transferred into, with, or to the Other Plan would (if the Other Plan were
XI-1
<PAGE>
then terminated) receive a benefit immediately after such merger, consolidation
or transfer which would be equal to or greater than the benefit he would have
been entitled to receive immediately before such merger, consolidation or
transfer (if the Plan were then terminated). Notwithstanding the foregoing
provisions of this Section, this Plan may be amended in any manner whatsoever,
with prospective or retroactive effect, for the purpose of qualifying it under,
or complying with, any provision of the Code or ERISA.
11.2 California Law to Govern. This Plan shall be
construed and regulated and its validity and effect and the rights hereunder of
all parties interested shall at all times be determined, and this Plan shall be
administered, in accordance with the laws of the State of California, subject,
however, to applicable provisions of any federal law.
11.3 Intent. The Participating Companies intend that this
Plan, as amended from time to time, shall constitute a qualified plan under the
provisions of Sections 401(a), (k) and (m) of the Code. The Participating
Companies intend that this Plan shall continue to be maintained by them for the
above purposes indefinitely, subject, however, to the rights reserved to amend
and terminate the Plan as set forth herein. Nothing contained in this Plan
shall be construed as disqualifying any Employee of any Participating Company
from any benefits under any other plan or program to which such Employee would
be entitled in the absence of this Plan.
XI-2
<PAGE>
SECTION XII
TERMINATION OF PLAN
12.1 This Plan may be terminated as to all Participating
Companies on any date specified by the Company upon 10 days' advance written
notice of the termination to the Plan Administrator and the Participating
Companies. This Plan shall be terminated at any time as to any particular
Participating Company, for the following reasons:
(a) The Participating Company voluntarily terminates this
Plan;
(b) The final and total discontinuance of Participating
Company contributions hereunder;
(c) The legal dissolution, merger, consolidation or
reorganization of the Participating Company; or
(d) The date that Participating Company ceases to qualify
as an Affiliated Company.
Notwithstanding the foregoing, if any of the events described
above should occur but some or all of the Participants employed by a
Participating Company are transferred to another Participating Company
coincident with or immediately after the occurrence of such event, the Plan as
applied to those Participants will automatically continue in effect without a
termination thereof.
12.2 Except as provided for in Section XI hereof, each
Participant and the Beneficiary of each deceased Participant shall be vested
with all rights to any funds in his Accounts as of the date of such Plan
termination.
12.3 Any forfeitures which shall have occurred in
accordance with Section 9.3 hereof prior to the termination of this Plan but
which shall not have been applied to reduce Employer
XII-1
<PAGE>
contributions hereunder shall be distributed pro rata to those Participants who
were Employees of the Participating Company or Companies on the effective date
of the termination of this Plan.
12.4 In the event of a partial termination of this Plan,
the provisions of this Section XII shall apply to each Participant affected by
the partial termination.
XII-2
<PAGE>
SECTION XIII
MISCELLANEOUS PROVISIONS
13.1 This Plan is created for the exclusive benefit of
Employees of the Participating Companies and their Beneficiaries. If any
provision of this Plan is subject to more than one interpretation, then among
those interpretations which are possible, that one shall always be given to
this Plan and each and every one of its provisions which will be consistent
with this Plan being a qualified plan within the meaning of Section 401 of the
Code, and ERISA, or as they may be amended or replaced by any sections of the
federal law of like intent and purpose.
13.2 Except as provided by the terms of Section XI hereof,
no funds contributed hereunder or any assets of this Plan shall ever revert to,
or be used or enjoyed by, any Participating Company or any successor of any
Participating Company, nor shall any such funds or assets ever be used other
than for the benefit of the Participants or the Beneficiaries of such
Participants.
13.3 Any Affiliated Company may, with the consent of the
Chief Executive Officer of the Company, become a Participating Company in the
Plan by filing a duly certified copy of the resolution of its Board of
Directors adopting the Plan and executing and delivering such instruments and
taking such other action as may be necessary to put the Plan into effect with
respect to such Affiliated Company.
13.4 No right or interest of any Participant of the Plan
shall be assignable or transferable in whole or in part, either directly or by
operation of law or otherwise, including, but in no way limited to, execution,
levy, garnishment, attachment, pledge or bankruptcy, and no right or interest
of any Participant in the Plan shall be liable for or subject to any obligation
or liability of such Participant, including claims for alimony or the support
of any Participant's spouse.
XIII-1
<PAGE>
Notwithstanding any other provisions of this Plan, an
alternate payee under a qualified domestic relations order as determined in
accordance with Section 206 of ERISA shall be entitled, within 180 days from
the date the alternate payee receives written notification that the Company has
made such a determination, to elect to receive any benefits to which the
alternate payee is entitled payable in accordance with the distribution
provisions set forth in Section VIII of this Plan in full satisfaction of any
liability of the Plan to such person. Payment of the benefits from the
Alternate Payee's account shall be made or shall commence to be made as
established by court order which may provide for payment prior to the
Participant's attainment of his "earliest retirement age", or if not so
specified, as of the Valuation Date coincident with or next following the
Participant's Normal Retirement Date or actual retirement date, whichever is
later. An alternate payee may make investment elections pursuant to Section V
of the Plan but may make withdrawals pursuant to Section VII of the Plan.
13.5 Any person claiming entitlement to benefits in an
amount other than that received shall have the right after review and denial,
in whole or in part, of such claim by the Director -- Administration to a
review of such denial by the Plan Administrator. Such review shall be
initiated by the written request therefor by such person filed with the Plan
Administrator within 60 days after receipt by the person of the denial by the
Vice President- Employee Relations. The written request shall state the nature
of the claim, the facts in support thereof and the amount claimed, and may
include a demand for a personal hearing before the Plan Administrator as well
as for reasonable access to the pertinent data upon which denial of the claim
by the Vice President-Employee Relations was based, which demands shall not be
unreasonably denied. The Plan Administrator shall conduct its review of the
claim within 60 days after receipt of the written request
XIII-2
<PAGE>
of such person and furnish, within such time, to the claimant written notice of
its decision, including therein specific reasons and references to pertinent
Plan provisions upon which decision is based.
13.6 Copies of the Plan and any amendments thereto will be
on file at the principal office of each Employer where they may be examined by
any Participant or any other person entitled to benefits under the Plan.
13.7 If any person entitled to benefits under the Plan is
under a legal disability or, in the Plan Administrator's opinion, is
incapacitated in any way so as to be unable to manage his or her financial
affairs, the Plan Administrator may direct the payment of such benefits to such
person's legal representative or to a relative or friend of such person or such
person's benefit, or the Plan Administrator may direct the application of such
benefits for the benefit of such person in any manner which the Plan
Administrator may select that is permitted by federal law and is consistent
with the Plan. Any payments made in accordance with the foregoing provisions
of this section shall be a full and complete discharge of any liability for
such payments.
13.8 None of the establishment of the Plan, any
modification thereof, the creation of any fund or account, or the payment of
any benefits shall be construed as giving to any Participant or other person
any legal or equitable right against the Employers, the Plan Administrator or
any Trustee except as provided herein. Under no circumstances shall the
maintenance of this Plan constitute a contract of employment or shall the terms
of employment of any Participant be modified or in any way affected hereby.
Accordingly, participation in the Plan will not give any Participant a right to
be retained in the employ of any Employer. Neither the Plan Administrator nor
any Employer in any way guarantees any assets of the Plan from loss or
depreciation or any payment to
XIII-3
<PAGE>
any person. The liability of the Plan Administrator or any Employer as to any
payment or distribution of benefits under the Plan is limited to the available
assets of the trust fund.
13.9 In any action or proceeding regarding any Plan
assets, any Plan benefits or the administration of the Plan, employees or
former employees of the Employers, their beneficiaries and any other person
claiming to have an interest in the Plan shall not be necessary parties and
shall not be entitled to any notice of process. Any final judgment which is
not appealed or appealable and which may be entered in any such action or
proceeding shall be binding and conclusive on the parties hereto and on all
persons having or claiming to have any interest in the Plan. To the extent
permitted by law, if a legal action is begun against the Plan Administrator, an
Employer, or any Trustee by or on behalf of any person and such action results
adversely to such persons, or if a legal action arises because of conflicting
claims to a Participant's or other person's benefit, the cost to the Employers,
the Plan Administrator, or the Trustee of defending the action will be charged
to the sums, if any, which were involved in the action or were payable to the
Participant or the other person concerned. Acceptance of participation in the
Plan shall constitute a release of the Company and the Plan Administrator, any
trustee and their agents from any and all liability and obligation not
involving willful misconduct or gross neglect to the extent permitted by
applicable law. Notwithstanding any other provisions of the Plan, if the Plan
Administrator is required by a final court order to distribute the benefits of
a Participant other than in a manner required under the Plan, then the Plan
Administrator shall cause the Participant's benefits to be distributed in a
manner consistent with such final court order. The Plan Administrator shall
not be required to comply with the requirements of a final court order in any
action in which the Plan Administrator, a Trustee, the Plan or the trust was
not a party.
XIII-4
<PAGE>
13.10 If any provisions of the Plan shall be held illegal
or invalid for any reason, such illegality shall not affect the remaining
provisions of the Plan, and the Plan shall be construed and enforced as if such
illegal and invalid provisions had never been set forth in the Plan.
13.11 Top Heavy Rules.
(a) If the Plan is or ever becomes "top-heavy" as
determined under subsection (b), the following special rules shall
apply.
(1) If the Plan is top-heavy for a Plan Year,
each Participant who is an Employee on the last day of the
Plan Year shall receive an allocation of Employer
contributions and forfeitures equal to the product of
a the Participant's compensation
during the Plan Year, and
b the lesser of 3% or the ratio of
Employer contributions plus Deferred Contributions to
compensation with respect to the Key Employee (as
defined in subsection (c)) whose ratio is highest for
the year.
For purposes of this Section, including the determination of a
Participant's allocation of Employer contributions under
Section IV if this Section applies, compensation shall mean
the total amount of wages, tips and other compensation shown
on an Employee's Form W-2 for the Year, but not to exceed
$150,000, as adjusted by the Treasury from time to time.
An Employee shall not fail to receive an allocation
pursuant to this subsection because (i) he fails to elect to
make Deferred Contributions for the Plan Year, (2) receives
compensation less than a stated amount or (3) completes less
than 1,000 Hours of Service.
XIII-5
<PAGE>
Notwithstanding any other provisions of the Plan, an
Employee shall not forfeit any allocations made pursuant to
this subsection because of a withdrawal of Deferred
Contributions.
If a Participant also participates in a defined
benefit plan maintained by the Employer or an Affiliated
Company which is top-heavy, the minimum allocation percentage
specified in this subsection shall be increased to 5% of
compensation. This sentence shall not apply to the extent
that the Participant participates in any other plan or plans
of the Employer or an Affiliated Company which provide that
the defined benefit minimum allocation or benefit applicable
to top-heavy plans will be provided by such other plan or
plans.
(2) All Employer-provided benefits shall become
fully vested upon completion of three Plan Years during which
the Participant completes 1,000 Hours of Service, and a person
who is not already a Participant shall become a Participant
upon the first day he meets all the eligibility requirements
of Section 3.1.
(b) This Plan is "top heavy", if, as of the last day of
the preceding Plan Year (the Determination Date) (or the initial Plan
Year for its year of establishment), the amount credited to the
Accounts of Key Employees (as defined in subsection (c)) exceeds 60%
of the amount credited to the Accounts of all Participants (except
former Key Employees). Notwithstanding the foregoing, the Plan shall
not be top heavy if, as of the Determination Date described above, it
is included in either a "required aggregation group" or a "permissive
aggregation group" which is not a "top heavy group." A required
aggregation group is each plan in which a Key Employee participates or
which allows such plan to meet the
XIII-6
<PAGE>
requirements of Code Section 401(a)(4) or 410. A permissive
aggregation group is the required aggregation group of plans plus any
other plan or plans of the Employer which, when considered as a group
with the required aggregation group, would continue to satisfy the
requirements of Code Section 401(a)(4) or 410. For purposes of
determining whether this Plan is top heavy, the aggregate
distributions (without interest thereon) made under the Plan to a
Participant during the 5-year period ending on the Determination Date
shall be taken into account if the Participant's account or benefit is
otherwise taken in account in determining whether the Plan is top
heavy. However, the accrued benefits of any Participants who have
performed no services for the Affiliated Companies during the
five-year test period shall be disregarded.
The accrued benefit of a nonkey employee shall be
determined under the method that uniformly applies to all defined
benefit plans of the employer or, if there is none, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Code Section 411(b)(1)(C).
(c) A Participant shall be a "Key Employee" if, during
the Plan Year in question or any of the four preceding Plan Years, he
is:
(1) an officer of the Employer having annual
compensation greater than 50% of the Code Section 415(b)(1)(A)
limit for such Plan Year (but no more than fifty Employees or,
if less, the greater of three Employees or ten percent of all
Employees) shall be taken into account, as specified by the
Plan Administrator;
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<PAGE>
(2) one of the ten Employees having compensation
in excess of the Code Section 415(c)(1)(A) limit for such Plan
Year and owning (or considered as owning within the meaning of
Section 318 of the Code) the largest interest in the Employer;
(3) 5% owner of the Employer; or
(4) 1% or more owner of the Employer having an
annual compensation from the Employer of more than $150,000.
Each Employee who is not a Key Employee shall be a nonkey employee.
(d) If, the Plan is top-heavy for a Plan Year, then for
purposes of computing the maximum additions described in Section 4.8,
the defined benefit plan fraction and the defined contribution plan
fraction shall be computed by substituting the number 1.0 for the
number 1.25.
The Employer may elect to disregard the preceding sentence if,
as of the last day of the preceding Plan Year, the amount credited to
the Accounts of Key Employees does not exceed 90% of the amount
credited to the Accounts of all Participants (except former Key
Employees).
If the Employer makes the election described in the preceding
sentence, the minimum allocation percentage specified in subsection
(a) shall be increased to 4% of compensation for all Participants and
7 1/2% for Participants who also participate in a defined benefit plan
maintained by the Employer or an Affiliated Company which is
top-heavy.
XIII-8
<PAGE>
SECTION XIV
LOANS
14.1 A Participant or beneficiary, who is a "party in
interest" as defined in ERISA Section 3(14), may borrow from the Plan, subject
to the following provisions of this Section XIV and to such additional
standards as the Plan Administrator may adopt, by making application to the
Plan Administrator. A Participant seeking a loan hereunder must submit a
written application (hereinafter referred to as the "completed application")
which shall (i) specify the terms pursuant to which the loan is requested to be
made, including the requested effective date, (ii) authorize the repayment of
the loan through payroll deductions, if applicable, and (iii) provide such
information and documentation as the Plan Administrator shall require. If the
Participant is married, his spouse must consent to such loan being secured by
the Participant's accrued benefit under the Plan as provided in this Section
XIV and such consent meets the requirements of Section 8.4.
14.2 Any loan to a Participant under this Section XIV
shall be subject to the following requirements:
(a) The loan may not exceed the lesser of $50,000 or 50%
of the value of the Participant's vested interest in his Accounts.
The maximum loan amount of $50,000 otherwise available to a
Participant is reduced by the excess, if any, of the highest
outstanding balance of Plan loans to the Participant during the
one-year period ending on the day before the loan is made over the
outstanding balance of loans from the Plan on the date when the loan
is made.
(b) The loan must be at least $1,000.
XIV-1
<PAGE>
(c) The loan shall provide for a fixed rate of interest
for the entire term of the loan. The applicable interest rate for
Plan loans shall be a reasonable rate equal to a commercially
comparable rate as established by the Plan Administrator consistent
with the provisions of Section 4975(d)(1) of the Code and other
applicable legal requirements.
(d) The loan shall be for a term not to exceed five years
except as provided below.
(e) Notwithstanding the five year limit in Section
14.2(d), any loan used to acquire or construct any dwelling unit
which, within a reasonable time, is to be used as the principal
residence of the Participant may be for a term of up to 15 years.
(f) The Plan Administrator shall establish standards in
accordance with ERISA and the Code and such rules as it deems
necessary which shall be uniformly applicable to all Participants
similarly situated and shall govern the Plan Administrator's approval
or disapproval of completed applications. The terms for each loan
shall be set solely in accordance with this Section and such standards
adopted by the Plan Administrator in accordance with Section 14.4.
Such standards may prescribe minimum repayment periods, a maximum and
minimum loan amount (within the limitations specified above), and
shall require spousal consent for loans to married Participants and
other relevant factors.
(g) The Plan Administrator shall establish rules
concerning the frequency with which loans may be made under the Plan.
Such rules, as changed from time to time, shall be applied in a
uniform and nondiscriminatory manner and shall be communicated in
writing to all eligible Participants.
XIV-2
<PAGE>
14.3 (a) Each loan shall be evidenced by a promissory
note executed by the person and payable to the Trustee, due and
payable in full not later than the earliest of: (i) a fixed maturity
date meeting the requirements of Section 14.2(d) above; (ii) the
person's death; or (iii) the time which the person ceases to be a
party in interest.
(b) The promissory note shall provide for the payment of
equal installments (by payroll periods not less frequently than
monthly) of principal and interest on the unpaid balance of principal
at the fixed annual rate set forth in Section 14.2(c) on the date the
note is executed. The note shall further provide, with respect to a
person who is an Employee, that the payments shall be through payroll
deductions.
(c) The promissory note shall evidence such additional
terms as are required by this Section 14.2 or by the Plan
Administrator.
14.4 The Plan Administrator shall, in accordance with its
established standards, review and approve or disapprove a completed application
as soon as practicable after its receipt thereof, and shall promptly notify the
applying person of such approval or disapproval.
14.5 Loans shall be funded by exhausting Accounts or
portions thereof in the following order:
(a) First, the Rollover Account;
(b) Second, the SFP Plan Employer Contributions Account;
(c) Third, the vested portion of the Employer
Contributions Account;
(d) Fourth, the Deferred Contributions Account; and
(e) Fifth, the Participant Contributions Account.
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<PAGE>
14.6 Each loan shall be made only from the Accounts of the
borrowing Participant, shall be taken pro rata from the investment funds in
which such Accounts are invested, and shall be treated as a separate investment
of, and shall be allocated solely to, the Participant's Accounts from which the
Participant's loan was funded.
14.7 A person may elect to prepay the entire balance of
the loan at any time. A person may request a subsequent loan after full
repayment of a prior loan, subject to the maximum loan amount set forth in
Section 14.2(a) hereof. No partial prepayments will be permitted. All loan
repayments shall be transmitted by the Company or Participating Company to the
Trustee as soon as practicable after such amounts are withheld or received.
14.8 Each loan repayment of principal and interest will be
allocated to the Participant's Accounts in the same proportion from which the
loan was funded as provided in Section 14.5 hereof.
14.9 Repayment of any loan under the Plan shall be secured
by 50% of the present value of the Participant's entire vested interest in the
Plan.
14.10 If a Participant with an outstanding loan takes an
authorized leave of absence or incurs a temporary disability so the regular
monthly installment payments cannot be made on a payroll deduction basis, the
Participant will be required to make the regular payments of principal and
interest at the time and place established by the Plan Administrator.
14.11 If any time prior to the full repayment of a loan,
the Participant or Beneficiary should cease to be a party in interest, or the
Plan should terminate, or any event of default otherwise occurs under the
documents evidencing the loan; the unpaid balance owed by the Participant on
the loan shall be due and payable in full immediately without notice or demand.
If the Participant or
XIV-4
<PAGE>
Beneficiary does not repay the full amount of the unpaid balance within the
time established by the Plan Administrator, the Plan Administrator may take
whatever steps it deems necessary to collect the unpaid balance of the loan;
provided, however, in no event shall an "offset" to the Participant's Accounts
occur prior to the date the Participant would otherwise be entitled to a
distribution of his Deferred Contributions Account.
14.12 Notwithstanding anything to the contrary contained
herein, each loan shall be made only in accordance with the regulations and
rulings of the Internal Revenue Service and other applicable state or federal
laws. The Plan Administrator shall act in its sole discretion to ascertain
whether the requirement of such laws, regulations, and rulings have been met.
IN WITNESS WHEREOF, the Company and SFER have caused their
duly authorized officers to execute this Plan this 13th day of November, 1996,
effective for all purposes as provided above.
SANTA FE ENERGY RESOURCES, INC.
By: /s/ C. G. HAIN
Name: C. G. Hain
Title: Vice President
MONTEREY RESOURCES, INC.
By: /s/ R. GRAHAM WHALING
Name: R. Graham Whaling
Title: Chief Executive Officer
XIV-5
<PAGE>
ATTACHMENT A
MONTEREY RESOURCES, INC.
SAVINGS INVESTMENT PLAN
INVESTMENT FUNDS
1. Putman Stable Value Fund (and certain guaranteed investment contracts
issued by the Travelers Insurance Company)
2. INVESCO Total Return Fund
3. Putman Fund for Growth and Income A
4. Putman S&P 500 Index Fund
5. Putman Voyager Fund A
6. Putman Overseas Growth Fund A
7. Putman New Opportunities Fund A
8. Company Stock Fund (which shall include SFER common stock in the
accounts spunoff to the Plan)
EXHIBIT 10.11
MONTEREY RESOURCES, INC.
DEFERRED COMPENSATION PLAN
I. NAME AND PURPOSE
The name of this plan is the Monterey Resources, Inc. Deferred
Compensation Plan (the "Plan"). The purpose of the Plan is to provide certain
highly compensated employees of Monterey Resources, Inc. (the "Company") and
its Subsidiaries and the members of the Board of Directors of the Company with
the opportunity to defer compensation earned as an Eligible Employee or as a
director on an elective basis and, to also provide Highly Paid Employees the
opportunity to receive a Company matching contribution with respect to their
base compensation in excess of that which is covered under the Company's
Savings Plan.
II. EFFECTIVE DATE
The Plan shall become effective as of the date the Company is
spunoff by Santa Fe Energy Resources, Inc. (the "Spinoff Date").
III. DEFINITIONS
When used in this Plan, the following terms shall have the
meanings set forth below unless a different meaning is plainly required by the
context:
A. "Account" shall mean a Deferral Account, Excess
Account and/or Company Account, as the context requires.
B. "Board of Directors" shall mean the Board of
Directors of the Company.
C. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
D. "Committee" shall mean the Employee Benefits
Committee of the Company.
E. "Company Account" shall mean a bookkeeping account
established by the Company to credit Company Matching Contributions on behalf
of a Highly Paid Employee pursuant to Section VI(C).
F. "Company Matching Contribution" shall mean an amount
equal to the product of (i) a Highly Paid Employee's Excess Contributions for
the year and (ii) the Company's actual regular matching contribution rate for
such year under the Savings Plan plus, if the Participant is entitled to
receive an Employer Bonus Contribution under the Savings Plan, the Bonus
Percentage thereunder.
<PAGE>
G. "Compensation" shall mean (1) all directors'
retainers and fees paid by the Company to a member of the Board of Directors
and (2) the rate of annual base salary payable to an Eligible Employee by the
Company or a Subsidiary.
H. "Deferral Account" shall mean a bookkeeping account
established by the Company to credit elective deferrals on behalf of a
Participant pursuant to Section VI(A).
I. "Eligible Employee" shall mean an employee of the
Company or a Subsidiary whose Compensation on a specified Entry Date exceeds
ten times the amount specified in Section 402(g)(1) of the Code as in effect on
such Entry Date; such term shall also include an employee who is a Highly Paid
Employee.
J. "Entry Date" shall mean the first day of each
calendar year; however, with respect to a director, the first day of the month
following his initial election as a member of the Board of Directors shall also
be an Entry Date and, with respect to a Highly Paid Employee for purposes of
making Excess Contributions, the Plan's effective date shall also be an Entry
Date.
K. "Excess Account" shall mean a bookkeeping account
established by the Company to credit Excess Contributions on behalf of a Highly
Paid Employee pursuant to Section VI(B).
L. "Excess Compensation" shall mean Compensation, after
reduction for any elective deferrals under this Plan that are credited to a
Participant's Deferral Account, in excess of the amount specified in Section
401(a)(17) of the Code as in effect on such Entry Date. In no event shall
compensation that is covered by the Savings Plan be Excess Compensation under
this Plan.
M. "Excess Contributions" shall mean the amount of
Excess Compensation deferred by a Highly Paid Employee for a year pursuant to
Section V.
N. "Highly Paid Employee" shall mean an Eligible
Employee who has Excess Compensation.
O. "Participant" shall mean a member of the Board of
Directors, an Eligible Employee or Highly Paid Employee who makes an election
to participate in the Plan.
P. "Payment Date" shall mean the date elected by a
Participant on which to receive distribution of his Account(s) established with
respect to a specified year.
Q. "Savings Plan" shall mean the Monterey Resources,
Inc. Savings Investment Plan.
R. "Subsidiary" shall mean any corporation in which the
Company owns directly or indirectly at least 50% of the voting stock.
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Throughout this Plan, words in the masculine gender shall
include the feminine and neuter genders, the plural shall include the singular
and the singular shall include the plural.
IV. PARTICIPANTS
Each member of the Board of Directors and each Eligible
Employee, including each Highly Paid Employee, shall be eligible to participate
in the Plan. A Highly Paid Employee shall be eligible to make an election with
respect to his Compensation or his Excess Compensation or both. In the event
that an employee makes an election to participate in the Plan for a particular
year believing such employee is an Eligible Employee (or Highly Paid Employee,
as the case may be), and it is subsequently determined that such employee's
Compensation at the Entry Date does not exceed ten times the amount specified
in Section 402(g)(1) (or, with respect to a Highly Paid Employee, Section
401(a)(17)) of the Code as adjusted for that year, any amounts deferred by such
employee under the Plan (or, if applicable, Excess Contributions made) for such
year shall be returned to the employee as soon as practicable and no further
deferrals (or Excess Contributions, as the case may be) shall be made for such
employee with respect to such year.
V. MANNER OF ELECTING DEFERRALS
An Eligible Employee, who has made an election under the
Savings Plan to contribute the maximum amount permitted under Section 402(g)(1)
of the Code for that year, may elect to defer all or a part of his or her
Compensation for a specified year by giving written notice to the Company
setting forth the Participant's election as to:
(a) the percentage (in multiples of 5% of Compensation,
up to 100% thereof) of the Participant's Compensation to be deferred
for such year; and
(b) the Payment Date, as described in Section VII(A), for
distribution of that year's Deferral Account. In addition, a Highly
Paid Employee, who has made an election under the Savings Plan to
contribute the maximum amount permitted under Section 402(g)(1) of the
Code for that year, may elect, either in lieu of or in addition to an
election made with respect to his Compensation, to defer part of his
Excess Compensation for such year (an "Excess Contribution") by giving
written notice to the Company setting forth the Participant's election
as to:
(x) the percentage (either 1%, 2%, 3% or 4%) of
the Participant's Excess Compensation to be deferred for such
year; and
(y) the Payment Date, as described in Section
VII(A), for distribution of that year's Matching Account and
Excess Account.
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If, however, during a year a Highly Paid Employee reduces his
election under the Savings Plan to less than the maximum amount permitted by
Section 402(g)(1) of the Code, the Participant shall automatically cease making
Excess Contributions hereunder.
In order to participate in the Plan for a specified year, a
Participant must deliver an executed deferred compensation election to the
Company, on the form prescribed by the Company for that purpose, prior to the
Entry Date for such year.
The elections described in this Section shall pertain only to
the year for which they are made and shall apply to all Compensation and/or
Excess Compensation, if applicable, payable for such year. If no election is
made for a year, no elective deferral of Compensation or Excess Compensation
will be made for such year. All elections shall be irrevocable except to the
extent the Committee, in its sole discretion, permits a Participant to
terminate or change a deferral election. Such termination or change shall be
effective only with respect to Compensation or Excess Compensation earned after
the date such termination or change of election is approved by the Committee.
VI. ACCOUNTS
A. Deferral Accounts. A separate Deferral Account shall
be established and maintained for each Eligible Employee who elects to be a
Participant for a year reflecting the amount of Compensation electively
deferred for that year by the Participant and the interest credited thereon as
provided in D. below. In the event two or more Deferral Accounts of a
Participant are to be paid on the same Payment Date, all such Deferral Accounts
shall be aggregated into a single Deferral Account for such Participant. At
the end of each month, an amount shall be credited to the appropriate Deferral
Account of each Participant to reflect the Compensation otherwise payable
during said month but deferred pursuant to the Plan by the Participant.
B. Excess Accounts. A separate Excess Account shall be
established and maintained for each Highly Paid Employee who elects to be a
Participant for a year reflecting the amount of Excess Compensation electively
deferred for that year by the Participant and the interest credited thereon as
provided in D. below. In the event two or more Excess Accounts of a
Participant are to be paid on the same Payment Date, all such Excess Accounts
shall be aggregated into a single Excess Account for such Participant. At the
end of each month, an amount shall be credited to the appropriate Excess
Account of each Participant to reflect the Excess Compensation otherwise
payable during said month but deferred pursuant to the Plan by the Participant.
C. Company Accounts. A separate Company Account shall
be established and maintained each year for each Highly Paid Employee who makes
an Excess Contribution such year reflecting the amount of Company Matching
Contributions credited on his behalf that year, if any, and the interest
credited thereon as provided in D. below. In the event two or more Company
Accounts of a Participant are to be paid on the same Payment Date, all such
Company Accounts shall be aggregated into a single Company Account for such
Participant. At the end of each month,
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<PAGE>
an amount shall be credited to the appropriate Company Account of each
Participant who is a Highly Paid Employee to reflect the Company Matching
Contribution, if any, credited for said month on behalf of the Participant.
D. Interest. Each Account shall be credited with
interest as of the last day of each month based upon the balance in such
Account on such date after first reducing the Account balance to reflect any
distributions made during such month from such Account and before crediting to
the Account any new deferrals made or Company Matching Contributions credited,
as the case may be, for such month. Interest for each month shall be computed
by using the interest rate earned for such month by the Fixed Interest Fund (or
the equivalent thereof) of the Savings Plan.
E. Vesting. A Participant shall at all times be 100%
vested (possess a nonforfeitable interest) in his Participant and Excess
Accounts and shall be vested in his Company Accounts, if any, on any date to
the same extent that he is vested in his Employers Contributions Account under
the Savings Plan on such date.
VII. DISTRIBUTION OF ACCOUNTS
A. Elected Distribution Date. Except as provided below,
a Participant's Accounts shall be valued as of the end of the month coinciding
with or immediately preceding the Payment Date elected by the Participant with
respect to such Account and shall be paid in a single, lump-sum distribution
(by Company check) to the Participant as soon as is reasonably practicable
after such Payment Date.
Each year a Participant elects to defer Compensation and/or
Excess Compensation, the Participant shall elect (at the time of the deferral
and prior to the Entry Date) from among the following alternatives (to the
extent applicable) the Payment Date applicable with respect to his deferrals
for such year:
Option 1: January 1 of any specified year, but not later than
the January 1 on or next following (i) with respect to an Eligible
Employee, the later of the Participant's (a) 70th birthday or (b)
termination of his employment with the Company and its Subsidiaries
("Retirement") or (ii) the Participant's ceasing to be a director, as
the case may be;
Option 2: If an Eligible Employee, as soon as practicable after
the Participant's Retirement; or
Option 3: If an Eligible Employee, January 1 after the year in
which the Participant's Retirement occurs.
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<PAGE>
B. Distributions Upon Death or Disability of
Participant. If a Participant dies or becomes disabled (i.e., is receiving
benefits under the Company's long-term disability plan or Social Security), the
Participant's Accounts shall be valued as of the end of the month in which the
Participant dies or becomes disabled, as the case may be, and shall be paid to
the Participant's estate, in the event of death, or to the Participant, in the
event of his disability, as the case may be, in a single lump-sum (by Company
check) as soon as is reasonably practicable after such date of death or
disability.
C. Early Termination of Employment. If a Participant
terminates employment (for reasons other than death or Disability) with the
Company and its Subsidiaries prior to attaining his early retirement date under
the Pension Plan, then notwithstanding his election of a later Payment Date to
the contrary, his Accounts shall be valued as of the end of the month
coinciding with or immediately preceding the date of such termination of
employment and, to the extent vested, shall be paid to the Participant in a
single lump-sum (by Company check) as soon as is reasonably practicable
thereafter. Any nonvested Company Account balances shall be immediately
forfeited on his termination of employment.
D. Hardship Distributions. In the event of an
unforeseen and immediate financial emergency of a Participant which is beyond
his control, the Committee may, in its sole discretion, upon a written request
of a Participant, direct the acceleration of such vested portion of the
Participant's Accounts as may be necessary to meet such emergency. The
Committee shall require the Participant to furnish the Committee with proof of
such emergency and the Participant's other financial resources as the Committee
may deem necessary to evaluate a Participant's written request for accelerated
payment.
VIII. PARTICIPANTS' RIGHTS
Establishment of the Plan shall not be construed to give any
Eligible Employee the right to be retained in the service of the Company or a
Subsidiary. A Participant shall not have any interest in the amounts credited
to his Accounts until such Accounts are distributed in accordance with the
Plan. With respect to amounts deferred or otherwise held in an Account for a
Participant, the Participant shall be an unsecured general creditor of the
Company.
IX. NON-ALIENABILITY AND NON-TRANSFERABILITY
No Participant may borrow against his Accounts; no Account
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, whether voluntary or involuntary. However, if a former spouse of a
Participant is awarded an interest in a Participant's Accounts through a
judgment or order of a court, the Committee may, in its sole discretion, direct
that the payment of such interest awarded to the former spouse be paid (valued
as of the end of the month that the Company received written notice of such
award) to the former spouse in a lump sum; thereafter, the Participant's
Accounts shall be reduced for all Plan purposes by the amount of any such
payment.
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<PAGE>
X. STATEMENTS OF ACCOUNT
Statements will be sent to Participants as soon as practicable
after the end of each year as to the balance in their Accounts as of the end of
such year.
XI. ADMINISTRATION
The Committee shall have the authority to adopt rules and
regulations for carrying out the Plan and to interpret, construe and implement
the provisions thereof. Any decision or interpretation of any provision of the
Plan adopted by the Committee shall be final and conclusive. The individuals
serving as the Committee shall be fully indemnified (to the extent permitted by
law) by the Company for all claims, losses, damages or expenses incurred by
them for any act, omission or construction made in connection with the Plan.
The Committee is expressly authorized to direct at any time that the Accounts
of a Participant that are fully vested and payable at the same Payment Date be
aggregated for recordkeeping purposes.
XII. AMENDMENT AND TERMINATION
The Plan may, at any time, be amended, modified or terminated
by the Board of Directors. In addition, the Committee may amend or modify the
Plan provided that no such amendment or modification made by the Committee can
materially increase the obligations of the Company under the Plan. Any such
amendment, modification or termination requires the affirmative approval of a
majority of the members constituting a quorum and shall be evidenced by a
written resolution or other document signed by the Board of Directors or the
Committee, as the case may be. No amendment, modification or termination of
the Plan shall, without the consent of a Participant, adversely affect such
Participant's rights with respect to amounts accrued in his Accounts.
Notwithstanding anything in the Plan to the contrary, all Accounts shall become
immediately payable in full upon the termination of the Plan.
XIII. UNFUNDED STATUS OF THE PLAN
Except as provided below, any and all payments made to the
Participant pursuant to the Plan shall be made only from the general assets of
the Company. All Accounts under the Plan shall be for bookkeeping purposes
only and shall not represent a claim against specific assets of the Company.
Nothing contained in this Plan shall be deemed to create a trust of any kind or
create any fiduciary relationship between the Company and the Participant. The
Company, in its sole discretion, may establish a grantor trust to provide for
all or part of such Accounts, provided that the assets of such grantor trust at
all times remain subject to the claims of the general creditors of the Company.
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<PAGE>
XIV. SFER PLAN TRANSFERRED ACCOUNTS
Effective with the corporate spinoff of the Company by Santa
Fe Energy Resources, Inc. ("SFER") the deferred accounts of any Eligible
Employee under a similar SFER deferred compensation plan were transferred from
such SFER plan to this Plan and such transferred accounts shall continue to be
held hereunder pursuant to the elections made by the Participants under the
SFER plan and shall be invested as provided in this Plan and paid pursuant to
the Participant's distribution election(s) made under the SFER plan. Further,
any deferral election made under such SFER plan with respect to compensation
otherwise to be earned by the Eligible Employee after the date of the corporate
spinoff shall be deemed to be a continuing election, without interruption or
change, under this Plan for the remainder of the year in which such corporate
spinoff occurs.
XV. GENERAL PROVISIONS
A. Notices. All notices to the Company hereunder shall
be delivered to the attention of the Secretary of the Company. Any notice or
filing required or permitted to be given to the Committee or the Company under
this Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to the Company or the Committee, as appropriate,
at the principal office of the Company. Such notice shall be deemed given as
of the date of delivery or, if delivery is made by mail, as of the date shown
on the postmark or the receipt for registration or certification.
B. Controlling Law. Except to the extent superseded by
applicable federal law, the laws of the State Delaware shall be controlling in
all matters relating to the Plan.
C. Captions. The captions of Sections and paragraphs of
this Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
D. Action by the Company. Any action required or
permitted by the Company under the Plan shall be by resolution of its Board of
Directors or any person or persons authorized by its Board of Directors with
respect to such matters.
E. Facility of Payment. Any amounts payable hereunder
to any person under legal disability or who, in the judgment of the Committee,
is unable to properly manage his financial affairs may be paid to the legal
representative of such person or may be applied for the benefit of such person
in any manner which the Committee may select.
F. Withholding of Taxes. The Company shall withhold
from such Compensation and Excess Compensation when deferred, or from deferred
compensation payments when made hereunder, as the case may be, any taxes
required to be withheld therefrom for federal, state or local government
purposes.
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<PAGE>
G. Severability. Whenever possible, each provision of
the Plan shall be interpreted in such manner as to be effective and valid under
applicable law (including the Code), but if any provision of the Plan shall be
held to be prohibited by or invalid under applicable law, then (i) such
provision shall be deemed amended to, and to have contained from the outset
such language as shall be necessary to, accomplish the objectives of the
provision and (ii) all other provisions of the Plan shall remain in full force
and effect.
H. No Strict Construction. No rule of strict
construction shall be applied against the Company, the Committee, the Board of
Directors, or any other person in the interpretation of any of the terms of the
Plan or any rule or procedure established by the Committee.
I. Successors. The provisions of the Plan shall bind
and inure to the benefit of the Company and its successors and assigns. The
term "successors" as used herein shall include any corporation or other
business entity which shall by merger, consolidation, purchase or otherwise,
acquire all or substantially all of the business and assets of the Company and
successors of any such corporation or other business entity.
IN WITNESS WHEREOF, Monterey Resources, Inc. has caused this
amendment to be executed by its duly authorized officer this 13th day of
November, 1996, effective for all purposes as of the Spinoff Date.
MONTEREY RESOURCES, INC.
By: /s/ R. GRAHAM WHALING
Title: Chief Executive Officer
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EXHIBIT 10.12
MONTEREY RESOURCES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- -----
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
ARTICLE II
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . II-1
2.1 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE
AUTHORITY . . . . . . . . . . . . . . . . . . . II-1
2.2 ALLOCATION AND DELEGATION OF RESPONSIBILITIES . . . . . II-1
2.3 POWERS AND DUTIES OF THE ADMINISTRATOR . . . . . . . . . II-2
2.4 RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . II-3
2.5 AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . II-3
2.6 APPOINTMENT OF ADVISORS . . . . . . . . . . . . . . . . II-4
2.7 INFORMATION FROM EMPLOYER . . . . . . . . . . . . . . . II-4
2.8 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . II-4
2.9 ACTIONS BY ADMINISTRATOR . . . . . . . . . . . . . . . . II-4
2.10 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . II-5
2.11 CLAIMS REVIEW PROCEDURE . . . . . . . . . . . . . . . . II-5
ARTICLE III
ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
3.1 CONDITIONS OF ELIGIBILITY . . . . . . . . . . . . . . . III-1
3.2 EFFECT OF PARTICIPATION UPON THE ACCEPTANCE OF
ANY BENEFITS UNDER THIS PLAN . . . . . . . . . III-1
3.3 DETERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . III-1
3.4 TERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . III-1
3.5 OMISSION OF ELIGIBLE EMPLOYEE . . . . . . . . . . . . . III-1
3.6 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . III-1
ARTICLE IV
CONTRIBUTION AND ALLOCATION . . . . . . . . . . . . . . . . . . IV-1
4.1 EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . IV-1
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION . . . . . . . IV-1
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES
AND EARNINGS . . . . . . . . . . . . . . . . . IV-1
4.4 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . IV-5
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS . . . . . . . IV-9
4.6 DIRECTED DIVERSIFICATION . . . . . . . . . . . . . . . . IV-10
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ARTICLE V
FUNDING AND INVESTMENT POLICY . . . . . . . . . . . . . . . . . . V-1
5.1 INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . V-1
5.2 APPLICATION OF CASH . . . . . . . . . . . . . . . . . . . V-1
ARTICLE VI
VALUATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
6.1 VALUATION OF THE TRUST FUND . . . . . . . . . . . . . . VI-1
6.2 METHOD OF VALUATION . . . . . . . . . . . . . . . . . . VI-1
ARTICLE VII
VESTING DETERMINATION AND DISTRIBUTION OF BENEFITS . . . . . . . VII-1
7.1 BENEFITS UPON RETIREMENT . . . . . . . . . . . . . . . . VII-1
7.2 BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . VII-1
7.3 BENEFITS UPON DISABILITY . . . . . . . . . . . . . . . . VII-2
7.4 BENEFITS UPON TERMINATION . . . . . . . . . . . . . . . VII-2
7.5 DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . VII-4
7.6 HOW PLAN BENEFITS WILL BE DISTRIBUTED . . . . . . . . . VII-6
7.7 DISTRIBUTION FOR MINOR BENEFICIARY . . . . . . . . . . . VII-8
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN . . . . . VII-8
7.9 PUT OPTION . . . . . . . . . . . . . . . . . . . . . . . VII-8
7.10 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS . . . . . . . VII-10
7.111 PAYMENT OF DISTRIBUTION DIRECTLY TO
ELIGIBLE RETIREMENT PLAN . . . . . . . . . . . VII-10
7.14 30-DAY WAIVER . . . . . . . . . . . . . . . . . . . . . VII-11
ARTICLE VIII
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE . . . . . . . . . VIII-1
8.2 VOTING COMPANY STOCK . . . . . . . . . . . . . . . . . . VIII-1
ARTICLE IX
AMENDMENT, TERMINATIONS, AND MERGERS . . . . . . . . . . . . . . IX-1
9.1 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . IX-1
9.2 TERMINATION . . . . . . . . . . . . . . . . . . . . . . IX-1
9.3 MERGER OR CONSOLIDATION . . . . . . . . . . . . . . . . IX-2
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . X-1
10.1 PARTICIPANT'S RIGHTS . . . . . . . . . . . . . . . . . . . X-1
10.2 ALIENATION . . . . . . . . . . . . . . . . . . . . . . . . X-1
10.3 CONSTRUCTION OF PLAN . . . . . . . . . . . . . . . . . . . X-1
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10.4 GENDER AND NUMBER . . . . . . . . . . . . . . . . . . . . X-1
10.5 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . . X-2
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS . . . . . . . . . . X-2
10.7 BONDING . . . . . . . . . . . . . . . . . . . . . . . . . X-2
10.8 RECEIPT AND RELEASE FOR PAYMENTS . . . . . . . . . . . . . X-3
10.9 ACTION BY THE EMPLOYER . . . . . . . . . . . . . . . . . . X-3
10.10 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY . . . . X-3
10.11 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . X-3
10.12 APPROVAL BY INTERNAL REVENUE SERVICE . . . . . . . . . . . X-3
10.13 UNIFORMITY . . . . . . . . . . . . . . . . . . . . . . . . X-4
10.14 SECURITIES AND EXCHANGE COMMISSION APPROVAL . . . . . . . X-4
10.15 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . X-4
10.16 CONTROLLING LAW . . . . . . . . . . . . . . . . . . . . . X-4
ARTICLE XI
PARTICIPATING EMPLOYERS . . . . . . . . . . . . . . . . . . . . XI-1
11.1 ADOPTION BY OTHER EMPLOYERS . . . . . . . . . . . . . . XI-1
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS . . . . . . . . XI-1
11.3 DESIGNATION OF AGENT . . . . . . . . . . . . . . . . . . XI-2
11.4 EMPLOYEE TRANSFERS . . . . . . . . . . . . . . . . . . . XI-2
11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION . . . . . . . . . XI-2
11.6 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . XI-2
11.7 DISCONTINUANCE OF PARTICIPATION . . . . . . . . . . . . XI-2
11.8 ADMINISTRATOR'S AUTHORITY . . . . . . . . . . . . . . . XI-3
11.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE . . . XI-3
ARTICLE XII
TOP-HEAVY STATUS . . . . . . . . . . . . . . . . . . . . . . . . XII-1
12.1 ARTICLE CONTROLS . . . . . . . . . . . . . . . . . . . . XII-1
12.2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . XII-1
12.3 TOP-HEAVY STATUS . . . . . . . . . . . . . . . . . . . . XII-2
12.4 TERMINATION OF TOP-HEAVY STATUS . . . . . . . . . . . . XII-3
12.5 EFFECT OF ARTICLE . . . . . . . . . . . . . . . . . . . XII-3
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<PAGE>
MONTEREY RESOURCES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
W I T N E S S E T H:
WHEREAS, the Company desires to recognize the contributions employees
of the Employers will make to the successful operation of its parent
corporation and to reward such contributions by means of an employee stock
ownership plan for those employees who qualify as Participants hereunder; and
WHEREAS, contributions to the Plan will be made by the Employers and
such contributions made to the Plan's trust will be invested primarily in
Company Stock;
NOW, THEREFORE, as of the Effective Date the Company hereby
establishes this Plan for the exclusive benefit of its Participants and their
Beneficiaries under the following terms:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of
1974, as it may be amended from time to time.
1.2 "Administrator" means the person designated by the Chief
Executive Officer of the Company pursuant to Section 2.1 to administer the Plan
or, in the absence of any such designation, the Company.
1.3 "Affiliated Employer" means the Employer and any corporation
which is a member of a controlled group of corporations (as defined in Code
Section 414(b)) which include the Employer; any trade or business (whether or
not incorporated) which is under common control (as defined in Code Section
414(c)) with the Employer; any organization (whether or not incorporated) which
is a member of an affiliated service group (as defined in Code Section 414(m))
which includes the Employer; and any other entity required to be aggregated
with the Employer pursuant to Regulations under Code Section 414(o).
1.4 "Anniversary Date" means the last day of each Plan Year.
1.5 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
7.2 and 7.6.
1.6 "Code" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
1.7 "Company" means Monterey Resources, Inc. (or its successor).
1.8 "Company Stock" means common stock issued by the Company which
is readily tradeable on an established securities market. If there is no
common stock which meets the foregoing requirement, the term "Company Stock"
means common stock issued by the Company having a combination of voting power
and dividend rights equal to or in excess of: (A) that class of common stock of
the Company having the greatest voting power, and (B) that class of stock of
the Company having the greatest dividend rights. Preferred stock shall be
deemed to be "Company Stock" if such stock is convertible at any time into
stock which constitutes "Company Stock" hereunder and if such conversion is at
a conversion price which (as of the date of the acquisition by the Trust) is
reasonable.
1.9 "Company Stock Account" means the account of a Participant
which is credited with the shares of Company Stock purchased and paid for by
the Trust Fund or contributed to the Trust Fund.
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1.10 "Compensation" means, with respect to any Participant, the
total basic compensation paid by the Employers to the Participant while an
Eligible Employee during the applicable Plan Year, including any elective
salary deferral amounts excluded from income pursuant to Section 125 or 402 of
the Code , plus overtime, shift differentials and bonuses (whether cash or
stock) paid pursuant to recurring bonus programs, but excluding any special or
extraordinary bonuses. A Participant's basic compensation is the regular rate
of pay specified for his position and does not include automobile allowances,
imputed income under any group term left insurance program, moving expense or
other reimbursements, fringe befits or any other items of compensation.
Compensation shall be determined in accordance with the rules of Section
414(g)(6) of the Code, except that the term "family" shall include only the
Participant's spouse and any lineal descendants who have not attained the age
of 19 before the close of the Plan Year.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
compensation of each Employee taken into account under the Plan shall not
exceed the "OBRA '93 Annual Compensation Limit." The "OBRA '93 Annual
Compensation Limit" is $150,000, as adjusted for increases in the cost of
living in accordance with Code Section 401(a)(17)(B). The cost of living
adjustment in effect for a calendar year applies to any period, not exceeding
12 months, over which compensation is determined ("Determination Period")
beginning in such calendar year. If a Determination Period consists of fewer
than 12 months, the "OBRA '93 Annual Compensation Limit" will be multiplied by
a fraction, the numerator of which is the number of months in the Determination
Period, and the denominator of which is 12. Any reference in this Plan to the
limitation under Code Section 401(a)(17) shall mean the "OBRA '93 Annual
Compensation Limit" set forth in this Section.
1.11 "Effective Date" means date the Company ceases to be a
subsidiary of Santa Fe Energy Resources, Inc.
1.12 "Eligible Employee" means any Employee of an Employer who (1)
is not (i) a Leased Employee or (ii) a nonresident alien with no U.S. source
income and (2) has satisfied the provisions of Section 3.1; provided, however,
Employees whose employment is governed by the terms of a collective bargaining
agreement between employee representatives and the Employer will not be
eligible to participate in this Plan unless such agreement expressly provides
for such coverage in this Plan.
1.13 "Employee" means any person who is an employee of the Employer
or an Affiliated Employer as defined in Code Section 3121(d). Employee shall
also include Leased Employees, except when they are not required to be treated
as employees for Plan purposes by the Code.
1.14 "Employer" means the Company and any Participating Employer
(as defined in Section 11.1) which shall adopt this Plan, and any successor
which shall maintain this Plan.
1.15 "Employer Contributions" means the Employer's contributions to
the Plan pursuant to Section 4.1(a).
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1.16 "ESOP" means an employee stock ownership plan that meets the
requirements of Code Section 409.
1.17 "Family Member" means an individual described in Code Section
414(q)(6)(B).
1.18 "Fiduciary" means any person who (a) exercises any
discretionary authority or discretionary control respecting management of the
Plan or exercises any authority or control respecting management or disposition
of its assets, (b) renders investment advice for a fee or other compensation,
direct or indirect, with respect to any monies or other property of the Plan or
has any authority or responsibility to do so, or (c) has any discretionary
authority or discretionary responsibility in the administration of the Plan.
1.19 "Forfeiture" means that portion of a Participant's Account
that is not Vested in accordance with the provisions of Section 7.4, on account
of the Participant's termination of employment before full vesting.
1.20 "Former Participant" means a person who has been a
Participant, but who has ceased to be a Participant for any reason. For
purposes of Section 1.26, a "Former Participant" shall be treated as a Highly
Compensated Participant if such "Former Participant" was a Highly Compensated
Participant when he separated from service with the Employer or was a Highly
Compensated Participant at any time after attaining age 55.
1.21 "415 Compensation" means compensation as defined in Section
4.4(e).
1.22 "Highly Compensated Employee" means any Employee or former
Employee who is a highly compensated employee as defined in Code Section 414(q)
and the Regulations thereunder. Generally, any Employee or former Employee is
considered a Highly Compensated Employee if such Employee or former Employee
performed services for the Employer during the "determination year" and is one
or more of the following groups:
(a) Employees who at any time during the "determination
year" or "look-back year" were "five percent owners" as defined in
Section 1.26(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $75,000. In
determining whether an individual has "415 Compensation" of more than
$75,000, "415 Compensation" from each employer required to be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken
into account.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were in
the top-paid group of Employees for the Plan Year. An Employee is in
the top-paid group of Employees for any Plan Year if such Employee is
in the group consisting of the top 20% of the Employees when ranked on
the
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basis of "415 Compensation" paid during the Plan Year. In determining
whether an individual has "415 Compensation" of more than $50,000,
"415 Compensation" from each employer required to be aggregated under
Code Section 414(b), (c), (m) and (o) shall be taken into account.
(d) Employees who during the "look-back year" were
officers as defined in Section 1.26(a) and received "415 Compensation"
during the "look-back year" from the Employer greater than 50% of the
limit in effect under Code Section 415(b)(1)(A) for any such Plan
Year. The number of officers shall be limited to the lesser of (i) 50
employees; or (ii) the greater of 3 employees or 10% of all employees.
For the purpose of determining the number of officers, the following
Employees shall be excluded:
(1) Employees with less than six months of
service;
(2) Employees who normally work less than 17 1/2
hours per week;
(3) Employees who normally work less than six
months during a year; and
(4) Employees who have not yet attained age 21.
However, such Employees shall still be considered for the
purpose of identifying the particular Employees who are officers. If
the Employer does not have at least one officer whose annual "415
Compensation" is in excess of 50% of the Code Section 415(b)(1)(A)
limit, then the highest paid officer of the Employer will be treated
as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d) above
when these paragraphs are modified to substitute "determination year"
for "look-back year."
The "look-back year" shall be the calendar year ending with or within
the Plan Year for which testing is being performed, and the "determination
year" (if applicable) shall be the period of time, if any, that extends beyond
the "look-back year" and ends on the last day of the Plan Year for which
testing is being performed (the "lag period"). If the "lag period" is less
than twelve months long, the threshold amounts specified in (b), (c), and (d)
above shall be prorated based upon the number of months in the "lag period."
For purposes of this Section, the determination of "415 Compensation"
shall be based only on "415 Compensation" which is actually paid and shall be
made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3) or 402(g) and Employee
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contributions described in Code Section 414(h)(2) that are treated as Employer
contributions. Additionally, the dollar threshold amounts specified in (b) and
(c) above shall be adjusted at such time and in such manner as is provided in
Regulations. In the case of such an adjustment, the dollar limits which shall
be applied are those for the calendar year in which the "determination year" or
"look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account
as a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans
1.23 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.24 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
or an Affiliated Employer for the performance of duties during the applicable
computation period; (2) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the Employer or an
Affiliated Employer (irrespective of whether the employment relationship has
terminated) for reasons other than performance of duties (such as vacation,
holidays, sickness, jury duty, disability, lay-off, military duty, or leave of
absence) during the applicable computation period; and (3) each hour for which
back pay is awarded or agreed to by the Employer or Affiliated Employer without
regard to mitigation of damages. An Employee shall be credited with 95 Hours
of Service for each semimonthly period the Employee is credited with at least
one Hour of Service.
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by
or due from the Employer or Affiliated Employer regardless of whether such
payment is made by or due from the Employer directly, or indirectly through,
among others, a trust fund, or insurer, to which the
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Employer or Affiliated Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a
Year of Service, a 1-Year Break in Service, and employment commencement date
(or reemployment commencement date). The provisions of Department of Labor
regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.25 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.26 "Key Employee" means an Employee as defined in Code Section
416(i) and the Regulations thereunder. Generally, any Employee or Former
Employee (as well as each of his Beneficiaries) is considered a Key Employee if
he, at any time during the Plan Year or any of the preceding four Plan Years,
has been included in one of the following categories:
(a) an officer of the Employer (as that term is defined
within the meaning of the Regulations under Code Section 416) having
annual "415 Compensation" greater than 50% of the amount in effect
under Code Section 415(b)(1)(A) for any such Plan Year;
(b) one of the ten Employees having annual "415
Compensation" from the Employer for a Plan Year greater than the
dollar limitation in effect under Code Section 415(c)(1)(A) for the
calendar year in which such Plan Year ends and owning (or considered
as owning within the meaning of Code Section 318) both more than
one-half percent interest and the largest interests in the Employer;
(c) a "five percent owner" of the Employer. "Five
percent owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than 5% of the
outstanding stock of the Employer or stock possessing more than 5% of
the total combined voting power of all stock of the Employer, or, in
the case of an unincorporated business, any person who owns more than
5% of the capital or profits interest in the Employer. In determining
percentage ownership hereunder, Employers that would otherwise be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be
treated as separate employers; or
(d) a "one percent owner" of the Employer having an
annual "415 Compensation" from the Employer of more than $150,000.
"One percent owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than 1% of the
outstanding stock of the Employer or stock possessing more than 1% of
the total combined voting power of all stock of the Employer, or, in
the case of an unincorporated
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business, any person who owns more than 1% of the capital or profits
interest in the Employer. In determining percentage ownership
hereunder, Employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate
Employers. However, in determining whether an individual has "415
Compensation" of more than $150,000, "415 Compensation" from each
employer required to be aggregated under Code Sections 414(b), (c),
(m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation"
shall be based only on "415 Compensation" which is actually paid and shall be
made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and
Employee contributions described in Code Section 414(h)(2) that are treated as
Employer contributions.
1.27 "Leased Employee" means any person who would be within the
meaning of Code Section 414(n)(2).
1.28 "Non-Highly Compensated Employee" means any Employee or former
Employee who is not a Highly Compensated Employee nor a Family Member.
1.29 "Non-Highly Compensated Participant" means any Participant or
Former Participant who is neither a Highly Compensated Participant nor a Family
Member.
1.30 "Non-Key Employee" means any Employee or former Employee (and
his Beneficiaries) who is not a Key Employee.
1.31 "Normal Retirement Age" means the later of the Participant's
65th birthday or the fifth anniversary of the date his participation in the
Plan commenced.
1.32 "1-Year Break in Service" means the applicable computation
period of 12 consecutive months during which an Employee fails to complete more
than 500 Hours of Service. Further, solely for the purpose of determining
whether a Participant has incurred a 1-Year Break in Service, Hours of Service
shall be recognized for "authorized leaves of absence" and "maternity and
paternity leaves of absence."
An Employee shall not be deemed to have incurred a 1-Year Break in
Service if he completes an Hour of Service within 12 months following the last
day of the month during which his employment terminated.
"Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer or Affiliated Employer pursuant to an
established nondiscriminatory policy, whether occasioned by illness, military
service, or any other reason.
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A "maternity or paternity leave of absence" means an absence from work
for any period by reason of the Employee's pregnancy, birth of the Employee's
child, placement of a child with the Employee in connection with the adoption
of such child, or any absence for the purpose of caring for such child for a
period immediately following such birth or placement. For this purpose, Hours
of Service shall be credited for the computation period in which the absence
from work begins, only if credit therefor is necessary to prevent the
Employees from incurring a 1-Year Break in Service, or, in any other case, in
the immediately following computation period.
1.33 "Other Investments Account" means the account of a Participant
which is credited with his share of the net gain (or loss) of the Plan,
Forfeitures and Employer Contributions and which is not invested in Company
Stock.
1.34 "Participant" means any Eligible Employee who participates in
the Plan pursuant to Section 3.1.
1.35 "Participant's Accounts" means the accounts established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from Employer Contributions, which
shall include the Company Stock Account and the Other Investment Account.
1.36 "Plan" means this instrument, including all amendments
thereto.
1.37 "Plan Year" means the calendar year, which shall also be the
limitation year for purposes of Code Section 415; provided, however, the
initial Plan Year shall be a short year beginning on the Effective Date.
1.38 "Regulation" means the Income Tax Regulations as promulgated
by the Secretary of the Treasury or his delegate, and as amended from time to
time.
1.39 "Retirement" means a Participant's ceasing to be an Employee
on or after reaching age 55 and completing 10 or more Years of Service.
1.40 "Top Heavy Plan" means a plan described in Article XII.
1.41 "Top Heavy Plan Year" means a Plan Year during which the Plan
is a Top Heavy Plan.
1.42 "Total and Permanent Disability" means, as determined by the
Administrator, a Participant's complete inability to substantially perform each
of the material duties of any gainful occupation for which the Participant is
reasonably qualified by reason of his education, training or experience, which
condition is reasonably expected to continue for an extended period of time.
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1.43 "Trust" means the trust established under the Trust Agreement
to hold and invest contributions made under the Plan and from which the Plan
benefits will be distributed.
1.44 "Trust Agreement" means the agreement entered into between the
Company and the Trustee establishing a trust to hold and invest contributions
made under the Plan and from which benefits will be distributed.
1.45 "Trust Fund" means the assets of the Plan and Trust as the
same shall exist from time to time.
1.46 "Trustee" means the person or entity named as trustee herein
or in any separate trust forming a part of this Plan, and any successors.
1.47 "Valuation Date" means each business day of each Plan Year.
1.48 "Vested" means the portion of a Participant's Account that is
nonforfeitable.
1.49 "Year of Service" means the computation period of 12
consecutive months, herein set forth, during which an Employee has at least
1,000 Hours of Service.
(a) For purposes of determining an Employee's eligibility
to participate in the Plan, the computation period shall be the 12
consecutive month period beginning on the date the Employee first
performs an Hour of Service for an Affiliated Employer; however,
succeeding eligibility periods after the initial eligibility period
shall be the Plan Year, and an Employee who is credited with 1,000 or
more Hours of Service in both the initial eligibility period and the
first Plan Year beginning prior to the anniversary of the Employee's
initial period shall be credited with two Years of Service for
eligibility purposes.
(b) For purposes of determining an Employee's vested
percentage under Section 7.4, the computation period shall be the Plan
Year. Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service
shall be made in accordance with Department of Labor Regulation
2530.203-2(c).
(c) Years of Service recognized under the Company's
401(k) plan on the Effective Date shall be recognized under this Plan.
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ARTICLE II
ADMINISTRATION
2.1 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY
(a) The Chief Executive Officer of the Company ("CEO")
may appoint one or more persons to be the Administrator. Any person,
including, but not limited to, the Employees, shall be eligible to
serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Company. An
Administrator may resign by delivering his written resignation to the
Company or be removed by the CEO by delivery of written notice of
removal, to take effect at a date specified therein, or upon delivery
to the CEO if no date is specified.
(b) The CEO, upon the resignation or removal of an
appointed Administrator, may designate in writing a successor to this
position. If the CEO does not appoint an Administrator, the Company
will function as the Administrator.
(c) The CEO shall be empowered to appoint and remove an
appointed Administrator from time to time as it deems necessary for
the proper administration of the Plan to assure that the Plan is being
operated for the exclusive benefit of the Participants and their
Beneficiaries in accordance with the terms of the Plan, the Code, and
the Act.
(d) The CEO shall periodically review the performance of
the Administrator or other person to whom duties have been delegated
or allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied
by formal periodic review by the CEO or by a qualified person
specifically designated by the CEO, through day-to-day conduct and
evaluation, or through any other appropriate method.
(e) The Administrator will furnish Plan Fiduciaries and
Participants with notices and information statements when voting
rights must be exercised pursuant to Section 8.2.
2.2 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the CEO may
designate the responsibilities of each Administrator as may be specified by the
CEO and accepted in writing by each Administrator. In the event that no such
delegation is made by the CEO, the Administrators may allocate the
responsibilities among themselves, in which event the Administrators shall
notify the CEO and the Trustee in writing of such action and specify the
responsibilities of each Administrator. The Trustee thereafter shall accept
and rely upon any documents executed by the appropriate Administrator until
such time as the CEO or the Administrators file with the Trustee a written
revocation of such designation.
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2.3 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power to determine all
questions arising in connection with the administration, interpretation, and
application of the Plan. Any such determination by the Administrator shall be
conclusive and binding upon all persons. The Administrator may establish
procedures, correct any defect, supply any information, or reconcile any
inconsistency in such manner and to such extent as shall be deemed necessary or
advisable to carry out the purpose of the Plan; provided, however, that any
procedure, discretionary act, interpretation or construction shall be done in a
nondiscriminatory manner based upon uniform principles consistently applied and
shall be consistent with the intent that the Plan shall continue to be deemed a
qualified plan under the terms of Code Section 401(a), and shall comply with
the terms of the Act and all regulations issued pursuant thereto. The
Administrator shall have all powers necessary or appropriate to accomplish his
duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder;
(b) to compute, certify, and direct the Trustee with
respect to the amount and the kind of benefits to which any
Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to
all disbursements from the Trust;
(d) to maintain all necessary records for the
administration of the Plan;
(e) to interpret the provisions of the Plan and to make
and publish such rules for regulation of the Plan as are consistent
with the terms hereof;
(f) to determine the size and type of any contract to be
purchased from any insurer, and to designate the insurer from which
such contract shall be purchased;
(g) to compute and certify to the Employer from time to
time the sums of money necessary or desirable to be contributed to the
Trust Fund;
(h) to establish a "funding policy and method", i.e., it
shall consult with the Employer, and it shall determine whether the
Plan has a short range need for liquidity (e.g., to pay benefits) or
whether liquidity is a long range goal and investment growth (and
stability of same) is a more current need, or shall appoint a
qualified person to do so. Such "funding
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policy and method" shall be consistent with the objectives of this
Plan and with the requirements of Title I of the Act;
(i) to establish and communicate to Participants a
procedure and method to insure that each Participant will vote Company
Stock allocated to such Participant's Company Stock Account pursuant
to Section 8.2; and
(j) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.4 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying
all information and reports to the Internal Revenue Service, Department of
Labor, Participants, Beneficiaries and others as required by law.
2.5 AUDIT
(a) If an audit of the Plan's records shall be required
by the Act and the regulations thereunder for any Plan Year, the
Administrator shall appoint an independent qualified public accountant
for that purpose. Such accountant shall, after an audit of the books
and records of the Plan in accordance with generally accepted auditing
standards, within a reasonable period after the close of the Plan
Year, furnish to the Administrator and the Trustee a report of his
audit setting forth his opinion as to whether each of the following
statements, schedules or lists, or any others that are required by
Section 103 of the Act or the Secretary of Labor to be filed with the
Plan's annual report, are presented fairly and in conformity with
generally accepted accounting principles applied consistently:
(1) statement of the assets and liabilities of
the Plan;
(2) statement of changes in net assets
available to the Plan;
(3) statement of receipts and disbursements, a
schedule of all assets held for investment purposes, a
schedule of all loans or fixed income obligations in default
at the close of the Plan Year;
(4) a list of all leases in default or
uncollectible during the Plan Year;
(5) the most recent annual statement of assets
and liabilities of any bank common or collective trust fund in
which Plan assets are invested or such information regarding
separate accounts or trusts with a bank or insurance company
as the Administrator deems necessary; and
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(6) a schedule of each transaction or series of
transactions involving an amount in excess of 5% of Plan
assets.
All auditing and accounting fees shall be an expense of and
may, at the election of the Administrator, be paid from the Trust
Fund.
(b) If some or all of the information necessary to enable
the Administrator to comply with Section 103 of the Act is maintained
by a bank, insurance company, or similar institution, regulated and
supervised and subject to periodic examination by a state or federal
agency, it shall transmit and certify the accuracy of that information
to the Administrator as provided in Section 103(b) of the Act within
120 days after the end of the Plan Year or such other date as may be
prescribed under regulations of the Secretary of Labor.
2.6 APPOINTMENT OF ADVISORS
The Administrator may appoint counsel, specialists, advisors, and
other persons as the Administrator deems necessary or desirable in connection
with the administration of this Plan.
2.7 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require;
and the Administrator shall advise the Trustee of such of the foregoing facts
as may be pertinent to the Trustee's duties under the Plan. The Administrator
may rely upon such information as is supplied by the Employer and shall have no
duty or responsibility to verify such information.
2.8 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless voluntarily paid by the Employer. Such expenses shall include any
expenses incident to the functioning of the Administrator, including, but not
limited to, fees of accountants, counsel, the Trustee and other specialists and
their agents, and other costs of administering the Plan and/or the Trust.
Until paid, the expenses shall constitute a liability of the Trust Fund.
However, the Employer may reimburse the Trust Fund for any administration
expense incurred. Any administration expense paid to the Trust Fund as a
reimbursement shall not be considered an Employer contribution.
2.9 ACTIONS BY ADMINISTRATOR
The Administrator shall hold meetings upon such notice and at such
time and places as it may from time to time determine. Notice to a member
shall not be required if waived in writing by that member. A majority of the
members of the Administrator duly appointed shall constitute a quorum
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for the transaction of business. All resolutions or other actions taken by the
Administrator at any meeting where a quorum is present shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions
may be adopted or other action taken without a meeting upon written consent
signed by all of the Administrators.
2.10 CLAIMS PROCEDURE
Claims for benefits under the Plan must be filed with the
Administrator in writing. Written notice of the disposition of a claim shall
be furnished to the claimant within 90 days after the application is filed. In
the event the claim is denied, the reasons for the denial shall be specifically
set forth in the notice in language calculated to be understood by the
claimant, pertinent provisions of the Plan shall be cited, and, where
appropriate, an explanation as to how the claimant can perfect the claim will
be provided. In addition, the claimant shall be furnished with an explanation
of the Plan's claims review procedure.
2.11 CLAIMS REVIEW PROCEDURE
Any Employee, Former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.10
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained
from the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.10. The
Administrator shall then conduct a hearing within the next 60 days, at which
the claimant may be represented by an attorney or any other representative of
his choosing and at which the claimant shall have an opportunity to submit
written and oral evidence and arguments in support of his claim. At the
hearing (or prior thereto upon 5 business days written notice to the
Administrator) the claimant or his representative shall have an opportunity to
review all documents in the possession of the Administrator which are pertinent
to the claim at issue and its disallowance. Either the claimant or the
Administrator may cause a court reporter to attend the hearing and record the
proceedings. In such event, a complete written transcript of the proceedings
shall be furnished to both parties by the court reporter. The full expense of
any such court reporter and such transcripts shall be borne by the party
causing the court reporter to attend the hearing. A final decision as to the
allowance of the claim shall be made by the Administrator within 60 days of
receipt of the appeal (unless there has been an extension of 60 days due to
special circumstances, provided the delay and the special circumstances
occasioning it are communicated to the claimant within the 60 day period).
Such communication shall be written in a manner calculated to be understood by
the claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based.
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ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Each Employee who is an Eligible Employee on the Effective Date shall
automatically participate in the Plan commencing on the Effective Date. All
other Employees shall automatically become Participants as of the date they
become an Eligible Employee.
3.2 EFFECT OF PARTICIPATION UPON THE ACCEPTANCE OF ANY BENEFITS
UNDER THIS PLAN
An Eligible Employee shall automatically be bound by the terms and
conditions of the Plan and all amendments hereto.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer.
Such determination shall be conclusive and binding upon all persons, as long as
the same is made pursuant to the Plan and the Act. Such determination shall be
subject to review as provided for in Section 2.8 and 2.9.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an
Eligible Employee to a noneligible Employee, such Former Participant shall
continue to vest in his interest in the Plan for each Year of Service completed
while a noneligible Employee, until such time as his Participant's Account
shall be forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in the
earnings/losses of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission
is not made until after a contribution by his Employer for the year has been
made, the Employer shall make a subsequent contribution with respect to the
omitted Employee in the amount which the Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any
taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as
a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a
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contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction is allowable with respect to such contribution.
In such event, the amount contributed with respect to the ineligible person
shall constitute a Forfeiture for the Plan Year in which the discovery is made.
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ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 EMPLOYER'S CONTRIBUTION
(a) Subject to paragraph (b) below and Section 4.4, each
Plan Year the Employer shall contribute to the Plan such amount, if
any, as the Board, in its sole discretion, may authorize for that Plan
Year.
(b) The Employer Contribution for any Plan Year shall not
exceed the maximum amount allowable as a deduction to the Employer
under the provisions of Code Section 404; provided however, to the
extent necessary to provide the top heavy minimum allocations, the
Employer shall make a contribution even if it exceeds the amount which
is deductible under Code Section 404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
Employer Contributions will be paid in cash and/or in Company Stock as
the Company's Board of Directors or its delegatees may from time to time
determine. Company Stock will be valued at its then fair market value. The
Employer Contribution with respect to a Plan Year will be paid to the Plan in
all events on or before the date required to make such contribution a deduction
on the Employer's federal income tax return for the year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the Administrator
shall credit as of each Valuation Date all amounts allocated to each
such Participant as set forth herein. However, the Administrator may
separately account for that portion of each Participant's Account
attributable to Top Heavy Plan Years.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper allocation
of the Employer Contribution for each Plan Year. As soon as
reasonably practicable after the date of receipt by the Administrator
for such information, the Administrator shall allocate the Employer
Contribution to each eligible Participant (as provided below) in the
ratio that such Participant's Compensation for such year bears to the
aggregate Compensation of all Participants entitled to share in the
Employer Contribution for such year.
A Participant who is not an Employee on the last day of the
Plan Year shall not be eligible to share in the Employer Contribution
for that year, unless otherwise required pursuant to the "top heavy"
rules of Section 4.3(h).
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(c) Stock dividends on Company Stock held in a
Participant's Company Stock Account shall be credited to his Company
Stock Account when paid. Cash dividends on Company Stock held in his
Company Stock Account may, in the sole discretion of the
Administrator, be credited to his Participants Other Investments
Account, reinvested in Company Stock or distributed to the
Participant.
Company Stock received by the Trust during a Plan Year with
respect to a contribution by the Employer for the preceding Plan Year
shall be allocated to the accounts of Participants as of the
Anniversary Date of such preceding Plan Year.
(d) As of each Valuation Date, before allocation of
Employer Contributions for such Plan Year, any earnings or losses (net
appreciation or net depreciation) of the Trust Fund shall be allocated
in the same proportion that each Participant's and Former
Participant's Other Investment Accounts (other than each Participant's
Company Stock Account) bear to the total of all Participants' and
Former Participants' Other Investment Accounts (other than
Participants' Company Stock Accounts) as of such date. Earnings or
losses include the increase (or decrease) in the fair market value of
assets of the Trust Fund (other than Company Stock in the
Participants' Company Stock Accounts) since the preceding Valuation
Date.
(e) The Administrator shall establish accounting
procedures for the purpose of making the allocations, valuations and
adjustments to Participants' Accounts provided for in this Section.
Should the Administrator determine that the strict application of its
accounting procedures shall not result in an equitable and
nondiscriminatory allocation among the Participants' Accounts, it may
modify its procedures for the purpose of achieving an equitable and
nondiscriminatory allocation in accordance with the general concepts
of the Plan and the provisions of this Section, provided, however,
that such adjustments to achieve equity shall not reduce the Vested
portion of a Participant's Account.
(f) Separate accounts shall be maintained for all
Participants. Such separate accounts shall not require a segregation
of the Plan assets and no Participant shall acquire any right to or
interest in any specific asset of the Trust as a result of the
allocations provided for in the Plan.
(g) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of Former
Participants, if any. The remaining Forfeitures, if any, shall be
applied as an Employer Contribution for such year and shall reduce the
amount of Employer Contribution, if any, otherwise authorized for such
year.
(h) Minimum Allocations Required for Top Heavy Plan
Years: Notwithstanding the foregoing, for any Top Heavy Plan Year,
the sum of the Employer Contributions and Forfeitures allocated to the
Participant's Account for each Non-Key Employee shall be equal
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to at least 3% of such Non-Key Employee's "415 Compensation" (reduced
by contributions and forfeitures, if any, allocated to each Non-Key
Employee in any defined contribution plan included with this plan in a
Required Aggregation Group). However, if (i) the sum of the Employer
Contributions and Forfeitures allocated to the Participant's Account
of each Key Employee for such Top Heavy Plan Year is less than 3% of
each Key Employee's "415 Compensation" and (ii) this Plan is not
required to be included in an Aggregation Group to enable a defined
benefit plan to meet the requirements of Code Sections 401(a)(4) or
410, the sum of the Employer Contributions and Forfeitures allocated
to the Participant's Account of each Non-Key Employee shall be equal
to the largest percentage allocated to the Participant's Account of
any Key Employee.
Except, however, no such minimum allocation shall be required
in this Plan for any Non-Key Employee who participates in another
defined contribution plan subject to Code Section 412 providing such
benefits included with this Plan in a Required Aggregation Group.
(i) For purposes of the minimum allocations set forth
above the percentage allocated to the Participant's Account of any Key
Employee shall be equal to the ratio of the sum of the Employer
Contributions allocated on behalf of such Key Employee divided by the
"415 Compensation" for such Key Employee.
(j) For any Top Heavy Plan Year, the minimum allocations
set forth above shall be allocated to the Participant's Account of all
Non-Key Employees who are Participants and who are employed by the
Employer on the last day of the Plan Year, including Non-Key Employees
who have (1) failed to complete a Year of Service; (2) declined to
make mandatory contributions (if required) or elective deferrals to
the Plan; and (3) been excluded from participation because of their
level of Compensation.
(k) In lieu of the above, in any Plan Year in which a
Non-Key Employee is a Participant in both this Plan and a defined
benefit pension plan included in a Required Aggregation Group which is
top heavy, the Employer shall not be required to provide such Non-Key
Employee with both the full separate defined benefit plan minimum
benefit and the full separate defined contribution plan minimum
allocation.
Therefore, for any Plan Year when the Plan is a Top Heavy
Plan, Non-Key Employees who are participating in this Plan and a
defined benefit plan maintained by the Employer shall receive a
minimum monthly accrued benefit in the defined benefit plan equal to
the product of (1) 1/12th of "415 Compensation" averaged over a five
consecutive "limitation years" (or actual "limitation years" if less)
which produce the highest average and (2) the lesser of (i) 2%
multiplied by Years of Service when the plan is top heavy or (ii) 20%.
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(l) For the purposes of this Section, "415 Compensation"
shall be as defined in Section 4.4(e), and shall be limited to
$150,000 in all Plan Years (unless adjusted in such manner as
permitted under Code Section 401(a)(17).
(m) If a Former Participant is reemployed after five
consecutive 1-Year Breaks in Service, then separate accounts shall be
maintained as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service; and
(2) one account representing his status in the
Plan attributable to post-break service.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any "limitation
year" shall equal the lesser of: (1) $30,000 (or, if greater,
one-fourth of the dollar limitation in effect under Code Section
415(b)(1)(A)) or (2) 25% of the Participant's "415 Compensation" for
such "limitation year".
(b) For purposes of applying the limitations of Code
Section 415, "annual additions" means the sum credited to a
Participant's accounts for any "limitation year" of (1) Employer
Contributions, (2) Employee contributions, (3) Forfeitures, (4)
amounts allocated, after March 31, 1984, to an individual medical
account, as defined in Code Section 415(l)(2) which is part of a
pension or annuity plan maintained by the Employer and (5) amounts
derived from contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate account of
a key employee (as defined in Code Section 419A(d)(3)) under a welfare
benefit plan (as defined in Code Section 419(e)) maintained by the
Employer. Except, however, the "415 Compensation" percentage
limitation referred to in paragraph (a)(2) above shall not apply to:
(1) any contribution for medical benefits (within the meaning of Code
Section 419A(f)(2)) after separation from service which is otherwise
treated as an "annual addition", or (2) any amount otherwise treated
as an "annual addition" under Code Section 415(l)(1).
(c) For purposes of applying the limitations of Code
Section 415, the transfer of funds from one qualified plan to another
is not an "annual addition." In addition, the following are not
Employee contributions for the purposes of Section 4.4(b)(2): (1)
rollover contributions (as defined in Code Sections 402(a)(5),
403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a
Participant from the Plan; (3) repayments of distributions received by
an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4)
repayments of distributions received by an Employee pursuant to Code
Section 411(a)(3)(D) (mandatory
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contributions); and (5) Employee contributions to a simplified
employee pension excludable from gross income under Code Section
408(k)(6).
(d) If no more than one-third of the Employer
Contributions to this Plan for a Plan Year which are deductible under
Code Section 404(a)(9) are allocated to Highly Compensated Employees,
the limitations of paragraph (a) shall not apply to:
(1) Forfeitures of Company Stock which were
acquired with the proceeds of an Exempt Loan, or
(2) Employer Contributions to this Plan which are
deductible under Code Section 404(a)(9)(B) and charged against
the Participant's accounts.
(e) For purposes of applying the limitations of Code
Section 415, "415 Compensation" shall include the Participant's wages,
salaries, fees for professional services, and other amounts received
for personal services actually rendered in the course of employment
with an Employer maintaining the Plan (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, and reimbursements or other expense
allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Plan Year.
"415 Compensation" shall exclude (1)(A) contributions made by
the Employer to a plan of deferred compensation to the extent that,
before the application of the Code Section 415 limitations to the
Plan, the contributions are not includable in the gross income of the
Employee for the taxable year in which contributed, (B) Employer
contributions made on behalf of an Employee to a simplified employee
pension plan described in Code Section 408(k) to the extent such
contributions are excludable from the Employee's gross income, (C) any
distributions from a plan of deferred compensation; (2) amounts
realized from the exercise of a non-qualified stock option or when
restricted stock (or property) held by an Employee either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture; (3) amounts realized from the sale, exchange, or other
disposition of stock acquired under a qualified stock option; and (4)
other amounts that receive special tax benefits, such as premiums for
group term life insurance (but only to the extent that the premiums
are not includable in the gross income of the Employee), or
contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of any annuity contract
described in Code Section 403(b) (whether or not the contributions are
excludable from the gross income of the Employee). "415 Compensation"
shall be limited to $150,000 (unless adjusted in the same manner as
permitted under Code Section 415(d)).
(f) For purposes of applying the limitations of Code
Section 415, the "limitation year" shall be the Plan Year.
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(g) The dollar limitation under Code Section 415(b)(1)(A)
stated in paragraph (a)(1) above shall be adjusted annually as
provided in Code Section 415(d) pursuant to the Regulations. The
adjusted limitation is effective as of January 1st of each calendar
year and is applicable to "limitation years" ending with or within
that calendar year.
(h) For the purpose of this Section, all qualified
defined benefit plans (whether terminated or not) ever maintained by
the Employer shall be treated as one defined benefit plan, and all
qualified defined contribution plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined
contribution plan.
(i) For the purpose of this Section, if the Employer is a
member of a controlled group of corporations, trades or businesses
under common control (as defined by Code Section 1563(a) or Code
Section 414(b) and (c) as modified by Code Section 415(h)), is a
member of an affiliated service group (as defined by Code Section
414(m)), or is a member of a group of entities required to be
aggregated pursuant to Regulations under Code Section 414(o), all
Employees of such Employers shall be considered to be employed by a
single Employer.
(j) For the purpose of this Section, if this Plan is a
Code Section 413(c) plan, all Employers of a Participant who maintain
this Plan will be considered to be a single Employer.
(k) (1) If a Participant participates in more than
one defined contribution plan maintained by the Employer which
have different Anniversary Dates, the maximum "annual
additions" under this Plan shall equal the maximum "annual
additions" for the "limitation year" minus any "annual
additions" previously credited to such Participant's accounts
under the other plan during the "limitation year."
(2) If a Participant participates in both a
defined contribution plan subject to Code Section 412 and a
defined contribution plan not subject to Code Section 412
maintained by the Employer which have the same Anniversary
Date, "annual additions" will be credited to the Participant's
accounts under the defined contribution plan subject to Code
Section 412 prior to crediting "annual additions" to the
Participant's accounts under the defined contribution plan not
subject to Code Section 412.
(3) If a Participant participates in more than
one defined contribution plan not subject to Code Section 412
maintained by the Employer which have the same Anniversary
Date, the maximum "annual additions" under this Plan shall
equal the product of (A) the maximum "annual additions" for
the "limitation year" minus any "annual additions" previously
credited under subparagraphs (1) or (2) above, multiplied by
(B) a fraction (i) the numerator of which is the "annual
additions" which would be credited to such Participant's
accounts under this Plan without
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regard to the limitations of Code Section 415 and (ii) the
denominator of which is such "annual additions" for all plans
described in this subparagraph.
(l) If an Employee is (or has been) a Participant in one
or more defined benefit plans and one or more defined contribution
plans maintained by the Employer, the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any
"limitation year" may not exceed 1.0.
(m) The defined benefit plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the
Participant's projected annual benefits under all the defined benefit
plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar
limitation determined for the "limitation year" under Code Sections
415(b) and (d) or 140 percent of the highest average compensation,
including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more defined benefit
plans maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last "limitation year"
beginning before January 1, 1987, disregarding any changes in the
terms and conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans individually and in
the aggregate satisfied the requirements of Code Section 415 for all
"limitation years" beginning before January 1, 1987.
(n) The defined contribution plan fraction for any
"limitation year" is a fraction, the numerator of which is the sum of
the annual additions to the Participant's Account under all the
defined contribution plans (whether or not terminated) maintained by
the Employer for the current and all prior "limitation years"
(including the annual additions attributable to the Participant's
nondeductible Employee contributions to all defined benefit plans,
whether or not terminated, maintained by the Employer, and the annual
additions attributable to all welfare benefit funds, as defined in
Code Section 419(e), and individual medical accounts, as defined in
Code Section 415(l)(2), maintained by the Employer), and the
denominator of which is the sum of the maximum aggregate amounts for
the current and all prior "limitation years" of service with the
Employer (regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in any
"limitation year" is the lesser of 125 percent of the dollar
limitation determined under Code Sections 415(b) and (d) in effect
under Code Section 415(c)(1)(A) or 35 percent of the Participant's
Compensation for such year.
If the Employee was a Participant as of the end of the first
day of the first "limitation year" beginning after December 31, 1986,
in one or more defined contribution plans maintained by the Employer
which were in existence on May 6, 1986, the numerator of this
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fraction will be adjusted if the sum of this fraction and the defined
benefit fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0 times (2) the denominator
of this fraction, will be permanently subtracted from the numerator of
this fraction. The adjustment is calculated using the fractions as
they would be computed as of the end of the last "limitation year"
beginning before January 1, 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 5, 1986, but using the
Code Section 415 limitation applicable to the first "limitation year"
beginning on or after January 1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not be
recomputed to treat all Employee contributions as annual additions.
(o) Notwithstanding the foregoing, for any "limitation
year" in which the Plan is a Top Heavy Plan, 100 percent shall be
substituted for 125 percent in paragraph (l) and (m) unless the extra
minimum allocation is being provided pursuant to Section 4.3(i).
However, for any "limitation year" in which the Plan is a Super Top
Heavy Plan, 100 percent shall be substituted for 125 percent in any
event.
(p) If the sum of the defined benefit plan fraction and
the defined contribution plan fraction shall exceed 1.0 in any
"limitation year" for any Participant in this Plan, the Administrator
shall limit, to the extent necessary, the "annual additions" to such
Participant's accounts for such "limitation year." If, after limiting
the "annual additions" to such Participant's accounts for the
"limitation year,"the sum of the defined benefit plan fraction and the
defined contribution plan fraction still exceed 1.0, the Administrator
shall then adjust the numerator of the defined benefit plan fraction
so that the sum of both fractions shall not exceed 1.0 in any
"limitation year" for such Participant.
(q) Notwithstanding anything contained in this Section to
the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the
provisions of Code Section 415 and the Regulations thereunder, the
terms of which are specifically incorporated herein by reference and
which to the extent they may not be applied in more than one manner
shall control over any provision in this Plan.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation or other
facts and circumstances to which Regulation 1.415-6(b)(6) shall be
applicable, the "annual additions" under this Plan would cause the
maximum "annual additions" to be exceeded for any Participant, the
Administrator shall (1) hold any "excess amount" remaining after the
return of any voluntary Employee contributions in a "Section 415
suspense account" (2) allocate and reallocate the "Section 415
suspense account" in the next "limitation year" (and succeeding
"limitation years" if necessary) to all Participants in the Plan
before any Employer or Employee contributions which would constitute
"annual additions" are made to the Plan for such
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"limitation year" or (3) reduce Employer Contributions to the Plan for
such "limitation year" by the amount of the "Section 415 suspense
account" allocated and reallocated during such "limitation year".
Notwithstanding the foregoing, if the Company maintains another
defined contribution plan, the annual addition excess amount shall be
"cured" under such other plan first.
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any, of
(1) the "annual additions" which would be credited to his account
under the terms of the Plan without regard to the limitations of Code
Section 415 over (2) the maximum "annual additions" determined
pursuant to Section 415.
(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum of "excess
amounts" for all Participants in the Plan during the "limitation
year". The "Section 415 suspense account" shall not share in any
earnings or losses of the Trust Fund.
(d) The Plan may not distribute "excess amounts" to
Participants or Former Participants.
4.6 DIRECTED DIVERSIFICATION
(a) Each "Qualified Participant" may elect within 90 days
after the close of each Plan Year during the "Qualified Election
Period" to direct the Administrator in writing to transfer in cash
(such election must be accompanied by an appropriate reinvestment
direction) 25 percent of the Participant's Company Stock Account (to
the extent such portion exceeds the amount to which a prior election
under this subparagraph applies) to the Employer's qualified 401(k)
plan, provided that such plan offers at least three investment
options, other than a Company stock fund, that qualify for
diversification purposes under Section 401(a)(28) of the Code. In the
case of the election year in which the Qualified Participant can make
his last election, the preceding sentence shall be applied by
substituting "50 percent" for "25 percent". If the "Qualified
Participant" elects to direct the Administrator to transfer and
reinvest his Company Stock Account, such direction shall be effective
no later than 180 days after the close of the Plan Year to which such
direction applies. In lieu of so directing the Administrator, the
"Qualified Participant" may elect a distribution of the portion of his
Company Stock Account covered by the election within 90 days after the
last day of the period during which the election can be made.
(b) For the purposes of this Section the following
definitions shall apply:
(1) "Qualified Participant" means any Participant
or Former Participant who has completed 10 Years of Service as
a Participant in this Plan and has attained age 55.
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(2) "Qualified Election Period" means the five
Plan Year period beginning with the Plan Year after the Plan
Year in which the Participant attains age 55 (or, if later,
beginning with the Plan Year after the first Plan Year in
which the Participant first became a "Qualified Participant").
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ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY
(a) The Plan is designed to invest primarily in Company
Stock. In that regard, up to 100% of the Plan's asset may be invested
in Company Stock.
(b) With due regard to subparagraph (a) above, the
Administrator may direct the Trustee to invest funds under the Plan in
other property as described in the Trust Agreement or direct the
Trustee to hold such funds in cash or cash equivalents.
(c) The Plan may not obligate itself to acquire Company
Stock from a particular holder thereof at an indefinite time
determined upon the happening of an event such as the death of the
holder.
(d) The Plan may not obligate itself to acquire Company
Stock under a put option binding upon the Plan. However, at the time
a put option is exercised, the Plan may be given an option to assume
the rights and obligations of the Employer under a put option binding
upon the Employer.
(e) All purchases or sales of Company Stock and the price
of such purchases or sales shall be made as the Administrator
instructs the Trustee. All purchases of Company Stock shall be made
at a price which, in the judgment of the Administrator, does not
exceed the fair market value thereof. All sales of Company Stock
shall be made at a price which, in the judgment of the Administrator,
is not less than the fair market value thereof. The valuation rules
set forth in Article VI shall be applicable.
5.2 APPLICATION OF CASH
Employer Contributions received by the Trust Fund in cash may be
applied to purchase Company Stock in the open market or from the Company or any
other person, in the Trustee's discretion.
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ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Valuation Date
to determine the net worth of the assets comprising the Trust Fund as it exists
on the Valuation Date prior to taking into consideration any contribution to be
allocated for that Plan Year. In determining such net worth, the Trustee shall
value the assets comprising the Trust Fund at their fair market value as of the
Valuation Date and shall deduct all expenses for which the Trustee has not yet
obtained reimbursement from the Employer or the Trust Fund.
6.2 METHOD OF VALUATION
Valuations must be made in good faith and based on all relevant
factors for determining the fair market value of securities. In the case of a
transaction between a Plan and a disqualified person, value must be determined
as of the date of the transaction. For all other Plan purposes, value must be
determined as of the most recent Valuation Date under the Plan. Company Stock
not readily tradeable on an established securities market shall be valued by an
independent appraiser appointed by the Administrator meeting requirements
similar to the requirements of the Regulations prescribed under Code Section
170(a)(1).
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ARTICLE VII
VESTING DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 BENEFITS UPON RETIREMENT
A Participant who terminates his employment due to his Retirement
shall be entitled to (100% vested in) the entire balance of his Participant's
Accounts, payment of which shall be made as provided in Section 7.5.
7.2 BENEFITS UPON DEATH
(a) Upon the death of a Participant before termination of
his employment, the Participant's Beneficiary shall be entitled to
(100% vested in) the entire balance of the Participant's Accounts.
(b) The Administrator may require such proper proof of
death and such evidence of the right of any person to receive payment
of the value of the account of a deceased Participant as the
Administrator may deem desirable. The Administrator's determination
of death and of the right of any person to receive payment shall be
conclusive.
(c) The Beneficiary of the death benefit payable pursuant
to this Section shall be the Participant's spouse; provided, however,
the Participant may designate a Beneficiary other than his spouse only
if:
(1) the spouse has waived her right to be the
Participant's Beneficiary, or
(2) the Participant has no spouse, or
(3) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a
form provided by the Administrator. A Participant may at any time
revoke his designation of a Beneficiary or change his Beneficiary by
filing written notice of such revocation or change with the
Administrator. However, the Participant's spouse must again consent
in writing to any such change or revocation unless the original
consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily elected
to relinquish such right. In the event no valid designation of
Beneficiary exists at the time of the Participant's death, the death
benefit shall be payable to his estate. In the event of a divorce,
such divorce shall automatically rescind any designation of such
former spouse as the Participant's Beneficiary under the Plan except
to the extent provided otherwise in a qualified domestic relations
order.
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(d) Any consent by the Participant's spouse to waive any
rights to the death benefit must be in writing, must acknowledge the
effect of such waiver, and be witnessed by a Plan representative or a
notary public. Further, the spouse's consent must be irrevocable and
must acknowledge the specific nonspouse Beneficiary.
7.3 BENEFITS UPON DISABILITY
In the event a Participant's employment is terminated due to a Total
and Permanent Disability, such Participant shall be entitled to (100% vested
in) the entire balance of his Participant's Accounts, payment of which shall be
made as provided in Section 7.5.
7.4 BENEFITS UPON OTHER TERMINATION
(a) Each Participant whose employment is terminated for
any reason other than Total and Permanent Disability, Retirement, or
death shall be entitled to his Vested interest in the balance of his
Participant's Accounts, payment of which shall be made as provided in
Section 7.5.
(b) For purposes of this Section, a Participant's Vested
interest in Participant's Accounts shall be determined by such
Participant's Years of Service (for Vesting purposes) in accordance
with the following schedule:
Years of Service Vested Interest
---------------- ---------------
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years or more 100%
(c) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as the
result of any direct or indirect amendment to this Article. In the
event that the Plan is amended to change or modify any vesting
schedule, a Participant with a least three Years of Service as of the
expiration date of the election period may elect to have his
nonforfeitable percentage computed under the Plan without regard to
such amendment. If a Participant fails to make such election, then
such Participant shall be subject to the new vesting schedule. The
Participant's election period shall commence on the adoption date of
the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
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(3) the date the Participant receives written
notice of the amendment from the Employer or Administrator.
(d) Paragraph (b) above not withstanding, a Participant
shall have a 100% Vested interest in his Participant's Accounts upon
attainment of his Normal Retirement Age as an Employee.
(e) (1) If any Former Participant shall be reemployed
by the Employer before a 1-Year Break in Service occurs, he
shall continue to participate in the Plan in the same manner
as if such termination had not occurred.
(2) If any Former Participant shall be reemployed
by the Employer before five consecutive 1-Year Breaks in
Service, and such Former Participant had received a
distribution of his entire Vested interest prior to his
reemployment, his forfeited account shall be reinstated only
if he repays the full amount distributed to him before the
earlier of five years after the first date on which the
Participant is subsequently reemployed by the Employer or the
close of the first period of five consecutive 1-Year Breaks in
Service commencing after the distribution. In the event the
Former Participant does repay the full amount distributed to
him, the forfeited portion of the Participant's Account must
be restored in full, unadjusted by any gains or losses
occurring subsequent to the Anniversary Date or other
Valuation Date preceding his termination. A Forfeiture shall
occur on the date the Participant receives full distribution
of his Vested interest.
(3) If any Former Participant is reemployed after
a 1-Year Break in Service has occurred, Years of Service shall
include Years of Service prior to his 1-Year Break in Service
subject to the following rules:
(i) If a Former Participant has a 1-Year
Break in Service, his pre-break and post-break
service shall be used for computing Years of Service
for eligibility and for vesting purposes only after
he has been employed for one Year of Service
following the date of his reemployment with the
Employer;
(ii) Any Former Participant who under the
Plan does not have a nonforfeitable right to any
interest in the Plan resulting from Employer
Contributions shall lose credits otherwise allowable
under (i) above if his consecutive 1-Year Breaks in
Service equal or exceed the greater of (A) five or
(B) the aggregate number of his pre-break Years of
Service;
(iii) After five consecutive 1-Year Breaks
in Service, a Former Participant's Vested account
balance attributable to pre-break service shall not
be increased as a result of post-break service;
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(iv) If a Former Participant who has not
had his Years of Service before a 1-Year Break in
Service disregarded pursuant to (ii) above completes
one Year of Service for eligibility purposes
following his reemployment with the Employer, he
shall participate in the Plan retroactively from his
date of reemployment;
(v) If a Former Participant who has not
had his Years of Service before a 1-Year Break in
Service disregarded pursuant to (ii) above completes
one Year of Service for eligibility purposes
following his reemployment with the Employer (a
1-Year Break in Service previously occurred, but
employment had not terminated), he shall participate
in the Plan retroactively from his reemployment
commencement date.
7.5 DISTRIBUTION OF BENEFITS
(a) Subject to the further provisions of this Section
7.5, payment of a Participant's or Beneficiary's benefit hereunder
shall be made or begin as soon as administratively feasible after the
Participant's termination of employment with the Affiliated Employers
or death and shall be valued as of the actual date of distribution.
(b) If elected by the Participant (or his Beneficiary),
the Administrator shall direct the Trustee to distribute to the
Participant (or his Beneficiary) any amount to which he is entitled
under the Plan in one lump-sum payment. If no election is made,
payment shall be made as provided in paragraph (c) below.
(c) Subject to Sections 7.5(b) and (d), this Plan shall
distribute to a Participant (or his Beneficiary) his Vested account in
substantially equal (with respect to the Company Stock Account, in
terms of number of shares of Company Stock) annual installments over a
five year period. In the case of a Participant with an account
balance in the Plan in excess of $500,000, the five year period shall
be extended one additional year (but not more than five additional
years) for each $100,000 or fraction thereof by which such balance
exceeds $500,000. The dollar limits shall be adjusted at the same
time and in the same manner as provided in Code Section 415(d).
Distribution of the Participant's Account shall be made or begin,
subject to the consent requirement to paragraph (d) below if
applicable, not later than one year after the close of the Plan Year
(i) in which the Participant separates from service on account of
retirement on or after his Normal Retirement Age, Total and Permanent
Disability or death, or (ii) which is the fifth Plan Year following
the Plan Year in which the Participant otherwise separates from
service.
(d) Any distribution to a Participant who has a Vested
benefit which exceeds, or at the time of any prior distribution
exceeded, $3,500 shall require such Participant's consent if such
distribution commences prior to his Normal Retirement Age. With
regard to this required consent:
VII-4
<PAGE>
(1) The Participant must be informed of his right
to defer receipt of the distribution until his Normal
Retirement Age. If a Participant fails to consent, it shall
be deemed an election to defer the commencement of payment of
any benefit until his Normal Retirement Age. However, any
election to defer the receipt of benefits shall not apply with
respect to distributions which are required under Section
7.5(h).
(2) Subject to Section 7.13, notice of the rights
specified under this paragraph shall be provided no less than
30 days and no more than 90 days before the first day on which
all events have occurred which entitle the Participant to such
benefit.
(3) Written consent of the Participant to the
distribution must not be made before the Participant receives
the notice and must not be made more than 90 days before the
first day on which all events have occurred which entitle the
Participant to such benefit.
(4) No consent shall be valid if a significant
detriment is imposed under the Plan on any Participant who
does not consent to the distribution.
If, at the Valuation Date of a Participant's termination, the
value of a Participant's Vested benefit does not exceed $3,500 and has
never exceeded $3,500 at the time of any prior distribution, the
Administrator shall direct the Trustee to cause the entire Vested
benefit to be immediately paid to such Participant in a lump sum
without regard to the Participant's election.
(e) Notwithstanding anything herein to the contrary, cash
dividends on shares of Company Stock allocated to Participants'
Accounts and not reinvested in Company Stock may be paid to
Participants or their Beneficiaries, as determined in the sole
discretion of the Administrator, within 90 days after the close of the
Plan Year in which the dividend is paid.
(f) Except as limited by Sections 7.5 and 7.6, whenever
the Trustee is to make a distribution or to commence a series of
payments on a Valuation Date, the distribution or series of payments
may be made or begun on such date or as soon thereafter as is
practicable, but in no event later than 180 days after the Anniversary
Date for the Plan Year in which such Valuation Date falls. Except,
however, the payment of benefits shall begin not later than the 60th
day after the close of the Plan Year in which the latest of the
following events occurs:
(1) the date on which the Participant attains the
Normal Retirement Age specified herein,
(2) the 10th anniversary of the year in which the
Participant commenced participation in the Plan, or
VII-5
<PAGE>
(3) the date the Participant terminates his
service with the Employer.
(g) Any part of a Participant's benefit which is retained
in the Plan after the Valuation Date on which his participation ends
will continue to be treated as a Company Stock Account or as an Other
Investments Account as provided in Article IV. However, neither
account will be credited with any further Employer Contributions or
Forfeitures.
(h) Notwithstanding any provision in the Plan to the
contrary, the distribution of a Participant's benefits shall be made
in accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations thereunder
(including Regulation Section 1.401(a)(9)-(2), the provisions of which
are incorporated herein by reference:
(1) A Participant's benefits shall be distributed
to him not later than April 1st of the calendar year following
the later of (i) the calendar year in which the Participant
attains age 70 1/2 or (ii) the calendar year in which the
Participant retires, provided, however, that this clause (ii)
shall not apply in the case of a Participant who is a "five
percent owner" at any time during the five Plan Year period
ending in the calendar year in which he attains age 70 1/2 or,
in the case of a Participant who becomes a "five percent
owner" during any subsequent Plan Year, clause (ii) shall no
longer apply and the required beginning date shall be the
April 1st of the calendar year following the calendar year in
which such subsequent Plan Year ends. Alternatively,
distributions to a Participant must begin no later than the
applicable April 1st as determined under the preceding
sentence and must be made over a period certain measured by
the life expectancy of the Participant (or the life
expectancies of the Participant and his designated
Beneficiary) in accordance with Regulations. Notwithstanding
the foregoing, clause (ii) above shall not apply to any
Participant unless the Participant had attained age 70 1/2
before January 1, 1988 and was not a "five percent owner" at
any time during the Plan Year ending with or within the
calendar year in which the Participant attained age 66 1/2 or
any subsequent Plan Year.
(2) Distributions to a Participant and his
Beneficiaries shall only be made in accordance with the
incidental death benefit requirements of Code Section
401(a)(9)(G) and the Regulations thereunder.
(i) For purposes of this Section, the life expectancy of
a Participant and a Participant's spouse may not be redetermined.
VII-6
<PAGE>
7.6 HOW PLAN BENEFITS WILL BE DISTRIBUTED
(a) Distribution of a Participant's benefit from his
Company Stock Account shall be made in whole shares of Company Stock,
unless the Participant elects to receive such distribution in cash,
with any fractional share paid in cash.
(b) Any balance in a Participant's Other Investments
Account will be distributed solely in cash.
(c) The Trustee will make distribution from the Trust
only on instructions from the Administrator.
(d) Notwithstanding anything contained herein to the
contrary, if the Employer's charter or by-laws restrict ownership of
substantially all shares of Company Stock to Employees and the Trust
Fund, as described in Code Section 409(h)(2), the Administrator, in
his sole discretion, may distribute a Participant's Account entirely
in cash or distribute entirely in Company Stock subject to a
requirement that such Company Stock may be resold to the Employer
pursuant to Section 7.9.
(e) Except as otherwise provided in Section 7.10, Company
Stock distributed by the Trustee may be restricted as to sale or
transfer by the by-laws or articles of incorporation of the Employer,
provided restrictions are applicable to all Company Stock of the same
class. If a Participant is required to offer the sale of his Company
Stock to the Employer before offering to sell his Company Stock to a
third party, in no event may the Employer pay a price less than that
offered to the distributee by another potential buyer making a bona
fide offer and in no event shall the Trustee pay a price less than the
fair market value of the Company Stock.
(f) Except as otherwise provided in this Article, a
Participant is not entitled to any payment, withdrawal or distribution
under the Plan during his participation. If any such partial
distribution is made, the Participant's benefit when computed will be
reduced by the amount of any such advance.
(g) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant shall be made
in accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations thereunder. If
it is determined, pursuant to Regulations, that the distribution of a
Participant's interest has begun and the Participant dies before his
entire interest has been distributed to him, the remaining portion of
such interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to Section 7.5 as of his date
of death. If a Participant dies before he has begun to receive any
distributions of his interest under the Plan or before distributions
are deemed to have begun pursuant to Regulations, then his death
benefit shall
VII-7
<PAGE>
be distributed to his Beneficiaries by December 31st of the calendar
year in which the fifth anniversary of his date of death occurs.
However, in the event that the Participant's spouse
(determined as of the date of the Participant's death) is his
Beneficiary, then in lieu of the preceding rules, distributions must
be made over a period not extending beyond the life expectancy of the
spouse and must commence on or before the later of (1) December 31st
of the calendar year immediately following the calendar year in which
the Participant died; or (2) December 31st of the calendar year in
which the Participant would have attained 70 1/2. If the surviving
spouse dies before distributions to such spouse begin, then the 5-year
distribution requirement of this section shall apply as if the spouse
was the Participant.
(h) For purposes of this Section, the life expectancy of
a Participant and a Participant's spouse may not be redetermined.
7.7 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary, or to the custodian for such
Beneficiary under the Uniform Gift to Minors Act or Gift to Minors act, if such
is permitted by the laws of the state in which said Beneficiary resides. Such
a payment to the legal guardian, custodian or parent of a minor Beneficiary
shall fully discharge the Trustee, Employer, and Plan from further liability on
account thereof.
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to
a Participant or his Beneficiary hereunder shall, at the expiration of five
years after it shall become payable, remain unpaid solely by reason of the
inability of the Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further diligent
effort, to ascertain the whereabouts of such Participant or his Beneficiary,
the amount so distributable shall be treated as a Forfeiture pursuant to the
Plan. In the event a Participant or Beneficiary is located subsequent to his
benefit being reallocated, such benefit shall be restored.
7.9 PUT OPTION
(a) If Company Stock is not readily tradeable on an
established securities market, a Participant has a right to require
the Employer to repurchase the Company Stock distributed to such
Participant under a fair valuation formula. Such Stock shall be
subject to the following provisions of this Section.
(b) Company Stock which is subject to a trading
limitation when distributed, must be subject to a put option. For
purposes of this paragraph, a "trading limitation" on a
VII-8
<PAGE>
Company Stock is a restriction under any Federal or State securities
law or any regulation thereunder, or an agreement affecting the
Company Stock which would make the Company Stock not as freely
tradeable as stock not subject to such restriction.
(c) The put option must be exercisable only by a
Participant, by the Participant's donees, or by a person (including an
estate or its distributee) to whom the Company Stock passes by reason
of a Participant's death. (Under this paragraph, Participant means a
Participant or Former Participant and the Beneficiaries of the
Participant or Former Participant under the Plan.) The put option
must permit a Participant to put the Company Stock to the Employer.
Under no circumstances may the put option bind the Plan. However, it
shall grant the Plan an option to assume the rights and obligations of
the Employer at the time that the put option is exercised. If it is
known at the time a loan is made that Federal or state law will be
violated by the Employer's honoring such put option, the put option
must permit the Company Stock to be put, in a manner consistent with
such law, to a third party (e.g., an affiliate of the Employer or a
shareholder other than the Plan) that has substantial net worth at the
time the loan is made and whose net worth is reasonably expected to
remain substantial.
The put option shall commence as of the day following the date
the Company Stock is distributed to the Former Participant and end 60
days thereafter and if not exercised within such 60-day period, an
additional 60-day option shall commence on the first day of the fifth
month of the Plan Year next following the date the stock was
distributed to the Former Participant (or such other 60-day period as
provided in regulations promulgated by the Secretary of the Treasury).
However, in the case of Company Stock that is publicly traded without
restrictions when distributed but ceases to be so traded within either
of the 60-day periods described herein after distribution, the
Employer must notify each holder of such Company Stock in writing on
or before the tenth day after the date the Company Stock ceases to be
so traded that for the remainder of the applicable 60-day period the
Company Stock is subject to the put option. The number of days
between the tenth day and the date on which notice is actually given,
if later than the tenth day, must be added to the duration of the put
option. The notice must inform distributees of the terms of the put
options that they are to hold. The terms must satisfy the
requirements of this paragraph.
The put option is exercised by the holder notifying the
Employer in writing that the put option is being exercised; the notice
shall state the name and address of the holder and the number of
shares to be sold. The period during which a put option is
exercisable does not include any time when a distributee is unable to
exercise it because the party bound by the put option is prohibited
from honoring it by applicable Federal or state law. The price at
which a put option must be exercisable is the value of the Company
Stock determined in accordance with Section 6.2. Payment under the
put option involving a "Total Distribution" shall be paid in
substantially equal monthly, quarterly, semiannual or annual
installments over a period certain beginning not later than 30 days
after the exercise of the put option and not extending beyond 5 years.
The deferral of payment is reasonable if adequate security and
VII-9
<PAGE>
a reasonable interest rate on the unpaid amounts are provided. The
amount to be paid under the put option involving installment
distributions must be paid not later than 30 days after the exercise
of the put option. Payment under a put option must not be restricted
by the provisions of a loan or any other arrangement, including the
terms of the employer's articles of incorporation, unless so required
by applicable state law.
For purposes of this Section, "Total Distribution" means a
distribution to a Participant or Former Participant within one taxable
year of the entire Vested Participant's Account.
(d) An arrangement involving the Plan that creates a put
option must not provide for the issuance of put options other than as
provided under this Section. The Plan (and the Trust Fund) must not
otherwise obligate itself to acquire Company Stock from a particular
holder thereof at an indefinite time determined upon the happening of
an event such as the death of the holder.
7.10 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a
Participant in this plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order,"even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age"
shall have the meaning set forth under Code Section 414(p).
7.11 PAYMENT OF DISTRIBUTION DIRECTLY TO ELIGIBLE RETIREMENT PLAN
(a) Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a Distributee's election under
this Section, a Distributee may elect, at the time and in the manner
prescribed by the Administrator, to have any portion of an Eligible
Rollover Distribution paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover.
(b) For purposes of this Section the following
definitions shall apply:
(1) "Eligible Rollover Distribution": An Eligible
Rollover Distribution is any distribution of all or any
portion of the balance to the credit of the Distributee,
except that an Eligible Rollover Distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of
the Distributee and the Distributee's designated
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Beneficiary, or for a specified period of ten years or more;
any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) "Eligible Retirement Plan": An Eligible
Retirement Plan is an individual retirement account described
in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity
plan described in Section 403(a) of the Code, or a qualified
trust described in Section 401(a) of the Code, that accepts
the Distributee's Eligible Rollover Distribution. However, in
the case of an Eligible Rollover Distribution to the surviving
spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
(3) "Distributee": A Distributee includes an
Employee or former Employee. In addition, the Employee's or
former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined
in Section 414(p) of the Code, are Distributees with regard to
the interest of the spouse or former spouse.
(4) "Direct Rollover": A Direct Rollover is a
payment by the Plan to the Eligible Retirement Plan specified
by the Distributee.
7.12 30-DAY WAIVER
If a distribution is one to which Sections 401(a)(11) and 417 of the
Code do not apply, such distribution may commence less than 30 days after the
notice required under Section 1.411(a)-11(c) of the Regulations is given,
provided that:
(1) the Plan Administrator clearly informs the
Participant that the Participant has a right to a period of at
least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option), and
(2) the Participant, after receiving the notice,
affirmatively elects a distribution.
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ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) The Trustee may invest up to 100% of the Trust Fund
in Company Stock.
(b) With respect to the Other Investments Account, the
Trustee shall invest such accounts as it determines.
(c) The Trustee shall pay benefits required under the
Plan to be paid to Participants, or, in the event of their death, to
their Beneficiaries.
(d) The Trustee shall maintain records of receipts and
disbursements, and furnish to the Employer and/or Administrator for
each Plan Year a written annual report according to Section 3.2 of
this Trust Agreement.
(e) If there shall be more than one Trustee, they shall
act by a majority of their number, but may authorize one or more of
them to sign papers on their behalf.
8.2 VOTING COMPANY STOCK
Each Participant or Beneficiary shall be entitled to direct the
Trustee as to the manner in which the Company Stock allocated to the Company
Stock Account of such Participant or Beneficiary is to be voted.
The Trustee shall notify each Participant or Beneficiary of each
tender or exchange offer and utilize its best efforts to distribute or cause to
be distributed to such Participant or Beneficiary in a timely manner all
information received by the Trustee as a recordholder of shares of Company
Stock in connection with any such tender or exchange offer. Each Participant
or Beneficiary shall have the right from time to time with respect to the
shares of Company stock allocated to his account, to instruct the Trustee in
writing as to the manner in which to respond to any tender or exchange offer
which shall be pending or which may be made in the future for all shares of
Company Stock or any portion thereof. A Participant's or Beneficiary's
instructions shall remain in force until superseded in writing by the
Participant or Beneficiary. The Trustee shall tender or exchange such shares
of Company Stock as and to the extent so instructed. Unless and until shares
of Company Stock are tendered or exchanged, the individual instructions
received by the Trustee from Participant or Beneficiaries shall be held in
strict confidence by the Trustee and shall not be divulged or released to any
person, including, but not limited to officers or Employees of the Employer, or
of any other Participating Employer; provided, however, that the Trustee shall
advise the Employer, at any time upon request, of the total number of shares
not subject to instructions to tender or exchange. The
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Trustee shall not make recommendations to Participants or Beneficiaries on
whether to instruct the Trustee to tender or exchange.
The Trustee shall not vote, sell, convey or transfer any allocated
shares of Company Stock for which no directions are timely received from
Participants or Beneficiaries pursuant to the immediately preceding paragraph.
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ARTICLE IX
AMENDMENT, TERMINATIONS, AND MERGERS
9.1 AMENDMENT
The Company shall have the right at any time to amend the Plan by
action of its Board of Directors. In addition, the Chief Executive Officer of
the Company shall have the authority to amend the Plan, provided such amendment
does not materially increase the Company's financial obligations hereunder or
are of a ministerial, administrative or technical compliance nature. However,
no such amendment shall authorize or permit any part of the Trust Fund (other
than such part as is required to pay taxes and administration expenses) to be
used for or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; no such amendment shall cause
any reduction in the amount credited to the account of any Participant or cause
or permit any portion of the Trust Fund to revert to or become the property of
the Employer; and no such amendment which affects the rights, duties or
responsibilities of the Trustee and Administrator may be made without the
Trustee's and Administrator's written consent. The Trustee shall not be
required to execute any such amendment unless the Trust provisions contained
herein are as part of the Plan and the amendment affects the duties of the
Trustee hereunder.
For the purposes of this Section, a Plan amendment which has the
effect of (1) eliminating or reducing an early retirement benefit or a
retirement-type subsidy, (2) eliminating an optional form of benefit (as
provided in Regulations) or (3) restricting, directly or indirectly, the
benefit provided to any Participant prior to the amendment shall be treated as
reducing the amount credited to the account of a Participant except that an
amendment described in clause (2) above (other than an amendment having an
effect described in clause (1) above) shall not be treated as reducing the
amount credited to the account of a Participant to the extent so provided in
Regulations. Any Plan amendment which modifies distribution options in a
nondiscriminatory manner shall not be treated as reducing the amount credited
to the account of a Participant.
9.2 TERMINATION
The Board of Directors of the Company shall have the right at any time
to terminate the Plan by delivering to the Trustee and Administrator written
notice of such termination. Upon any termination (full or partial) or complete
discontinuance of contributions, all amounts credited to the affected
Participants' Accounts shall become 100% Vested and shall not thereafter be
subject to forfeiture and all unallocated amounts shall be allocated to the
accounts of all Participants in accordance with the provisions hereof. Upon
such termination of the Plan, the Employer, by written notice to the Trustee
and Administrator, may direct either:
(a) complete distribution of the assets in the Trust Fund
to the Participants in a manner consistent with the requirements of
Sections 7.5 and 7.6; or
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(b) continuation of the Trust created by this agreement
and the distribution of benefits at such time and in such manner as
though the Plan had not been terminated.
9.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or
liabilities maybe transferred to any other Plan and Trust only if the benefits
which would be received by a Participant of this Plan, in the event of a
termination of the Plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation.
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ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the right to be retained in
the service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect
which such discharge shall have upon him as a Participant of this Plan.
10.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit
which shall be payable out of the Trust Fund to any person (including
a Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be void;
and no such benefit shall be in any manner be liable for, or subject
to, the debts, contracts, liabilities, engagements, or torts of any
such person, nor shall it be subject to attachment or legal process
for or against such person, and the same shall not be recognized by
the Trustee, except to such extent as may be required by law.
(b) This provision shall not apply to a "qualified
domestic relations order" defined in Code Section 414(p), and those
other domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order", (i) a
Former spouse of a Participant shall be treated as the spouse or
surviving spouse for all purposes under the Plan and (ii) the Plan may
include distribution prior to the Participant's attainment of his
"earliest retirement age."
10.3 CONSTRUCTION OF PLAN
This Plan shall be construed and enforced according to the Act and the
laws of the State of Delaware, other than its laws respecting choice of law, to
the extent not preempted by the Act.
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or
neuter gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply,
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<PAGE>
and whenever any words are used herein in the singular or plural form, they
shall be construed as though they were also used in the other form in all cases
where they would so apply.
10.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Company for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan or
of the Trust, by termination of either, by power or revocation or
amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any trust fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to, purposes other
than the exclusive benefit of Participants, Retired Participants, or
their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Section 403(c)(2)(A)
of the Act, the Employer may demand repayment of such excessive
contribution at any time within one year following the time of payment
and the Trustees shall return such amount to the Employer within the
one year period. Earnings of the Plan attributable to the excess
contributions may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
10.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount
not less than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary
alone or in connivance with others. The surety shall be a corporate surety
company (as such term is used in Section 412(a)(2) of the Act), and the bond
shall be in a form approved by the Secretary of Labor. Notwithstanding
anything in the Plan to the contrary, the cost of such bonds shall be an
expense of and may, at the election of the Administrator, be paid from the
Trust Fund or by the Employer.
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<PAGE>
10.8 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary,
or to any guardian or committee appointed for such Participant or Beneficiary
in accordance with the provisions of the Plan, shall, to the extent thereof, be
in full satisfaction of all claims hereunder against the Trustee and the
Employer, either of whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition precedent to such payment,
to execute a receipt and release thereof in such form as shall be determined by
the Trustee or Employer.
10.9 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
10.10 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are the Company and the
Administrator. The named Fiduciaries shall have only those specific powers,
duties, responsibilities, and obligations as are specifically given them under
the Plan. In general, the Company shall have the sole responsibility for
making the contributions provided for under Section 4.1; and shall have the
sole authority to appoint and remove the Trustee and the Administrator; to
formulate the Plan's "funding policy and method"; and to amend or terminate, in
whole or in part, the Plan. The Administrator shall have the sole
responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan, including the acquisition, holding and/or
disposition of Company Stock and the entering into any Exempt Loans. The
Administrator shall also have the sole responsibility of management of the
assets of the Other Investments Account held under the Trust, except those
assets in such accounts, the management of which has been assigned to an
Investment Manager, who shall be solely responsible for the management of the
assets assigned to it, all as specifically provided in the Plan.
10.11 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
10.12 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan
receives an adverse determination with respect to its initial
qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the
application for the determination is made by the time prescribed by
law for filing the
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<PAGE>
Employer's return for the taxable year in which the Plan was adopted,
or such later date as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary,
except Sections 3.6 and 4.3(d), any contribution by the Employer to
the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent any
such deduction is disallowed, the Employer may, within one year
following the disallowance of the deduction, demand repayment of such
disallowed contribution and the Trustee shall return such contribution
within one year following the disallowance of the deduction, demand
repayment of such disallowed contribution and the Trustee shall return
such contribution within one year following the disallowance.
Earnings of the Plan attributable to the excess contribution may not
be returned to the Employer, but any losses attributable thereto must
reduce the amount so returned.
10.13 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner.
10.14 SECURITIES AND EXCHANGE COMMISSION APPROVAL
The Company may request an interpretative letter from the Securities
and Exchange Commission stating that the transfer of Company Stock contemplated
hereunder does not involve transactions requiring a registration of such
Company Stock under the Securities Act of 1933. In the event that a favorable
interpretative letter is not obtained, the Employer reserves the right to amend
the Plan and Trust retroactively to their Effective Dates in order to obtain a
favorable interpretative letter or to terminate the Plan.
10.15 INDEMNIFICATION
To the maximum extent permitted by law, neither the Employer, any of
its officers or directors, nor the Administrator shall be personally liable for
any action or inaction with respect to any duty or responsibility imposed upon
such person by the terms of the Plan, unless such action or inaction is
judicially determined to be a breach of that person's fiduciary responsibility
with respect to the Plan under any applicable law. The Employer may indemnify
or purchase insurance to underwrite indemnity for the Administrator and/or the
Employer's board of directors against any personal liability or expense except
for their own gross negligence.
10.16 CONTROLLING LAW
All legal questions pertaining to the Plan, all construction and all
Regulations shall be determined in accordance with the laws of the State of
Delaware and the United States. All contributions shall be deemed to have been
made under such laws. Notwithstanding anything in this
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<PAGE>
Agreement to the contrary, the effective dates provided for herein for the
application of any Code Section to this Plan shall be extended in accordance
with any act of Congress or any effective Regulation, Ruling or other measure
of like import.
X-5
<PAGE>
ARTICLE XI
PARTICIPATING EMPLOYERS
11.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of
the Company and Trustee, any other Affiliated Employer may adopt this Plan and
all of the provisions hereof, and participate herein and be known as a
Participating Employer, by a properly executed document evidencing said intent
and will of such Participating Employer.
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to
use the same Trustee as provided in this Plan.
(b) The Trustee, unless directed otherwise by the
Administrator, shall commingle and hold as one Trust Fund all
contributions made by Participating Employers.
(c) The transfer of any Participant from or to an
Employer participating in this Plan, whether he be an Employee of the
Employer or a Participating Employer, shall not affect such
Participant's rights under the Plan, and all amounts credited to such
Participant's Account as well as his accumulated service time with the
transferor or predecessor, and his length of participation in the
Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of
employment shall inure only to the benefit of the
Employee-Participants of the Participating Employer by which the
forfeiting Participant was employed, except if the Forfeiture is for
an Employee whose Employer is a member of an affiliated or controlled
group, then said Forfeiture shall be allocated, based on Compensation
to all Participant Accounts of Participating Employers who are members
of the affiliated or controlled group. Should an Employee of one
("First") Employer be transferred to an associated ("Second") Employer
(the Employer, an affiliate or subsidiary), such transfer shall not
cause his Account balance (generated while an Employee of "First"
Employer) in any manner or by any amount to be forfeited. Such
Employee's Participant Account balance for all purposes of the Plan,
including length of service, shall be considered as though he had
always been employed by the "Second" Employer and as such had received
contributions, forfeitures, earnings of losses, and appreciation or
depreciation in value of assets totaling amount so transferred.
(e) Any expenses of the Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total amount
standing to the credit of all Participants employed by such Employer
bears to the total standing to the credit of all Participants.
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<PAGE>
11.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent.
Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
11.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution or Forfeiture subject to allocation during each Plan
Year shall be allocated among all Participants of all Participating Employers
in accordance with the provisions of this Plan. On the basis of the
information furnished by the Administrator, the Trustee shall keep separate
books and records concerning the affairs of each Participating Employer
hereunder and as to the accounts and credits of the Employees of each
Participating Employer. The Trustee may, but need not, register contracts so
as to evidence that a particular Participating Employer is the interested
Employer hereunder, but in the event of an Employee transfer from one
Participating Employer to another, the employing Employer shall immediately
notify the Administrator will notify the Trustee thereof. Notwithstanding
anything herein seemingly to the contrary, the Plan shall constitute a "single"
Plan as to all Participating Employers and not a separate plan as to any such
Participating Employer.
11.6 AMENDMENT
Each amendment of this Plan shall be binding on each and every
Participating Employer and on the Trustee, unless its consent is necessary in
accordance with the terms of this Plan.
11.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke
its participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Trust Fund assets allocable to the Participants of
such Participating Employer or to such new Trustee as shall have been
designated by such Participating Employer, in
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<PAGE>
the event that it has established a separate pension plan for its Employees. If
no successor is designated, the Trustee shall retain such assets for the
Employees of said Participating Employer pursuant to the provisions of Article
VII hereof. In no such event shall any part of the corpus or income of the
Trust as it relates to such Participating Employer be used for or diverted for
purposes other than for the exclusive benefit of the Employees of such
Participating Employer.
11.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
11.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from
making a contribution to the Trust Fund which it would otherwise have made
under the Plan by reason of having no current or accumulated earnings or
profits, or because such earnings or profits are less than the contribution
which it would otherwise have made, then, pursuant to Code Section
404(a)(3)(B), so much of the contribution which such Participating Employer was
so prevented from making may be made, for the benefit of the participating
employees of such Participating Employer, by the other Participating Employers
who are members of the same affiliated group within the meaning of Code Section
1504 to the extent of their current or accumulated earnings or profits, except
that such contribution by each such other Participating Employer shall be
limited to the proportion of its total current and accumulated earnings or
profits remaining after adjustment for its contribution to the Plan made
without regard to this paragraph which the total prevented contribution bears
to the total current and accumulated earnings or profits of all the
Participating Employers remaining after adjustment for all contributions made
to the Plan without regard to this paragraph.
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<PAGE>
ARTICLE XII
TOP-HEAVY STATUS
12.1 ARTICLE CONTROLS
Any Plan provisions to the contrary notwithstanding, the provisions of
this Article shall control to the extent required to cause the Plan to comply
with the requirements imposed under Code Section 416.
12.2 DEFINITIONS
For purposes of this Article, the following terms and phrases shall
have these respective meanings:
(a) Account Balance: As of any Valuation Date, the
aggregate amount credited to an individual's account or accounts under
a qualified defined contribution plan maintained by the Employer or an
Affiliated Employer (excluding employee contributions which were
deductible within the meaning of section 219 of the Code and rollover
or transfer contributions made after December 31, 1983 by or on behalf
of such individual to such plan from another qualified plan sponsored
by an entity other than the Employer or an Affiliated Employer),
increased by (1) the aggregate distributions made to such individual
from such plan during a five-year period ending on the Determination
Date and (2) the amount of any contributions due as of the
Determination Date immediately following such Valuation Date.
(b) Accrued Benefit: As of any Valuation Date, the
present value (computed on the basis of the Assumptions) of the
cumulative accrued benefit (excluding the portion thereof which is
attributable to employee contributions which were deductible pursuant
to section 219 of the Code, to rollover or transfer contributions made
after December 31, 1983 by or on behalf of such individual to such
plan from another qualified plan sponsored by an entity other than the
Employer or an Affiliated Employer, to proportional subsidies or to
ancillary benefits) of an individual under a qualified defined benefit
plan maintained by the Employer or an Affiliated Employer increased by
(1) the aggregate distributions made to such individual from such plan
during a five-year period ending on the Determination Date and (2) the
estimated benefit accrued by such individual between such Valuation
Date and the Determination Date immediately following such Valuation
Date. Solely for the purpose of determining top-heavy status, the
Accrued Benefit of an individual shall be determined under (1) the
method, if any, that uniformly applies for accrual purposes under all
qualified defined benefit plans maintained by the Employer or an
Affiliated Employer, or (2) if there is no such method, as if such
benefit accrued not more rapidly than under the slowest accrual rate
permitted under section 411(b)(1)(C) of the Code.
(c) Aggregation Group: The group of qualified plans
maintained by the Employer and each Affiliated Employer consisting of
(1) each plan in which a Key
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Employee participates and each other plan which enables a plan in
which a Key Employee participates to meet the requirements of sections
401(a)(4) or 410 of the Code, or (2) each plan in which a Key Employee
participates, each other plan which enables a plan in which a Key
Employee participates to meet the requirements of sections 401(a)(4)
or 410 of the Code and any other plan which the Employer elects to
include as a part of such group; provided, however, that the Employer
may not elect to include a plan in such group if its inclusion would
cause the group to fail to meet the requirements of sections 401(a)(4)
or 410 of the Code.
(d) Assumptions: The interest rate and mortality
assumptions specified for top-heavy status determination purposes in
any defined benefit plan included in the Aggregation Group including
the Plan.
(e) Determination Date: For the first Plan Year of any
plan, the last day of such Plan Year and for each subsequent Plan Year
of such plan, the last day of the preceding Plan Year.
(f) Key Employee: A "key employee" as defined in section
416(i) of the Code and the Treasury Regulations thereunder.
(g) Plan Year: With respect to any plan, the annual
accounting period used by such plan for annual reporting purposes.
(h) Remuneration: Compensation within the meaning of
section 415(c)(3) of the Code, as limited by section 401(a)(17) of the
Code for Plan Years beginning after December 31, 1988.
(i) Valuation Date: With respect to any Plan Year of any
defined contribution plan, the most recent date within the
twelve-month period ending on a Determination Date as of which the
trust fund established under such plan was valued and the net income
(or loss) thereof allocated to participants' accounts. With respect
to any Plan Year of any defined benefit plan, the most recent date
within a twelve-month period ending on a Determination Date as of
which the plan assets were valued for purposes of computing plan costs
for purposes of the requirements imposed under section 412 of the
Code.
12.3 TOP-HEAVY STATUS
(a) The Plan shall be deemed to be top-heavy for a Plan
Year, if, as of the Determination Date for such Plan Year, (1) the sum
of Account Balances of Participants who are Key Employees exceeds 60%
of the sum of Account Balances of all Participants unless an
Aggregation Group including the Plan is not top-heavy or (2) an
Aggregation Group including the Plan is top-heavy. An Aggregation
Group shall be deemed to be top-heavy as of a Determination Date if
the sum (computed in accordance with section 416(g)(2)(B) of
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<PAGE>
the Code and the Treasury Regulations promulgated thereunder) of (1)
the Account Balances of Key Employees under all defined contribution
plans included in the Aggregation Group and (2) the Accrued Benefits
of Key Employees under all defined benefit plans included in the
Aggregation Group exceeds 60% of the sum of the Account Balances and
the Accrued Benefits of all individuals under such plans.
Notwithstanding the foregoing, the Account Balances and Accrued
Benefits of individuals who are not Key Employees in any Plan Year but
who were Key Employees in any prior Plan Year shall not be considered
in determining the top-heavy status of the Plan for such Plan Year.
Further, notwithstanding the foregoing, the Account Balances and
Accrued Benefits of individuals who have not performed services for
the Employer at any time during the five-year period ending on the
applicable Determination Date shall not be considered.
12.4 TERMINATION OF TOP-HEAVY STATUS
If the Plan has been deemed to be top-heavy for one or more Plan Years
and thereafter ceases to be top-heavy, the provisions of this Article shall
cease to apply to the Plan effective as of the Determination Date on which it
is determined to no longer be top-heavy.
12.5 EFFECT OF ARTICLE
Notwithstanding anything contained herein to the contrary, the
provisions of this Article shall automatically become inoperative and of no
effect to the extent not required by the Code or the Act.
IN WITNESS WHEREOF, this Plan has been executed this 13th day of
November, 1996, effective for all purposes as of the Effective Date.
MONTEREY RESOURCES, INC.
By: /s/ R. GRAHAM WHALING
Name: R. Graham Whaling
Title: Chief Executive Officer
XII-3
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective as
of November 13, 1996 by and between Monterey Resources, Inc., a Delaware
corporation ("Company"), and R. Graham Whaling ("Employee").
WHEREAS, the Company employs Employee and desires to continue such
employment relationship and Employee desires to continue such employment;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Employment. The Company hereby employs Employee, and Employee
hereby accepts employment by the Company, on the terms and conditions set forth
in this Agreement.
2. Term of Employment. Subject to the provisions for earlier
termination provided in the Agreement, the term of this Agreement (the "Term")
shall commence on the effective date of this Agreement as stated above and
shall terminate on December 31, 1999; provided, however, commencing on January
1, 1998 and on each January 1 thereafter, the term of this Agreement shall
automatically be extended one additional year unless, not later than September
30 of the preceding year, the Board of Directors of the Company (the "Board")
shall give written notice to Employee that the Term of the Agreement shall
cease to be so extended; provided, further, that if a Change in Control, as
defined in Section 6, shall have occurred during the original or extended Term
of this Agreement, the Term shall continue in effect for a period of not less
than 36 months beyond the date of such Change in Control. In no event,
however, shall the Term of this Agreement extend beyond the end of the calendar
month in which Employee's 65th birthday occurs. Notwithstanding any provision
of this Agreement to the contrary, termination of this Agreement shall not
alter or impair any rights of Employee (or Employee's estate or beneficiaries)
that have arisen under this Agreement prior to such termination.
3. Employee's Duties. During the Term of this Agreement,
Employee shall serve as the Chief Executive Officer of the Company, with such
customary duties and responsibilities as may from time to time be assigned to
him by the Board, provided that such duties are at all times consistent with
the duties of such position.
Employee agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the duties and responsibilities assigned to Employee
hereunder, to use reasonable best efforts to perform faithfully and efficiently
such duties and responsibilities.
<PAGE>
4. Base Compensation. For services rendered by Employee under
this Agreement, the Company shall pay to Employee a base salary ("Base
Compensation") of $325,000 per annum payable in accordance with the
Company's customary payroll practice for its executive officers. The amount of
Base Compensation shall be reviewed periodically and may be increased to
reflect inflation or such other adjustments as the Board may deem appropriate
but Base Compensation, as increased, may not be decreased thereafter.
5. Additional Benefits. In addition to the Base Compensation
provided for in Section 4 herein, Employee shall be entitled to receive all
fringe benefits and perquisites offered by the Company to its executive
officers, including, without limitation, participation in the Company's Annual
Incentive Compensation Plan and other incentive plans offered generally to key
employees, the various employee benefit plans or programs provided to the
employees of the Company in general, subject to the regular eligibility
requirements with respect to each of such benefit plans or programs, and such
other benefits or prerequisites as may be approved by the Board during the Term
of this Agreement. Nothing in this paragraph shall be deemed to prohibit the
Company from making any changes in any of the plans, programs or benefits
described in this Section 5, provided the change similarly affects all
executives of the Company similarly situated.
6. Change of Control.
For purposes of this Agreement, a "Change in Control" shall mean the
occurrence of one of the following events:
(i) any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of Santa Fe Energy
Resources, Inc. ("SFER") or any affiliate, or any corporation owned,
directly or indirectly, by the stockholders of SFER in substantially
the same proportions as their ownership of stock of SFER, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly of securities of SFER
representing 25% or more of the combined voting power of SFER's then
outstanding securities;
(ii) during any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board
of Directors of SFER, and any new director (other than a director
designated by a person who has entered into an agreement with SFER to
effect a transaction described in clause (i), (iii) or (iv) of this
Section) whose election by the Board of Directors of SFER or
nomination for election by SFER's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved (hereinafter
referred to as "Continuing Directors"), cease for any reason to
constitute at least a majority thereof;
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(iii) the stockholders of SFER approve a merger or
consolidation of SFER with any other corporation, other than (a) a
merger or consolidation which would result in the voting securities of
SFER outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 65% of the combined
voting power of the voting securities of SFER (or such surviving
entity) outstanding immediately after such merger or consolidation or
(b) a merger or consolidation effected to implement a recapitalization
of SFER (or similar transaction) in which no "person" (as hereinabove
defined) acquires more than 25% of the combined voting power of SFER's
then outstanding securities; or
(iv) the stockholders of SFER approve a plan of complete
liquidation of SFER or an agreement for the sale or disposition by
SFER of all or substantially all of SFER's assets. For purposes of
this clause (iv), the term "the sale or disposition by SFER of all or
substantially all of SFER's assets" shall mean a sale or other
disposition transaction or series of related transactions involving
assets of SFER or of any direct or indirect subsidiary of SFER
(including the stock of any direct or indirect subsidiary of SFER) in
which the value of the assets or stock being sold or otherwise
disposed of (as measured by the purchase price being paid therefor or
by such other method as the Board of Directors of SFER determines is
appropriate in a case where there is no readily ascertainable purchase
price) constitutes more than two-thirds of the "fair market value of
SFER" (as hereinafter defined). For purposes of the preceding
sentence, the "fair market value of SFER" shall be the aggregate
market value of SFER's outstanding common stock (on a fully diluted
basis) plus the aggregate market value of SFER's other outstanding
equity securities. The aggregate market value of SFER's common stock
shall be determined by multiplying the number of shares of SFER's
common stock (on a fully diluted basis) outstanding on the date of the
execution and delivery of a definitive agreement with respect to the
transaction or series of related transactions (the "Transaction Date")
by the average closing price for SFER's common stock for the ten
trading days immediately preceding the Transaction Date. The
aggregate market value of any other equity securities of SFER shall be
determined in a manner similar to that prescribed in the immediately
preceding sentence for determining the aggregate market value of
SFER's common stock or by such other method as the Board of Directors
of SFER shall determine is appropriate.
(v) If SFER ceases to own 80% of the combined voting
power of the then outstanding voting securities of the Company, the
term "Company" shall be substituted for SFER as used in this
definition of "Change in Control;" provided, however, as long as SFER
owns 35% or more of the combined voting power of the voting securities
of the Company, the above "Change in Control" definition shall be
applied separately with respect to SFER and with respect to the
Company as substituted for SFER in the definition, and a Change in
Control with respect to either SFER or the Company in such situation
shall be a Change in Control for purposes of this Plan.
Notwithstanding anything herein to the contrary, a distribution by
SFER to its stockholders of its interest in such voting securities of
the Company shall not constitute a Change in Control.
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<PAGE>
7. Termination. This Agreement may be terminated prior to the
end of its Term as set forth below.
(a) Resignation. Employee may resign, including by
reason of retirement, his position at any time. In the event of such
resignation, except in the case of resignation for Good Reason (as
defined below) on or following a Change in Control, Employee shall not
be entitled to further compensation pursuant to this Agreement.
(b) Death. If Employee's employment is terminated due to
his death, this Agreement shall terminate and the Company shall have
no obligations to Employee or his legal representatives with respect
to this Agreement other than the payment of any Base Compensation and
vacation pay which had accrued hereunder at the date of Employee's
death.
(c) Discharge.
(i) The Company may terminate this Agreement and
Employee's employment for any reason deemed sufficient by the
Company upon notice as provided in Section 10. However, in
the event that Employee's employment is terminated during the
Term by the Company on or following a Change in Control and
for any reason other than his Misconduct (as defined in
Section 7(c)(ii) below) or Disability (as defined in Section
7(d)(i) below), then, subject to Sections 7(h) and (i): (A)
the Company shall pay in a lump sum in cash to Employee,
within 15 days of the Date of Termination, an amount equal to
the sum of (1) three times Employee's Base Compensation, and
(2) the maximum incentive award payable to Employee under the
Company's Annual Incentive Compensation Plan for such year in
lieu of any payment thereunder, assuming for purposes hereof
that all performance objectives for such year had been met at
the maximum level and that Employee is entitled to a full
award thereunder; (B) for the 36-month period after such Date
of Termination, the Company shall provide or arrange to
provide Employee (and Employee's dependents) with life,
disability, accident and group health insurance benefits
substantially similar to those which Employee (and Employee's
dependents) were receiving immediately prior to the Notice of
Termination, with the Employee charged a monthly premium(s)
for such coverage(s) that does not exceed the premium(s)
charged to an active employee for comparable coverage(s);
benefits otherwise receivable by Employee pursuant to this
clause (B) shall be reduced to the extent comparable benefits
are actually received by Employee (and Employee's dependents)
during the 36-month period following Employee's termination,
and any such benefits actually received by Employee shall be
reported to the Company (To the extent coverage and/or
benefits received under a self-insured health plan of the
Company are taxable to Employee, the Company shall make
Employee "whole" on a net after tax basis); (C) within 15 days
of the Date of Termination or, if later, the first date on
which such payment would not subject Employee to suit under
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<PAGE>
Section 16(b) of the Securities Exchange Act of 1934, if
applicable, the Company shall pay to Employee in cancellation
of all outstanding stock-based awards that were granted to
Employee after the Change in Control and which are not vested
on the Date of Termination (collectively, "Awards"), a lump
sum amount in cash equal to the sum of the value (with respect
to an option or stock appreciation right, the "spread"; and
with respect to restricted stock or phantom stock, the value
of an unrestricted share) of all such nonvested Awards,
calculated, where applicable, as if all corporate performance
goals had been achieved (thus warranting full value of the
Award); and (D) the Company shall provide to Employee
outplacement services by a nationally recognized firm.
(ii) Notwithstanding the foregoing provisions of
this Section 7, in the event Employee is terminated because of
Misconduct, the Company shall have no compensation obligations
pursuant to this Agreement after the Date of Termination. As
used herein, "Misconduct" means (a) the willful and continued
failure by Employee to substantially perform his duties with
the Company (other than any such failure resulting from
Employee's incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a
Notice of Termination by Employee for Good Reason), after a
written demand for substantial performance is delivered to
Employee by the Board, which demand specifically identifies
the manner in which the Board believes that Employee has not
substantially performed his duties, or (b) the willful
engaging by Employee in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise.
For purposes hereof, no act, or failure to act, on Employee's
part shall be deemed "willful" unless done, or omitted to be
done, by Employee not in good faith and without reasonable
belief that Employee's action or omission was in the best
interest of the Company. Notwithstanding the foregoing,
Employee shall not be deemed to have been terminated for
Misconduct unless and until there shall have been delivered to
Employee a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to Employee and
an opportunity for Employee, together with Employee's counsel,
to be heard before the Board), finding that in the good faith
opinion of the Board Employee was guilty of conduct set forth
above and specifying the particulars thereof in detail.
(d) Disability.
(i) If Employee shall have been absent from the
full-time performance of Employee's duties with the Company
for six consecutive months as a result of Employee's
incapacity due to physical or mental illness, as determined by
Employee's physician, and within 30 days after written Notice
of Termination is given by the Company Employee shall not have
returned to the full-time performance of Employee's duties,
Employee's employment may be terminated by the Company
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<PAGE>
for "Disability" and Employee shall not be entitled to further
compensation pursuant to this Agreement.
(ii) If Employee fails during any period during
the Term to perform Employee's full-time duties with the
Company as a result of incapacity due to physical or mental
illness, as determined by Employee's physician, Employee shall
continue to receive his Base Compensation, together with all
compensation payable to Employee under the Company's Long Term
Disability Plan or other similar plan during such period until
this Agreement is terminated.
(e) Resignation for Good Reason. In the event of a
Change in Control, Employee shall be entitled to terminate his
employment for Good Reason as defined herein. If Employee terminates
his employment for Good Reason, Employee shall be entitled to the
compensation and benefits provided in Paragraph 7(c)(i) hereof. "Good
Reason" shall mean (1) the material breach of any of the Company's
obligations under this Agreement without Employee's express written
consent or (2) the occurrence of any of the following circumstances
without Employee's express written consent unless such breach or
circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination pursuant to Subsections 7(e)
and 7(f), respectively, given in respect thereof:
(i) the assignment to Employee of any duties
inconsistent with the position in the Company that Employee
held immediately prior to the Change in Control, or a
significant adverse alteration in the nature or status of
Employee's office, title, responsibilities, including
reporting responsibilities, or the conditions of Employee's
employment from those in effect immediately prior to such
Change in Control or a failure to reelect Employee as Chairman
of the Board;
(ii) a reduction in Employee's Base Compensation;
(iii) the failure by the Company to pay to Employee
any portion of Employee's current compensation or to pay to
Employee any portion of an installment of deferred
compensation under any deferred compensation program of the
Company within seven days of the date such compensation is
due;
(iv) the failure by the Company to continue in
effect any compensation plan in which Employee participates
immediately prior to a Change in Control that is material to
Employee's total compensation unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the
Company to continue Employee's participation therein (or in
such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount of benefits
provided and the level of Employee's participation relative to
other participants, as existed at the time of the Change in
Control;
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<PAGE>
(v) the failure by the Company to continue to
provide Employee with benefits substantially similar to those
enjoyed by Employee under any of the Company's life insurance,
medical, health and accident, or disability plans in which
Employee was participating at the time of the Change in
Control; the taking of any action by the Company which would
directly or indirectly materially reduce any of such benefits
or deprive Employee of any material fringe benefit enjoyed by
Employee at the time of the Change in Control, or the failure
by the Company to provide Employee with the number of paid
vacation days to which Employee is entitled on the basis of
years of service with the Company (and its predecessors) in
accordance with the Company's normal vacation policy in effect
at the time of the Change in Control;
(vi) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement, as contemplated in Section 12
hereof;
(vii) the relocation of the Company's principal
executive offices to a location outside the greater
Bakersfield, California area, or the Company's requiring
Employee to relocate anywhere other than the location of the
Company's principal executive offices, except for required
travel on the Company's business to an extent substantially
consistent with Employee's business travel obligations
immediately prior to the change in control of the Company;
(viii) the amendment, modification or repeal of any
provision of the Certificate of Incorporation, or the Bylaws
of the Company which was in effect immediately prior to such
Change in Control, if such amendment, modification or repeal
would materially adversely effect Employee's right to
indemnification by the Company; or
(ix) any purported termination of Employee's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection (f)
hereof, which purported termination shall not be effective for
purposes of this Agreement.
Notwithstanding anything in this Agreement to the contrary, if
Employee's employment with the Company terminates prior to, but within
six months of, the date on which a Change in Control occurs and it is
reasonably demonstrated by Employee that such termination of
employment was (i) by the Company in connection with or anticipation
of the Change in Control or (ii) by Employee under circumstances which
would have constituted Good Reason if the circumstances arose on or
after the Change in Control, then, for purposes of this Agreement,
Employee shall be deemed to have continued employment with the Company
until the date of the Change in Control and then terminated his
employment on such date for Good Reason.
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<PAGE>
Employee's right to terminate his employment pursuant to this
subsection shall not be affected by his incapacity due to physical or
mental illness. Employee's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
(f) Notice of Termination. On and after a Change in
Control, any purported termination of Employee's employment by the
Company or by Employee shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall set forth in reasonable detail the
reason for termination of Employee's employment, or in the case of
resignation for Good Reason, said notice must specify in reasonable
detail the basis for such resignation. No purported termination which
is not effected pursuant to this Section 7(f) shall be effective.
(g) Date of Termination, Etc. "Date of Termination"
shall mean the date specified in the Notice of Termination. Either
party may, within 15 days after any Notice of Termination is given,
provide notice to the other party pursuant to Section 10 hereof that a
dispute exists concerning the termination. Notwithstanding the
pendency of any such dispute, the Company will continue to pay
Employee his full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, Base
Compensation) and continue Employee as a participant in all
compensation, benefit and insurance plans in which Employee was
participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with Section 16
hereof, but in no event past the expiration date of this Agreement.
(h) Mitigation. Employee shall not be required to
mitigate the amount of any payment provided for in this Section 7 by
seeking other employment or otherwise, nor shall the amount of any
payment or benefit provided for in this Agreement be reduced by any
compensation earned by Employee as a result of employment by another
employer, self-employment earnings, by retirement benefits, by offset
against any amount claimed to be owing by Employee to the Company, or
otherwise, except that any severance amounts otherwise payable to
Employee pursuant to a Company severance plan or policy for employees
in general shall reduce the amount otherwise payable pursuant to
Section 7(c)(i).
(i) Gross-Up of Parachute Payments.
(1) To provide Employee with adequate protection
in connection with his ongoing employment with the Company,
this Agreement provides Employee with various benefits in the
event of termination of Employee's employment with the
Company. If Employee's employment is terminated following a
"change in control" of the Company, within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), a portion of those benefits could be
characterized as "excess parachute payments" within the
meaning of Section 280G of the Code.
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<PAGE>
The parties hereto acknowledge that the protections set forth
herein are important, and it is agreed that Employee should
not have to bear the burden of any excise tax that might be
levied under Section 4999 of the Code, in the event that a
portion of the benefits payable to Employee pursuant to this
Agreement are treated as an excess parachute payment. The
parties, therefore, have agreed as set forth herein.
(2) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or
distribution by the Company or any other person to or for the
benefit of Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required hereunder (a "Payment") would be subject to
the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by Employee with respect to
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then the Company shall pay an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by Employee of all taxes (including any
interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment, Employee retains
an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(3) Subject to the provisions of subparagraph (4)
below, all determinations required to be made hereunder,
including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
an independent public accounting firm with a national
reputation that is selected by Employee (the "Accounting
Firm") which shall provide detailed supporting calculations
both to the Company and to Employee within 15 business days
after the receipt of notice from Employee that there has been
a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the change in control of the Company, Employee shall
appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. (The Company shall indemnify and hold
harmless Employee, on an after-tax basis, for any Excise Tax
or income tax (including interest and penalties with respect
thereto) imposed on Employee as a result of such payment of
fees and expenses.) Any Gross-Up Payment, as determined
pursuant hereto, shall be paid by the Company to Employee
within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no
Excise Tax is payable by Employee, it shall furnish Employee
and the Company with a written opinion that failure to report
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<PAGE>
the Excise Tax on Employee's applicable federal income tax
return would not result in the imposition of a negligence or
similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and Employee. As a result
of uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments may not
have been made by the Company which should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. If the Company exhausts its remedies
pursuant to subparagraph (4) below and Employee thereafter is
required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by
the Company to or for the benefit of Employee.
(4) Employee shall notify the Company in writing
of any claim (including any threatened tax lien related to or
based upon any such claim) by the Internal Revenue Service
that, if successful, would require the payment by the Company
of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than 10 business days after
Employee is informed in writing of such claim (or threatened
lien) and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be
paid. Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which
Employee gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with
respect to such claim is due or such tax lien would be
imposed). If the Company notifies Employee in writing prior
to the expiration of such period that it desires to contest
such claim (or threatened lien), Employee shall:
(a) give the Company any information
reasonably requested by the Company relating to such
claim (or threatened lien);
(b) take such action in connection with
contesting such claim (or threatened lien) as the
Company shall reasonably request in writing from time
to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company;
(c) cooperate with the Company in good
faith in order effectively to contest such claim (or
threatened lien); and
(d) permit the Company to participate in
any proceedings relating to such claim (or threatened
lien);
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with
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<PAGE>
such contest and shall indemnify and hold Employee harmless,
on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing
provisions of this subparagraph (4), the Company shall control
all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct Employee to pay the tax claimed
and sue for a refund or contest the claim in any permissible
manner, and Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as Employee shall determine (but in no event shall the Company
permit or direct Employee to allow a tax lien to be imposed on
Employee's property); provided, further, that if the Company
directs Employee to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to Employee,
on an interest-free basis, and shall indemnify and hold
Employee harmless on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect
to any imputed income with respect to such advance; and
further, provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year
of Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
In addition, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Employee shall be entitled to
settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(5) If, after the receipt by Employee of an
amount advanced by the Company pursuant to subparagraph (4),
Employee becomes entitled to receive any refund with respect
to such claim, Employee shall (subject to the Company's
complying with the requirements of subparagraph (4) above)
promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If after the receipt by Employee
of an amount advanced by the Company pursuant to subparagraph
(4) above, a determination is made that Employee shall not be
entitled to any refund with respect to such claim and the
Company does not notify Employee in writing of its intent to
contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
(6) The Company hereby acknowledges that, as a
consequence of this full parachute tax gross-up to Employee
under this Agreement, any provision in a Company plan or
program that provides for a parachute payment, "cut-back" to
2.99,
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<PAGE>
if such "cut-back" would result in the employee being in a
better net after-tax position, shall be inapplicable to
Employee.
8. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit Employee's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its
affiliated companies and for which Employee may qualify, nor shall anything
herein limit or otherwise adversely affect such rights as Employee may have
under any stock option or other agreements with the Company or any of its
affiliated companies.
9. Assignability. The obligations of Employee hereunder are
personal and may not be assigned or delegated by him or transferred in any
manner whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. The Company shall have the right to assign this
Agreement and to delegate all rights, duties and obligations hereunder, either
in whole or in part, to any parent, affiliate, successor or subsidiary
organization or company of the Company, so long as the obligations of the
Company under this Agreement remain the obligations of the Company.
10. Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the Company at its principal office address, directed to the attention of the
Board with a copy to the Secretary of the Company, and to Employee at
Employee's residence address on the records of the Company or to such other
address as either party may have furnished to the other in writing in
accordance herewith except that notice of change of address shall be effective
only upon receipt.
11. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to compensation from the Company in the same amount and
on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used herein, the term "Company" shall
include any successor to its business and/or assets as aforesaid
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which executes and delivers the Agreement provided for in this Section 12 or
which otherwise becomes bound by all terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of Employee hereunder shall
inure to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts would be
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee, or other designee or, if there be no
such designee, to Employee's estate.
13. Indemnification. In consideration of the premises and of the
mutual agreements set forth in this Agreement, the parties hereto further agree
as follows:
1. The Company shall pay on behalf of Employee and
Employee's executors, administrators or assigns, any amount which
Employee is or becomes legally obligated to pay as a result of any
claim or claims made against Employee by reason of the fact that
Employee served as an employee, director and/or officer of the Company
or because of any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done, or
suffered or wrongfully attempted by Employee in Employee's capacity as
an employee, Director and/or Officer of the Company. The payments
that the Company will be obligated to make hereunder shall include
(without limitation) damages, judgments, settlements, costs and
expenses of investigation, costs and expenses of defense of legal
actions, claims and proceedings and appeals therefrom, and costs of
attachments and similar bonds; provided, however, that the Company
shall not be obligated to pay fines or other obligations or fees
imposed by law or otherwise that it is prohibited by applicable law
from paying as indemnity or for any other reason.
2. Costs and expenses (including, without limitation,
attorneys' fees) incurred by Employee in defending or investigating
any action, suit, proceeding or claim shall be paid by the Company in
advance of the final disposition of such matter upon receipt of a
written undertaking by or on behalf of Employee to repay any such
amounts if it is ultimately determined that Employee is not entitled
to indemnification under the terms of this Agreement.
3. If a claim under this Agreement is not paid by or on
behalf of the Company within ninety days after a written claim has
been received by the Company, Employee may at any time thereafter
bring suit against the Company to recover the unpaid amount of the
claim and, if successful in whole or in part, Employee shall also be
entitled to be paid the expense of prosecuting such claim.
4. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of
the rights of recovery of Employee, who shall execute all papers
required and shall do everything that may be necessary to secure such
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<PAGE>
rights, including the execution of such documents necessary to
enable the Company effectively to bring suit to enforce such rights.
5. The Company shall not be liable under this Agreement
to make any payment in connection with any claim made against
Employee:
(a) for which payment is actually made to
Employee under an insurance policy maintained by the Company,
except in respect of any excess beyond the amount of payment
under such insurance;
(b) for which Employee is indemnified by the
Company otherwise than pursuant to this Agreement;
(c) based upon or attributable to Employee
gaining in fact any personal profit or advantage to which
Employee was not legally entitled;
(d) for an accounting of profits made from the
purchase or sale by Employee of securities of the Company
within the meaning of Section 16(b) of the Securities Exchange
Act of 1934 and amendments thereto; or
(e) brought about or contributed to by the
dishonesty of Employee; provided, however, that
notwithstanding the foregoing, Employee shall be protected
under this Agreement as to any claims upon which suit may be
brought alleging dishonesty on the part of Employee, unless a
judgment or other final adjudication thereof adverse to
Employee shall establish that Employee committed acts of
active and deliberate dishonesty with actual dishonest purpose
and intent, which acts were material to the cause of action so
adjudicated.
6. Employee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to the Company notice in
writing as soon as practicable of any claim made against him for which
indemnity will or could be sought under this Agreement. Notice to the
Company shall be directed to the Company, 5201 Truxtun, Suite 100,
Bakersfield, California 93309, Attention: Secretary (or such other
address as the Company shall designate in writing to Employee).
Notice shall be deemed received if sent by prepaid mail properly
addressed, the date of such notice being the date postmarked. In
addition, Employee shall give the Company such information and
cooperation as it may reasonably require and as shall be within
Employee's power.
7. Nothing herein shall be deemed to diminish or
otherwise restrict Employee's right to indemnification under any
provision of the Certificate of Incorporation or Bylaws of the Company
or under Delaware law.
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<PAGE>
14. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Employee and such officer as may be
specifically authorized by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or in compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement is an integration
of the parties agreement; no agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Delaware.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Arbitration. Employee shall be permitted (but not required)
to elect that any dispute or controversy arising under or in connection with
this Agreement be settled by arbitration in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. All legal fees and costs incurred by Employee in connection with
the resolution of any dispute or controversy under or in connection with this
Agreement shall be paid by the Company as bills for such services are presented
by Employee to the Company.
17. Prior Agreements. This Agreement shall replace in full any
prior agreement (written or oral) between SFER and Employee concerning
employment and benefits on or following a Change in Control and any such prior
agreement(s) are hereby terminated as of the effective date of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on
___________, 1996, effective for all purposes as provided above.
MONTEREY RESOURCES, INC.
By: /s/ D. B. KILPATRICK
Name: D. B. Kilpatrick
Title: President
EMPLOYEE
/s/ R. GRAHAM WHALING
R. Graham Whaling
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[EXECUTION COPY]
================================================================================
MONTEREY RESOURCES, INC.
$175,000,000
10.61% Senior Notes Due 2005
NOTE AGREEMENT
Dated as of November 19, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
PARAGRAPH 1. AUTHORIZATION OF ISSUE OF NOTES.............................2
PARAGRAPH 2. EXCHANGE OF NOTES...........................................2
PARAGRAPH 3. CONDITIONS..................................................2
3. Conditions of Closing.......................................2
3A. Certain Documents...........................................3
3B. Opinion of Purchasers' Special Counsel......................4
3C. Representations and Warranties; No Default..................5
3D. Exchange of Notes with All Purchasers; Cancellation
of Series G Notes...........................................5
3E. Transactions Permitted by Applicable Laws...................5
3F. Proceedings.................................................5
3G. Initial Public Offering.....................................5
3H. Consummation of Certain Transactions........................6
3I. Restructuring Fees and Legal Fees...........................6
3J. Compliance With Outstanding Debt Limitations................6
PARAGRAPH 4. PREPAYMENTS.................................................6
4. Prepayments.................................................6
4A. Required Prepayments........................................6
4B. Optional Prepayment with Yield-Maintenance Premium..........7
4C. Notice of Optional Prepayment...............................7
4D. Partial Payments Pro Rata...................................7
4E. Retirement of Notes.........................................7
PARAGRAPH 5. AFFIRMATIVE COVENANTS.......................................8
5. Affirmative Covenants.......................................8
5A. Financial Statements........................................8
5B. Inspection of Property.....................................12
5C. Compliance with Environmental Laws.........................13
5D. Payment of Taxes...........................................13
5E. Maintenance of Insurance...................................13
5F. Private Placement Rating...................................13
5G. Tax Indemnity..............................................14
5H. Production Payment.........................................15
PARAGRAPH 6. NEGATIVE COVENANTS.........................................15
6. Negative Covenants.........................................15
6A. Restricted Payments and Restricted Investments.............15
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PAGE
6B. Lien, Debt and Other Restrictions..........................16
6B(1). Liens......................................................16
6B(2). Debt.......................................................18
6B(3). Sale of Less than Substantially All Assets.................19
6B(4). Sale of Stock of Restricted Subsidiaries...................20
6B(5). Merger and Sale of All or Substantially All Assets.........22
6B(6). Sale and Leaseback.........................................24
6B(7). Transactions with Affiliates...............................25
6B(8). Tax Consolidation..........................................25
6C. Issuance of Stock by Restricted Subsidiaries...............25
6D. Maintenance of Consolidated Net Worth......................25
6E. Interest Coverage..........................................25
PARAGRAPH 7. EVENTS OF DEFAULT..........................................26
7. Events of Default..........................................26
7A. Acceleration...............................................26
7B. Rescission of Acceleration. ..............................30
7C. Other Remedies.............................................30
7D. Notice by the Company of Acceleration......................31
PARAGRAPH 8. REPRESENTATIONS, COVENANTS AND WARRANTIES..................31
8. Representations, Covenants and Warranties..................31
8A. Organization; Qualification; Corporate Authority...........31
8B. Financial Statements.......................................32
8C. Conflicting Agreements and Other Matters...................32
8D. Governmental Consent.......................................33
8E. Enforceability.............................................33
8F. Actions Pending............................................33
8G. Outstanding Debt...........................................34
8H. Title to Properties........................................34
8I. Taxes......................................................34
8J. Offering of Notes..........................................34
8K. Use of Proceeds from the Initial Public Offering...........34
8L. Regulation G, etc..........................................34
8M. ERISA......................................................35
8N. Disclosure.................................................35
8O. Pollution and Other Regulations............................35
8P. Brokerage..................................................36
8Q. Possession of Permits, Licenses, Etc.......................36
8R. Public Utility Holding Company Act; Federal Power Act;
Investment Company Act.....................................37
8S. Restricted Investments.....................................37
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<PAGE>
PAGE
PARAGRAPH 9. REPRESENTATIONS OF EACH PURCHASER..........................37
9. Representations of Each Purchaser..........................37
9A. Nature of Purchase.........................................37
9B. Source of Funds............................................37
9C. Certification Regarding Series G Notes.....................38
PARAGRAPH 10. DEFINITIONS AND ACCOUNTING TERMS...........................39
10A. Certain Defined Terms......................................39
10B. Accounting Terms...........................................56
PARAGRAPH 11. MISCELLANEOUS..............................................57
11. Miscellaneous..............................................57
11A. Note Payments..............................................57
11B. Expenses...................................................57
11C. Consent to Amendments......................................57
11D. Form, Registration, Transfer and Exchange of Notes;
Lost Notes.................................................58
11E. Persons Deemed Owners; Participations......................59
11F. Survival of Representations and Warranties;
Entire Agreement...........................................59
11G. Successors and Assigns.....................................59
11H. Disclosure to Other Persons................................59
11I. Notices....................................................60
11J. Descriptive Headings; Execution by Facsimile Transmission..60
11K. Satisfaction Requirement...................................60
11L. Governing Law..............................................61
11M. Waiver of Jury Trial; Consent to Jurisdiction..............61
11N. Counterparts...............................................62
11O. Effectiveness..............................................62
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<PAGE>
PAGE
Schedule I - Schedule of Purchasers
Schedule 8A - Subsidiaries
Schedule 8C - Debt Agreements
Schedule 8G - Outstanding Debt
Schedule 8K - Use of Proceeds from the Initial Public Offering
Exhibit A - Form of Note
Exhibit B-1 - Opinion of Andrews & Kurth L.L.P. (as to New York, Texas,
Delaware GCL and federal law)
Exhibit B-2 - Opinion of Andrews & Kurth L.L.P. (as to certain matters of
California law)
Exhibit B-3 - Opinion of Terry L. Anderson, Esq.
Exhibit B-4 - Opinion of David L. Hicks, Esq.
Exhibit C - Form of Upstream Loan Subordination Provisions
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<PAGE>
NOTE AGREEMENT
This NOTE AGREEMENT (the "AGREEMENT") is entered into as of November
19, 1996 between Monterey Resources, Inc., a Delaware corporation (the
"COMPANY"), and each of the parties identified on the signature pages to this
Agreement (collectively, the "PURCHASERS"). The parties hereto agree as follows:
WITNESSETH
Santa Fe Energy Resources, Inc., a Delaware corporation ("PARENT"),
the Purchasers and each of the other signatories to the Original Note Agreement
(as hereafter defined) entered into that certain Note Agreement dated as of
March 31, 1990, as amended by that certain First Amendment to Note Agreement
dated as of November 1, 1990, that certain Second Amendment to Note Agreement
dated as of September 1, 1991, that certain Third Amendment to Note Agreement
dated as of November 1, 1992, and that certain Fourth Amendment to Note
Agreement dated as of December 31, 1993 (the "ORIGINAL NOTE AGREEMENT") pursuant
to which Parent issued and sold its Series A 9.92% Senior Notes due March 31,
1993 in the aggregate principal amount of $25,000,000, Series B 10.02% Senior
Notes due March 31, 1994 in the aggregate principal amount of $30,000,000,
Series C 10.04% Senior Notes due March 31, 1995 in the aggregate principal
amount of $30,000,000, Series D 10.14% Senior Notes due March 31, 1996 in the
aggregate principal amount of $35,000,000 (collectively, the "SERIES A-D
NOTES"), Series E 10.23% Senior Notes due March 31, 1997 in the principal amount
of $35,000,000 (the "SERIES E NOTES"), Series F 10.27% Senior Notes due March
31, 1998 in the principal amount of $35,000,000 (the "SERIES F NOTES") and
Series G 10.61% Senior Notes due March 31, 2005 in the principal amount of
$175,000,000 (the "SERIES G NOTES"); and
The Series A-D Notes have matured, and Parent has paid all
principal, interest and premium, if any, with respect thereto; and
The Purchasers are the holders of the Series G Notes; and
In August 1996, Parent organized the Company as a wholly-owned
subsidiary; and
In connection with the contribution of the Western Assets of Parent
to the Company, the Company assumed, as between itself and Parent, Parent's
obligations under the Original Note Agreement, the Series E Notes, the Series F
Notes and the Series G Notes without relieving Parent of any of its obligations
thereunder; and
The Company, Parent and the Purchasers have agreed that the
Purchasers will surrender for cancellation the Series G Notes for notes of the
Company dated the last date to which interest has been paid on, and otherwise
with terms substantially identical to those of, the Series G Notes so
surrendered and of like unpaid principal amount;
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<PAGE>
NOW, THEREFORE, in order to accomplish the matters contemplated by
the immediately preceding recital and in consideration of the mutual premises
herein contained and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchasers
agree as follows:
PARAGRAPH 1. AUTHORIZATION OF ISSUE OF NOTES. The Company has
authorized the issue of its senior promissory notes (the "NOTES") in the
aggregate principal amount of $175,000,000, to be dated September 30, 1996 (the
last date through which interest on the Series G Notes has been paid by Parent),
to mature on March 31, 2005, to bear interest on the unpaid balance thereof from
the date thereof until the principal thereof shall become due and payable at the
rate of 10.61% per annum and on overdue principal, Yield-Maintenance Premium and
interest at the rates specified in the Notes. The Notes shall be issuable in
registered form, and shall be in the form of EXHIBIT A attached hereto. The term
"NOTES" as used herein shall include Notes delivered pursuant to any provision
of this Agreement and each Note delivered in substitution or exchange for any
such Note pursuant to any such provision. CAPITALIZED TERMS USED HEREIN HAVE THE
MEANINGS SPECIFIED IN PARAGRAPH 10.
PARAGRAPH 2. EXCHANGE OF NOTES. The Company hereby agrees to issue the
Notes and, subject to the terms and conditions herein set forth, the Purchasers
severally agree to exchange the Series G Notes with the Company for the
aggregate principal amount of Notes set forth opposite the respective
Purchaser's name in SCHEDULE I attached hereto. The Company will deliver to each
Purchaser, at the offices of Baker & Botts, L.L.P., at 599 Lexington Avenue, New
York, New York 10022-6030, one or more Notes registered in such Purchaser's name
or (if so specified) in the name of such Purchaser's nominee, evidencing the
aggregate principal amount of the Notes to be exchanged by such Purchaser and in
the denomination or denominations specified with respect to such Purchaser in
SCHEDULE I attached hereto against delivery by such Purchaser to the Company of
the Series G Note(s) held by such Purchaser in the aggregate principal amount
equal to the aggregate principal amount of the Notes to be issued to such
Purchaser on the Date of Closing. Upon delivery of the Series G Notes to the
Company, the Company shall cancel, or shall cause Parent to cancel, the Series G
Notes. By wire transfer of immediately available funds to the Paying Agent in
accordance with the Paying Agent Agreement on the date of closing, which shall
be November 19, 1996 or such other date on or prior to November 22, 1996 as the
Company and the Purchasers shall agree (the "CLOSING" or the "DATE OF CLOSING"),
the Company will pay each Purchaser such Purchaser's Restructuring Fee.
PARAGRAPH 3. CONDITIONS
3. CONDITIONS OF CLOSING. The Purchasers' obligations to exchange
the Series G Notes for the Notes hereunder is subject to the satisfaction, on or
before the Date of Closing, of the following conditions:
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<PAGE>
3A. CERTAIN DOCUMENTS. The Purchasers shall have received the
following, each dated the Date of Closing unless otherwise indicated below or in
the relevant definitions set forth in paragraph 10A:
(i) The Notes, which shall be dated September 30, 1996,
to be exchanged for the Series G Notes;
(ii) Certified copies of the Paying Agent Agreement, in form
and substance satisfactory to the Purchasers, fully executed by the
Company and the Paying Agent;
(iii) Certified copies of the Monterey ERISA Indemnification
Agreement, in form and substance satisfactory to the Purchasers,
fully executed by the Company and Parent;
(iv) Certified copies of the Conveyance and Contribution
Agreement, the Corporate Services Agreement, the Registration Rights
Agreement, and each other document that constitutes an exhibit to
any of the foregoing, each in form and substance satisfactory to the
Purchasers, fully executed by the Company and
Parent;
(v) Certified copies of the Agreement Concerning Taxes, in
form and substance satisfactory to the Purchasers, fully executed by
Parent, the Company and the Subsidiary of the Company signatory
thereto;
(vi) Certified copies of the Tax Allocation Agreement, in form
and substance satisfactory to the Purchasers, fully executed by
Parent and the members of Parent's consolidated group identified
therein;
(vii) Certified copies of the resolutions of the Board of
Directors of the Company approving this Agreement, the Notes and all
documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Agreement, the
Notes and the Paying Agent Agreement;
(viii)A certificate of the Secretary or an Assistant Secretary
of the Company certifying the names and true signatures of the
officers of the Company authorized to sign this Agreement, the
Notes, the Paying Agent Agreement and the other documents to be
delivered hereunder;
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<PAGE>
(ix) Certified copies of the Amended and Restated
Certificate of Incorporation and the bylaws of the Company;
(x) Certified copies of the Credit Agreements and the
Underwriting Agreements, in form and substance satisfactory to the
Purchasers, fully executed by the parties thereto;
(xi) A favorable opinion of Andrews & Kurth L.L.P., special
counsel to the Company and Parent, satisfactory to the Purchasers
and substantially in the form of EXHIBIT B-1 attached hereto and as
to such other matters as the Purchasers may reasonably request;
(xii) A favorable opinion of Andrews & Kurth L.L.P., special
counsel to the Company and Parent, as to certain matters of
California law, satisfactory to the Purchasers and substantially in
the form of EXHIBIT B-2 attached hereto and as to such other matters
of California law as the Purchasers may reasonably request;
(xiii)A favorable opinion of Terry L. Anderson, Esq., General
Counsel of the Company, satisfactory to the Purchasers and
substantially in the form of EXHIBIT B-3 attached hereto and as to
such other matters as the Purchasers may reasonably request;
(xiv) A favorable opinion of David L. Hicks, Esq., General
Counsel of Parent, satisfactory to the Purchasers and substantially
in the form of EXHIBIT B-4 attached hereto and as to such other
matters as the Purchasers may reasonably request; and
(xv) A certificate of the Secretary or an Assistant Secretary
of the Paying Agent certifying (a) the names and true signatures of
the officers of the Paying Agent authorized to sign the Paying Agent
Agreement and the other documents to be delivered thereunder, and
(b) copies of the resolutions of the Board of Directors of the
Paying Agent authorizing the execution and delivery of the Paying
Agent Agreement by such officers on behalf of the Paying Agent.
3B. OPINION OF PURCHASERS' SPECIAL COUNSEL. The Purchasers shall
have received from Baker & Botts, L.L.P., who are acting as special counsel for
the Purchasers in connection with this transaction, a favorable opinion
satisfactory to the Purchasers as to: (i) the due incorporation, existence and
good standing of the Company; (ii) the due authorization by all requisite
corporate action, execution and delivery and the validity, legally binding
character and enforceability
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<PAGE>
of this Agreement, the Notes and the Paying Agent Agreement; (iii) the absence
of any requirement to register the Notes under the Securities Act; and (iv) such
other matters incident to the matters herein contemplated as the Purchasers may
reasonably request, including the form of all papers and the validity of all
proceedings. In rendering such opinion, such counsel may rely, where
appropriate, upon the opinions referred to in paragraphs 3A(xi), (xii), (xiii)
and (xiv). Such opinion shall also state that, based upon such investigation and
inquiry as is deemed relevant and appropriate by such counsel, the opinions
referred to in paragraphs 3A(xi), (xii), (xiii) and (xiv) are satisfactory in
form and scope to such counsel and, while such investigation and inquiry into
the matters covered by such opinions (other than the matters specified in
clauses (i), (ii) and (iii) above) were not sufficient to enable such counsel
independently to render such opinions, nothing has come to the attention of such
counsel which has caused it to question the legal conclusions expressed in the
opinions referred to in paragraphs 3A(xi), (xii), (xiii) and (xiv) and such
counsel believes that the Purchasers are justified in relying on such opinions.
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in paragraph 8 shall be true on and as of the Date of
Closing; there shall exist on the Date of Closing no Event of Default or
Default; and the Company shall have delivered to the Purchasers an Officer's
Certificate, dated the Date of Closing, to both such effects.
3D. EXCHANGE OF NOTES WITH ALL PURCHASERS; CANCELLATION OF SERIES G
NOTES. At the Closing, the Company shall exchange the Notes for the Series G
Notes held by each respective Purchaser, and the Company or Parent shall cancel
the Series G Notes.
3E. TRANSACTIONS PERMITTED BY APPLICABLE LAWS. The consummation of
the transactions contemplated hereby on the terms and conditions herein provided
and the consummation of the Other Transactions shall not violate any applicable
law or governmental regulation (including, without limitation, section 5 of the
Securities Act or Regulation G, T or X of the Board of Governors of the Federal
Reserve System) and shall not subject the Purchasers to any tax (other than the
possibility of taxes covered by the indemnification set forth in paragraph 5G),
penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and the Purchasers shall have
received such certificates and other evidence as the Purchasers may request to
establish compliance with this condition.
3F. PROCEEDINGS. All corporate and other proceedings taken or to be
taken by the Company and Parent in connection with the transactions contemplated
hereby and all documents incident thereto shall be reasonably satisfactory in
substance and form to the Purchasers, and the Purchasers shall have received all
such counterpart originals or certified or other copies of such documents as the
Purchasers may reasonably request.
3G. INITIAL PUBLIC OFFERING. The Company shall have received net
proceeds of at least $90,000,000, after giving effect to underwriting discounts
and expenses relating thereto as estimated by the Company, from the initial
public offering of shares of the Company's common stock, par value $0.01 per
share, and shall have applied the proceeds thereof that are to be applied
-5-
<PAGE>
by it on or before the Date of Closing as set forth in SCHEDULE 8K hereto; and
the Company shall have delivered to the Purchasers an Officer's Certificate,
dated the Date of Closing, to both such effects.
3H. CONSUMMATION OF CERTAIN TRANSACTIONS. Parent shall have
transferred the Western Assets to the Company, and the Company and Parent shall
have obtained all necessary consents and waivers (other than those of a routine
nature reasonably expected to be obtained in due course), including, without
limitation, those contemplated by the Waiver, the Consent Solicitation and the
agreements set forth on SCHEDULE 8C hereto, to permit such transfer and the
transactions contemplated by this Agreement.
3I. RESTRUCTURING FEES AND LEGAL FEES. The Company shall have paid
to the Paying Agent, for the account of each Purchaser and in accordance with
the Paying Agent Agreement, such Purchaser's Restructuring Fee. Without limiting
the generality of paragraph 11B, the Company shall have paid on the Date of
Closing the fees, charges and disbursements of the Purchasers' special counsel
referred to in paragraph 3B to the extent reflected in a statement of such
counsel rendered to the Company at least one Business Day prior to the Closing.
3J. COMPLIANCE WITH OUTSTANDING DEBT LIMITATIONS. The Company shall
have delivered to the Purchasers an Officer's Certificate of an authorized
financial officer of the Company describing any instrument or agreement to which
Parent, the Company or any Subsidiary is a party or by which Parent, the Company
or any Subsidiary is bound which limits the amount of, or otherwise imposes
restrictions on the incurring of, indebtedness of the type to be evidenced by
the Notes, together with such evidence as the Purchasers or the special counsel
to the Purchasers may reasonably request showing that, after the prepayment of
the Series E Notes and the Series F Notes and after giving effect to the
consents and waivers referred to in paragraph 3H, the transfer by Parent of the
Western Assets and the creation of the Company, the execution, delivery and
performance by the Company of this Agreement and the Notes will not conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in the creation of any Lien on any
property owned by Parent, the Company or any Subsidiary pursuant to, or
otherwise violate, any agreement or instrument evidencing the indebtedness of
Parent, the Company or any of its Subsidiaries or any agreement relating
thereto.
PARAGRAPH 4. PREPAYMENTS
4. PREPAYMENTS. The Notes shall be subject to prepayment only with
respect to the required prepayments specified in paragraph 4A and also under the
circumstances set forth in paragraph 4B.
4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without Yield-Maintenance
Premium, the sum of $25,000,000 on March 31, in each of the years 1999 to 2004,
inclusive, and such principal amounts of the Notes, together with interest
thereon to, but excluding, the prepayment dates, shall become
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<PAGE>
due on such prepayment dates. Any prepayment made by the Company pursuant to
paragraph 4B shall not reduce or otherwise affect its obligation to make any
unpaid prepayment required by this paragraph 4A. The remaining $25,000,000
principal amount of the Notes, together with interest accrued thereon, shall
become due on the maturity date of the Notes.
4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE PREMIUM. The Notes
shall be subject to prepayment, in whole at any time or from time to time in
part (in integral multiples of $5,000,000), at the option of the Company, at
100% of the principal amount so prepaid plus interest thereon to, but excluding,
the Settlement Date for such prepayment plus the Yield-Maintenance Premium, if
any, with respect to the Notes being prepaid. All prepayments of the Notes
pursuant to this paragraph 4B shall be applied to the required payments and
prepayments of the Notes in the inverse order of maturities.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder
of each Note (with a copy to the Paying Agent pursuant to the notice provisions
contained in the Paying Agent Agreement) irrevocable written notice of any
prepayment pursuant to paragraph 4B not less than 10 Business Days prior to the
Settlement Date for such prepayment, specifying such Settlement Date and the
principal amount of the Notes, held by such holder, to be prepaid on such date.
Notice of prepayment having been given as aforesaid, the principal amount of the
Notes specified in such notice, together with interest thereon to the Settlement
Date therefor and together with the Yield- Maintenance Premium, if any, provided
in paragraph 4B shall become due and payable on such Settlement Date.
4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the
Notes, the principal amount so prepaid shall be allocated to all Notes at the
time outstanding (including, for the purpose of this paragraph 4D only, all
Notes prepaid or otherwise retired or purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates other than by prepayment
pursuant to paragraphs 4A and 4B) in proportion to the respective outstanding
principal amounts thereof.
4E. RETIREMENT OF NOTES. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than by prepayment pursuant
to paragraph 4A or 4B or upon acceleration of such final maturity pursuant to
paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes
held by any holder unless the Company or such Subsidiary or Affiliate shall have
offered to prepay or otherwise retire or purchase or otherwise acquire, as the
case may be, the same proportion of the aggregate principal amount of Notes held
by each other holder of Notes at the time outstanding upon the same terms and
conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise
acquired by the Company or any of its Subsidiaries or Affiliates shall not be
deemed to be outstanding for any purpose under this Agreement, except as
provided in paragraph 4D.
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PARAGRAPH 5. AFFIRMATIVE COVENANTS
5. AFFIRMATIVE COVENANTS. So long as any Note shall remain unpaid or
the holder of any Note shall have any commitment hereunder, the Company
covenants that:
5A. FINANCIAL STATEMENTS. The Company will deliver in triplicate:
(i) to each holder, (A) as soon as practicable and in any
event within 60 days after the end of each quarterly period (other
than the last quarterly period) in each fiscal year commencing with
the quarterly period ending March 31, 1997, consolidated and
consolidating statements of operations, stockholders' equity and
cash flows of the Company and its Subsidiaries for the period from
the beginning of the current fiscal year to the end of such
quarterly period, and a consolidated and consolidating balance sheet
of the Company and its Subsidiaries as of the end of such quarterly
period, setting forth (a) as to each account affected thereby, all
eliminating entries for the Unrestricted Subsidiaries as a group,
and (b) the resulting consolidated and consolidating figures for the
Company and its Restricted Subsidiaries, and on and after December
31, 1997, setting forth in each case in comparative form figures for
the corresponding period in the preceding fiscal year, all in
reasonable detail and unaudited but certified by an authorized
financial officer of the Company, subject to changes resulting from
year-end adjustments, and (B) prior to the consummation of the
Spin-Off, as soon as practicable and in any event within 60 days
after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, consolidated statements of
operations, stockholders' equity and cash flows of Parent and its
Subsidiaries for the period from the beginning of the current fiscal
year to the end of such quarterly period, and a consolidated balance
sheet of Parent and its Subsidiaries as of the end of such quarterly
period, and on and after December 31, 1997, setting forth in each
case in comparative form figures for the corresponding period in the
preceding fiscal year, all in reasonable detail and unaudited but
certified by an authorized financial officer of Parent, subject to
changes resulting from year-end adjustments, PROVIDED, HOWEVER, that
delivery of copies of the Quarterly Report on Form 10-Q of Parent
for such quarterly period filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this
clause (i)(B) with respect to consolidated financial statements if
such financial statements are included in such report;
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(ii) to each holder, (A) as soon as practicable and in any
event within 120 days after the end of each fiscal year,
consolidated and consolidating statements of operations,
stockholders' equity and cash flows of the Company and its
Subsidiaries for such year, and a consolidated and consolidating
balance sheet of the Company and its Subsidiaries as of the end of
such fiscal year, setting forth (a) as to each account affected
thereby, all eliminating entries for the Unrestricted Subsidiaries
as a group, and (b) the resulting consolidating figures for the
Company and its Restricted Subsidiaries, and on and after December
31, 1997, setting forth in each case in comparative form
corresponding consolidating figures from the preceding annual audit,
all in reasonable detail and which shall be reported on by Price
Waterhouse LLP or other independent public accountants of recognized
national standing selected by the Company whose report shall (x)
contain an opinion that shall be unqualified as to the scope or
limitations imposed by the Company and shall not be subject to any
other material qualifications and (y) shall state that such
financial statements present fairly, in all material respects, the
financial position of the Company and its Subsidiaries at the dates
indicated and their cash flows and the results of their operations
and the changes in their financial position for the periods
indicated in conformity with generally accepted accounting
principles and shall be accompanied by a report of such independent
public accountants stating that (w) such audit was made for the
purpose of forming an opinion on the consolidated financial
statements taken as a whole, (x) the consolidating information set
forth therein is presented for purposes of additional analysis
rather than to present the financial position, results of operations
and cash flows of the individual companies, (y) such consolidating
information has been subjected to the auditing procedures applied in
the audit of the basic financial statements, and (z) in such
independent public accountants' opinion, such consolidating
information is fairly stated in all material respects in relation to
the consolidated financial statements taken as a whole, with such
changes thereto as such accountants reasonably determine to be
appropriate under the circumstances, and (B) prior to the
consummation of the Spin-Off, as soon as practicable and in any
event within 120 days after the end of each fiscal year,
consolidated statements of operations, stockholders' equity and cash
flows of Parent and its Subsidiaries for such year, and a
consolidated balance sheet of Parent and its Subsidiaries as of the
end of such fiscal year, and on and after December 31, 1997, setting
forth in each case figures from the preceding annual audit, all in
reasonable detail and which shall be reported on by Price Waterhouse
LLP or other independent
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public accountants of recognized national standing selected by
Parent whose report shall (x) contain an opinion that shall be
unqualified as to the scope or limitations imposed by Parent and
shall not be subject to any other material qualifications and (y)
shall state that such financial statements present fairly, in all
material respects, the financial position of Parent and its
Subsidiaries at the dates indicated and their cash flows and the
results of their operations and the changes in their financial
position for the periods indicated in conformity with generally
accepted accounting principles and shall be accompanied by a report
of such independent public accountants stating that such audit was
made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole, with such changes thereto as
such accountants reasonably determine to be appropriate under the
circumstances, PROVIDED, HOWEVER, that delivery of copies of the
Annual Report on Form 10-K of Parent for such fiscal year filed with
the Securities and Exchange Commission shall be deemed to satisfy
the requirements of this clause (ii)(B) with respect to consolidated
financial statements if such financial statements are included in
such report;
(iii) to each holder, promptly upon transmission thereof,
copies of all such financial statements, proxy statements, notices
and reports as it shall send to its public stockholders and copies
of all registration statements (without exhibits, and other than
registration statements and reports relating to employee benefit or
compensation plans) and all reports which it files with the
Securities and Exchange Commission (or any governmental body or
agency succeeding to the functions of the Securities and Exchange
Commission);
(iv) to each holder, promptly upon receipt thereof, a copy of
each other report submitted to the Company or any Subsidiary by
independent accountants in connection with any annual, interim or
special audit made by them of the books of the Company or any
Subsidiary;
(v) to each holder, as soon as practicable and in any event
within 15 days after any executive officer of the Company obtains
knowledge (a) of any condition or event which, in the opinion of
management of the Company, would have a material adverse effect on
the business, condition (financial or other), properties, operations
or prospects (to the extent affecting the Company and its
Subsidiaries in a materially different manner or extent than the oil
and gas industry generally) of the Company and its Restricted
Subsidiaries, taken as a
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whole, (b) that any Person has given any notice to the Company or
any of its Subsidiaries or taken any other action with respect to a
claimed default or event or condition of the type referred to in
clause (iii) or (xvii) of paragraph 7A, (c) of the institution of
any litigation involving claims against the Company or any of its
Subsidiaries equal to or greater than $5,000,000 with respect to any
single cause of action or of any adverse determination in any court
proceeding in any litigation involving a potential liability to the
Company or any of its Subsidiaries equal to or greater than
$5,000,000 with respect to any single cause of action which makes
the likelihood of an adverse determination in such litigation
against the Company or such Subsidiary substantially more probable,
(d) of any regulatory proceeding which, if determined adversely to
the Company, would have a material adverse effect on the business,
condition (financial or other), properties, operations or prospects
(to the extent affecting the Company and its Subsidiaries in a
materially different manner or extent than the oil and gas industry
generally) of the Company and its Subsidiaries, taken as a whole, or
(e) of any material disputes between the Company and any of its
Affiliates or Parent, an Officer's Certificate of the Company
specifying the nature and period of existence of any such condition
or event, or specifying the notice given or action taken by such
Person and the nature of any such claimed default, event or
condition, or specifying the details of such proceeding, litigation
or dispute and what action the Company or any of its Subsidiaries
has taken, is taking or proposes to take with respect thereto;
(vi) to each holder, promptly after the filing or receiving
thereof, (a) copies of all material reports and notices which the
Company or any Subsidiary or any ERISA Affiliate files under ERISA
with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or which the Company or
any Subsidiary or any ERISA Affiliate receives from any such
governmental agency, and (b) with respect to any Plan or
Multiemployer Plan, copies of any (1) notice of any "reportable
event" (as defined in Section 4043 of ERISA) with respect to such
Plan or Multiemployer Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, (2) notice of
complete or partial withdrawal liability under Title IV of ERISA or
(3) notice from the PBGC under Title IV of ERISA of an intent to
terminate or appoint a trustee to administer any Plan or
Multiemployer Plan, which any ERISA Affiliate gives to or receives
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<PAGE>
from the Internal Revenue Service or the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor; and
(vii) to each holder, with reasonable promptness, such other
information respecting the business, financial condition or results
of operations of the Company or any of its Subsidiaries as such
holder may reasonably request.
Together with each delivery of financial statements required
by clauses (i)(A) and (ii)(A) above, the Company will deliver to each
holder an Officer's Certificate demonstrating (with computations in
reasonable detail) compliance by the Company and its Restricted
Subsidiaries with the provisions of paragraphs 6A, 6B(2), 6B(3)(ii) and
(iii), 6B(4), 6B(5), 6B(6), 6D and 6E, demonstrating that no Event of
Default or Default exists under paragraph 7A(xvi) and stating that there
then exists no Event of Default or Default, or, if any Event of Default or
Default exists, specifying the nature and period of existence thereof and
what action the Company proposes to take with respect thereto. Together
with each delivery of financial statements required by clause (ii)(A)
above, the Company will deliver a Reserve Report as of the end of the
preceding fiscal period to any Significant Holder upon prior written
request therefor. Together with each delivery of financial statements
required by clause (ii) above, the Company will deliver to each holder a
certificate of such accountants stating that, in conducting the audit of
the Company's consolidated financial statements in accordance with
generally accepted auditing standards they have obtained no knowledge of
any Event of Default or Default arising under paragraph 7A(i), 7A(ii),
7A(iii) or 7A(xvi) or any Event of Default or Default arising under
paragraph 7A(v) that occurs as a result of the breach or violation by the
Company or its Restricted Subsidiaries of paragraph 6A, 6B(2), 6B(3),
6B(4), 6B(5), 6B(6), 6B(7), 6B(8), 6C, 6D or 6E, or, if they have obtained
knowledge of any Event of Default or Default, specifying the nature and
period of existence thereof. Such accountants, however, shall not be
liable to anyone by reason of their failure to obtain knowledge of any
Event of Default or Default which would not be disclosed in the course of
an audit conducted in accordance with generally accepted auditing
standards. The Company also covenants that forthwith upon the chief
executive officer, principal financial officer or principal accounting
officer of the Company obtaining knowledge of an Event of Default or
Default, it will deliver to each holder an Officer's Certificate
specifying the nature and period of existence thereof and what action the
Company proposes to take with respect thereto.
5B. INSPECTION OF PROPERTY. The Company covenants that it will
permit any Person designated in writing by any Significant Holder, at such
Significant Holder's expense and risk, to visit and inspect and (if the Required
Holders in good faith reasonably believe that the Company is in violation of
paragraph 5C or 8O of this Agreement) to take samples from any of the properties
of the Company and its Subsidiaries, to examine the corporate books and
financial records
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of the Company and its Subsidiaries and to make copies thereof or extracts
therefrom and to discuss the affairs, finances and accounts of such Persons with
the executive officers of the Company, the petroleum reserve engineers employed
by the Company and its Subsidiaries and the Company's independent public
accountants, all at such reasonable times, with a representative of the Company
present and as often as such Significant Holder may reasonably request.
5C. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company will, and will
cause each of its Subsidiaries and each of its Affiliates that are controlled by
the Company or its Subsidiaries to, comply in a timely fashion with, or operate
pursuant to valid waivers of the provisions of, all federal, state and local
environmental or pollution-control laws, regulations, orders and decrees
governing, without limitation, the emission of wastewater effluent, solid and
hazardous waste and air pollution, and laying down general environmental
conditions together with any other applicable requirements for conducting, on a
timely basis, periodic tests and monitoring for contamination of ground water,
surface water, air and land and for biological toxicity of the aforesaid, and
diligently comply with the regulations (except to the extent such regulations
are waived by appropriate governmental authorities) of the Environmental
Protection Agency or other relevant federal, state or local governmental
authority except where noncompliance would not materially adversely affect the
business, financial condition or results of operations of the Company and its
Restricted Subsidiaries taken as a whole. The Company agrees to indemnify and
hold the holder of any Note, such holder's officers, agents and employees
harmless from any loss, liability, claim or expense which such holder may incur
or suffer as a result of a breach by the Company, its Subsidiaries or
Affiliates, as the case may be, of this covenant. The Company shall not be
deemed to have breached or violated this paragraph 5C if the Company, any
Restricted Subsidiary or any Affiliate of the Company is challenging in good
faith by appropriate proceedings diligently pursued the application or
enforcement of any such governmental requirements for which adequate reserves
have been established in accordance with generally accepted accounting
principles.
5D. PAYMENT OF TAXES. The Company will, and will cause each of its
Subsidiaries to, pay, or have paid on its behalf, before the same become
delinquent, all taxes, assessments and governmental charges imposed upon it or
upon its property except to the extent contested in good faith for which
adequate reserves have been established in accordance with generally accepted
accounting principles.
5E. MAINTENANCE OF INSURANCE. The Company covenants that it and each
Subsidiary will carry and maintain insurance (subject to self-insurance in the
maximum amount of $10,000,000, customary deductibles and retentions) in at least
such amounts and against such liabilities and hazards and by such methods as
customarily maintained by other companies operating similar businesses and,
together with each delivery of financial statements required by clause (ii)(A)
of paragraph 5A, will deliver an Officer's Certificate specifying the details of
such insurance in effect.
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5F. PRIVATE PLACEMENT RATING. If, at any time after January 1, 1998,
any Significant Holder requests that the Company obtain a rating for the Notes
from Standard & Poor's Rating Group, the Company will, no later than 30 days
following the receipt of such request, either (i) at its expense, initiate the
process to obtain such rating and obtain such rating as soon as reasonably
practicable (but in no event later than 90 days after the receipt of such
request) or (ii) pay to the Paying Agent, by wire transfer of immediately
available funds for the ratable account of the holders of the Notes, a fee equal
to 0.25% of the aggregate principal amount of the Notes outstanding on the date
of such request. In the event that the Company elects to obtain a rating
pursuant to clause (i) of the immediately preceding sentence and such rating is
not obtained within the time period specified in such clause or is not
equivalent to a long-term debt rating of BBB- or better from Standard & Poor's
Rating Group, the Company will, at the end of such period or within 30 days
after the receipt of such rating, as the case may be, pay to the Paying Agent in
accordance with the Paying Agent Agreement, by wire transfer of immediately
available funds for the ratable benefit of the holders of the Notes, a fee equal
to 0.25% of the aggregate outstanding principal amount of the Notes outstanding
on the date of the request to obtain such rating. The Company will promptly
notify each holder of a Note of any request from any Significant Holder to
obtain a rating for the Notes, the actions of the Company with respect to such
request, and, if the Company obtains a rating for the Notes, the Private
Placement Rating assigned to the Notes. Notwithstanding the foregoing, there
shall be no more than one request pursuant to this paragraph 5F that the Company
obtain a rating for the Notes.
5G. TAX INDEMNITY. The Company will indemnify and hold each
Purchaser harmless from and against any and all federal, state and local taxes,
interest, penalties and additions to tax ("TAXES") imposed upon or incurred by
any Purchaser as a result of (a) the Purchaser's receipt of the Notes in
exchange for the Series G Notes (an "ACTUAL EXCHANGE") or (b) any deemed
exchange (a "DEEMED EXCHANGE") of the Series G Notes resulting from any
modifications to the Series G Notes pursuant to any transactions entered into by
Parent or the Company in contemplation of, or contemporaneously with, the
transactions set forth in this Agreement. The amount of the indemnity shall
equal (i) the amount of Taxes incurred by the Purchaser on the Actual Exchange
or Deemed Exchange (including any penalties and interest imposed with respect to
such Taxes), plus (ii) an amount such that when the sum of the amounts set forth
in clause (i) and this clause (ii) are reduced by federal, state and local taxes
imposed upon, or incurred by, the Purchaser as a result of the receipt of such
sum, the reduced amount is equal to the amount set forth in clause (i) of this
paragraph 5G. If a Purchaser receives written notification from the Internal
Revenue Service ("IRS") that the IRS intends to assert that an Actual Exchange
or Deemed Exchange has occurred with respect to the Purchaser (a "TAXABLE
EXCHANGE ISSUE"), the Purchaser agrees to notify the Company with reasonable
promptness and further agrees not to pay any Taxes or consent to any tax
deficiency with respect to the Taxable Exchange Issue during the 30-day period
beginning on the date that the Purchaser notifies the Company of the Taxable
Exchange Issue. In addition, the Purchaser agrees to take such action in
contesting the Taxable Exchange Issue as the Company may reasonably request in
writing (including cooperating with the Company in providing information
relating solely to the Taxable Exchange Issue which may be particularly within
the knowledge of
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<PAGE>
the Purchaser), but only if (i) within 30 days after the Purchaser notifies the
Company of the Taxable Exchange Issue, the Company requests that the Purchaser
contest the Taxable Exchange Issue, (ii) the Company furnishes the Purchaser
with an opinion of independent tax counsel satisfactory to the Purchaser that
the Purchaser is more likely than not to prevail on the Taxable Exchange Issue,
(iii) if the Purchaser elects to pay the Taxes relating to the Taxable Exchange
Issue and seek a refund, the Company provides the Purchaser, on an interest free
basis, with sufficient funds to enable Purchaser to pay the Tax and (iv) such
requested action will not, in the Purchaser's sole judgment, interfere with the
Purchaser's ability to contest issues other than the Taxable Exchange Issue,
provided that the limitation in this clause (iv) shall not be interpreted as
permitting the Purchaser to refuse altogether to contest the Taxable Exchange
Issue.
5H. PRODUCTION PAYMENT. The Company will pay the Production Payment
in full no later than two weeks after the Date of Closing and, no later than
five (5) Business Days after such payment, will cause Parent and each other
holder, if any, of all or any portion of the Production Payment to deliver an
Officer's Certificate to each holder of a Note to such effect and as to the
termination of the Production Payment as provided therein.
PARAGRAPH 6. NEGATIVE COVENANTS
6. NEGATIVE COVENANTS. So long as any Note shall remain unpaid or
any holder of a Note shall have any commitment hereunder, the Company covenants
that:
6A. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. The Company will not and
will not permit any Restricted Subsidiary to (i) make any Restricted Investment
or (ii) pay or declare any dividend on any class of its stock or make any other
distribution on account of any class of its stock, or redeem, purchase or
otherwise acquire, directly or indirectly, any shares of its stock or (iii)
prior to the consummation of the Spin-Off, make any loan or advance to any
Ineligible Subsidiary or Parent (all of the foregoing described in clauses (ii)
and (iii) being herein called "RESTRICTED PAYMENTS") (a) except out of
Consolidated Net Earnings Available For Restricted Payments and Restricted
Investments, and (b) unless, after giving effect to any such Restricted
Investment or Restricted Payment, as the case may be, no Event of Default or
Default shall have occurred and be continuing. Notwithstanding the foregoing,
the Company will not, in each fiscal year prior to the fiscal year in which the
Spin-Off is consummated and, in the case of the fiscal year in which the
Spin-Off is consummated, the portion of the fiscal year preceding the
consummation of the Spin-Off, make Restricted Payments to or Restricted
Investments in Parent or any Ineligible Subsidiary in excess of $31,000,000 in
the aggregate for each such fiscal year or portion thereof. "CONSOLIDATED NET
EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS" shall
mean an amount equal to:
(1) the sum of (a) $62,000,000 plus (b) 100% (or minus 100% in case
of a deficit) of Consolidated Net Earnings for the period (taken as one
accounting period) commencing on the Date of Closing (the "COMMENCEMENT
DATE") and terminating at the end of the last fiscal quarter preceding the
date of any proposed
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Restricted Investment or Restricted Payment, as the case may be, plus,
without duplication, (c) the net cash proceeds received by the Company or
any Restricted Subsidiary from the sale of any shares of its stock after
the Commencement Date, except (i) any such proceeds used as a basis for a
prepayment in respect of the Notes pursuant to paragraph 4A or paragraph
4B, and (ii) the proceeds from the sale of stock to the Company or a
Subsidiary after the Commencement Date, plus, without duplication, (d) the
net cash proceeds received by the Company or any Restricted Subsidiary
from the sale, after the Commencement Date, of any convertible debt
security which has been converted into common stock of the Company or a
Restricted Subsidiary, except (i) any such proceeds used as a basis for a
prepayment in respect of the Notes pursuant to paragraph 4A or paragraph
4B and (ii) any proceeds from the sale of such convertible debt security
to the Company or a Subsidiary, plus, without duplication, (e) any return
of capital from Unrestricted Subsidiaries or Restricted Investments
received by the Company or any Restricted Subsidiary after the
Commencement Date, less
(2) the sum of all Restricted Investments and all Restricted
Payments made on or after the Commencement Date.
There shall not be included in Restricted Payments or in any computation of
Consolidated Net Earnings Available for Restricted Payments and Restricted
Investments (x) dividends paid or declared by the Company or any Restricted
Subsidiary in respect of stock thereof held by any Person, or distributions made
to any Person, in stock of the Company or such Restricted Subsidiary, as the
case may be, (y) exchanges of stock of one or more classes of the Company or any
Restricted Subsidiary for common stock of the Company or such Restricted
Subsidiary, as the case may be, or for stock of the Company or such Restricted
Subsidiary, as the case may be, of the same class, except to the extent that
cash or other value is paid by the Company or a Restricted Subsidiary in such
exchange, and (z) dividends paid or declared in respect of stock held by, or
distributions made to, or redemptions, purchases or other acquisitions of stock
made from, the Company or a wholly-owned Restricted Subsidiary. The term "STOCK"
as used in this paragraph 6A shall include warrants, options to purchase stock
and redeemable rights.
6B. LIEN, DEBT AND OTHER RESTRICTIONS. The Company will not and will
not permit any Restricted Subsidiary to:
6B(1).LIENS. Create, assume or suffer to exist any Lien upon any of
its properties or assets, whether now owned or hereafter acquired except
(i) Liens for taxes or assessments or other governmental
charges or levies not yet due or which are being actively contested
in good faith by appropriate proceedings,
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(ii) Liens (including, but not limited to, mechanics' and
materialmen's liens, landlord liens, easements, rights-of-way or the
like) incidental to the conduct of its business or the ownership of
its property and assets which are not incurred in connection with
the borrowing of money or the obtaining of advances or credit (other
than advances or credit on open account, includable in current
liabilities, for goods and services in the ordinary course of
business and on terms and conditions which are customary in the oil,
gas and mineral exploration and development business) or the
guaranteeing of the obligations of another Person, and which do not
in the aggregate materially detract from the value of its property
or assets or materially impair the use thereof in the operation of
its business,
(iii) Liens for lessor's royalties, overriding royalties, net
profits interests, carried interests, reversionary interests and
other similar burdens, production sales contracts, division orders,
contracts for the sale, purchase, exchange, or processing of
hydrocarbons, unitization and pooling designations, declarations,
orders and agreements, operating agreements, agreements of
development, area of mutual interest agreements, gas balancing or
deferred production agreements, processing agreements, plant
agreements, pipeline gathering and transportation agreements,
injection, repressuring and recycling agreements, salt water or
other disposal agreements, seismic or geophysical permits or
agreements, and other agreements which are customary in the oil, gas
and mineral exploration and development business or in the business
of processing gas and gas condensate production for the extraction
of products therefrom, if the net cumulative effect of such burdens
does not operate to reduce the net revenue interest of any oil and
gas properties (a) to less than the "NET REVENUE INTEREST" set forth
in the most recent Reserve Report for those oil and gas properties
included in such Reserve Report or (b) to less than the net revenue
interest so acquired for those oil and gas properties acquired after
the date of the most recent Reserve Report; PROVIDED, HOWEVER, that
such Liens are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than advances or
credit on open account, includable in current liabilities, for goods
and services in the ordinary course of business and on terms and
conditions which are customary in the oil, gas and mineral
exploration and development business) or the guaranteeing of the
obligations of another Person,
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(iv) Liens existing on any real property of any Person at the
time such Person becomes a Restricted Subsidiary, or any Liens
existing prior to the time of acquisition upon any real property
acquired by the Company or any Restricted Subsidiary through
purchase, merger or consolidation or otherwise, whether or not the
obligation secured by such Lien is assumed by the Company or such
Restricted Subsidiary, PROVIDED, that, (a) except as otherwise
permitted by the other clauses of this paragraph 6B(1), any such
Lien (x) shall not encumber any other property of the Company or any
Restricted Subsidiary, and (y) shall not have been created or
modified in any respect in anticipation of such Person becoming a
Restricted Subsidiary or in anticipation of the acquisition by the
Company or any Restricted Subsidiary of the real property subject
thereto (other than to reflect the assumption of such Lien or other
ministerial acts relating thereto), (b) the aggregate principal
amount of the obligations secured by any such Lien shall not be
increased prior to and in anticipation of, contemporaneously with or
following, the acquisition by the Company or any Restricted
Subsidiary of the real property subject thereto or such Person
becoming a Restricted Subsidiary, and (c) the obligations secured by
any such Lien shall not be modified, extended or renewed in any
respect (other than to reflect the assumption of such obligations or
other ministerial acts with respect thereto) prior to and in
anticipation of, contemporaneously with or following, the
acquisition by the Company or any Restricted Subsidiary of the real
property secured thereby or such Person becoming a Restricted
Subsidiary, and
(v) other Liens on any property of the Company or a Restricted
Subsidiary securing Debt permitted by the proviso to paragraph
6B(2)(ii).
6B(2).DEBT. Create, incur, assume or suffer to exist any Debt,
except
(i) unsecured Funded Debt or unsecured Current Debt of the
Company owing to and held by a wholly-owned Restricted Subsidiary
which is subordinated to the Funded Debt represented by the Notes
upon terms set forth on EXHIBIT C attached hereto, and Funded Debt
or Current Debt of a Restricted Subsidiary owing to and held by the
Company or one or more other wholly-owned Restricted Subsidiaries,
and
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(ii) other Funded Debt and Current Debt of the Company and its
Restricted Subsidiaries the aggregate principal amount of which does
not at any time exceed 300% of the excess of (i) EBITD for the
immediately preceding four fiscal quarters OVER (ii) the aggregate
amount of Restricted Payments for such immediately preceding four
fiscal quarters, PROVIDED, that (A) until payment in full of the
Production Payment, the Production Payment shall be the only
Priority Debt outstanding, and (B) thereafter, the aggregate
principal amount of Priority Debt outstanding may not exceed at any
time 15% of Consolidated Tangible Net Worth.
6B(3).SALE OF LESS THAN SUBSTANTIALLY ALL ASSETS. Sell, exchange,
transfer or otherwise dispose of part, but less than all or substantially all,
of their respective assets, unless
(i) such sale, exchange, transfer or other disposition is made
in the ordinary course of business (including, without limitation,
abandonments, farm-ins, farm-outs, leases and subleases of developed
or undeveloped properties owned or held by the Company or any
Restricted Subsidiary that are made or entered into in the ordinary
course of business, but EXCLUDING, however, any sale of net profits
interests in developed oil and gas properties); or
(ii) after giving effect to such sale, exchange, transfer or
other disposition, (1) the aggregate net book value of (a) all
assets of the Company and its Restricted Subsidiaries (including,
without limitation, the sale of net profits interests in developed
oil and gas properties) sold, exchanged, transferred or otherwise
disposed of (on a consolidated basis) (but excluding assets sold,
exchanged, transferred or otherwise disposed of in the ordinary
course of business pursuant to subparagraph 6B(3)(i) above) during
the period of 12 consecutive months immediately preceding such sale,
exchange, transfer or other disposition and (b) the assets of all
Restricted Subsidiaries, the stock of which have been sold or
otherwise disposed of pursuant to paragraph 6B(4)(b)(i) during such
12-month period shall not exceed 10% of Consolidated Net Tangible
Assets of the Company and its Restricted Subsidiaries as of the end
of the fiscal quarter immediately preceding or coinciding with such
sale, exchange, transfer or other disposition, and (2) the assets
described in the foregoing subclauses (a) and (b) shall not have
contributed more than 10% of EBITD of the Company and its Restricted
Subsidiaries for the four most recently completed fiscal quarters
taken as a single accounting period; or
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(iii) after giving effect to such sale, exchange, transfer or
other disposition, (1) the aggregate net book value of (a) all
assets of the Company and its Restricted Subsidiaries (including,
without limitation, the sale of net profits interests in developed
oil and gas properties) sold, exchanged, transferred or otherwise
disposed of (on a consolidated basis) (but excluding assets sold,
exchanged, transferred or otherwise disposed of pursuant to
subparagraphs 6B(3)(i) and (ii) above) during the period of twelve
consecutive months immediately preceding such sale, exchange,
transfer or other disposition and (b) the assets of all Restricted
Subsidiaries, the stock of which has been sold or otherwise disposed
of pursuant to paragraph 6B(4)(b)(ii) during such 12-month period,
shall not exceed 10% of Consolidated Net Tangible Assets of the
Company and its Restricted Subsidiaries as of the end of the fiscal
quarter immediately preceding or coinciding with such sale,
exchange, transfer or other disposition and (2) the assets described
in the foregoing subclauses (a) and (b) shall not have contributed
more than 10% of EBITD of the Company and its Restricted
Subsidiaries for the four most recently completed fiscal quarters
taken as a single accounting period, and (3) within six months after
such sale, exchange, transfer or other disposition, the net proceeds
thereof are applied toward, or the exchange results in, (a) the
acquisition by the Company or a Restricted Subsidiary of (1) assets
which have an aggregate fair market value at least equal to the net
proceeds received by the Company and its Restricted Subsidiaries
from such sale, exchange, transfer or other disposition, (2) if the
assets so sold, exchanged, transferred or otherwise disposed of were
located in the United States of America or Canada, the assets
acquired are located in the United States of America or Canada and
(3) the assets so acquired are of a type usual and customary in the
oil and gas business, PROVIDED that no Liens shall at any time exist
on the assets so acquired which secure any Debt except as permitted
by paragraph 6B(1)(i), (ii), (iii) or (v), or (b) the prepayment of
an aggregate principal amount of all Notes plus accrued interest and
premium, if any (at the greater of par or the respective applicable
Yield-Maintenance Premium), or the payment of an aggregate principal
amount of other Funded Debt (other than Funded Debt subordinate in
right of payment to the Notes) plus accrued interest and premium, if
any, in either case in an amount at least equal to the aggregate net
proceeds that the Company or its Restricted Subsidiary receives from
the sale, exchange, transfer or other disposition of such assets.
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6B(4).SALE OF STOCK OF RESTRICTED SUBSIDIARIES. Sell or otherwise
dispose of, or part with control of, any shares of stock of any Restricted
Subsidiary, (a) except to the Company or another wholly-owned Restricted
Subsidiary, and (b) except that all shares of stock of any Restricted Subsidiary
at the time owned by the Company and all Restricted Subsidiaries may be sold as
an entirety for a cash consideration which represents the fair market value (as
determined in good faith by the Board of Directors of the Company) at the time
of sale of the shares of stock so sold, PROVIDED that for purposes of clause (b)
of this paragraph 6B(4):
(i) (a) the net book value of the assets of such Restricted
Subsidiary together with (i) the net book value of the assets of any
other Restricted Subsidiary the stock of which was sold during the
preceding 12-month period and (ii) the net book value of the assets
of the Company and all Restricted Subsidiaries sold, exchanged,
transferred or otherwise disposed of pursuant to paragraph 6B(3)(ii)
during the preceding 12-month period, does not represent more than
10% of Consolidated Net Tangible Assets of the Company and its
Restricted Subsidiaries as of the end of the fiscal quarter
immediately preceding or coinciding with such sale, exchange,
transfer or other disposition and (b) the earnings of such
Restricted Subsidiary together with (i) the earnings of any other
Restricted Subsidiary the stock of which was sold or otherwise
disposed of pursuant to this paragraph 6B(4)(b)(i) during the
preceding 12-month period and (ii) the earnings attributable to the
assets sold, exchanged, transferred or otherwise disposed of
pursuant to paragraph 6B(3)(ii) during such 12-month period, do not
represent more than 10% of EBITD of the Company and its Restricted
Subsidiaries for the four most recently completed fiscal quarters
taken as a single accounting period, and PROVIDED FURTHER that, at
the time of such sale, such Restricted Subsidiary shall not own,
directly or indirectly, (i) any shares of stock of the Company or
(ii) any shares of stock of any other Restricted Subsidiary unless
all of the shares of stock of such other Restricted Subsidiary
owned, directly or indirectly, by the Company and all Restricted
Subsidiaries are simultaneously being sold as permitted by this
paragraph 6B(4)(b)(i), or
(ii) (a) the net book value of the assets of such Restricted
Subsidiary together with (i) the net book value of the assets of any
other Restricted Subsidiary the stock of which was sold during the
preceding 12-month period and (ii) the net book value of the assets
of the Company and any Restricted Subsidiary sold, exchanged,
transferred or otherwise disposed of pursuant to paragraph
6B(3)(iii)
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during the preceding 12-month period, does not represent more than
10% of the Consolidated Net Tangible Assets of the Company and its
Restricted Subsidiaries as of the end of the fiscal quarter
immediately preceding or coinciding with such sale, exchange,
transfer or other disposition, and (b) the earnings of such
Restricted Subsidiary together with (i) the earnings of any other
Restricted Subsidiary the stock of which was sold or otherwise
disposed of pursuant to this subparagraph 6B(4)(b)(ii) during the
preceding 12-month period and (ii) the earnings attributable to the
assets sold, exchanged, transferred or otherwise disposed of
pursuant to paragraph 6B(3)(iii) during such 12-month period, do not
represent more than 10% of EBITD of the Company and its Restricted
Subsidiaries for the four most recently completed fiscal quarters
taken as a single accounting period, and (c) within six months after
such sale or other disposition, the proceeds thereof are applied
toward (A) the acquisition by the Company or a Restricted Subsidiary
of (1) assets which have an aggregate fair market value at least
equal to the net proceeds received by the Company and its Restricted
Subsidiaries from such sale or other disposition, (2) the assets so
acquired are of a type usual and customary in the oil and gas
business, PROVIDED that no Liens shall at any time exist on the
assets so acquired which secure any Debt except as permitted by
paragraph 6B(1)(i), (ii), (iii) or (v), or (B) the prepayment of an
aggregate principal amount of all Notes plus accrued interest and
premium, if any (at the greater of par or the respective applicable
Yield-Maintenance Premium), or the payment of an aggregate principal
amount of other Funded Debt (other than Funded Debt subordinate in
right of payment to the Notes) plus accrued interest and premium, if
any, in either case in an amount at least equal to the aggregate net
proceeds that the Company or its Restricted Subsidiary receives from
the sale or other disposition, and PROVIDED FURTHER that, at the
time of such sale or other disposition, such Restricted Subsidiary
shall not own, directly or indirectly, (i) any shares of stock of
the Company or (ii) any shares of stock of any other Restricted
Subsidiary unless all of the shares of stock of such other
Restricted Subsidiary owned, directly or indirectly, by the Company
and all Restricted Subsidiaries are simultaneously being sold as
permitted by this paragraph 6B(4)(b)(ii).
6B(5).MERGER AND SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. Merge or
consolidate with or into any other Person or convey, exchange, transfer or
otherwise dispose of all or a substantial part of its assets (I.E., assets which
could not otherwise be disposed of pursuant to paragraph 6B(3)(ii) or (iii)) to
any Person except that
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(i) any wholly-owned Restricted Subsidiary may merge with the
Company (PROVIDED that the Company shall be the continuing or
surviving corporation) or with any one or more other wholly-owned
Restricted Subsidiaries,
(ii) any Restricted Subsidiary may sell, exchange, transfer
or otherwise dispose of any of its assets to the Company or to a
wholly-owned Restricted Subsidiary,
(iii) any Restricted Subsidiary may sell, exchange, transfer
or otherwise dispose of all or substantially all of its assets
subject to the conditions and provisions specified in paragraphs
6B(3)(ii) and (iii),
(iv) any Restricted Subsidiary may merge into or consolidate
with any Person which does not thereupon become a Restricted
Subsidiary, subject to the conditions and provisions specified in
paragraph 6B(4) with respect to a sale or other disposition of the
stock of such Restricted Subsidiary,
(v) any Restricted Subsidiary may permit any Person to be
merged into such Restricted Subsidiary or may consolidate with or
merge into a Person which thereupon becomes a Restricted Subsidiary,
PROVIDED that immediately after any such merger or consolidation, no
Default or Event of Default shall have occurred and be continuing,
(vi) the Company may permit any Person to be merged into the
Company (such that the Company shall be the continuing or surviving
corporation), and
(vii) the Company may permit any corporation to consolidate
with the Company and the Company may merge into or otherwise dispose
of its assets as an entirety or substantially as an entirety to any
solvent corporation organized under the laws of the United States of
America or any state thereof and having at least 80% of its
consolidated assets located in the United States of America and
Canada which expressly assumes in writing the due and punctual
performance of the obligations of the Company under this Agreement
and the Notes to the same extent as if such successor or transferee
corporation had originally executed this Agreement and each of the
Notes in the place of the Company (it being agreed that such
assumption shall, upon the request of the holder of any outstanding
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Note and at the expense of such successor or transferee corporation,
be evidenced by the exchange of such Note for another Note executed
by such successor or transferee corporation, with such changes in
phraseology and form as may be appropriate but in substance of like
terms as the Note surrendered for such exchange and of like unpaid
principal amount, and that each Note executed pursuant to paragraph
11 hereof after such assumption shall be executed by and in the name
of such successor or transferee corporation);
PROVIDED, that for purposes of subparagraphs 6B(5)(vi) and (vii) immediately
after such merger, consolidation, sale or other disposition, and after giving
effect thereto, no Event of Default or Default shall have occurred and be
continuing. As soon as practicable, and in any event at least 75 days prior to
the proposed consummation date of any merger, consolidation, sale or other
disposition described in subparagraph 6B(5)(vii), the Company shall give written
notice thereof to each holder of a Note describing in reasonable detail the
proposed transaction, the date on which it is proposed to be consummated and the
identity, jurisdiction of organization, and geographic composition of assets of
the proposed successor or transferee corporation. No disposition by the Company
of its assets as an entirety or substantially as an entirety under subparagraph
6B(5)(vii) shall release the corporation that originally executed this Agreement
as the issuer of the Notes from its liability as obligor thereon.
6B(6).SALE AND LEASEBACK. Enter into any Sale and Leaseback
Transaction unless:
(i) the net sales proceeds received by the Company or a
Restricted Subsidiary in respect of the assets sold pursuant to such
Sale and Leaseback Transaction are greater than or equal to the fair
market value of the assets sold (which determination shall be based
upon a written opinion (the cost of which shall be borne exclusively
by the Company) as to valuation from an independent valuation expert
selected by the Company) and such proceeds are concurrently applied
to: (a) the purchase, acquisition, development or construction of
assets having a value at least equal to such net proceeds, and to be
used in the Company's or such Restricted Subsidiary's business,
PROVIDED that no Liens shall at any time exist on such assets which
secure any Debt except as permitted by paragraph 6(B)(1)(i), (ii),
(iii) or (v); or (b) the prepayment at the greater of par or the
respective applicable Yield-Maintenance Premium, of an aggregate
principal amount of all the Notes (plus accrued interest and
premium, if any) at least equal to the amount of such net proceeds;
or (c) the payment of other Funded Debt (other than Funded Debt
subordinate in right of payment to the Notes) in an aggregate
principal amount at least equal to the amount of such net sales
proceeds; or
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(ii) the Sale and Leaseback Transaction involves the sale of
assets by the Company to a wholly-owned Restricted Subsidiary or by
a Restricted Subsidiary to the Company or to another wholly-owned
Restricted Subsidiary; PROVIDED, that if the Company is the seller
under any such Sale and Leaseback Transaction, its lease obligations
thereunder shall be subordinated to the Funded Debt represented by
the Notes upon terms set forth on EXHIBIT C attached hereto.
6B(7).TRANSACTIONS WITH AFFILIATES. Directly or indirectly purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, in the ordinary course of business or otherwise, (i) any
Affiliate (except an employee compensation benefit plan) or (ii) any Person
(other than a Restricted Subsidiary) in which an Affiliate or the Company
(directly or indirectly) owns, beneficially or of record, 5% or more of the
outstanding voting stock or similar equity interest, except that (a) any
Affiliate may be a director, officer or employee of the Company or any
Restricted Subsidiary and may be paid reasonable compensation in connection
therewith, (b) acts and transactions that would otherwise be prohibited by this
paragraph 6B(7) may be performed or engaged in if upon terms not less favorable
to the Company or any Restricted Subsidiary than if no relationship described in
clauses (i) and (ii) above existed, and (c) this paragraph 6B(7) shall not apply
to any agreement specified in paragraph 3A(iii), (iv), (v) or (vi) or to any
transaction described in any such agreement.
6B(8).TAX CONSOLIDATION. Except for the Tax Allocation Agreement and
the Agreement Concerning Taxes, the Company will not, and will not permit any of
its Subsidiaries to, file or consent to the filing of any consolidated income
tax return with any Person unless such other Person shall have agreed in writing
with the Company that the Company's or such Subsidiary's liability with respect
to taxes as a result of the filing of any such consolidated income tax return
with such Person shall not be materially greater, nor the receipt of any tax
benefits materially less, than they would have been had the Company and its
Subsidiaries continued to file a consolidated income tax return with the Company
as the parent corporation.
6C. ISSUANCE OF STOCK BY RESTRICTED SUBSIDIARIES. The Company
covenants that it will not permit any Restricted Subsidiary (either directly or
indirectly, by the issuance of rights or options for, or securities convertible
into, such shares) to issue, sell or otherwise dispose of any shares of any
authorized but unissued or treasury class of such Restricted Subsidiary's stock
(other than directors' qualifying shares) except to the Company or another
Restricted Subsidiary.
6D. MAINTENANCE OF CONSOLIDATED NET WORTH. The Company will not
permit Consolidated Net Worth to be less than (i) at any time prior to April 1,
1999, $115,000,000, and (ii) at any time after March 31, 1999, the sum of (a)
$115,000,000 and (b) 20% of the sum of Consolidated Net Income (but in the case
of each fiscal quarter, only if a positive number) for all then completed fiscal
quarters beginning with the fiscal quarter ending March 31, 1999.
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6E. INTEREST COVERAGE. The Company will not permit at any time the
ratio of (a) EBITD for the period of four fiscal quarters then most recently
ended to (b) the aggregate Fixed Charges of the Company and its Restricted
Subsidiaries on a consolidated basis for such period to be less than 3.00 to
1.00.
PARAGRAPH 7. EVENTS OF DEFAULT
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment or prepayment of any
principal of or any Yield-Maintenance Premium on any Note when the
same shall become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Company defaults in the payment of any interest on
any Note for more than five (5) Business Days after the date due; or
(iii) the Company or any Restricted Subsidiary defaults in any
payment of principal of or interest on any other obligation for
money borrowed (or any Capitalized Lease Obligation, any obligation
under a conditional sale or other title retention agreement, any
obligation issued or assumed as full or partial payment for property
whether or not secured by a purchase money mortgage or any
obligation under notes payable or drafts accepted representing
extensions of credit) beyond any period of grace provided with
respect thereto, or the Company or any Restricted Subsidiary fails
to perform or observe any other agreement, term or condition
contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such
agreement shall occur and be continuing) and the effect of such
failure or other event is to cause, or to permit the holder or
holders of such obligation (or a trustee on behalf of such holder or
holders) to cause, such obligation to become due prior to any stated
maturity or the Company fails to pay any Guaranty relating to Debt
for borrowed money in accordance with its terms, PROVIDED that the
aggregate amount of all obligations as to which such a payment
default shall occur and be continuing or such a failure or other
event causing or permitting acceleration shall occur and be
continuing exceeds $10,000,000; or
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(iv) any representation or warranty made by the Company herein
or by the Company or any of its officers in any writing furnished in
connection with or pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(v) the Company fails to perform or observe any term,
agreement or covenant contained in paragraph 5H or paragraph 6; or
(vi) the Company fails to perform or observe any other term,
agreement or covenant contained herein and such failure shall not be
remedied within 30 days after any executive officer of the Company
obtains actual knowledge thereof; or
(vii) the Company or any Restricted Subsidiary makes an
assignment for the benefit of creditors or is generally not paying
its debts as such debts become due; or
(viii)a court or governmental authority enters any decree or
order for relief in respect of the Company or any Restricted
Subsidiary under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect
(herein called the "BANKRUPTCY LAW"), of any jurisdiction; or
(ix) the Company or any Restricted Subsidiary petitions or
applies to any tribunal for, or consents to, the appointment of, or
taking possession by, a trustee, receiver, custodian, liquidator or
similar official of the Company or any Restricted Subsidiary, or of
any substantial part of the assets of the Company or any Restricted
Subsidiary, or commences a voluntary case under the Bankruptcy Law
of the United States or any proceedings (other than proceedings for
the voluntary liquidation and dissolution of a Restricted
Subsidiary) relating to the Company or any Restricted Subsidiary
under the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application referred to in clause
(ix) above is filed, or any such proceedings referred to in clause
(ix) above are commenced, against the Company or any Restricted
Subsidiary and the Company or such Restricted Subsidiary
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by any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect
for more than 60 consecutive days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company or any Restricted Subsidiary and such order, judgment or
decree remains unstayed and in effect for more than 60 consecutive
days; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Restricted Subsidiary
decreeing a split-up of the Company or such Restricted Subsidiary
which requires (a) the divestiture of assets which exceed, or the
divestiture of the stock of a Restricted Subsidiary whose assets
exceed, 10% of Consolidated Net Tangible Assets of the Company and
its Restricted Subsidiaries as of the end of the fiscal quarter
immediately preceding or coinciding with such divestiture or (b) the
divestiture of assets or stock of a Restricted Subsidiary, which
shall have contributed more than 10% of EBITD for the four most
recently completed fiscal quarters, and such order, judgment or
decree remains unstayed and in effect for more than 60 consecutive
days; or
(xiii) any judgment or order, or series of judgments or
orders, for the payment of money in an amount in excess of
$5,000,000 is rendered against the Company or any Restricted
Subsidiary and either (i) enforcement proceedings have been
commenced by any creditor upon such judgment or order or (ii) within
30 days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within 60 days after the
expiration of any such stay, such judgment is not discharged;
(xiv) any Termination Event with respect to a Plan shall have
occurred, and, (i) within 60 days after the occurrence thereof, such
Termination Event (if correctable) shall not have been corrected and
(ii) the then present value of such Plan's vested accrued benefits
exceeds the then current value of assets accumulated in such Plan by
more than the amount of $5,000,000 (or in the case of a Termination
Event involving the withdrawal of a "SUBSTANTIAL EMPLOYER" (as
defined in Section 4001(a)(2) of ERISA), the withdrawing employer's
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proportionate share of such excess shall exceed such amount) (in
each case excluding all amounts for which the Company and its
Subsidiaries are indemnified, or would be indemnified if there were
a Loss (as defined in the Monterey ERISA Indemnification Agreement),
under the Monterey ERISA Indemnification Agreement);
(xv) the Company or any of its ERISA Affiliates as employer
under a Multiemployer Plan shall have made a complete or partial
withdrawal from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer
that such employer has incurred a withdrawal liability in an
aggregate amount exceeding $5,000,000 (excluding all amounts for
which the Company and its Subsidiaries are indemnified, or would be
indemnified if there were a Loss (as defined in the Monterey ERISA
Indemnification Agreement), under the Monterey ERISA Indemnification
Agreement);
(xvi) the Company or any of its ERISA Affiliates has Unfunded
Vested Accrued Benefits in excess of 5% of Consolidated Net Tangible
Assets under Plans covered by Title IV of ERISA (excluding all
amounts for which the Company and its Subsidiaries are indemnified,
or would be indemnified if there were a Loss (as defined in the
Monterey ERISA Indemnification Agreement), under the Monterey ERISA
Indemnification Agreement), PROVIDED that for each calendar year
during the term of this Agreement, the determination under this
paragraph 7A(xvi) shall be made as of the end of each calendar
quarter and shall be based upon (a) the aggregate Unfunded Vested
Accrued Benefits under such Plans as shown in the most recent
audited financial statements, or the notes thereto, furnished to the
holders pursuant to paragraph 5A(ii)(A) and (b) Consolidated Net
Tangible Assets of the Company and its Restricted Subsidiaries as at
the end of such quarter;
(xvii) one or more demands for payment are made upon the
Company by Parent or any other Person pursuant to the Agreement
Concerning Taxes, which payments, if made, would exceed $5,000,000
in the aggregate;
(xviii) one or more demands for payment are made upon the
Company by Parent or any other Person pursuant to the Original
Spin-Off Indemnification Agreement, which payments, if made, would
exceed $5,000,000 in the aggregate;
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(xix) if the Date of Closing does not occur on or before
November 22, 1996, the Company or Parent fails to perform or observe
any term, agreement or covenant contained in Section 3.3 of the
Waiver; or
(xx) a Change of Control shall occur;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due and payable at par together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company, (b) if such event is an Event of Default
specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the
Company, all of the Notes at the time outstanding shall automatically become
immediately due and payable together with interest accrued thereon and together
with the Yield-Maintenance Premium, if any, with respect to each Note, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company, and (c) if such event is not an Event of Default
specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the
Company, the holder(s) of at least 331/3% of the aggregate unpaid principal
amount of the Notes then outstanding may at its or their option, by notice in
writing to the Company, declare all of the Notes to be, and all of the Notes
shall thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance Premium, if
any, with respect to each Note, without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company.
The Company acknowledges, and the parties hereto agree, that each holder
of a Note has the right to maintain its investment in the Notes free from
repayment by the Company (except as herein specifically provided for) and that
the provisions for payment of the Yield-Maintenance Premium by the Company in
the event that the Notes are prepaid or are accelerated as a result of an Event
of Default are intended to provide compensation for the deprivation of such
right under such circumstances.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to paragraph
7A, the holder(s) of at least 67% of the aggregate unpaid principal amount of
the Notes then outstanding may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest on the Notes, the principal of and Yield-Maintenance
Premium, if any, payable with respect to any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield-Maintenance Premium, at the rate
specified in the Notes, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C, and (iv) no judgment or decree shall have
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been entered for the payment of any amounts due pursuant to the Notes or this
Agreement. No such rescission or annulment shall extend to or affect any
subsequent Event of Default or Default or impair any right arising therefrom.
7C. OTHER REMEDIES. If any Event of Default or Default shall occur
and be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
7D. NOTICE BY THE COMPANY OF ACCELERATION. If the holder or holders
of at least 331/3% of the aggregate unpaid principal amount of the Notes
outstanding shall give notice of acceleration of the maturity of all the Notes
pursuant to paragraph 7A(c) or if the holder of any Note shall give notice of
acceleration of the maturity thereof, as provided in paragraph 7A(a), the
Company will forthwith give written notice thereof to the holders of all
outstanding Notes, describing the nature and status of the Event of Default
giving rise to such notice of acceleration and what action the Company proposes
to take with respect thereto, unless such a notice has previously been given by
the Company pursuant to paragraph 5A.
PARAGRAPH 8. REPRESENTATIONS, COVENANTS AND WARRANTIES
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants:
8A. ORGANIZATION; QUALIFICATION; CORPORATE AUTHORITY. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized. The Company has and each Subsidiary has the power to own its
respective property and to carry on its respective business as now being
conducted. The execution, delivery and performance by the Company of this
Agreement, the Notes, the Paying Agent Agreement and all documentation necessary
to consummate the Other Transactions are within the Company's corporate powers
and have been duly authorized by all necessary corporate action. The Company and
all Restricted Subsidiaries are duly qualified as foreign corporations to do
business and are in good standing in every jurisdiction in which the nature of
the properties owned or the businesses conducted by them makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified or in good standing would not individually or in the aggregate
have a material adverse effect on the business, financial condition or results
of operations of the Company and its Restricted Subsidiaries taken as a whole.
The only Subsidiary of the Company is identified on SCHEDULE 8A attached hereto,
and the percentage of the partnership
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interests in such Subsidiary owned by the Company and the state of organization
of such Subsidiary are as stated in SCHEDULE 8A. All of the outstanding
partnership interests in such Subsidiary have been validly issued, are fully
paid and (except as provided in the partnership agreement and in the Texas
Revised Uniform Limited Partnership Act) nonassessable, and are free of any
adverse claim or other Lien. As of the Date of Closing and prior to giving
effect to the shares to be sold pursuant to the Underwriting Agreements, the
authorized capital stock of the Company consists of (i) 100,000,000 shares of
common stock, par value $0.01 per share, of which 45,350,000 shares are issued
and outstanding and (ii) 25,000,000 shares of preferred stock, par value $0.01
per share, of which no shares are issued and outstanding. All of the outstanding
shares of the Company have been validly issued, are fully paid and
nonassessable. No Subsidiary owns any share of stock of the Company.
8B. FINANCIAL STATEMENTS. The Company has furnished the Purchasers
with the following financial statements, identified by a principal financial
officer of the Company: (a) (i) a consolidated balance sheet with respect to the
"Western Division" of Parent as at December 31 in each of the years 1994 and
1995, and (ii) consolidated statements of operations, division equity and cash
flows with respect to the "Western Division" of Parent for each of the years
1993 to 1995, inclusive, all certified by Price Waterhouse LLP, and (b)(i) a pro
forma consolidated balance sheet of the Company as at September 30, 1996 and
(ii) pro forma consolidated statements of operations of the Company for the nine
months ended September 30, 1996 and for the fiscal year ended December 31, 1995.
The balance sheets fairly present the historical financial condition of the
"Western Division" of Parent or the pro forma financial condition of the Company
and its Subsidiaries, as the case may be (in the case of the Company, on a pro
forma basis as of such dates, as adjusted to give effect to the transactions
contemplated by this Agreement and the Other Transactions), as at the dates
thereof, and the statements of operations, division equity, and cash flows
fairly present the results of the operations of the "Western Division" of Parent
or the Company and its Subsidiaries (on such pro forma basis), as the case may
be, for the periods indicated (subject to year-end adjustments in the case of
the pro forma basis financial statements of the Company). There has been no
material adverse change in the business, financial condition or results of
operations of the "Western Division" of Parent since December 31, 1995 or of the
Company (on such pro forma basis or in actuality) since September 30, 1996. The
assets of the Company constitute the assets allocated to the "Western Division"
of Parent except for the Excluded Assets, as such term is defined in the
Conveyance and Contribution Agreement, the liabilities of the Company constitute
the liabilities allocated to the "Western Division" of Parent except for the
Retained Liabilities, as such term is defined in the Conveyance and Contribution
Agreement, and the pro forma balance sheet of the Company as at September 30,
1996 fairly presents, in all material respects, the assets and liabilities of
the Company as of the Date of Closing that are of a nature required to be
reflected in a balance sheet (including the footnotes thereto) prepared in
accordance with generally accepted accounting principles except for assets
disposed of or acquired, and liabilities arising or discharged, in the ordinary
course of business after September 30, 1996.
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8C. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company
nor any of its Subsidiaries is a party to any contract or agreement or subject
to any charter or other corporate restriction which materially and adversely
affects its business, financial condition or results of operations. Neither the
execution nor delivery of this Agreement, the Notes or the Paying Agent
Agreement, nor the offering, issuance and delivery of the Notes, nor fulfillment
of nor compliance with the terms and provisions of this Agreement, the Notes nor
the consummation of the Other Transactions will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
or result in any violation of, or result in the creation of any Lien (other than
the Production Payment) upon any of the properties or assets of Parent, any
Subsidiary of Parent, the Company or any Subsidiary of the Company pursuant to,
the charter or by-laws of Parent, any Subsidiary of Parent, the Company or any
Subsidiary of the Company, any award of any arbitrator or any material agreement
(including any agreement with stockholders), instrument, order, judgment,
decree, statute, law, rule or regulation to which Parent, any Subsidiary of
Parent, the Company or any Subsidiary of the Company is subject. Except as
disclosed on SCHEDULE 8C, Parent, any Subsidiary of Parent, the Company and any
Subsidiary of the Company are not parties to, or otherwise subject to any
provision contained in, any instrument evidencing indebtedness of Parent, any
Subsidiary of Parent, the Company or any Subsidiary of the Company, any
agreement relating thereto or any other contract or agreement (including their
respective charters) which limits the amount of, or otherwise imposes
restrictions on the incurring of, Debt of the Company of the type to be
evidenced by the Notes.
8D. GOVERNMENTAL CONSENT. Neither the nature of Parent, any
Subsidiary of Parent, the Company or any Subsidiary of the Company, nor any of
their respective businesses or properties, nor any relationship between Parent,
any Subsidiary of Parent, the Company or any Subsidiary of the Company and any
other Person, nor any circumstance in connection with the offering, issuance or
exchange of the Notes for the Series G Notes or the consummation of the Other
Transactions is such as to require any authorization, consent, approval,
exemption or other action by or notice to or filing with any court or
administrative or governmental or regulatory body (other than (i) those obtained
in connection with the Other Transactions, the Tender Offer and the Consent
Solicitation and (ii) routine filings after the Date of Closing with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Agreement or the Paying Agent
Agreement, the offering, issuance or exchange of the Notes for the Series G
Notes, fulfillment of or compliance with the terms and provisions of this
Agreement, the Notes or the Paying Agent Agreement or the consummation of the
Other Transactions.
8E. ENFORCEABILITY. This Agreement and the Paying Agent Agreement
are, and the Notes when delivered hereunder will be, legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms.
8F. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against
Parent, any Subsidiary of Parent, the Company or any Subsidiary of the Company,
or any properties or rights of Parent, any Subsidiary of Parent, the Company or
any Subsidiary of the Company, by or before any court,
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arbitrator or administrative or governmental body which, if determined
adversely, would have a material adverse effect on the business, financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole. There is no action, suit, investigation or proceeding pending or, to
the Company's knowledge, threatened against Parent, any Subsidiary of Parent,
the Company or any of Subsidiary of the Company which purports to affect the
validity or enforceability of this Agreement, any Note or the Paying Agent
Agreement or the consummation of the Other Transactions.
8G. OUTSTANDING DEBT. Neither the Company nor any of its Restricted
Subsidiaries has outstanding any Debt except as set forth on SCHEDULE 8G
attached hereto. There exists no default under the provisions of any instrument
evidencing such Debt or any Debt of Parent or of any agreement relating thereto,
and except for the Waiver, no waiver of default, which is conditional or time
limited, is currently in effect with respect to any instrument evidencing such
Debt or any Debt of Parent or any agreement relating thereto.
8H. TITLE TO PROPERTIES. Except to the extent disclosed under the
caption entitled "Business - Other Business Matters - Title to Properties" in
the Prospectus, the Company has and each of its Subsidiaries has good and
indefeasible title to its respective real properties (other than properties held
under leases) and good and defensible title to all of its other respective
properties and assets, including the properties and assets reflected in the
balance sheet as at September 30, 1996 referred to in paragraph 8B (other than
properties and assets disposed of in the ordinary course of business), subject
to no Lien of any kind except Liens permitted by clauses (i) through (iii) of
paragraph 6B(1). All leases necessary in any material respect for the conduct of
the respective businesses of the Company and its Subsidiaries are valid and
subsisting and are in full force and effect.
8I. TAXES. Parent has, the Company has and each of its Subsidiaries
has filed, or has had filed on its behalf, all federal, state and other income
tax returns which, to the best knowledge of the executive officers of the
Company, are required to be filed, except such tax returns (other than state and
federal) with respect to which such failure to file will not, individually or in
the aggregate, have a material adverse effect on the business, financial
condition or results of operations of the Company and its Restricted
Subsidiaries taken as a whole, and each has paid all taxes as shown on such
returns and on all assessments received by it except to the extent contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with generally accepted accounting principles.
8J. OFFERING OF NOTES. Neither the Company nor any agent acting on
its behalf has, directly or indirectly, offered the Notes or any similar
security of the Company for sale to, or solicited any offers to buy the Notes or
any similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than the Purchasers, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes to the provisions of
section 5 of the Securities Act or to the provisions of any securities or Blue
Sky law of any applicable jurisdiction.
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8K. USE OF PROCEEDS FROM THE INITIAL PUBLIC OFFERING. SCHEDULE 8K is
a true and complete list and description of the use and proposed use of proceeds
from the Initial Public Offering.
8L. REGULATION G, ETC. Neither the Company nor any Subsidiary owns
or has any present intention of acquiring any "MARGIN STOCK" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System (herein called "MARGIN STOCK"). The issuance of the Notes in exchange for
the Series G Notes does not constitute a "PURPOSE CREDIT" within the meaning of
such Regulation G. Neither the Company nor Parent nor any agent acting on its
behalf has taken or will take any action which might cause this Agreement or the
Notes to violate Regulation G, Regulation T or any other regulation of the Board
of Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934, as amended, in each case as in effect now or as the same may
hereafter be in effect.
8M. ERISA. No accumulated funding deficiency (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan. No liability to the Pension Benefit Guaranty Corporation
has been or is expected by the Company to be incurred with respect to any Plan
or any Multiemployer Plan by the Company or any of its ERISA Affiliates which
has had or would have a material adverse effect on the business, financial
condition or results of operations of the Company and its Restricted
Subsidiaries taken as a whole. Neither the Company nor any of its ERISA
Affiliates has incurred or presently expects to incur any withdrawal liability
under Title IV of ERISA with respect to any Multiemployer Plan which has had or
would have a material adverse effect as the business, financial condition or
results of operations of the Company and its Restricted Subsidiaries taken as a
whole. The execution and delivery of this Agreement and the Paying Agent
Agreement and the issuance and sale of the Notes will not involve any
transaction which is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section 4975 of the
Code. The representation by the Company in the next preceding sentence is made
in reliance upon and subject to the accuracy of the representations in paragraph
9B as to the source of the assets used to acquire the Notes.
8N. DISCLOSURE. Neither this Agreement nor the Prospectus nor any
other document, certificate or statement furnished to each Purchaser by or on
behalf of the Company in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading. There is no fact
peculiar to the Company or any of its Subsidiaries which materially adversely
affects or in the future may (so far as the Company can now reasonably foresee)
materially adversely affect the business, financial condition or results of
operations of the Company and its Restricted Subsidiaries, taken as a whole and
which has not been set forth in this Agreement (including the Exhibits hereto),
in the Prospectus or in such documents, certificates and statements. The
financial and other projections contained in the Prospectus are reasonable based
on the assumptions stated therein and the best information available to the
officers of Parent and the Company at the time such projections were prepared.
Nothing in this paragraph 8N shall be construed as a representation, warranty or
covenant that any of such projections shall in fact be achieved.
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8O. POLLUTION AND OTHER REGULATIONS. (a) Each of the Company and its
Subsidiaries is, and Parent has been, in compliance with all laws and
regulations, including, without limitation, those relating to equal employment
opportunity and employee safety in all jurisdictions in which it is presently
doing business except where the failure to do so would not materially adversely
affect the business, financial condition or results of operations of the Company
and its Restricted Subsidiaries, taken as a whole.
(b) Parent and the Company and its Subsidiaries, and the plants and
sites of each, have complied with all federal, state, local and regional
statutes, ordinances, orders, judgments, rulings and regulations relating to any
matters of pollution or of environmental regulation or control except, in any
such case, where such failure to comply would not result in a material adverse
effect on the business, financial condition or results of operations of the
Company and its Restricted Subsidiaries, taken as a whole. Without limiting the
generality of the preceding sentence, neither the Company nor any of its
Subsidiaries nor Parent has received notice of or has actual knowledge of any
actual or claimed or asserted failure so to comply which alone or together with
any other such failure is material and would result in a material adverse effect
on the business, financial condition or results of operations of the Company and
its Restricted Subsidiaries, taken as a whole. Neither the Company nor any of
its Subsidiaries nor Parent nor their respective plants or other sites manage,
generate or dispose of, or during their respective periods of use, ownership,
occupancy or operation by Parent, the Company or its Subsidiaries have managed,
generated, released or disposed of, any hazardous wastes, hazardous substances,
hazardous materials, toxic substances or toxic pollutants, as those terms are
used or defined in the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Air Act and the
Clean Water Act, in material violation of or in a manner which would result in
liability under such statutes or any regulations promulgated pursuant thereto or
any other applicable law except where such noncompliance or liability would not
result in a material adverse effect on the business, financial condition or
results of operations of the Company and its Restricted Subsidiaries, taken as a
whole. The foregoing representation in this subparagraph (b) is based in its
entirety upon: (i) current interpretations and enforcement policies that have
been publicly disseminated and are utilized by governmental agencies charged
with enforcement of the legal requirements within the scope of the
representation in this subparagraph (b), and (ii) current levels of publicly
disseminated scientific knowledge concerning the detection of, and the health
and environmental risks associated with the discharge of, small quantities of
pollutants regulated pursuant to the legal requirements within the scope of the
representation.
8P. BROKERAGE. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Company without the
intervention of any Person which might give rise to a valid claim against the
Purchasers for a brokerage commission or other like payment; and the Company
agrees to indemnify and hold the Purchasers harmless from and against any such
claims.
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8Q. POSSESSION OF PERMITS, LICENSES, ETC. The Company and its
Subsidiaries possess all certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities, and all patents, trademarks, service marks, trade names,
copyrights, licenses, and other rights that are necessary in any material
respect for the ownership, maintenance and operation of their respective
properties and assets, and neither the Company nor any Subsidiary is in
violation of any thereof in any material respect.
8R. PUBLIC UTILITY HOLDING COMPANY ACT; FEDERAL POWER ACT;
INVESTMENT COMPANY ACT. Neither the Company nor any Subsidiary is a "HOLDING
COMPANY" or a "SUBSIDIARY COMPANY" of a "HOLDING COMPANY" or a "PUBLIC UTILITY
COMPANY" as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, or a "PUBLIC UTILITY" as such term is defined in the Federal
Power Act, as amended. The Company is not, and is not directly or indirectly
controlled by or acting on behalf of any Person which is, an "INVESTMENT
COMPANY" within the meaning of the Investment Company Act of 1940, as amended.
8S. RESTRICTED INVESTMENTS. The Company and its Subsidiary own no
Restricted Investments.
PARAGRAPH 9. REPRESENTATIONS OF EACH PURCHASER
9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents as
follows:
9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes
hereunder with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act, provided that the disposition of such
Purchaser's property shall at all times be and remain within such Purchaser's
control.
9B. SOURCE OF FUNDS. At least one of the following statements is an
accurate representation as to the source (a "SOURCE") to which the Series G
Notes of such Purchaser are, and to which the Notes, at the time of issuance
thereof, will be, allocated:
(i) the Source constitutes such Purchaser's "insurance company
general account" (as such term is defined under Section V of the
United States Department of Labor's Prohibited Transaction Class
Exemption ("PTCE") 95-60), and such Purchaser satisfies all of the
applicable requirements for relief under Sections I and IV of PTCE
95-60; or
(ii) the Source is either (a) an insurance company pooled
separate account, within the meaning of PTCE 90-1 (issued January
29, 1990), or (b) a bank collective investment fund, within the
meaning of the PTCE 91-38 (issued July 12, 1991) and, except as
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such Purchaser has disclosed to the Company in writing pursuant to
this clause (ii) prior to the execution and delivery of this
Agreement, no employee benefit plan or group of plans maintained by
the same employer or employee organization beneficially owns more
than 10% of all assets allocated to such pooled separate account or
collective investment fund; or
(iii) the Source constitutes assets of an "investment fund"
within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of
the total client assets managed by such QPAM, the conditions of Part
I (c) and (g) of the QPAM Exemption are satisfied, neither the QPAM
nor a person controlling or controlled by the QPAM (applying the
definition of "control" in Section V(e) of the QPAM Exemption) owns
a 5% or more interest in the Company and (a) the identity of such
QPAM and (b) the names of all employee benefit plans whose assets
are included in such investment fund have been disclosed to the
Company in writing pursuant to this clause (iii) prior to the
execution and delivery of this Agreement; or
(iv) the Source is a governmental plan; or
(v) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which, or the names of the employers whose
employees are covered by such plan or plans (within the meaning of
Section 3(14)(C) of ERISA), have been identified to the Company in
writing pursuant to this clause (v) prior to the execution and
delivery of this Agreement; or
(vi) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this paragraph 9B, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
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9C. CERTIFICATION REGARDING SERIES G NOTES. The facts set forth in
the certificate delivered by such Purchaser to the Company with respect to its
holding of the Series G Notes being exchanged by it and the circumstances under
which (and the price at which) it acquired the same are true and correct (it
being understood that the representation contained in this paragraph 9C is given
by such Purchaser solely to induce the Company to agree to the inclusion of
paragraph 5G herein for the benefit of such Purchaser).
PARAGRAPH 10. DEFINITIONS AND ACCOUNTING TERMS
10A. CERTAIN DEFINED TERMS. As used in this Agreement the following
terms shall have the meanings specified with respect thereto below (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"AFFILIATE" shall mean, as to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person (except, in the case of the Company, a
Restricted Subsidiary). A Person shall be deemed to control a corporation
or entity if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation or entity, whether through the ownership of voting securities,
by contract or otherwise. Unless the context indicates otherwise, any
reference to an "Affiliate" is to an Affiliate of the Company.
"AGREEMENT" shall mean this Note Agreement, as the same may be from
time to time amended.
"AGREEMENT CONCERNING TAXES" shall mean the Agreement Concerning
Taxes and Tax Indemnification Upon Spin-Off by and between Parent and the
Company and those Subsidiaries of the Company signatory thereto dated as
of the Date of Closing.
"ATTRIBUTABLE DEBT" shall mean the lesser of (i) the fair market
value of the assets sold pursuant to any Sale and Leaseback Transaction
(which determination shall be based upon a written opinion (the cost of
which shall be borne exclusively by the Company) as to valuation from an
independent valuation expert selected by the Company) or (ii) the present
value (discounted according to generally accepted accounting principles at
the debt rate implicit in the lease) of the obligations of the lessee for
rental payments during the term of any lease constituting a part of a Sale
and Leaseback Transaction.
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii)
of paragraph 7A.
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"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or
a day on which commercial banks in New York City are required or
authorized to be closed.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4B (any
partial prepayment being applied in satisfaction of required payments of
principal in inverse order of their scheduled due dates) or is declared to
be immediately due and payable pursuant to paragraph 7A, as the context
requires.
"CAPITAL GAINS" shall mean gains (net of expenses and taxes
applicable thereto) in excess of losses resulting from the sale,
conversion or other disposition of capital assets (i.e., assets other than
current assets).
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation
which, under generally accepted accounting principles, is or will be
required to be capitalized on the books of the Company or any Restricted
Subsidiary, taken at the amount thereof accounted for as indebtedness (net
of interest expense) in accordance with such principles.
"CHANGE OF CONTROL" shall mean any change so that any Person (or any
Persons acting together which would constitute a Group), together with any
Affiliates or Related Persons thereof, other than Permitted Holders, shall
at any time either (1) Beneficially Own more than 50% of the aggregate
voting power of all classes of Voting Stock of the Company or (2) succeed
in having sufficient of its or their nominees elected to the Board of
Directors of the Company such that such nominees, when added to any
existing director remaining on the Board of Directors of the Company after
such election who is an Affiliate or Related Person or such Person or
Group, shall constitute a majority of the Board of Directors of the
Company. As used herein (a) "BENEFICIALLY OWN" shall mean beneficially own
as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), or any successor provision thereto; (b)
"GROUP" shall mean a "group" for purposes of Section 13(d) of the Exchange
Act; (c) "RELATED PERSON" of any Person shall mean any other Person owning
(1) 5% of more of the outstanding common stock of such Person or (2) 5% of
more of the Voting Stock of such Person; and (d) "VOTING STOCK" of any
Person shall mean capital stock of such Person which ordinarily has voting
power for the election of directors (or persons performing similar
functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any
contingency.
"CLOSING" shall have the meaning specified in paragraph 2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
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"COMPANY" shall mean the corporation that originally executed this
Agreement as issuer of the Notes until a corporation becomes a successor
or transferee in a transaction permitted by paragraph 6(B)(5)(vii) and
thereafter shall mean any such successor or transferee corporation.
"CONSENT SOLICITATION" shall mean the solicitation from the holders
of Parent's 11% Senior Subordinated Debentures due 2004 of consent to
waivers of certain provisions of the Indenture pursuant to which such
Debentures were issued in order to permit certain of the Other
Transactions.
"CONSOLIDATED NET EARNINGS" shall mean consolidated gross revenues
(including Capital Gains) of the Company and its Restricted Subsidiaries
less all operating and non-operating expenses of the Company and its
Restricted Subsidiaries including all charges of a proper character
(including current and deferred taxes on income, provision for taxes on
unremitted foreign earnings which are included in gross revenues, and
current additions to reserves), but not including in gross revenues any
gains resulting from write-up of assets, any equity of the Company or any
Restricted Subsidiary in the unremitted earnings of any Person which is
not a Restricted Subsidiary, any earnings of any Person acquired by the
Company or any Restricted Subsidiary through purchase, merger or
consolidation or otherwise for any year prior to the year of acquisition,
or any deferred credit representing the excess of equity in any Restricted
Subsidiary at the date of acquisition over the cost of the investment in
such Restricted Subsidiary; all determined in accordance with generally
accepted accounting principles.
"CONSOLIDATED NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS AND
RESTRICTED INVESTMENTS" shall have the meaning assigned to such term in
paragraph 6A hereof.
"CONSOLIDATED NET TANGIBLE ASSETS" shall mean (i) for any
calculation, as of the end of the fiscal quarter ending September 30,
1996, $404,300,000 and (ii) for all other determinations, the aggregate
net tangible assets of the Company and its Restricted Subsidiaries,
determined as follows:
(A) The aggregate gross book value of all the assets of the Company
and its Restricted Subsidiaries, both real and personal, shall be computed
excluding, however (without duplication), the following items:
(1) all franchises, licenses, permits, patents, patent
applications, copyrights, trademarks, trade names, goodwill,
experimental or organizational expense, unamortized debt discount
and expense, and all other properties which under generally accepted
accounting principles are deemed intangible;
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(2) any reacquired shares or reacquired Debt of the
Company or its Restricted Subsidiaries;
(3) any write-up of any such assets made by Parent, any
Subsidiary of Parent, the Company or any Restricted Subsidiary of
the Company after December 31, 1989;
(4) 50% of the value of all assets of the Company and its
Restricted Subsidiaries acquired by Parent, any Subsidiary of
Parent, the Company and any Restricted Subsidiary of the Company
after April 1, 1990 which are located outside the United States of
America and Canada and not freely returnable to the United States of
America or Canada, including any notes or accounts receivable from
any debtor having any substantial part of its business, operations
or properties located outside the United States of America and
Canada, except notes or accounts receivable from such a debtor which
arose in the ordinary course of business of Parent, any Subsidiary
of Parent, the Company or any Restricted Subsidiary of the Company,
as the case may be, to which such notes or accounts receivable are
payable and which otherwise constitute current assets, but only to
the extent of an amount of United States dollars readily realizable
from such notes or accounts receivable by liquidation either
directly or through a currency freely convertible into United States
dollars; and
(5) all Restricted Investments of the Company and its
Restricted Subsidiaries.
(B) From the gross book value of the tangible assets of the Company
and its Restricted Subsidiaries, determined as provided in the preceding
subparagraph (A), there shall be deducted the following items:
(1) all reserves for depreciation, depletion, obsolescence and
amortization of the properties of the Company and its Restricted
Subsidiaries (other than properties excluded as provided in the
preceding subparagraph (A)), all proper reserves (other than
reserves for deferred taxes and general contingency reserves and
other reserves representing mere appropriations of surplus) which in
accordance with generally accepted accounting principles should be
set aside in connection with the business conducted by them;
(2) all Current Debt of the Company and its Restricted
Subsidiaries; and
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(3) all other liabilities of the Company and its Restricted
Subsidiaries, including the reduction in equity attributable to
minority interests but excluding deferred taxes, Funded Debt of the
Company and its Restricted Subsidiaries, capital shares, surplus and
general contingency reserves and other reserves representing mere
appropriations of surplus.
(C) In the determination of Consolidated Net Tangible Assets
pursuant to clause (ii) of this definition, no amount shall be included
therein on account of any excess cost of acquisition of shares of any
Restricted Subsidiary over the net book value of the assets of such
Restricted Subsidiary attributable to such shares at the date of such
acquisition or on account of any excess of the net book value of the
assets of any Restricted Subsidiary attributable to any shares of such
Restricted Subsidiary at the date of acquisition of such shares over the
cost of acquisition of such shares.
"CONSOLIDATED NET WORTH" shall mean the consolidated shareholders'
equity of the Company and its Restricted Subsidiaries, MINUS (to the
extent included in the calculation of consolidated shareholders' equity)
the aggregate amount of Investments (determined in accordance with the
last sentence of the definition of "Investment") in Unrestricted
Subsidiaries, all as determined in accordance with generally accepted
accounting principles.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean Consolidated Net Worth
MINUS the net book amount of all assets of the Company and its Restricted
Subsidiaries (after deducting any reserves applicable thereto) which would
be shown as intangible assets on a consolidated balance sheet of the
Company and its Restricted Subsidiaries as of such time prepared in
accordance with generally accepted accounting principles.
"CONVEYANCE AND CONTRIBUTION AGREEMENT" shall mean the Conveyance
and Contribution Agreement from Parent to the Company dated effective
November 1, 1996.
"CORPORATE SERVICES AGREEMENT" shall mean the Corporate Services
Agreement by and between Parent and the Company dated as of the Date of
Closing.
"CREDIT AGREEMENTS" shall mean (i) the Credit Agreement, dated as of
November 13, 1996, among the Company, Parent, the Banks signatory thereto
and The Chase Manhattan Bank, as Administrative Agent, and (ii) the Credit
Agreement, dated as of November 13, 1996, among Parent, the Banks
signatory thereto and The Chase Manhattan Bank, as Administrative Agent.
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"CURRENT DEBT" shall mean any obligation for borrowed money (and any
notes payable and drafts accepted representing obligations for borrowed
money) payable on demand or within a period of one year from the date of
the creation thereof and any Guaranty with respect to Current Debt (of the
kind otherwise described in this definition) of another Person; PROVIDED
that any obligation shall be treated as Funded Debt, regardless of its
term, if such obligation is renewable pursuant to the terms thereof or of
a revolving credit or similar agreement effective for more than one year
after the date of the creation of such obligation, or may be payable out
of the proceeds of a similar obligation pursuant to the terms of such
obligation or of any such agreement.
"DATE OF CLOSING" shall have the meaning specified in paragraph 2.
"DEBT" shall mean Funded Debt and/or Current Debt, as the case may
be.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on a semiannual basis) equal to (i) in the case
of prepayment of the Notes made prior to March 31, 1998, the Reinvestment
Yield with respect to such Called Principal and (ii) with respect to
prepayment of the Notes made on or after March 31, 1998, 50 basis points
above the Reinvestment Yield with respect to such Called Principal.
"EBITD" shall mean for any period Consolidated Net Earnings for such
period (calculated, for purposes of this definition only, without taking
into account extraordinary items under generally accepted accounting
principles or capital gains or capital losses) plus the aggregate amounts
deducted in determining Consolidated Net Earnings in respect of (i) all
provisions for any federal, state or other income taxes made by the
Company and its Restricted Subsidiaries during such period, (ii) Fixed
Charges of the Company and its Restricted Subsidiaries during such period,
(iii) depreciation, depletion and amortization charges of the Company and
its Restricted Subsidiaries for such period, and (iv) all other non-cash
charges of the Company and its Restricted Subsidiaries for such period,
all determined in accordance with generally accepted accounting
principles; PROVIDED, "EBITD" shall mean, for any calculation,
$25,900,000, $30,600,000, $37,400,000 and $33,800,000 for the fiscal
quarters ended December 31, 1995, March 31, 1996, June 30, 1996, and
September 30, 1996 respectively; PROVIDED, FURTHER, that EBITD for the
fiscal quarter ended December 31, 1996, shall be $15,800,000 plus EBITD
(determined according to the first clause of this sentence) for the two
months ended December 31, 1996.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean any trade or business (whether or not
incorporated) which is a member of a group of which the Company is a
member and which is under common control within the meaning of the
regulations under Section 414 of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time,
or the happening of any further condition, event or act, and "DEFAULT"
shall mean any of such events, whether or not any such requirement has
been satisfied.
"FIXED CHARGES" shall mean (without duplication) for any period the
sum of interest expense in respect of all Debt of the Person(s) for which
the determination is made, including imputed interest expense in respect
of Capitalized Lease Obligations; PROVIDED, HOWEVER, that Fixed Charges of
the Company and its Restricted Subsidiaries shall mean, for any
calculation, $5,300,000 for each of the fiscal quarters ended December 31,
1995, March 31, 1996, June 30, 1996, and September 30, 1996; PROVIDED,
FURTHER, that Fixed Charges of the Company and its Restricted Subsidiaries
for the fiscal quarter ended December 31, 1996, shall be $1,767,000 plus
Fixed Charges (determined according to the first clause of this sentence
but excluding any interest expense in respect of the Series E Notes and
the Series F Notes and any interest accrued on the Series G Notes prior to
November 1, 1996) of the Company and its Restricted Subsidiaries for the
two months ended December 31, 1996.
"FUNDED DEBT" shall mean and include, without duplication, any
obligation (including the current maturities thereof)
(i) payable more than one year from the date of creation
thereof (a) for borrowed money, (b) evidenced by bonds, debentures,
notes or reimbursement obligations in respect of letters of credit
or other similar instruments (other than letters of credit and
surety bonds relating to trade obligations incurred in the ordinary
course of business and includable, under generally accepted
accounting principles, in current liabilities on a balance sheet or
in the notes relating thereto), (c) for the payment of the deferred
purchase price of property or services, except trade accounts
payable arising in the ordinary course of business, (d) constituting
Capitalized Lease Obligations, (e) in respect of the Production
Payment, other production payments, proceeds production payments or
similar
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financing arrangements, (f) which is, under generally accepted
accounting principles, shown on a balance sheet (after giving
effect, in the case of the balance sheet of the Company or a
Restricted Subsidiary, to the eliminating entries, if any, for the
Unrestricted Subsidiaries as a group) as long-term debt (excluding
provisions for deferred income taxes, unfunded pension obligations,
unfunded liabilities for other post-employment benefits and other
reserves or provisions to the extent that such reserves or
provisions do not constitute an obligation), or (g) for any item
described in any of the foregoing clauses (a) through (f) which is
secured by any Lien on property owned by the Company or any
Restricted Subsidiary, whether or not the obligation secured thereby
shall have been assumed by the Company or such Restricted
Subsidiary, or
(ii) payable more than one year from the date of creation
thereof, which under generally accepted accounting principles is
shown on the balance sheet as a long-term liability (excluding
provisions for deferred income taxes, unfunded pension obligations,
unfunded liabilities for other post-employment benefits and other
reserves or provisions to the extent that such reserves or
provisions do not constitute an obligation), or
(iii) constituting a Guaranty with respect to Funded Debt (of
the kind otherwise described in clauses (i) and (ii) of this
definition) of another Person, including without limitation any
obligation by the Company or a Restricted Subsidiary for Funded Debt
of any other Person, regardless of the percentage of equity interest
owned therein by the Company or a Restricted Subsidiary, by virtue
of its capacity as a general partner of such other Person.
"GUARANTY" shall mean and include, without limitation, any
obligation of the Company or a Restricted Subsidiary
(i) constituting a guaranty, endorsement (other than an
endorsement of a negotiable instrument for collection in the
ordinary course of business) or other contingent liability (whether
direct or indirect) in connection with the obligations, stock or
dividends of any Person (other than the Company or a Restricted
Subsidiary),
(ii) payable under any contract (other than the Agreement
Concerning Taxes and any tax indemnification or sharing agreement)
providing for the making of loans, advances or capital contributions
to any Person (other than the Company or a Restricted Subsidiary),
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or for the purchase of any property from any Person, in each case in
order primarily to enable such Person to maintain working capital,
net worth or any other balance sheet condition or to pay debts,
dividends or expenses,
(iii) payable under any contract for the purchase of
materials, supplies or other property or services (other than any
natural gas transportation contract or any electrical, water supply,
steam purchase or other utility supply contract) if such contract
(or any related document) requires that payment for such materials,
supplies or other property or services shall be made regardless of
whether or not delivery of such materials, supplies, or other
property or services is ever made or tendered; provided that the
exceptions contained in this clause (iii) shall not apply to any
contract for the purchase or transportation of natural gas where
payment is required regardless of whether the delivery of such
natural gas is ever made or tendered, unless at the time such
contract is entered into the aggregate of such payments under such
contract and all such existing contracts would not exceed
$20,000,000 in any calendar year based on existing rates and
automatic escalations in such rates under such contracts,
(iv) payable under any contract to rent or lease (as lessee)
any real or personal property (other than any oil and gas leases) if
such contract (or any related document) provides that the obligation
to make payments thereunder is absolute and unconditional under
conditions not customarily found in commercial leases then in
general use or requires that the lessee purchase or otherwise
acquire securities or obligations of the lessor, or
(v) payable under any other contract which, in economic
effect, is substantially equivalent to a guarantee for any payment
or performance of an obligation of a Person other than the Company
or a Restricted Subsidiary.
"INDEPENDENT PETROLEUM ENGINEER" shall mean Ryder Scott Company
Petroleum Engineers or another independent petroleum engineer retained by
the Company and well-regarded in the oil and gas industry and who is in
fact independent and does not have any substantial interest, direct or
indirect, in the Company or its Subsidiaries, but such Person may be
regularly retained by the Company. If an individual, such Person shall not
be a director, officer, investor (in excess of 1,000 shares) or employee
of the Company or its Subsidiaries. If such
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Person is a partnership or a corporation, it shall not have a partner,
director or officer who is a director, officer, investor (in excess of
1,000 shares) or employee of the Company or its Subsidiaries.
"INELIGIBLE SUBSIDIARY" shall mean each Subsidiary of Parent other
than (a) the Company, (b) any wholly-owned Restricted Subsidiary and (c)
any other Restricted Subsidiary as long as no portion of the equity
interest in such Restricted Subsidiary is owned by Parent, an Ineligible
Subsidiary or an Affiliate of Parent (except the Company or a wholly-owned
Restricted Subsidiary).
"INITIAL PUBLIC OFFERING" shall mean the registered initial public
offering of shares of the Company's common stock pursuant to the
Prospectus and the prospectus for the concurrent international offering,
outside the United States of America, of the common stock of the Company,
par value $0.01 per share.
"INVESTMENT" shall mean any purchase or other acquisition of the
stock, obligations or securities of, or any interest in, or any capital
contribution, loan or advance to, or any Guaranty in respect of the
obligations of any Person but in any event shall include as an investment
in any Person the amount of all Debt owed by such Person, and all accounts
receivable from such Person which are not current assets or did not arise
from sales to such Person in the ordinary course of business. As used
herein, any capital contribution of assets by the Company or any
Restricted Subsidiary shall be valued at the book value of such assets as
reflected in the consolidated financial statements of the Company and its
Restricted Subsidiaries as at the end of the quarter ending immediately
prior to such contribution.
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give
any of the foregoing), any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of, or
agreement to give, any financing statement under the Uniform Commercial
Code of any jurisdiction or any other type of preferential arrangement.
"MONTEREY ERISA INDEMNIFICATION AGREEMENT" shall mean the ERISA
Indemnification Agreement by and between Parent and the Company for the
benefit of the Company, the Subsidiaries and the Purchasers (as such term
is defined therein), dated the Date of Closing.
"MULTIEMPLOYER PLAN" shall mean any plan which is a "MULTIEMPLOYER
PLAN" (as such term is defined in section 4001(a)(3) of ERISA).
"NOTE" and "NOTES" shall have the meanings specified in paragraph 1.
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"OFFICER'S CERTIFICATE" shall mean, in the case of the Company, any
other corporation or any other business entity, a certificate signed in
its name by its President, one of its Vice Presidents or its Treasurer.
"OLINDA NOTES" shall mean the secured promissory note or notes in an
original aggregate principal amount of up to $8,500,000 which, under
certain circumstances, may be purchased by the Company from Parent
pursuant to the Conveyance and Contribution Agreement.
"ORIGINAL NOTE AGREEMENT" shall have the meaning specified in the
recitals of this Agreement.
"ORIGINAL SPIN-OFF INDEMNIFICATION AGREEMENT" shall mean that
certain First Amended and Restated Spin-Off Tax Indemnification Agreement
between Santa Fe Pacific Corporation, a Delaware corporation, and Parent
dated November 26, 1990.
"OTHER TRANSACTIONS" shall mean (i) the creation of the Company,
(ii) the transfer of the Western Assets to the Company, and the assumption
by the Company of the Assumed Liabilities (as defined in the Conveyance
and Contribution Agreement), pursuant to the Conveyance and Contribution
Agreement, (iii) the assumption of Parent's obligations under the Original
Note Agreement, the Series E Notes, the Series F Notes and the Series G
Notes by the Company pursuant to the Conveyance and Contribution
Agreement, (iv) the Initial Public Offering and the use and proposed use
by the Company and Parent of proceeds thereof, and (v) the other
transactions contemplated by the Conveyance and Contribution Agreement,
the Tender Offer and the Consent Solicitation.
"PARENT" shall mean Santa Fe Energy Resources, Inc., a Delaware
corporation, and any successor thereto.
"PAYING AGENT" shall mean The Bank of New York and its successors
and assigns as paying agent under the Paying Agent Agreement.
"PAYING AGENT AGREEMENT" shall mean the Paying Agent Agreement,
dated as of the date hereof, between the Company and the Paying Agent.
"PERMITTED HOLDER" shall mean Parent and its Affiliates.
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"PERSON" shall mean and include an individual or legal entity in the
form of a partnership, a joint venture, a corporation, a trust, an
unincorporated organization or a government or any department or agency
thereof. The term "PERSON" shall not, however, mean and include an
arrangement that is not a separate legal entity such as the legal
arrangement between two or more parties owning interests in the same
property or unit.
"PLAN" shall mean an "EMPLOYEE PENSION BENEFIT PLAN" (as defined in
section 3(2) of ERISA) subject to Title IV of ERISA, other than a
Multiemployer Plan, with respect to which the Company or any ERISA
Affiliate contributes or has an obligation or liability to contribute.
"PRIORITY DEBT" shall mean, at any time, without duplication, an
amount equal to the sum of the amount of all Attributable Debt of the
Company and its Restricted Subsidiaries outstanding at such time, the
amount of all Debt of Restricted Subsidiaries (whether or not secured by
any Lien) outstanding at such time, and the amount of all Debt of the
Company and its Restricted Subsidiaries outstanding at such time that is
secured by one or more Liens permitted under clause 6B(1)(v).
"PRODUCTION PAYMENT" shall mean that certain $30,000,000 production
payment reserved and retained by Parent from certain properties in the
Midway- Sunset field pursuant to the Conveyance and Contribution
Agreement, as more particularly described in the Reservation of Production
Payment set forth as Exhibit I thereto.
"PROSPECTUS" shall mean the prospectus, dated as of November 13,
1996, relating to the underwritten public offering by the Company of the
portion of the 8,150,000 shares (assuming that the underwriters'
over-allotment options are not exercised) of its common stock, par value
$0.01 per share, being offered domestically, in the form first filed by
the Company with the Securities and Exchange Commission pursuant to Rule
424(b) of the rules and regulations under the Securities Act.
"PURCHASERS" shall have the meaning specified in the introductory
paragraph of this Agreement.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
and Indemnification Agreement by and between Parent and the Company dated
as of the Date of Closing.
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"REINVESTMENT YIELD" shall mean, with respect to the Called
Principal of any Note, the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the Business Day
preceding the Settlement Date with respect to such Called Principal, on
the display designated as "Page 678" on the Telerate Access Service (or
such other display as may replace Page 678 on the Telerate Access Service)
for actively traded U.S. Treasury securities having a maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement
Date, or (ii) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury
Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day preceding
the Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill quotations
to bond-equivalent yields in accordance with accepted financial practice
and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the duration closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security
with the duration closest to and less than the Remaining Average Life.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii)
the sum of the products obtained by multiplying (a) each Remaining
Scheduled Payment of such Called Principal (but not of interest thereon)
by (b) the number of years (calculated to the nearest one-twelfth year)
which will elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due on or after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date.
"REQUIRED HOLDERS" shall mean the holder or holders of at least 51%
of the aggregate principal amount of the Notes from time to time
outstanding.
"RESERVE REPORT" shall mean a report that is prepared and certified
by an Independent Petroleum Engineer as of January 1 of the year in which
such report is delivered which shall, as of such January 1, and on the
basis of findings and data as of a date not more than four months prior to
such January 1, identify the proved, probable and possible oil and gas
properties covered thereby and set forth as of such January 1 the data,
material, information and calculations required to be covered in
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a reserve report prepared in accordance with Rule 4-10 of Regulation S-X
(17 C.F.R. Part 210). Each such report shall be prepared in accordance
with established criteria generally accepted in the oil and gas industry
and standards accepted in the oil and gas industry and standards
customarily used by independent petroleum engineers well-regarded in the
industry in making reserve determinations or appraisals, and the
assumptions, estimates and projections on which such report is based shall
be fully disclosed in such Reserve Report. The economic assumptions used
in such Reserve Report will conform to the standards prescribed by Rule
4-10 of Regulation S-X.
"RESTRICTED INVESTMENT" shall mean any Investment other than an
Investment in the form of
(i) Investments in the Company or a Restricted Subsidiary or
in an entity which immediately after or concurrently with such
Investment will be a Restricted Subsidiary,
(ii) readily marketable direct full faith and credit
obligations of the United States of America or any agency thereof or
obligations unconditionally guaranteed by the full faith and credit
of the United States of America or any agency thereof, due within
three years of the making of the Investment,
(iii) readily marketable direct obligations of any State of
the United States of America or any political subdivision of any
such State having a credit rating of at least Aa by Moody's
Investors Service, Inc. or AA by Standard & Poor's Rating Group, in
each case due within three years from the making of the Investment,
(iv) domestic and Eurodollar certificates of deposit maturing
within one year from the making of the Investment issued by,
deposits in, Eurodollar deposits through and banker's acceptances
of, commercial banks incorporated under the laws of the United
States or any State thereof, Canada, Japan or any Western European
country, and having combined capital, surplus and undivided profits
of at least $100,000,000,
(v) readily marketable commercial paper of any commercial bank
or corporation doing business and incorporated under the laws of the
United States of America or any State thereof having a credit rating
of A-1 from Standard & Poor's Rating Group or P-1 by Moody's
Investors Service, Inc., in each case, due within 270 days after the
making of the Investment,
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(vi) money market investment programs which primarily invest
in the types of Investments permitted under clauses (ii) through (v)
above and which are classified as a current asset in accordance with
generally accepted accounting principles and which are administered
by broker-dealers acceptable to the Required Holders,
(vii) repurchase agreements with major dealers or banks,
pursuant to which physical delivery of the respective securities is
required, except for obligations of the U.S. Treasury to be
delivered through the Federal Reserve book entry system,
(viii) travel and other like advances to officers and
employees of the Company or Restricted Subsidiary in the ordinary
course of business,
(ix) prepayment of the Production Payment in accordance
with paragraph 5H,
(x) prior to one year after the Date of Closing, the Olinda
Notes,
(xi) Investments, if any, in Parent pursuant to the
agreements specified in paragraph 3A(iv), (v) and (vi),
(xii) prepayment of the Series E Notes and Series F Notes
on the Date of Closing,
(xiii)the assumption by the Company on the Date of Closing of
up to $16,000,000 aggregate principal amount of borrowings by Parent
under the Credit Agreement described in clause (i) of the definition
thereof, or
(xiv) Investments, other than those described in the preceding
clauses (i)-(xiii), in an aggregate outstanding amount not to exceed
$10,000,000.
"RESTRICTED SUBSIDIARY" shall mean each Subsidiary of the Company
listed on SCHEDULE 8A attached hereto, together with any Subsidiary of the
Company hereafter created or acquired and, at the time of creation or
acquisition, not designated by the Board of Directors of the Company as an
Unrestricted Subsidiary. Any Subsidiary of the Company designated as an
Unrestricted Subsidiary for purposes of this Agreement may thereafter be
designated a Restricted Subsidiary upon 30 days' prior written notice to
the holders of the Notes if, at the time of such
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designation and after giving effect thereto and to the concurrent
retirement of any Debt, (i) no Event of Default or Default shall have
occurred and be continuing, (ii) such Subsidiary is organized under the
laws of the United States or any state thereof, and (iii) 80% or more of
each class of voting stock outstanding of such Subsidiary is owned by the
Company or a wholly-owned Restricted Subsidiary.
"RESTRUCTURING FEE" shall mean, with respect to each Purchaser,
0.75% of the aggregate principal amount of the Series G Notes held by such
Purchaser as of the Date of Closing (prior to giving effect to the
transactions contemplated hereby).
"SALE AND LEASEBACK TRANSACTION" shall mean any arrangement in which
the Company or a Restricted Subsidiary shall sell any building, equipment
or surface real property, which was acquired or occupied by the Company or
a Restricted Subsidiary for more than 180 days, and within 180 days from
the date of such sale, enter into a lease as lessee of such building,
equipment or surface real property having a term (including terms of
renewal or extension at the option of the lessor or the lessee, whether or
not such option has been exercised) expiring three or more years after the
commencement of the initial term.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A-D NOTES" shall have the meaning specified in the recitals
of this Agreement.
"SERIES E NOTES" shall have the meaning specified in the recitals of
this Agreement.
"SERIES F NOTES" shall have the meaning specified in the recitals of
this Agreement.
"SERIES G NOTES" shall have the meaning specified in the recitals of
this Agreement.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to paragraph 4B, or is declared to be immediately due and payable
pursuant to paragraph 7A as the context requires.
"SFER GROUP" shall mean Santa Fe Energy Resources, Inc. and its
affiliated group of corporations which together constitute an affiliated
group of corporations within the meaning of Section 1504(a) of the Code.
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"SIGNIFICANT HOLDER" shall mean, as of any time, (i) each Purchaser,
so long as such Purchaser shall hold any Note at such time, and (ii) any
other Person that holds at such time at least 1.15% of the aggregate
principal amount of the Notes then outstanding.
"SPIN-OFF" shall mean the distribution, by dividend, exchange or
otherwise, of the shares of capital stock of the Company owned by Parent
to its security holders.
"SUBSIDIARY" shall mean, as to any Person, any corporation or
entity, a majority of the shares of voting stock (or in the case of an
entity which is not a corporation, of the equity interests that provide
the power to manage or direct the management of such entity) of which is
at the time any determination is being made, owned, directly or
indirectly, by such Person and its wholly-owned Subsidiaries. Unless the
context otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Company.
"TAX ALLOCATION AGREEMENT" shall mean the Agreement For The
Allocation Of The Consolidated Federal Income Tax Liability and State and
Local Taxes Among The Members Of The Santa Fe Energy Resources, Inc.
Affiliated Group by and between Parent and the members of the consolidated
group of Parent identified therein dated as of November 19, 1996.
"TENDER OFFER" shall mean the offer, commenced on October 22, 1996,
by Parent to purchase up to 4,500,000 shares of Parent's Convertible
Preferred Stock, Series 7%, at a price of $24.50, net to the seller in
cash, which offer is contained in an Offer to Purchase dated October 22,
1996, as set forth in the Form 13E-4 filed by Parent with the United
States Securities and Exchange Commission, as the same may be amended from
time to time.
"TERMINATION EVENT" shall mean (i) the withdrawal of the Company or
any of its ERISA Affiliates from a Plan during a plan year in which it was
a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or
(ii) the filing of a notice of intent to terminate a Plan or the treatment
of a Plan amendment as a termination under Section 4041(c) of ERISA, or
(iii) the institution of proceedings to terminate a Plan by the Pension
Benefit Guaranty Corporation, or (iv) any other event or condition which
would constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan, or (v) the
institution of proceedings by the Pension Benefit Guaranty Corporation
under Sections 4212(c) or 4069 of ERISA to impose liability under the
Title IV of ERISA on the Company or any ERISA Affiliate with respect to
any other employee benefit plan other than a Plan.
"TRANSFEREE" shall mean any direct or indirect transferee of all or
any part of any Note acquired by any Purchaser under this Agreement.
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"UNDERWRITING AGREEMENTS" shall mean, (i) that certain Underwriting
Agreement, relating to the public offering in the United States of America
of 6,320,000 shares of common stock, par value $0.01 per share, of the
Company, dated November 13, by and among the Company, Parent and Goldman,
Sachs & Co., Morgan Stanley & Co. Incorporated and Petrie Parkman & Co. as
representatives of the several underwriters named therein, and (ii) that
certain International Underwriting Agreement, dated November 13, relating
to the international offering of 1,580,000 shares of common stock, par
value $0.01 per share, of the Company by and among the Company, Parent and
Goldman, Sachs International, Morgan Stanley & Co. International and
Petrie Parkman & Co., Inc. (in both cases assuming, for purposes of
determining the number of shares covered thereby, that the underwriters'
overallotment options are not exercised).
"UNFUNDED VESTED ACCRUED BENEFITS" shall mean with respect to any
Plan at any time, the amount (if any) by which (a) the present value of
all vested benefits under such Plan exceeds (b) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then
most recent valuation date for such Plan (on the basis of assumptions in
accordance with generally accepted accounting principles), but only to the
extent that such excess represents a potential liability of the Company or
any ERISA Affiliate to the Pension Benefit Guaranty Corporation or the
Plan under Title IV of ERISA.
"UNRESTRICTED SUBSIDIARY" shall mean each Subsidiary of the Company
that is hereafter designated by the Board of Directors of the Company as
an Unrestricted Subsidiary. Any Subsidiary may be designated an
Unrestricted Subsidiary upon 30 days' prior written notice to the holders
of the Notes if, at the time of such designation and after giving effect
thereto and to the concurrent retirement of any Debt, (i) no Event of
Default or Default shall have occurred and be continuing and (ii) such
Subsidiary does not own, directly or indirectly, any Funded Debt or
capital stock of the Company or a Restricted Subsidiary.
"WAIVER" shall mean that certain Limited Waiver, dated as of
November 13, 1996 and effective as of November 1, 1996, among Parent, the
Company and the holders of the Series G Notes.
"WESTERN ASSETS" shall mean the "SUBJECT ASSETS" as such term is
defined in the Conveyance and Contribution Agreement.
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"YIELD-MAINTENANCE PREMIUM" shall mean, with respect to any Note, a
premium equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
interest accrued thereon as of (including interest due on) the Settlement
Date with respect to such Called Principal. The Yield-Maintenance Premium
shall in no event be less than zero.
10B. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistent with those applied in the preparation of the December 31,
1995 financial statements certified by Price Waterhouse LLP and referred to in
paragraph 8B.
PARAGRAPH 11. MISCELLANEOUS
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company will make payments of principal of
and Yield- Maintenance Premium, if any, and interest on, the Notes, which
payments comply with the terms of this Agreement, not later than 11:00 a.m. (New
York City time) on the day when due by wire transfer of immediately available
funds to the Paying Agent in accordance with the Paying Agent Agreement and for
the ratable benefit of the holders of the Notes, notwithstanding any contrary
provision herein or in any Note with respect to the place of payment. Each
Purchaser agrees that, before disposing of any Note, such Purchaser will make a
notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been paid.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save the Purchasers and
any Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all fees,
costs and expenses (including, without limitation, wire transfer and similar
charges) of the Paying Agent and otherwise in connection with the Paying Agent
Agreement, (ii) all costs and expenses of obtaining all necessary private
placement numbers, (iii) all document production and duplication charges and the
fees and expenses of any special counsel engaged by the Purchasers or any
Transferee in connection with this Agreement, the transactions contemplated
hereby and any subsequent proposed modification of, or proposed consent under,
this Agreement, whether or not such proposed modification shall be effected or
proposed consent granted, and (iv) the costs and expenses, including reasonable
attorneys' fees, incurred by the Purchasers or any Transferee in enforcing any
rights under this Agreement, the Notes or the Paying Agent Agreement (whether in
the context of a civil action, adversarial proceedings, workout or otherwise) or
in responding to any subpoena or other legal process issued in connection with
this Agreement or the transactions contemplated hereby or by reason of the
Purchasers' or any Transferee's having acquired any Note, including without
limitation costs and expenses incurred in any bankruptcy case. The obligations
of the Company under this paragraph 11B shall survive
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the transfer of any Note or portion thereof or interest therein by any Purchaser
or any Transferee and the payment of any Note. The Company shall not be
obligated to pay any legal fees incurred by the Purchasers or any other holder
of any Note other than the reasonable fees of one special counsel designated by
the Required Holders.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holders except
that, without the written consent of the holder or holders of all Notes at the
time outstanding, no amendment to this Agreement shall change the maturity of
any Note, or change the principal of, or the rate or time of payment of interest
or any premium payable with respect to any Note, or affect the time, amount or
allocation of any required prepayments, or reduce the proportion of the
principal amount of the Notes required with respect to any consent. Each holder
of any Note at the time or thereafter outstanding shall be bound by any consent
authorized by this paragraph 11C, whether or not such Note shall have been
marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such consent. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. For the purpose of determining whether the holders of outstanding Notes of
the requisite unpaid principal amount at any time have taken any action
authorized by this paragraph 11C or any other provision of this Agreement, any
Note owned by the Company or any Subsidiary or Affiliate of the Company shall
not be deemed outstanding.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.
The Notes are issuable as registered notes without coupons in denominations of
at least $100,000, except as may be necessary to reflect any principal amount
not evenly divisible by $100,000. The Company shall keep at its principal office
a register in which the Company shall provide for the registration and transfer
of all Notes issued pursuant to any provision of this Agreement. Upon surrender
for registration of transfer of any Note at the principal office of the Company,
the Company shall, at its expense, (i) execute and deliver one or more new Notes
of like tenor and of a like aggregate principal amount, as the then unpaid
principal amount of the Note so surrendered, which new Notes shall be registered
in the name of the designated Transferee or Transferees and (ii) promptly notify
the Paying Agent pursuant to the notice provisions contained in the Paying Agent
Agreement of such registration of transfer and provide the Paying Agent with
payment instructions for (and provided by) the designated Transferee(s) and such
new Note(s) substantially in the form of those contained in SCHEDULE I hereto;
PROVIDED, HOWEVER, that no Note may be presented for registration of transfer on
the Business Day prior to, or on, any date on which there is to be made any
payment of the principal of, or interest or Yield-Maintenance Premium on, such
Note pursuant to the terms thereof or the terms of paragraph 4A, 4B or 4C. Any
Transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
paragraph 9B. Upon transfer of any Note, the new Note or Notes issued upon
surrender of such Notes shall be dated as of the date to which interest has been
paid on the Note so surrendered or, if such surrender is prior to the payment of
any interest thereon, then dated as of the date of issue of
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the Note so surrendered. At the option of the holder of any Note, such Note may
be exchanged for Notes of like tenor, of any authorized denominations and of a
like aggregate principal amount, upon surrender of the Note to be exchanged at
the principal office of the Company. Whenever any Note is so surrendered for
exchange, the Company shall, at its expense, execute and deliver the Note(s)
which the holder making the exchange is entitled to receive. Every Note
surrendered for registration of transfer or exchange shall be duly endorsed, or
be accompanied by (i) a written instrument of transfer duly executed, by the
holder of such Note or such holder's attorney duly authorized in writing and
(ii) information (which the Company shall promptly provide to the Paying Agent
pursuant to the notice provisions contained in the Paying Agent Agreement), in
substantially the form contemplated by SCHEDULE I attached hereto, as to the
holder(s) of the Note(s) issued upon such transfer or exchange and the payment
instructions relating to such Note(s) so issued. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note. The Company
agrees to indemnify and hold harmless the holder of each Note from and against
all loss, liability, claims and expenses such holder may incur or suffer as a
result of (i) a breach by the Company of its obligations under this paragraph
11D or under the Paying Agent Agreement to provide the Paying Agent with prompt
written notice of such transfer or exchange or of the payment instructions
provided by such holder in respect of such Note or (ii) a breach by the Paying
Agent of any of its obligations under the Paying Agent Agreement including,
without limitation, the failure to make full, timely and accurate disbursements
to the holders of the Notes of funds paid by the Company thereunder.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment
for registration of transfer, the Company and the Paying Agent may treat the
Person in whose name any Note is registered as the owner and holder of such Note
for the purpose of receiving payment of principal of and Yield-Maintenance
Premium, if any, and interest on such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue, and the Company shall not
be affected by notice to the contrary. Subject to the preceding sentence the
holder of any Note may from time to time grant participations in all or any part
of such Note to any Person on such terms and conditions as may be determined by
such holder in its sole and absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any
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Note, and may be relied upon by any Transferee, regardless of any investigation
made at any time by or on behalf of such Purchaser or any Transferee. Subject to
the preceding sentence, this Agreement, the Notes and the Paying Agent Agreement
embody the entire agreement and understanding between the Purchasers and the
Company and supersede all prior agreements and understandings relating to the
subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in
this Agreement contained by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11H. DISCLOSURE TO OTHER PERSONS. The Company acknowledges that the
holder of any Note may deliver copies of any financial statements and other
documents delivered to such holder, and disclose any other information disclosed
to such holder, by or on behalf of the Company or any Subsidiary in connection
with or pursuant to this Agreement to (i) such holder's directors, officers,
employees, agents and professional consultants, (ii) any other holder of any
Note, (iii) any Person to which such holder offers to sell such Note or any part
thereof, (iv) any Person to which such holder sells or offers to sell a
participation in all or any part of such Note, (v) any Federal or State
regulatory authority having jurisdiction over such holder, (vi) the National
Association of Insurance Commissioners or any similar organization or (vii) any
other Person to which such delivery or disclosure may be necessary or
appropriate (a) in compliance with any law, rule, regulation or order applicable
to such holder, (b) in response to any subpoena or other legal process, (c) in
connection with any litigation to which such holder is a party, (d) in order to
protect such holder's investment in such Note or (e) to correct any false or
misleading information which may become public concerning the relationship of
such holder to the Company or its Subsidiaries. Except as provided in the
previous sentence, each holder agrees that it will use its best efforts to hold
in confidence and not to disclose the Confidential Information. As used herein
"CONFIDENTIAL INFORMATION" means any material, non-public information that is
provided to any such holder pursuant to this Agreement, but does not include
information (i) which was publicly known or otherwise known to such holder, at
the time of disclosure, (ii) which subsequently becomes publicly known through
no act or omission of such holder, or (iii) which otherwise becomes known to
such holder, other than through disclosure by the Company or any Subsidiary.
11I. NOTICES. All notices or other communications provided for
hereunder (except for any telephonic notice contemplated by SCHEDULE I) shall be
in writing and sent by first class mail or nationwide overnight delivery service
(with charges prepaid) and, (i) if to a Purchaser, addressed to such Purchaser
at the address specified for such communications in the SCHEDULE I attached
hereto, or at such other address as such Purchaser shall have specified to the
Company in writing, (ii) if to any other holder of any Note, addressed to such
other holder for the purpose thereof as it appears on the register of the
Company maintained under paragraph 11D and (iii) if to the Company, addressed to
it at 5201 Truxtun Avenue, Suite 100, Bakersfield, California 93309, Attention:
General Counsel,
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or at such other address as the Company shall have specified to the holder of
each Note in writing; PROVIDED, HOWEVER, that any such communication to the
Company may also, at the option of the holder of any Note, be delivered by any
other means either to the Company at its address specified above or to any
officer of the Company.
11J. DESCRIPTIVE HEADINGS; EXECUTION BY FACSIMILE TRANSMISSION. The
descriptive headings of the several paragraphs of this Agreement are inserted
for convenience only and do not constitute a part of this Agreement. The method
of execution of this Agreement set forth in paragraph 11N hereof may be by means
of facsimile transmission, and delivery of such a facsimile transmission shall
be deemed an original for purposes of paragraph 11N hereof.
11K. SATISFACTION REQUIREMENT. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to the Purchasers or to the Required
Holders, the determination of such satisfaction shall be made by the Purchasers
or the Required Holders, as the case may be, in the sole and exclusive judgment
(exercised in good faith) of the Person or Persons making such determination.
11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
OF THE STATE OF NEW YORK AND THE UNITED STATES OF AMERICA. This Agreement may
not be changed orally, but (subject to the provisions of paragraph 11C) only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
11M. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION.
(i) THE COMPANY AND EACH PURCHASER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A
TRIAL BY JURY IN ANY LITIGATION OF ANY CLAIM WHICH IS BASED HEREON,
OR ARISES OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, THE
NOTES OR THE PAYING AGENT AGREEMENT, OR ANY TRANSACTIONS RELATING
HERETO OR THERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE COMPANY OR
THE PURCHASERS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE OTHER PARTY TO ENTER INTO THE NOTE
AGREEMENT.
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(ii) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT, THE NOTES OR THE PAYING AGENT AGREEMENT, OR ANY
TRANSACTIONS RELATING HERETO OR THERETO, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS
OF THE COMPANY OR THE PURCHASERS MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND FOR THESE PURPOSES THE PARTIES HERETO
HEREBY ACCEPT THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVE ANY OBJECTIONS, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.
11N. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts (including by facsimile transmission), each of which
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
11O. EFFECTIVENESS. It is the intention of the parties hereto that
this Agreement and the Notes issued on the Date of Closing shall (1) be
delivered in the State of New York and (2) become valid, binding and effective
obligations of the respective parties thereto only upon such delivery (as
evidenced by physical delivery to Baker & Botts, L.L.P., at its office in New
York, New York, against receipt therefor, of fully executed counterparts of this
Agreement and of such Notes).
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EXECUTED and effective on this 19th day of November, 1996.
MONTEREY RESOURCES, INC.
By: /s/ R. GRAHAM WHALING
Name: R. Graham Whaling
Title: Chief Executive Officer
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ PATRICIA WILSON
Name: Patricia Wilson
By: /s/ STEVEN M. LAUDE
Name: Steven M. Laude
Authorized Signatories
AMERICAN ENTERPRISE LIFE
INSURANCE COMPANY
By: /s/ LORRAINE R. HART
Name: Lorraine R. Hart
Title: Vice President, Investments
AMERUS LIFE INSURANCE COMPANY
By: /s/ TODD D. YOUNGER
Name: Todd D. Younger
Title: Portfolio Manager
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FARM BUREAU LIFE INSURANCE
COMPANY
By: /s/ RICHARD D. WARMING
Name: Richard D. Warming
Title: VP - Chief Investment Officer
GALICO
By: /s/ DOUGLAS R. KOESTER
Name: Douglas R. Koester
Title: Senior Vice President
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By: /s/ JAMES G. LOWERY
Name: James G. Lowery
Title: Assistant Vice President
IDS LIFE INSURANCE COMPANY
By: /s/ LORRAINE R. HART
Name: Lorraine R. Hart
Title: Vice President, Investments
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ RICHARD C. MORRISON
Name: Richard C. Morrison
Title: Managing Director
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MELLON BANK, N.A.,
AS TRUSTEE FOR FIRST PLAZA
GROUP TRUST
By: /s/ LAURIE A. ADAMS
Name: Laurie A. Adams
Title: Trust Officer
PAN-AMERICAN LIFE INSURANCE
COMPANY
By: /s/ F. ANDERSON STONE
Name: F. Anderson Stone
Title: Vice President,
Corporate Securities
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By: /s/ SARAH D. PITTS
Name: Sarah D. Pitts
Title: Counsel
By: /s/ JON C. HENRY
Name: Jon C. Henry
Title: Counsel
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY
By: /s/ JAMES D. KESTNER
Name: James D. Kestner
Title: Vice President
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THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ RANDALL M. KOB
Name: Randall M. Kob
Title: Vice President
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EXHIBIT A
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION EXCEPT PURSUANT
TO EXEMPTIONS THEREFROM UNDER SUCH ACT.
MONTEREY RESOURCES, INC.
10.61% SENIOR NOTE DUE MARCH 31, 2005
PPN 612622A*1 _______________[Date]
No. _________ New York, New York
$____________
FOR VALUE RECEIVED, the undersigned, MONTEREY RESOURCES, INC.
(the "Company"), a corporation organized and existing under the laws of the
State of Delaware, hereby promises to pay to__________________________________,
or registered assigns, the principal sum of __________________________________
DOLLARS on March 31, 2005, with interest (computed on the basis of a 360-day
year--30-day month) (a) on the unpaid balance thereof at the rate of 10.61% per
annum from the date hereof, payable semiannually in arrears on March 31 and
September 30 in each year, commencing with the March 31 or September 30 next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) on any overdue payment of principal, any overdue payment of
Yield-Maintenance Premium (as defined in the Agreement (as defined below)) and,
to the extent permitted by applicable law, any overdue payment of interest,
payable semiannually as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum from time to time equal to the greater
of (a) 11.61% or (b) 1% above the rate of interest publicly announced by The
Bank of New York from time to time in New York City as its Prime Commercial
Lending Rate, effective as of the effective date of the change of such Prime
Commercial Lending Rate, calculated from the date each overdue payment was due
until paid in full.
Payments of principal, Yield-Maintenance Premium, if any, and
interest are to be made at the main office of The Bank of New York, as paying
agent (together with its successors in such capacity, the "Paying Agent"),
pursuant to that certain Paying Agent Agreement dated as of November 19, 1996
between the Company and The Bank of New York (the "Paying Agent Agreement"), in
New York City in lawful money of the United States of America.
This Note is one of a series of Notes (the "Notes") issued pursuant
to a Note Agreement, dated as of November 19, 1996 (the "Agreement"), between
the Company and the respective original purchasers of the Notes named in
Schedule I attached thereto and is entitled to the benefits thereof. As provided
in the Agreement, this Note is subject to prepayment, in whole or from time to
time in part, in certain cases without Yield-Maintenance Premium and in other
cases with Yield-Maintenance Premium as specified in the Agreement. This Note is
also entitled to the benefits of the Paying Agent Agreement.
A-1
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This Note is a registered Note and, as provided in paragraph 11D of
the Agreement, upon surrender of this Note to the Company for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Note for a like principal amount will be issued to,
and registered by the Company (with written notice thereof to the Paying Agent)
in the name of, the transferee. (i) Prior to due presentment for registration of
transfer, the Company, and (ii) prior to the Business Day (as defined in the
Agreement) after its receipt of notice from the Company of such registration of
transfer, the Paying Agent, may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment and for all
other purposes, and the Company and the Paying Agent shall not be affected by
any notice to the contrary. Reference is made to paragraph 11D of the Agreement
under which, among other things, the Company agrees to indemnify the holders of
Notes with respect to certain matters relating to the provision by the Company
to the Paying Agent of information concerning registration of transfer of Notes
and relating to the disbursement by the Paying Agent of payments made by the
Company in respect of the Notes.
The Company agrees to make prepayments of principal on the dates and
in the amounts specified in the Agreement. If an Event of Default, as defined in
the Agreement, shall occur and be continuing, the principal of this Note may be
declared or otherwise become due and payable in the manner and with the effect
provided in the Agreement. Except as otherwise provided in the Agreement, the
Company and any and all endorsers, guarantors and sureties severally waive
grace, demand, presentment for payment, notice of dishonor or default, notice of
intent to accelerate, notice of acceleration, protest and diligence in
collecting. Should any indebtedness represented by this Note be collected at law
or in equity, or in bankruptcy or other proceedings, or should this Note be
placed in the hands of attorneys for collection, the Company agrees to pay, in
addition to the principal, Yield-Maintenance Premium, if any, and interest due
and payable hereon, all reasonable costs of collecting or attempting to collect
this Note, including reasonable attorneys' fees and expenses (including those
incurred in connection with any appeal). The Company shall not be obligated to
pay any legal fees incurred by the holder hereof or any other holder of any Note
other than the reasonable fees of one special counsel designated by the Required
Holders (as defined in the Agreement).
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF
NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE.
MONTEREY RESOURCES, INC.
By: ____________________________
Name: __________________________
Title: _________________________
A-2
<PAGE>
EXHIBIT C
[FORM OF SUBORDINATION PROVISIONS]
1. The payment of any and all Subordinated Debt is expressly
subordinated to the extent and in the manner set forth in paragraphs 2 to 11,
inclusive, hereof to Senior Debt. The term "Subordinated Debt" as used in this
[NOTE] shall mean and include all indebtedness at any time evidenced by this
[NOTE] including, without limitation, the principal of, interest on, premium, if
any, with respect to, and fees, expenses and advances incurred in connection
with, all liabilities, indebtedness or obligations of the Payor to the Payee
hereunder or under any agreement governing this [NOTE] or executed in connection
with this [NOTE]. The term "Senior Debt" as used in this [NOTE] shall mean and
include (i) the principal of, Yield-Maintenance Premium (as defined in the Note
Agreement (as hereafter defined)), if any, with respect to, interest on
(including any interest accruing subsequent to the commencement of a Proceeding
described in paragraph 5 below), expenses, fees and advances incurred in
connection with (including, without limitation, all expenses described in
paragraph 11B of the Note Agreement (as hereafter defined)), and the aggregate
amount of indemnities arising in connection with, all liabilities, indebtedness
and obligations of the Payor to the holders of indebtedness, arising under the
Note Agreement dated as of November [___], 1996, (as amended, modified,
supplemented and restated from time to time, the "Note Agreement") between the
Payor and the Purchasers thereunder (as such term is defined therein) and the
senior promissory notes in the original outstanding aggregate principal amount
of $175,000,000 (the "Senior Notes") issued pursuant thereto (including
extensions, renewals, refinancings and refundings of the Senior Notes, whether
or not the principal amount is increased), and (ii) the principal of, premium,
if any, with respect to, interest on (including any interest accruing subsequent
to the commencement of a Proceeding described in paragraph 5 below), expenses,
fees and advances incurred in connection with, and the aggregate amount of
letter of credit liabilities and advances and indemnities arising in connection
with, all liabilities, indebtedness and obligations of the Payor to the holders
of indebtedness, arising under the Credit Agreement dated as of November [__],
1996, (as amended, modified, supplemented and restated from time to time, the
"Credit Agreement") among the Payor, the Banks signatory thereto (the "Banks")
and The Chase Manhattan Bank, as Administrative Agent, and the promissory notes
in the original aggregate face amount of $75,000,000 (the "Bank Notes") issued
pursuant thereto (including extensions, renewals, refinancings and refundings of
the Bank Notes, whether or not the principal amount is increased).
2. No direct or indirect payment on account of this [NOTE] shall be
demanded, made, or accepted, no assets of Payor shall be applied to the payment,
purchase, redemption or other acquisition or retirement of this [NOTE], and no
security interest shall be granted by the Payor to secure, or enforced by the
Payor as security for, this [NOTE], unless, in each case, all Senior Debt
previously shall have been indefeasibly paid in full in cash and the Credit
Agreement shall have terminated in accordance with its terms; PROVIDED, however,
that Payor may, upon at least 15 days
C-1
<PAGE>
prior written notice to the holders of the Senior Notes and the Agent (as
defined in the Credit Agreement) in the manner contemplated by the Note
Agreement and the Credit Agreement, respectively, make payments of interest at
the times and in the amounts required hereunder and pay when due all or any part
of the principal hereof (and the Payee may receive all such payments) so long as
there is not then existing under the Note Agreement or the Credit Agreement a
Default, an Event of Default or a Borrowing Base Deficiency (as, respectively,
defined therein) and no such Default, Event of Default or Borrowing Base
Deficiency would result from such payment.
3. In the event that the Payee shall receive any payment on
Subordinated Debt which it is not entitled to receive under the subordination
provisions contained in these paragraphs 1 through 11, inclusive, the Payee will
hold any amount so received in trust for the holders of Senior Debt and will
forthwith turn over such payment to a representative of the holders of Senior
Debt selected by the Required Holders (as defined in the Note Agreement) and the
Required Banks (as defined in the Credit Agreement) (the "Representative") (for
the ratable benefit of the holders of Senior Debt) in the form received (with
any endorsements or other instruments of transfer requested by the Required
Holders and the Required Banks), to be applied on Senior Debt proportionately
based upon the aggregate principal amount of each holder's Senior Debt then
outstanding. In the event of any failure by Payee to make any such endorsement
or execute any such instrument of transfer, the Representative is hereby
authorized to make or execute the same, as the case may be.
4. The Payee will not commence any action or proceeding against the
Payor to recover all or any part of the Subordinated Debt or join with any
creditor, unless the holders of Senior Debt shall also join, in bringing any
proceedings against the Payor under any bankruptcy, reorganization, readjustment
of debt, arrangement of debt, receivership, liquidation or insolvency law or
statute of the Federal or any State government unless and until Senior Debt
shall be paid in full in cash and the Credit Agreement shall have terminated in
accordance with its terms.
5. In the event of any liquidation, dissolution or other winding up
of the Payor, or in the event of any receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization or arrangement with
creditors, whether or not pursuant to bankruptcy laws, sale (under court
supervision) of all or substantially all of the assets or any other marshalling
of the assets and liabilities of the Payor (each of the foregoing, a
"Proceeding"), (i) Senior Debt shall first be indefeasibly paid in full in cash
and the Credit Agreement shall have terminated in accordance with its terms
before the Payee shall be entitled to receive any moneys, dividends or other
assets in any such Proceeding, and (ii) the Payee will at the request of the
holders of Senior Debt, file any claim, proof of claim or other instrument of
similar character necessary to enforce the obligations of the Payor in respect
of Subordinated Debt and will hold in trust for the holders of Senior Debt and
pay over to the Representative (for the ratable benefit of the holders of Senior
Debt), in the form received (with any endorsements or other instruments of
transfer requested by the Required Holders and the Required Banks), to be
applied on Senior Debt (proportionately based upon the aggregate principal
amount of each holder's Senior Debt then outstanding), any and all moneys,
dividends or other assets received in any such Proceeding on account of
Subordinated Debt, unless and until Senior Debt shall be indefeasibly paid in
full in cash (including post-petition interest which, as a
C-2
<PAGE>
result of a Proceeding, the Payor is no longer obligated to pay) and the Credit
Agreement shall have terminated in accordance with its terms. In the event that
the Payee shall fail to take such action requested by the holders of Senior
Debt, the Representative may, as attorney-in-fact for the Payee, take such
action on behalf of the Payee, and demand, sue for, collect and receive any and
all such moneys, dividends or other assets and give acquittance therefor and
take such other action (including voting for and the acceptance or rejection of
any plan of reorganization or arrangement) in the name of the holders of Senior
Debt or in the name of the Payee as the holders of Senior Debt may deem
necessary or advisable for the enforcement of this [NOTE]; and the Payee will
execute and deliver to the holders of Senior Debt such other and further powers
of attorney or other instruments as the holders of Senior Debt may request in
order to accomplish the foregoing.
6. Payee shall not be subrogated to the rights of any holder of
Senior Debt to receive any moneys, dividends or other assets of Payor applicable
to Senior Debt until all Senior Debt shall have been indefeasibly paid in full
in cash and the Credit Agreement shall have terminated in accordance with its
terms. For purposes of such subrogation, none of the payments or distributions
to the holders of Senior Debt to which Payee would be entitled except for the
provisions of this [NOTE] shall, as among the Payor, its creditors other than
the holders of Senior Debt and Payee, be deemed to be a payment by the Payor to
or on account of Senior Debt, and none of the payments or distributions to Payee
by virtue of the subrogation herein provided for shall, as among the Payor, its
creditors other than the holders of Senior Debt and Payee, be deemed to be a
payment to or on account of this [NOTE].
7. The holders of Senior Debt may, at any time and from time to
time, without the consent of or notice to the Payee, without incurring
responsibility to the Payee, and without impairing or releasing any of the
rights of the holders of Senior Debt, or any of the obligations of the Payor
hereunder: (a) change the amount, manner, place or terms of payment or change or
extend the time of payment of or renew or alter Senior Debt or amend the Note
Agreement (other than Exhibit C thereto in a manner that purports to affect
retroactively the terms or provisions of this [NOTE] so as to cause the
indebtedness of Payor evidenced hereby no longer to satisfy paragraph 6B(2)(i)
of the Note Agreement) or the Credit Agreement in any manner or enter into or
amend in any manner any other agreement (other than this [NOTE]) relating to
Senior Debt (including provisions restricting or further restricting payments of
principal of and interest on Subordinated Debt); (b) sell, exchange, release or
otherwise deal with any property by whomsoever at any time pledged or mortgaged
to secure, or howsoever securing, Senior Debt; (c) release anyone liable in any
manner for the payment or collection of Senior Debt; (d) exercise or refrain
from exercising any rights against the Payor and others (including the Payee);
and (e) apply any sums by whomsoever paid or however realized to Senior Debt in
such order or manner as the holders of Senior Debt may in their sole discretion
determine, but only in accordance with the Credit Agreement or Note Agreement,
as the case may be.
8. The subordination provisions of this [NOTE] are intended solely
for the purpose of defining the relative rights and priorities of Payee, on the
one hand, and the holders of Senior Debt, on the other hand, and are solely for
the benefit of the holders of Senior Debt (and their
C-3
<PAGE>
successors and assigns) and shall be enforceable by them directly against Payee.
Nothing contained in this [NOTE] is intended or shall affect the relative rights
of Payee and creditors of Payor other than the holders of Senior Debt, nor shall
anything herein prevent any holder of Senior Debt from exercising all remedies
otherwise permitted by applicable law upon a Default, an Event of Default or a
Borrowing Base Deficiency (all as defined above). No holder of Senior Debt shall
be prejudiced in its right to enforce subordination of this [NOTE] by any act or
failure to act by Payor or anyone in custody of Payor's assets or property. No
invalidity, irregularity or unenforceability of any provision relating to Senior
Debt or any security therefor or guaranty thereof shall affect, impair or be a
defense to the subordination provisions contained in these paragraphs 1 through
11, inclusive. This [NOTE] cannot be transferred or assigned, and no waiver or
amendment of the terms of this [NOTE] shall be effective, without the prior
written consent of the Required Holders and the Required Banks, PROVIDED that,
in any event, this [NOTE] cannot be transferred or assigned while any Senior
Debt remains unpaid or the Credit Agreement remains in effect unless such
transfer or assignment is made expressly subject to the subordination provisions
contained in these paragraphs 1 through 11, inclusive. Any instrument hereafter
evidencing the Subordinated Debt evidenced hereby will contain provisions
referring specifically to the subordination provisions contained in these
paragraphs 1 through 11, inclusive.
9. Any holder of any Senior Debt may assign all or part of such
Senior Debt any number of times in accordance with the Note Agreement or the
Credit Agreement, as the case may be, and all Senior Debt so transferred shall
be and remain entitled to all of the benefits of the subordination provisions
contained in these paragraphs 1 through 11, inclusive.
10. Upon the Senior Debt being indefeasibly paid in full in cash and
the termination of the Credit Agreement in accordance with its terms, the
subordination provisions contained in these paragraphs 1 through 11, inclusive,
shall terminate.
11. The subordination provisions contained in these paragraphs 1
through 11, inclusive are a continuing agreement and all Senior Debt to which
they apply or may apply shall conclusively be presumed to have been created in
reliance upon them.
C-4
<PAGE>
SCHEDULE I
SCHEDULE OF PURCHASERS
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
ALLSTATE LIFE INSURANCE $7,000,000 $7,000,000
COMPANY
(1) All payments by Fedwire or intrabank
transfer of immediately available funds,
identifying the name of the Issuer (and
the Credit, if any), the Private Placement
Number preceded by "DPP" and the payment
as principal, interest or premium, in the
format as follows:
BKK = Harris Trust and Savings Bank
ABA #071000288
BNF = Allstate Life Insurance Company
Collection Account #168-117-0
ORG = (Enter Issuer Name (and Credit
Name, if any))
OBI = DPP - (Enter Private Placement No,
if available) - (L_____ (enter Lease
Number, if any) -
Payment Due Date (MM/DD/YY) -
P_____ (Enter "P" and amount of
principal being remitted, for example,
P5000000.00) -
I_____ (Enter "I" and amount of
interest being remitted, for example,
I225000.00)
(2) All notices of scheduled payments and
written confirmations of such wire transfer
to be sent to:
Allstate Insurance Company
Investment Operations - Private Placements
3075 Sanders Road, STE G4A
Northbrook, IL 60062-7127
Telephone: (847) 402-8709
Telecopy: (847) 402-7331
Schedule I-1
<PAGE>
(3) All financial reports, compliance
certificates and all other written
communications, including notice of
prepayments, to be sent to:
Allstate Life Insurance Company
Private Placements Department
3075 Sanders Road, STE G3A
Northbrook, Illinois 60062-7127
Telephone: (847) 402-4394
Telecopy: (847) 402-3092
(4) Tax Id. No.: 36-2554642
Schedule I-2
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
AMERICAN ENTERPRISE LIFE $500,000 $500,000
INSURANCE COMPANY
(1) All payments on account of Notes
held by such purchaser shall be made
by wire or intrabank transfer of
immediately available funds for
credit to:
Norwest Bank Minnesota N.A.
MPLS MN
ABA: 091000019
For credit to: American Express Trust
Company
A/C # 38-500
(2) Address for all notices relating to
payments:
American Express Trust Company
733 Marquette Avenue
Minneapolis, MN 55402
Attn: Pat Jacobson N10/922
(3) Address for all other communications and
notices:
American Express Trust Company
733 Marquette Avenue
Minneapolis, MN 55402
Attn: Pat Jacobson N10/922
(4) Tax Identification No.: 41-1435284
Schedule I-3
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
AMERUS LIFE INSURANCE $3,000,000 $3,000,000
COMPANY
(1) All payments on account of Notes
held by such purchaser shall be made
by wire or intrabank transfer of
immediately available funds for
credit to:
Bankers Trust Company/NY
ABA: 021001033
A/C: # 99911145
FFC: A/C # 097446
REF: CUSIP Number
(2) Address for all notices relating to
payments:
AmerUs Life Insurance Company
611 Fifth Avenue, Dept. L-31
Des Moines, IA 50309
Attn: Dan Owens
(3) Address for all other communications and
notices:
AmerUs Life Insurance Company
611 Fifth Avenue, Dept. L-34
Des Moines, IA 50309
Attn: Todd Youngberg
(4) Tax Identification No.: 42-0175020
Schedule I-4
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
FARM BUREAU LIFE INSURANCE $7,000,000 $7,000,000
COMPANY
(1) All payments on account of Notes
held by such purchaser shall be made by
wire or intrabank transfer of
immediately available funds for credit to:
Bankers Trust Company
ABA: 021 001 033
Pvt. Placement Proc. # 99 911 145
For Credit Acct. 098643
Farm Bureau Life Insurance Company
Include a Description of Issue & Payment
Breakdown
(2) Address for all notices relating to
payments:
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, IA 50266
Attn: Bob Rummelhart
(3) Address for all other communications
and notices:
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, IA 50266
Attn: Bob Rummelhart
(4) Tax Identification No.: 42-0623913
Schedule I-5
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
GALICO $5,000,000 $5,000,000
(1) All payments on account of Notes
held by such purchaser shall be made by
wire or intrabank transfer of immediately
available funds for credit to:
General American Life Insurance Company
c/o The Bank of New York
ABA: # 021000018 BNF: IOC566
Attn: P&I Department
(2) Address for all notices relating to
payments:
General American Life Insurance Company
Attn: Investment Accounting
P.O. Box 418
St. Louis, MO 63166
with a copy to:
GALICO
c/o The Bank of New York
P.O. Box 19266
Newark, NJ 07195
(3) Address for all other communications and
notices:
General American Life Insurance Company
Attn: Securities Division
P.O. Box 396
St. Louis, MO 63166
with a copy to:
GALICO
c/o The Bank of New York
P.O. Box 19266
Newark, NJ 07195
(4) Tax Identification No.: 43-6168630
Schedule I-6
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
GREAT-WEST LIFE & ANNUITY $15,000,000 $15,000,000
INSURANCE COMPANY
(1) All payments on account of Notes held
by such purchaser shall be made by wire
or intrabank transfer of immediately
available funds for credit to:
Norwest Bank Minnesota, N.A.
ABA: 091-000-019
NW MPLS/TRUST CLEARING ACCT:
08-40-245
Attn: Acct. #12468800
(describing security (PPN) and allocation of
payment among principal, interest and
premium, if any, and confirming principal
balance)
(2) Address for all notices relating to
payments:
Norwest Bank Minnesota, N.A.
733 Marquette Avenue
Investors Building, 5th Floor
Minneapolis, MN 55479-0047
Attn: Income Collections
(3) Address for all other communications and
notices:
Great-West Life & Annuity Insurance
Company
8515 E. Orchard Road
3rd Floor, Tower II
Englewood, CO 80111
Attn: U.S. Private Placements
(4) Tax Identification No.: 84-0467907
Schedule I-7
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
IDS LIFE INSURANCE COMPANY $8,500,000 $8,500,000
(1) All payments on account of Notes
held by such purchaser shall be made by
wire or intrabank transfer of immediately
available funds for credit to:
Norwest Bank Minnesota N.A.
MPLS MN
ABA: 091000019
For credit to: American Express Trust
Company
A/C # 38-500
(2) Address for all notices relating to
payments:
American Express Trust Company
733 Marquette Avenue
Minneapolis, MN 55402
Attn: Pat Jacobson N10/922
(3) Address for all other communications and
notices:
American Express Trust Company
733 Marquette Avenue
Minneapolis, MN 55402
Attn: Pat Jacobson N10/922
(4) Tax Identification No.: 41-1430260
Schedule I-8
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
MASSACHUSETTS MUTUAL LIFE $15,000,000 $15,000,000
INSURANCE COMPANY
(1) All payments on account of Notes held
by such purchaser shall be made by wire
or intrabank transfer of immediately
available funds for credit to:
Chase Manhattan Bank
New York, NY
ABA# 021 000021
Acct# 910-1388131
Reference: Monterey Resources, Inc.
(2) Address for all notices relating to
payments:
Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111
Attention: Securities Custody and Collection
F381
(3) Address for all other communications and
notices:
Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111
Attention: Richard C. Morrison
(4) Tax Identification No.: 04-1590850
Schedule I-9
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
MELLON BANK, N.A. $5,000,000 $1,000,000
AS TRUSTEE FOR FIRST PLAZA
GROUP TRUST $1,000,000
(1) All payments on account of Notes held $1,000,000
by such purchaser shall be made by wire or
intrabank transfer of immediately available $1,000,000
funds for credit to:
$1,000,000
Federal Reserve Bank of Boston
ABA: 011001234/BOS SAFE DEP
DDA: 108449 Cost Center 1265
Ref: GM - Account GMCF
1744192/Alliance Cap
(2) Address for all notices relating to
payments:
Mellon Bank, N.A.
One Mellon Bank Center, Room 3346
Pittsburgh, PA 15258
Attn: Stephanie Rieger
(3) Address for all other communications and
notices:
Mellon Bank, N.A.
One Mellon Bank Center, Room 3346
Pittsburgh, PA 15258
Attn: Stephanie Rieger
with a copy to:
Alliance Capital Management Corp.
1345 Avenue of the Americas
New York, NY 10105
Attn: Ina Lane
Corp. Bond/Credit Research
(4) Tax Identification No.: ###-##-####
Schedule I-10
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
PAN-AMERICAN LIFE INSURANCE $3,000,000 $3,000,000
COMPANY
(1) All payments on account of Notes
held by such purchaser shall be made by
wire or intrabank transfer of immediately
available funds for credit to:
Pan-American Life Insurance Company
Account #1100-29496
First National Bank of Commerce
ABA # 065000029
210 Baronne Street
New Orleans, LA 70112
(identifying the issue by its PPN and
description of security, and providing
complete details including breakdown of
principal, premium, if any, and interest)
(2) Address for all notices relating to payments:
Pan-American Life Insurance Company
Attn: Bond & Stock Accounting, 28th Floor
601 Poydras Street
New Orleans, LA 70130
Facsimile: (504) 566-3459
(3) Address for all other communications and
notices:
Pan-American Life Insurance Company
Attn: Investment Department, 28th Floor
601 Poydras Street
New Orleans, LA 70130
(4) Tax Identification No.: 72-0281240
Schedule I-11
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
PRINCIPAL MUTUAL LIFE $20,000,000 $20,000,000
INSURANCE COMPANY
(1) All payments on account of Notes
held by such purchaser shall be made by
wire or intrabank transfer of immediately
available funds for credit to:
Norwest Bank Iowa, N.A.
Des Moines, Iowa 50309
ABA: 073000228
Acct: 014752
OBI: PFGSE(S)B23254( )
(2) Address for all notices relating to
payments:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392-0870
Attn: Inv-A&T #1-B-23254
(3) Address for all other communications and
notices:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392-0800
Attn: Inv-Securities #1-B-23254
(4) Tax Identification No.: 42-0127290
Schedule I-12
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
PROVIDENT MUTUAL LIFE $4,000,000 $4,000,000
INSURANCE COMPANY
(1) All payments on account of Notes held
by such purchaser shall be made by wire or
intrabank transfer of immediately available
funds for credit to:
PNC Bank, Philadelphia, PA
ABA: 031000053, for account no.
8540842176 Provident Mutual Life
Insurance Company,
Attn: Treasurer, re Santa Fe Energy
Resources, Inc.
(2) Address for all notices relating to
payments:
Provident Mutual Life Insurance Company
P.O. Box 1717
Valley Forge, PA 19482-1717
Attn: Treasurer
(3) Address for all other communications and
notices:
Provident Mutual Life Insurance Company
P.O. Box 1717
Valley Forge, PA 19482-1717
Attn: Treasurer
(4) Tax Identification No.: 23-0990450
Schedule I-13
<PAGE>
AGGREGATE PRINCIPAL
PURCHASER AMOUNT OF NOTES NOTE DENOMINATIONS
--------- --------------- ------------------
THE PRUDENTIAL INSURANCE $82,000,000 $75,000,000
COMPANY OF AMERICA
$7,000,000
(1) All payments on account of Notes
held by such purchaser shall be made by
wire or intrabank transfer of immediately
available funds for credit to:
Account No. 890-0304-391
Bank of New York
New York, New York
(ABA No.: 021-000-018)
(2) Address for all notices relating to
payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attention: Investment Administration Unit
(3) Address for all other communications and
notices:
The Prudential Insurance Company of
America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, Texas 75201
Attention: Managing Director
(4) Tax Identification No: 22-1211670
Schedule I-14
<PAGE>
Schedule 8A
SCHEDULE OF SUBSIDIARIES
South Belridge Limited Partnership ("SBLP"), a Texas limited
partnership of which the Company is the sole general partner. Prior to the
conveyance under the Conveyance and Contribution Agreement, Parent was the sole
general partner of SBLP. As sole general partner of SBLP, the Company will
generally own a 50% general partner interest in SBLP.
<PAGE>
Schedule 8C
SCHEDULE OF OTHER DEBT AGREEMENTS
1. The Credit Agreements
2. The Original Note Agreement
3. Indenture, dated as of May 25, 1994, between Parent and The First
National Bank of Boston, as Trustee, pursuant to which Parent has
issued its 11% Senior Subordinated Debentures due 2004 which are the
subject of the Consent Solicitation
<PAGE>
Schedule 8G
SCHEDULE OF OUTSTANDING DEBT
None, other than (i) an aggregate of $245,000,000 in principal
amount of indebtedness assumed by the Company from Parent as evidenced by the
Series E, Series F and Series G Notes issued pursuant to the Original Note
Agreement, (ii) the Production Payment, (iii) a $2,200,000 loss contingency with
respect to environmental commitments and contingencies described in footnote 3
to the unaudited financial statements of the "Western Division" of Parent for
the nine months ended September 30, 1996 and (iv) up to $16,000,000 to be
borrowed by Parent under the Credit Agreement referred to in clause (i) of the
definition of "Credit Agreements" at or prior to the effectiveness of this
Agreement. As described in Schedule 8K, a portion of the net proceeds from the
initial public offering by the Company will be used to (a) prepay in full the
principal amount of the Series E and Series F Notes issued under the Original
Note Agreement PLUS accrued and unpaid interest due thereunder and to pay a
prepayment premium thereunder, and (b) repay in full all amounts borrowed by
Parent as provided in clause (iv) of the preceding sentence. The Series G Notes
will be canceled and surrendered pursuant to the Agreement to which this
Schedule 8G is attached in exchange for the Notes to be issued pursuant to such
Agreement.
<PAGE>
Schedule 8K
SCHEDULE OF USE OF PROCEEDS
The net proceeds of the Initial Public Offering are estimated to be
approximately $100 million, based upon the initial public offering price of
$14.50 per share and after deducting estimated expenses. Such net proceeds will
be used for the following purposes: (i) approximately $72.5 million will be used
to prepay in full the $70 million principal amount of the Series E Notes and
Series F Notes and accrued and unpaid interest thereon and to pay the prepayment
premium associated therewith, (ii) approximately $16 million will be used to
repay outstanding indebtedness in respect of borrowing by Parent under the
Credit Agreement referred to in clause (i) of the definition of "Credit
Agreements" and (iii) the balance will be used for general corporate purposes.
If the underwriters' over-allotment options are exercised, the Company intends
to use the net proceeds therefrom to repay any balance then outstanding under
the Credit Agreement referred to in clause (i) of the definition of "Credit
Agreements" and any remaining proceeds will be used for working capital
purposes.
Promptly following the consummation of the Offering, the Company
intends to prepay the Production Payment in full with funds available under the
Credit Agreement referred to in clause (i) of the definition of "Credit
Agreements."
CREDIT AGREEMENT
DATED AS OF NOVEMBER 13, 1996
AMONG
MONTEREY RESOURCES, INC.,
THE BANKS SIGNATORY HERETO
AND
THE CHASE MANHATTAN BANK
AS ADMINISTRATIVE AGENT
<PAGE>
TABLE OF CONTENTS
Section 1. DEFINITIONS AND ACCOUNTING MATTERS..........................1
1.1. CERTAIN DEFINED TERMS.......................................1
1.2. ACCOUNTING TERMS AND DETERMINATIONS........................25
1.3. TYPES OF LOANS.............................................26
Section 2. COMMITMENTS................................................27
2.1. LOANS......................................................27
2.2. LETTERS OF CREDIT..........................................27
2.3. TERMINATIONS, REDUCTIONS AND CHANGES OF COMMITMENTS........30
2.4. FEES.......................................................30
2.5. AFFILIATES; LENDING OFFICES................................30
2.6. SEVERAL OBLIGATIONS........................................31
2.7. NOTES......................................................31
2.8. USE OF PROCEEDS............................................31
Section 3. BORROWINGS AND PREPAYMENTS.................................31
3.1. BORROWINGS.................................................31
3.2. PREPAYMENTS................................................32
Section 4. PAYMENTS OF PRINCIPAL AND INTEREST.........................32
4.1. REPAYMENT OF LOANS AND REIMBURSEMENT OBLIGATIONS...........32
4.2. INTEREST...................................................32
4.3. SELECTION OF INTEREST RATES................................33
Section 5. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS, ETC............34
5.1. PAYMENTS...................................................34
5.2. PRO RATA TREATMENT.........................................34
5.3. COMPUTATIONS...............................................35
5.4. MINIMUM AND MAXIMUM AMOUNTS................................35
5.5. CERTAIN ACTIONS, NOTICES, ETC..............................35
5.6. NON-RECEIPT OF FUNDS BY THE AGENT..........................37
5.7. SHARING OF PAYMENTS, ETC...................................37
Section 6. YIELD PROTECTION AND ILLEGALITY............................38
6.1. ADDITIONAL COSTS...........................................38
6.2. LIMITATION ON TYPES OF LOANS...............................40
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6.3. ILLEGALITY.................................................40
6.4. SUBSTITUTE ALTERNATE BASE RATE LOANS.......................41
6.5. COMPENSATION...............................................42
6.6. ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT...........42
6.7. CAPITAL ADEQUACY...........................................44
Section 7. CONDITIONS PRECEDENT.......................................45
7.1. INITIAL CONDITIONS PRECEDENT...............................45
7.2. ALL LOANS AND LETTERS OF CREDIT............................47
7.3. CONVERSIONS AND CONTINUATIONS OF EURODOLLAR LOANS..........48
Section 8. REPRESENTATIONS AND WARRANTIES.............................48
8.1. CORPORATE EXISTENCE........................................48
8.2. INFORMATION................................................48
8.3. LITIGATION; COMPLIANCE.....................................50
8.4. NO BREACH..................................................50
8.5. NECESSARY ACTION...........................................50
8.6. APPROVALS..................................................50
8.7. REGULATIONS G, T, U AND X..................................51
8.8. ERISA......................................................51
8.9. TAXES......................................................51
8.10. SUBSIDIARIES...............................................51
8.11. INVESTMENT COMPANY ACT.....................................51
8.12. PUBLIC UTILITY HOLDING COMPANY ACT; FEDERAL POWER ACT......52
8.13. ENVIRONMENTAL MATTERS......................................52
8.14. TITLE......................................................52
Section 9. COVENANTS..................................................53
9.1. FINANCIAL STATEMENTS AND CERTIFICATES......................53
9.2. INSPECTION OF PROPERTY.....................................57
9.3. COMPLIANCE WITH ENVIRONMENTAL LAWS.........................57
9.4. PAYMENT OF TAXES...........................................58
9.5. MAINTENANCE OF INSURANCE...................................58
9.6. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS.............58
9.7. LIEN AND OTHER RESTRICTIONS................................60
9.8. ISSUANCE OF STOCK BY RESTRICTED SUBSIDIARIES...............67
9.9. CONSOLIDATED NET WORTH.....................................67
9.10. INTEREST COVERAGE..........................................67
9.11. TOTAL DEBT AND SPECIAL DEBT................................67
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Section 10. DEFAULTS...................................................68
10.1. EVENTS OF DEFAULT..........................................68
Section 11. THE AGENT..................................................71
11.1. APPOINTMENT, POWERS AND IMMUNITIES.........................71
11.2. RELIANCE BY AGENT..........................................72
11.3. DEFAULTS...................................................72
11.4. RIGHTS AS A BANK...........................................72
11.5. INDEMNIFICATION............................................73
11.6. NON-RELIANCE ON THE AGENT AND OTHER BANKS..................73
11.7. FAILURE TO ACT.............................................74
11.8. RESIGNATION OR REMOVAL OF THE AGENT........................74
Section 12. MISCELLANEOUS..............................................74
12.1. WAIVER.....................................................74
12.2. NOTICES....................................................74
12.3. EXPENSES...................................................75
12.4. INDEMNIFICATION............................................75
12.5. AMENDMENTS, ETC............................................77
12.6. SUCCESSORS AND ASSIGNS.....................................77
12.7. SURVIVAL; TERMINATION; REINSTATEMENT.......................80
12.8. LIMITATION OF INTEREST.....................................81
12.9. CAPTIONS...................................................82
12.10. COUNTERPARTS...............................................82
12.11. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL.................................................82
12.12. CONFIDENTIALITY............................................83
12.13. ENTIRE AGREEMENT...........................................83
12.14. BORROWING BY SFER..........................................84
12.15. CONSTRUCTION...............................................84
12.16. SEVERABILITY...............................................84
12.17. WAIVER.....................................................84
PRICING SCHEDULE
APPENDIX A
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EXHIBITS:
A - Form of Note
B - Form of Request for Extension of Credit
C - Form of Assignment Agreement
D - Form of Application
E - Form of Rate Designation Notice
SCHEDULES:
I - Restricted and Unrestricted Subsidiaries
II - Liens and Funded Debt
III - Opinion of Andrews & Kurth L.L.P.
IV - Opinion of Terry L. Anderson
V - Subordination Provisions
VI - Jurisdictions for which Certificates are to be Provided
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CREDIT AGREEMENT
This Credit Agreement (as amended, modified, supplemented or restated from
time to time, this "AGREEMENT") dated as of November 13, 1996, is by and among
MONTEREY RESOURCES, INC. (the "COMPANY"), a Delaware corporation; each of the
financial institutions which is or may from time to time become a party hereto
(individually a "BANK" and collectively the "BANKS"); and THE CHASE MANHATTAN
BANK ("CHASE"), a New York banking corporation, as Administrative Agent for the
Banks (in such capacity, together with any other Person who becomes the Agent
pursuant to SECTION 11.8, the "AGENT").
AGREEMENTS.
The parties agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.1. CERTAIN DEFINED TERMS. As used in this Agreement or the other Credit
Documents, the following terms shall have the following meanings:
"ADDITIONAL COSTS" shall have the meaning ascribed to such term in SECTION
6.1.
"ADJUSTED EBITDA" shall mean, for any period, EBITDA for such period minus
the aggregate of all Restricted Payments made by the Company and the Restricted
Subsidiaries in such period.
"AFFILIATE" shall mean, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person; and with respect to an individual, "AFFILIATE" shall also mean any
individual related to such individual by blood or marriage. As used in this
definition, "CONTROLS", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH" shall
mean the possession, directly or indirectly, of power to direct or cause the
direction of the management or policies (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise).
"AGENT" shall have the meaning ascribed to such term in the introduction.
"AGGREGATE COMMITMENT" shall mean the total of all Commitments of all
Banks.
"AGREEMENT" shall have the meaning ascribed to such term in the
introduction.
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"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next higher 1/100%) equal to the greater of (a)
the Prime Rate in effect on such day or (b) the Fed Funds Rate in effect for
such day plus 1/2%. Any change in the Alternate Base Rate due to a change in the
Fed Funds Rate or the Prime Rate shall be effective on the effective date of
such change in the Fed Funds Rate or the Prime Rate. If for any reason the Agent
shall have determined (which determination shall be conclusive absent manifest
error) that it is unable to ascertain the Fed Funds Rate for any reason,
including the inability or failure of the Agent to obtain sufficient bids or
publications in accordance with the terms hereof, the Alternate Base Rate shall
be the Prime Rate until the circumstances giving rise to such inability no
longer exist.
"ALTERNATE BASE RATE LOANS" shall mean Loans which bear interest at a rate
based upon the Alternate Base Rate.
"APPLICABLE ENVIRONMENTAL LAWS" shall mean all applicable environmental or
pollution-control Legal Requirements governing, without limitation, wastewater
effluent, solid and hazardous waste or substances, and air emissions, together
with any applicable requirements for conducting, on a timely basis, reporting,
record-keeping, periodic tests and monitoring for contamination of ground water,
surface water, air and land and for biological toxicity of the aforesaid,
including, without limitation, the Resource Conservation and Recovery Act of
1976, The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (as amended by the Superfund Amendments and Reauthorization Act), the
Emergency Planning and Community Right-to-Know Act, the Toxic Substances Control
Act, the Solid Waste Disposal Act, the Safe Drinking Water Act, the Hazardous
Materials Transportation Act, the Clean Air Act, the Clean Water Act, the Oil
Pollution Act, and the Federal Insecticide, Fungicide and Rodenticide Act, in
each case as amended from time to time.
"APPLICABLE LENDING OFFICE" shall mean, for each Bank and for each Type of
Loan, the lending office of such Bank (or of an Affiliate of such Bank)
designated for such Type of Loan below its name on the signature pages hereof or
such other office of such Bank (or of an Affiliate of such Bank) as such Bank
may from time to time specify to the Agent and the Company as the office by
which its Loans of such Type are to be made and/or issued and maintained.
"APPLICABLE MARGIN" shall mean (a) on any day during any Margin Period,
with respect to any Eurodollar Loan, the percent per annum determined for each
day during such Margin Period according to the Pricing Schedule; (b) on any day
during any Margin Period, with respect to any Letter of Credit, the percent per
annum determined for each day during such Margin Period according to the Pricing
Schedule; and (c) if no Margin Period is in effect, the rate determined from
time to time according to SECTION 4.3(B).
"APPLICATION" shall mean an application for a letter of credit
substantially in the form of EXHIBIT D.
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"ASSIGNMENT AGREEMENT" shall mean an Assignment and Acceptance Agreement
substantially in the form of EXHIBIT C.
"ATTRIBUTABLE DEBT" shall mean the lesser of (a) the fair market value of
the assets sold pursuant to any Sale and Leaseback Transaction (which
determination shall be based upon a written opinion (the cost of which shall be
borne exclusively by the Company) as to valuation from an independent valuation
expert selected by the Company) or (b) the present value (discounted according
to GAAP at the interest rate implicit in the lease) of the obligations of the
lessee for rental payments during the term of any lease constituting a part of
such Sale and Leaseback Transaction; PROVIDED, that no Attributable Debt will be
assigned to a Sale and Leaseback Transaction of the type described in SECTION
9.7(E)(2).
"BANKS" shall have the meaning ascribed to such term in the introduction.
"BOARD" shall mean the Board of Governors of the Federal Reserve System of
the United States or any entity succeeding to all or part of its functions.
"BUSINESS DAY" shall mean any day other than a day on which commercial
banks are authorized or required to close in New York, New York, and where such
term is used in the definition of "QUARTERLY DATE" or, if such day relates to a
borrowing of, a payment or prepayment of principal of or interest on, or an
Interest Period for, a Eurodollar Loan or a notice by the Company with respect
to any such borrowing, payment, prepayment or Interest Period, which is also a
day on which dealings in Dollar deposits are carried out in the relevant
Eurodollar interbank market.
"BUSINESS ENTITY" shall mean a corporation, partnership, limited
partnership, limited liability company, joint stock association, business trust
or other separate business entity.
"CAPITAL GAINS" shall mean gains (net of expenses and income taxes
applicable thereto) in excess of losses resulting from the sale, conversion or
other disposition of capital assets (I.E., assets other than current assets).
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under GAAP, is or will be required to be capitalized on the books of the Company
or any Restricted Subsidiary, taken at the amount thereof accounted for as
indebtedness (net of interest expense) in accordance with GAAP.
"CHANGE OF CONTROL" shall mean any change so that any Person (or any
Persons acting together which would constitute a Group), together with any
Affiliates or Related Persons thereof, other than Permitted Holders, shall at
any time either (1) Beneficially Own more than 50% of the aggregate voting power
of all classes of Voting Stock of the Company or (2) succeed in having
3
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sufficient of its or their nominees elected to the Board of Directors of the
Company such that such nominees, when added to any existing director remaining
on the Board of Directors of the Company after such election who is an Affiliate
or Related Person of such Person or Group, shall constitute a majority of the
Board of Directors of the Company. As used herein (a) "BENEFICIALLY OWN" shall
mean beneficially own as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), or any successor provision thereto; (b)
"GROUP" shall mean a "group" for purposes of Section 13(d) of the Exchange Act;
(c) "RELATED PERSON" of any Person shall mean any other Person owning (1) 5% or
more of the outstanding common stock of such Person or (2) 5% or more of the
Voting Stock of such Person, and (d) "VOTING STOCK" of any Person shall mean
capital stock of such Person which ordinarily has voting power for the election
of directors (or persons performing similar functions) of such Person, whether
at all times or only so long as no senior class of securities has such voting
power by reason of any contingency.
"CHASE" shall have the meaning ascribed to such term in the introduction.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute, together with all publicly available written regulations,
rulings and interpretations thereof or thereunder by the Internal Revenue
Service or any entity succeeding to all or part of its functions.
"COMBINED GROUP" shall mean the Company and the Restricted Subsidiaries.
"COMMITMENT" shall mean, as to any Bank, the obligation, if any, of such
Bank to extend credit to the Company in the form of Loans and Letter of Credit
Liabilities in an aggregate principal amount at any one time outstanding up to
but not exceeding the amount set forth opposite such Bank's name on the
signature pages hereof under the caption "Commitment" or in its Assignment
Agreement (as the same may be reduced from time to time or terminated pursuant
to SECTION 2.3 or modified pursuant to SECTION 12.6).
"COMMITMENT FEE" shall have the meaning ascribed to such term in SECTION
2.4.
"COMMITMENT PERCENTAGE" shall mean, as to any Bank at any time, the
percentage equivalent of a fraction, the numerator of which is such Bank's
Commitment at such time and the denominator of which is the Aggregate Commitment
at such time.
"COMPANY" shall have the meaning ascribed to such term in the
introduction.
"CONSENT SOLICITATION" shall mean the solicitation from the holders of
SFER's 11% Senior Subordinated Debentures due 2004 of consent to waivers of
certain provisions of the Indenture pursuant to which such Debentures were
issued in order to permit certain of the Other Transactions.
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"CONSOLIDATED NET EARNINGS" shall mean consolidated gross revenues
(including Capital Gains) of the Company and the Restricted Subsidiaries less
all operating and non-operating expenses of the Company and the Restricted
Subsidiaries including all charges of a proper character (including current and
deferred taxes on income, provision for taxes on unremitted foreign earnings
which are included in gross revenues, and current additions to reserves), but
not including in gross revenues any gains resulting from write-up of assets, any
equity of the Company or any Restricted Subsidiary in the unremitted earnings of
any Person which is not a Restricted Subsidiary, any earnings of any Person
acquired by the Company or any Restricted Subsidiary through purchase, merger or
consolidation or otherwise for any year prior to the year of acquisition, or any
deferred credit representing the excess of equity in any Restricted Subsidiary
at the date of acquisition over the cost of the investment in such Restricted
Subsidiary; all determined in accordance with GAAP.
"CONSOLIDATED NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS AND
RESTRICTED INVESTMENTS" shall have the meaning ascribed to such term in SECTION
9.6.
"CONSOLIDATED NET TANGIBLE ASSETS" shall mean (a) for any calculation as
of the fiscal quarter ending September 30, 1996, $404,300,000 and (b) for all
other determinations, the aggregate net tangible assets of the Company and the
Restricted Subsidiaries, determined as follows:
(a) The aggregate gross book value of all the assets of the Company and
the Restricted Subsidiaries, both real and personal, shall be computed,
EXCLUDING, however, the following items:
(1) all franchises, licenses, permits, patents, patent applications,
copyrights, trademarks, trade names, goodwill, experimental or organizational
expense, unamortized debt discount and expense, and all other assets which under
GAAP are deemed intangible;
(2) any reacquired shares or reacquired Debt of the Company or the
Restricted Subsidiaries;
(3) any write-up of assets made by SFER, any Subsidiary of SFER, the
Company or any Restricted Subsidiary of the Company after December 31, 1989;
(4) 50% of the value of all assets of the Company and the Restricted
Subsidiaries which are located outside the United States of America and Canada
and not freely returnable to the United States of America or Canada, including
any notes or accounts receivable from any debtor having any substantial part of
its business, operations or properties located outside the United States of
America and Canada, except notes or accounts receivable from such a debtor which
arose in the ordinary course of business of the Company or any Restricted
Subsidiary, as the case may be, to which such notes or accounts receivable are
payable and which
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otherwise constitute current assets, but only to the extent of an amount of
dollars readily realizable from such notes or accounts receivable by liquidation
either directly or through a currency freely convertible into dollars; and
(5) all Restricted Investments of the Company and the Restricted
Subsidiaries.
(b) From the gross book value of the tangible assets of the Company and
the Restricted Subsidiaries, determined as provided in the preceding CLAUSE (A),
there shall be deducted the following items:
(1) all reserves for depreciation, depletion, obsolescence and
amortization of the assets of the Company and the Restricted Subsidiaries (other
than assets excluded as provided in the preceding CLAUSE (A)), all proper
reserves (other than reserves for deferred taxes and general contingency
reserves and other reserves representing mere appropriations of surplus) which
in accordance with GAAP should be set aside in connection with the business
conducted by them;
(2) all Current Debt of the Company and the Restricted Subsidiaries;
and
(3) all other liabilities of the Company and the Restricted
Subsidiaries, including the reduction in equity attributable to minority
interests but excluding deferred taxes, Funded Debt of the Company and the
Restricted Subsidiaries, capital shares, surplus and general contingency
reserves and other reserves representing mere appropriations of surplus.
(c) In the determination of Consolidated Net Tangible Assets, no amount
shall be included therein on account of any excess cost of acquisition of shares
of any Restricted Subsidiary over the net book value of the assets of such
Restricted Subsidiary attributable to such shares at the date of such
acquisition or on account of any excess of the net book value of the assets of
any Restricted Subsidiary attributable to any shares of such Restricted
Subsidiary at the date of acquisition of such shares over the cost of
acquisition of such shares.
"CONSOLIDATED NET WORTH" shall mean, at any date, the consolidated
stockholders' equity of the Company and the Restricted Subsidiaries, all
determined in accordance with GAAP, MINUS (to the extent included in the
calculation of consolidated shareholders' equity) the aggregate amount of
Investments in Unrestricted Subsidiaries (all determined in accordance with the
last sentence of the definition of "Investment").
"CONTINUATION" shall have the meaning ascribed to such term in SECTION
4.3.
"CONVERSION" shall have the meaning ascribed to such term in SECTION 4.3.
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"CONVEYANCE AND CONTRIBUTION AGREEMENT" shall mean the Conveyance and
Contribution Agreement by and between SFER and the Company effective as of
November 1, 1996.
"CORPORATE SERVICES AGREEMENT" shall mean the Corporate Services Agreement
by and between SFER and the Company dated as of the Date of Closing.
"COVER" for Letter of Credit Liabilities shall be effected by paying to
the Agent immediately available funds in the amount of such Letter of Credit
Liabilities, such amount to be held by the Agent until such time as such Letter
of Credit Liabilities expire according to their terms or become Letter of Credit
Advances, whereupon the Agent may use such funds to repay such Letter of Credit
Advances.
"CREDIT DOCUMENTS" shall mean this Agreement, the Notes, all Applications,
all Letters of Credit, the Notice of Entire Agreement, and all instruments,
certificates and agreements now or hereafter executed or delivered to the Agent
or any Bank pursuant to any of the foregoing.
"CURRENT DEBT" shall mean any obligation for borrowed money (and any notes
payable and drafts accepted representing obligations for borrowed money) payable
on demand or within a period of one year from the date of the creation thereof
and any Guaranty with respect to Current Debt (of the kind otherwise described
in this definition) of another Person; PROVIDED that any obligation shall be
treated as Funded Debt, regardless of the preceding provisions of this
definition, if such obligation is renewable pursuant to the terms thereof or of
a revolving credit or similar agreement effective for more than one year after
the date of the creation of such obligation, or may be payable out of the
proceeds of a similar obligation pursuant to the terms of such obligation or of
any such agreement; PROVIDED, FURTHER, that Current Debt shall not include (a)
any obligation of the Company owing to a wholly-owned Restricted Subsidiary
which is subordinated to the Obligations upon the terms set forth on SCHEDULE V,
or (b) any obligation of a Restricted Subsidiary owing to the Company or one or
more other Restricted Subsidiaries.
"DATE OF CLOSING" shall mean the date the Company receives the proceeds of
the IPO.
"DEBT" shall mean Funded Debt and/or Current Debt, as the case may be.
"DEFAULT" shall mean an Event of Default or an event, circumstance or
condition which with notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"EBITDA" shall mean for any period Consolidated Net Earnings for such
period (calculated, for purposes of this definition only, without taking into
account extraordinary items under GAAP or capital gains or capital losses), plus
the aggregate amounts deducted in deter mining Consolidated Net Earnings in
respect of (a) all provisions for any federal, state or other income taxes made
by the Company and the Restricted Subsidiaries during such period; (b) Fixed
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Charges of the Company and the Restricted Subsidiaries during such period; (c)
depreciation, depletion and amortization charges of the Company and the
Restricted Subsidiaries for such period, and (d) all other non-cash charges of
the Company and the Restricted Subsidiaries for such period, all determined in
accordance with GAAP; PROVIDED, HOWEVER, that EBITDA shall mean, for any
calculation, $25,900,000, $30,600,000, $37,400,000 and $33,800,000 for the
fiscal quarters ended December 31, 1995, March 31, 1996, June 30, 1996 and
September 30, 1996, respectively; PROVIDED FURTHER, that EBITDA for the fiscal
quarter ended December 31, 1996, shall be $15,800,000 plus EBITDA (determined in
accordance with the first clause of this sentence) for the two months ended
December 31, 1996.
"ELIGIBLE ASSIGNEE" shall mean (a) a commercial bank organized or licensed
under the laws of the United States of America, or a state thereof, and having
total assets in excess of $1,000,000,000, (b) a commercial bank which is
organized under the laws of any other country which is a member of the OECD, or
a political subdivision of any such country, is licensed to maintain an office
in California or is licensed or authorized to maintain a state or federal branch
or agency in any state of the United States and having total assets in excess of
$1,000,000,000; provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country that also is
a member of the OECD, and (c) a finance company, insurance company or other
financial institution, acceptable to the Agent and the Company, which is
regularly engaged in making, purchasing or investing in loans, is exempted from
the restrictions of Section 1 of Article XV of the California Constitution
relating to the interest rates on loans, and has total assets in excess of
$1,000,000,000.
"ENVIRONMENTAL CLAIM" shall mean any claim, demand, action, cause of
action, suit, judgment, Governmental or private investigation or proceeding
relating to remediation or compliance with Applicable Environmental Laws, or any
proceeding or lien, whether threatened, sought, brought or imposed, that seeks
to recover costs, damages, punitive damages, expenses, fines, criminal
liability, judgments, response costs, investigative and monitoring costs,
abatement costs, attorney's fees, expert's fees or consultant's fees, or seeks
to impose liability regarding the Company or any of its Subsidiaries, or any of
their sites or properties for violations of Applicable Environmental Laws or for
pollution, contamination, investigation, preservation, protection, remediation
or clean up of the air, surface water, ground water, soil or wetlands, or
otherwise in relation to the use, storage, generation, release, handling or
disposal of materials and substances that are regulated by or subject to
Applicable Environmental Laws.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute, and all rules, regulations
and interpretations by the Internal Revenue Service or the Department of Labor,
or any entity succeeding to all or part of their respective functions.
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"ERISA AFFILIATE" shall mean any trade or business (whether or not
incorporated) which is a member of a group of which the Company is a member and
which is under common control with the Company within the meaning of the
regulations under Section 414 of the Code.
"EURODOLLAR LOANS" shall mean Loans which bear interest at a rate based on
a rate referred to in the definition of "EURODOLLAR RATE".
"EURODOLLAR RATE" shall mean, for any Interest Period for any Eurodollar
Loan, the rate per annum (rounded upwards, if necessary, to the nearest 1/100%)
determined by the Agent based upon rates quoted at approximately 10:00 a.m.
(local time in the relevant Eurodollar interbank market) (or as soon thereafter
as practicable) on the day two Business Days prior to the first day of such
Interest Period for the offering by Chase to leading dealers in such Eurodollar
interbank market of Dollar deposits for delivery on the first day of such
Interest Period, in immediately available funds and having a term comparable to
such Interest Period and in an amount comparable to the principal amount of the
respective Eurodollar Loan to which such Interest Period relates. Each
determination of the Eurodollar Rate shall be conclusive and binding, absent
manifest error, and may be computed using any reasonable averaging and
attribution method.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in SECTION
10.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any entity
succeeding to any or all of its functions.
"FED FUNDS RATE" shall mean, for any day, the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) on the
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from three
federal funds brokers of recognized standing selected by it.
"FINANCIAL STATEMENT DELIVERY DATE" shall mean the date on which the
quarterly or annual financial statements of the Company are delivered pursuant
to SECTION 9.1(A) or SECTION 9.1(B), as the case may be.
"FIXED CHARGES" shall mean (without duplication) for any period the sum of
interest expense in respect of all Total Debt of the Person for which the
determination is made, including imputed interest expense in respect of
Capitalized Lease Obligations; PROVIDED, HOWEVER, that Fixed Charges of the
Combined Group shall mean, for any calculation, $5,300,000 for each of the
fiscal quarters ended December 31, 1995, March 31, 1996, June 30, 1996 and
September 30, 1996; PROVIDED FURTHER, that Fixed Charges of the Combined Group
for the fiscal quarter ended
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December 31, 1996, shall be $1,767,000 plus Fixed Charges of the Combined Group
(determined in accordance with the first clause of this sentence but excluding
any interest expense in respect of the Series E Notes and the Series F Notes and
any interest accrued on the Series G Notes prior to November 1, 1996) of the
Company and the Restricted Subsidiaries for the two months ended December 31,
1996.
"FUNDED DEBT" shall mean and include, without duplication, any obligation
(including the current maturities thereof)
(a) payable more than one year from the date of creation thereof (1) for
borrowed money; (2) evidenced by bonds, debentures, notes or reimbursement
obligations in respect of letters of credit or other similar instruments (other
than letters of credit and surety bonds relating to trade obligations incurred
in the ordinary course of business and includable, under GAAP, in current
liabilities on a balance sheet or in the notes relating thereto); (3) for the
payment of the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business; (4) constituting
Capitalized Lease Obligations; (5) in respect of production payments, proceeds
production payments or similar financing arrangements; (6) which is, under GAAP,
shown on a balance sheet (after giving effect, in the case of the balance sheet
of the Company or a Restricted Subsidiary, to the eliminating entries, if any,
for the Unrestricted Subsidiaries as a group) as long-term debt (excluding
provisions for deferred income taxes, unfunded pension obligations, unfunded
liabilities for other post-employment benefits and other reserves or provisions
to the extent that such reserves or provisions do not constitute an obligation),
or (7) for any item described in any of the foregoing CLAUSES (1) through (6)
which is secured by any Lien on property owned by the Company or any Restricted
Subsidiary, whether or not the obligations secured thereby shall have been
assumed by the Company or such Restricted Subsidiary; or
(b) payable more than one year from the date of creation thereof, which
under GAAP is shown on the balance sheet as a long-term liability (EXCLUDING
provisions for deferred income taxes, unfunded pension obligations, unfunded
liabilities for other post-employment benefits and other reserves or provisions
to the extent that such reserves or provisions do not constitute an obligation);
or
(c) constituting a Guaranty with respect to Funded Debt (of the kind
otherwise described in CLAUSE (A) or (B) of this definition) of another Person,
including any obligation by the Company or a Restricted Subsidiary for Funded
Debt of any other Person, regardless of the percentage of equity interest owned
therein by the Company or a Restricted Subsidiary, by virtue of its capacity as
a general partner of such other Person;
PROVIDED, HOWEVER, that Funded Debt shall not include (a) any obligation of the
Company owing to a wholly-owned Restricted Subsidiary which is subordinated to
the Obligations upon the terms
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set forth on SCHEDULE V, or (b) any obligation of a Restricted Subsidiary owing
to the Company or one or more other Restricted Subsidiaries.
"GAAP" shall mean, as to a particular Person, such accounting practice as,
in the opinion of the independent accountants of recognized national standing
regularly retained by such Person and acceptable to the Agent, conforms at the
time to generally accepted accounting principles, consistent with those applied
in the preparation of the financial statements referred to in SECTION 8.2(A)(1)
as at December 31, 1995, together with changes with which the Company's
independent auditors concur and which are noted in the financial statements
provided pursuant to SECTION 9.1(B).
"GOVERNMENTAL AUTHORITY" shall mean any sovereign governmental authority,
the United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any agency, instrumentality,
department, commission, board, bureau, central bank, authority, court or other
tribunal, in each case whether executive, legislative, judicial, regulatory or
administrative, having jurisdiction over the Company, any of the Company's
Subsidiaries, any of their respective property, the Agent or any Bank.
"GUARANTY" shall mean and include, without limitation, any obligation of
the Company or a Restricted Subsidiary
(a) constituting a guaranty, endorsement (other than an endorsement of a
negotiable instrument for collection in the ordinary course of business) or
other contingent liability (whether direct or indirect) in connection with the
obligations, stock or dividends of any Person (other than the Company or a
Restricted Subsidiary);
(b) payable under any contract (other than the Spin-Off Tax
Indemnification Agreement and any other tax indemnification or tax sharing
agreement) providing for the making of loans, advances or capital contributions
to any Person (other than the Company or a Restricted Subsidiary), or for the
purchase of any property from any Person, in each case in order primarily to
enable such Person to maintain working capital, net worth or any other balance
sheet condition or to pay debts, dividends or expenses;
(c) payable under any contract for the purchase of materials, supplies or
other property or services (OTHER THAN any natural gas transportation contract
or any electrical, water supply, steam purchase, natural gas purchase or other
utility supply contract) if such contract (or any related document) requires
that payment for such materials, supplies or other property or services shall be
made regardless of whether or not delivery of such materials, supplies or other
property or services is ever made or tendered; PROVIDED that the exceptions
contained in this CLAUSE (C) shall not apply to any contract for the purchase or
transportation of natural gas where payment is required regardless of whether
the delivery of such natural gas is ever made or tendered, unless
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at the time such contract is entered into the aggregate of such payments under
such contract and all such existing contracts would not exceed $20,000,000 in
any calendar year based on existing rates and automatic escalations in such
rates under such contracts.
(d) payable under any contract to rent or lease (as lessee) any real or
personal property (other than any oil and gas leases) if such contract (or any
related document) provides that the obligation to make payments thereunder is
absolute and unconditional under conditions not customarily found in commercial
leases then in general use or requires that the lessee purchase or otherwise
acquire securities or obligations of the lessor; or
(e) payable under any other contract which, in economic effect, is
substantially equivalent to a guarantee for any payment or performance of an
obligation of a Person other than the Company or a Restricted Subsidiary.
"HIGHEST LAWFUL RATE" shall mean, on any day, the maximum nonusurious rate
of interest permitted for that day by whichever of applicable federal or state
law permits the higher interest rate, stated as a rate per annum.
"HYDROCARBONS" shall mean crude oil, condensate, natural gas, natural gas
liquids and associated substances.
"INDEMNIFIED PERSON" shall mean the Agent (including the Agent in its
capacity as the Issuer), Chase, each of the Banks, each Affiliate of any such
Person, and their respective directors, officers, employees, agents and counsel.
"INDEPENDENT ENGINEERING REPORT" shall mean a report prepared by an
Independent Petroleum Engineer which sets forth the gross and net volume of
Hydrocarbons projected to be produced from the Petroleum Properties, the Net
Proceeds of Production and the present net worth of the Net Proceeds of
Production, using assumptions provided by the Agent and the Required Banks
(through the Agent), in each case by calendar year, for the remaining economic
life of the Petroleum Properties. Each Independent Engineering Report shall also
contain a list of Petroleum Properties of the members of the Combined Group and
shall identify which of the Petroleum Properties covered thereby are "proved
developed producing", "proved developed non-producing" and "proved undeveloped"
(as defined in the "Definitions for Oil and Gas Reserves" as published by the
Society of Petroleum Engineers). Each such report shall be prepared in
accordance with established criteria generally accepted in the oil and gas
industry and standards customarily used by independent petroleum engineers well
regarded in the industry in making reserve determinations or appraisals, and
shall be based on such assumptions, estimates and projections as are fully
disclosed in such Independent Engineering Report.
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"INDEPENDENT PETROLEUM ENGINEER" shall mean Ryder Scott Company Petroleum
Engineers or another independent petroleum engineer retained by the Company
acceptable to the Required Banks.
"INELIGIBLE SUBSIDIARY" shall mean each Subsidiary of SFER other than (a)
the Company, (b) any wholly-owned Restricted Subsidiary of the Company and (c)
any other Restricted Subsidiary of the Company as long as no portion of the
equity interest in such Restricted Subsidiary is owned by SFER or any Affiliate
of SFER (except the Company or a wholly-owned Restricted Subsidiary of the
Company).
"INTEREST PAYMENT DATE" shall mean with respect to any Eurodollar Loan or
Alternate Base Rate Loan, the last day of each Interest Period applicable
thereto; PROVIDED that in the case of a Eurodollar Loan with an Interest Period
of six months, the Interest Payment Dates shall be the days that would have been
the Interest Payment Dates for such Loan had two successive Interest Periods of
three months been applicable to such Loan.
"INTEREST PERIOD" shall mean:
(a) with respect to any Eurodollar Loan, the period commencing on (i) the
date such Loan is made or designated as, or the effective date of any Conversion
into, a Eurodollar Loan or (ii) in the case of a Continuation to a successive
Interest Period, the last day of the immediately preceding Interest Period, and
in each case ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the Company may select as provided
in SECTION 4.3, except that each such Interest Period which commences on any day
for which there is no numerically corresponding day in the appropriate
subsequent calendar month shall end on the last Business Day of the appropriate
subsequent calendar month; and
(b) with respect to any Alternate Base Rate Loan, the period commencing on
the date such Loan is made as, or converted into, an Alternate Base Rate Loan
and on each Quarterly Date thereafter and ending on each next succeeding
Quarterly Date or, if earlier, the date such Loan is converted into a Eurodollar
Loan;
PROVIDED that (x) each Interest Period which would otherwise end on a day which
is not a Business Day shall end on the next succeeding Business Day unless, with
respect to Eurodollar Loans only, such next succeeding Business Day falls in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day; and (y) no Interest Period may be selected for any Loan
that ends later than the Termination Date. Interest shall accrue from and
including the first day of an Interest Period to but excluding the last day of
such Interest Period.
"INVESTMENT" shall mean any purchase or other acquisition of the stock,
obligations or securities of, or any interest in, or any capital contribution,
loan or advance to, or any Guaranty
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in respect of the obligations of any Person, but in any event shall include as
an investment in any Person the amount of all Debt owed to any member of the
Combined Group by such Person, and all accounts receivable from such Person
which are not current assets or did not arise from sales to such Person in the
ordinary course of business. As used herein, any capital contribution of assets
by the Company or any Restricted Subsidiary shall be valued at the book value of
such assets as reflected in the consolidated financial statements of the Company
and the Restricted Subsidiaries as at the end of the quarter ending immediately
prior to such contribution.
"IPO" shall mean the registered initial public offering of shares of the
Company's common stock pursuant to the Prospectus and the prospectus for the
concurrent initial offering outside the United States of America of common stock
of the Company, par value $0.01 per share, resulting in gross proceeds to the
Company of at least $75,000,000.
"ISSUER" shall mean the Agent in its capacity as the issuer of Letters of
Credit.
"LEGAL REQUIREMENT" shall mean any applicable law, statute, ordinance,
decree, requirement, order, judgment, rule, regulation (or official
interpretation by any Governmental Authority of any of the foregoing) of, and
the terms of any license or permit issued by, any Governmental Authority, in
each case as now or hereafter in effect.
"LETTER OF CREDIT" shall mean a letter of credit issued pursuant to
SECTION 2.2.
"LETTER OF CREDIT ADVANCES" shall mean all sums which are from time to
time paid by the Agent pursuant to Letters of Credit, or any of them, together
with all other sums, fees, reimbursements or other obligations which are due to
the Agent pursuant to the Letters of Credit, or any of them.
"LETTER OF CREDIT FEE" shall mean, with respect to any Letter of Credit, a
fee equal to, for each day during the term thereof, the product of (a) the
Applicable Margin for Letters of Credit in effect on such day multiplied by (b)
the amount available on such day for drawings under such Letter of Credit.
"LETTER OF CREDIT LIABILITIES" shall mean, at any time, the sum of (a) the
aggregate undrawn amount of all Letters of Credit outstanding at such time plus
(b) the aggregate unpaid amount of all Letter of Credit Advances for which the
Agent shall not have been reimbursed and which remain unpaid at such time. .
"LIEN" shall mean any mortgage, pledge, security interest, collateral
assignment, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing) and shall include conditional sale and other title
retention agreements, leases intended as security,
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and the filing of, or agreement to give, any financing statement under the
Uniform Commercial Code of any jurisdiction or any other type of preferential
arrangement.
"LOAN" shall mean a loan made pursuant to SECTION 2.1(A).
"MARGIN PERIOD" shall mean (a) the period commencing on the date of this
Agreement and ending on the earlier of (i) the first Financial Statement
Delivery Date and (ii) April 30, 1997, and (b) thereafter, each period beginning
on a Financial Statement Delivery Date and ending on the earlier of (x) the next
Financial Statement Delivery Date and (y) the date on which financial statements
are next required to be delivered pursuant to SECTION 9.1(A) OR (B).
"MATERIAL ADVERSE CHANGE" shall mean an occurrence of whatever nature
(including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), which after taking into account
actual insurance coverage and effective indemnification with respect to such
occurrence, (a) has a material adverse effect on the financial condition,
business, operations or properties of the Company and its Subsidiaries taken as
a whole and (b) impairs in any material respect either (1) the ability of the
Company to perform any of its obligations under the Credit Documents or (2) the
ability of the Agent and the Banks to enforce any of such obligations or any of
their rights and remedies under or in connection with the Credit Documents.
"MATURITY DATE" shall mean the earlier of (a) the date the principal
amount then outstanding of and accrued interest on the Loans, all Letter of
Credit Liabilities, all fees and all other amounts payable hereunder and under
the Notes become due and payable pursuant to SECTION 10.1 or (b) November 13,
2000.
"MONTEREY ERISA INDEMNIFICATION AGREEMENT" shall mean the ERISA
Indemnification Agreement by and between SFER and the Company for the benefit of
the Company, its Subsidiaries and the Purchasers (as such term is defined
therein) dated as of the Date of Closing.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"MOST RECENT ENGINEERING REPORT" shall mean, as of any date of
determination, the most recent Independent Engineering Report delivered pursuant
to SECTION 9.1 on or before such date.
"NET PROCEEDS OF PRODUCTION" shall mean, for any period and for any
Person, (a) an amount of projected gross revenues received by or otherwise
credited to the account of such Person from the sale of Hydrocarbons produced
from the Petroleum Properties, subject to no entitlement of any other Person but
including appropriate adjustments for over- and under-produced status, during
such period as set forth in the Most Recent Engineering Report LESS (b) the
amount of projected royalties, overriding royalties, windfall profit,
production, ad valorem, severance and all other similar taxes, and operating and
capital expenditures required
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to be incurred during such period in order to generate such gross revenues (but
not including general and administrative expenses or principal and interest
payable with respect to Debt), as set forth in the Most Recent Engineering
Report.
"NOTE AGREEMENT" shall mean the Note Agreement between the Company and the
institutional investors party thereto dated as of the Date of Closing, providing
for issuance by the Company of its 10.61% Senior Notes due March 31, 2005 in the
aggregate principal amount of up to $175,000,000 (the "SENIOR NOTES").
"NOTES" shall mean the promissory notes of the Company evidencing the
Loans, substantially in the form of EXHIBIT A.
"NOTICE OF ENTIRE AGREEMENT" shall mean that certain Notice of Entire
Agreement and Release of Claims of even date herewith between the Company and
the Agent.
"OBLIGATIONS" shall mean, as at any date of determination thereof, the sum
of (a) the aggregate principal amount of Loans outstanding on such date PLUS (b)
the aggregate outstanding amount of all Letter of Credit Liabilities on such
date PLUS (c) all accrued and unpaid interest thereon PLUS (d) all fees and
other indebtedness of the Company to the Banks or the Agent in connection with
the Credit Documents on such date.
"OECD" shall mean the Organization for Economic Cooperation and
Development (or any successor).
"OFFICER'S CERTIFICATE" shall mean, in the case of the Company, any other
corporation or other business entity, a certificate signed in its name by its
Chief Executive Officer, President, any Vice President, Chief Financial Officer
or Treasurer.
"OLINDA NOTES" shall mean the secured promissory note or notes in an
original aggregate principal amount of up to $8,500,000 which, under certain
circumstances, may be purchased by the Company from SFER pursuant to the
Conveyance and Contribution Agreement.
"ORGANIZATIONAL DOCUMENTS" shall mean, with respect to a corporation, the
certificate of incorporation or articles of incorporation and bylaws of such
corporation; with respect to a partnership or a limited partnership, the
partnership agreement establishing such partnership; with respect to a limited
liability company, the regulations or limited liability company agreement; with
respect to a joint venture, the joint venture agreement establishing such joint
venture; and with respect to a trust, the instrument establishing such trust; in
each case including any and all modifications thereof as of the date of the
Credit Document referring to such Organizational Document.
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"ORIGINAL NOTE AGREEMENT" shall mean the Note Agreement by and between
SFER and the purchasers named therein, dated as of March 31, 1990, as amended by
that certain First Amendment to Note Agreement dated as of November 1, 1990,
that certain Second Amendment to Note Agreement dated as of September 1, 1991,
that certain Third Amendment to Note Agreement dated as of November 1, 1992, and
that certain Fourth Amendment to Note Agreement dated as of December 31, 1993.
"ORIGINAL SPIN-OFF INDEMNIFICATION AGREEMENT" shall mean that certain
First Amended and Restated Spin-Off Tax Indemnification Agreement between Santa
Fe Pacific Corporation, a Delaware corporation, and SFER dated November 26,
1990.
"OTHER TRANSACTIONS" shall mean (a) the creation of the Company, (b) the
transfer of the Western Assets to the Company and the assumption by the Company
of the Assumed Liabilities (as defined in the Conveyance and Contribution
Agreement) pursuant to the Conveyance and Contribution Agreement, (c) the
assumption of SFER's obligations under the Original Note Agreement, the Series E
Notes, the Series F Notes and the Series G Notes by the Company pursuant to the
Conveyance and Contribution Agreement, (d) the IPO and the use and proposed use
by the Company and SFER of proceeds thereof as described in the Prospectus, and
(e) the other transactions contemplated by the Conveyance and Contribution
Agreement, the Tender Offer, the Consent Solicitation, the Monterey ERISA
Indemnification Agreement, the Corporate Services Agreement, the Registration
Rights and Indemnification Agreement, the Spin-Off Tax Indemnification Agreement
and the Tax Allocation Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED ENCUMBRANCES" shall mean:
(a) liens for taxes, assessments, levies or other governmental charges
not yet due and delinquent, and for taxes, assessments, levies or
other governmental charges already due, but the validity of which is
being contested by the Company in good faith by appropriate
proceedings diligently conducted for which reserves have been
established in accordance with GAAP;
(b) materialmen's, mechanics', repairmen's, employees', operators',
landlords' and other similar liens and charges incidental to the
conduct of the Company's business or the ownership of its property
which are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than advances or credit
on open account, includable in current liabilities, for goods and
services in the ordinary course of business and on terms and
conditions which are customary in the oil, gas and mineral
exploration and development business) or the
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guaranteeing of the obligations of another Person, and which do not
in the aggregate materially detract from the value of the property
covered thereby or materially impair the use thereof in the
operation of the Company's business;
(c) royalties, overriding royalties, net profits interests, production
payment interests, carried interests and other burdens on production
of a scope and nature customary in the conduct of the Company's
business;
(d) defects, imperfections and irregularities in title;
(e) liens, security interests, charges, claims and encumbrances that
arise under operating agreements or pooling and unitization
designations, declarations, orders and agreements and other similar
agreements of a scope and nature customary in the oil and gas
industry;
(f) the terms of operating agreements, assignments, farmout agreements,
hydrocarbon sales, purchase, exchange and processing agreements,
area-of-mutual-interest agreements, gas balancing and deferred
production agreements, plant agreements, pipeline gathering and
transportation agreements, injection, repressuring and recycling
agreements, salt water or other disposal agreements, seismic or
geophysical permits and agreements, and other contracts, division
orders and agreements of a scope and nature customary in the oil and
gas industry;
(g) the right of third parties under oil and gas leases to take
production in kind;
(h) all liens, charges, claims, encumbrances, contracts and other
matters consented to in writing from time to time by the Agent;
(i) all rights to consent by, required notices to, and filings with or
other actions by governmental or tribal entities, if any, in
connection with the change of ownership or control of an interest in
federal, state, tribal or other domestic governmental oil and gas
leases, if the same are customarily obtained after such change of
ownership or control, but only insofar as such consents, notices,
filings and other actions are obtained within the time required
under applicable Legal Requirements;
(j) required third-party consents to assignments, to the extent they
could not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect;
(k) liabilities for royalty suspense accounts, to the extent they could
not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect; and
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(l) easements, rights-of-way and the like, incidental to the conduct of
the Company's business or the ownership of its property which are
not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than advances or credit on
open account, includable in current liabilities, for goods and
services in the ordinary course of business and on terms and
conditions which are customary in the oil, gas and mineral
exploration and development business) or the guaranteeing of the
obligations of another Person, and which do not in the aggregate
materially detract from the value of the property covered thereby or
materially impair the use thereof in the operation of the Company's
business;
PROVIDED that all Permitted Encumbrances shall not in the aggregate have a
Material Adverse Effect.
"PERMITTED HOLDER" shall mean SFER and its Affiliates.
"PERSON" shall mean any individual, Business Entity, voluntary
association, trust, unincorporated organization, Governmental Authority or other
form of entity. The term "Person" shall not, however, mean or include an
arrangement that is not a separate legal entity, such as the legal arrangement
between two or more parties owning interests in the same property or unit.
"PETROLEUM PROPERTIES" shall mean all reserves of Hydrocarbons in place
which are (a) owned by a member of the Combined Group free and clear of all
Liens other than Permitted Encumbrances; (b) located onshore or offshore the
United States or Canada; (c) estimated to be recoverable with reasonable
certainty and are otherwise consistent with the "Definitions for Oil and Gas
Reserves" published by the Society of Petroleum Engineers and (d) covered in the
Most Recent Engineering Report.
"PLAN" shall mean an employee benefit plan which is covered by ERISA which
is either (a) maintained by the Company or any ERISA Affiliate for employees of
the Company or such ERISA Affiliate or (b) a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which (i) the Company, (ii) any ERISA Affiliate
or (iii) any trade or business which was previously under common control with
the Company within the meaning of Section 414 of the Code (but only with respect
to such period of common control with the Company), has an obligation to make
contribu tions (or with respect to (iii) above, had an obligation to make
contributions during any portion of time that the limitations period under
Section 4301(f) of ERISA with respect to such obligation has not expired).
"POST-DEFAULT RATE" shall mean a rate per annum on each day equal to the
lesser of (a) the sum of (i) 2% per annum PLUS (ii) the Alternate Base Rate as
in effect for that day or (b) the Highest Lawful Rate for that day.
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"PRICING SCHEDULE" shall mean the schedule of that name attached to this
Agreement. As used in the Pricing Schedule, "TOTAL DEBT" shall mean the Total
Debt of the Company and the Restricted Subsidiaries at the end of the fiscal
quarter of the Company then most recently ended, and "ADJUSTED EBITDA" shall
mean Adjusted EBITDA of the Company and the Restricted Subsidiaries for the four
fiscal quarters ending with that fiscal quarter.
"PRIME RATE" shall mean, as of a particular date, the generally applicable
prime rate most recently determined by Chase. Without notice to the Company or
any other Person, the Prime Rate shall change automatically from time to time as
and in the amount by which said prime rate shall fluctuate. The prime rate is a
reference rate and may not necessarily represent the lowest or best rate
actually charged to any customer. Chase may make commercial loans or other loans
at rates of interest at, above or below the prime rate.
"PRINCIPAL OFFICE" shall mean the principal banking office of the Agent,
presently located at 270 Park Avenue, New York, New York 10017.
"PRODUCTION PAYMENT" shall mean that certain $30,000,000 production
payment reserved and retained by SFER from certain properties in the
Midway/Sunset Field pursuant to the Conveyance and Contribution Agreement, as
more particularly described in the Reservation of Production Payment set forth
as Exhibit I thereto.
"PROPER FORM" shall mean in form and substance satisfactory to the Agent
in its discretion.
"PROSPECTUS" shall mean the prospectus, dated as of November ___, 1996,
relating to the underwritten public offering by the Company of that portion of
the 7,900,000 shares (assuming that the underwriters' over-allotment options are
not exercised) of its common stock, par value $0.01 per share, being offered
domestically, in the form first filed by the Company with the Securities and
Exchange Commission pursuant to Rule 424(b) of the rules and regulations under
the Securities Act of 1933, as amended.
"QUARTERLY DATES" shall mean the last day of each March, June, September
and December; PROVIDED that if any such date is not a Business Day, the relevant
Quarterly Date shall be the next succeeding Business Day.
"RATE DESIGNATION NOTICE" shall mean (a) in the case of a new Loan, the
Request for Extension of Credit with respect to such Loan and (b) in the case of
Conversions and Continuations, a notice in the form of EXHIBIT E, executed by an
authorized officer of the Company.
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"REGISTRATION RIGHTS AND INDEMNIFICATION AGREEMENT" shall mean the
Registration Rights and Indemnification Agreement by and between SFER and the
Company dated as of the Date of Closing.
"REGULATION D" shall mean Regulation D of the Board as the same may be
amended or supplemented from time to time and any successor or other regulation
relating to reserve requirements.
"REGULATORY CHANGE" shall mean, with respect to any Bank, any change on or
after the date of this Agreement in any Legal Requirement (including Regulation
D) or the adoption or making on or after such date of any official
interpretation, directive or request applying to a class of banks including such
Bank under any Legal Requirement (whether or not having the force of law) by any
Governmental Authority charged with the interpretation or administration
thereof.
"REIMBURSEMENT OBLIGATIONS" shall mean, as at any date, the obligations of
the Company then outstanding to reimburse the Agent for Letter of Credit
Advances.
"REQUEST FOR EXTENSION OF CREDIT" shall mean a request for extension of
credit duly executed by the Chief Executive Officer, President, Chief Financial
Officer or Treasurer of the Company, or such other officer of the Company as its
Chief Financial Officer may from time to time designate in a writing delivered
to the Agent, appropriately completed and substantially in the form of EXHIBIT
B.
"REQUIRED BANKS" shall mean, at any time that no Obligations are
outstanding, Banks having equal to or greater than 66-2/3% of the Aggregate
Commitment, and at any time that Obligations are outstanding, Banks holding
equal to or greater than 66-2/3% of the aggregate amount of such Obligations.
"RESTRICTED INVESTMENT" shall mean any Investment other than:
(a) Investments in the Company or a Restricted Subsidiary or in an entity
which immediately after or concurrently with such Investment will be a
Restricted Subsidiary;
(b) readily marketable direct full faith and credit obligations of the
United States of America or any agency thereof or obligations unconditionally
guaranteed by the full faith and credit of the United States of America or any
agency thereof, due within three years of the making of the Investment;
(c) readily marketable direct obligations of any State of the United
States of America or any political subdivision of any such State having a credit
rating of at least "Aa" by Moody's or "AA" by S&P, in each case due within three
years from the making of the Investment;
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(d) domestic and Eurodollar certificates of deposit and maturing within
one year from the making of the Investment issued by, deposits in, Eurodollar
deposits through, and banker's acceptances of, commercial banks incorporated
under the laws of the United States or any State thereof, Canada, Japan, the
United Kingdom, the Netherlands, France, Germany, Italy or Switzerland and
having combined capital, surplus and undivided profits of at least $100,000,000;
(e) readily marketable commercial paper of any commercial bank or
corporation doing business and incorporated under the laws of the United States
of America or any State thereof having a credit rating of "A-1" from S&P or
"P-1" by Moody's, in each case due within 270 days after the making of the
Investment;
(f) money market investment programs which primarily invest in the types
of Investments described in CLAUSES (B) through (E) above and which are
classified as a current asset in accordance with GAAP and which are administered
by broker-dealers acceptable to the Agent;
(g) repurchase agreements with major dealers or banks, pursuant to which
physical delivery of the respective securities is required, except for
obligations of the U.S. Treasury to be delivered through the Federal Reserve
book entry system;
(h) travel and other like advances to officers and employees of the
Company or a Restricted Subsidiary in the ordinary course of business;
(i) prepayment of the Production Payment in accordance with SECTION 9.12;
(j) prior to one year after the Date of Closing, the Olinda Notes;
(k) Investments, if any, in SFER pursuant to the agreements specified in
SECTION 7.1(E);
(l) prepayment of the Series E Notes and Series F Notes of SFER on the
Date of Closing;
(m) the assumption by the Company on the Date of Closing of up to
$16,000,000 aggregate principal amount of borrowings by SFER under this
Agreement; or
(n) Investments in any Person for the purpose of acquiring, participating
in, exploring, developing and/or operating interests or rights in oil and gas
properties, in an aggregate amount not to exceed at any one time outstanding
$25,000,000; and
(k) Investments not described in CLAUSES (A) through (N) of this
definition in an aggregate outstanding amount not to exceed $10,000,000.
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"RESTRICTED SUBSIDIARY" shall mean each Subsidiary of the Company
designated as a Restricted Subsidiary on SCHEDULE I, as supplemented from time
to time by notice from the Company to the Agent, together with any Subsidiary of
the Company hereafter created or acquired and, at the time of creation or
acquisition, not designated by the Board of Directors of the Company as an
Unrestricted Subsidiary. Any Subsidiary of the Company designated as an
Unrestricted Subsidiary for purposes of this Agreement may thereafter be
designated a Restricted Subsidiary upon 30 days' prior written notice to the
Banks if, at the time of such designation and after giving effect thereto and to
the concurrent retirement of any Debt, (a) no Default shall have occurred and be
continuing; (b) such Subsidiary is organized under the laws of the United States
or any State thereof; and (c) 80% or more of each class of voting stock or other
equity interest outstanding of such Subsidiary is owned by the Company or a
wholly-owned Restricted Subsidiary.
"SALE AND LEASEBACK TRANSACTION" shall mean any arrangement in which any
member of the Combined Group shall sell any building, equipment or surface real
property and thereafter enter into a lease as lessee of such building, equipment
or surface real property.
"SENIOR NOTES" shall have the meaning ascribed to such term in the
definition of "Note Agreement".
"SERIES E NOTES" shall mean the Series E 10.23% Senior Notes due March 31,
1997 of SFER in the principal amount of $35,000,000.
"SERIES F NOTES" shall mean the Series F 10.27% Senior Notes due March 31,
1998 of SFER in the principal amount of $35,000,000.
"SERIES G NOTES" shall mean the Series G 10.61% Senior Notes due March 31,
2005 of SFER in the principal amount of $175,000,000.
"SFER" shall mean Santa Fe Energy Resources, Inc., a Delaware corporation.
"S&P" shall mean Standard & Poor's Ratings Group.
"SPECIAL DEBT" shall mean, at any time, the sum of (a) Attributable Debt
of the Company and the Restricted Subsidiaries outstanding at such time, (b) all
Debt of the Company and the Restricted Subsidiaries outstanding at such time
that is secured by a Lien permitted by SECTION 9.7(A)(11) on any property or
assets of the Company or any Restricted Subsidiary, and (c) all Debt of the
Restricted Subsidiaries (whether or not secured by any Lien) outstanding at such
time.
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"SPIN-OFF" shall mean the distribution, by dividend, exchange or
otherwise, of the shares of capital stock of the Company owned by SFER or its
Affiliates to SFER's security holders.
"SPIN-OFF TAX INDEMNIFICATION AGREEMENT" shall mean the Agreement
Concerning Taxes and Tax Indemnification upon Spin Off by and between SFER and
the Company dated as of the Date of Closing.
"STATUTORY RESERVES" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the weighted average of the reserve percentages (including any
marginal, special, emergency, or supplemental reserves), expressed as a decimal,
actually required to be maintained by any Bank by the Board or any other
Governmental Authority to which any of the Banks is subject as required by
Regulation D during the applicable Interest Period for "eurocurrency
liabilities" (as such term is used in Regulation D) and any other reserves
actually required to be maintained by any Bank by reason of any Regulatory
Change against (a) any category of liabilities which includes deposits by
reference to which the Eurodollar Rate is to be determined as provided in the
definition of "Eurodollar Rate" or (b) any category of extensions of credit or
other assets which include Eurodollar Loans. Such reserve percentages shall
include, without limitation, those imposed under Regulation D. Statutory
Reserves shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage. Each determination of the Statutory Reserves
by the Agent shall be conclusive and binding, absent manifest error, and may be
made using any reasonable averaging and attribution method.
"SUBSIDIARY" shall mean, with respect to any Person, any Business Entity
of which 50% or more of the capital stock or other indicia of equity rights is
at the time directly or indirectly legally or beneficially owned or controlled
by such Person or by one or more of its Affiliates.
"TAX ALLOCATION AGREEMENT" shall mean the Agreement For The Allocation Of
The Consolidated Federal Income Tax Liability and State and Local Taxes Among
The Members Of The Santa Fe Energy Resources, Inc. Affiliated Group by and
between SFER and the members of the consolidated group of SFER identified
therein dated as of the Date of Closing.
"TENDER OFFER" shall mean the offer, commenced on October 2, 1996, by SFER
to purchase up to 4,500,000 shares of SFER's Convertible Preferred Stock, Series
7%, at a price of $24.50, net to the seller in cash, which offer is contained in
an Offer to Purchase dated October 22, 1996, as set forth in the Form 13E-4
filed by SFER with the United States Securities and Exchange Commission, as the
same may be amended from time to time.
"TERMINATION DATE" shall mean the earlier of (a) the Maturity Date and (b)
the date the Commitments are terminated pursuant to SECTION 2.3.
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"TOTAL DEBT" shall mean, as of any date and for any Person, without
duplication, (a) all obligations for borrowed money; (b) all obligations
evidenced by bonds, debentures, notes or other similar instruments; (c) all
obligations to pay the deferred purchase price of property or services, except
trade accounts payable arising in the ordinary course of business; (d) all
Capitalized Lease Obligations; (e) all obligations in respect of production
payments, proceeds production payments and similar financing arrangements; (f)
all reimbursement obligations with respect to letters of credit issued for the
account of such Person, including the Letter of Credit Liabilities; (g) all
obligations of the types described in CLAUSES (A) THROUGH (F) of this definition
(collectively, "ORDINARY DEBT") of another Person secured by a Lien on any
property of the Person as to which Total Debt is being determined, regardless of
whether such Ordinary Debt is assumed by such Person, and (h) all Ordinary Debt
of another Person guaranteed by such Person; PROVIDED, HOWEVER, that Total Debt
of the Combined Group shall not include (i) any obligation of the Company owing
to a wholly-owned Restricted Subsidiary which is subordinated to the Obligations
upon the terms set forth on SCHEDULE V, or (ii) any obligation of a Restricted
Subsidiary owing to the Company or one or more other Restricted Subsidiaries.
"TYPE" shall have the meaning assigned to such term in SECTION 1.3.
"UNFUNDED LIABILITIES" shall mean, with respect to any Plan, at any time,
the amount (if any) by which (a) the present value of all benefits under such
Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such Plan
(in accordance with GAAP), but only to the extent that such excess represents a
potential liability of the Company or any ERISA Affiliate to the PBGC or a Plan
under Title IV of ERISA.
"UNRESTRICTED SUBSIDIARY" shall mean each Subsidiary of the Company
designated as an Unrestricted Subsidiary on SCHEDULE I, as supplemented from
time to time by notice from the Company to the Agent, together with any
Subsidiary of the Company which is hereafter designated by the Board of
Directors of the Company as an Unrestricted Subsidiary. Any Subsidiary may be
designated an Unrestricted Subsidiary upon 30 days' prior written notice to the
Banks if, at the time of such designation and after giving effect thereto and to
the concurrent retirement of any Debt, (a) no Default shall have occurred and be
continuing, and (b) such Subsidiary does not own, directly or indirectly, any
Funded Debt or capital stock of the Company or a Restricted Subsidiary.
"UNUSED COMMITMENT" shall mean, on any date, the difference of (a) the
Aggregate Commitment minus (b) the sum of (1) the aggregate outstanding
principal balance of the Notes plus (2) the aggregate outstanding principal
balance of the Letter of Credit Liabilities, all determined on such date.
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"WESTERN ASSETS" shall mean the "Subject Assets" as such term is defined
in the Conveyance and Contribution Agreement.
1.2. ACCOUNTING TERMS AND DETERMINATIONS. Except where specifically
otherwise provided:
(a) The symbol "$" and the word "dollars" shall mean lawful money of the
United States of America.
(b) Any accounting term not otherwise defined shall have the meaning
ascribed to it under GAAP.
(c) Unless otherwise expressly provided, any accounting concept and all
financial covenants shall be determined on a consolidated basis, and financial
measurements shall be computed without duplication.
(d) Wherever the term "including" or any of its correlatives appears in
the Credit Documents, it shall be read as if it were written "including (by way
of example and without limiting the generality of the subject or concept
referred to)".
(e) Wherever the word "herein" or "hereof" is used in any Credit Document,
it is a reference to that entire Credit Document and not just to the subdivision
of it in which the word is used.
(f) References in any Credit Document to Section numbers are references to
the Sections of such Credit Document.
(g) References in any Credit Document to Exhibits, Schedules, Annexes and
Appendices are to the Exhibits, Schedules, Annexes and Appendices to such Credit
Document, and they shall be deemed incorporated into such Credit Document by
reference.
(h) Any term defined in the Credit Documents which refers to a particular
agreement, instrument or document shall also mean, refer to and include all
modifications, amendments, supplements, restatements, renewals, extensions and
substitutions of the same; PROVIDED that nothing in this subsection shall be
construed to authorize any such modification, amendment, supplement,
restatement, renewal, extension or substitution except as may be permitted by
other provisions of the Credit Documents.
(i) All times of day used in the Credit Documents mean local time in New
York, New York.
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(j) Defined terms may be used in the singular or plural, as the context
requires.
1.3. TYPES OF LOANS. Loans hereunder are distinguished by "Type". The
"Type" of a Loan refers to the determination whether such Loan is a Eurodollar
Loan or an Alternate Base Rate Loan.
Section 2. COMMITMENTS.
2.1. LOANS.
(a) Each Bank severally agrees, subject to the terms and conditions of
this Agreement, from time to time on or after the date hereof and prior to the
Termination Date, to make Loans to the Company in an aggregate principal amount
at any one time outstanding up to but not exceeding (i) such Bank's Commitment
at such time MINUS (ii) such Bank's Commitment Percentage of all Letter of
Credit Liabilities at such time. Subject to the conditions precedent in this
Agreement, any Loan repaid prior to the Termination Date may be reborrowed prior
to the Termination Date pursuant to the terms of this Agreement; PROVIDED, that
any and all Loans shall be due and payable in full on the Maturity Date.
(b) Notwithstanding anything in this Agreement to the contrary, (i) no
Bank shall be required to make Loans at any one time outstanding in an amount
which, together with such Bank's Commitment Percentage of outstanding Letter of
Credit Liabilities, shall exceed such Bank's Commitment, and (ii) if a Bank
fails to make a Loan as and when required hereunder and the Company subsequently
makes a repayment on the Notes, such repayment shall be split among the
non-defaulting Banks ratably in accordance with their respective Commitment
Percentages (computed without regard to the Commitment Percentage of the
defaulting Bank) until each Bank has its Commitment Percentage of all
outstanding Loans. Any balance of such repayment shall be divided among all
Banks in accordance with their respective Commitment Percentages.
2.2. LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement, the Company
shall have the right to utilize the Aggregate Commitment from time to time prior
to the Termination Date by obtaining the issuance by the Issuer of letters of
credit for the account of the Company in such amounts and in favor of such
beneficiaries as the Company from time to time shall request; PROVIDED, that in
no event shall the Issuer have any obligation to issue any Letter of Credit if
(1) the face amount of such Letter of Credit PLUS the other Letter of Credit
Liabilities at such time would exceed $15,000,000 (as adjusted downward from
time to time to the extent the Aggregate Commitment is reduced below $15,000,000
in accordance with SECTION 2.3), (2) the aggregate amount of Loans and Letter of
Credit Liabilities outstanding at such time would exceed the Aggregate
Commitment, (3) such Letter of Credit would have an expiry date later than the
earlier
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of (x) one year from the date thereof or (y) the Termination Date, (4) such
Letter of Credit is not in Proper Form, (5) the Company has not executed and
delivered to the Issuer an Application and such other customary instruments and
agreements relating to such Letter of Credit as the Issuer shall have reasonably
requested, or (6) a Default has occurred and is continuing. The Company promises
to pay to the Agent for the account of each Bank, on demand, each Letter of
Credit Advance, together with interest thereon at (i) prior to the third
Business Day following each such Letter of Credit Advance, the Alternate Base
Rate, and (ii) on and after such third Business Day, the Post-Default Rate. All
rights, powers, benefits and privileges of this Agreement with respect to the
Notes, all security therefor and guaranties thereof and all restrictions,
provisions for repayment or acceleration and all other covenants, warranties,
representations and agreements contained in the Credit Documents with respect to
the Notes shall apply to each Letter of Credit Advance.
Upon the date of the issuance of a Letter of Credit, the Issuer shall be
deemed, without further action by any party to this Agreement, to have sold to
each Bank, and each Bank shall be deemed, without further action by any party to
this Agreement, to have purchased from the Issuer, a participation, to the
extent of such Bank's Commitment Percentage, in such Letter of Credit and the
related Letter of Credit Liabilities. Any Letter of Credit with an expiry date
after the Termination Date shall be fully Covered or shall be backed by a letter
of credit in Proper Form issued by an issuer acceptable to the Issuer in its
sole discretion.
(b) The following additional provisions shall apply to each Letter of
Credit:
(1) The Company shall give the Agent at least three Business Days'
irrevocable prior notice (effective upon receipt) specifying the date such
Letter of Credit is to be issued, describing the proposed terms of such Letter
of Credit and the nature of the transaction proposed to be supported thereby,
and shall furnish such additional information regarding such transaction as the
Agent may request. Upon receipt of such notice the Agent shall promptly notify
each Bank of the contents thereof and of such Bank's Commitment Percentage of
the amount of such proposed Letter of Credit.
(2) On each day during the period commencing with the issuance of
any Letter of Credit and until such Letter of Credit shall have expired or been
terminated, the Commitment of each Bank shall be deemed to be utilized for all
purposes of this Agreement in an amount equal to such Bank's Commitment
Percentage of the sum of (i) the undrawn amount of such Letter of Credit PLUS
(ii) the unpaid amount of all Letter of Credit Advances with respect to such
Letter of Credit.
(3) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment thereunder, the Issuer shall promptly notify the Company and
each Bank as to the amount to be paid as a result of such demand and the payment
date. If at any time the Issuer shall have
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made a payment to a beneficiary of a Letter of Credit in respect of a drawing or
in respect of an acceptance created in connection with a drawing under such
Letter of Credit, each Bank will pay to the Agent immediately upon demand by the
Agent at any time during the period commencing after such payment until
reimbursement thereof in full by the Company, an amount equal to such Bank's
Commitment Percentage of such payment, together with interest on such amount for
each day from the date of demand for such payment (or, if such demand is made
after 12:00 noon on such date, from the next succeeding Business Day) to the
date of payment by such Bank of such amount at a rate of interest per annum
equal to the Fed Funds Rate for such day.
(4) The Company shall be irrevocably and unconditionally obligated
forthwith to reimburse the Issuer for the account of each Bank for any amount
paid by it upon any drawing under any Letter of Credit, without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly WAIVED by the Company to the extent not prohibited by law. Such
reimbursement may, subject to satisfaction of the conditions in SECTION 7 and to
the existence of sufficient Aggregate Commitment (after adjustment in the same
to reflect the elimination of the corresponding Letter of Credit Liability) be
made by borrowing of Loans. The Issuer will pay to each Bank such Bank's
Commitment Percentage of all amounts received from the Company for application
in payment, in whole or in part, of the Reimbursement Obligation in respect of
any Letter of Credit, but only to the extent such Bank has made payment to the
Issuer in respect of such Letter of Credit pursuant to CLAUSE (3) above.
(5) The Company will pay to the Agent at the Principal Office for
the account of each Bank the Letter of Credit Fee on such Bank's Commitment
Percentage of the amount available for drawings under each Letter of Credit, in
each case for the period from and including the date of issuance of each such
Letter of Credit to and including the date of expiration or termination thereof,
such Letter of Credit Fees to be paid in arrears on the Quarterly Dates and on
the Termination Date. The Agent will pay to each Bank, promptly after receiving
any payment in respect of Letter of Credit Fees referred to in this CLAUSE (5),
an amount equal to such Bank's Commitment Percentage of such Letter of Credit
Fee. The aggregate Letter of Credit Fee for any Letter of Credit is subject to a
minimum of $600 per annum.
(6) The Company shall pay to the Agent for the account of the
Issuer, in arrears on each Quarterly Date and on the Termination Date, a
fronting fee for each Letter of Credit equal to 1/8 of 1% per annum times the
face amount of such Letter of Credit, in each case for the period from and
including the date of issuance of such Letter of Credit to and including the
date of expiration or termination thereof.
(c) Each Letter of Credit shall be subject to the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500 (and any subsequent revision thereof approved by a
Congress of the International Chamber of Commerce) and, to the extent not
inconsistent therewith, the laws of the State of New York.
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(d) To the extent that any provision of any Application is contrary to or
inconsistent with the provisions of this Agreement, the provisions of this
Agreement shall control.
2.3. TERMINATIONS, REDUCTIONS AND CHANGES OF COMMITMENTS.
(a) On the Termination Date, all Commitments shall be terminated in their
entirety.
(b) The Company shall have the right to terminate or reduce the unused
portion of the Aggregate Commitment at any time or from time to time; PROVIDED
that (i) the Company shall give notice of each such termination or reduction to
the Agent as provided in SECTION 5.5; (ii) each such partial reduction shall be
in an integral multiple of $5,000,000, and (iii) the Company may not cause the
Aggregate Commitment to be less than the aggregate principal amount of the Loans
and Letter of Credit Liabilities then outstanding (after giving effect to any
concurrent repayment of the Loans and reduction of Letter of Credit
Liabilities).
(c) No reduction in or termination of the Aggregate Commitment pursuant to
this SECTION 2.3 may be reinstated without the written approval of the Agent and
all Banks.
2.4. FEES. In consideration of the Commitments, the Company shall pay to
the Agent for the account of each Bank in accordance with its Commitment
Percentage commitment fees (the "COMMITMENT FEES") (a) for each Margin Period
from the date of this Agreement to and including the date such Bank's Commitment
is terminated at a rate per annum for such Margin Period determined in
accordance with the Pricing Schedule and (b) if no Margin Period is in effect,
the rate set forth for commitment fees in Level IV of the Pricing Schedule. The
Commitment Fees shall be computed for each day and shall be based on such Bank's
Commitment Percentage of the Unused Commitment for such day. Accrued Commitment
Fees shall be due in arrears on the date of the initial Loans, within three days
after demand therefor on or about the Quarterly Dates, and within three days
after demand therefor on or about the Termination Date. Upon receipt, the Agent
shall disburse such fees to the Banks in accordance with their respective
Commitment Percentages. All past due Commitment Fees shall bear interest at the
Post-Default Rate.
2.5. AFFILIATES; LENDING OFFICES.
(a) Any Bank may, if it so elects, fulfill its Commitment as to any
Eurodollar Loan by causing a branch, foreign or otherwise, or Affiliate of such
Bank to make such Loan and may transfer and carry such Loan at, to or for the
account of any branch office or Affiliate of such Bank; PROVIDED that in such
event, for the purposes of this Agreement, such Loan shall be deemed to have
been made by such Bank and the obligation of the Company to repay such Loan
shall nevertheless be to such Bank and shall be deemed to be held by such Bank,
to the extent of such Loan, for the account of such branch or Affiliate.
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(b) Notwithstanding any provision of this Agreement to the contrary, each
Bank shall be entitled to fund and maintain its funding of all or any part of
its Loans in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations shall be made as if such Bank had
actually funded and maintained each Eurodollar Loan during each Interest Period
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the applicable Eurodollar
Rate for such Interest Period.
2.6. SEVERAL OBLIGATIONS. The failure of any Bank to make any Loan to be
made by it on the date specified therefor shall not relieve any other Bank of
its obligation to make its Loan on such date, but neither the Agent nor any Bank
shall be responsible for the failure of any other Bank to make a Loan to be made
by such other Bank.
2.7. NOTES. The Loans made by each Bank shall be evidenced by a single
Note of the Company in substantially the form of Exhibit A (each, together with
all renewals, extensions, modifications and replacements thereof and
substitutions therefor, a "NOTE") payable to the order of such Bank in a
principal amount equal to the Commitment of such Bank as originally in effect
and otherwise duly completed. Each Bank is hereby authorized by the Company to
endorse on the schedule (or a continuation thereof) attached to the Note of such
Bank, to the extent applicable, the date, amount and Type of each Loan made by
such Bank to the Company hereunder, and each Continuation thereof, each
Conversion of all or a portion thereof to another Type, the date and amount of
each payment or prepayment of principal thereof received by such Bank and, in
the case of Eurodollar Loans, the length of each Interest Period; PROVIDED that
any failure by such Bank to make any such endorsement shall not affect the
obligations of the Company under such Note or this Agreement in respect of such
Loan.
2.8. USE OF PROCEEDS. The proceeds of the Loans shall be used and the
Letters of Credit shall be issued for working capital and for general corporate
purposes of the Company and may not be utilized (a) to pay dividends other than
usual dividends in the ordinary course of business or (b) for the buyout or
acquisition of any Person unless the board of directors of such Person has first
approved such buyout or acquisition.
Section 3. BORROWINGS AND PREPAYMENTS.
3.1. BORROWINGS. The Company shall give the Agent notice of each borrowing
to be made under this Agreement as provided in SECTION 5.5. Each borrowing shall
be in an amount of $1,000,000 or any integral multiple thereof. Not later than
2:00 p.m. on the date specified for each such borrowing, each Bank shall make
available the amount of the Loan, if any, to be made by it on such date to the
Agent, at its Principal Office, in immediately available funds, for the account
of the Company. The amounts so received by the Agent shall, subject to the terms
and conditions of this Agreement, be made available to the Company by depositing
the same, in
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immediately available funds, in an account designated by the Company and
maintained with the Agent at its Principal Office.
3.2. PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Except as provided in this SECTION 3.2 or in
SECTION 5 or 6, the Company shall have the right to prepay, on any Business Day,
in whole or in part, without the payment of any penalty or fee, Loans at any
time or from time to time; PROVIDED that the Company shall give the Agent notice
of each such prepayment as provided in SECTION 5.5. Eurodollar Loans may be
prepaid on the last day of an Interest Period applicable thereto and may not be
otherwise prepaid unless prepayment is accompanied by payment of all
compensation required by SECTION 6.5.
(b) MANDATORY PREPAYMENTS. The Company shall from time to time on demand
by the Agent prepay the Loans or reduce Letter of Credit Liabilities in such
amounts as shall be necessary so that at all times the aggregate outstanding
principal amount of the Loans and Letter of Credit Liabilities shall not be in
excess of the Aggregate Commitment. Any such payment shall be allocated between
Loans and Letter of Credit Liabilities and, if to Letter of Credit Liabilities,
first to Reimbursement Obligations and then to other obligations as the Company
may elect.
Section 4. PAYMENTS OF PRINCIPAL AND INTEREST.
4.1. REPAYMENT OF LOANS AND REIMBURSEMENT OBLIGATIONS. The Company will
pay to the Agent for the account of each Bank the principal of each Loan made by
such Bank on the Maturity Date and the amount of each Reimbursement Obligation
forthwith upon its incurrence. The amount of any Reimbursement Obligation may,
if the applicable conditions precedent specified in SECTION 7 (other than any
Default resulting solely from the nonpayment of such Reimbursement Obligation)
have been satisfied, be paid with the proceeds of Loans.
4.2. INTEREST.
(a) Subject to SECTIONS 12.8 AND 4.3(B), the Company will pay to the Agent
for the account of each Bank interest on the unpaid principal amount of each
Loan made by such Bank for the period commencing on the date of such Loan to but
excluding the date such Loan shall be paid in full, at the lesser of (1) the
following rates per annum:
(A) if such Loan is an Alternate Base Rate Loan, the Alternate Base
Rate; or
(B) if such Loan is a Eurodollar Loan, the applicable Eurodollar
Rate PLUS the Applicable Margin for Eurodollar Loans;
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or (2) the Highest Lawful Rate.
4.3. SELECTION OF INTEREST RATES.
(a) Subject to SECTION 6 and SECTION 12.8, the Company shall have the
right, by giving a Rate Designation Notice to the Agent as provided in SECTION
5.5, to designate any Loan as a Loan of a particular Type, to convert (a
"CONVERSION") any Loan (in whole or in part) into a Loan of another Type or to
continue (a "CONTINUATION") any Loan (in whole or in part) as a Loan of the same
Type. The records of the Agent with respect to interest rate designations,
Interest Periods and the amount of Loans to which they are applicable shall be
binding and conclusive, absent manifest error. Loans shall be Alternate Base
Rate Loans except where the Company has complied with all requirements of this
Agreement for the designation, Conversion or Continuation of such Loan as a
Eurodollar Loan. Interest on the amount of each Loan shall accrue on the amount
of that Loan and from the date it is made. Any such notice of designation,
Conversion or Continuation shall specify the new Interest Period. In the event
the Company fails to so give such notice prior to the end of any Interest Period
for any Eurodollar Loan, such Loan shall become an Alternate Base Rate Loan on
the last day of such Interest Period. No more than 10 Eurodollar Interest
Periods shall be in effect at any time. Except as otherwise provided in this
Agreement, each such designation, Conversion or Continuation shall apply to all
Notes ratably in accordance with their respective principal balances. If any
Bank assigns an interest in its Note when any Eurodollar Loan is outstanding
with respect thereto, the assignee shall have its ratable interest in such
Eurodollar Loan.
(b) Notwithstanding the foregoing but subject to SECTION 12.8, the Company
will pay to the Agent for the account of each Bank interest (i) except as
otherwise provided in CLAUSE (II) or CLAUSE (III) of this SECTION 4.3(B), at a
rate per annum 2% above the otherwise applicable rate on any principal of any
Loan made by such Bank, for the period commencing on the first day on which any
Event of Default exists and continuing through and including the date no Event
of Default exists and is continuing; (ii) at the rate provided in SECTION 2.2
for unpaid Letter of Credit Advances, and (iii) at the Post-Default Rate for any
other amount due under the Credit Documents which is not paid in full when due
(whether at stated maturity, by acceleration, or otherwise) (but, if such amount
is interest, only to the extent legally enforceable).
(c) Accrued interest shall be due and payable on the applicable Interest
Payment Dates, except that (1) accrued interest pursuant to SECTION 4.3(B) shall
be due and payable from time to time on demand of the Agent or the Required
Banks (through the Agent), (2) accrued interest on any amount converted from one
Type of Loan to another Type of Loan shall be paid on the amount so converted at
the time of such Conversion, and (3) accrued interest on any Eurodollar Loan
paid or prepaid shall be due at the time of such payment or prepayment.
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Section 5. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS, ETC.
5.1. PAYMENTS.
(a) Except to the extent otherwise provided in this Agreement, all
payments of principal of or interest on the Loans, of Reimbursement Obligations
and of other amounts to be made by the Company under the Credit Documents shall
be made in dollars, in immediately available funds, to the Agent at its
Principal Office (or in the case of a successor Agent, at the principal office
of such successor Agent in the United States), not later than 12:00 noon on the
date on which such payment shall become due, and each such payment made after
such time on such due date shall be deemed to have been made on the next
succeeding Business Day. The Agent or any Bank for whose account any such
payment is made, may (but shall not be obligated to) debit the amount of any
such payment which is not made by such time to any ordinary deposit account of
the Company with the Agent or such Bank, as the case may be.
(b) The Company shall, at the time it makes each payment under this
Agreement or any other Credit Document, specify to the Agent the Loans or other
amounts payable by the Company to which such payment is to be applied (and in
the event that it fails so to specify, such payment shall be applied as the
Agent may designate to the Loans or other amounts then due and payable);
PROVIDED that if no Loans or other amounts are then due and payable or an Event
of Default has occurred and is continuing, the Agent may apply any payment to
the Obligations in such order as it may elect in its sole discretion, but
subject to the other terms and conditions of this Agreement, including SECTION
5.2. Each payment received by the Agent under this Agreement or any other Credit
Document for the account of a Bank shall be paid promptly to such Bank in
immediately available funds for the account of such Bank's Applicable Lending
Office.
(c) If the due date of any payment under this Agreement or any other
Credit Document falls on a day which is not a Business Day, the due date for
such payment (except as otherwise provided in the definition of "Interest
Period") shall be extended to the next succeeding Business Day and interest
shall be payable for any principal so extended for the period of such extension
at the rate in effect on such due date.
5.2. PRO RATA TREATMENT. Except to the extent otherwise provided herein,
(a) each borrowing from the Banks hereunder, each payment of Commitment Fees and
other fees and each termination or reduction of the Aggregate Commitment under
SECTION 2.3 shall be made PRO RATA according to the Banks' respective Commitment
Percentages; (b) except as otherwise provided in this Agreement, each payment by
the Company of principal of or interest on Loans of a particular Type shall be
made to the Agent for the account of the Banks PRO RATA according to the Banks'
respective Commitment Percentages; and (c) the Banks (other than the Issuer)
shall purchase from
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the Issuer participations in each Letter of Credit and its related Letter of
Credit Liabilities PRO RATA according to the Banks' respective Commitment
Percentages.
5.3. COMPUTATIONS. Interest based on the Alternate Base Rate (to the
extent determined by reference to the Prime Rate), and fees hereunder, will be
computed on the basis of 365 (or 366) days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable. All other interest and fees shall be computed on the basis of a year of
360 days and actual days elapsed (including the first day but excluding the last
day) occurring in the period for which payable, unless the effect of so
computing shall be to cause the rate of interest to exceed the Highest Lawful
Rate (in which event interest and fees shall be calculated on the basis of the
actual number of days elapsed in a year composed of 365 or 366 days, as the case
may be).
5.4. MINIMUM AND MAXIMUM AMOUNTS. Except for prepayments made pursuant to
SECTION 3.2(B), each borrowing and repayment of principal of Loans, each
optional partial prepayment and each designation, Continuation or Conversion of
Type shall be in an aggregate principal amount equal to $1,000,000 or an
integral multiple thereof (borrowings or prepayments of Loans of different Types
or, in the case of Eurodollar Loans, having different Interest Periods at the
same time hereunder, to be deemed separate borrowings and prepayments for
purposes of the foregoing, one for each Type or Interest Period), and each
termination or reduction of the Aggregate Commitment shall be in an aggregate
principal amount equal to $5,000,000 or an integral multiple thereof. Upon any
mandatory prepayment that would reduce Eurodollar Loans having the same Interest
Period to less than $1,000,000, such Eurodollar Loans shall automatically be
converted into Alternate Base Rate Loans. Each issuance of a Letter of Credit
shall be in a face amount of at least $25,000.
5.5. CERTAIN ACTIONS, NOTICES, ETC. Notices to the Agent of any
termination or reduction of the Aggregate Commitment, of prepayments of Loans
and of the duration of Interest Periods, each Request for Extension of Credit
and each Rate Designation Notice shall be irrevocable and shall be effective
only if received by the Agent not later than 12:00 noon (1:00 p.m. in the case
of a Request for Extension of Credit or Rate Designation Notice related to a
Eurodollar Loan) on the day that is the applicable number of Business Days prior
to the date of the relevant termination, reduction, issuance, borrowing and/or
prepayment specified below:
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Number of Business
Days Prior
Notice
------------------
Termination or reduction
of Aggregate Commitment 5
Borrowing or prepayment
of or Conversion into
Alternate Base Rate Loans same day
Borrowing or prepayment
of or Conversion into or
Continuation of Eurodollar
Loans 3
Issuance of Letter of Credit 3
Prepayments required
pursuant to SECTION 3.2(B) 1
Each such notice of reduction shall specify the amount TO which the Aggregate
Commitment is to be reduced. Each such notice of prepayment or Request for
Extension of Credit shall specify the amount and Type of such Loans to be
borrowed or prepaid (subject to SECTIONS 3.2 and 5.4), the date of borrowing or
prepayment (which shall be a Business Day) and, in the case of Eurodollar Loans,
the duration of the Interest Period therefor (subject to the definition of
"Interest Period"). Each Rate Designation Notice with respect to a Conversion of
a Loan (or portion thereof) shall specify the amount and Type of the Loan (or
portion thereof) being converted, the amount and Type of Loan into which such
Loan is being converted (subject to SECTION 5.4), the date for Conversion (which
shall be a Business Day) and, unless such Loan is being converted into an
Alternate Base Rate Loan, the duration (subject to the definition of "Interest
Period") of the Interest Period therefor which is to commence as of the last day
of the then current Interest Period therefor (or the date of Conversion, if such
Loan is being converted from an Alternate Base Rate Loan). Each Rate Designation
Notice with respect to a Continuation of a Loan (or portion thereof) as the same
Type of Loan shall specify the amount and Type of such Loan (or portion thereof)
being continued (subject to SECTION 5.4) and the duration (subject to the
definition of "Interest Period") of the Interest Period therefor which is to
commence as of the last day of the then current Interest Period therefor. The
Agent shall promptly notify the Banks of the contents of each such notice,
Request for Extension of Credit, or Rate Designation Notice. Notice of any
prepayment having been given, the principal amount specified in such notice,
together with interest thereon to the date of prepayment, shall be due and
payable on such prepayment date.
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5.6. NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have been
notified by a Bank prior to 2 p.m. on the date on which such Bank is to make
payment to the Agent of the proceeds of a Loan (or the payment of any amount by
such Bank to reimburse the Issuer for a drawing under any Letter of Credit) to
be made by it hereunder or by the Company prior to the date on which the Company
is to make a payment to the Agent for the account of the Agent, the Issuer or
one or more of the Banks, as the case may be (such Bank or the Company being
herein called the "PAYOR" and such payment being herein called the "REQUIRED
PAYMENT"), which notice shall be effective upon receipt, that the Payor does not
intend to make the Required Payment to the Agent, the Agent may assume that the
Required Payment has been made and may, in reliance upon such assumption (but
shall not be required to), make the amount thereof available to the intended
recipient on the date that such Required Payment is to be made. If the Payor is
the Company and the Company has not in fact made the Required Payment to the
Agent on or before such date, the Banks, ratably in proportion to their
respective Commitment Percentages, shall, on demand, repay to the Agent the
amount made available by the Agent, together with interest thereon from the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to the Fed Funds Rate for the first three
days after demand and thereafter at the Fed Funds Rate plus 2%. (If the Payor is
the Company, the provisions of SECTION 2.2(A) AND SECTION 4.3(B) shall also
apply.) If the Payor is a Bank and such Bank has not in fact made the Required
Payment to the Agent on or before such date, such Bank shall, on demand, pay to
the Agent the amount made available by the Agent on behalf of such Bank,
together with interest thereon from the date such amount was so made available
by the Agent until the date the Agent recovers such amount at a rate per annum
equal to the Fed Funds Rate for each of the first three days after demand and
for each day thereafter at the Fed Funds Rate plus 2%.
5.7. SHARING OF PAYMENTS, ETC. If a Bank or any participant of a Bank
shall obtain payment of any principal of or interest on any Loan made by it
under this Agreement or of any Reimbursement Obligation or other obligation to
it under this Agreement, through the exercise of any right of set-off, banker's
lien, counterclaim or similar right, or otherwise, such Bank or participant
shall promptly purchase from the other Banks participations in the Loans made or
Reimbursement Obligations or other obligations held by the other Banks in such
amounts, and make such other adjustments from time to time as shall be equitable
to the end that all the Banks and participants shall share the benefit of such
payment (net of any expenses which may be incurred by such Bank or its
participant in obtaining or preserving such benefit) PRO RATA in accor dance
with the respective amounts then due to each of them. To such end all the Banks
and their participants shall make appropriate adjustments among themselves (by
the resale of participations sold or otherwise) if such payment is rescinded or
must otherwise be restored. The Company agrees, to the fullest extent it may
effectively do so under applicable law, that any Person so purchasing a
participation in the Obligations may exercise all rights of set-off, bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans, Reimbursement Obligations or
other obligations in the amount of such
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participation. Nothing in this Agreement shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Company.
Section 6. YIELD PROTECTION AND ILLEGALITY.
6.1. ADDITIONAL COSTS.
(a) Subject to SECTION 12.8, the Company shall pay to the Agent, on
demand, for the account of such Bank, from time to time such amounts as any Bank
may reasonably determine to be necessary to compensate it for any costs incurred
by such Bank which such Bank reasonably determines are attributable to its
making or maintaining any Eurodollar Loan hereunder or its obligation to make or
maintain any such Loan hereunder, or any reduction in any amount receivable by
such Bank hereunder in respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"ADDITIONAL COSTS"), in each case resulting from any Regulatory Change which:
(1) subjects such Bank (or makes it apparent that such Bank is
subject) to any tax (including any United States interest equalization tax),
levy, impost, duty, charge or fee (collectively, "TAXES"), or any deduction or
withholding for any Taxes on or from the payment due under any Eurodollar Loan
or other amounts due hereunder, other than income and franchise taxes of the
jurisdiction (or any subdivision thereof) in which such Bank has an office or
its Applicable Lending Office; or
(2) changes the basis of taxation of any amounts payable to such
Bank under this Agreement or its Note in respect of any of such Loans, other
than changes which affect taxes measured by or imposed on the overall net income
or franchise taxes of such Bank or of its Applicable Lending Office for any of
such Loans by the jurisdiction (or any subdivision thereof) in which such Bank
has an office or such Applicable Lending Office; or
(3) imposes or modifies or increases or deems applicable any
Statutory Reserves or any other reserve, special deposit or similar requirement
(including any such requirement imposed by the Board) relating to any extensions
of credit or other assets of, or any deposits with or other liabilities of, such
Bank or loans made by such Bank, or against any other funds, obliga tions or
other property owned or held by such Bank; or
(4) imposes any other condition affecting this Agreement (or any of
such extensions of credit or liabilities).
Each Bank will notify the Company through the Agent of any event occurring after
the date of this Agreement which will entitle such Bank to compensation pursuant
to this SECTION 6.1 as promptly
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as practicable after it obtains knowledge thereof and determines to request such
compensation, and (if so requested by the Company through the Agent) will
designate a different available Applicable Lending Office for the Eurodollar
Loans of such Bank or take such other action as the Company may reasonably
request if such designation or action is consistent with the internal policy of
such Bank and legal and regulatory restrictions, can be undertaken at no
additional cost, will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Bank, be disadvantageous
to such Bank (PROVIDED that such Bank shall have no obligation so to designate
an Applicable Lending Office located in the United States of America). Each Bank
will furnish the Company with a statement setting forth the basis and amount of
each request by such Bank for compensation under this SECTION 6.1, with each
such statement to cover amounts accruing under this SECTION 6.1 with respect to
a period beginning not earlier than 120 days from the date thereof and using any
reasonable averaging and attribution methods.
(b) Without limiting the effect of the foregoing provisions of this
SECTION 6.1, in the event that, by reason of any Regulatory Change, any Bank
either (1) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes Eurodollar
Loans or (2) becomes subject to restric tions on the amount of such a category
of liabilities or assets which it may hold, then, if such Bank so elects by
notice to the Company (with a copy to the Agent), the obligation of such Bank to
make Eurodollar Loans hereunder shall be suspended until the date such
Regulatory Change ceases to be in effect (in which case the provisions of
SECTION 6.4 shall be applicable).
(c) Determinations and allocations by any Bank for purposes of this
SECTION 6.1 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Loans or of making or maintaining Eurodollar Loans or on
amounts receivable by it in respect of Eurodollar Loans, and of the additional
amounts required to compensate such Bank in respect of any Additional Costs,
shall be conclusive, absent manifest error, and may be made using any reasonable
averaging and attribution methods.
(d) In the event any Bank shall seek compensation pursuant to this SECTION
6.1, the Company may give notice to such Bank (with copies to the Agent) that it
wishes to seek one or more Eligible Assignees (which may be one or more of the
Banks) to purchase and assume the Commitment, Loans, Note, Letter of Credit
Liabilities and interests in this Agreement of such Bank. Each Bank requesting
compensation pursuant to this SECTION 6.1 agrees to sell its Commitment, Loans,
Note, Letter of Credit Liabilities and interests in this Agreement pursuant to
SECTION 12.6 (without recourse, representation or warranty except as provided in
SECTION 12.6) to any such Eligible Assignee for an amount equal to (x) the sum
of the outstanding unpaid principal of and accrued interest on such Loans, Note
and Letter of Credit Advances, plus (y) in the case of the Issuer, Cover for the
face amount of all undrawn Letter of Credit Liabilities plus
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<PAGE>
(z) all other fees and amounts (including any compensation claimed by such Bank
under this SECTION 6.1) owing to such Bank under the Credit Documents,
calculated, in each case, to the date on which such Commitment, Loans, Note,
Letter of Credit Liabilities and interests are purchased, whereupon such Bank
shall have no further Commitment or other obligation to the Company under this
Agreement or any other Credit Document in respect of matters arising after the
consummation of such purchase, but shall continue to be entitled to the benefit
of, and subject to any obligations incurred by it under, this Agreement and the
other Credit Documents in respect of matters occurring during the time it was a
Bank under this Agreement.
6.2. LIMITATION ON TYPES OF LOANS. Anything in this Agreement to the
contrary notwithstanding, if, with respect to any Eurodollar Loans:
(a) the Agent determines (which determination shall be conclusive absent
manifest error) that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" in SECTION 1.1 are not being
provided in the relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for such Loans for Interest Periods therefor as
provided in this Agreement; or
(b) the Required Banks determine (which determination shall be conclusive
absent manifest error) and notify the Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in SECTION 1.1 upon the basis
of which the rates of interest for such Loans are to be determined do not
accurately reflect the cost to such Banks of making or maintaining such Loans
for any proposed Interest Periods therefor; or
(c) the Agent determines (which determination shall be conclusive absent
manifest error) that by reason of circumstances affecting the Eurodollar
interbank market generally, deposits in dollars in the relevant Eurodollar
interbank market are not being offered for the applicable Interest Period and in
an amount equal to the amount of the Eurodollar Loan requested by the Company;
the Agent shall promptly notify the Company and each Bank thereof, and, so long
as such condition remains in effect, the Banks shall be under no obligation to
make Eurodollar Loans (but shall maintain until the end of the Interest Period
then in effect the Eurodollar Loans then outstanding).
6.3. ILLEGALITY. Notwithstanding any other provision of this Agreement to
the contrary, if by reason of (x) the adoption or effectiveness of any
applicable Legal Requirement, or any change in any applicable Legal Requirement
or in the interpretation or administration thereof by any Governmental
Authority, or compliance by any Bank with any request or directive (whether or
not having the force of law) of any central bank or other Governmental Authority
or (y) circumstances affecting the relevant Eurodollar interbank market or the
position of a Bank therein,
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it shall at any time be unlawful or impracticable in the sole discretion of a
Bank for such Bank or its Applicable Lending Office to (a) honor its obligation
to permit the establishment of Eurodollar Loans hereunder or (b) maintain
Eurodollar Loans hereunder, then such Bank through the Agent shall promptly
notify the Company thereof, and the obligation of such Bank to establish or
maintain Eurodollar Loans hereunder shall be suspended until such time as such
Bank may again establish and maintain Eurodollar Loans, in which case the
provisions of SECTION 6.4 shall be applicable. Before giving such notice
pursuant to this SECTION 6.3, such Bank will designate a different available
Applicable Lending Office for the Eurodollar Loans of such Bank or take such
other action as the Company may reasonably request if such designation or action
is consistent with the internal policy of such Bank and legal and regulatory
restrictions, can be undertaken at no additional cost, will avoid the need to
suspend such Bank's obligation to make Eurodollar Loans hereunder and will not,
in the sole opinion of such Bank, be disadvantageous to such Bank (PROVIDED that
such Bank shall have no obligation so to designate an Applicable Lending Office
located in the United States of America).
In the event any Bank shall seek to invoke the benefits of this SECTION
6.3, the Company may give notice to such Bank (with copies to the Agent) that it
wishes to seek one or more Eligible Assignees (which may be one or more of the
Banks) to purchase and assume the Commitment, Loans, Note, Letter of Credit
Liabilities and interests in this Agreement of such Bank. Each Bank requesting
to invoke the benefits of this SECTION 6.3 agrees to sell its Commitment, Loans,
Note, Letter of Credit Liabilities and interests in this Agreement pursuant to
SECTION 12.6 (without recourse, representation or warranty except as provided in
SECTION 12.6) to any such Eligible Assignee for an amount equal to (x) the sum
of the outstanding unpaid principal of and accrued interest on such Loans, Note
and Letter of Credit Advances, plus (y) in the case of the Issuer, Cover for the
face amount of all undrawn Letter of Credit Liabilities, plus (z) all other fees
and amounts owing to such Bank under the Credit Documents, calculated, in each
case, to the date on which such Commitment, Loans, Note, Letter of Credit
Liabilities and interests are purchased, whereupon such Bank shall have no
further Commitment or other obligation to the Company hereunder or any other
Credit Document in respect of matters arising after the consummation of the
purchase, but shall continue to be entitled to the benefit of, and subject to
any obligation incurred by it under, this Agreement and the other Credit
Documents in respect of matters occurring during the time it was a Bank under
this Agreement.
6.4. SUBSTITUTE ALTERNATE BASE RATE LOANS. If the obligation of any Bank
to make or maintain Eurodollar Loans shall be suspended pursuant to SECTION 6.1,
6.2 or 6.3, all Loans which would otherwise be made by such Bank as Eurodollar
Loans shall be made instead as Alternate Base Rate Loans (and, if an event
referred to in SECTION 6.1(B) or 6.3 has occurred and such Bank so requests by
notice to the Company with a copy to the Agent, each Eurodollar Loan of such
Bank then outstanding shall be automatically converted into an Alternate Base
Rate Loan on the date specified by such Bank in such notice which shall be the
last day of the current Interest Period with respect to such Eurodollar Loan or
on such earlier date as required by law) and, to the extent
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that such Eurodollar Loans are so made as (or converted into) Alternate Base
Rate Loans, all payments of principal which would otherwise be applied to such
Eurodollar Loans shall be applied instead to such Alternate Base Rate Loans.
6.5. COMPENSATION. Subject to SECTION 12.8, the Company shall pay to the
Agent for the account of each Bank, within two Business Days after demand
therefor by such Bank through the Agent, such amount or amounts as shall be
sufficient (in the reasonable opinion of such Bank) to compensate it for any
loss, cost or expense incurred by it as a result of:
(a) any payment, prepayment or Conversion of a Eurodollar Loan made by
such Bank on a date other than the last day of an Interest Period for such Loan;
or
(b) any failure by the Company to borrow a Eurodollar Loan to be made by
such Bank on the date for such borrowing specified in the relevant notice of
borrowing under SECTION 5.5 or to convert an Alternate Base Rate Loan into a
Eurodollar Loan on such date after giving notice of such Conversion or to
continue a Eurodollar Loan after giving notice of such Continuation; or
(c) any payment, prepayment or Conversion of a Eurodollar Loan required by
any provision of this Agreement or otherwise made or deemed made on a date other
than the last day of an Interest Period for such Eurodollar Loan; or
(d) any cessation of the Eurodollar Rate to apply to any Loan or any part
thereof;
including, in each case, any actual loss or expense sustained or incurred or to
be sustained or incurred in liquidating or employing deposits acquired to effect
or maintain such Eurodollar Loan or any part thereof. Such compensation shall
include an amount equal to the excess, if any, as reasonably determined by each
Bank, of (1) its cost of obtaining the funds for the Loan being paid, prepaid or
converted or not borrowed, converted or continued (assumed to be the applicable
Eurodollar Rate) for the period from the date of such payment, prepayment or
Conversion or failure to borrow, convert or continue to the last day of the
Interest Period for such Loan (or, in the case of a failure to borrow, convert
or continue the Interest Period for such Loan which would have commenced on the
date of such failure to borrow, convert or continue) over (2) the amount of
interest (as reasonably determined by such Bank) that would be realized by such
Bank in reemploying the funds so paid, prepaid or converted or not borrowed,
converted or continued for such period or Interest Period, as the case may be.
Each determination of the amount of such compensation by a Bank shall be
conclusive and binding, absent manifest error, and may be computed using any
reasonable averaging and attribution method.
6.6. ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. If as a result of
any Regulatory Change there shall be imposed, modified or deemed applicable any
tax, reserve, special deposit or similar requirement against or with respect to
or measured by reference to Letters of Credit
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issued or to be issued under this Agreement or participations in such Letters of
Credit, and the result shall be to increase the cost to the Issuer or any Bank
of issuing or maintaining any Letter of Credit or any participation therein, or
reduce any amount receivable by the Issuer or any Bank in respect of any Letter
of Credit or any participation therein (which increase in cost, or reduction in
amount receivable, shall be the result of such Issuer's or such Bank's
reasonable allocation of the aggregate of such increases or reductions resulting
from such event), such Issuer or such Bank shall notify the Company through the
Agent, and upon demand therefor by such Issuer or such Bank through the Agent,
the Company (subject to SECTION 12.8) shall pay to the Issuer or such Bank, from
time to time as specified by the Issuer or such Bank, such additional amounts as
shall be sufficient to compensate the Issuer or such Bank for such increased
costs or reductions in amount. Before making such demand pursuant to this
SECTION 6.6, the Issuer or such Bank will designate a different available
Applicable Lending Office for the Letter of Credit or participation or take such
other action as the Company may request, if such designation or action will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of the Issuer or such Bank, be disadvantageous to the Issuer or
such Bank. A statement as to such increased costs or reductions in amount
incurred by the Issuer or such Bank, submitted by the Issuer or such Bank to the
Company, shall cover amounts accruing under this SECTION 6.6 with respect to a
period beginning not earlier than 120 days from the date thereof, shall be
conclusive as to the amount thereof, absent manifest error, and may be prepared
using any reasonable averaging and attribution method.
In the event any Bank shall seek compensation pursuant to this SECTION
6.6, the Company may give notice to such Bank (with copies to the Agent) that it
wishes to seek one or more Eligible Assignees (which may be one or more of the
Banks) to purchase and assume the Commitment, Loans, Note, Letter of Credit
Liabilities and interests in this Agreement of such Bank. Each Bank requesting
compensation pursuant to this SECTION 6.6 each agrees to sell its Commitment,
Loans, Note, Letter of Credit Liabilities and interests in this Agreement
pursuant to SECTION 12.6 (without recourse, representation or warranty except as
provided in SECTION 12.6) to any such Eligible Assignee for an amount equal to
(x) the sum of the outstanding unpaid principal of and accrued interest on such
Loans, Note and Letter of Credit Advances, plus (y) all other fees and amounts
(including any compensation claimed by such Bank under this SECTION 6.6) owing
to such Bank under the Credit Documents, calculated, in each case, to the date
such Commitment, Loans, Note, Letter of Credit Liabilities and interests in this
Agreement are purchased, whereupon such Bank shall have no further Commitment or
other obligation to the Company under this Agreement or any other Credit
Document in respect of matters arising after the consummation of such purchase,
but shall continue to be entitled to the benefit of, and subject to any
obligation incurred by it under, this Agreement and the other Credit Documents
in respect of matters occurring during the time it was a Bank under this
Agreement.
In the event any Issuer shall seek compensation pursuant to this SECTION
6.6, the Company may give notice to such Issuer (with copies to the Agent) that
it wishes another of the Banks to
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become the Issuer for future Letters of Credit (including any Letters of Credit
which the Company may arrange to substitute for any Letter of Credit issued by
the retiring Issuer), whereupon such retiring Issuer shall have no further
obligation to issue Letters of Credit, but shall continue to be entitled to the
benefit of, and subject to any obligation incurred by it under, this Agreement
and the other Credit Documents in respect of matters occurring and Letters of
Credit issued during the time it was the Issuer under this Agreement.
Notwithstanding its retirement, the retiring Issuer shall continue to be
entitled to reimbursement of any and all Letter of Credit Advances made by it
under each Letter of Credit issued by it. All fees and other amounts (including
any compensation claimed by the retiring Issuer under this SECTION 6.6) owing to
the retiring Issuer under the Credit Documents shall be paid to the retiring
Issuer at the time of its retirement as Issuer, and the retiring Issuer shall
continue to be the Issuer for all purposes of this Agreement with respect to any
outstanding Letters of Credit theretofore issued by it.
6.7. CAPITAL ADEQUACY. If any Bank shall have determined that
(a) the adoption after the date of this Agreement or the effectiveness
after the date of this Agreement (regardless of whether previously announced) of
any applicable Legal Requirement or treaty regarding capital adequacy, or
(b) any change after the date of this Agreement in any existing or future
Legal Requirement or treaty regarding capital adequacy, or
(c) any change after the date of this Agreement in the interpretation or
administration of any existing or future Legal Requirement or treaty regarding
capital adequacy by any Governmental Authority or comparable agency charged with
the interpretation or administration thereof, or
(d) compliance by any Bank (or its Applicable Lending Office) with any
request or directive after the date of this Agreement regarding capital adequacy
(whether or not having the force of law) of any such Governmental Authority or
comparable agency has or would have the effect of reducing the rate of return on
the capital of such Bank (or any holding company of which such Bank is a part)
as a consequence of its obligations under this Agreement and the other Credit
Documents to a level below that which such Bank or holding company could have
achieved but for such adoption, change or compliance by an amount deemed by such
Bank or holding company to be material, then, from time to time, on demand by
such Bank (with a copy to the Agent), the Company (subject to SECTION 12.8)
shall pay to such Bank such additional amount or amounts as will compensate such
Bank or holding company for such reduction. The certificate of any Bank setting
forth such amount or amounts as shall be necessary to compensate it and the
basis therefor shall cover amounts accruing under this SECTION 6.7 with respect
to a period beginning not earlier than 120 days from the date thereof and shall
be conclusive and binding, absent manifest error. The Company shall pay the
amount shown as due on any such certificate upon delivery of such
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certificate. In preparing such certificate, a Bank may take into consideration
such Bank's and such holding company's policies with respect to capital
adequacy, employ such assumptions and allocations of costs and expenses as it
shall in good faith deem reasonable, and use any reasonable averaging and
attribution method.
In the event any Bank shall seek compensation pursuant to this SECTION
6.7, the Company may give notice to such Bank (with copies to the Agent) that it
wishes to seek one or more Eligible Assignees (which may be one or more of the
Banks) to purchase and assume the Commitment, Loans, Note, Letter of Credit
Liabilities and interests in this Agreement of such Bank. Each Bank requesting
compensation pursuant to this SECTION 6.7 agrees to sell its Commitment, Loans,
Note, Letter of Credit Liabilities and interests in this Agreement pursuant to
SECTION 12.6 (without recourse, representation or warranty except as provided in
SECTION 12.6) to any such Eligible Assignee for an amount equal to (x) the sum
of the outstanding unpaid principal of and accrued interest on such Loans, Note
and Letter of Credit Advances, plus (y) in the case of the Issuer, Cover for the
face amount of all undrawn Letter of Credit Liabilities, plus (z) all other fees
and amounts (including any compensation claimed by such Bank under this SECTION
6.7) owing to such Bank under the Credit Documents, calculated, in each case, to
the date on which such Commitment, Loans, Note, Letter of Credit Liabilities and
interests are purchased, whereupon such Bank shall have no further Commitment or
other obligation to the Company under this Agreement or any other Credit
Document in respect of matters arising after the consummation of such purchase,
but shall continue to be entitled to the benefit of, and subject to any
obligation incurred by it under, this Agreement and the other Credit Documents
in respect of matters occurring during the time it was a Bank under this
Agreement.
Section 7. CONDITIONS PRECEDENT.
7.1. INITIAL CONDITIONS PRECEDENT. The obligation of each Bank to make its
initial Loan to the Company pursuant to this Agreement and the obligation of the
Issuer to issue the first Letter of Credit pursuant to this Agreement are each
subject to the following conditions precedent, each of which shall have been
fulfilled or waived in the discretion of the Agent:
(a) CORPORATE ACTION AND STATUS. The Agent shall have received copies of
the Organizational Documents of the Company certified by the Secretary of the
Company, and resolutions of the Board of Directors of the Company, certified by
the Secretary of the Company, for all corporate action taken by the Company
authorizing the execution, delivery and performance of the Credit Documents to
which the Company is a party, together with such certificates as may be
appropriate to demonstrate the existence, qualification and good standing of and
payment of taxes by each member of the Combined Group in each jurisdiction in
which such qualification is required to make true the representations contained
in SECTION 8.1.
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(b) INCUMBENCY. The Company shall have delivered to the Agent a
certificate in respect of the name and signature of each officer who (i) is
authorized to sign on its behalf the applicable Credit Documents to which the
Company is a party and (ii) will, until replaced by another officer or officers
duly authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in connection with
this Agreement and the other Credit Documents. The Agent and each Bank may
conclusively rely on such certificates until they receive notice in writing from
the Company to the contrary.
(c) NOTES. The Agent shall have received the appropriate Note of the
Company for each Bank, duly completed and executed.
(d) CREDIT DOCUMENTS. The Company shall have duly executed and delivered
the other Credit Documents to which it is a party, and each such Credit Document
shall be in Proper Form. Each such Credit Document shall be in substantially the
form furnished to the Banks prior to their execution of this Agreement, together
with such changes therein as the Agent may approve in its discretion. The
Company shall have paid to the Agent all fees and expenses in the amounts
previously agreed upon in writing among the Company and the Agent and all
amounts due under SECTION 12.3.
(e) CERTIFIED COPIES. The Agent shall have received certified copies of
the Monterey ERISA Indemnification Agreement, the Conveyance and Contribution
Agreement, the Corporate Services Agreement, the Registration Rights Agreement,
the Spin Off Tax Indemnification Agreement, the Tax Allocation Agreement and
each other document that constitutes an exhibit to any of the foregoing, each
fully executed by all parties thereto.
(f) OPINION OF COUNSEL TO THE COMPANY. The Agent shall have received the
opinions of Andrews & Kurth L.L.P. and of Terry L. Anderson, counsel to the
Company, substantially in the forms of SCHEDULES III and IV, respectively.
(g) COUNTERPARTS. The Agent shall have received counterparts of each of
the Credit Documents duly executed and delivered by or on behalf of each of the
parties thereto (or, in the case of any Bank as to which the Agent shall not
have received such a counterpart, the Agent shall have received evidence
satisfactory to it of the execution and delivery by such Bank of a counterpart
hereof).
(h) CONSENTS. The Agent shall have received evidence satisfactory to it in
its discretion that all consents of each Governmental Authority, of the holders
of the Senior Notes and of each other Person, if any, required in connection
with the Loans and Letters of Credit or the execution, delivery and performance
of the Credit Documents have been received and remain in full force and effect.
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(i) OTHER DOCUMENTS. The Agent shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as the Agent may reasonably request.
(j) IPO. The Agent shall have received evidence satisfactory to it in its
discretion that the Company has completed the IPO.
(k) SENIOR DEBT. The Agent shall have received evidence satisfactory to it
in its discretion that the aggregate principal amount of Debt outstanding
pursuant to the Note Agreement does not exceed $175,000,000.
(l) CONVEYANCE AND CONTRIBUTION AGREEMENT. The Agent shall have received
evidence satisfactory to it in its discretion that the transactions described in
the Conveyance and Contribution Agreement have occurred.
All provisions and payments required by this SECTION 7.1 are subject to
the provisions of SECTION 12.8.
7.2. ALL LOANS AND LETTERS OF CREDIT. The obligation of each Bank to make
any Loan (including its initial Loan) to be made by it hereunder and the
obligation of the Issuer to issue any Letter of Credit (including the first
Letter of Credit) are each subject to the additional conditions precedent that,
as of the date of such Loan or such issuance, and after giving effect thereto:
(a) for each Loan which is not a Conversion or a Continuation, no Default
shall have occurred and be continuing;
(b) for each Loan which is not a Conversion or a Continuation, and for
each Letter of Credit, there shall have been no Material Adverse Change since
the date of this Agreement;
(c) for each Loan which is not a Conversion or a Continuation, and for
each Letter of Credit, all representations and warranties made in each Credit
Document shall be true and correct in all material respects on and as of the
date of the making of such Loan or the issuance of such Letter of Credit, with
the same force and effect as if made on and as of such date (except as the same
are expressly stated in the Credit Documents to be made only as of a specific
earlier date, in which case the same shall have been true and correct in all
material respects as of such earlier date);
(d) except for Loans and Letters of Credit made or issued on the date of
this Agreement, the Company shall have delivered to the Agent a Request for
Extension of Credit (and, in the case of a Letter of Credit, a completed
Application) within the time specified in SECTION 5.5; and
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(e) the making of such Loan or the issuance of such Letter of Credit shall
not be prohibited by, or subject the Agent or such Bank to any penalty under,
any Legal Requirement applicable to the Agent or such Bank.
The borrowing of the initial Loans and the issuance of the initial Letter
of Credit under this Agreement and each Request for Extension of Credit in
respect of each Loan and each Letter of Credit by the Company hereunder shall
constitute and include a representation and warranty by the Company to the
effect set forth in SUBSECTIONS (A) through (C) (if applicable) of this SECTION
7.2 (both as of the date of such notice and, unless the Company otherwise
notifies the Agent prior to the date of such borrowing or issuance, as of the
date of such borrowing or issuance). Except in the case of Loans and Letters of
Credit made or issued on the date hereof, such representation and warranty shall
be accompanied by a certificate of the Chief Executive Officer, President, Chief
Financial Officer or Treasurer of the Company setting forth in reasonable detail
the calculations of the Company in making such representation and warranty.
7.3. CONVERSIONS AND CONTINUATIONS OF EURODOLLAR LOANS. The obligation of
each of the Banks to convert any Alternate Base Rate Loan into a Eurodollar Loan
or to continue any Eurodollar Loan for a new Interest Period is subject to the
conditions precedent that on the date of such Conversion or Continuation and
after giving effect thereto (a) no Default shall have occurred and be
continuing, (b) the Company shall have delivered to the Agent a Rate Designation
Notice within the time specified in SECTION 5.5, and (c) such Conversion or
Continuation shall not be prohibited by, or subject such Bank to any penalty
under, any Legal Requirement applicable to such Bank. The acceptance of the
benefits of such Conversion or Continuation shall constitute a representation
and warranty by the Company to each of the Banks to the effect set forth in
CLAUSE (A).
Section 8. REPRESENTATIONS AND WARRANTIES. To induce the Agent and the
Banks to enter into this Agreement and to extend credit under it, the Company
represents and warrants (such representations and warranties to survive any
investigation, the making of the Loans and the issuance of the Letters of
Credit) to the Banks and the Agent as follows:
8.1. CORPORATE EXISTENCE. Each member of the Combined Group (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite power and authority, and
has all licenses, permits, authorizations, consents and approvals necessary, to
own its property and carry on its business as now being conducted, and (c) is
qualified to do business, and is in good standing, in all jurisdictions in which
any of the Petroleum Properties which it owns are located or the nature of the
business conducted by it makes such qualification necessary or advisable, unless
the failure to be so qualified or in good standing would not individually or in
the aggregate have a material adverse effect on the business, financial
condition or results of operations of the Combined Group taken as a whole. The
Company is qualified to do business and is in good standing in the State of
California.
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8.2. INFORMATION.
(a) The Company has furnished the Banks with the following financial
statements, identified by a principal financial officer of the Company:
(1) (i) a consolidated balance sheet with respect to "Western Division" of
SFER as at December 31 in each of the years 1994 and 1995, and
(ii) consolidated statements of operations, division equity, and
cash flows with respect to the "Western Division" of SFER for each of the years
1993 through 1995, inclusive,
all certified by Price Waterhouse LLP, and
(2) (i) pro forma consolidated balance sheets of the Company as at June
30, 1996 and September 30, 1996, and
(ii) pro forma consolidated statements of operations of the Company
for each such period.
The balance sheets fairly present the historical financial condition of the
"Western Division" of SFER or the pro forma financial condition of the Company
and its Subsidiaries, as the case may be (in the case of the Company, on a pro
forma basis as of such dates, as adjusted to give effect to the transactions
described in the notes thereto), as at the date thereof, and the statements of
operations, division equity, and cash flows fairly present the results of the
operations of the "Western Division" of SFER or the Company and its Subsidiaries
(on such pro forma basis as described in the notes thereto), as the case may be,
for the periods indicated (subject to year-to-end adjustments in the case of the
pro forma Company statements).
(b) The most recent consolidated balance sheet of the Company and its
Subsidiaries and the related consolidated statements of operations, changes in
financial position and cash flows for the period then ended, together with the
respective notes thereto, delivered to each of the Banks in accordance with the
provisions of SECTION 9.1(A) or (B), as the case may be (the latest of such
financial statements and the notes thereto being referred to herein as the "MOST
RECENT FINANCIAL STATEMENTS"), fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of such
date and their consolidated results of operations for the period then ended in
conformity with GAAP.
(c) Since the date of this Agreement, there has been no Material Adverse
Change.
(d) As of the Date of Closing, the assets of the Company constitute the
assets allocated to the "Western Division" of SFER except for the Excluded
Assets, as such term is defined in the
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Conveyance and Contribution Agreement, and the liabilities of the Company
constitute the liabilities allocated to the "Western Division" of SFER except
for the Retained Liabilities, as such term is defined in the Conveyance and
Contribution Agreement, and the pro forma balance sheet (including the footnotes
thereto) of the Company as of September 30, 1996 fairly presents in all material
respects the assets and liabilities of the Company as of the Date of Closing
that are of a nature required to be reflected in a balance sheet prepared in
accordance with GAAP except for assets disposed of or acquired and liabilities
arising or discharged after September 30, 1996 in the ordinary course of
business.
8.3. LITIGATION; COMPLIANCE. Except as disclosed in writing to the Banks
prior to the date hereof, there are no legal or arbitral proceedings or any
proceedings by or before any Governmental Authority now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any of
its Subsidiaries which, if adversely determined, would cause a Material Adverse
Change. The Company and its Subsidiaries comply in all material respects with
all applicable material (based on the Company and its Subsidiaries taken as a
whole) Legal Requirements (other than the Applicable Environmental Laws,
representations and warranties regarding which are found in SECTION 8.13).
Neither the Company nor any of its Subsidiaries is in default in any material
respect under, or in violation of, any material (based on the Company and its
Subsidiaries taken as a whole) judgment, order or decree of any Governmental
Authority.
8.4. NO BREACH. None of the execution and delivery of the Credit
Documents, the consummation of the transactions therein contemplated or
compliance with the terms and provisions thereof will conflict with or result in
a breach of, or require any consent that has not been obtained under, the
Organizational Documents of the Company or any of its Subsidiaries or any
material Legal Requirement (including any securities law, rule or regulation)
applicable to the Company or any of its Subsidiaries or (except for the Liens
permitted by this Agreement) result in the creation or imposition of any Lien
upon any of the revenues or property of the Company or any of its Subsidiaries.
Such execution, delivery, consummation and compliance do not and will not
conflict with or result in a breach of any material agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or to which any of them is subject, or
constitute a default under any such agreement or instrument.
8.5. NECESSARY ACTION. The Company has all necessary power and authority
to execute, deliver and perform its obligations under the Credit Documents and
the documentation necessary to consummate the Other Transactions and to
consummate the transactions contemplated therein. The execution, delivery and
performance of the Credit Documents by the Company and the consummation by the
Company of the transactions contemplated therein have been duly authorized by
all necessary action on the part of the Company. The Credit Documents have been
duly and validly executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, except as the
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enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general equitable principles.
8.6. APPROVALS. All authorizations, approvals and consents of, and all
filings and registrations with, all Governmental Authorities, the holders of the
Senior Notes and each other Person necessary for the execution, delivery or
performance of any Credit Document or the consummation by the Company of the
transactions contemplated therein or for the validity or enforceability thereof
have been obtained and are in full force and effect.
8.7. REGULATIONS G, T, U AND X. Neither the Company nor any of its
Subsidiaries owns or has any present intention of acquiring any "margin stock"
(within the meaning of Regulations G, T, U or X of the Board) (herein called
"margin stock"). Neither the Company nor SFER nor any agent acting on its behalf
has taken or will take any action which might cause this Agreement or the Notes
to violate Regulation G, T, U or X or any other regulation of the Board or to
violate the Securities Exchange Act of 1934, as amended, in each case as in
effect now or as the same may hereafter be in effect.
8.8. ERISA. The Company and each ERISA Affiliate have fulfilled their
contribution obligations under each Plan subject to Title IV of ERISA and have
fulfilled their obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan subject to Title IV of ERISA, and in all other
regards with respect to each Plan are in material compliance with the applicable
provisions of ERISA, the Code, and all other applicable laws, regulations and
rules, to the extent that noncompliance with such provisions would result in a
Material Adverse Change. The Company has no knowledge of any event with respect
to each Plan which could result in a Material Adverse Change.
8.9. TAXES. Each of the Company and its Subsidiaries has filed all United
States federal income tax returns and all other material tax returns which are
required to be filed by it and has paid all taxes due pursuant to such returns
or pursuant to any assessment received by it, except to the extent the same may
be contested in good faith by appropriate proceedings diligently conducted for
which adequate reserves have been established in accordance with GAAP. The
charges, accruals and reserves on the books of the Company and its Subsidiaries
in respect of taxes and other governmental charges, as made on a periodic basis,
are adequate.
8.10. SUBSIDIARIES. SCHEDULE I as supplemented from time to time by notice
from the Company to the Agent is a complete and correct list of all Subsidiaries
of the Company. All shares or other indicia of equity interest of the Restricted
Subsidiaries directly or indirectly owned by the Company are free and clear of
Liens (except Permitted Encumbrances and Liens permitted by SECTION 9.7(A)(7)),
and all such shares are validly issued, fully paid and non-assessable.
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8.11. INVESTMENT COMPANY ACT. No member of the Combined Group is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or directly or indirectly controlled by or acting on behalf of any
Person which is an "investment company", within the meaning of said Act.
8.12. PUBLIC UTILITY HOLDING COMPANY ACT; FEDERAL POWER ACT. No member of
the Combined Group is a "public utility company", or an "affiliate" or a
"subsidiary company" of a "public utility company", or a "holding company", or
an "affiliate" or a "subsidiary company" of a "holding company" or of a
"subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or a "public utility" as
such term is defined in the Federal Power Act, as amended.
8.13. ENVIRONMENTAL MATTERS. Except as disclosed in writing to the Agent
prior to the date hereof, the Company and its Subsidiaries, and the plants and
sites of each, have complied with all Applicable Environmental Laws, except, in
any such case, where such failure to so comply would not result in a Material
Adverse Change. Without limiting the generality of the preceding sentence,
neither the Company nor any of its Subsidiaries has received notice of or has
actual knowledge of any actual or claimed or asserted failure so to comply with
Applicable Environmental Laws or of any other Environmental Claim which alone or
together with all other such failures or Environmental Claims is material and
would result in a Material Adverse Change. Except as disclosed in writing to the
Agent prior to the date hereof, neither the Company nor any of its Subsidiaries
nor their plants or other sites manage, generate or dispose of, or during their
respective period of use, ownership, occupancy or operation by the Company or
its Subsidiaries have managed, generated, released or disposed of, any hazardous
wastes, solid wastes, petroleum substances, hazardous substances, hazardous
materials, toxic substances or toxic pollutants, as those terms are used or
defined in the Applicable Environmental Laws, in material violation of or in a
manner which would result in liability under the Applicable Environmental Laws
or any other applicable Legal Requirement, or in a manner which would result in
an Environmental Claim except where such noncompliance or liability or
Environmental Claim would not result in a Material Adverse Change. The
representation and warranty contained in this SECTION 8.13 is based in its
entirety upon (a) current interpretations and enforcement policies that have
been publicly disseminated and are used by Governmental Authorities charged with
the enforcement of the Applicable Environmental Laws or which apply to the
Company or any of its Subsidiaries with respect to any property or sites in a
particular jurisdiction and (b) current levels of publicly disseminated
scientific knowledge concerning the detection of, and the health and
environmental risks associated with the discharge of, substances and pollutants
regulated pursuant to the Applicable Environmental Laws.
8.14. TITLE.
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(a) Each member of the Combined Group has good and defensible title to the
oil, gas and mineral properties shown as owned by it and included in the Most
Recent Engineering Report furnished to the Banks.
(b) Such properties and facilities are free and clear of all Liens, except
Permitted Encumbrances and other Liens permitted hereby.
(c) All oil, gas and mineral leases and leasehold estates, gas purchase
and sales contracts and other agreements comprising or relating to any of such
properties are valid and subsisting and in full force and effect, except for
those leases, estates, contracts, easements, rights-of-way and agreements which
are in the aggregate not material to oil, gas and mineral properties included in
the Most Recent Engineering Report furnished to the Banks, taken as a whole.
(d) All rights, permits, easements, servitudes and rights-of-way, failure
to have or maintain which would materially interfere with the development,
maintenance and operation of such properties so as to cause a Material Adverse
Change, have been obtained and are in full force and effect.
8.15. RESTRICTED INVESTMENTS. The Company and its Subsidiaries own no
Restricted Investments.
Section 9. COVENANTS. The Company covenants to and agrees with the Banks
and the Agent that until the termination of this Agreement pursuant to SECTION
12.7:
9.1. FINANCIAL STATEMENTS AND CERTIFICATES. The Company will deliver in
duplicate:
(a) to each Bank, (A) as soon as practicable and in any event within 60
days after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, commencing with the quarterly period ending March
31, 1997, consolidated and consolidating statements of operations, stockholders'
equity and cash flows of the Company and its Subsidiaries for the period from
the beginning of the then-current fiscal year to the end of such quarterly
period, and a consolidated and consolidating balance sheet of the Company and
its Subsidiaries as of the end of such quarterly period, setting forth (1) as to
each account affected thereby, all eliminating entries for the Unrestricted
Subsidiaries as a group and (2) the resulting consolidated and consolidating
figures for the Company and the Restricted Subsidiaries, and on and after
December 31, 1997, setting forth in each case in comparative form figures as of
the end of and for the corresponding period in the preceding fiscal year, all in
reasonable detail and unaudited but certified by an authorized financial officer
of the Company as fairly presenting the financial position and results of
operations of the Company and its Subsidiaries as of the date thereof and the
period then ended, subject to changes resulting from year-end adjustments, and
(B) prior to the consummation of the
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Spin-Off, as soon as practicable and in any event within 60 days after the end
of each quarterly period (other than the last quarterly period) in each fiscal
year, consolidated statements of operations, stockholders' equity and cash flows
of SFER and its Subsidiaries for the period from the beginning of the current
fiscal year to the end of such quarterly period, and a consolidated balance
sheet of SFER and its Subsidiaries as of the end of such quarterly period, and,
on and after December 31, 1997, setting forth in each case in comparative form
figures for the corresponding period in the preceding fiscal year, all in
reasonable detail and unaudited but certified by an authorized financial officer
of SFER, subject to changes resulting from year-end adjustments; PROVIDED,
HOWEVER, that delivery of copies of the Quarterly Report on Form 10-Q of SFER
for such quarterly period filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this clause (B) with respect to
consolidated financial statements if such financial statements are included in
such report;
(b) to each Bank, (A) as soon as practicable and in any event within 120
days after the end of each fiscal year, commencing with the year ending December
31, 1996, consolidated and consolidating statements of operations, stockholders'
equity and cash flows of the Company and its Subsidiaries for such year, and a
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of the end of such fiscal year, setting forth (1) as to each account affected
thereby, all eliminating entries for the Unrestricted Subsidiaries as a group
and (2) the resulting consolidating figures for the Company and the Restricted
Subsidiaries, and on and after December 31, 1997 setting forth in each case in
comparative form corresponding consolidating figures from the preceding annual
audit, all in reasonable detail and which shall be reported on by Price
Waterhouse LLP or other independent public accountants of recognized national
standing selected by the Company whose report shall (A) contain an opinion that
shall be unqualified as to the scope or limitations imposed by the Company and
shall not be subject to any other material qualification and (B) state that such
financial statements present fairly, in all material respects, the financial
position of the Company and its Subsidiaries at the dates indicated and their
cash flows and the results of their operations and the changes in their
financial position for the periods indicated in conformity with GAAP, and shall
be accompanied by a report of such independent public accountants stating that
(W) such audit was made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole; (X) the consolidating
information set forth therein is presented for purposes of additional analysis
rather than to present the financial position, results of operations and cash
flows of the individual companies; (Y) such consolidating information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements, and (Z) in such independent public accountants' opinion, such
consolidating information is fairly stated in all material respects in relation
to the consolidated financial statements taken as a whole, with such changes
thereto as such accountants reasonably determine to be appropriate under the
circumstances; and (B) prior to the consummation of the Spin-Off, as soon as
practicable and in any event within 120 days after the end of each fiscal year,
consolidated statements of operations, stockholders' equity and cash flows of
SFER and its Subsidiaries for such year, and a consolidated balance sheet of
SFER and its Subsidiaries as of the end of such
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fiscal year, and, on and after December 31, 1997, setting forth in each case
figures from the preceding annual audit, all in reasonable detail and which
shall be reported on by Price Waterhouse LLP or other independent public
accountants of recognized national standing selected by SFER whose report shall
(A) contain an opinion that shall be unqualified as to the scope or limitations
imposed by SFER and shall not be subject to any other material qualification and
(B) state that such financial statements present fairly, in all material
respects, the financial position of SFER and its Subsidiaries at the dates
indicated and their cash flows and the results of their opera tions and the
changes in their financial position for the periods indicated in conformity with
GAAP, and shall be accompanied by a report of such independent public
accountants stating that such audit was made for the purpose of forming an
opinion on the consolidated financial statements taken as a whole, with such
changes thereto as such accountants reasonably determine to be appropriate under
the circumstances; PROVIDED, HOWEVER, that delivery of copies of the Annual
Report on Form 10-K of SFER for such fiscal year filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this clause
(B) with respect to consolidated financial statements if such financial
statements are included in such report;
(c) to each Bank, promptly upon transmission thereof, copies of the
Prospectus and all financial statements, proxy statements, notices and reports
as it shall send to its public stockholders and copies of all registration
statements (without exhibits, and other than registration statements and reports
relating to employee benefit or compensation plans) and all reports which it
files with the Securities and Exchange Commission (or any governmental body or
agency succeeding to any or all of the functions of the Securities and Exchange
Commission);
(d) to each Bank, promptly upon receipt thereof, a copy of each other
report submitted to the Company or any of its Subsidiaries by independent
accountants in connection with any annual, interim or special audit made by them
of the books of the Company or any such Subsidiary;
(e) to each Bank, as soon as practicable and in any event within 15 days
after any executive officer of the Company obtains knowledge (1) of any
condition or event which, in the opinion of management of the Company, would
cause a Material Adverse Change (to the extent affecting the Company and its
Subsidiaries in a materially different manner or extent than the oil and gas
industry generally); (2) that any Person has given any notice to the Company or
any of its Subsidiaries or taken any other action with respect to a claimed
default or event or condition of the type referred to in SECTION 10.1(B) or (N);
(3) of the institution of any litigation involving claims against the Company or
any of its Subsidiaries equal to or greater than $5,000,000 with respect to any
single cause of action or of any adverse determination in any court proceeding
in any litigation involving a potential liability to the Company or any of its
Subsidiaries equal to or greater than $5,000,000 with respect to any single
cause of action which makes the likelihood of an adverse determination in such
litigation against the Company or such Subsidiary substantially more probable;
(4) of any regulatory proceeding which, if determined adversely to the Company,
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would cause a Material Adverse Change (to the extent affecting the Company and
its Subsidiaries in a materially different manner or extent than the oil and gas
industry generally), and (5) of any material dispute between the Company and any
of its Affiliates or between the Company and SFER, an Officer's Certificate
specifying the nature and period of existence of any such Default, condition or
event, or specifying the notice given or action taken by such Person and the
nature of any such claimed Default, event or condition, or specifying the
details of such proceeding, litigation or dispute and, in each case, what action
the Company and any affected Subsidiary has taken, is taking or proposes to take
with respect thereto;
(f) to each Bank, (1) promptly after the filing or receiving thereof,
copies of all annual reports and such other material reports and notices which
the Company or any ERISA Affiliate files under ERISA with the Internal Revenue
Service, the PBGC, the U.S. Department of Labor or any entity succeeding to any
or all of their respective functions with respect to a Plan that is subject to
Title IV of ERISA; (2) promptly upon acquiring knowledge of any "reportable
event" (as defined in Section 4043 of ERISA) or of any "prohibited transaction,"
as such term is defined in the Code or ERISA, in connection with any Plan which
may result in a Material Adverse Change, a statement executed by the President
or Chief Financial Officer of the Company or the applicable ERISA Affiliate,
setting forth the details thereof and the action which the Company or the ERISA
Affiliate proposes to take with respect thereto and, when known, any action
taken by the PBGC, the Internal Revenue Service, the U.S. Department of Labor
(or any entity succeeding to any or all of the functions of any such entity)
with respect thereto; (3) promptly after the filing or receiving thereof by the
Company or any ERISA Affiliate, any notice of the institution of any proceedings
or other actions which may result in the termination of any Plan or notice of
complete or partial withdrawal liability under Title IV of ERISA, and (4) each
request for waiver of the funding standards or extension of the amortization
periods required by Sections 303 and 304 of ERISA or Section 412 of the Code
promptly after the request is submitted by the Company or any ERISA Affiliate,
to the Secretary of the Treasury, the U.S. Department of Labor or the Internal
Revenue Service (or any entity succeeding to any or all of the functions of any
such entity), as the case may be;
(g) to each Bank, as soon as available but in no event later than February
28 of each year, an Independent Engineering Report reflecting data as of
December 31 of the prior year;
(h) to the Agent, no later than the first Quarterly Date after the
formation or acquisition of any Subsidiary of the Company, notice of such
formation or acquisition stating the name, jurisdiction of organization,
percentage owned by the Company, whether such Subsidiary is a Restricted
Subsidiary or an Unrestricted Subsidiary, and other relevant information;
(i) to the Agent, at any time prior to the Company's receiving any Loan,
an Officer's Certificate, in form and substance satisfactory to the Agent,
certifying that: (1) the Company has completed the IPO; (2) the Date of Closing
has occurred (stating such date), the Note Agreement
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is effective (attaching a true and complete copy thereof), and the aggregate
principal amount of Debt outstanding pursuant to the Note Agreement does not
exceed $175,000,000; (3) the transactions described in the Conveyance and
Contribution Agreement have occurred; and
(j) to each Bank, with reasonable promptness, such other information
respecting the business, financial condition or results of operations of the
Company or any of its Subsidiaries as the Agent or any Bank may reasonably
request.
Additionally, the Company will deliver to each Bank:
(x) Together with each delivery of financial statements required by
SUBSECTION (A) above, an Officer's Certificate demonstrating (with applicable
computations in reasonable detail) compliance by the Company and the Restricted
Subsidiaries with the provisions of SECTIONS 9.6, 9.7(B)(2) and (3), 9.7(C),
9.7(D), 9.7(E), 9.7(F), 9.9, 9.10 and 9.11 as at the date of the balance sheet
included in such financial statements and stating that at the date of such
Officer's Certificate there exists no Default, or, if any Default exists,
specifying the nature and period of existence thereof and what action the
Company proposes to take with respect thereto; and
(y) Together with each delivery of financial statements required by
SUBSECTION (B) above, a certificate of such accountants stating that, in
conducting the audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards they have obtained no
knowledge of any Default arising under SECTION 10.1(A), (B) or (M) or any
Default arising under SECTION 10.1(D) that occurs as result of the breach or
violation by the Company or the Restricted Subsidiaries of SECTIONS 9.6, 9.7(B),
(C), (D), (E), (F), or (G), 9.8, 9.9, 9.10 or 9.11 or, if they have obtained
knowledge of any such Default, specifying the nature and period of existence
thereof. Such accountants, however, shall not be liable to the Agent or any Bank
by reason of their failure to obtain knowledge of any such Default which would
not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards. The Company also covenants that forthwith
upon the Chief Executive Officer, Principal Financial Officer or principal
accounting officer obtaining knowledge of an Event of Default or Default, it
will deliver to each Bank an Officer's Certificate specifying the nature and
period of existence thereof and what action the Company proposes to take with
respect thereto.
9.2. INSPECTION OF PROPERTY. The Company will permit, and cause each of
its Subsidiaries to permit, any Person designated in writing by any Bank, at
such Bank's expense and risk, to visit and inspect any of the properties of the
Company and its Subsidiaries; and also to examine the corporate books and
financial records of the Company and its Subsidiaries and to make copies thereof
or extracts therefrom and to discuss the affairs, finances and accounts of such
Persons with the executive officers of the Company and its Subsidiaries, the
petroleum reserve engineers employed by the Company and its Subsidiaries and the
Company's independent public accountants, all at such reasonable times, with a
representative of the Company present and as
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often as such Bank may reasonably request, and will assist such Person or
Persons in all such activities.
9.3. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company will, and will cause
each of its Subsidiaries and each of its Affiliates that are controlled by the
Company or its Subsidiaries to, comply in a timely fashion with, or operate
pursuant to valid waivers of the provisions of, all Applicable Environmental
Laws, except where non-compliance would neither (a) result in a Material Adverse
Change nor (b) subject the Agent or any Bank to any liability for such
non-compliance (PROVIDED that the Company shall not be in default of this CLAUSE
(B) if the Company indemnifies each of the Agent, Banks or any of them subjected
to such liability and provides collateral to secure such indemnification, all to
the extent required by the Person subjected to such liability in its sole and
unfettered discretion). THE COMPANY AGREES TO INDEMNIFY AND HOLD THE AGENT AND
EACH BANK, AND THEIR RESPECTIVE OFFICERS, AGENTS AND EMPLOYEES HARMLESS FROM ANY
LOSS, LIABILITY, CLAIM OR EXPENSE WHICH ANY SUCH PERSON MAY INCUR OR SUFFER AS A
RESULT OF A BREACH BY THE COMPANY OR ITS SUBSIDIARIES OR AFFILIATES, AS THE CASE
MAY BE, OF THIS COVENANT. The Company shall not be deemed to have breached or
violated this SECTION 9.3 if the Company or the applicable Subsidiary or
Affiliate, as the case may be, is challenging in good faith by appropriate
proceedings diligently pursued, and subject to the indemnification obligations
of this SECTION 9.3, the application or enforcement of any such Applicable
Environmental Laws for which adequate reserves have been established in
accordance with GAAP.
9.4. PAYMENT OF TAXES. The Company will, and will cause each of its
Subsidiaries to, pay, or have paid on its behalf, before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property, except to the extent contested in good faith by appropriate
proceedings diligently conducted for which adequate reserves have been
established in accordance with GAAP.
9.5. MAINTENANCE OF INSURANCE. The Company and each of its Subsidiaries
will carry and maintain insurance (subject to self-insurance in the maximum
amount of $10,000,000, customary deductibles and retentions) in at least such
amounts and against such liabilities and hazards and by such methods as
customarily maintained by other companies operating similar businesses and,
together with each delivery of financial statements required by SECTION 9.1(B)
will deliver to the Agent for each Bank an Officer's Certificate specifying the
details of such insurance in effect. Upon the request of the Agent or any Bank,
the Company shall promptly deliver to the Agent one or more current certificates
of the insurer or insurers providing the insurance required by this SECTION 9.5
to the effect that such insurance may not be canceled, reduced or affected in
any manner without 30 days' prior written notice to the Agent.
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9.6. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. The Company will not
and will not permit any Restricted Subsidiary to (a) make any Restricted
Investment or (b) pay or declare any dividend on any class of its stock or make
any other distribution on account of any class of its stock, or redeem, purchase
or otherwise acquire, directly or indirectly, any shares of its stock (all of
the foregoing described in SUBSECTION (B) above being herein called "RESTRICTED
PAYMENTS") (1) except out of Consolidated Net Earnings Available for Restricted
Payments and Restricted Investments; and (2) unless, after giving effect to any
such Restricted Investment or Restricted Payment, as the case may be, no Default
shall have occurred and be continuing.
Notwithstanding the foregoing, the Company will not, in any event, in any
fiscal year prior to the fiscal year in which the Spin-Off is consummated and,
in the case of the fiscal year in which the Spin-Off is consummated, the portion
of the fiscal year preceding the consummation of the Spin-Off, make Restricted
Payments to or Restricted Investments in SFER or any Ineligible Subsidiary in
excess of $31,000,000 in the aggregate for each such fiscal year or portion
thereof.
"CONSOLIDATED NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS AND
RESTRICTED INVESTMENTS" shall mean an amount equal to
(a) the sum of (1) $62,000,000; PLUS (2) 100% (or minus 100% in case of a
deficit) of Consolidated Net Earnings for the period (taken as one accounting
period) commencing on the Date of Closing (the "COMMENCEMENT DATE") and
terminating at the end of the last fiscal quarter preceding the date of any
proposed Restricted Investment or Restricted Payment, as the case may be; PLUS
(3) the net cash proceeds received by the Company or any Restricted Subsidiary
from the sale of any shares of its stock after the Commencement Date, except (A)
any such proceeds used as a basis for a prepayment in respect of the
then-outstanding notes issued under the Note Agreement pursuant to PARAGRAPH 4A
OR 4B thereof and (B) any proceeds from the sale of stock to the Company or any
of its Subsidiaries on or after the Commencement Date; PLUS (4) the net cash
proceeds received by the Company or any Restricted Subsidiary from the sale,
after the Commencement Date, of any convertible debt security which has been
converted into stock of the Company or a Restricted Subsidiary, except (A) any
such proceeds used as a basis for a prepayment in respect of the
then-outstanding notes issued under the Note Agreement pursuant to PARAGRAPH 4A
OR 4B thereof and (B) any proceeds from the sale of such convertible debt
security to the Company or any of its Subsidiaries; PLUS (5) any return of
capital from Unrestricted Subsidiaries or Restricted Investments received by the
Company or any Restricted Subsidiary on or after the Commencement Date, LESS
(b) the sum of all Restricted Investments and all Restricted Payments made
on or after the Commencement Date.
There shall not be included in Restricted Payments or in any computation
of Consolidated Net Earnings Available for Restricted Payments and Restricted
Investments (w) dividends paid or
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declared by the Company or any of the Restricted Subsidiaries in respect of
stock thereof held by any Person, or distributions made to any Person, in stock
of the Company or any Restricted Subsidiary; (x) exchanges of stock of one or
more classes of the Company or any Restricted Subsidiary for common stock of the
Company or such Restricted Subsidiary, as the case may be, or for stock of the
Company or such Restricted Subsidiary, as the case may be, of the same class,
except to the extent that cash or other value is paid by the Company or a
Restricted Subsidiary in such exchange; or (y) dividends paid or declared in
respect of stock held by, or distributions made to, or redemptions, purchases or
other acquisitions of stock made from, the Company or a wholly-owned Restricted
Subsidiary. The term "stock" as used in this SECTION 9.6 shall include warrants,
options to purchase stock and redeemable rights.
9.7. LIEN AND OTHER RESTRICTIONS. The Company will not and will not permit
any Restricted Subsidiary to:
(a) LIENS. Create, assume or suffer to exist any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, except Permitted
Encumbrances and
(1) Liens for taxes or assessments or other governmental charges or
levies not yet due or which are being actively contested in good faith by
appropriate proceedings;
(2) Liens (including mechanics' and materialmen's liens, landlord
liens, easements, rights-of-way or the like) incidental to the conduct of its
business or the ownership of its property and assets which are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than advances or credit on open account, includable in current
liabilities, for goods and services in the ordinary course of business and on
terms and conditions which are customary in the oil, gas and mineral exploration
and development business) or the guaranteeing of the obligations of another
Person, and which do not in the aggregate materially detract from the value of
its property or assets or materially impair the use thereof in the operation of
its business;
(3) Liens for lessor's royalties, overriding royalties, net profits
interests, carried interests, reversionary interests and other similar burdens,
production sales contracts, division orders, contracts for the sale, purchase,
exchange, or processing of hydrocarbons, unitization and pooling designations,
declarations, orders and agreements, operating agreements, agreements of
development, area of mutual interest agreements, gas balancing or deferred
production agreements, processing agreements, plant agreements, pipeline
gathering and transportation agreements, injection, repressuring and recycling
agreements, salt water or other disposal agree ments, seismic or geophysical
permits or agreements, and other agreements which are customary in the oil, gas
and mineral exploration and development business or in the business of
processing gas and gas condensate production for the extraction of products
therefrom, if the net cumulative effect of such burdens does not operate to
reduce the net revenue interest of any oil and gas
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properties to less than (A) the "Net Revenue Interest" set forth in the Most
Recent Engineering Report for those oil and gas properties included in the Most
Recent Engineering Report or (B) the net revenue interest so acquired for those
oil and gas properties acquired after the date of the Most Recent Engineering
Report; PROVIDED that such Liens are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than advances
or credit on open account, includable in current liabilities, for goods and
services in the ordinary course of business and on terms and conditions which
are customary in the oil, gas and mineral exploration and development business)
or the guaranteeing of the obligations of another Person;
(4) Liens described in SCHEDULE II securing Debt of the Company or a
Restricted Subsidiary set forth in SCHEDULE II;
(5) Liens existing on any real property of any Person at the time
such Person becomes a Restricted Subsidiary, or any Liens existing prior to the
time of acquisition upon any real property acquired by the Company or any
Restricted Subsidiary through purchase, merger or consolidation or otherwise,
whether or not the obligation secured by such Lien is assumed by the Company or
such Restricted Subsidiary; PROVIDED that except as otherwise permitted by
SECTION 9.7(A), any such Lien (A) shall not encumber any other property of the
Company or any Restricted Subsidiary and (B) shall not have been created or
modified in any respect in anticipation of such Person's becoming a Restricted
Subsidiary or in anticipation of the acquisition by the Company or any
Restricted Subsidiary of the real property subject thereto (other than to
reflect the assumption of such Lien or other ministerial acts relating thereto);
(6) Liens placed on property at the time of acquisition,
construction, development or improvement thereof, or created in respect of such
property within six months after the time of acquisition thereof or the
commencement of construction, development or improvement thereof, as the case
may be, to secure all or a portion of (or to secure Debt incurred to pay all or
a portion of) the purchase price of such acquisition, or the cost of such
construction, development or improvement, as the case may be; PROVIDED that (A)
such property is not and shall not thereby become encumbered in an amount in
excess of the lesser of the cost or fair market value thereof; (B) except as
otherwise permitted in SECTION 9.7(A), any such Lien shall not encumber any
other property of the Company or a Restricted Subsidiary, and (C) any such Lien
shall not encumber property of the Company or a Restricted Subsidiary for the
purpose of securing an obligation of the Company or a Restricted Subsidiary or
securing a Guaranty by the Company or any Restricted Subsidiary in connection
with the sale, exchange, transfer or other disposition by the Company or a
Restricted Subsidiary of net profits interests; PROVIDED that the Company or a
Restricted Subsidiary may assign all or part of the proceeds of production of
property in which a net profits interest has been granted to secure its
obligation to make net profits interests payments therefrom; and PROVIDED
FURTHER that any such Lien shall not encumber any other property of the Company
or any Restricted Subsidiary;
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(7) Liens on the capital stock of a Restricted Subsidiary acquired
after the Commencement Date by the Company or a Restricted Subsidiary and
created or assumed contemporaneously with such acquisition, to secure Debt
assumed or incurred to finance all or a part of the purchase price of such
acquisition;
(8) Liens on the capital stock of an Unrestricted Subsidiary;
(9) Liens on property of the Company or a Restricted Subsidiary to
secure Debt assumed or incurred in the form of Capitalized Lease Obligations or
industrial revenue bonds, pollution control bonds or similar tax-exempt
financings; PROVIDED that any such Lien shall not encumber any property of the
Company or a Restricted Subsidiary other than the property the acquisition or
construction of which is financed or refinanced, in whole or in part, with
proceeds from such Debt;
(10) any Lien renewing or extending any Lien permitted by CLAUSES
(4), (5), (6), (7), (8), or (9) above; PROVIDED that the principal amount of the
Debt secured thereby is not increased and such Lien is not extended to other
property; and
(11) other Liens on any property of the Company or a Restricted
Subsidiary securing any Debt of the Company or a Restricted Subsidiary permitted
by the last sentence of SECTION 9.11.
(b) SALE OF LESS THAN SUBSTANTIALLY ALL ASSETS. Sell, exchange, transfer
or otherwise dispose of part, but less than all or substantially all, of their
respective assets, unless
(1) such sale, exchange, transfer or other disposition is made in
the ordinary course of business (including abandonments, farm-ins, farm-outs,
leases and subleases of developed or undeveloped properties owned or held by the
Company or any Restricted Subsidiary that are made or entered into in the
ordinary course of business, but EXCLUDING, however, any sale of net profits
interests in developed oil and gas properties); or
(2) after giving effect to such sale, exchange, transfer or other
disposition, (A) the aggregate net book value of (i) all assets of the Company
and the Restricted Subsidiaries (including the sale of net profits interests in
developed oil and gas properties) sold, exchanged, transferred or otherwise
disposed of (on a consolidated basis) (but excluding assets sold, exchanged,
transferred or otherwise disposed of in the ordinary course of business pursuant
to SECTION 9.7(B)(1)) during the period of 12 consecutive months immediately
preceding such sale, exchange, transfer or other disposition and (ii) the assets
of all Restricted Subsidiaries, the stock of which have been sold or otherwise
disposed of pursuant to SECTION 9.7(C)(2)(A) during such 12-month period shall
not exceed 10% of Consolidated Net Tangible Assets of the Company and the
Restricted Subsidiaries as of the end of the fiscal quarter immediately
preceding or coinciding
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with such sale, exchange, transfer or other disposition, and (B) the assets
described in the foregoing CLAUSE (A) shall not have contributed more than 10%
of EBITDA of the Company and the Restricted Subsidiaries for the four most
recently completed fiscal quarters taken as a single accounting period; or
(3) after giving effect to such sale, exchange, transfer or other
disposition, (A) the aggregate net book value of (i) all assets of the Company
and the Restricted Subsidiaries (including the sale of net profits interests in
developed oil and gas properties) sold, exchanged, transferred or otherwise
disposed of (on a consolidated basis) (but excluding assets sold, exchanged,
transferred or otherwise disposed of pursuant to SECTION 9.7(B)(1) and (2))
during the period of 12 consecutive months immediately preceding such sale,
exchange, transfer or other disposition and (ii) the assets of all Restricted
Subsidiaries, the stock of which has been sold or otherwise disposed of pursuant
to SECTION 9.7(C)(2)(B) during such 12-month period, shall not exceed 10% of
Consolidated Net Tangible Assets of the Company and the Restricted Subsidiaries
as of the end of the fiscal quarter immediately preceding or coinciding with
such sale, exchange, transfer or other disposition; (B) the assets described in
the foregoing CLAUSE (A) shall not have contributed more than 10% of EBITDA for
the four most recently completed fiscal quarters taken as a single accounting
period, and (C) within six months after such sale, exchange, transfer or other
disposition, the net proceeds thereof are applied toward, or the exchange
results in, (1) the acquisition by the Company or a Restricted Subsidiary of (i)
assets which have an aggregate fair market value at least equal to the net
proceeds received by the Company and the Restricted Subsidiaries from such sale,
exchange, transfer or other disposition; (ii) if the assets so sold, exchanged,
transferred or otherwise disposed of were located in the United States of
America or Canada, the assets acquired are located in the United States of
America or Canada, and (iii) the assets so acquired are of a type usual and
customary in the oil and gas business; PROVIDED that no Liens shall at any time
exist on the assets so acquired which secure any Debt except as permitted by
SECTION 9.7(A)(1), (2), (3) OR (11) or (2) the prepayment of an aggregate
principal amount of all Obligations plus accrued interest thereon in accordance
with this Agreement or the payment of an aggregate principal amount of other
Funded Debt (other than Funded Debt subordinate in right of payment to the
Obligations) plus accrued interest and premium, if any, in either case in an
amount at least equal to the aggregate net proceeds that the Company or a
Restricted Subsidiary receives from the sale, exchange, transfer or other
disposition of such assets.
(c) SALE OF STOCK OF RESTRICTED SUBSIDIARIES. Sell or otherwise dispose
of, or part with control of, any shares of stock of any Restricted Subsidiary,
except (1) to the Company or another wholly-owned Restricted Subsidiary and (2)
that all shares of stock of any Restricted Subsidiary at the time owned by the
Company and all Restricted Subsidiaries may be sold as an entirety for a cash
consideration which represents the fair market value (as determined in good
faith by the Board of Directors of the Company) at the time of sale of the
shares of stock so sold; PROVIDED that for purposes of this exception:
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(A) (i) the net book value of the assets of such Restricted
Subsidiary together with (x) the net book value of the assets of any other
Restricted Subsidiary the stock of which was sold during the preceding 12-month
period and (y) the net book value of the assets of the Company and all
Restricted Subsidiaries sold, exchanged, transferred or otherwise disposed of
pursuant to SECTION 9.7(B)(2) during the preceding 12-month period, does not
represent more than 10% of Consolidated Net Tangible Assets as of the end of the
fiscal quarter immediately preceding or coinciding with such sale, exchange,
transfer or other disposition and (ii) the earnings of such Restricted
Subsidiary together with (x) the earnings of any other Restricted Subsidiary the
stock of which was sold or otherwise disposed of pursuant to the exception
described in this CLAUSE (A) during the preceding 12-month period and (y) the
earnings attributable to the assets sold, exchanged, transferred or otherwise
disposed of pursuant to SECTION 9.7(B)(2) during such 12-month period, do not
represent more than 10% of EBITDA for the four most recently completed fiscal
quarters taken as a single accounting period; and PROVIDED FURTHER that, at the
time of such sale, such Restricted Subsidiary shall not own, directly or
indirectly, any shares of stock of the Company or any other Restricted
Subsidiary unless all of the shares of stock of such other Restricted Subsidiary
owned, directly or indirectly, by the Company and all Restricted Subsidiaries
are simultaneously being sold as permitted by the exception described in this
CLAUSE (A); or
(B) (i) the net book value of the assets of such Restricted
Subsidiary together with (x) the net book value of the assets of any other
Restricted Subsidiary the stock of which was sold during the preceding 12-month
period and (y) the net book value of the assets of the Company and any
Restricted Subsidiary sold, exchanged, transferred or otherwise disposed of
pursuant to SECTION 9.7(B)(3) during the preceding 12-month period, does not
represent more than 10% of the Consolidated Net Tangible Assets as of the end of
the fiscal quarter immediately preceding or coinciding with such sale, exchange,
transfer or other disposition; (ii) the earnings of such Restricted Subsidiary
together with (x) the earnings of any other Restricted Subsidiary the stock of
which was sold or otherwise disposed of pursuant to the exception described in
this CLAUSE (B) during the preceding 12-month period and (y) the earnings
attributable to the assets sold, exchanged, transferred or otherwise disposed of
pursuant to SECTION 9.7(B)(3) during such 12-month period, do not represent more
than 10% of EBITDA for the four most recently completed fiscal quarters taken as
a single accounting period, and (iii) within six months after such sale or other
disposition, the proceeds thereof are applied toward (i) the acquisition by the
Company or a Restricted Subsidiary of (1) assets which have an aggregate fair
market value at least equal to the net proceeds received by the Company and the
Restricted Subsidiaries from such sale or other disposition and (2) the assets
so acquired are of a type usual and customary in the oil and gas business;
PROVIDED that no Liens shall at any time exist on the assets so acquired which
secure any Debt except as permitted by SECTION 9.7(A)(1), (2), (3) OR (11), or
(ii) the prepayment of an aggregate principal amount of all Obligations in
accordance with this Agreement or the payment of an aggregate principal amount
of other Funded Debt (other than Funded Debt subordi nate in right of payment to
the Obligations) plus accrued interest and premium, if any, in either
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case in an amount at least equal to the aggregate net proceeds that the Company
or a Restricted Subsidiary receives from the sale or other disposition; and
PROVIDED FURTHER that, at the time of such sale or other disposition, such
Restricted Subsidiary shall not own, directly or indirectly, (y) any shares of
stock of the Company or any other Restricted Subsidiary unless all of the shares
of stock of such other Restricted Subsidiary owned, directly or indirectly, by
the Company and all Restricted Subsidiaries are simultaneously being sold as
permitted by the exception described in this CLAUSE (B).
(d) MERGER AND SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. Merge or
consolidate with or into any other Person or convey, exchange, transfer or
otherwise dispose of all or a substantial part of its assets (I.E., assets which
could not otherwise be disposed of pursuant to SECTION 9.7(B)(2) or (3)) to any
Person except that
(1) any wholly-owned Restricted Subsidiary may merge with the
Company (PROVIDED that the Company shall be the continuing or surviving
corporation) or with any one or more other wholly-owned Restricted Subsidiaries;
(2) any Restricted Subsidiary may sell, exchange, transfer or
otherwise dispose of any of its assets to the Company or to a wholly-owned
Restricted Subsidiary;
(3) any Restricted Subsidiary may sell, exchange, transfer or
otherwise dispose of all or substantially all of its assets subject to the
conditions and provisions specified in SECTIONS 9.7(B)(2) and (3);
(4) any Restricted Subsidiary may merge into or consolidate with any
Person which does not thereupon become a Restricted Subsidiary, subject to the
conditions and provisions specified in SECTION 9.7(C) with respect to a sale or
other disposition of the stock of such Restricted Subsidiary;
(5) any Restricted Subsidiary may permit any Person to be merged
into such Restricted Subsidiary or may consolidate with or merge into a Person
which thereupon becomes a Restricted Subsidiary; PROVIDED that immediately after
any such merger or consolidation, no Default shall have occurred and be
continuing;
(6) the Company may permit any Person to be merged into the Company
(such that the Company shall be the continuing or surviving corporation); and
(7) the Company may permit any corporation to consolidate with the
Company and the Company may merge into or otherwise dispose of its assets as an
entirety or substantially as an entirety to any solvent corporation organized
under the laws of the United States of America or any state thereof and having
at least 80% of its consolidated assets located in the United States
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of America and Canada which expressly assumes in writing the due and punctual
performance of the obligations of the Company under the Credit Documents, to the
same extent as if such successor or transferee corporation had originally
executed the Credit Documents in the place of the Company (it being agreed that
such assumption shall, upon the request of any Bank and at the expense of such
successor or transferee corporation, be evidenced by the exchange of such Bank's
Note for another Note executed by such successor or transferee corporation, with
such changes in phraseology and form as may be appropriate but in substance of
like terms as the Note surrendered for such exchange and of like unpaid
principal amount, and that each Note executed pursuant to this Agreement after
such assumption shall be executed by and in the name of such successor or
transferee corporation);
PROVIDED that for purposes of SECTIONS 9.7(D)(6) and (7) immediately after such
merger, consolidation, sale or other disposition, and after giving effect
thereto, no Default shall have occurred and be continuing. As soon as
practicable, and in any event at least 75 days prior to the proposed
consummation date of any merger, consolidation, sale or other disposition
described in SECTION 9.7(D)(7), the Company shall give written notice thereof to
each Bank describing in reasonable detail the proposed transaction, the date on
which it is proposed to be consummated and the identity, jurisdiction of
organization, and geographic composition of assets of the proposed successor or
transferee corporation. No disposition by the Company of its assets as an
entirety or substantially as an entirety under SECTION 9.7(D)(7) shall release
the Company as the maker of the Notes from its liability as obligor thereon.
(e) SALE AND LEASEBACK. Enter into any Sale and Leaseback Transaction
unless:
(1) the net sales proceeds received by the Company or a Restricted
Subsidiary in respect of the assets sold pursuant to such Sale and Leaseback
Transaction are greater than or equal to the fair market value of the assets
sold (which determination shall be based upon a written opinion (the cost of
which shall be borne exclusively by the Company) as to valuation from an
independent valuation expert selected by the Company) and such proceeds are
concurrently applied to (A) the purchase, acquisition, development or
construction of assets having a value at least equal to such net proceeds, and
to be used in the Company's or such Restricted Subsidiary's business; PROVIDED
that no Liens shall at any time exist on such assets which secure any Debt
except as permitted by SECTION 9.7(A)(1), (2), (3) OR (11); (B) the prepayment
in accordance with this Agreement of any aggregate principal amount of all the
Obligations (plus accrued interest and premium, if any) at least equal to the
amount of such net proceeds; or (C) the payment of other Funded Debt (other than
Funded Debt subordinate in right of payment to the Obligations) in an aggregate
principal amount at least equal to the amount of such net sales proceeds; or
(2) the Sale and Leaseback Transaction involves the sale of assets
by the Company to a wholly-owned Restricted Subsidiary or by a Restricted
Subsidiary to the Company or to another wholly-owned Restricted Subsidiary;
PROVIDED that if the Company is the seller under
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any such Sale and Leaseback Transaction, its lease obligations thereunder shall
be subordinated to the Funded Debt represented by the Notes upon terms set forth
on SCHEDULE V.
(f) TRANSACTIONS WITH AFFILIATES. Except for the Other Transactions, or as
provided in the second paragraph of SECTION 9.6, directly or indirectly
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, in the ordinary course of business or
otherwise, (1) any Affiliate (except any employee compensation benefit plan or
any Restricted Subsidiary) or (2) any Person (other than a Restricted
Subsidiary) in which an Affiliate or the Company (directly or indirectly) owns,
beneficially or of record, 5% or more of the outstanding voting stock or similar
equity interest, except that (A) any Affiliate may be a director, officer or
employee of the Company or any Restricted Subsidiary and may be paid reasonable
compensation in connection therewith and (B) acts and transactions that would
otherwise be prohibited by this subsection may be performed or engaged in if
upon terms not less favorable to the Company or any Restricted Subsidiary than
if no relationship described in CLAUSES (1) and (2) above existed.
(g) TAX CONSOLIDATION. Except as provided for in the Tax Allocation
Agreement or the Spin-Off Tax Indemnification Agreement, the Company will not,
and will not permit any of its Subsidiaries to, file or consent to the filing of
any consolidated income tax return with any Person unless such other Person
shall have agreed in writing with the Company that the Company's or such
Subsidiary's liability with respect to taxes as a result of the filing of any
such consolidated income tax return with such Person shall not be materially
greater, nor the receipt of any tax benefits materially less, than they would
have been had the Company and its Subsidiaries continued to file a consolidated
income tax return with the Company as the parent corporation.
9.8. ISSUANCE OF STOCK BY RESTRICTED SUBSIDIARIES. The Company will not
permit any Restricted Subsidiary (either directly or indirectly, by the issuance
of rights or options for, or securities convertible into, such shares) to issue,
sell or otherwise dispose of any shares of any authorized but unissued or
treasury class of such Restricted Subsidiary's stock (other than directors'
qualifying shares) except to the Company or another Restricted Subsidiary.
9.9. CONSOLIDATED NET WORTH. The Company will not permit Consolidated Net
Worth (a) on any date before January 1, 2000, to be less than $115,000,000 and
(b) on January 1, 2000 or on any date thereafter to be less than the sum of (i)
$115,000,000 plus (ii) to the extent positive, 20% of Consolidated Net Earnings
for each fiscal year beginning with the fiscal year beginning January 1, 1999
and ending on the last day of the fiscal year most recently ended.
9.10. INTEREST COVERAGE. The Company will not permit the ratio of (a)
EBITDA for the four fiscal quarters then most recently ended to (b) Fixed
Charges on Total Debt of the Combined Group for that period to be less than 3.00
to 1.00.
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9.11. TOTAL DEBT AND SPECIAL DEBT. The Company will not at any time
create, incur, assume or suffer to exist any Total Debt of the Combined Group
other than Total Debt of the Combined Group which does not at any time exceed
the product of (a) 3.00 times (b) Adjusted EBITDA for the four consecutive
fiscal quarters then most recently ended. Until payment in full of the
Production Payment, the Production Payment shall be the only Special Debt
outstanding, and thereafter the aggregate principal amount of Special Debt shall
not exceed 15% of Consolidated Net Worth.
9.12. PRODUCTION PAYMENT. The Company will pay the Production Payment in
full no later than two weeks after the Date of Closing.
Section 10. DEFAULTS.
10.1. EVENTS OF DEFAULT. If one or more of the following events (herein
called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) the Company shall fail to pay any principal of any Loan, Reimbursement
Obligation, fee or other principal amount payable hereunder or under any other
Credit Document as and when due, or shall fail to pay any interest on any amount
hereunder or under any other Credit Document for more than three days after the
date due; or
(b) any member of the Combined Group shall default in any payment of
principal of or interest on any other obligation for money borrowed (or any
Capitalized Lease Obligation, any obligation under a conditional sale or other
title retention agreement, any obligation issued or assumed as full or partial
payment for property whether or not secured by a purchase money mortgage or any
obligation under notes payable or drafts accepted representing extensions of
credit) beyond any period of grace provided with respect thereto; or any member
of the Combined Group shall fail to perform or observe any other agreement, term
or condition contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is to
cause, or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become due prior
to any stated maturity; or any member of the Combined Group shall fail to pay
any Guaranty relating to Debt for borrowed money in accordance with its terms;
PROVIDED, in each case, that the aggregate amount of all obligations as to which
such a payment default shall occur and be continuing or such a failure or other
event causing or permitting acceleration shall occur and be continuing shall
exceed $10,000,000; or
(c) any representation or warranty made by the Company or any of its
officers in any Credit Document or in any other writing furnished to the Agent
or any Bank in connection with
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any Credit Document shall prove to have been false or misleading in any material
respect on the date as of which it was made; or
(d) the Company shall default in the performance of any of its obligations
under SECTIONS 9.6 through 9.12; or
(e) the Company shall default in the performance of any of its obligations
in any Credit Document other than those specified elsewhere in this SECTION 10.1
and such default shall not be remedied within 30 days after any executive
officer of the Company obtains actual knowledge thereof; or
(f) any member of the Combined Group shall make an assignment for the
benefit of creditors; generally fail to pay its debts as such debts become due;
or admit in writing its inability to generally pay its debts as such debts
become due; or
(g) a Governmental Authority shall enter any decree or order for relief in
respect of any member of the Combined Group under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, whether now or
hereafter in effect (herein called the "BANKRUPTCY LAW"); or
(h) any member of the Combined Group shall petition or apply for or
consent to the appointment of, or taking possession by, a trustee, receiver,
custodian, sequestrator, liquidator or other similar official of or for itself
or any substantial part of its assets, or shall commence a voluntary case under
any Bankruptcy Law or any proceedings (other than proceedings for the voluntary
liquidation and dissolution of a Restricted Subsidiary) relating to any member
of the Combined Group under any Bankruptcy Law; or
(i) any such petition or application referred to in SECTION 10.1(H) shall
be filed, or any such proceeding referred to in SECTION 10.1(H) shall be
commenced, against any member of the Combined Group and such member of the
Combined Group by any act shall indicate its approval thereof, consent thereto
or acquiescence therein; or an order, judgment or decree shall be entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings, and such order,
judgment or decree shall remain unstayed and in effect for more than 60
consecutive days; or
(j) any order, judgment or decree shall be entered in any proceedings
against any member of the Combined Group decreeing the dissolution or
liquidation of any member of the Combined Group and such order, judgment or
decree shall remain unstayed and in effect for more than the appeal time
provided by law; or
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(k) any order, judgment or decree shall be entered in any proceedings
against any member of the Combined Group decreeing a split-up of such member of
the Combined Group which requires (1) the divestiture of assets which exceed, or
the divestiture of the stock of a Restricted Subsidiary whose assets exceed, 10%
of Consolidated Net Tangible Assets as of the end of the fiscal quarter
immediately preceding or coinciding with such divestiture or (2) the divestiture
of assets or stock of a Restricted Subsidiary which shall have contributed more
than 10% of EBITDA for the four most recently completed fiscal quarters, and
such order, judgment or decree shall remain unstayed and in effect for more than
60 consecutive days; or
(l) any judgment or order, or series of judgments or orders, for the
payment of money in an amount in excess of $10,000,000 shall be rendered against
any member of the Combined Group and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within the appeal time provided by law from the date of
entry thereof, or such member of the Combined Group shall not, within said
appeal time, or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(m) the Company or any ERISA Affiliate shall fail to pay when due any
amount or amounts aggregating in excess of $10,000,000 which it shall have
become liable to pay with respect to any Plan; or notice of intent to terminate
a Plan or Plans (other than a multiemployer plan under Section 4001(a)(3) of
ERISA) having aggregate Unfunded Liabilities in excess of $10,000,000 shall be
filed under Title IV of ERISA by the Company or any ERISA Affiliate, any plan
administrator or any combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any Plan or Plans (other than a multiemployer plan under
Section 4001(a)(3) of ERISA) having aggregate Unfunded Liabilities in excess of
$10,000,000 or a proceeding shall be instituted by a fiduciary of any such Plan
or Plans against the Company or any ERISA Affiliate to enforce Section 515 or
4219(c)(5) of ERISA; or the Company or any ERISA Affiliate shall incur a
complete or partial withdrawal liability under Title IV of ERISA in an annual
amount in excess of $2,000,000 (and in the aggregate $10,000,000 in connection
with any Plan; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Plan or Plans having aggregate
Unfunded Liabilities in excess of $10,000,000 must be terminated; or there shall
occur any event or condition that might reasonably constitute grounds for the
termination of any Plan or Plans having aggregate Unfunded Liabilities in excess
of $10,000,000 or with respect to such Plan or Plans either the imposition of
any liability in excess of $10,000,000 (other than contributions in the ordinary
course) or any Lien provided under Section 4068 of ERISA securing an amount in
excess of $10,000,000 on any property of the Company or any ERISA Affiliate;
PROVIDED, HOWEVER, that any amounts owing by SFER pursuant to the Monterey ERISA
Indemnification Agreement shall be deducted from the dollar threshold amounts
set forth above in determining whether any such condition or event constitutes
an Event of Default under this paragraph; or
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(n) one or more demands for payment is made upon the Company by SFER or
any other Person pursuant to the Spin-Off Tax Indemnification Agreement and such
demands exceed $5,000,000 in the aggregate; or
(o) one or more demands for payment are made upon the Company by SFER or
any other Person pursuant to the Original Spin-Off Tax Indemnification
Agreement, which payments, if made, would exceed $5,000,000 in the aggregate; or
(p) any Change of Control shall occur;
THEREUPON: (I) the Agent may (and, if directed by the Required Banks, shall) do
any or all of the following: (a) declare the Commitments terminated (whereupon
the Commitments shall be terminated); (b) terminate any Letter of Credit
pursuant to which such termination is permitted; (c) declare the unpaid amount
of the Loans (principal and accrued and unpaid interest) and all Reimbursement
Obligations, fees and other amounts payable under the Credit Documents to be
forthwith due and payable, whereupon such amounts shall be and become
immediately due and payable, without notice (including notice of acceleration
and notice of intent to accelerate), presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly WAIVED by the Company
to the extent permitted by law; PROVIDED that in the case of the occurrence of
an Event of Default with respect to the Company referred to in SECTION 10.1(G)
through (I), the Commitments shall be automatically terminated and the unpaid
amount of the Loans (principal and accrued and unpaid interest) and all
Reimbursement Obligations, fees and all other amounts payable under the Credit
Documents shall be and become automatically and immediately due and payable,
without notice (including notice of intent to accelerate and to the extent
permitted by the law, notice of acceleration) and without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
WAIVED by the Company; and (d) require Cover for all Letter of Credit
Liabilities; (II) each Bank may exercise its rights of offset against each
account and all other property of the Company in the possession of such Bank,
which right is hereby granted by the Company to the Banks; and (III) the Agent
and each Bank may exercise any and all other rights available to them pursuant
to the Credit Documents, at law and in equity.
Section 11. THE AGENT.
11.1. APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby irrevocably
appoints and authorizes the Agent to act as its agent under the Credit Documents
with such powers as are specifically delegated to the Agent by the terms
thereof, together with such other powers as are reasonably incidental thereto.
The Agent (which term as used in this SECTION 11 shall include reference to its
Affiliates and its own and its Affiliates' officers, directors, employees and
agents) (a) shall have no duties or responsibilities except those expressly set
forth in the Credit Documents and shall not by reason of any Credit Document be
a trustee or fiduciary for any Bank; (b) shall
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not be responsible to any Bank for any recitals, statements, representations or
warranties contained in any Credit Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, any
Credit Document, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any Credit Document or any other document
referred to or provided for therein or any property covered thereby or for any
failure by the Company or any other Person to perform any of its obligations
thereunder; (c) shall not be required to initiate or conduct any enforcement,
litigation or collection proceedings hereunder or under any Credit Document
except to the extent requested by the Required Banks (and SECTION 11.7 shall
apply), and (d) SHALL NOT BE RESPONSIBLE TO ANY BANK FOR ANY ACTION taken or
omitted to be taken by it under any Credit Document or any other document or
instrument referred to or provided for therein or in connection therewith,
INCLUDING ANY SUCH ACTION PURSUANT TO ITS OWN NEGLIGENCE, except for its own
gross negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
Without in any way limiting any of the foregoing, each Bank acknowledges that
the Agent shall have no greater responsibility in the operation of the Letters
of Credit than is specified in the Uniform Customs and Practice of Documentary
Credits (1993 Revision, International Chamber of Commerce Publication No. 500).
11.2. RELIANCE BY AGENT. The Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, facsimile, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (which may be counsel
for the Company), independent accountants and other experts selected by the
Agent. As to any matters not expressly provided for by any Credit Document, the
Agent shall in all cases be fully protected in acting, or in refraining from
acting, in accordance with instructions of the Required Banks, and any action
taken or failure to act pursuant thereto shall be binding on all of the Banks.
11.3. DEFAULTS. The Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the nonpayment of Loans, Reimbursement
Obligations, Commitment Fee or Letter of Credit Fee) unless it has received
notice from a Bank or the Company specifying such Default and stating that such
notice is a "Notice of Default". In the event that the Agent receives such a
notice of the occurrence of a Default, the Agent shall give prompt notice
thereof to the Banks (and shall give each Bank prompt notice of each such
nonpayment). The Agent shall (subject to SECTIONS 11.7 and 12.5) take such
action with respect to such Default as shall be directed by all Banks or the
Required Banks, as appropriate, and within its rights under the Credit Documents
and at law or in equity; PROVIDED that, unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, permitted hereby with respect
to such Default as it shall deem advisable in the best interests of the Banks
and within its rights under the Credit Documents, at law or in equity, and shall
be fully protected in doing so.
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11.4. RIGHTS AS A BANK. With respect to its Commitment, Loans and Letter
of Credit Liabilities, Chase in its capacity as a Bank hereunder shall have the
same rights and powers under the Credit Documents as any other Bank and may
exercise the same as though it were not acting as the Agent, and the term "Bank"
or "Banks" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. The Agent may (without having to account therefor to
any Bank) accept deposits from, lend money to and generally engage in any kind
of banking, trust, letter of credit, agency or other business with the Company
(and any of its Affiliates) as if it were not acting as the Agent, and the Agent
may accept fees and other consideration from the Company and its Affiliates (in
addition to the fees heretofore agreed to between the Company and the Agent) for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks. Without limiting the rights and remedies of
the Banks specifically set forth herein, no other Bank by virtue of being a Bank
hereunder shall have any interest in any such activities, any present or future
guaranty by or for the account of the Company, any present or future offset
exercised by the Agent in respect of any such other activities, or any present
or future property at any time taken as security for any such other activities;
provided, however, that if any payment in respect of such guaranties or such
property or the proceeds thereof shall be applied to the Obligations, then each
Bank shall be entitled to share in such application pro rata according to its
portion of the Obligations.
11.5. INDEMNIFICATION. THE BANKS SHALL INDEMNIFY THE AGENT AND EACH OTHER
INDEMNIFIED PERSON (TO THE EXTENT NOT REIMBURSED UNDER SECTION 12.3 OR 12.4, BUT
WITHOUT LIMITING THE OBLIGATIONS OF THE COMPANY UNDER SAID SECTIONS 12.3 AND
12.4), RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENT PERCENTAGES, FOR
ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND AND NATURE
WHATSOEVER (INCLUDING THE CONSEQUENCES OF THE NEGLIGENCE OF THE AGENT OR ANY
OTHER INDEMNIFIED PERSON) WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST THE AGENT OR ANY INDEMNIFIED PERSON IN ANY WAY RELATING TO OR ARISING
OUT OF ANY CREDIT DOCUMENT (AS DEFINED HEREIN) OR ANY OTHER DOCUMENTS
CONTEMPLATED BY OR REFERRED TO THEREIN OR THE TRANSACTIONS CONTEMPLATED BY ANY
CREDIT DOCUMENT (INCLUDING THE COSTS AND EXPENSES WHICH THE COMPANY IS OBLIGATED
TO PAY UNDER SECTIONS 12.3 AND 12.4 BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED
AND IS CON TINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE
PERFORMANCE OF ITS DUTIES UNDER THE CREDIT DOCUMENT) OR THE ENFORCEMENT OF ANY
OF THE TERMS OF ANY CREDIT DOCUMENT OR OF ANY
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SUCH OTHER DOCUMENTS; PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY OF THE
FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE PARTY TO BE INDEMNIFIED. The obligations of the Banks under
this SECTION 11.5 shall survive the termination of this Agreement.
11.6. NON-RELIANCE ON THE AGENT AND OTHER BANKS. Each Bank agrees that it
has received current financial information with respect to the Company and its
Subsidiaries and that it has, independently and without reliance on the Agent or
any other Bank and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Company and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Credit Documents. The Agent
shall not be required to keep itself informed as to the performance or
observance by the Company of any Credit Document or any other document referred
to or provided for therein or to inspect the property or books of the Company or
any other Person. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the Agent under
the Credit Documents, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of the Company (or any of its Affiliates) which
may come into the possession of the Agent.
11.7. FAILURE TO ACT. Except for action expressly required of the Agent
under the Credit Documents, the Agent shall in all cases be fully justified in
failing or refusing to act under the Credit Documents unless it shall have
received further assurances to its satisfaction by the Banks of their
indemnification obligations under SECTION 11.5 against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action.
11.8. RESIGNATION OR REMOVAL OF THE AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and the Company, and the Agent may be
removed at any time with or without cause by the Required Banks. Upon any such
resignation or removal, the Required Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Banks and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation or the Required Banks' removal
of the retiring Agent, the retiring Agent may, on behalf of the Banks, appoint a
successor Agent. Any successor Agent shall be a bank which has an office in the
United States and a combined capital and surplus of at least $250,000,000 and
with its deposits insured by the FDIC. Upon the acceptance of any such
appointment, the successor Agent shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under the Credit
Documents. Such successor Agent shall promptly specify
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its Principal Office referred to in SECTIONS 3.1 and 5.1 by notice to the
Company and the Banks. After any retiring Agent's resignation or removal
hereunder as the Agent, the provisions of this SECTION 11 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent.
Section 12. MISCELLANEOUS.
12.1. WAIVER. No waiver of any Default shall be a waiver of any other
Default. No failure on the part of the Agent or any Bank to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under any Credit Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided in the Credit Documents are
cumulative and not exclusive of any remedies provided by law or in equity.
12.2. NOTICES. All notices and other communications provided for in the
Credit Documents (including any modifications of, or waivers or consents under,
this Agreement) shall be in writing and (a) delivered against receipt therefor,
(b) sent by overnight courier (such as Federal Express), charges prepaid, (c)
mailed by registered or certified mail, return receipt requested, postage
prepaid, or (d) given or made by telegraph, telecopy (confirmed by mail), cable
or other writing, in each case addressed to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof;
or, as to any party, at such other address as shall be designated by such party
in a notice to the Company and the Agent given in accordance with this SECTION
12.2. Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given when delivered; on the Business Day
following delivery to an overnight courier; when transmitted before 5 p.m. on a
Business Day by telecopier or delivered to the telegraph or cable office (when
transmitted after 5 p.m. on a Business Day, at 9 a.m. on the next Business Day);
or on the second Business Day after its deposit in the mails; PROVIDED, HOWEVER,
that notices required or permitted by SECTION 5.5 shall be effective only when
actually received by the Agent. Actual notice shall always be effective.
12.3. EXPENSES. Whether or not any Loan is ever made or any Letter of
Credit ever issued, the Company shall pay or reimburse on demand each of the
Banks and the Agent for paying: (a) the reasonable fees and expenses of Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., special counsel to the Agent, in connection
with (1) the preparation, execution and delivery of the Credit Documents
(including exhibits and schedules) and the making of the Loans and the issuance
of Letters of Credit hereunder and (2) any modification, supplement or waiver of
any of the terms of any Credit Document; (b) all reasonable out-of-pocket costs
and expenses of the Banks or the Agent (including reasonable counsels' fees) in
connection with any Event of Default or the enforcement of any Credit Document;
(c) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of any Credit
Document or any other document referred to therein; (d) all costs, expenses,
taxes, assessments and other charges incurred in connection with any filing or
registration contemplated by any Credit
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Document or any document referred to therein; and (e) reasonable expenses of due
diligence and syndication, and mutually agreed advertising and marketing costs.
12.4. INDEMNIFICATION.
(I) TO THE FULLEST EXTENT PERMITTED BY LAW, THE COMPANY SHALL INDEMNIFY
THE AGENT (INCLUDING THE AGENT WHEN ACTING AS ISSUER OF LETTERS OF CREDIT), EACH
BANK AND EACH OTHER INDEMNIFIED PERSON FROM, AND HOLD EACH OF THEM HARMLESS
AGAINST, ANY AND ALL LOSSES, LIABILITIES, COSTS, EXPENSES, CLAIMS OR DAMAGES TO
WHICH ANY OF THEM MAY BECOME SUBJECT, REGARDLESS OF AND INCLUDING LOSSES,
LIABILITIES, COSTS, EXPENSES, CLAIMS AND DAMAGES ARISING FROM THE NEGLIGENCE OF
THE AGENT OR THE BANKS OR ANY OTHER INDEMNIFIED PERSON, INSOFAR AS SUCH LOSSES,
LIABILITIES, COSTS, EXPENSES, CLAIMS OR DAMAGES ARISE OUT OF OR IN CONNECTION
WITH (A) ANY ACTUAL OR PROPOSED USE BY THE COMPANY OF THE PROCEEDS OF ANY
EXTENSION OF CREDIT UNDER THIS AGREEMENT; (B) ANY BREACH BY THE COMPANY OF ANY
CREDIT DOCUMENT (AS DEFINED HEREIN); (C) ANY VIOLATION BY THE COMPANY OR ANY OF
ITS SUBSIDIARIES OF ANY LEGAL REQUIREMENT, INCLUDING, WITHOUT LIMITATION,
APPLICABLE ENVIRONMENTAL LAWS; (D) ANY ENVIRONMENTAL CLAIMS OR (E) ANY
INVESTIGATION, LITIGATION OR OTHER PROCEEDING (INCLUDING ANY THREATENED
INVESTIGATION OR PROCEEDING) RELATING TO ANY OF THE FOREGOING, AND THE COMPANY
SHALL REIMBURSE EACH INDEMNIFIED PERSON, UPON DEMAND, FOR ANY EXPENSES
(INCLUDING REASONABLE LEGAL FEES) INCURRED IN CONNECTION WITH ANY SUCH
INVESTIGATION OR PROCEEDING; BUT EXCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS,
DAMAGES, COSTS OR EXPENSES INCURRED BY SUCH INDEMNIFIED PERSON BY REASON OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNIFIED PERSON.
(II) TO THE EXTENT PERMITTED BY LAW, THE COMPANY SHALL INDEMNIFY THE AGENT
(INCLUDING THE AGENT WHEN ACTING AS ISSUER OF LETTERS OF CREDIT), AND EACH OTHER
INDEMNIFIED PERSON FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES, COSTS, EXPENSES, CLAIMS OR DAMAGES TO WHICH ANY OF THEM MAY
BECOME SUBJECT, REGARDLESS OF AND INCLUDING LOSSES, LIABILITIES, COSTS,
EXPENSES, CLAIMS AND DAMAGES ARISING FROM THE NEGLIGENCE OF THE AGENT OR THE
BANKS OR ANY OTHER INDEMNIFIED PERSON, IN CONNECTION WITH THE EXECUTION AND
DELIVERY OR TRANSFER OF OR
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PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT, INCLUDING, WITHOUT
LIMITATION, ANY CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS OR EXPENSES WHICH
THE AGENT, OR SUCH OTHER INDEMNIFIED PERSON, AS THE CASE MAY BE, MAY INCUR
(WHETHER INCURRED AS A RESULT OF ITS OWN NEGLIGENCE OR OTHERWISE) BY REASON OF
OR IN CONNECTION WITH THE FAILURE OF ANY OTHER BANK (WHETHER AS A RESULT OF ITS
OWN NEGLIGENCE OR OTHERWISE) TO FULFILL OR COMPLY WITH ITS OBLIGATIONS TO THE
AGENT OR ANY BANK, AS THE CASE MAY BE, WITH RESPECT TO SUCH LETTER OF CREDIT
HEREUNDER (BUT NOTHING HEREIN CONTAINED SHALL AFFECT THE RIGHTS THE COMPANY MAY
HAVE AGAINST SUCH DEFAULTING BANK); BUT EXCLUDING ANY SUCH LOSSES, LIABILITIES,
CLAIMS, DAMAGES, COSTS OR EXPENSES INCURRED BY SUCH INDEMNIFIED PERSON BY REASON
OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNIFIED PERSON.
(III) The obligation of the Company to provide indemnification under this
SECTION 12.4 for fees and expenses of counsel shall be limited to the reasonable
fees and expenses of one counsel in each jurisdiction representing all of the
Persons entitled to such indemnification, except to the extent that, in the
reasonable judgment of any such Indemnified Person, the existence of actual or
potential conflicts of interest make representation of all of such indemnified
Persons by the same counsel inappropriate; in such a case, the Person exercising
such judgment shall be indemnified for the reasonable fees and expenses of its
separate counsel to the extent provided in this SECTION 12.4 without giving
effect to the first clause of this sentence. Nothing in this SECTION 12.4 is
intended to limit the obligations of the Company under any other provision of
this Agreement.
12.5. AMENDMENTS, ETC. No amendment or waiver of any provision of any
Credit Document, nor any consent to any departure by the Company therefrom,
shall in any event be effective unless the same shall be agreed or consented to
by the Required Banks and the Company, as appropriate, and each such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; PROVIDED that no amendment, waiver or consent shall,
unless in writing and signed by each Bank affected thereby, do any of the
following: (a) increase the Commitment of any of the Banks or subject any Bank
to any additional obligation; (b) reduce the principal of, or interest on, any
Loan, Reimbursement Obligation, fee or other sum to be paid under any Credit
Document; (c) postpone any scheduled date fixed for any payment of principal of,
or interest on, any Loan, Reimbursement Obligation, fee or other sum to be paid
under any Credit Document; (d) change the percentage of the Aggregate
Commitment, or of the aggregate unpaid principal amount of any of the Loans, or
the number of Banks, which shall be required for the Banks or any of them to
take any action under this Agreement or any other Credit Document; or (e) change
any provision contained in SECTIONS 2.3, 5.2, 5.7, 6, 12.3 or 12.4 or this
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SECTION 12.5. Anything in this SECTION 12.5 to the contrary, no amendment,
waiver or consent shall be made with respect to SECTION 11 without the consent
of the Agent.
12.6. SUCCESSORS AND ASSIGNS.
(a) This Agreement and the other Credit Documents shall be binding
upon and inure to the benefit of the Company, the Agent and the Banks and their
respective successors and assigns. The Company may not assign or transfer any of
its rights or obligations under any of the Credit Documents without the prior
written consent of all of the Banks.
(b) Each Bank may sell participations to any Person in all or part
of its Loans, Reimbursement Obligations, Note and Commitment, in which event,
without limiting the foregoing, the provisions of SECTION 6 shall inure to the
benefit of each purchaser of a participation and the PRO RATA treatment of
payments, as described in SECTION 5.2, shall be determined as if such Bank had
not sold such participation. In the event any Bank shall sell any participation,
(1) the Company, the Agent and the other Banks shall continue to deal solely and
directly with such selling Bank in connection with such selling Bank's rights
and obligations under the Credit Documents (including the Note held by such
selling Bank); (2) such Bank shall retain the sole right and responsibility to
enforce the obligations of the Company under the Credit Documents, including the
right to approve any amendment, modification or waiver of any provision of this
Agreement or any other Credit Document other than amendments, modifications or
waivers with respect to (A) any fees payable hereunder to the Banks and (B) the
amount of principal or the rate of interest payable on, or the dates fixed for
the scheduled repayment of principal of, the Loans, Reimbursement Obligations
and other sums to be paid to the Banks under the Credit Documents, and (3) the
Company agrees, to the fullest extent it may effectively do so under applicable
law, that any participant of a Bank may exercise all rights of set-off, bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such participant were a direct holder of Loans and Reimbursement
Obligations if such Bank has previously given notice of the sale of such
participation to the Company.
(c) Each Bank may assign to one or more Banks or Eligible Assignees
all or a portion of its interests, rights and obligations under this Agreement
and the other Credit Documents (including all or a portion of its Commitment and
the same portion of the Loans and Letter of Credit Advances at the time owing to
it and of its outstanding Letter of Credit Liabilities at the time and the Note
held by it); PROVIDED THAT (1) other than in the case of an assignment to a
Person at least 50% owned by the assignor Bank, or by a common parent of both,
or to another Bank, the Agent and the Company must give their respective prior
written consent, which consent will not be unreasonably withheld; (2) the
aggregate amount of the Commitment, Loans and outstanding Letter of Credit
Liabilities of the assigning Bank subject to each such assignment (determined as
of the date the Assignment Agreement with respect to such assignment is
delivered to the Agent) shall in no event be less than $10,000,000 (or
$1,000,000 in the case of an
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assignment between Banks) (except for certain exceptions approved by the Company
and the Agent or where all of a Bank's Commitment, Loans and outstanding Letter
of Credit Liabilities are being assigned) and shall be in an amount that is an
integral multiple of $1,000,000 (except for certain exceptions approved by the
Company and the Agent or where all of a Bank's Commitment, Loans and outstanding
Letter of Credit Liabilities are being assigned); and (3) the parties to each
such assignment shall execute and deliver to the Agent, for its acceptance and
recording in its records, an Assignment Agreement with blanks appropriately
completed, together with the Note subject to such assignment and a processing
and recordation fee of $2,500 (for which the Company shall have no liability
except in the case of assignments required by the Company pursuant to SECTION
6.1, 6.3, 6.6 or 6.7, in which case such fee shall be paid by the Company). Upon
such execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment Agreement, which shall be at least five
Business Days after the date of execution thereof (unless otherwise agreed by
the parties thereto and the Agent), (A) the assignee thereunder shall be a party
to this Agreement and, to the extent provided in such Assignment Agreement, have
the rights and obligations of a Bank under the Credit Documents, and (B) the
Bank making such assignment shall, to the extent provided in such Assignment
Agreement, be released from its obligations under this Agreement and the other
Credit Documents (and, in the case of an Assignment Agreement covering all or
the remaining portion of an assigning Bank's rights and obligations under this
Agreement, such Bank shall cease to be a party hereto) but shall be entitled to
the benefit of this Agreement and the other Credit Documents for matters
occurring during the time it was a Bank under this Agreement.
(d) By executing and delivering an Assignment Agreement, the
assigning Bank and the assignee thereunder confirm to and agree with each other
and the other parties to this Agreement as follows: (1) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such
assigning Bank makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with any Credit Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Credit Document; (2)
such assigning Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company or the
performance or observance by the Company of any of its obligations under any
Credit Document; (3) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements of the Company
previously delivered by the Company in accordance herewith and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment Agreement; (4) such assignee
will, independently and without reliance upon the Agent, such assigning Bank or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Documents; (5) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Credit Documents as are delegated to the Agent by the
terms
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hereof, together with such powers as are reasonably incidental thereto, and (6)
such assignee agrees that it will perform in accordance with their terms all
obligations that by the terms of the Credit Documents are required to be
performed by it as a Bank.
(e) The Agent shall maintain at its office a copy of each Assignment
Agreement delivered to it and a record of the names and addresses of the Banks
and the Commitment of, and the principal amount of the Loans and Letter of
Credit Advances owing to, and the outstanding Letter of Credit Liabilities of,
each Bank from time to time. The entries in such record shall be conclusive, in
the absence of manifest error, and the Company, the Agent and the Banks may
treat each Person the name of which is recorded therein as a Bank hereunder for
all purposes of the Credit Documents. Such records shall be available for
inspection by the Company or any Bank at any reasonable time and from time to
time upon reasonable prior notice.
(f) Upon its receipt of an Assignment Agreement executed by an
assigning Bank and the assignee thereunder together with the Note subject to
such assignment, any required consent to such assignment and the fee payable in
respect thereto, the Agent shall, if such Assignment Agreement has been
completed with blanks appropriately filled, (1) accept such Assignment
Agreement; (2) record the information contained therein in its records, and (3)
give prompt notice thereof to the Company. Contemporaneously with the receipt by
the Agent of an Assignment Agreement, the Company, at its own expense, shall
execute and deliver to the Agent in exchange for each surrendered Note a new
Note payable to the order of such assignee in an amount equal to the Commitment
and/or Loans assumed by it pursuant to such Assignment Agreement and, if the
assigning Bank has retained any Commitment and/or Loans hereunder, a new Note
payable to the order of the assignor Bank in an amount equal to the Commitment
and/or Loans retained by it. Such new Notes shall be in an aggregate face amount
equal to the face amount of each surrendered Note, shall be dated the effective
date of such Assignment Agreement and shall otherwise be in substantially the
form of the surrendered Note. Thereafter, the surrendered Note shall be marked
canceled and returned to the Company.
(g) Any Bank may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this SECTION 12.6, disclose
to the assignee or participant or proposed assignee or participant any
information relating to the Company furnished to such Bank by or on behalf of
the Company.
(h) Notwithstanding anything herein to the contrary, each Bank may
pledge and assign all or any portion of its rights and interests under the
Credit Documents to any Federal Reserve Bank. No such assignment shall release
the assigning Bank from its obligations hereunder.
(i) All transfers of any interest in any Note hereunder shall be in
compliance with all federal and state securities laws, if applicable.
Notwithstanding the foregoing sentence,
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however, the parties to this Agreement do not intend that any transfer under
this SECTION 12.6 be construed as a "purchase" or "sale" of a "security" within
the meaning of any applicable federal or state securities laws.
(j) Notwithstanding any other provision of this SECTION 12.6 (except
SUBSECTION (H)), Chase and its Affiliates may not make any assignment of their
rights hereunder which would reduce their aggregate Commitment Percentages below
10%.
12.7. SURVIVAL; TERMINATION; REINSTATEMENT.
(a) In addition to the other provisions of the Credit Documents
expressly stated to survive the termination of this Agreement, the obligations
of the Company under SECTIONS 6, 12.3 and 12.4 and the last sentence of this
SECTION 12.7 and the obligations of the Banks under SECTIONS 11.5, 12.8 and
12.12 shall survive the termination of this Agreement.
(b) This Agreement shall terminate upon (i) the full and final
payment of all Notes and Reimbursement Obligations, (ii) the expiry of all
Letters of Credit, (iii) the termination of all Commitments and (iv) the payment
of all non-contingent amounts due under the Credit Documents. Notwithstanding
the foregoing, if all conditions to the termination of this Agreement set forth
in this SECTION 12.7(B) shall have been satisfied other than the expiry of all
Letters of Credit, and all outstanding Letters of Credit shall have been fully
Covered or shall be backed by a letter of credit in Proper Form issued by an
issuer acceptable to the Issuer in its sole discretion, the Company shall in
such event no longer be required to comply with SECTION 9.
(c) If at any time all or any part of any payment previously applied
by the Agent or any Bank to any Loan, Reimbursement Obligation or other sum
hereunder is or must be returned by or recovered from the Agent or such Bank for
any reason (including the order of any bankruptcy court), to the extent
permitted by law, the Credit Documents shall automatically be reinstated to the
same effect as if such prior application had not been made, and the Company
shall indemnify the Agent or such Bank against, and save and hold the Agent and
such Bank harmless from, any required return by or recovery from the Agent or
such Bank of any such payment because of its being deemed preferential under any
applicable Legal Requirement or for any other reason.
12.8. LIMITATION OF INTEREST. The parties to the Credit Documents intend
to strictly comply with all applicable laws, including applicable usury laws.
Accordingly, the provisions of this SECTION 12.8 shall govern and control over
every other provision of any Credit Document which conflicts or is inconsistent
with this SECTION 12.8, even if such provision declares that it controls. To the
maximum extent permitted by applicable law, (a) any non-principal payment shall
be characterized as an expense or as compensation for something other than the
use, forbearance or detention of money and not as interest and (b) all interest
at any time contracted for, taken,
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reserved, retained, charged or received shall be amortized, prorated, allocated
and spread, in equal parts, during the full term of the Loans and the
Commitments. In no event shall the Company or any other Person be obligated to
pay, or the Agent or any Bank have any right or privilege to reserve, take,
receive or retain, any interest in excess of the maximum amount of nonusurious
interest permitted under applicable law. If the term of any of the Notes is
shortened by reason of acceleration of maturity as a result of any Default or by
any other cause, or by reason of any required or permitted prepayment, and if
for that (or any other) reason the Agent or any Bank at any time, including the
stated maturity, is owed or receives (and/or has reserved, taken or received)
interest in excess of interest calculated at the Highest Lawful Rate, then and
in any such event all of any such excess interest shall be canceled
automatically as of the date of such accelera tion, prepayment or other event
which produces the excess, and, if such excess interest has been paid to the
Agent or such Bank, it shall be credited PRO TANTO against the then-outstanding
principal balance of the Company's obligations to the Agent or such Bank,
effective as of the date or dates when the event occurs which causes it to be
excess interest, until such excess is exhausted or all of such principal has
been fully paid and satisfied, whichever occurs first, and any remaining balance
of such excess shall be promptly refunded to its payor.
12.9. CAPTIONS. Captions and section headings appearing in the Credit
Documents are included solely for convenience and shall not be considered in
construing the Credit Documents.
12.10. COUNTERPARTS. Each Credit Document may be executed in any number of
identical counterparts, and by the parties on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts together shall constitute but one
and the same agreement.
12.11.GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(A) EXCEPT TO THE EXTENT OTHERWISE SPECIFIED IN THE CREDIT DOCUMENTS, EACH
CREDIT DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK (TO THE EXTENT PERMITTED BY LAW, OTHER THAN ITS
CONFLICT OF LAW RULES) AND THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA. ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE COMPANY HEREBY IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE
COMPANY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION
SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK,
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NEW YORK 10019 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND
ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF
ANY AND ALL LEGAL PROCESS, SUMMONSES, NOTICES AND DOCUMENTS WHICH MAY BE SERVED
IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND
AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH OR THE COMPANY DESIRES TO
DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT, THE COMPANY AGREES TO DESIGNATE A
NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK, NEW YORK ON THE TERMS AND FOR THE
PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT UNDER THIS AGREEMENT. THE
COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS
ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE
TEN DAYS AFTER SUCH MAILING. NOTHING IN THIS AGREEMENT SHALL AFFECT THE RIGHT OF
THE AGENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO THE EXTENT PERMITTED BY LAW TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE TO PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
(B) TO THE EXTENT PERMITTED BY LAW, EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE IN ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN
THE NEW YORK COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(C) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED BY ANY CREDIT DOCUMENT.
12.12.CONFIDENTIALITY. Each Bank agrees to exercise its best efforts to
keep any information delivered or made available by the Company to it (including
any information obtained pursuant to SECTION 9.1) which is clearly indicated to
be confidential information, confidential from anyone other than Persons
employed or retained by such Bank who are or are expected to
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become engaged in evaluating, approving, structuring or administering the Loans
or the Letters of Credit; PROVIDED that nothing herein shall prevent any Bank
from disclosing such information (a) to any other Bank, (b) pursuant to subpoena
or upon the order of any court or administrative agency, (c) upon the request or
demand of any regulatory agency or authority having jurisdiction over such Bank,
(d) which has been publicly disclosed, (e) to the extent reasonably required in
connection with any litigation to which the Agent, any Bank, or their respective
Affiliates may be a party, (f) to the extent reasonably required in connection
with the exercise of any remedy hereunder or under any other Credit Document,
(g) to such Bank's legal counsel and independent auditors and (h) to any actual
or proposed participant or assignee of all or part of its rights hereunder which
has agreed in writing to be bound by the provisions of this SECTION 12.12. Each
Bank will promptly notify the Company of any information that it is required or
requested to deliver pursuant to CLAUSE (B) OR (C) of this SECTION 12.12 and, if
the Company is not a party to any such litigation, CLAUSE (E) of this SECTION
12.12.
12.13.ENTIRE AGREEMENT. This Agreement and the other Credit Documents
embody the entire agreement among the parties with respect to their subject
matter and supersede all prior proposals, agreements and understandings related
to the subject matter of this Agreement and the other Credit Documents.
12.14.BORROWING BY SFER.
At any time or from time to time during the period and subject to the
terms and conditions specified in APPENDIX A to this Agreement, but no later
than the closing date of the IPO, SFER may obtain Loans from the Banks under
SECTION 2.1 (but not the issuance of Letters of Credit under SECTION 2.2), as if
it were (and in place of) the Company. THE COMPANY RECOGNIZES THAT IT SHALL HAVE
NO RIGHT TO OBTAIN ANY LOAN OR LETTER OF CREDIT UNDER THIS AGREEMENT OR THE
NOTES UNLESS AND UNTIL THE OCCURRENCE OF THE RELEASE DATE (AS DEFINED IN
APPENDIX A). All Loans to SFER shall be evidenced by notes executed by SFER,
payable to the order of the Banks. By their signatures on the signature pages
hereof, the Company, the Agent and the Banks agree to all terms and conditions
of said APPENDIX A, which is hereby incorporated in this Agreement by this
reference as fully as if set forth at length at this place. SECTION 1.1
notwithstanding, as used in APPENDIX A but not elsewhere in this Agreement,
terms defined in APPENDIX A shall have the meanings therein ascribed to them.
Upon the occurrence of the Release Date (as defined in APPENDIX A), (a) this
SECTION 12.14 and APPENDIX A shall each be null and void and of no further force
or effect and cease to form any part of this Agreement, (b) no Bank shall have
any further Commitment to SFER, and (c) SFER shall have no right to obtain Loans
or further obligations to the Agent or the Banks under this Agreement or
APPENDIX A.
12.15.CONSTRUCTION. The parties agree that this Agreement and the other
Credit Documents were negotiated agreements and accordingly no presumption shall
attach based on the identity of the drafting party.
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12.16.SEVERABILITY. Whenever possible, each provision of the Credit
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Credit Document shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions of such Credit Document
shall not be affected or impaired thereby.
12.17.WAIVER. The Banks consent to Chase's serving as Agent under the
Credit Agreement of even date herewith by and among Santa Fe Energy Resources,
Inc., the financial institutions party thereto and Chase as the Agent (as
amended, modified, supplemented and restated and from time to time in effect the
"SANTA FE CREDIT AGREEMENT"), WAIVE any conflict of interest in connection
therewith, and agree that Chase may exercise its rights and remedies as the
Agent under this Agreement and under the Santa Fe Credit Agreement and at law,
all as Chase may in its sole discretion deem appropriate.
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IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed and delivered.
MONTEREY RESOURCES, INC.,
a Delaware corporation
By: /s/ TERRY L. ANDERSON
Terry L. Anderson, Secretary
Address for Notices:
Monterey Resources, Inc.
5201 Truxtun Avenue, Suite 100
Bakersfield, California 93309
Telecopy: (805) 633-3191
Attention: Treasurer
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THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By: /s/ MARTHA FETNER
Vice President
Address for Notices:
Domestic and Eurodollar
Lending Offices: The Chase Manhattan Bank
c/o Texas Commerce Bank National Association
707 Travis, 5 TCBN-86
COMMITMENT: $75,000,000 Houston, Texas 77002
Telephone: (713) 216-4316
Telecopy: (713) 216-4117
Attention: James C. Nicholas
The Chase Manhattan Bank
1 Chase Manhattan Plaza, 3rd Floor
New York, New York 10081
Telephone: (212) 552-3165
Telecopy: (212) 552-1687
Attention: David R. D'Amico, Operations Officer
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PRICING SCHEDULE
APPENDIX A
EXHIBITS:
A - Form of Note
B - Form of Request for Extension of Credit
C - Form of Assignment Agreement
D - Form of Application
E - Form of Rate Designation Notice
SCHEDULES:
I - Restricted and Unrestricted Subsidiaries
II - Liens and Funded Debt
III - Opinion of Andrews & Kurth L.L.P.
IV - Opinion of Terry L. Anderson
V - Subordination Provisions
VI - Jurisdictions for which Certificates are to be Provided
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-16643) of Monterey Resources, Inc. of our report
dated February 20, 1997 appearing on page 27 of this Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
March 7, 1997
EXHIBIT 23.2
CONSENT OF EXPERTS
As petroleum engineers, we hereby consent to the incorporation by reference
in the Prospectus constituting part of the Registration Statement on Form S-8
(No. 333-16643) of our oil and gas reserve reports as of December 31, 1993,
December 31, 1994, December 31, 1995 and December 31, 1996 included in the
Monterey Resources, Inc. Form 10-K for the year ended December 31, 1996.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
March 7, 1997
POWER OF ATTORNEY
Known all men by these presents that HUGH L. BOYT constitutes and appoints
R. GRAHAM WHALING, GERALD R. CARMAN and TERRY L. ANDERSON and each or any of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities to sign in his name to the Annual Report on Form 10-K of MONTEREY
RESOURCES, INC. for the fiscal year ended December 31, 1996, and to file the
same, and with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or any of them or their substitutes may lawfully do or cause to be done
by virtue hereof.
Dated February 20, 1997 /s/ HUGH L. BOYT
HUGH L. BOYT
<PAGE>
POWER OF ATTORNEY
Known all men by these presents that CRAIG HUFF constitutes and appoints
R. GRAHAM WHALING, GERALD R. CARMAN and TERRY L. ANDERSON and each or any of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities to sign in his name to the Annual Report on Form 10-K of MONTEREY
RESOURCES, INC. for the fiscal year ended December 31, 1996, and to file the
same, and with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or any of them or their substitutes may lawfully do or cause to be done
by virtue hereof.
Dated February 20, 1997 /s/CRAIG HUFF
Craig Huff
<PAGE>
POWER OF ATTORNEY
Known all men by these presents that MICHAEL A. MORPHY constitutes and
appoints R. GRAHAM WHALING, GERALD R. CARMAN and TERRY L. ANDERSON and each or
any of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities to sign in his name to the Annual Report on Form 10-K of MONTEREY
RESOURCES, INC. for the fiscal year ended December 31, 1996, and to file the
same, and with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or any of them or their substitutes may lawfully do or cause to be done
by virtue hereof.
Dated February 20, 1997 /s/MICHAEL A. MORPHY
Michael A. Morphy
<PAGE>
POWER OF ATTORNEY
Known all men by these presents that JAMES L. PAYNE constitutes and
appoints R. GRAHAM WHALING, GERALD R. CARMAN and TERRY L. ANDERSON and each or
any of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities to sign in his name to the Annual Report on Form 10-K of MONTEREY
RESOURCES, INC. for the fiscal year ended December 31, 1996, and to file the
same, and with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or any of them or their substitutes may lawfully do or cause to be done
by virtue hereof.
Dated February 20, 1997 /s/JAMES L. PAYNE
James L. Payne
<PAGE>
POWER OF ATTORNEY
Known all men by these presents that ROBERT J. WASIELEWSKI constitutes and
appoints R. GRAHAM WHALING, GERALD R. CARMAN and TERRY L. ANDERSON and each or
any of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities to sign in his name to the Annual Report on Form 10-K of MONTEREY
RESOURCES, INC. for the fiscal year ended December 31, 1996, and to file the
same, and with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or any of them or their substitutes may lawfully do or cause to be done
by virtue hereof.
Dated February 20, 1997 /s/ROBERT J. WASIELEWSKI
Robert J. Wasielewski
<PAGE>
POWER OF ATTORNEY
Known all men by these presents that R. GRAHAM WHALING constitutes and
appoints GERALD R. CARMAN and TERRY L. ANDERSON and each or any of them, as his
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him and in his name, place and stead, in any and all capacities to sign in
his name to the Annual Report on Form 10-K of MONTEREY RESOURCES, INC. for the
fiscal year ended December 31, 1996, and to file the same, and with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agents, or any of them or their substitutes may
lawfully do or cause to be done by virtue hereof.
Dated February 20, 1997 /s/R. GRAHAM WHALING
R. Graham Whaling
<PAGE>
POWER OF ATTORNEY
Known all men by these presents that ROBERT F. VAGT constitutes and
appoints R. GRAHAM WHALING, GERALD R. CARMAN and TERRY L. ANDERSON and each or
any of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities to sign in his name to the Annual Report on Form 10-K of MONTEREY
RESOURCES, INC. for the fiscal year ended December 31, 1996, and to file the
same, and with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or any of them or their substitutes may lawfully do or cause to be done
by virtue hereof.
Dated February 20, 1997 /s/ROBERT F. VAGT
Robert F. Vagt
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data schedule contains summary financial information extracted
from the balance sheet as of December 31, 1996 and the income statement for the
twelve months ended December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,300
<SECURITIES> 0
<RECEIVABLES> 46,400
<ALLOWANCES> 0
<INVENTORY> 1,700
<CURRENT-ASSETS> 66,700
<PP&E> 1,030,300
<DEPRECIATION> 651,300
<TOTAL-ASSETS> 447,200
<CURRENT-LIABILITIES> 48,800
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 176,200
<TOTAL-LIABILITY-AND-EQUITY> 447,200
<SALES> 292,300
<TOTAL-REVENUES> 292,900
<CGS> 186,000
<TOTAL-COSTS> 186,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,900
<INCOME-PRETAX> 83,100
<INCOME-TAX> 28,300
<INCOME-CONTINUING> 54,800
<DISCONTINUED> 0
<EXTRAORDINARY> (4,500)
<CHANGES> 0
<NET-INCOME> 50,300
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
</TABLE>
