<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JULY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6959
MITCHELL ENERGY & DEVELOPMENT CORP.
(Exact name of registrant as specified in charter)
TEXAS 74-1032912
(State of incorporation) (I.R.S. Employer Identification No.)
2001 TIMBERLOCH PLACE
THE WOODLANDS, TEXAS 77380
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 377-5500
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Shares of common stock outstanding at August 31, 1998:
<TABLE>
<S> <C>
Class A........................ 22,321,140
Class B........................ 26,795,127
</TABLE>
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Part I - Financial Information
Item 1. Financial Statements
Representation............................................................................ 1
Consolidated Balance Sheets............................................................... 2
Unaudited Consolidated Statements of Earnings............................................. 3
Unaudited Consolidated Statement of Stockholders' Equity.................................. 4
Unaudited Condensed Consolidated Statements of Cash Flows................................. 5
Notes to Unaudited Consolidated Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations.............................................. 12
Part II - Other Information
Item 1. Legal Proceedings.................................................................... 20
Item 4. Submission of Matters to Vote of Security Holders.................................... 20
Item 6. Exhibits and Reports on Form 8-K..................................................... 20
</TABLE>
DEFINITIONS. As used herein, "MMBtu" means million British thermal units, "Mcf"
means thousand cubic feet, "MMcf" means million cubic feet, "Bcf" means billion
cubic feet, "Bbl" means barrel, "MMBbls" means million barrels, "NGL" or "NGLs"
means natural gas liquids, "fiscal 1998" and "fiscal 1999" refer, respectively,
to the 12-month periods ended January 31, 1998 and 1999 and "DD&A" means
depreciation, depletion and amortization. Pipeline throughput volumes are based
on average energy content of 1,000 Btu per cubic foot. Where applicable, NGL
volume, price and reserve information includes equity partnership interests.
<PAGE> 3
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
REPRESENTATION. The consolidated financial statements of Mitchell Energy &
Development Corp. and subsidiaries (the "Company") and related notes included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures included herein are adequate to make the information
presented not misleading. In the opinion of the Company's management, all
adjustments - which include only normal and recurring adjustments - necessary
for a fair presentation of the financial position and results of operations for
the periods presented have been made. These financial statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Fiscal 1998 Annual Report and with the Management's Discussion and
Analysis of Financial Position and Results of Operations sections of that and
this report.
-1-
<PAGE> 4
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
July 31, January 31,
1998 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................................................... $ 23,175 $ 105,309
Trade receivables ............................................................. 83,418 113,285
Inventories ................................................................... 15,387 14,479
Net assets of discontinued real estate operations (Note 2) .................... -- 26,056
Other ......................................................................... 12,059 8,591
----------- -----------
Total current assets .................................................... 134,039 267,720
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost less accumulated depreciation,
depletion and amortization of $1,377,309 and $1,331,139
Exploration and production
Oil and gas properties ..................................................... 719,789 613,565
Support equipment and facilities ........................................... 18,061 18,407
Gas services (including investments in equity partnerships) (Note 3)
Natural gas processing ..................................................... 109,700 106,464
Natural gas gathering ...................................................... 144,711 134,779
Other ...................................................................... 75,259 73,689
Corporate ..................................................................... 7,739 7,763
----------- -----------
1,075,259 954,667
----------- -----------
LONG-TERM INVESTMENTS AND OTHER ASSETS ........................................ 31,071 29,586
----------- -----------
$ 1,240,369 $ 1,251,973
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 4) ................................. $ 100,000 $ --
Oil and gas proceeds payable .................................................. 69,002 94,661
Accounts payable .............................................................. 46,310 55,119
Accrued liabilities ........................................................... 38,291 48,969
----------- -----------
Total current liabilities ............................................... 253,603 198,749
----------- -----------
LONG-TERM DEBT (Note 4) ....................................................... 374,267 414,267
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes ......................................................... 160,104 167,903
Retirement obligations and other .............................................. 57,131 58,128
----------- -----------
217,235 226,031
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 6)
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value (authorized 10,000,000 shares; none issued)
Common stock, $.10 par value
(authorized 100,000,000 Class A and 100,000,000 Class B shares) ............ 5,386 5,386
Additional paid-in capital .................................................... 143,299 143,525
Retained earnings ............................................................. 350,750 361,905
Treasury stock, at cost ....................................................... (104,171) (97,890)
----------- -----------
395,264 412,926
----------- -----------
$ 1,240,369 $ 1,251,973
=========== ===========
</TABLE>
- -----------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 5
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands except per-share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended July 31 Ended July 31
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Exploration and production ................................ $ 58,921 $ 57,659 $ 117,917 $ 117,970
Gas services .............................................. 121,794 117,943 235,190 227,363
--------- --------- --------- ---------
180,715 175,602 353,107 345,333
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Exploration and production, including water
well litigation provision (reversals) of
$(1,000), none, $(4,000) and $7,000 (Note 6) ......... 55,707 46,037 110,095 97,121
Gas services, including royalty litigation settlement
provision of $26,000 in the 1997 periods (Note 7) ..... 117,120 130,536 217,681 222,924
--------- --------- --------- ---------
172,827 176,573 327,776 320,045
--------- --------- --------- ---------
SEGMENT OPERATING EARNINGS (LOSS) (Note 7) ................ 7,888 (971) 25,331 25,288
General and administrative expense ........................ 7,613 7,768 15,818 15,018
--------- --------- --------- ---------
TOTAL OPERATING EARNINGS (LOSS) ........................... 275 (8,739) 9,513 10,270
--------- --------- --------- ---------
OTHER EXPENSE
Interest expense, excluding $7,534 and $15,112 attributable
to discontinued operations in the 1997 periods ...... 8,510 4,751 16,159 9,281
Interest income ........................................... (118) (425) (736) (1,309)
Other, net ................................................ (1,247) (753) (2,661) (1,795)
--------- --------- --------- ---------
7,145 3,573 12,762 6,177
--------- --------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES ........................ (6,870) (12,312) (3,249) 4,093
INCOME TAXES (Note 5) ..................................... (2,622) (4,851) (1,296) 833
--------- --------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS ................ (4,248) (7,461) (1,953) 3,260
--------- --------- --------- ---------
DISCONTINUED REAL ESTATE OPERATIONS (Note 2)
Earnings from operations, net of income taxes of $953 and
$4,071 in the 1997 periods ......................... -- 1,684 -- 7,440
Loss on sale, net of income taxes ......................... -- (67,123) 3,250 (67,123)
--------- --------- --------- ---------
-- (65,439) 3,250 (59,683)
--------- --------- --------- ---------
NET EARNINGS (LOSS) ....................................... $ (4,248) (72,900) $ 1,297 $ (56,423)
========= ======= ========= =========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (Note 9)
Class A - From continuing operations ...................... $ (.09) $ (.15) $ (.05) $ .05
Net earnings (loss) ......................... (.09) (1.41) .01 (1.10)
Class B - From continuing operations ...................... (.08) (.14) (.03) .07
Net earnings (loss) ......................... (.08) (1.40) .04 (1.08)
AVERAGE COMMON SHARES OUTSTANDING (Basic) - Class A ....... 22,321 23,056 22,321 23,056
Class B ....... 26,795 28,805 26,776 28,798
</TABLE>
- -------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 6
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended July 31,1998
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
DOLLAR AMOUNTS Stock Capital Earnings Stock Total
- -------------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1998 .................................. $ 5,386 $ 143,525 $ 361,905 $ (97,890) $ 412,926
Net earnings................................................ -- -- 1,297 -- 1,297
Cash dividends (24 cents per share on
Class A and 26.5 cents per share on Class B)............ -- -- (12,452) -- (12,452)
Treasury stock purchases (including
$7,458 adjustment payment on fiscal
1998 accelerated stock purchase transaction) ........... -- -- -- (9,217) (9,217)
Exercises of stock options.................................. -- (226) -- 2,936 2,710
------- --------- --------- ---------- ----------
BALANCE, JULY 31, 1998 ..................................... $ 5,386 $ 143,299 $ 350,750 $ (104,171) $ 395,264
======= ========= ========= ========== ==========
</TABLE>
===========================
<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock Outstanding Shares
------------------------- ------------------------ ---------------------------
SHARE AMOUNTS Class A Class B Class A Class B Class A Class B
- ------------- ---------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1998 .... 23,978,081 29,878,081 1,656,937 3,153,817 22,321,144 26,724,264
Treasury stock purchases...... -- -- -- 65,000 -- (65,000)
Exercises of stock options.... -- -- -- (135,867) -- 135,867
Other......................... (3) (3) -- -- (3) (3)
---------- ---------- --------- --------- ---------- ----------
BALANCE, JULY 31, 1998 ....... 23,978,078 29,878,078 1,656,937 3,082,950 22,321,141 26,795,128
========== ========== ========= ========= ========== ==========
</TABLE>
- -------------------------
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 7
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months
Ended July 31
--------------------------
1998 1997
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Earnings (loss) from continuing operations .................... $ (1,953) $ 3,260
Adjustments to reconcile earnings from continuing
operations to cash provided by operating activities
Depreciation, depletion and amortization .............. 58,135 50,305
Exploration expenses, including dry-hole costs ........ 20,417 6,639
Deferred income taxes ................................. 304 4,536
Distributions in excess of earnings of equity investees 9,179 451
Water well litigation provision (reversal) ............ (4,000) 7,000
Royalty litigation settlement provision ............... -- 26,000
Gain from sale of contract drilling assets ............ -- (2,382)
Other, net ............................................ (1,884) (1,101)
--------- ---------
80,198 94,708
Changes in operating assets and liabilities ........... (3,205) 138,656
--------- ---------
Cash provided by operating activities ................. 76,993 233,364
--------- ---------
INVESTING ACTIVITIES
Capital and exploratory expenditures
Total on accrual basis, including asset
acquisitions of $80,916 and $9,686 .................... (210,182) (104,574)
Adjustment to cash basis .................................. (4,200) (315)
--------- ---------
(214,382) (104,889)
Net proceeds from sale of The Woodlands Corporation ........... -- 480,994
Property, plant and equipment sales proceeds .................. -- 5,078
Other ......................................................... 1,656 2,888
--------- ---------
Cash provided by (used for) investing activities ...... (212,726) 384,071
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of debt ................................ 120,000 --
Debt repayments ............................................... (60,000) (100,000)
Cash dividends ................................................ (12,452) (13,163)
Treasury stock purchases ...................................... (9,217) --
Other ......................................................... 2,341 (487)
--------- ---------
Cash provided by (used for) financing activities ...... 40,672 (113,650)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FROM CONTINUING OPERATIONS .................... (95,061) 503,785
CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS ........... 12,927 (3,824)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................ 105,309 75,825
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 23,175 $ 575,786
========= =========
</TABLE>
- ----------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 8
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1998
(1) ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Mitchell Energy &
Development Corp. and its majority-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation. The equity method of accounting is used for investments in 20%-
to 50%-owned entities.
The Company's exploration and production activities are accounted for
using the "successful efforts" method. Impairment computations for proved oil
and gas properties are made on a field-by-field basis as conditions warrant.
There were no impairment charges during the periods ended July 31, 1998 and
1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In June 1998, the Financial Accounting Standards Board adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which the
Company must adopt at least by fiscal 2001. The statement requires that all
derivatives be recognized at fair value as assets or liabilities and that
changes in fair value be recorded in earnings or other comprehensive income.
While the Company's analysis of the potential impact of this statement is far
from complete, its infrequent use of derivatives - particularly those which are
not hedges - makes it unlikely that the adoption of this statement will have a
significant impact on the Company's financial statements.
(2) DISCONTINUED REAL ESTATE OPERATIONS
On June 12, 1997, the Company entered into an agreement to sell its real estate
subsidiary, The Woodlands Corporation (TWC), to a partnership of Crescent Real
Estate Equities Company and Morgan Stanley Real Estate Fund II, L.P. for
$543,000,000 in cash. The transaction was subsequently closed on July 31, 1997.
In connection with the sale, the parent company forgave intercompany debt
payable to it by TWC. After adjustment for certain net additional amounts
received pursuant to the contract and deductions for income taxes and
transaction costs incurred by the Company in connection with the sale, net cash
proceeds totaled approximately $481,000,000.
The Company decided to withdraw from the real estate business upon
entering into the definitive agreement to sell TWC on June 12, 1997, and
commenced reporting real estate activities as discontinued operations in its
financial statements effective that date. The Company's financial statements
were revised to segregate the net assets associated with discontinued operations
and to separately report their results of operations. Prior-period financial
statements were restated similarly. Interest expense attributable to
discontinued operations was determined in the same manner that historically had
been used to allocate such costs to the Company's real estate operations. After
an income tax benefit of $25,878,000, a net loss of $67,123,000 was recorded in
connection with the discontinuance of the Company's real estate activities.
During the first quarter of fiscal 1999, adjustments were recorded
reducing the $67,123,000 loss on disposition previously recorded in connection
with the discontinuance of real estate operations by $3,250,000 ($5,000,000
pretax). This occurred because actual realizations were higher than originally
estimated and certain contingent obligations were settled for less than the
amounts accrued.
The Company ceased segregating discontinued operations during fiscal
1999's second quarter since the liquidation of the remaining real estate
properties had been substantially completed.
-6-
<PAGE> 9
(3) PARTNERSHIP INVESTMENTS
At July 31, 1998, the Company's principal partnership interests included the
following:
<TABLE>
<CAPTION>
Ownership
Percentage Nature of Operations
---------- --------------------
<S> <C> <C>
Austin Chalk Natural Gas Marketing Services 45 Natural gas marketing
Belvieu Environmental Fuels 33.33 Production of MTBE
C&L Processors Partnership 50 Natural gas processing
Ferguson-Burleson County Gas Gathering System 45 Natural gas gathering
Gulf Coast Fractionators 38.75 Fractionation of
natural gas liquids
Louisiana Chalk Gathering System 50 Natural gas gathering
U. P. Bryan Plant 45 Natural gas processing
</TABLE>
The Company's net investment in each of these entities is reported as property,
plant and equipment in the consolidated balance sheets under the gas services
caption. The Company's equity in their pretax earnings is reported as revenues
in the consolidated statements of earnings under the gas services caption.
A summary of the Company's net investments in partnerships at July 31,
1998 and January 31, 1998 and its equity in their pretax earnings (losses) for
the six-month periods ended July 31, 1998 and 1997 follows (in thousands):
<TABLE>
<CAPTION>
Equity in
Net Investment Pretax Earnings
--------------------------- -------------------------
July 31, January 31, July 31, July 31,
1998 1998 1998 1997
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Austin Chalk Natural Gas Marketing Services............ $ 1,058 $ 670 $ 1,288 $ 991
Belvieu Environmental Fuels............................ 43,288 41,300 3,891 4,946
C&L Processors Partnership............................. 61,008 51,945 361 1,383
Ferguson-Burleson County Gas Gathering System.......... 41,812 43,863 1,610 2,023
Gulf Coast Fractionators............................... 30,265 30,629 2,621 2,876
Louisiana Chalk Gathering System....................... 17,662 19,053 (367) (32)
U. P. Bryan Plant...................................... 5,071 6,738 470 2,236
Others................................................. 245 138 3,599* 24
--------- --------- -------- --------
$ 200,409 $ 194,336 $ 13,473 $ 14,447
========= ========= ======== ========
</TABLE>
- ----------------------------------------------------------
*Consists principally of a $3,492 gain from the sale by
a partnership of the Brooks-Hidalgo gathering system.
Financial statement information is generally reported on a one-month lag
for entities accounted for on the equity method. Summarized earnings information
(on a 100% basis) for these entities for the three- and six-month periods ended
July 31, 1998 and 1997 follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues.................................................................. $ 142,443 $ 166,849 $ 274,192 $ 395,367
Operating earnings........................................................ 16,151 19,904 29,133 46,578
Pretax earnings (before interest expense for those entities
whose activities are funded by capital contributions of the owners).... 11,548 17,909 20,409 37,020
</TABLE>
-7-
<PAGE> 10
(4) LONG-TERM DEBT
The Company's outstanding debt at July 31, 1998 consisted of $414,267,000 of
unsecured parent company senior notes, the proceeds of which have been advanced
to the operating subsidiaries, and $60,000,000 borrowed under the revolving
credit facility described in the following paragraph.
On July 29, 1998, the parent company entered into a five-year
$250,000,000 bank revolving credit agreement, replacing a $150,000,000 facility
of its primary energy subsidiary. Any amounts then outstanding under the new
agreement are payable in July 2003. Interest rates, which generally are based on
spreads over LIBOR, vary based on the highest of the ratings given the Company's
senior notes by two specified rating agencies. The Company pays commitment fees
on the unused portion of this facility.
The new credit agreement contains certain restrictions which, among
other things, limit the payment of dividends by requiring consolidated tangible
net worth, as defined, to equal at least $330,000,000 and require the
maintenance of specified financial ratios. Retained earnings available for the
payment of cash dividends totaled $63,128,000 at July 31, 1998.
(5) INCOME TAXES
Income taxes applicable to earnings from continuing operations for the six-month
periods ended July 31, 1998 and 1997 consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current - Federal .......................... $ (1,757) $ (4,081)
State ............................ 157 378
-------- --------
(1,600) (3,703)
-------- --------
Deferred - Federal .......................... 864 4,553
State ............................ (560) (17)
-------- --------
304 4,536
-------- --------
$ (1,296) $ 833
======== =======
</TABLE>
Estimated annual tax rates of 39.9% and 20.4%, respectively, were used
in computing the income tax provisions for the six-month periods ended July 31,
1998 and 1997. The differences between those rates and the 35% statutory
Federal income tax rate were principally the result of the interplay of Federal
permanent differences and the impact of state income taxes.
(6) COMMITMENTS AND CONTINGENCIES
NORTH TEXAS WATER WELL LITIGATION. On March 1, 1996, in a trial known as the
Bartlett case, a judgment was entered against a wholly owned subsidiary of the
Company by a Wise County, Texas court. The judgment awarded $4,051,760 in actual
damages (consisting of $339,266 for economic damages and $3,712,494 for pain,
mental anguish, inconvenience, etc.) and $200,000,000 in exemplary damages to
eight plaintiff groups, who claimed that the natural gas operations of the
subsidiary had affected their water wells.
The Company appealed this judgment to the Second Court of Appeals in
Fort Worth, Texas, and in November 1997 the court's three-judge panel
unanimously reversed the previous decision, finding that the plaintiffs failed
to prove that the Company's actions were the cause of their alleged damages and
that the claims of most plaintiffs were time-barred by statutes of limitations.
The appeals court subsequently denied the plaintiffs' request for a
reconsideration of its decision. A request by the plaintiffs that the Texas
Supreme Court review and overturn this decision was denied on July 3, 1998. The
plaintiffs filed a motion for rehearing with the Texas Supreme Court on July 20,
to which that court has yet to respond.
-8-
<PAGE> 11
In May 1997, in the Bailey case - which involved allegations similar to
those in the Bartlett case another jury in the Wise County court found
unanimously on all counts that the Company was not responsible for damages
claimed by 17 other plaintiff groups (and that most of their claims were
time-barred by statutes of limitations, in any event). The court entered the
judgment on July 15, 1997. After their motion for a new trial was denied, the
plaintiffs appealed this decision to the Second Court of Appeals, which by law
must consider the case. This is the same court that earlier ruled favorably on
the Company's appeal of the Bartlett case.
In three other cases involving allegations similar to those in the
Bartlett case, judges in the Wise County court issued summary judgments in favor
of the Company during January, April and July 1998. The plaintiffs subsequently
appealed two of these cases to the Second Court of Appeals, which by law must
consider the cases.
In addition to the above cases, another 25 lawsuits involving similar
allegations had been filed, but not tried. In August 1998, a confidential
settlement agreement was reached covering all these remaining cases.
The Company believes that a number of its insurance carriers have
responsibilities for participating in the defense costs incurred by the Company
in connection with this litigation. Reimbursement agreements have been entered
into with three of these carriers: one in May 1997 and two in April 1998.
Discussions continue with additional carriers regarding their participation in
the Company's defense costs.
The Company reviews the adequacy of its accrued liability for this
litigation at least quarterly. Provisions were recorded in fiscal 1998, 1997 and
1996 totaling $32,000,000 (including $7,000,000 in April 1997). After entering
into the two reimbursement agreements in April 1998 and after agreeing in August
to settle the last 25 untried cases, the Company recorded reversals of the
previous provisions of $3,000,000 and $1,000,000, respectively, in the first and
second quarters of fiscal 1999. Costs incurred - which have consisted
principally of estimated attorneys' fees and other defense costs for the
Bartlett and Bailey trials and costs of bonds, etc., related to the appeal of
the Bartlett judgment - were charged against the reserve. Insurance
reimbursements are included in the determination of the adequacy of the accrued
liability only after reimbursement agreements have been executed.
OTHER. The Company also is party to other claims and legal actions arising in
the ordinary course of its business and to recurring examinations performed by
the Internal Revenue Service and other regulatory agencies. While the outcome of
all such matters cannot be predicted with certainty, management expects that
losses, if any, resulting from the ultimate resolution of the matters discussed
in this footnote will not result in charges that are material to the Company's
financial position. It is possible, however, that charges could be required that
would be significant to the operating results of a particular period.
-9-
<PAGE> 12
(7) SEGMENT INFORMATION
Selected industry segment data for the six- and three-month periods ended July
31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Segment Total
Outside Operating Operating
Revenues Earnings Earnings
--------------------- ---------------------- --------------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Six Months
EXPLORATION AND PRODUCTION
Operations ........................ $ 117,917 $ 115,588 $ 3,822 $ 25,467 $ (2,152) $ 19,631
Water well litigation (provision)
reversals (see Note 6) ......... -- -- 4,000 (7,000) 4,000 (7,000)
Gain from sale of
contract drilling assets ....... -- 2,382 -- 2,382 -- 2,382
--------- --------- --------- --------- --------- ---------
117,917 117,970 7,822 20,849 1,848 15,013
--------- --------- --------- --------- --------- ---------
GAS SERVICES
Natural gas processing ............ 128,106 150,197 (1,569) 15,212 (3,187) 13,660
Royalty litigation
settlement provision ........... -- -- -- (26,000) -- (26,000)
Natural gas gathering
and marketing .................. 100,572 69,344 13,161 8,136 11,244 6,301
Other ............................. 6,512 7,822 5,917 7,091 5,715 6,905
--------- --------- --------- --------- --------- ---------
235,190 227,363 17,509 4,439 13,772 866
--------- --------- --------- --------- --------- ---------
CORPORATE ......................... -- -- -- -- (6,107)(b) (5,609)(b)
--------- --------- --------- --------- --------- ---------
$ 353,107 $ 345,333 $ 25,331 $ 25,288 $ 9,513 $ 10,270
========= ========= ========= ========= ========= =========
Three Months
EXPLORATION AND PRODUCTION
Operations ........................ $ 58,921 $ 57,659 $ 2,214 $ 11,622 $ (790) $ 8,715
Water well litigation (provision)
reversal (see Note 6) .......... -- -- 1,000 -- 1,000 --
--------- --------- --------- --------- --------- ---------
58,921 57,659 3,214 11,622 210 8,715
--------- --------- --------- --------- --------- ---------
GAS SERVICES
Natural gas processing ............ 60,448 69,411 (2,504) 6,617 (3,287) 5,836
Royalty litigation
settlement provision ........... -- -- -- (26,000) -- (26,000)
Natural gas gathering
and marketing .................. 57,830 45,047 3,951 3,682 3,021 2,756
Other ............................. 3,516 3,485 3,227 3,108 3,134 3,009
--------- --------- --------- --------- --------- ---------
121,794 117,943 4,674 (12,593) 2,868 (14,399)
--------- --------- --------- --------- --------- ---------
CORPORATE ......................... -- -- -- -- (2,803)(b) (3,055)(b)
--------- --------- --------- --------- --------- ---------
$ 180,715 $ 175,602 $ 7,888 $ (971) $ 275 $ (8,739)
========= ========= ========= ========= ========= =========
<CAPTION>
Capital
DD&A Expenditures(a)
--------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Six Months
EXPLORATION AND PRODUCTION
Operations ........................ $ 48,885 $ 44,007 $ 176,826 $ 77,117
Water well litigation (provision)
reversals (see Note 6) ......... -- -- -- --
Gain from sale of
contract drilling assets ....... -- -- -- --
--------- --------- --------- ---------
48,885 44,007 176,826 77,117
--------- --------- --------- ---------
GAS SERVICES
Natural gas processing ............ 1,963 1,817 17,090 2,770
Royalty litigation
settlement provision ........... -- -- -- --
Natural gas gathering
and marketing .................. 5,805 2,773 14,362 22,241
Other ............................. 53 53 600 37
--------- --------- --------- ---------
7,821 4,643 32,052 25,048
--------- --------- --------- ---------
CORPORATE ......................... 1,429 1,655 1,304 2,409
--------- --------- --------- ---------
$ 58,135 $ 50,305 $ 210,182 $ 104,574
========= ========= ========= =========
Three Months
EXPLORATION AND PRODUCTION
Operations ........................ $ 25,150 $ 22,162 $ 85,951 $ 43,809
Water well litigation (provision)
reversal (see Note 6) .......... -- -- -- --
--------- --------- --------- ---------
25,150 22,162 85,951 43,809
--------- --------- --------- ---------
GAS SERVICES
Natural gas processing ............ 1,002 919 2,630 1,220
Royalty litigation
settlement provision ........... -- -- -- --
Natural gas gathering
and marketing .................. 2,912 1,514 6,269 13,623
Other ............................. 26 26 466 35
--------- --------- --------- ---------
3,940 2,459 9,365 14,878
--------- --------- --------- ---------
CORPORATE ......................... 720 841 1,049 1,216
--------- --------- --------- ---------
$ 29,810 $ 25,462 $ 96,365 $ 59,903
========= ========= ========= =========
</TABLE>
- --------------------------
(a) On accrual basis, including exploratory expenses.
(b) General corporate expenses.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which the Company must implement by the end
of fiscal 1999. The Company does not expect that the adoption of this statement
will require it to make material changes in the information heretofore disclosed
concerning its operating segments.
In July 1997, the Company recorded a $26,000,000 financial statement
provision for estimated costs to be incurred in connection with settlements of
litigation with certain of its North Texas royalty owners. In October 1997, a
$21,000,000 payment was made to settle class-action litigation brought on behalf
of these royalty owners. Payments totaling approximately $5,000,000 were later
made to royalty owners who chose not to participate in the class-action
litigation.
Effective April 1, 1997, the Company sold its remaining contract
drilling assets for $3,500,000. A gain of $2,382,000 was recorded on this
transaction.
-10-
<PAGE> 13
(8) SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, including amounts applicable to discontinued operations, totaled
$16,002,000 and $26,555,000 during the six-month periods ended July 31, 1998 and
1997. Income taxes paid during these periods, including amounts applicable to
discontinued operations, totaled $3,783,000 and $20,400,000. There were no
significant non-cash investing or financing activities during the six-month
periods ended July 31, 1998 and 1997.
(9) EARNINGS (LOSS) PER SHARE
The earnings (loss) per share computations included herein have been made in
accordance with Statement of Financial Accounting Standards No. 128, which the
Company adopted during the fourth quarter of fiscal 1998; prior period amounts
were restated. The Company is required to make separate per-share computations
for its Class A and Class B common stock since the shares are not convertible
into each other and different per share cash dividends are paid on the separate
classes. In these computations, any excess or shortfall between earnings from
continuing operations and total dividends paid is apportioned between the
classes on a pro rata per-share basis and then added to the respective dividends
paid to each class of common stock. Accordingly, the differences in the per-
share earnings amounts for Class A and Class B shares occur because of the
dividend premium on the Class B shares. The following table sets forth basic and
diluted earnings (loss) per-share information for the three- and six-month
periods ended July 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Six Months
--------------------------------------- ----------------------------------------
1998 1997 1998 1997
----------------- ------------------ ------------------ ------------------
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From continuing operations ............. $ (.09) (.08) (.15) (.14) (.05) (.03) $ .05 $ .07
------ ---- ----- ----- ----- ----- ------- -----
Discontinued real estate operations
Earnings from operations .......... -- -- .03 .03 -- -- .14 .14
Loss on sale ...................... -- -- (1.29) (1.29) -- -- (1.29) (1.29)
Adjustment to loss on sale ........ -- -- -- -- .06 .07 -- --
------ ---- ----- ----- ----- ----- ------- -----
-- -- (1.26) (1.26) .06 .07 (1.15) (1.15)
------ ---- ----- ----- ----- ----- ------- -----
Net earnings (loss) .................... $ (.09) (.08) (1.41) (1.40) $ .01 $ .04 $(1.10) (1.08)
====== ==== ===== ===== ===== ===== ======= =====
</TABLE>
The basic and diluted per-share amounts were the same because the
earnings (loss) amounts for the diluted computations were no different than the
ones used in the basic computations, and - as shown in the table below - the
dilutive effect of stock options did not significantly increase the weighted
average shares outstanding. The following table reconciles the weighted average
shares outstanding used in the basic and diluted earnings (loss) per-share
computations for the three- and six-month periods ended July 31, 1998 and 1997
(in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
---------------------------------------- ----------------------------------------
1998 1997 1998 1997
------------------ ------------------ ------------------ ------------------
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Used in basic computations ............. 22,321 26,795 23,056 28,805 22,321 26,776 23,056 28,798
Dilutive effect of stock options ....... -- -- -- -- -- -- 3 127
------- ------- ------- ------- ------- ------- ------- -------
Used in diluted computations ........... 22,321 26,795 23,056 28,805 22,321 22,776 23,059 28,925
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Because their effect would have been antidilutive, out-of-the-money options on
606,240 Class B shares were excluded from the determination of the dilutive
effect of stock options for the six-month period ended July 31, 1997. For the
other periods shown above, the weighted average shares outstanding were not
adjusted for the dilutive effect of stock options because to do so when there
are losses from continuing operations would be antidilutive.
-11-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
All statements included in this Form 10-Q, other than statements of historical
fact, are forward-looking statements. These include, but are not limited to,
strategies, goals and expectations set forth herein concerning exploration and
production and gas services operations and the discussions below concerning the
Company's liquidity and capital resources. Although the Company believes that
its expectations are based on reasonable assumptions, it can give no assurances
that its goals will be achieved. Important factors that could cause actual
results to differ materially from those in the forward-looking statements
include the timing and extent of changes in commodity prices for natural gas,
NGLs and crude oil; the attainment of forecasted operating levels, reserve
replacement and asset acquisitions; and unexpected changes in competitive and
economic conditions, government regulations, technology and other factors.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW. As previously reported, the Company discontinued its real estate
activities during fiscal 1998 and realized $481 million of after-tax proceeds
from the sale of The Woodlands Corporation (TWC). During the first quarter of
fiscal 1999, the Company essentially completed the disposition of the
discontinued operations by selling most of the remaining properties outside The
Woodlands.
A balanced plan was implemented to reinvest the TWC sales proceeds as
quickly as practical, consistent with the Company's objective of growing its
core energy businesses in a prudent manner. This reinvestment program was
completed during fiscal 1999's first quarter, and the following table summarizes
the uses of those proceeds (dollars in millions):
<TABLE>
<CAPTION>
Fiscal Fiscal
1999 1998 Total
------ ------ ------
<S> <C> <C> <C>
Acquisitions .............................................................. $ 64.7 $ 26.3 $ 91.0
Fiscal 1999 capital expenditures in excess of funds from operations ....... 23.0 -- 23.0
Accelerated fiscal 1998 capital spending
(primarily for oil and gas exploratory activities) ..................... -- 24.0 24.0
Common stock purchases
Accelerated buyback (700,000 Class A and 1,400,000 Class B shares) ..... 7.5 49.7 57.2
Open-market purchases (45,000 Class A and 884,200 Class B shares) ...... 1.8 22.7 24.5
Repurchase of 9 1/4% senior notes (including
$19.3 for tender offer costs and expenses) ............................. -- 205.0 205.0
Repayment of off-balance-sheet partnership indebtedness ................... -- 43.8 43.8
December 1997 special common stock dividends
(24 cents on Class A and 26 1/2 cents on Class B) ...................... -- 12.5 12.5
-------- -------- --------
$ 97.0 $ 384.0 $ 481.0
======== ======== ========
</TABLE>
The fiscal 1998 amounts were discussed in the Company's Fiscal 1998 Annual
Report. The fiscal 1999 spending was directed almost exclusively towards
expanding the Company's core energy operations via acquisitions and a stepped-up
exploratory program.
-12-
<PAGE> 15
Principally because of $32 million in producing property acquisitions
and price-related decreases in cash flows from operations, the Company's debt
rose by $48 million during fiscal 1999's second quarter. With the capital budget
reductions discussed below, the Company expects its second half spending to be
more in line with operating cash flows.
The parent company entered into a five-year $250 million bank
revolving credit agreement in July 1998, replacing a $150 million facility of
a subsidiary. During the second quarter of fiscal 1999, $100 million of the
Company's 8% senior notes maturing on July 15, 1999 were reclassified as a
current liability. The Company has not yet decided whether it will sell
additional senior notes or borrow under the new bank credit agreement to fund
retirement of the maturing senior notes.
CAPITAL AND EXPLORATORY EXPENDITURES. A comparison of the Company's original and
revised budgets for fiscal 1999 capital and exploratory expenditures follows (in
millions):
<TABLE>
<CAPTION>
Revised Budget
----------------------------
First Second
Original Half Half
Budget Actual Estimate Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Exploration and production
Capital ........................ $ 159.0 $ 88.9 $ 58.6 $ 147.5
Exploratory expenses ........... 29.0 20.4 6.9 27.3
Gas services ...................... 49.0 18.7 14.6 33.3
Corporate ......................... 4.0 1.3 2.0 3.3
-------- -------- -------- --------
$ 241.0 129.3 82.1 211.4
Unbudgeted asset acquisitions
Oil and gas properties ......... 67.6 3.9* 71.5
Gas services facilities ........ 13.3 -- 13.3
-------- -------- --------
$ 210.2 $ 86.0 $ 296.2
======= ======== ========
</TABLE>
* Actual expenditures in August 1998.
The fiscal 1999 budget called for a continuation of the program begun last year
to accelerate drilling of the Company's substantial inventory of development
locations in its core areas. In addition, significant expenditures were included
for seismic work, exploratory acreage acquisitions and exploratory drilling.
More than 90% of the budgeted fiscal 1999 spending for 3-D seismic
surveys was incurred in the first half, as dry weather and the availability of
crews and equipment allowed an acceleration of the planned schedule. While this
cut sharply into earnings during fiscal 1999's first half, second half
geological and geophysical expenses will be down substantially since most of the
planned 3-D seismic surveys now have been completed.
As is its normal practice, the Company reassessed its fiscal 1999
capital spending plans at mid-year. With no apparent relief in sight from the
current depressed level of energy prices, fiscal 1999 budgeted expenditures were
reduced by $29.6 million (12%) to $211.4 million as shown in the table above.
This was accomplished by deferring the drilling of selected exploratory and
development wells until next year and delaying/eliminating certain gas services
projects in response to the downturn in industry activity. As part of the
mid-year review, planned expenditures were added to develop recently acquired
properties in the Columbus field and the Limestone County area and thus prove up
the values of these properties.
RECENT ENERGY PRICE TRENDS. Crude oil and NGL prices collapsed during fiscal
1999's first half as a result of last winter's warm weather and relatively high
inventory levels. Margins for NGLs were particularly depressed during this
period because the low NGL sales prices were accompanied by relatively strong
prices for natural gas feedstock. The low oil prices and NGL margins, coupled
with the previously discussed high
-13-
<PAGE> 16
level of seismic expenses, adversely impacted the Company's earnings and cash
flows during the first half of fiscal 1999. Natural gas prices held up
surprisingly well until the third week of July, but have fallen substantially
since then. While seismic spending will be sharply lower, it is expected that
low energy prices will continue to negatively impact the Company's results in
the third quarter, and possibly beyond depending largely on the weather during
the upcoming winter.
NORTH TEXAS WATER WELL LITIGATION. See Note 6 of Notes to Unaudited Consolidated
Financial Statements for a discussion of the current status of this litigation.
In August 1998, the Company agreed to settle the last 25 untried cases, leaving
open only the plaintiffs' appeals of judgments favoring the Company in four
earlier cases. During fiscal 1999, defense cost reimbursement agreements were
entered into with two more of the Company's insurance carriers, and discussions
are continuing with others.
YEAR 2000 ISSUE. Like others, the Company is facing computer systems problems
caused by the approaching turn of the century, which has been dubbed the "Year
2000 problem." In addition to affecting mainframe and mid-range computer
systems, this problem potentially impacts computer chips integrated into
security, plant automation and pipeline control systems. Beginning in late 1996,
the Company conducted a study to determine the Year 2000 readiness of its
mainframe and mid-range financial and operating systems and established a
timetable for reprogramming, replacing and testing these systems to see that
they properly recognize dates subsequent to December 31, 1999. The Company's
schedule calls for these efforts to be completed by January 1999, and it is
currently on schedule. Through July 31, 1998, costs totaling $.6 million had
been incurred in this regard out of the total estimated $1 million. Since these
efforts are being largely accomplished by reallocating internal resources, this
effort is not expected to significantly impact the Company's results of
operations or cash flows.
During August 1998, the Company completed an inventory of embedded chips
integrated into security, plant automation and pipeline control systems. It is
in the process of determining those requiring modifi cation to properly
recognize dates after December 31, 1999. As part of this process, the Company is
ranking those embedded chips requiring attention in order of importance and has
begun contacting equipment vendors to determine the status of their Year 2000
conversion efforts. The Company's estimate of the timing and costs to make these
systems Year 2000 compliant has not been completed. However, based on
preliminary information, it is not expected that such costs will significantly
impact the Company's results of operations or cash flows.
Through communications with industry partners and others, the Company is
also evaluating the risk presented by potential Year 2000 non-compliance by
third parties. Since such risks vary substantially, companies are being
contacted based on the estimated magnitude of the risk posed to the Company by
their potential Year 2000 non-compliance. At this time the Company is unaware of
situations where material disruptions of its business activities are likely to
occur because of the Year 2000 non-compliance of third parties.
The timetable for the Company's planned completion of its own Year 2000
modifications and the estimated costs to accomplish this are management's best
estimates. These assessments involve many assumptions concerning future events,
including the continued availability of certain resources, particularly
personnel able to locate, reprogram or replace, and test the Company's hardware
and software in accordance with the Company's established schedule. There can be
no guarantee that the Company's estimates will prove accurate, and actual
results could differ significantly from the estimates. Finally, there can be no
guarantee that the Year 2000 non-compliance of third parties of business
importance to the Company will not adversely affect its operations in a future
period. Although it is not currently aware of any such situations, the Company
is developing contingency plans to alter business relationships in the event of
such non-compliance.
-14-
<PAGE> 17
OPERATING STATISTICS
Certain operating statistics (including proportional interests in equity
partnerships, where applicable) for the three- and six-month periods ended July
31, 1998 and 1997 follow:
<TABLE>
<CAPTION>
Three Months Six Months
-------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVERAGE DAILY VOLUMES
Natural gas sales (Mcf)............................... 245,200 227,000 245,800 232,500
Crude oil and condensate sales (Bbls)................. 6,600 6,000 6,800 5,900
Natural gas liquids produced (Bbls)................... 40,800 44,700 43,100 45,600
Pipeline throughput (Mcf) ............................ 565,000* 413,000 554,000* 426,000
AVERAGE SALES PRICES
Natural gas (per Mcf)................................. $ 2.25 $ 2.24 $ 2.27 $ 2.24
Crude oil and condensate (per Bbl).................... 12.33 18.48 13.13 19.20
Natural gas liquids produced (per Bbl)................ 10.22 12.76 10.85 13.11
</TABLE>
*Includes approximately 165,000 Mcf per day for North Texas gathering
systems acquired effective January 1, 1998.
EARNINGS (LOSS) FROM CONTINUING OPERATIONS - SIX MONTHS ENDED JULY 31, 1998
COMPARED WITH SIX MONTHS ENDED JULY 31, 1997
Earnings (losses) from continuing operations for the six-month period ended July
31, 1998 - both before and after unusual items - are summarized in the table on
the following page. The Company had a loss of $1.9 million from continuing
operations during fiscal 1999's first six months, which compared with the
prior-year period's earnings of $3.3 million. Excluding the effects of unusual
items, a loss of $4.4 million was reported during the fiscal 1999 period, versus
earnings of $23.0 million during the prior-year's comparable period. The sharp
earnings decline occurred largely because of lower prices for oil and condensate
and NGLs, increased exploration expenses and higher interest expense from
continuing operations.
-15-
<PAGE> 18
The following table and discussion identify and explain the major
increases (decreases) in earnings for the six-month periods (in millions):
<TABLE>
<CAPTION>
Segment Earnings from Con-
Operating Earnings tinuing Operations
----------------------- -----------------------
Exploration Before
and Gas Income After
Production Services Other* Taxes Tax
----------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
FISCAL 1998 AMOUNTS AFTER UNUSUAL ITEMS .................... $ 20.9 $ 4.4 $ (21.2) $ 4.1 $ 3.3
ELIMINATE IMPACT OF FISCAL 1998 UNUSUAL ITEMS
Water well litigation provision (see page 8) ............... 7.0 -- -- 7.0 4.3
Royalty litigation settlement provision (see page 10) ...... -- 26.0 -- 26.0 16.9
Gain from sale of remaining contract drilling assets ....... (2.4) -- -- (2.4) (1.5)
------ ------ ------- ------ -----
4.6 26.0 -- 30.6 19.7
------ ------ ------- ------ -----
FISCAL 1998 AMOUNTS BEFORE UNUSUAL ITEMS ................... 25.5 30.4 (21.2) 34.7 23.0
------ ------ ------- ------ -----
MAJOR INCREASES (DECREASES)
Exploration expenses ....................................... (13.8) -- -- (13.8) (9.0)
Lower oil and condensate sales price ....................... (7.1) -- -- (7.1) (4.6)
Increased oil and condensate sales volumes ................. 2.2 -- -- 2.2 1.4
Increased natural gas sales volumes ........................ 2.5 -- -- 2.5 1.6
Increased E&P operating expenses,
principally maintenance and property taxes .............. (2.8) -- -- (2.8) (1.8)
Margin decreases resulting from lower NGL prices ........... -- (12.1) -- (12.1) (7.9)
Gain from a partnership's sale of the
Brooks-Hidalgo gathering system ......................... -- 3.5 -- 3.5 2.3
Depreciation expense on North Texas
gathering system acquired in January 1998 ............... -- (2.0) -- (2.0) (1.3)
Equity in earnings of MTBE plant partnership ............... -- (1.0) -- (1.0) (.7)
Increased interest expense
attributable to continuing operations ................... -- -- (6.9) (6.9) (4.5)
Performance unit expense accruals .......................... (.9) (.4) (.5) (1.8) (1.2)
Other, net ................................................. (1.8) (.9) -- (2.7) (1.7)
------ ------ ------- ------ -----
(21.7) (12.9) (7.4) (42.0) (27.4)
------ ------ ------- ------ -----
FISCAL 1999 AMOUNTS BEFORE UNUSUAL ITEM .................... 3.8 17.5 (28.6) (7.3) (4.4)
Water well litigation provision reversal (see page 8) ...... 4.0 -- -- 4.0 2.5
------ ------ ------- ------ -----
FISCAL 1999 AMOUNTS AFTER UNUSUAL ITEM ..................... $ 7.8 $ 17.5 $ (28.6) (3.3) (1.9)
====== ====== ======= ====== =====
</TABLE>
- ----------------------------------------------------
*Includes general and administrative expense and other expense.
EXPLORATION AND PRODUCTION OVERVIEW
Exclusive of unusual items, exploration and production segment operating
earnings of $3.8 million during fiscal 1999's first six months were sharply
lower than the $25.5 million of the prior-year period primarily because of the
current period's increased exploration expenses and lower prices for oil and
condensate sales.
EXPLORATION EXPENSES ($13.8 MILLION DECREASE). Largely because of increased
exploratory seismic expenditures, the Company's exploration expenses totaled
$20.5 million during fiscal 1999's first half, up from $6.7 million in the
prior-year period. As discussed elsewhere in this Form 10-Q, the Company
substantially increased its planned fiscal 1999 expenditures for 3-D seismic
surveys. Because of dry weather and the availability of crews and equipment, the
Company accelerated the performance of these surveys, spending most of its
fiscal 1999 budget during the first six months. While these expenses cut sharply
into earnings during the first half of fiscal 1999, second half expenses will be
down significantly since most of the planned 3-D seismic surveys now have been
completed.
-16-
<PAGE> 19
LOWER OIL AND CONDENSATE SALES PRICE ($7.1 MILLION DECREASE). The Company's
sales price for oil and condensate averaged $13.13 per barrel during fiscal
1999's first six months, down sharply from the prior period's $19.20, reducing
operating earnings by $7.1 million. The collapse in world oil prices was largely
the result of overproduction, very mild weather last winter and the economic
downturn in Southeast Asia.
INCREASED OIL AND CONDENSATE SALES VOLUMES ($2.2 MILLION INCREASE). Fiscal
1999's production of oil and condensate increased 900 barrels per day (15%) to
6,800, increasing operating earnings by $2.2 million. This occurred largely
because of fiscal 1998 drilling and recompletion activity in Throckmorton County
(North Texas), the Lake Creek field (Southeast Texas) and Calcasieu Parish
(Southwest Louisiana), much of which resulted from drilling based on earlier 3-D
seismic surveys.
INCREASED NATURAL GAS SALES VOLUMES ($2.5 MILLION INCREASE). Natural gas sales
volumes averaged 245.8 MMcf per day during the six months ended July 31, 1998,
up from 232.5 MMcf during the comparable period of the prior year, increasing
operating earnings by $2.5 million. This increase was principally related to
activities in North Texas.
GAS SERVICES OVERVIEW
Gas services operating earnings declined $12.9 million (to $17.5 million) during
the first half of fiscal 1999 principally because of price-related reductions in
gas processing margins. The negative impact of this was partially offset by a
$3.5 million gain from a partnership's sale of the Brooks-Hidalgo gathering
system.
MARGIN DECREASES RESULTING FROM LOWER NGL PRICES ($12.1 MILLION DECREASE). The
average price for NGLs produced during fiscal 1999's first six months of $10.85
per barrel was 17% below the prior-year period's $13.11, reducing NGL revenues
by $17.6 million. Because of the impact of the lower NGL prices on producer
payments, feedstock costs declined by $5.5 million, resulting in a net $12.1
million decrease in margins because of lower NGL prices.
EQUITY IN EARNINGS OF MTBE PLANT PARTNERSHIP ($1.0 MILLION DECREASE). This
unfavorable variance resulted primarily from increased downtime for maintenance
in fiscal 1999 (25 days versus 12). The plant's production, which averaged
approximately 12,700 barrels per day in the first half, exceeded 16,100 barrels
per day in August.
OTHER
INTEREST EXPENSE ATTRIBUTABLE TO CONTINUING OPERATIONS ($6.9 MILLION DECREASE).
Because a portion of the proceeds of the TWC sale were reinvested rather than
being used to retire debt related to discontinued operations, interest expense
attributable to continuing operations rose by $6.9 million during the fiscal
1999 period. Total interest expense declined by $8.2 million largely because of
the repurchase during the prior year's third quarter of $185.7 million of 9 1/4%
senior notes using a portion of the TWC sales proceeds.
PERFORMANCE UNIT EXPENSE ACCRUALS ($1.8 MILLION DECREASE). In the fiscal 1999
period, expense accruals totaling $1.8 million were recorded applicable to a
plan adopted in December 1997 that awarded performance units to mid-level
managerial and professional employees. Individuals holding these units on March
31, 1999 are to receive cash compensation equal to the closing price of the
Company's Class B Common Stock on that date times the number of units awarded
them. Compensation expense is being accrued ratably over the life of the
outstanding units based on the Class B stock price at the end of each month.
-17-
<PAGE> 20
EARNINGS (LOSS) FROM CONTINUING OPERATIONS - THREE MONTHS ENDED JULY 31, 1998
COMPARED WITH THREE MONTHS ENDED JULY 31, 1997
Earnings from continuing operations for the three-month periods ended
July 31, 1998 and 1997 are summarized on the table which follows. The Company
reported losses from continuing operations in both quarters, $4.2 million in the
fiscal 1999 period and $7.5 million in the prior-year period. Excluding the
effects of unusual items, the Company had a $4.9 million loss in the latest
quarter, versus earnings of $9.4 million during the prior-year period. The
current period loss was principally due to sharply lower prices for oil and
condensate and NGLs and increased charges for exploration expenses and interest
expense attributable to continuing operations.
The following table and discussion identify and explain the major
increases (decreases) in earnings for the three-month periods (in millions):
<TABLE>
<CAPTION>
Segment Earnings from Con-
Operating Earnings tinuing Operations
----------------------- ----------------------
Exploration Before
and Gas Income After
Production Services Other* Taxes Tax
---------- -------- ------ ----- ---
<S> <C> <C> <C> <C> <C>
FISCAL 1998 AMOUNTS AFTER UNUSUAL ITEM .................... $ 11.6 $ (12.6) $ (11.3) $ (12.3) $ (7.5)
Royalty litigation settlement provision (see page 10) ..... -- 26.0 -- 26.0 16.9
------ ------- ------- ------- -------
FISCAL 1998 AMOUNTS BEFORE UNUSUAL ITEM ................... 11.6 13.4 (11.3) 13.7 9.4
------ ------- ------- ------- -------
MAJOR INCREASES (DECREASES)
Exploration expenses ($9.0 versus $4.2) ................... (4.8) -- -- (4.8) (3.1)
Lower oil and condensate sales price ...................... (3.6) -- -- (3.6) (2.3)
Increased oil and condensate sales volumes ................ .7 -- -- .7 .5
Increased natural gas sales volumes ....................... 1.7 -- -- 1.7 1.1
Higher E&P operating expenses,
primarily maintenance and property taxes ............... (2.0) -- -- (2.0) (1.3)
Natural gas processing - margin decreases
resulting from lower NGL prices ........................ -- (6.5) -- (6.5) (4.2)
Depreciation expense on North Texas
gathering system acquired in January 1998 .............. -- (1.0) -- (1.0) (.6)
Increased interest expense
attributable to continuing operations .................. -- -- (3.8) (3.8) (2.5)
Other, net ................................................ (1.4) (1.2) .3 (2.3) (1.8)
------ ------- ------- ------- -------
(9.4) (8.7) (3.5) (21.6) (14.2)
------ ------- ------- ------- -------
FISCAL 1999 AMOUNTS BEFORE UNUSUAL ITEM ................... 2.2 4.7 (14.8) (7.9) (4.8)
Water well litigation provision reversal (see page 8) ..... 1.0 -- -- 1.0 .6
------ ------- ------- ------- -------
FISCAL 1999 AMOUNTS AFTER UNUSUAL ITEM .................... $ 3.2 $ 4.7 $ (14.8) $ (6.9) $ (4.2)
====== ======= ======= ======= =======
</TABLE>
- ----------------------------------------------------
*Includes general and administrative expense and other expense.
EXPLORATION AND PRODUCTION OVERVIEW
Exploration and production segment operating earnings for the second quarter of
fiscal 1999 were $9.4 million below the $11.6 million of fiscal 1998's second
quarter (before unusual item) largely because of lower oil and condensate prices
and increased exploration expenses.
INCREASED EXPLORATION EXPENSES ($4.8 MILLION DECREASE). Largely as a result of
the previously mentioned increase in seismic costs, exploration expenses were
$4.8 million higher in fiscal 1999's second quarter.
-18-
<PAGE> 21
LOWER OIL AND CONDENSATE SALES PRICES ($3.6 MILLION DECREASE). Oil and
condensate prices averaged $12.33 per barrel during fiscal 1999's second
quarter, 33% below the $18.48 of the corresponding prior-year period, reducing
operating earnings by $3.6 million.
INCREASED OIL AND CONDENSATE SALES VOLUMES ($.7 MILLION INCREASE). For the
reasons discussed on page 17, production of oil and condensate during the second
quarter of the current year increased 600 barrels per day (10%) to 6,600,
increasing operating earnings by $.7 million.
INCREASED NATURAL GAS SALES VOLUMES ($1.7 MILLION INCREASE). The Company's
average natural gas production rose from 227,000 Mcf per day to 245,200 in
fiscal 1999's second quarter, increasing operating earnings by $1.7 million.
GAS SERVICES OVERVIEW
Exclusive of unusual items, gas services operating earnings declined $8.7
million from the $13.4 million of the prior year's quarter largely because of
this year's lower NGL margins. NGL production volumes declined by 3,900 barrels
per day (9%) in the fiscal 1999 period largely because of the temporary
halting in July 1993 of certain processing (almost 20% of the Company's usual
volumes) due to unacceptable margins. NGL economics subsequently improved, and
this production was restored in August.
NATURAL GAS PROCESSING - MARGIN DECREASES RESULTING FROM LOWER NGL PRICES ($6.5
MILLION DECREASE). The Company's average NGL price was $10.22 per barrel during
fiscal 1999's second quarter, down $2.54 (20%) from the corresponding period of
the prior year, reducing operating earnings by $9.7 million. Feedstock costs
declined by $3.2 million largely due to the impact of lower NGL prices on
producer payments, resulting in a net operating earnings reduction of $6.5
million.
OTHER
INCREASED INTEREST EXPENSE ATTRIBUTABLE TO CONTINUING OPERATIONS ($3.8 MILLION
DECREASE). For the reasons discussed on page 17, interest expense attributable
to continuing operations was $3.8 million higher in the second quarter of fiscal
1999.
-19-
<PAGE> 22
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
See Note 6 of Notes to Unaudited Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Mitchell Energy & Development
Corp. was held on June 24, 1998 for the purpose of electing a Board of 12
directors and considering the appointment of independent public accountants.
Proxies for the meeting were solicited pursuant to Section 14A of the Securities
Exchange Act of 1934, and there was no solicitation in opposition to the
Company's solicitations. Each of the nominees for the Board of Directors was
elected by the Class A common stockholders with no nominee receiving fewer than
21,255,585 votes.
Stockholders also approved the appointment of Arthur Andersen LLP,
independent public accountants, to examine the accounts of the Company for the
fiscal year ending January 31, 1999. The votes was as follows:
<TABLE>
<CAPTION>
Number Percent
------ -------
<S> <C> <C>
Shares voted "for"................................................... 21,262,223 99.93
Shares voted "against"............................................... 4,128 .02
Shares abstaining.................................................... 9,769 .05
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4 Revolving credit agreement dated as of July 28,
1998 among Mitchell Energy & Development Corp.,
the several banks which are parties thereto and
the Chase Manhattan Bank, as administrative agent
for the banks.
10 1998 Mutual Fund Option Plan
27 Financial Data Schedule
(b) No reports were filed on Form 8-K during the six-month period ended
July 31, 1998.
-20-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MITCHELL ENERGY & DEVELOPMENT CORP.
-----------------------------------
(Registrant)
Dated: September 11, 1998 By: /s/ Philip S. Smith
---------------------------------------
Philip S. Smith
Senior Vice President - Administration
and Chief Financial Officer
-21-
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4 Revolving credit agreement dated as of July 28, 1998 among Mitchell Energy & Development
Corp., the several banks which are parties thereto and the Chase Manhattan Bank, as
administrative agent for the banks.
10 1998 Mutual Fund Option Plan
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4
- --------------------------------------------------------------------------------
MITCHELL ENERGY & DEVELOPMENT CORP.
as Borrower
------------------------------
REVOLVING CREDIT AGREEMENT
Dated as of July 28, 1998
------------------------------
THE CHASE MANHATTAN BANK
as Administrative Agent
PNC BANK, NATIONAL ASSOCIATION,
as Syndication Agent
NATIONSBANK, N.A.,
as Documentation Agent
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS .................................... 1
1.1 Defined Terms ................................. 1
1.2 Accounting Principles ......................... 18
1.3 Use of Defined Terms .......................... 19
SECTION 2. AMOUNT AND TERMS OF LOANS ...................... 19
2.1 Revolving Credit Commitments .................. 19
2.2 Repayment of Loans; Evidence of Debt .......... 20
2.3 Procedure for Borrowing ....................... 21
2.4 Commitment Fee ................................ 22
2.5 Reduction of Commitment ....................... 22
2.6 Prepayments ................................... 22
2.7 Interest Rates and Options .................... 22
2.8 Computation of Interest and Fees; Funding
Procedures .................................... 23
2.9 Inability to Determine Interest Rate .......... 24
2.10 Letter of Credit Commitment ................... 25
2.11 Procedure for Issuance of Letters of Credit ... 25
2.12 Fees, Commissions and Other Charges ........... 25
2.13 Letter of Credit Participation ................ 26
2.14 Reimbursement Obligations of the Borrower ..... 27
2.15 Obligations Absolute .......................... 28
2.16 Letter of Credit Payments ..................... 28
2.17 L/C Documentation ............................. 29
2.18 Pro Rata Treatment and Payments ............... 29
2.19 Illegality .................................... 30
2.20 Increased Costs ............................... 30
2.21 Reemployment Costs ............................ 31
2.22 Taxes ......................................... 32
2.23 Mitigation Obligations; Replacement of Lenders 32
2.24 Use of Proceeds ............................... 33
SECTION 3. REPRESENTATIONS AND WARRANTIES ................. 33
3.1 Organization and Qualification ................ 34
3.2 Corporate Power and Authorization ............. 34
3.3 No Legal Bar on Borrower ...................... 34
3.4 No Material Litigation ........................ 35
3.5 Compliance With Other Instruments; None
Burdensome .................................... 35
3.6 Ownership of Properties; Liens ................ 35
3.7 No Default .................................... 35
3.8 Taxes ......................................... 36
3.9 Financial Condition ........................... 36
3.10 Certain Acts .................................. 37
3.11 Status Under Other Federal Laws and
Regulations ................................... 37
3.12 Disclosure .................................... 38
3.13 ERISA ......................................... 38
SECTION 4. CONDITIONS PRECEDENT ........................... 38
4.1 Conditions to Effectiveness ................... 38
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.2 Conditions to Each Extension of Credit ......... 40
SECTION 5. AFFIRMATIVE COVENANTS ........................... 40
5.1 Financial Statements; Reports .................. 40
5.2 Certificates as to Financial Matters, No
Default, etc ................................... 42
5.3 Payment of Taxes, etc.; Observance of Legal
Requirements; Liens; Contests .................. 43
5.4 Notice of Default, Litigation, etc ............. 43
5.5 Insurance ...................................... 44
5.6 ERISA .......................................... 44
5.7 Maintenance of Existence, Franchises, etc ...... 44
5.8 Maintenance and Improvement of Property ........ 44
5.9 Maintenance of Accounts ........................ 45
5.10 Inspection ..................................... 45
5.11 Transactions with Affiliates ................... 45
SECTION 6. NEGATIVE COVENANTS .............................. 46
6.1 Limitation on Liens ............................ 46
6.2 Restrictions on Incurrence of Subsidiary Debt .. 47
6.3 Consolidated Tangible Net Worth ................ 48
6.4 Restrictions on Disposition of Stock and Debt of
Subsidiaries, etc .............................. 48
6.5 Consolidation, Merger, Sales of Assets, etc .... 49
6.6 Consolidated Leverage Ratio .................... 49
SECTION 7. EVENTS OF DEFAULT ............................... 49
7.1 Nonpayment of Interest or Principal, Insolvency
of Subsidiaries and Other Defaults ............. 49
7.2 Insolvency of the Borrower and Like Defaults ... 52
7.3 Letter of Credit Remedies ...................... 53
7.4 Letter of Credit Account ....................... 54
SECTION 8. THE AGENTS AND THE ISSUING LENDER ............... 56
8.1 Appointment .................................... 56
8.2 Delegation of Duties ........................... 56
8.3 Reimbursement of Administrative Agent and
Issuing Lender ................................. 56
8.4 Exculpatory Provisions ......................... 57
8.5 Indemnification of Administrative Agent and
Issuing Lender ................................. 57
8.6 Reliance by Administrative Agent and Issuing
Lender ......................................... 57
8.7 Administrative Agent and Issuing Lender in
Individual Capacity ............................ 58
8.8 Non-Reliance ................................... 58
8.9 Successor Administrative Agent ................. 59
8.10 Documentation Agent and Syndication Agent ...... 59
SECTION 9. MISCELLANEOUS ................................... 59
9.1 Waiver of Default .............................. 59
9.2 Request to Administrative Agent ................ 60
9.3 Amendments ..................................... 60
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
9.4 Notices .............................. 60
9.5 Adjustments; Set-Off ................. 61
9.6 No Waiver; Cumulative Remedies ....... 62
9.7 Payment of Expenses and Taxes ........ 62
9.8 Notice of Action ..................... 63
9.9 Survival of Agreements ............... 63
9.10 Successors and Assigns; Participations 64
9.11 Counterparts ......................... 66
9.12 Severability ......................... 66
9.13 Interest ............................. 67
9.14 GOVERNING LAW ........................ 68
9.15 SUBMISSION TO JURISDICTION; WAIVERS .. 68
9.16 WAIVERS OF JURY TRIAL ................ 69
Schedule 1 Applicable Margins, Letter of Credit Commission
Rate, Commitment Fee Rate
Schedule 2 Subsidiaries, Restricted and Unrestricted
Schedule 3 Existing Liens
Schedule 4 Existing Debt
Schedule 5 Lender Offices
Exhibit A - Form of Note
Exhibit B - Form of Legal Opinion of Counsel to the Borrower
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Closing Certificate
</TABLE>
-iii-
<PAGE> 5
REVOLVING CREDIT AGREEMENT, dated as of July 28, 1998 (as
amended, supplemented or otherwise modified, this "Credit Agreement"), among
Mitchell Energy & Development Corp., a Texas corporation (the "Borrower"), the
several banks and other financial institutions or entities from time to time
parties to this Credit Agreement (collectively, the "Lenders", each a "Lender"),
including each of The Chase Manhattan Bank and Chase Manhattan Bank Delaware in
their respective capacities as Issuing Lender, The Chase Manhattan Bank, a New
York banking corporation, as Administrative Agent for the Lenders (in such
capacity, the "Administrative Agent"), PNC Bank, National Association, a
national banking association, as Syndication Agent for the Lenders (in such
capacity, the "Syndication Agent") and NationsBank, N.A., a national banking
association, as Documentation Agent for the Lenders (in such capacity, the
"Documentation Agent").
W I T N E S S E T H :
WHEREAS, the Borrower has requested the Lenders to make loans
to it in an aggregate principal amount not to exceed $250,000,000 at any time
outstanding, the proceeds of which will be used for general corporate purposes
by the Borrower and its Subsidiaries; and
WHEREAS, the Lenders are willing to make such loans upon the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used herein the following terms shall
have the following meanings, unless the context shall otherwise require:
"ABR Rate" means the highest of (i) the rate of interest
publicly announced by Chase as its prime rate in effect at its
principal office in New York City (the "Prime Rate") and (ii) the
Federal Funds Effective rate from time to time plus 0.5%. Any change in
the ABR Rate due to a change in the foregoing prime rate or in the
Federal Funds Effective Rate shall be effective from and including the
effective date of each such change.
"ABR Rate Loans" means Loans hereunder at such time as they
are made and/or being maintained at a rate of interest based upon the
ABR Rate.
<PAGE> 6
2
"Accountants" means Arthur Andersen L.L.P. or such
other independent public accountants of recognized national
standing selected by the Borrower with the prior approval of
the Required Lenders.
"Advance Payment Obligation" when used with respect to any
Person, means indebtedness, obligations and liabilities of such Person
arising out of any loan, advance or take or pay payment (or other
payment for Petroleum or other products not delivered by such Person)
made to such Person in connection with or pursuant to the commitment or
contract of such Person to sell or offer to sell or deliver (i)
Petroleum to be produced from or attributable to designated Mineral
Interests owned or to be acquired by such Person, (ii) products of Gas
Processing Plant Assets, or (iii) fees, revenues or products of Gas
Gathering and Transmission Assets, to or upon the order of the party
making such loan, advance or payment, whether or not such Person is in
fact liable for such indebtedness, obligations and liabilities or pays
or is liable for interest thereon.
"Affiliate" when used with respect to any Person, means any
other Person (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such first mentioned Person, or (ii) which beneficially
owns or holds 10% or more of any class of Voting Stock of such first
mentioned Person, or (iii) 10% or more of whose Voting Stock is
beneficially owned or held by such first mentioned Person and/or any of
its Affiliates. The term "control" (including the terms "controlled by"
and "under common control with") means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of
Voting Stock, by contract or otherwise; provided, however, that no
Person shall be deemed to be an Affiliate of another Person (i) by
reason of the exercise or existence of rights or remedies granted under
this Credit Agreement or (ii) by reason of such Person's being a
participant in a joint venture, partnership, joint operating group or
joint undivided ownership group with such other Person notwithstanding
the fact that such joint venture, partnership, joint operating group or
joint undivided ownership group may be an Affiliate of such first
Person.
"Agents" means the collective reference to the
Administrative Agent, Syndication Agent and Documentation
Agent.
"Aggregate Outstanding Extensions of Credit" means, as to any
Lender at any time, an amount equal to the sum of (a) the aggregate
principal amount of all Loans made by such Lender then outstanding and
(b) such Lender's Commitment Percentage of the L/C Obligations then
outstanding.
<PAGE> 7
3
"Applicable Margin" means, with respect to ABR Rate Loans and
Eurodollar Loans, the percentage set forth opposite said terms in the
appropriate column on Schedule 1.
"Available Commitment" means, as to any Lender, an amount
equal to the excess, if any, of (a) such Lender's Commitment over (b)
such Lender's Aggregate Outstanding Extensions of Credit.
"Board of Directors" or "Board" means the Board of Directors
of the Borrower or a committee of directors lawfully exercising the
relevant powers of the Board.
"Business Day" means (a) a day other than a Saturday, Sunday
or other day on which commercial banks in New York City are authorized
or required by law to close and (b) if a Eurodollar Loan is concerned,
a day which meets the criterion set forth in clause (a) and upon which
banks are also open for transactions in Dollars in the London interbank
market.
"Capital Lease" means any lease of property which, in
accordance with GAAP, should be capitalized on the lessee's balance
sheet and "Capital Lease Obligation" means the amount of the liability
which should be so capitalized.
"Chase" means The Chase Manhattan Bank.
"Chase Delaware" means Chase Manhattan Bank Delaware.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Commitment" means each Lender's obligation to make loans to
the Borrower and/or to issue and/or participate in Letters of Credit
issued on behalf of the Borrower in an aggregate principal and/or face
amount at any one time outstanding not to exceed the amount set forth
opposite such Lender's name in subsection 2.1; collectively, as to all
the Lenders, the "Commitments".
"Commitment Fee Rate" means the percentage set forth opposite
Commitment Fee Rate in the appropriate column on Schedule 1.
"Commitment Percentage" means, with respect to any Lender at
any time, the percentage which such Lender's Commitment then
constitutes of the aggregate Commitments (or, at any time after the
Commitments shall have expired or terminated, the percentage which the
Aggregate Outstanding Extensions of Credit of such Lender constitutes
of the Aggregate Outstanding Extensions of Credit of all the Lenders).
<PAGE> 8
4
"Commitment Period" means the period from and including the
Effective Date to but not including the Scheduled Termination Date or
such earlier date as the Commitments shall terminate as provided
herein.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA.
"Common Stock" means all capital stock of any corporation
other than Preferred Stock of such corporation.
"Consolidated Debt", as applied to the Borrower and its
Subsidiaries at any date, means the sum of all Debt of the Borrower and
its Subsidiaries at such date, determined on a consolidated basis.
"Consolidated EBITDA": for any period, Consolidated Net Income
for that period, plus, without duplication and to the extent deducted
from revenues in determining Consolidated Net Income for that period,
(a) interest expense, amortization and write-off of debt discount and
debt issuance costs and commissions, discounts and other fees and
charges, associated with debt (including the Loans), (b) income tax
expense, (c) depreciation, depletion and amortization, (d) amortization
of intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary, unusual or non-recurring
expenses and (f) any other non-cash charges, and minus, without
duplication and to the extent added to revenues in determining
Consolidated Net Income for that period, (a) any extraordinary, unusual
or non-recurring income and (b) any other non-cash income; provided,
however, that when the Borrower or any Subsidiary acquires a Person or
other asset, Consolidated EBITDA shall be calculated on a pro forma
basis as if such acquisition had occurred on the first day of the
relevant measuring period so long as the calculation of the pro forma
adjustment is reviewed by Accountants and based on procedures
satisfactory to the Administrative Agent; and provided, further, that
if such pro forma calculation is not reviewed by Accountants, then
Consolidated EBITDA may be calculated on such a pro forma basis with
the consent of the Required Lenders.
"Consolidated Leverage Ratio": as at the date of any
determination thereof, the ratio of (a) Consolidated Debt on
such determination date to (b) Consolidated EBITDA for the
four-fiscal-quarter period either ending on such
determination date or most-recently ended prior to such
determination date.
"Consolidated Net Income": for any period, the
consolidated net income (or loss) of the Borrower and its
Subsidiaries, plus, any dividends or similar distributions
<PAGE> 9
5
actually received from any Minority-Interest Investment; provided that
there shall be excluded (without duplication) (a) the income (or
deficit) of any Person accrued prior to the date it becomes a
Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, (b) to the extent included in
consolidated net income, any income (or deficit) of any
Minority-Interest Investment and (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary is not
at the time of such determination permitted by the terms of any
Contractual Obligation (other than under any Credit Document) or
Requirement of Law applicable to such Subsidiary.
"Consolidated Tangible Net Worth", as applied to the Borrower
and its Subsidiaries at any date, means stockholders' equity (including
Preferred Stock) as reflected on the consolidated balance sheet of the
Borrower and its Subsidiaries, from which shall be subtracted the
amount of all franchises, licenses, permits, patents, patent
applications, copyrights, trademarks, trade names, goodwill,
experimental or organizational expense, unamortized debt discount and
all other intangible assets, determined on a consolidated basis.
"Consolidated Total Assets" at any date, all assets of the
Borrower and its Subsidiaries as determined according to the
consolidated balance sheet most recently delivered pursuant to
subsection 5.1 or, if no such balance sheet has yet been delivered, the
balance sheet referred to in subsection 3.9(b).
"Contractual Obligation" as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any
of its property is bound.
"Credit Documents" means this Credit Agreement, the Notes, the
L/C Documentation and any other documents prepared in connection
herewith or therewith.
"Debt" as to any Person, at a particular time, means the sum
(without duplication) of (a) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or
services, (b) the face amount of all letters of credit issued for the
account of such Person and all drafts drawn thereunder that are
classified as indebtedness on the balance sheets of such Person in
accordance with generally accepted accounting principles, (c) the
undischarged balance of any Production Payment owing by such Person,
(d) Capital Lease Obligations of such Person and (e) any Guarantee
Obligation of such Person of any of
<PAGE> 10
6
the foregoing; provided, however, that Debt of any Person shall not
include (i) non-recourse Production Payments; (ii) debt where prior to
or at the maturity thereof there shall have been irrevocably deposited
in the manner provided for in the instrument creating such
indebtedness, in trust, the funds (or evidences of such indebtedness,
if permitted by the instrument creating such indebtedness) necessary
for the redemption, payment or satisfaction of all such indebtedness so
to be redeemed, paid or satisfied, and where all other steps
prerequisite to such redemption, payment or satisfaction shall have
been duly taken or duly provided for, and in such case the funds and
evidences of indebtedness so deposited shall not be included in any
computation of the assets of such Person; (iii) any Excluded Debt; and
(iv) any Advance Payment Obligation; and provided, further, that Debt
shall not include liabilities with respect to the refunds of prior
charges to gas purchasers required by governmental or court action to
the extent that a Person other than the Borrower or a Subsidiary will
pay such refunds (and any interest accrued thereon) or will reimburse
the Borrower or such Subsidiary for its payment of the same.
"Default" means an event which, with the giving of notice or
lapse of time, would become an Event of Default.
"Dollar" and "$" means dollars in lawful currency of
the United States of America.
"Effective Date" means the date on which (a) counterparts of
this Credit Agreement executed by the Borrower, the Agents and each
Lender shall have been delivered to the Borrower and the Administrative
Agent and (b) the other conditions set forth in subsection 4.1 shall
have been satisfied.
"ERISA" means the Employee Retirement Income Security Act of
1974, as the same may from time to time be amended or supplemented.
"Eurocurrency Reserve Requirements" for any day as applied to
a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal
Reserve System (or any successor) or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of the Board of Governors
of the Federal Reserve System (or any successor)) maintained by a
member bank of the Federal Reserve System.
<PAGE> 11
7
"Eurodollar Base Rate" with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
determined on the basis of the rate for deposits in Dollars for a
period equal to such Interest Period commencing on the first day of
such Interest Period appearing on Page 3750 of the Dow Jones Markets
screen as of 11:00 A.M., London time, two Business Days prior to the
beginning of such Interest Period. In the event that such rate does not
appear on Page 3750 of the Dow Jones Markets screen (or otherwise on
such screen), the "Eurodollar Base Rate" shall be determined by
reference to such other comparable publicly available service for
displaying eurodollar rates as may be selected by the Administrative
Agent or, in the absence of such availability, by reference to the
rates at which the Reference Lenders are offered Dollar deposits at or
about 11:00 A.M., London time, two Business Days prior to the beginning
of such Interest Period in the London interbank market for delivery on
the first day of such Interest Period for the number of days comprised
therein and in an amount equal to the amount of the corresponding
Eurodollar Loan.
"Eurodollar Loans" means Loans hereunder at such time as
interest thereupon accrues at a rate based upon the Eurodollar Rate.
That portion of the principal of such Loans to which a single Interest
Period applies shall be a single Eurodollar Loan.
"Eurodollar Rate" with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
--------------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default" means any of the events specified in
Section 7 hereof, provided that any requirement for notice or lapse of
time or any other condition has been satisfied.
"Excluded Debt" means (i) debt under agreements in effect on
June 30, 1998 and indicated on Schedule 4 to the extent such debt is
listed as "Non-Recourse Debt" on Schedule 4, (ii) debt of C&L
Processors Partnership listed as "Recourse" on Schedule 4 that is owed
to Mitchell Gas Operating, Inc.; (iii) debt of a partnership or joint
venture in which the Borrower or any Subsidiary is a partner or joint
venturer incurred after the Effective Date, and with respect to which a
written waiver has been obtained from each holder of such debt waiving
all liability of the Borrower or any Subsidiary, as the case may be,
with respect thereto; (iv) debt of the Borrower or any Subsidiary (A)
which is recourse only to the assets of the Borrower or such
<PAGE> 12
8
Subsidiary acquired or financed with the proceeds of such debt and the
provisions of which debt with respect to its limited recourse nature
shall have been approved by the Required Lenders at least 10 days prior
to its incurrence and (B) with respect to which a written waiver shall
have been obtained from each holder of such debt waiving all liability
of the Borrower or such Subsidiary with respect thereto; and (v)
Guarantee Obligations of the Borrower of Debt (1) of Houston Advanced
Research Center in an amount not to exceed $9,400,000 and (2) related
to the Industrial Development Revenue Bonds (Series 1982) (the Fort
Crockett Hotel Limited Project) issued by the Galveston Industrial
Development Corporation to finance a portion of the cost of the San
Luis Hotel in Galveston, Texas not to exceed $8,000,000.
"Existing Credit Agreement" means the Amended and Restated
Credit Agreement, dated as of April 19, 1996, as amended by the First
Amendment thereto dated as of January 31, 1997, the Second Amendment
thereto dated as of July 31, 1997 and the Third Amendment thereto dated
as of January 30, 1998 among (a) Southwestern Gas Pipeline, Inc., (b)
MND Energy Corporation, (c) the several banks which are parties
thereto, including the Issuing Bank (as defined therein), and (d)
Chase, as administrative agent for the Banks.
"Federal Funds Effective Rate" 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 on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day that is a Business Day, the average of the quotations for
the day of such transactions received by the Reference Lenders from
three federal funds brokers of recognized standing selected by it.
"Fee Payment Date" means the last day of each January, April,
July and October.
"Fiscal Year" means the period of 12 consecutive calendar
months commencing on (and including) February 1 and ending on (and
including) the next following January 31. Each quarter of a Fiscal Year
is hereinafter referred to as a "fiscal quarter".
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is
located. For purposes of this definition, the United States of America,
each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.
"GAAP" means generally accepted accounting principles.
<PAGE> 13
9
"Gas Gathering and Transmission Assets" means the fixed
property, plant and equipment of the Borrower and its Subsidiaries
employed in the gathering and transmission of natural gas, including,
but not limited to, pipelines, compressors and natural gas required for
line pack. In addition, assets (i) of a partnership or joint venture in
which the Borrower or any Subsidiary has an investment and which has no
Debt or has outstanding Debt that is recourse to the Borrower or any
Subsidiary and (ii) which would constitute Gas Gathering and
Transmission Assets if owned by the Borrower or a Subsidiary shall be
Gas Gathering and Transmission Assets for purposes of this Credit
Agreement.
"Gas Processing Plant Assets" means the fixed property, plant
and equipment of the Borrower and its Subsidiaries, including
associated gathering lines with respect to which a separate gathering
fee is not charged, employed in processing of natural gas or gas
condensate to produce ethane, propane, butanes, natural gasoline and
other liquefiable hydrocarbons. In addition, assets (i) of a
partnership or joint venture in which the Borrower or any Subsidiary
has an investment and which has no Debt or has outstanding Debt that is
recourse to the Borrower or any Subsidiary and (ii) which would
constitute Gas Processing Plant Assets if owned by the Borrower or a
Subsidiary shall be Gas Processing Plant Assets for purposes of this
Credit Agreement.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other
entity owned or controlled (through stock or capital ownership or
otherwise) by any of the foregoing.
"Guarantee Obligation" means, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Debt (the
"primary obligations") of any other Person (the "primary obligor") in
any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent
(a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of
the primary obligor, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect thereof;
<PAGE> 14
10
provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation shall be
deemed to be an amount equal to the stated portion or determinable
amount of the primary obligation in respect of which such Guarantee
Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by
the Borrower in good faith.
"Interest Payment Date" means (a) as to ABR Rate Loans, the
last day of each January, April, July and October commencing on the
first of such days to occur after an ABR Rate Loan is made or
Eurodollar Loans are converted to ABR Rate Loans, (b) as to any
Eurodollar Loan having an Interest Period of three months or less the
last day of each Interest Period with respect thereto, (c) as to any
Eurodollar Loan in respect of which a Borrower has selected an Interest
Period longer than three months each day which is three months or a
whole multiple thereof, from the first day of such Interest Period and
the last day of such Interest Period, and (d) the date of each
prepayment as to the principal amount prepaid.
"Interest Period" means, with respect to any Eurodollar Loan,
a period beginning on, as the case may be, the relevant borrowing or
conversion date or on the date of the expiration of the then current
Eurodollar Interest Period therefor and ending one, two, three or six
months (or twelve months, subject to availability in the opinion of the
Lenders) thereafter, or, with the prior written consent of the Lenders
and subject to availability in the opinion of the Lenders, any other
duration (as selected by the Borrower in its notice of borrowing or
conversion or by irrevocable notice received by the Administrative
Agent prior to 12:00 noon (New York City time) on the third Business
Day prior to the last day of the then current Eurodollar Interest
Period therefor if the Loan is to be continued as such); provided that:
(a) if any Eurodollar Interest Period would otherwise
end on a day which is not a Business Day, that Eurodollar
Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to
extend such Eurodollar Interest Period into another calendar
month in which event such Eurodollar Interest Period shall end
on the immediately preceding Business Day;
(b) any such notice electing Eurodollar Loans but not
specifying the length of a Eurodollar Interest Period therefor
shall be deemed an election of ABR Rate Loans; and
<PAGE> 15
11
(c) any Eurodollar Interest Period that would
otherwise extend beyond the Scheduled Termination Date shall
end on the Scheduled Termination Date.
"Issuing Lender" means, collectively, Chase and Chase
Manhattan Bank Delaware in their respective capacities as issuers of
any Letters of Credit hereunder.
"L/C Documentation" means an application, in such form as the
Issuing Lender may specify from time to time, requesting the Issuing
Lender to issue a Letter of Credit and/or such other certificates,
documents and other papers and information as the Issuing Lender may
reasonably request in connection with such issuance.
"L/C Obligations" means at any time, an amount equal to the
sum of (a) the aggregate then undrawn and unexpired amount of the then
outstanding Letters of Credit and (b) the aggregate amount of drawings
under Letters of Credit which have not then been reimbursed by the
Borrower pursuant to subsection 2.14(a).
"Lending Office" means the office of each Lender designated as
such on Schedule 5, as well as any office notified as such by a Lender
to the Borrower via the Administrative Agent. A Lender may designate
separate "Domestic" and "Eurodollar" Lending Offices for its loans
which are a portion of ABR Rate Loans and Eurodollar Loans,
respectively.
"Letters of Credit" has the meaning set forth in
subsection 2.10(a).
"Letter of Credit Account" has the meaning set forth in
subsection 7.4(a).
"Letter of Credit Commission Rate" means the percentage set
forth opposite Letter of Credit Commission Rate in the appropriate
column on Schedule 1.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without limitation,
any conditional sale or other title retention agreement, any lease
(including, but not limited to, any Capital Lease) in the nature
thereof, any agreement to give any mortgage, security interest,
encumbrance or pledge and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any
jurisdiction. An Advance Payment Obligation or Production Payment shall
not be deemed a Lien on Mineral Interests for purposes of this Credit
Agreement.
"Loan" or "Loans" shall refer to one or more portions
of the outstanding principal balance of loans made by the
<PAGE> 16
12
Lenders to the Borrower pursuant to subsection 2.1 hereof; a particular
"Loan" shall bear interest at a common rate (i.e., the principal amount
of the ABR Rate Loans bears interest at a rate based upon the ABR Rate,
and a particular Eurodollar Loan bears interest at a particular rate
for each Interest Period). References to "Eurodollar" and "ABR Rate"
refer to bases for interest, not necessarily to a source of funds or
procedure actually used to make or maintain loans. In contrast, each
Lender's portion of a Loan is one of its "loans".
"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, property or condition (financial or
otherwise) of the Borrower and its Subsidiaries taken as a whole which
would impair the ability of the Borrower to repay the Loans or (b) the
validity or enforceability of any of the Credit Documents or the rights
or remedies of the Administrative Agent or the Lenders thereunder.
"Material Subsidiary" means, for so long as they shall remain
Subsidiaries of the Borrower, each of MGSLP and MEC.
"Maximum Rate" shall mean, for any Lender, the maximum lawful
non-usurious rate of interest (if any) which, under any law in effect
and applicable to such Lender, is permitted to be charged by such
Lender to the Borrower on the transactions evidenced by this Credit
Agreement and any Notes from time to time in effect, including changes
in such Maximum Rate attributable to changes under such law which
permit a greater rate of interest to be contracted for, charged,
collected, received or taken as of the effective date of such
respective changes.
"MEC" means Mitchell Energy Corporation, a Delaware
corporation.
"MGSLP" means Mitchell Gas Services L.P., a Delaware
limited partnership.
"Mineral Interests" means leasehold and other interests in
Petroleum in or under oil, gas and other mineral leases, mineral fee
interests, and overriding royalty and Production Payments, and royalty,
net profits interests and any other interests in Petroleum in place
situated in the United States or Canada or within the limits of the
territorial and offshore waters of the United States or any state
thereof or Canada or any province thereof.
"Minority-Interest Investment" means any Person (other than a
Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest.
<PAGE> 17
13
"Multiemployer Plan" means a Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Note" shall have the meaning given such term in subsection
2.2(e) hereof.
"Officers' Certificate" means a certificate signed by (a) the
chief financial officer or principal accounting officer of the Borrower
or (b) the Chairman of the Board, the Vice Chairman of the Board, the
President or a Vice President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of a Person.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"Permitted Encumbrances" means as applied to the
Borrower or any Subsidiary:
(a) liens of taxes, assessments and governmental
charges not yet payable, or payable without penalty so long as
so payable, or deposits created in the ordinary course of
business as security for compliance with laws imposing taxes,
assessments or governmental charges;
(b) liens of taxes, assessments and governmental
charges the validity of which is being contested in good faith
by appropriate action promptly initiated and diligently
conducted, if such reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made
therefor;
(c) materialmen's, mechanics', repairmen's,
employees', operators' or other similar liens or charges
arising in the ordinary course of business incidental to
construction, maintenance or operation of any property which
have not at the time been filed pursuant to law and any such
liens and charges incidental to construction, maintenance or
operation of any property which, although filed, relate to
obligations not yet due or the payment of which is being
withheld as provided by law, or to obligations the validity of
which is under contest in good faith by appropriate action
promptly initiated and diligently conducted if such reserve or
other appropriate provision, if any, as shall be required by
GAAP shall have been made for such withheld payment or
contested claim;
(d) liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other similar statutory obligations
or to secure the performance of
<PAGE> 18
14
leases, licenses, franchises, permits, tenders, statutory
obligations, surety and appeal bonds, performance and
return-of-money bonds and other similar obligations (exclusive
of obligations incurred in connection with the borrowing of
money or the obtaining of advances or credit);
(e) any judgment lien, unless the judgment it secures
shall not, within 30 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or
shall not have been discharged within 30 days after the
expiration of any stay, provided, however, that the aggregate
amount of such liens securing judgments which have not been
discharged or stayed within such 30-day period shall not
exceed $50,000,000 at any one time;
(f) (i) encumbrances (other than to secure the
payment of money), easements, rights-of-way, servitudes,
permits, leases and other rights in respect of grazing,
logging, canals, ditches, reservoirs or the like, conditions,
covenants or other restrictions, or (ii) easements for
streets, alleys, highways, pipelines, telephone lines, power
lines, railways and other rights-of-way, on, over or in
respect of property owned or leased by the Borrower or its
Subsidiaries or over which the Borrower or its Subsidiaries
own rights-of-way, easements, permits or licenses, provided
that such encumbrances, easements, rights-of-way, servitudes,
permits, leases, rights, conditions, covenants or other
restrictions are such that they will not either individually
or in the aggregate, if exercised or availed of, interfere
materially with the proper use or operation of the property
affected thereby or the purpose for which such property is, or
is to be, used;
(g) rights reserved to or vested in any municipality
or governmental, statutory or public authority to control or
regulate any property of the Borrower or its Subsidiaries or
to use such property in any manner;
(h) obligations or duties, affecting any property of
the Borrower or its Subsidiaries, to any municipality or
public authority with respect to any franchise, grant, license
or permit; and any defects in title to structures or other
facilities arising solely from the fact that such structures
or facilities are constructed or installed on lands held under
government permits, leases or other grants, which defects in
the aggregate do not materially prevent the use of such
property for the purposes for which it is held by the Borrower
or its Subsidiaries;
<PAGE> 19
15
(i) zoning laws and ordinances and municipal
regulations;
(j) defects or irregularities in the titles to any
property which defects or irregularities have been cured by
possession under applicable statutes of limitation or which
are of a minor nature and in the aggregate will not materially
impair the use of such property for the purposes for which it
is held; and any irregularities in or deficiencies of title to
any rights-of-way for pipelines, telephone lines, power lines,
water lines and/or appurtenances thereto or improvements
thereon, and to any real estate or interest therein subject to
such rights-of-way;
(k) the lien reserved in leases for rent and for
compliance with the terms of the leases in the case of
leasehold estates; any interests which other parties to any
joint venture, common enterprise, pooling or unitization
agreement may have in the Mineral Interests to which such
agreement relates or any interests with which other parties
may be vested pursuant to orders, regulations, rules or other
official acts of any Federal, state or other governmental
agency having jurisdiction which create or declare any unit or
units embracing or relating to Mineral Interests or the
production of Petroleum therefrom;
(l) any Lien securing Debt, not created, assumed or
guaranteed by the Borrower or its Subsidiaries and on which
neither the Borrower nor its Subsidiaries customarily pay
interest, existing upon real estate or rights in or relating
to real estate (including rights-of-way and easements)
acquired by the Borrower or its Subsidiaries for the purposes
of production, treatment, storage or transportation of
Petroleum but excluding Gas Processing Plant Assets and Gas
Gathering and Transmission Assets; or any such Liens upon oil
and gas leasehold interests at the date of lease execution
which are of a minor nature and in the aggregate will not
materially impair the use of such property for the purposes
for which it is held;
(m) the right reserved to, or vested in, any
municipality or governmental or other public authority or
public utility, by the terms of any franchise, grant, license,
permit or lease or by any statutory provisions specifically
relating thereto, to terminate such franchise, grant, license,
permit or lease or to purchase, condemn, expropriate or
recapture, or designate a purchaser of, any property, if the
terms of such franchise, grant, license, permit or lease or
statute do not contain any provisions giving to such authority
the right (without default by such Person
<PAGE> 20
16
under the terms and conditions of such franchise, grant,
license, permit or lease by the Person holding the same) to
take title to, or to designate any Person to take title to,
any property of the Borrower or its Subsidiaries located or
constructed thereon without the payment of fair consideration
therefor or consideration determined in accordance with any
applicable statutory provision in that regard; and the right
reserved to or vested in any such authority to require such
property to be altered, relocated or removed at the expense of
the holder of such franchise, grant, license, permit or lease;
and
(n) production sale contracts, unitization and
pooling declarations and agreements, and any operating
agreements and other agreements which are customary in the oil
and gas exploration and development business and in the
business of processing gas and gas condensate production for
the extraction of products therefrom.
"Person" means an individual, a corporation (including the
Borrower or any of its Subsidiaries), a partnership, a limited
liability company, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"Petroleum" means oil, gas and other liquid or gaseous
hydrocarbons, including, but not limited to, all liquefiable
hydrocarbons and other products which may be extracted from gas and gas
condensate by the processing thereof in a gas processing plant.
"Plan" means at any particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or a
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer"
as said term is defined in Section 3(5) of ERISA.
"Preferred Stock" means any capital stock of any corporation
(whether now or hereafter authorized and however designated) which
shall have a priority or preference over any other class of capital
stock of such corporation with respect to the right to receive
dividends or the right to receive payments or other distributions of
assets on the voluntary or involuntary liquidation, dissolution or
winding up of such corporation.
"Production Payment" means a limited royalty or overriding
royalty interest which burdens one or more other Mineral Interests but
which has a term extending only until such time as the owner or owners
of such royalty or overriding royalty interest have realized therefrom
(i) a
<PAGE> 21
17
specified or determinable amount of the Petroleum produced from or
attributable to such other Mineral Interests or (ii) a specified or
determinable amount of the proceeds from the value of such Petroleum
production.
"Reference Lenders" means Chase, PNC Bank, National
Association and NationsBank, N.A.
"Register" shall have the meaning given such term in
subsection 9.10(d).
"Reimbursement Obligation" means an obligation of the Borrower
to reimburse the Issuing Lender pursuant to subsection 2.14(a) for
amounts drawn under Letters of Credit issued by the Issuing Lender.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA other than those events as to which the
thirty-day notice period is waived under subsections .13, .14, .16,
.18, .19 or .20 of PBGC Reg. 2615.
"Required Lenders" means Lenders holding more than 50% of the
Commitment Percentages then in effect.
"Requirement of Law" means, as to any Person, the Certificate
of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon, such Person or
any of its property or to which such Person or any of its property is
or purports to be subject.
"Scheduled Termination Date" means July 29, 2003.
"Securities" means any stocks, any bonds, debentures, notes or
other evidences of Debt, and any other instruments generally known as
securities; any certificates of interest or participation in, temporary
or interim certificates for, receipts for, guarantees of, or warrants
or rights to subscribe to or purchase, any of the foregoing; and any
agreements, indentures, mortgages or other instruments providing for,
relating to or securing any of the foregoing.
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Subsidiary" means with respect to any Person, a corporation,
partnership or other business entity, of which a majority (by number of
votes) of the Voting Stock is at the time owned by such Person or one
or more of such Person's Subsidiaries or by such Person and one or more
of such Person's Subsidiaries. Unless the context requires
<PAGE> 22
18
otherwise, "Subsidiary" shall be deemed to refer to a
Subsidiary of the Borrower.
"Type" means as to any Loan, its nature as an ABR Rate
Loan or a Eurodollar Loan.
"Uniform Customs" means the Uniform Customs and
Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500, as
the same may be amended from time to time.
"Voting Stock" means (i) any stock or shares any class or
classes (however designated) of a corporation, (ii) any and all
equivalent ownership interests in a Person (other than a corporation)
and (iii) any and all warrants, rights or options to purchase any of
the foregoing, having ordinary voting power for the election of a
majority of the members of the board of directors (or other governing
body) of such corporation or Person other than stock, shares or
ownership interests having such power only by reason of the happening
of a contingency.
1.2 Accounting Principles. All financial statements provided
for in this Credit Agreement shall be prepared in accordance with GAAP as in
effect from time to time in the United States. All financial computations
hereunder required pursuant to Section 6 shall be made, and all accounting terms
used in connection therewith shall be construed, in accordance with GAAP applied
by the Borrower; provided however, that if GAAP or the Borrower's application of
GAAP changes and such change is judged to be material by either the Borrower or
the Administrative Agent, then the Borrower or the Administrative Agent shall
give written notice (a "Notice of Accounting Change") to the other party and
such computations will be made in accordance with GAAP in effect and as applied
by the Borrower immediately prior to such material change. The Administrative
Agent or the Borrower must give such Notice of Accounting Change to the other
party within three months of receipt by the Administrative Agent of the notice
and schedule referred to in the immediately succeeding sentence. The Borrower
agrees to notify the Lenders in writing of any material change in GAAP affecting
the Borrower or of any material change in the Borrower's application of GAAP and
to provide a schedule which shows the effect of such change on such financial
computations or such calculations, all within five Business Days of sending (or
being required to send) to each Lender the first financial statements pursuant
to subsection 5.1(a) or subsection 5.1(b) hereof reflecting such change.
In the event a Notice of Accounting Change is given by either
party:
(i) It is the intent of the Administrative Agent and the
Borrower that the relevant provisions of this Credit Agreement be
amended as necessary to adjust the requirements
<PAGE> 23
19
of the aforementioned financial computations so that the respective
positions of the Lenders and the Borrower after the accounting change
conform as nearly as possible to their respective positions as of the
date of this Credit Agreement.
(ii) Until an amendment in accordance with clause (i)
above is executed, financial computations will be made in accordance
with GAAP in effect and as applied by the Borrower immediately prior to
the material change.
1.3 Use of Defined Terms. (a) All terms defined in this Credit
Agreement shall have the defined meanings when used in any Notes, certificates,
reports or other documents made or delivered pursuant to this Credit Agreement,
unless the context shall require otherwise.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Credit Agreement shall refer to this Credit
Agreement as a whole and not to any particular provision of this Credit
Agreement, and section, subsection, schedule and exhibit references are to this
Credit Agreement unless otherwise specified.
SECTION 2. AMOUNT AND TERMS OF LOANS
2.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions of this Credit Agreement, each of the Lenders severally agrees to
make loans to the Borrower from time to time during the Commitment Period in an
aggregate principal amount which, when added to such Lender's Commitment
Percentage of the then outstanding L/C Obligations, does not exceed the amount
of its Commitment set opposite its name below, as such amount may be reduced as
provided herein:
<TABLE>
<CAPTION>
Amount of
Lender Commitment
------ ----------
<S> <C>
The Chase Manhattan Bank $45,000,000
NationsBank, N.A. $40,000,000
PNC Bank, National
Association $40,000,000
Bank One, (Texas), N.A. $40,000,000
</TABLE>
<PAGE> 24
20
<TABLE>
<CAPTION>
Amount of
Lender Commitment
------ ----------
<S> <C>
ABN AMRO Bank N.V.,
Houston Agency $25,000,000
Bank of Tokyo-Mitsubishi,
Ltd., Houston Agency $25,000,000
Wells Fargo Bank (Texas)
National Association $20,000,000
The Bank of Nova Scotia $15,000,000
------------
Total $250,000,000
============
</TABLE>
During the Commitment Period, the Borrower may use the Commitments by borrowing,
prepaying outstanding Loans, in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof.
(b) The Loans may be (i) Eurodollar Loans, (ii) ABR Rate Loans
or (iii) a combination thereof, as determined by the Borrower pursuant to
subsection 2.7.
2.2 Repayment of Loans; Evidence of Debt. (a) The hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each loan of such Lender on the
Scheduled Termination Date (or such earlier date on which the Loans become due
and payable pursuant to Section 7). The Borrower hereby further agrees to pay
interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 2.7.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Credit Agreement.
(c) The Administrative Agent shall maintain the Register
pursuant to subsection 9.10(d), and a subaccount therein
<PAGE> 25
21
for each Lender, in which shall be recorded (i) the amount of each Loan made
hereunder, the Type thereof and each Interest Period applicable thereto, (ii)
the amount of any principal or interest due and payable or to become due and
payable from the Borrower to each Lender hereunder and (iii) both the amount of
any sum received by the Administrative Agent hereunder from the Borrower and
each Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 2.2(b) shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the loans made to
the Borrower by such Lender in accordance with the terms of this Credit
Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender a promissory note of the Borrower evidencing the loans of such
Lender, substantially in the form of Exhibit A with appropriate insertions as to
date and principal amount (a "Note").
2.3 Procedure for Borrowing. (a) The Borrower may borrow under
the Commitments during the Commitment Period on any Business Day; provided that
the Borrower shall give the Administrative Agent irrevocable notice (which
notice must be received by the Administrative Agent prior to 12:00 noon, New
York City time, (a) three Business Days prior to the borrowing date, in the case
of Eurodollar Loans and (b) on the borrowing date, in the case of ABR Rate
Loans) specifying (i) the amounts to be borrowed, (ii) the borrowing date, (iii)
whether the borrowings are to be Eurodollar Loans, ABR Rate Loans or a
combination thereof and (iv) if the borrowing (or any portion thereof) is a
Eurodollar Loan, the length of the initial Interest Period or periods therefor
(subject to the definitional provisions hereof). Each borrowing pursuant to the
Commitments shall be in a principal amount of the lesser of (x) $5,000,000 or a
whole multiple thereof and (y) the available undrawn portion of the Commitments.
(b) Upon receipt of a notice complying with paragraph (a) of
this subsection 2.3 from the Borrower the Administrative Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Administrative Agent for the account of
the Borrower at the office of the Administrative Agent designated by the
Administrative Agent in the Administrative Agent's aforesaid notice prior to
1:00 p.m. (according to the time of the place where such office of the
Administrative Agent is located) on the borrowing date requested by the Borrower
in funds immediately
<PAGE> 26
22
available to the Administrative Agent as the Administrative Agent may direct.
The proceeds of all such loans will immediately thereafter be made available to
the Borrower by the Administrative Agent crediting the account of the Borrower
on the books of the Administrative Agent with the aggregate of the amount made
available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
2.4 Commitment Fee. The Borrower shall pay to the Agent
during and for the Commitment Period for the account of each Lender a commitment
fee, computed at the Commitment Fee Rate, on the Available Commitment of such
Lender during such period. Such commitment fee shall be payable in arrears on
each Fee Payment Date to occur prior to the Scheduled Termination Date and on
the Scheduled Termination Date or such earlier date as the Commitments shall
terminate as provided herein and shall be shared ratably among the Lenders in
accordance with their respective Commitment Percentages.
2.5 Reduction of Commitment. The Borrower shall have the
right, upon not less than three Business Days' written, telecopy or telephone
notice (to be confirmed promptly in writing) to the Administrative Agent, to
from time to time terminate or reduce the Commitments by an amount not exceeding
the amount of the then aggregate Available Commitments. Any such reduction by
the Borrower shall be in an amount of $5,000,000 or a whole multiple thereof and
shall reduce permanently the amount of the Commitments then in effect.
Termination of the Commitments shall also terminate the obligation of the
Issuing Lender to issue the Letters of Credit.
2.6 Prepayments. The Borrower may as provided in this
subsection at any time and from time to time prepay the Loans, in whole or in
part, without premium or penalty, upon at least three Business Days' prior
written or telecopy notice to the Administrative Agent, specifying the date and
amount of prepayment. Prepayments of Loans shall first be applied to ABR Rate
Loans to the extent thereof, before prepayment of Eurodollar Loans. Upon receipt
of such notice, the Administrative Agent shall promptly notify each Lender
thereof. The payment amount specified in such notice shall be due and payable on
the date specified, together with accrued interest to such date on the amount
prepaid. Partial optional prepayments of Loans shall be in an aggregate
principal amount of $5,000,000 or a whole multiple thereof.
2.7 Interest Rates and Options. (a) The Loans may be (i)
Eurodollar Loans, (ii) ABR Rate Loans or (iii) a combination thereof, as
determined by the Borrower pursuant to subsection 2.3 or this subsection 2.7.
(b) The entire outstanding principal amount of the Loans
hereunder shall bear interest at one of the following rates per annum, or a
combination thereof, until repaid in full:
<PAGE> 27
23
(i) ABR Rate Loans shall bear interest at a
rate per annum equal to the ABR Rate plus the Applicable
Margin; and
(ii) Eurodollar Loans shall bear interest at a
rate per annum equal to the Eurodollar Rate determined for the
relevant Eurodollar Interest Period plus the Applicable
Margin.
The rates specified in clauses (i) and (ii) shall apply until the unpaid
principal amount of any Loan shall become due and payable (whether at the stated
maturity, by acceleration or otherwise), and thereafter such principal amount
not paid when due shall bear interest at 2% per annum above the rate otherwise
applicable thereto until paid in full, except that each Eurodollar Loan not paid
when due shall be automatically and irrevocably converted into an ABR Rate Loan
on the last day of the Interest Period therefor in effect when such amount
becomes due and payable.
(c) A conversion to an ABR Rate Loan may occur on any Business
Day upon irrevocable telephonic notice (confirmed in writing) by the Borrower
received by the Administrative Agent prior to 12:00 noon (New York City time) on
such Business Day, provided that conversions from any Eurodollar Loan must occur
on the last day of the current Interest Period therefor.
(d) A continuation as, or conversion to, one or more
Eurodollar Loans may occur on any Business Day upon irrevocable telephonic
notice (confirmed in writing) by the Borrower received by the Administrative
Agent prior to 12:00 noon (New York City time) on the third Business Day prior
to the first day of the Eurodollar Interest Period therefor, provided that no
continuation as or conversion to a Eurodollar Loan may be made upon the
occurrence and during the continuance of a Default or an Event of Default, and
provided, further, that any continuation as a Eurodollar Loan must occur on the
last day of the current Interest Period for such continued Loan.
(e) The minimum principal amount to which any such election
upon conversion or continuation may apply if more than one category of interest
rate option is then in effect shall be at least $5,000,000 (i.e., the ABR Rate
Loans and each Eurodollar Loan shall each have a minimum principal amount of
$5,000,000 unless only one such option applies to the entire principal amount
then outstanding).
(f) Interest shall be payable on each Interest Payment Date.
2.8 Computation of Interest and Fees; Funding Procedures. (a)
Interest on ABR Rate Loans and commitment fees shall be calculated on the basis
of a 365- (or 366- as the case may be) day year for the actual number of days
elapsed. Interest on Eurodollar Loans shall be calculated on the basis of a
360-day
<PAGE> 28
24
year for the actual number of days elapsed. The Administrative Agent shall
notify the Borrower of each determination of a Eurodollar Rate. Any change in
the interest rate on a Loan shall become effective as of the opening of business
on the day on which such change shall become effective. The Administrative Agent
shall notify the Borrower and the Lenders of the effective date and the amount
of each such change in the interest rate on a Loan.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Credit Agreement shall be
conclusive and binding on the Borrower in the absence of manifest error.
(c) References to the purchase of deposits in the inter-bank
eurodollar market are included only for the purpose of determining the rate of
interest to be paid upon Eurodollar Loans by reference to rates prevailing in
such market. Each Lender shall be entitled to fund the loans hereunder in any
manner it sees fit, but each Eurodollar Rate and other provisions applicable to
Eurodollar Loans shall be construed and applied upon the conclusive assumption
that each Lender actually funded such portions through the purchase of interbank
eurodollar deposits having a term corresponding to the relevant Interest Periods
and through the transfer of such deposits from a non-United States office to a
United States office.
2.9 Inability to Determine Interest Rate. In the event that
the Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that by reason of circumstances
affecting the interbank eurodollar market adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for any Interest Period for (a) a
proposed loan that the Borrower has requested be made as a Eurodollar Loan, (b)
a Eurodollar Loan that will result from the requested conversion into a
Eurodollar Loan or (c) the continuation of a Eurodollar Loan as such for an
additional Interest Period (any such Eurodollar Loan with an Interest Period so
affected being herein called an "Affected Loan"), the Administrative Agent shall
forthwith give telephone or telecopy notice of such determination, confirmed in
writing, to the Borrower at least one day prior to, as the case may be, the
requested borrowing or conversion date for such Affected Loan or the first day
of a requested succeeding Interest Period. If such notice is given, (i) any
requested Affected Loan shall be made as an ABR Rate Loan unless the Borrower
cancels its request therefor prior to the relevant borrowing date, (ii) any such
conversion into an Affected Loan shall not be effected and (iii) any outstanding
Affected Loan shall be converted, on the last day of the then current Interest
Period therefor, into an ABR Loan pursuant to subsection 2.7. Until such notice
has been withdrawn by the Administrative Agent, no further borrowings as or
conversions to Affected Loans may be made.
<PAGE> 29
25
2.10 Letter of Credit Commitment. (a) Subject to the terms and
conditions hereof, the Issuing Lender, in reliance on the agreements of the
other Lenders set forth in subsection 2.13(a), agrees to issue letters of credit
("Letters of Credit") for the account of the Borrower on any Business Day during
the Commitment Period; provided that the Issuing Lender shall have no obligation
to issue any Letter of Credit if after giving effect to such issuance (i) the
Available Commitments would be less than zero or (ii) the aggregate amount of
all then outstanding L/C Obligations would exceed $150,000,000.
(b) Each Letter of Credit shall
(i) be denominated in Dollars and shall be in form and
substance satisfactory to the Issuing Lender and the Lenders and shall
be issued to support general corporate purposes of the Borrower or its
Affiliates; and
(ii) have an expiration date no later than the earlier of (A)
one year after the date of issuance and (B) five Business Days prior to
the Scheduled Termination Date; provided, however, that any Letter of
Credit with a one-year tenor may provide for the renewal thereof for
additional one-year periods (which shall in no event extend beyond the
date referred to in clause (B)).
(c) Each Letter of Credit shall be subject to the Uniform
Customs.
(d) The Issuing Lender shall at no time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause it
to exceed any limits imposed by, any applicable Requirement of Law.
2.11 Procedure for Issuance of Letters of Credit. The
Borrower may from time to time during the Commitment Period request that the
Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at
its address for notices specified herein L/C Documentation therefor, completed
to the satisfaction of the Issuing Lender, with a copy to the Administrative
Agent. Upon receipt of such L/C Documentation, the Issuing Lender will process
such L/C Documentation in accordance with its customary procedures and shall
promptly issue the Letter of Credit requested thereby (but in no event shall the
Issuing Lender be required to issue any Letter of Credit earlier than three
Business Days after its receipt of such L/C Documentation) by issuing the
original of such Letter of Credit to the beneficiary thereof or as otherwise may
be agreed by the Issuing Lender, the Administrative Agent and the Borrower. The
Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower and
the Administrative Agent promptly following the issuance thereof; upon receipt
thereof, the Administrative Agent shall promptly furnish a copy of such Letter
of Credit to the other Lenders.
<PAGE> 30
26
2.12 Fees, Commissions and Other Charges. (a) The Borrower
shall pay to the Administrative Agent, for the account of the Issuing Lender, a
fronting fee with respect to each Letter of Credit issued by the Issuing Lender,
from the date of issuance of such Letter of Credit to the date of expiration or
termination thereof, at a rate of 1/8% per annum, calculated on the basis of the
actual number of days elapsed in a 365- (or 366-, as the case may be) day year,
of the aggregate amount available to be drawn under such Letter of Credit for
the period over which such fee is calculated. Such fee shall be payable in
arrears on each Fee Payment Date to occur after such issuance and prior to the
Scheduled Termination Date and on the Scheduled Termination Date.
(b) The Borrower shall pay to the Administrative Agent, for
the account of the Lenders, a letter of credit commission with respect to each
Letter of Credit, from the date of issuance of such Letter of Credit to the date
of expiration or termination thereof, at a rate per annum equal to the Letter of
Credit Commission Rate, calculated on the basis of the actual number of days
elapsed in a 365- (or 366-, as the case may be) day year, on the aggregate
amount available to be drawn under such Letter of Credit for the period over
which such commission is calculated. Such commission shall be payable in arrears
on each Fee Payment Date to occur after such issuance and prior to the Scheduled
Termination Date and on the Scheduled Termination Date and shall be shared
ratably among the Lenders in accordance with their respective Commitment
Percentages.
(c) In addition to the foregoing fees and commissions, the
Borrower shall pay or reimburse the Issuing Lender for such normal and customary
costs and expenses as are incurred or charged by the Issuing Lender in issuing,
effecting payment under, amending or otherwise administering any Letter of
Credit.
(d) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Issuing Lender and the Lenders all fees and
commissions received by the Administrative Agent for their respective accounts
pursuant to this subsection.
2.13 Letter of Credit Participation. (a) The Issuing Lender
irrevocably agrees to grant and hereby grants to each other Lender and, to
induce the Issuing Lender to issue Letters of Credit hereunder, each such other
Lender irrevocably agrees to accept and purchase and hereby accepts and
purchases from the Issuing Lender, on the terms and conditions hereinafter
stated, for such other Lender's own account and risk an undivided interest equal
to such other Lender's Commitment Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender thereunder. Each other Lender unconditionally
and irrevocably agrees with the Issuing Lender that, if a draft is paid under
any Letter of Credit for which the Issuing Lender is not reimbursed in full by
the Borrower in accordance with the terms of this Credit Agreement, such other
Lender shall pay to
<PAGE> 31
27
the Issuing Lender upon demand at the Issuing Lender's address for notices
specified herein an amount equal to such other Lender's Commitment Percentage of
the amount of such draft, or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any Lender to the
Issuing Lender pursuant to subsection 2.13(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such Lender shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
funds rate, as quoted by the Issuing Lender, during the period from and
including the date such payment is required to the date on which such payment is
immediately available to the Issuing Lender, times (iii) a fraction the
numerator of which is the number of days that elapse during such period and the
denominator of which is 360. If any such amount required to be paid by any
Lender to the Issuing Lender pursuant to subsection 2.13(a) is not in fact made
available to the Issuing Lender by such Lender within three Business Days after
the date such payment is due, the Issuing Lender shall be entitled to recover
from such Lender, on demand, such amount with interest thereon calculated from
such due date at the rate per annum applicable to ABR Rate Loans hereunder. A
certificate of the Issuing Lender submitted to any Lender, with a copy to the
Administrative Agent, with respect to any amounts owing under this subsection
shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made
payment under any Letter of Credit and has received from any other Lender its
pro rata share of such payment in accordance with subsection 2.13(a), the
Issuing Lender receives any payment related to such Letter of Credit (whether
directly from the Borrower or otherwise, including proceeds of collateral
applied thereto by the Issuing Lender), or any payment of interest on account
thereof, the Issuing Lender will distribute to such Lender its pro rata share
thereof; provided, however, that in the event that any such payment received by
the Issuing Lender shall be required to be returned by the Issuing Lender, such
other Lender shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
2.14 Reimbursement Obligations of the Borrower. (a) The
Borrower agrees to reimburse the Issuing Lender on each date on which the
Issuing Lender notifies the Borrower of the date and amount of a draft presented
under any Letter of Credit and paid by the Issuing Lender for the amount of (i)
such draft so paid and (ii) any taxes, fees, charges or other costs or expenses
incurred by the Issuing Lender in connection with such payment. Each such
payment shall be made to the Issuing Lender at its address for notices specified
herein in lawful money of the United States of America and in immediately
available funds.
<PAGE> 32
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(b) Interest shall be payable on any and all amounts remaining
unpaid by the Borrower under this subsection from the date such amounts become
payable (whether at stated maturity, by acceleration or otherwise) until payment
in full at the rate which would be payable on any outstanding ABR Rate Loans
which were then overdue.
(c) Each drawing under any Letter of Credit shall constitute a
request by the Borrower to the Administrative Agent for a borrowing pursuant to
subsection 2.3 in the amount of such drawing. The borrowing date with respect to
such borrowing shall be the date of such drawing.
2.15 Obligations Absolute. (a) The Borrower's obligations
under this Section 2 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrower may have or have had against the Issuing Lender or
any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Lender that the
Issuing Lender shall not be responsible for, and the Borrower's obligations
under subsection 2.14(a) shall not be affected by, among other things, (i) the
validity or genuineness of documents or of any endorsements thereon, even though
such documents shall in fact prove to be invalid, fraudulent or forged, or (ii)
any dispute between or among the Borrower and any beneficiary of any Letter of
Credit or any other party to which such Letter of Credit may be transferred, or
(iii) any claims whatsoever of the Borrower against any beneficiary of such
Letter of Credit or any such transferee.
(c) The Issuing Lender shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of Credit,
except for errors or omissions caused by the Issuing Lender's gross negligence
or willful misconduct.
(d) The Borrower agrees that any action taken or omitted by
the Issuing Lender under or in connection with any Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in the
Uniform Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of the Issuing Lender to the
Borrower.
2.16 Letter of Credit Payments. If any draft shall be
presented for payment under any Letter of Credit, the Issuing Lender shall
promptly notify the Borrower and the Administrative Agent of the date and amount
thereof. The responsibility of the Issuing Lender to the Borrower in connection
with any draft presented for payment under any Letter of Credit issued by the
<PAGE> 33
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Issuing Lender shall, in addition to any payment obligation expressly provided
for in such Letter of Credit, be limited to determining that the documents
(including each draft) delivered under such Letter of Credit in connection with
such presentment are in conformity with such Letter of Credit.
2.17 L/C Documentation. To the extent that any provision of
any L/C Documentation related to any Letter of Credit is inconsistent with the
provisions of this Section 2, the provisions of this Section 2 shall apply.
2.18 Pro Rata Treatment and Payments. (a) Each borrowing by
the Borrower from the Lenders, each payment (including each prepayment) by the
Borrower on account of the principal of and interest on the Loans and on account
of any fee or commission hereunder for the account of the Lenders and any
reduction of the Commitments of the Lenders hereunder shall be made pro rata
according to the original Commitments, except that payments specifically for the
account of a particular Lender under the terms of subsections 2.19, 2.20, 2.21
or 2.22 hereof or for the account of the Issuing Lender shall be made to such
Lender or Issuing Lender.
(b) All payments (including prepayments) to be made by the
Borrower on account of principal (including Reimbursement Obligations), interest
and fees shall be made without setoff or counterclaim and shall be made to the
Administrative Agent on behalf of the Lenders or the Issuing Lender, as the case
may be, at the Administrative Agent's office located at
The Chase Manhattan Bank
Agent Bank Services Group
One Chase Manhattan Plaza
New York, New York 10081
Attention: Tonya Mitchell
Facsimile: (212) 552-5777
Account# 144041274
at or before 12:00 noon, New York time, for the account of the Lenders or the
Issuing Lender, as the case may be, in lawful money of the United States of
America and in immediately available funds. The Administrative Agent shall
distribute such payments to the Lenders or the Issuing Lender, as the case may
be, entitled thereto promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension. If any payment on a Eurodollar Loan becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day unless the result of such extension would be to extend
such payment into another calendar month in which
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event such payment shall be made on the immediately preceding Business Day. Each
Lender is authorized to indorse the amount, and the date of making or conversion
pursuant to subsection 2.7, of each loan of such Lender, each payment of
principal with respect thereto and its character as ABR Rate or Eurodollar Rate
on the schedule annexed to and constituting a part of its Note, which
indorsement shall constitute prima facie evidence of the items so indorsed.
2.19 Illegality. Notwithstanding any other provisions herein,
if any law, regulation or treaty, or directive of a central bank or other
monetary authority, or any change therein or in the interpretation or
application thereof, shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Credit Agreement, the Commitment of
such Lender hereunder to make Eurodollar Loans and to convert its portion of ABR
Rate Loans to Eurodollar Loans shall forthwith be cancelled and any loans then
outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR
Rate Loans. If any such conversion of a Eurodollar Loan is made on a day which
is not the last day of an Interest Period, the Borrower shall pay to such
Lender, upon its request, such amount or amounts as may be necessary to
compensate it for any costs incurred by such Lender in making any such
conversion prior to the last day of an Interest Period pursuant to subsection
2.21. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by such Lender to the Borrower shall be conclusive
absent manifest error.
2.20 Increased Costs. (a) In the event that any applicable
law, treaty or governmental regulation, or any change therein or in the
interpretation or application thereof or compliance by any Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority:
(i) does or shall subject such Lender to any
tax of any kind whatsoever with respect to this Credit
Agreement, any Note, any L/C Documentation, any Letter of
Credit or any loan hereunder, or change the basis of taxation
of payments to such Lender of principal, commitment fee,
interest or any other amount payable hereunder (except for
changes in the rate of tax on the overall net income of such
Lender and taxes covered by subsection 2.22);
(ii) does or shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or
similar requirement against assets held by, or deposits or
other liabilities in or for the account of, advances or loans
by, or other credit extended by, or any other acquisition of
funds by, any office of such Lender which are not otherwise
taken into account in
<PAGE> 35
31
computing the Eurodollar Rate for such Interest Period;
or
(iii) does or shall impose on such Lender any
other condition;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing or maintaining advances or extensions of credit as Eurodollar
Loans or issuing or participating in Letters of Credit or to reduce any amount
receivable hereunder in respect of any thereof then, in any such case, the
Borrower shall promptly pay such Lender, upon its demand, such additional amount
which will compensate it for such additional cost or reduced amount receivable
which such Lender deems to be material and in the amount determined by it to be
applicable to this Credit Agreement, its Note or loans hereunder. If any Lender
becomes entitled to claim any additional amounts pursuant to this subsection
2.20, it shall promptly notify the Borrower of the event by reason of which it
has become so entitled. A certificate as to any additional amounts payable
pursuant to this subsection 2.20 submitted by any Lender to the Borrower shall
be conclusive absent manifest error.
(b) In the event that any Lender shall have determined that
the adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
any Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any central bank or Governmental Authority,
does or shall have the effect of reducing the rate of return on such Lender's
capital as a consequence of its obligations hereunder or under any Letter of
Credit to a level below that which such Lender could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's policies
with respect to capital adequacy) by an amount deemed by such Lender to be
material, then from time to time, after submission by such Lender to the
Borrower (with a copy to the Administrative Agent) of a written request
therefor, showing in reasonable detail the assumptions upon which such amount
was computed (provided that such Lender shall not be required to disclose
information not available to the public), the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender for such
reduction;
2.21 Reemployment Costs. The Borrower agrees to
indemnify each Lender and to hold each Lender harmless from any
cost, loss or expense which each Lender may sustain or incur as a
consequence of (a) default by the Borrower in making a borrowing,
continuation or conversion after it has given a notice in
accordance with subsection 2.7, (b) receipt by the Administrative
Agent of a payment of principal of a Eurodollar Loan on a day
which is not the last day of an Interest Period therefor, and (c)
conversion of all or any portion of a Eurodollar Loan on a day
which is not the last day of an Interest Period therefor. In
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each case, such costs, losses or expenses shall include but not be limited to
any interest or other amounts payable by such Lender to lenders of funds
obtained by it in order to make or maintain its portion of the Eurodollar Loans
and the cost of liquidating any time deposit prior to the maturity thereof. This
agreement shall survive termination of this Credit Agreement and payment of the
Loans until the obligations of the Borrower under this subsection 2.21 shall
have been paid in full.
2.22 Taxes. (a) All payments made by the Borrower under this
Credit Agreement shall be made free and clear of, and without reduction for or
on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions, withholdings, restrictions or
conditions of any nature whatsoever now or hereafter imposed, levied, collected,
withheld or assessed by any country (or by any political subdivision or taxing
authority thereof or therein) excluding income and franchise taxes now or
hereafter imposed by the United States of America or any political subdivision
or taxing authority thereof or therein, or by the country in which any Lender's
Eurodollar Lending Office is located or any political subdivision or taxing
authority thereof or therein (such non-excluded taxes being called "Foreign
Taxes"). If any Foreign Taxes are required to be withheld from any amounts
payable to any Lender (including the Issuing Lender) hereunder or under any
Note, the amounts so payable to such Lender shall be increased to the extent
necessary to yield to such Lender (after payment of all Foreign Taxes) interest
or any such other amounts payable hereunder at the rates or in the amounts
specified in this Credit Agreement. Whenever any Foreign Tax is payable by the
Borrower, as promptly as possible thereafter, the Borrower shall send the
Administrative Agent an original official receipt showing payment thereof. This
agreement shall survive termination of this Credit Agreement and payment of the
Loans and the Reimbursement Obligations until the obligations of the Borrower
under this subsection have been paid in full.
(b) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law or reasonably requested by the Borrower, such properly completed and
executed documentation prescribed by applicable law as will permit such payments
to be made without withholding or at a reduced rate.
2.23 Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.20, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.22, then such
Lender shall use reasonable efforts to designate a different lending office for
<PAGE> 37
33
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.20 or 2.22, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.20, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.22,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
subsection 9.10), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Commitment is being assigned, each Issuing Lender), which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans, any amount extended by
such Lender to the Issuing Lender pursuant to 2.13(a), accrued interest thereon,
accrued fees and all other amounts payable to it hereunder, from the assignee
(to the extent of such outstanding principal and accrued interest and fees) or
the Borrower (in the case of all other amounts) and (iii) in the case of any
such assignment resulting from a claim for compensation under Section 2.20 or
payments required to be made pursuant to Section 2.22, such assignment will
result in a reduction in such compensation or payments. A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.
2.24 Use of Proceeds. The Borrower agrees that the proceeds of
the loans obtained by it hereunder shall be used for general corporate purposes
of it and its Subsidiaries, including repayment and termination of the Existing
Credit Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce each Lender to enter into this Credit
Agreement and to make the loans to be made by it and issue or participate in the
Letters of Credit hereunder, the Borrower represents and warrants to each Lender
that:
<PAGE> 38
34
3.1 Organization and Qualification. The Borrower, and each of
its Subsidiaries, is a corporation or partnership duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation or formation, as the case may be and each is duly qualified and in
good standing in each jurisdiction wherein the conduct of its respective
business or the ownership of its respective properties requires such
qualification. The Borrower owns, directly or through its Subsidiaries, all of
the issued and outstanding stock of or partnership interests in each Material
Subsidiary, in each case free and clear of any Liens and the Borrower and each
Material Subsidiary has the requisite power and authority and the legal right to
own its property, to lease and encumber its property and to conduct the business
in which it is currently engaged. Schedule 2 lists all Subsidiaries of the
Borrower as of the date hereof.
3.2 Corporate Power and Authorization. The Borrower has the
corporate power to make, deliver and perform this Credit Agreement, the Notes,
the L/C Documentation and to obtain extensions of credit hereunder and
thereunder, and has taken all necessary corporate action to authorize the
extensions of credit under this Credit Agreement and under the L/C Documentation
on the terms and conditions hereof and thereof and the execution, delivery and
performance of this Credit Agreement, the Notes and the L/C Documentation. This
Credit Agreement constitutes and any Notes and L/C Documentation when executed
will constitute, a valid obligation of the Borrower legally binding upon it and
enforceable in accordance with its respective terms. No consent of any other
party (including, without limitation, stockholders of the Borrower) and no
consent, license, approval or authorization of, or registration or declaration
with, any governmental authority, bureau or agency is currently required in
connection with the execution, delivery, performance, validity or enforceability
of this Credit Agreement, the Notes and any L/C Documentation.
3.3 No Legal Bar on Borrower. The execution, delivery and
performance of this Credit Agreement, the Notes, the L/C Documentation, and the
extensions of credit hereunder and thereunder, will not violate any provision of
any existing law or regulation (including, without limitation, any Texas usury
law) in each case applicable to the Borrower, or order or decree of any court,
Governmental Authority, bureau or agency, or of the articles of incorporation or
of the by-laws of the Borrower, or of any material mortgage, indenture, security
agreement, contract, undertaking or other agreement to which the Borrower or any
of its Subsidiaries is a party or which purports to be binding upon them or any
of their property or assets, and will not result in any default under, violation
of, or the creation or imposition of any lien, charge or encumbrance on, or
security interest in, any of their properties pursuant to the provisions of, any
such material undertaking or other agreement.
<PAGE> 39
35
3.4 No Material Litigation. No litigation or administrative
proceeding of or before any Governmental Authority is currently pending, nor, to
the knowledge of the Borrower, is any litigation or proceeding currently
threatened, against the Borrower or any of its Subsidiaries or any of their
properties which has or is likely to have a Material Adverse Effect, other than
as disclosed in the Borrowers' financial statements most recently delivered
pursuant to subsection 5.1 or, if no such financial statements have yet been
delivered, the financial statements referred to in subsection 3.9.
3.5 Compliance With Other Instruments; None Burdensome.
Neither the Borrower nor any Subsidiary of the Borrower is in violation of any
term or provision of its charter or by-laws or other organizational documents or
in violation of any evidence of indebtedness, judgment, decree or order or of
any statute, rule, governmental regulation, franchise, certificate, permit or
the like applicable to the Borrower or any Subsidiary of the Borrower or in
violation of any term of any other agreement or instrument applicable to the
Borrower or any Subsidiary of the Borrower which violation, individually or in
the aggregate, has a Material Adverse Effect; no such violation of any statute,
rule, governmental regulation, franchise, certificate, permit or the like or any
term of any agreement or instrument, individually or in the aggregate, has or
will have a Material Adverse Effect; the execution, delivery and performance of
this Credit Agreement, the Notes and the L/C Documentation will not result in
any violation of or be in conflict with or constitute a material default under
any such term, or result in the creation of, or the arising of any obligation to
create, any Lien upon any of the properties or assets of the Borrower or any
Subsidiary of the Borrower pursuant to any such term; and there is no such term
which has, or in the future (to the best of the knowledge of the Borrower) is
likely to have, a Material Adverse Effect.
3.6 Ownership of Properties; Liens. The Borrower and its
Subsidiaries have valid leases or good and marketable title to substantially all
their respective properties and assets, real and personal, subject to no
mortgage, security interest, pledge, Lien, charge, encumbrance or title
retention or other security agreement or arrangement of any nature whatsoever,
except as permitted by subsection 6.1 of this Credit Agreement or as described
in Schedule 3 annexed hereto.
3.7 No Default. Neither the Borrower, nor any of its Material
Subsidiaries is in default in the payment or performance of any of its
obligations for borrowed money, and no Default or Event of Default (including
after giving effect to the execution of this Credit Agreement and the extensions
of credit hereunder) has occurred and is continuing with respect to any of them,
except for (i) non-recourse indebtedness for borrowed money or the deferred
purchase price of assets where the assets, respectively, of the Borrower or any
of its Material Subsidiaries
<PAGE> 40
36
securing the same are not, in the Borrower's good faith estimation, necessary
in, or a material part of, the business of the Borrower or any of its Material
Subsidiaries, and (ii) obligations for borrowed money having an outstanding
principal amount (either individually or as a part of a related series) of
$15,000,000 or less (including any obligations under any conditional sale or
other title retention agreement or any obligation issued or assumed as full or
partial payment for properties transferred to the Borrower or any of its
Material Subsidiaries, whether or not secured by a purchase money security
interest).
3.8 Taxes. The Borrower and each of its Subsidiaries has filed
all federal income tax returns required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or provided adequate
reserves for payment thereof. All other tax returns of the Borrower and its
Subsidiaries the filing of which is required by any law of the United States or
of any state, municipality or political subdivision thereof or by any foreign
taxing authority and of which the failure to file might have a Material Adverse
Effect have been duly filed and all taxes, assessments, contributions, fees and
other governmental charges of material amount (other than those presently
payable without penalty or interest and those currently being contested in good
faith by appropriate proceedings) which have been asserted against the Borrower
or its Subsidiaries or upon any of their respective properties or assets which
are due and payable have been paid. Except as disclosed in the most recent
financial statements delivered pursuant to subsection 3.9 or 5.1 hereof, neither
the Borrower nor any of its Subsidiaries is a party to any material action or
proceeding by any governmental authority for the assessment or collection of
taxes, nor has any material claim for assessment or collection of taxes been
asserted against the Borrower or any of its Subsidiaries, other than those which
are not likely to have a Material Adverse Effect and those currently being
contested in good faith by appropriate proceedings.
3.9 Financial Condition. (a) The consolidated balance sheet of
the Borrower and its Subsidiaries as of January 31, 1998, and the respective
related statements of consolidated earnings and consolidated cash flows for the
fiscal year ended January 31, 1998, which consolidated statements are certified
by Arthur Andersen L.L.P., are complete and correct in all material respects and
present fairly the financial position of the Borrower and its Subsidiaries as at
January 31, 1998 and the consolidated results of their operations and cash flows
for the fiscal year then ended. All of the foregoing consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the period
involved and prior periods.
<PAGE> 41
37
(b) The unaudited consolidated balance sheet of the Borrower
and its Subsidiaries as of April 30, 1998, and the respective related unaudited
statements of consolidated earnings and consolidated cash flows for the three
months ended April 30, 1998, are complete and correct in all material respects
and present fairly the financial position of the Borrower and its Subsidiaries
as of April 30, 1998 and the consolidated results of their operations and cash
flows for the three months then ended. The Borrower's financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from the Borrower's
statements pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading. The financial statements of the Borrower and its Subsidiaries
include all adjustments which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial position and consolidated
results of operations and cash flows of the Borrower and its Subsidiaries for
the periods presented.
(c) There has been no adverse change in the business,
properties, operations or financial position of the Borrower and its
Subsidiaries taken as a whole since April 30, 1998 that would materially
jeopardize repayment of the Loans, any Notes or any other amount owed hereunder.
3.10 Certain Acts. To the best of its knowledge, the Borrower
and its Subsidiaries have conducted their business in substantial compliance
with the Emergency Petroleum Allocation Act of 1973 and the Federal Energy
Administration Act of 1974 and the rules and regulations promulgated under each
such Act and have incurred no liability in connection therewith which is likely
to have a Material Adverse Effect.
3.11 Status Under Other Federal Laws and Regulations. The
Borrower and its Material Subsidiaries are not, and are 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.
Neither the Borrower nor any of its Subsidiaries is a "gas utility company", a
"holding company", or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935 and the rules and regulations thereunder. No
part of the proceeds of the loans hereunder will be used, directly or
indirectly, for the purpose, whether immediate, incidental, or ultimate, (i) of
purchasing any equity security of a class registered pursuant to Section 12 of
the Securities Exchange Act of 1934 or (ii) of "purchasing" or "carrying" any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System or reducing or retiring any Debt which was originally
incurred to
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38
purchase any such margin stock, or engaging in any transaction prohibited by any
other rule or regulation of said Board.
3.12 Disclosure. Neither this Credit Agreement, nor any
certificate, report, statement or document furnished in writing to the
Administrative Agent or any Lender by or on behalf of the Borrower or any of its
Material Subsidiaries pursuant hereto nor any other certificate, report,
statement or document furnished in writing to any of them in connection
herewith, at the date the same were so furnished, or as subsequently
supplemented, contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained herein and therein
not misleading. There is no fact known to the Borrower which has or, insofar as
the Borrower has knowledge, will be likely to have a Material Adverse Effect,
which the Borrower has not disclosed to the Lenders in writing.
3.13 ERISA. No Reportable Event has occurred during the
immediately preceding six-year period with respect to any Plan, and each Plan
has complied with and has been administered in all material respects in
accordance with applicable provisions of ERISA and the Code. The present value
of all benefits vested under each Single Employer Plan maintained by the
Borrower or any Commonly Controlled Entity (based on those assumptions used to
fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed the value of the assets of such Plan allocable to such vested
benefits. Neither the Borrower nor any Commonly Controlled Entity has any
obligations in respect of a Multiemployer Plan, and neither the Borrower nor any
Commonly Controlled Entity will have any obligations in respect of a
Multiemployer Plan for the duration of this Credit Agreement.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Effectiveness. The effectiveness of this
Credit Agreement is subject to the satisfaction of the following conditions
precedent:
(a) Loan Documents. The Administrative Agent shall have
received (i) this Credit Agreement, executed and delivered by a duly
authorized officer of the Borrower, with a counterpart for each Lender,
and (ii) for the account of each Lender requesting a Note, a duly
executed Note of the Borrower, payable to such Lender and meeting the
requirements of subsection 2.2.
(b) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Effective Date, substantially in the form of
Exhibit D, with appropriate insertions and attachments, satisfactory in
form and substance to the Administrative Agent, executed by the
<PAGE> 43
39
President or any Vice President and the Secretary or any Assistant
Secretary of the Borrower.
(c) Payment of Fees. The Administrative Agent shall have
received on or prior to the Effective Date (i) all fees, commissions
and other amounts accrued and owing as of the Effective Date to the
Administrative Agent and the Lenders under the Existing Credit
Agreement and (ii) all fees owed by the Borrower under the Fee Letter,
dated as July 6, 1998, executed by the Administrative Agent and Chase
Securities, Inc. and agreed to and accepted by the Borrower (including,
but not limited to the facility fee payable to each Lender and equal to
0.125% of such Lender's Commitment).
(d) Corporate Proceedings. The Administrative Agent shall have
received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of the Credit Documents to which it
is a party and (ii) the transactions contemplated thereunder, certified
by the Secretary or an Assistant Secretary of the Borrower as of the
Effective Date, which certificate shall be in form and substance
satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked
or rescinded.
(e) Incumbency Certificates. The Administrative Agent shall
have received, with a counterpart for each Lender, a Certificate of the
Borrower, dated the Effective Date, as to the incumbency and signature
of the officers of the Borrower executing any Credit Document,
satisfactory in form and substance to the Administrative Agent,
executed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Borrower.
(f) Corporate Documents. The Administrative Agent shall have
received, with a counterpart for each Lender, true and complete copies
of the certificate of incorporation and by-laws of the Borrower,
certified as of the Effective Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of the Borrower.
(g) Legal Opinion. The Administrative Agent shall have
received, with a counterpart for each Lender, the executed legal
opinion, dated as of the Effective Date, of Thomas P. Battle, Esq.,
General Counsel to the Borrower, substantially in the form of Exhibit
B.
(h) Existing Credit Agreement. The Existing Credit Agreement
shall have been terminated (including instructions being given to the
banks under the Existing Credit Agreement to return any notes
outstanding under the Existing Credit
<PAGE> 44
40
Agreement to the Borrower) and all amounts owed under the Existing
Credit Agreement shall have been paid in full or provisions
satisfactory to the Administrative Agent shall have been made for such
termination and repayment.
4.2 Conditions to Each Extension of Credit. The agreement of
each Lender to make any extension of credit requested to be made by it on any
date is subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Except in the case of any
loan which does not, after application of the proceeds thereof, result
in a net increase in the aggregate principal amount of the Loans, each
of the representations and warranties made by the Borrower in or
pursuant to the Credit Documents shall be true and correct in all
material respects on and as of such date as if made on and as of such
date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.
Each borrowing by the Borrower and each Letter of Credit issued on behalf of the
Borrower hereunder shall constitute a representation and warranty by the
Borrower as of the date thereof that the conditions contained in this subsection
have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower covenants that from and after the date hereof and
so long as the Commitments are in effect or any Letter of Credit remains
outstanding or any amounts remain unpaid on account of the Reimbursement
Obligations or Loans:
5.1 Financial Statements; Reports. It shall furnish to each
Lender:
(a) as soon as practicable after the end of each of the first
three quarterly periods in each Fiscal Year, respectively, and in any
event within 60 days thereafter, (i) a consolidated balance sheet of
the Borrower and its Subsidiaries as of the end of such quarterly
period and (ii) consolidated statements of earnings of the Borrower and
its Subsidiaries for such quarterly period and for the portion of the
Fiscal Year ended with such quarterly period, setting forth, in
comparative form, figures of the corresponding periods of the previous
Fiscal Year. In each instance, such financial statements are to be
presented in reasonable detail and certified as complete and correct by
a principal financial or accounting officer of the Borrower, subject to
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41
year-end adjustments, provided, that, insofar as the information
pertaining to the Borrower required to be delivered by this paragraph
(a) is contained in financial statements or reports furnished pursuant
to subsection 5.1(d), delivery of such financial statements or reports
pursuant to such subsection 5.1(d) shall constitute delivery of such
information pertaining to the Borrower pursuant to this subsection
5.1(a);
(b) as soon as practicable after the end of each such Fiscal
Year (commencing with the Fiscal Year ending January 31, 1999), and in
any event within 120 days thereafter, a consolidated balance sheet of
the Borrower and its Subsidiaries as of the end of such year and
consolidated statements of earnings and stockholders' equity of the
Borrower and its Subsidiaries for such year, setting forth, in
comparative form, figures for the previous Fiscal Year, all in
reasonable detail and certified by Accountants; provided, that, insofar
as the information pertaining to the Borrower required to be delivered
by this subsection 5.1(b) is contained in financial statements or
reports furnished pursuant to subsection 5.1(d), delivery of such
financial statements or reports pursuant to such subsection 5.1(d)
shall constitute delivery of such information pertaining to the
Borrower pursuant to this subsection 5.1(b);
(c) promptly upon receipt thereof, copies of all detailed
reports with respect to any material inadequacies of accounting
controls or absences of accounting controls submitted to the Borrower
or any of its Subsidiaries by Accountants in connection with any
annual, special or interim audit of the books of the Borrower or any of
its Subsidiaries made by such Accountants;
(d) promptly upon transmission thereof, copies of all
financial statements, reports and proxy statements, if any, sent by the
Borrower to its stockholders pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, and of all regular and
periodic reports, if any, and any registration statement or prospectus
filed by the Borrower or any Subsidiary of the Borrower with the
Securities and Exchange Commission or any governmental authority
succeeding to the functions of such Commission;
(e) immediately upon becoming aware of the existence of any
condition or event which constitutes a Default or an Event of Default,
a written notice specifying the nature and period of existence thereof
and the action the Borrower is taking or proposes to take with respect
thereto; and
(f) immediately upon becoming aware that the holder of any
Debt of the Borrower or any Subsidiary has given notice or taken any
action with respect to a claimed default or event of default with
respect to such Debt, a written notice
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42
specifying the notice given or such action taken by such holder and the
nature of the claim, default or event of default and the action the
Borrower or such Subsidiary is taking or proposes to take with respect
thereto; and
(g) as soon as practicable but in any event within 60 days of
any notice of request therefor, such other information respecting the
financial condition and results of operations of the Borrower or any
Subsidiary of the Borrower as any Lender through the Administrative
Agent may from time to time reasonably request.
5.2 Certificates as to Financial Matters, No Default,
etc. . The financial statements required by subsection 5.1 shall
be accompanied by
(a) in the case of the financial statements of the Borrower
and its Subsidiaries required by subsections 5.1(a) and (b), an
Officers' Certificate setting forth computations in reasonable detail
showing as at the end of such quarter or Fiscal Year:
(i) the Consolidated Tangible Net Worth of the
Borrower and its Subsidiaries; and
(ii) the Consolidated Leverage Ratio;
and stating that, based, upon such examination or investigation as the
officers signing such certificate shall have deemed necessary to enable
them to render an informed opinion in respect thereof, in their
opinion, no Default or Event of Default existed at any time during such
quarter or Fiscal Year and to the date of such certificate except for
those, if any, described in such certificate in reasonable detail, with
a statement of the Borrower's action with respect thereto taken or
proposed to be taken, and
(b) in the case of the financial statements of the Borrower
required by subsection 5.1(b), a certificate of its Accountants
referred to therein to the effect that in making such Accountants'
examination such Accountants have become aware of no condition or event
which constitutes a Default or an Event of Default, or if such
Accountants have become aware of any such condition or event,
specifying the nature and existence thereof.
The receipt by any Lender of the certificates and calculations referred to in
this subsection 5.2 shall not constitute a waiver by or estop or prejudice any
Lender with respect to any subsequent challenge it may have to any
interpretation by the Borrower of the terms of this Credit Agreement.
<PAGE> 47
43
5.3 Payment of Taxes, etc.; Observance of Legal
Requirements; Liens; Contests.
(a) It will duly pay and discharge or cause to be paid and
discharged, as the same shall become due and payable, all taxes, assessments,
rates, excises, levies, fees and other charges levied and imposed upon or with
respect to any property of it or any of its Subsidiaries, or upon or with
respect to any income or profits therefrom, or upon or measured by income,
profits or business of it or any of its Subsidiaries.
(b) It will promptly discharge or cause to be discharged any
mechanics', materialmen's, laborers', operators' or other similar Liens now
existing or hereafter created on the property of it and its Subsidiaries or any
part thereof.
(c) It will, and will cause each of its Subsidiaries to, duly
observe and comply in all material respects with all valid laws, statutes,
codes, acts, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, certificates, franchises, permits, licenses, authorizations,
directions and requirements of all Federal, state, county, parish, municipal and
other governments and all governmental departments, commissions, boards, courts,
authorities, officials and officers, domestic or foreign, which now or at any
time hereafter may be applicable to it or its Subsidiaries or any of their
respective properties or operations or any part thereof, or any use, manner of
use or condition of their properties or any part thereof (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards or controls).
(d) Nothing contained in this subsection 5.3 shall be deemed
to require the Borrower to pay or discharge or cause to be paid or discharged
(i) any taxes assessments, contributions, fees and other governmental charges of
material amount presently payable without penalty or interest, and (ii) any such
tax, assessment, rate, excise, levy, fee or charge, or any mechanics',
materialmen's, laborers', operators' or other similar Lien, or to observe or
comply with or to cause to be observed or complied with any such legal
requirement, so long as the Borrower in good faith by appropriate action
promptly initiated and diligently conducted, shall contest or cause to be
contested the validity, amount, extent or application thereof, and the Borrower
shall have set up on its books such reserve or other appropriate provision, if
any, with respect thereto as shall be required by GAAP.
5.4 Notice of Default, Litigation, etc. It shall promptly give
notice in writing to the Administrative Agent (which shall promptly give such
notice to each Lender) (a) of the occurrence of any Event of Default or Default
under this Credit Agreement or of the occurrence of any event of default by the
Borrower or any of its Subsidiaries under any other obligation for borrowed
money or (b) of the occurrence of any material
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44
litigation or proceedings affecting the Borrower or any of its Subsidiaries and
of any dispute between the Borrower, or any of its Subsidiaries and any
governmental regulatory body or any other party if such litigation, proceedings
or dispute might substantially interfere with the normal operations of the total
enterprise represented by the Borrower and its Subsidiaries. As soon as possible
and in any event within 30 days after the Borrower knows or has reason to know
of the following events: (i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan or any withdrawal from, or the termina
tion or reorganization of, any Plan or (ii) the institution of proceedings or
the taking of any other action by the PBGC, the Borrower or any Commonly
Controlled Entity, with respect to the withdrawal from, or the terminating or
reorganizing of, any Plan, it shall deliver to the Administrative Agent and each
Lender a certificate of the chief financial officer of it setting forth the
details thereof and the action that it or the Commonly Controlled Entity
proposes to take with respect thereto.
5.5 Insurance. It will keep or cause to be kept all of its and
its Subsidiaries' property and business of a character usually insured by
companies of established reputation similarly situated insured by reputable
insurance companies or associations of high standing against loss or damage by
fire and such other hazards and risks (including, but not limited to, public
liability and workmen's compensation) as are customarily insured against by
companies of established reputation similarly situated, in such amount as such
property and business is usually insured by such companies, and will comply and
will cause its Subsidiaries to comply with all the terms and conditions of all
insurance policies with respect to its and their property and business or any
part thereof and with all requirements of boards of underwriters (or similar
bodies) applicable thereto.
5.6 ERISA. It shall, and shall cause each of its Subsidiaries
to, substantially comply in all material respects with all applicable provisions
of ERISA.
5.7 Maintenance of Existence, Franchises, etc. It will at
all times maintain and keep and cause to be maintained and kept in full force
and effect its corporate existence, rights and franchises and the existence
(corporate, partnership or otherwise), rights and franchises of each of its
Subsidiaries, except as otherwise permitted by subsections 6.4 and 6.5 and
except that the existence (corporate, partnership or otherwise), rights and
franchises of any of its Subsidiaries or the rights and franchises of the
Borrower may be abandoned or terminated if, in the good faith opinion of its
Board, such abandonment or termination is in the best interests of it and not
prejudicial in any material respect to the Lenders.
5.8 Maintenance and Improvement of Property. It will, and will
cause each of its Subsidiaries to, at all times, maintain, develop and operate,
or cause to be maintained,
<PAGE> 49
45
developed and operated, its oil and gas properties in a good and workmanlike
manner and will observe and comply with all the terms and provisions, express or
implied, of the oil and gas leases which (or interest in which) constitute a
part thereof and any assignments or subleases thereof under which any of them
holds, or its predecessors-in-interest held, title in order to keep such leases
or assignments in full force and effect so long as such leases are capable of
producing Petroleum in commercial quantities. It will, and will cause each of
its Subsidiaries to, at all times maintain, preserve and keep all of its
property used or useful for the continued efficient and profitable operation of
their property and business in proper repair, working order and condition, and
make all necessary or appropriate repairs, renewals, replacements, additions,
betterments and improvements to such property, so that the efficiency of all
such property shall at all times be properly preserved and maintained, provided
that no such action as to any item of property need be taken if the Borrower
shall in good faith determine that it is not necessary or desirable for the
continued efficient and profitable operation of the property and business of the
Borrower or any of its Subsidiaries, as the case may be, and that the failure to
take such action will not materially prejudice the interests of the Lenders.
5.9 Maintenance of Accounts. It will at all times maintain,
and will cause each of its Subsidiaries to maintain, a standard, modern system
of accounting, in accordance with generally accepted accounting principles in
which entries, complete and correct in all material respects, shall be made of
all transactions of it or such Subsidiary, and will administer and cause to be
administered each such system of accounting in accordance with generally
accepted accounting principles.
5.10 Inspection. At any and all reasonable times, upon the
request of any Lender, it will permit such Lender, or any agents or
representatives designated by such Lender,
(a) to examine the books of account, records, reports and
other papers of it and its Subsidiaries (and to make copies and
extracts therefrom),
(b) to inspect any property material to this Agreement of it
or any of its Subsidiaries, and
(c) to discuss the business and affairs of it and its
Subsidiaries with its and their officers and its and their Accountants
(and by this provision each of them authorizes said Accountants to
discuss with such Lender or such agents or representatives the business
and affairs of it and its Subsidiaries).
5.11 Transactions with Affiliates. Except with respect to the
allocation of taxes and general and administrative expenses, it will not enter
into or participate in, or permit any
<PAGE> 50
46
Subsidiary to enter into or participate in, any transaction with any Affiliate
other than in the ordinary course of business and on an arm's length basis
involving terms no less favorable to it than would be the terms of a similar
transaction with a Person other than such Affiliate. In the case of tax
allocations, the Borrower agrees that tax expenses and benefits will be
allocated among the Borrower and its Subsidiaries on a basis no less
advantageous to the Borrower and its Subsidiaries than the tax allocation being
used by the Borrower and its Subsidiaries at January 31, 1998 (which allocation
is generally based on the premise that such expenses and benefits shall be
apportioned as if each such Subsidiary were a separate taxpayer). The Borrower
agrees that general and administrative overhead will be allocated among the
Borrower and its Subsidiaries on the basis of usage or benefits received to the
extent practicable in the Borrower's judgment, and otherwise consistent with
generally recognized cost accounting methods.
SECTION 6. NEGATIVE COVENANTS
The Borrower covenants that from and after the date of this
Credit Agreement and so long as the Commitments are in effect or any Letter of
Credit remains outstanding or any amounts remain unpaid on account of the
Reimbursement Obligations or Loans:
6.1 Limitation on Liens. It will not, nor will it permit any
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien upon any property or assets owned by it or subject such property to the
prior payment of any Debt other than the Letters of Credit, Reimbursement
Obligations and Loans; provided, that the foregoing restriction shall not apply
to or prevent the creation, assumption or continued existence of any of the
following:
(a) Permitted Encumbrances;
(b) any Lien on any property hereafter acquired or constructed
by the Borrower or any Subsidiary, created or assumed contemporaneously
with, or within one year after, such acquisition or completion of such
construction to secure Debt incurred to provide for the payment of not
greater than 100% of the purchase price or the cost of such
construction thereof; provided, however, that such Lien shall not apply
to any other property owned by the Borrower or any Subsidiary;
(c) any Lien on any property existing at the time of
acquisition thereof securing Debt not exceeding 100% of the purchase
price or cost of such property; provided, however, that such Lien shall
not extend to any other property owned by the Borrower or any
Subsidiary;
<PAGE> 51
47
(d) any Lien on property of a corporation existing at the time
such corporation is merged or consolidated with the Borrower or a
Subsidiary or at the time of a sale, lease or other disposition of the
properties of such corporation (or a division thereof) as an entirety
or substantially as an entirety to the Borrower or a Subsidiary;
provided, however, that such Lien shall not extend to any other
property owned by the Borrower or any Subsidiary;
(e) any Lien on property of a corporation existing at the time
such corporation first becomes a Subsidiary; provided, however, that
such Lien shall not extend to any other property owned by the Borrower
or any Subsidiary;
(f) any Lien securing any presently existing Advance Payment
Obligation of the Borrower or a Subsidiary and any Lien securing an
Advance Payment Obligation hereafter incurred by the Borrower or any
Subsidiary through the receipt of any take or pay payment;
(g) the Liens listed in Schedule 3 hereto;
(h) any Lien on assets acquired or financed with the proceeds
of any Debt of the Borrower or any Subsidiary which is of the type
referred to in clause (iii) of the definition of Excluded Debt and
securing such Excluded Debt; and
(i) any other Lien securing Debt if at the time of, and after
giving effect to, the creation or assumption of any such Lien, (1) no
Default or Event of Default has occurred and is continuing and (2) the
aggregate amount of all Debt of the Borrower and the Material
Subsidiaries secured by Liens described in paragraphs (b), (c), (d)
(e), (g) and (i) of this subsection 6.1 does not exceed 10% of Total
Consolidated Assets;
provided, however, that notwithstanding anything to the contrary in this
subsection 6.1, the Borrower or any of its Subsidiaries may acquire a
corporation or other business entity which becomes a Subsidiary with outstanding
secured Debt if such newly-created or acquired Subsidiary could incur an equal
amount of Debt under subsection 6.2.
6.2 Restrictions on Incurrence of Subsidiary Debt. It will not
permit any Subsidiary to, directly or indirectly, create, incur, issue, assume,
or suffer to exist, guarantee, agree to purchase or repurchase or provide funds
in respect of or otherwise become liable in respect of any Debt, other than:
(a) Debt owed by a Subsidiary to the Borrower or another
Subsidiary;
(b) Any extension, modification, renewal or refunding, without
increase in the principal amount, of Debt by a
<PAGE> 52
48
Subsidiary so long as Consolidated Debt is not thereby
increased;
(c) Debt under agreements in effect on June 30, 1998 and
indicated on Schedule 4 hereto;
(d) Debt of the nature described in paragraphs (b) and (c) of
subsection 6.1 and Debt of any Person acquired by the Borrower or any
Subsidiary provided such Debt is in existence at the time of such
acquisition; and
(e) in addition to the foregoing, Debt of the Subsidiaries not
to exceed $75,000,000 at any one time outstanding;
provided, that no Subsidiary shall directly or indirectly create, incur, issue,
assume or suffer to exist, guarantee, agree to purchase or repurchase or provide
funds in respect of or otherwise become liable in respect of any Debt (other
than Debt of such Subsidiary existing on the date hereof and any extensions or
renewals on substantially the same terms) which would otherwise be permitted by
this subsection 6.2 if the terms of such Debt or any related agreement restrict
the repayment of loans or advances made to it by the Borrower, or require that
any loans or advances by the Borrower to such Subsidiary be subordinated in any
respect to such Debt, or adversely affect the ability of the Borrower to perform
its obligations hereunder.
6.3 Consolidated Tangible Net Worth. The Consolidated
Tangible Net Worth of the Borrower and its Subsidiaries will not
be, at any time, less than $330,000,000.
6.4 Restrictions on Disposition of Stock and Debt of
Subsidiaries, etc.
(a) It will not permit any Subsidiary to issue, sell, assign,
pledge or otherwise transfer any shares of the stock of such Subsidiary (other
than directors' qualifying shares if required by law) except to the Borrower or
a wholly-owned Subsidiary; provided, however, that dispositions by a Subsidiary
of its stock in connection with the sale of such Subsidiary as an entirety in
accordance with the proviso of subsection 6.4(b) shall not be prohibited.
(b) It will not, and will not permit any Subsidiary to, sell,
assign, pledge, transfer or dispose of, or in any way part with control of, any
shares of the stock of any Subsidiary (other than directors' qualifying shares
if required by law) or any Debt owing by a Subsidiary to the Borrower or another
Subsidiary or by the Borrower to a Subsidiary, in each case other than to the
Borrower or a wholly-owned Subsidiary; provided, however, that all shares of the
stock and all Debt of any Subsidiary may, subject to compliance with subsection
6.5, be sold as an entirety to any Person if the Subsidiary being sold
<PAGE> 53
49
does not at the time of sale own, directly or indirectly, any shares or Debt of
the Borrower or of another Subsidiary not simultaneously being sold; and,
provided, further, that any sale of all the shares of stock and all Debt of a
Material Subsidiary as described in the preceding proviso shall require the
consent of the Required Lenders.
(c) In every case in which directors' qualifying shares are
transferred to directors, options to acquire such shares by the Borrower or a
Subsidiary for a nominal consideration shall be obtained, together with
certificates for such shares duly endorsed in blank or accompanied by stock
powers duly endorsed in blank.
6.5 Consolidation, Merger, Sales of Assets, etc. The Borrower
will not, and will not permit any of its Material Subsidiaries to, directly or
indirectly, consolidate or merge with, or sell, lease, transfer or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its property and assets to, any Person, except that:
(a) the Borrower may permit any Person to be consolidated with
or merged into the Borrower if after giving effect to such transaction,
the Borrower is the surviving corporation and no Default or Event of
Default shall have occurred and be continuing;
(b) any Subsidiary of the Borrower may (i) consolidate with or
merge into the Borrower if the Borrower is the continuing or surviving
corporation or (ii) consolidate with or merge into any wholly-owned
Subsidiary of the Borrower or a Person which thereupon becomes a
wholly-owned Subsidiary of the Borrower; and
(c) any Subsidiary may sell, lease, transfer or otherwise
dispose of all or any part of its assets to the Borrower or any other
wholly-owned Subsidiary.
6.6 Consolidated Leverage Ratio. The Borrower shall not at any
time permit the Consolidated Leverage Ratio to be greater than 3.5 to 1.
SECTION 7. EVENTS OF DEFAULT
7.1 Nonpayment of Interest or Principal, Insolvency of
Subsidiaries and Other Defaults. If any of the following Events of Default shall
occur and be continuing:
(a) failure by the Borrower to pay any principal of any Loan,
any Note issued by it or any Reimbursement Obligation when and as the
same shall become due and
<PAGE> 54
50
payable, whether upon demand, at maturity, on a date fixed for
prepayment, or otherwise;
(b) failure by the Borrower for five days to pay any interest
on any Loan, any Note issued by it or any Reimbursement Obligation, or
any fee or any other amount owing by it hereunder (other than an amount
referred to in paragraph (a) of this subsection 7.1), when and as the
same shall become due and payable;
(c) failure by the Borrower to perform and comply with any
term, covenant, agreement or condition of subsection 5.1(e), subsection
5.7 (with respect to the existence of the Borrower or any Material
Subsidiary) or Section 6;
(d) failure by the Borrower to perform, comply with or observe
any other term, covenant, agreement or condition of this Credit
Agreement applicable to it and such failure shall have continued for 30
days after written notice specifying such failure shall have been given
to the Borrower by the Required Lenders;
(e) failure by the Borrower or any Material Subsidiary (as
principal or as guarantor or other surety) to make any payment or
payments in the aggregate amount of more than $15,000,000 on any Debt
for borrowed money (other than the Loans or the Reimbursement
Obligations), or any Guarantee Obligation therefor (including any
obligations under any conditional sale or other title retention
agreement or any obligation issued or assumed as full or partial
payment for property transferred to the Borrower or any Subsidiary,
whether or not secured by a purchase money security interest) and the
continuance of such failure beyond the applicable period of grace; or
the occurrence of any event (other than the mere passage of time or the
failure to pay money when due) or the existence of any condition in
respect of any such Debt described in this paragraph (e) or any
Securities of the Borrower or any Material Subsidiary, or under any
agreement securing or relating to such Debt or Securities, the effect
of which is (x) to cause or permit any holder or holders of such Debt
(or a trustee or trustees on behalf of such holder or holders) to
cause, with the giving of notice if required, such Debt, or a portion
thereof, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment, or (y) to permit a trustee or the
holder of any Securities (other than Common Stock of the Borrower or
any Subsidiary) to elect a majority of the directors on the Board of
Directors of the Borrower or any such Subsidiary and such event or
condition shall have continued for 5 days;
(f) if any representation, warranty or other statement made in
writing by or on behalf of the Borrower in or in connection with any
Credit Document or any amendment or
<PAGE> 55
51
modification hereof, or in any report, certificate, financial statement
or other document furnished pursuant to or in connection with this
Agreement or any amendment or modification hereof, shall prove to have
been false or misleading in any material respect on the date as of
which made or deemed made;
(g) the expiration of 60 days after the entry of a final
judgment, decree or order for the payment of money undischarged against
the Borrower or any Material Subsidiary which, together with all other
such outstanding undischarged final judgments against the Borrower and
any Material Subsidiary exceeds an aggregate of $15,000,000, provided
that if such decree, order or judgment shall be stayed or bonded
pending appeal (or further appeal) or otherwise or said judgment shall
be discharged prior to the occurrence of an Event of Default pursuant
to this subsection 7.1(g), such Event of Default shall not occur until
60 days after the expiration of such stay, and in the case of a
judgment, shall not occur if said judgment is discharged within 60 days
after expiration of such stay;
(h) If (i) any of the following events or conditions described
in clauses (1) through (5) below shall occur or exist: (1) any Person
shall engage in any "prohibited transaction" (as defined in Section 406
of ERISA or Section 4975 of the Code) involving any Plan, (2) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan, (3) a
Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed,
to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely
to result in the termination of such Plan for purposes of Title IV of
ERISA, and, in the case of a Reportable Event, the continuance of such
Reportable Event unremedied for ten days after notice of such
Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is
given or the continuance of such proceedings for ten days after
commencement thereof, as the case may be, (4) any Single Employer Plan
shall terminate for purposes of Title IV of ERISA, or (5) any other
event or condition with respect to any Plan shall occur or exist, and
(ii) such event or condition (A) subjects the Borrower or any of their
Subsidiaries to any tax, penalty or other liability in excess of
$15,000,000; and (B) continues unsatisfied, uncured or otherwise
unremedied for 30 days after notice from the Required Lenders;
(i) (1) If any Material Subsidiary shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign,
<PAGE> 56
52
relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
assets, or any Material Subsidiary shall make a general assignment for
the benefit of its creditors; (2) there shall be commenced against any
Material Subsidiary any case, proceeding or other action of a nature
referred to in clause (1) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 90 days; (3)
there shall be commenced against any Material Subsidiary any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its assets, which results in the entry of an order for any such
relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 90 days from the entry thereof; (4) any
Material Subsidiary shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (1), (2) or (3) above or (5) any Material
Subsidiary shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due;
then, and in any such event, the Administrative Agent, upon the written request
of the Required Lenders, shall (x) terminate forthwith the Commitments and/or
(y) declare, by notice of default given to the Borrower, all Loans and all other
amounts owing hereunder to be forthwith due and payable, whereupon the principal
amount of all outstanding Loans, together with accrued interest thereon, and all
other amounts owing hereunder (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived, anything contained herein
or in any Notes or L/C Documentation to the contrary notwithstanding.
7.2 Insolvency of the Borrower and Like Defaults. Upon the
occurrence of any of the following events of default:
(i) If the Borrower shall commence any case,
proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, or relief of debtors,
seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it
<PAGE> 57
53
a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial
part of its assets, or the Borrower shall make a general
assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Borrower any case, proceeding
or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 90 days; or (iii)
there shall be commenced against the Borrower any case,
proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against
all or any substantial part of its assets, which results in
the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal
within 90 days from the entry thereof; or (iv) if the Borrower
shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts
set forth in clauses (i), (ii) or (iii) above; or (v) if the
Borrower shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they
become due;
then, and in any such event during the continuance thereof, the Commitments
shall immediately and without notice terminate and the principal amount of all
outstanding Loans, together with accrued interest thereon, and all other amounts
owing hereunder (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) shall become immediately due
and payable without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, anything contained herein or in any Notes to
the contrary notwithstanding.
7.3 Letter of Credit Remedies. (a) Upon the occurrence of an
Event of Default and so long as such event shall continue unremedied, upon the
request of the Required Lenders, the Administrative Agent shall, by notice of
default to the Borrower, declare any or all of the L/C Obligations, although
contingent and unmatured, immediately due and payable, unless automatically due
and payable pursuant to subsection 7.2, whereupon the same shall immediately
become due and payable to the Administrative Agent for deposit and application
pursuant to subsection 7.4, without any other presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Borrower.
<PAGE> 58
54
(b) The Borrower shall defend the funds from time to time on
deposit in the Letter of Credit Account against any Lien or other claim adverse
to the interests of the Issuing Lender and the Lenders in such funds, and shall
take any other action appropriate in the circumstances to satisfy, or cause to
be released or discharged, any such claim or Lien.
(c) The Borrower hereby agrees to take any action expressly
contemplated to be taken by the Borrower pursuant to paragraphs (a) and (b) of
this subsection 7.3, together with any other action incidental thereto which,
under the circumstances, is reasonably requested by the Administrative Agent,
the Issuing Lender or the Lenders. The Borrower further agrees that a breach by
it of the provisions of said paragraphs (a) and (b) or the first sentence of
this paragraph (c) will cause irreparable injury to the Lenders, that the
Lenders may have no adequate remedy at law in respect of any such breach and
that, as a consequence, each of such provisions shall be specifically
enforceable against the Borrower. In connection with the foregoing, the Borrower
hereby waives and agrees not to assert any defenses against an action for
specific performance of such provisions, except for a defense that an Event of
Default has not occurred or is not continuing.
7.4 Letter of Credit Account.
(a) Establishment of the Letter of Credit Account. The
Borrower and the Administrative Agent agree that upon the L/C Obligations
becoming due and payable pursuant to subsections 7.1, 7.2 or 7.3(a), there shall
be established, and that thereafter there shall be maintained, in the name of
the Borrower, as debtor, and the Administrative Agent, as secured party for the
ratable benefit of the Lenders, on the books of the Administrative Agent at the
office of the Administrative Agent at 270 Park Avenue, New York, N.Y. 10017, and
under the sole dominion and control of the Administrative Agent, and otherwise
on the terms and conditions hereof a cash collateral account designated as the
"MEDC Letter of Credit Account" (the "Letter of Credit Account").
(b) Deposits and Withdrawals. (i) There shall be deposited in
the Letter of Credit Account any amount paid to the Administrative Agent in
respect of L/C Obligations pursuant to subsections 7.1, 7.2 or 7.3. The Borrower
hereby authorizes and instructs the Lenders (or the Administrative Agent, as the
case may be) to deposit in the Letter of Credit Account any such amount, and
hereby agrees that any such amount, from the time of such deposit and so long as
it remains in the Letter of Credit Account in whole or in part, shall be and
constitute collateral security for the prompt and complete payment when due of
the indebtedness, obligations and liabilities of the Borrower under this Credit
Agreement, the Notes and the L/C Documentation.
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55
(ii) Funds from time to time on deposit in the Letter of
Credit Account shall be withdrawn and distributed by the Administrative Agent
only as follows:
(A) if the Issuing Lender has made any payment under any
Letter of Credit and has not been reimbursed by the Borrower in full
therefor, the Issuing Lender shall, to the extent there are sufficient
funds on deposit in the Letter of Credit Account, receive and apply
such funds on account of such unreimbursed amount, or the
Administrative Agent shall apply such funds on account of any unpaid
amount provided for in subsection 2.14(a) and on account of unpaid
letter of credit fees and commissions as provided in subsection 2.12;
(B) if the principal of or interest on any Loan has not
been paid when due (whether at the stated maturity thereof, by
acceleration or otherwise), or any other indebtedness, obligation or
liability of the Borrower under this Credit Agreement, any Note or any
L/C Documentation has not been paid when due (after giving effect to
any applicable grace period), the Administrative Agent shall, upon the
request of the Required Lenders and to the extent there are sufficient
funds on deposit in the Letter of Credit Account, withdraw and apply
such funds on account thereof;
(C) if at any time there shall be no Default or Event of
Default continuing and uncured, the Administrative Agent shall, at the
request of the Borrower, disburse to the Borrower all funds then on
deposit in the Letter of Credit Account;
(D) if at any time the amount on deposit in the Letter of
Credit Account shall exceed the L/C Obligations, (x) the Administrative
Agent shall upon the Borrower's direction apply the amount of such
excess on account of the outstanding principal amount of and accrued
interest upon the Loans (notwithstanding any minimum prepayment amounts
set forth herein), or any other amounts payable hereunder, or (y) if no
such obligations are then outstanding, the Administrative Agent shall
pay to the Borrower upon its direction, the excess, if any, of such
amount then on deposit over the L/C Obligations; and
(E) upon the full and complete payment of all the
obligations described in clauses (A) and (B) above and the expiration
or cancellation of each Letter of Credit, the funds on deposit in the
Letter of Credit Account shall be withdrawn and distributed to the
Borrower or as a court of competent jurisdiction shall direct.
(c) Investment of Funds. Funds from time to time on
deposit in the Letter of Credit Account shall be invested in U.S.
<PAGE> 60
56
Treasury securities (which may be subject to repurchase agreements with
substantial United States commercial banks) or instruments of comparable
security and liquidity with yields at prevailing market rates for comparable
instruments, as selected by the Borrower. All income received by the
Administrative Agent earned in respect of such investments shall be deposited in
the Letter of Credit Account, and any losses (including, without limitation, any
losses in liquidating such investments or withdrawals and disbursements pursuant
to the terms of subsection 7.4(b)) shall be for the account of, and shall be
deducted from, the Letter of Credit Account.
(d) Exculpatory Provisions. The Borrower agrees that any
action taken or omitted to be taken by the Administrative Agent or the Issuing
Lender in connection with the Letter of Credit Account, if taken or omitted to
be taken in good faith and in the absence of gross negligence and willful
misconduct, shall be binding upon the Borrower and shall not create any
liability for the Administrative Agent, the Issuing Lender or the other Lenders
to the Borrower.
SECTION 8. THE AGENTS AND THE ISSUING LENDER
8.1 Appointment. The Chase Manhattan Bank is hereby appointed
as the Administrative Agent hereunder, and each of the Lenders hereby
irrevocably authorizes The Chase Manhattan Bank, as the Administrative Agent for
such Lender, to take such action on its behalf under the provisions of this
Credit Agreement and the other Credit Documents and to exercise such powers and
to perform such duties hereunder and thereunder as are specifically delegated to
or required of the Administrative Agent by the terms hereof or thereof, together
with such powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Credit Agreement or any other Credit
Document, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Credit Agreement or any other Credit Document or otherwise exist against the
Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent and the
Issuing Lender may execute any of their duties hereunder by or through agents or
employees and shall be entitled to advice of counsel concerning all matters
pertaining to their respective duties hereunder.
8.3 Reimbursement of Administrative Agent and Issuing Lender.
Each Lender, without limiting the Borrower's obligations under subsection 9.7,
agrees to reimburse the Administrative Agent and the Issuing Lender in the
amount of its pro rata share for any out-of-pocket expenses incurred for the
benefit of the Lenders and not reimbursed by the Borrower, and for any counsel
fees and compensation of agents and employees paid for services
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rendered on behalf of the Lenders and not reimbursed by the Borrower.
8.4 Exculpatory Provisions. Neither the Administrative Agent,
the Issuing Lender, nor any of their officers, directors, employees or agents
shall be liable for any action lawfully taken or omitted to be taken by it or
them under this Credit Agreement or any other Credit Document or in connection
herewith or therewith, except for its or their own gross negligence or willful
misconduct. Neither the Administrative Agent nor the Issuing Lender shall be
responsible in any manner to any of the Lenders for the effectiveness,
enforceability, genuineness, validity or the due execution of this Credit
Agreement or any other Credit Document or any certificate, report or other
document used under or in connection with this Credit Agreement or be under any
obligation to any of the Lenders to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions hereof on
the part of the Borrower. The Administrative Agent and the Issuing Lender shall
be fully justified in failing or refusing to take any action hereunder unless it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Subject to the provisions of subsection 9.3
of this Credit Agreement, the Administrative Agent and the Issuing Lender shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder in accordance with written instructions signed by the Required Lenders
and such instructions and any action taken or failure to act pursuant thereto
shall be binding on all the Lenders and on all holders of the Loans.
8.5 Indemnification of Administrative Agent and Issuing
Lender. The Lenders agree to indemnify the Administrative Agent and the Issuing
Lender (to the extent not reimbursed by the Borrower) ratably according to their
respective Commitment Percentages from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Administrative Agent or the Issuing
Lender in any way relating to or arising out of this Credit Agreement or any
other Credit Document or any action taken or omitted by the Administrative Agent
or the Issuing Lender under this Credit Agreement or any other Credit Document;
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs or
disbursements resulting from the Administrative Agent's or the Issuing Lender's
gross negligence or willful misconduct.
8.6 Reliance by Administrative Agent and Issuing Lender. The
Administrative Agent and the Issuing Lender shall be entitled to rely on any
Note, notice, consent, certificate, affidavit, letter, telegram, teletype
message, statement, order
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58
or other document believed by it to be genuine and correct and to have been
signed and sent by the proper person or persons and, in respect of legal
matters, upon opinion of counsel selected by the Administrative Agent or the
Issuing Lender. The Administrative Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent.
8.7 Administrative Agent and Issuing Lender in Individual
Capacity. With respect to loans made or renewed by it, any Note or Notes issued
to it, and with respect to any Letter of Credit issued or participated in by it,
the Administrative Agent, the Syndication Agent, the Documentation Agent and the
Issuing Lender shall have the same rights and powers hereunder as any Lender and
may exercise the same as though it were not the Administrative Agent, the
Syndication Agent, the Documentation Agent or the Issuing Lender, and the term
"Lender" or "Lenders" shall, unless the context otherwise indicates, include the
Administrative Agent, the Syndication Agent, the Documentation Agent and the
Issuing Lender in its individual capacity.
8.8 Non-Reliance. Each Lender expressly acknowledges that
neither the Administrative Agent, the Issuing Lender, the Syndication Agent, the
Documentation Agent nor any of their officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to it
and that no act by the Administrative Agent, the Issuing Lender, the Syndication
Agent or the Documentation Agent hereinafter taken, including any review of the
affairs of the Borrower, shall be deemed to constitute any representation or
warranty by the Administrative Agent, the Issuing Lender, the Syndication Agent
or the Documentation Agent to any Lender. Each Lender represents to the
Administrative Agent, the Issuing Lender, the Syndication Agent and the
Documentation Agent that it has, independently and without reliance upon the
Administrative Agent, the Issuing Lender, the Syndication Agent, the
Documentation Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial or other
condition and creditworthiness of the Borrower and made its own decision to make
extensions of credit hereunder and enter into this Credit Agreement. Each Lender
also represents to the Administrative Agent, to the Issuing Lender, the
Syndication Agent and the Documentation Agent that it will, independently and
without reliance upon the Administrative Agent, the Issuing Lender, the
Syndication Agent, the Documentation Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Credit Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and
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59
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent or the Issuing Lender hereunder, neither the Administrative
Agent nor the Issuing Lender shall have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of the
Borrower which may come into the possession of the Administrative Agent, the
Issuing Lender or any of their officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
8.9 Successor Administrative Agent. The Administrative Agent
may resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this Credit
Agreement, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders which successor agent shall be approved by the
Borrower, whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon its appointment, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Credit Agreement or
any holders of the Loans or the L/C Obligations. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Section 8 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this Credit
Agreement.
8.10 Documentation Agent and Syndication Agent. Neither the
Documentation Agent nor the Syndication Agent shall have duties or
responsibilities hereunder in its capacity as such.
SECTION 9. MISCELLANEOUS
9.1 Waiver of Default. Subject to the proviso clause of
subsection 9.3 below, the Administrative Agent may, by written notice to the
Borrower (if thereunto authorized by the Required Lenders), on behalf of all the
Lenders, at any time and from time to time, waive any default in the performance
or observance of any condition, covenant or other term hereof or any Default or
Event of Default which shall have occurred hereunder and its consequences. Any
such waiver shall be for such period and subject to such conditions as shall be
specified in any such notice. In the case of any such waiver, the Borrower, the
Lenders and the Administrative Agent shall be restored to their former position
and rights hereunder and under any Note issued hereunder, respectively, and any
Default or Event of Default so waived shall be deemed to be cured and not
continuing; but no
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such waiver shall extend to any subsequent or other Event of Default, or impair
any right consequent thereon.
9.2 Request to Administrative Agent. Whenever the
Administrative Agent is authorized and empowered hereunder on behalf of each of
the Lenders to give any approval or consent, or to make any request, or to take
any action on behalf of the Lenders, the Administrative Agent shall be required
to give such approval or consent, to make such request or to take such action
when so requested by the Required Lenders, except that any action specified in
subsection 9.3 below to require a different percentage shall be taken only on
the percentage specified therein.
9.3 Amendments. With the written consent of the Required
Lenders, the Administrative Agent and the Borrower may, subject to the
provisions of this subsection, from time to time, enter into agreements
amendatory or supplemental hereto for the purpose of adding any provisions to
this Credit Agreement or changing in any manner the rights of the Lenders or of
the Borrower, hereunder; provided, however, that no such amendatory or
supplemental agreement shall (a) change the maturity of any Loan or the
Scheduled Termination Date or change the rate or amount of interest or any fee,
commission or other charge, in each case for the account of the Lenders, or the
time of payment or prepayment of any thereof or change the principal amount of
any Lender's loan, Reimbursement Obligation or Commitment or the duration
thereof without the written consent of all the Lenders, or (b) change (i) the
provisions of subsection 2.18(a) or (ii) the percentages specified in Section 7
or this Section 9 or in the definition of Required Lenders, without the written
consent of all the Lenders, or (c) change any provision of Section 8 without the
consent of the Administrative Agent and the Issuing Lender. Any such amendatory
or supplemental agreement shall apply equally to each Lender and shall be
binding upon the Borrower, all the Lenders and the Administrative Agent.
9.4 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be in writing (including by facsimile
transmission if followed promptly by hard copy) and shall be deemed to have been
duly given or made three days after being deposited in the mails, postage
prepaid, or, in the case of telecopy notice, when received by the addressee,
addressed as follows or to such other address as may be hereafter designated in
writing by the respective parties hereto:
The Borrower: Mitchell Energy & Development
Corp.
P.O. Box 4000
The Woodlands, TX 77387-4000
Attn: Chief Financial Officer
Telecopy: 713-377-6192
The Lenders: Their respective names and addresses
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61
set forth on Schedule 5
The Issuing The Chase Manhattan Bank
Lenders: 270 Park Avenue
New York, NY 10017
Attn: Peter Ling
Telecopy: (212) 270-3897
Chase Manhattan Bank Delaware
Corporate Banking Dept. - 8th Floor
1201 Market Street
Wilmington, Delaware 19801
Attn: Michael P. Handago
Telecopy: (302) 984-4904
The The Chase Manhattan Bank, as
Administrative Administrative Agent
Agent: 270 Park Avenue, 32nd Floor
New York, NY 10017
Attn: Peter Ling
Telecopy: 212-270-3897
With a copy The Chase Manhattan Bank
to: Agent Bank Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attn: Tonya Mitchell
Telecopy: (212) 552-5777
except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed.
9.5 Adjustments; Set-Off. (a) If any Lender shall at any time
receive payment of all or part of any of the Loans or Reimbursement Obligations
owing to it, whether by set-off or otherwise, in a greater proportion than the
payments made on the Loans or Reimbursement Obligations owing to the other
Lenders, such Lender shall purchase for cash, ratably from each of the other
Lenders, an undivided participating interest in a portion of the Loans or
Reimbursement Obligations owing to such other Lenders so that after such
purchase each Lender will hold an interest in an unpaid principal amount of
Loans or Reimbursement Obligations bearing the same proportion to the total
principal amount of Loans or Reimbursement Obligations at such time outstanding
as existed in the Loans or Reimbursement Obligations outstanding hereunder prior
to such payment. In the event that at any time any Lender shall be required to
refund any amounts which have been paid to or received by it on account of any
of the Loans or Reimbursement Obligations held by such Lender and which have
been applied to the purchase of an undivided participating interest in the
portion of Loans or Reimbursement Obligations held by other Lenders pursuant to
this subsection 9.5(a) then, upon notice from such Lender, each of the other
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62
Lenders shall repurchase said portions for cash to the extent of their ratable
share of such refund.
(b) In addition to any rights and remedies of the Lenders
provided by law (including, without limitation, other rights of set-off), upon
the occurrence of any Event of Default specified in paragraph (a) or (b) of
subsection 7.1, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. Each Lender agrees
promptly to notify the Borrower and the Administrative Agent after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application.
9.6 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Administrative Agent or any Lender,
any right, power or privilege hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by law.
9.7 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Administrative Agent and the Issuing Lender for all its
reasonable out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to, this Credit Agreement, the other Credit Documents and any other
documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent, (b) to
pay or reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Credit Agreement, the other Credit Documents and any such
other documents, including, without limitation, fees and disbursements of
counsel (including, without limitation, in-house counsel) to the Administrative
Agent and to the several Lenders, (c) to pay, indemnify and hold each Lender and
the Administrative Agent and each of their officers, directors, employees,
agents, attorneys-in-fact and Affiliates harmless from any and all recording and
filing fees and any and
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63
all liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other similar taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation of any
of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this Credit
Agreement, the other Credit Documents and any such other documents; provided,
however, that with respect to this subparagraph (c), the Borrower shall not be
liable for the payment of any losses, costs, penalties, judgments, suits,
liabilities, damages, penalties, actions, expenses or disbursements resulting
solely from the gross negligence or wilful misconduct of any such Lender and (d)
to pay, indemnify, and hold each Lender and the Administrative Agent and their
respective officers, directors, employees, affiliates, agents and controlling
persons (each, an "Indemnitee") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Credit Agreement, the other Loan Documents and any such other documents,
including any of the foregoing relating to the use of proceeds of the Loans or
the violation of, noncompliance with or liability under, any Environmental Law
applicable to the operations or properties of the Borrower and any of its
Subsidiaries and the reasonable fees and expenses of legal counsel in connection
with claims, actions or proceedings by any Indemnitee against the Borrower under
any Credit Document (all the foregoing in this clause (d), collectively, the
"Indemnified Liabilities"), provided, that the Borrower shall have no obligation
hereunder to any Indemnitee with respect to Indemnified Liabilities to the
extent such Indemnified Liabilities resulted from the gross negligence or
willful misconduct of such Indemnitee. The agreements in this subsection shall
survive termination of the Letters of Credit and repayment of the Loans and all
other amounts payable hereunder.
9.8 Notice of Action. In the event the Administrative Agent or
any Lender or Lenders should take any action or give any consent or notice
provided for by this Credit Agreement, notice of such action, consent or notice
shall be given forthwith to all the Lenders by the Administrative Agent or the
Lender or Lenders taking such action or giving such consent or notice; provided,
however, that the failure to give any such notice shall not invalidate any such
action, consent or notice in respect of the Borrower.
9.9 Survival of Agreements. All agreements, representations
and warranties made herein shall survive the execution and delivery of this
Credit Agreement and the issuances of Letters of Credit and the making and
renewal of loans hereunder.
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64
9.10 Successors and Assigns; Participations. (a) This Credit
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Administrative Agent, all future holders of the Loans and the L/C
Obligations, and their respective successors and assigns, except that the
Borrower may not assign or transfer any of their rights or obligations under
this Credit Agreement without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants") participating interests in any
Loan or Reimbursement Obligations owing to such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder. In the event of any such
sale by a Lender of participating interests to a Participant, such Lender's
obligations under this Credit Agreement to the other parties to this Credit
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Note for all purposes under this Credit Agreement and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Credit
Agreement. In no event shall any Participant under any such participation have
any right to approve any amendment or waiver of any provision of any Credit
Document, or any consent to any departure by the Borrower therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Loans, in each case to the extent subject to such
Participation. The Borrower agrees that if amounts outstanding under this Credit
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Credit Agreement to the same extent as if
the amount of its participating interest were owing directly to it as a Lender
under this Credit Agreement; provided, that such right of setoff shall be
subject to the obligation of such Participant to share with the Lenders, and the
Lenders agree to share with such Participant, as provided in subsection 9.5(a).
The Borrower also agrees that each Participant shall be entitled to the benefits
of subsections 2.20, 2.21, 2.22 and 9.5(b) with respect to its participation in
the Commitments and the Loans and other amounts outstanding from time to time;
provided, that no Participant shall be entitled to receive any greater amount
pursuant to such subsections than the transferor Lender would have been entitled
to receive in respect of the amount of the participation transferred by such
transferor Lender to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable
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65
law, at any time and from time to time assign to any Lender or any affiliate
thereof or, with the prior consent of the Borrower, the Issuing Lender and the
Administrative Agent (which in the case of the Borrower shall not be
unreasonably withheld), to an additional bank or financial institution ("an
Assignee") all or any part of its rights and obligations under this Credit
Agreement and the other Credit Documents pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit C, executed by such Assignee,
such assigning Lender (and, in the case of an Assignee that is not then a Lender
or an affiliate thereof, by the Borrower and the Administrative Agent) and
delivered to the Administrative Agent for its acceptance and recording in the
Register; provided, that no such assignment to an Assignee (other than any
Lender or any affiliate thereof) shall be in an aggregate principal amount of
less than $10,000,000 (other than in the case of an assignment of all of a
Lender's interests under this Agreement) and after completing such assignment,
the Assignor may not have an aggregate principal amount of Commitments and Loans
less than $5,000,000, unless otherwise agreed by the Borrower and the
Administrative Agent. Upon such execution, delivery, acceptance and recording,
from and after the effective date determined pursuant to such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with a Commitment as set forth therein, and
(y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Credit
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Credit Agreement, such assigning Lender shall cease to be a party hereto).
Unless requested by the Assignee and/or the assigning Lender, new Notes shall
not be required to be executed and delivered by the Borrower.
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in subsection
9.4 a copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Loan and Reimbursement Obligation
owing to, each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders may (and, in the case of any Loan or other
obligation hereunder not evidenced by a Note, shall) treat each Person whose
name is recorded in the Register as the owner of a Loan or other obligation
hereunder as the owner thereof for all purposes of this Credit Agreement and the
other Credit Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect thereto being made
in the Register. The Register shall be
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66
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by the Borrower, the Issuing Lender
and the Administrative Agent) together with payment to the Administrative Agent
of a registration and processing fee of $4,000, the Administrative Agent shall
(i) promptly accept such Assignment and Acceptance and (ii) on the effective
date determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the Lenders and
the Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee
(but, in the case of a prospective Assignee as to which consent of the Borrower
must be obtained pursuant to subsection 9.10(c), only if the Borrower shall have
given such consent) any and all financial information in such Lender's
possession concerning the Borrower and its Affiliates which has been delivered
to such Lender by or on behalf of the Borrower pursuant to this Credit Agreement
or which has been delivered to such Lender by or on behalf of the Borrower in
connection with such Lender's credit evaluation of the Borrower and its
Affiliates prior to becoming a party to this Credit Agreement; provided that
each such Transferee or prospective Transferee agrees to keep confidential such
financial information and any other written or oral information provided to it
by or on behalf of the Borrower or any of its Subsidiaries, or by such Lender
regarding the Borrower or any of its Subsidiaries, pursuant to or in connection
with this Credit Agreement.
(g) For avoidance of doubt, the parties to this Credit
Agreement acknowledge that the provisions of this subsection concerning
assignments of Loans and Notes relate only to absolute assignments and that such
provisions do not prohibit any pledge or assignment by a Lender of any Loan or
Note to any Federal Reserve Bank in accordance with applicable law.
9.11 Counterparts. This Credit Agreement may be executed in
any number of separate counterparts each of which shall be an original and all
of said counterparts taken together shall be deemed to constitute one and the
same agreement. Promptly after the execution hereof, the Administrative Agent
shall transmit to each Lender a conformed copy of this Credit Agreement. A set
of the copies hereof signed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.
9.12 Severability. Any provision of this Credit
Agreement which is prohibited or unenforceable in any
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jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9.13 Interest. It is the intent of each Lender and the
Borrower in the execution and performance of this Credit Agreement and all
matters incidental and related hereto and any agreement or instrument executed
in connection herewith or with any Debt of the Borrower to any of the Lenders to
remain in strict compliance with all laws applicable to such Lender from time to
time in effect, including, without limitation, usury laws. In furtherance
hereof, each Lender and the Borrower stipulates and agrees that none of the
terms and provisions contained in or pertaining to this Credit Agreement or any
other agreement or instrument ("Other Agreement") executed in connection
herewith or with any Debt of the Borrower to any Lender shall ever be construed
to create a contract to pay for the use, forbearance or detention of money with
interest at a rate or in an amount in excess of the Maximum Rate for such Lender
or maximum amount of interest permitted to be charged by such Lender under all
laws in effect and applicable to such Lender. For purposes of this Credit
Agreement and the Notes, "interest" shall include the aggregate of all amounts
which constitute or are deemed to constitute interest under the respective laws
in effect and applicable to the Lenders that are contracted for, chargeable,
receivable (whether received or deemed to have been received) or taken under
this Credit Agreement or the Notes or any Other Agreement. The Borrower shall
never be required to pay to any Lender unearned interest hereunder or on any
Note or any Other Agreement and shall never be required to pay interest
hereunder or on any Note or any Other Agreement at a rate or in an amount in
excess of the Maximum Rate for such Lender or maximum amount of interest that
may be lawfully charged by such Lender under any law which is in effect and
applicable to such Lender and the provisions of this paragraph shall control
over all other provisions of this Credit Agreement and the Notes or any Other
Agreement which may be in apparent conflict herewith. If the effective rate or
amount of interest which would otherwise be payable under this Credit Agreement
or the Notes or any Other Agreement, or all of them, would exceed the Maximum
Rate for any Lender or the maximum amount of interest any Lender or any holder
of the Notes or any Other Agreement is allowed by the relevant applicable law to
charge, contract for, take or receive, or in the event a Lender or any holder of
the Notes or any Other Agreement shall charge, contract for, take or receive
monies that are deemed to constitute interest which could, in the absence of
this provision, increase the effective rate or amount of interest payable under
this Credit Agreement or the Notes or any Other Agreement, or all of them, to a
rate or amount in excess of that permitted to be charged, contracted for, taken
or received under
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the applicable laws then in effect with respect to such Lender, then the
principal amount of the Notes or the obligations of the Borrower to such Lender
under this Credit Agreement, the Notes or any Other Agreement or the amount of
interest which would otherwise be payable to or for the account of such Lender
under this Credit Agreement or the Notes or any Other Agreement, or all of them,
shall be reduced to the amount allowed under said laws as now or hereafter
construed by the courts having jurisdiction, and all such monies so charged,
contracted for, or received that are deemed to constitute interest in excess of
the Maximum Rate for such Lender or maximum amount of interest permitted by the
relevant applicable laws shall be immediately returned to or credited to the
account of the Borrower upon such determination. All amounts paid or agreed to
be paid in connection with the indebtedness arising pursuant to this agreement
and/or evidenced by the Notes which would under any law in effect and applicable
to such Lender be deemed "interest" shall, to the extent permitted by such
applicable law, be amortized, prorated, allocated and spread throughout the full
term of this Credit Agreement and the Notes, as applicable.
9.14 GOVERNING LAW. THIS CREDIT AGREEMENT AND EACH NOTE AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
9.15 SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS CREDIT AGREEMENT, OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SUBSECTION 9.4 HEREOF OR AT
SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN
NOTIFIED PURSUANT THERETO; AND
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT
TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER
<PAGE> 73
69
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER
JURISDICTION.
9.16 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS CREDIT AGREEMENT OR ANY OTHER
CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE> 74
70
IN WITNESS WHEREOF, the parties have caused this Credit
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
MITCHELL ENERGY & DEVELOPMENT CORP.
By: /s/ W. BROOKE HAMILTON, JR.
--------------------------------
Name: W. Brooke Hamilton, Jr.
Title: Vice President-Finance
and Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent, an Issuing
Lender and a Lender
By: /s/ PETER M. LING
--------------------------------
Name: Peter M. Ling
Title: Vice President
NATIONSBANK, N.A., as
Documentation Agent and as a
Lender
By: /s/ JAMES V. DUCOTE
--------------------------------
Name: James V. Ducote
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION, as
Syndication Agent and as a Lender
By: /s/ JOHN R. WAY
--------------------------------
Name: John R. Way
Title: Assistant Vice President
CHASE MANHATTAN BANK DELAWARE, as
an Issuing Lender
By: /s/ MICHAEL P. HANDAGO
--------------------------------
Name: Michael P. Handago
Title: Vice President
<PAGE> 75
71
BANK ONE, TEXAS, N.A., as a Lender
By: /s/ RICHARD G. SYLVAN
--------------------------------
Name: Richard G. Sylvan
Title: S.V.P
ABN AMRO BANK N.V., HOUSTON AGENCY,
as a Lender
By: /s/ STUART MURRAY
--------------------------------
Name: Stuart Murray
Title: Vice President
BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY, as a Lender
By: /s/ MICHAEL G. MEISS
--------------------------------
Name: Michael G. Meiss
Title: Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, as a Lender
By: /s/ J. ALAN ALEXANDER
--------------------------------
Name: J. Alan Alexander
Title: Vice President
THE BANK OF NOVA SCOTIA, as
a Lender
By: /s/ F.C.H. ASHBY
--------------------------------
Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
<PAGE> 76
Schedule 1
to Credit
Agreement
---------
The Applicable Margin, Letter of Credit Commission Rate and Commitment Fee Rate
will be based on ratings (the "Bond Rating") of the Borrower's senior unsecured
debt by Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service
Inc. ("Moody's"). Any change in such margins and fees resulting from a change in
the Bond Rating shall be effective immediately.
<TABLE>
<CAPTION>
==================================== ============== ============== ============ ============== =============
Level 1 Level 2 Level 3 Level 4 Level 5
Rating S&P/Moody's* BBB+/ BBB/ BBB-/ BB+/ BB/
Baa1 or Baa2 Baa3 Ba1 Ba2 or lower
higher
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Letter of Credit Commission Rate .35 .45 .55 .75 1.00
- ------------------------------------ -------------- -------------- ------------ -------------- -------------
Applicable Margin-Eurodollar Loans .35 .45 .55 .75 1.00
- ------------------------------------ -------------- -------------- ------------ -------------- -------------
Applicable Margin-ABR Rate Loans 0 0 0 0 0
- ------------------------------------ -------------- -------------- ------------ -------------- -------------
Commitment Fee Rate .10 .125 .175 .25 .375
==================================== ============== ============== ============ ============== =============
</TABLE>
* In the event such Bond Ratings fall within different Levels, the
foregoing will be based on the higher of the two Bond Ratings, provided
that if the higher (i.e. lower numbered) Level shall be two or more
Levels higher than the lower Level, the Level immediately below such
higher Level shall govern. In the event no Bond Rating is in effect,
Level 5 shall govern.
<PAGE> 77
Schedule 2
to Credit
Agreement
---------
Mitchell Energy & Development Corp.
List of Subsidiaries
--------------------
MND Energy Corporation
Southwestern Gas Pipeline, Inc.
Acacia Natural Gas Corporation
Mitchell Louisiana Gas Services, Inc.
Mitchell Gas Operating, Inc.
MND Gas Services, L.L.C.(1)
Mitchell Gas Services L.P.(2)
Mitchell Energy Corporation
Mitchell Energy Twenty-Two, Inc.(3)
Liquid Energy Corporation(3)
MND Energy Ten, Inc.(3)
MND Service, Inc.
The Woodlands Venture Capital Company
Mitchell Resorts, Inc.
Mitchell Catamount, Inc.
MND Leisure, Inc.
TWC/FER, Inc.(4)
- --------
(1) Delaware Limited Liability Company.
(2) Delaware Limited Partnership (99% limited partnership
interest owned by MND Gas Services L.L.C.; 1% general partnership
interest owned by Mitchell Gas Operating, Inc.).
(3) Currently a shell corporation. No assets are owned nor are business
activities performed under this entity.
(4) Owned 50/50 by Mitchell Resorts, Inc. and Fertitta
Hospitality, Inc.
<PAGE> 78
Schedule 3
to Credit
Agreement
---------
Mitchell Energy & Development Corp.
Existing Liens*
June 30, 1998
(in thousands)
<TABLE>
<S> <C>
Belvieu Environmental Fuels $ 26,074
C&L Processors Partnership $ 21,605
Gulf Coast Fractionators $ 14,220
--------
$ 61,899
========
</TABLE>
*Amounts represent portion of Liens of the above-listed
entities that corresponds to the ownership interests of
Mitchell Energy & Development Corp. and its
Subsidiaries in such entities.
<PAGE> 79
Schedule 4
to Credit
Agreement
---------
Mitchell Energy & Development Corp.
Existing Debt*
June 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Debt
--------------------------------
Non-
Recourse Recourse Total
-------- -------- -------
<S> <C> <C> <C>
Belvieu Environmental Fuels $ 6,667 $19,407 $26,074
C&L Processors Partnership 11,667 9,938 21,605
Gulf Coast Fractionators 14,220 14,220
-------- ------- -------
$ 18,334 $43,565 $61,899
======== ======= =======
</TABLE>
*Amounts represent portion of existing debt of the
above-listed entities that corresponds to the ownership
interests of Mitchell Energy & Development Corp. and
its Subsidiaries in such entities.
<PAGE> 80
Schedule 5
to Credit
Agreement
---------
Lender Offices
--------------
THE CHASE MANHATTAN BANK
270 Park Avenue, 32nd Floor
New York, NY 10017
Attn: Mr. Peter Ling
Fax: 212-270-3897
NATIONSBANK, N.A.
700 Louisiana, 8th Floor
Houston, TX 77002
Attn: James Allred
Fax: (713) 247-6568
PNC BANK, NATIONAL ASSOCIATION
One PNC Plaza, 3rd Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attn: Thomas K. Grundman
Fax: (412) 762-2571
with a copy to
John R. Way
PNC Bank, National Association
One PNC Plaza, 3rd Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Fax: (412) 762-2571
BANK ONE, TEXAS, N.A.
910 Travis Street, Suite 600
Houston, Texas 77002
Fax: (713) 751-7894
Attn: Richard Sylvan/Jolinda Papadakis
ABN AMRO BANK N.V., HOUSTON AGENCY
Three Riverway, Suite 1700
Houston, Texas 77056
Fax: (713) 621-5801
Attn: Jamie Conn
BANK OF TOKYO-MITSUBISHI, LTD., HOUSTON AGENCY
1100 Louisiana, Suite 2800
Houston, Texas 77002
Fax: (713) 655-3855
Attn: John McIntyre
<PAGE> 81
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
1000 Louisiana, 3rd Floor
Houston, Texas 77002
Fax: (713) 739-1087
Attn: Alan Alexander
with a copy to
Wells Fargo Bank, N.A.
201 Third Street, 8th Floor
San Francisco, California 94103
Fax: (415) 979-0675
Attn: Cindy Dunn
THE BANK OF NOVA SCOTIA
1100 Louisiana, Suite 3000
Houston, Texas 77002
Fax: (713) 752-2425
Attn: Donovan Broussard
with a copy to
The Bank of Nova Scotia
600 Peachtree N.E.
Suite 2700
Atlanta, Georgia 30308
Fax: (404) 888-8998
Attn: F.C.H. Ashby
<PAGE> 1
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
I. PURPOSE OF THE PLAN. The MITCHELL ENERGY & DEVELOPMENT CORP. 1998
MUTUAL FUND OPTION PLAN (the "Plan") is intended to provide a means
whereby certain employees of MITCHELL ENERGY & DEVELOPMENT CORP., a
Texas corporation and its subsidiaries (hereafter referred to as "the
Company") may obtain option contracts from the Company exercisable in
shares of certain selected mutual funds in order to encourage them to
remain with and devote their best efforts to the business of the
Company, thereby advancing the interests of the Company and its
shareholders. Accordingly, the Company may grant to certain employees
("Optionees") the option ("Option") to purchase shares of selected
mutual funds ("Shares"), as hereinafter set forth.
II. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") of, and appointed by, the Board of Directors of the
Company (the "Board"), and the Committee shall be comprised solely of
two or more outside directors (within the meaning of section 162(m) of
the Internal Revenue Code of 1986, as amended ("the Code")). Unless and
until the Board designates otherwise, the Committee hereunder shall be
the Compensation Committee of the Board. The Committee shall have sole
authority to select the Optionees from among those individuals eligible
hereunder. In selecting the Optionees from among individuals eligible
hereunder, the Committee may take into account the nature of the
services rendered by such individuals, their present and potential
contributions to the Company's success and such other factors as the
Committee in its discretion shall deem relevant. The Committee is
authorized to interpret the Plan and may from time to time adopt such
rules and regulations, consistent with the provisions of the Plan, as
it may deem advisable to carry out the Plan. All decisions made by the
Committee in selecting the Optionees, in establishing the number of
Shares which may be issued under each Option and in construing the
provisions of the Plan shall be final.
III. OPTION AGREEMENTS. Each option shall be evidenced by a written
agreement between the Company and the Optionee ("Option Agreement")
which shall contain such terms and conditions as may be approved by the
Committee in its sole discretion. The terms and conditions of the
respective Option Agreements need not be identical. The terms and
conditions of the respective Option Agreements may provide (or require
under certain circumstances) for the surrender of the right to purchase
Shares under Option in return for a payment in cash equal in value to
the excess of the fair market value of the Shares with respect to which
the right to purchase is surrendered over the exercise price (as
defined below) therefor, on such terms and conditions as the Committee
in its sole discretion may prescribe; provided, that, the Committee may
retain final authority (i) to determine whether an Optionee shall be
permitted (or required), or (ii) to approve an election by an Optionee,
to receive cash in full or partial settlement of such rights.
1
<PAGE> 2
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
IV. OPTIONS AND TERMS - GENERAL
A. Plan Year. The Plan Year shall be the calendar year beginning
January 1 and ending December 31 ("Plan Year").
B. Notice of Exercise. Options may be exercised only by written
notice sent to the Mutual Fund Option Plan Administrator for
the Company at its principal executive office at 2001
Timberloch Place, the Woodlands, Texas 77380 accompanied by
payment in cash of the full consideration for the Shares as to
which the Options are exercised. However, the Committee may,
in its sole discretion and subject to such rules as it may
adopt, permit the Optionee to elect to satisfy, in whole or in
part, the payment of the Exercise Price by having the Company
retain Shares (or their cash equivalent) which would otherwise
be distributed (or paid) to the Optionee in connection with
the exercise. An Optionee must exercise a minimum of the
lesser of $2,500 of the underlying value of the Option(s) to
the Optionee or all outstanding Options. An Optionee can
exercise no more than four times in any given Plan Year. The
Company shall effect the request for exercise within fifteen
days of receipt of the written notice.
C. Tax Withholding and Offset. The Company shall have the right
to deduct applicable taxes in connection with any Option
exercise hereunder for the payment of federal and state taxes
required by law or to take such other action as may be
necessary in the opinion of the Company to satisfy all
obligations for withholding of such taxes. To the extent
authorized under existing laws, the Company shall allow the
Optionee to make such remittance through cash or a personal
check. However, the Committee may, in its sole discretion and
subject to such rules as it may adopt, permit the Optionee to
elect to satisfy, in whole or in part, the payment of any
withholding tax obligation which may arise in connection with
the exercise of an Option by having the Company retain Shares
(or their cash equivalent) which would otherwise be
distributed (or paid) to the Optionee in connection with the
exercise. Proceeds from Option exercises hereunder may also be
withheld at the time of exercise to satisfy other financial
obligations of the Optionee to the Company at the discretion
of the Committee.
V. DEFERRED INCOME OPTIONS
A. Election Date. Any Optionee may file with the Secretary of the
Company not more than once for each Plan Year and prior to the
beginning of the Plan Year, an irrevocable election to receive
an Option in lieu of all or a percent of such
2
<PAGE> 3
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
Optionee's cash compensation, such as salary, bonus, bonus
unit proceeds, and performance unit proceeds earned in the
Plan Year (net of payroll deductions for taxes, benefits,
etc.) that would otherwise have been payable to him; provided,
however, that the amount of compensation so deferred in any
Plan Year shall not in any event exceed the compensation
attributable to services rendered by the Optionee for such
Plan Year. A new participant may make an irrevocable election
to defer all or part of such participant's compensation after
the beginning of the Plan Year with respect to future
compensation earned in the Plan Year if such election is made
within 30 days of becoming eligible to participate under the
Plan.
B. Grant of Options.
1.) Salary Deferral. Options shall be granted within
thirty (30) days immediately following the end of a
calendar month in a Plan Year in which an Optionee
has deferred salary compensation. If an Optionee has
deferred salary compensation in more than one month
of the Plan Year then such Optionee shall be granted
separate Options for deferred amounts for each such
month. Options related to salary compensation will
not be granted more than once in any given month. An
Optionee cannot be granted more than twelve (12)
Options in a given Plan Year related to the deferral
of salary. Options shall not be issued at any time
that the amount of deferred salary compensation does
not equal or exceed $2,500.
2.) Bonus Deferral. Options shall be granted within
thirty (30) days of such time an Optionee has
deferred Bonus Compensation in a Plan Year. If an
Optionee has deferred Bonus Compensation in more than
one calendar month then such Optionee shall be
granted separate Options for deferred amounts
relating to each such month. An Optionee cannot be
granted more than four Options in any given Plan Year
relating to the deferral of Bonus Compensation. Bonus
Compensation shall be defined as cash compensation
payable to the Optionee under all incentive plans
sponsored by the Company which is designated as
"Bonus Compensation" by the Committee. Options shall
not be issued at any time that the amount of deferred
Bonus Compensation does not equal or exceed $2,500.
3
<PAGE> 4
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
3.) Limitation on Mutual Funds. Options may not be
granted with request to more than four mutual funds
during any Plan Year and may not be granted with
respect to more than ten mutual funds during the term
of the Plan.
C. Dividend Equivalent. A Dividend Equivalent shall mean an
amount equal in value to dividends or distributions made on
mutual fund shares subject to options under the Plan. Dividend
Equivalents will be treated as additional Salary Deferral for
purposes of (B.1.) above.
D. Administration. The Company shall establish and maintain such
records as the Committee considers necessary to account for
deferrals of the Plan Participants for the purpose of
reflecting the Company's obligation to grant a respective
Option at the time specified in Subparagraph V.B. above. If an
Optionee has made an election to defer income under
Subparagraph V.A. above, and has terminated employment prior
to the granting of Options with respect to such deferrals
under Subparagraph V.B. above, all income so deferred for
which no Option has yet been granted or will be granted under
the Plan will become payable to the Optionee in cash within 30
days of such termination.
E. Option Formula. The number of shares subject to the Option
granted to an Optionee on the date of grant shall be equal to
the nearest number of whole Shares in accordance with the
following formula:
<TABLE>
<CAPTION>
Deferred Amount = Number
-------------------------- Of Shares
<S> <C>
(Fair Market Value of
Shares less Exercise Price)
</TABLE>
"Deferred Amount" shall be the dollar amount as elected above
by an Optionee which has been deferred and for which Options
have not been issued
"Fair Market Value" shall mean the quoted closing sales price
of a Share as reported on the Composite Tape of the New York
Stock Exchange on the date of grant; or, if no prices are
reported on that date, on the last preceding date on which
such prices of the Shares are so reported. If the Shares are
traded over the counter at the time a determination of its
fair market value is required to be made hereunder, its fair
market value shall be deemed to be equal to the average
4
<PAGE> 5
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
between reported high and low or closing bid and asked price
of the Shares on the most recent date on which Shares were
publicly traded. In the event Shares are not publicly traded
at the time a determination of their value is required to be
made hereunder, the determination of its fair market value
shall be made by the Committee in such manner as it deems
appropriate.
"Exercise Price" shall mean the exercise price per Share
subject to the Option on the date of grant, which shall equal
the Fair Market Value minus 75 percent of such Fair Market
Value. At the time an Option is exercised, the Exercise Price
will be adjusted for the Company's cost of funds for the time
between the grant and exercise dates. The Committee shall make
the determination as to the appropriate rate of the Company's
cost of funds in its sole discretion.
F. Vesting of Options. Options will become immediately vested
upon the granting of the Options as set forth above.
G. Exercise Period for Options. (A) All Options shall become
immediately exercisable in full six (6) months after the date
of grant. (B) No option granted in respect of service as an
employee shall be exercisable after the first to occur of (i)
the expiration of ten years from the date upon which such
option was granted; (ii) in the case of termination of service
of the Optionee for reasons other than death, total and
permanent disability, or retirement pursuant to the provisions
of any retirement plan maintained by the Company or a
subsidiary, the expiration of six months after the later of
(a) the date of such termination or (b) the date on which such
option first became exercisable; or (iii) in the case of
termination of the Optionee because of death, the expiration
of one year after the date of death.
H. Termination Prior to Exercisability. Notwithstanding
Subparagraph G. above, the Company may make a payment in cash
to the Optionee equal in value to the excess of the Fair
Market Value of the Shares over the Exercise Price for the
Optionee's surrender of the right to purchase Shares under
Option or permit such Options to become immediately
exercisable in the event of termination of Optionee's services
prior to the date on which an Option is exercisable whether by
quit, discharge, retirement, disability, death or in
connection with a Change of Control (as defined below). For
purposes of this paragraph "Change of Control" shall mean if
(i) the Company shall not be the surviving entity in any
merger, consolidation or other reorganization (or survives
only as a subsidiary of an entity other than a previously
wholly-owned subsidiary of the Company), (ii) the Company
sells, leases or exchanges all or substantially all of its
assets to any other
5
<PAGE> 6
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
person or entity (other than a wholly-owned subsidiary of the
Company), (iii) the Company is to be dissolved and liquidated,
(iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, acquires or gains ownership or control (including,
without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon
voting power), or (v) as a result of or in connection with a
contested election of directors, the persons who were
directors of the Company before such election shall cease to
constitute a majority of the Board; provided, however, in the
event of the death of George P. Mitchell, the majority of
shareholders of the Company and the Chief Executive Officer of
the Company, the transfer of George P. Mitchell shares of the
Company's stock upon his death shall not result in or
constitute a Change of Control.
VI. DISCRETIONARY OPTIONS
A. Grant of Discretionary Options. The Committee may grant
discretionary Options for Shares to eligible employees of the
Company on such terms and conditions as the Committee may
determine in its sole discretion, including, but not limited
to, vesting and exercise period terms. A grant of
discretionary Options will not require an Optionee to defer
compensation. If an Optionee is determined to have been
terminated for "cause" by the Company, the Optionee shall
forfeit his or her rights to all non-vested discretionary
Options granted hereunder.
For purposes of this subparagraph, "Cause" shall mean engaging
in fraud with respect to the Company or its customers,
misappropriation of property of the Company, or willful
conduct damaging to such property or business of the Company
regardless of whether such conduct occurs before or after
termination of employment with the Company, and/or a major
violation of the Company's conflict of interest or other
policies.
B. Exercise Price of Discretionary Options. The exercise price of
Shares issued under each Option shall be determined by the
Committee in its sole discretion and may be less than the Fair
Market Value of such Shares. However, in no event shall the
exercise price be less than 25% of the Fair Market Value of
such Shares at the date of grant.
VII. NONTRANSFERABILITY. No Option shall be transferable by an Optionee
except (A) by will or by the laws of descent and distribution; (B)
pursuant to a gift to such Optionee's children and immediate family
members, whether directly or indirectly or by means of a trust or
partnership or otherwise or (C) pursuant to a domestic relations order
6
<PAGE> 7
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
or qualified domestic relations order as such terms are defined by
ERISA and the Internal Revenue Code of 1986, as amended. Any transfer
or purported transfer in violation of this paragraph shall be void and
of no effect. All Options shall be exercisable during the Optionee's
lifetime only by the Optionee or by the guardian or legal
representative of the Optionee, it being understood that references to
the Optionee include the guardian and legal representative of the
Optionee and any person to whom an Option is transferred by will, by
gift, or by the laws of descent and distribution.
VIII. AMENDMENT OR TERMINATION OF THE PLAN. The Board in its discretion may
terminate the Plan at any time. The Board shall have the right to alter
or amend the Plan or any part thereof from time to time; provided, that
no change in any Option theretofore granted may be made which would
impair the rights of the Optionee without the consent of the Optionee.
IX. MUTUAL FUNDS. The Committee shall have the sole discretion to determine
the selection of mutual funds referred to herein and make all
determinations related thereto. Optionee is limited to four mutual fund
investments each Plan Year.
X. MUTUAL FUND OPTION PLAN ADMINISTRATOR. The Committee may appoint
an administrator for the Plan ("Mutual Fund Option Plan
Administrator"). The Mutual Fund Option Plan Administrator shall have
the authority to select, oversee, and remove the trustee of the Trust,
the Plan's record keeper, and any investment manager for the Trust.
XI. TIME FOR GRANTING OPTIONS. Except with respect to Options then
outstanding, if not sooner terminated under the provisions of Paragraph
VIII, the Plan shall terminate upon and no further Options shall be
granted after the expiration of ten (10) years from the date of its
adoption by the Board.
XII. UNFUNDED PLAN. Insofar as it provides for Option grants or rights
thereto, this Plan shall be unfunded for purposes of Title I of the
Employment Retirement Income Security Act of 1974 ("ERISA") and the
Internal Revenue Code of 1986. No Optionee shall have any security or
other interest in mutual funds or any asset of the Company. Although
bookkeeping accounts may be established with respect to Optionees who
defer compensation and are entitled to Options and related rights
thereto under this plan, any such accounts shall be used only as a
bookkeeping convenience. The Company shall not be required to segregate
any assets that may at any time be represented by amounts of
compensation deferred, Options or rights thereto, nor shall this Plan
be construed as providing for such segregation, nor shall the Company
nor the Board nor the Committee be deemed a trustee of any such amounts
deferred, Options or rights thereto. Insofar as
7
<PAGE> 8
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
the plan provides for deferrals of compensation and the granting of
Options and related rights thereto, Optionees have the status of
general unsecured creditors of the Company and the Plan constitutes a
mere promise by the Company to make payments or provide distributions
of Shares in the future. All proceeds from the exercise of Options
pursuant to the Plan shall be considered "extraordinary income" and
excludible from any qualified or nonqualified retirement plan benefit
calculation.
XIII. FUNDING OF OBLIGATIONS. Article XII above to the contrary
notwithstanding, the Company may fund all or part of its obligation
hereunder by transferring assets to a trust (the "Trust") if the
provisions of the trust agreement creating the Trust require the use of
the Trust's assets to satisfy claims of the Company's general unsecured
creditors in the event of the Company's insolvency or bankruptcy and
provide that no Optionee shall at any time have a prior claim to such
assets and that such trust shall not cause the Plan to be other than
"unfunded" for the purposes of ERISA. The assets of the Trust shall not
be deemed to be assets of this Plan.
XIV. EFFECTIVE DATE OF PLAN. The Plan shall take effect on July 1, 1998.
XV. NOTICE. Any written notice to the Company required by any of the
provisions of this Plan shall be addressed to the Secretary of the
Company and shall become effective when it is received by the Company.
XVI. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Texas and
construed accordingly.
XVII. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in this Plan
shall be construed to prevent the Company from taking 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 Option granted under the Plan. No employee,
beneficiary, or other person shall have any claim against the Company
as a result of such action.
XVIII. NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan shall
(I) confer upon any Optionee any right with respect to continuation of
employment with the Company or (ii) interfere in any way with the right
of the Company to terminate his or her employment at any time.
XIX. WITHHOLDING. To the extent that payment to an Optionee results in
compensation income to the employee for federal or state income tax
purposes, the Company is
8
<PAGE> 9
MITCHELL ENERGY & DEVELOPMENT CORP.
1998 MUTUAL FUND OPTION PLAN
authorized to withhold from any amount then or thereafter payable to
the Optionee any tax required to be withheld by reason of such
resulting compensation.
The Company has executed this Plan this ______ day of _______ 1998.
MITCHELL ENERGY & DEVELOPMENT CORP.
By:
-------------------------------------
Clyde N. Black, Vice President
Secretary:
- ----------------------------------
Thomas P. Battle, Senior Vice President
9
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